-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E27ugZQDGpssrCM8hGIXMNiqhJNVAMHWpZYp5clWps7FXjbSs6DF4Bw2ZCPomgGs XFfxC4ZKStFFkS8r7E6r2Q== 0000889812-99-003483.txt : 19991123 0000889812-99-003483.hdr.sgml : 19991123 ACCESSION NUMBER: 0000889812-99-003483 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 35 FILED AS OF DATE: 19991122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AES IRONWOOD LLC CENTRAL INDEX KEY: 0001099291 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541457573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-91391 FILM NUMBER: 99761723 BUSINESS ADDRESS: STREET 1: 305 PRESCOTT ROAD CITY: LEBANON STATE: PA ZIP: 17042 BUSINESS PHONE: 7172281328 MAIL ADDRESS: STREET 1: 305 PRESCOTT ROAD CITY: LEBANON STATE: PA ZIP: 17042 S-4 1 FORM S-4 REGISTRATION NO. 333 -[______] ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------ AES IRONWOOD, L.L.C. (Exact name of registrant as specified in its charter) DELAWARE 4930 54-145-7537 (State of incorporation (Primary Standard Industrial (I.R.S. Employer Identification or organization) classification Code Number) Number)
305 PRESCOTT ROAD CT CORPORATION SYSTEM LEBANON, PA 17042 111 EIGHTH AVENUE (717) 228-1328 NEW YORK, NY 10011 (Address, including zip code, and telephone number, (212) 894-8940 including area code, of registrant's principal (Name, address, including zip code, and telephone executive offices) number, including area code, of agent for service)
It is respectfully requested that the Commission send copies of all notices, orders and communications to: MICHAEL B. BARR HUNTON & WILLIAMS 1900 K STREET, NW WASHINGTON, DC 20006 (202) 955-1500 (202) 778-2201 (FAX) APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable following the effectiveness of this Registration Statement. If the Securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] ________ If this form is a post-effective amendment filed pursuant to Rule 462 (d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] ________ CALCULATION OF REGISTRATION FEE
============================================================================================================= PROPOSED PROPOSED TITLE OF EACH MAXIMUM MAXIMUM CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF SECURITIES TO BE BE PRICE PER OFFERING REGISTRATION REGISTERED REGISTERED UNIT (1) PRICE (1) FEE ============================================================================================================= 8.857% Exchange Senior Secured Bonds due 2025........ $308,500,000 100% $308,500,000 $85,763 =============================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f) under the Securities Act of 1933. ------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE COMPANY MAY NOT EXCHANGE THE BONDS UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THE NEW BONDS AND IT IS NOT A SOLICITATION OF AN OFFER TO BUY THE NEW BONDS IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED NOVEMBER 22, 1999 PROSPECTUS $308,500,000 AES IRONWOOD, L.L.C Offer to Exchange All Outstanding 8.857% Exchange Senior Secured Bonds due 2025 For All Old 8.857% Senior Secured Bonds due 2025 --------------- THE NEW BONDS: o Interest Payments: Interest on the new bonds will be payable quarterly in arrears on February 28, May 31, August 31 and November 30 of each year, beginning August 31, 1999. o Security: The new bonds are secured ratably with all of our other senior debt by a lien on and security interest in shared collateral, which consists of substantially all of our assets. In addition, the indenture accounts, the debt service reserve account and the debt service reserve letter of credit (other than to the extent of the debt service reserve letter of credit provider's right to specific proceeds thereunder) are separate collateral solely for the benefit of the holders of the new bonds. o Ranking: The new bonds rank pari passu in right of payment with all other present and future senior debt and senior in right of payment to all subordinated debt. o Listing: The new bonds will not be listed on any security exchange or Nasdaq. THE EXCHANGE OFFER: o Expiration: 5:00 p.m. New York City time on ______, 2000, unless otherwise extended. o Tendered Bonds: All old bonds that are validly tendered and not validly withdrawn at the expiration of the exchange offer will be exchanged for an equal principal amount of new bonds that are registered under the Securities Act of 1933. o Tax Consequences: The exchange of old bonds for new bonds will not be a taxable event for U.S. federal income tax purposes. You should carefully consider the risk factors beginning on page 16 of this prospectus before participating in the exchange offer or investing in the new bonds issued in the exchange offer. We are not making this exchange offer in any state or jurisdiction where it is not permitted. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------- The date of this prospectus is , 1999. TABLE OF CONTENTS Page ---- PROSPECTUS SUMMARY............................................................1 SUMMARY OF THE EXCHANGE OFFER.................................................4 SUMMARY OF THE TERMS OF THE NEW BONDS.........................................7 SUMMARY OF INDEPENDENT ENGINEER'S REPORT.....................................12 SUMMARY OF INDEPENDENT POWER CONSULTANT'S REPORT.............................15 RISK FACTORS.................................................................16 USE OF PROCEEDS..............................................................23 CAPITALIZATION...............................................................23 SELECTED FINANCIAL DATA......................................................24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION..................25 OUR BUSINESS.................................................................27 OUR MANAGEMENT...............................................................29 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................31 SUMMARY OF PRINCIPAL PROJECT CONTRACTS.......................................32 Page ---- ROLE OF THE INDEPENDENT ENGINEER.............................................66 THE EXCHANGE OFFER...........................................................68 DESCRIPTION OF THE NEW BONDS.................................................77 SUMMARY OF PRINCIPAL FINANCING DOCUMENTS.....................................85 PLAN OF DISTRIBUTION........................................................112 UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.............................112 LEGAL MATTERS...............................................................113 EXPERTS.....................................................................113 WHERE YOU CAN FIND MORE INFORMATION.........................................113 INDEX TO FINANCIAL STATEMENTS...............................................F-1 ANNEX A: GLOSSARY OF DEFINED TERMS.........................................A-1 ANNEX B: INDEPENDENT ENGINEER'S REPORT.....................................B-1 ANNEX C: INDEPENDENT POWER CONSULTANT'S REPORT.............................C-1 --------------- This prospectus is part of a registration statement we filed with the Securities and Exchange Commission. You should rely only on the information or representations provided in this prospectus. We have not authorized any person to provide information other than that provided in this prospectus. We are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus. Each broker-dealer that receives new bonds for its own account under the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new bonds. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new bonds received in exchange for old bonds where such old bonds were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, starting on the expiration date of the exchange offer and ending on the close of business 180 days after the expiration date, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "PLAN OF DISTRIBUTION." UK SELLING RESTRICTIONS The new bonds may not be offered or sold in or into the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses (or in other circumstances that do not constitute an offer to the public in the United Kingdom for the purposes of the Public Offers of Securities Regulations 1995), and this prospectus may only be issued or passed on to persons in the United Kingdom if such persons are of a kind described in article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or if such persons are persons to whom this prospectus may otherwise lawfully be issued or passed on. i PROSPECTUS SUMMARY This summary highlights selected information from this prospectus but does not contain all of the information that is important to you. To understand all of the terms of the exchange offer and to attain a more complete understanding of our business and financial situation, you should read carefully this entire prospectus. In this prospectus, the terms "Company," "we," "our," "ours," and "us" refer to AES Ironwood L.L.C. The term "AES" refers to The AES Corporation. The term "AES Ironwood, Inc." refers to AES Ironwood, Inc. The term "AES Prescott" refers to AES Prescott, L.L.C. The term "old bonds" refers to our senior secured bonds due 2025 that we issued on June 25, 1999. The term "new bonds" refers to the exchange senior secured bonds offered in the exchange offer. The term "bonds" refers to both the old bonds and the new bonds. For an explanation of specific technical terms used in this prospectus, please read "GLOSSARY OF TECHNICAL TERMS." Our Company, AES Ironwood, Inc. and AES Prescott Our Company was formed to develop, construct, own, operate and maintain a gas-fired electric generating power plant in Lebanon County, Pennsylvania. In this prospectus we refer to this power plant as "our Facility." We refer to the power plant (including its equipment and facilities) and its financing, development and construction (including the related contracts) as "our Project." All of the equity interests in our Company are owned by AES Ironwood, Inc., a wholly owned subsidiary of AES. AES Ironwood, Inc. currently has no operations outside of its activities in connection with our Project and does not anticipate undertaking any operations not associated with our Project. AES Ironwood, Inc. also owns all of the equity interests in AES Prescott, which will provide development, construction management and operations and maintenance services to us. AES Prescott has no operations outside of its activities in connection with our Project. The AES Corporation AES is a leading global power company committed to supplying electricity in a socially responsible way. AES sells and markets power from electric generating and distribution companies, largely through subsidiaries and affiliates. AES was one of the original entrants in the independent power market and today is one of the world's largest independent power companies based on net equity ownership of generating capacity (in megawatts) in operation or under construction. AES currently employs approximately 44,500 people around the world. As of December 31, 1998 and for the year then ended, AES had assets of approximately $10 billion, revenues of $2.4 billion and a net income before extraordinary items of $311 million. AES currently owns or has an interest in 108 power facilities totaling over 36,000 megawatts in 16 countries including the United States, Canada, Australia, Argentina, Brazil, the Dominican Republic, India, Pakistan, Panama, the Netherlands, Hungary, Kazakhstan, Mexico, China and the United Kingdom. Approximately 25% of the AES power generation operating portfolio consists of gas-fired electric generating facilities. In addition to our Facility, AES is currently in the process of adding 5,594 megawatts to its operating portfolio. AES also owns interests in 14 distribution companies in eight countries that sell electricity directly to commercial, industrial, governmental and residential customers. Those distribution companies serve approximately 15 million customers. In addition, AES recently acquired CILCORP, Inc., the parent company of Central Illinois Light Company, a regulated utility. Both of those companies are now wholly owned subsidiaries of AES. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Our Facility Our Facility consists of a 705 megawatt (net) gas-fired combined cycle electric generating facility with oil-firing capability. Our Company will sell all of our Facility's capacity, and provide fuel conversion and ancillary services, to Williams Energy Marketing & Trading Company (the "Power Purchaser") under a long-term power purchase agreement. After the expiration of the 20-year term of the power purchase agreement, we will enter into other power purchase agreements or operate our Facility as a merchant plant. Our Facility will be located in South Lebanon Township, Lebanon County, Pennsylvania on property owned by our Company. Our Facility will be designed, engineered, procured and constructed for us by Siemens Westinghouse Power Corporation (the "Contractor") under a fixed-price, turnkey construction agreement. The Contractor is a wholly owned subsidiary of Seimens Corporation which is, in turn, a wholly owned subsidiary of Seimens A.G. Among other components, our Facility will use two Siemens Westinghouse model 501G combustion turbines with hydrogen-cooled 1 generators, two unfired heat recovery steam generators and one multicylinder steam turbine with a hydrogen-cooled generator. The Contractor will provide us with specific combustion turbine maintenance services and spare parts for an initial term of between 8 and 10 years (depending on the timing of scheduled outages) under a maintenance service agreement. Under the power purchase agreement, the Power Purchaser or its affiliates will supply fuel necessary to allow us to provide capacity, fuel conversion and ancillary services to the Power Purchaser. AES Prescott will provide development, construction management and operations and maintenance services for our Facility under an operations agreement. We will provide installation, operation and maintenance of facilities necessary to interconnect our Facility to Metropolitan Edison Company's transmission system under an interconnection agreement. Power Purchase Agreement and Related Security Under the terms of the power purchase agreement, our Company will, for a term of 20 years beginning on the commercial operation date of our Facility, sell all of our Facility's net capacity, and provide fuel conversion and ancillary services to the Power Purchaser. The Power Purchaser is obligated to pay us for our Facility capacity, which payments are expected to be adequate to cover our debt service and our fixed operation and maintenance costs and, at the same time, provide us a return on equity. The Power Purchaser will be obligated to pay us whether or not the Power Purchaser requires our Facility to generate energy and even if the Power Purchaser is unable to take any energy, so long as our Facility is available for operation. The Power Purchaser is also obligated to supply us with all of the fuel necessary to provide net capacity, ancillary services and fuel conversion services to the Power Purchaser. The Williams Companies, Inc. will provide us with a guaranty of the Power Purchaser's payment obligations to us under the power purchase agreement and to pay damages if the Power Purchaser fails to pay us. Williams' payment obligations under the guaranty are capped at an amount equal to 125% of the sum of the principal amount of the new bonds plus the maximum debt service reserve account required balance. We have provided to the Power Purchaser a guaranty issued by AES of specific payment obligations if our Facility does not achieve commercial operation by the date specified in the power purchase agreement. AES's liability under the guaranty is capped at $30 million. We may at our option, and under specific conditions described in the power purchase agreement, we will be required to, replace the guaranty issued by AES with a letter of credit issued by a commercial bank, and the repayment obligations with respect to drawings under such letter of credit will be a senior debt obligation of our Company. Construction Agreement and Related Guaranty Under a construction agreement, the Contractor will design, engineer, procure and construct our Facility on a fixed-price, turnkey basis. The Contractor's obligations under the construction agreement will be guaranteed by Siemens Corporation. The contract price payable to the Contractor is to be paid in installments in accordance with the payment and milestone schedule included in the construction agreement. The contract price may be adjusted as set forth in the construction agreement, including as a result of unexpected or uncontrollable events or modifications to the scope of work to be provided by the Contractor. The Contractor has guaranteed that our Facility will be mechanically complete and specific performance requirements will be satisfied by the date which is 23-1/2 months after our Company has given full notice to proceed to the Contractor, which we did on June 8, 1999. If our Facility does not satisfy the applicable completion requirements by the date guaranteed by the Contractor and such failure is not excused in accordance with the terms of the construction agreement, the Contractor will be obligated to pay us delay liquidated damages in the amounts specified in the construction agreement. The Contractor has guaranteed specific availability levels for our Facility and if those levels are not demonstrated during a 45-day period before final acceptance of our Facility by us, we may withhold specified payments to the Contractor. The Contractor has also guaranteed specific output and heat rate performance levels for our Facility on natural gas and fuel oil, which if the Contractor cannot meet may result in the Contractor having to pay us performance liquidated damages in the amounts specified in the construction agreement. The total liability of the Contractor for delays in completion, together with its liability for any performance shortfalls, is limited in the aggregate to an amount equal to 45% of the contract price. The construction agreement also contains a sub-limit on the Contractor's liability for delays in completion of our Facility in an amount equal to 20% of the contract price. The total aggregate cap on liability of the Contractor under the construction agreement (including the liquidated damages we have discussed, but excluding specified indemnity obligations) is limited to an amount not to exceed the contract price, as adjusted. Maintenance Services Agreement Under a maintenance services agreement, the Contractor will provide our Company with specific combustion turbine parts, shop repairs of combustion turbine parts and scheduled outage technical field assistance services. We will 2 pay for such parts, repairs and services on a monthly basis, in an amount to be determined based on the number of equivalent baseload hours accumulated by our Facility. The maintenance services agreement includes specific warranties applicable to the combustion turbine parts and shop repairs provided under the agreement, and if a combustion turbine part supplied fails to conform to the applicable warranty, the Contractor either must replace that non-conforming part at its cost and expense (if the non-conformity arose during the applicable warranty period) or credit us for the purchase of future combustion turbine parts (if the non-conformity arose after the applicable warranty period but before to the expiration of the expected useful life of that combustion turbine part). The maintenance services agreement will remain in effect in respect of a combustion turbine until 10 years from its initial synchronization or its eighth planned outage, whichever occurs first. Operations Agreement Under an operations agreement, AES Prescott will provide development and construction management services and, after the commercial operation date, operating and maintenance services for our Facility for a period of 27 years. AES Prescott will be responsible for, among other things, preparing plans and budgets related to start-up and commercial operation of our Facility, providing qualified operating personnel, making repairs, purchasing consumables and spare parts (not otherwise provided under the maintenance services agreement) and providing other services as needed according to industry standards. AES Prescott will be compensated for these services on a cost plus fixed-fee basis. The fixed-fee portion of the payments will be subordinated to the payment of other operation and maintenance costs, debt service on senior debt and deposits into the debt service reserve and major maintenance reserve accounts. Under a services agreement between AES Prescott and AES, AES will provide to AES Prescott all of the personnel and services necessary for AES Prescott to comply with its obligations under the operations agreement. Interconnection Agreement Under an interconnection agreement, our Company will install, operate and maintain the facilities necessary to interconnect our Facility to Metropolitan Edison Company's transmission system. We will be responsible for all of the costs of construction and operation and maintenance of the interconnection facilities. The Power Purchaser has agreed to pay for specific costs of the interconnection facilities and transmission system reinforcements necessary to connect our Facility to Metropolitan Edison Company's transmission system and to transport our Facility's output. Metropolitan Edison Company must complete its portion of the interconnection facilities and specific transmission system reinforcements necessary to permit dispatch of the full output of our Facility by August 31, 2000. Under the Energy Policy Act of 1992, transmission owners are required to provide open access to their transmission systems on terms at least as favorable as they provide to themselves and their affiliates. -------------------- We are a Delaware limited liability company with principal executive offices located at 305 Prescott Road, Lebanon, Pennsylvania 17042. Our telephone number is (717) 228-1328. 3 SUMMARY OF THE EXCHANGE OFFER We summarize the terms of the exchange offer below. You should read the discussion under the heading "THE EXCHANGE OFFER" beginning on page 68 for further information regarding the exchange offer and resale of the new bonds. The Exchange Offer: We are offering to exchange up to $308,500,000 aggregate principal amount of new bonds, which have been registered under the Securities Act, for up to $308,500,000 aggregate principal amount of old bonds, which were issued by us on June 25, 1999 in a private offering. In order for your old bonds to be exchanged, you must properly tender them prior to the expiration of the exchange offer. All old bonds that are validly tendered and not validly withdrawn will be exchanged. We will issue new bonds on or promptly after the expiration of the exchange offer. Old bonds may be exchanged for new bonds only in integral multiples of $1,000. Registration Rights Agreement: We sold the old bonds on June 25, 1999 to the initial purchasers of the old bonds. Simultaneously with that sale we signed a registration rights agreement with the initial purchasers which requires us to conduct this exchange offer. You have the right pursuant to the registration rights agreement to exchange your old bonds for new bonds with substantially identical terms. This exchange offer is intended to satisfy this right. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your old bonds. Consequences of Failure to Exchange Your Outstanding Bonds: If you do not exchange your old bonds for new bonds pursuant to the exchange offer, you will continue to be subject to the restrictions on transfer provided in the old bonds and the indenture. In general, the old bonds may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently plan to register the old bonds under the Securities Act. To the extent that old bonds are tendered and accepted in the exchange offer, the trading market for untendered and tendered but unaccepted old bonds will be adversely affected. Expiration Date: The exchange offer will expire at 5:00 p.m., New York City time, on ______, 2000, or such later date and time to which we extend it, in which case the term "expiration date" shall mean the latest date and time to which the exchange offer is extended. Withdrawal of Tenders: You may withdraw your tender of old bonds at any time prior to the expiration date by delivering written notice of your withdrawal to the exchange agent in accordance with the withdrawal procedures set forth in this prospectus. We will return to you, without charge, promptly after the expiration or termination of the exchange offer any old bonds that you tendered but that were not accepted for exchange. The new bonds will be issued on or promptly after the expiration date. Conditions to the Exchange Offer: We will not be required to accept old bonds for exchange if the exchange offer would violate applicable law or any legal action has been instituted or threatened that would impair our ability to proceed with the exchange offer. The exchange offer is not conditioned upon any minimum aggregate principal amount of old bonds being tendered. We reserve the right to terminate the exchange offer if certain specified conditions have not been satisfied and to waive any condition or otherwise amend the terms of the exchange offer in any respect. Please read the section "THE EXCHANGE OFFER--Conditions to the Exchange Offer" on page 68 for more information regarding the conditions to the exchange offer. 4 Procedures for Tendering Old Bonds: If your old bonds are held through The Depository Trust Company and you wish to participate in the exchange offer, you may do so through the automated tender offer program of The Depository Trust Company. If you tender under this program, you will agree to be bound by the letter of transmittal that we are providing with this prospectus as though you had signed the letter of transmittal. By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things: o any new bonds that you receive will be acquired in the ordinary course of your business; o you have no arrangement or understanding with any person or entity to participate in the distribution of the new bonds; o you are not engaged in and do not intend to engage in the distribution of the new bonds; o if you are a broker-dealer that will receive new bonds for your own account in exchange for old bonds, you acquired those bonds as a result of market-making activities or other trading activities and you will deliver a prospectus, as required by law, in connection with any resale of such new bonds; and o you are not our "affiliate," as defined in Rule 405 of the Securities Act. Please do not send your letter of transmittal or certificates representing your old bonds to us. Those documents should only be sent to the exchange agent. Questions regarding how to tender and requests for information should be directed to the exchange agent. Special Procedures for Beneficial Owners: If you own a beneficial interest in old bonds that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender the old bonds in the exchange offer, you should contact the registered holder promptly and instruct the registered holder to tender on your behalf. Consequences of Not Complying with Exchange Offer Procedures: You are responsible for complying with all exchange offer procedures. You will only receive new bonds in exchange for your old bonds if, prior to the expiration date, you deliver to the exchange agent the letter of transmittal, properly completed and duly executed, along with any other documents or signature guarantees required by the letter of transmittal, as well as certificates for the old bonds or a book-entry confirmation of a book-entry transfer of the old bonds into the exchange agent's account at The Depository Trust Company. Any old bonds you hold and do not tender, or which you tender but which are not accepted for exchange, will remain outstanding. You will not have any appraisal or dissenters' rights in connection with the exchange offer. You should allow sufficient time to ensure that the exchange agent receives all required documents before the expiration of the exchange offer. Neither we nor the exchange agent has any duty to inform you of defects or irregularities with respect to the tender of your old bonds for exchange. Guaranteed Delivery Procedures: If you wish to tender your outstanding bonds and cannot comply, prior to the expiration date, with the applicable procedures under the automated tender offer program of The Depository Trust Company, you must tender your outstanding bonds according to the guaranteed delivery procedures described in "THE EXCHANGE OFFER-Guaranteed Delivery Procedures" beginning on page 68. 5 U.S. Federal Income Tax Consideration: The exchange of old bonds for new bonds in the exchange offer will not be a taxable event for U.S. federal income tax purposes. Please read "UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS" on page 112. Use of Proceeds: We will not receive any cash proceeds from the issuance of new bonds. We intend to use the net proceeds from the sale of the old bonds, together with an approximately $50 million equity contribution, to: o fund the engineering, procurement, construction, testing and commissioning of the Facility; o pay certain fees and expenses in connection with the financing and development of the Project; and o pay Project costs, including interest on the bonds. Risk Factors: See "RISK FACTORS" for a discussion of factors which bondholders should consider prior to exchanging old bonds for new bonds. The Exchange Agent We have appointed The Bank of New York as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent addressed as follows: The Bank of New York, 101 Barclay Street, 7E, New York, New York 10286; (212) 815-5988. Eligible institutions may make requests by facsimile at (212) 815-6339. 6 SUMMARY OF THE TERMS OF THE NEW BONDS The exchange offer relates to the exchange of up to $308,500,000 principal amount of new bonds for an equal principal amount of old bonds. The form and terms of the new bonds are substantially identical to the form and terms of the old bonds, except the new bonds will be registered under the Securities Act. Therefore, the new bonds will not bear legends restricting their transfer and will not be entitled to registration under the Securities Act. The new bonds will evidence the same debt as the old bonds, which they replace, and both the old bonds and the new bonds are governed by the same indenture. Issuer: AES Ironwood, L.L.C. Securities Offered: $308,500,000 aggregate principal amount of 8.857% Exchange Senior Secured Bonds due 2025. Interest: Our Company will pay interest on the new bonds quarterly in arrears on each February 28, May 31, August 31 and November 30, beginning on the first payment date after the last date to which interest has been paid. Final Maturity Date: November 30, 2025. Principal Repayment: Our Company will pay principal on the new bonds in installments quarterly on each February 28, May 31, August 31 and November 30, commencing February 28, 2002 to the registered owners on the immediately preceding record date as set forth under "DESCRIPTION OF THE NEW BONDS--Payment of Interest and Principal." Ratings: The new bonds are expected to be rated "BBB-" from S&P and "Baa3" from Moody's, the same ratings borne by the old bonds. See "DESCRIPTION OF THE NEW BONDS--Ratings." Summary of Coverage Ratios: You will find projected coverage ratios with respect to the bonds in the projections included in the Independent Engineer's Report, which we have attached as Annex B, and these ratios are subject to the qualifications, limitations and exclusions set forth in the Independent Engineer's Report. The following ratios reflect the base case assumptions set forth in the Independent Engineer's Report.
Post-Power During Power Purchase Full Term Purchase Agreement of the Bonds Agreement Term Period ------------ -------------- --------- Debt Service Coverage Minimum................... 1.45 1.45 5.77 Average................... 2.30 1.46 5.81 Interest Coverage Minimum................... 1.58 1.58 18.45 Average................... 11.13 2.59 47.03
As set forth in the Independent Engineer's Report, these projections are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated. We cannot assure that these projected coverage ratios will be achieved. See "ANNEX B: INDEPENDENT ENGINEER'S REPORT" and "RISK FACTORS." Optional Redemption: We may redeem any of the new bonds, in whole or in part, at any time at a redemption price equal to: 7 o 100% of the principal amount; plus o accrued interest; plus o a Make-Whole Premium calculated using a discount rate equal to the interest rate on comparable U.S. Treasury securities plus 50 basis points. Mandatory Redemption: We must redeem all of the new bonds, in whole or in part, at a redemption price equal to 100% of the principal amount plus accrued interest if: o our Company receives casualty proceeds, eminent domain proceeds or specific performance liquidated damages from the Contractor under the construction agreement; and o in each case, specified additional conditions are satisfied. We must redeem all of the new bonds, in whole or in part, at a redemption price equal to 100% of the principal amount plus accrued interest if our Company receives proceeds under the Williams Guaranty if we terminate the power purchase agreement as a result of an event of default by the Power Purchaser. See "DESCRIPTION OF THE NEW BONDS--Mandatory Redemption." Resale of the Exchange Senior Bonds: Our Company believes that beneficial interests in the new bonds may be offered for resale, resold and otherwise transferred by most owners thereof without further compliance with the registration and prospectus delivery requirements of the Securities Act; provided that: o you are acquiring the new bonds in the ordinary course of your business; o you are not participating, and have no arrangement or understanding with any person to participate, in the distribution of the new bonds; and o you are not an insider or a related party of AES Ironwood, L.L.C. This belief is based upon existing interpretations of the staff of the SEC's Division of Corporation Finance set forth in several no-action letters issued to third parties unrelated to us and subject to important restrictions described in "EXCHANGE OFFER--Purpose and Effect of the Exchange Offer." We do not intend to seek our own no-action letter. If our belief is not accurate and you transfer a new bond without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from such requirements, you may incur liability under the Securities Act. We do not and will not assume or indemnify you against such liability. There can be no assurance that the staff of the SEC's Division of Corporation Finance would make a similar determination about the new bonds as it has in no-action letters about exchanges of the securities of other companies. Each broker-dealer that receives new bonds for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of those new bonds. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with those resales. Old bonds that are not tendered for exchange will continue to be subject to transfer restrictions and will not have registration rights. Therefore, the market for secondary resales of any old bonds that are not tendered for exchange is likely to be minimal. Equity Contributions: Our Company and AES Ironwood, Inc. have entered into an equity subscription agreement under which AES Ironwood, Inc. agreed to contribute up to $50,149,285 to our Company to fund Project Costs. AES Ironwood, Inc.'s obligation under the equity subscription agreement will be supported by an acceptable letter of credit or an acceptable bond. AES Ironwood, Inc. will fund amounts available under the equity subscription agreement when all funds in the construction account have been used or during the continuation of an event of default under 8 the indenture, whichever occurs first. We have the option of treating a portion or all of the equity contribution as affiliate subordinated debt. Subject to the conditions set forth in the equity subscription agreement and the collateral agency agreement (including achievement of final completion of our Facility, funding of all required amounts and deposits under the collateral agency agreement and absence of any default), any equity which remains committed under the equity subscription agreement but unfunded after the Commercial Operation Date may be canceled. Ranking: The new bonds: o rank equally in right of payment with all other present and future senior debt; and o rank senior in right of payment to all subordinated debt. Collateral: The new bonds will be secured ratably with all other senior debt of our Company by a lien on and security interest in the collateral. o The indenture accounts, the debt service reserve account and the debt service reserve letter of credit (other than to the extent of the letter of credit provider's right to specific proceeds) will constitute separate collateral solely for the benefit of the holders of the bonds. o The collateral for the benefit of holders of senior debt (including holders of the new bonds) will include: o all revenues of our Company; o the project accounts (other than the debt service reserve account); o all real and personal property of our Company; o proceeds of insurance, condemnation and liquidated damages payments, if any; o all project contracts; o all ownership interests in our Company; and o the equity contribution and all rights under the equity subscription agreement. See "RISK FACTORS." Limited Recourse: All obligations in connection with the new bonds will be obligations solely of our Company. The bondholders will have no claim against or recourse to the holders of our ownership interests or any of our affiliates or any of their incorporators, stockholders, directors, officers or employees for the repayment of the new bonds, except to the extent of their obligations under the transaction documents, including the equity contribution and the pledge of AES Ironwood, Inc.'s ownership interests in our Company. Debt Service Reserve Account: We will be required to fund or provide for the funding of a debt service reserve account on the commercial operation date, the guaranteed completion date or December 31, 2002, whichever occurs first, in an amount sufficient to pay principal and interest due on the bonds on the next two payment dates plus, if we provide a letter of credit in lieu of funding the debt service reserve account, six months of interest on the maximum amount of the letter of credit. We anticipate satisfying this requirement by providing a letter of credit issued by Dresdner Bank AG, New York Branch or another financial institution rated at least "A" by S&P and "A2" by Moody's. Change in Control: While the new bonds are outstanding, the indenture requires AES to maintain directly or indirectly at least 51% of both of the voting and economic interests in our Company. If AES desires to reduce its voting or economic interest in our Company below 51%, either we must receive confirmation of the initial ratings of the bonds or the holders of at least 66-2/3% in aggregate principal amount of the bonds must approve the change in ownership. Other Principal Covenants: The indenture contains limitations on, among other actions: o incurring additional indebtedness; o granting liens on our Company's property; 9 o distributing equity and paying subordinated indebtedness issued by affiliates of our Company; o entering into transactions with affiliates; o amending, terminating or assigning of project contracts; and o fundamental changes or disposition of assets. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Indenture--Negative Covenants." Form, Denomination and Registration of Bonds: New bonds will be issued in fully registered form without coupons in denominations of U.S.$100,000 and any integral multiple of US$1,000 in excess thereof and will be represented by one or more global bonds, each registered in the name of a nominee of DTC. Beneficial interests in the global bonds will be shown on, and transfers thereof will be effected only through, the book-entry records maintained by DTC and its direct and indirect participants, including Euroclear and Cedel. Governing Law: The new bonds, the indenture and the other principal financing documents, other than the mortgage, are governed by the laws of the State of New York. The mortgage is governed by the laws of the Commonwealth of Pennsylvania. Intercreditor Arrangements: The collateral agency agreement requires the vote of senior parties holding at least 33-1/3% of the combined exposure to direct specified actions of the collateral agent, including the exercise of remedies following an event of default under the debt service reserve letter of credit and reimbursement agreement, the construction period letter of credit and reimbursement agreement or the indenture or a bankruptcy event with respect to our Company. The bonds will represent approximately 95% (without giving effect to any construction period letter of credit) of the combined exposure, and, in respect of matters voted on by the senior parties, the trustee will vote all bonds according to the votes of a majority of bondholders voting. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Collateral Agency Agreement." Accounts and Flows of Funds: Following the commercial operation date, project revenues will be deposited in accounts established under the financing documents and held by the trustee and the collateral agent. In most circumstances, operating revenues will be applied in the following order: o operating and maintenance costs (including any working capital loans); o fees, costs and expenses of the trustee, collateral agent, debt service reserve letter of credit provider and on any construction period letter of credit provider; o interest payments on the bonds, debt service reserve letter of credit loans and on any construction period letter of credit loans; o principal payments on the bonds and on any construction period letter of credit loans; o replenishment of the debt service reserve account and principal payments on debt service reserve letter of credit loans; o required deposits in the major maintenance reserve account; o non-dispatch payments to the Power Purchaser; o fuel conversion volume rebate payments to the Power Purchaser; o subordinated bonuses to the Contractor, if any; o repayment of third-party subordinated debt; and o subject to the restricted payments test, permitted distributions to persons holding ownership interests in our Company. Under circumstances involving a termination or non-renewal of the debt service reserve letter of credit or specified delays in repayment of the principal amount of debt service reserve letter of credit loans, principal repayments of drawings on the debt service reserve letter of credit will be made at the same priority as principal on the new bonds. Under certain circumstances, if no default or event of default under the indenture is continuing, we may from time to time withdraw funds then deposited in specified accounts established under the financing documents so long as we provide to the collateral agent acceptable credit support to ensure repayment of the withdrawn 10 funds. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Collateral Agency Agreement--Payments During Operating Period" and "--Advances." Independent Engineer: The Independent Engineer is responsible for confirming the reasonableness of specific statements and projections made in specified certificates required to be provided, including with respect to: o satisfaction of specific requirements under the construction agreement; o the cost of and occurrence of the completion of rebuilding, repairing or restoring our Facility following an event of loss or event of eminent domain; o under specified circumstances, the calculation of debt service coverage ratios and the consistency of assumptions made in connection therewith; o whether any termination, amendment or modification of any project contract would reasonably be expected to have a material adverse effect; and o specified tests required for the issuance of additional debt. Risk Factors: You should carefully consider "RISK FACTORS" on page 16 before participating in the exchange offer. 11 SUMMARY OF INDEPENDENT ENGINEER'S REPORT Stone & Webster Management Consultants, Inc., with the assistance of Stone & Webster Engineering Corporation, has prepared the Independent Engineer's Report concerning specific technical, environmental and economic aspects of our Facility. We have attached the Independent Engineer's Report as Annex B to this prospectus. Stone & Webster is a leading consulting engineering firm which devotes a substantial portion of its resources to providing services related to the technical, environmental and economic aspects of power projects. The Independent Engineer's Report includes, among other things, a conceptual design review of our Facility, a review of the significant project contracts and a review of financial projections, including annual revenues, expenses and debt service coverage for our Facility during the period the bonds are scheduled to remain outstanding. For purposes of reviewing the projected operating results, Stone & Webster relied on specific assumptions regarding material contingencies and other matters that are not within the control of our Company, Stone & Webster or any other person. These assumptions are inherently subject to significant uncertainties, and actual results will differ, perhaps materially, from those projected. See "RISK FACTORS." Subject to the information contained, and the assumptions and qualifications made, in the Independent Engineer's Report. Stone & Webster expressed the opinions that: 1. Our Facility design, as specified in the construction agreement, is in accordance with standard industry practice. The Contractor possesses the organization and personnel to execute its obligations under the construction agreement and the maintenance services agreement, and is familiar with the construction and maintenance of large electrical generation facilities. Our Project construction schedule proposed by the Contractor is achievable and is consistent with the terms of the power purchase agreement. 2. Stone & Webster views the 501G combustion turbine as an advancement in high-temperature advanced technology combustion turbines for the Contractor and is typical of the normal design evolution for manufacturers. Many of the design concepts incorporated in the 501G are rooted firmly in the 501 series and are complemented by improvements which have been tested in the 501F series or predicted by extensive modeling or full scale testing. The first 501G unit is expected to begin commercial operation later in 1999. The various 501G components and designs have been individually shop tested and computer analyzed. The Contractor's 501G is gaining commercial acceptance as demonstrated by the fact that 17 of the Contractor's 501Gs have been sold to date in the United States. 3. The combustion turbines for our Project are scheduled to become the third and fourth 501Gs in operation. As a result, our Project will benefit from approximately 25 months of facility start-up, extensive testing and operating experience of the first installation of 501Gs (McIntosh Project) and approximately nine months of such experience from the second installation of 501Gs (Millenium Project). Because the 501G has no commercial operating experience, the initial unit availability of the 501G may be lower in the early years of operation than is the case with combustion turbine units currently in operation that use mature technology. Lower initial unit availability has been reflected in the base case and a sensitivity case has been included in the projected operating results utilizing lower availability than that set forth in the base case. 4. A sustained period of commercial operation at full load conditions followed by an inspection of the combustion turbine is necessary to predict with any certainty the types of start-up and operational problems, if any, that the 501G may encounter. However, our Project will benefit from the start-up testing and inspection programs implemented by the Contractor at the McIntosh and Millenium units. The Contractor has also invested in, and has stated that it will make available to our Project, a complete set of risk parts for the entire combustion turbine gas path. In addition, under the maintenance services agreement, the Contractor will provide combustion turbine spare parts to our Project. This full set of gas path risk parts to be made available by the Contractor and the maintenance services agreement long term spare parts program will minimize the duration of any unscheduled combustion turbine-related outages that require the replacement of parts by having the most commonly replaced parts readily available. In addition, the Contractor has the resources and capabilities to resolve any problem that may arise with the 501Gs. 5. The steam turbine and electrical generator designs are acceptable and in accordance with standard industry practice. 12 6. If designed and constructed in accordance with the construction agreement and operated and maintained in accordance with the maintenance services agreement and the operations agreement, our Facility should be capable of meeting the net output contract requirements specified in the projected operating results. 7. The liquidated damages provisions of the construction agreement are reasonable. The one-year warranty period is acceptable based on the commercial terms of the construction agreement in conjunction with the one-year warranty in the maintenance services agreement. These two agreements, although independent, are complementary and afford our Project a greater degree of protection than is available from the construction agreement alone. Under both agreements, the Contractor is obligated to notify AES Ironwood of any engineering or design defects that may be manifested in any of the Contractor's fleet of 501Gs. In addition, the risk of a component failure occurring after the one year construction agreement warranty is mitigated because the projected operating results indicate our Project will have adequate revenues to insure the purchase of components that can be reasonably assumed to require replacement. Component failures associated with casualty events are generally covered by insurance policies. The performance testing plan, as specified in the construction agreement, is acceptable, customary and should adequately demonstrate our Project's performance. 8. The Power Purchaser possesses the organization and personnel to execute its obligations under the power purchase agreement and is familiar with the provision of fuel to, and purchase of electricity from, large electrical generation facilities. 9. Williams has executed specific agreements with Texas Eastern Transmission Corporation ("TETCO") to provide natural gas delivery services to AES Ironwood, Inc. These agreements require TETCO to construct, own and operate an approximate three-mile pipeline from the TETCO mainline to our Facility. Stone & Webster has not, however, independently verified the design of the natural gas pipeline which will interconnect our Facility to the interstate gas pipeline that will serve our Facility nor its proposed construction schedule. 10. Our Facility can feasibly be electrically integrated into the PJM power pool market, and no known transmission limitations will inhibit the feasible evacuation of our Facility's full net capacity both under summer and winter conditions. 11. Stone & Webster will independently verify the design of the make-up water supply pipeline when it becomes available. The proposed pipeline construction schedule appears reasonable and achievable. Stone & Webster does not know of any reason why the City of Lebanon Authority should be unable to perform its obligations under the effluent supply agreement. 12. AES Prescott, as an affiliate of AES and with the assistance of the Contractor under the terms of the maintenance services agreement, should be capable of operating and maintaining our Facility in accordance with standard industry practices. 13. The technical requirements described in the project contracts are comprehensive, reasonable and achievable as well as consistent within and between the various documents. 14. The Phase I environmental site assessments conducted by an independent environmental consultant which indicated no significant environmental issues were performed in accordance with standard industry practice and their results appear reasonable. 15. A majority of our Project's required permits have been acquired and our Project's permit acquisition plan for those permits not yet required is reasonable. 16. Our Company has received a determination that our Facility is an exempt wholesale generator under the applicable rules of the Federal Energy Regulatory Commission. 17. Assuming our Facility is constructed, operated and maintained in accordance with the terms of the construction agreement, the power purchase agreement, the operations agreement and the maintenance services agreement, then it is reasonable to assume that our Facility will be able to operate in a manner consistent with applicable permit limits for a period at least equal to the term of the bonds. 18. The construction agreement price is competitive relative to similar facilities and our Project's proposed operating and maintenance expenses are consistent with other comparable projects. 13 19. The technical assumptions utilized in the Hagler Bailly PJM Market Study Analysis are reasonable. 20. Stone & Webster reviewed the technical and commercial assumptions and the calculation methodology of our Project financial pro forma model. The technical assumptions assumed in the projected operating results are reasonable and are consistent with the project contracts. The financial pro forma model fairly presents, in Stone & Webster's judgment, projected revenues and projected expenses under the base case assumptions. Therefore, the projected operating results are a reasonable forecast of our Company's financial results under the base case assumptions. 21. The principal amount of the bonds, when combined with the equity contributions and interest earned during the construction period, should be sufficient to pay the costs of constructing our Project and interest on the bonds through the end of the construction period. 22. The projected revenues from the sale of capacity are more than adequate to pay the annual operating and maintenance expenses (including provisions for major maintenance), other operating expenses and debt service based on Stone & Webster's studies and analyses of our Project and the assumptions set forth in the Independent Engineer's Report. The average and minimum debt service coverage ratios for the full term of the bonds are 2.30x and 1.45x, respectively. The average and minimum debt service coverage ratios during the term of the power purchase agreement are 1.46x and 1.45x, respectively. The average and minimum debt service coverage ratios during the post-power purchase agreement period for the debt are 5.81x and 5.77x, respectively. 23. Assuming deficiencies of up to 6% for heat rate and 5% for capacity, the average debt service coverage ratios, over the term of the bonds, after payment of liquidated damages due to a failure to achieve heat rate and capacity guarantees, are projected to remain approximately the same as the debt service coverage ratios in the base case. The Independent Engineer's Report should be read by all prospective investors in its entirety. 14 SUMMARY OF INDEPENDENT POWER CONSULTANT'S REPORT Hagler Bailly Consulting, Inc. (or the "Independent Power Consultant") has prepared the Independent Power Consultant's Report, which we have attached as Annex C to this prospectus. Hagler Bailly is an independent consulting firm which provides various energy-related consulting services, including services related to the marketing and fuel supply aspects of power projects. The Independent Power Consultant's Report includes, among other things, o a forecast of our Facility's dispatch profile during the period after the end of the power purchase agreement term and o a forecast of electric energy prices during the power purchase agreement term and electric energy and capacity prices during the period after the end of the power purchase agreement term. Subject to the information contained, and the assumptions and other limitations stated, in the Independent Power Consultant's Report, including the qualifications set forth in the forward of such report, Hagler Bailly has expressed the opinions (among others) that: 1. Our Facility's dispatch position on the supply curve will be highly competitive and well below the highest priced baseload coal plant during the period after the end of the power purchase agreement term (and during the term of the power purchase agreement) due to our Facility's high efficiency, low production costs and the influence of demand growth in conjunction with unit retirements. 2. Our Facility is expected to have an average capacity factor of 90.7% during the period after the end of the power purchase agreement term. The addition of new, more efficient gas-fired power generation facilities in PJM power pool market over time will not affect our Facility's dispatch. 3. Even in the two macroeconomic "downside sensitivity" cases of low demand growth and high gas prices, our Facility's average capacity factor remains significantly high at 89.6% during the period after the end of the power purchase agreement term. 4. During the term of the power purchase agreement, the economics of our Project are not sensitive to fuel prices because the costs of fuel are the responsibility of the power purchaser under the power purchase agreement's fuel tolling provisions. The Independent Power Consultant's Report, including the qualifications set forth in the forward of such report, should be read by all bondholders in its entirety. 15 RISK FACTORS Before tendering your old bonds for new bonds or investing in the new bonds, you should be aware that there are various risks involved in your investment. We have discussed below the material risks that you should consider in making your investment decision. You should consider carefully these risk factors, together with all of the other information included in this prospectus. IF THE COMMERCIAL OPERATIONS OF OUR FACILITY ARE SIGNIFICANTLY DELAYED, OR ARE OTHERWISE UNABLE TO GENERATE SUFFICIENT CASH FLOW, WE MAY NOT BE ABLE TO PAY OUR OPERATING EXPENSES OR SERVICE THE BONDS. Construction of our Facility currently is scheduled to be completed within 23-1/2 months from the date the Contractor receives a full notice to proceed under the construction agreement. Our Company will not receive any material revenues unless and until our Facility achieves commercial operation. Once our Facility commences operation, principal and interest on the bonds will be payable principally from revenues received by us under the power purchase agreement. Operation and maintenance expenses of our Facility generally are payable before payment of debt service with respect to the bonds. No representation or assurance can be made that our Facility will be successfully constructed or that, if our Facility is successfully constructed, revenues will be sufficient to pay the operation and maintenance expenses of our Facility and principal of and interest on the bonds. We have no assets other than our Facility, the project contracts and other assets and contract rights related to our Facility. Until our Facility commences operation, debt service on the bonds will be payable solely from funds on deposit in the construction account (which deposits were made with a portion of the net proceeds from the issuance of the old bonds), any investment earnings, specific contingency and other funds held under the collateral agency agreement and the indenture, insurance proceeds, if any, and liquidated damages payable under the construction agreement. The construction interest account under the indenture will contain an amount sufficient to pay interest on the bonds only through 45 days following the guaranteed provisional acceptance date under the construction agreement (without giving effect to any extensions). Thus, if there is a prolonged delay beyond the guaranteed provisional acceptance date in our Facility's attaining commercial operation, we cannot assure that sufficient sources of funds will be available to make payments of principal of, premium, if any, and interest on the bonds. During the term of the power purchase agreement, our Company's ability to make payments of principal, premium, if any, and interest on the bonds will be substantially a function of (i) the ability of our Facility to operate at levels which provide sufficient revenues from sales to the Power Purchaser after the payment of all operation and maintenance expenses and specific other expenses paid prior to debt service and (ii) the ability of the Power Purchaser to make required payments under the power purchase agreement. Fixed payments under the power purchase agreement may be reduced significantly or eliminated during periods when our Facility's availability fails to meet required levels under the power purchase agreement. With specific exceptions, fixed payments will not be made by the Power Purchaser during unexpected or uncontrollable events which prevent our Facility from operating. Following the expiration of the term of the power purchase agreement, our ability to make payments of principal of, premium, if any, and interest on the bonds will be substantially a function of: o our ability to find purchasers of electric generating capacity and energy from our Facility, o the availability of adequate market prices for capacity, energy and ancillary services, o our ability to procure sufficient quantities of fuel at competitive prices and o the ability of our Facility to operate at levels which provide sufficient revenues from the sale of electric generating capacity, energy and ancillary services to power purchasers after the payment of all operation and maintenance expenses and certain other expenses paid prior to service. IN THE EVENT THAT WE EXHAUST THE PROCEEDS FROM THE BONDS, THE EQUITY CONTRIBUTION AND THE LIQUIDATION OF THE COLLATERAL, THE HOLDERS OF THE BONDS WILL HAVE LIMITED OR NO RECOURSE IN THE EVENT OF A DEFAULT. Because our Company is a special-purpose company, our ability to make payments of principal, premium, if any, and interest on the bonds will be entirely dependent on the performance of our obligations under the project contracts and financing documents. Our obligations under the financing documents will be obligations solely of our Company, secured solely by the collateral. If we default in our obligations under the financing documents, we cannot assure that realization on the collateral would provide sufficient funds to repay all amounts due on the bonds. None of the owners of ownership interests in our Company (nor any affiliate, incorporator, stockholder, partner, officer, director or employee of our Company) will guarantee the payment of the bonds or has any obligation with respect 16 to the payment of the bonds. The collateral includes a pledge of AES Ironwood, Inc.'s ownership interests in our Company, and under the equity subscription agreement, AES Ironwood, Inc. has agreed to contribute in the aggregate up to $50,149,285 to us to fund project costs. However, neither AES Ironwood, Inc. nor any of its affiliates has any obligation to contribute sums in excess of the amount required to be advanced under the equity subscription agreement. If the proceeds of the bonds and the equity contribution required under the equity subscription agreement are insufficient to fund the successful development, construction, start-up and testing of our Facility, we may not have other sources of funds available to complete our Facility. The bonds will be secured by liens on substantially all of the assets of our Company related to our Facility, including all of the project contracts. If a default occurs under the indenture or other financing documents, we cannot assure that an exercise of remedies, including foreclosing on the assets in a judicial proceeding, would provide sufficient funds to repay all amounts due on the bonds. As result of specific provisions of the documents under which we obtained our rights in and to the site, it is unlikely that the real estate comprising a portion of the collateral could be used for any purpose other than an electric generating facility. IF THE PARTIES THAT WE DEPEND ON BREACH THEIR OBLIGATIONS TO US, OUR CASH FLOW AND ABILITY TO SERVICE THE BONDS MAY BE IMPAIRED. During the term of the power purchase agreement, our Company is dependent on the Power Purchaser for revenues from sales of capacity, ancillary services and energy from our Facility and on the Power Purchaser and its affiliates for fuel supply and transportation. We are dependent on Metropolitan Edison Company for connection of our Facility to the electric transmission grid, as well as on other third-party sources of goods and services which constitute the principal inputs to our Facility's operations. Any material breach by any of these parties of their obligations under the project contracts could adversely affect our cash flows and could impair our ability to make payments of principal of and interest on the bonds. The other parties to the project contracts have the right to terminate and/or withhold payments or performance under the contracts if specific events occur. If a project contract were to be terminated due to nonperformance by us or by the other party to the contract, our ability to enter into a substitute agreement having substantially equivalent terms and conditions is uncertain. IF THE POWER PURCHASER'S FINANCIAL CONDITION DETERIORATES OR IT BREACHES ITS OBLIGATIONS TO US AND CANNOT BE ADEQUATELY REPLACED, WE MAY NOT BE ABLE TO SERVICE THE BONDS. The Power Purchaser currently is our Company's sole customer for purchases of capacity, ancillary services and energy. The Power Purchaser's payments under the power purchase agreement are expected to provide all of our revenues during the term of the power purchase agreement. It is uncertain whether we would be able to find another purchaser on similar terms for our Facility's output if the Power Purchaser were not performing under the power purchase agreement. If another purchaser or purchasers could be found, we cannot assure that the price paid by that purchaser or purchasers would be sufficient to enable us to make payments in respect of the bonds. Any material failure by the Power Purchaser to make capacity and fuel conversion payments under the power purchase agreement could therefore have a material adverse effect on revenues and our ability to make payments in respect of the bonds. The ability of the Power Purchaser to meet its obligations under the power purchase agreement will be dependent on the Power Purchaser's financial condition generally, and the Power Purchaser's financial condition will in part be dependent upon its ability to sell our Facility's capacity and electric energy at adequate prices. As we have described in this prospectus, Williams will provide to our Company a guaranty of the Power Purchaser's obligations under the power purchase agreement to make fixed payments and to pay damages if the Power Purchaser fails to make such payments. Williams' obligations under that guaranty are capped at an amount equal to 125% of the sum of (i) the principal amount of the bonds plus (ii) the maximum debt service reserve account required balance. If the power purchase agreement is terminated due to an event of default by the Power Purchaser, we might recover sufficient amounts from Williams under the guaranty to repay all outstanding principal of and accrued interest on the bonds and our other senior debt. 17 IF WE ENCOUNTER SIGNIFICANT CONSTRUCTION DELAYS, ANY LIQUIDATED DAMAGES, CONTINGENCY FUNDS, OR INSURANCE PROCEEDS MAY BE INSUFFICIENT TO SERVICE THE BONDS. As with any major construction undertaking, completion of our Facility could be delayed or prevented, or cost overruns could be incurred, as a result of numerous factors, including shortages of material, labor disputes, weather interferences, difficulties in obtaining necessary permits or in meeting permit conditions or unforeseen engineering, environmental or geological problems. We cannot assure that any available liquidated damages or contingency funds or the proceeds of any insurance and warranties would be sufficient to pay for any significant cost overruns or redeem a sufficient principal amount of the bonds so that projected debt service coverage ratios can be achieved or maintained. In particular, our Company is required to pay principal of and interest on the bonds without regard to any unexpected or uncontrollable events under the construction agreement. If as a result of unexpected or uncontrollable events specified in the construction agreement or specified acts or omissions of our Company, completion of our Facility is delayed or prevented, or our Facility cannot achieve operation in accordance with design specifications and performance guarantees, the Contractor would not be obligated to pay liquidated damages. Under these circumstances, no proceeds of insurance may be available to us or any proceeds that are available may not be sufficient to pay our debt service or increased costs. Generally, the Contractor would not be obligated to pay liquidated damages for events or circumstances that adversely affect its ability to perform its obligations under the construction agreement to the extent that the events or circumstances are beyond its reasonable control and are not caused by its or its subcontractors' negligence or lack of due diligence and could not have been avoided by the use of its reasonable efforts. In addition, the date for achievement of provisional acceptance and the guaranteed provisional acceptance under the construction agreement could be subject to adjustment as a result of unexpected or uncontrollable events. The power purchase agreement requires that the Commercial Operation Date occur by no later than June 30, 2001, which may be extended under the terms of the power purchase agreement to no later than December 31, 2002. If the Commercial Operation Date fails to occur by that date, as so extended, the Power Purchaser will be permitted to terminate the power purchase agreement. Under the construction agreement, our Company is responsible for a number of matters in connection with the construction, completion and start-up of our Facility. While we believe that we have made adequate arrangements to assure timely performance of our responsibilities, we are relying on other parties to enable us to perform our responsibilities under the construction agreement and we cannot be certain that the other parties will meet their obligations under their contracts. See "SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Construction Agreement." BECAUSE THE FACILITY HAS NOT YET BEEN CONSTRUCTED AND OUR COMPANY HAS NO OPERATING HISTORY, VARIOUS UNEXPECTED EVENTS MAY INCREASE OUR EXPENSES OR REDUCES OUR REVENUES AND IMPAIR OUR ABILITY TO SERVICE THE BONDS. Because our Facility has not yet been constructed, it has no operating history. As with any new business venture of this size and nature, operation of our Facility could be affected by many factors, including start-up problems, the breakdown or failure of equipment or processes, the performance of our Facility below expected levels of output or efficiency, failure to operate at design specifications, labor disputes, changes in law, failure to obtain necessary permits or to meet permit conditions, government exercise of eminent domain power or similar events and catastrophic events including fires, explosions, earthquakes and droughts. The occurrence of these events could significantly reduce or eliminate revenues or significantly increase the expenses of our Facility, thereby jeopardizing the ability of our Company to make payments on the bonds. In addition, the liability of AES Prescott for failure to perform under the operations agreement is subject to specific limitations and AES Prescott is not required to post a performance bond. The proceeds of any available insurance and limited warranties may not be adequate to cover our lost revenues or increased costs. See "SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Power Purchase Agreement" and "--Operations Agreement." The Siemens Westinghouse 501G combustion turbines to be used in our Facility are the manufacturer's latest development in combustion turbines whose fundamental design basis is based upon the Siemens Westinghouse 501 series. However, the 501G combustion turbine currently has no significant operating experience and may have unit availability lower than combustion turbine units using mature technologies. Thus, we cannot assure that our Project will not incur problems relating to start-up, commissioning and performance that could jeopardize the achievement of Provisional Acceptance, timely commencement of commercial operations of our Facility or the performance of our Facility during its commercial operation. For a discussion of the 501G technology and related risks, see "ANNEX B: INDEPENDENT ENGINEER'S REPORT--Facility Design." 18 FOLLOWING THE EXPIRATION OF THE POWER PURCHASE AGREEMENT, OUR FACILITY IS EXPECTED TO BECOME A MERCHANT FACILITY AND WE CANNOT ASSURE THAT WE WILL BE ABLE TO FIND ADEQUATE PURCHASERS OR OTHERWISE COMPETE EFFECTIVELY IN THE MERCHANT MARKET. At the end of the term of the power purchase agreement, at which time 27.1% of the bonds are expected to remain outstanding, our Facility is expected to become a merchant facility (i.e., an electric generation facility with no dedicated long-term power purchase agreement) and the Power Purchaser's obligation to provide fuel will cease. If the power purchase agreement is terminated prior to its stated term as a result of an event of default or otherwise, our Facility could enter a merchant phase sooner than the anticipated termination date of the power purchase agreement. Given the uncertainty regarding the performance of our Facility, future environmental regulation, competition from other generating facilities, including possibly some owned by AES and its affiliates, fuel prices and other market conditions that may prevail in the future in the PJM power pool market, we cannot assure that our Company will be able to find purchasers or otherwise compete effectively in the merchant market. Also, there are current legal and regulatory limitations on our ability to operate our Facility on a merchant basis. Our rate schedule when filed with the Federal Energy Regulatory Commission (the "FERC") will be limited to sales to the Power Purchaser. Under current law, before we could engage in sales to any other entities, our Company would be required to seek additional market-based rate authority from the FERC. Although we do not currently anticipate that we would encounter material difficulty in obtaining this additional market-based rate authority, we cannot assure that the FERC will grant this authority. In addition, our status as an exempt wholesale generator under federal law prohibits us from making retail sales of electricity in the United States. We currently anticipate that electric energy generated by our Facility will be sold primarily in the wholesale market both during the term of the power purchase agreement and after our Facility becomes a merchant plant. Nevertheless, if we were to desire to participate directly in the retail electric market when that market develops, we would be precluded from doing so absent a change in federal law. Under current federal law, however, we would not be precluded from making sales to a power marketer, including an affiliate, which could in turn make retail sales. COMPLIANCE WITH ENVIRONMENTAL AND OTHER REGULATORY MATTERS COULD CAUSE SIGNIFICANT DELAYS AND EXPENSES THAT MAY IMPAIR OUR ABILITY TO SERVICE THE BONDS. General Our Company is subject to a number of statutory and regulatory standards and required approvals relating to energy, labor and environmental laws. Although the necessary environmental permits for the commencement of construction of our Facility have been obtained, we are required to comply with the terms of our environmental permits and to obtain other permits for the construction and operation of our Facility. Several of our permits have not yet been obtained, and some cannot be obtained until our Facility has commenced operation. Under specific circumstances, delay in receipt of or failure to obtain such permits could delay completion of the construction of our Facility or prevent the operation of our Facility. Some permits that have been obtained by our Company in connection with our Facility will require amendment prior to commercial operation of our Facility and others will require renewal or reissuance during the life of our Facility. While we have no reason to believe that such permits cannot be amended or will not be renewed or reissued, our inability to amend, renew or obtain reissuance of these permits in the future could cause the suspension of construction or operation of our Facility. The permits that have been obtained and that will be obtained contain ongoing requirements. Failure to satisfy and maintain any permit conditions or other applicable requirements could delay or prevent completion of the construction of our Facility, prevent the operation of our Facility and/or result in additional costs. If our Facility attains commercial operation, we cannot assure that our Facility will operate within the limits established by the permits or approvals. See "OUR BUSINESS--Permits and Regulatory Approvals" and "ANNEX B: INDEPENDENT ENGINEER'S REPORT--Environmental and Permitting." Energy Regulatory Matters Our Company believes that it has obtained all material energy-related federal, state and local approvals required as of the date of this prospectus to construct and operate our Facility. Although not currently required, additional regulatory approvals, including, without limitation, renewals, extensions, transfers, assignments, reissuances or similar actions may be required in the future due to a change in laws and regulations, a change in our power purchasers or for other reasons. We cannot assure that we will be able to (i) obtain all required regulatory approvals that we do not yet 19 have or that we may require in the future, (ii) obtain any necessary modifications to existing regulatory approvals or (iii) maintain required regulatory approvals. Delay in obtaining or failure to obtain and maintain in full force and effect any regulatory approvals, or amendments, or delay or failure to satisfy any such conditions or applicable requirements, could prevent operation of our Facility or sales to third parties, or could result in additional costs to us. Our business also could be materially and adversely affected as a result of statutory or regulatory changes or judicial or administrative interpretations of existing laws and regulations that impose more comprehensive or stringent requirements on us. THE INSURANCE WE HAVE OBTAINED MAY BE INADEQUATE IN THE EVENT OF A TOTAL LOSS OR TAKING OF OUR FACILITY, AND WE CANNOT ASSURE THAT THE INSURANCE PROCEEDS WE RECEIVE WILL BE SUFFICIENT TO SATISFY ALL OF OUR INDEBTEDNESS. Our Company is obligated under the financing documents and other project contracts to obtain and keep in force comprehensive insurance with respect to our Facility, including general liability insurance and machinery coverage, business interruption insurance, delay in start-up insurance and all-risk property damage insurance, including, among other things, damage caused by fire, floods or hurricanes. We cannot assure that such insurance coverage will be available in the future at commercially reasonable costs or that the amounts for which we are insured or amounts which we receive under insurance coverage will cover all losses. If there is a total loss or taking of our Facility, we cannot assure that the insurance proceeds we receive will be sufficient to satisfy all our indebtedness, including for the redemption of the bonds as required under the indenture. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Indenture." THE ABILITY OF OUR COMPANY TO INCUR ADDITIONAL INDEBTEDNESS MAY IMPAIR OUR ABILITY TO SERVICE THE BONDS. Our Company may issue additional bonds and we may incur additional indebtedness at any time or from time to time, in accordance with the terms of the indenture. Any additional bonds will be, and any additional senior debt may be, secured by the collateral ratably with all our senior secured indebtedness. The issuance of additional bonds (other than for refinancing purposes) or additional senior debt would create additional claims against the collateral under the security documents and could result in a reduction in debt service coverage ratios and cash available to make payments of principal of and interest on the bonds. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Indenture." Subject to limitations set forth in the indenture, our Company is permitted to incur subordinated debt (which may be secured by a junior lien on the collateral) for purposes allowed under the indenture. Although subordinated debt would be subject to limitations contained in the collateral agency agreement concerning the ability of the holders of subordinated debt to declare defaults, exercise remedies or institute specified legal proceedings, the incurrence of subordinated debt would increase our leverage and the total debt service payable by us. In addition, the holders of subordinated debt may be our secured creditors and therefore have the rights available to secured creditors under federal and state law. DRAWINGS UNDER LETTERS OF CREDIT MAY INCREASE PAYMENTS OF DEBT SERVICE ON SENIOR DEBT. Drawings under the debt service reserve letter of credit will be converted into debt service reserve letter of credit loans which will mature five years after the date of the loans. Interest on debt service reserve letter of credit loans is payable at the same level in the flow of funds as payments of interest on other senior debt (including the bonds). Principal on debt service reserve letter of credit loans is generally payable out of available cash flow after the payment of principal on the bonds. In specific circumstances, however, principal payments on any drawings under the debt service reserve letter of credit will be made at the same level in the flow of funds as payments of principal on the bonds. If the construction period letter of credit is issued and our Facility is not completed within the time period specified in the power purchase agreement, as the period may be extended, the Power Purchaser may draw on such construction period letter of credit. Drawings under the construction period letter of credit will be converted into construction period letter of credit loans under any construction period letter of credit reimbursement agreement that will mature in 10 years from the conversion. Principal of and interest on any construction period letter of credit loans under the construction period letter of credit reimbursement agreement will be made at the same respective levels in the flow of funds as payments of principal and of interest on the bonds. Thus, drawings on the construction period letter of credit and, in specific circumstances, drawings under the debt service reserve letter of credit, will increase payments of debt service on senior debt. We cannot assure that revenues of our Company from sales of capacity and fuel conversion services under the power purchase agreement or otherwise would be sufficient to cover such increases in debt service payments. The lenders under the debt service reserve letter of credit reimbursement agreement and the construction period letter of credit reimbursement agreement will be secured ratably with the bonds by a lien on and security interest in the collateral. 20 THE COLLATERAL AGENCY AGREEMENT CONTAINS PROVISIONS THAT MAY LIMIT THE REMEDIES THAT COULD BE EXERCISED IN RESPECT OF THE EVENT OF DEFAULT (OTHER THAN A BANKRUPTCY EVENT OF DEFAULT) UNLESS AND UNTIL THE REQUIRED SENIOR PARTIES HAVE DIRECTED THE COLLATERAL AGENT TO DO SO. The senior parties and our Company have entered into a collateral agency agreement designating the collateral agent as the agent for each of the senior parties. The collateral agency agreement requires the affirmative vote of senior parties holding at least a majority of the outstanding combined exposure to direct specific actions of the collateral agent, including the exercise of remedies following a trigger event. Because the affirmative vote of these required senior parties is required before the collateral agent can exercise remedies under the collateral agency agreement and the other security documents following most events of default if an event of default under the indenture were to occur, no remedies could be exercised in respect of the event of default (other than a bankruptcy event of default) unless and until the required senior parties have directed the collateral agent to do so. If the holders of the bonds do not constitute holders of at least a majority of the outstanding combined exposure, the trustee and the holders of the bonds may not be able to direct the collateral agent to exercise remedies in respect of an event of default under the indenture without the affirmative vote of other senior parties. In addition, under the terms of the other financing documents, we may not terminate, amend or otherwise modify any provision of the indenture, any other security document or any subordinated loan agreement, if the termination, amendment or modification could, in the reasonable opinion of the creditors who are parties to the other financing documents, reasonably be expected to have a material adverse effect on the rights and benefits of such creditors. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Collateral Agency Agreement." PROJECTIONS AND THE ASSUMPTIONS UNDERLYING THOSE PROJECTIONS USED IN THE PROJECTIONS ARE INHERENTLY SUBJECT TO SIGNIFICANT UNCERTAINTIES AND ACTUAL RESULTS MAY DIFFER, PERHAPS MATERIALLY, FROM THOSE PROJECTED AND SHOULD NOT BE UNDULY RELIED UPON. The financing of our Facility has been structured on the basis of assumptions and projections with respect to our Facility's potential revenue generating capacity and associated costs over the term of the bonds. Stone & Webster has evaluated the technical, environmental and economic aspects of our Project. The Independent Engineer's Report contains a discussion of the many assumptions utilized in preparing these projections. Investors should review the Independent Engineer's Report in its entirety. Projections of future operations and the economic results of those operations included in the Independent Engineer's Report have been prepared by our Company and reviewed by Stone & Webster on the basis of present knowledge and assumptions which Stone & Webster and our Company believe to be reasonable. Our independent auditors have not examined, reviewed or compiled the projections and, accordingly, do not express an opinion or any other form of assurance with respect to them. After the issuance of the bonds, neither we nor Stone & Webster will provide the holders of the bonds with revised projections or any report of the differences between the projections and actual operating results later achieved by our Project. For purposes of preparing the projections, assumptions were made, of necessity, with respect to completion of construction, availability and performance of our Facility, dispatch levels, capital expenditures, operation and maintenance expenditures, the revenues our Company will receive for capacity and electric energy, the availability of fuel, the tax treatment of our Company, general business and economic conditions and several other material contingencies and other matters that are not within our control and the outcome of which cannot be predicted by us, Stone & Webster, or any other person with any certainty of accuracy. These assumptions and the other assumptions used in the projections are inherently subject to significant uncertainties and actual results will differ, perhaps materially, from those projected. Accordingly, the projections are not necessarily indicative of current values or future performance and neither we, Stone & Webster, nor any other person assumes any responsibility for their accuracy. Therefore, no representation is made or intended, nor should any be inferred, with respect to the likely existence of any particular future set of facts or circumstances. If actual results are materially less favorable than those shown or if the assumptions used in formulating the projections prove to be incorrect, our ability to make payments of principal of, premium, if any, and interest on the bonds may be adversely affected. FAILURE TO BE YEAR 2000 COMPLIANT MAY DISRUPT OUR BUSINESS AND OPERATIONS. While our Facility is not expected to be operational until 2001, certain of our activities during construction of our Facility may be disrupted if our computer hardware and software and those of our suppliers, financial institutions and contractors are not year 2000 compliant. The areas where we are potentially exposed to such risks include our computer systems as well as products and services purchased from and supplied by third parties. 21 We have no ability to ensure that our suppliers, financial institutions and contractors are year 2000 compliant. We may suffer an adverse impact on our business and operations, including our ability to make payments under contracts, if our suppliers, financial institutions and contractors or others with which we conduct business are not year 2000 compliant. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS. This prospectus includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events based upon our knowledge of facts as of the date of this prospectus and our assumptions about future events. These forward-looking statements are subject to various risks and uncertainties that may be outside of our control, including, among other things: o construction delays and cost overruns; o operational reliability of our Facility; o availability and terms of capital and capital market conditions; o unanticipated changes in interest rates and rates of inflation; o general industry trends; o competition; o power costs and availability; o availability of qualified personnel; o fuel costs and availability; o changes in, or the failure or inability to comply with, governmental regulations, including, among other things, environmental regulations; o changes in tax laws; o weather conditions and other natural phenomena; o unanticipated changes in operating expenses and capital expenditures; o inability of various counterparties to meet their obligations with respect to financial instruments; o failure of the primary power purchaser to comply with its obligations to us; o adequacy of insurance; o each of the factors discussed in the "Risk Factors" section beginning on page 16; and o other factors described in this prospectus. We use words like "anticipate," "estimate," "project," "plan," "expect" and similar expressions to help identify forward-looking statements in this prospectus. In light of these and other risks, uncertainties and assumptions, the actual events or results may be very different from those expressed or implied in the forward-looking statements in this prospectus or may not occur. We have no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 22 USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the new bonds. In consideration for issuing the new bonds, we will receive in exchange a like principal amount of old bonds. The old bonds surrendered in exchange for the new bonds will be retired and canceled and cannot be reissued. Accordingly, issuance of the new bonds will not result in any change in our capitalization. We intend to use the net proceeds from the sale of the old bonds, together with an approximately $50 million equity contribution, to: o fund the engineering, procurement, construction, testing and commissioning of the Facility; o pay certain fees and expenses in connection with the financing and development of the Project; and o pay Project costs, including interest on the bonds. CAPITALIZATION The following table sets forth our capitalization as of September 30, 1999. The following information should be read in conjunction with the consolidated financial statements and related notes thereto and the other financial information contained elsewhere in this prospectus. See "SELECTED FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION." Long-Term Debt: Long-term Bonds $308,500,000 ============ Funds available from the issuance of the old bonds will be drawn from time to time to fund construction of our Facility. Once the available old bond proceeds have been used, AES Ironwood, Inc. agrees to fund up to approximately $50.1 million of Project costs to be contributed to us pursuant to the equity subscription agreement between AES Ironwood, Inc. and our Company. 23 SELECTED FINANCIAL DATA The selected financial data of our Company presented below, which consists of our summary balance sheet information as of September 30, 1999, should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION" and with our financial statements appearing elsewhere in this prospectus. Our Company, which is in the development stage, began construction of our Facility in June 1999 and has no operating revenues. All construction costs and all project development costs have been capitalized and will continue to be capitalized until the commencement of commercial operation of our Facility. Accordingly, only balance sheet data is presented and no ratio of earnings to fixed charges has been computed since it would not be meaningful. The balance sheet information as of September 30, 1999 and the statement of operations for the period ended September 30, 1999 has been derived from the financial statements of our Company which have been audited by Deloitte Touche LLP, independent public accountants, whose report appears elsewhere in this prospectus. AES Ironwood, L.L.C. (Development Stage Enterprise) As of and for the period ended September 30, 1999 (thousands) Assets Current Assets $ 1,065 Investments Held by Trustee (1) 99,590 Land 528 Construction in Progress 216,139 Deferred Financing Costs 2,290 Certificate of Deposit 385 --------- Total Assets $ 319,997 ========= Liabilities & Member's Deficit Current Liabilities $ 4,124 Bond Financing 308,500 Other Long-Term Liabilities 9,231 Member's Deficit (1,858) Total Liabilities & Member's Deficit $ 319,997 ========= Operating Expenses: General and Administrative Expenses $ 162 --------- Net Operating loss $ 162 --------- Interest Income 1,999 Interest Expense (3,695) NET LOSS $ (1,858) ========= Cash Paid for Construction in Progress Since Inception $ 204,388 ========= - --------- (1) This amount consists of funds held pending expenditure by our Company for construction of our Facility, interest payments to bondholders during the construction period, and investment earnings thereon. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Our Company was formed on October 30, 1998, to develop, construct, own, operate and maintain our Facility. Our Company is in the development stage and has no operating revenues. The total cost of the construction of our Facility is estimated to be approximately $359 million. Equity Contributions Under the equity subscription agreement, AES Ironwood, Inc. is obligated to contribute up to approximately $50.1 million to our Company to fund project costs. AES Ironwood, Inc.'s obligation to make the contributions is, and will be, supported by an acceptable letter of credit or an acceptable bond. Results of Operations For the period from June 25, 1999 (inception) through September 30, 1999, costs pertaining to the cost of the construction of our Facility have been capitalized as Construction Work in Progress and are included as assets on the balance sheet. The cost of purchasing land for construction of our Facility has been separately identified on the balance sheet. From June 25, 1999 through September 30, 1999, general and administrative costs of $162,000 were incurred. These costs did not directly relate to construction and are included as expenses in the Statement of Operations. A portion of the proceeds from the sale of the old bonds have not yet been expended on construction and were invested by the Trustee. The interest income earned on these invested funds is included in the Statement of Operations. The interest expense incurred on the portion of the old bond proceeds expended during the construction period is capitalized to Construction in Progress and is included on the balance sheet. Interest expense incurred on the old bond proceeds not spent on construction of our Facility are included as interest expense in the Statement of Operations. For the period from June 25, 1999 through September 30, 1999, non-capitalizable costs plus interest expense and less interest income resulted in a net loss on the September 30, 1999 Statement of Operations of approximately $1.9 million. The results of operations may not be comparable with the results of operations during future periods, especially when our Facility begins commercial operations in 2001. Liquidity and Capital Resources Our Company believes that the net proceeds from the sale of the old bonds, together with the equity contribution, will be sufficient to (i) fund the engineering, procurement, construction, testing and commissioning of our Facility, (ii) pay certain fees and expenses in connection with the financing and development of our Project and (iii) pay project costs, including interest on the bonds. In order to provide liquidity in the event of cash flow shortfalls, the debt service reserve account will contain an amount equal to the debt service reserve account required balance through cash funding, issuance of the debt service reserve letter of credit or a combination of the two. Business Strategy and Outlook Our Company's overall business strategy is to market and sell all of its net capacity, fuel conversion and ancillary services to the Power Purchaser during the term of the power purchase agreement. After expiration of the power purchase agreement, we anticipate selling Facility capacity, ancillary services and energy under a power purchase agreement or into the Pennsylvania/New Jersey/Maryland power pool market. We intend to cause our Facility to be managed, operated and maintained in compliance with the project contracts and all applicable legal requirements. Year 2000 Compliance Our Company has undertaken an assessment of areas within its existing business and operations that could be adversely affected by the failure of our computer hardware and software essential to our business or operations to continue to function with accuracy, in the case of dates or time periods occurring after December 31, 1999, at least as effectively and reliably as in the case of dates or time periods occurring before January 1, 2000. We have made reasonable efforts to ensure that we will be year 2000 compliant on a timely basis taking into account the business and operations which we are currently conducting. We are also asking each of our key suppliers, contractors and financial institutions whether they will be year 2000 compliant in all material respects. For purposes hereof, "key suppliers, contractors and financial institutions" refer to those suppliers, contractors and financial institutions whose business failure 25 or significant disruptions would, with reasonable probability, materially adversely affect our business and operations. Based on the foregoing, we believe that we will be year 2000 compliant on a timely basis. 26 OUR BUSINESS General Our Company is a Delaware limited liability company formed to develop, construct, own, operate and maintain our Project and manage the production of electric generating capacity, ancillary services and energy at our Facility. After the commercial operation date, our sole business will be the ownership and operation of our Project. We own the land on which our Facility will be located. Our Facility will be designed, engineered, procured and constructed for us by Siemens Westinghouse Power Corporation on a fixed-price, turnkey basis under the construction agreement. The Contractor will provide combustion turbine maintenance services and spare parts with respect to our Facility for an initial term of between 8 and 10 years (depending on the timing of scheduled outages) under the maintenance services agreement. AES Prescott, a wholly owned subsidiary of AES, will provide development, construction management and operations and maintenance services for the project under the operations agreement. Our Company has entered into a power purchase agreement for a term of 20 years under which the Power Purchaser has committed to purchase all of the net capacity, fuel conversion and ancillary services of our Facility. We anticipate that during the term of the power purchase agreement substantially all of our revenues will be derived from payments made under the power purchase agreement. Competition Under the power purchase agreement, the Power Purchaser will be required to purchase all of our Facility's capacity and energy. Therefore, during the term of the power purchase agreement, competition from other capacity and energy providers will only become an issue if the Power Purchaser breaches its agreement and ceases to purchase our capacity and energy or the power purchase agreement is otherwise terminated or not performed in accordance with its terms. Following the term of the power purchase agreement, we anticipate selling Facility capacity, ancillary services and energy under a power purchase agreement or into the PJM power pool market. At such time, we will face competition from other generating facilities selling into the PJM power pool market including, possibly, other facilities owned by AES or its affiliates. Employees Our Company has no employees and does not anticipate having any employees in the future. Under the operations agreement, AES Prescott will manage the development and construction of and will operate and maintain our Facility. The direct labor personnel and the plant operations management will be employees of AES provided to AES Prescott under the services agreement. Insurance Our Company as owner of our Facility will maintain a comprehensive insurance program as required under the indenture and underwritten by recognized insurance companies. Among other insurance policies, we will maintain commercial general liability insurance, permanent property insurance for full replacement value of our Facility and business interruption insurance covering at least 12 months of debt service and fixed operation and maintenance expenses. We have obtained title insurance in an amount equal to the principal amount of the bonds. AES Prescott, as operator of our Facility, will maintain, among other insurance policies, workers' compensation insurance (or evidence of self-insurance), if required, and comprehensive automobile bodily injury and property damage liability insurance. Legal Proceedings Our Company is not party to any legal proceedings. Permits And Regulatory Approvals AES Prescott, as operator of our Facility, and our Company, as owner of our Facility, must comply with numerous Federal, state and local regulatory requirements including environmental requirements in the operation of our Facility. On March 31, 1999, we received a determination of Exempt Wholesale Generator Status from FERC. On March 29, 1999, our Company received its Prevention of Significant Deterioration Permit ("Air Permit") from the Pennsylvania Department of Environmental Protection. The appeal period in respect of the Air Permit expired on May 3, 1999 and no appeal of the Air Permit was filed. 27 Our Company is subject to a number of statutory and regulatory standards and required approvals relating to energy, labor and environmental laws. Although the necessary environmental permits for the commencement of construction of our Facility have been obtained, we are required to comply with the terms of our environmental permits and to obtain other permits for the construction and operation of our Facility. Several of such permits have not yet been obtained, and some cannot be obtained until operation of our Facility has commenced. Under specific circumstances, delay in receipt of or failure to obtain such permits could delay completion of the construction of our Facility or prevent the operation of our Facility. Some permits that our Company has obtained in connection with our Facility will require amendment prior to commercial operation of our Facility and others will require renewal or reissuance during the life of our Facility. While we have no reason to believe that such permits cannot be amended or will not be renewed or reissued, our inability to amend, renew or obtain reissuance of these permits in the future could cause the suspension of construction or operation of our Facility. The permits that have been obtained and that will be obtained contain ongoing requirements. Failure to satisfy and maintain any such permit conditions or other applicable requirements could delay or prevent completion of the construction of our Facility, prevent the operation of our Facility and/or result in additional costs. See "ANNEX B: INDEPENDENT ENGINEER'S REPORT--Environmental and Permitting." 28 OUR MANAGEMENT Management Our Company is a Delaware limited liability company and has no employees. We are managed by our Board of Directors under the terms of the Limited Liability Company Agreement of AES Ironwood, L.L.C., dated as of November 1, 1998. The following table sets forth the names, ages and positions of our directors and executive officers and their positions with our Company. Our directors are elected annually and each elected director holds office until the director's successor is elected and qualified or the director resigns or is removed. Our officers are elected from time to time by vote of the Board of Directors. Name Age Position(s) - ---- --- ----------- John Ruggirello............ 49 President Barry Sharp................ 40 Director, Vice President and Chief Financial Officer William Luraschi........... 36 Vice President and Secretary Patricia Rollin............ 38 Vice President Stephen Dahm............... 54 Vice President Kevin Polchow.............. 38 Vice President Bart Rossi................. 51 Vice President William Hoagland........... 38 Treasurer Maureen Shearer............ 36 Assistant Secretary Dennis Bakke............... 54 Director Roger Naill................ 52 Director John Ruggirello, 48, has served as President of AES Ironwood, L.L.C. since November 1998. He is Senior Vice President of AES. Mr. Ruggirello also serves as the President of AES Enterprise, a business development and plant operations division serving the Mid-Atlantic United States since 1994. Prior to his current position, Mr. Ruggirello was plant manager of AES Beaver Valley. Barry Sharp, 40, has served as Director, Vice President and Chief Financial Officer of AES Ironwood, L.L.C. since November 1998. He is currently Senior Vice President and Chief Financial Officer of AES. He joined AES as Director of Finance and Administration in 1986. Prior to AES, he held various positions with Arthur Anderson & Company and Marriott. William Luraschi, 36, has served as Vice President of AES Ironwood, L.L.C. since November 1998. He is currently Vice President, Secretary and General Counsel of AES. He joined AES as General Counsel in 1995. Prior to joining AES, he was an attorney at the law offices of Chadbourne and Parke. Patricia Rollin, 38, has served as Vice President of AES Ironwood, L.L.C. since November 1998. She is also a Vice President of AES Enterprise. She served as Director of Investor Relations of AES from 1994 through 1995. She joined AES Corporate Strategic Planning in 1984. Stephen Dahm, 54, has served as Vice President of AES Ironwood, L.L.C. since November 1998. He is a Project Director of AES Ironwood, L.L.C. Prior to joining AES Ironwood, L.L.C., he served as Vice President and Project Director for AES Lal Pir and PakGen. Mr. Dahm joined AES in 1994 after 18 years with Bechtel. Kevin Polchow, 38, has served as Vice President of AES Ironwood, L.L.C. since November 1998. Mr. Polchow is currently the Tax Director of AES. He assumed that position in 1994. Prior to joining AES, Mr. Polchow served as a Senior Manager at Deloitte and Touche. Bart Rossi, 51, has served as Vice President of AES Ironwood, L.L.C. since November 1998. Mr. Rossi is currently a Project Engineering Director at AES. He assumed that position in 1996. Prior to joining AES, Mr. Rossi served as a Chief Engineer for Ebasco Services, Inc. William Hoagland, 38, has served as Vice President of AES Ironwood, L.L.C. since November 1998. Mr. Hoagland is currently Director of Finance and Administration of AES and has held that position since 1994. Prior to joining AES, Mr. Hoagland was an auditor at Deloitte and Touche. Maureen B. Shearer, 36, has served as Secretary of Ironwood, L.L.C. since November 1998. She is currently Corporate Paralegal of AES and has held that position since 1995. She joined AES as an Executive Assistant in 1989. Prior to joining AES, Ms. Shearer served active duty with the U.S. Coast Guard. Dennis Bakke, 53, has served as Director of the AES Ironwood, L.L.C. since November 1998. He is currently the President and CEO of AES. He assumed this position in 1994. He became the President and Chief Operating Officer of AES in 1987 and served as Executive Vice President from 1981 to 1987. Roger F. Naill, 52, has served as Director of AES Ironwood, L.L.C. since November 1998. He is Senior Vice President of AES and heads the AES Corporate Strategic Planning Group. He assumed that position in 1981. 29 Each of the officers and directors listed above is currently an officer, director or employee of AES or an AES affiliate and receives compensation from AES or the affiliate. No cash or non-cash compensation is currently proposed to be paid in the current calendar year by our Company to any of the officers and directors listed above. AES Prescott will perform development and construction management and operations and maintenance services for our Company on a reimbursable cost, plus fixed-fee basis under the operations agreement. Siemens Westinghouse Power Corporation will perform engineering, procurement and construction services for us on a fixed-price, turnkey basis under the construction agreement. Siemens Westinghouse Power Corporation will perform maintenance services for us on a reimbursable cost, plus fixed-fee basis. See "SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Construction Agreement," "--Maintenance Services Agreement," and "--Operations Agreement." 30 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain Affiliations Our Company, AES Ironwood, Inc. and AES Prescott are each wholly owned indirect subsidiaries of AES. Our Company, AES Ironwood, Inc. and AES have entered into an equity subscription agreement under which AES Ironwood, Inc. has agreed to contribute up to $50,149,285 to us to fund project costs and AES has agreed to contribute to AES Ironwood, Inc. sufficient funds for AES Ironwood, Inc. to make such contributions. Other Relationships and Related Transactions AES. AES is a leading global power company committed to supplying electricity in a socially responsible way. AES currently has assets in excess of $10 billion and employs approximately 44,500 people around the world. Under a services agreement, AES will supply to AES Prescott all of the personnel and services necessary for AES Prescott to comply with its obligations under the operations agreement. AES Ironwood, Inc. AES Ironwood, Inc. is a Delaware corporation and a wholly owned subsidiary of AES. AES Ironwood, Inc. currently has no operations outside of its activities in connection with our Project and does not anticipate undertaking any operations not associated with our Project. AES Ironwood, Inc. owns all of the ownership interests in our Company and AES Prescott and, under the pledge agreement, AES Ironwood, Inc. has pledged to the collateral agent all of its ownership interests in our Company. AES Prescott. AES Prescott is a Delaware limited liability company and wholly owned subsidiary of AES Ironwood, Inc. and was established on October 30, 1998. Our Company has entered into the operations agreement with AES Prescott under which AES Prescott will manage the development and construction of and will operate and maintain our Facility. The direct labor personnel and the plant operations management will be provided to AES Prescott by AES under the services agreement entered into by AES Prescott and AES. 31 SUMMARY OF PRINCIPAL PROJECT CONTRACTS The following chart sets forth the parties to our Project Contracts and each such contract is described in more detail below: |--------------------------| -------------------------------| |Guaranty of Obligation of | | | | Power Purchaser to Make | ------------------| Operations Agreement | | Fixed Payments |----------------| | | | |--------------------------| | | |------------------------------| | The Williams | | | | AES Prescott, L.L.C. | | Companies, Inc. | | | | | |--------------------------| | | |------------------------------| | | | | | | | | | | | | |--------------------------| | | |------------------------------| | Power Purchase | | | ------| Interconnection Agreement | | Agreement |----------| | | | |------------------------------| |--------------------------| | | | | | Metropolitan Edison | | Williams Energy | | | | | | Company | | Marketing & Trading | | | | | |------------------------------| | Company | | | | | |--------------------------| |----------------------------------| | | |----| | | |------------------------------| |--------------------| | |---| Water Supply/Real Estate | | | AES IRONWOOD, L.L.C. | | | Agreements | |------------|-------------| | |------- |------------------------------| | EPC Contract | | | | City of Lebanon Authority/ | |--------------------------| | | | Pennsy Supply, Inc. | | Siemens Westinghouse | |----------------------------------| |------------------------------| | Power Corporation | | | |--------------------------| | | | | | | | | |------------------------------| | | | | Maintenance Services | | | |-----------------| Agreement | |--------------------------| | |------------------------------| | Guaranty | | | Siemens Westinghouse | |--------------------------|----------------| | Power Corporation | | Siemens Corporation | |------------------------------| |--------------------------|
The following summaries of selected provisions of the principal Project Contracts are qualified in their entirety by reference to the full text of the actual agreements. All capitalized terms used in the following summaries and not otherwise defined in this prospectus have the meanings given such terms in the respective Project Contract. Power Purchase Agreement Our Company and Williams Energy Marketing & Trading Company (the "Power Purchaser") (our Company and the Power Purchaser, collectively, the "Parties", and each individually, a "Party", for the purpose of this summary) have entered into an Amended and Restated Power Purchase Agreement, dated as of February 5, 1999 (as amended, the "Power Purchase Agreement"), for the sale to the Power Purchaser of all of the electric energy and capacity produced by our Facility as well as ancillary services and fuel conversion services. 32 Term The term of the Power Purchase Agreement extends for 20 years after the first Contract Anniversary Date, which is the last day in the month in which the Commercial Operation Date occurs. The Commercial Operation Date occurs when o the Initial Start-Up Testing of our Facility has been successfully completed, o our Company has received all approvals from PJM, and o our Company has obtained all required permits and authorizations for operation of our Facility. If the Commercial Operation Date has not occurred by June 30, 2001 for any reason including without limitation the continued existence of or delay caused by a Force Majeure event affecting our Company (other than any delay caused by any act or failure to act by the Power Purchaser or an Affiliate thereof, where such action is required under the Power Purchase Agreement), the Power Purchaser shall have the right to terminate the Power Purchase Agreement; provided, that our Company can extend the Commercial Operation Date to December 31, 2001 o if it provides an opinion from a third-party engineer that the Commercial Operation Date will occur no later than December 31, 2001 or, but for an Interconnect Delay the Commercial Operation Date would be achieved by December 31, 2001 (the "Free Extension Option"), or o by giving the Power Purchaser written notice of such extension no later than April 30, 2001, and paying to the Power Purchaser a specified amount (for which our Company believes it has made adequate provision in our Project Budget) by no later than June 30, 2001 (the "First Paid Extension Option"). If our Company qualifies for the Free Extension Option or elects the First Paid Extension Option, if the Commercial Operation Date has not occurred by December 31, 2001 (the "Final CO Date") for any reason, other than as a result of an Interconnect Delay or any act or failure to act by the Power Purchaser or an affiliate thereof, where such action is required under the Power Purchase Agreement, the Power Purchaser shall have the right to terminate the Power Purchase Agreement; provided, that our Company can extend the Final CO Date to and including December 31, 2002 by giving the Power Purchaser written notice of the estimated extension required no later than October 31, 2001 and paying to the Power Purchaser specific amounts for each day of such extension (the "Second Paid Extension Option"). If our Company elects the Second Paid Extension Option and the Commercial Operation Date does not occur by December 31, 2002 for any reason whatsoever including without limitation the continued existence of or delay caused by a Force Majeure event affecting our Company (other than as a result of an Interconnect Delay or any act or failure to act by the Power Purchaser or an Affiliate thereof, where such action is required under the Power Purchase Agreement), the Power Purchaser shall have the absolute right to terminate the Power Purchase Agreement. Purchase and Sale of Capacity and Services During the Term, commencing with the Commercial Operation Date, our Company shall sell and make available to the Power Purchaser on an exclusive basis, and the Power Purchaser shall purchase and pay for, our Facility Capacity and Ancillary Services. In addition, during the Term, commencing with the Commercial Operation Date, our Company shall perform for the Power Purchaser on an exclusive basis, and the Power Purchaser shall purchase and pay for, Fuel Conversion Services. Fuel Conversion and Other Services As instructed by our Company, the Power Purchaser shall deliver or cause to be delivered to our Company at the Gas Delivery Point and Oil Delivery Point on an exclusive basis all quantities of Natural Gas and Fuel Oil, respectively, as required by our Company o to generate Net Electric Energy and/or Ancillary Services, o to perform Start-Ups, o to perform Shutdowns, and o to operate our Facility during any period other than a Start-Up, Shutdown or Dispatch Period for any reason. 33 The Power Purchaser shall be responsible for the construction of all Gas Interconnection Facilities. If such Gas Interconnection Facilities have not been constructed and/or the Power Purchaser is unable for any reason to deliver Natural Gas to our Facility by the date that our Facility would otherwise be prepared to begin Initial Start-Up Testing, and but for the failure to provide such Natural Gas our Facility is otherwise ready, or would otherwise have been ready, to begin such testing, then the Power Purchaser shall commence making payments to our Company for each day of such delay beginning on the Start-Up Testing Date and continuing until the date that Natural Gas is delivered to our Facility for Initial Start-Up Testing, in an amount for each such day of delay which is equal to one-thirtieth of the applicable Total Fixed Payment. Upon the expiration of the Power Purchase Agreement or any termination of the Power Purchase Agreement as the result of the Power Purchaser's default thereunder, our Company shall have the right to purchase the Gas Interconnection Facilities from the Power Purchaser, or if the Power Purchaser does not own such Gas Interconnection Facilities, the Power Purchaser shall assign to our Company all of its rights to transportation services using such Gas Interconnection Facilities. The Power Purchaser shall be responsible for the cost of procurement and installation of the Oil Metering Equipment. The Power Purchaser shall be solely responsible for all costs and expenses related to the supply and transportation of Natural Gas and Fuel Oil to the Gas Delivery Point and Oil Delivery Point, respectively. Our Company shall be responsible for all costs and expenses related to the transportation of Natural Gas and Fuel Oil at and from the Gas Delivery Point and Oil Delivery Point to our Facility. At the request of our Company, instead of delivering Fuel Oil to the applicable Oil Delivery Point, the Power Purchaser shall deliver or cause to be delivered such quantities of Fuel Oil as requested by our Company to any off-site storage facility approved by the Power Purchaser and delivery thereto shall be deemed delivery to the Oil Delivery Point. Our Company shall be responsible for all costs and expenses related to the transportation of such Fuel Oil from the off-site storage facility to our Facility. Our Company shall be responsible for the installation, operation and maintenance at the Site, at our Company's sole cost and expense, of Fuel Oil storage tank(s) capable of storing a volume of usable Fuel Oil sufficient to operate our Facility at maximum Facility Capacity output for two continuous days. Our Company shall not be obligated to operate our Facility on Fuel Oil for more than an Operating Hour equivalent that is consistent with our Company's air permit. Pricing and Payments For each month of the Term after the Commercial Operation Date, the Power Purchaser shall pay our Company for Facility Capacity, successful Start-Ups and associated Shutdowns, Ancillary Services and Fuel Conversion Services at the applicable rates set forth in the Power Purchase Agreement. Each monthly payment by the Power Purchaser will consist of a Total Fixed Payment, a Fuel Conversion Payment and a Start-Up Payment. The Total Fixed Payment, which is payable regardless of Facility dispatch by the Power Purchaser but is subject to adjustment based on Facility availability, is calculated by multiplying a Fixed Capacity Rate for each Contract Year by our Facility Capacity in the billing month and is anticipated to be sufficient to cover our Company's debt service and fixed operating and maintenance costs and to provide a return on equity to our Company. The Fuel Conversion Payment is intended to cover our Company's variable operating and maintenance costs and escalates annually based on an escalation index set forth in the Power Purchase Agreement. In addition, our Company may receive heat rate bonuses or be required to pay heat rate penalties. Prior to the Commercial Operation Date, and during specific Facility tests thereafter, our Company will purchase Natural Gas from the Power Purchaser. The Power Purchaser will sell to our Company such Natural Gas at prices specified in the Power Purchase Agreement, and our Company will sell to the Power Purchaser at the Electric Delivery Point any Net Electric Energy produced during such periods at 90% of the Energy Market Clearing Price. The Power Purchaser shall be entitled to an annual fuel conversion volume rebate ("FCVR") if its dispatch of our Facility exceeds specified levels and specified monthly non-dispatch payments if, under specific circumstances, our Facility is not available for dispatch. All FCVR payments and non-dispatch payments shall be made to the Power Purchaser after debt service and specified other payments but prior to any distribution to holders of equity interests in our Company. FCVR payments shall be paid to the Power Purchaser within 30 days after the end of the Contract Year in which such payments have been earned and non-dispatch payments shall be paid to the Power Purchaser within 20 days after the end of the month on which a payment obligation arises. FCVR payments and any non-dispatch payments owed to the Power Purchaser and not paid when due shall be paid, together with interest thereon, when funds become available to our Company at the priority level described above. 34 Project Development Our Facility shall be located at the Site; provided, that if our Company is unable to obtain all required permits and approvals for such Site within one year after the Execution Date, the Parties shall in good faith seek to identify a mutually agreeable alternative site within the PJM region to be acquired by our Company as a location for our Facility; provided, further, that if such alternate site is not agreed to by the Parties within an additional one-year period, the Power Purchase Agreement will terminate with no further liability to either Party. Our Company shall provide to the Power Purchaser not later than 10 days after the completion of Initial Start-Up Testing, pertinent written data substantiating our Facility's capability to provide Facility Capacity. Our Company shall, at its own cost and expense, obtain as and when required all approvals, permits, licenses and other authorizations from governmental authorities as may be required for it to construct, operate and maintain our Facility, the Interconnection Facilities and Protective Gas Apparatus and to perform its obligations under the Power Purchase Agreement, and during the term, our Company shall obtain all such additional governmental approvals, permits, licenses and authorizations as may be required with respect to our Facility as soon as practicable. Initial Start-Up Testing; Commercial Operation Our Company shall provide to the Power Purchaser (i) written notice, at least 30 days in advance, of the expected Commercial Operation Date and (ii) a copy of the notice of Commercial Operation within 5 days after the Commercial Operation Date. The Power Purchaser shall have the right to be present at Initial Start-Up Testing of our Facility. Interconnection and Metering Equipment At its sole cost and expense, our Company shall own and design, construct, install and maintain, or be responsible for the design, construction, installation and maintenance of our Facility, the Interconnection Facilities and Protective Gas Apparatus needed to generate and deliver Net Electric Energy and/or Ancillary Services to the Electric Delivery Point in order to fulfill its obligations under the Power Purchase Agreement, including all Interconnection Facilities and Protective Gas Apparatus that may be located at any switchyard and/or substation to be built at our Facility. Our Facility, Interconnection Facilities and Protective Gas Apparatus shall be designed, constructed and completed in a good and workmanlike manner and in accordance with Accepted Electrical Practices (with respect to our Facility and Interconnection Facilities) or in accordance with standard gas industry practices (with respect to Protective Gas Apparatus), such that the expected useful life of our Facility, the Interconnection Facilities and Protective Gas Apparatus shall be not less than the Term of the Power Purchase Agreement. Our Company shall be solely responsible for the negotiation and execution of the Interconnection Agreement with the Host Utility under which the Host Utility will own and be responsible for the Electric Metering Equipment and the design, installation, construction and maintenance of the electrical facilities and protective apparatus, including any transmission equipment and related facilities, necessary to interconnect the Host Utility's electrical system with our Facility at the Electric Delivery Point. The Power Purchaser shall reimburse our Company for the reasonable Host Utility costs (i.e., transmission facility upgrades, Host Utility protective apparatus and other equipment, Host Utility electric meters, and Host Utility costs for PJM and other required interconnection-related studies) incurred, or to be reimbursed, by our Company under the Interconnection Agreement up to a maximum amount which is in excess of the costs anticipated to be incurred by our Company under the Interconnection Agreement. The Power Purchaser shall be responsible for the installation, maintenance and testing of the Gas Metering Equipment (to the extent not otherwise installed, maintained and tested by the supplier of gas transportation services) and Oil Metering Equipment, as reasonably approved by our Company. All Electric Metering Equipment, Gas Metering Equipment and Oil Metering Equipment, whether owned by our Company or by a third party, shall be operated, maintained and tested in accordance with Accepted Electrical Practices, in the case of the Electric Metering Equipment, and in accordance with applicable industry standards, in the case of the Gas Metering Equipment and Oil Metering Equipment. Operation; Dispatch Our Facility, the Interconnection Facilities and the Protective Gas Apparatus shall be operated in accordance with Accepted Electrical Practices and applicable requirements and guidelines reasonably adopted by the Host Utility from time to time and applied consistently to the Host Utility's electric generating facilities (with respect to our Facility 35 and Interconnection Facilities) or in accordance with standard gas industry practices (with respect to Protective Gas Apparatus). If a conflict between the terms and conditions of the Power Purchase Agreement and Host Utility requirements, the Host Utility requirements shall control. Our Company shall operate our Facility in parallel with the Host Utility's electrical system with governor control and the Net Electric Energy to be delivered by our Company under the Power Purchase Agreement shall be three-phase, 60 hertz, alternating current at a nominal voltage acceptable to the Host Utility at the Electric Delivery Point, shall not adversely affect the voltage, frequency, waveshape or Power Factor of power at the Electric Delivery Point and shall be delivered to the Electric Delivery Point in a manner acceptable to the Host Utility. The Power Purchase Agreement acknowledges that the Host Utility has the right to require our Company to disconnect our Facility from the Host Utility's electrical system (or otherwise curtail, interrupt or reduce deliveries of Net Electric Energy) for specific safety or emergency reasons. If our Facility has been disconnected for such reasons, the Power Purchaser shall continue to be obligated to make Total Fixed Payments for at least 24 hours after the occurrence of such disconnection of our Facility by the Host Utility. Our Company shall use commercially reasonable efforts to correct promptly any condition at our Facility which necessitates the disconnection of our Facility from the Host Utility's electrical system or the reduction, curtailment or interruption of electrical output of our Facility. The Power Purchaser shall have the exclusive right to Schedule the operation of our Facility or a Unit in accordance with the provisions of the Power Purchase Agreement; provided, however, that such scheduling shall be consistent with the design limitations of our Facility, applicable law, regulations and permits, and manufacturers' reasonable recommendations for operating limits with respect to our Facility and major components thereof. During Initial Start-Up Testing and up to two times each year thereafter, our Company shall demonstrate, in accordance with the then-applicable criteria of PJM, applicable generally to independent power and utility generating facilities in PJM of similar technology, the capability of our Facility to produce and maintain, as required for such demonstration, our Facility Capacity. Maintenance At all times during the Term of the Power Purchase Agreement, our Company shall, at its sole cost and expense, maintain our Facility, the Protective Gas Apparatus, and, consistent with the terms of the Interconnection Agreement, the Interconnection Facilities. Said maintenance shall be performed in accordance with Accepted Electrical Practices (with respect to our Facility and Interconnection Facilities) or in accordance with standard gas industry practices (with respect to Protective Gas Apparatus) and manufacturers' recommended maintenance procedures and in accordance with the maintenance provisions of the Power Purchase Agreement. Metering, Billing, Payment and Taxes Net Electric Energy delivered by our Company to the Power Purchaser shall be metered at the Electric Delivery Point, using the Host Utility's Electric Metering Equipment on an hour-by-hour basis, or such shorter intervals as may be necessary to implement the Power Purchase Agreement, are technically feasible using such metering equipment, and are agreed to by the Host Utility. Our Company shall provide to the Power Purchaser a monthly statement using the Host Utility's meters, or back-up Electric Metering Equipment installed by our Company if the Host Utility's electric meters are not functional. Such statement shall set forth the amount of Net Electric Energy delivered by our Company to the Power Purchaser in each hour and our Company's computation of the amount due from the Power Purchaser to our Company and such other amounts as may then be due and payable by the Power Purchaser to our Company. The Power Purchaser shall pay our Company the net amount shown to be due to our Company on the monthly statement. Overdue payments shall accrue interest from, and including, the due date to, but excluding, the date of payment at the Late Payment Interest Rate. If either Party, in good faith, disputes a monthly statement, such Party shall provide to the other Party a written explanation of the basis for the dispute and shall make payment of the portion of such monthly statement not disputed no later than the due date. To the extent any disputed amount is later determined to be properly due and payable, it shall be paid within 10 days of such determination, together with interest accrued at the Late Payment Interest Rate from the due date to the date payment is made, if made within 10 days of such determination, and if not paid within 10 days of such determination, together with interest accrued after such 10 days period to the date payment is made at the Late Payment Interest Rate plus 1% per annum. 36 Except as otherwise specified in the Power Purchase Agreement, each Party shall have the right to set off against any and all amounts owed by it under the Power Purchase Agreement past due amounts owed to it under the Power Purchase Agreement by the other Party. The payments by the Power Purchaser to our Company do not include reimbursement for, and the Power Purchaser is liable for and shall pay, cause to be paid, or reimburse our Company if our Company has paid, all Taxes imposed on or with respect to Natural Gas or Fuel Oil or the use or consumption or transportation thereof (other than any of such Taxes for which our Company is liable as described in the following paragraph or on Net Electric Energy or the use and consumption thereof after the Electric Delivery Point). The Power Purchaser shall indemnify, defend and hold harmless our Company from any liability for such Taxes. Except as provided in the previous paragraph and except for specified taxes that may be imposed in the future, the payments by the Power Purchaser to our Company include full reimbursement for, and our Company shall be liable for and shall pay, or cause to be paid, or reimburse the Power Purchaser if the Power Purchaser has paid, all Taxes. If the Power Purchaser is required to remit any Tax for which our Company is responsible, the amount shall be deducted from any sums due to our Company. Our Company shall indemnify, defend and hold harmless the Power Purchaser from any liability for such Taxes. Dispute Resolution If our Company and the Power Purchaser are in dispute with respect to specified matters relating to the Term, Gas Interconnection Facilities, Maintenance and billing and metering, and our Company and the Power Purchaser do not resolve the dispute within seven days of our Company or the Power Purchaser notifying the other Party in writing of the existence of such dispute, a committee consisting of two officers of our Company and two officers of the Power Purchaser shall meet and attempt in good faith to resolve such dispute. If such committee does not resolve the dispute within seven days following their initial meeting, then a single Third Party Engineer shall be designated to consider and decide the issues raised by such dispute unless both Parties determine that further discussions by the committee are merited. The selection of such Third Party Engineer shall be made from the list of engineers set forth in the Power Purchase Agreement. Each of our Company and the Power Purchaser shall designate in writing to the other Party from time to time a representative who shall be authorized to resolve any dispute relating to the subject matter of the Power Purchase Agreement not referred to in the preceding paragraph. If any dispute is not resolved between the Parties within 30 days from the date on which a Party provided to the other Party a written notice of such dispute, then such dispute shall be settled exclusively and finally by arbitration in accordance with the procedures described in the Power Purchase Agreement, except for disputes described in the second preceding paragraph. The dispute resolution provisions of the Power Purchase Agreement shall survive the termination or expiration of the Power Purchase Agreement. Representations and Warranties Our Company makes representations and warranties regarding the following: organization and existence, power and authority, due authorization and no conflicts, enforceability, compliance with laws and environmental-related litigation. The Power Purchaser makes representations and warranties regarding the following: organization and existence, power and authority, due authorization and no conflicts, enforceability and compliance with laws. Liability; Dedication Nothing in the Power Purchase Agreement shall be construed to create any duty, standard of care or liability to any person not a Party to the Power Purchase Agreement. Notwithstanding anything contained in the Power Purchase Agreement, except with respect to third-party claims, neither Party shall be liable to the other Party, its Affiliates, directors, officers, partners, agents, employees, successors or assigns, for claims for incidental, special, punitive, indirect or consequential damages of any nature arising out of, connected with or resulting from performance or nonperformance of the Power Purchase Agreement, including, without limitation, claims in the nature of lost revenues, income or profits (other than payments specifically provided for and properly due under the Power Purchase Agreement) or losses, damages or liabilities under any financing, lending or 37 construction contracts, agreements or arrangements to which our Company may be party irrespective of whether such claims are based upon warranty, negligence, strict liability, contract, operation of law or otherwise. The provisions of this paragraph shall survive the termination or expiration of the Power Purchase Agreement. No undertaking by either Party under any provision of the Power Purchase Agreement shall constitute the dedication of that Party's electrical or gas reserves, system, equipment, or facilities, or any portion thereof, to the other Party or to the public. Indemnity Subject to the provisions of the Power Purchase Agreement, each Party shall indemnify, hold harmless and defend the other Party, its Affiliates, directors, officers, partners, agents and employees from and against any Loss, to the extent arising out of, in connection with or resulting from the indemnifying Party's breach of any of the representations or warranties made in, or the indemnifying Party's failure to perform any of its obligations under, the Power Purchase Agreement, or the indemnifying Party's design, installation, construction, ownership, operation, repair, relocation, replacement, removal or maintenance of, or the failure of, any of such Party's equipment and/or facilities, including, but not limited to, the Interconnection Facilities, our Facility, Gas Interconnection Facilities and Protective Gas Apparatus and any Natural Gas or Fuel Oil facilities, and/or any appurtenances thereto, and any electric transmission facilities used in connection with the Power Purchase Agreement; provided, however, that neither Party shall have any indemnification obligations in respect of any Loss to the extent caused by such other Party's gross negligence, bad faith or willful misconduct. As between the Parties, the Power Purchaser shall be deemed to be in exclusive possession and control (and responsible for any damages or injury resulting therefrom or caused thereby) of Natural Gas and Fuel Oil up to the Fuel Delivery Points and the Net Electric Energy and Ancillary Services at and from the Electric Delivery Point, and our Company shall be deemed to be in exclusive possession and control (and responsible for any damages or injury resulting therefrom or caused thereby) of Natural Gas and Fuel Oil at and from the Fuel Delivery Points and the Net Electric Energy and Ancillary Services up to the Electric Delivery Point. Risk of loss related to Natural Gas and Fuel Oil shall transfer from the Power Purchaser to our Company at the applicable Fuel Delivery Point and risk of loss related to the Net Electric Energy and Ancillary Services shall transfer from our Company to the Power Purchaser at the Electric Delivery Point. The Power Purchaser shall indemnify, defend and hold harmless our Company from and against any Loss arising out of or in any way relating to the Power Purchaser's possession or control of Natural Gas and Fuel Oil up to the Fuel Delivery Points or its possession and control of the Net Electric Energy and Ancillary Services at and after the Electric Delivery Point, and our Company shall indemnify, defend and hold harmless the Power Purchaser from and against any Loss arising out of or in any way relating to our Company's possession or control of Natural Gas and Fuel Oil at and from the Delivery Point or its possession and control of the Net Electric Energy and Ancillary Services prior to the Electric Delivery Point. The foregoing indemnification provisions of the Power Purchase Agreement shall survive the termination or expiration of the Power Purchase Agreement. Insurance Our Company shall keep our Facility continuously insured against loss or damage in the amounts and for the risks that property of similar character is usually so insured by entities owning and operating like properties. Our Company and the operator of our Facility (and their respective successors and assigns) shall each procure or cause to be procured and shall maintain in effect continuously during the Term of the Power Purchase Agreement with companies rated "A-," "IX" or better by A.M. Best the following minimum insurance coverage for our Facility: Workers' compensation; Employer's Liability; Commercial General Liability; Bodily Injury; Property Damage; Blanket Contractual; Underground, Explosion and Collapse Hazard; Products and Completed Operations Hazard; Broad Form Property Damage; Personal Injury; Automobile Liability (Owned, Hired, Non-owned) Bodily Injury and Property Damage; and Commercial Umbrella Liability. Our Company shall procure and maintain in effect continuously during the Term of the Power Purchase Agreement, "all risk" property insurance in sufficient amounts to cover and otherwise insure for the full replacement cost of our Facility and business interruption insurance covering 100% of our Company's continuing fixed operating expenses and debt service for a period of at least 12 months arising from any loss insured against by our Company's "all risk" property insurance (with a maximum deductible of 60 days). 38 All insurance policies except Workers' Compensation Insurance, shall name the Power Purchaser as an additional insured. Our Company's casualty insurance (other than its Workers' Compensation Insurance) shall include provisions or endorsements (i) stating that such insurance is primary insurance with respect to the interest of the Power Purchaser and that any insurance maintained by the Power Purchaser is excess and not contributory insurance with the insurance required under the Power Purchase Agreement, and (ii) providing that such policies shall not be canceled or their limits of liability reduced except upon 60 days prior written notice to the Power Purchaser. Force Majeure A Party shall be excused from performing its obligations under the Power Purchase Agreement and shall not be liable in damages or otherwise to the other Party if and to the extent such Party declares that it is unable to perform or is prevented from performing an obligation under the Power Purchase Agreement by a Force Majeure condition, except for any obligations and/or liabilities under the Power Purchase Agreement to pay money, which shall not be excused, and except to the extent an obligation accrues prior to the occurrence or existence of a Force Majeure condition; provided, that: o the Party declaring its inability to perform by virtue of Force Majeure, as promptly as practicable after the occurrence of the Force Majeure condition, but in no event later than 5 days thereafter, gives the other Party written notice describing, in detail, the nature, extent and expected duration of the Force Majeure condition; o the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure condition; o the Party declaring Force Majeure uses all commercially reasonable efforts to remedy its inability to perform; and o as soon as the Party declaring Force Majeure is able to resume performance of its obligations excused as a result of the Force Majeure condition, it shall give prompt written notification thereof to the other Party. Irrespective of whether the Force Majeure condition is declared by the Power Purchaser or our Company, the time period of a Force Majeure shall be excluded from the calculation of all payments under the Power Purchase Agreement and the Power Purchaser shall be under no obligation to pay our Company any of the payments described in the Power Purchase Agreement; provided, that, if the Power Purchaser declares a Force Majeure, it shall, subject to the Power Purchaser's right to terminate the Power Purchase Agreement if such Force Majeure has not been fully corrected or alleviated within 18 months of such declaration, continue to pay our Company only the applicable monthly Total Fixed Payment as described in the Power Purchase Agreement until the earlier of (i) the termination of the Force Majeure condition or (ii) the termination of the Power Purchase Agreement; and provided further, that if a Force Majeure declared by our Company due to an action or inaction of the Host Utility that prevents our Company from delivering Net Electric Energy to the Electric Delivery Point, the Power Purchaser shall continue to pay the applicable portion of the Total Fixed Payment for the first 24 hours of such period. Notwithstanding anything to the contrary contained in the Power Purchase Agreement, except as may expressly be provided in the Power Purchase Agreement, the term Force Majeure shall not include or excuse a Party's performance: o Except as otherwise set forth in the Power Purchase Agreement, the failure to complete our Facility by or to achieve the Commercial Operation Date as extended under the Power Purchase Agreement, which failure is caused by, arises out of or results from the acts or omissions of our Company, and/or from the acts or omissions of any third party, unless, and then only to the extent that, any such acts or omissions of such third party (i) would itself be excused under the Power Purchase Agreement by virtue of a Force Majeure condition, or (ii) is the result of a failure of the Power Purchaser to provide fuel to our Facility under the Power Purchase Agreement; o Any reduction, curtailment or interruption of generation or operation of our Facility, or of the ability of the Power Purchaser to accept or transmit Net Electric Energy, whether in whole or in part, which reduction, curtailment or interruption is caused by or arises from the acts or omissions of any third party providing services or supplies to the Party claiming Force Majeure, including any vendor or supplier to either Party of materials, equipment, supplies or services, or any inability of the Host Utility to deliver Net Electric Energy to 39 the Power Purchaser, unless, and then only to the extent that, any such acts or omissions would itself be excused under the Power Purchase Agreement as a Force Majeure; o Any outage, whether or not due to the fault or negligence of our Company, of our Facility attributable to a defect or inadequacy in the manufacture, design or installation of our Facility that prevents, curtails, interrupts or reduces the ability of our Facility to generate Net Electric Energy or the ability of our Company to perform its obligations under the Power Purchase Agreement; or o To the extent that the Party claiming Force Majeure failed to prevent or remedy the Force Majeure condition by taking all commercially reasonable acts (short of litigation, if such remedy requires litigation) and, except as otherwise provided in the Power Purchase Agreement, failed to resume performance under the Power Purchase Agreement with reasonable dispatch after the termination of the Force Majeure condition; or o To the extent that the claiming Party's failure to perform was caused by lack of funds; or o To the extent the Power Purchaser is unable to perform due to a shortage of Natural Gas or Fuel Oil supply not caused by an event of Force Majeure; or o Because of an increase or decrease in the market price of electric energy/capacity, Natural Gas or Fuel Oil, or because it is uneconomic for such Party to perform its obligations under the Power Purchase Agreement. Neither Party shall be required to settle any strike, walkout, lockout or other labor dispute on terms which, in the sole judgment of the Party involved in the dispute, are contrary to its interest. The Power Purchaser shall have the right to terminate the Power Purchase Agreement if Force Majeure has been declared by our Company and the effect of said Force Majeure has not been fully corrected or alleviated within 18 months after the date said Force Majeure was declared; provided, however, that the Power Purchaser shall not have the right to terminate the Power Purchase Agreement if (i) the Force Majeure was caused by the Power Purchaser or (ii) the Force Majeure event does not prevent or materially limit the Power Purchaser's ability to sell Facility Capacity into or through the PJM Market or to a third party. Events of Default; Termination; Remedies The following shall constitute events of default under the Power Purchase Agreement: o breach of any term or condition of the Power Purchase Agreement, including, but not limited to, (i) any failure to maintain or to renew any security, (ii) any breach of a representation, warranty or covenant or (iii) failure of either Party to make a required payment to the other Party; o our Facility is not available to provide Fuel Conversion Services to the Power Purchaser during any period of 180 consecutive days after the occurrence of the Commercial Operation Date, except as may be excused by Force Majeure or the absence of available Natural Gas, or if such non-availability is caused by act or failure by the Power Purchaser where such action is required by the Power Purchase Agreement; o our Company sells or supplies Net Electric Energy, Ancillary Services or capacity from our Facility, or agrees to do the same, to any person or entity other than the Power Purchaser, without the prior approval of the Power Purchaser; o failure by our Company for 30 consecutive days to perform regular and required maintenance, testing or inspection of the Interconnection Facilities, our Facility and/or other electric equipment and facilities; o failure by our Company for 30 consecutive days to correct or resolve a material violation of any code, regulation and/or statute applicable to the construction, installation, operation or maintenance of our Facility, the Interconnection Facilities, Protective Gas Apparatus or any other electric equipment and facilities required to be constructed and operated under the Power Purchase Agreement when such violation impairs the continued ability of our Company to perform its obligations under the Power Purchase Agreement; o involuntary bankruptcy or insolvency of either Party and continues for more than 60 days; o voluntary bankruptcy or insolvency by either Party; o any modifications, alterations or other changes to our Facility by or on behalf of our Company which prevent our Company from fulfilling, or materially diminish our Company's ability to fulfill, its obligations, duties, 40 rights and responsibilities under the Power Purchase Agreement and which after reasonable notice and opportunity to cure, are not corrected; o there shall be outstanding for more than 60 days any unsatisfied final, non-appealable judgment against our Company in an amount exceeding $500,000, unless the existence of such unsatisfied judgment shall not materially affect our Company's ability to perform its obligations under the Power Purchase Agreement; and o AES shall cease to own, directly or indirectly, beneficially and of record, at least 50 percent of the equity interests in our Company, or shall cease to possess the power to direct or cause the direction of the management or policies of our Company, or any person (other than AES or an Affiliate) authorized to act as a power marketer by FERC or any Affiliate of such person shall own, directly or indirectly, beneficially or of record, any of the equity interests in our Company. Upon the occurrence of any event of default (other than an event of default described in clause (g) above, for which no notice shall be required or opportunity to cure permitted), the Party not in default, to the extent such Party has actual knowledge of the occurrence of such event of default, shall give prompt written notice of the default to the defaulting Party. Such notice shall set forth, in reasonable detail, the nature of the default and, where known and applicable, the steps necessary to cure such default. The defaulting Party shall have 30 days (two Business Days in the case of a default under clause (a)(iii) above) following receipt of such notice either to cure such default or commence in good faith all such steps as are necessary and appropriate to cure such default if such default cannot be completely cured within 30-day period. If the defaulting Party fails to cure such default or take such steps as provided under the preceding paragraph, and immediately upon the occurrence of any event of default described in clause (g) above, the Power Purchase Agreement may be terminated by the non-defaulting Party, without any liability or responsibility whatsoever, by written notice to the Party in default hereof. The Power Purchase Agreement shall thereupon terminate and the non-defaulting Party may exercise all such rights and remedies as are available to it to recover damages caused by such default. Security Our Company agrees to compensate the Power Purchaser for any actual damages it suffers or incurs as the result of the Power Purchaser's reliance upon the delivery of Facility Capacity, Ancillary Services and Fuel Conversion Services, to the extent said damages cannot be mitigated fully. Our Company further agrees that the damages the Power Purchaser may suffer under these circumstances will be any and all reasonable costs incurred by the Power Purchaser in excess of costs that would have been incurred had the Commercial Operation Date occurred on or before June 30, 2001, as such date may be extended under the Power Purchase Agreement. As required by the Power Purchase Agreement, the Company provided to the Power Purchaser a guaranty of our Company's performance and payment obligations under the Power Purchase Agreement from AES in the amount of $30 million ("Guaranty Amount"), which guaranty shall terminate on the Commercial Operation Date. At any time that AES's senior unsecured debt is no longer rated Investment Grade by Standard & Poor's or Moody's, or at any time at our Company's option, our Company shall provide such financial security for the Guaranty Amount as specified in the following paragraph. Upon the provision of the guaranty or other financial security referred to in this paragraph, the guaranty provided by AES under the provisions of the original Power Purchase Agreement shall be canceled and returned to our Company. Our Company shall provide to the Power Purchaser, within 30 days after a reduction in the unsecured debt rating of AES as described above, or at any time if payment is so secured at our Company's option, security in the form of a single letter of credit, satisfactory to the Power Purchaser in form and substance, upon which the Power Purchaser may draw if our Facility does not achieve the Commercial Operation Date by the date specified in the Power Purchase Agreement, as such date may be extended. If said security contains an expiration date, either express or implied, our Company shall renew said security not later than 30 days prior to said expiration date and shall contemporaneously therewith provide written notice of said renewal to the Power Purchaser. If our Company fails to renew said security as set forth above, the Power Purchaser is entitled to demand and receive payment thereunder on or after three days after written notice of such failure is provided to our Company, and in such event the amount so drawn shall be deposited in an interest bearing escrow account and shall be returned to our Company at the Commercial Operation Date unless otherwise drawn on by the Power Purchaser in satisfaction of our Company's obligations under the foregoing security provisions. The requirement for said security shall terminate upon the Commercial Operation Date. 41 The letter of credit referred to above shall be issued by a financial institution that meets and at all times during the term of such letter of credit maintains the following criteria: (i) a U.S. or foreign bank rated "C" or better by Thompson Bankwatch; or (ii) a U.S. or foreign bank, surety company or financial institution whose senior debt has the rating listed below by two of the three rating agencies: Standard & Poor's: "A-" or better; Moody's: "A3" or better; Duff & Phelps: "A-" or better. If such bank, surety company or financial institution fails to maintain such criteria, then upon 30 days, written notice from the Power Purchaser, our Company is required to obtain equivalent security from another bank, surety company or financial institution meeting the above stated criteria. The form and substance of any such letter of credit shall be reasonably satisfactory to the Power Purchaser. The Power Purchaser has provided to our Company a guarantee, issued by The Williams Companies, Inc. ("Williams"), of the Power Purchaser's performance and payment obligations under the Power Purchase Agreement; provided, that if Williams is no longer rated Investment Grade the guarantee shall, within 30 days after the loss of such rating, be replaced by a guarantee from another Affiliate of the Power Purchaser that is rated Investment Grade or by other security acceptable to us, including a letter of credit which meets the requirements of the Power Purchase Agreement. Assignment Neither the Power Purchase Agreement nor any rights, duties, interests or obligations thereunder may be assigned, transferred, pledged or otherwise encumbered or disposed of, by operation of law or otherwise without the prior written consent of the other Party; except that o the Power Purchaser, at any time after reasonable advance notice to our Company and without the consent of our Company, may assign the Power Purchase Agreement and any of its rights, interests, duties or obligations thereunder to any Affiliate of the Power Purchaser or any other entity; provided, that (a) such Affiliate or such other entity's long-term unsecured debt at such time is rated Investment Grade by Standard & Poor's and Moody's or that such Affiliate or such other entity's obligations under the Power Purchase Agreement are guaranteed by an Affiliate whose long-term unsecured debt at such time is rated Investment Grade by Standard & Poor's and Moody's and (b) any assignee shall agree to be bound by all of the terms and conditions of the Power Purchase Agreement to the same extent as the Power Purchaser; o our Company, at any time, and from time to time, after reasonable advance notice to the Power Purchaser and without the consent of the Power Purchaser, may assign the Power Purchase Agreement and any of its rights, interests, duties or obligations thereunder as collateral security to any Lender; provided, that the assignee shall agree to be bound by all of the terms and conditions of the Power Purchase Agreement to the same extent as our Company if the Lender exercises its rights under such assignment; and o our Company shall have the right at any time without the consent of the Power Purchaser to assign the Power Purchase Agreement and its rights, interests, duties and obligations thereunder to any Affiliate; provided, that such Affiliate assumes in writing all of the obligations and duties of our Company thereunder and the guaranty/security required under the Power Purchase Agreement remains in effect. The Power Purchase Agreement shall inure to the benefit of and bind the parties thereto, including any permitted assignee or successor. Except as otherwise specified in the foregoing assignment provisions, no assignment or disposition of rights under the Power Purchase Agreement shall o relieve or in any way discharge our Company or the Power Purchaser from the performance of their respective obligations and liabilities under the Power Purchase Agreement or o alter, amend, diminish or otherwise impair the Power Purchaser's or our Company's rights under the Power Purchase Agreement. Our Company agrees that it shall not sell, transfer, assign, lease or otherwise dispose of our Facility or any substantial portion thereof or interest therein necessary to perform our Company's obligations under the Power Purchase Agreement to any person that is a FERC authorized power marketer or an Affiliate thereof without the prior written consent of the Power Purchaser, which consent shall not be unreasonably withheld. 42 Except as specifically provided for in the foregoing assignment provisions, any assignment or transfer of the Power Purchase Agreement or any rights, duties or interests thereunder or any disposition of our Facility or any portion thereof or interest therein by any Party without the written consent of the other Party as provided therein shall be void and of no force or effect. Each Party shall reimburse the other for the reasonable costs and expenses (including reasonable legal fees and expenses) incurred in connection with a Party's agreement to review, execute and deliver any instruments, agreements or documents that may be used in connection with any assignment requested by a Party or otherwise permitted under the Power Purchase Agreement. Choice of Law The Power Purchase Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York, regardless of the conflicts of laws provisions of such laws. Confidentiality The Parties agree that all information relating to the Power Purchase Agreement shall not be used for any purpose other than as contemplated by the Power Purchase Agreement and shall be kept confidential in accordance with a Confidentiality Agreement. EPC Contract Our Company (as assignee of AES Ironwood, Inc.) and Seimens Westinghouse Power Corporation (the "Contractor") (our Company and the Contractor, collectively, the "Parties", and each individually, a "Party", for the purposes of this summary) have entered into an Agreement for Engineering, Procurement and Construction Services, dated as of September 23, 1998, as amended (the "EPC Contract"), on a fixed-price turnkey basis, for the Contractor to perform services in connection with the design, engineering, procurement, site preparation and clearing, civil works, construction, start-up, training and testing and to provide all materials and equipment (excluding operational spare parts), machinery, tools, construction fuels, chemicals and utilities, labor, transportation, administration and other services and items (collectively and separately, the "Services") for a new, approximately 705 MW gas-fired combined-cycle power electric generating facility (the "Facility") located in Lebanon, Pennsylvania. The Contractor's Services and Other Obligations The Contractor shall complete our Project by performing or causing to be performed all of the Services. The Services shall include: engineering and design; construction and construction management; providing Design Documents, Instruction Manuals, a Project Procedures Manual and Quality Assurance Plan to our Company; procurement of all materials, equipment and supplies and all Contractor and Subcontractor labor and manufacturing and related services; providing a spare parts list; providing all labor and personnel; obtaining some Applicable Permits and providing information to assist our Company in obtaining other Applicable Permits; performing inspection, expediting, quality surveillance and traffic services; transporting, shipping, receiving and marshalling all materials, equipment and supplies and other items; providing storage for all materials, supplies and equipment and procurement or disposal of all soil and gravel (including remediation and disposal of specific Hazardous Materials); providing for design, construction and installation of Electrical Interconnection Facilities (including Electric Metering Equipment, automatic regulation equipment, Protective Apparatus and control system equipment) and reviewing other utility interconnections to our Facility (including gas and water pipelines); performing Performance Tests and Power Purchase Agreement Output Tests; providing for start-up and initial operation functions; providing specified spare parts, waste disposal services, chemicals, consumables and utilities. The Services shall also include: training our Company's personnel prior to Provisional Acceptance; providing our Company and its designee with access to the Site; obtaining additional necessary Real Estate Rights; clean-up and waste disposal (including Hazardous Materials brought to the Site by the Contractor or the Subcontractors); submitting a Project Schedule and Progress Reports; payment of Contractor Taxes; employee identification and security arrangements; protecting adjoining utilities and public and private lands from damage; paying appropriate royalties and license fees; providing final releases and waivers to our Company; posting collateral or providing other assurances if major Subcontractors fail to furnish final waivers; maintaining labor relations and project labor agreements; providing further assurances; coordinating with other contractors; and causing Siemens Corporation to execute and deliver the EPC Guaranty. 43 Construction and Start-up Except for specific Services the performance of which has already commenced, the Contractor shall commence performance of the Services on the date specified in the Notice to Proceed from our Company. The Contractor shall perform the Services in accordance with Prudent Utility Practices, generally accepted standards of professional care, skill, diligence and competence applicable to engineering, construction and project management practices, all Applicable Laws, all Applicable Permits, the Real Estate Rights, the Quality Assurance Plan, the Electrical Interconnection Requirements, the Environmental Requirements and safety precautions set forth in the EPC Contract, and all of the requirements necessary to maintain the warranties granted by the Subcontractors under the EPC Contract. The Contractor shall perform the Services in accordance with our Project Schedule and shall cause o each Construction Progress Milestone to be achieved on or prior to the applicable Construction Progress Milestone Date, o either Provisional Acceptance or Interim Acceptance of our Facility to occur on or prior to the Guaranteed Provisional Acceptance Date and o Final Acceptance of our Facility to occur on or before the Guaranteed Final Acceptance Date. The Contractor shall perform the Services such that our Facility, when operated in accordance with the Instruction Manual and the Power Purchase Agreement Operating Requirements (regardless of whether our Facility is operated at 705 MW or at a different output) on Gas and on Fuel Oil, respectively, as of Provisional Acceptance, Interim Acceptance and Final Acceptance, will comply with all Applicable Laws and Applicable Permits, the Electrical Interconnection Requirements and the Guaranteed Emissions Limits in accordance with the Completed Performance Test requirements. Contract Price and Payment The adjusted Contract Price (including Base Scope Changes through the date hereof) is $238 million and commencing on the Commencement Date is to be paid in installments in accordance with the Payment and Milestone Schedule ("Scheduled Payments"). The Contract Price may be adjusted as a result of Scope Changes (as described below). Our Company shall make Scheduled Payments to the Contractor upon receipt of the Contractor's Payment Request unless the Independent Engineer fails to confirm the matters certified to by the Contractor in such request, in which case our Company may defer such Scheduled Payments until such condition is satisfied. Our Company shall withhold from each Scheduled Payment 5% (other than our Project Completion Payment) of such payment until after Final Acceptance ("Retainage"). At Final Acceptance, our Company shall pay all Retainage except for $1,000,000 and 150% of the cost of completing all Punch List items. Our Company shall pay our Project Completion Payment (including all remaining Retainage) within 30 days after Project Completion. Upon the termination of the EPC Contract, the Contractor shall be entitled to a Termination Payment equal to the Scheduled Payments due and owing, Retainage and termination costs incurred by the Contractor and Subcontractors. Our Company is not obligated to make any payment to the Contractor at any time the Contractor is in material breach of the EPC Contract (unless the Contractor is diligently pursuing a cure). All payments are subject to release of claims. Our Company's Services Our Company's responsibilities include: designating a representative for our Project; furnishing the Contractor access to the Site; securing specified Applicable Permits and Real Estate Rights; providing specified start-up personnel; furnishing water, water delivery facilities, specified spare parts, water disposal services and consumables; providing permanent utilities for the start-up, testing and operation of our Facility; providing fuel supply arrangements; providing electrical interconnection facilities arrangements; furnishing approvals; administering third-party contracts; causing AES to provide the AES Pre-financial Closing Guaranty. If our Company fails to meet any of its obligations under the EPC Contract, then, to the extent that the Contractor was reasonably delayed in the performance of the Services as a direct result thereof, an equitable adjustment to one or more of the Contract Price, the Guaranteed Completion Dates, the Construction Progress Milestone Dates, the Payment and Milestone Schedule and our Project Schedule, and, as appropriate, such other provisions of the EPC Contract that may be affected thereby, shall be made by agreement between our Company and the Contractor. 44 Completion and Acceptance of our Project Mechanical Completion Mechanical Completion shall be achieved when: o All equipment and facilities necessary for the full, safe and reliable operation of our Facility have been properly constructed, installed, insulated and protected where required, and correctly adjusted, and can be safely used for their intended purposes in accordance with the Instruction Manual and all Applicable Laws and Applicable Permits; o The tests required for Mechanical Completion that are identified in the EPC Contract have been successfully completed; o Our Facility is fully and properly interconnected and synchronized with the electrical system of the Utility in accordance with the Electrical Interconnection Requirements, and all features and equipment of our Facility are capable of operating simultaneously; and o The complete performance by the Contractor of all the Services relating to our Facility under the EPC Contract, except for any remaining Punch List items, Performance Tests, Power Purchase Agreement Output Tests and Reliability Run applicable thereto, in compliance with the standards of performance set forth in the EPC Contract, such that our Facility meets all of the requirements set forth in the EPC Contract applicable thereto but excluding the achievement of the Guaranteed Emission Limits and the Performance Guarantees. When the Contractor believes that it has achieved Mechanical Completion, it shall deliver to our Company the Notice of Mechanical Completion. Within 10 days of receipt of the Notice of Mechanical Completion, if it is satisfied that the Mechanical Completion requirements have been met, our Company shall deliver to the Contractor a Mechanical Completion Certificate. If reasonable cause exists for doing so, our Company shall notify the Contractor in writing that Mechanical Completion has not been achieved, stating the reasons therefor. If Mechanical Completion has not been achieved as so determined by our Company, the Contractor shall promptly take such action or perform such additional Services as will achieve Mechanical Completion of our Facility and shall issue to our Company another Notice of Mechanical Completion. Such procedure shall be repeated as necessary until Mechanical Completion of our Facility has been achieved. Performance Tests and Power Purchase Agreement Output Tests Once Mechanical Completion has been achieved, the Contractor shall perform the Performance Tests and Power Purchase Agreement Output Tests in accordance with criteria set forth in the EPC Contract. The Contractor shall give our Company notice of the Performance Tests and Power Purchase Agreement Output Tests. Our Company shall arrange for the disposition of output during start-up and testing. The Contractor may declare the Performance Test or the Power Purchase Agreement Output Test to be a Completed Performance Test or a Completed Power Purchase Agreement Output Test, respectively, if during such tests the operation of our Facility complies with Applicable Laws, Applicable Permits, Guaranteed Emissions Limits and other required standards. Provisional Acceptance Provisional Acceptance shall be achieved when: o The Contractor has caused a completed Performance Test in which our Facility, while operating on Gas, demonstrates during a minimum of two 2-hour tests an average net electrical output and a net heat rate of 95% (or higher) of the Gas-based Electrical Output Guarantee and 108% (or lower) of the Gas-based Heat Rate Guarantee; o The Contractor has caused a completed Power Purchase Agreement Output Test in which our Facility demonstrates during a continuous period of 100 hours achievement of 95% (or higher) of the Gas-based Electrical Output Guarantee, while operating on Gas and to our Company's reasonable satisfaction, the other capabilities required to be demonstrated under the EPC Contract; and o Our Facility has achieved, and continues to satisfy, the requirements of Mechanical Completion. When the Contractor believes that it has achieved Provisional Acceptance of our Facility, it shall deliver to our Company a Notice of Provisional Acceptance. If it is satisfied that the Provisional Acceptance requirements have been 45 met, our Company shall deliver to the Contractor a Provisional Acceptance Certificate. If reasonable cause exists for doing so, our Company shall notify the Contractor in writing that Provisional Acceptance of our Facility has not been achieved, stating the reasons therefor. If our Company determines that Provisional Acceptance of our Facility has not been achieved, the Contractor shall promptly take such action or perform such additional Services as will achieve Provisional Acceptance and, if the Contractor believes that Provisional Acceptance of our Facility has been achieved, shall issue to our Company another Notice of Provisional Acceptance. Unless Interim Acceptance or Final Acceptance of our Facility shall have previously occurred, such procedure shall be repeated as necessary until Provisional Acceptance of our Facility has been achieved. Upon the earliest to occur of Provisional Acceptance, Interim Acceptance and Final Acceptance of our Facility, our Company shall take possession and control our Facility and shall thereafter be solely responsible for the operation and maintenance thereof. After our Company takes possession and control of our Facility, the Contractor shall have reasonable access to our Facility to complete the Services. Interim Acceptance Interim Acceptance shall be achieved when: o The Contractor has caused a Completed Performance Test in which our Facility, while operating on Gas, demonstrating during such Performance Test an average net electrical output and a net heat rate (each as measured and corrected to the design operating conditions, all in accordance with the procedures set forth in the EPC Contract) of 95% (or higher) of the Gas-based Electrical Output Guarantee (but in no event lower than the percentage of the Gas-based Electrical Output Guarantee demonstrated by the applicable Completed Performance Test and Completed Power Purchase Agreement Output Test at Provisional Acceptance, if applicable) and 104% (or lower) of the Gas-based Heat Rate Guarantee; o If neither Provisional Acceptance nor Interim Acceptance of our Facility has theretofore occurred, the Contractor has caused a Completed Power Purchase Agreement Output Test in accordance with the EPC Contract to be concluded in which our Facility demonstrates (i) a level of achievement of 95% (or higher) of the Gas-based Electrical Output Guarantee, while operating on Gas, and (ii) to the Utility's reasonable satisfaction, the other capabilities required to be so demonstrated under the EPC Contract; o Our Facility has achieved, and continues to satisfy the requirements for the achievement of, Mechanical Completion; and o The Contractor has completed performance of the Services except for (i) Punch List items and (ii) Services that are required by the terms of the EPC Contract to be completed after the achievement of Interim Acceptance. When the Contractor believes that it has achieved Interim Acceptance of our Facility, it shall deliver to our Company Notice of Interim Acceptance. If it is satisfied that the Interim Acceptance requirements have been met, our Company shall deliver to the Contractor an Interim Acceptance Certificate. If reasonable cause exists for doing so, our Company shall notify the Contractor in writing that Interim Acceptance of our Facility has not been achieved, stating the reasons therefor. If our Company determines that Interim Acceptance has not been achieved, the Contractor shall promptly take such action or perform such additional Services as will achieve Interim Acceptance and, if the Contractor believes that Interim Acceptance of our Facility has been achieved, shall issue to our Company another Notice of Interim Acceptance. Unless Final Acceptance of our Facility shall have previously occurred, such procedure shall be repeated as necessary until Interim Acceptance of our Facility has been achieved. Final Acceptance Final Acceptance shall be achieved when: o The Contractor has caused a Completed Performance Test in accordance with the EPC Contract to be concluded in which our Facility, while operating separately on Gas and on Fuel Oil, demonstrates during such Performance Test an average net electrical output and a net heat rate of 100% (or higher) of each of the corresponding Gas-based and Fuel Oil-based Electrical Output Guarantees and 100% (or lower) of each of the corresponding Gas-based and Fuel Oil-based Heat Rate Guarantees; o If neither Provisional Acceptance nor Interim Acceptance of our Facility shall have theretofore occurred or if Company shall have requested that a new Completed Power Purchase Agreement Output Test be conducted in connection with Final Acceptance of our Facility, the Contractor has caused a Completed Power Purchase Agreement Output Test in accordance with the EPC Contract to be concluded in which our Facility 46 demonstrates (i) a level of achievement of 100% (or higher) of the Gas-based Electrical Output Guarantee, while operating on Gas, and (ii) to the Utility's reasonable satisfaction, the other capabilities required to be so demonstrated under the EPC Contract; o our Facility has achieved, and continues to satisfy the requirements for the achievement of, Mechanical Completion; o the Reliability Guarantee has been achieved under the EPC Contract; and o the Contractor has completed performance of the Services except for (i) Punch List items and (ii) Services that are required by the terms of the EPC Contract to be completed after the achievement of Final Acceptance (such as the Contractor's warranty obligations). The Reliability Guarantee shall have been achieved if and only if our Facility demonstrates an Average Equivalent Availability of not less than 92% while operating over a period of at least 45 consecutive days in accordance with Applicable Laws, Applicable Permits, the Electrical Interconnection Requirements, the Power Purchase Agreement Operating Requirements, the Guaranteed Emissions Limits, the Instruction Manual and the Power Purchase Agreement. When the Contractor believes that it has achieved Final Acceptance of our Facility, it shall deliver to our Company a Notice of Final Acceptance. If it is satisfied that the Final Acceptance requirements have been met, our Company shall deliver to the Contractor a Final Acceptance Certificate. If reasonable cause exists for doing so, our Company shall notify the Contractor in writing that Final Acceptance has not been achieved, stating the reasons therefor. If our Company determines that Final Acceptance has not been achieved, the Contractor shall promptly take such action or perform such additional Services as will achieve Final Acceptance and shall issue to our Company another Notice of Final Acceptance. Such procedure shall be repeated as necessary until Final Acceptance has been achieved or deemed to have occurred. At any time, by giving notice to the Contractor, our Company in its sole discretion may elect to effect Final Acceptance, in which case Final Acceptance shall be deemed effective as of the date of such notice, and the Contractor shall have no liability to our Company for any amounts thereafter arising as Performance Guarantee Payments (other than any Interim Period Rebates that arose prior to such election by our Company) for failure of our Facility to achieve any or all of the Performance Guarantees applicable thereto. At any time after Provisional Acceptance or Interim Acceptance of our Facility has been achieved, the Contractor may, after exhausting all reasonable repair and replacement alternatives in order to achieve the applicable Performance Guarantees for Final Acceptance, and provided that the Reliability Guarantee shall have been achieved, give to our Company notice of its intention to elect to declare Final Acceptance. In such event, the Contractor may elect to use the results of the most recent eligible Completed Performance Test for the purpose of determining our Facility's level of achievement of the Performance Guarantees. Final Acceptance shall be deemed effective as of the last to occur of (i) the date of our Company's receipt of the declaration and report of the final Completed Performance Test, or, as applicable, the most recent Completed Performance Test, (ii) the date of our Company's receipt of the declaration and report of any additional Completed Power Purchase Agreement Output Test required by our Company in connection with Final Acceptance and (iii) the effective date of the achievement of the Reliability Guarantee. If on or before the Guaranteed Final Acceptance Date (i) our Facility has achieved either Provisional Acceptance or Interim Acceptance, (ii) the most recent Completed Performance Test has satisfied the relevant provisions of the EPC Contract and (iii) the Reliability Guarantee has been achieved, then Final Acceptance of our Facility shall be deemed to occur on the Guaranteed Final Acceptance Date. If (i) on or before the Guaranteed Final Acceptance Date, our Facility has achieved at least Provisional Acceptance or Interim Acceptance and has achieved all other requirements for Final Acceptance except for the Reliability Guarantee and (ii) within 90 days after the Guaranteed Final Acceptance Date, the Reliability Guarantee has been achieved and all other requirements for Final Acceptance continue to be satisfied at such time, then Final Acceptance of our Facility shall be deemed to occur on the date on which the Reliability Guarantee is achieved. Project Completion Project Completion shall be achieved under the EPC Contract when: 47 o Final Acceptance of our Facility shall have occurred and the Performance Guarantees with respect to our Facility shall have been achieved (or in lieu of achievement of the Performance Guarantees, applicable rebates under the EPC Contract shall have been paid, or our Company shall have elected Final Acceptance); o The Reliability Guarantee shall have been achieved; o The Contractor shall have demonstrated during the Completed Performance Test that the operation of our Facility does not exceed the Guaranteed Emissions Limits; o The requirements for achieving Mechanical Completion of our Facility shall continue to be met; o The Punch List items shall have been completed in accordance with the EPC Contract; and o The Contractor shall have performed all of the Services, other than those Services (such as the Contractor's warranty obligations) which by their nature are intended to be performed after Project Completion. When the Contractor believes that it has achieved Project Completion, it shall deliver to our Company a Notice of Project Completion. If it is satisfied that the Final Acceptance requirements have been met, our Company shall deliver to the Contractor a Project Completion Certificate. If reasonable cause exists for doing so, our Company shall notify the Contractor in writing that Project Completion has not been achieved, stating the reasons therefor. If our Project Completion has not been achieved as so determined by our Company, the Contractor shall promptly take such action or perform such additional Services as will achieve Project Completion and shall issue to our Company another Notice of Project Completion. Such procedure shall be repeated as necessary until Project Completion is achieved. The Contractor shall be obligated to achieve Project Completion within 180 days after Final Acceptance of our Facility. If the Contractor does not achieve our Project Completion on or before our Project Completion Deadline or if our Company determines that the Contractor is not proceeding with all due diligence to complete the Services in order to achieve Project Completion by such deadline, our Company may retain another contractor to complete such work at Contractor's expense. Price Rebate for Failure to Meet Guarantees Completion Dates The Contractor guarantees that (i) at least one of Provisional Acceptance, Interim Acceptance or Final Acceptance of our Facility shall be achieved on or before the Guaranteed Provisional Acceptance Date and (ii) Final Acceptance of our Facility shall be achieved on or before the Guaranteed Final Acceptance Date. If none of Provisional Acceptance, Interim Acceptance or Final Acceptance of our Facility occurs by the date that is 45 days after the Guaranteed Provisional Acceptance Date, the Contractor shall pay our Company $110,000 per day ("Provisional Acceptance Late Completion Payments") for each day Provisional Acceptance, Interim Acceptance or Final Acceptance is later than the Guaranteed Provisional Acceptance Date (but in no event shall the aggregate amount of such payments be greater than the Delay LD SubCap). If none of Provisional Acceptance, Interim Acceptance and Final Acceptance of our Facility occurs on or before the date that is 40 days after the Guaranteed Provisional Acceptance Date, the Contractor shall, on such date, submit for approval by our Company and the Independent Engineer a Plan to accelerate the performance of the Services as necessary in order to achieve (i) at least one of Provisional Acceptance, Interim Acceptance and Final Acceptance of our Facility by the date that is 12 months after the Guaranteed Provisional Acceptance Date and (ii) Final Acceptance of our Facility by the Guaranteed Final Acceptance Date. If the Plan is not approved by our Company and the Independent Engineer, the Contractor shall revise the Plan and resubmit a revised Plan for approval by our Company and the Independent Engineer. If Provisional Acceptance, Interim Acceptance and Final Acceptance (whichever is the earlier to occur) of our Facility occurs prior to the Guaranteed Provisional Acceptance Date (the "Early Completion Bonus Trigger Date"), our Company shall pay the Contractor $50,000 per day ("Early Completion Bonus") for each day by which Provisional Acceptance, Interim Acceptance and Final Acceptance precedes the Early Completion Bonus Trigger Date (but in no event shall the aggregate amount of such bonus exceed $3,000,000). 48 Performance Guarantees Electrical Output If the average net electrical output of our Facility at Provisional Acceptance or Interim Acceptance (whichever is the earlier to occur) is less than the Gas-based Electrical Output Guarantee, then the Contractor shall pay our Company, as a rebate, for each day during the Interim Period, an amount equal to $0.22 per day for each kilowatt by which such average net electrical output is less than such Gas-based Electrical Output Guarantee. Upon Final Acceptance, if the average net electrical output of our Facility during the Gas-fired portion of the Completed Performance Test is less than the Gas-based Electrical Output Guarantee, then our Company shall pay the Contractor, as a rebate, an amount equal to $550 for each kilowatt by which such an average net electrical output is less than the Gas-based Electrical Output Guarantee and (ii) the Fuel Oil-based portion of the Completed Performance Test is less than the Fuel Oil-based Electrical Output Guarantee, then the Contractor shall pay our Company, as a rebate, an amount equal to $30 for each kilowatt by which such average net electrical output is less than the Fuel Oil-based Electrical Output Guarantee. Upon Final Acceptance, if the average net electrical output of our Facility during the Gas-fired portion of the Completed Performance Test is greater than the Gas-based Electrical Output Guarantee, then the Contractor shall pay our Company as a bonus, an amount equal to 50% of the net incremental revenues received by Company during the period of the first three years following the Commercial Operation Date as a result of (i) any power purchase agreement concluded with a Utility whereby the Utility purchases such Excess Output, (ii) any short-term sales of such Excess Output, and (iii) any spot sales of such Excess Output, in each of the cases (i) through (iii) above after subtracting all incremental costs and Taxes associated with such Excess Output (provided, however, that the aggregate amount of any such bonus shall in no event exceed $275 per kilowatt of Excess Capacity). Heat Rate Guarantees If the average net heat rate of our Facility at Provisional Acceptance and/or Interim Acceptance (if having occurred before Final Acceptance) exceeds the Gas-based Heat Rate Guarantee, then the Contractor shall pay our Company, as a rebate, for each day during the Interim Period, an amount equal to $44 per day for each BTU/KwH by which such measured net heat rate is greater than such Gas-based Heat Rate Guarantee. Upon Final Acceptance, if the net heat rate of our Facility during (i) the Gas-fired portion of the Completed Performance Test exceeds the Gas-based Heat Rate Guarantee, then the Contractor shall pay our Company, as a rebate, an amount equal to $162,300 for each BTU/KwH by which such measured heat rate is greater than the Gas-based Heat Rate Guarantee, and (ii) the Fuel Oil-fired portion of the Completed Performance Test exceeds the Fuel Oil-based Heat Rate Guarantee, then the Contractor shall pay our Company, as a rebate, an amount equal to $17,000 for each BTU/KwH by which such measured heat rate is greater than the Fuel Oil-based Heat Rate Guarantee. Upon Final Acceptance, if the average net heat rate during the Gas-fired portion of the Completed Performance Test is less than the Gas-based Heat Rate Guarantee, then our Company shall pay the Contractor, as a bonus, an amount equal to $40,000 for each BTU/KwH by which such measured heat rate is less that the Gas-based Heat Rate Guarantee (provided, however, that the aggregate amount of any such bonus shall in no event exceed $3,000,000). Liability and Damages Limitation of Liability In no event shall the Contractor's liability (i) for Provisional Acceptance Late Completion Payments, exceed in the aggregate an amount equal to 20% of the Contract Price (the "Delay LD SubCap") and (ii) for all Provisional Acceptance Late Completion Payments and Performance Guarantee Payments, exceed in the aggregate an amount equal to 45% of the Contract Price (the "Total LD SubCap"). Consequential Damages Neither Party nor any of its contractors, subcontractors or other agents providing equipment, material or services for our Project shall be liable for any indirect, incidental, special or consequential loss or damage of any type. Aggregate Liability of Contractor The total aggregate liability of the Contractor and any of its Subcontractors (including, without limitation, liabilities covered by the Delay LD SubCap and the Total LD SubCap) to our Company shall not in any event exceed an 49 amount equal to the Contract Price (provided, however, that such limitation of liability shall not apply to obligations to remove liens or to make indemnification payments). Warranties and Guarantees The Contractor warrants and guarantees that during the applicable Warranty Period o all machinery, equipment, materials, systems, supplies and other items comprising our Project shall be new and of first-rate quality which satisfies utility-grade standards and in accordance with Prudent Utility Practices and the specifications set forth in the EPC Contract, suitable for the use in generating electric energy and capacity under the climatic and normal operating conditions and free from defective workmanship or materials, o it will perform all of its design, construction, engineering and other Services in accordance with the EPC Contract, o our Project and its components shall be free from all defects caused by errors or omissions in engineering and design, as determined by reference to Prudent Utility Practices, and shall comply with all Applicable Laws, all Applicable Permits, the Electrical Interconnection Requirements, the Power Purchase Agreement Operating Requirements and the Guaranteed Emissions Limits and o the completed Project shall perform its intended functions of generating electric energy and capacity as a complete, integrated operating system as contemplated in the EPC Contract. If our Company notifies the Contractor within 30 days after the expiration of the applicable Warranty Period of any defects or deficiencies discovered during the applicable Warranty Period, the Contractor shall promptly reperform any of the services at its own expense to correct any errors omissions, defect or deficiencies and, in the case of defective or otherwise deficient machinery, equipment, materials, systems supplies or other items, replace or repair the same at its own expense. The Contractor warrants and guarantees that, to the extent our Company has made all payments then due to the Contractor, title to our Facility and all work, materials, supplies and equipment shall pass to our Company free and clear of all liens, other than any Permitted Liens. Other than the warranties and guarantees provided in the EPC Contract there are no other warranties of any kind, whether statutory, express or implied relating to the Services. During the applicable Warranty Period, the Contractor shall promptly notify our Company of any engineering and design defects which are manifested in any of the Contractor's fleet of 501G combustion turbines under construction, start-up or testing or in operation during such Warranty Period and which could reasonably be expected to be common to the fleet or this Facility. Upon such a notification from the Contractor of a fleet-wide or common defect and otherwise upon notification from our Company no later than 30 days after the expiration of the applicable Warranty Period of any defects or deficiencies in our Project or any component thereof, our Company shall, subject to the provisions of the EPC Contract, make our Facility or such subject Equipment available to the Contractor for the Contractor to re-perform, replace or, at the Contractor's option, repair the same at the Contractor's expense such that it is in compliance with the standards warranted and guaranteed, all in accordance with the EPC Contract. Force Majeure Force Majeure Event A "Force Majeure Event" shall mean any act or event that prevents the affected Party from performing its obligations (other than the payment of money) under the EPC Contract or complying with any conditions required to be complied with under the EPC Contract if such act or event is beyond the reasonable control of and not the fault of the affected Party and such Party has been unable by the exercise of due diligence to overcome or mitigate the effects of such act or event. Force Majeure Events include, but are not limited to, acts of declared or undeclared war, sabotage, landslides, revolution, terrorism, flood, tidal wave, hurricane, lightning, earthquake, fire, explosion, civil disturbance, insurrection or riot, act of God or the public enemy, action (including unreasonable delay or failure to act) of a court or public authority, or strikes or other labor disputes of a regional or national character that are not limited to only the employees of the Contractor or its Subcontractors and that are not due to the breach of a labor contract or Applicable Law by the Party claiming Force Majeure or any of its Subcontractors. Force Majeure Events do not include (i) strikes, work stoppages and labor disputes or unrest of any kind that involve only employees of the Contractor or any Subcontractors (except as expressly provided in the foregoing sentence), (ii) late delivery of materials or equipment (except to the extent caused by a Force Majeure Event) and (iii) economic hardship. 50 Excused Performance If either Party is rendered wholly or partly unable to perform its obligations because of a Force Majeure Event, that Party will be excused from whatever performance is affected by the Force Majeure Event to the extent so affected; provided, that: o the non-performing Party gives the other Party prompt notice describing the particulars of the occurrence; o the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure Event; o the non-performing Party exercises all reasonable efforts to mitigate or limit damages to the other Party; o the non-performing Party uses its best efforts to continue to perform its obligations under the EPC Contract and to correct or cure the event or condition excusing performance; and o when the non-performing Party is able to resume performance of its obligations, that Party shall give the other Party written notice to that effect and shall promptly resume performance under the EPC Contract. Scope Changes Scope Changes Our Company may order Scope Changes to the Services, in which event one or more of the Contract Price, the Construction Progress Milestone Dates, the Guaranteed Completion Dates, the Payment and Milestone Schedule, our Project Schedule and the Performance Guarantees shall be adjusted accordingly, if necessary. All Scope Changes shall be authorized by a Scope Change Order and only our Company or our Company's Representative may issue Scope Change Orders. As soon as the Contractor becomes aware of any circumstances which the Contractor has reason to believe may necessitate a Scope Change, the Contractor shall issue to our Company a Scope Change Order Notice at the Contractor's expense. If our Company desires to make a Scope Change, in response to a Scope Change Order Notice or otherwise, it shall submit a Scope Change Order Request to the Contractor. The Contractor shall promptly review the Scope Change Order Request and notify our Company in writing of the options for implementing the proposed Scope Change and the effect, if any, each such option would have on the Contract Price, the Guaranteed Completion Dates, the Construction Progress Milestone Dates, the Payment and Milestone Schedule, our Project Schedule and the Performance Guarantees. No Scope Change Order shall be issued and no adjustment of the Contract Price, the Guaranteed Completion Dates, the Construction Progress Milestone Dates, the Payment and Milestone Schedule, our Project Schedule or the Performance Guarantees shall be made in connection with any correction of errors, omission, deficiencies, or improper or defective work on the part of the Contractor or any Subcontractors in the performance of the Services. Changes due to changes in Applicable Laws or Applicable Permits occurring after the date of the EPC Contract shall be treated as Scope Changes. Effect of Force Majeure Event If and to the extent that any Force Majeure Events affect the Contractor's ability to meet the Guaranteed Completion Dates, or the Construction Progress Milestone Dates, an equitable adjustment in one or more of such dates, the Payment and Milestone Schedule and our Project Schedule shall be made by agreement of our Company and the Contractor. No adjustment to the Performance Guarantees and, except as otherwise expressly set forth below, the Contract Price shall be made as a result of a Force Majeure Event. If the Contractor is delayed in the performance of the Services by a Force Majeure Event, then: o to the extent that the delay(s) are, in the aggregate, six months or less, the Contractor shall absorb all of its costs and expenses resulting from said delay(s); and o to the extent that the delay(s) are, in the aggregate, more than six months, the Contractor shall be reimbursed by our Company for those incremental costs and expenses resulting from said delay(s) which are incurred by the Contractor after said six-month period. 51 Price Change An increase or decrease in the Contract Price, if any, resulting from a Scope Change requested by our Company or made under the EPC shall be determined, upon the mutual agreement of the Parties. Continued Performance Pending Resolution of Disputes If a dispute regarding the amount of any increase or decrease in the Contractor's costs with respect to a Scope Change, the Contractor shall proceed with the performance of such Scope Change promptly following our Company's execution of the corresponding Scope Change Order. If Hazardous Materials were not identified in an environmental site assessment report delivered by our Company to the Contractor prior to the Commencement Date and were not brought onto the Site by the Contractor or any of its Subcontractors, then the Contractor shall be entitled to a Scope Change under the EPC Contract. Indemnification Contractor Indemnity The Contractor shall fully indemnify, save harmless and defend our Company, its parents, subsidiaries and other affiliates, the Financing Parties, and the directors, officers, agents, employees, successors and assigns of each of them (the "Company Indemnified Parties"), from and against any and all losses, costs, damages, injuries, liabilities, claims, demands, penalties, interest and causes of action, including without limitation reasonable attorneys' fees (collectively, the "Damages"), o directly or indirectly arising out of, resulting from or related to any third-party claims associated with the EPC Contract (including without limitation any such claims for damage to or destruction of property of, or death of or bodily injury to, persons to the extent caused or contributed to by the Contractor's or any Subcontractor's negligence or intentionally wrongful act in the performance of the Services or otherwise relating to the EPC Contract or our Project, whether or not our Company Indemnified Parties are contributorily negligent); o in favor of any governmental authority or other third party to the extent caused by (a) failure of the Contractor or any Subcontractor to comply with Applicable Laws and Applicable Permits as required by the EPC Contract, (b) failure of the Contractor or any Subcontractor to properly administer and pay Taxes or (c) nonpayment of amounts due as a result of furnishing materials or services to the Contractor or any Subcontractor in connection with the Services; o by reason of any claims or suits arising out of claims of infringement of any domestic or foreign patent rights, copyrights or other intellectual property, proprietary or confidentiality rights with respect to materials and information used by the Contractor or any Subcontractor in performing the Services or in any way incorporated in or related to our Project; or o resulting from (a) any Hazardous Material which has been brought onto the Site by any Contractor Responsible Party (other than any Company Accepted Hazardous Materials), (b) the Contractor's failure to notify our Company promptly of the presence of any Hazardous Material on, or the release of any Hazardous Material on or from, the Site, and such failure has a material adverse effect on our Company or our Project, or (c) to the extent that any Contractor Responsible Party has negligently aggravated the condition resulting from the presence of any Hazardous Material on, or the release of any Hazardous Material on or from, the Site. Company Indemnity Our Company shall fully indemnify, save harmless and defend the Contractor, its parent, subsidiaries and other affiliates, and the directors, officers, agents, employees, successors and assigns of each of them (the "Contractor Indemnified Parties") from and against all Damages resulting from the presence of any Hazardous Material on, or the release of any Hazardous Material on or from, the Site, other than (i) any Hazardous Material that may be described in an environmental site assessment, if any, that our Company delivers to the Contractor prior to the Commencement Date and for which the Contractor has not refused to accept responsibility and (ii) any Hazardous Materials brought onto the Site by any Contractor Responsible Party (but excluding any Hazardous Materials that are contained, consistent with Prudent Utility Practices, in part of the Services accepted by our Company at the time of Provisional Acceptance, Interim Acceptance or Final Acceptance of our Facility and had been expressly identified in a Material Safety Data Sheet 52 delivered to our Company by the Contractor prior to our Company's acceptance thereof ("Company Accepted Hazardous Materials")). Insurance General The Contractor shall provide and maintain the following types of insurance at all times while the Contractor or any Subcontractor is performing the Services: Workers' Compensation Insurance and Employers' Liability Insurance; Commercial General Liability Insurance; Business Automobile Liability Insurance; Commercial Umbrella and/or Excess Insurance; "All-Risk" Builder's Risk Insurance; and Ocean Marine Cargo Insurance. Before permitting any of its Subcontractors to perform any Services at the Site, the Contractor shall obtain a certificate of insurance from each such Subcontractor evidencing that such Subcontractor has obtained insurance in such amounts and against such risks as is consistent with the Contractor's customary practices for such types of subcontracts for projects of similar type and capacity to our Project. All insurance policies supplied by the Contractor shall include a waiver of any right of subrogation of the insurers and of any right of the insurers to any set-off, counterclaim or deduction. Cost of Premiums Construction Insurance: The Contractor shall bear responsibility for payment of all premiums for insurance coverage required to be provided by the Contractor. Operating Insurance: Our Company shall be responsible for obtaining, on such terms and conditions as our Company and its Financing Parties reasonably deem to be appropriate, "all-risk" property insurance (including "business interruption" coverage) for our Facility for the period commencing with the first to occur of Provisional Acceptance, Interim Acceptance and Final Acceptance (the "Operating Insurance"). Risk of Loss With respect to our Facility, until the Risk Transfer Date, the Contractor (not our Company) shall bear the risk of loss and full responsibility for the costs of replacement, repair or reconstruction resulting from any damage to or destruction of our Facility or any materials, equipment, tools and supplies, which are purchased for permanent installation in or for use during construction of our Facility. After the Risk Transfer Date with respect to our Facility, our Company shall bear all risk of loss and full responsibility for repair, replacement or reconstruction with respect to any loss, damage or destruction to our Facility which occurs after such Risk Transfer Date. Deductibles The Contractor shall be responsible for deductibles for any losses covered by insurance required to be provided by the Contractor; provided, however, that our Company shall be responsible for the following: o deductibles in connection with any such Project losses that are covered by Builder's Risk insurance and Ocean Marine Cargo insurance, in each case only up to the permitted deductibles and only to the extent that the deductibles are in respect of losses caused by the negligence or intentional misconduct of our Company; and o deductibles in connection with any such Project losses that are covered by the "Delay in Start-Up" insurance. Additional Insureds All Contractor and Company furnished insurance coverages (with the exception of Workers Compensation Insurance) shall include our Company, the Contractor, the Financing Parties, the Utility and all their assignees, subsidiaries and affiliates as additional insureds, as their respective interests may appear and, with respect to the "All Risk" Builder's Risk Insurance, shall designate the Financing Parties (as identified by our Company) as loss payees for losses in excess of $1 million. No Limitation of Liability The required coverages shall in no way affect, nor are they intended as a limitation of, the Contractor's liability with respect to its performance of the Services except as expressly provided elsewhere. 53 Insurance Primary All policies of insurance provided by the Contractor shall be written as primary and noncontributing with respect to any other similar coverage that our Company, the Financing Parties, the Utility and their assignees, subsidiaries and affiliates may carry. Termination Termination for Company's Convenience Our Company may for its convenience terminate any part of the Services or all remaining Services at any time upon 30 days' prior written notice to the Contractor specifying the part of the Services to be terminated and the effective date of termination. Our Company may elect to suspend completion of all or any part of the Services upon 10 days' prior written notice to the Contractor (or, in Emergency situations, upon such prior notice as circumstances permit). Termination by Contractor If our Company fails to pay to the Contractor any payment and such failure continues for 20 days, then (i) the Contractor may suspend its performance of the Services upon 10 days' prior written notice to our Company, which suspension may continue until such time as such payment (plus accrued interest thereon) is paid to the Contractor, and/or (ii) if such payment has not been made prior to the commencement of a suspension by the Contractor under clause (i) above, the Contractor may terminate the EPC Contract upon 60 days' prior written notice to our Company; provided, that such termination shall not become effective if such payment (plus accrued interest thereon) is made to the Contractor prior to the end of such notice period. In the event of such a suspension, an equitable adjustment to one or more of the Contract Price, the Guaranteed Completion Dates, the Construction Progress Milestone Dates, the Payment and Milestone Schedule and our Project Schedule, and, as appropriate, such other provisions of the EPC Contract that may be affected thereby, shall be made by agreement between our Company and the Contractor. If our Company has suspended completion of all or any part of the Services in accordance with the EPC Contract for a period in excess of two years in the aggregate, the Contractor may, at its option, at any time thereafter so long as such suspension continues, give written notice to Company that the Contractor desires to terminate such suspended Services. Unless our Company orders the Contractor to resume performance of such suspended services within 10 days of the receipt of such notice from the Contractor, such suspended Services shall be deemed to have been terminated by our Company for its convenience. If the occurrence of one or more Force Majeure Events prevents the Contractor from performing the Services for a period of 365 consecutive days, the Contractor may, at its option, give written notice to our Company of its desire to terminate the EPC Contract. Consequences of Termination o Upon any termination, our Company may, provided, that if such termination is pursuant to any default the Contractor shall have been paid all amounts due and owing to it under the EPC Contract (and provided further, that it shall not be deemed to constitute a waiver by the Contractor of any rights to payment it may have as a result of a non-default related termination in the event of a termination pursuant to a default), at its option elect to have itself (or its designee, which may include any other AES affiliate or any third-party purchaser) (i) assume responsibility for and take title to and possession of our Project and any or all work, materials or equipment remaining at the Site and (ii) succeed automatically, without the necessity of any further action by the Contractor, to the interests of the Contractor in any or all items procured by the Contractor for our Project and in any and all contracts and subcontracts entered into between the Contractor and any Subcontractor with respect to the equipment specified in the EPC Contract, and with respect to any or all other Subcontractors selected by our Company which are materially necessary to the timely completion of our Project, the Contractor shall use all reasonable efforts to enable our Company (or its designee) to succeed to the Contractor's interests thereunder. o If any termination occurs, our Company may, without prejudice to any other right or remedy it may have, at its option, finish the Services by whatever method our Company may deem expedient. Surviving Obligations Termination of the EPC Contract (i) shall not relieve the Contractor or our Company of its obligations with respect to the confidentiality of the other Party's information, (ii) shall not relieve the Contractor or our Company of any obligation which expressly or by implication survives termination of the EPC Contract and (iii) except as otherwise provided in any provision of the EPC Contract expressly limiting the liability of either Party, shall not relieve either Party 54 of any obligations or liabilities for loss or damage to the other Party arising out of or caused by acts or omissions of such Party prior to the effectiveness of such termination or arising out of such termination, and shall not relieve the Contractor of its obligations as to portions of the Services already performed or as to obligations assumed by the Contractor or our Company prior to the date of termination. Default and Remedies Contractor's Default The Contractor's events of default include: voluntary bankruptcy or insolvency; involuntary bankruptcy or insolvency; materially adverse misleading or false representation or warranty; improper assignment; failure to maintain required insurance; failure to comply with Applicable Laws or Applicable Permits; cessation or abandonment of the performance of Services; termination or repudiation of, or default under the EPC Guaranty; failure to supply sufficient skilled workers or suitable material or equipment; failure to make payment when due for labor, equipment or materials; non-occurrence of Provisional Acceptance, Interim Acceptance, Final Acceptance and Construction Progress Milestones; and failure to remedy non-performance or non-observance of any provision in the EPC Contract. Company's Rights and Remedies If the Contractor is in default of its obligations, our Company shall have any or all of the following rights and remedies (in addition to any other rights and remedies that may be available to our Company under the EPC Contract or at law or in equity) and the Contractor shall have the following obligations: o Our Company may, without prejudice to any other right or remedy our Company may have under the EPC Contract or at law or in equity, terminate the EPC Contract in whole or in part immediately upon delivery of notice to the Contractor. In case of such partial termination, the Parties shall mutually agree upon a Scope Change Order to make equitable adjustments (including the reduction and/or deletion of obligations of the Parties commensurate with the reduced scope the Contractor shall have after taking into account such partial termination) to one or more of the Guaranteed Completion Dates, the Construction Progress Milestone Dates, the Contract Price, the Payment and Milestone Schedule, our Project Schedule, the Performance Guarantees and such other provisions of the EPC Contract which may be affected thereby, as appropriate. If the Parties are unable to reach mutual agreement as to said Scope Change Order and the dispute resolution procedures set forth in the EPC Contract are invoked, such procedures shall give due consideration to customary terms and conditions under which the Contractor has entered subcontracts with third party prime contractors covering services substantially similar to those Services which are not being terminated. o If requested by our Company, the Contractor shall withdraw from the Site, shall assign to our Company such of Contractor's subcontracts (to the extent permitted therein) as our Company may request, and shall remove such materials, equipment, tools and instruments used by, and any debris and waste materials generated by, the Contractor in the performance of the Services as our Company may direct, and our Company, without incurring any liability to the Contractor (other than the obligation to return to the Contractor at the completion of our Project such materials that are not consumed or incorporated into our Project, solely on an "as is, where is" basis without any representation or warranty of any kind whatsoever), may take possession of any and all designs, drawings, materials, equipment, tools, instruments, purchase orders, schedules and facilities of the Contractor at the Site that our Company deems necessary to complete the Services. Assignment Consent Required The Contractor and our Company shall have no right to assign or delegate any of their respective rights or obligations under the EPC Contract either voluntarily or involuntarily or by operation of law, except that, (i) the Contractor may, without our Company's approval, and provided that such assignment could not reasonably be expected to have a material adverse effect on our Company or our Project, assign all (but not less than all) of its rights or obligations to a parent, sister or subsidiary company; provided, that such assignee is directly or indirectly wholly owned by the EPC Guarantor and the EPC Guaranty issued by the EPC Guarantor is still in full force and effect, and (ii) our Company may, without the Contractor's approval, assign any or all of its rights under the EPC Contract (a) as collateral security to the Financing Parties and (b) to any transferee of our Project or a substantial portion thereof; provided, that such assignee has financial and operational capabilities that are either substantially similar to those of our Company at 55 such time or otherwise are such that the assignment could not reasonably be expected to have a material adverse effect on the Contractor's rights and obligations under the EPC Contract. Successors and Assigns All of the rights, benefits, duties, liabilities and obligations of the Parties shall inure to the benefit of and be binding upon their respective permitted successors and permitted assigns. Dispute Resolution Dispute Resolution If a dispute arises between our Company and the Contractor regarding the application or interpretation of any provision of the EPC Contract, the aggrieved Party shall promptly give notice in writing to the other Party invoking the dispute resolution provisions and the Parties shall negotiate in good faith and attempt to resolve such dispute. If the Parties fail to resolve the dispute within 30 days after delivery of such notice, each Party shall have the right to require, by written notice to the other Party containing a brief description of the dispute, that each Party nominate and have a senior officer of its management meet with the other Party's nominated senior officer at the Site, or at any other mutually agreed location, within 15 days of such request, in order to attempt to resolve the dispute. Should the Parties be unable to resolve the dispute to their mutual satisfaction within 15 days after such meeting, each Party shall have the right to pursue any and all remedies available to it under the EPC Contract or available to it at law or in equity. If any dispute involves technical issues (including, without limitation, as to the adequacy of any Plan submitted by the Contractor), either Party could request that such matter be referred to a mutually acceptable independent expert for resolution in an expedited manner under procedures and timing to be mutually agreed upon by the Parties. Performance During Dispute Notwithstanding the existence of a dispute between our Company and the Contractor and regardless of whether such dispute is the subject of dispute resolution, the Contractor shall not be entitled to suspend or otherwise delay the performance of the Services. Representations and Warranties The Contractor makes representations and warranties regarding the following: organization and qualification; power and authority; no conflict; validity and binding effect; litigation; patents, licenses, franchises; compliance with laws; and disclosure. Our Company makes representations and warranties regarding the following: organization and qualification; power and authority; no conflict; validity and binding effect; litigation; compliance with laws; and disclosure. Maintenance Services Agreement Our Company (as assignee of AES Ironwood, Inc.) and Siemens Westinghouse Power Corporation (the "Contractor") (our Company and the Contractor, collectively, the "Parties", and each individually, a "Party", for the purpose of this summary) have entered into the Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract (the "Maintenance Services Agreement"), dated as of September 23, 1998, by which the Contractor will provide us with, among other things, combustion turbine parts, shop repairs and scheduled outage technical field assistance services. The Maintenance Services Agreement became effective on the date of execution and unless terminated early, shall terminate upon completion of shop repairs performed by the Contractor following the eighth planned outage (each such planned outage, a "Scheduled Outage") of the applicable Combustion Turbine or 10 years from initial synchronization of the applicable Combustion Turbine, whichever occurs first. Scope of Work During the term of the Maintenance Services Agreement, and in accordance with the Scheduled Outage plan, the Contractor is required to do the following: o deliver the type and quantity of New Program Parts for installation of the Combustion Turbine; o repair/refurbish Program Parts and equipment for the Combustion Turbine; o provide Miscellaneous Hardware; 56 o provide our Company with Material Safety Data Sheets for all hazardous materials the Contractor intends to bring/use on the Site; and o provide the services of a maintenance program engineer to manage the Combustion Turbine maintenance program. The Contractor will also provide technical field assistance ("TFA") which involves advice and consultation for the disassembly, inspection and assembly of various equipment. Our Company is responsible for, among other things: o storing and maintaining parts, materials and tools to be used in or on the Combustion Turbine; o maintaining and operating the Combustion Turbine consistently with the warranty conditions; o ensuring that its operator and maintenance personnel are properly trained; o transporting Program Parts in need of repair/refurbish; and o providing the Contractor, on a monthly basis, with the number of equivalent starts determined in accordance with the appropriate current service bulletin (the "Equivalent Starts") and the number of equivalent base load hours determined in accordance with the appropriate current service bulletin ("EBH") incurred by each Combustion Turbine. Our Company and the Contractor will jointly develop the Scheduled Outage plan. The Scheduled Outage plan will be consistent with the terms and conditions of the Power Purchase Agreement. Early Replacement If it is determined that due to Normal Wear and Tear a Program Part(s) for the Combustion Turbine has failed or will not last until the next Scheduled Outage, and such part has to be repaired before the scheduled replacement period, the Contractor will replace such Program Part by moving up a New Program Part which is otherwise scheduled to be delivered at a later date. The Contract Price for such replacement will not be affected if the replacement date is less than or equal to one year earlier than the Scheduled Outage during which such Program Part was scheduled to be replaced. If the actual replacement date for a Program Part is more than one year earlier than the Scheduled Outage at which point the Program Part was scheduled to be replaced, such early replacement will result in an adjustment to the Payment Schedule. The Contractor has the final decision with regard to the replacement or refurbishment associated with any Program Part. If our Company disputes the Contractor's decision, our Company may seek to resolve such dispute in accordance with the dispute resolution procedures discussed below. Parts Life Credit After applicable warranty periods set forth in the Maintenance Services Agreement and the EPC Contract, the Contractor will provide a parts life credit if a Program Part requires replacement due to Normal Wear and Tear prior to meeting its expected useful life. The Contractor has the final decision with regard to actual parts life and the degree of repair or refurbishment associated with any Program Parts. The parts life credit will be calculated in terms of EBHs and Equivalent Starts. The price of the replacement part will be adjusted by the net percentage increase or decrease in the Consumer Price Index (the "Escalation Factor"). If our Company disputes the Contractor's decision, our Company may seek to resolve such dispute in accordance with the dispute resolution procedures discussed below. Contract Price and Payment Terms The Contractor will invoice our Company monthly and payments are then due within 25 days. The fees assessed by the Contractor will be based on the number of EBHs accumulated by the applicable Combustion Turbine as adjusted by the Escalation Factor. The "Contract Price" will be the aggregate number of fees as adjusted plus any additional payment amount mutually agreed to by the parties under a Change Order. Unscheduled Outages and Unscheduled Outage Work If during the Term of the Maintenance Services Agreement an outage occurs that is not otherwise a Scheduled Outage (an "Unscheduled Outage") resulting from (i) the non-conformity of New Program Parts; (ii) the failing of a Shop Repair; (iii) a Program Part requiring replacement due to Normal Wear and Tear prior to achieving its expected life in terms of EBHs or Equivalent Starts; or (iv) the failure of a Service, performed by the Contractor, our Company shall hire the Contractor (to the extent not supplied by the Contractor as a warranty remedy under the Contractor's warranties under the Maintenance Services Agreement) to supply any additional parts, Miscellaneous Hardware, Shop Repairs and TFA Services under a Change Order. Our Company will be entitled to any applicable parts life credit with respect to Program Parts as well as a discount for TFA Services. If such Unscheduled Outage occurs within a specified number of EBHs of a Scheduled Outage and it was anticipated that the additional parts, Miscellaneous Hardware, Shop Repairs and TFA 57 Services to be used in such Unscheduled Outage were to be used during the upcoming Scheduled Outage, the upcoming Scheduled Outage shall be moved up in time to become the Unscheduled Outage/moved-up Scheduled Outage. Our Company shall not be required to pay any additional money for such Program Parts, Miscellaneous Hardware, Shop Repairs and TFA Services. If any Program Parts are delivered by the Contractor within 15 days of receipt of such Change Order, our Company will pay to the Contractor the price for the Program Part set forth in the Maintenance Services Agreement plus a specified percentage. Any Program Part delivered after 30 days of such Change Order will cost our Company the price set forth in the Maintenance Services Agreement minus a specified percentage. The remedies set forth in the Maintenance Services Agreement, and discounts on any TFA Services purchased by our Company from the Contractor, shall constitute the Contractor's sole liability and our Company's exclusive remedies for Unscheduled Outages whether claims of our Company are based in contract, in tort, or otherwise. If the Contractor fails to send a TFA Services representative by the end of the second day following written receipt of the Unscheduled Outage, our Company may hire another qualified person, at its cost, to perform the work. If such hired party proceeds to disassemble the Combustion Turbine to determine the case of the Unscheduled Outage and the Contractor still has not provided personnel to assist with such inspection, our Company can elect to terminate the Maintenance Services Agreement on the basis that the Contractor has failed to perform a material obligation. Changes in Operating Restrictions The Maintenance Services Agreement requires that each Combustion Turbine will be operated in accordance with the requirements of the Power Purchase Agreement and Prudent Utility Practices, with 8,000 EBH/year and 100 Equivalent Starts per year by using natural gas fuel or liquid fuel and water. Should the actual operations differ from these operating parameters which causes a Scheduled Outage to be planned/performed earlier or later than as expected, then, under a Change Order, an adjustment in the scope, schedule, and price shall be made. Warranties The Contractor warrants that the New Program Parts, Miscellaneous Hardware and any Shop Repairs shall conform to standards of design, materials and workmanship consistent with generally accepted practices of the electric utility industry. The warranty period with respect to Program Parts, Hardware and Shop Repair is until the earlier of one year from the date of installation of the original Program Part or Hardware, a specific number of starts or fired hours after installation of such Program Parts and Hardware, or three years from the date of delivery of the original Program Part, Hardware, and in the case of Shop Repair, three years from completion of the work. Warranties on the Program Parts and Hardware shall not expire more than one year after the conclusion of the Maintenance Services Agreement. The Contractor will repair or replace any Program Part or Hardware, at its cost, if notified of any failure or non-conformity of such Program Part or Hardware during such warranty period. The Contractor also warrants that the Services of its personnel and technical information transmitted will be competent and consistent with Prudent Utility Practices and the Services will comply in all material respects with Laws and will be free from defects in workmanship for a period of one year from the date of completion of that item of Services. The warranties on such Services shall expire no later than one year after the termination or end of the term of the Maintenance Services Agreement. In addition, the Contractor warrants any Program Part removed during a Scheduled Outage and delivered by our Company to the designated facility for repair will be repaired and delivered by the Contractor within 26 weeks. If the Contractor does not deliver the Program Part within this time frame or does not provide a New Program Part in lieu of the Program Part being Shop Repaired and an outage occurs which requires such a Program Part, the Contractor will pay our Company liquidated damages for each day the Program Part is not repaired and delivered the aggregate of which liquidated damage payments shall not exceed a maximum annual cap. If upon reaching the maximum cap on aggregate liquidated damages, the Contractor still has not repaired and delivered such Program Part, our Company may elect to terminate the Maintenance Services Agreement because the Contractor shall be considered to have failed to perform its material obligations. 58 Except for the express warranties set forth in the Maintenance Services Agreement, the Contractor makes no other warranties or representations of any kind. No implied statutory warranty of merchantibility or fitness for a particular purpose applies. The warranties provided by the Contractor are conditioned upon (i) our Company's receipt, handling, storage, operation and maintenance of our Project, including any Program Parts and Miscellaneous Hardware, being done in accordance with the terms of the Combustion Turbine instruction manuals; (ii) operation of the Combustion Turbine in accordance with the terms of the Maintenance Services Agreement; (iii) repair of accidental damage done consistently with the equipment manufacturer's recommendations; (iv) our Company providing the Contractor with access to the Site to perform its services under the Maintenance Services Agreement; and (v) hiring the Contractor to provide TFA Services, Program Parts, Shop Repairs and Miscellaneous Hardware required to dissemble, repair and reassemble the Combustion Turbine. Insurance The Contractor shall maintain in full force and effect during the Term of the Maintenance Services Agreement the following required insurance coverage: commercial general liability, workers' compensation, umbrella excess liability and business automobile liability. All such policies of workers' compensation must provide a waiver of subrogation rights against our Company. Our Company shall maintain in full force and effect during the Term of the Maintenance Services Agreement the following required insurance coverage: property insurance, commercial general liability, workers' compensation, umbrella excess liability and business automobile liability insurance. The policies of property insurance and workers' compensation must include waivers of subrogation rights against the Contractor. Termination Our Company may terminate the Maintenance Services Agreement if (i) specific bankruptcy events affecting the Contractor occur; (ii) the Contractor fails to perform or observe in any material respect any provision in the Maintenance Services Agreement and fails to (a) promptly commence to cure and diligently pursue the cure of such failure or (b) remedy such failure within 45 days after the Contractor receives written notice of such failure; (iii) our Company terminates the EPC Contract due to the EPC Contractor's default thereunder or due to our Company's inability to obtain construction financing or environmental operating permits; or (iv) the EPC Contractor terminates the EPC Contract for any reason other than our Company's default thereunder. Notwithstanding the foregoing, our Company may terminate the Maintenance Services Agreement at any time for its convenience following the completion of the first Major Outage of both Combustion Turbine Generators. In addition, the Maintenance Services Agreement will automatically terminate if (i) our Company terminates the EPC Contract for reasons other than (a) the default of the EPC Contractor and (b) our Company's inability to obtain permits for our Project or (ii) the EPC Contractor terminates the EPC Contract for our Company's default thereunder. If such termination, the Contractor shall discontinue any work or services being performed and continue to protect our Company's property. The Contractor shall transfer title to and deliver any New Program Parts and Miscellaneous Hardware already purchased by our Company. Our Company shall pay the Contractor those amounts owed at the time of termination. The Contractor may also terminate the Maintenance Services Agreement if: (i) our Company fails to make payments or (ii) specific bankruptcy events affecting our Company occur. The Contractor cannot terminate the Maintenance Services Agreement if our Company pays outstanding amounts due within 90 days. Upon termination, the Contractor shall stop all work, place no additional orders, protect our Company's property and deliver such property to our Company upon our Company's instructions. The Contractor will be entitled to payment for work performed up until its termination of the Maintenance Services Agreement, all outstanding fees and reasonable costs associated with the termination. Indemnification To the fullest extent permitted by Law, each Party shall defend, indemnify and hold harmless the other Party from and against liability resulting from injury to or death of persons and from damage to or loss of third-party property, caused by or arising in whole or in part out of, but only to the extent of the negligent acts or omissions of the Party while performing its obligations under the Maintenance Services Agreement. Each Party's indemnity obligation under the Maintenance Services Agreement shall not apply to any liabilities arising out of or relating to events or circumstances occurring more than one year after end of the Term of the Maintenance Services Agreement. 59 Limitation of Liability Each party agrees that, except to the extent liquidated damages provided in the Maintenance Services Agreement are so considered, neither the Contractor, nor its Suppliers, nor our Company will under any circumstances be liable for: any indirect, special, incidental or consequential loss or damage whatsoever; damage to or loss of property or equipment; loss of profits or revenues; loss of use of material, equipment or power system; increased costs of any kind, including but not limited to capital cost, fuel cost and cost of purchased or replacement power, or claims of customers of our Company. Our Company agrees that the remedies provided in the Maintenance Services Agreement are exclusive and that under no circumstances shall the total aggregate liability of the Contractor during a given year exceed 100% of the Contract Price payable to the Contractor for that given year under the Maintenance Services Agreement. Our Company further agrees that under no circumstances shall the total aggregate liability of the Contractor for liquidated damages during a given year exceed a specified percentage of the Contract Price payable to the Contractor for that given year under the Maintenance Services Agreement. Our Company further agrees that under no circumstances shall the total aggregate liability of the Contractor exceed a specified percentage of the Contract Price payable to the Contractor under the Maintenance Services Agreement. Force Majeure Neither Party will be liable for failure to perform any obligation or delay in performance, excluding payment, to the extent such failure or delay is caused by any act or event beyond the reasonable control of the affected party or the Contractor's Suppliers; provided, that such act or event is not the fault or the result of negligence of the affected Party and such Party has been unable by exercise of reasonable diligence to overcome or mitigate the effects of such act or event ("Force Majeure"). Force Majeure includes: any act of God; act of civil or military authority; act of war whether declared or undeclared; act (including delay, failure to act, or priority) of any governmental authority; civil disturbance; insurrection or riot; sabotage; fire; inclement weather conditions; earthquake; flood; strikes, work stoppages or other labor difficulties of a regional or national character which are not limited to only the employees of the Contractor or its subcontractors or suppliers and which are not due to the breach of an applicable labor contract by the party claiming Force Majeure; embargo; fuel or energy shortage; delay or accident in shipping or transportation to the extent attributable to another Force Majeure; changes in Laws which substantially prevents a party from complying with its obligations in conformity with its requirements under the Maintenance Services Agreement or failure or delay beyond its reasonable control in obtaining necessary manufacturing facilities, labor, or materials from usual sources to the extent attributable to another Force Majeure; or failure of any principal contractor to provide equipment to the extent attributable to another Force Majeure. Force Majeure shall not include: (i) economic hardship, (ii) changes in market conditions or (iii) except due to an event of force majeure, late delivery of Program Parts or other Equipment. If a delay in performance is excusable due to a Force Majeure, the date of Delivery or time for performance of the work will be extended by a period of time reasonably necessary to overcome the effect of such Force Majeure and if the Force Majeure lasts for a period longer than 30 days and such delay directly increases the Contractor's costs or expenses, our Company, after reviewing the Contractor's additional direct costs and expenses, will reimburse the Contractor for its reasonable additional direct costs and expenses incurred after 30 days from the beginning of the Force Majeure resulting from said delay. Dispute Resolution The Parties may pursue any and all remedies available to it at law or in equity if they are unable to resolve any disputes after negotiations. The Parties may refer any disputes involving technical issues to an independent expert for resolution. The findings of such independent expert would be binding upon the Parties. The Contractor shall indemnify our Company from any fines, penalties, expense, loss or liability (including the costs of clean-up) incurred by our Company as a result of (i) the Contractor's failure to meet its obligations under the Maintenance Services Agreement or (ii) any spills of Hazardous Waste or oil, petroleum or petroleum products to the environment which are attributable to and occur during the Contractor's performance (or the performance of its contractors or subcontractors) of the Workscope Obligations at the Site under the Maintenance Services Agreement. Our Company shall indemnify the Contractor from any fines, penalties, expense, loss or liability incurred by the Contractor as a result of our Company's failure to meet its obligations under the Maintenance Services Agreement. Our Company shall have no responsibility or liability with regard to any Hazardous Waste or oil, petroleum or petroleum 60 products which were spilled by the Contractor, or any other of its contractors or subcontractors performing Workscope Obligations at the Site. Fleetwide Issue Notification During the Term of this Agreement, if the Contractor becomes aware of a fleetwide issue involving the Siemens Westinghouse 501G Combustion Turbine which may have a deleterious effect on our Company's Combustion Turbines, the Contractor shall, within a reasonable time of becoming aware of such fleetwide issues, notify our Company thereof, and if such fleetwide issue requires an additional repair or replacement of a Program Part or Miscellaneous Hardware to be performed, such additional repair or replacement shall be performed in accordance with the provisions of the Maintenance Services Agreement. Interconnection Agreement Our Company and Metropolitan Edison Company (the "Transmitting Utility") (our Company and the Transmitting Utility, collectively, the "Parties", and each individually, a "Party", for purposes of this summary) have entered into a Generation Facility Transmission Interconnection Agreement, dated as of March 23, 1999 (the "Interconnection Agreement"), for the installation, operation and maintenance of the facilities necessary to interconnect our Company's generation facility in South Lebanon, Pennsylvania (the "Facility") to the transmission system of the Transmitting Utility. Under the Interconnection Agreement, each of our Company and the Transmitting Utility will construct, own, operate and maintain specific facilities and protective apparatus (the "Interconnection Facilities"). Our Company will be responsible for all of the costs of construction, operation and maintenance of the Interconnection Facilities, including those owned by the Transmitting Utility. Scope The Interconnection Agreement will become effective on the effective date established by FERC and will continue in full force and effect until a mutually agreeable termination date not to exceed the retirement date for our Facility. Transmitting Utility's Obligations The Transmitting Utility will install, own, operate and maintain, at the cost and expense of our Company, a portion of the Interconnection Facilities, including, but not limited to specific substation protective relaying equipment and a 230 kV power circuit breaker, all as more fully described in Appendix B to the Interconnection Agreement. The facilities to be installed by the Transmitting Utility, together with the facilities to be installed by our Company, are those necessary to allow the interconnection of our Facility with the transmission system of the Transmitting Utility. The Transmitting Utility is to complete the installation of the facilities necessary to permit our Company to energize the switch yard and to begin commissioning of our Facility by June 30, 2000. If those facilities are completed prior to June 30, 2000, the Transmitting Utility will be paid an early completion bonus of $5,000 for each day of early completion up to and including 30 days (May 31, 2000). If those facilities are completed after June 30, 2000, the Transmitting Utility will pay delay damages of $5,000 for each day of delay up to and including 42 days (August 11, 2000). Our Company will also have the ability to take over the completion of these facilities if it becomes apparent that the Transmitting Utility will not be able to complete them within such 42 day-period, the Transmitting Utility has not proposed a reasonable recovery plan, and our Company can demonstrate that it is able to complete the facilities more quickly than the Transmitting Utility. The Transmitting Utility is to complete the installation of its portion of the Interconnection Facilities and specific transmission system reinforcements necessary to permit the dispatch of the full output of our Facility by August 31, 2000. Company's Obligations Our Company will install, own, operate and maintain a portion of the Interconnection Facilities, including, but not limited to, a 230 kV switchyard, including generator step up transformers, instrument transformers, revenue metering, power circuit breakers, control and protective relay panels, supervisory control and data acquisition equipment, and protective relaying equipment, all as more fully described in Appendix B to the Interconnection Agreement. Our Company will reimburse the Transmitting Utility for its actual costs of installing the Interconnection Facilities. Our Company's payments to the Transmitting Utility consist of an advance payment of $500,000 on the execution date of the Interconnection Agreement, another payment of $40,000 within 30 days of the execution date of the 61 Interconnection Agreement (for work undertaken by the Transmitting Utility prior to December 17, 1998), a payment of $1,000,000 at Financial Closing and monthly invoices for the work performed, which have payment terms of net 30 days from the date of each invoice. The advance payments by our Company reimburse the Transmitting Utility for costs incurred prior to the execution of the Interconnection Agreement and will be used by the Transmitting Utility to offset interest during construction, with any remaining amounts being applied to invoices during the later stages of completing the portion of the Interconnection Facilities that are the responsibility of the Transmitting Utility. Our Company may assign to the purchaser of the output of our Facility the payment obligations to the Transmitting Utility for installing the Interconnection Facilities. Our Company is obligated to modify its portion of the Interconnection Facilities as may be required to conform to changes in Good Utility Practice or as required by PJM Interconnection, L.L.C. ("PJMI"), which is the independent system operator that operates the Transmission System to which our Facility will be interconnected. Our Company is obligated to keep our Facility insured against loss or damage in accordance with the minimum coverages specified in the Interconnection Agreement. Operation and Maintenance of Interconnection Facilities The Parties are obligated to operate and maintain their respective portions of the Interconnection Facilities in accordance with Good Utility Practices and the requirements and guidelines of PJMI and the Transmitting Utility. The Transmitting Utility will have the right to disconnect our Facility from its Transmission System and/or curtail, interrupt or reduce the output of our Facility when operation of our Facility or the Interconnection Facilities adversely affects the quality of service rendered by the Transmitting Utility or interferes with the safe and reliable operation of its Transmission System or the regional transmission system. The Transmitting Utility, however, is obligated to use reasonable efforts to minimize any such disconnection, curtailment, interruption or reduction in output. In accordance with Good Utility Practice, the Transmitting Utility may remove the Interconnection Facilities from service as necessary to perform maintenance or testing or to install or replace equipment on the Interconnection Facilities or the Transmission System. The Transmitting Utility is obligated to use due diligence to restore the Interconnection Facilities to service as promptly as practicable. In addition, if our Company fails to operate, maintain, administer, or insure our Facility or its portion of the Interconnection Facilities, the Transmitting Utility may, following 30 days notice and opportunity to cure such failure, disconnect our Facility from the Transmission System. Revenue Metering Revenue meters, which are part of the Interconnection Facilities, will be installed to measure the transfer of electrical energy between the Parties at the Point of Interconnection. After installation, the ownership of such revenue meters will be transferred to the Transmitting Utility. Our Company also has the right to install its own telemetering equipment or other communications equipment to retrieve such information. The revenue meters are to be tested at least once every two years, or more frequently at the request of our Company. Any revenue meter found to be inaccurate by greater than 1% is to be adjusted, repaired or replaced. Force Majeure If either Party is delayed in or prevented from performing or carrying out its obligations under the Interconnection Agreement by reason of Force Majeure, such Party shall not be liable to the other Party for or on account of any loss, damage, injury or expense resulting from or arising out of such delay or prevention; provided, however, that the Party encountering such delay or prevention shall use due diligence to remove the cause or causes thereof. Liability and Indemnification Neither Party will be liable to the other for incidental, special, indirect or consequential damages. Our Company is obligated to indemnify the Transmitting Utility for claims, liabilities, costs, damages, losses and expenses for damage to property, injury to or death of any persons to the extent caused by any act or omission, negligent or otherwise, relating to the design, construction, ownership, operation, or maintenance of our Facility or our Company's portion of the Interconnection Facilities. Our Company also is obligated to indemnify the Transmitting Utility for any taxes that may be imposed if our Company's payment (or failure to pay) to the Transmitting Utility of the costs associated with the purchase or installation of any portion of the Transmitting Utility's Interconnection Facilities are treated as a contribution in aid of construction by the taxing authorities. 62 Default The events of default under the Interconnection Agreement are: o breach of a material term or condition and uncured failure to provide a required schedule, report or notice; o failure or refusal of a Party to permit the representatives of the other Party access to maintenance records, or its Interconnection Facilities or Protective Apparatus; o appointment by a court of a receiver or liquidator or trustee that is not discharged within 60 days, issuance by a court of a decree adjudicating a Party as bankrupt or insolvent or sequestering a substantial part of its property that has not been discharged within 60 days after its entry, or filing of a petition to declare a Party bankrupt or to reorganize a Party under the Federal Bankruptcy Code or similar state statute that has not been dismissed within 60 days; o voluntary filing by a Party of a petition in bankruptcy or consent to the filing of a bankruptcy or reorganization petition, an assignment for the benefit of creditors, an admission by a Party in writing of its inability to pay its debts as they come due, or consent to the appointment of a receiver, trustee, or liquidator of a Party or any part of its property; and o failure to provide the other Party with reasonable written assurance of the Party's ability to perform any of the material duties and responsibilities under the Interconnection Agreement within 60 days of a reasonable request for such assurance. Upon an event of default, the non-defaulting Party may give notice of such event of default to the defaulting Party. The defaulting Party will have 60 days following the receipt of such notice to cure the default or to commence in good faith the steps necessary to cure a default that cannot be cured within that 60-day period. If the defaulting Party fails to cure its default within 60 days or fails to take the steps necessary to cure a default that cannot be cured within a 60-day period, the non-defaulting Party will have the right to terminate the Interconnection Agreement. The Transmitting Utility will have the right to operate and/or to purchase specific equipment, facilities and appurtenances from our Company that are necessary for the Transmitting Utility to operate and maintain its Transmission System if (i) our Company commences bankruptcy proceedings or petitions for the appointment of a trustee or other custodian, liquidator, or receiver, (ii) a court issues a decree for relief of our Company or appoints a trustee or other custodian, liquidator, or receiver for our Company or a substantial part of our Company's assets and such decree is not dismissed within 60 days or (iii) our Company ceases operation for 30 consecutive days without having an assignee, successor, or transferee in place. Operations Agreement Our Company and AES Prescott have entered into a Management and Operations Services Agreement, dated as of June 1, 1999 (the "Operations Agreement"), by which AES Prescott will provide development and construction management services and, after the Commercial Operation Date, operating and maintenance services for our Facility for a period of 27 years. Under the Operations Agreement, AES Prescott will be responsible for, among other things, preparing plans and budgets related to start-up and commercial operation of our Facility, providing qualified operating personnel, making repairs, purchasing consumables and spare parts (not otherwise provided under the Maintenance Services Agreement) and providing other services as needed according to industry standards. AES Prescott will be compensated for such services on a cost plus fixed-fee basis. Under the Services Agreement between AES Prescott and AES, AES will provide to AES Prescott all of the personnel and services necessary for AES Prescott to comply with its obligations under the Operations Agreement. Effluent Supply Agreement Our Company (as assignee of AES Ironwood, Inc.) and City of Lebanon Authority (the "Authority") (our Company and the Authority collectively, the "Parties", and each individually, a "Party", for the purpose of this summary) have entered into the Effluent Supply Agreement, dated as of March 3, 1998 (the "Effluent Supply Agreement") by which the Authority will provide Effluent to be used by our Company at the electric generating facility to be constructed in South Lebanon Township, Pennsylvania. 63 Supply of Effluent Effluent Supply Subsequent to completion of the Pipeline and throughout the Term of the Effluent Supply Agreement, the Authority shall make available to our Company a supply of Effluent not less than 2,160,000 gallons per day. In the event of a shortfall, our Company may elect to accept potable water from the Authority in accordance with the Effluent Supply Agreement. Our Company shall not be obligated to purchase any minimum amount of Effluent and shall be entitled to seek and obtain water from other available sources. The Authority shall use its best efforts to comply with requests by our Company for excess Effluent (which shall not exceed (i) 4,600,000 gallons per day or (ii) 1,679,000,000 gallons per calendar year). In addition, the Authority shall use its best efforts to meet our Company's minimum Effluent requirements. Compensation Our Company will pay the Authority monthly for all Effluent delivered to the Point of Delivery during the prior month. The base rate for Effluent supplied shall be: (i) for 0-2,160,000 gallons per day, $0.29 per thousand gallons and (ii) for 2,160,000 or greater gallons per day, $0.21 per thousand gallons (such rates shall be subject to annual escalation in accordance with GDPIPD). Service Interruptions The Authority shall have a reasonable period of time (not to exceed 18 hours) to make repairs and to restore service upon a temporary interruption in Effluent delivery attributable to a break or leak in the Pipeline. Non-Conforming Effluent Our Company shall have the right to reject all Non-Conforming Effluent. Pipeline and Real Estate Rights Concerning the Pipeline Our Company shall be solely responsible, at its cost and expense, for constructing and installing the Pipeline. Our Company and the Authority shall cooperate in good faith to obtain the necessary Real Estate Rights for constructing, operating, maintaining and accessing the Pipeline. Operation and Maintenance The Authority shall operate and maintain the Pipeline in accordance with the Effluent Supply Agreement, and as compensation, our Company shall pay to the Authority $18,250 per year, which amount will escalate annually in accordance with the GDPIPD. Capital Improvements The Effluent Supply Agreement provides for Capital Improvements. Potable Water The Authority shall make available to our Company on a continuous basis a potable water supply of not less than 50 gallons per minute. Our Company shall not be obligated to purchase a minimum amount of potable water, but shall pay the Authority for potable water accepted at the Potable Delivery Point at the rate applicable to our Company set forth in the Authority's applicable rate schedule. Force Majeure If either Party shall be unable to carry out any obligation under the Effluent Supply Agreement due to Force Majeure, the Effluent Supply Agreement shall remain in effect, but such obligation shall be suspended for the period necessary as a result of the Force Majeure; provided, that: (i) the non-performing Party gives the other Party written notice not later than 48 hours after the occurrence of the Force Majeure describing the particulars of the Force Majeure; (ii) the suspension of performance is of no greater scope and of longer duration than is required by the Force Majeure; and (iii) the non-performing Party uses its best efforts to remedy its inability to perform. Notwithstanding the foregoing, the settlement of strikes, lockouts, and other labor disputes shall be entirely within the discretion of the affected Party, 64 and such Party shall not be required to settle any strike, lockout or other labor dispute on terms which it deems inadvisable. Term The term of the Effluent Supply Agreement shall be 25 years unless terminated early as a result of (i) our Company's inability to obtain financing for our Project; (ii) our Company's inability to obtain necessary approvals to construct and operate our Project; (iii) failure by our Company to deliver the Commencement Notice by December 31, 2004, or (iv) the occurrence of any event of default. Early Termination for Event of Default A Party may terminate the Effluent Supply Agreement (i) upon a Bankruptcy Event of the other Party or (ii) if the other Party fails to perform or observe any of its material obligations under the Effluent Supply Agreement within the time contemplated by the Effluent Supply Agreement and such failure continues for a period of time greater than 30 days from the defaulting Party. Governing Law The Effluent Supply Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. Pennsy Agreements Our Company (as assignee of AES Ironwood, Inc.) and Pennsy Supply, Inc. ("Pennsy") have entered into an Agreement Relating to Real Estate, dated as of October 22, 1998, under which Pennsy has agreed to grant to our Company specific easements and the right to pump water from Pennsy-owned property. The easements, which are primarily for access and utility purposes, would run from property owned by our Company (on which it will develop and construct its electric generating facility) across property owned by Pennsy and require that our Company-owned property be used as a power plant. Pennsy has also agreed to grant to our Company easements with respect to storm-water facilities and construction of a rail spur. Pennsy will make water available to our Company during construction and testing of our Facility and for as long as our Company operates our Facility, and our Company will bear all costs and expenses with respect to water-pumping. In consideration for the easements and the water-pumping rights, our Company has agreed to convey to Pennsy title to a parcel of land adjacent to the property owned by our Company. Our Company and Pennsy have also entered into an Easement and Right of Access Agreement, dated as of April 15, 1999, under which Pennsy has granted to our Company the rights and easements referred to in the prior paragraph as well as specific other rights and easements required by our Company for the construction and operation of our Facility. 65 ROLE OF THE INDEPENDENT ENGINEER Stone & Webster will initially serve as the Independent Engineer in accordance with the Indenture. Under a consulting services agreement (the "Independent Engineer Agreement") with our Company, and in accordance with the Indenture, the Independent Engineer is responsible for confirming the reasonableness of statements and projections made in specified certificates required to be provided, including with respect to o satisfaction of certain requirements under the EPC Contract; o the cost of and occurrence of the completion of rebuilding, repairing or restoring of our Facility following an Event of Loss; o under specified circumstances, the calculation of debt service coverage ratios and the consistency of assumptions made in connection with such calculations; o whether any termination, amendment or modification of any Project Contract would reasonably be expected to have a Material Adverse Effect; and o specified tests required for the issuance of additional debt. The Trustee may remove the Independent Engineer if at any time the Independent Engineer becomes incapable of acting or is, or is reasonably likely to be, adjudged bankrupt or insolvent or a receiver is appointed for, or any public officer shall take charge or control of, the Independent Engineer or its property or its affairs for the purpose of rehabilitation, conservation or liquidation, and shall appoint a successor Independent Engineer. Within 30 days of receipt by the Trustee of a written notification from our Company to the effect that the Independent Engineer has failed to carry out its obligations in a timely manner, and in other circumstances, the Trustee must remove the Independent Engineer and appoint a successor Independent Engineer from those engineers then listed on a schedule to the Indenture. We will pay for all services performed by the Independent Engineer and its reasonable costs and expenses related to such services. If our Company and the Independent Engineer are in dispute in respect of a notice, plan, report, certificate or budget and we are unable to resolve the dispute within seven days of the Independent Engineer expressing its disagreement with such notice, plan, report, certificate or budget, a single independent engineer (the "Third-Party Engineer") will be designated to consider and decide the issues raised by such dispute. The selection of such Third-Party Engineer will be made from the list of engineers described below. We must designate the Third-Party Engineer from such list not later than the third day following the expiration of the seven-day period described above and such designation shall become effective in three days. Within three days of the designation of a Third-Party Engineer, our Company and the Independent Engineer will submit to the Third-Party Engineer a notice setting forth in detail such person's position in respect of the issues in dispute. Such notice shall include supporting documentation, if appropriate. The Third-Party Engineer must complete all proceedings and issue his decision with regard to the issues in dispute as promptly as reasonably possible, but in any event within 10 days of the date on which he is designated as Third-Party Engineer, unless the Third-Party Engineer reasonably determines that additional time is required in order to give adequate consideration to the issues raised. In such case the Third-Party Engineer must state in writing his reasons for believing that additional time is needed and shall specify the additional period required, which such period shall not exceed 10 days without our Company's agreement. If the Third-Party Engineer determines that the position set forth in the Independent Engineer's notice is correct, it must so state and must state the corrective actions to be taken by our Company. In such case, we shall promptly take such actions. We shall thereafter bear all costs which may arise from actions taken under the Third-Party Engineer's decision. If the Third-Party Engineer determines that the position set forth in the Independent Engineer's notice is not correct, it must so state and must state the appropriate actions to be taken by us. In such case, we shall take such actions and for purposes of the Indenture, the Independent Engineer and the Trustee shall be deemed to have approved, confirmed, concurred in or consented to the notice, plan, report, certificate or budget in dispute. The decision of the Third-Party Engineer will be final and non-appealable. We shall bear all reasonable costs incurred by the Third-Party Engineer in connection with this dispute resolution mechanism. The Third-Party Engineer will be chosen from the list of qualified engineers set forth in a schedule to the Indenture. Such list will also be used by the Trustee to choose a successor Independent Engineer. At any time either our Company or the Trustee may remove a particular engineer from the list by obtaining the other person's reasonable 66 consent to such removal. However, neither our Company nor the Trustee may remove a name or names from the list if such removal would leave the list without at least two names, unless, at the same time, our Company and the Trustee reasonably agree to the addition of one or more names to such list. During January of each year, our Company and the Independent Engineer will review the current list of Third-Party Engineers and give notice to the Trustee of any proposed additions to the list and any intended deletions. Intended deletions will automatically become effective 30 days after the Trustee received notice unless the Trustee makes a written objection within 30 days and provided that such deletions do not leave the list fewer than two names. Proposed additions to the list will automatically become effective 30 days after the Trustee received notice unless the Trustee makes a written objection within 30 days. We may add a new name or names to the list of Third-Party Engineers at any time; provided, however, that no person will be added to such list or authorized to act as Third-Party Engineer unless such person is a competent firm of professional engineers or consultants with a national reputation. 67 THE EXCHANGE OFFER Purpose and Effect of the Exchange Offer In connection with the issuance of the old bonds, we entered into a registration rights agreement. Under the registration rights agreement, we agreed to: o prepare and file a registration statement with the SEC for an exchange of the new bonds for the old bonds under the Securities Act; o use our reasonable efforts to cause the registration statement to become effective within 180 days following the original issuance of the old bonds; o keep the exchange offer open for acceptance for a period of not less than 30 days (or longer, if required by law) after the date the registration statement is declared effective by the SEC; and o accept for exchange all old bonds validly tendered by and not withdrawn in accordance with the terms of the exchange offer registration statement. As soon as practicable after the exchange offer registration statement becomes effective, we will offer the holders of old bonds who are not prohibited by any law or policy of the SEC from participating in this exchange offer the opportunity to exchange their old bonds for new bonds registered under the Securities Act that are substantially identical to the old bonds, except that the new bonds will not contain terms with respect to transfer restrictions, registration rights and additional interest. Under limited circumstances, we will use our reasonable best efforts to cause the SEC to declare effective a shelf registration statement with respect to the resale of the old bonds and keep the statement effective for up to two years after the effective date of the shelf registration statement. These circumstances include: o if any changes in law or their interpretations by the staff of the SEC do not permit us to effect the exchange offer as contemplated by the registration rights agreement; o if the exchange offer is not consummated within 220 days after June 25, 1999, or by January 31, 2000; o if any of Lehman Brothers, Morgan Stanley Dean Witter or Dresdner Kleinwort Benson North America, as initial purchasers of the old bonds, so requests with respect to old bonds held by it following consummation of the exchange offer; and o if any holder of the old bonds notifies us that it is not permitted to participate in the exchange offer or has participated in the exchange offer and has received new bonds that are not freely tradeable. Interest in addition to the interest otherwise due will accrue on the bonds at a rate of 0.5% per annum if the exchange offer is not consummated or the shelf registration statement is not declared effective by the SEC on or prior to 220 days after June 25, 1999, or by January 31, 2000. Any additional interest shall accrue on the old bonds from and including the date on which the circumstances giving rise to such additional interest shall occur to but excluding the date on which all such circumstances have been cured. Any such additional interest will be payable on the bond payment dates. To exchange your old bonds for transferable new bonds in the exchange offer, you will be required to make the following representations: o any new bonds that you receive will be acquired in the ordinary course of your business; o you have no arrangement or understanding with any person or entity to participate in the distribution of the new bonds; o you are not our "affiliate," as defined in Rule 405 of the Securities Act; o you are not a broker-dealer, and you are not engaged in and do not intend to engage in the distribution of the new bonds; and 68 o if you are a broker-dealer that will receive new bonds for your own account in exchange for old bonds, you acquired those bonds as a result of market-making activities or other trading activities and you will deliver a prospectus, as required by law, in connection with any resale of such new bonds. In addition, if we are required to file a shelf registration statement, we may require you to deliver information to be used in connection with the shelf registration statement in order to have your bonds included in the shelf registration statement. A holder who sells old bonds under the shelf registration statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers. Such a holder will also be subject to the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement that are applicable to such a holder, including indemnification obligations. The description of the registration rights agreement contained in this section is a summary only. For more information, you may review the provisions of the registration rights agreement that we filed with the SEC as an exhibit to the registration statement of which this prospectus is a part. Resale of New Bonds Based on the interpretations of the SEC staff in no-action letters issued to third parties, we believe that new bonds issued under the exchange offer may be offered for resale, resold and otherwise transferred by you as the holder of the new bonds without compliance with the registration and prospectus delivery provisions of the Securities Act, if: o you are not our "affiliate" within the meaning of Rule 405 under the Securities Act; o such new bonds are acquired in the ordinary course of your business; o you do not intend to participate in the distribution of such new bonds; and o if you are a broker-dealer that will receive new bonds for your own account in exchange for old bonds, you acquired those bonds as a result of market-making activities or other trading activities and you will deliver a prospectus, as required by law, in connection with any resale of such new bonds. If you do not satisfy the above conditions, you o cannot rely on such interpretations by the SEC staff; and o must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. We do not intend to seek our own no-action letter, and there can be no assurance that the SEC staff would make a similar determination with respect to the new bonds as it has in prior no-action letters issued to other parties. In November 1998, the SEC proposed certain changes to the regulatory structure for offerings registered under the Securities Act. The SEC has stated that, if these proposals are adopted, the SEC staff will repeal its interpretations set forth in prior no-action letters. We cannot predict whether these proposals will be adopted or, if they are adopted, when and in what form they will be adopted. Unless an exemption from registration is otherwise available, any bondholder intending to distribute new bonds should be covered by an effective registration statement under the Securities Act containing the selling bondholder's information required by Item 507 of Regulation S-K under the Securities Act. This prospectus may be used for an offer to resell, resale or other retransfer of new bonds only as specifically described in this prospectus. Please read the section captioned "Plan of Distribution" for more details regarding the transfer of new bonds. Terms of the Exchange Offer Upon the terms and subject to the conditions described in this prospectus and in the letter of transmittal, we will accept for exchange any old bonds properly tendered and not withdrawn prior to the expiration date. We will issue new bonds in principal amount equal to the principal amount of old bonds surrendered under the exchange offer. Old bonds may be tendered for new bonds only in integral multiples of $1,000. The exchange offer is not conditioned upon any minimum aggregate principal amount of old bonds being tendered for exchange. 69 As of the date of this prospectus, $308,500,000 aggregate principal amount of the old bonds are outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of old bonds. There will be no fixed record date for determining registered holders of old bonds entitled to participate in the exchange offer. We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Securities Act and the Securities Exchange Act and the rules and regulations of the SEC. Old bonds that are not tendered for exchange in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the indenture relating to the bonds and the registration rights agreement. We will be deemed to have accepted for exchange properly tendered old bonds when we have given oral or written notice of the acceptance to the exchange agent and complied with the applicable provisions of the registration rights agreement. The exchange agent will act as agent for the tendering holders for the purposes of receiving the new bonds from us. If you tender old bonds in the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of old bonds. We will pay all charges and expenses, other than applicable taxes described below, in connecting with the exchange offer. It is important that you read the section labeled "--Fees and Expenses" for more details regarding fees and expenses incurred in the exchange offer. We will return any old bonds that we do not accept for exchange for any reason without expense to their tendering holder as promptly as practicable after the expiration or termination of the exchange offer. Neither AES Ironwood, L.L.C. nor its board of directors makes any recommendation to holders of the old bonds as to whether to tender or refrain from tendering all or any portion of their old bonds in the exchange offer. In addition, no one has been authorized to make any such recommendation. Holders of the old bonds must make their own decision whether to tender pursuant to the exchange offer, and, if so, the aggregate amount of old bonds to tender after reading this prospectus and the letter of transmittal and consulting with their advisers, if any, based on their financial position and requirements. Expiration Date The exchange offer will expire at 5:00 p.m., New York City time ________, 2000, unless, in our sole discretion, we extend it. Extensions, Delays in Acceptance, Termination or Amendment We expressly reserve the right, at any time or various times, to extend the period of time during which the exchange offer is open. We may delay acceptance of any old bonds by giving oral or written notice of such extension to their holders. During any such extensions, all old bonds previously tendered will remain subject to the exchange offer, and we may accept them for exchange. In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify the registered holders of old bonds of the extension no later than 9:00 a.m., New York City time, on the Business Day after the previously scheduled expiration date. If any of the conditions described below under "--Conditions to the Exchange Offer" have not been satisfied, we reserve the right, in our sole discretion: o to delay accepting for exchange any old bonds; o to extend the exchange offer; or o to terminate the exchange offer by giving oral or written notice of such delay, extension or termination to the exchange agent. Subject to the terms of the registration rights agreement, we also reserve the right to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of old bonds. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly file a post-effective amendment to the registration statement and disclose such amendment by means of a prospectus supplement when the post-effective amendment has 70 been declared effective by the SEC. The supplement will be distributed to the registered holders of the old bonds. Depending upon the significance of the amendment and the manner of disclosure to the registered holders, we will extend the exchange offer if the exchange offer would otherwise expire during any such period of delay. Conditions to the Exchange Offer Despite any other term of the exchange offer, we will not be required to accept for exchange, or exchange any new bonds for, any old bonds, and we may terminate the exchange offer as provided in this prospectus before accepting any old bonds for exchange, if in our reasonable judgment: o the exchange offer, or the making of any exchange by a holder of old bonds, would violate applicable law or any applicable interpretation of the staff of the SEC; or o any action or proceeding has been instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer that, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer. In addition, we will not be obligated to accept for exchange the old bonds of any holder that has not made to us the representations described under "--Purpose and Effect of the Exchange Offer," "--Procedures for Tendering" and "Plan of Distribution" and such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to make available to us an appropriate form for registration of the new bonds under the Securities Act. We expressly reserve the right to amend or terminate the exchange offer and to reject for exchange any old bonds not previously accepted for exchange, upon the occurrence of any of the conditions to the exchange offer specified above. We will give oral or written notice of any extension, amendment, non-acceptance or termination to the registered holders of the old bonds as promptly as practicable. These conditions are for our sole benefit, and we may assert them or waive them in whole or in part at any time or at various times in our sole discretion. If we fail at any time to exercise any of these rights, this failure will not mean that we have waived our rights. Each such right will be deemed an ongoing right that we may assert at any time or at various times. In addition, we will not accept for exchange any old bonds tendered, and will not issue new bonds in exchange for any such old bonds, if at such time any stop order has been threatened or is in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture relating to the bonds under the Trust Indenture Act of 1939. Procedures for Tendering How to Tender Generally Only a holder of old bonds may tender such old bonds in the exchange offer. To tender in the exchange offer, a holder must: o complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; o have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and o mail or deliver such letter of transmittal or facsimile to the exchange agent prior to the expiration date; or o comply with the automated tender offer program procedures of The Depository Trust Company, or DTC, described below. In addition, either: o the exchange agent must receive, prior to the expiration date, a timely confirmation of book-entry transfer of such old bonds into the exchange agent's account at DTC according to the procedure for book-entry transfer described below or a properly transmitted agent's message; or o the holder must comply with the guaranteed delivery procedures described below. 71 To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at its address provided above under "Prospectus Summary--The Exchange Agent" prior to the expiration date. The tender by a holder that is not withdrawn prior to the expiration date will constitute an agreement between the holder and us in accordance with the terms and subject to the conditions described in this prospectus and in the letter of transmittal. The method of delivery of the Letter of Transmittal and all other required documents to the exchange agent is at your election and risk. rather than mail these items, we recommend that you use an overnight or hand delivery service. In all cases, you should allow sufficient time to assure delivery to the exchange agent before the expiration date. you should not send the Letter of Transmittal to us. You may request your brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for you. How to Tender if You Are a Beneficial Owner If you beneficially own old bonds that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender those bonds, you should contact the registered holder promptly and instruct it to tender on your behalf. Signatures and Signature Guarantees You must have signatures on a letter of transmittal or a notice of withdrawal (as described below) guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, that is a member of one of the recognized signature guarantee programs identified in the letter of transmittal, unless the old bonds are tendered: o by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or o for the account of a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondence in the United States, or an eligible guarantor institution. If the letter of transmittal or any bonds or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, those persons should so indicate when signing. Unless waived by us, they should also submit evidence satisfactory to us of their authority to deliver the letter of transmittal. Tendering Through DTC's Automated Tender Offer Program The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC's system may use DTC's automated tender offer program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so by causing DTC to transfer the old bonds to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent's message to the exchange agent. The term "agent's message" means a message transmitted by DTC, received by the exchange agent and forming part of the book-entry confirmation, to the effect that: o DTC has received an express acknowledgment from a participant in its automated tender offer program that is tendering old bonds that are the subject of such book-entry confirmation; o such participant has received and agrees to be bound by the terms of the letter of transmittal or, in the case of an agent's message relating to guaranteed delivery, that such participant has received and agrees to be bound by the applicable notice of guaranteed delivery; and o the agreement may be enforced against such participant. 72 Determinations Under the Exchange Offer We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance of tendered old bonds and withdrawal of tendered old bonds. Our determination will be final and binding. We reserve the absolute right to reject any old bonds not properly tendered or any old bonds our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defect, irregularities or conditions of tender as to particular old bonds. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, all defects or irregularities in connection with tenders of old bonds must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old bonds, neither we, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of old bonds will not be deemed made until such defects or irregularities have been cured or waived. Any old bonds received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. When We Will Issue New Bonds In all cases, we will issue new bonds for old bonds that we have accepted for exchange under the exchange offer only after the exchange agent timely receives: o old bonds or a timely book-entry confirmation of such old bonds into the exchange agent's account at DTC; and o a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent's message. Return of Old Bonds Not Accepted or Excepted If we do not accept any tendered old bonds for exchange for any reason described in the terms and conditions of the exchange offer or if old bonds are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged old bonds will be returned without expense to their tendering holder. In the case of old bonds tendered by book-entry transfer into the exchange agent's account at DTC according to the procedures described below, such non-exchanged old bonds will be credited to an account maintained with DTC. These actions will occur as promptly as practicable after the expiration or termination of the exchange offer. Your Representation to Us By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things: o any new bonds that you receive will be acquired in the ordinary course of your business; o you have no arrangement or understanding with any person or entity to participate in the distribution of the new bonds; o you are not engaged in and do not intend to engage in the distribution of the new bonds; o if you are a broker-dealer that will receive new bonds for your own account in exchange for old bonds, you acquired those bonds as a result of market-making activities or other trading activities and you will deliver a prospectus, as required by law, in connection with any resale of such new bonds; and o you are not our "affiliate," as defined in Rule 405 of the Securities Act. Book-Entry Transfer The exchange agent will establish an account with respect to the old bonds at DTC for purposes of the exchange offer promptly after the date of this prospectus. Any financial institution participating in DTC's system may make book-entry delivery of old bonds by causing DTC to transfer such old bonds into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. 73 Guaranteed Delivery Procedures If you wish to tender your outstanding bonds but you cannot deliver the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC's automated tender offer program prior to the expiration date, you may tender if: o the tender is made through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution; o prior to the expiration date, the exchange agent receives from such member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., commercial bank or trust company having an office or correspondent in the United States, or eligible guarantor institution either a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery or a properly transmitted agent's message and notice of guaranteed delivery: o setting forth your name and address, the registered number(s) of your outstanding bonds and the principal amount of outstanding bonds tendered; o stating that the tender is being made thereby; and o guaranteeing that, within three (3) New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof, together with the outstanding bonds or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent; and o the exchange agent receives such properly completed and executed letter of transmittal or facsimile thereof, as well as a book-entry confirmation, and all other documents required by the letter of transmittal, within three (3) New York Stock Exchange trading days after the expiration date. Upon request to the exchange agent, a notice of guaranteed delivery will be sent you if you wish to tender your outstanding bonds according to the guaranteed delivery procedures described above. Withdrawal of Tenders Except as otherwise provided in this prospectus, you may withdraw your tender at any time prior to the expiration date. For a withdrawal to be effective: o the exchange agent must receive a written notice of withdrawal at one of the addressees listed under "Prospectus Summary--The Exchange Agent," or o you must comply with the appropriate procedures of DTC's automated tender offer program system. Any notice of withdrawal must: o specify the name of the person who tendered the old bonds to be withdrawn; and o identify the old bonds to be withdrawn, including the principal amount of such old bonds. If old bonds have been tendered under the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old bonds and otherwise comply with the procedures of DTC. We will determine all questions as to the validity, form, eligibility and time of receipt of notice of withdrawal, and our determination shall be final and binding on all parties. We will deem any old bonds so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer. Any old bonds that have been tendered for exchange but that are not exchanged for any reason will be credited to an account maintained with DTC for the old bonds. This crediting will take place as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn old bonds by following one of the procedures described under "--Procedures for Tendering" above at any time on or prior to the expiration date. 74 Exchange Agent The Bank of New York has been appointed exchange agent of the exchange offer. Questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows: By Registered Mail or Certified Mail By Overnight Courier The Bank of New York The Bank of New York 101 Barclay Street, 7E 101 Barclay Street, 7E New York, NY 10286 New York, NY 10286 Attention: Terance Rawlins Attention: Terence Rawlins By Telephone By Facsimile (212) 815-5988 (212) 815-6339 Fees and Expenses We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitation by telegraph, telephone or in person by our officers and regular employees and those of our affiliates. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or other soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses. We will pay the cash expenses to be incurred in connection with the exchange offer. They include: o SEC registration fees; o fees and expenses of the exchange agent and trustee; o accounting and legal fees and printing costs; and o related fees and expenses. Transfer Taxes We will pay all transfer taxes, if any, applicable to the exchange of old bonds under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if: o certificates representing old bonds for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of old bonds tendered; o tendered old bonds are registered in the name of any person other than the person signing the letter of transmittal; or o a transfer tax is imposed for any reason other than the exchange of old bonds under the exchange offer. If satisfactory evidence of payment of any transfer taxes payable by a bond holder is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to that tendering holder. Consequences of Failure to Exchange If you do not exchange your old bonds for new bonds under the exchange offer, you will remain subject to the existing restrictions on transfer of the old bonds, and the market for secondary resales is likely to be minimal. In general, you may not offer or sell the old bonds unless they are registered under the Securities Act, or if the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the old bonds under the Securities Act. Unless they are broker-dealers selling under certain circumstances, holders of old bonds will no longer have any rights under the registration rights agreement. 75 Accounting Treatment We will record the new bonds in our accounting records at the same carrying value as the old bonds, which is the aggregate principal amount of the old bonds, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer. Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take. Further Bond Acquisition We may in the future seek to acquire untendered old bonds in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any old bonds that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered old bonds. 76 DESCRIPTION OF THE NEW BONDS General The following description of specific provisions of the new bonds does not purport to be complete and is subject to, and qualified in its entirety by reference to the new bonds and the indenture. Unless otherwise specified, the description applies to all of the new bonds. We will issue new bonds under the indenture dated as of June 25, 1999 between our Company and the Trustee. This is the same indenture under which the old bonds were issued. Copies of the indenture and the other financing documents are available for inspection during normal business hours at the offices of the Trustee. The new bonds will be issued in fully registered form without coupons and in denominations of $100,000 and any integral multiple of $1,000 in excess thereof. The indenture permits our Company to issue new bonds and any future senior secured indebtedness under a supplemental indenture as may be authorized from time to time in accordance with the indenture. We may also issue any other series of debt issued under the indenture through a supplemental indenture on terms established by us subject to the indenture. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Indenture--Supplemental Indentures." The new bonds will be direct obligations of our Company and will be secured by the Collateral to the same extent as the old bonds. Principal Amount, Interest Rate and Stated Maturity We will issue the new bonds in the aggregate principal amount of $308,500,000. The new bonds will bear interest at the rate per annum set forth on the cover of this prospectus and have a final maturity date of November 30, 2025. Payment of Interest and Principal We will pay interest on the new bonds quarterly in arrears on each February 28, May 31, August 31 and November 30, commencing August 31, 1999, to the registered owners on the immediately preceding record date, as such information appears on the register of our Company. 77 We will pay principal on the new bonds in installments semiannually on each February 28, May 31, August 31 and November 30, commencing February 28, 2002, to the registered owners on the immediately preceding record date as follows: PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT PAYABLE
YEAR FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 ANNUAL TOTAL - ---- ----------- ------ --------- ----------- ------------ 2002 0.1600% 0.1600% 0.1600% 0.1600% 0.6400% 2003 0.3850% 0.3850% 0.3850% 0.3850% 1.5400% 2004 0.5150% 0.5150% 0.5150% 0.5150% 2.0600% 2005 0.5700% 0.5700% 0.5700% 0.5700% 2.2800% 2006 0.5800% 0.5800% 0.5800% 0.5800% 2.3200% 2007 0.7400% 0.7400% 0.7400% 0.7400% 2.9600% 2008 0.9200% 0.9200% 0.9200% 0.9200% 3.6800% 2009 0.7800% 0.7800% 0.7800% 0.7800% 3.1200% 2010 0.8150% 0.8150% 0.8150% 0.8150% 3.2600% 2011 1.0300% 1.0300% 1.0300% 1.0300% 4.1200% 2012 0.7600% 0.7600% 0.7600% 0.7600% 3.0400% 2013 0.9600% 0.9600% 0.9600% 0.9600% 3.8400% 2014 1.2900% 1.2900% 1.2900% 1.2900% 5.1600% 2015 1.2400% 1.2400% 1.2400% 1.2400% 4.9600% 2016 1.3550% 1.3550% 1.3550% 1.3550% 5.4200% 2017 1.4650% 1.4650% 1.4650% 1.4650% 5.8600% 2018 1.0100% 1.0100% 1.0100% 1.0100% 4.0400% 2019 1.2050% 1.2050% 1.2050% 1.2050% 4.8200% 2020 1.6250% 1.6250% 1.6250% 1.6250% 6.5000% 2021 1.6500% 1.6500% 1.2000% 1.2000% 5.7000% 2022 1.3900% 1.3900% 1.3900% 1.3900% 5.5600% 2023 1.5000% 1.5000% 1.5000% 1.5000% 6.0000% 2024 1.5500% 1.5500% 1.5500% 1.5500% 6.2000% 2025 1.7300% 1.7300% 1.7300% 1.7300% 6.9200% ======= 100%
At the direction of our Company, the Trustee shall round principal amounts to be redeemed to the nearest $1,000. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months and, for any period shorter than a full month, on the basis of the actual number of days elapsed. Interest on the new bonds will accrue from the most recent date to which interest has been paid on the old bonds. Payment and Paying Agents Principal, Make-Whole Premium, if any, and interest in respect of the new bonds will be payable at the office of the Paying Agent in the County of New York, The City of New York. The Trustee will serve as the principal Paying Agent and Transfer Agent. The new bonds may be presented for payment of principal at the office of any Paying Agent. Payments in respect of principal of the new bonds will be made only against surrender of the new bonds. Payment in respect of interest on any interest payment date with respect to any new bond will be made to the person in whose name the new bond is registered on February 1, May 1, August 1 and November 1 (each a "Regular Record Date"), as the case may be, immediately preceding such interest payment date, except that interest payable at maturity will be payable to the person to whom the principal of the new bond is paid. All payments of principal and interest with respect to certificated new bonds, if any, will be made by dollar check drawn on a bank in The City of New York or, for bondholders of at least U.S.$1,000,000 in aggregate principal amount of bonds, by wire transfer to a dollar account maintained by the payee with a bank in The City of New York; provided, that a written request from the bondholder to that effect designating the account is received by the Trustee or the Paying Agent no later than the Regular Record Date immediately preceding such interest payment date. Unless such designation is revoked, any such designation made by such person with respect to such certificated bonds will remain in effect with respect to any future payments with respect to such certificated bonds 78 payable to such person. Payments with respect to global bonds will be made to DTC or its nominee, as bondholder, under DTC's rules, regulations and procedures. If any payment in respect of a new bond is due on a day that is, at any place of payment, not a business day, the bondholder will not be entitled to payment of the amount due until the next succeeding business day at such place and will not be entitled to any further interest or other payment in respect of any such delay. The indenture provides that any money paid by our Company to the Trustee for any payment with respect to the new bonds that remains unclaimed for two years will be repaid to us, and thereafter the bondholder will look only to us for payments thereof as an unsecured creditor, and we shall not be liable to pay any taxes or other duties in connection with such payment; provided, however, that unless otherwise provided by applicable law, the right to receive payment of principal and interest on any new bond (whether at maturity, redemption or otherwise) will become void at the end of 5 years from the relevant date thereof (or such shorter period as may be prescribed by applicable law). Subject to specific limitations set forth in the indenture, we reserve the right at any time to vary or terminate the appointment of the Securities Registrar or any Paying Agent or Transfer Agent with or without cause (upon giving 30 days' written notice to the Securities Registrar, such Paying Agent or Transfer Agent, as the case may be, and the Trustee) and to appoint another Securities Registrar or additional or other Paying Agents or Transfer Agents and to approve any change in the specified offices through which any Paying Agent or Transfer Agent acts; provided, that we will at all times maintain a Securities Registrar, Paying Agent and Transfer Agent in the County of New York, The City of New York. Optional Redemption Our Company may redeem all of the new bonds of each series, in whole or in part, at our option at any time, at a redemption price equal to the outstanding principal amount plus accrued and unpaid interest to the redemption date, together with the applicable Make-Whole Premium. Mandatory Redemption Event of Loss and Event of Eminent Domain If either an Event of Loss or an Event of Eminent Domain shall occur, as soon as reasonably practicable but no later than the date of receipt by our Company or the Collateral Agent of Casualty Proceeds or Eminent Domain Proceeds, as the case may be, we shall make a reasonable good faith determination as to whether (i) our Facility or any portion can be rebuilt, repaired or restored to permit operation of our Facility or a portion on a commercially feasible basis and (ii) the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, together with any other amounts that are available to us for such rebuilding, repair or restoration are sufficient to permit such rebuilding, repair or restoration of our Facility or a portion thereof. Our determination shall be evidenced by a Certificate as to Redemption filed with the Collateral Agent which, if we determine that our Facility or a portion thereof can be rebuilt, repaired or restored to permit operation thereof on a commercially feasible basis and that the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, together with any other amounts that are available to us for such rebuilding, repair or restoration, are sufficient, shall also set forth a reasonable good faith estimate by us of the total cost of such rebuilding, repair or restoration. We shall deliver to the Collateral Agent at the time it delivers the Certificate as to Redemption a certificate of the Independent Engineer, dated the date of the Certificate as to Redemption, confirming that, based upon reasonable investigation and review of the determination made by us, the Independent Engineer believes the determination and the estimate of the total cost, if any, set forth in the Certificate as to Redemption to be reasonable. Our Company must redeem all of the new bonds upon an Event of Loss or an Event of Eminent Domain: o in whole, at a redemption price equal to 100% of the principal amount together with any accrued and unpaid interest through the redemption date, within 90 days after receipt by the Trustee of Casualty Proceeds or Eminent Domain Proceeds if our Facility is substantially destroyed and cannot be rebuilt, repaired or restored to permit operation on a commercially feasible basis or an Event of Eminent Domain has occurred and our Facility cannot be operated on a commercially feasible basis, as the case may be. Our obligation to redeem the bonds upon an Event of Loss or an Event of Eminent Domain under the foregoing circumstances is not limited to the Casualty Proceeds or Eminent Domain Proceeds actually received; or o in part, at a redemption price equal to 100% of the principal amount together with any accrued and unpaid interest through the redemption date, within 90 days after receipt by the Trustee of Casualty Proceeds or Eminent Domain Proceeds if a portion of our Facility is destroyed or taken but our Facility can be rebuilt, 79 repaired or restored to permit operation on a commercially feasible basis. The aggregate amount of the new bonds to be redeemed under this paragraph will equal the amount received by the Trustee for such purpose in accordance with the provision of the collateral agency agreement; provided, however, that the new bonds shall not be subject to mandatory redemption when the proceeds not used for rebuilding, repair or restoration do not exceed $5 million and we certify to the Trustee, which certification is confirmed by the Independent Engineer, that (i) such proceeds are not needed for rebuilding, repair or restoration of our Facility or (ii) not using such proceeds for the rebuilding, repair or restoration of our Facility would not reasonably be expected to result in a Material Adverse Effect. Any Eminent Domain Proceeds and Casualty Proceeds received by the Trustee under the two preceding paragraphs shall be deposited in the Redemption Subaccount. Upon Receipt of Performance Liquidated Damages under the EPC Contract If our Company receives performance liquidated damages under the EPC Contract, we shall, as soon as reasonably practicable, make a reasonable good faith determination as to whether: o it is technically feasible to modify, repair or replace any portion of our Facility in order to remedy the circumstances giving rise to the obligation of the Contractor to pay such performance liquidated damages; o the performance liquidated damages, together with any other amounts that are available to us for such modification, repair or replacement, are sufficient to permit such modification, repair or replacement, including the making of all required payments of interest and principal on our Company's Indebtedness during such modification, repair or replacement; o the projected average Senior Debt Service Coverage Ratio (after giving effect to such modification, repair or replacement and the application of the performance liquidated damages to accomplish the same) during the Power Purchase Agreement Term (taken as one period) and the Post-Power Purchase Agreement Period (taken as one period) would be equal to or greater than the projected average Senior Debt Service Coverage Ratio set forth in the base case projections for each such period included in this prospectus; and o the projected minimum Senior Debt Service Coverage Ratio (after giving effect to such modification, repair or replacement and the application of the performance liquidated damages to accomplish the same) during the Power Purchase Agreement Term and the Post-Power Purchase Agreement Period would be equal to or greater than the projected minimum Senior Debt Service Coverage Ratio set forth in the base case projections for each such period included in this prospectus. Our determination shall be evidenced by an Officer's Certificate (together with such supporting detail as the collateral agent or the Independent Engineer may reasonably request) filed with the collateral agent which, if we determine that such portion of our Facility can be modified, repaired or replaced and that the other statements set forth above are true, shall also set forth our reasonable good faith estimate of the total cost of such modification, repair or replacement. We shall deliver to the collateral agent at the time we deliver the Officer's Certificate referred to above a certificate of the Independent Engineer, dated the date of the Officer's Certificate, stating that, based upon reasonable investigation and review of the determinations, assumptions, conclusions and estimates of costs made by us, the Independent Engineer believes the determinations, assumptions, conclusions and estimates of costs set forth in the Officer's Certificate to be reasonable. If the requirements of the preceding paragraph are satisfied, the collateral agent shall apply the amounts received from the Contractor to the payment, or reimbursement to the extent the same have been paid or satisfied by our Company, of the costs of modification, repair and replacement of that portion of our Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor to pay such performance liquidated damages. Upon receipt of an Officer's Certificate of our Company, confirmed by the Independent Engineer, certifying that o all modifications, repairs or replacements of that portion of our Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor to pay performance liquidated damages have been completed and 80 o the projected debt service coverage ratio tests referred to in the immediately preceding paragraph continue to be met, the collateral agent shall transfer all remaining proceeds of the performance liquidated damages to us or to whomever we in writing direct. If the requirements of the preceding paragraph are not satisfied, then our Company must redeem the new bonds: o in part, at a redemption price equal to 100% of the principal amount together with any accrued and unpaid interest through the redemption date, within 90 days after receipt by the Trustee of performance liquidated damages to be used to redeem a portion of the new bonds. The aggregate amount of the new bonds to be redeemed under this paragraph is limited to the amount of performance liquidated damages actually received. o Any performance liquidated damages under the EPC Contract received by the Trustee under the preceding paragraph shall be deposited in the Redemption Subaccount. Upon Receipt of Proceeds Under the Williams Guaranty If the power purchase agreement is terminated as a result of an event of default by the Power Purchaser thereunder and our Company receives proceeds under the Williams Guaranty in respect thereof, we must redeem the new bonds, in whole or in part, at a redemption price equal to 100% of the principal amount together with any accrued and unpaid interest to the redemption date, as soon as reasonably practicable, but in any event within 90 days of the receipt of such proceeds. After the payment of specific administrative fees, the aggregate amount of the new bonds to be redeemed under this paragraph (including accrued and unpaid interest) will equal an amount which is equal to the amount paid under the Williams Guaranty multiplied by a fraction the numerator of which is the then outstanding principal amount of the new bonds and accrued and unpaid interest and the denominator of which is the principal of and accrued and unpaid interest on all Senior Debt including the new bonds. Ratings The new bonds are expected to be rated "BBB-" by S&P and "Baa3" by Moody's. Such ratings reflect only the views of the rating agencies at the time the rating is issued, and any explanation of the significance of such ratings may only be obtained from the rating agency. There is no assurance that any such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agency, if, in the rating agency's judgment, circumstances so warrant. Any such lowering, suspension or withdrawal of any rating may have an adverse effect on the market price or marketability of the new bonds. Book-Entry, Delivery and Form The new bonds will initially be represented by one or more permanent global bonds in definitive, fully registered book-entry form that will be registered in the name of Cede & Co., the global bond holder, as nominee of DTC. The global bonds will be deposited on behalf of the acquirors of the new bonds represented thereby with a custodian for DTC for credit to the respective accounts of the acquirors or to such other accounts as they may direct at DTC. See "The Exchange Offer--Book-Entry Transfer." The Global Bonds We expect that under procedures established by DTC: o upon deposit of the global bonds with DTC or its custodian, DTC will credit on its internal system portions of the global bonds that shall be comprised of the corresponding respective amounts of the global bonds to the respective accounts of persons who have accounts with such depositary; and o ownership of the bonds will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC or its nominee, with respect to interests of persons who have accounts with DTC ("participants"), and the records of participants, with respect to interests of persons other than participants. So long as DTC or its nominee is the registered owner or holder of any of the bonds, DTC or such nominee will be considered the sole owner or holder of such bonds represented by the global bonds for all purposes under the indenture and under the bonds represented thereby. No beneficial owner of an interest in the global bonds will be able to transfer such interest except in accordance with the applicable procedures of DTC in addition to those provided for under the indenture. 81 Payments on the bonds represented by the global bonds will be made to DTC or its nominee, as the case may be, as the registered owner of the global bonds. None of our Company, the trustee or any paying agent under the indenture will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global bonds or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. We expect that DTC or its nominee, upon receipt of any payment on the bonds represented by the global bonds, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the global bonds as shown in the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in the global bonds held through such participants will be governed by standing instructions and customary practice as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payment will be the responsibility of such participants. Transfers between participants in DTC will be effected in accordance with DTC rules and will be settled in immediately available funds. DTC has advised us that DTC will take any action permitted to be taken by a holder of bonds, including the presentation of bonds for exchange as described below, only at the direction of one or more participants to whose account the DTC interests in the global bonds are credited and only in respect of the aggregate principal amount as to which such participant or participants has or have given such direction. However, if there is an event of default under the indenture, DTC will exchange the global bonds for certificated securities that it will distribute to its participants. DTC has advised us as follows: o DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered under the provisions of Section 17A of the Securities Exchange Act of 1934; o DTC holds securities that its participants deposit with DTC and facilitates the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates; o Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and other organizations; o DTC is owned by a number of its participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.; o Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly; and o The rules applicable to DTC and its participants are on file with the SEC. Although DTC is expected to follow these procedures in order to facilitate transfers of interests in the global bonds among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither our Company nor the trustee will have any responsibility for the performance by DTC or its direct or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Securities As of the date of this prospectus, all of the interests in old bonds are in book-entry form. It is not expected that any old bonds will be in registered certificated form at the time of the exchange. It is expected that all old bonds before the exchange, and all bonds outstanding after the exchange, will be represented by global certificates for bonds in bearer form held by The Bank of New York as depositary and that DTC will have a book-entry interest in those bonds. Beneficial interests in those bonds will be held through participants in DTC acting as securities intermediaries. Therefore, references in this section to bonds are references to beneficial interests in the bonds in book-entry form except 82 where the discussion is explicitly about certificated bonds, and references to owners are to owners of those beneficial interests. Interests in the global bonds will be exchanged for certificated securities if: o DTC or any successor depositary (the "Depositary") notifies us that it is unwilling or unable to continue as depositary for the global bonds, or DTC ceases to become a "clearing agency" registered under the Securities Exchange Act of 1934, and a successor depositary is not appointed by us within 90 days; o an Event of Default has occurred and is continuing with respect to the bonds and the registrar has received a request from the Depositary to issue certificated securities within 30 days of such request; or o we determine not to have the bonds represented by global bonds. Upon the occurrence of any of the events described in the preceding sentence, we will cause the appropriate certificates securities to be delivered. Neither our Company nor the Trustee will be liable for any delay by the Depositary or its nominee in identifying the beneficial owners of the related bonds. Each such person may conclusively rely on instructions from the Depositary or the nominee for all purposes, including the registration and delivery and the respective principal amounts, of the new bonds to be issued. Owners of old bonds should instruct the brokers, dealers, commercial banks or trust companies with whom they have securities accounts or their nominees to tender for them. Exchanges by owners will be represented by an exchange of global certificates for old bonds held by the depositary for global certificates for new bonds. If fewer than all old bonds are tendered for exchange, the depositary will hold separate global certificates for bonds representing the appropriate aggregate amounts of remaining old bonds and of new bonds. Same-Day Settlement and Payment The indenture requires that payments in respect of the bonds represented by the global bonds (including principal, premium, if any, and interest) be made by wire transfer of immediately available funds to the accounts specified by the global bond holder. With respect to certificated bonds, if any, our Company will make all payments of principal, premium, if any, and interest by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. Secondary trading in long-term bonds and debentures of corporate issues is generally settled in clearinghouse or next-day funds. In contrast, bonds represented by the global bonds are expected to be eligible to trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such bonds will, therefore, be required by DTC to be settled in immediately available funds. We expect that secondary trading in the certificated bonds will also be settled in immediately available funds. Because of time zone differences, the securities account of a Euroclear System or Cedel Bank participant purchasing an interest in global bonds from a participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Cedel participant, during the securities settlement processing day (which must be a Business Day for Euroclear or Cedel) immediately following the settlement date of DTC. DTC has advised us that cash received in Euroclear or Cedel as a result of sales of interests in a global bond by or through a Euroclear or Cedel participant to a participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Cedel cash account only as of the Business Day for Euroclear or Cedel following DTC's settlement date. Year 2000 DTC management is aware that some computer applications, systems, and the like for processing data that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter "Year 2000 problems." DTC has informed its participants and other members of the financial community that it has developed and is implementing a program so that its systems, as the same relate to the timely payment of distributions (including principal and income payments) to securityholders, book-entry deliveries, and settlement of trades within DTC, continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase which is expected to be completed within approximate time frames. However, DTC's ability to perform property its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as third-party vendors from whom DTC licenses software and hardware, and third-party vendors on whom DTC relies for information or the provision of services, including, telecommunication and electrical utility service providers, among others. DTC has informed the financial community that it is contacting (and 83 will continue to contact) third-party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant and (ii) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans as it deems appropriate. Limited Recourse Nature of the New Bonds All obligations in connection with the new bonds are obligations solely of our Company. The bondholders shall have recourse only to the Collateral and our Company for repayment of the new bonds. No holder of ownership interests in our Company or any other Affiliate of our Company or any of their respective incorporators, stockholders, directors, officers or employees will guarantee the payment of the new bonds. The bondholders shall have no claim against or recourse to the holders of the ownership interests in our Company or any other Affiliate of our Company or their respective incorporators, stockholders, directors, officers or employees by operation of law or otherwise for the repayment of the new bonds. 84 SUMMARY OF PRINCIPAL FINANCING DOCUMENTS The following summaries of selected provisions of the Indenture and the other Financing Documents are qualified in their entirety by reference to the full text of the Indenture and the other Financing Documents, including the definitions therein. Capitalized terms used herein and not otherwise defined in this Offering Circular have the meanings given to them in the Indenture or the other Financing Documents. Indenture Accounts Indenture Accounts The following accounts (the "Indenture Accounts") have been established by the Trustee: the Bond Payment Account, including the Interest Payment Subaccount, the Principal Payment Subaccount and the Redemption Subaccount, and the Construction Interest Account. All amounts from time to time held in each Indenture Account shall be held in the name of the Trustee subject to the lien and security interest granted under the Indenture and in the custody of the Depositary Bank on behalf of the Trustee. Bond Payment Account The Trustee shall deposit (i) all funds held in the Bond Payment Account and all funds received by it for the payment of interest on the bonds into the Interest Payment Subaccount for disbursement in accordance with the Indenture and (ii) all funds received by it for the payment of principal on the bonds (including any funds transferred from the Redemption Subaccount) into the Principal Payment Subaccount for disbursement in accordance with the Indenture. Construction Interest Account The Trustee shall deposit all funds received by it for the payment of interest on the bonds from and including the date of original issuance of the bonds then outstanding to and through the Commercial Operation Date into the Construction Interest Account. The Trustee will disburse from the Construction Interest Account the amount required to pay interest on the bonds when due (whether on an Interest Payment Date or upon call for redemption or by acceleration or otherwise). On the Commercial Operation Date and upon our Company's delivery to the Collateral Agent and the Trustee of a Commercial Operation Certificate, the Trustee shall transfer all funds remaining in the Construction Interest Account to the Bond Payment Account for deposit in the Interest Payment Subaccount. Interest Payment Subaccount, Principal Payment Subaccount and Redemption Subaccount (a) The Trustee is authorized and directed to disburse from the Interest Payment Subaccount, the amount required to pay interest on the bonds when due (whether on an Interest Payment Date or upon call for redemption or by acceleration or otherwise). (b) The Trustee is authorized and directed to disburse from the Principal Payment Subaccount, the amount required to pay principal on the bonds when due (whether on a principal payment date or upon call for redemption or by acceleration or otherwise). (c) The Trustee is authorized and directed to disburse funds from the Redemption Subaccount (when amounts on deposit therein equal or exceed $5,000,000) for the redemption of bonds in accordance with the Indenture. The foregoing notwithstanding, the Trustee shall transfer funds remaining in the Redemption Subaccount for more than one year and not applied to the redemption of bonds under the Indenture to the Principal Payment Subaccount for application by the Trustee in accordance with the Indenture. Affirmative Covenants Our Company will make the following affirmative covenants: Payment of Principal, Premium, if any, and Interest Our Company shall duly and punctually pay, or cause to be paid, the principal of, premium, if any, and interest on, and all other amounts payable in respect of, the bonds in accordance with their terms and the terms of the Indenture and of the related Series Supplemental Indenture. 85 Reporting Requirements Our Company shall furnish to the Senior Parties: (a) as soon as practicable and in any event within 60 days after the end of the first, second and third quarterly accounting periods of each fiscal year of our Company (commencing with the quarter ending September 30, 1999), an unaudited balance sheet of our Company as of the last day of such quarterly period and the related statements of income and cash flows, and reports of all dividends and other distributions paid to owners during such quarterly period prepared in accordance with GAAP and (in the case of second and third quarterly periods) for the portion of the fiscal year ending with the last day of such quarterly period, setting forth in each case in comparative form corresponding unaudited figures from the preceding fiscal year and accompanied by a written statement of an Authorized Representative of our Company to the effect that such financial statements fairly represent our Company's financial condition and results of operations at and as of their respective dates; (b) as soon as practicable and in any event within 120 days after the end of each fiscal year of our Company (commencing with the fiscal year ended December 31, 1999), a balance sheet of our Company as of the end of such year and the related statements of income and cash flow during such year setting forth in each case in comparative form corresponding figures from the preceding fiscal year, accompanied by an audit report thereon of a firm of independent public accountants of recognized national standing; (c) at the time of the delivery of the financial statements provided for in clause (a) and (b) above, an Officer's Certificate to the effect that, to the best of such officer's knowledge, (i) our Company is in compliance with all of its material obligations under the terms of the Transaction Documents the non-performance of which has resulted or could reasonably be expected to result in a Material Adverse Effect and (ii) to the best of such officer's knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof and what action our Company is taking or proposes to take in response thereto; and (d) each of the following items: (i) promptly after our Company obtains actual knowledge of the occurrence thereof, written notice of the occurrence of any event or condition which constitutes an Event of Default and an Officer's Certificate of our Company setting forth the details thereof and the action which our Company is taking or proposes to take with respect thereto; (ii) promptly after our Company obtains actual knowledge of the occurrence thereof, written notice of the occurrence of any Event of Eminent Domain or any Event of Loss and an Officer's Certificate of our Company setting forth the details thereof and the action which our Company is taking or proposes to take with respect thereto; and (iii) until the occurrence of the Commercial Operation Date, within 45 days after the end of each fiscal quarter of our Company (commencing with its quarter ending September 30, 1999), a quarterly construction report describing the progress of our Facility's construction and expenditure of funds. (e) Our Company shall furnish or cause to be furnished to the Senior Parties no later than six months prior to the expiration of the term of the Power Purchase Agreement (the "Term Expiration Date") a report (an "Independent Forecast") prepared by an independent consultant which sets forth projections of (i) electricity prices for the PJM Market (or if such market no longer exists at such time, any successor market or substitute market as determined in good faith by our Company which approximates, to the extent practicable, such region) and (ii) gas prices on a delivered basis to our Facility, in each case on at least an annual basis through the final maturity date for the bonds; provided, that if (A) our Company enters into a Replacement Power Purchase Agreement, effective as of the Term Expiration Date and extending to at least the final maturity date for the bonds, (B) the projected Senior Debt Service Coverage Ratio through the final maturity date for the bonds, based on the provisions of such Replacement Power Purchase Agreement shall be greater than 2.0 to 1 and (C) the senior unsecured long term debt of such power purchaser(s) under such agreement(s) is rated at least Investment Grade, our Company shall not be required to provide the forecast referenced herein. (f) Upon the request of any bondholder (or the Trustee on behalf of a holder of a beneficial interest in the bonds), our Company shall furnish such information as is specified in paragraph (d)(4) of Rule 144A to such bondholder (and holders of beneficial interests in the bonds) to a prospective purchaser of the bonds (and prospective purchasers of beneficial interests in the bonds) who is a Qualified Institutional Buyer or Institutional Accredited Investor or to the Trustee for delivery to such bondholder or prospective purchaser of the bonds, as the case may be, unless, at the time of 86 such request, our Company is subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act. (g) All such information provided to the Senior Parties under clauses (a), (b), (c) and (d) above shall also be provided by the Trustee (i) to the bondholders and (ii) to holders of beneficial interests in the bonds or prospective purchasers of the bonds or beneficial interests in the bonds upon written request to the Trustee (which may be a single continuing request). Our Company shall furnish the Trustee, upon its request, with sufficient copies of all such information to accommodate the requests of the holders of beneficial interests in the bonds. (h) The information specified in paragraphs (a), (b), (c), (d) and (e) above shall be provided to each Rating Agency concurrently with its delivery to the Senior Parties. Insurance Our Company shall maintain or cause to be maintained in accordance with the terms of the Indenture the following insurance coverages: (i) during construction of our Facility, builder's risk (with full replacement cost coverage), delayed start-up (providing coverage for at least 18 months of projected continuing expenses and Senior Debt Service and any liquidated damages, with not greater than a 30-day deductible or, with respect to the combustion turbine, with not greater than a 60-day deductible), comprehensive general liability, workers' compensation and employer's liability, automobile liability and umbrella liability; and (ii) subsequent to transfer of care, custody and control of our Facility to our Company, all risk property and boiler and machinery insurance (covering full replacement cost, subject to reasonable and customary deductibles and sublimits), business interruption (providing coverage of 12 months of debt service and fixed operation and maintenance expenses and having not greater than a 60-day deductible), comprehensive general liability, workers' compensation and employer's liability, automobile liability and umbrella liability (minimum limit of $9 million per occurrence and aggregate). All policies of insurance except workers' compensation and automobile liability policies shall name the Collateral Agent and the Power Purchaser as additional insureds. If at any time any of the required insurance shall no longer be available on commercially reasonable terms (as confirmed by the Independent Insurance Adviser), our Company shall procure substitute insurance coverage reasonably satisfactory to the Independent Insurance Advisor that is the most equivalent to the required coverage and that is available on commercially reasonable terms. Maintenance of Existence, Liens and Governmental Approvals Our Company shall at all times: (a) preserve and maintain in full force and effect (i) its existence as a limited liability company and its good standing under the laws of the State of Delaware and (ii) its qualification to do business in each other jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business as conducted or proposed to be conducted makes such qualification necessary; (b) obtain and maintain in full force and effect all Governmental Approvals (including, without limitation, maintaining compliance with Environmental Laws) and other consents and approvals required at any time in connection with the construction, maintenance, ownership or operation of our Facility; (c) preserve and maintain good and marketable title to its properties and assets (subject to no Liens other than Permitted Liens); and (d) preserve and maintain Liens of the Senior Parties on the Collateral. Operating and Maintenance Our Company shall, or shall cause the Operator to, use, maintain and operate our Facility and the Site in compliance with generally accepted Prudent Operating and Maintenance Practices and the material provisions of all relevant Project Contracts. Compliance with Applicable Laws Our Company shall comply with, and shall ensure that our Facility is constructed and operated in compliance with, and shall make such alterations to our Facility and the Site as may be required for compliance with, all Applicable Laws, Environmental Laws and Governmental Approvals, except where noncompliance would not reasonably be expected to result in a Material Adverse Effect. 87 Project Contracts; Williams Guaranty; Operation of our Facility Our Company shall (i) perform and observe in all material respects its covenants and agreements contained in any of our Project Contracts, (ii) enforce, defend and protect all of its rights contained in any of our Project Contracts and (iii) take all reasonable and necessary actions to prevent the termination or cancellation of any of our Project Contracts, except in case of (i) and (ii) above, where such non-performance could not reasonably be expected to have a Material Adverse Effect. Our Company (i) shall fully enforce its rights under the Williams Guaranty and the Power Purchase Agreement with respect to substitute security under the circumstances provided for therein and (ii) shall not, without the consent of bondholders holding a majority in outstanding principal amount of the bonds, make a demand for or take any legal action under the Williams Guaranty if, as a result of payments made under such demand or legal action by our Company, the aggregate amount available under the Williams Guaranty would be less than or equal to the principal amount of the then outstanding Senior Debt, including without limitation, the undrawn portions of the maximum amounts of any DSR Letter of Credit or CP Letter of Credit. Our Company shall (i) upon any payment event of default or other event of default under the Power Purchase Agreement, exercise its rights to terminate the Power Purchase Agreement in accordance with its terms, (ii) if of any termination of the Power Purchase Agreement, fully enforce its rights under the Williams Guaranty and (iii) use any amounts obtained under the Williams Guaranty to redeem the bonds in accordance with the Indenture and to pay principal and interest on our Company's other Senior Debt in accordance with the Financing Documents and in each case in accordance with the Collateral Agency Agreement. Our Company shall (i) exercise all of its rights under the Operations Agreement to terminate such agreement if (a) a bankruptcy event in respect of the Operator has occurred and is continuing and (b) the Operator has failed to perform any material obligation under the Operations Agreement and (ii) exercise its rights under the Operations Agreement to cause the Operator to terminate the Services Agreement under the terms of that agreement if (a) a bankruptcy event in respect of AES has occurred and is continuing and (b) AES has failed to perform any material obligation under the Services Agreement. Annual Budget Not less than 30 days prior to (i) the anticipated Commercial Operation Date, and thereafter (ii) the commencement of each Fiscal Year, our Company shall provide to the Senior Parties and the Rating Agencies an Annual Budget. The first Annual Budget shall cover the period from the Commercial Operation Date through the end of the Fiscal Year in which the Commercial Operation Date occurs, and if such period consists of less than six months, for the immediately succeeding Fiscal Year. Each Annual Budget shall specify the estimated sales of capacity and energy under the Power Purchase Agreement and any Replacement Power Purchase Agreement and all other sales of capacity and energy, the estimated rates and revenues for each category of such sales, all Operating and Maintenance Costs, a manpower forecast, a periodic inspection, maintenance and repair schedule, a description of all Required Capital Expenditures and the underlying operating assumption and implementation plans for the Fiscal Year covered by such Annual Budget. Our Company shall operate and maintain our Facility, or cause our Facility to be operated and maintained, in accordance with the Annual Budget other than deviations resulting from operating requirements under our Project Contracts or Prudent Operating and Maintenance Practices. Insurance Report Within 30 days after the end of each Fiscal Year, our Company shall submit to the Senior Parties and each Rating Agency that currently is rating any of the bonds then outstanding a certificate (i) listing all insurance being carried by, or on behalf of, our Company under the Indenture and (ii) certifying that all insurance policies required to be maintained under our Project Contracts and the Indenture are in full force and effect and all premiums therefor have been fully paid. Inspection The Senior Parties shall have the right, upon reasonable advance written notice to our Company, to inspect our Facility and the Site from time to time; provided, that our Company shall have the right to specify reasonable dates and times for any such inspection in order to avoid any material interference with operation of our Facility. Construction of our Facility Our Company shall cause the construction of our Facility to be prosecuted and completed with diligence and continuity (except for interruptions provided for in the EPC Contract or due to events of force majeure, which events of 88 force majeure our Company shall use its best efforts to mitigate), in a good and workmanlike manner and in accordance with sound, generally accepted building and engineering practices, all material applicable Governmental Requirements and the EPC Contract. Our Company shall at all times cause a complete set of the current and (when available) as-built plans (and all supplements thereto) relating to our Facility to be maintained on the Site or the Contractor's offices and available for inspection by the Independent Engineer. Contractor Performance Tests; Final Acceptance The Independent Engineer shall have the right to witness and verify the performance tests required by the EPC Contract. Our Company shall not, without the prior written confirmation by the Independent Engineer, either (i) grant the Final Acceptance Certificate to the Contractor under the EPC Contract or (ii) elect to effect Final Acceptance under the EPC Contract. Casualty Proceeds; Eminent Domain Proceeds Our Company shall cause all Casualty Proceeds and Eminent Domain Proceeds to be deposited in the Restoration Account under the Collateral Agency Agreement. Payment of Taxes and Impositions Our Company will pay or cause to be paid, before any fine, interest or penalty is imposed thereon, all Impositions. If, under any Applicable Law, any Impositions may at the option of our Company be paid in installments (whether or not interest shall accrue on the unpaid balance thereof), our Company shall have the right; provided, that no Event of Default shall then exist, to exercise such option and to pay or cause to be paid such Impositions and any accrued interest thereon in installments as they fall due and before any fine, penalty, further interest or cost may be added thereto. Our Company will pay all taxes and other governmental charges (including without limitation, stamp taxes) assessed by any Governmental Authorities and imposed on the Collateral Agent, its successors or assignees, by reason of the Collateral Agent's ownership of the Mortgage or the other Security Documents or payable by either our Company or the Collateral Agent upon any modification, amendment, extension and/or consolidation thereof. Our Company will also pay any tax imposed directly or indirectly on the Mortgage in lieu of a tax on the Mortgaged Property or any part thereof, whether by reason of (i) the passage after the date of the Mortgage of any law of the Commonwealth of Pennsylvania deducting from the value of real property for the purposes of taxation any lien thereon, (ii) any change in the laws for the taxation of mortgages or debts secured by mortgages for state or local purposes, (iii) a change in the means of collection of any such tax or (iv) any tax, now or hereafter assessed against the Mortgage or assessed against, or withheld from, any payments made by our Company under the Indenture. Our Company will not claim or demand or be entitled to any credit or credits for the payment of any Impositions, and no deduction shall otherwise be made or claimed from the taxable value of the Mortgaged Property, or any part thereof, by reason of the Mortgage. Preservation of Lien of Mortgage Our Company will (i) preserve its right, title and interest in and to the Mortgaged Property and will warrant and defend the same against any and all claims and demands whatsoever, (ii) continue to have full power and lawful authority to encumber and convey the Mortgaged Property as provided in the Mortgage and (iii) maintain and preserve the priority of the lien of the Mortgage until all of the obligations under the Financing Documents are paid and performed in full. Negative Covenants Our Company will make the following negative covenants: Limitations on Additional Indebtedness Our Company shall not create or incur or suffer to exist any Indebtedness or lease obligations except for: o the bonds; o indebtedness incurred under the DSR LOC Reimbursement Agreement or any CP LOC Reimbursement Agreement; o letters of credit and other financial obligations arising under our Project Contracts; o Affiliate Subordinated Debt; 89 o purchase money obligations incurred to finance discrete items of equipment not comprising an integral part of our Project that extend only to the equipment being financed and that do not in the aggregate have annual debt service or lease obligations exceeding $5 million (escalated at GDPIPD); o trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; o obligations in respect of surety bonds or similar instruments in an aggregate amount not exceeding $5 million at any one time outstanding; o any lines of credit for working capital purposes in the maximum amount of $5 million; o Senior Debt used for an expansion of our Facility; provided, however, that such Senior Debt may not be issued unless (a) (1) the projected average Senior Debt Service Coverage Ratio (after giving effect to such Senior Debt) is at least 1.50 to 1.0 through the end of the Power Purchase Agreement Term (taken as one period) and at least 2.50 to 1.0 during the Post-Power Purchase Agreement Period (taken as one period) and (2) the projected minimum Senior Debt Service Coverage Ratio (after giving effect to such Senior Debt) is at least 1.30 to 1.0 through the end of the Power Purchase Agreement Term and at least 2.15 to 1.0 during the Post-Power Purchase Agreement Period; (b) our Company provides a Ratings Reaffirmation from each of the Rating Agencies; and (c) the Trustee does not, within 60 days of notice to holders of the bonds setting forth a summary of the terms of such Senior Debt and a description of the facilities to be constructed with the proceeds of such Senior Debt, receive an instruction from persons holding a majority in principal amount of the bonds not to permit the issuance of such Senior Debt; and o Senior Debt or Subordinated Debt (from persons who are not Affiliates of our Company) for Required Modifications and Optional Modifications; provided, however, that our Company may issue (a) Senior Debt on a parity basis with the bonds only for Required Modifications and only if (1) the projected average Senior Debt Service Coverage Ratio (after giving effect to such Senior Debt) is at least 1.30 to 1.0 through the end of the Power Purchase Agreement Term (taken as one period) and at least 2.0 to 1.0 during the Post-Power Purchase Agreement Period (taken as one period) or (2) our Company provides a Ratings Reaffirmation from each of the Ratings Agencies; (b) Subordinated Debt for Required Modifications only if (1)(A) the projected average Total Debt Service Coverage Ratio (after taking into account such Subordinated Debt) is at least 1.20 to 1.0 through the end of the Power Purchase Agreement Term (taken as one period) and at least 1.65 to 1.0 during the Post-Power Purchase Agreement Period (taken as one period) and (B) the projected minimum Total Debt Service Coverage Ratio (after giving effect to such Subordinated Debt) is at least 1.1 to 1.0 through the Power Purchase Agreement Term and at least 1.35 to 1.0 during the Post-Power Purchase Agreement Period, or (2) our Company provides a Ratings Reaffirmation from each of the Ratings Agencies; or (c) Subordinated Debt for Optional Modifications only if our Company provides a Ratings Reaffirmation from each of the Ratings Agencies. In the case of clauses (b) and (c) of the preceding proviso, the final maturity date of such Subordinated Debt shall not be earlier than the final maturity date for the bonds and the average life of such Subordinated Debt must be no shorter than the average remaining life of the bonds (collectively, "Permitted Indebtedness"). Restricted Payments Our Company shall not make any Restricted Payments unless the Distribution Conditions set forth in the Collateral Agency Agreement have been satisfied. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Collateral Agency Agreement--Distribution Account." Prohibition of Change in Control Our Company shall not engage in, or suffer to occur, any Change in Control, where Change in Control means any failure by AES, at all times while bonds are outstanding, to maintain directly or indirectly at least a 51% voting and economic interest in our Company, unless prior to giving effect to the reduction in the voting or economic interest of AES in our Company either (i) each of the Rating Agencies provides a Ratings Reaffirmation to the Trustee or (ii) the reduction in AES's voting or economic interest has been approved by bondholders holding at least 66-2/3% in aggregate principal amount of the bonds. 90 Nature of Business Our Company shall not engage in any business other than the development, financing, construction and operation and maintenance of our Facility as contemplated by our Project Contracts. Amendments to Project Contracts Our Company shall not, except as otherwise expressly set forth in the Financing Documents, terminate, amend or modify (other than immaterial amendments or modifications as certified by our Company) any of our Project Contracts to which it is a party, or consent to any assignment by another party thereto, unless (i) our Company certifies to the Senior Parties that such termination, amendment, modification or assignment is not reasonably expected to result in a Material Adverse Effect and such termination, amendment, modification or assignment is not reasonably expected to materially increase the likelihood of the occurrence of a future Material Adverse Effect and (ii) the Independent Engineer does not within 10 Business Days of receipt of such certificate disagree in writing to the certification provided under clause (i); provided, however, that our Company shall not, (a) amend or modify the Power Purchase Agreement unless in addition to the requirements of clauses (i) and (ii) above, our Company certifies that such amendment or modification would not cause our Company's net operating revenues to decrease by more than 5% and such certification is confirmed by the Independent Engineer, (b) except as otherwise expressly set forth in the Financing Documents, terminate the Power Purchase Agreement or consent to any release of, assignment by or change in the identity of the Power Purchaser unless (1) within 90 days of such termination or consent resulting from an event of default by the Power Purchaser under the Power Purchase Agreement, or prior to any such termination or consent or for any other reason our Company (A) enters into a Replacement Power Purchase Agreement or (B) provides the Senior Parties and each of the Ratings Agencies with a Power Marketing Plan and (2) our Company provides to the Trustee and the Collateral Agent a Ratings Reaffirmation from each Rating Agency within such 90-day period or prior to such termination or consent, as the case may be, or (c) release or modify in any way the Williams Guaranty unless our Company obtains substitute security therefor under the Power Purchase Agreement. Prohibition on Fundamental Changes and Disposition of Assets Our Company shall not enter into any transaction of merger or consolidation, change its form of organization or its business, liquidate or dissolve itself (or suffer any liquidation or dissolution), except as permitted in the Indenture. Our Company shall not amend its governing instruments except where such amendment could not reasonably be expected to result in a Material Adverse Effect. Our Company shall not purchase or otherwise acquire all or substantially all of the assets of any other person; provided, that our Company may maintain ownership interests in subsidiaries if such subsidiaries are involved in operation, maintenance or fuel supply for our Facility. In addition, except as contemplated by our Project Contracts or permitted under the Indenture, or as authorized by the first and second provisos below, our Company shall not sell, lease (as lessor) or transfer (as transferor) any property or assets material to the operation of our Facility except in the ordinary course of business to the extent that such property is worn out or is no longer useful or necessary in connection with the operation of our Facility; provided, however, that our Company shall not sell, lease or transfer any of such property or assets without the written approval of the Collateral Agent, if the aggregate fair market value of all sales, leases and transfers in the current Fiscal Year exceeds $5 million escalated at the GDPIPD; provided, further, that our Company may loan useful spare parts to other electric power generating facilities owned by an Affiliate of our Company without prior approval of the Trustee or the Collateral Agent on the conditions that, with respect to any spare part whose value is in excess of $50,000: (i) at the time of the loan the recipient of the spare part enters into an enforceable obligation to replace the spare part in kind, or to pay an amount equal to the replacement value of the spare part to our Company, within 30 days of our Company's demand for the same and (ii) our Company certifies to the Collateral Agent that the spare part shall not be necessary for a planned outage or for scheduled maintenance of our Facility prior to being replaced, and such certificate is confirmed by the Independent Engineer. Liens Our Company shall not create or suffer to exist or permit any lien upon or with respect to any of its properties, other than Permitted Liens. Transactions with Affiliates Our Company shall not enter into any Affiliate Transaction other than (i) the Operations Agreement and the Equity Subscription Agreement and (ii) transactions in the ordinary course of business on fair and reasonable terms no less favorable to our Company than our Company would obtain in an arm's length transaction with a person that is not an Affiliate of our Company. 91 Change Orders Our Company shall not initiate or approve any change order under the EPC Contract that individually exceeds $5,000,000 or when aggregated with all other change orders exceeds $10,000,000, unless our Company certifies in writing to the Collateral Agent that (i) such change order is technically feasible, (ii) such change order is not reasonably expected to materially and adversely affect the operation or reliability of our Facility, (iii) the implementation of such change order is not reasonably expected to cause the Commercial Operation Date to occur after the Date Certain and (iv) adequate funds are available to our Company to fund such change orders and other Project Costs through the Commercial Operation Date, and such certification is confirmed by the Independent Engineer. Events of Default Events of Default under the Indenture shall include the following: The term "Event of Default," whenever used herein, means any of the following events (whatever the reason for such event and whether voluntary or involuntary, affected by question of law, or under or in compliance with any Applicable Law) and such event shall continue to be an Event of Default if and for so long as it shall not have been remedied: (a) Our Company shall fail to pay any principal, interest or premium, if any, including any Make-Whole Premium, on a bond when the same becomes due and payable, whether at scheduled maturity or required prepayment or by acceleration or otherwise and such failure shall continue for 10 or more days; or (b) Any representation or warranty made by our Company in the Indenture shall prove to have been false or misleading in any respect as of the time made, confirmed or furnished and the inaccuracy has resulted or is reasonably expected to result in a Material Adverse Effect and the circumstances surrounding such misrepresentation shall continue uncured for 30 or more days from the discovery thereof; provided, that if our Company commences efforts to cure the factual situation resulting in such misrepresentation within such 30-day period, our Company may continue to effect such cure of the misrepresentation, and such misrepresentation shall not be deemed an Event of Default, for an additional 60 days so long as an Authorized Representative of our Company certifies that no other Event of Default has occurred and is continuing and our Company is diligently pursuing the cure; or (c) Our Company shall fail to maintain insurance in accordance with the Indenture; or (d) Our Company shall fail to perform or observe covenants or agreements in the Indenture with respect to the following: maintenance of existence and governmental approvals; nature of business; compliance with Applicable Laws; amendments to project contracts; prohibition on fundamental changes and disposition of assets; liens; indebtedness; or restricted payments; and such failure shall continue uncured for more than 30 days after our Company has actual knowledge of such failure; or (e) A Change in Control shall have occurred; or (f) Our Company shall fail to perform or observe any of its covenants or agreements contained in any other provision of the Indenture not referred to above and such failure shall continue uncured for more than 30 days after our Company has actual knowledge of such failure; provided, that if our Company commences efforts to cure such default within such 30-day period and is diligently attempting to cure such default (and certifies to the Trustee the steps it is taking), our Company may continue to effect such cure of the default (and such default shall not be deemed an "Event of Default" hereunder) for an additional 60 days so long as our Company certifies that no other Event of Default has occurred and is continuing and our Company is diligently pursuing such cure; or (g) Our Company or, so long as AES has any outstanding obligations under any Acceptable Credit Support, AES or, so long as AES Ironwood, Inc. has any outstanding obligations under the Equity Subscription Agreement, AES Ironwood, Inc. shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or substantially all of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment of the benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy Code, (v) file a petition seeking to take advantage of any law relating to bankruptcy, insolvency, reorganization, winding-up or the composition or readjustment of debts, (vi) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against such person in an involuntary case under the Bankruptcy Code or (vii) take any corporate or other action for the purpose of effecting any of the foregoing; or 92 (h) A proceeding or case shall be commenced without the application or consent of our Company or, so long as AES has any obligations under any Acceptable Credit Support, AES or, so long as AES Ironwood, Inc. has any outstanding obligations under the Equity Subscription Agreement, AES Ironwood, Inc. in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution, winding-up or the composition or readjustment of debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such person under any law relating to bankruptcy, insolvency, reorganization, winding-up or the composition or adjustment of debts, and such proceeding or case shall continue undismissed, or any order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 90 or more consecutive days, or any order for relief against such person shall be entered in an involuntary case under the Bankruptcy Code (each event described herein and in (g) above is hereinafter referred to as a "Bankruptcy Event"); or (i) A final and non-appealable judgment or judgments for the payment of money in excess of $15,000,000 shall be rendered against our Company, and the same remain unpaid or unstayed for a period of more than 60 or more consecutive days from the date of entry thereof; or (j) An "Event of Default" has occurred and is continuing under the DSR LOC Reimbursement Agreement, the CP LOC Reimbursement Agreement or any other Indebtedness of our Company the holder of which (or an agent or trustee therefor) is a party to the Collateral Agency Agreement (other than Indebtedness incurred under the Indenture), or an "Event of Default" has occurred and is continuing in respect of any other Indebtedness of our Company in excess of $15,000,000; or (k) With respect to any Project Contract: (i) such Project Contract is declared unenforceable by a Governmental Authority, (ii) any other party thereto denies it has a material obligation under such Project Contract or (iii) any other party thereto defaults in respect of its obligations under such Project Contract, and in the case of each event described in clause (i), (ii) or (iii), such event would be likely to result in a Material Adverse Effect; provided, however, that none of such events shall be an Event of Default under the Indenture if within 180 days (90 days in respect of the Power Purchase Agreement or the EPC Contract) from the occurrence of such event (A) the other party resumes performance or enters into an alternative agreement with our Company or (B) our Company enters into a replacement contract or contracts with another party or parties which (1) contains, as certified by our Company, substantially equivalent terms and conditions or, if such terms and conditions are no longer available on a commercially reasonable basis, the terms and conditions then available on a commercially reasonable basis and (2) either (I) our Company provides to the Trustee and the Collateral Agent a Ratings Reaffirmation from each Rating Agency or (II) our Company certifies that it would, after giving effect to the alternative agreement, maintain a projected minimum Senior Debt Service Coverage Ratio in any year during the remaining term of the bonds equal to or greater than the lesser of (x) the projected minimum annual Senior Debt Service Coverage Ratio which would have been in effect had performance under the original Project Contract continued and (y) 1.25 to 1.0 or (C) in the case of the Power Purchase Agreement, our Company delivers to the Trustee and Collateral Agent a Power Marketing Plan and obtains a Ratings Reaffirmation from each Ratings Agency; or (l) Any grant of a Lien contained in the Security Documents shall cease to be effective to grant a perfected Lien to the Trustee or the Collateral Agent on a material portion of the Collateral described therein with the priority purported to be created thereby; provided, however, that our Company shall have 10 days from actual knowledge thereof to cure any such cessation; or (m) The construction of our Facility is permanently abandoned; or (n) AES Ironwood, Inc. fails to perform or breaches any of its payment obligations under the Equity Subscription Agreement and such failure or breach continues for 10 Business Days or more; or (o) Any Acceptable Credit Provider fails to perform or breaches any of its payment obligations under any Acceptable Credit Support and such failure or breach continues for 10 Business Days or more. Remedies upon Default (a) If one or more Events of Default shall have occurred and be continuing, then: (i) in the case of a Bankruptcy Event, the entire principal amount of the bonds then outstanding, all interest accrued and unpaid thereon, and all premium payable under the bonds and the Indenture, if any, shall automatically become due and payable without presentment, demand, protest or notice of any kind, all of which are waived; or 93 (ii) in the case of any other Event of Default, the Trustee may, and upon written direction of the bondholders of not less than 33-1/3% of the aggregate principal amount of the bonds then outstanding, the Trustee shall, by notice to our Company, declare the entire principal amount of the bonds, all interest accrued and unpaid thereon, and all premium payable under the bonds and the Indenture, if any, to be due and payable, whereupon the same shall become due and payable without presentment, demand, protest or further notice of any kind, all of which are waived; or (iii) the Trustee shall (if the Required Bondholders request in writing to the Trustee) direct the Collateral Agent (to the extent permitted under the Collateral Agency Agreement) to take possession of all the Collateral and, under the Collateral Agency Agreement, to sell the Collateral, as and to the extent permitted under the Collateral Agency Agreement. (b) If an Event of Default occurs and is continuing and is known to the Trustee (as described in the Indenture), the Trustee shall mail to each bondholder a notice of the Event of Default within 30 days after the occurrence thereof. Except in the case of an Event of Default in payment of principal of or interest on any bond, the Trustee may withhold the notice to the bondholders if a committee of its trust officers in good faith determines that withholding the notice is in the interest of the bondholders. (c) At any time after the principal of the bonds shall have become due and payable upon a declared (but not an automatic) acceleration as provided in the Indenture, and before any judgment or decree for the payment of the money so due, or any portion thereof, shall be entered, the bondholders of not less than a majority in aggregate principal amount of the bonds then outstanding, by written notice to our Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) there shall have been paid to or deposited with the Trustee a sum sufficient to pay (A) all overdue installments of interest on the bonds, (B) the principal of and premium, if any, on any bonds that have become due otherwise than by such declaration of acceleration and interest thereon at the respective rates provided in the bonds for late payments of principal or premium, (C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest at the respective rates provided in the bonds for late payments of interest, and (D) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents and counsel, and (ii) all Events of Default, other than the non-payment of the principal of the bonds that has become due solely by such acceleration, have been cured or waived as provided in the Indenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. Except as otherwise specifically provided in the Indenture, the holders of a majority in principal amount of the bonds shall have the right to direct the time, place and method of conducting any proceeding for any remedy available to the Trustee or exercising any power conferred on the Trustee; provided, that (i) such direction shall not conflict with any law or the Indenture or the Collateral Agency Agreement and (ii) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. All rights and remedies available to the bondholders, or to the Trustee with respect to the Collateral, or otherwise under the Security Documents, are subject to the Collateral Agency Agreement, including the ability to enforce any remedy and the limitations on the Trustee's ability to vote the interests represented by the bonds. Affiliate Cure Rights Any Affiliate of our Company shall, at its option, have the right (but not the obligation) to cure any Events of Default for which cures are applicable. Trustee The Bank of New York (as successor to IBJ Whitehall Bank & Trust Company) will act as the Trustee under the Indenture. The Indenture provides that the Trustee will not be liable in connection with the performance of its duties thereunder, except for its own gross negligence, bad faith or willful misconduct. The Trustee may become the owner 94 of any bonds, with the same rights it would have if it were not the Trustee, and may carry any monies held by the Trustee on deposit with itself and shall not have any liability for interest upon any such monies. The Trustee may resign at any time and be discharged from its duties and obligations under the Indenture by giving written notice to our Company and upon appointment and acceptance of a successor. The Trustee may be removed at any time by the holders of not less than a majority in principal amount of the bonds then outstanding. Our Company or any holder who has been a bona fide holder of a Security for at least six months, may remove the Trustee if (i) the Trustee fails to comply with the provisions of the Indenture regarding conflicting interests, (ii) the Trustee ceases to be eligible as required under the Indenture and fails to resign after written request, (iii) the Trustee becomes bankrupt or insolvent or (iv) the Trustee fails to carry out its obligations in a timely manner. Notwithstanding the foregoing, no resignation or removal of the Trustee and no appointment of a successor trustee shall become effective until the acceptance of appointment by the successor trustee. Except during the continuance of an Event of Default under the Indenture, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The Indenture contains limitations on the rights of our Company to obtain payments of claims in specific cases or to realize on specific property received by it in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions with our Company; provided, however, that if it acquires any "conflicting interest" (as defined in the Indenture), it must eliminate such conflict or resign as Trustee under the Indenture. Supplemental Indentures Supplemental Indentures and Amendments without the Consent of Bondholders Without the consent of the bondholders, our Company and the Trustee, at any time and from time to time, may enter into one or more supplemental indentures in form reasonably satisfactory to the Trustee and may amend any of the other Financing Documents, for any of the following purposes: o to establish the form and terms of bonds of any series permitted by the Indenture; o to evidence the succession of another entity to our Company and the assumption by any such successor of the covenants of our Company under the bonds and the Indenture; o to evidence the succession of a new Trustee or a co-trustee or separate trustee under the Indenture; o to add to the covenants of our Company, for the benefit of the bondholders, or to surrender any right or power conferred upon our Company under the Indenture; o to convey, transfer and assign to the Trustee, and to subject to the Lien of the Indenture, additional properties or assets and to correct or amplify the description of any property at any time subject to the Lien of the Indenture or to assure, convey and confirm unto the Trustee any property subject or required to be subject to the Lien of the Indenture; o to facilitate the issuance of bonds in uncertificated form; o to change or eliminate any provision of the Indenture; provided, however, that if such change or elimination would adversely affect the interests of the holders of any bonds of any series, such change or elimination shall become effective with respect to such series only when no bond of such series remains outstanding; o to comply with changes in Applicable Law; provided, however, that no such amendment or supplement shall result in a Material Adverse Effect or otherwise adversely affect the interests of the holders of any bonds in any material respect; o to make any changes required by S&P or Moody's or any other nationally recognized securities rating agency as a condition to the issuance or maintenance of the then current rating on the bonds or any series thereof; provided, that any such change shall not result in a Material Adverse Effect or otherwise adversely affect the interests of the holders of any bonds in any material respect; or o to cure any ambiguity, to correct or supplement any provision of the Indenture that may be defective or inconsistent with any other provision of the Indenture, or to make any other provisions with respect to matters 95 or questions arising under the Indenture; provided, that such action shall not adversely affect the interest of the bondholders of any series in any material respect. Supplemental Indentures with the Consent of Bondholders With the consent of the bondholders of not less than a majority in aggregate principal amount of the bonds of all series then outstanding, the Trustee and our Company may, and the Trustee shall, enter into one or more supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of, the Indenture; provided, however, that no such supplemental indenture shall, without the consent of the bondholder of each outstanding bond directly affected thereby: (i) change the Stated Maturity of any bond (or, if the principal thereof is payable in installments, the Stated Maturity of any such installment), or of any payment of interest thereon, or the dates or circumstances of payment of premium, if any, on, any bond, or change the principal amount thereof or the interest thereon or any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any bond or the premium, if any, or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment of principal or interest on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date) or such payment of premium, if any, on or after the date such premium becomes due and payable; or (ii) except for Permitted Liens, permit the creation of any lien prior to or, pari passu with the Lien of any of the Security Documents with respect to any of the Collateral, or terminate the Lien on any Collateral or deprive any bondholder of the security afforded by the Lien of the Indenture; or (iii) reduce the percentage in principal amount of the bonds then outstanding, the consent of whose bondholders is required for any such supplemental indenture, or the consent of whose bondholders is required for any waiver (of compliance with specified provisions of the Indenture or specified defaults under the Indenture and their consequences) provided for in the Indenture, or reduce the requirements for quorum or voting; or (iv) modify specified provisions of the Indenture relating to remedies following an Event of Default (except to increase the percentage of the principal amount of the bonds required to waive past defaults). Satisfaction and Discharge Our Company may terminate the Indenture by delivering all bonds then outstanding to the Trustee for cancellation and by paying all sums payable under the Indenture and by effecting delivery of officer's certificates and an Opinion of Counsel stating that all conditions precedent have been satisfied. In addition to the foregoing, bonds then outstanding shall, prior to the stated maturity thereof, be deemed to be paid, and the indebtedness of our Company in respect thereof shall be deemed to be satisfied and discharged, at any time all the conditions set forth below have been satisfied: (i) our Company shall have irrevocably deposited with the Trustee, in trust, monies or permitted investments in an amount which shall be sufficient to pay when due, without reinvestment, the principal of and premium, if any, and interest due and to become due on the bonds then outstanding on or prior to the Stated Maturity of the final installments of principal thereof or upon redemption or prepayment; (ii) our Company shall have delivered to the Trustee, a Company order stating that monies deposited with the Trustee or in permitted investments shall be held by the Trustee, in trust, as provided in the Indenture; (iii) in the case of redemption or prepayment of the bonds then outstanding, the notice requisite to the validity of such redemption or prepayment shall have been given, or irrevocable authority shall have been given by our Company to the Trustee to give such notice; and (iv) there shall have been delivered to the Trustee an Opinion of Counsel to the effect that as a result of a change in Applicable Law after the date of the Indenture such satisfaction and discharge of the indebtedness of our Company with respect to the bonds then outstanding shall not be deemed to be, or result in, a taxable event with respect to holders of bonds then outstanding for purposes of United States Federal income taxation unless the Trustee shall have received documentary evidence that the bondholders either are not subject to, or are exempt from, United States Federal income taxation. Collateral Agency Agreement Project Accounts The following trust accounts (the "Project Accounts") will be established and created with and in the name of the Collateral Agent: Construction Account; Revenue Account; Operating and Maintenance Account; Debt Service Reserve Account; DSR LOC Reimbursement Fund; CP LOC Reimbursement Fund; Restoration Account; Major 96 Maintenance Reserve Account; Fuel Conversion Volume Rebate Account; Subordinated Debt Account; and Distribution Account. Collection of Project Revenues Our Company shall arrange for the direct payment to the Collateral Agent of all Project Revenues, and to the extent any such Project Revenues are at any time received by us prior to the Commercial Operation Date, we shall hold all such revenues and other such amounts in trust for the Collateral Agent and shall transfer to the Collateral Agent for deposit of such Project Revenues in the Construction Account in each case as soon as reasonably practical but no later than three Business Days after receipt thereof (duly endorsed, if necessary, to the Collateral Agent). Advances Notwithstanding any other provision of the Collateral Agency Agreement to the contrary, our Company may, by delivering an Officer's Certificate to the Collateral Agent, withdraw funds on deposit in or credited to any of the Available Accounts ("Advances"); provided, however, that, at the time of the making of such Advance: (i) no Default or Event of Default shall have occurred and be continuing and the Officer's Certificate of our Company shall so certify and (ii) our Company's obligations to repay such Advances shall be supported by Acceptable Credit Support. The Collateral Agent may conclusively rely on such Officer's Certificate certifying that all conditions for withdrawals from the Available Accounts have been met. Our Company shall repay immediately or cause to be repaid any Advances to the extent that the funds on deposit in such Available Accounts are insufficient to make the necessary withdrawals and transfers. In addition, our Company shall cause to be repaid immediately the aggregate amount of all Advances upon the occurrence of (i) a default in the payment of principal of, premium, if any, or interest on the bonds or under the DSR LOC Reimbursement Agreement, the CP LOC Reimbursement Agreement or any working capital facility, (ii) any Event of Default, (iii) any default by an Acceptable Credit Provider in respect of its obligations under its Acceptable Credit Support or (iv) the failure of our Company to provide, within five Business Days, Acceptable Credit Support in respect of its obligations to repay Advances upon the failure of the Acceptable Credit Provider to meet the requirements of the definition thereof. Any amounts so repaid shall be allocated to and deposited in the Available Accounts to which such repayment is required to be made as directed by our Company in an Officer's Certificate. Construction Account On the date of original issuance of the old bonds, the net proceeds of the sale of the old bonds received by our Company were transferred to the Collateral Agent for deposit in the Construction Account. On that date, the Collateral Agent applied the amounts in the Construction Account to the payment, or reimbursement, to the extent the same had been paid or satisfied by our Company, of Project Costs. Each requisition after that date shall be submitted to the Collateral Agent no less than three Business Days in advance of the drawing date and shall include the following: (i) a certification that the proceeds thereof shall be used solely to pay Project Costs in accordance with the Indenture; (ii) a certification that work performed to date has been satisfactorily performed in a good and workmanlike manner and according to the EPC Contract; (iii) a statement that undisbursed funds in the Construction Account, together with funds available under the Equity Subscription Agreement and other available sources of funds, are reasonably expected to be sufficient to complete our Facility according to the EPC Contract by the Date Certain; (iv) a statement that no Default or Event of Default under the Indenture, the DSR LOC Reimbursement Agreement, the CP LOC Reimbursement Agreement or any working capital facility has occurred and is continuing; (v) a statement that all proceeds of prior requisitions have been expended or applied under the provisions of the Financing Documents and that the items for which amounts are requested in the subject requisition have not been the basis for a previous requisition; (vi) a certification that required insurance, material Governmental Approvals and necessary Project Contracts are in full force and effect; and (vii) a certification that specified representations set forth in the Indenture are true and correct in all material respects. 97 If our Company cannot satisfy the requirements of clauses (i) or (v) of the preceding paragraph, the Collateral Agent shall not release funds from the Construction Account in respect of such Requisition until such clauses are satisfied. If our Company cannot satisfy clauses (ii), (iii), (iv), (vi) or (vii) of the preceding paragraph, but the Collateral Agent receives a requisition signed by our Company (the contents of which shall be confirmed by the Independent Engineer) (a) specifying and identifying the failure, and the causes for the failure, to satisfy the requirements of such clauses (ii), (iii), (iv), (vi) or (vii) of the preceding paragraph and (b) certifying that (1) the requirements of clauses (i) and (v) of the preceding paragraph are satisfied, (2) there exists no Bankruptcy Event in respect of our Company or AES Ironwood and (3) each of the EPC Contract, the Power Purchase Agreement, required insurance policies and material Governmental Approvals needed for construction of our Facility is in full force and effect, then the Collateral Agent shall disburse funds in accordance with such requisition. Within fifteen (15) days of receipt of such requisition, the Collateral Agent shall give notice to the Senior Parties describing such failure and specifying that, unless the Required Senior Parties give notice to the Collateral Agent of their objection to payment of further requisitions containing any such specified failures, the Collateral Agent shall continue to make payment of such requisitions from available funds in the Construction Account, unless the Collateral Agent shall have received, by the second Business Day prior to the time of payment of such requisition, notice of objection from the Required Senior Parties. Notwithstanding the foregoing, the Collateral Agent will not release funds from the Construction Account in respect of a requisition if a Trigger Event shall have occurred and be continuing until the Collateral Agent determines that such Trigger Event is no longer continuing or the Required Senior Parties give instructions to the Collateral Agent as to application of funds. Payments on Commercial Operation Date Not later than 10 days after receipt by the Collateral Agent of a certificate of our Company (the "Commercial Operation Certificate") (the contents of which shall be confirmed in writing by the Independent Engineer) certifying, among other things, that (i) all conditions to the commencement of commercial operation under the Power Purchase Agreement have been satisfied, (ii) the CP Letter of Credit has been terminated or drawn, (iii) all permits then required have been obtained and (iv) no default is continuing, the Collateral Agent shall, after retaining in the Construction Account the amount, if any, specified by our Company as necessary to pay Project Costs which are not then due and payable, transfer all remaining funds in the Construction Account (plus any amounts available under and under the Equity Subscription Agreement to the extent necessary to fund first through fifth below) by wire transfer to the following accounts and recipients in the following order of priority: first, to the Operating and Maintenance Account, an amount to the extent available, as specified by our Company but in any event, no less than one-month's non-fuel Operating and Maintenance Costs; second, to the Bond Payment Account, an amount, to the extent available, as specified by our Company for funding of the Interest Payment Subaccount and Principal Payment Subaccount; third, to the Debt Service Reserve Account, an amount as specified by our Company equal to the DSRA Required Balance to the extent not already funded or provided through a DSR Letter of Credit; fourth, if applicable, to the CP LOC Provider, an amount equal to the principal of and interest on any CP LOC Loans outstanding on the Commercial Operation Date; fifth, to the Major Maintenance Reserve Account, an amount as specified by our Company equal to any initial deposit required therein; and sixth, to the Revenue Account, any remaining amounts. Payments During Operating Period After the transfer specified in the above paragraphs regarding payments on the Commercial Operation Date and upon receipt by the Collateral Agent of, not less than 3 Business Days prior to the date of the proposed transfer, an Officer's Certificate of our Company detailing the amounts to be paid, the Collateral Agent shall transfer all remaining funds in the Revenue Account by wire transfer in the following order of priority: first, as and when required, (i) to any working capital provider, an amount certified by our Company as the amount, if any, then payable under any working capital facility; and (ii) as and when requested, to the Operating and Maintenance Account, the amount certified by our Company as necessary for payment of Operating and Maintenance Costs; 98 second, on a monthly basis, (i) to the Trustee and the Collateral Agent, any amounts certified by our Company as the amounts then due and payable in respect of Trustee Claims and Collateral Agent Claims, respectively; (ii) to any DSR LOC Provider, any amounts certified by our Company as the amounts then due and payable in respect of DSR LOC Provider Claims; and (iii) to any CP LOC Provider, any amounts certified by our Company as the amounts then due and payable in respect of CP LOC Provider Claims; provided, however, that if funds in the Revenue Account are insufficient on any date to make the payments specified in this paragraph second, distribution of funds shall be made ratably to the specified recipients; third, on a monthly basis, (i) to the Trustee, for deposit in the Interest Payment Subaccount, an amount equal to one-third of the interest becoming due on the bonds on the next succeeding bond payment date; (ii) to the DSR LOC Reimbursement Fund, (a) an amount equal to one-third of the interest becoming due on any DSR LOC Loan on the next succeeding bond payment date, plus one-third of any fees becoming due under the DSR LOC Reimbursement Agreement on the next succeeding bond payment date, (b) an amount equal to one-third of the interest becoming due on any DSR Bond on the next succeeding bond payment date and (c) an amount equal to one-third of the interest becoming due on any DSR LOC Term Loan on the next succeeding bond payment date; and (iii) to the CP LOC Reimbursement Fund, an amount equal to one-third of the interest becoming due on any CP LOC Loan on the next succeeding bond payment date, plus one-third of any fees becoming due under the CP LOC Reimbursement Agreement on the next succeeding bond payment date; provided, however, that if funds in the Revenue Account are insufficient on any date to make the payments specified in this paragraph third, distribution of funds shall be made ratably to the specified recipients; fourth, on a monthly basis, (i) to the Trustee, for deposit in the Principal Payment Subaccount, an amount equal to one-third of the principal becoming due on the bonds on the next succeeding bond payment date; (ii) to the DSR LOC Reimbursement Fund, (a) an amount equal to one-third of the principal becoming due on any DSR Bond on the next succeeding bond payment date, and (b) an amount equal to one-third of the principal becoming due on any DSR LOC Term Loan on the next bond payment date; and (iii) to the CP LOC Reimbursement Fund, an amount equal to one-third of the principal becoming due on any CP LOC Loan on the next succeeding bond payment date; provided, however, that if funds in the Revenue Account are insufficient on any date to make the payments specified in this paragraph fourth, distribution of funds shall be made ratably to the specified recipients; fifth, on a monthly basis, first, to the DSR LOC Provider, an amount equal to the outstanding principal amount of any DSR LOC Loans that have not been converted to DSR Term Loans or DSR Bonds, and second, to the Collateral Agent for deposit in the Debt Service Reserve Account, an amount necessary to fund the Debt Service Reserve Account up to the DSRA Required Balance (taking into account any amounts remaining available to be drawn under the DSR Letter of Credit); provided, however, that if amounts available for drawing under the DSR Letter of Credit are not being reinstated to the full extent of payments made to the DSR LOC Provider and funds in the Revenue Account are insufficient on any date to make the payments specified in this paragraph fifth, distribution of funds shall be made ratably to the specified recipients; sixth, on a monthly basis, to the Major Maintenance Reserve Account, amounts necessary to cause the balance thereof to be equal to the minimum balance required at such time under the Annual Budget; seventh, on a monthly basis, to our Company for payment by our Company to the Power Purchaser, the amount, if any, certified by our Company as required to make any Non-Dispatch Payments (as defined in the Power Purchase Agreement) to the Power Purchaser under the Power Purchase Agreement; eighth, on a monthly basis, to the Fuel Conversion Volume Rebate Account, an amount equal to one-twelfth of the amount specified by our Company that would be owed to the Power Purchaser at the end of the then current Fiscal Year under the Power Purchase Agreement; ninth, on a monthly basis, if any Subordinated Debt is outstanding, to the Subordinated Debt Account, (x) an amount equal to one-third or one-sixth (depending on the interest payment schedule of such debt) of the interest becoming due on such Subordinated Debt on the next succeeding interest payment date for such debt, plus (y) one-third or one-sixth (depending on the amortization schedule of such debt) of the principal becoming due on such Subordinated Debt on the next applicable principal payment date; and tenth, on a monthly basis, to the Contractor, an amount equal to any subordinated bonuses payable to the Contractor under the EPC Contract; 99 eleventh, on a monthly basis, to the Distribution Account, any remaining amounts for payment of distributions to holders of ownership interests (including any payment in respect of principal or interest then due on Affiliate Subordinated Debt); provided, that the Distribution Conditions set forth in the Collateral Agency Agreement are satisfied. When making the transfers specified above, each transfer shall be adjusted as necessary, taking into account investment gains or losses in such Project Account or Indenture Account and further adjusting such transfers by the amount of any prior over-fundings or any prior shortfalls in such Project Account or Indenture Account, to ensure that the aggregate amounts so transferred to such Project Accounts or Indenture Accounts are sufficient to pay the amount due and payable from such Project Accounts and Indenture Accounts on the applicable payment date. Debt Service Reserve Account The Collateral Agent shall hold the DSR Letter of Credit as security agent for the Trustee and the DSR LOC Provider to the extent of its interest therein. Upon the occurrence of the Commercial Operation Date, the Debt Service Reserve Account shall be funded, if necessary, from monies available in the Construction Account for such purpose in an amount up to the DSRA Required Balance. Subsequent to the Commercial Operation Date, the Debt Service Reserve Account shall be funded, if necessary, from monies transferred from the Revenue Account. When determining (i) the amount, if any, required to be deposited into the Debt Service Reserve Account from time to time or (ii) whether the Debt Service Reserve Account has deposited therein the DSRA Required Balance, amounts on deposit in the Debt Service Reserve Account shall be aggregated with the amount available to be drawn under the DSR Letter of Credit. When there are insufficient monies in the Bond Payment Account on any bond payment date to pay the interest or principal then due on the bonds, the Collateral Agent shall, upon receipt prior to such bond payment date of an Officer's Certificate of our Company, in the following order of priority: first, withdraw monies on deposit in the Debt Service Reserve Account; and second, draw on the DSR Letter of Credit in accordance with the terms and provisions thereof up to the amount available for such purpose thereunder, in each case, to the extent necessary to make such interest or principal payment on the bonds and transfer such monies to the Trustee for deposit in the Bond Payment Account for application against such payment. If the Collateral Agent receives a written notice from our Company stating that there has been a reduction in the long-term debt rating of the DSR LOC Provider below the Required Rating, or if a Responsible Officer of the Collateral Agent otherwise becomes aware of such reduction, and the DSR Letter of Credit has not been replaced within the time period specified therefor, the Collateral Agent shall draw on the DSR Letter of Credit in the amount necessary to fund the Debt Service Reserve Account up to the DSRA Required Balance (as certified in an Officer's Certificate of our Company delivered to the Collateral Agent, calculated without aggregating therewith the amount available to be drawn under the DSR Letter of Credit but taking into account amounts then on deposit in or credited to the Debt Service Reserve Account), whereupon the Collateral Agent shall deposit the proceeds of such drawing in the Debt Service Reserve Account. If the Collateral Agent receives a notice from the DSR LOC Provider stating that the DSR LOC Provider shall terminate the DSR Letter of Credit on the date specified in such notice, the Collateral Agent shall, within 3 Business Days of receipt of such notice, draw on the DSR Letter of Credit in an amount equal to the amount necessary to fund the Debt Service Reserve Account up to the DSRA Required Balance (calculated without aggregating therewith the amount available to be drawn under the DSR Letter of Credit but taking into account amounts then on deposit in or credited to the Debt Service Reserve Account), whereupon the Collateral Agent shall deposit the proceeds of such drawing in the Debt Service Reserve Account and the DSR Letter of Credit shall thereupon automatically terminate. If a Trigger Event shall have occurred and be continuing and the Collateral Agent has received the written request of the Required Senior Parties contained in Senior Party Certificates and such notice has not been rescinded, then the Collateral Agent, upon receipt of an Officer's Certificate of our Company setting forth the DSRA Required Balance, shall draw on the DSR Letter of Credit in an amount equal to the amount necessary to fund the Debt Service Reserve Account up to the DSRA Required Balance (calculated without aggregating therewith the amount available to be drawn under the DSR Letter of Credit), whereupon the Collateral Agent shall distribute the proceeds of such drawing, together with other amounts available in the Debt Service Reserve Account, to the Trustee, and the DSR Letter of Credit shall thereupon automatically terminate. If, subsequent to the Commercial Operation Date, monies transferred to the DSR LOC Provider under clause third under "Payments During Operating Period" above are insufficient to repay the interest on any DSR LOC Loans due or becoming due on the first day of such month, the Collateral Agent, upon receipt of a certificate of an Authorized 100 Officer of the DSR LOC Provider notifying the Collateral Agent of the existence, and setting forth the amount, of such shortfall, within two Business Days of receipt of such certificate shall draw on the DSR Letter of Credit in an amount equal to the amount of such shortfall and transfer such amount to the DSR LOC Provider in payment (in whole or part) of such interest on such DSR LOC Loans. Notwithstanding the foregoing, in no event shall any draw on the DSR Letter of Credit described in this paragraph individually or in the aggregate with all other such draws, less any draws previously reimbursed, exceed six months of interest on the maximum stated amount of the DSR Letter of Credit. Unless the DSR Letter of Credit is not extended or replaced or unless there has been a DSR LOC Event of Default as described under "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--DSR LOC Reimbursement Agreement," amounts available for drawing under the DSR Letter of Credit shall be reinstated immediately to the extent of any reimbursement of principal of DSR LOC Loans (but not DSR Bonds or DSR LOC Term Loans). If our Company and the DSR LOC Provider shall agree to issue or reinstate the DSR Letter of Credit in an amount that, when aggregated with cash on deposit in the Debt Service Reserve Account would exceed the DSRA Required Balance (the amount of such excess being referred to hereinafter as the "Excess Amount"), the Collateral Agent shall, within 2 Business Days of receipt by the Collateral Agent of (i) such reissued or reinstated DSR Letter of Credit, and (ii) an Officer's Certificate of our Company, transfer an amount equal to the Excess Amount to the Revenue Account for application in accordance with the applicable provisions of the Collateral Agency Agreement; provided, that the amount of the DSR Letter of Credit may not exceed the DSRA Required Balance. Distribution Account The Distribution Account shall be funded from funds transferred from the Revenue Accounts in accordance with the Collateral Agency Agreement. On any date on which the conditions set forth below (the "Distribution Conditions") are satisfied, funds on deposit in or credited to the Distribution Account may be distributed to, or as directed by, our Company for the payment of Affiliate Subordinated Debt, the making of distributions to the holders of ownership interests in our Company or any other lawful purpose, upon receipt by the Collateral Agent of an Officer's Certificate of our Company requesting such a distribution and certifying that: (a) all of our Project Accounts and the Bond Payment Account shall be funded to their required levels; (b) no (i) Default or Event of Default under the Indenture, (ii) default or event of default under the DSR LOC Reimbursement Agreement, (iii) default or event of default under any CP LOC Reimbursement Agreement or (iv) default under any working capital arrangements, if any, shall have occurred and be continuing; (c) the Commercial Operation Date has occurred and at least one complete fiscal quarter thereafter has elapsed; (d) if the requested distribution is to be made during the Power Purchase Agreement Term, (i) the Senior Debt Service Coverage Ratio for the preceding four fiscal quarters (or, with respect to any date prior to the first anniversary of the Commercial Operation Date, for the number of complete fiscal quarters since the Commercial Operation Date) measured as one period, is greater than or equal to 1.2 to 1 and (ii) based on projections prepared by our Company on a reasonable basis, the projected Senior Debt Service Coverage Ratio for the succeeding four fiscal quarters (including the quarter in which such distribution is to be made) (or, with respect to any date within the 12-month period prior to the end of the Power Purchase Agreement Term, the number of complete fiscal quarters, if any, until the end of the Power Purchase Agreement Term) is projected to be greater than or equal to 1.2 to 1; and (e) if the requested distribution is to be made on or after the date which is six months prior to the end of the Power Purchase Agreement Term, (i) the Senior Debt Service Coverage Ratio for the preceding four fiscal quarters (or, with respect to any date within the first 12 months of the Post-Power Purchase Agreement Period, the number of complete fiscal quarters, if any, since the start of the Post-Power Purchase Agreement Period) measured as one period, is greater than or equal to 1.70 to 1.0 (or 1.2 to 1.0 with respect to such period occurring prior to the end of the Power Purchase Agreement Term) and (ii) based on projections prepared by our Company on a reasonable basis, the projected Senior Debt Service Coverage Ratio for the succeeding eight fiscal quarters (including the fiscal quarter in which such distribution is to be made) or, with respect to any date within the 24-month period prior to the final maturity date for the bonds, the number of complete fiscal quarters, if any, until such final maturity date for the bonds, in each case measured as one period, is projected to be greater than or equal to 1.70 to 1 (or 1.2 to 1 with respect to such period occurring prior to the end of the Power Purchase Agreement Term), each as certified by an authorized officer of our Company; provided, however, that, 101 (A) if distributions are blocked because our Company fails to satisfy the conditions of clause (e)(ii) above, then in lieu of the coverage ratio test set forth in such clause, the projected Senior Debt Service Coverage Ratio through the final maturity date for the bonds, measured as one period, shall be 1.70 to 1 in order to satisfy such clause (e)(ii) in respect of amounts then on deposit in the Distribution Account; (B) for purposes of calculating the projected Senior Debt Service Coverage Ratios in clauses (e)(ii) above, our Company shall use (1) for electricity prices, either (x) the electricity prices forecasted in the most recent Independent Forecast furnished to the Trustee, in each case, during the relevant period of calculation, or (y) if and to the extent that electricity sales during the relevant period of calculation are made under one or more power sales agreements at prices other than prices which are by their terms market prices, the electricity prices under such power sales agreements and (2) for gas prices, either (x) the gas prices forecasted in the most recent Independent Forecast furnished to the Trustee, in each case, during the relevant period of calculation, or (y) if and to the extent that gas purchases during the relevant period of calculation are made under one or more gas purchase agreements at prices other than prices which are by their terms market prices, the gas prices under such gas purchase agreements; (C) if, and to the extent that, (1) at least 75% of our Facility Capacity is subject to one or more power sales agreements on terms (other than pricing) substantially similar to the Power Purchase Agreement (but excluding the provision for gas to be supplied for fuel conversion services by the Power Purchaser) or on commercially reasonable terms (other than pricing) typical of power sales agreements entered into at such time for the same term, in each case with a term of not less than one year during the relevant period of calculation, and (2) at least 75% of the gas supply for our Facility is subject to one or more gas supply agreements on commercially reasonable terms (other than pricing) typical of gas supply agreements entered into at such time for the same term, in each case with a term of not less than one year during the relevant period of calculation (compliance with such requirements to be certified by our Company), then clause (e) above shall be deemed satisfied, if the Senior Debt Service Coverage Ratio and the projected Senior Debt Service Coverage Ratio referred to in such clause (e) are each equal to or greater than 1.30 to 1 for the portions of the time periods referred to in such clause (e) in which such agreements were or are to be in effect, as certified by our Company; and (D) if amounts on deposit in or credited to the Revenue Account are insufficient to make the transfers described in priorities first through sixth above under "Payments During Operating Period," amounts on deposit in or credited to the Distribution Account will be transferred to the Revenue Account to the extent necessary and applied in accordance with the Collateral Agency Agreement. Restoration Account All Casualty Proceeds and Eminent Domain Proceeds shall be deposited into the Restoration Account. Subject to the provisions described below, the Collateral Agent shall apply the amounts in the Restoration Account to the payment, or reimbursement to the extent the same have been paid or satisfied by our Company, of the costs of rebuilding, repair and restoration of our Facility or any part thereof that has been affected by an Event of Loss or an Event of Eminent Domain. The Collateral Agent is authorized to disburse from the Restoration Account the amount required to be paid for the repair or replacement of our Facility or any part thereof as specified in the preceding paragraph. The Collateral Agent is authorized and directed to issue its checks or transfer funds electronically for each disbursement from the Restoration Account, upon receipt of a Restoration Certificate signed by an Authorized Representative of our Company, and approved by the Independent Engineer; provided, however, that no such approval of the Independent Engineer shall be required if less than $5,000,000 is requested under such requisition or requisitions in any one Fiscal Year. The Collateral Agent shall be entitled to rely on all certifications and statements in such Restoration Certificate. The Collateral Agent shall keep and maintain adequate records pertaining to the Restoration Account and all disbursements therefrom and shall file an accounting thereof with our Company and the Independent Engineer within three months following the last Business Day of each Fiscal Year. If an Event of Loss or an Event of Eminent Domain shall occur with respect to any Collateral, our Company shall (i) diligently pursue all its rights to compensation against any person with respect to such Event of Loss or Event of 102 Eminent Domain, (ii) in the reasonable judgment of our Company compromise or settle any claim against any person with respect to such Event of Loss or Event of Eminent Domain and (iii) hold all amounts of Casualty Proceeds or Eminent Domain Proceeds (including instruments) received in respect of any Event of Loss or Event of Eminent Domain (after deducting all reasonable expenses incurred by it in litigating, arbitrating, compromising or settling any claims) in trust for the benefit of the Collateral Agent segregated from other funds of our Company and will promptly transfer to the Collateral Agent for deposit in the Restoration Account such Casualty Proceeds or Eminent Domain Proceeds. If either an Event of Loss or an Event of Eminent Domain shall occur, as soon as reasonably practicable but no later than the date of receipt by our Company or the Collateral Agent of Eminent Domain Proceeds or Casualty Proceeds, as the case may be, our Company shall make a reasonable good faith determination as to whether (i) our Facility or any portion thereof can be rebuilt, repaired or restored to permit operation of our Facility or a portion thereof on a commercially feasible basis and (ii) the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, together with any other amounts that are available to our Company for such rebuilding, repair or restoration, are sufficient to permit such rebuilding, repair or restoration of our Facility or a portion thereof, including the making of all required payments of interest and principal on our Company's Indebtedness during such rebuilding, repair or restoration. The determination of our Company shall be evidenced by a Certificate as to Redemption filed with the Collateral Agent which, if our Company determines that our Facility or a portion thereof can be rebuilt, repaired or restored to permit operation thereof on a commercially feasible basis and that the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, together with any other amounts that are available to our Company for such rebuilding, repair or restoration, are sufficient, shall also set forth a reasonable good faith estimate by our Company of the total cost of such rebuilding, repair or restoration. Our Company shall deliver to the Collateral Agent at the time it delivers the Certificate as to Redemption a certificate of the Independent Engineer, dated the date of the Certificate as to Redemption, stating that, based upon reasonable investigation and review of the determination made by our Company, the Independent Engineer believes the determination and the estimate of the total cost set forth in the Certificate as to Redemption to be reasonable. If, following an Event of Loss or Event of Eminent Domain, the determination is made that our Facility cannot be rebuilt, repaired or restored to permit operation on a commercially feasible basis or that the Casualty Proceeds or the Eminent Domain Proceeds, together with any other amounts that are available to our Company for such rebuilding, repair or restoration, are not sufficient to permit such rebuilding, repair or restoration, all of the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, shall be distributed as provided below. If, following an Event of Loss or Event of Eminent Domain, the determination is made that the entire Facility can be rebuilt, repaired or restored to permit operation on a commercially feasible basis and that the Casualty Proceeds or the Eminent Domain Proceeds, together with any other amounts that are available to our Company for such rebuilding, repair or restoration, are sufficient to permit such rebuilding, repair or restoration, all of the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, together with such other amounts as are available to our Company for such rebuilding, repair or restoration, shall be deposited in the Restoration Account and applied as provided below. If, following an Event of Loss or Event of Eminent Domain, the determination is made that a portion of our Facility can be rebuilt, repaired or restored to permit operation on a commercially feasible basis and that the Casualty Proceeds or the Eminent Domain Proceeds, together with any other amounts that are available to our Company for such rebuilding, repair or restoration, are sufficient to permit such rebuilding, repair or restoration, (i) an amount equal to the estimate of the total cost of such rebuilding, repair or restoration set forth in the Certificate as to Redemption filed with the Collateral Agent shall be deposited in the Restoration Account and applied as provided below, and (ii) the amount, if any, by which all of the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, exceed the estimate of the total cost shall be distributed as provided below. If our Company receives Casualty Proceeds or Eminent Domain Proceeds, as the case may be, from an Event of Loss or an Event of Eminent Domain that do not exceed in the aggregate $5,000,000 during any Fiscal Year of our Company, our Company shall not have to make the good faith determination referred to above and the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, shall be deposited in the Restoration Account and applied for the rebuilding, repair or restoration of our Facility without any approval of the Independent Engineer. Application of Casualty and Eminent Domain Proceeds and Buy-Down Amounts If the determination is made that all or a portion of our Facility is incapable of being rebuilt, repaired or restored to permit operation on a commercially feasible basis, all Casualty Proceeds or Eminent Domain Proceeds received by the Collateral Agent and not deposited in the Restoration Account shall be distributed by the Collateral Agent within five 103 Business Days of receipt in the following order of priorities: first, to the Collateral Agent, the DSR LOC Provider, the CP LOC Provider and the Trustee, ratably, in an amount equal to the amounts owed in respect of the Collateral Agent Claims, the Trustee Claims, the DSR LOC Provider Claims and the CP LOC Provider Claims, respectively, due and payable as of the date of such distribution; second, to the Senior Parties, ratably, an amount equal to the unpaid amount of all Financing Liabilities owed to the Senior Parties, including the amount required to be applied to a mandatory redemption of the bonds under the Indenture; third, to the Subordinated Debt Providers, ratably, an amount equal to the unpaid amount owed to such Subordinated Debt Providers by our Company under any Subordinated Loan Agreement; and fourth, to our Company or its successors or assigns or to whomever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, any surplus then remaining from such proceeds. At the time the Collateral Agent is to make a distribution under clause second in the immediately preceding paragraph, the Collateral Agent shall deposit, with the same priority as such distribution, ratably into two separate trust accounts, to be maintained by the Collateral Agent, the first to contain an amount up to the amount equal to the maximum amount available to be drawn under the DSR Letter of Credit (taking into account, without duplication, in the case of the DSR Letter of Credit, the maximum amount which may become available to be drawn in the future by reason of an increase in the DSRA Required Balance), and not represented by a DSR LOC Loan, DSR LOC Term Loan or DSR Bond, and the second to contain an amount up to the amount available to be drawn under any CP Letter of Credit (and not represented by a CP LOC Loan); provided, however, if funds available are insufficient to make all payments required under clause second of the preceding paragraph and the required deposits provided for in this sentence, distribution of funds shall be made ratably to the specified recipients. The Collateral Agent shall hold such funds in such separate accounts until receipt of a written notice or notices from the DSR Letter of Credit Provider and/or the CP LOC Provider, as the case may be (which such notice or notices shall be contemporaneously delivered by the DSR LOC Provider and/or the CP LOC Provider to the other Senior Parties), to the effect that either (i) a drawing has been made on its letter of credit or (ii) its letter of credit has expired or terminated without a drawing being made thereunder. Upon receipt of a notice or notices specified in clause (i) of the preceding sentence, the Collateral Agent shall distribute to the DSR LOC Provider and/or the CP LOC Provider, as the case may be, that proportionate share of the amount in the relevant separate account referred to above, equal to such drawing's proportionate share of the letter of credit collateralized by such account. Upon receipt of a notice or notices specified in clause (ii) of the second preceding sentence, the Collateral Agent shall distribute from the relevant separate account (in accordance with clauses second, third and fourth above and without regard to this paragraph) to the appropriate persons an amount equal to the amount in such separate account. All Buy-Down Amounts shall be deposited into a separate account maintained by the Depositary Bank on behalf of the Collateral Agent. If the requisite Officer's Certificate of our Company is delivered, the Collateral Agent is authorized to disburse from such separate account the amount required to be paid for the modification, repair or replacement of that portion of our Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor under the EPC Contract to pay such Buy-Down Amounts. As soon as reasonably practicable following receipt by our Company or the Collateral Agent of Buy-Down Amounts, our Company shall make a reasonable good faith determination as to whether (i) it is technically feasible to modify, repair or replace that portion of our Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor under the EPC Contract to pay such Buy-Down Amounts, (ii) the Buy-Down Amounts, together with any other amounts that are available to our Company for such modification, repair or replacement, are sufficient to permit such modification, repair or replacement, including the making of all required payments of interest and principal on our Company's Indebtedness during such modification, repair or replacement, (iii) the projected average Senior Debt Service Coverage Ratio (after giving effect to such modification, repair or replacement and the application of the Buy-Down Amounts to accomplish the same) during the Power Purchase Agreement Term (taken as one period) and the Post-Power Purchase Agreement Period (taken as one period) is equal to or greater than the projected average Senior Debt Service Coverage Ratio set forth in the base case projections for each such period set forth in this Offering Circular and (iv) the projected minimum Senior Debt Service Coverage Ratio (after giving effect to such modification, repair or replacement and the application of the Buy-Down Amounts to accomplish the same) during the Power Purchase Agreement Term and the Post-Power Purchase Agreement Period is equal to or greater than the projected minimum Senior Debt Service Coverage Ratio for each such period set forth in the base case projections set forth in this Offering Circular. Upon receipt of an Officer's Certificate of our Company, confirmed by the Independent Engineer, certifying that all modifications, repairs or replacements of that portion of our Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor under the EPC Contract to pay Buy- 104 Down Amounts have been completed, the Collateral Agent shall transfer all funds remaining in such separate account first, to such Accounts as are specified in the Collateral Agency Agreement and second, to our Company or to whomsoever our Company in writing directs. If our Company cannot provide the Officer's Certificate to permit the application of Buy-Down Amounts toward the modification, repair or replacement of that portion of our Facility or the Independent Engineer fails to confirm such Officer's Certificate, the Collateral Agent shall distribute all Buy-Down Amounts ratably (based on the amount owing to the specified recipient) to (i) the Trustee in respect of the amount of the bonds then outstanding for redemption of bonds in accordance with the Indenture, (ii) the DSR LOC Provider in respect of the outstanding amount of DSR Loans and (iii) the CP LOC Provider in respect of the outstanding amount of any CP LOC Loan. At the time the Collateral Agent is to make a distribution under the immediately preceding paragraph, the Collateral Agent shall deposit into two separate trust accounts to be maintained by the Collateral Agent, the first to contain an amount up to the amount available to be drawn under the DSR Letter of Credit (taking into account, without duplication, in the case of the DSR Letter of Credit, the maximum amount which may become available to be drawn in the future by reason of an increase in the DSRA Required Balance), and not represented by a DSR LOC Loan, a DSR Term Loan or DSR Bond, and the second to contain an amount up to the amount available to be drawn under any CP Letter of Credit (and not represented by a CP LOC Loan); provided, however, if funds available are insufficient to make all payments required under clause second of the first paragraph of this section entitled "Application of Casualty and Eminent Domain Proceeds and Buy-Down Amounts" and the required deposits provided for in this sentence, distribution of funds shall be made ratably to the specified recipients. The Collateral Agent shall hold the funds in such separate account until receipt of a written notice or notices from the DSR LOC Provider and/or the CP LOC Provider, as the case may be (which such notice or notices shall be contemporaneously delivered by the DSR LOC Provider and/or the CP LOC Provider to the other Senior Parties), to the effect that either (i) a drawing has been made on the letter of credit or (ii) the letter of credit has expired or terminated without a drawing being made thereunder. Upon receipt of a notice or notices specified in clause (i) in the preceding sentence, the Collateral Agent shall distribute to the DSR LOC Provider and/or CP LOC Provider, as the case may be, that proportionate share of the amount in the relevant separate account referred to above, equal to such drawing's proportionate share of the letter of credit collateralized by such account. Upon receipt of a notice or notices specified in clause (ii) in the second preceding sentence, the Collateral Agent shall distribute from the relevant separate account to the appropriate persons an amount equal to the amount in such separate account. Exercise of Rights Under Security Documents The Collateral Agency Agreement provides, among other things, that: (i) if a Trigger Event shall have occurred and be continuing, and only in such event, upon the written request of the Required Senior Parties contained in Senior Party Certificates, the Collateral Agent, on behalf of the Trustee, the DSR LOC Provider, the CP LOC Provider and any other Senior Party that is a party to the Collateral Agency Agreement, will be permitted to take any and all actions and to exercise any and all rights, remedies and options which it may have under the Security Documents or the Collateral Agency Agreement; provided, however, that if the underlying event which caused the Trigger Event is a Bankruptcy Event in respect of our Company of which the Collateral Agent shall have received written notice, no written request of the Required Senior Parties shall be required in order to permit the Collateral Agent following such Trigger Event to take any and all actions and to exercise any and all rights, remedies and options which it may have under the Security Documents or the Collateral Agency Agreement; (ii) the Senior Parties will give each other and the Collateral Agent written notice of the occurrence of an Event of Default and of a Trigger Event as soon as practicable after the occurrence thereof; (iii) the Senior Parties acknowledge and agree that all funds held by the Trustee in accordance with Article 5 of the Indenture are held for the benefit of the bondholders; (iv) the Senior Parties acknowledge and agree that all funds held in the Debt Service Reserve Account by the Collateral Agent is held for the benefit of the Trustee (on behalf of the bondholders); (v) no Senior Party and no class or classes of Senior Parties shall have any right (a) to direct the Collateral Agent to take any action in respect of the Collateral other than in accordance with the Collateral Agency Agreement or (b) to take any action with respect to the Collateral (1) independently of the Collateral Agent or (2) other than to direct the Collateral Agent in writing to take action in accordance with the Collateral Agency Agreement; and (vi) the Senior Parties acknowledge and agree that if (a) there is an Event of Default under the Indenture and such Event of Default is not caused directly or indirectly by a default or event of default under the Power Purchase Agreement and (b) they direct the Collateral Agent to accelerate the bonds, the Collateral Agent shall be obligated to provide the Power Purchaser the opportunity for 90 days to purchase our Facility for an amount equal to the greater of (x) the Fair Market Value of our Facility and (y) all Financing Liabilities due and owing to the Senior Parties and any Subordinated Debt Provider, and if 105 the Power Purchaser offers to purchase our Facility for such amount within such period, the Collateral Agent shall take such actions as required to consummate such sale as directed by the Required Senior Parties in Senior Party Certificates. In giving directions and otherwise exercising rights under the Security Documents and the Collateral Agency Agreement, the Trustee shall vote (or otherwise represent) that portion of the Combined Exposure represented by all bonds then outstanding according to the votes of a majority of the principal amount of bonds held by responding bondholders. The Trustee shall not make requests, give directions or vote on a proportional basis. Application of Foreclosure Proceeds Following the receipt of proceeds under the Williams Guaranty as a result of a termination of the Power Purchase Agreement or a foreclosure or other exercise of remedies following a Trigger Event, the proceeds of any sale, disposition or other realization by the Collateral Agent or by a Senior Party upon the Collateral under the Security Documents shall be distributed in the following order of priorities: first, to the Collateral Agent, the Trustee, the DSR LOC Provider and the CP LOC Provider, ratably, all administrative fees, costs and expenses owed to such parties under the Financing Documents; second, to the Senior Parties, ratably (based on the amount owing to the specified recipients), an amount equal to the unpaid amount of all Financing Liabilities owed to or required to be deposited for the account of such Senior Parties by our Company; third, to any Subordinated Debt Providers, ratably, an amount equal to the unpaid obligations owed to or required to be deposited for the account of such Subordinated Debt Providers by our Company under any Subordinated Loan Agreement; and fourth, to our Company (or its successors or assigns) or to whomever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, any surplus remaining after giving effect to clauses first, second and third above. Subordination Provisions Any Subordinated Debt shall be subordinate and subject in right of payment to the prior payment of all Senior Debt. Unless and until all Senior Debt (whether of principal of and interest and premium or prepayment or liquidation penalty on such Senior Debt and fees and expenses incurred with enforcement of the same) has been paid in full in cash, (i) no payment on account of any Subordinated Debt shall be made to any Subordinated Debt Provider by our Company or by the Collateral Agent or the Depositary Bank on behalf of our Company and (ii) no Subordinated Debt Provider shall ask, demand, sue for, take or receive from our Company, by set-off or any other manner, or seek any other remedy allowed at law or in equity against our Company for breach of our Company's obligations under any instrument representing Subordinated Debt. Upon any insolvency, bankruptcy or similar proceeding relating to our Company or its creditors, or any liquidation, dissolution or other winding-up of our Company, or any assignment for the benefit of creditors or any other marshaling of assets and liabilities of our Company, the Senior Parties shall be entitled to receive payment in full in cash of all amounts due or to become due on or in respect of all Senior Debt, or provision shall be made for such payment, before any Subordinated Debt Provider shall be entitled to receive any payment with respect to Subordinated Debt. Subject to the payment in full in cash of all Senior Debt, the Subordinated Debt Providers shall be subrogated to the rights of the Senior Parties to receive payments and distributions of cash, property and securities applicable to the Senior Debt until such Subordinated Debt shall be paid in full in cash. Third-Party Engineer Dispute Resolution The Collateral Agency Agreement provides that if our Company and the Independent Engineer are in dispute in respect of a notice, plan, report, certificate or budget and they are unable to resolve the dispute within seven days of the Independent Engineer expressing its disagreement with such notice, plan, report, certificate or budget, a single independent engineer (the "Third-Party Engineer") shall be designated to consider and decide the issues raised by such dispute. For a more detailed description of the Third-Party Engineer dispute resolution provisions set forth in the Indenture, see "ROLE OF THE INDEPENDENT ENGINEER." DSR LOC Reimbursement Agreement Dresdner Bank AG, New York Branch (the "DSR LOC Provider"), under a Debt Service Reserve Letter of Credit and Reimbursement Agreement (the "DSR LOC Reimbursement Agreement"), has agreed to provide the DSR Letter of Credit for use by our Company in connection with our Project. The Financing Documents require that the Debt Service Reserve Account be funded in an amount equal to the DSRA Required Balance on or before the anticipated Commercial Operation Date. Accordingly, our Company has entered into the DSR LOC Reimbursement Agreement in order to satisfy such obligation. 106 The DSR LOC Provider will issue the DSR Letter of Credit on or before the earlier to occur of the Commercial Operation Date, the Guaranteed Completion Date or the Date Certain for the account of our Company in an amount up to $17,529,452 (the "DSR LOC Maximum Stated Amount") to be held by the Collateral Agent to serve as a debt service reserve facility for our Project. There will be no condition precedent to the DSR LOC Provider's obligation to issue the DSR Letter of Credit, other than the occurrence of the earliest of the dates specified in the first sentence of the following paragraph. The Collateral Agent shall have the right to make Drawings on the DSR Letter of Credit beginning on the earliest of (i) the Commercial Operation Date, (ii) the Guaranteed Completion Date and (iii) the Date Certain. The Collateral Agent may make drawings under the DSR Letter of Credit upon the occurrence of the following events: (i) there being insufficient monies in the Bond Payment Account on any Interest Payment Date or principal payment date to pay interest or principal then due (after application of funds from the Debt Service Reserve Account); (ii) upon receipt of a notice from our Company that the long-term debt rating of such DSR LOC Provider is less than A as determined by S&P or A2 as determined by Moody's (collectively, the "Required Rating") and the DSR Letter of Credit has not been replaced within the time period specified therein; (iii) if a Trigger Event under the Collateral Agency Agreement shall have occurred and be continuing; (iv) upon receipt of a notice from the DSR LOC Provider that the DSR Letter of Credit will not be extended or replaced by the close of business on the day 45 days prior to its stated expiration date; and (v) if, subsequent to the Commercial Operation Date, moneys transferred to the DSR LOC Provider from the Revenue Account are insufficient to repay the interest on any DSR LOC Loans. The Collateral Agent will apply the proceeds of each such drawing: (a) in the case of clauses (i) and (v) of the preceding sentence, to payment of the relevant obligation and (b) in the case of clauses (ii), (iii) and (iv) of the preceding sentence, to the Debt Service Reserve Account until there shall be deposited therein an aggregate amount equal to the DSRA Required Balance. Subject to the conditions of drawing, the DSR Letter of Credit will, unless extended, mature, expire or terminate on the earlier to occur of (i) five years from the date of issuance of the DSR Letter of Credit and (ii) the occurrence of a DSR LOC Event of Default (such date referred to in clause (i) or (ii), as the same may be extended, the "Expiration Date"); provided, however, that the DSR Letter of Credit shall not be terminated upon the occurrence of a DSR LOC Event of Default without the DSR LOC Provider first giving the Collateral Agent and the Trustee written notice thereof at least 60 days prior to such termination during which period the Collateral Agent shall be entitled to draw on such DSR Letter of Credit as described above under "Collateral Agency Agreement--Debt Service Reserve Account." The DSR LOC Provider shall also provide a copy of such written notice to our Company at the time such notice is given to the Collateral Agent and the Trustee. Our Company shall have the right to terminate or reduce the DSR Letter of Credit upon the receipt by the DSR LOC Provider of notice from the Trustee consenting to such termination or reduction. The DSR Letter of Credit is subject to renewal for additional periods of one or more years at the sole discretion of the agent under the DSR LOC Reimbursement Agreement. The amount available for drawing under the DSR Letter of Credit will be reduced upon (i) making draws thereunder, (ii) the reduction of the DSRA Required Balance and (iii) certain deposits of cash in the Debt Service Reserve Account. DSR LOC Loans Each Drawing on the DSR Letter of Credit shall constitute the making by the DSR LOC Provider of a loan to our Company (a "DSR LOC Loan"). Our Company shall pay interest on the unpaid principal amount of each outstanding DSR LOC Loan from the date such DSR LOC Loan is made until such principal amount has been repaid in full at a rate per annum equal, at the option of our Company, to either (i) the Adjusted Base Rate plus 1% or (ii) the Eurodollar Rate plus the Applicable Margin. The Adjusted Base Rate shall equal the higher of (i) the Federal Funds Rate plus 50 basis points and (ii) the rate of interest officially announced or published by the DSR LOC Provider as its "prime" or "reference" rate. The Eurodollar Rate shall be determined by reference to the offered rates that appear on Telerate page 3750 for deposits in Dollars two London banking days prior to the date on which such rate is to become applicable to a DSR LOC Loan. Each DSR LOC Loan will be evidenced by a note in favor of the DSR LOC Provider (the "DSR LOC Loan Note"). Our Company shall pay the interest on any DSR LOC Loan out of cash available in the Revenue Account at the same level in the flow of funds as interest on other Senior Debt and shall repay the principal amount of any DSR LOC Loans out of cash available in the Revenue Account after payment of debt service on all Senior Debt other than principal 107 of DSR LOC Loans. Each DSR LOC Loan will mature five years after the date such DSR LOC Loan is made (the "Maturity Date"). Unless the DSR Letter of Credit is not extended or replaced or unless there has been a DSR LOC Event of Default as described under "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--DSR LOC Reimbursement Agreement," amounts available for drawing under the DSR Letter of Credit shall be reinstated immediately to the extent of any reimbursement of principal of DSR LOC Loans (but not DSR Bonds or DSR LOC Term Loans). Non-renewal of DSR Letter of Credit If the DSR Letter of Credit is not extended or replaced at least 45 days prior to its termination date, or the credit rating of the DSR LOC Provider is less than the Required Rating and our Company does not within 45 days replace the DSR Letter of Credit with a letter of credit issued by a financial institution which meets the Required Rating, the Collateral Agent will draw on the DSR Letter of Credit (such drawing on the DSR Letter of Credit due to non-extension or non-replacement of the DSR Letter of Credit, a "DSR LOC Term Loan") in an amount equal to the lesser of (i) the amount available to be drawn under such letter of credit and (ii) the difference between (x) the DSRA Required Balance and (y) amounts then on deposit in the Debt Service Reserve Account, and will deposit such drawing into the Debt Service Reserve Account. A DSR LOC Term Loan will amortize under a "mortgage-style" amortization schedule and the maturity date of any DSR LOC Term Loan shall be 10 years after the date such loan is made. Interest on and principal of any DSR LOC Term Loan will be paid, respectively, at the same levels as interest on and principal of the bonds. Conversion into DSR Bonds If by the date 30 months after the making of a DSR LOC Loan, our Company shall have failed to repay at least 50% of the original amount of such DSR LOC Loan, or if by the maturity date of such DSR LOC Loan our Company shall have failed to repay such DSR LOC Loan in full, then from and after the applicable date, such DSR LOC Loan may, at the option of the DSR LOC Provider, be converted into a new security (a "DSR Bond") having a principal amount equal to the remaining principal amount of the DSR LOC Loan so converted. Each DSR Bond shall be amortized on the same amortization schedule as the bonds and mature on the same maturity date as the bonds. Interest on and principal of any DSR Bond will be paid, respectively, at the same levels as interest on and principal of the bonds. Covenants The covenants of our Company contained in the Indenture shall be incorporated by reference (with appropriate substitution of parties) in the DSR LOC Reimbursement Agreement as if set forth in full in the DSR LOC Reimbursement Agreement. DSR LOC Events of Default Each of the following shall be an event of default (a "DSR LOC Event of Default") under the DSR LOC Reimbursement Agreement: (i) any amount due under the DSR LOC Reimbursement Agreement or any DSR LOC Note is not paid in full within 15 days after the due date thereof; (ii) an "Event of Default" under the Indenture shall occur and be continuing or (iii) an "Event of Default" under the CP LOC Reimbursement Agreement shall occur and be continuing. Remedies Upon the occurrence and during the continuation of a DSR LOC Event of Default, at the request of the Banks holding 66 2/3 percent or more of the DSR Letter of Credit commitment (the "Required DSR LOC Banks"), the DSR LOC Provider may (i) after notice as required in the Financing Documents, terminate the DSR Letter of Credit, (ii) declare all amounts owing under the DSR LOC Reimbursement Agreement and any DSR Note to be forthwith due and payable (including amounts not yet advanced under the DSR Letter of Credit, which shall upon being so advanced be and become immediately due and payable), whereupon such obligations shall become and be due and payable, without presentment, demand or protest; (iii) terminate the ability of our Company to cause the reinstatement of the Stated Amount through the reimbursement of drawings; and (iv) terminate the ability of our Company to continue any DSR loans as, or to convert DSR loans to, Eurodollar Rate Loans; provided, that the DSR LOC Provider shall not have the right to exercise any other remedies except in accordance with the provisions of the Collateral Agency Agreement. CP LOC Reimbursement Agreement Dresdner Bank AG, New York Branch (the "CP LOC Provider"), under a Construction Period Letter of Credit and Reimbursement Agreement (the "CP LOC Reimbursement Agreement"), has agreed at the option of our Company or if required under the terms of the Power Purchase Agreement to provide the CP Letter of Credit for use by our Company 108 in connection with our Project. The CP Letter of Credit (i) may be issued upon the request of our Company if AES, in its sole discretion, elects to withdraw the guaranty AES posted in favor of the Power Purchaser under the Power Purchase Agreement or (ii) prior to the achievement of the Commercial Operation Date, shall be issued within 10 Business Days of the CP LOC Provider receiving written notice from our Company that the senior unsecured debt of AES is no longer rated Investment Grade by each of the Rating Agencies. The CP LOC Provider will issue the CP Letter of Credit for the account of our Company in an amount up to $30,000,000 (the "CP LOC Maximum Stated Amount") and in favor of the Power Purchaser. The Power Purchaser may make drawings under the CP Letter of Credit if our Facility has not achieved the Commercial Operation Date by the date specified in the Power Purchase Agreement, as such date may be extended in accordance with the provisions of the Power Purchase Agreement. Subject to the conditions of drawing, the CP Letter of Credit will mature, expire or terminate on the earliest to occur of (i) the date on which the CP LOC Provider receives notice from the Power Purchaser that the Commercial Operation Date has occurred; (ii) four years from the date of issuance of the CP Letter of Credit; and (iii) the occurrence of a CP LOC Event of Default; provided, however, that the CP Letter of Credit shall not be terminated upon the occurrence of a CP LOC Event of Default without the CP LOC Provider first giving the Collateral Agent and the Power Purchaser written notice thereof at least 45 days prior to such termination (such date referred to in clause (i), (ii) or (iii), the "Expiration Date"). The CP LOC Provider shall also provide a copy of such written notice to our Company at the time such notice is given to the Collateral Agent and the Power Purchaser. Our Company shall have the right to terminate or reduce the CP Letter of Credit upon the receipt by the CP LOC Provider of notice from the Power Purchaser consenting to such termination or reduction. The amount available for drawing under the CP Letter of Credit will be reduced upon making draws thereunder. CP LOC Loans Each Drawing on the CP Letter of Credit shall constitute the making by the CP LOC Provider of a loan (a "CP LOC Loan"). Our Company shall pay interest on the unpaid principal amount of each outstanding CP LOC Loan from the date such CP LOC Loan is made until such principal amount has been repaid in full at a rate per annum equal, at the option of our Company, to either (i) the Adjusted Base Rate plus the Applicable Margin or (ii) the Eurodollar Rate plus the Applicable Margin. The Adjusted Base Rate shall equal the higher of (i) the Federal Funds Rate plus 0.50% and (ii) the rate of interest officially announced or published by the CP LOC Provider as its "prime" or "reference" rate. The Eurodollar Rate shall be determined by reference to the offered rates that appear on Telerate page 3750 for deposits in Dollars two London banking days prior to the date on which such rate is to become applicable to a CP LOC Loan. The CP LOC Loan will be evidenced by a note in favor of the CP LOC Provider (the "CP LOC Loan Note"). Our Company shall pay the interest on and repay the principal amount (based on mortgage-style amortizations) of any CP LOC Loan out of cash available in the Revenue Account at the same level as interest on and the principal of the bonds. Each CP LOC Loan will mature 10 years after the date such CP LOC Loan is made (the "Maturity Date"). Covenants The covenants of our Company contained in the Indenture shall be incorporated by reference (with appropriate substitution of parties) in the CP LOC Reimbursement Agreement as if set forth in full in the CP LOC Reimbursement Agreement. CP LOC Events of Default Each of the following shall be an event of default (a "CP LOC Event of Default") under the CP LOC Reimbursement Agreement: (i) any amount due under the CP LOC Reimbursement Agreement or any CP LOC Note is not paid in full within 15 days after the due date thereof; (ii) an "Event of Default" under the Indenture shall occur and be continuing; and (iii) an "Event of Default" under the DSR LOC Reimbursement Agreement shall occur and be continuing. Remedies Upon the occurrence and during the continuation of a CP LOC Event of Default, at the request of the Banks holding 66 2/3 percent or more of the CP Letter of Credit commitment (the "Required CP LOC Banks"), the CP LOC Provider may (i) terminate the CP Letter of Credit, (ii) declare all amounts owing under the CP LOC Reimbursement Agreement and any CP LOC Note to be forthwith due and payable, (including amounts not yet advanced under the CP 109 Letter of Credit, which shall upon being so advanced be and become immediately due and payable), whereupon such obligations shall become and be due and payable, without presentment, demand or protest and (iii) terminate the ability of our Company to continue CP LOC Loans as or to convert CP LOC Loans to Eurodollar Rate Loans; provided, that the CP LOC Provider shall not have the right to exercise any other remedies except in accordance with the provisions of the Collateral Agency Agreement. Equity Subscription Agreement Under an Equity Subscription Agreement entered into by and among our Company, AES Ironwood, Inc. and the Collateral Agent, AES Ironwood, Inc. has agreed to contribute equity (or make or cause to be made Affiliate Subordinated Loans) to our Company from time to time during the Construction Period (each an "Equity Contribution") at the request of the Collateral Agent, if the amounts then on deposit in the Construction Account are insufficient to make the transfers required to pay Project Costs as specified in the Collateral Agency Agreement. The obligation of AES Ironwood, Inc. to make Equity Contributions will be supported by an Acceptable Letter of Credit(s) or an Acceptable Bond(s). AES Ironwood, Inc.'s obligation to make Equity Contributions will commence when all proceeds of the offering of the old bonds have been utilized but will not at any time exceed, in the aggregate, $50,149,285. All Equity Contributions will be deposited in the Construction Account and applied as set forth under "DESCRIPTION OF THE PRINCIPAL FINANCING DOCUMENTS--Collateral Agency Agreement--Construction Account." The Equity Subscription Agreement also provides that upon the occurrence of an Event of Default under the Indenture, AES Ironwood, Inc. will be obligated to make an Equity Contribution to our Company in an amount equal to $50,149,285 less the aggregate of all Equity Contributions previously deposited into the Construction Account. Any such Equity Contribution following an Event of Default will be deposited in the Construction Account and may be used to prepay bonds and other outstanding senior Permitted Indebtedness in accordance with the terms of the Collateral Agency Agreement. Subject to specified conditions under the Equity Subscription Agreement, any "excess" equity which remains committed but unfunded at Final Acceptance may be canceled. Conditions to the cancellation of such "excess" equity commitments include (i) the absence of any Default or Event of Default under the Indenture or any other Financing Document, (ii) achievement of Final Completion, (iii) the occurrence of the Commercial Operation Date and (iv) funding of all Accounts (including the Debt Service Reserve Account) under, and to the extent required by, the Indenture and the Collateral Agency Agreement. Consents to Assignments In connection with the collateral assignment of all contract rights held by our Company, including rights under our Project Contracts, the Collateral Agent will receive an executed consent to assignment from third parties party to such Project Contracts. In each such consent, the applicable third party will, in respect of our Project Contracts to which it is a party, among other matters, (i) consent to the collateral assignment thereof to the Collateral Agent on behalf of the Senior Parties, (ii) agree to pay all amounts, if any, receivable by our Company thereunder directly into the Revenue Account created under the Collateral Agency Agreement, (iii) agree to matters concerning the exercise of remedies by the Collateral Agent upon an Event of Default under the Collateral Agency Agreement and (iv) agree to the exercise by the Senior Parties of specific cure rights with respect to our Project Contracts. Mortgage Our Company, as mortgagor, will enter into the Mortgage and will mortgage and grant a security interest to the Collateral Agent for the benefit of the Senior Parties all of our Company's right, title and interest in and to all real property interests (including fee interests, easement interests and leasehold interests, if any) of our Company to the Site, our Facility and any easements and all fixtures, equipment and improvements thereon, all accounts (subject to the terms of the Indenture) and personal property now owned or hereafter acquired. Our Company's rights in any leases affecting such real property (including rights to receive income) will be assigned by our Company to the Collateral Agent under the Assignment of Leases and Income. The Events of Default under the Mortgage incorporate by reference those provided in the Indenture. Under the terms of the Mortgage, the Collateral Agent may, upon the occurrence and during the continuance of an Event of Default and satisfaction of conditions contained in the Collateral Agency Agreement, take possession of all collateral covered by the Mortgage. 110 Proceeds from the exercise of remedies under the Mortgage will be applied in accordance with the Security Documents and the Collateral Agency Agreement. Security Agreement Our Company will enter into the Security Agreement with the Collateral Agent for the benefit of the Senior Parties providing for the granting of a security interest in all of our Company's personal property interests including, but not limited to, all contract rights, equipment, receivables, accounts, insurance proceeds, eminent domain proceeds, rights under any governmental approval (to the extent permitted by applicable law) and patents and trademarks, including all proceeds thereof and all documents evidencing all monies and investment therein. Upon the occurrence of a Trigger Event under the Collateral Agency Agreement, remedies may be exercised under the Security Agreement. Under the terms of the Security Agreement, the Collateral Agent may, upon the occurrence and during the continuance of an Event of Default and satisfaction of conditions contained in the Collateral Agency Agreement, take possession of all of the Collateral covered by the Security Agreement. Proceeds from the exercise of remedies under the Security Agreement will be applied in accordance with the Security Documents. Pledge Agreement Under the Pledge Agreement to be entered into by AES Ironwood, Inc. in favor of the Collateral Agent, AES Ironwood, Inc. will pledge to the Collateral Agent, acting on behalf of the Senior Parties, all of its ownership interests in our Company (and all rights under or derived therefrom) currently owned or later acquired and all distributions, cash, instruments and other property and proceeds (and all rights associated therewith) from time to time receivable or otherwise distributable with respect to or in exchange for such ownership interests. 111 PLAN OF DISTRIBUTION Except as described below, a broker-dealer may not participate in the exchange offer in connection with a distribution of the new bonds. Each broker-dealer that receives new bonds for its own account under the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new bonds. Based on SEC staff interpretations, a broker-dealer could use this prospectus, as it may be amended or supplemented from time to time, in connection with resales of new bonds received in the exchange offer where the beneficial interests in old bonds for which they were exchanged were acquired as a result of market-making activities or other trading activities. Our Company has agreed that for a period not to exceed 270 days, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until 120 days after the consummation of the exchange offer, all dealers effecting transactions in the new bonds may be required to deliver a prospectus. The information set forth above concerning SEC staff interpretations is not intended to constitute legal advice, and broker-dealers should consult their own legal advisors with respect to these matters. Our Company will not receive any proceeds from the exchange offer or any sale of new bonds by broker-dealers. New bonds received by broker-dealers for their own account under the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new bonds or a combination of those methods of resale, at market prices prevailing at the time of resale, at the time of resale, at prices related to those prevailing market prices or negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer and/or the purchasers of any new bonds. Any broker-dealer that resells new bonds that were received by it for its own account under the exchange offer and any broker or dealer that participates in a distribution of the new bonds may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any resale of new bonds and any commissions or concessions received by any of those persons may be deemed to be underwriting compensation under the Securities Act. Any broker or dealer registered under the Exchange Act who holds old bonds that were acquired for its own account as a result of market-making activities or other trading activities (other than old bonds acquired directly from our Company) may exchange those old bonds under the exchange offer; however, that broker or dealer may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the new bonds received by the broker or dealer in the exchange offer. This prospectus delivery requirement may be satisfied by the delivery by that broker or dealer of this prospectus. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Our Company has agreed to pay the expenses of registration of the new bonds and will indemnify the holders of the new bonds (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. Prior to the exchange offer, there has been no public market for the old bonds. Our Company does not intend to apply for listing of the new bonds on any securities exchange. There can be no assurance that an active market for the new bonds will develop. To the extent that a market for the new bonds develops, the market value of the new bonds will depend on market conditions (including yields on alternative investments), general economic conditions, our Company's financial condition and other conditions. Those conditions might cause the new bonds, to the extent that they are actively traded, to trade at a significant discount from face value. Our Company has not entered into any arrangement or understanding with any person to distribute the new bonds to be received in the exchange offer. Our Company has not agreed to compensate broker-dealers who effect the exchange of old bonds on behalf of holders. UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS Because the new bonds will be identical to the old bonds in all relevant economic respects, the exchange of the old bonds for the new bonds will not be treated as an exchange for United States federal income tax ("USFIT") purposes. Consequently, there will be no USFIT consequences to the exchange, and holders of the new bonds will continue to account for the bonds for such purposes as if the exchange had not taken place. 112 LEGAL MATTERS The validity of the new bonds will be passed upon for our Company by Hunton & Williams, New York, New York. EXPERTS The Independent Engineer Report included as Annex B to this prospectus has been prepared by Stone & Webster Management Consultants, Inc. and is included herein in reliance upon the authority of such firm and its affiliates as experts in the review of the design, construction and operation of electric generating facilities. The Independent Power Consultant's Report included as Annex C to this prospectus has been prepared by Hagler Bailly and is included herein in reliance upon the authority of such firm as experts in the analysis of power markets, including future market demand, future market prices for electric energy and capacity and related matters, for electric generating facilities. This document has been prepared by our Company management and includes financial statements audited by Deloitte & Touche LLP as stated in their Independent Auditors' Report accompanying those financial statements. These financial statements are included in this prospectus in reliance upon the Independent Auditors' Report of such firm given upon their authority as experts in accounting and auditing. Our Company's management is responsible for the accuracy and completeness of this document, including the Prospective Financial Information appearing in Annex B, and Deloitte & Touche LLP makes no warranty as to any of the information contained herein, nor any representations except as contained in its Independent Auditors' Report. WHERE YOU CAN FIND MORE INFORMATION Upon consummation of the exchange offer, our Company will be subject to the informational requirements of the Exchange Act and, in accordance therewith, will file reports and other information with the SEC. Reports and other information filed by our Company with the SEC can be inspected without charge and copied, upon payment of prescribed rates, at the public reference facilities maintained by the SEC located at Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at the regional offices of the SEC located at 7 World Trade Center, 13th Floor, New York, New York 10048 and the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material and any part thereof will also be available by mail from the Public Reference Section of the SEC, located at 450 Fifth Street, NW, Washington, DC 20549, at prescribed rates. The AES Corporation and The Williams Companies, Inc. are subject to the informational requirements of the Exchange Act and, in accordance therewith, file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be inspected without charge and copied, upon payment of prescribed rates, at the offices of the SEC located at Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at the regional offices of the SEC located at 7 World Trade Center, 13th Floor, New York, New York 10048 and the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material and any part thereof will also be available by mail from the Public Reference Section of the SEC, located at 450 Fifth Street, NW, Washington, DC 20549. The SEC also maintains a Website that contains reports and other information regarding registrants that file electronically with the SEC. The address of that site is (http:\\www.sec.gov). 113 AES IRONWOOD, L.L.C. (A Development Stage Enterprise, An Indirect Wholly-Owned Subsidiary of the AES Corporation, Inc.) Index to Financial Statements for the Period from June 25 through September 30, 1999 Page ---- Independent Auditors' Report....................................... F-2 Balance Sheet...................................................... F-3 Statement of Operations............................................ F-4 Statement of Changes In Member's Deficit........................... F-5 Statement of Cash Flows............................................ F-6 Notes to Financial Statements...................................... F-7 F-1 INDEPENDENT AUDITORS' REPORT To the Member of AES Ironwood, L.L.C.: We have audited the accompanying balance sheet of AES Ironwood, LLC, (a development stage enterprise) (the Company), which is an indirect wholly-owned subsidiary of the AES Corporation, as of September 30, 1999, and the related statements of operations, changes in member's equity, and cash flows for the period from June 25, 1999 (inception) through September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of AES Ironwood, LLC, as of September 30, 1999, and the results of its operations and its cash flows for the period from June 25, 1999 (inception) through September 30, 1999, in conformity with generally accepted accounting principles. November 12, 1999 F-2 AES IRONWOOD, LLC (A Development Stage Enterprise) BALANCE SHEET SEPTEMBER 30, 1999 (In Thousands) - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash $ 573 Interest receivable 492 --------- Total current assets 1,065 LAND 528 CONSTRUCTION IN PROGRESS 216,139 CERTIFICATE OF DEPOSIT 385 DEFERRED FINANCING COSTS, net of accumulated amortization of $23 2,290 INVESTMENTS HELD BY TRUSTEE, at cost which approximates market value 99,590 --------- TOTAL ASSETS $ 319,997 ========= LIABILITIES AND MEMBER'S DEFICIT CURRENT LIABILITIES: Accounts payable $ 724 Accrued interest 2,429 Payable to AES 430 Payable to affiliates 541 --------- Total current liabilities 4,124 RETENTION PAYABLE 9,231 BONDS PAYABLE 308,500 --------- Total liabilities 321,855 --------- COMMITMENTS (Notes 4, 5, 6 and 7) MEMBER'S DEFICIT: Common stock ($1 par value, 10 shares authorized, none issued or outstanding) - Accumulated deficit (1,858) --------- Total member's deficit (1,858) --------- TOTAL LIABILITIES AND MEMBER'S DEFICIT $ 319,997 =========
See notes to financial statements. F-3 AES IRONWOOD, LLC (A Development Stage Enterprise) STATEMENT OF OPERATIONS FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999 (In Thousands) - -------------------------------------------------------------------------------- OPERATING EXPENSES: General and administrative costs $ (162) ------- Operating loss (162) OTHER INCOME/EXPENSE: Interest income 1,999 Interest expense (3,695) ------- NET LOSS $(1,858) ======= See notes to financial statements. F-4 AES IRONWOOD, LLC (A Development Stage Enterprise) STATEMENT OF CHANGES IN MEMBER'S DEFICIT FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH SEPTEMBER 30,1999 (In Thousands) - --------------------------------------------------------------------------------
Common Stock Accumulated Shares Amount Deficit Total ------ ------ ------- ----- Balance, June 25, 1999 - $ - $ - $ - Net loss - - (1,858) (1,858) ------ ------ ------- ------- Balance, September 30, 1999 - $ - $(1,858) $(1,858) ====== ====== ======= =======
See notes to financial statements. F-5 AES IRONWOOD, LLC (A Development Stage Enterprise) STATEMENT OF CASH FLOWS FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999 (In Thousands) - -------------------------------------------------------------------------------- OPERATING ACTIVITIES Net loss $ (1,858) Amortization of deferred financing costs 23 Change in: Interest receivable (492) Accrued interest 1,219 --------- Net cash used in operating activities (1,108) --------- INVESTING ACTIVITIES: Payments for construction in progress $(204,388) Payments for land (528) Payments to debt service reserve (99,590) --------- Net cash used in investing activities (304,506) --------- FINANCING ACTIVITIES: Proceeds from project debt issuance 308,500 Payments for deferred financing costs (2,313) --------- Net cash provided by financing activities 306,187 --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 573 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 573 ========= SUPPLEMENTAL DISCLOSURE: Interest paid $ 4,933 =========
See notes to financial statements. F-6 AES IRONWOOD LLC(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------- 1. ORGANIZATION AES, Ironwood, LLC (the Company) was incorporated on October 13, 1998, in the state of Delaware, to develop, construct and operate a 705 megawatt (MW) gas-fired combined cycle electric generating facility in South Lebanon Township, Pennsylvania (the Plant). The Company was considered dormant until June 25, 1999 at which time the Project Financing and certain related agreements were consummated (hereinafter, inception.) The Plant, currently under construction, will consist of two Westinghouse 501 G combustion turbines, two heat recovery steam generators and one steam turbine. The Plant will produce and sell electricity, as well as provide fuel conversion and ancillary services, solely to Williams Energy Marketing and Trading Company (Williams) under a power purchase agreement (the PPA), with a term of 20 years, that will commence on the Plant's anticipated commercial operation date, June 30, 2001 (see Note 5). The Company is in the development stage and is not expected to generate any operating revenues until the Plant achieves commercial operations. As with any new business venture of this size and nature, operation of the Plant could be affected by many factors. Construction of the Plant is expected to be completed in 2001. Management of the Company believes that the assets of the Company are realizeable. The Company is a wholly-owned subsidiary of AES Ironwood, Inc. (Ironwood), which is a wholly-owned subsidiary of The AES Corporation (AES). On June 25, 1999, the Company issued $308.5 million in senior secured bonds (see Note 3) for the purpose of providing financing for the construction of the Plant and to fund, through the construction period, interest payments to the bondholders. Pursuant to an Equity Subscription Agreement, Ironwood has agreed to contribute up to approximately $50.1 million to the Company to fund construction after the bond proceeds have been fully utilized (see Note 4). 2. SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents - The Company considers unrestricted cash on hand, deposits in banks, and investments with original maturities of three months or less to be cash and cash equivalents for the purpose of the statement of cash flows. Investments Held by Trustee - The Company is required to maintain a construction funding account for the payment of certain qualifying construction costs and a construction interest account from which quarterly interest payments are to be made. As of September 30, 1999, these amounts were fully funded with cash in money market accounts. The balances in the construction funding account and the construction interest account were approximately $53 million and $47 million, respectively, as of September 30, 1999. Construction in Progress - Costs incurred in developing the Plant, including progress payments, engineering costs, management and development fees, interest, and other costs related to construction are capitalized. Total interest capitalized on the project financing debt was approximately $3.7 million, F-7 through September 30, 1999. Certain costs related to construction activities were paid by AES prior to the issuance of the bonds. These amounts include approximately $105.4 million of construction progress payments and approximately $20.1 million in costs and fees. These costs are reflected within construction in progress, and were reimbursed to AES out of the bond proceeds. Deferred Financing Costs - Financing costs are deferred and are being amortized using the straight-line method over the expected period for which the financing was obtained, which does not differ materially from the effective interest method of amortization. Accounts Payable and Contract Retention Payable - Amounts currently payable for construction billings and those amounts billed by the Contractor in accordance with the engineering, procurement and construction contracts but retained by the Company until construction is complete are included in accounts payable and contract retention payable, respectively. These liabilities are expected to be paid from restricted cash balances or equity funding from Ironwood. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes - The Company is a limited liability corporation and is treated as a partnership for tax purposes. Therefore, it does not pay income taxes, and no provision for income taxes has been reflected in the accompanying financial statements. Comprehensive Income - In 1999 the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130) which establishes rules for the reporting of comprehensive income and its components. The adoption of SFAS 130 had no impact on the Company's financial statements as it had no items of other comprehensive income. Start-Up Costs - In 1999 the Company adopted AICPA Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities which requires that start-up and organization costs be expensed as incurred. As such, no such costs have been capitalized in the accompanying balance sheet. 3. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which established standards for the accounting and reporting of derivative financial instruments and hedging activities. The standard will be adopted by the Company during fiscal year 2001. The Company is currently evaluating the impact of the adoption of SFAS No. 133. F-8 4. BONDS PAYABLE On June 25, 1999, the Company issued $308.5 million of 8.857% senior secured bonds due 2025 (the Bonds) to qualified institutional buyers and/or institutional accredited investors, pursuant to a transaction exempt from registration under the Securities and Exchange Act of 1933 (the Act) in accordance with Rule 144A of the Act. The net proceeds of the bonds (after deferred financing costs), approximately $306 million, are to be used to fund the construction of the Plant and, during the construction period, for interest payments to bondholders. Interest on the Bonds is payable quarterly in arrears. Quarterly principal payments on the Bonds will commence on February 28, 2002. The final maturity date for the Bonds is November 30, 2025. Principal & Interest Repayment Schedule - (in thousands)
Year Principal and Interest ---------------------- 1999 (including amounts paid through September 30, 1999) $ 11,847 2000 27,324 2001 27,324 2002 29,233 2003 31,742 2004 32,780 2005-2025 617,500 -------- Total Payments 777,750 Less Interest portion (469,250) -------- Principal $ 308,500 =========
Future Maturities of Debt - Scheduled maturities of the bonds at December 31 are (in thousands): 2000 $ - 2001 - 2002 1,974 2003 4,751 2004 and thereafter 301,775 -------- TOTAL $308,500 ======== Optional Redemption - The Bonds are subject to optional redemption, in whole or in part, at any time at a redemption price equal to 100% of the principal amount plus accrued interest, together with a premium calculated using a discount rate equal to the interest rate on comparable U.S. Treasury securities plus 50 basis points. F-9 Mandatory Redemption - The Bonds are subject to mandatory redemption, in whole or in part, at a redemption price equivalent to 100% of the principal amount plus accrued interest under certain situations pursuant to receiving insurance proceeds or liquidating damages from failure under the engineering, procurement, and construction contract, or in certain instances in which payments are made under the PPA with Williams under the event of default, at which time the Company has terminated the PPA. Registration Rights - The Company is obligated to register the Bonds under the Act with the Securities and Exchange Commission within 220 days of the initial sale of the Bonds. Failure to register the Bonds under the Act will result in the interest rate payable on the Bonds, currently fixed at 8.875%, to increase by 50 basis points. Collateral for the Bonds consists of the Plant and related facilities, all agreements relating to the operation of the project, the bank and investment accounts of the Company, and all ownership interests in the Company, as prescribed under the Bond Indenture Agreement (the Indenture). The Company is also bound by a collateral agency agreement (the Collateral Agreement) and an equity subscription agreement (the Equity Subscription Agreement). Indenture Agreement - The Indenture contains limitations on the Company incurring additional indebtedness, granting liens on the Company's property, distributing equity and paying subordinated indebtedness issued by affiliates of the Company, entering into transactions with affiliates, amending, terminating or assigning any of the Company's contracts and fundamental changes or disposition of assets. Collateral Agreement - The Collateral Agreement requires the Company to fund or provide the funding for a debt service reserve fund, which is expected to commence on June 30, 2001. The amount required for funding the debt service reserve fund is equal to six months scheduled payments of principal and interest on the bonds. Equity Subscription Agreement - The Company, along with Ironwood, has entered into an Equity Subscription Agreement, pursuant to which Ironwood has agreed to contribute up to approximately $50.1 million to the Company to fund project costs. This amount is secured by an acceptable bond issued by Ironwood. Ironwood will fund these amounts as they come due upon the earlier of (a) expenditure of all funds that have been established for construction or (b) the occurrence and during the continuation of an event of default, as defined under the Indenture. A portion of this equity requirement may be made in the form of affiliate debt, between Ironwood and the Company, which is subordinate to the Bonds. Covenants - The Indenture, Collateral, and Equity Agreements contain specific covenants and requirements to be met by the Company. 5. POWER PURCHASE AGREEMENT The Company and Williams have entered into a PPA for the sale of all electric energy and capacity produced by the Plant, as well as ancillary services and fuel conversion services. The term of the PPA is 20 years, commencing when the construction of the Plant is complete and the Plant is commercially viable to produce electricity and related capacity, as well as to provide ancillary and fuel conversion services. Payment obligations to the Company are guaranteed by The Williams Companies, Inc. Such payment obligations under the guarantee are capped at an amount equal to 125% of the sum of the principal amounts of the bonds plus the maximum debt service reserve account required balance. The Company has provided Williams a guaranty issued by AES of specific payment obligations should the Plant not achieve commercial F-10 operation by June 30, 2001. AES's liability under the guaranty is capped at $30 million. The Company has the option, and may be required under specific conditions described in the PPA, to replace the guaranty issued by AES with a letter of credit issued by a commercial bank. In such case, the repayment obligations with respect to drawings under the letter of credit are to be a senior debt obligation of the Company. Fuel Conversion and Other Services - As instructed by the Company, Williams has the obligation to deliver, on an exclusive basis, all quantities of natural gas and fuel oil required by the Plant to generate electricity or ancillary services, to start-up or shut-down the plant, and to operate the Plant during any period other than a start-up, shut-down, or required dispatch by Williams for any reason. 6. COMMITMENTS AND CONTINGENCIES Turnkey Construction Agreement - The Company has entered into a fixed-price turnkey agreement with Siemens Westinghouse (the Contractor) for the design, engineering, procurement, and construction of the Plant. The Contractor will provide the Company with specific combustion turbine maintenance services and spare parts for an initial term of between eight and ten years under a maintenance service agreement. As of September 30, 1999, the Company was liable to the Contractor for a retention payment as part of the total contract price due at the completion of the contract for approximately $9.2 million. Water Supply - The Company has entered into a contract with the City of Lebanon Water Authority (the Authority) for the purchase of 50 percent of the water use of the Plant. The contract has a term of 25 years. Costs associated with the use of water by the Plant under this contract are based on gallons used per day at prices specified under the contract terms. The Company has also entered into an agreement with Pennsy Supply Quarry (Pennsy) which will provide the remaining 50 percent of the water use of the Plant. Interconnection Agreement - The Company has entered into an interconnection with GPU Energy (GPU) to transmit the electricity generated by the Plant to the transmission grid so that it may be sold as prescribed under the Company's PPA. The Agreement is in effect for the life of the Plant, yet may be terminated by mutual consent of both GPU and the Company, under certain circumstances as detailed in the Agreement. Costs associated with the Agreement are based on electricity transmitted via GPU at a variable price, the PJM (Pennsylvania/New Jersey/Maryland) Tariff, as charged by GPU to the Company, which is comprised of both service cost and asset recovery cost, as determined by GPU and approved by the Federal Energy Regulatory Committee (FERC). Letters of Credit - The Company also has a letter of credit agreement outstanding to fund the construction of an access road from a local road to the plant under construction. In connection with this letter of credit, the Company has made a deposit as collateral for approximately $385,000 into a certificate of deposit account, which equals the amount available under this agreement. Surety Bond Agreement - Ironwood has a surety bond agreement for $50.1 million in relation to its equity subscription agreement. Annual commitment fees will be assessed based on the amount outstanding during the year. 7. RELATED PARTY TRANSACTIONS Effective June, 1999 the Company entered into a 27-year development and construction management agreement with AES Prescott, LLC (Prescott), another wholly-owned subsidiary of Ironwood, to provide certain support services required by the Company for the development and construction of the Plant. Under this agreement Prescott will also provide operations management services for the Plant once F-11 commercial operation is attained. Minimum amounts payable under the contract during the construction period are $125,000 per month. Once commercial operation is achieved, payments for operations management services will be approximately $400,000 per quarter. During the construction period, the construction management fees will be paid to Prescott from the restricted cash balance or from equity funding. Through September 30, 1999, $500,000 in construction management fees were incurred, were charged to construction in progress, and are payable to Prescott. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments have been determined using available market information. The estimates are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value of the Company's restricted investments approximates their carrying value. The estimated fair value of the Bonds as of September 30, 1999, based on quoted market prices of similarly rated bonds with similar maturities, does not differ materially from their carrying value. 9. SEGMENT INFORMATION Under the provisions of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company's business is expected to be operated as one reportable segment, with operating income or loss being the measure of performance evaluated by the chief operating decision maker. As described in Notes 1 and 4, the Company's primary customer will be Williams Energy Marketing and Trading Company, which is expected to provide all of the revenues of the Company during the term of the PPA. * * * * * * F-12 ------------------------------------------------------- ANNEX A GLOSSARY OF DEFINED TERMS ------------------------------------------------------- GLOSSARY OF DEFINED TERMS The following terms shall have the following meanings and such meanings are equally applicable to both the singular and plural forms of the terms defined. Any term defined below by reference to any agreement or instrument shall have such meaning whether or not such agreement or instrument is in effect. Unless otherwise specified, any agreement or instrument defined or referred to below shall include any amendments, modifications and supplements thereto and waivers thereof made in accordance with the terms of such agreement or instrument. Any reference to a person includes the successors and permitted assigns of such person. "Acceptable Bond" means a bond issued by an insurance company rated at least "A" by Standard & Poor's and "A2" by Moody's in the form attached to the Equity Subscription Agreement. "Acceptable Credit Provider" means (i) in the case of an unconditional guaranty, AES (if and for so long as its long-term unsecured debt is rated at least Investment Grade and not lower than the then current lowest rating of the bonds by each of S&P and Moody's) and (ii) in the case of an irrevocable letter of credit, a bank or trust company with a combined capital and surplus of at least $1,000,000,000 whose long-term unsecured debt is rated at least "A" by S&P or "A2" by Moody's. "Acceptable Credit Support" means (i) an unconditional guaranty in the form prescribed in the Collateral Agency Agreement, or (ii) an irrevocable letter of credit (which is not an obligation of our Company and is not secured by the Collateral), in either case from an Acceptable Credit Provider. "Acceptable Letter of Credit" means an irrevocable letter of credit in the form attached to the Equity Subscription Agreement. "AES" means The AES Corporation, a Delaware corporation. "AES Ironwood, Inc." means AES Ironwood, Inc., a Delaware corporation. "AES Prescott" means AES Prescott, L.L.C., a Delaware limited liability company. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such person. For purposes of this definition, the term "control" (including the correlative meanings of the terms "controlling", "controlled by" and "under common control with"), as used with respect to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting stock or other equity interests or by contract or otherwise. "Affiliate Subordinated Debt" means an unsecured, subordinated loan or loans from any Affiliate of our Company under an Affiliate Subordinated Loan Agreement. "Affiliate Subordinated Debt Provider" means any Affiliate of our Company providing Affiliate Subordinated Debt under an Affiliate Subordinated Loan Agreement. "Affiliate Subordinated Loan" means a loan made under an Affiliate Subordinated Loan Agreement. "Affiliate Subordinated Loan Agreement" means a binding agreement providing nonrecourse, unsecured debt financing from an Affiliate Subordinated Debt Provider to our Company on terms and conditions which meet the requirements set forth in the Indenture and the Collateral Agency Agreement. "Affiliate Transaction" means any transaction or agreement between our Company and any Affiliate of our Company other than (i) the Operations Agreement and the Equity Subscription Agreement (and any Affiliate Subordinated Loan Agreement referenced therein) and (ii) transactions in the ordinary course of business on fair and reasonable terms no less favorable to our Company than our Company would obtain in an arm's length transaction with a person that is not an Affiliate of our Company. "Air Permit" means the Prevention of Significant Deterioration Permit, dated March 29, 1999, from the Pennsylvania Department of Environmental Protection. "Annual Budget" means the annual budget prepared by our Company for each Fiscal Year in accordance with the requirements of the Indenture. "Applicable Law" means any constitution, statute, law, rule, regulation, ordinance, judgment, order, decree, Governmental Approval, or any published directive, guideline, requirement or other governmental restriction which has the A-1 force of law, or any determination by, or interpretation of any of the foregoing by, any judicial authority, binding on a given person whether in effect as of the date of any Financing Documents or thereafter and in each case as amended (including, without limitation, all Environmental Laws and any of the foregoing pertaining to land use or zoning restrictions). "Applicable Procedures" means the rules and procedures of DTC, its nominee, Euroclear or Cedel, as applicable. "Assignment of Leases and Income" means the Assignment of Leases and Income, by and between our Company and the Collateral Agent. "Authorized Representative" of any person means the individual or individuals authorized to act on behalf of such person by the board of directors, managing member, management committee, board of control or any other governing body of such person as designated from time to time in a certificate of such person with specimen signatures. "Available Accounts" means our Project Accounts other than the Construction Account and the Debt Service Reserve Account. "Available Cash Flow" means, with respect to each application of funds required under the Collateral Agency Agreement as of any specified date, all funds remaining in the Revenue Account as of such date and available to be applied as set forth in the Collateral Agency Agreement after all prior applications of funds in the Revenue Account required on such date. "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, Title II of the United States Code, as amended, and any other Applicable Law with respect to bankruptcy, insolvency or reorganization that is successor thereto. "Bankruptcy Event" means the occurrence or commission of either of the following: (i) our Company or, so long as AES has any outstanding obligations under any Acceptable Credit Support, AES or, so long as AES Ironwood, Inc. has any outstanding obligations under the Equity Subscription Agreement, AES Ironwood, Inc. shall (a) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or substantially all of its property, (b) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (c) make a general assignment of the benefit of its creditors, (d) commence a voluntary case under the Bankruptcy Code, (e) file a petition seeking to take advantage of any law relating to bankruptcy, insolvency, reorganization, winding-up, or the composition or readjustment of debts, (f) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against such person in an involuntary case under the Bankruptcy Code or (g) take any corporate or other action for the purpose of effecting any of the foregoing; or (ii) a proceeding or case shall be commenced without the application or consent of our Company or, so long as AES has any obligations under any Acceptable Credit Support, AES or, so long as AES Ironwood, Inc. has any outstanding obligations under the Equity Subscription Agreement, AES Ironwood, Inc., in any court of competent jurisdiction, seeking (a) its liquidation, reorganization, dissolution, winding-up, or the composition or readjustment of debts or (b) the appointment of a trustee, receiver, custodian, liquidator or the like of such person under any law relating to bankruptcy, insolvency, reorganization, winding-up, or the composition or adjustment of debts, and such proceeding or case shall continue undismissed, or any order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 90 or more consecutive days, or any order for relief against such person shall be entered in an involuntary case under the Bankruptcy Code. "Bond Payment Account" means the Bond Payment Account established under the Indenture. "Business Day" means any day other than a Saturday or Sunday or other day on which banks in New York, New York, are authorized or required by law or executive order to remain closed. "Cash Available for Debt Service" means, in respect of a specified period, all funds (i) deposited in the Revenue Account (other than amounts transferred to such account from the Major Maintenance Reserve Account, the Distribution Account or the Construction Account), if such specified date occurred prior to the date of determination or (ii) projected by our Company on a reasonable basis to be deposited, if such specified period is to occur subsequent to the date of determination, in the Revenue Account during such period minus all funds transferred to (a) our Company for payment of Operating and Maintenance Costs, (b) the Trustee, Collateral Agent, DSR LOC Provider and the CP LOC Provider in respect of Trustee Claims, Collateral Agent Claims, DSR LOC Provider Claims and CP LOC Provider Claims, respectively, and (c) a working capital provider in respect of payments on working capital loans during such period. "Casualty Proceeds" means all insurance proceeds (including title insurance proceeds) or other amounts actually received on account of an Event of Loss, except proceeds of business interruption insurance. A-2 "Certificate as to Redemption" means the certificate filed by an Authorized Representative of our Company, in the case of an Event of Loss or Event of Eminent Domain, in order to determine: (i) whether our Facility can be rebuilt, repaired or restored and (ii) the availability of Casualty Proceeds or Eminent Domain Proceeds for such rebuilding, repairing or restoring. "Change in Control" means any failure by AES, at all times while bonds are outstanding, to maintain directly or indirectly at least a 51% voting and economic interest in our Company, unless prior to giving effect to the reduction in AES's voting or economic interest in our Company either (i) each of the Rating Agencies provides a Ratings Reaffirmation to the Trustee or (ii) the reduction in AES's voting or economic interest has been approved by bondholders holding at least 66-2/3% in aggregate principal amount of the bonds. "Collateral" means: (i) all revenues of our Company; (ii) our Project Accounts (other than the Debt Service Reserve Account); (iii) all real and personal property of our Company; (iv) proceeds of insurance, condemnation and liquidated damages payments, if any; (v) all Project Contracts; (vi) all ownership interests in our Company; (vii) the Equity Contribution and all rights under the Equity Subscription Agreement; and (viii) in respect of the bondholders only, the Indenture Accounts, the Debt Service Reserve Account and the DSR Letter of Credit (other than the DSR LOC Provider's right to specific proceeds under the DSR Letter of Credit). "Collateral Agency Agreement" means the Collateral Agency and Intercreditor Agreement, by and among our Company, the Trustee, the Collateral Agent, the DSR LOC Provider, the CP LOC Provider and the Depositary Bank. "Collateral Agent" means The Bank of New York and any successor or assign as Collateral Agent under the Collateral Agency Agreement. "Collateral Agent Claims" means all obligations of our Company, now or hereafter existing, to pay fees, costs, expenses, liabilities or indemnities to the Collateral Agent under the Collateral Agency Agreement. "Combined Exposure" means, as of any date of calculation, the sum (calculated without duplication) of the following, to the extent the same is held by or represented by a Senior Party: (i) the aggregate principal amount of all bonds then outstanding; (ii) the aggregate principal amount of all outstanding Permitted Indebtedness (other than the bonds, DSR Bonds, DSR LOC Loans, DSR LOC Term Loans, CP LOC Loans, Subordinated Debt and Affiliate Subordinated Debt); (iii) the aggregate amount of all available undrawn financing commitments under the documents governing the Permitted Indebtedness (other than the bonds, Subordinated Debt, Affiliate Subordinated Debt, the DSR LOC Reimbursement Agreement and the CP LOC Reimbursement Agreement) which the creditors party to such documents have no right to terminate; (iv) the maximum amounts available to be drawn under the DSR Letter of Credit and the CP Letter of Credit (taking into account, without duplication, in the case of the DSR Letter of Credit, the maximum amount which may become available to be drawn in the future by reason of an increase in the DSRA Required Balance); and (v) the amount, without duplication, of any unreimbursed drawing under the DSR Letter of Credit and the CP Letter of Credit. "Commercial Operation Date" means the date on which Commercial Operation as defined in the Power Purchase Agreement is achieved, no later than December 31, 2002. "Consents to Assignment" means the consents to assignments set forth in a schedule to the Indenture. "Construction Account" means the Construction Account established under the Collateral Agency Agreement. "Construction Interest Account" means the Construction Interest Account established under the Indenture. "Contractor " means Siemens Westinghouse Power Corporation, a Delaware corporation. "CP Letter of Credit" means the letter of credit issued under the CP LOC Reimbursement Agreement as provided by our Company to the Power Purchaser in satisfaction of the requirements of Section 19.2 of the Power Purchase Agreement. "CP LOC Issuing Bank" means Dresdner Bank AG, New York Branch or any other financial institution providing the CP Letter of Credit under the CP LOC Reimbursement Agreement. "CP LOC Loan" means a loan resulting from a drawing on the CP Letter of Credit. A-3 "CP LOC Provider" means the Agent under the CP LOC Reimbursement Agreement acting for and on behalf of the Banks party thereto and the CP LOC Issuing Bank; provided, however, that references to the long-term debt rating of the CP LOC Provider shall be deemed to refer to the debt rating of the CP LOC Issuing Bank. "CP LOC Provider Claims" means all obligations of our Company, now or hereafter existing, to pay administrative fees, costs, expenses, liabilities or indemnities to the CP LOC Provider under the CP LOC Reimbursement Agreement. "CP LOC Reimbursement Agreement" means the Construction Period Letter of Credit and Reimbursement Agreement, by and among the CP LOC Provider, our Company and the Banks named therein, under which the CP LOC Provider may issue the CP Letter of Credit. "Date Certain" means the final date, December 31, 2002, by which our Facility must commence commercial operation under the Power Purchase Agreement. "Debt Service Reserve Account" means the Debt Service Reserve Account established under the Collateral Agency Agreement. "Default" means an event or condition that, with the giving of notice or lapse of time, or both, would become an Event of Default. "Depositary Bank" means The Bank of New York and any successor or assign as Depositary Bank under the Collateral Agency Agreement and the Indenture. "Distribution Account" means the Distribution Account established under the Collateral Agency Agreement. "DSR Bond" has the meaning specified under "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--DSR LOC Reimbursement Agreement--Conversion into DSR Bonds." "DSR Letter of Credit" means a letter of credit provided by our Company in respect of all or a portion of the DSRA Required Balance. "DSR LOC Issuing Bank" means Dresdner Bank AG, New York Branch or any other financial institution providing the DSR Letter of Credit under the DSR LOC Reimbursement Agreement. "DSR LOC Loan" means a loan resulting from a drawing on the DSR Letter of Credit. "DSR LOC Provider" means the Agent under the DSR LOC Reimbursement Agreement acting for and on behalf of the Banks party thereto and the DSR LOC Issuing Bank; provided, however, that references to the long-term debt rating of the DSR LOC Provider shall be deemed to refer to the debt rating of the DSR LOC Issuing Bank. "DSR LOC Provider Claims" means all obligations of our Company, now or hereafter existing, to pay administrative fees, costs, expenses, liabilities or indemnities under the DSR LOC Reimbursement Agreement. "DSR LOC Reimbursement Agreement" means the Debt Service Reserve Letter of Credit and Reimbursement Agreement, by and among the DSR LOC Provider, our Company and the Banks named therein, under which the DSR LOC Issuing Bank will issue the DSR Letter of Credit. "DSR LOC Term Loan" means a loan resulting from conversion of a DSR LOC Loan to a DSR LOC Term Loan, or a draw on the DSR Letter of Credit, after the occurrence of a Step-Up Event. "DSR Note" means any note issued under the DSR LOC Reimbursement Agreement evidencing DSR LOC Loans, DSR LOC Term Loans or DSR Bonds. "DSRA Required Balance" means an amount equal to the next succeeding two quarterly scheduled payments of principal and interest due on the bonds plus, if a DSR Letter of Credit is to be provided, six months of interest on the maximum amount of such DSR Letter of Credit. "DTC" means The Depositary Trust Company. "DTC Bonds" means bonds represented by the global bonds and held in book-entry form by DTC or its nominee. A-4 "Effluent Supply Agreement" means the Effluent Supply Agreement, dated as of March 3, 1998, between our Company (as assignee of AES Ironwood, Inc.) and City of Lebanon Authority. "Eminent Domain Proceeds" means all amounts and proceeds actually received in respect of any Event of Eminent Domain. "Environmental Law" means any Governmental Requirement in effect from time to time governing or relating to (i) the environment, (ii) releases or threatened releases of Hazardous Materials including, without limitation, investigation, monitoring and abatement of such releases and (iii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Materials or materials containing Hazardous Materials. "EPC Contract" means the Agreement for Engineering, Procurement and Construction Services, dated as of September 23, 1998, as amended, by and between our Company (as assignee of AES Ironwood, Inc.) and the Contractor. "EPC Guarantor" means Siemens Corporation and its successors and permitted assigns, as guarantor under the Siemens Guaranty. "Equity Contribution" means the equity contribution required to be made by AES Ironwood, Inc. under the Equity Subscription Agreement. "Equity Subscription Agreement" means the Equity Subscription Agreement, by and among our Company, AES Ironwood, Inc. and the Collateral Agent, under which AES Ironwood, Inc. shall agree to make specific equity contributions to our Company. "Event of Default" has the meaning specified under `SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Indenture--Events of Default." "Event of Eminent Domain" means any compulsory transfer or taking or transfer under threat of compulsory transfer or taking of all or a material portion of our Facility by any Governmental Authority for more than one year unless such transfer or taking is the subject of a Good Faith Contest. "Event of Loss" means an event which causes all or a material portion of our Facility to be damaged, destroyed or rendered unfit for normal use for any reason whatsoever including through a failure of title. "FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. "Final Acceptance" has the meaning set forth in the EPC Contract. "Financing Documents" means the Indenture, the bonds, the DSR LOC Reimbursement Agreement and any evidence of indebtedness thereunder entered into, the CP LOC Reimbursement Agreement and any evidence of indebtedness thereunder entered into, the Equity Subscription Agreement, the Collateral Agency Agreement and the Security Documents. "Financing Liabilities" means all indebtedness, liabilities and obligations of our Company (of whatsoever nature and howsoever evidenced including, but not limited to, principal, interest, fees, reimbursement obligations, collateralization or deposit obligations, penalties, indemnities and legal expenses, whether due after acceleration or otherwise) under or under the Indenture, the bonds and any evidence of indebtedness thereunder entered into, the DSR LOC Reimbursement Agreement and any evidence of indebtedness thereunder entered into, the CP LOC Reimbursement Agreement and any evidence of indebtedness thereunder entered into, the Collateral Agency Agreement and any evidence of indebtedness thereunder entered into, any working capital facility and any evidence of indebtedness thereunder entered into, and the Security Documents, to the extent arising on or prior to the final maturity date for the bonds, in each case, direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or relating to any such agreements. "Fiscal Year" means the period of time beginning on January 1 of each year and ending on December 31 of such year; provided, that the initial Fiscal Year commenced on the date of initial issuance of the old bonds and shall end on December 31, 1999. "Fuel Conversion Volume Rebate Account" means the Fuel Conversion Volume Rebate Account established under the Collateral Agency Agreement. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time. A-5 "GDPIPD" means the Gross Domestic Product Implicit Price Deflator for a calendar year as published in the United States Department of Commerce, Bureau of Analysis publication entitled "Survey of Current Business." If the Gross Domestic Product Implicit Price Deflator ceases to exist or is no longer available, our Company, with the approval of the Independent Engineer (such approval not to be unreasonably withheld or delayed), shall designate a substitute index that is reasonably similar to the Gross Domestic Product Implicit Price Deflator. "Good Faith Contest" means the contest of an item if: (i) the item is diligently contested in good faith by appropriate proceedings timely instituted; (ii) adequate reserves or bonding are established in accordance with GAAP with respect to the contested item; and (iii) during the period of such contest, the enforcement of any contested item is effectively stayed. "Governmental Approval" means any authorization, consent, approval, concession privilege, waiver, exemption, variance, registration, filing, certification, permission, permit and license with or notice to any Governmental Authority. "Governmental Authority" means the federal government of the United States, any state of the United States or political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any other governmental entity, instrumentality, agency, authority or commission. "Governmental Requirement" means any Applicable Law or Governmental Approval applicable to our Company or our Facility. "Guaranteed Completion Date" means the date which is 24 months after the delivery by our Company to the Contractor of the Notice to Proceed, as such term is defined in the EPC Contract. "Hazardous Materials" means (i) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls ("PCBs") and any other chemicals, materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances" or "toxic pollutants", or words of similar import, under Environmental Laws, including but not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.); the Hazardous Material Transportation Act, as amended (42 U.S.C. ss. 1801 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. ss. 6901 et seq.); the Toxic Substances Control Act, as amended (15 U.S.C. ss. 2601); the Clean Air Act, as amended (42 U.S.C. ss. 7401 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. ss. 1251 et seq.); or (ii) any other chemical, material, substance or waste declared to be hazardous or toxic by any Governmental Authority, exposure to which is now or hereafter prohibited, limited or regulated by any Governmental Authority. "Impositions" means all duties, taxes, assessments, dues, charges, fees, excises, levies, license and permit fees, impositions, water rates, sewer rents and other charges, ordinary or extraordinary, whether foreseen or unforeseen, of any kind whatsoever, (i) now or hereafter levied or assessed or imposed against or upon or in respect of the Mortgaged Property (as defined in the Mortgage) or (ii) which now is or may be levied or assessed against the Income (as defined in the Mortgage) by virtue of any present or future law, as well as all income taxes, assessments and other governmental charges levied and imposed by any Governmental Authority upon or against our Company in respect of the Mortgaged Property or any part thereof, to the extent the same is in lieu of or in substitution of the items described in clause (i). Impositions shall not include any taxes imposed on the net income, gross receipts or any franchise taxes of the Trustee or Collateral Agent, except as provided in this Indenture. "Indebtedness" of any person means, at any date, without duplication, (i) all obligations of such person for borrowed money (including obligations with respect to letters of credit issued for the account of such person), (ii) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments (excluding "deposit only" endorsements on checks payable to the order of such person), (iii) all obligations of such person to pay the deferred purchase price of property or services (excluding accounts payable and similar obligations arising in the ordinary course of business which are not more than 90 days past due), (iv) all obligations of such person as lessee under capital leases to the extent required to be capitalized on the books of such person in accordance with GAAP and the debt portion of any leveraged lease not required to be capitalized, (v) all obligations of other persons of the type referred to in clauses (i) through (iv) of this definition guaranteed by such person, whether or not secured by a Lien or other security interest on any asset of such person and (vi) all Indebtedness of another person secured by a Lien on any property owned by the first person (whether or not such indebtedness has been assumed or guaranteed by such first person). A-6 "Indenture" means the Trust Indenture, by and among our Company, the Trustee and the Depositary Bank pursuant to which the old bonds were issued and the new bonds will be issued. "Indenture Accounts" means those accounts created and established under the Indenture, including the Bond Payment Account, the Construction Interest Account, the Interest Payment Subaccount, the Principal Payment Subaccount and the Redemption Subaccount. "Independent Engineer" means, initially, Stone & Webster Management Consultants, Inc., and thereafter any other engineering or consulting entity acting as independent engineer under the Financing Documents. "Independent Engineer Agreement" means the consulting services agreement between Stone & Webster and our Company. "Independent Forecast" means a report furnished by our Company to the Senior Parties no later than six months prior to the expiration of the term of the Power Purchase Agreement, prepared by an independent consultant which sets forth projections of (i) electricity prices for the PJM Market (or if such market no longer exists at such time, any successor market or substitute market as determined in good faith by our Company which approximates, to the extent practicable, such region) and (ii) gas prices on a delivered basis to our Facility, in each case on at least an annual basis through the final maturity date for the bonds. "Independent Insurance Advisor" means, initially, AON Risk Services, Inc., or another nationally recognized insurance advisory firm appointed as insurance advisor by our Company. "Initial Start-Up Testing" means our Company's operation and testing of our Facility prior to the Commercial Operation Date, including performance tests, to determine, among other things, the operating characteristics of our Facility, our Facility capacity and our Facility's ability to meet our Company's obligations under the Power Purchase Agreement. "Interconnection Agreement" means the Generation Facility Transmission Interconnection Agreement, dated as of March 23, 1999, by and between our Company and Metropolitan Edison Company d/b/a GPU Energy. "Interest Payment Date" means each February 28, May 31, August 31 and November 30, commencing August 31, 1999. "Interest Payment Subaccount" means the Interest Payment Subaccount of the Bond Payment Account established under the Indenture. "Investment Grade" means a rating in one of the four highest categories (without regard to subcategories within such rating categories) by S&P and Moody's (or an equivalent rating by another nationally recognized credit rating agency if none of such corporations is rating the subject debt instrument). "Lien" means any mortgage, pledge, security interest, hypothecation, collateral assignment, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Maintenance Services Agreement" means the Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of September 23, 1998, by and between our Company (as assignee of AES Ironwood, Inc.) and the Contractor. "Major Maintenance Reserve Account" means the Major Maintenance Reserve Account created under the Collateral Agency Agreement. "Make-Whole Premium" means an amount calculated as of the date (the "Determination Date") set for the redemption or repurchase of any of the bonds as follows: (a) the average life of the remaining scheduled payments of principal in respect of bonds then outstanding (the "Remaining Average Life") shall be calculated as of the Determination Date; (b) the yield to maturity shall be calculated for the United States Treasury security having an average life equal to the Remaining Average Life and trading in the secondary market at the price closest to the principal amount thereof (the "Primary Issue"); provided, however, that if no United States Treasury security has an average life equal to the Remaining Average Life, the yields (the "Other Yields") for the two maturities of United States Treasury securities having A-7 average lives most closely corresponding to such Remaining Average Life and trading in the secondary market at the price closest to the principal amount thereof shall be calculated, and the yield to maturity for the Primary Issue shall be the yield interpolated or extrapolated from such Other Yields on a straightline basis, rounding in each of such relevant periods to the nearest month; (c) the discounted present value of the then remaining scheduled payments of principal and interest (but excluding that portion of any scheduled payment of interest that is actually due and paid on the Determination Date) in respect of bonds then outstanding shall be calculated as of the Determination Date using a discount factor equal to the sum of (x) the yield to maturity for the Primary Issue, plus (y) 50 basis points; and (d) the amount of Make-Whole Premium in respect of bonds to be redeemed or repurchased shall be an amount equal to (x) the discounted present value of such bonds to be redeemed determined in accordance with clause (c) above, minus (y) the unpaid principal amount of such bonds; provided, however, that the Make-Whole Premium shall not be less than zero. "Material Adverse Effect" means (i) a material adverse change, or an event or occurrence which would reasonably be expected to result in a material adverse change, in the financial condition, or results of operation of our Company, or operation of our Facility or (ii) any event or occurrence of whatever nature which would materially and adversely change (a) our Company's ability to perform its obligations under the Financing Documents or (b) the Senior Parties' security interests in the Collateral under the Security Documents. "Moody's" means Moody's Investors Services, Inc. "Mortgage" means the Mortgage, by and between our Company and the Collateral Agent. "MW" means megawatt. "MWh" means megawatt-hour. "New bonds" means bonds offered by our Company to the bondholders in exchange for the old bonds, which offered bonds shall be identical to the old bonds except that the offered bonds shall not have transfer restrictions. "New York Uniform Commercial Code" means the Uniform Commercial Code, as in effect in the State of New York. "Officer's Certificate" means a certificate delivered to the Trustee or the Collateral Agent, as applicable, that has been signed by an Authorized Representative of our Company or an Authorized Representative of the board of directors of our Company. "Operating and Maintenance Account" means the Operating and Maintenance Account established under the Collateral Agency Agreement. "Operating and Maintenance Costs" means all actual cash maintenance and operation costs to be incurred and paid for with respect to our Facility in any particular period, including franchise, sales, property and other similar taxes (but not taxes on or measured by net income), payments for the supply and transportation of fuels, insurance, consumables, payments under any lease, payments under our Project Contracts (including payments under the Operations Agreement, but excluding payments made under the EPC Contract and any payments under our Project Contracts that are expressly subordinated), repair and replacement costs for equipment included in our Facility, reasonable legal fees and expenses paid by our Company in connection with the management, maintenance or operation of our Facility, fees paid in connection with obtaining, transferring, maintaining or amending any Governmental Approvals, employee salaries, wages and other employment-related costs and reasonable general and administrative expenses, all fees, expenses and other payments due to and all indemnities and other arrangements providing for the payment of amounts to the lenders, arrangers, underwriters, Initial Purchasers, independent consultants, their agents, counsel and employees in connection with the Indebtedness of our Company (but excluding transaction costs associated with the offering and issuance of the bonds), but exclusive in all cases of (i) non-cash charges, including depreciation or obsolescence charges or reserves therefor, amortization of intangibles or other bookkeeping entries of a similar nature, (ii) all interest charges, (iii) all commitment fees, underwriting fees and other similar fees due and payable in connection with Indebtedness of our Company, (iv) maintenance costs funded from amounts on deposit in the Major Maintenance Reserve Account and (v) solely for purposes of priority of payment, fees (but not costs) payable to the Operator, except to the extent that there are sufficient funds available in the Revenue Account to make all required payments and deposits specified in first through sixth specified under "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Collateral Agency Agreement--Payments During Operating Period." A-8 "Operations Agreement" means the Development and Operations Services Agreement, by and between our Company and the Operator. "Operator" means AES Prescott. "Opinion of Counsel" means a written opinion of counsel for any person either expressly referred to in the Indenture or otherwise satisfactory to the Trustee which may include, without limitation, counsel for our Company, whether or not such counsel is an employee of any of such person. "Optional Modifications" means all material modifications to our Facility that are not Required Modifications to the extent that our Company certifies and the Independent Engineer confirms, which confirmation may not be unreasonably withheld or delayed, that such modifications: (i) are not reasonably likely to result in a Material Adverse Effect; (ii) are technically feasible; and (iii) are reasonably expected to improve the operation or reliability of our Facility. "Paying Agent" means any person acting as Paying Agent under the Indenture. "Pennsy Agreements" means (i) the Agreement Relating to Real Estate, dated as of October 22, 1998, by and between our Company (as assignee of AES Ironwood, Inc.) and Pennsy Supply, Inc. and (ii) the Easement and Right of Access Agreement, dated as of April 15, 1999, by and between our Company and Pennsy Supply, Inc. "Permitted Indebtedness" has the meaning specified under "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Indenture--Negative Covenants--Indebtedness." "Permitted Liens" means, collectively, (i) Liens specifically created, required or permitted by the Financing Documents; (ii) Liens for taxes which are either not yet due, are due but payable without penalty or are the subject of a Good Faith Contest by our Company; (iii) any exceptions to title which are contained in the title insurance policy for the Site; (iv) such minor defects, easements, rights of way, restrictions, irregularities, encumbrances and clouds on title and statutory liens that do not materially impair the property affected thereby and that do not individually or in the aggregate materially impair the value of the security interests granted under the Security Documents; (v) deposits or pledges to secure statutory obligations or appeals; release of attachments, stay of execution or injunction; performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or for purposes of like general nature in the ordinary course of business; (vi) Liens in connection with workmen's compensation, unemployment insurance or other social security or pension obligations; (vii) legal or equitable encumbrances deemed to exist by reason of the existence of any litigation or other legal proceeding if the same is the subject of a Good Faith Contest (excluding any attachment prior to judgment, judgment lien or attachment in aid of execution on a judgment); and (viii) mechanic's, workmen's, materialmen's, construction or other like Liens arising in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due or which are the subject of a Good Faith Contest. "PJM Market" means the control area recognized by the North American Electric Reliability Council as the "PJM Control Area." "Pledge Agreement" means the Pledge and Security Agreement by and among AES Ironwood, Inc., our Company and the Collateral Agent. "Post-Power Purchase Agreement Period" means that period commencing six months prior to the end of the Power Purchase Agreement Term and ending on the final maturity date for the bonds during which our Facility will be operated as a merchant plant. "Power Marketing Plan" means a marketing and procurement plan prepared by or on behalf of our Company which describes in reasonable detail our Company's plan to (i) procure gas to be burned at our Facility and (ii) sell electric power from our Facility without a Replacement Power Purchase Agreement. "Power Purchaser" means Williams Energy Marketing & Trading Company, a Delaware corporation. "Power Purchase Agreement Guarantor" means The Williams Companies, Inc., a Delaware corporation. "Power Purchase Agreement Term" means that period during which the Power Purchaser is obligated to purchase our Facility capacity under the terms of the Power Purchase Agreement. "Principal Payment Subaccount" means the Principal Payment Subaccount of the Bond Payment Account established under the Indenture. A-9 "Project" means our Facility, together with associated equipment and facilities and the development, construction and financing thereof. "Project Accounts" has the meaning specified under "SUMMARY OR PRINCIPAL FINANCING DOCUMENTS--Collateral Agency Agreement--Project Accounts." "Project Contracts" means the Power Purchase Agreement, the Williams Guaranty, the EPC Contract, the Siemens Guaranty, the Interconnection Agreement, the Maintenance Services Agreement, the Operations Agreement, the Services Agreement, the Effluent Supply Agreement, the Pennsy Agreements and each other material contract or agreement related to the development, construction, ownership, operation or maintenance of our Facility, including specific agreements with respect to spare parts but excluding any Financing Document or Security Document. "Project Costs" means all costs of developing, financing, constructing, testing and initial operation of our Facility, including but not limited to: (i) all amounts payable under the EPC Contract including any contractor bonuses, site acquisition and preparation costs, costs of acquisition and construction of fuel handling and processing equipment, any electric interconnection and transmission upgrade costs payable by our Company under the Power Purchase Agreement, all water interconnection costs payable by our Company and all gas interconnection costs payable by our Company; (ii) all development costs and fees, which shall be paid to, or as designated by, our Company on the Closing Date; (iii) all other Facility-related costs, including but not limited to fuel-related costs, fees and expenses payable under the Operations Agreement and expenses to complete the construction and financing of our Facility; (iv) start-up and testing costs and initial working capital costs; (v) initial reserve fund requirements; (vi) fees and costs payable during construction with respect to any DSR Letter of Credit, CP Letter of Credit and any other letters of credit or security provided under any Project Contract; (vii) legal and other transaction costs and financing-related fees; (viii) any other out-of-pocket expenses related to the financing; and (ix) interest on the bonds. "Prudent Operating and Maintenance Practices" means those practices, methods and acts that at a particular time, in the exercise of reasonable judgment in light of the facts known or that should have been known, would have been expected to accomplish the goals established in the Annual Operating Plan, including such goals as efficiency, reliability, economy and profitability, in a manner consistent with law, regulation, safety, and environmental protection. With respect to our Facility, Prudent Operating and Maintenance Practices of the electrical generating industry include taking reasonable actions to provide (i) adequate materials, resources and supplies, to the extent within the control of Operator, available to meet our Facility's needs; (ii) a sufficient number of operators who are available and adequately trained to operate our Facility; and (iii) the timely performance of preventive, routine, and non-routine maintenance and repairs, as exemplified and generally described in the Operations Agreement. "Rating Agency" means each of Moody's and S&P; provided, that such rating agency maintains a rating on the bonds. "Ratings Reaffirmation" means a reaffirmation by each of the Rating Agencies of their then current credit ratings of any bonds then outstanding, giving effect to any transactions giving rise to a request for such reaffirmation. "Redemption Subaccount" means the Redemption Subaccount of the Bond Payment Account established under the Indenture. "Regular Record Date" means, for the Stated Maturity of any bond, or for the Stated Maturity of any installment of principal thereof or payment of interest thereon, the first day of the month (whether or not a Business Day) in which such Stated Maturity occurs, or any other date specified for such purpose in the form of any bond attached to the Series Supplemental Indenture relating to such bonds. "Replacement Power Purchase Agreement" means one or more power purchase agreements between our Company and one or more persons, under which our Company sells, in aggregate, all or substantially all of the capacity and/or associated electric energy from our Facility to such person or persons at a commercially reasonable price for a term of not less than the remaining term of the Power Purchase Agreement. "Required Bondholders" means, at any time, the persons that at such time own a majority in aggregate principal amount of the bonds then outstanding. "Required Modifications" means, collectively, those modifications reasonably necessary for our Facility to (i) remain in compliance with all material Applicable Laws and Governmental Approvals and (ii) maintain, at a minimum, the capacity production levels contemplated by the projected operating results included herein, in either case, as confirmed by the Independent Engineer. A-10 "Required Rating" means a rating of at least "A" by S&P and "A2" by Moody's. "Required Senior Parties" means, at any time, persons that at such time hold at least a 33-1/3% of the Combined Exposure. "Restoration Account" means the Restoration Account established under the Collateral Agency Agreement. "Restricted Payments" means, collectively, (i) distributions including payments of dividends to holders of ownership interests in our Company; (ii) payments of principal, interest or premium, if any, on and any repurchase of any Affiliate Subordinated Debt; (iii) prepayments of any Subordinated Debt; and (iv) the repurchase by our Company of any ownership interests in our Company. "Revenue Account" means the Revenue Account established under the Collateral Agency Agreement. "S&P" means Standard & Poor's Rating Group, a division of the McGraw-Hill Companies, Inc. "Security Agreement" means the Security Agreement, by and between our Company and the Collateral Agent. "Security Documents" means, collectively, (i) the Mortgage, (ii) the Collateral Agency Agreement, (iii) the Security Agreement, (iv) the Indenture, (v) the Consents to Assignment, (vi) the Pledge Agreement and (vii) the Assignment of Leases and Income. "Security Registrar" means any person acting as Security Registrar under the Indenture. "Senior Debt" means, collectively, the bonds and any other Indebtedness outstanding which ranks pari passu with the bonds upon liquidation or foreclosure, including any amounts owed to a working capital provider, the DSR LOC Provider and the CP LOC Provider; provided, however, that no Indebtedness of our Company shall rank senior to the bonds. "Senior Debt Service" means, for any period, an amount calculated by our Company as equal to the aggregate of (i) all amounts payable by our Company during such period in respect of principal of, and interest and premium, if any, on, the bonds; (ii) all amounts payable by our Company during such period to the provider of any other Senior Debt; and (iii) all amounts payable by our Company during such period as fees and other expenses (including any interest thereon) to any fiduciary acting in such capacity under any of the Security Documents. "Senior Debt Service Coverage Ratio" means for any period, the ratio of (i) Cash Available for Debt Service for such period to (ii) the amount of Senior Debt Service due and payable for such period. "Senior Parties" means the Trustee, the Collateral Agent, the DSR LOC Provider, the CP LOC Provider and any working capital provider and each successor to any of such persons. "Series Supplemental Indenture" means an indenture supplemental to the Indenture entered into by our Company and the Trustee for the purpose of establishing, in accordance with the Indenture, the title, form and terms of the bonds of any series; "Series Supplemental Indentures" means each and every Series Supplemental Indenture. "Services Agreement" means the Services Agreement by and between AES and the Operator. "Siemens Guaranty" means the Guaranty, dated as of September 23, 1998, by Siemens Corporation and in favor of our Company. "Site" means the location of our Facility in South Lebanon Township, Lebanon County, Pennsylvania, as further described in the Mortgage. "Stated Maturity" means, when used with respect to any bond or any installment of principal thereof or payment of interest thereon, the date specified in such bond as the fixed date on which such bond or such installment of principal or payment of interest is due and payable. "Step-Up Event" means, in respect of any DSR Letter of Credit, (i) such DSR Letter of Credit has not been extended or replaced within 45 days prior to the termination date of such DSR Letter of Credit or (ii) the credit rating of the DSR LOC Issuing Bank is less than the Required Rating and such DSR Letter of Credit has not been replaced within 45 days of the failure to satisfy the requirements of the Required Rating with a replacement letter of credit issued by an issuer that satisfies the requirements of the Required Rating and, in each case, the Collateral Agent has drawn on such DSR Letter of Credit in an amount sufficient to fund the Debt Service Reserve Account up to the DSRA Required Balance. A-11 "Subordinated Debt" means all Indebtedness of our Company issued by a Subordinated Debt Provider under a Subordinated Loan Agreement and subordinated in right of payment to the bonds in accordance with the terms of the Collateral Agency Agreement. "Subordinated Debt Account" means the Subordinated Debt Account established under the Collateral Agency Agreement. "Subordinated Debt Provider" means any person (other than an Affiliate of our Company) providing Subordinated Debt under a Subordinated Loan Agreement. "Subordinated Loan Agreement" means a binding agreement with a Subordinated Debt Provider providing non-recourse debt financing to our Company for application toward the payment of Project Costs or Operating and Maintenance Costs on terms and conditions which meet the requirements of the Collateral Agency Agreement. "Taxes" or "Tax" means any tax, charge, impost, tariff, duty or fee of any kind charged, imposed or levied, directly or indirectly, by any Governmental Authority, including any value-added tax, sales tax, stamp duty, import duty, withholding tax (whether on income, dividends, interest payments, fees, equipment rentals or otherwise), tax on foreign currency loans or foreign exchange transactions, excise tax, property tax, registration fee or license, water tax or environmental, energy or fuel tax including any interest, penalties or other additions thereon. "Third-Party Engineer" means a single independent engineer or consultant designated under the Collateral Agency Agreement or a Project Contract from a pre-established list to consider and decide a dispute between our Company and the Independent Engineer, or the applicable parties. "Total Debt Service" means, for any period, an amount calculated by our Company as equal to the aggregate of (i) all amounts payable by our Company during such period in respect of Senior Debt Service; (ii) all amounts payable by our Company during such period in respect of principal of, and interest, and premium, if any, on Subordinated Debt and any other Indebtedness permitted under the Indenture and incurred by our Company; and (iii) all amounts payable by our Company during such period as fees and other expenses (including any interest thereon) to any fiduciary acting in such capacity with respect to any Indebtedness referred to in clause (ii) of this definition. "Total Debt Service Coverage Ratio" means for any period, the ratio of (i) Cash Available for Debt Service for such period to (ii) the amount of Total Debt Service due and payable for such period. "Transaction Documents" means our Project Contracts and the Financing Documents. "Transfer Agent" means The Bank of New York and any successor or assign in such capacity under the Indenture. "Trigger Event" means (i) an "Event of Default" under the Indenture and an acceleration of the indebtedness issued thereunder; (ii) an "Event of Default" under the DSR LOC Reimbursement Agreement and an acceleration of the indebtedness incurred by our Company thereunder; (iii) an "Event of Default" under the CP LOC Reimbursement Agreement and an acceleration of the indebtedness incurred by our Company thereunder; (iv) an "Event of Default" or the equivalent under any working capital facility and an acceleration of the indebtedness incurred by our Company thereunder; or (v) a Bankruptcy Event in respect of our Company and the expiration of the shortest applicable grace period. "Trustee" means The Bank of New York and any successor or assign in such capacity under the Indenture. "Trustee Claims" means all obligations of our Company, now or hereafter existing, to pay fees, costs, expenses, liabilities or indemnities to the Trustee under the Indenture. "Williams Guaranty" means the Guaranty, dated as of February 5, 1999, by the Power Purchase Agreement Guarantor in favor of our Company. A-12 ------------------------------------------------------------ ANNEX B INDEPENDENT ENGINEER'S REPORT ------------------------------------------------------------ [GRAPHIC OMITTED] Stone & Webster Management Consultants, Inc. - -------------------------------------------------------------------------------- Independent Technical Consultant's Report on the AES Ironwood, L.L.C.. Power Project June 18, 1999 Prepared by Stone & Webster Management Consultants, Inc. B-1 LEGAL NOTICE This report was prepared by Stone & Webster Management Consultants, Inc. with the assistance of its affiliated company, Stone & Webster Engineering Corporation, together hereafter referred to as Stone & Webster, expressly for Lehman Brothers Inc. ("Lehman Brothers"). Neither Stone & Webster, Lehman Brothers, nor any person acting on their behalf: (a) makes any warranty, express or implied, with respect to the use of any information or methods disclosed in this report; or (b) assumes any liability with respect to the use of any information or methods disclosed in this report. B-2 Table of Contents 1. Executive Summary.............................................................................5 1.1 PROJECT DESCRIPTION...........................................................................6 1.2 CONCLUSIONS...................................................................................7 2. Scope of Work................................................................................12 3. Facility Design..............................................................................13 3.1 FACILITY DESCRIPTION.........................................................................13 3.2 SITE LOCATION AND DESCRIPTION................................................................13 3.3 COMBUSTION TURBINE GENERATOR.................................................................14 3.4 HEAT RECOVERY STEAM GENERATOR................................................................20 3.5 STEAM TURBINE................................................................................20 3.6 ELECTRIC GENERATOR...........................................................................21 3.7 BALANCE OF PLANT SYSTEMS.....................................................................21 3.8 FUEL SYSTEMS.................................................................................26 3.9 ELECTRICAL SYSTEMS...........................................................................28 3.10 SWITCHYARD...................................................................................28 3.11 INSTRUMENT AND CONTROL SYSTEMS...............................................................29 3.12 CIVIL AND STRUCTURAL DESIGN..................................................................29 3.13 INTERCONNECTIONS.............................................................................32 4. Environmental and Permitting.................................................................36 4.1 ENVIRONMENTAL SITE ASSESSMENT................................................................36 4.2 PERMITTING...................................................................................36 5. Project Agreements...........................................................................40 5.1 POWER PURCHASE AGREEMENT.....................................................................40 5.2 INTERCONNECTION AGREEMENT....................................................................43 5.3 ENGINEERING, PROCUREMENT, AND CONSTRUCTION SERVICES..........................................43 5.4 MANAGEMENT AND OPERATIONS AGREEMENT..........................................................48 5.5 SERVICES AGREEMENT...........................................................................49 5.6 EFFLUENT SUPPLY AGREEMENT....................................................................49 5.7 AGREEMENT RELATING TO REAL ESTATE............................................................50 5.8 MAINTENANCE PROGRAM PARTS, SHOP REPAIRS AND SCHEDULED OUTAGE TFA SERVICES CONTRACT...........50 6. Principal Project Participants...............................................................52 6.1 AES IRONWOOD, LLC............................................................................52 6.2 AES PRESCOTT, LLC............................................................................52 6.3 WILLIAMS ENERGY MARKETING & TRADING COMPANY..................................................52 6.4 SIEMENS WESTINGHOUSE POWER CORPORATION.......................................................53
B-3 7. Assessment of Projected Operating Results....................................................54 7.1 OVERVIEW.....................................................................................54 7.2 PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS.....................................................54 7.3 PROJECT COST.................................................................................56 7.4 POWER PRODUCTION.............................................................................57 7.5 REVENUES.....................................................................................58 7.6 OPERATING EXPENSES...........................................................................59 7.7 FINANCING ASSUMPTIONS........................................................................61 7.8 PROJECTED OPERATING RESULTS..................................................................62 7.9 SENSITIVITY ANALYSES.........................................................................62 7.10 LIQUIDATED DAMAGES ANALYSES..................................................................65
Exhibit I Base Case Increased O&M Sensitivity (Case #1) Increased Heat Rate Sensitivity (Case #2) Decreased Availability Sensitivity (Case #3) Hagler Bailey High Gas Price Sensitivity (Case #4) Hagler Bailly Low Demand Growth Sensitivity (Case #5) Exhibit II Document Log B-4 1. Executive Summary Stone & Webster Management Consultants, Inc. is pleased to provide this report (the "Report") which summarizes our independent technical review (the "Review") of the proposed AES Ironwood Project (the "Project"). The Project will consist of a nominal 705 megawatt ("MW") net combined cycle electric generating facility (the "Facility") to be located in South Lebanon Township, Pennsylvania and the associated Project documents and agreements. The Review was conducted by Stone & Webster Management Consultants, Inc. with the assistance of Stone & Webster Engineering Corporation (collectively, "Stone & Webster"). The Review was conducted by Stone & Webster for the purpose of producing this Report on behalf of Lehman Brothers as Initial Purchaser of certain bonds (the "Bonds") to be issued by AES Ironwood, LLC ("AES Ironwood"), pursuant to Rule 144A under the Securities Act of 1933, as amended, to finance the construction and initial start-up and testing of the Facility. The Bonds are to be offered in the United States to qualified institutional buyers and institutional accredited investors and in offshore transactions complying with Regulation S under the Securities Act of 1933 as amended. The scope of the Review included the conceptual design and interfaces of the Project; the proposed Siemens Westinghouse Power Corporation ("SWPC") 501G combustion turbine technology; the projected performance of the Project; the Phase I site assessments for the Project; the issued permits for the Project; the technical assumptions utilized in the Pennsylvania/New Jersey/Maryland ("PJM") Market Study prepared by Hagler-Bailly Consulting Inc. ("Hagler Bailly") and dated June 1, 1999; and the Project's projected operating results through validation of the Project pro forma and verification of the model results (the "Projected Operating Results"). Stone & Webster also reviewed the principal contracts and agreements associated with the Project. These included the Power Purchase Agreement dated February 5, 1999 ("PPA"), the Generation Facility Transmission Interconnection Agreement with Metropolitan Edison Company ("MET-ED") dated March 23, 1999 ("Interconnection Agreement"), the Engineering, Procurement and Construction Services Agreement dated September 23, 1998 as amended ("EPC Contract"), the Effluent Supply Agreement dated March 3, 1998 ("ESA"), the Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract dated September 23, 1998 ("Maintenance Services Agreement") and the Agreement Relating to Real Estate dated October 22, 1998 (collectively the "Project Agreements"). Stone & Webster reviewed the Project Agreements from a technical and economic standpoint to assess the adequacy, compatibility, and reasonableness of their terms and conditions. Stone & Webster made no determination as to the validity and enforceability of the Project documents and permits. However, for the purposes of this Report, we have assumed the Project Agreements and contracts will be fully enforceable in accordance with their respective terms and that all parties will comply with the provisions of their B-5 respective agreements. Stone & Webster also conducted a site visit on October 21, 1998 and made general field observations, specifically the existing above ground condition of the site. 1.1 Project Description The Project is being developed and will be owned, operated, and maintained by AES Ironwood. AES Ironwood is a limited liability company, organized and existing under the laws of Delaware. AES Ironwood was formed to develop, construct, own, and operate the Project. AES Ironwood is a special purpose project company and a wholly owned subsidiary of AES Ironwood Inc. AES Ironwood Inc. is a wholly owned subsidiary of The AES Corporation ("AES"). AES, which was founded in 1981, is one of the world's largest global power companies and owns or has an interest in 97 electric generating plants totaling over 26,000 MW in 18 countries. AES also distributes power in Brazil, El Salvador and Argentina, and heat in Kazakhstan. AES operates gas-fired, oil-fired, hydropower and solid fuel plants and employs approximately 40,000 people around the world. As of December 31, 1998, AES had assets worth $10.8 billion. AES Prescott, L.L.C, ("AES Prescott"), a Delaware limited liability company and a wholly owned subsidiary of AES Ironwood, Inc., will manage the development and construction of the Project pursuant to a development and construction management agreement between AES Prescott and AES Ironwood. The Facility will have a nominal 705 MW designed electric generating capacity and will be comprised of the following major equipment: two SWPC model 501G combustion turbines (the "501G") with hydrogen cooled generators, two unfired, three pressure level reheat heat recovery steam generators ("HRSGs"), one multicylinder reheat condensing steam turbine with hydrogen cooled generator, one water cooled condenser using a forced draft cooling tower, one integrated control system, and a 230 kV switchyard. The combustion turbines, the steam turbine, and their associated generators will be located indoors. The two HRSGs and associated auxiliary equipment will be located outdoors. The Facility will be designed for base load and/or cyclic operation capable of startup and shutdown on a dispatchable basis. The combustion turbines will primarily burn natural gas supplied by way of a pipeline with provisions to burn Jet A ("fuel oil") as a backup fuel. Each combustion turbine will be coupled with a three pressure level reheat HRSG that will generate steam to operate the steam turbine. Electrical generators connected to the two combustion turbines and the steam turbine will be connected to the switchyard through individual generator step up transformers. These transformers will raise the generated voltage to 230 kV for connection into the PJM interconnected electrical system. The Facility will be designed as a zero liquid discharge facility with its raw water supply requirements coming from two sources: the adjacent Pennsy Supply, Inc. quarry and the City of Lebanon Wastewater Treatment Plant ("WWTP") by way of an approximately 6.5 mile effluent ("makeup water") pipeline. Potable water will also be supplied by the City of Lebanon Authority (the "Authority"). B-6 Stone & Webster reviewed the TRC Environmental Corporation ("TRC") Phase 1 Environmental Site Assessment Reports performed for the site consisting of the Martin property and the RESCO Products property. The assessment for the Martin property revealed no evidence of recognized concerns to the subject property. The only environmental condition identified for the RESCO Products property is the presence of asbestos in two roofing materials: the tar coating of the Butler Building/add-on roof and the roof tar paper of a small attached shed at the rear of the Butler Building. Stone & Webster agrees with TRC's opinion that removal of these structures and the asbestos is not considered a major environmental issue. Electrical power produced by the Project will be sold to Williams Energy Marketing & Trading Company ("Williams") under the terms of a 20 year PPA. The PPA calls for Williams to purchase Facility capacity, ancillary services, and fuel conversion services pursuant to the terms of the PPA. In addition, the PPA provides for the supply and transport of the natural gas and fuel oil to the Facility by Williams. The natural gas will be supplied by way of a pipeline to the site boundary. The fuel oil will be supplied by truck. A two-day fuel oil supply will be stored in the Facility's fuel oil storage tank. Following expiration of the 20-year term of the PPA, the Facility will be operated as a merchant power plant. AES Ironwood will be responsible for the procurement of fuel and will sell its output directly into the PJM power pool (or pursuant to bilateral contracts). Under the terms of the EPC Contract, SWPC, a wholly owned subsidiary of Siemens Corporation, will act as the primary Contractor and will be responsible for the engineering, procurement, and construction of the Project on a turnkey, lump-sum basis. All of SWPC's obligations under the EPC Contract are unconditionally guaranteed by Siemens Corporation. Siemens Corporation is a wholly owned subsidiary of Siemens AG and is the entity through which Siemens AG conducts all of its U.S. business. The Provisional Notice to Proceed ("PNTP") was provided to SWPC on September 23, 1998 and several milestones have been achieved to date by SWPC. The full Notice to Proceed ("NTP") will occur at or before financial closing of AES Ironwood. The Project Guaranteed Provisional Acceptance date is 23 months and two weeks following NTP. AES personnel will operate the Facility pursuant to a Management and Operations Services Agreement ("Operations Agreement") between AES Prescott and AES Ironwood. The Project will purchase combustion turbine parts, shop repairs, and scheduled outage services from SWPC. 1.2 Conclusions Set forth below are the principal findings and conclusions which Stone & Webster has reached regarding the Project. For a complete understanding of the estimates, assumptions, and B-7 calculations upon which these findings and conclusions are based, this Report should be read in its entirety. 1. The Facility design, as specified in the EPC Contract, is in accordance with standard industry practice. SWPC possesses the organization and personnel to execute its obligations under the EPC Contract and the Maintenance Services Agreement, and is familiar with the construction and maintenance of large electrical generation facilities. The Project construction schedule proposed by SWPC is achievable and is consistent with the terms of the PPA. 2. Stone & Webster views the SWPC 501G combustion turbine as an advancement in high-temperature advanced technology combustion turbines for SWPC and is typical of the normal design evolution for manufacturers. Many of the design concepts incorporated in the 501G are rooted firmly in the 501 series and are complemented by improvements which have been tested in the 501F series or predicted by extensive modeling or full scale testing. The first 501G unit is expected to begin commercial operation later in 1999. The various 501G components and designs have been individually shop tested and computer analyzed. SWPC's 501G is gaining commercial acceptance as demonstrated by the fact that 17 of SWPC's 501Gs have been sold to date in the United States. 3. The combustion turbines for the Project are scheduled to become the third and fourth 501Gs in operation. As a result the Project will benefit from approximately 25 months of facility startup, extensive testing, and operating experience of the first installation of 501Gs (McIntosh Project) and approximately nine months of such experience from the second installation of 501Gs (Millenium Project). Because the 501G has no commercial operating experience, the initial unit availability of the 501G may be lower in the early years of operation than is the case with combustion turbine units currently in operation that use mature technology. Lower initial unit availability has been reflected as in the Base Case and a sensitivity case has been included in the Projected Operating Results utilizing lower availability than that set forth in the Base Case. 4. A sustained period of commercial operation at full load conditions followed by an inspection of the combustion turbine is necessary to predict with any certainty the types of startup and operational problems, if any, that the 501G may encounter. However, the Project will benefit from the startup testing and inspection programs implemented by SWPC at the McIntosh and Millenium units. SWPC has also invested in and has stated that it will make available to the Project a complete set of risk parts for the entire combustion turbine gas path. In addition, under the Maintenance Services Agreement SWPC will provide combustion turbine spare parts to the Project. This full set of gas path risk parts to be made available by SWPC and the Maintenance Services Agreement long term spare parts program will minimize the duration of any unscheduled combustion turbine-related outages that require the replacement of parts by having the most commonly replaced parts B-8 readily available. In addition, SWPC has the resources and capabilities to resolve any problem that may arise with the 501Gs. 5. The steam turbine and electrical generator designs are acceptable and in accordance with standard industry practice. 6. If designed and constructed in accordance with the EPC Contract and operated and maintained in accordance with the Maintenance Services Agreement and the Operations Agreement, the Facility should be capable of meeting the net output contract requirements specified in the Projected Operating Results. 7. The liquidated damages provisions of the EPC Contract are reasonable. The one year warranty period is acceptable based on the commercial terms of the EPC Contract in conjunction with the one year warranty in the Maintenance Services Agreement. These two agreements, although independent, are complementary and afford the Project a greater degree of protection than is available from the EPC Contract alone. Under both agreements, SWPC is obligated to notify AES Ironwood of any engineering or design defects that may be manifested in any of SWPC's fleet of 501Gs. In addition, the risk of a component failure occurring after the one year EPC Contract warranty is mitigated because the Projected Operating Results indicate the Project will have adequate revenues to insure the purchase of components that can be reasonably assumed to require replacement. Component failures associated with casualty events are generally covered by insurance policies. The Performance Testing Plan, as specified in the EPC Contract, is acceptable, customary, and should adequately demonstrate the Project's performance. 8. Williams possesses the organization and personnel to execute its obligations under the PPA, and is familiar with the provision of fuel to, and purchase of electricity from, large electrical generation facilities. 9. Williams has executed certain agreements with Texas Eastern Transmission Corporation ("TETCO") to provide natural gas delivery services to AES Ironwood. These agreements require TETCO to construct own and operate an approximate three-mile pipeline from the TETCO mainline to the Facility. Stone & Webster, however, has not independently verified the design of the natural gas pipeline which will interconnect the Facility to the interstate gas pipeline that will serve the Facility nor its proposed construction schedule. 10. The Facility can feasibly be electrically integrated into the PJM system, and no known transmission limitations will inhibit the feasible evacuation of the Facility's full net capacity both under summer and winter conditions. 11. Stone & Webster will independently verify the design of the make-up water supply pipeline when it becomes available. The proposed pipeline construction schedule appears reasonable and achievable. Stone & Webster does not know of any reason why the City of Lebanon Authority should be unable to perform its obligations under the ESA. B-9 12. AES Prescott, as an affiliate of AES and with the assistance of SWPC under the terms of the Maintenance Services Agreement, should be capable of operating and maintaining the Facility in accordance with standard industry practices. 13. The technical requirements described in the Project Agreements are comprehensive, reasonable, and achievable as well as consistent within and between the various documents. 14. The Phase I environmental site assessments conducted by TRC which indicated no significant environmental issues were performed in accordance with standard industry practice and their results appear reasonable. 15. A majority of the Project's required permits have been acquired and the Project's permit acquisition plan for those permits not yet required is reasonable. 16. AES Ironwood has received a determination that the Facility is an Exempt Wholesale Generator ("EWG") under the applicable rules of Federal Energy Regulatory Commission ("FERC"). 17. Assuming the Facility is constructed, operated, and maintained in accordance with the terms of the EPC Contract, PPA, the Operations Agreement, and the Maintenance Services Agreement then it is reasonable to assume that the Facility will be able to operate in a manner consistent with applicable permit limits for a period at least equal to the term of the Bonds. 18. The Project's EPC Contract price is competitive relative to similar facilities and the Project's proposed operating and maintenance expenses are consistent with other comparable projects. 19. The technical assumptions utilized in the Hagler Bailly PJM Market Study Analysis are reasonable. 20. Stone & Webster reviewed the technical and commercial assumptions and the calculation methodology of the Project financial pro forma model. The technical assumptions assumed in the Projected Operating Results are reasonable and are consistent with the Project Agreements. The financial pro forma model fairly presents, in our judgment, projected revenues and projected expenses under the Base Case Assumptions. Therefore, the Projected Operating Results are a reasonable forecast of the Company's financial results under the Base Case Assumptions. 21. The principal amount of the Bonds, when combined with the equity contributions and interest earned during the construction period, should be sufficient to pay the costs of constructing the project and interest on the Bonds through the end of the construction period. B-10 22. The projected revenues from the sale of capacity are more than adequate to pay the annual operating and maintenance expenses (including provisions for major maintenance), other operating expenses, and debt service based on Stone & Webster's studies and analyses of the Project and the assumptions set forth in this Report. The average and minimum debt service coverage ratios ("DSCR's") for the full term of the Bonds are 2.30x and 1.45x, respectively. The average and minimum DSCRs during the PPA period are 1.46x and 1.45x, respectively. The average and minimum DSCRs during the merchant period for the debt are 5.81x and 5.77x, respectively. 23. Assuming deficiencies of up to 6% for heat rate and 5% for capacity, the average DSCRs over the term of the Bonds, after payment of the liquidated damages due to a failure to achieve heat rate and capacity guarantees, are projected to remain approximately the same as the DSCRs in the Base Case. B-11 2. Scope of Work Stone & Webster was retained to perform a review of the Project in accordance with a September 30, 1998 agreement with AES Ironwood, Inc. The review was conducted by Stone & Webster for the purpose of producing this Report on behalf of Lehman Brothers as Initial Purchaser of certain Rule 144A bonds to be offered in the United States by AES Ironwood pursuant to rule 144A under the Securities Act of 1933 as amended to finance the construction and initial start-up and testing of the Facility, which bonds are to be issued to qualified institutional buyers and institutional accredited investors and in offshore transactions complying with Regulation S under the Securities Act of 1933. The scope of the Review included the following: o SWPC 501G combustion turbine proposed as the technology basis of the Project o Projected performance of the Project o Projected Operating & Maintenance ("O&M") expenses o Conceptual design and interfaces of the Project o Project Phase I site assessments o Issued permits for the Project o Technical assumptions utilized in the PJM market study of June 1, 1999, prepared by Hagler Bailly o Projected operating results in the Project financial pro forma model Stone & Webster also reviewed the PPA, the Interconnection Agreement, the EPC Contract, the ESA, the Maintenance Services Agreement, and the Agreement Relating to Real Estate from a technical and economic standpoint to assess the adequacy and reasonableness of their terms and conditions. Stone & Webster has made no determination as to the validity and enforceability of the Project Agreements. However, for the purposes of this Report, we have assumed the Project Agreements will be fully enforceable in accordance with their respective terms and that all parties will comply with the provisions of their respective agreements. Stone & Webster conducted a site visit on October 21, 1998 and made general field observations, specifically the existing above ground condition of the site. During the review, Stone & Webster reviewed Project information and interviewed representatives of both AES and SWPC to verify the adequacy of the Facility design and reasonableness of the technical assumptions. B-12 3. Facility Design Stone & Webster reviewed the design of the Facility and its major components and interface designs, as specified in Appendix A of the EPC Contract. In general, Stone & Webster is of the opinion that the Facility design, as specified in the EPC Contract, is in accordance with standard industry practice and that, if designed and constructed in accordance with the EPC Contract and operated and maintained within standard industry practices, the Facility should be capable of meeting the net output contract requirements specified in the Projected Operating Results. 3.1 Facility Description The Facility is designed to have a nominal 705 MW (net) electric generating capacity and will consist of the following major equipment: two SWPC model 501G combustion turbines with hydrogen cooled generators, two unfired, three pressure level reheat HRSGs, one SWPC multi-cylinder reheat condensing steam turbine with hydrogen-cooled generator, one water cooled condenser using a forced draft cooling tower, one integrated control system, and a 230 kV switchyard. The combustion turbines, the steam turbine, and their associated generators will be located indoors. The two HRSGs and associated auxiliary equipment will be located outdoors. The Facility will be configured as a 2 x 1 combined cycle facility designed for base load and/or cyclic operation capable of startup and shutdown on a dispatchable basis. The Facility can be operated at various part load conditions and with one combustion turbine out of service. 3.2 Site Location and Description The Project site is located in South Lebanon Township approximately one mile east of the City of Lebanon, adjacent to the Pennsy Supply, Inc. quarry, south of Route 422 and west of Prescott Road. The site is actively farmed and there are no wetland resource areas on the site. The site is approximately 35 acres of industrially zoned land and is landlocked and relatively flat. It is surrounded by Pennsy Supply quarry tailing piles to the east and north, active quarry pits to the west and the Conrail mainline to the south. Access to the site will be by way of a driveway to be constructed by SWPC on Prescott Road, which is a State Highway that runs north to south. A 50-foot easement has been obtained by AES Ironwood from Prescott Road across the former Resco Products property that is parallel to the Conrail tracks. A railspur for the transportation of heavy equipment to the site will be constructed by the Project to facilitate the delivery of heavy equipment to the site in this easement. The October 21, 1998 site visit noted above, which also included a visit to the WWTP, combined with a review of Project documents provided by AES formed the basis for our opinion regarding the site. In particular, Stone & Webster relied on the geotechnical reports prepared by Schnabel in September and October of 1998. B-13 3.3 Combustion Turbine Generator The 501G is the latest product offering from SWPC in the design evolution of the (formerly Westinghouse) 501 series combustion turbine generator. The 501G combines the latest advancements in SWPC's low NOx combustion technology, compressor design, blade designs and cooling schemes, with proven fundamental design concepts of the SWPC 501 series such as two-bearing single-shaft construction, cold end drive, horizontally split casings, and axial exhaust. The resulting combustion turbine is an advanced design, more powerful, high-temperature, highly efficient, low emission producing derivative of the 501 series that is based on design concepts that have evolved with the development of the 501 series combustion turbines. The result is a derivative that is based on demonstrated concepts of the 501 series and improvements in design, high temperature metallurgy, efficiency and lower emissions. While many of the fundamental design concepts of the 501F combustion turbine remain unchanged in the 501G, some new component designs are utilized in the 501G combustion turbine. The most significant changes are the introduction of a steam cooled transition piece and a redesign of the first row turbine blades. SWPC reports that the design concepts and design criteria as well as some of the design codes used in the 501G design are the same as in the 501F and that to produce state-of-the-art compressor and turbine designs, additional aero industry engine-derived computer codes were used in the 501G design. These codes were verified against test rig and combustion turbine test results, including 501F shop test results. Stone & Webster views the 501G combustion turbine as an advancement in high-temperature advanced technology combustion turbines for SWPC and is typical of the normal design evolution for manufacturers. Many of the design concepts are rooted firmly in the 501 series and are complemented by improvements which have been tested in the 501F series with further refinements predicted from extensive modeling or full scale testing. Although we note that the combustion turbine does not have any commercial operating experience as an assembled unit, the Project will benefit from the testing and monitoring of other 501G units scheduled to begin commercial operation well before the Project's scheduled commercial operation date. B-14 SWPC provided Stone & Webster with a listing of seventeen customers that have committed to purchasing the 501G. This listing is provided in the following table:
======================================================================================================================= 501G Customer Listing ======================================================================================================================= Anticipated Commercial Number of Units Name of Plant Owner Operation Date - ----------------------------------------------------------------------------------------------------------------------- 1 McIntosh #5 City of Lakeland, Florida 7/10/99 - ----------------------------------------------------------------------------------------------------------------------- 1 Millenium Millenium Power Partners 8/20/00 (U.S. Generating Company) - ----------------------------------------------------------------------------------------------------------------------- 2 AES Ironwood AES Ironwood 5/15/01 - ----------------------------------------------------------------------------------------------------------------------- 2 Magic Valley Calpine Corporation 4/01/01 - ----------------------------------------------------------------------------------------------------------------------- 11 Letters of Intent Confidential Clients Various =======================================================================================================================
The combustion turbines for the Project are currently scheduled to become the third and fourth 501G combustion turbines in operation. An extensive testing program for the McIntosh #5 unit began operation in April of 1999. This testing program will include testing of the engine performance, emissions, thermal and mechanical performance of components, and other key performance parameters with over 2000 engine instruments. The engine will then be inspected and engine instrumentation will be removed prior to commercial operation which will begin in July of 1999 to satisfy summer peak power needs. This will provide approximately 25 months of facility start up, extensive testing, and operating experience prior to AES Ironwood's anticipated COD. SWPC provided Stone & Webster with an overview of the test instrumentation that will be utilized at the McIntosh Project. The operations monitoring will employ 1200 temperature, 500 pressure, and 200 strain gauges, which will monitor key areas of the turbine. The test plan is focused on thermal and performance data including emissions data, combustion mapping, and thermal paint testing. The McIntosh #5 program will also include scheduled inspections after the first 200 and 400 equivalent starts to observe the durability of the unit in simple cycle in cyclic operation. SWPC indicates that it has developed detailed risk mitigation plans to implement the results of the McIntosh testing program, including how to best utilize the lessons learned during this testing into the AES Ironwood and other 501G units. The extensive testing program at the McIntosh unit should reduce technical risks for the Project because it will provide an opportunity to validate the 501G design through both testing and actual operating experience prior to operating the Project's 501G units. In addition, U. S. Generating Company's Millenium plant, a 1x1 501G combined cycle unit is scheduled to go into base load operation in mid-2000. As a result, there will also be approximately nine months of start-up testing amid base load operation at that unit prior to Ironwood's scheduled COD. B-15 Because the 501G combustion turbine has no commercial operating experience, initial unit availability of the 501G may be lower in the early years of operation than the availability of units, which use more mature technologies. While SWPC's 501F combustion turbine has reportedly experienced availability factors greater than 90%, Stone & Webster believes that conservative availability assumptions should be used for early operation of the 501G. Thus, we have assumed a conservative availability factor (85%) in the Project financial pro forma model sensitivity case for the first two years of commercial operation. 3.3.1 Compressor Section The purpose of the compressor section of the combustion turbine is to produce sufficient volumes of pressurized air to support combustion at the combustors, provide cooling air to various components, and to generate rotational energy by increasing mass-flow through the turbine section. The compressor section for the 501G is composed of a 16-stage axial flow design with a pressure ratio of approximately 19.5:1. The compressor includes inter-stage bleeds for starting and component cooling in various down-stream locations. While the compressor design is new, it has conventional variable inlet guide vanes for improved low-speed surge characteristics and part load performance. The new design also maintains the use of the inner shroud sealing system and abradable seals currently in use on the model 501F combustion turbines. SWPC developed the new compressor for the 501G using three-dimensional flow field computer codes through a licensing agreement with Rolls Royce. The new compressor was designed with the same number of stages as in the 501F predecessor combustion turbine, but has increased the final pressure ratio and flow by approximately 25%. To accommodate the increase in flow, SWPC has increased the mean diameter of the compressor stages. All rotor blades have the same root design that were used on the 501F, which allows the blades to be removed with the rotor in place (with the covers off) and should aid in the maintenance of the machine. Additionally, the rear stages of the new 501G compressor have larger diameters than the 501F, which SWPC represents helps balance spindle thrust. The sixteen stages of compressor blades are fabricated in two 180 degree diaphragms, same as for the 501F, to facilitate field removal. While the new compressor design does not have any commercial operating experience, SWPC has undertaken extensive full-scale testing of the new compressor and the results have met SWPC's performance expectations and demonstrated the mechanical integrity of the compressor in a full scale testing environment. The full scale W501ATS compressor, which is the 501G compressor with four stages added at the rear, was extensively tested to verify its operational characteristics, aerodynamic performance and mechanical integrity. The compressor was instrumented with more than 500 individual sensors. The test program included starting characteristics optimization, variable stator optimization, B-16 design point performance optimization, compressor map definition, blade vibration and diaphragm strain gauge measurements. The test results confirmed aerodynamic performance and mechanical predictions. Test results on selected blades and diaphragms showed excellent correlation of vibration characteristics between prediction and measurement. 3.3.2 Combustor Section The combustor section of the combustion turbine mixes and burns the supplied fuel and compressed air (from the compressor discharge) and produces hot gases used to rotate the downstream turbine. The combustion system consists of 16 individual combustor "cans" that are mounted circumferentially around the combustion turbine. The combustors are of the dry low NOx ("DLN") type, have dual fuel capability, and incorporate recent design changes to eliminate the coking problems of the 501F when firing oil. This is accomplished through the use of dual direction water purging and a design change that incorporates an oil piping configuration that eliminates any trapped oil in the combustor. Additional design modifications to the dual fuel nozzles or "rockets" improve flame temperature consistency, thereby eliminating local hot spots within the flame region. The latest DLN combustor is a modified version of previous DLN combustors. SWPC reports that the new combustor has reportedly undergone successful lab tests at the high pressure facilities located in the Arnold Engineering Development Center of the U.S. Air Force, in Tullahoma, Tennessee, and SWPC has similar (though not identical) DLN combustors installed at several locations. The DLN combustion system and the selective catalytic reduction ("SCR") system in the HRSG both act to reduce NOx emissions, which are a byproduct of the combustion process. The system is designed to achieve 4 ppmvd on natural gas and 10 ppmvd on fuel oil, both at 15% O2 at the exhaust stack of the HRSG under base load conditions. Another design improvement is the addition of supplementary gas injectors in the "top hat" section for use while firing in the gaseous fueled mode. According to SWPC, the "top hat" section promotes better fuel-air mixing and more homogeneous fuel-air ratios, leading to lower NOx and CO emissions with improved combustor stability. The length of the 501G combustor is reduced from its predecessor, the 501F. The air-cooled aft section of the 501F combustor has been eliminated and incorporated into a new steam cooled transition piece. This provides two advantages: steam-cooled transition walls operate cooler than air-cooled walls; and the air formerly used for cooling is now routed to the head end of the combustor to make it run leaner while increasing mass flow, output and efficiency. The new steam cooled transition piece of the 501G is made of Inconel 617 material, and is a significant change from the 501F combustion turbine. The transition piece is also provided with cooling passages around the circumference, and in passages on each side of weld seams. The steam B-17 cooled transition piece receives steam from the intermediate pressure ("IP") section of the three-pressure HRSG. The transition piece is over-cooled by approximately 25% at part loads to accommodate an increase in cooling requirements during a large load increase. The IP boiler is designed for a capacity 30% greater than the maximum expected transition-cooling requirements. This conservative design capacity should provide adequate margin to ensure the security of the steam flow to the transition piece during transient load conditions. During normal operation at base load (non-transient conditions), the excess capacity is dumped by way of a control valve to the cold reheat system. In order to provide even cooling over the length of the transition piece, SWPC supplies both ends of the transition with steam and collects the heated (hotter) steam near the center of the transition piece in a collection ring. The burner outlet temperature of the 501G is approximately the same as the 501F combustion turbine, but the rotor inlet temperature ("RIT") is approximately 140(degrees)F higher. This increase in rotor inlet temperature is accomplished through the use of the aforementioned steam cooled transition piece and improvements in turbine material and cooling improvements, which will be discussed later in this section. 3.3.3 Turbine Section The turbine section of the combustion turbine produces the rotational energy required to drive the compressor and generate electrical power. This is accomplished in the 501G combustion turbine with approximately 15% fewer turbine parts than in the 501F. The 501G combustion turbine has a four-stage turbine section, which incorporates improved cooling throughout and uses its directional solidified ("DS") blades in rotating rows one and two. The aerodynamic airfoil shapes were optimized using a three-dimensional flow analysis. SWPC has incorporated a series of improvements for the cooling of blades and vanes in the turbine section which include: use of turbulators; serpentine cooling passages; shaped film cooling holes; and a more extensive use of an improved thermal barrier coating application. The Row 1 vane cooling design is an enhancement of the 501F design, using three impingement inserts in combination with an array of film-cooling holes and trailing edge pin-fin system. All three cavities take direct compressor discharge air to maximize the available pressure head. "Shower Head" cooling is used at the leading edge of the row one vane, while film cooling is used at selected pressure and suction side locations which limits vane wall thermal gradients and external surface temperatures. SWPC represents that the low cycle fatigue design criteria is satisfied by the control of wall gradients. The Row 2 vane cooling uses twin impingement inserts with film-cooling holes and trailing edge pin-fin system. Row 3 vanes are convection-cooled by the admission of cooling air into the airfoil's three-cavity multipass center. Row 4 vanes are not internally cooled. The metal temperatures of the 501G airfoils are greater than those of the 501F B-18 combustion turbine. However, according to SWPC improvements in cooling designs help maintain metal temperatures safely below metal temperature limits. The first and second stage blades are manufactured from DS material, and are cooled by a combination of convection techniques by way of multipass serpentine passages and trailing edge cooling air ejection. While the DS blades used in Rows 1 and 2 represent SWPC's first commercial use of this material, this technology is not new. Rolls Royce, the manufacturer of the SWPC DS blades, has successfully manufactured DS blades for use in several other manufacturer's combustion turbines. Similar to the analysis of the compressor blades and vanes, the design of the turbine blades and vanes uses three-dimensional flow analysis developed by Rolls Royce for the development and verification of the aerodynamic airfoil shapes. 3.3.4 Risk Mitigation SWPC has followed a conservative design process for the 501G combustion turbine, executed a risk analysis as part of a plan designed to ensure mechanical integrity, and has invested in a complete set of "risk parts" for the combustion turbine's entire gas path. This set of "risk parts" alone amounts to an investment by SWPC of over $10,000,000. This set of risk parts is in addition to the long-term spare parts program that is included pursuant to the Maintenance Services Agreement. The risk parts include the compressor blades and diaphragms, the turbine blades and vane segments, and the combustor system (nozzles, baskets, and transitions). This investment is significant not only in monetary terms, but also in terms of unit availability and manufacturer commitment. The full set of gas path risk parts made available by SWPC and the Maintenance Services Agreement long term spare parts program will minimize the duration of any unscheduled combustion turbine-related outages that require the replacement of parts by having the most commonly replaced parts readily available. SWPC's risk mitigation program for the 501G Program goes beyond what is typically utilized during the introduction of a manufacturer's latest model design. It is strongly supported by a dedicated manufacturing team with stated component procurement plans, an established parts supply chain, and a proactive monitoring program designed to quickly incorporate design changes into the parts inventory program. 3.3.5 CTG Conclusions A sustained period of operation at full load conditions followed by an inspection of the combustion turbines is necessary to predict with any certainty the types of startup and operational problems, if any, that may be encountered with the 501Gs. However, SWPC has made significant financial and organizational investments in the 501G technology. Stone & Webster B-19 believes that SWPC has the resources and capabilities to resolve any problems that may arise with the 501G. Because the 501G combustion turbine has no commercial operating experience initial unit availability of the 501G may be lower in the early years of operation than the availability of units using mature technologies. While SWPC's 501F combustion turbine has reportedly experienced availability factors greater than 90%, Stone & Webster believes that conservative availability assumptions should be used for early operation of the 501G. It is not uncommon in the industry for new combustion turbines to experience availability factors during the first years of operation in the mid-eighty percent range. Thus, we have assumed a conservative availability factor (85%) in the Project financial pro forma model sensitivity case for the first two years of commercial operation. 3.4 Heat Recovery Steam Generator Stone & Webster reviewed the functional specification and scope of supply provided in the EPC Contract and understands that Hangjung has been selected as the HRSG vendor and that the detailed design specifications will be reviewed by Stone & Webster. The scope of supply for the HRSG includes the HRSG internals, ducting, and insulation, the stack, the SCR, the ammonia storage system, the continuous emissions monitoring system ("CEMS"), and the associated piping, valves and instrumentation. The CEMS scope includes oxygen, CO, and NOx analyzers. The functional specification describes the two HRSG's as being of the horizontal gas path (vertical tubes), natural water circulation, three pressure level, reheat type. Each HRSG will have high pressure ("HP"), IP, and low pressure ("LP") superheaters, reheaters, economizers, and evaporator sections. Each HRSG will be equipped with an SCR system to reduce the stack NOx emission levels and a spool piece for the possible future addition of a CO catalyst. The HRSGs will have no duct firing capability. The HRSGs will be designed in accordance with the ASME Code Section I for pressure parts and ANSI/ASME B31.1 for power piping. Stone & Webster is of the opinion that HRSG scope description is suitable for the Project and in accordance with standard industry practice. 3.5 Steam Turbine The steam turbine will be a model 2F32 two case tandem compound design with a side exhaust double flow low pressure element. The steam turbine will be directly connected by rigid coupling to a hydrogen inner-cooled generator, which produces electrical power. The steam turbine will consist of a primary turbine inlet, combined HP/IP turbine, and the double flow LP turbine. The two primary steam supply sources to the turbine are main and reheat steam. The steam flow to the turbine is controlled by the main steam and reheat steam inlet valves. The B-20 HP/IP turbine receives steam from the main steam and reheat steam supply and converts it to rotational power to drive the generator. The LP turbine receives steam from the IP exhaust by way of the crossover piping and converts it to rotational power to drive the generator. The last stage blade design is a model 72R. This design has a 32.1 inch vane section and a 63.4 square foot exhaust annulus area. With respect to operational experience, SWPC provided a sample list showing four existing units of similar configuration but with different loadings or ratings. SWPC reports an exhaust flow rate of 1,398,070 lb/hr, which leads Stone & Webster to believe that the exhaust velocity would approach 786 ft/sec. This rate is within SWPC's experience and is considered by Stone & Webster to be acceptable. Stone & Webster is of the opinion that the steam turbine design is acceptable and in accordance with standard industry practice. 3.6 Electric Generator The three electric generators are designated by SWPC as model 2-97x134. The generators will be hydrogen inner-cooled synchronous 3600 rpm, 60 Hz machines rated at 288,000 kVA at 16 kV. The generators will be designed for a leading power factor of 0.95 and a 0.90 lagging power factor at the generator terminals at 60 psig hydrogen gas pressure. The generators will have Class F insulation with Class B temperature rise for both the stator and the rotor. The generators will have a short circuit ratio of 0.53 at nominal capacity and are to be fabricated in accordance with ANSI standards C50.10, C50.13, and C50.14, as appropriate. Despite the fact that the generator, as described in the EPC Contract, utilizes a design with little operating experience, it appears to be sized properly. The proposed generator was first utilized on the Hines Energy Project for Florida Power Corp. (2 x 2 x 1 - combined cycle) and is expected to begin commissioning in early 1999. According to SWPC, thirteen generators of this design have been sold. The generator design (2-97x135) from which the proposed generator was developed was first introduced in 1958 and was offered until 1975. A total of 26 units were sold ranging from 200 MVA to 270 MVA. Stone & Webster is of the opinion that the generator design is acceptable and in accordance with standard industry practice. 3.7 Balance of Plant Systems Stone & Webster reviewed the general configuration of the Facility balance of plant ("BOP") systems identified in this section. These systems although important do not generally take on as high a degree of risk significance as the main power island, which consists of the combustion turbines, HRSGs, and the steam turbine. Stone & Webster's BOP system review focused on ensuring that the specific system designs were consistent with standard industry practice. As is typical of a project at this phase in design, the detailed system and component technical information that is developed during the detailed design phase and is required to independently verify a system's capabilities was not available for Stone & Webster's review. The conceptual B-21 description of the BOP systems and Stone & Webster's opinions are described in the following sections. In general, Stone & Webster is of the opinion that the BOP systems described below are consistent with standard industry practice and any individual issues identified during our review are presented in their respective sections. AES Ironwood has informed us that after the individual system and component vendors have been selected and the individual system designs and component specifications are available, the Project will conduct a detailed BOP design review to ensure compliance. 3.7.1 Condensate and Feedwater System The condensate and feedwater systems are auxiliary systems supporting the HRSG. Condensate is collected in the hotwell of the condenser and pumped by two of three 50% capacity pumps to the suction side of the feedwater pumps. Each HRSG is equipped with one 100% capacity feedwater pump that delivers feedwater to the HRSG. The feedwater pumps will be either split-case or segmented ring section design. The pump is electric motor driven and is located adjacent to the HRSG. A demineralized condensate water storage tank is provided to allow for 12 hours of base load operation. The condenser will have titanium tubes and will consist of two segregate shells with the hotwells connected by an equilibrium line. The condenser will be designed to accommodate the exhaust from the steam turbine plus the miscellaneous drains from the steam system and to allow for 100% steam bypass of the steam turbine. The single feedwater pumping system configuration proposed for the Project is becoming widely used in combined cycle plants, as the cost of the reconfiguration generally outweighs the assumed benefit. Stone & Webster has been informed that the single pump configuration is part of the SWPC reference plant design. The current configuration is such that the failure of either of the feedwater pumps will result in shutting down the corresponding combustion turbine, its associated HRSG, and the power loss associated with losing approximately half of the steam input to the steam turbine. Stone & Webster has recommended increased feedwater pump redundancy. As a result, the Project has committed to carrying one complete spare pump, including casing in store plus normal spares. This will reduce the equipment outage and downtime associated with a feedpump failure. 3.7.2 Cycle Makeup System The cycle makeup system supplies and stores demineralized water for makeup to the HRSG and also supplies water for the combustion turbine water injection and water washing. The system consists of one condensate storage tank, two 100% capacity cycle makeup pumps designed for normal makeup to the cycle when water is not being injected into the combustion turbine, and one B-22 100% capacity pump designed to handle makeup to the unit including water injection to the combustion turbine. The water supply to the system is provided from the cycle makeup treatment system. The demineralized water from the mixed bed exchangers discharges to the condensate storage tank. Two 100% capacity cycle makeup pumps are provided for normal system operations without water injection to the combustion turbine. The cycle makeup pumps take suction from the condensate storage tank. An automatic recirculation control valve is provided for each cycle makeup pump for minimum flow recirculation to prevent overheating and cavitating the pumps during startup and low flow operation. The system is designed to provide makeup water under all normal operating conditions. The two 100% cycle makeup pumps are sized to provide adequate flow and pressure for normal system operations. The single 100% capacity cycle makeup pump is designed to provide adequate water flow and pressure. The intention is to use the pump during combustion turbine water injection operation. 3.7.3 Condenser Air Removal System The condenser air removal system evacuates the condenser steam space of noncondensable gases during steam turbine generator operation and rapidly reduces the condenser pressure from atmospheric pressure during plant startup. The vacuum breaker valve allows air to enter the condenser to reduce the coast down time of the steam turbine generator after shutdown. The system will consist of two stage, twin element steam jet air ejectors with inter and after condensers for holding operation, a hogging steam jet air ejector for startup, and one vacuum breaker valve. 3.7.4 Raw Water System The Facility raw water requirements will be supplied from the Pennsy Supply quarry pits located adjacent to the site and the WWTP located approximately 6.5 miles west of the site. A waterline and pumping equipment will be constructed as part of the EPC Contract will transport the raw water from the Pennsy Supply quarry pits. The WWTP supply will be transported by way of a pumping station and an 18-inch diameter pipeline. The raw water system provides water for cooling tower makeup, cycle makeup, evaporative cooler supply, fire water and miscellaneous plant services such as washdown. The raw water system consists of the following major components: quarry water supply, WWTP water supply, two 100% (1500 gpm each) raw water forwarding pumps, raw water/fire water storage tank, and the associated piping, valves, and instrumentation. B-23 3.7.5 Circulating Water System The circulating water system will consist of two 50% capacity circulating water pumps, a double shell water-cooled condenser, and a direct contact, mechanical draft cooling tower. Water from the cooling tower basin will be pumped by the circulating water pumps to the condenser and then to the cooling tower in a single pressurized piping circuit. The heated cooling water will be cooled in a mechanical draft, direct contact cooling tower. The underground circulating water piping will be welded steel pipe with an internal epoxy coating and an external asphalt blanket and the above ground piping will be uncoated carbon steel. The circulating water pumps will be designed in accordance with requirements of the Hydraulic Institute Standards, and the condenser will be designed in accordance with the requirements of the Heat Exchange Institute Standards for Steam Surface Condensers. The design capacity of each circulating water pump will be based on 50% of the circulating water flow at the contract plant performance guarantee points, rounded to the next higher 1000 gpm. The cooling tower will be a wood frame, counterflow mechanical draft cooling tower constructed on top of the concrete cooling tower basin or at SWPC's option a concrete tower structure may be used. Each of the two pumps takes suction from the cooling tower basin and discharges into a common circulating water header. This main header is divided into smaller headers, which feed the condenser and auxiliary cooling water system. The heated discharge from each header is recombined and the heated water is returned to the cooling tower. At the cooling tower, the return line is divided into equally sized lines, each of which services one cooling tower cell. The circulating water pump pit will be located at the end of the basin. A trash rack, removable for cleaning, will be located upstream of the circulating water pump pit to protect the circulating water pumps from debris in the cooling tower basin. The tower also includes a fire protection system and a lightning protection system. 3.7.6 Auxiliary Cooling Water System The auxiliary closed loop cooling water system will supply cooling water for various equipment heat exchangers. The system will consist of two 100% capacity auxiliary cooling pumps, two plate and frame type closed cooling water heat exchangers, and the associated piping, valves, piping and instrumentation. The auxiliary cooling water pumps supply water to the Facility's various cooling loads. The heated cooling water flows to the closed cooling water heat exchanger, which is cooled by circulating water from the open loop. The loop is completed as the cooled water flows to the suction of the auxiliary cooling pumps. B-24 3.7.7 Fire Protection Systems Fire protection is provided by a ring header, hydrants and hose stations supplied from the raw/fire water tank. The fire protection system gives a visual indication of actuation at the local control panel. There are two independent systems. An automatically actuated dry chemical type system is provided for the exhaust bearing area of the turbine. The system consists of temperature sensing devices, spray nozzles, dry chemical tank, and interconnecting piping and wiring. In accordance with the U.S. National Fire Protection Agency ("NFPA") standards there is an FM-200 based fire protection system for total flooding protection of the turbine enclosure and the electrical and control units. . 3.7.8 Wastewater System The Facility wastewater system will be designed as a zero discharge system ("ZDS") to eliminate liquid waste streams. All treated wastewater to the Facility will be discharged as cooling tower evaporation or vapor through Facility vents. The solids, in the waste water or introduced as chemical additives, will be removed by the system which will first concentrate the waste and then produce a chemical precipitate which is filtered to dryness for ultimate disposal in a landfill. AES Ironwood represents that the sludge, which has a high proportion of calcium carbonate, has commercial use as feed stock for FGD systems. AES Ironwood is currently negotiating a commercial agreement to sell the sludge and avoid landfilling. Stone & Webster understands that the Project is still evaluating options for the design of the ZDS and that SWPC has offered the Project alternative ZDS systems. The maximum requirements for the ZDS system will be experienced when the Facility is operating at full load on fuel oil during the winter months. The alternatives being evaluated depend on whether the proposed design is based on normal gas operations or on oil operation. If the Project accepts the gas option, then it will be responsible for obtaining portable demineralizer trailers to meet the oil fired case requirements. The Project is examining proposals for portable demineralizers with second pass RO units. These proposals would ensure at least 100 hours operation per demineralizer trailer between regenerations. The Project expects to resolve this issue in early 1999. The Project has been advised by SWPC that the net power guarantee includes the net parasitic load for the ZDS. AES Ironwood represents that once a system design has been selected, it will be reviewed to ensure operational conformance. Stone & Webster also understands that SWPC has proposed the use of one 100% brine concentrator and one 100% crystalizer. The vendor selection of these two key components should emphasize equipment reliability due to the lack of redundancy in this key system. B-25 3.7.9 Compressed Air System The compressed air system will supply compressed air at the required capacity and pressure for service air and instrument air requirements. The instrument air system supplies dry instrument quality air at the required pressure and capacity to all pneumatic controls, transmitters, instruments, and valve operators. The system will consist of two 100% capacity, air cooled, motor driven air compressors, one service air receiver, one instrument air receiver, and two 100% skid mounted refrigeration type air dryers, with electric motor driver and two coalescing filters for each dryer. The instrument air will be designed to conform to the Instrument Society of America ("ISA") Quality Standards for Instrument Air. During normal operation, either air compressor can provide compressed air to the system. 3.7.10 Compressed Gas Storage System The compressed gas storage system will consist of the hydrogen gas system, the carbon dioxide system, and the nitrogen system. The hydrogen system supplies hydrogen gas to the hydrogen cooled generators. The carbon dioxide system stores and transfers carbon dioxide gas to the generator cooling and purge systems for generator purging. The nitrogen system supplies nitrogen for inerting the HRSGs and main cycle piping during an extended outage. The compressed gas system will consist of a hydrogen tube trailer, hydrogen valve manifold, carbon dioxide valve manifold, a nitrogen valve manifold, and the associated piping and instrumentation. 3.7.11 Ammonia Storage and Forwarding System The ammonia storage and forwarding system will store and supply ammonia for the SCR. The system will consist of two 10,000 gallon aqueous ammonia storage tanks, one for each HRSG, that provide approximately a seven day supply of ammonia, two ammonia forwarding pumps, an ammonia injection skid, and associated piping and instrumentation. 3.8 Fuel Systems The Facility will be designed with natural gas fuel as the primary fuel for the combustion turbines with fuel oil as the backup fuel supply. It is projected that the Facility will operate a majority of the time on natural gas but may operate up to 31 days per year on fuel oil pursuant to the terms of the PPA. The Project pro forma financial model assumes 12 days operation on fuel oil during the PPA period based on estimates by CC Pace, the Project's independent fuel consultant. The PPA incorporates the natural gas and fuel oil specifications consistent with EPC Contract specifications. With respect to natural gas pressure, the EPC Contract assumes that the natural gas line is able to supply a minimum of 450 psig at the Facility boundary. The PPA defines natural gas as being at B-26 a pressure equal to the pressure on the Texas Eastern pipeline, data from the pipeline demonstrates that the pressure is generally in excess of 700 psig. 3.8.1 Fuel Gas System The fuel gas system receives natural gas supplied from the natural gas supply pipeline at the Facility boundary and transports it to the combustion turbines. The system will consist of the fuel gas filter separators provided locally at each combustion turbine, fuel gas heater, knock out drums, and associated piping and instrumentation. Natural gas will be supplied to the system by a natural gas pipeline to a single connection located at the Facility boundary. A shutoff valve and duplex strainer will be provided in the gas supply piping. Individual fuel gas heaters will be provided for heating the fuel gas supply to the respective combustion turbines. Natural gas fuel will be heated using IP feedwater to approximately 440(degrees)F. A liquid separator/leak detector will be installed downstream of the fuel gas heater to detect any water in the gas supply resulting from a leaking fuel gas preheater. On detection of fuel gas heater leakage, the isolation valves will close and a bypass valve will open automatically to isolate and bypass the fuel gas heater. Control valves provided with the combustion turbine packages will regulate gas pressure to the combustion turbine fuel nozzles. A valving arrangement will provide positive isolation of the fuel supply system at the combustion turbine. The fuel gas supply pressure required for the combustion turbines will be at least 650 psig at the combustion turbine connection. If required, the combustion turbines can be switched over from natural gas to fuel oil online without shutting down the Facility. 3.8.2 Fuel Oil System The fuel oil system receives, stores, and transports fuel oil for operating the combustion turbines. The fuel oil system consists of one 2,300,000 gallon fixed roof fuel oil storage tank on a ring wall foundation, a fuel oil tank truck unloading area, a fuel oil truck unloading skid, air eliminators, and accessories including flame arrestor with conservation vent, fuel oil metering skid, and a lined berm containment. Fuel oil will be delivered to the site by truck and unloaded at the unloading station to the fuel oil storage tank. Duplex fuel oil strainers will be provided at the inlet to the unloading station. An air eliminator and flow totalizing meter will be provided at the discharge of the unloading station to verify fuel oil deliveries. The fuel oil storage tank will be a cone roof, double wall with double bottom carbon steel tank on a ring wall foundation. The fuel oil storage tank will be constructed in accordance with American Petroleum Institute ("API") Standard 650. Fuel oil will be supplied to the fuel oil forwarding pumps from the fuel oil storage tank. The fuel oil forwarding system will be equipped with two 100% capacity forwarding pumps. Fuel oil pressure and flow to the combustion turbines will be controlled by a recirculation valve in the B-27 combustion turbine fuel oil skid which will control the fuel oil supply pressure by recirculating fuel back to the fuel oil storage tank. 3.9 Electrical Systems Stone & Webster reviewed the general configuration of the Facility electrical systems identified in this section. Stone & Webster's electrical system review focused on ensuring that the individual system designs were consistent with standard industry practice. As is typical of a project at this phase of design, the detailed system and component technical information that is developed during the detailed design phase and is required to independently verify a systems capabilities was not available for Stone & Webster's review. The conceptual description of the electrical systems as well as Stone & Webster findings are provided in the following sections. In general, Stone & Webster is of the opinion that the electrical systems described below are consistent with standard industry practice. AES Ironwood has stated that when the individual system and component vendors have been selected and the individual system designs and component specifications are available, a design review will be conducted by the Project to ensure compliance. 3.9.1 Normal Station Service Power Two station auxiliary transformers will provide power from the switchyard to the Facility auxiliary loads. Station auxiliary transformers step down the voltage from 230 kV to 6.9 kV to 480 V and lower voltage levels suitable for equipment needs. A medium voltage switchgear bus will supply power to medium voltage motors, and medium to low voltage transformers. These transformers feed low voltage switchgear, motor control centers, and other loads. 3.9.2 Emergency Power Emergency power systems also exist to assist Facility operations. The emergency systems include uninterruptible power supplies and direct current ("DC") power. Uninterruptible power and DC/battery power are provided for equipment that must operate under all conditions, such as lube oil pumps and turning gear to ensure a proper cool down process of the turbines during an emergency trip. The Facility does not have black start capability. Startup of the Facility is by way of electrical backfeed through the station auxiliary transformer off the 230 kV utility grid system. 3.10 Switchyard Electrical power generated through the combustion turbine and steam turbine generators at 16 kV is transformed to 230 kV for delivery to the switchyard. The Facility will electrically interconnect with the PJM electrical system through an existing MET-ED 230 kV transmission line located B-28 approximately 0.25 mile to the west of the Facility which will tie into the Facility's switchyard. Three main transformers will be provided for this service. The combustion turbine generators and the steam turbine generator will be connected to its own two winding, oil filled step up transformer which increases the voltage from the generator terminals to the interconnecting voltage at the high side terminals. Synchronization and protection of the combustion turbine generator and the steam turbine generator are achieved by power circuit breakers in the switchyard. These circuit breakers isolate the power generating station from the interconnecting system. The combustion turbine generators and steam turbine generator will be connected to their step-up transformers by an isolated phase bus duct. The switchyard will have a 230 kV conventional, outdoor, open air, radial design featuring a provision for two outgoing transmission lines. The switchyard will extend from the high voltage terminals of the generator step-up transformers and station auxiliary transformers to the interface with MET-ED's two outgoing transmission circuits. The transmission line protective relays and the remote terminal units ("RTUs") that will interface with the Transmission/Distribution Control Center and the Energy Control Center will be provided by MET-ED. This equipment will be installed in the switchyard control building. The EPC Contract states that optional switchyard arrangements, metering, and protective relaying schemes can be provided and that SWPC will work with the Project and MET-ED to establish the specific requirements for the switchyard and Facility interfaces with MET-ED. The switchyard requirements will also be further defined as part of the Project Interconnection Agreement, which is currently under negotiation between AES Ironwood and GPU Energy, Inc. ("GPU"). 3.11 Instrument and Control Systems Stone & Webster understands that the original Project instrument and control system design was based on the Westinghouse Distributed Processing Family ("WDPF") Control System. Since the Westinghouse Power Generation acquisition by Siemens, SWPC now utilizes and would prefer to provide to the Facility a Siemens Control System. Stone & Webster believes that either of these two systems would be acceptable and in accordance with standard industry practice. 3.12 Civil and Structural Design The Project's civil and structural design parameters have been appropriately specified in accordance with the geotechnical investigations conducted on-site to date, as well as applicable engineering codes and standards relating to the type of construction proposed at the site. It is noted that SWPC has accepted the risk of any additional foundation requirements as necessary based on a detailed geotechnical investigation to be performed during the detailed design phase of the Project. The structural design criteria outlined in the EPC Contract appear adequate to comply with the Project requirements. The materials of construction specified in the building B-29 finish schedule are appropriate for the intended application. The minimum required strength of materials, stipulated in the design criteria, are consistent with industry standards. The established loadings and maximum design conditions comply with the referenced codes, site development requirements and foundation design criteria. Stone & Webster are of the opinion that the structural design is reasonable and adequate for operation of the Facility as contemplated in the Project Agreements. 3.12.1 Geotechnical Evaluation The bedrock units beneath the site are dolomite and limestone. Sinkhole development has been identified near the site area. Laboratory testing was performed to classify the soils. The geotechnical investigation indicated that the subsurface soils are very soft to very stiff residual soils, which are overly poor to moderate quality dolomite bedrock. The residual soils are classified as high plasticity sandy clays and silts. The thickness of the residual soil varies; however, the soil deposit is generally about 20 feet deep in the site area. The exploration borings and resistivity surveys indicate that the underlying bedrock is highly variable in quality and depth. The bedrock surface is expected to be quite variable and have high points, due to the weathering characteristics of the carbonate bedrock units. Exploration borings and probe holes were drilled in suspect solution areas that were identified by the resistivity survey. No large underground solution cavities or clay filled features were identified to the depths explored at the location of critical structures. Blasting operations at the Pennsy Supply quarry adjacent to the site can be performed within 25 feet of the property line. Pennsylvania law limits the blasting. In addition under the EPC Contract, SWPC acknowledges that prior to the execution of the EPC Contract SWPC has made a complete and careful examination of the nature and character of the soils and terrain of the site that might affect SWPC's ability to construct the Facility. Stone & Webster believes that the exploration and testing programs were conducted in accordance with good engineering practice and were appropriate for the planned Facility and anticipated site conditions. Stone & Webster is of the opinion that the Project site is suitable for the Facility provided that the site construction is performed incorporating the recommendations of the Schnabel Report of September 1998. These recommendations are discussed in Section 3.12.5 of this report. 3.12.2 Groundwater Groundwater was not encountered during the drilling at the test boring locations. Based on these observations, the groundwater level is believed to be below the depth of the excavations proposed for this Project. Groundwater is present at a depth below the site and dewatering operations at the adjacent Penney Supply quarry presently controls the level. B-30 3.12.3 Water Supply Stone & Webster reviewed a number of documents in its evaluation of the availability of raw water to the Project including: the approvals from the Susquehanna and Delaware River Basin Commission, the Final Hydrologic Analysis, Availability of Groundwater from the Pennsy Supply Quarry, Proposed Ironwood Power Plant, Lebanon, Pennsylvania by Schnabel Engineering Associates, February 26, 1998, and the Application for Water Withdrawal for AES Ironwood Power Plant, Submitted to the Delaware River Basin Commission and the Susquehanna River Basin, by TRC Environmental Corporation, April, 1998. The make-up water supply for the Project will be obtained from the WWTP and from the current dewatering operations at the adjacent Pennsy Supply quarry. Under normal operating conditions, 1.44 MGD of water from the WWTP will be pumped to the Facility through a pipeline. The remaining 2.16 MGD of water required by the Facility will be obtained from the quarry dewatering operations. When the Facility is operating on fuel oil, 2.16 MGD of water may be diverted from the WWTP and the remainder 2.16 MGD will be obtained from the quarry dewatering operations. A review of documents provided to Stone & Webster indicates that an adequate make-up water supply is available to meet the Facility generation demands. The split for providing make-up water from both the WWTP and the Pennsy quarry satisfies the river basin commissions environmental requirements. Approval has been obtained from the Delaware River Basin Commission on April 24, 1998 and the Susquehanna River Basin Commission on June 9, 1998 for this proposed make-up water supply approach. Should quarry operations cease in the future or supply from the WWTP need adjustment, an adequate make-up water supply could be obtained from groundwater sources at or near the site or pumped from a flooded quarry. New agreements with the commissions would have to be worked out at that time and are considered by Stone & Webster to be attainable, if they are required. 3.12.4 Site Grading and Drainage System The site grading and drainage system will be designed to comply with all applicable federal, regional, and local regulations. Topographic modifications to the site area may be required to provide positive overall drainage. Surface drainage onsite will consist of overland and open channel flow. Channels and ditches will generally be trapezoidal in cross section, of sufficient width to facilitate easy cleaning, and mildly sloping so that erosion is prevented. The storm drainage system will be designed for a rainfall intensity of five inches per hour. Site specific drainage facilities will be designed for the flow resulting from a 25 year rainfall or regional and local code requirements, whichever is greater. The Facility main complex area will be moderately graded for effective drainage. B-31 3.12.5 Foundations The site is considered suitable for development of the Project. The proposed structures can be placed on mat or spread foundations. Recommendations are provided in the Schnabel Report for deep and shallow foundation systems. The Schnabel Report recommends that foundations for the larger, heavier structures be supported on compacted dense graded crushed stone structural fill. All residual soil and boulders should be removed beneath the foundation area. Placement of the structural fill will start at the contact with the weathered bedrock or very hard residual soil. An allowable bearing pressure of 10,000 psf is expected for structures supported in this manner. Adequate quantities of quality structural fill materials are available from the rock quarries in the vicinity of the site. The support buildings and other lightly loaded structures can be supported on spread foundations on suitable stiff to hard natural soils or compacted fill, using an allowable bearing pressure of at least 2,000 psf. The above ground storage tanks can be supported on the stiff to hard residual soils, weathered rock, or structural fill. The exploration program indicates that some rock excavation may be required for installation of the circulating water lines. The Schnabel Report also includes recommendations for site preparation and inspections that should be performed beneath critical structures to preclude development over an area of potential solution activity. Subsequent to the date of the Schnabel Report, SWPC obtained additional data on quarry blasting operations and has indicated that it is revising its foundation design criteria to reflect that additional data. 3.12.6 Stack The common stack height will be 175 feet and is to be constructed in accordance with ASME/ANSI standards and will be made from carbon steel. The location of test ports and sampling platform will meet USEPA siting criteria of 40 CFR 60. 3.13 Interconnections 3.13.1 Fuel Interconnection The natural gas fuel supply to the Facility will be transported by way of a pipeline that will be designed to supply a minimum of 700 psig at the Facility boundary as discussed in Section 3.8 of this Report. Fuel will be supplied to the Facility by Williams in accordance with the PPA as discussed in Section 5 of this Report. Williams is responsible for the construction of all gas interconnection and delivery facilities necessary for delivery of natural gas. Pipeline permitting, design, and construction is also the responsibility of Williams. The fuel oil will be supplied by truck, and a two-day supply will be stored in the Facility's fuel oil storage tank. B-32 Williams has executed certain agreements with TETCO to provide natural gas delivery services to the Facility. These agreements require TETCO to construct own and operate an approximate three-mile pipeline from the TETCO mainline to the Facility. Under these agreements, TETCO is required to have the lateral completed by September 1, 2000. Stone & Webster has not independently verified the design of the pipeline, however we know of no reason why Williams should be unable to perform its obligations under the PPA. 3.13.2 Electrical Interconnection The Project electrical interconnection design was previously discussed in the Switchyard Section of this Report. In addition, Stone & Webster reviewed available information to assess the general feasibility (from an electrical standpoint) of integrating the Project into the PJM power transmission system. The review focused on assessing whether there were additional steady-state transmission constraints, which could be attributed to the Project. The review relied primarily on information in the public domain provided by the Mid-Atlantic Area Council ("MAAC") reliability council of the North American Electric Reliability Council ("NERC") in filings before the FERC. The MAAC region consists of 15 full time members and 31 associate members serving over 22 million people in a 48,700 square-mile area. The region includes all of Delaware and the District of Columbia, major portions of Pennsylvania, New Jersey, and Maryland, and a small part of Virginia. All utilities in the PJM system are a part of MAAC. In particular, the following information, submitted to the FERC as part of the 1998 Form 715 filing, was reviewed: o Transmission planning reliability criteria of the MAAC region (Part 4 of Form 715) o Transmission planning assessment practices of MAAC (Part 5 of Form 715) o Evaluation of transmission system performance of the MAAC system (Part 6 of Form 715) o Transmission planning reliability criteria of the GPU utilities (Part 4 of Form 715) o Transmission planning assessment practices of the GPU utilities (Part 5 of Form 715) o Evaluation of transmission system performance of the GPU utility system (Part 6 of Form 715) o Load flow simulations of the MAAC system for the following conditions: (1) 1998 summer, (2) 1998/99 winter, (3) 1999 summer, (4) 1999/2000 winter, (5) 2002 summer, (6) 2002/03 winter, (7) 2007 summer B-33 Stone & Webster also reviewed a report titled "Reliability Assessment 1998-2007", prepared by NERC and dated September, 1998, and a letter report from GPU to AES Ironwood dated February 4, 1999, regarding the results of system studies (the "System Study Report"). The Project was modeled by GPU in the planning of its transmission system for the period 1998-2007 and simulated in all load flow cases for years 2002 and beyond, but not before, since: (1) FERC Form 715 instructions explicitly indicate that load flow cases that are submitted as part of the filing should be those "regularly used by the utility in its own planning", and (2) the Project is scheduled to come on-line in 2001. Thus, 2002 is the first year in which the Project appears in the simulations. The Project is modeled in the load flow cases as three separate generators (at buses 1736 "AES-GEN1", 1737 "AES-GEN2", and 1738 "AES-GEN3", all at 230 kV). These buses are in turn connected to the Prescott 230 kV bus, and from there to the South Lebanon and Jonestown 230 kV buses (1163 and 1175, respectively). In all cases (i.e., summer and winter), each unit is modeled as generating 212 MW, for a combined production of 636 MW. The generators are in area 27 of the load flow (area "MET-ED"), which in year 2002 exports about 246 MW. GPU has represented that it has confirmed that the transmission system will accept the Facility output of up to 662 MW (summer) and 797 MW (winter). Based on this representation, Stone & Webster is of the opinion that the Project can be feasibly integrated into the PJM system and that no known transmission limitations will inhibit the feasible evacuation of the Project's full net capacity both under summer and winter conditions. 3.13.3 Water Interconnection The Project has agreements in place to draw water for cooling the Facility from two independent sources. The Pennsy Supply quarry, located directly adjacent to the Project site on Prescott Road, and an agreement with the City of Lebanon Authority to use treated effluent water from their facility, located on Ridge View Road. Access to both water sources will be designed and constructed to serve the full Facility needs from either or both sources. An approximately 6.5 mile pipeline will be designed and constructed to transport the water from the WWTP to the Facility. In order to construct the pipeline, which will be owned and operated by the Authority, Rights-of-Way ("ROW") must be acquired from eleven landowners. The ROWs provide the Project with the permission to utilize the various landowners' property to construct the pipeline beneath the surface of the property. Most of the ROWs are represented to be within an already-existing utility easement. Gannett Fleming, Inc. has surveyed all the properties and the Project has secured ten of the eleven ROWs. The last ROW is expected to be secured in June 1999. B-34 Applications for the road crossings, county occupancy permits, and railroad crossings have been submitted and are currently awaiting approval. Stone & Webster will independently verify the design of the pipeline when it becomes available. The proposed construction schedule appears to be reasonable and achievable. We do not know of any reason why the Authority should be unable to perform its obligations under the ESA. B-35 4. Environmental and Permitting 4.1 Environmental Site Assessment Stone & Webster reviewed the Environmental Site Assessment of Martin/Ziegler Property and the Environmental Site Assessment and Preliminary Asbestos Survey of RESCO Products Property by TRC Environmental Corporation, of March 1998 and April 1998. The assessment for the Martin property revealed no evidence of recognized concerns to the subject property. The only environmental condition identified for the RESCO Products property is the presence of asbestos in two roofing materials; the tar coating of the Butler Building/add-on roof and the roof tar paper of a small attached shed at the rear of the Butler Building. Removal of these structures and the asbestos is not considered to be a major environmental issue. Both property locations may have radon presence in groundwater that might be obtained from wells. Radon is characteristic of the geologic units in the area for groundwater wells. The past and present land use of these properties and the adjacent properties are not anticipated to create any conditions that would result in a major environmental concern. Groundwater beneath the Project site area drains into the adjacent quarry and is presently pumped to surface drains. No contamination has been identified within this groundwater regime. Stone & Webster is of the opinion that the assessments reviewed were performed in accordance with standard industry practice and their results appear reasonable. 4.2 Permitting The EPC Contract (Appendix F) sets forth a list of applicable permits and approvals that are required by federal, state, and local agencies. This list also identifies who is responsible for obtaining the permit or approval. The Project has represented that this list is comprehensive and that no other permits other than possibly some ministerial permits are required for the construction and operation of the Project. SWPC and AES Ironwood are individually or jointly responsible for obtaining the permits and authorizations described in the following table. Stone & Webster has relied upon the Project to confirm that all necessary permits or authorizations have been identified and that the permits have either been obtained or will be granted in a timely manner without adversely affecting the Project's schedule. B-36
==================================================================================================================== Applicable Permits and Approvals ==================================================================================================================== Agency Applicable Permits Status - -------------------------------------------------------------------------------------------------------------------- Federal Energy Regulatory Exempt Wholesale Generator Issued March 29, 1999 Commission Certification - -------------------------------------------------------------------------------------------------------------------- PaDEP PSD/State Air Permit Final March 29, 1999 - -------------------------------------------------------------------------------------------------------------------- U.S. Dept. of Energy, Office Fuel Use Act Certification Approved of Fossil Energy - -------------------------------------------------------------------------------------------------------------------- PaDOT Roadway Access Permits from Approved Prescott Road to site - -------------------------------------------------------------------------------------------------------------------- PaDEP NPDES, PAG-2 Approved - -------------------------------------------------------------------------------------------------------------------- PaDEP NPDES General Permits #4, # 4 #5 Approved #7 - -------------------------------------------------------------------------------------------------------------------- PaDEP NPDES Part 1 Construction Approved - -------------------------------------------------------------------------------------------------------------------- Pa Dept of Labor and Industry Onsite Oil Storage Tank Part of (1) Permission to construct SWPC Construction Permit (2) Permit for construction - -------------------------------------------------------------------------------------------------------------------- Delaware River Basin Water Use Approval as per Section Approved 3.8 of DRDC regulations - -------------------------------------------------------------------------------------------------------------------- Susquehanna River Basin Water Use Approval Approved Commission - -------------------------------------------------------------------------------------------------------------------- Lebanon County Soil Erosion and Sediment Control Approved Conservation District Approval - -------------------------------------------------------------------------------------------------------------------- Conrail/Norfolk Southern Railroad Crossing Approval and Approval Agreements Pending Railspur Construction - -------------------------------------------------------------------------------------------------------------------- Lebanon Zoning Hearing Stack Height Variance Approval for Approved Board Power Plant - -------------------------------------------------------------------------------------------------------------------- South Lebanon Board of Land Development Approval for Approved Supervisors Power Plant - -------------------------------------------------------------------------------------------------------------------- South Lebanon Board of Subdivision Approval for Access Approved Supervisors Road - -------------------------------------------------------------------------------------------------------------------- South Lebanon Onsite septic approval for sanitary Conceptually Approved Township/Lebanon County discharge - -------------------------------------------------------------------------------------------------------------------- City of Lebanon Authority Agreement for Supply of treated Approved effluent and construction, operation and maintenance of pipeline - -------------------------------------------------------------------------------------------------------------------- Lebanon County Building Permit To be acquired prior to construction Planning Department - -------------------------------------------------------------------------------------------------------------------- Federal Aviation Notice of Alteration or Proposed Approved Administration Construction for AES Ironwood Facility Stack ====================================================================================================================
B-37 Stone & Webster is of the opinion that the permits and authorizations that have been granted are consistent with the Project's present phase of development. Stone & Webster has reviewed the permits and approvals identified in this section. Stone & Webster is of the opinion that if this facility is constructed, operated and maintained in accordance with the terms of the EPC Contract, PPA, and the Maintenance Services Agreement, and if the natural gas and fuel oil provided by Williams are within the quality limits specified in the EPC Contract, then it is reasonable to assume that the Project should satisfy the permit limitations of the issued permits and have a useful life beyond the final maturity date of the Bonds. Stone & Webster notes that the quantity of ammonia to be stored on site (two 10,000 gallon tanks of aqueous ammonia) is sufficient to subject this Facility to the risk management and reporting programs administered by the EPA and OSHA. However, compliance with these programs should not have any effect on either project cost or schedule. 4.2.1 Prevention of Significant Deterioration Permit The Project submitted the Prevention of Significant Deterioration Permit ("PSD") air permit application forms to the Pennsylvania Department of Environmental Protection ("PaDEP") in May 1998 as part of the Plan Approval Application for the AES Ironwood Facility (the "Plan Approval Application"). The application was deemed complete in August 1998, a draft PSD Air Permit was issued on December 23, 1998 and a public hearing was held on February 18, 1999. The final PSD Air Permit was issued to AES Ironwood on March 29, 1999. The application form sets forth atmospheric emissions limits for NOx, CO, and volatile organic compounds ("VOC") which are consistent with or above the EPC Contract emissions warranties. With respect to VOC and particulate matter ("PM"), the permitted emissions will be based upon stack test results and/or vendor guarantees. Emissions of SO2 will be determined by fuel sulfur sampling and mass balance calculations. The Plan Approval Application includes a summary of proposed permit limits. Stone & Webster reviewed the Pennsylvania modified Chapter 139 PM sampling protocol report of 1998 which reports only the "front-end" portion of the sampling train emissions. AES Ironwood's environmental consultant also advised Stone & Webster that the calculated permit limits for ammonia salts (from the SCR) are to be included in the total emissions of PM. These amounts are reflected in the emission tables provided to TRC by SWPC for the 501G emissions. We believe that this is a conservative approach to estimating the emissions as measured under the current Pennsylvania PM sampling protocol as represented by AES Ironwood's environmental consultant. B-38 Although the manufacturer for the SCR system has yet to be selected, Stone & Webster has reviewed the design criteria for the SCR system, discussed the emissions testing performed on the 501G combustor nozzles with SWPC, and analyzed the similarities in the turbine firing temperatures of the 501F and 501G gas turbines. Based on these actions coupled with our knowledge of the 501F gas turbine, Stone & Webster believes that the 501G will be able to achieve and maintain compliance with the Project's Air Permit during full load operation. The PSD Permit expires on June 30, 2002, by which time AES needs to have completed construction, start-up, commissioning, environmental testing and performance testing, and begun commercial operation. During this period of time, AES is required to compile its initial emissions testing report and submit an application to the PaDEP for an "operating" permit. In addition, Condition 3.c of the PSD Permit authorizes "temporary" operation for a period of 180 days from the date of "commencement of operation". This 180-day period should be sufficient for start-up, commissioning, environmental testing, performance testing and operating permit application compilation and submittal. 4.2.2 Exempt Wholesale Generator Status AES Ironwood filed for certification of the Facility as an EWG under the applicable rules of the FERC on February 24, 1999. AES Ironwood has received a determination that the Facility is an EWG under the applicable rules of FERC. B-39 5. Project Agreements Stone & Webster reviewed the primary contracts and agreements associated with the Project. These included the PPA, the EPC Contract, the ESA, and the Maintenance Services Agreement. Stone & Webster reviewed the agreements from a technical and economic standpoint to assess the adequacy and reasonableness of their terms and conditions. Legal, financial, and other important aspects of the agreements associated with the project were not considered under this review. This Report describes only portions of the Project Agreements as needed for the discussion of the Facility's related issues. A complete description or legal evaluation of the contracts and documents related to the Facility is beyond the scope of this report, and Stone & Webster is not providing legal counsel opinions regarding the legal interpretation of any contract language. Adherence to industry standards and good engineering practice was assessed where appropriate. Provided below is a summary of our findings for each of the reviewed agreements. 5.1 Power Purchase Agreement Stone & Webster reviewed the PPA. Certain of the provisions of the PPA are discussed below. For a summary of the material terms of the PPA, reference is made to "Description of Project Contracts - Power Purchase Agreement" in the Offering Memorandum of AES Ironwood with respect to the Bonds to which the Report is appended (the "Offering Circular"). 5.1.1 Term The term of the PPA is for a period of 20 years after the Contract Anniversary Date that is the last day of the month in which the Commercial Operation Date ("COD") occurs. If the COD has not occurred prior to June 30, 2001, subject to the extension as described below except for a Force Majeure or a delay caused by Williams, Williams has the right to terminate the PPA without liability or responsibility unless AES Ironwood has either: o Demonstrated to Williams that the COD will occur no later than December 31, 2001, or o Was unable to execute an Interconnection Agreement with GPU. to maintain the Facility construction schedule ("Interconnect Delay") In these cases AES Ironwood has the right to extend the COD to December 31, 2001 ("Free Extension Option"). In the event the above described conditions are not met then AES Ironwood has the right to extend the COD to and including December 31, 2001, by giving Williams a written notice of extension no later than April 30, 2001 and paying Williams a specified amount no later than June 30, 2001. B-40 In the event AES Ironwood qualifies and elects the Free Extension Option but the COD does not occur by December 31, 2001 then AES Ironwood can elect to: o extend the COD up to and including December 31, 2002 by making certain daily payments, and o pay Williams an amount equal to the lesser of: >>actual damages Williams suffers or incurs after December 31, 2001, or up to a specified cap In the event AES Ironwood qualifies for the Free Extension Option or elects the First Paid Extension Option and the COD has not occurred prior to December 31, 2001, except for a delay caused by Williams, a Force Majeure delay, or an Interconnect Delay then Williams has the right to terminate the PPA without liability or responsibility, provided that AES Ironwood has the right to extend the final COD to December 31, 2002, by giving Williams written notice of the extension no later than October 31, 2001, and making Williams certain daily payments. In the event AES Ironwood elects the Second Paid Extension Option and the COD does not occur by December 31, 2002 for any reason except as a result of an Interconnect Delay, Force Majeure, or a delay caused by Williams, then Williams has the absolute right to terminate the PPA without liability or responsibility. The Provisional NTP was provided to SWPC on September 23, 1998 and several milestones have been achieved to date by SWPC. The Full NTP will occur on or about June 1, 1999. Pursuant to the terms of the PPA, AES Ironwood has the option to extend the COD to December 31, 2001 by paying Williams a specified amount if there is a delay in the June 30, 2001 COD. The Delay in Financial Closing/SWPC Continued Performance Agreement between SWPC and AES Ironwood extends the date by which the Commencement Date must occur to June 1, 1999. Not withstanding the above stated provisions SWPC agreed in a letter to AES Ironwood dated May 12, 1999 to not exercise its right to suspend its performance of services between June 1, 1999 and June 21, 1999. The Guaranteed Provisional Acceptance Date is 23 months and two weeks following full NTP. Based on the EPC Contract, if SWPC fails to achieve the Provisional, Interim, or Final a specified amount per day. If Provisional, Interim, or Final Acceptance occurs six months after the Guaranteed Provisional Acceptance Date, AES Ironwood would receive liquidated damages, which amount, together with contingencies and prefunded IDC, is sufficient to cover the amounts AES Ironwood would be required to pay Williams to extend the COD to December 31, 2001, plus approximately 190 days in debt service after the Guaranteed Provisional Acceptance Date beyond December 31, 1999. Based on the EPC Contract, the total liquidated damages associated with a delay in the Guaranteed Provisional Acceptance Date is a maximum of 20% of the contract price. If the COD is delayed to December 31, 2002, AES Ironwood would receive liquidated damages, B-41 which amount, together with contingencies and prefunded IDC, is sufficient to cover the additional payments to Williams plus approximately one year in debt service after the Guaranteed Provisional Acceptance Date. 5.1.2 Fuel Conversion and Associated Services Williams is obligated to supply and transport the fuel (natural gas and fuel oil) to generate net electric energy, perform start-ups and shutdowns, and operate the Facility during any period other that during a dispatch period. Williams is responsible for all costs and expenses related to the supply and transportation of the natural gas and fuel oil to the fuel delivery point(s). AES Ironwood is responsible for all costs and expenses related to the supply and transportation of the natural gas and fuel oil from the fuel delivery point(s) to the Facility. AES Ironwood is required to provide fuel oil storage capacity sufficient to operate the plant at full output for at least 2 days. If AES Ironwood elects to use offsite fuel oil storage, then AES Ironwood is responsible for arranging transportation to the Facility from that remote location. AES Ironwood is not obligated to operate the Facility on fuel oil for more than 31 days or 744 hours per year. Williams is responsible for the construction of the Gas Interconnection Facilities. In the event that the Gas Interconnection Facilities have not been constructed or Williams is unable to deliver gas to the Facility to support the initial start-up testing, Williams will pay AES Ironwood certain specified amounts for each day of the delay from the date on which the Facility would otherwise (but for the absence of gas) be ready for start-up testing until the gas is delivered to the site. 5.1.3 PPA Payments Williams will pay AES Ironwood for facility capacity, fuel conversion services, and ancillary services. Each monthly billing payment is the sum of the total fixed payment, fuel conversion payment, and the start-up payment. For each month of the PPA term Williams is responsible to pay AES Ironwood for the fixed payments for facility capacity, fuel conversion services and ancillary services at the rates specified in Appendix 1 of the PPA. The PPA also includes certain heat rate bonus and penalty payments, startup cost payments and penalties payable by AES Ironwood for failure to be available for dispatch under certain conditions. 5.1.4 Interconnection and Metering Equipment AES Ironwood at its cost and expense will design, construct, install, own, and maintain the Interconnection Facilities and Protective Gas Apparatus needed to deliver the net electric energy to the electricity delivery point. AES Ironwood is also responsible for the negotiation and execution of an Interconnection Agreement with the host utility. The host utility will own and be responsible for the design, installation, construction, and maintenance of the electric metering equipment and any transmission equipment and related facilities necessary to interconnect with B-42 the host utility at the electric delivery point. Williams is required to reimburse AES Ironwood up to a specified amount for reasonable costs incurred by the host utility under the Interconnection Agreement. Williams is responsible for installing, maintaining, calibrating, and testing the gas and oil metering equipment. Net electric energy will be metered on an hour-by hour basis at the metering point. Williams will pay to AES Ironwood the net amount shown on the monthly statement within 30 days following the end of the applicable billing month. 5.2 Interconnection Agreement Stone & Webster reviewed the Interconnection Agreement by and between MET-ED d/b/a GPU and AES Ironwood. Certain provisions of the Interconnection Agreement are discussed below. For a summary of the material terms of the agreement, reference is made to "Description of Project Contracts - Interconnection Agreement" in the Offering Circular. In general, Stone & Webster found that the Interconnection Agreement is comparable to other similar agreements with which Stone & Webster is familiar. In addition, the technical requirements for operating the transmission interconnection (Appendix C of the Agreement) and system protection and control (Appendix D), and for the installation of the interconnection (Appendix E) appears to be reasonable. 5.3 Engineering, Procurement, and Construction Services Stone & Webster reviewed the executed EPC Contract between AES Ironwood and SWPC. Certain provisions of the EPC Contract are discussed below. For a summary of the material terms of the agreement, reference is made to "Description of Project Contracts - EPC Agreement" in the Offering Circular. The EPC Contract is for a 705 MW combined cycle facility to be located in South Lebanon Township near Lebanon, Pennsylvania. SWPC will provide a Facility which is intended to have at least a 25-year useful life (when operated and maintained in accordance with the Instruction Manual, the PPA, and the manufacturers' recommendations. We believe the EPC Contract scope adequately describes the services to be performed and is technically complete. SWPC's scope of services is presented in detail in Appendix A of the EPC Contract. Our assessment of SWPC's scope of services and the technical descriptions are presented in Chapter 3 of this report. This price includes agreed to and estimated price changes for scope changes agreed to by AES Ironwood through the date of this Report, but does not include certain scope changes currently under discussion, the price of which are included in "Other Hard Costs" as described in Section 7.3. The total current contract price is $238.0 million. B-43 5.3.1 SWPC Responsibilities SWPC's responsibilities under the EPC Contract include the design, engineering, procurement, and construction of the facility; startup, training, and testing; and the supply of all machinery, equipment (excluding operational spare parts), tools, construction fuels, chemicals, etc. to complete the Project. SWPC will be responsible for all tasks necessary to complete the Project other than those specifically assigned to AES Ironwood in Appendix A. SWPC will also prepare a Quality Assurance Plan (Appendix K). SWPC will use this plan to ensure that the construction and engineering methods and standards required are adhered to or achieved. SWPC will develop a list of recommended operational spare parts and a price list. This will be delivered to AES Ironwood at least 12 months prior to the scheduled date for PA. SWPC also has certain obligations with respect to labor and personnel, permitting and permitting support, inspection and expediting, personnel training, cleanup and waste disposal, security, coordination with other contractors, and management and supervision of its subcontractors. Stone & Webster believes that these areas of contractor responsibility have been addressed adequately in the EPC Contract. SWPC is required to coordinate its functions with other contractors involved with the Project. SWPC is also required to arrange for construction-period water supply facilities, but the EPC Contract does not address the disposal of construction-period sanitary waste disposal. SWPC will provide training to AES Prescott's operation staff. Beginning six months prior to the Project Guaranteed Provisional Acceptance Date, SWPC will provide on-site classroom training for AES Prescott's O&M staff. The training curriculum is more completely described in Appendix A of the EPC Contract. In addition to SWPC's own training it will also coordinate any Subcontractor training sessions in a manner sufficient to provide the personnel with an adequate understanding of the O&M aspects of each dimension of the Project as an integrated whole. Stone & Webster agrees with this overall approach to preparing and training the O&M staff. Within 60 days of the Guaranteed Provisional Acceptance Date, SWPC will submit to AES Ironwood a detailed electronic construction schedule consistent with the schedule outlined in Appendix C of the EPC Contract. As soon as practical but no later than 120 days after the Guaranteed Provisional Acceptance Date, SWPC will provide AES Ironwood with a critical path method ("CPM") schedule for the Project including activity duration for each major component of the Services provided by SWPC. B-44 5.3.2 AES Ironwood Responsibilities AES Ironwood is responsible for certain services associated with the EPC Contract. These activities relate to: the appointment of an Owner's representative; acquisition of the Facility site and access for SWPC; acquisition of all applicable permits and real estate rights for the facility; providing startup personnel; arranging for certain construction utilities (waste disposal after the risk transfer date), fuel, and electrical interconnection facilities on the utility side. These responsibilities are reasonable and customary for this type of transaction. 5.3.3 Construction Schedule AES Ironwood issued a Provisional Notice to Proceed as of September 23, 1998, which required SWPC to begin the Services, including a full release of the engineering, manufacturing, and procurement of the equipment on the date specified. AES Ironwood is obligated to pay SWPC for all pre-Commencement Date Services actually performed. Stone & Webster reviewed the sequencing of events necessary to achieve Final Acceptance of the Project and the criteria of each milestone. We believe that the milestone criteria are technically reasonable. The significant milestones are Mechanical Completion, Provisional Acceptance, Interim Acceptance, Final Acceptance, and Project Completion. The Performance Tests and the PPA Output Tests are conducted after Mechanical Completion in order to meet Provisional Acceptance. The Reliability Run is required in order to meet Final Acceptance. Project Completion occurs after Final Acceptance. Interim Acceptance ("IA") is a milestone more specific to this agreement. IA occurs when the gas-based electrical output and heat rate guarantee is not less than those levels demonstrated during the completed performance test at Provisional Acceptance. 5.3.4 Contract Price and Payment Schedule The contract price (as adjusted for scope changes) will be paid out to SWPC in installments over the construction schedule. The payments began with Provisional Notice to Proceed and continue through construction according to the Payment and Milestone Schedule (Appendix B). Retainage in the amount of 5% is withheld from each scheduled payment except for the project completion payment. Stone & Webster generally experiences retainage in the order of 5-10% of the contract price. Upon achieving Final Acceptance of the Facility and the receipt of documentation that all requirements have been satisfied, all the retainage may be paid to the Contractor, except that AES Ironwood can hold back an amount equal to $1 million and 150% of the punch list. Within 30 days after the Project Completion all remaining retainage will be paid to SWPC. AES Ironwood may deduct and set-off against any part of the balance due or to become due from SWPC to AES Ironwood in connection with this agreement. If this set-off amount is later B-45 determined not to have been due from SWPC, then SWPC will be entitled to interest on the set-off amount. The EPC Contract allows for change orders that may be initiated by AES Ironwood or SWPC. The change order protocol allows for adjustments to both pricing and schedule. The protocol utilized in this EPC Contract is similar to other contracts with which we are familiar and is technically acceptable. 5.3.5 Performance Testing Plans To demonstrate Final Acceptance, SWPC must demonstrate 100% of the gas-based and fuel oil-based electrical output and heat rate guarantees during the performance test, or demonstrate in a completed PPA output test the achievement of 100% of the gas-based electrical output guarantee and satisfy AES Ironwood that the capabilities outlined in Part B of Appendix B are achieved. In addition, Mechanical Completion must be satisfied and the Reliability Guarantee achieved. Also, the reliability run must be completed no later than the occurrence of Final Acceptance of the Facility. Stone & Webster reviewed the performance testing plan. The performance tests will be performed in accordance with PTC-46, the test code for overall plant performance testing. A plant specific performance test procedure will be written by SWPC and submitted to AES Ironwood 90 days prior to the test. Stone & Webster believes that the performance testing plan as specified in the EPC Contract Appendix D is acceptable, customary, and should adequately demonstrate the Project's performance. AES Ironwood can elect Final Acceptance. In this scenario, SWPC has no liability to AES Ironwood for any performance guarantee payments arising thereafter for failure of the Facility to achieve any or all of the performance guarantees applicable. SWPC can elect Final Acceptance. In this case SWPC must have completed a performance test which demonstrates at least a level of 95% of the gas-based and fuel oil-based electrical output and 108% of the gas-based and fuel oil-based heat rate. SWPC is then obligated to pay all of the performance guarantee payments as determined by the final or most recent completed performance test. SWPC also must pay any Provisional Acceptance late completion payments required. 5.3.6 Performance Guarantees SWPC is required to design and construct the Facility to achieve certain guaranteed performance levels in regards to capacity, heat rate, and reliability. The Performance Guarantees are designed to ensure that the Project's performance meets or exceeds the minimum operating parameters of the PPA. B-46 5.3.7 Warranty Period The EPC Contract provides a warranty for all machinery, engineering and design, and for situations involving corrections, additions, repairs or replacements. With respect to all machinery, equipment, materials, systems, supplies and other items comprising the Project, the warranty period is the earlier to occur of (i) 12 months following the first to occur of Provisional Acceptance, Interim Acceptance and Final Acceptance and (ii) with respect to the machinery, equipment, materials, systems, supplies and other items comprising each unit, the date on which such unit has operated for 8,000 equivalent operating hours following the first to occur of Provisional Acceptance, Interim Acceptance, and Final Acceptance. With respect to the engineering and design of the Project and its components, 12 months following the first to occur of Provisional Acceptance, Interim Acceptance and Final Acceptance; and in the case of any correction, addition, repair or replacement to any machinery, equipment, materials, systems, supplies or other items, including without limitation the engineering or design thereof, during any existing warranty period, with respect to such machinery, equipment, materials, systems, supplies or other items, twelve months after the date of such correction, addition, repair or replacement, but in no event later than 24 months after the originally scheduled expiration date of the applicable initial warranty period. In addition, the EPC Contract states that SWPC warrants and guarantees that the design of the Facility is based on a useful life design objective for a period not less than 25 years from the COD. Stone & Webster is of the opinion that the warranty period is acceptable based on the commercial terms of the EPC Contract in conjunction with the Maintenance Services Agreement. These two agreements, although independent, are complementary and afford the Project a greater degree of protection that is available from the EPC Contract alone. The risk posed by the possibility of a component failure that occurs after the expiration of the one year EPC Contract warranty has been mitigated because the revenues presented in the Projected Operating Results are sufficient to allow the purchase of replacement components. Component failures associated with catastrophic failures are generally covered by insurance policies. 5.3.8 Liquidated Damages If there is a shortfall in either electrical output or heat rate SWPC will pay AES Ironwood rebates for failure to meet both interim and final performance requirements. SWPC guarantees to AES Ironwood to demonstrate a performance level equivalent to the performance guarantees at least by Final Acceptance. SWPC agrees to pay a specified amount per kilowatt for each kilowatt less than the gas-based electrical output guarantee and a specified amount per kilowatt for each kilowatt less than the fuel oil-based output guarantee, as of Final Acceptance. The output rebate B-47 for the gas-based operation is sufficient to motivate SWPC to meet their gas-based electrical output guarantee. SWPC will pay to AES Ironwood specified rebate amounts for each Btu/kWh that the heat rate exceeds the heat rate guarantees for gas and Jet A fuel, including interim rebates for heat rate while firing gas during the period from interim acceptance until Final Acceptance. The heat rate rebates are sufficient to motivate SWPC to meet their heat rate guarantees. SWPC guarantees that at least one of the Provisional Acceptance, Interim Acceptance, or Final Acceptance will occur on or before the Guaranteed Provisional Acceptance Date, and that Final Acceptance will occur on or before the Guaranteed Final Acceptance Date. If SWPC fails to achieve the Provisional, Interim or Final Acceptance by the Guaranteed Provisional Acceptance Date, then SWPC will pay AES Ironwood a specified dollar amount per day. If SWPC does not achieve Provisional, Interim, or Final Acceptance within 40 days of the Guaranteed Provisional Acceptance Date, then SWPC must provide an acceptable plan to achieve acceptance within 12 months after the Guaranteed Provisional Acceptance Date and the Final Acceptance of the Facility by the Guaranteed Final Acceptance Date. The Provisional Acceptance Late Completion Payments cannot exceed 20% of the contract price. If Final Acceptance does not occur on or before the Guaranteed Final Acceptance Date, the Provisional Acceptance Late Completion Payments, together with contingencies and prefunded IDC, will be sufficient to cover the Williams payment plus debt service commitment for approximately one year after the Guaranteed Provisional Acceptance Date. The total aggregate Performance Guarantee Payment is equal to the lesser of the aggregate total of the Performance Guarantee Payments or the total liquidated damages subcap less all Provisional Acceptance Late Completion Payments. The total liquidated damages subcap, including the Performance Guarantee Payment and all Provisional Acceptance Late Completion Payments, cannot exceed 45% of the contract price. Stone & Webster believes, based on its review, that the liquidated damages provisions are sufficient to motivate SWPC to meet their contractual obligations. 5.4 Management and Operations Agreement Stone & Webster reviewed the Operations Agreement and Services Agreement between AES Ironwood and AES Prescott. Certain provisions of the agreement are discussed below. For a summary of the material terms of the agreement, reference is made to "Description of the Project Contracts - Operations Agreement" in the Offering Circular. Under the Operations Agreement AES Prescott is obligated to supply personnel and support services required by AES Ironwood to supervise the development and construction of the Project until the COD and to maintain and operate the Facility following the COD through the remaining B-48 term of the agreement. The agreement commences on the execution date and terminates the last day of the month in the 27th anniversary of the execution date. Stone & Webster is of the opinion that the Operations Agreement is reasonable and believes that each Party is capable of fulfilling all of its obligations therein. 5.5 Services Agreement Stone & Webster reviewed the Services Agreement between AES and AES Prescott. Certain provisions of the agreement are discussed below. For a summary of the material terms of the agreement, reference is made to "Description of the Project Contracts - Services Agreement" in the Offering Circular. AES will provide certain personnel and support services to AES Prescott in order for AES Prescott to perform its obligations under the Services Agreement. The Services Agreement commences on the execution date and terminates the last day of the month in the 27th anniversary of the execution date. Stone & Webster is of the opinion that the Services Agreement is reasonable and believes that each Party is capable of fulfilling all of its obligations therein. 5.6 Effluent Supply Agreement Stone & Webster reviewed the ESA between AES Ironwood and the City of Lebanon Authority. Certain provisions of the agreement are discussed below. For a summary of the material terms of the agreement, reference is made to "Description of the Project Contracts - Effluent Supply Agreement" in the Offering Circular. The agreement was executed on March 3, 1998. The City of Lebanon Authority operates a publicly owned wastewater treatment facility for the handling, treatment, and disposal of wastewater, which meets applicable governmental requirements. The City of Lebanon Authority is willing to provide this treated effluent to the Project for use at the Facility. The term of this Agreement is 25 years with no more than four successive five-year extensions. The makeup water will be delivered to the Project by way of a nominal 6.5 mile pipeline with pumphouse and ancillary facilities. The pipeline is about 18 inches in diameter and is designed for a capacity of 3,000 gallons per minute. The point of delivery is located at or inside the Project property. In addition to the treated effluent the City of Lebanon Authority will also supply potable water to the Project. Stone & Webster is of the opinion that the ESA is technically reasonable and believes that each Party is capable of fulfilling all of its obligations therein. B-49 5.7 Agreement Relating to Real Estate Stone & Webster reviewed the Agreement Related to Real Estate between AES Ironwood and Pennsy Supply, Inc. ("Pennsy"), dated October 22, 1998. Certain provisions of the agreement are discussed below. For a summary of the material terms of the agreement, reference is made to "Description of Project Contracts Agreement Relating to Real Estate" in the Offering Circular. AES is the equitable owner of the 35-acre property on which it intends to build the Project. Pennsy currently owns tracts of land that border the AES property. The agreement addresses certain real estate transfer, access and easement agreements, and water pumping arrangements. Additionally, the agreement confers preferred vendor status upon Pennsy for the supply of certain construction materials to AES Ironwood. Responsibilities of the parties regarding applications and permits including associated fees and costs of construction and maintenance are delineated in the agreement and appear reasonable. Based on other real estate agreements evaluated by Stone & Webster, the terms of this agreement appear reasonable. 5.8 Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract Stone & Webster reviewed the executed Maintenance Services Agreement between AES Ironwood and SWPC for the Project. Certain provisions of the agreement are discussed below. For a summary of the material terms of the agreement, reference is made to "Description of Project Contracts - Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract" in the Offering Circular. SWPC agrees to provide the parts and technical advice required to conduct the major maintenance for the combustion turbines. SWPC provides a warranty for its parts and the advice it provides in exchange for a fee paid by AES Ironwood. Under the terms of the Maintenance Services Agreement, all major maintenance and parts are to be provided by SWPC, even if the particular item is not covered by the original equipment warranty or some provision of this services agreement. The Maintenance Services Agreement obligates SWPC to notify AES Ironwood of any engineering or design defects that develop in the 501G fleet and provide remedial action. The Maintenance Services Agreement provides combustion turbine major maintenance (including all scheduled outages) and spare parts for this Project in a reasonable manner for approximately the initial eight years of operation. This service provided by an a affiliate of the combustion turbine supplier reduces the risk of using improper parts or maintenance being conducted improperly on the combustion turbines due to the close involvement of the original equipment manufacturer's trained personnel. The Maintenance Services Agreement provides risk mitigation by providing a warranty on parts provided as part of the Agreement. The warranty period ends B-50 with the earlier of one year from date of installation of the part, 8000 equivalent base hours of operation, or 100 starts of the combustion turbine. The Maintenance Services Agreement levelizes the major maintenance parts costs and indexes costs to the type of combustion turbine operation in a reasonable and consistent fashion. Under the agreement, AES Ironwood is responsible for labor and supervision of labor for the major maintenance activities and the normal and routine maintenance for the combustion turbines. These costs are included in the operation and maintenance budget and accounted for in the Project's Projected Operating Results. The Maintenance Services Agreement also obligates SWPC to notify AES Ironwood of any engineering or design defects that develop in the 501G fleet and to provide remedial action. SWPC's scope of supply requirements under the Maintenance Services Agreement are reasonable and consistent with standard industry practice. B-51 6. Principal Project Participants Stone & Webster reviewed the major Project participants and believe each should be capable of fulfilling their obligations to one another as specified in the various contracts and agreements of the Project. 6.1 AES Ironwood, LLC AES Ironwood is a limited liability company, organized and existing under the laws of Delaware. AES Ironwood was formed to develop, own, and operate the Project. AES Ironwood is a special purpose project company and a subsidiary of AES Ironwood, Inc.. AES Ironwood Inc. is a wholly owned subsidiary of The AES Corporation ("AES"). AES is one of the world's largest global power companies owning or having an interest in 97 plants totaling over 26,000 MW in 16 countries. AES was founded in 1981 and has 18 years of experience developing and operating large, complex power generating facilities. AES also distributes power in Brazil, El Salvador and Argentina and heat in Kazakhstan. AES operates gas-fired, oil-fired, hydropower, and solid-fuel plants, and employs approximately 40,000 people around the world. AES currently owns assets worth in excess of $10 billion. AES end-of-year 1998 revenue was $2.5 billion with a net income of $308 million. Stone & Webster believes that AES Ironwood, as an affiliate of AES and with the assistance of SWPC under the terms of the Maintenance Services Agreement, should be capable of operating and maintaining the Facility in accordance with standard industry practices. 6.2 AES Prescott, LLC AES Prescott is a Delaware limited liability company and a wholly owned subsidiary of AES Ironwood, Inc. AES Prescott will manage the development and construction of the Project pursuant to a development and construction management agreement between AES Prescott and AES Ironwood. Stone & Webster believes that AES Prescott, as an affiliate of AES, should be capable of managing the development and construction of the Project. 6.3 Williams Energy Marketing & Trading Company Williams is the Project's power purchaser and fuel supplier. Williams is a corporation organized and existing under the laws of the State of Delaware and is a wholly owned subsidiary of the Williams Companies. The Williams Companies, through its subsidiaries, is engaged in the transportation and sale of natural gas and petroleum products, and is engaged in energy commodity trading and marketing. For the nine months ended September 1998, revenues were $5.64 billion with a net income of $160 million. B-52 Stone & Webster believes that Williams possesses the organization and personnel to execute its obligations under the PPA, and is familiar with the provision of fuel and purchase of electricity from large electrical generation facilities. 6.4 Siemens Westinghouse Power Corporation SWPC is the Project's EPC contractor. SWPC is a newly formed Delaware corporation that was formed in 1998 when Siemens Corporation acquired the Westinghouse Power Generation business from the CBS Corporation in August 1998. SWPC, headquartered in Orlando, Florida, is the regional business division for the Americas and operates engineering and manufacturing centers in North America. Siemens Corporation owns all of the SWPC stock and is an industry leader in telecommunications; energy and power; transportation; information systems and other products. For the first nine months of fiscal year 1997/1998 Siemens' U.S. businesses, with more than 55,000 employees, recorded sales of $7.0 billion. Siemens AG, based in Berlin and Munich, owns all of the Siemens Corporation stock and is one of the world's largest electrical engineering and electronics companies and employs over 400,000 people worldwide in more than 190 countries. Stone & Webster believes that SWPC possesses the organization and personnel to execute its obligations under the EPC Contract, and is familiar with the construction of large electrical generation facilities. Stone & Webster also believes SWPC considers the 501G technology advancement as being extremely important to its continued participation in the advanced combustion turbine market and therefore will ensure that the initial project installations are closely supported. B-53 7. Assessment of Projected Operating Results 7.1 Overview The Projected Operating Results consist of a pro forma financial model for AES Ironwood (the "Base Case"). Stone & Webster has reviewed the assumptions, data, and the calculations necessary to support the cash flow projections of cash flow available for debt service. Stone & Webster has verified that the underlying model assumptions are consistent with the expected performance and the commercial terms of the Project Agreements. Stone & Webster has validated key calculations to ensure that the resulting revenues, expenses, cash flow, and DSCRs were correctly calculated. Stone & Webster has reviewed the Projected Operating Results and compared them to data provided in the Project Agreements, data provided to Stone & Webster and power industry public information. Stone & Webster has not reviewed the tax and depreciation assumptions, which were provided by AES Ironwood, and financing assumptions, including the amortization schedule and interest rates, which were provided by Lehman Brothers. Lastly, Stone & Webster performed several sensitivities to determine the impact of certain variables on the DSCRs. The Projected Operating Results for the Base Case and the sensitivity cases are included in Exhibit I of this Report. The Projected Operating Results are calculated in nominal dollars based on an assumed inflation rate of 3% per annum. 7.2 Principal Considerations and Assumptions In preparing this Report and the conclusions contained herein, Stone & Webster has made certain assumptions with respect to the conditions, which may exist, or events, which may occur in the future. While Stone & Webster believes these assumptions to be reasonable for the purpose of this Report, they are dependent on future events, and actual conditions may differ from those assumed. In addition, Stone & Webster has used and relied on information provided to us by sources that we believe to be reliable. Stone & Webster believes that the use of this information and assumptions is reasonable for the purposes of our Report. However, some assumptions may vary significantly due to unanticipated events and circumstances. To the extent that actual future conditions may differ from those assumed in this Report, or provided to us by others, the actual results will vary from those forecast. This Report summarizes our work up to the date of the Report and changes in conditions occurring or that became known after such date could affect the Projected Operating Results. The principal considerations and assumptions related to the Projected Operating Results are listed below: 1. Stone & Webster has assumed that the Project will be designed and built in accordance with the design specifications and the construction schedule dictated in the EPC contract. B-54 2. The electricity market energy and capacity price projections, which are relevant during the post PPA period were prepared by Hagler Bailly for Lehman Brothers, in its capacity as Initial Purchaser, using a market simulation model. Stone & Webster reviewed the technical inputs to the Hagler Bailly model and found them to be reasonable. Stone & Webster did not independently verify the methodology used by Hagler Bailly to develop the energy or capacity price forecasts nor verify the accuracy of the forecasts. 3. Stone & Webster has made no determination as to the validity and enforceability of any contract, agreement, rule, or regulation as applicable to the Facility and its operations. For the purposes of this Report, Stone & Webster has assumed that all contracts, agreements, rules, or regulations will be valid and fully enforceable in accordance with the terms and that all parties will comply with the provisions of their respective agreements. 4. Williams will arrange for the procurement and delivery of the fuel to the Facility and will purchase all available capacity, ancillary services, and energy from AES Ironwood in accordance with the PPA. 5. Stone & Webster has reviewed the capital and O&M budgets for AES Ironwood. We have assumed that the Facility will operate and be maintained in accordance with the Operations Agreement, O&M and capital budgets, standard industry practice, and in a safe and environmentally responsible manner. 6. Stone & Webster has assumed for purposes of the Projected Operating Results that AES Ironwood will operate the Facility pursuant to the PPA through the end of the first quarter of 2021 and as a merchant plant for the term of the Bonds. 7. Stone & Webster has assumed that the maintenance will be performed by AES Prescott in accordance with the Operations Agreement and by SWPC in accordance with the Maintenance Services Agreement. 8. The natural gas and fuel oil prices are inputs to the Hagler Bailly model. Stone & Webster reviewed the fuel price forecasts provided by the independent fuel consultant, CC Pace. It is assumed that the fuel will be available in sufficient quantities and at the prices forecasted for the period covered in the Projected Operating Results. 9. Stone & Webster has assumed that all licenses, permits, and approvals required to construct and operate the Project which have not been obtained will be obtained in a timely basis and any changes that may be required to any permits will not materially affect the design, operation, cost, or maintenance of the Project. 10. Stone & Webster has assumed that AES Ironwood will be able to purchase emission allowances, to the extent any are required, on an as needed basis to comply with the emission limits. We have assumed that emission offsets will be available for purchase at the prices forecasted in the Projected Operating Results. Stone & Webster has not evaluated the feasibility or cost of AES Ironwood implementing alternate strategies for complying with its emission limits. B-55 11. Stone & Webster has not evaluated the non-operating expenses projected by AES Ironwood including property and capital franchise taxes, insurance, and general and administrative expenses. 7.3 Project Cost Stone & Webster evaluated AES Ironwood's estimate for the total Project costs included in the pro forma financial model. The Projected Operating Results Base Case total Project construction costs are estimated to be $342 million (excluding contingency) or approximately $485/kW (net) in the pro forma financial model. The breakdown of the total Project costs is provided in the following table:
======================================================================== Total Project Costs ($ million) ======================================================================== EPC Contract $238.00 Other Hard (Construction-Related) Costs 13.94 Other Development and Construction Costs 21.35 Initial Working Capital 1.80 Net Interest During Construction 51.14 Start-up and Other Soft Costs 15.42 Company's Contingency 17.00 ------------------------------------------------------------------------ Total Project Costs $358.65 ========================================================================
Stone & Webster evaluated the Project's lump sum fixed price for the EPC Contract of $238.0 million (including adjustments), which is equivalent to approximately $338/kW (net). The EPC Contract price is very competitive relative to similar facilities. The non-EPC portion of the total Project cost includes construction management costs, start-up costs, insurance, financing costs including IDC as well as lenders, legal, and consultants fees, and working capital. The subtotal of the non-EPC portion of the total Project cost, excluding contingency, equals $104 million, or 29% of the total Project costs, which is within the range of other similar projects. The Project development costs represent slightly less than 5% of the total Project cost, which is reasonable for a project of this type. The Base Case assumes $1.8 million for the initial working capital, which is equivalent to 45 days of non-fuel O&M expenses. The financial model assumes B-56 a 4.7% contingency in the total Project cost, which based on our experience, is typical of similar projects. The financial model currently has $1.85 million in its capital budget for the initial spare parts. AES Ironwood intends to designate those operational spare parts approximately one year before commercial operations. In addition, there are $5.4 million worth of combustion turbine maintenance spares imbedded in the Maintenance Service Agreement, which will be available during the first 8000 EBH. SWPC has committed to stock one complete set of hot gas path parts for every four combustion turbines sold. 7.4 Power Production Stone & Webster evaluated the technical assumptions associated with the performance of the Project for electricity production. The Base Case assumes a 705 MW net Facility capacity at site conditions, a 92.5% average availability factor ("AF"), and 88.1% average capacity factor over the 26-year term of the Bond issue. AF is defined as the total hours in a year (i.e., 8760) minus planned maintenance hours and forced outage hours. Capacity factor is defined as the actual hours of operation (i.e., dispatched) over the year. The Base Case assumes that the Facility will continue to operate as a merchant facility after the expiration of the 20-year PPA. Under the merchant operation the Facility capacity is assumed to operate at a degraded net full load Facility capacity at site conditions ranging from 698 MW while operating on natural gas to 621 MW while operating on fuel oil. 7.4.1 Power Plant Availability Power plant availability is a function of many variables, including design and construction quality, operation and maintenance practices, and fuel quality. In order to be conservative, the Base Case assumes a lower AF in years one and two than in subsequent years. AES Ironwood projects the AF to be 90.4% in the first two years and an average of 92.7% in subsequent years. 7.4.2 Capacity Factor The Facility capacity factor is based on Hagler Bailley's economic dispatch of AES Ironwood within the context of its PJM market study. Stone & Webster did not independently verify the methodology that Hagler Bailly used to develop the capacity factor nor verify the accuracy of the forecast. Hagler Bailly projected for the Base Case that the AES Ironwood will have an average capacity factor of 88.1% during the term of the PPA and the post PPA period. B-57 7.4.3 Capacity The Base Case Projected Operating Results are based on the net Facility capacity operating on natural gas at site conditions adjusted to 92(degrees)F and including degradation. The Base Case model assumes a 4% degradation factor for output over the six-year maintenance cycle, which is standard for similar facilities. Stone & Webster considers the assumed degradation to be within the range of expected degradation for such power generation facilities. 7.5 Revenues Williams is obligated for a period of 20 years from the COD to purchase the Facility capacity, approximately 655 MW +/-10% (summer capacity) at 92(degrees)F when firing on natural gas pursuant to the PPA. Williams will pay AES Ironwood for the Facility capacity, fuel conversion services, and ancillary services provided under the PPA. The Project revenues are calculated based on the pricing and payment structure defined in Appendix 1 of the PPA. The revenues for the first full calendar year (Year 2002) are $60.2 million. The Total Fixed Payment is based on a Fixed Capacity Rate, which has a set schedule for the 20-year term of the PPA. If the Project Equivalent Availability Factor ("EAF") as defined in Appendix 1 to the PPA is greater than 85%, there is an Annual Availability Energy Adjustment ("AAEA") payable to AES Ironwood. The Annual Availability Capacity Adjustment ("AACA") will be calculated as a credit to Williams each year based on the EAF if the EAF is lower than 85%. For the Base Case there is no AACA projected for the 20-year term of the PPA. The AAEA and AACA are paid in the first quarter of the operating year following the end of the previous year. Williams provides fuel to the Project for conversion into energy. Consequently, the Project is not responsible for the cost of fuel. Rather Williams pays a fee to AES Ironwood to convert the fuel into energy. The Fuel Conversion Rates are escalated annually at the Gross Domestic Product Implicit Price Deflator ("GDPIPD"). The Base Case assumes a GDPIPD of 3%. In addition to the fuel conversion revenue, Williams is required to pay AES Ironwood an energy efficiency bonus or penalty ("HRB/HRP"). The energy efficiency bonus or penalty is based on the difference between the Heat Rate Target ("HRT") while operating on natural gas and the actual Facility Heat Rate ("FHR"), net electric energy delivered, and the natural gas price index. The Base Case assumes a 2% degradation factor for heat rate over the six-year maintenance cycle, which is standard for similar facilities. Stone & Webster considers the assumed degradation to be within the range of expected degradation for such power generation facilities. After 20 years from COD at the end of the PPA term, the Base Case assumes that the Project net capacity and energy will be sold into the PJM system for a period through and beyond the maturity of the Bonds. Hagler Bailly estimated the Base Case first merchant operating year B-58 (2021) AES Ironwood plant-specific energy and capacity market price projections in 1996 dollars at $27.16/MWh and $5.38/MWh, respectively. The total operating revenue for the first full merchant calendar year (Year 2022) is $379 million, which includes AAEA revenues earned in the final operating year of the PPA term. 7.6 Operating Expenses The estimated Project expenses during the PPA period consist of non-fuel fixed and variable expenses. The natural gas and fuel oil will be supplied and transported to the Project under the terms established in the PPA. During the PPA period, Williams will arrange for the procurement and delivery of the natural gas and fuel oil to the applicable Facility fuel delivery point. After the PPA period, AES Ironwood will be responsible for the procurement and delivery of all the fuel to the Facility. In the pro forma, the estimated O&M expenses are in nominal dollars reflecting an assumed 3% inflation per year. The first full calendar year (Year 2002) fixed and variable non-fuel O&M expenses, which total $17.2 million, and are detailed in the following table.
=========================================================================== Estimated Non-Fuel O&M Expenses (2002 $ ,000) =========================================================================== Fixed O&M $13.2 Variable O&M 2.1 Administration 0.3 Operating Insurance 0.6 Property Taxes 0.9 --------------------------------------------------------------------------- Total Non-Fuel O&M Expenses $17.2 ===========================================================================
Stone & Webster reviewed the O&M assumptions utilized in the Projected Operating Results. The information reviewed included assumptions and forecasts for unit performance; staffing functions and levels; annual O&M budget summary; and unit overhaul plans and schedules. Stone & Webster compared the information with its experience with plants of similar configuration and Utility Data Institute cost and staffing information for similar plants. Stone & Webster considers these Project assumptions to be reasonable and comparable to other facilities of similar design. B-59 7.6.1 Maintenance Schedule All maintenance work and spare parts replacement for the combustion turbine during the first eight years of the Facility operations will be provided by SWPC through the Maintenance Services Agreement and thereafter will be the responsibility of AES Ironwood. The O&M schedule and budget assumes that each combustion turbine accumulates 8000 EBH each year. SWPC's recommended frequency for annual inspections, hot gas path inspections, and major overhauls are being used. In addition, AES Ironwood has included in the schedule and budget a "cover lift" for every hot gas path inspection in order to restore any performance degradation experienced since the previous major overhaul. Stone & Webster believes that AES Ironwood's planned overhaul and maintenance schedule is reasonable and adequate to support its operational and business objectives. 7.6.2 Operations and Maintenance Budget Stone & Webster reviewed the non-fuel fixed, variable, and major maintenance expenses in the Projected Operating Results. Stone & Webster believes that the O&M budget is sufficient to support the planned staffing level, the maintenance and overhaul schedule, and the project's performance and business objectives. 7.6.3 O&M Staffing Levels AES Ironwood's planned functional positions and staffing levels were reviewed and are considered satisfactory to operate and maintain the Facility safely in accordance with the operational and regulatory requirements. The staffing levels compare favorably with and are typical of those found in similarly configured plants that Stone & Webster has reviewed. Our review also included the resume of the proposed Project Plant Manager, who appears to have relevant experience in similar plants and has previously demonstrated the requisite skills to perform satisfactorily for AES Ironwood. Stone & Webster believes that the staffing levels are adequate to support AES Ironwood's operational and business objectives. 7.6.4 Emission Compliance Costs The Projected Operating Results include an emission compliance limit cost. AES Ironwood will be required to purchase allowances equal to one ton per year for all SO2 emitted from the Facility and for all NOx emitted from the Facility during the summer ozone season (defined as May through September). The Base Case assumes that the Project will need approximately 150 tons of NOx allowances per year at the current market value of $2,200 per ton for a vintage 2001 allowance. The Project has already secured NOx allowances for the first two years of operation and has capitalized these costs. NOx allowance costs in the year 2003 are projected to be $0.4 million. The Base Case assumes that the Project will need approximately 198 tons of SO2 allowances per year, commencing at COD in year 2001, at the current market value of $200 per B-60 ton. The SO2 allowance cost for 2001 is $0.02 million. Both the NOx and SO2 allowance costs are projected to increase at 3% per annum. 7.6.5 Fuel Expense In operating year 21, the term of the PPA will end and AES Ironwood will be responsible for providing the fuel for the Facility to operate as a merchant plant. The Base Case assumes that the fuel will be purchased at the price stipulated in the CC Pace Fuel Forecast. The delivered natural gas price will start at $2.44/mmBtu in real 1996$'s in year 2001 and increases to $2.64/mmBtu in real 1996$'s in the first merchant operating year, 2021. Per the terms of the PPA, Williams will supply Jet A fuel oil to the Facility throughout the 20-year PPA. Following the PPA period, the Facility will purchase No. 2 fuel oil. The No. 2 fuel oil price is projected by CC Pace to be $3.69/mmBtu in 1996$ in 2021. The fuel expense assumed during the post PPA period is based on the Facility heat rate at ISO conditions, the Facility capacity factor, and the unit cost of fuel. The fuel expense for the first full calendar year of merchant operation is $219.2 million. When AES Ironwood becomes a merchant plant, the fuel expense will be the single largest expense. The CC Pace Fuel Forecast is given in 1998$'s. The Hagler Bailly report assumes that the fuel expenses are in 1996$'s and are escalated at 2.5%. The unit fuel costs used in the CC Pace Fuel Forecast are shown in the following table.
========================================================================================== Fuel Price Forecast ========================================================================================== Delivered Natural Gas Delivered No. 2 Fuel Oil Year ($1996/mmBtu) ($1996/mmBtu) ------------------------------------------------------------------------------------------ 2021 2.64 3.69 2022 2.65 3.69 2023 2.67 3.69 2024 2.68 3.69 2025 2.69 3.69 ==========================================================================================
The CC Pace Fuel Forecast for the PJM area is consistent with Stone & Webster's forecasts for fuels. 7.7 Financing Assumptions Lehman Brothers provided the financing assumptions for the $358.65 million Project cost. The source of funds will consist of $50.15 million in equity and $308.5 million. The capital cost items are allocated monthly during the construction period to calculate releases of Bond proceeds and interest during construction ("IDC"). The combined annual debt service (principal plus B-61 interest, annual administrative and LOC fees) during the post construction period ranges from a low of $16.3 million in 2001 to a high of $35.4 million in 2008. 7.8 Projected Operating Results The Projected Operating Results are shown in Exhibit I of this Report. On the basis of our studies and analyses of the Project, the Project Agreements and the assumptions set forth in this Report, the projected revenues from the sale of fuel conversion services, capacity, and ancillary services are more than adequate to pay the annual O&M expenses (including provisions for major maintenance), other operating expenses, and debt service. The Base Case indicate the following DSCRs:
================================================================================== Base Case Debt Service Coverage ================================================================================== Minimum Average ---------------------------------------------------------------------------------- PPA Period ---------------------------------------------------------------------------------- 1.45x 1.46x ---------------------------------------------------------------------------------- Post PPA Term ---------------------------------------------------------------------------------- 5.77x 5.81x ---------------------------------------------------------------------------------- Full Term of the Bonds ---------------------------------------------------------------------------------- 1.45x 2.30x ==================================================================================
7.9 Sensitivity Analyses Due to uncertainties necessarily inherent in relying on assumptions and projections, it should be anticipated that actual operating results would differ, perhaps, materially, from those assumed and described herein. In order to demonstrate the impact of certain circumstances on the Projected Operating Results, certain sensitivity analyses have been developed by Stone & Webster. It should be noted that other examples could have been considered, and those presented are not intended to reflect the full extent of possible impacts on the Project. Stone & Webster performed several sensitivity analyses using the pro forma financial model by varying the following Project specific key input parameters including power plant availability, heat rate degradation factors, and O&M costs. 7.9.1 Project Sensitivities The three Project sensitivities include increasing the Base Case O&M costs, increasing the Base Case heat rate, and decreasing the Base Case AF. B-62 Operation and Maintenance Cost Sensitivity - The Base Case O&M costs were increased by 15%. The resulting average and minimum DSCRs for the PPA term, the post PPA term, and the full term of the Bonds are summarized in the following table.
================================================================================== Sensitivity Case 1 Operation and Maintenance Debt Service Coverage Ratios ================================================================================== Minimum Average ---------------------------------------------------------------------------------- PPA Term ---------------------------------------------------------------------------------- 1.29x 1.38x ---------------------------------------------------------------------------------- Post PPA Term ---------------------------------------------------------------------------------- 5.58x 5.64x ---------------------------------------------------------------------------------- Full Term of the Bonds ---------------------------------------------------------------------------------- 1.29x 2.20x ==================================================================================
Heat Rate Degradation Factors - To test the sensitivity of the Projected Operating Results to heat rate, Stone & Webster increased the Base Case heat rate by 5% (ignoring liquidated damages "by-downs'). The resulting average and minimum DSCRs for the PPA term, the full term, and the post PPA term are summarized in the following table.
================================================================================== Sensitivity Case 2 Heat Rate Degradation Debt Service Coverage Ratios ================================================================================== Minimum Average ---------------------------------------------------------------------------------- PPA Term ---------------------------------------------------------------------------------- 1.11x 1.24x ---------------------------------------------------------------------------------- Post PPA Term ---------------------------------------------------------------------------------- 5.26x 5.29x ---------------------------------------------------------------------------------- Full Term of the Bonds ---------------------------------------------------------------------------------- 1.11x 2.02x ==================================================================================
Availability Factor Sensitivity - To test the pro forma sensitivity the Base Case AF assumption was changed. The Base Case AF is 90.4% for the first two years and ranges from 89.2% to 93.7% for the remaining life of the Facility. Due to the evolutionary nature of the 501G gas turbine design Stone & Webster took a more conservative approach and estimated the Facility AF to be approximately 85% in the first two years and to increase to 90% in the remaining years of the term of the Bonds. The resulting average and minimum DSCRs for the PPA term, the full term, and the post PPA term are summarized in the following table. B-63
================================================================================== Sensitivity Case 3 Availability Factor Debt Service Coverage Ratios ================================================================================== Minimum Average ----------------------------------------------------------------------------------- PPA Term ----------------------------------------------------------------------------------- 1.41x 1.43x ----------------------------------------------------------------------------------- Post PPA Term ----------------------------------------------------------------------------------- 5.70x 5.73x ----------------------------------------------------------------------------------- Full Term of the Bond ----------------------------------------------------------------------------------- 1.41x 2.26x ==================================================================================
7.9.2 Hagler Bailly Sensitivities In addition, sensitivity of the Project results was assessed for the two downside alternatives, Low Demand Growth Case and a High Gas Price Case. The High Gas Price and Low Demand Growth scenarios were taken from the Hagler Bailly forecasts. Stone & Webster applied the two Hagler Bailly "macroeconomic" downside sensitivities to the Base Case. High Gas Price - The natural gas prices were uniformly increased by $0.50 per mmBtu (in 1996$) above the CC Pace forecast levels. The resulting average and minimum DSCRs for the post PPA term are summarized in the following table.
===================================================================================== Sensitivity Case 4 - High Gas Price Debt Service Coverage Ratios ===================================================================================== Minimum Average ------------------------------------------------------------------------------------- Post PPA Term ------------------------------------------------------------------------------------- 4.98x 5.13x =====================================================================================
B-64 Low Demand Growth - The demand growth rates were reduced by a third, compared to the Base Case, for the period 2017 through 2025. In this case the peak and total demand grew at only 0.50% and 1.00% per annum, respectively beginning in 2017, while new capacity building remained per the Hagler Bailly base case. The resulting average and minimum DSCRs for the post PPA term are summarized in the following table.
===================================================================================== Sensitivity Case 5 - Low Demand Growth Debt Service Coverage Ratios ===================================================================================== Minimum Average ------------------------------------------------------------------------------------- Post PPA Term ------------------------------------------------------------------------------------- 4.70x 4.93x =====================================================================================
7.10 Liquidated Damages Analyses Stone & Webster reviewed the impact on the average DSCRs if SWPC fails to pass certain performance tests and there is a long-term performance deficiency over the term of the Bonds. It was assumed that the performance liquidated damages paid to AES Ironwood by SWPC would be used to buy down the Bonds on a pro rata basis. The analysis was performed to demonstrate that the liquidated damages for the guaranteed net electrical output and guaranteed net heat rate are sufficient to maintain the DSCRs at the same level as projected in the Base Case. It is projected that the average DSCRs over the term of the Bonds, after payment of the liquidated damages due to a failure to achieve the guaranteed net electrical output and the guaranteed net heat rate, will generally remain at the same level as the average DSCRs in the Base Case for deficiencies up to approximately 5% in net electrical output and 6% in net heat rate. SWPC is required to pay liquidated damages for a delay in the Facility completion. SWPC will pay AES Ironwood $110,000 for each day after the required Facility completion date that the Facility completion is not achieved. The liquidated damages for a delay in the Facility completion cannot exceed 20% of the contract price. Such payment, together with contingencies and prefunded IDC, will be sufficient to cover the Williams payment plus debt service commitment for approximately one year after the Guaranteed Provisional Acceptance Date. B-65 Exhibit I Base Case Increased O&M Sensitivity (Case #1) Increased Heat Rate Sensitivity (Case #2) Decreased Availability Sensitivity (Case #3) Hagler Bailey High Gas Price Sensitivity (Case #4) Hagler Bailly Low Demand Growth Sensitivity (Case #5) B-66 Confidential Exhibit I AES Ironwood Projected Operating Results Base Case
PPA Period ------------------------------------------------------------------------------------ Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ------------------------------------------------------------------------------------ Net Operating Revenues ($million) PPA Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5 Merchant Revenues - - - - - - - - - - - ------------------------------------------------------------------------------------ Total Operating Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5 ------------------------------------------------------------------------------------ Operating Expenses ($million) Fuel - - - - - - - - - - - Fixed O&M 7.0 13.2 9.5 10.6 12.3 9.8 11.5 13.4 11.2 10.6 10.6 Variable O&M 1.3 2.1 2.2 2.3 2.4 5.2 4.5 2.7 2.7 2.8 3.0 Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4 Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2 Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Operating Expenses 8.9 17.2 14.1 15.4 17.3 17.7 18.9 19.0 16.9 16.6 16.8 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Cash Flow Available for Debt Service ($million) 26.3 43.2 46.6 48.2 48.3 47.5 49.4 51.4 47.4 46.8 49.2 ------------------------------------------------------------------------------------ Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4 Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6 LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Annual Debt Service Coverage 1.61x 1.46x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x ------------------------------------------------------------------------------------ PPA Period --------------------------------------------------------------------------- Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* --------------------------------------------------------------------------- Net Operating Revenues ($million) PPA Revenues 65.6 67.3 67.1 64.8 66.2 65.8 63.0 64.4 64.6 27.5 Merchant Revenues - - - - - - - - - 215.3 --------------------------------------------------------------------------- Total Operating Revenues 65.6 67.3 67.1 64.8 66.2 65.8 63.0 64.4 64.6 242.8 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2 --------------------------------------------------------------------------- Operating Expenses ($million) Fuel - - - - - - - - - 123.4 Fixed O&M 13.3 13.5 11.5 11.7 12.8 12.6 15.7 16.1 13.7 13.6 Variable O&M 6.3 5.5 3.3 3.3 3.5 3.6 7.6 6.6 4.0 4.1 Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9 Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6 Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9 --------------------------------------------------------------------------- Total Operating Expenses 22.9 22.3 18.2 18.7 20.1 20.1 27.3 26.9 22.0 146.0 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Cash Flow Available for Debt Service ($million) 43.0 45.3 49.3 46.4 46.4 46.2 36.0 37.8 43.0 97.1 --------------------------------------------------------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1 Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2 LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2 --------------------------------------------------------------------------- Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Annual Debt Service Coverage 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 3.81x --------------------------------------------------------------------------- ============================= Post PPA Period ----------------------------- Year Ending December 31, 2022 2023 2024 2025 ----------------------------- Net Operating Revenues ($million) PPA Revenues - - - - Merchant Revenues 378.9 389.7 391.5 416.2 ----------------------------- Total Operating Revenues 378.9 389.7 391.5 416.2 ----------------------------- ----------------------------- Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2 ----------------------------- Operating Expenses ($million) Fuel 219.2 228.8 226.8 238.4 Fixed O&M 13.3 14.9 19.3 18.7 Variable O&M 4.2 4.4 9.1 7.9 Administration 0.5 0.5 0.5 0.6 Insurance 1.9 2.0 2.0 2.1 Property Taxes 1.6 1.7 1.7 1.8 Local Taxes 1.6 2.3 3.0 3.8 ----------------------------- Total Operating Expenses 242.4 254.6 262.4 273.2 ----------------------------- ----------------------------- Cash Flow Available for Debt Service ($million) 136.8 135.7 129.4 143.3 ----------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0 Principal and Interest 23.3 23.1 22.1 22.5 LOC & Administrative Fees 0.2 0.2 0.2 0.2 ----------------------------- Total Debt Service 23.6 23.3 22.3 22.7 ----------------------------- ----------------------------- Annual Debt Service Coverage 5.81x 5.81x 5.80x 5.77x =============================
* The first five months of 2021 include PPA cash flow and the last seven months of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.81. Average Debt Coverage During PPA 1.46x Minimum Debt Coverage During PPA 1.45x Average Debt Coverage Post PPA 5.81x Minimum Debt Coverage Post PPA 5.77x Average Debt Coverage During 2.30x Bond Term B - 67 Confidential Exhibit I AES Ironwood Projected Operating Results Increased O&M Sensitivity (Case #1)
PPA Period ------------------------------------------------------------------------------------ Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ------------------------------------------------------------------------------------ Net Operating Revenues ($million) PPA Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5 Merchant Revenues - - - - - - - - - - - ------------------------------------------------------------------------------------ Total Operating Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5 ------------------------------------------------------------------------------------ Operating Expenses ($million) Fuel - - - - - - - - - - - Fixed O&M 7.4 13.9 9.7 11.0 13.1 10.3 12.1 14.2 12.5 12.2 12.2 Variable O&M 1.4 2.5 2.5 2.7 2.8 6.0 5.2 3.1 3.1 3.2 3.4 Administration 0.2 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Insurance - 0.7 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6 Property Taxes 0.6 1.0 1.1 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.4 Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Operating Expenses 9.6 18.5 14.9 16.5 18.8 19.3 20.5 20.6 19.0 19.0 19.2 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Cash Flow Available for Debt Service ($million) 25.7 41.9 45.7 47.1 46.8 45.9 47.7 49.8 45.3 44.5 46.8 ------------------------------------------------------------------------------------ Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4 Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6 LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Annual Debt Service Coverage 1.57x 1.42x 1.43x 1.42x 1.41x 1.40x 1.40x 1.41x 1.39x 1.38x 1.38x ------------------------------------------------------------------------------------ PPA Period ---------------------------------------------------------------------------- Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* ---------------------------------------------------------------------------- Net Operating Revenues ($million) PPA Revenues 65.6 67.3 67.1 64.8 66.2 65.8 63.0 64.4 64.6 27.5 Merchant Revenues - - - - - - - - - 215.3 ---------------------------------------------------------------------------- Total Operating Revenues 65.6 67.3 67.1 64.8 66.2 65.8 63.0 64.4 64.6 242.8 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.3 0.3 0.6 0.3 0.3 0.5 0.3 ---------------------------------------------------------------------------- Operating Expenses ($million) Fuel - - - - - - - - - 123.4 Fixed O&M 15.3 15.4 13.2 13.5 14.7 14.5 18.1 18.5 15.8 15.8 Variable O&M 7.3 6.3 3.7 3.8 4.0 4.2 8.7 7.6 4.6 4.7 Administration 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 Insurance 1.6 1.7 1.7 1.8 1.8 1.9 2.0 2.0 2.1 2.1 Property Taxes 1.4 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9 ---------------------------------------------------------------------------- Total Operating Expenses 26.3 25.5 20.9 21.5 23.0 23.1 31.4 30.7 25.2 149.3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash Flow Available for Debt Service ($million) 39.6 42.0 46.6 43.6 43.5 43.4 32.0 33.9 39.8 93.7 ---------------------------------------------------------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1 Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2 LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2 ---------------------------------------------------------------------------- Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Annual Debt Service Coverage 1.34x 1.35x 1.37x 1.36x 1.36x 1.36x 1.29x 1.30x 1.34x 3.68x ---------------------------------------------------------------------------- ============================= Post PPA Period ----------------------------- Year Ending December 31, 2022 2023 2024 2025 ----------------------------- Net Operating Revenues ($million) PPA Revenues - - - - Merchant Revenues 378.9 389.7 391.5 416.2 ----------------------------- Total Operating Revenues 378.9 389.7 391.5 416.2 ----------------------------- ----------------------------- Interest Earned on Accounts ($million) 0.3 0.6 0.4 0.2 ----------------------------- Operating Expenses ($million) Fuel 219.2 228.8 226.8 238.4 Fixed O&M 15.5 17.1 22.2 21.4 Variable O&M 4.9 5.0 10.5 9.1 Administration 0.6 0.6 0.6 0.6 Insurance 2.2 2.3 2.3 2.4 Property Taxes 1.9 1.9 2.0 2.1 Local Taxes 1.6 2.3 3.0 3.8 ----------------------------- Total Operating Expenses 245.9 258.1 267.3 277.8 ----------------------------- ----------------------------- Cash Flow Available for Debt Service ($million) 133.4 132.2 124.5 138.6 ----------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0 Principal and Interest 23.3 23.1 22.1 22.5 LOC & Administrative Fees 0.2 0.2 0.2 0.2 ----------------------------- Total Debt Service 23.6 23.3 22.3 22.7 ----------------------------- ----------------------------- Annual Debt Service Coverage 5.66x 5.67x 5.58x 5.59x =============================
* The first five months of 2021 include PPA cash flow and the last seven months of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.68. Average Debt Coverage During PPA 1.38x Minimum Debt Coverage During PPA 1.29x Average Debt Coverage Post PPA 5.64x Minimum Debt Coverage Post PPA 5.58x Average Debt Coverage During 2.20x Bond Term B - 68 Confidential Exhibit I AES Ironwood Projected Operating Results Increased Heat Rate Sensitivity (Case #2)
PPA Period ------------------------------------------------------------------------------------ Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ------------------------------------------------------------------------------------ Net Operating Revenues ($million) PPA Revenues 32.3 55.4 55.5 58.2 59.9 59.6 62.2 64.0 58.0 56.6 58.6 Merchant Revenues - - - - - - - - - - - ------------------------------------------------------------------------------------ Total Operating Revenues 32.3 55.4 55.5 58.2 59.9 59.6 62.2 64.0 58.0 56.6 58.6 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5 ------------------------------------------------------------------------------------ Operating Expenses ($million) Fuel - - - - - - - - - - - Fixed O&M 5.6 12.3 9.4 10.5 12.2 9.8 11.4 13.2 11.2 10.5 10.4 Variable O&M 1.3 2.1 2.2 2.3 2.4 5.2 4.5 2.7 2.7 2.8 3.0 Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4 Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2 Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Operating Expenses 7.6 16.3 14.0 15.3 17.2 17.7 18.7 18.8 16.9 16.4 16.6 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Cash Flow Available for Debt Service ($million) 24.9 39.3 41.7 43.1 42.9 42.0 43.7 45.4 41.3 40.5 42.5 ------------------------------------------------------------------------------------ Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4 Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6 LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9 ------------------------------------------------------------------------------------ Annual Debt Service Coverage 1.53x 1.33x 1.30x 1.30x 1.29x 1.28x 1.28x 1.28x 1.26x 1.26x 1.25x ------------------------------------------------------------------------------------ PPA Period ---------------------------------------------------------------------------- Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* ---------------------------------------------------------------------------- Net Operating Revenues ($million) PPA Revenues 58.6 60.0 59.4 57.0 57.8 57.2 54.4 55.3 54.9 23.5 Merchant Revenues - - - - - - - - - 215.3 ---------------------------------------------------------------------------- Total Operating Revenues 58.6 60.0 59.4 57.0 57.8 57.2 54.4 55.3 54.9 238.7 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2 ---------------------------------------------------------------------------- Operating Expenses ($million) Fuel - - - - - - - - - 129.6 Fixed O&M 13.3 13.3 11.3 11.6 12.6 12.5 15.7 15.9 13.5 16.3 Variable O&M 6.3 5.5 3.3 3.3 3.5 3.6 7.6 6.6 4.0 4.1 Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9 Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6 Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9 ---------------------------------------------------------------------------- Total Operating Expenses 22.9 22.1 18.0 18.6 19.9 20.0 27.3 26.6 21.7 154.8 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash Flow Available for Debt Service ($million) 36.1 38.2 41.8 38.6 38.3 37.7 27.4 29.0 33.6 84.1 ---------------------------------------------------------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1 Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2 LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2 ---------------------------------------------------------------------------- Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5 ---------------------------------------------------------------------------- Annual Debt Service Coverage 1.22x 1.23x 1.23x 1.21x 1.20x 1.18x 1.11x 1.11x 1.13x 3.30x ---------------------------------------------------------------------------- ============================= Post PPA Period ----------------------------- Year Ending December 31, 2022 2023 2024 2025 ----------------------------- Net Operating Revenues ($million) PPA Revenues - - - - Merchant Revenues 378.9 389.7 391.5 416.2 ----------------------------- Total Operating Revenues 378.9 389.7 391.5 416.2 ----------------------------- ----------------------------- Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2 ----------------------------- Operating Expenses ($million) Fuel 230.2 240.2 238.1 250.3 Fixed O&M 15.3 14.9 19.3 18.7 Variable O&M 4.2 4.4 9.1 7.9 Administration 0.5 0.5 0.5 0.6 Insurance 1.9 2.0 2.0 2.1 Property Taxes 1.6 1.7 1.7 1.8 Local Taxes 1.6 2.3 3.0 3.8 ----------------------------- Total Operating Expenses 255.3 266.0 273.8 285.1 ----------------------------- ----------------------------- Cash Flow Available for Debt Service ($million) 123.8 124.2 118.1 131.3 ----------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0 Principal and Interest 23.3 23.1 22.1 22.5 LOC & Administrative Fees 0.2 0.2 0.2 0.2 ----------------------------- Total Debt Service 23.6 23.3 22.3 22.7 ----------------------------- Annual Debt Service Coverage 5.26x 5.32x 5.29x 5.29x =============================
* The first five months of 2021 include PPA cash flow and the last seven months of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.30. Average Debt Coverage During PPA 1.24x Minimum Debt Coverage During PPA 1.11x Average Debt Coverage Post PPA 5.29x Minimum Debt Coverage Post PPA 5.26x Average Debt Coverage During 2.02x Bond Term B - 69 Confidential Exhibit I AES Ironwood Projected Operating Results Decreased Availability Sensitivity (Case #3)
PPA Period ------------------------------------------------------------------------------------ Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ------------------------------------------------------------------------------------ Net Operating Revenues ($million) PPA Revenues 35.1 59.9 59.9 62.8 64.6 64.2 67.3 69.3 63.2 62.3 64.7 Merchant Revenues - - - - - - - - - - - ------------------------------------------------------------------------------------ Total Operating Revenues 35.1 59.9 59.9 62.8 64.6 64.2 67.3 69.3 63.2 62.3 64.7 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5 ------------------------------------------------------------------------------------ Operating Expenses ($million) Fuel - - - - - - - - - - - Fixed O&M 7.0 13.1 9.4 10.7 12.3 9.8 11.6 13.4 11.2 10.6 10.6 Variable O&M 1.3 2.1 2.2 2.3 2.4 5.2 4.5 2.7 2.7 2.8 3.0 Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4 Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2 Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Operating Expenses 8.9 17.1 13.9 15.5 17.3 17.7 18.9 19.0 16.9 16.6 16.8 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Cash Flow Available for Debt Service ($million) 26.3 43.0 46.1 47.5 47.5 46.7 48.6 50.6 46.6 46.0 48.3 ------------------------------------------------------------------------------------ Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4 Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6 LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Annual Debt Service Coverage 1.61x 1.45x 1.44x 1.43x 1.43x 1.43x 1.43x 1.43x 1.42x 1.43x 1.42x ------------------------------------------------------------------------------------ PPA Period ---------------------------------------------------------------------------- Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* ---------------------------------------------------------------------------- Net Operating Revenues ($million) PPA Revenues 64.6 66.4 66.2 63.8 65.2 64.8 61.8 63.3 63.4 26.4 Merchant Revenues - - - - - - - - - 213.7 ---------------------------------------------------------------------------- Total Operating Revenues 64.6 66.4 66.2 63.8 65.2 64.8 61.8 63.3 63.4 240.0 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2 ---------------------------------------------------------------------------- Operating Expenses ($million) Fuel - - - - - - - - - 122.4 Fixed O&M 13.2 13.5 11.5 11.6 12.9 12.5 15.6 16.2 13.7 13.6 Variable O&M 6.3 5.5 3.3 3.3 3.5 3.6 7.6 6.6 4.0 4.1 Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9 Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6 Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9 ---------------------------------------------------------------------------- Total Operating Expenses 22.8 22.3 18.2 18.6 20.2 20.1 27.2 26.9 22.0 144.9 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash Flow Available for Debt Service ($million) 42.1 44.3 48.4 45.4 45.4 45.2 34.9 36.7 41.9 95.4 ---------------------------------------------------------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1 Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2 LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2 ---------------------------------------------------------------------------- Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Annual Debt Service Coverage 1.42x 1.42x 1.42x 1.42x 1.42x 1.42x 1.41x 1.41x 1.41x 3.74x ---------------------------------------------------------------------------- ============================= Post PPA Period ----------------------------- Year Ending December 31, 2022 2023 2024 2025 ----------------------------- Net Operating Revenues ($million) PPA Revenues (0.1) - - - Merchant Revenues 373.5 381.8 387.8 411.3 ----------------------------- Total Operating Revenues 373.4 381.8 387.8 411.3 ----------------------------- ----------------------------- Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2 ----------------------------- Operating Expenses ($million) Fuel 215.8 223.4 224.2 235.1 Fixed O&M 13.7 14.9 19.3 18.7 Variable O&M 4.2 4.3 9.0 7.8 Administration 0.5 0.5 0.5 0.6 Insurance 1.9 2.0 2.0 2.1 Property Taxes 1.6 1.7 1.7 1.8 Local Taxes 1.6 2.3 3.0 3.8 ----------------------------- Total Operating Expenses 239.4 249.0 259.8 269.8 ----------------------------- ----------------------------- Cash Flow Available for Debt Service ($million) 134.3 133.3 128.3 141.7 ----------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0 Principal and Interest 23.3 23.1 22.1 22.5 LOC & Administrative Fees 0.2 0.2 0.2 0.2 ----------------------------- Total Debt Service 23.6 23.3 22.3 22.7 ----------------------------- ----------------------------- Annual Debt Service Coverage 5.70x 5.71x 5.75x 5.71x =============================
* The first five months of 2021 include PPA cash flow and the last seven months of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.74. Average Debt Coverage During PPA 1.43x Minimum Debt Coverage During PPA 1.41x Average Debt Coverage Post PPA 5.73x Minimum Debt Coverage Post PPA 5.70x Average Debt Coverage During 2.26x Bond Term B - 70 Confidential Exhibit I AES Ironwood Projected Operating Results Hagler Bailly High Gas Price Sensitivity (Case #4)
PPA Period ------------------------------------------------------------------------------------ Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ------------------------------------------------------------------------------------ Net Operating Revenues ($million) PPA Revenues 34.8 59.4 59.6 62.5 64.3 63.9 67.0 68.8 62.6 61.8 64.3 Merchant Revenues - - - - - - - - - - - ------------------------------------------------------------------------------------ Total Operating Revenues 34.8 59.4 59.6 62.5 64.3 63.9 67.0 68.8 62.6 61.8 64.3 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5 ------------------------------------------------------------------------------------ Operating Expenses ($million) Fuel - - - - - - - - - - - Fixed O&M 7.0 13.1 9.4 10.6 12.2 9.8 11.6 13.3 11.1 10.7 10.6 Variable O&M 1.2 2.0 2.1 2.2 2.3 5.1 4.4 2.5 2.5 2.7 2.8 Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4 Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2 Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Operating Expenses 8.9 17.0 13.8 15.3 17.1 17.5 18.8 18.8 16.6 16.4 16.6 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Cash Flow Available for Debt Service ($million) 26.0 42.6 45.9 47.4 47.4 46.6 48.4 50.4 46.2 45.7 48.1 ------------------------------------------------------------------------------------ Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4 Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6 LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Annual Debt Service Coverage 1.60x 1.44x 1.43x 1.43x 1.43x 1.42x 1.42x 1.42x 1.41x 1.42x 1.42x ------------------------------------------------------------------------------------ PPA Period ---------------------------------------------------------------------------- Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* ---------------------------------------------------------------------------- Net Operating Revenues ($million) PPA Revenues 64.2 66.2 66.0 63.6 65.3 65.1 61.9 63.4 63.7 26.7 Merchant Revenues - - - - - - - - - 225.7 ---------------------------------------------------------------------------- Total Operating Revenues 64.2 66.2 66.0 63.6 65.3 65.1 61.9 63.4 63.7 252.3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2 ---------------------------------------------------------------------------- Operating Expenses ($million) Fuel - - - - - - - - - 141.6 Fixed O&M 13.2 13.5 11.4 11.6 12.9 12.6 15.6 16.2 13.8 13.5 Variable O&M 6.2 5.3 3.1 3.2 3.4 3.5 7.5 6.5 3.9 4.0 Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9 Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6 Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9 ---------------------------------------------------------------------------- Total Operating Expenses 22.6 22.3 18.1 18.4 20.1 20.0 27.1 26.8 22.0 163.9 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash Flow Available for Debt Service ($million) 41.9 44.2 48.4 45.4 45.5 45.6 35.2 36.8 42.2 88.6 ---------------------------------------------------------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1 Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2 LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2 ---------------------------------------------------------------------------- Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Annual Debt Service Coverage 1.42x 1.42x 1.42x 1.42x 1.42x 1.43x 1.42x 1.41x 1.42x 3.48x ---------------------------------------------------------------------------- ============================= Post PPA Period ----------------------------- Year Ending December 31, 2022 2023 2024 2025 ----------------------------- Net Operating Revenues ($million) PPA Revenues - - - - Merchant Revenues 398.8 407.0 405.7 432.2 ----------------------------- Total Operating Revenues 398.8 407.0 405.7 432.2 ----------------------------- ----------------------------- Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2 ----------------------------- Operating Expenses ($million) Fuel 251.5 261.6 259.5 273.5 Fixed O&M 13.7 14.9 19.3 18.7 Variable O&M 4.2 4.3 9.0 7.9 Administration 0.5 0.5 0.5 0.6 Insurance 1.9 2.0 2.0 2.1 Property Taxes 1.6 1.7 1.7 1.8 Local Taxes 1.6 2.3 3.0 3.8 ----------------------------- Total Operating Expenses 275.0 287.3 295.1 308.2 ----------------------------- ----------------------------- Cash Flow Available for Debt Service ($million) 124.2 120.3 110.9 124.2 ----------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0 Principal and Interest 23.3 23.1 22.1 22.5 LOC & Administrative Fees 0.2 0.2 0.2 0.2 ----------------------------- Total Debt Service 23.6 23.3 22.3 22.7 ----------------------------- ----------------------------- Annual Debt Service Coverage 5.27x 5.15x 4.98x 5.00x =============================
* The first five months of 2021 include PPA cash flow and the last seven months of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.48. Average Debt Coverage During PPA 1.43x Minimum Debt Coverage During PPA 1.41x Average Debt Coverage Post PPA 5.13x Minimum Debt Coverage Post PPA 4.98x Average Debt Coverage During 2.14x Bond Term B - 71 Confidential Exhibit I AES Ironwood Projected Operating Results Hagler Bailly Low Demand Growth Sensitivity (Case #5)
PPA Period ------------------------------------------------------------------------------------ Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ------------------------------------------------------------------------------------ Net Operating Revenues ($million) PPA Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5 Merchant Revenues - - - - - - - - - - - ------------------------------------------------------------------------------------ Total Operating Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5 ------------------------------------------------------------------------------------ Operating Expenses ($million) Fuel - - - - - - - - - - - Fixed O&M 7.0 13.2 9.5 10.6 12.3 9.8 11.5 13.4 11.2 10.6 10.6 Variable O&M 1.3 2.1 2.2 2.3 2.4 5.2 4.5 2.7 2.7 2.8 3.0 Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4 Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2 Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Operating Expenses 8.9 17.2 14.1 15.4 17.3 17.7 18.9 19.0 16.9 16.6 16.8 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Cash Flow Available for Debt Service ($million) 26.3 43.2 46.6 48.2 48.3 47.5 49.4 51.4 47.4 46.8 49.2 ------------------------------------------------------------------------------------ Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4 Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6 LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 ------------------------------------------------------------------------------------ Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Annual Debt Service Coverage 1.61x 1.46x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x ------------------------------------------------------------------------------------ PPA Period ---------------------------------------------------------------------------- Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* ---------------------------------------------------------------------------- Net Operating Revenues ($million) PPA Revenues 65.6 67.3 67.1 64.8 66.2 65.8 62.8 64.2 64.3 27.3 Merchant Revenues - - - - - - - - - 203.5 ---------------------------------------------------------------------------- Total Operating Revenues 65.6 67.3 67.1 64.8 66.2 65.8 62.8 64.2 64.3 230.7 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2 ---------------------------------------------------------------------------- Operating Expenses ($million) Fuel - - - - - - - - - 122.8 Fixed O&M 13.3 13.5 11.5 11.7 12.8 12.6 15.6 16.1 13.7 13.6 Variable O&M 6.3 5.5 3.3 3.3 3.5 3.6 7.6 6.6 4.0 4.1 Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9 Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6 Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9 ---------------------------------------------------------------------------- Total Operating Expenses 22.9 22.3 18.2 18.7 20.1 20.1 27.2 26.8 22.0 145.3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash Flow Available for Debt Service ($million) 43.0 45.3 49.3 46.4 46.4 46.2 35.9 37.6 42.8 85.7 ---------------------------------------------------------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1 Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2 LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2 ---------------------------------------------------------------------------- Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Annual Debt Service Coverage 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.44x 1.44x 3.36x ---------------------------------------------------------------------------- ============================= Post PPA Period ----------------------------- Year Ending December 31, 2022 2023 2024 2025 ----------------------------- Net Operating Revenues ($million) PPA Revenues - - - - Merchant Revenues 359.0 370.1 367.6 385.8 ----------------------------- Total Operating Revenues 359.0 370.1 367.6 385.8 ----------------------------- ----------------------------- Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2 ----------------------------- Operating Expenses ($million) Fuel 217.6 226.3 224.1 234.7 Fixed O&M 13.5 14.9 19.3 18.7 Variable O&M 4.2 4.3 9.0 7.8 Administration 0.5 0.5 0.5 0.6 Insurance 1.9 2.0 2.0 2.1 Property Taxes 1.6 1.7 1.7 1.8 Local Taxes 1.6 2.3 3.0 3.8 ----------------------------- Total Operating Expenses 240.9 252.0 259.7 269.4 ----------------------------- ----------------------------- Cash Flow Available for Debt Service ($million) 118.4 118.6 108.3 116.6 ----------------------------- Annual Debt Service ($million) Facility Bonds B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0 Principal and Interest 23.3 23.1 22.1 22.5 LOC & Administrative Fees 0.2 0.2 0.2 0.2 ----------------------------- Total Debt Service 23.6 23.3 22.3 22.7 ----------------------------- ----------------------------- Annual Debt Service Coverage 5.03x 5.08x 4.86x 4.70x =============================
* The first five months of 2021 include PPA cash flow and the last seven months of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.36. Average Debt Coverage During PPA 1.46x Minimum Debt Coverage During PPA 1.44x Average Debt Coverage Post PPA 4.93x Minimum Debt Coverage Post PPA 4.70x Average Debt Coverage During 2.13x Bond Term B - 72 [GRAPHIC OMITTED] Stone & Webster AES Ironwood Project Management Consultants, Inc. Independent Technical Review - -------------------------------------------------------------------------------- Exhibit II Document Log B - 73 [GRAPHIC OMITTED] Stone & Webster AES Ironwood Project Management Consultants, Inc. Independent Technical Review - -------------------------------------------------------------------------------- Exhibit II Document Log - -------------------------------------------------------------------------------- No. Reference - -------------------------------------------------------------------------------- 1. Draft property lease between Consolidated Rail Corporation and AES Ironwood - -------------------------------------------------------------------------------- 2. Draft Sidetrack Agreement between Consolidated Rail Corporation and AES Ironwood - -------------------------------------------------------------------------------- 3. Draft Rail Corporation License Agreement for Undergrade Watermain Occupation - -------------------------------------------------------------------------------- 4. Agreement relating to real estate dated October 22, 1998 - -------------------------------------------------------------------------------- 5. EWG Application - -------------------------------------------------------------------------------- 6. Effluent Supply Agreement - -------------------------------------------------------------------------------- 7. Amended and Restated Operating Agreement of PJM Interconnection, LLC dated June 2, 1997 - -------------------------------------------------------------------------------- 8. Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract last revised November 19, 1998 - -------------------------------------------------------------------------------- 9. Draft Generation Facility Transmission Interconnection Agreement between Metropolitan Edison Company d/b/a AES Ironwood LLC - -------------------------------------------------------------------------------- 10. Amended and Restated Power Purchase Agreement by and between AES Ironwood LLC and Williams Energy Marketing & Trading Company - -------------------------------------------------------------------------------- 11. Agreement for Engineering, Procurement and Construction Services between AES Ironwood, Inc. ("Owner") and Siemens Westinghouse Power Corporation dated September 23, 1998 - -------------------------------------------------------------------------------- 12. Report on MHI 501G for KEPCO Ilijan Power Project - -------------------------------------------------------------------------------- 13. Draft report on MHI 501G Combustion Turbine Generator dated December 14, 1998 - -------------------------------------------------------------------------------- 14. Hagler Bailly Report prepared for Lehman Brothers on the Projected Competitiveness of the Ironwood Power Project in the PJM Market dated February 1999 and draft report dated October 1998 - -------------------------------------------------------------------------------- 15. Agreement for Engineering, Procurement and Construction Services - -------------------------------------------------------------------------------- 16. EPC Appendix A - -------------------------------------------------------------------------------- 17. Effluent Supply Agreement with City of Lebanon Authority - -------------------------------------------------------------------------------- 18. Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract - -------------------------------------------------------------------------------- 19. SWPC Engineering Flow Schematics Drawings F8210010-F8210480-10/01/98 - -------------------------------------------------------------------------------- 20. NPDES Permit # PAR-10-P082 - -------------------------------------------------------------------------------- 21. Letter dated November 18, 1998 from K. Friederich Updergrafe to Ian Miller re POTW Water Supply Pipeline and Pumping Station - -------------------------------------------------------------------------------- 22. Fax to Debra Richert dated April 22, 1999 from Alicia Sinn re the final plan approval for the Ironwood facility issued by PaDEP on 3/29/99 - -------------------------------------------------------------------------------- 23. Copy of letter to Patricia Rollin dated February 3, 1999 concerning the Delay in Financial Closing - -------------------------------------------------------------------------------- 24. Letter to John Garvey from Jeffrey Jacobsohn dated November 16, 1998 re the Facility Emission Rates for PSD Application - -------------------------------------------------------------------------------- 25. Memo to John Garvey from Bart Rossi dated November 25, 1998 regarding the AES Ironwood Emissions Data - -------------------------------------------------------------------------------- 26. Specification For A Heat Recovery Steam Generator for the AES Ironwood Project received by SWMCI in Boston on February 24, 1999 - -------------------------------------------------------------------------------- 27. Williams Fuel Plan for AES Ironwood fax dated February 5, 1999 - -------------------------------------------------------------------------------- 28. Fax to John Garvey from Ian Miller dated March 12, 1999 regarding the Gas Pressure and Compressors - -------------------------------------------------------------------------------- 29. Fax copy of the PJM Regional Fuel Forecast 1998 - 2031 for AES Ironwood dated January 19, 1999 - -------------------------------------------------------------------------------- B - 74 [GRAPHIC OMITTED] Stone & Webster AES Ironwood Project Management Consultants, Inc. Independent Technical Review - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 30. Draft Evaluation Report of Oil Combustion profile for AES Ironwood Prepared for AES Corporation by CC Pace Resources dated February 25, 1999 - -------------------------------------------------------------------------------- 31. Letter to Bart Rossi from Jeffrey Jacobsohn regarding Stone & Webster's questions dated March 2, 1999 received by fax - -------------------------------------------------------------------------------- 32. Letter to Bart Rossi from Jeffrey Jacobsohn regarding Combustion Turbine degradation dated March 1, 1999 received by fax - -------------------------------------------------------------------------------- 33. Fax from Gary Dzikowski to Ian Miller regarding DLN Combustors dated February 16, 1999 - -------------------------------------------------------------------------------- 34. Fax from Jeffrey Jacobsohn to Bart Rossi regarding the Revised Warranty Data sheet dated February 12, 1999 received by Fax - -------------------------------------------------------------------------------- 35. Letter to Steve Dahm from Jeffrey M. Jacobsohn dated January 29, 1999 regarding Information for Financial Closing received by Fax - -------------------------------------------------------------------------------- 36. Faxed memo dated January 19, 1999 from Siemens Westinghouse concerning Stone & Webster Issues - -------------------------------------------------------------------------------- 37. Faxed memo dated January 21, 1999 from Gary Dzikowski at Siemens Westinghouse to Ian Miller concerning Fleet Risk Management Spares received by Fax - -------------------------------------------------------------------------------- 38. Letter dated December 11, 1998 to John Garvey from Jeffrey M. Jacobsohn regarding Degradation of the Combustion Turbine - -------------------------------------------------------------------------------- 39. Fax memo to John Garvey from Jeff Jacobsohn dated December 2, 1998 regarding the revised Heat Balance information - -------------------------------------------------------------------------------- 40. Letter dated November 16, 1998 to John Garvey from Jeffrey Jacobsohn regarding the Facility Emission Rates for PSD Application - -------------------------------------------------------------------------------- 41. Letter dated November 12, 1998 to John Garvey from Jeffrey Jacobsohn regarding Additional Responses to Various S&W information requests - -------------------------------------------------------------------------------- 42. Letter dated November 4, 1998 to John Garvey from Jeffrey Jacobsohn regarding Responses to S&W AES Ironwood Additional Information Requests from S&W dated November 3, 1998 - -------------------------------------------------------------------------------- 43. Letter received from Jeffrey M. Jacobsohn in response to a S&W fax dated October 29, 1998 regarding water balances - -------------------------------------------------------------------------------- 44. Letter to John Garvey dated November 3, 1998 from Jeffrey Jacobsohn regarding Responses to S&W Request for Additional Information on a letter and fax dated October 29, 1998 - -------------------------------------------------------------------------------- 45. Letter to John Garvey dated November 5, 1998 in response to our letter for IE Information in our letter dated October 28, 1998 - -------------------------------------------------------------------------------- 46. Letter to John Garvey in response to our Letter Dated October 26, 1998 for additional information regarding Technical Questions - -------------------------------------------------------------------------------- 47. Letter to Robert Golden dated December 7, 1998 with a copy to John Garvey enclosing one set each of the approved Land Development Plan for Prescott Road - -------------------------------------------------------------------------------- 48. Fax to John Garvey from Eileen Cates transmitting the Outstanding Issues dated January 29, 1999 - -------------------------------------------------------------------------------- 49. Memo from Gary Dzikowski to Ian Miller dated January 14, 1999 providing responses to questions concerning the HRSG Spec - -------------------------------------------------------------------------------- 50. Memo from Ian Miller to Gary Dzikowski dated December 14, 1998 regarding ZDS and demin water. - -------------------------------------------------------------------------------- 51. Letter from Patricia Rollin to GPU Energy dated January 11, 1999 concerning the AES Ironwood Interconnection - -------------------------------------------------------------------------------- 52. Letter to Patricia Rollin from GPU Energy referring to the letter of January 11, 1999 concerning the AES Ironwood Interconnection - -------------------------------------------------------------------------------- 53. Letter to Steve Dahm from Jeffrey Jacobsohn regarding the minutes of January 21, 1999 meeting - -------------------------------------------------------------------------------- 54. Letter dated January 26, 1999 to Ian Miller from GPU regarding the Preliminary Interconnection facilities Cost - -------------------------------------------------------------------------------- B - 75 [GRAPHIC OMITTED] Stone & Webster AES Ironwood Project Management Consultants, Inc. Independent Technical Review - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 55. Letter dated March 3, 1999 to John Garvey from Anthony P. Letizia at TRC regarding the confirmation of Revised Pennsylvania Title 25 Chapter 139 - -------------------------------------------------------------------------------- 56. Letter to Ian Miller dated October 7, 1998 from the Lebanon County Conservation District concerning the General Permit Issuance, NPDES Permit #: PAR-10-PO82 - -------------------------------------------------------------------------------- 57. Fax copy of the Petition for an interpretation and variance dated February 11, 1998 - -------------------------------------------------------------------------------- 58. Letter to Buck Applewhite & John Garvey dated September 30, 1998 from Eileen Cates dated September 30, 1998 concerning the technical information that will be used for this report - -------------------------------------------------------------------------------- 59. Copy of a fax listing the required permits and approvals for AES Ironwood dated November 6, 1998 - ------------------------------------------------------------------------------- 60. Letter from Paula B. Ballaron to Patricia L. Rollin from the Susquehanna River Basin Commission approving the project - -------------------------------------------------------------------------------- 61. Notice of Commission Action Docket NoD-97-45 for the Surface Water Withdrawal/Importation - -------------------------------------------------------------------------------- 62. Letter received by fax dated April 22, 1999 from the United States Environmental Protection Agency regarding the review of the draft plan approval for AES Ironwood - -------------------------------------------------------------------------------- 63. Letter received dated April 7, 1999 between Jeffrey Jacobsohn and Patrician Rollin regarding AES Ironwood Payment Schedule Revision I Letter Agreement - -------------------------------------------------------------------------------- 64. Letter received dated March 31, 1999 between Jeffrey Jacobsohn and Patricia Rollin regarding AES Ironwood Financial Closing Later than March 31, 1999 Continued Performance Letter Agreement - -------------------------------------------------------------------------------- 65. Letter dated March 24, 1999 to Bart Rossi from Jeffrey M. Jacobsohn re CO Catalyst Emissions Warrantly - -------------------------------------------------------------------------------- 66. Letter dated April 22, 1999 to Patricia Rollin from Jeffrey M. Jacobsohn re Gas Specifications Clarification Letter - -------------------------------------------------------------------------------- 67. Letter dated May 12, 1999 to Patricia Rollin from Jeffrey Jacobsohn re Delay in Commencement Date after June 1, 1999 - -------------------------------------------------------------------------------- 68. Letter dated May 19, 1999 to Patricia Rollin from Philip Scalzo re Williams executed certain agreements with Texas Eastern Transmission Corporation - -------------------------------------------------------------------------------- 69. Memo from Jeffrey Jacobsohn of SWPC to Patty Rollin of AES concerning the estimated performance impact of the gas compressor deletion - -------------------------------------------------------------------------------- B - 76 ------------------------------------------------------------ ANNEX C INDEPENDENT POWER CONSULTANT'S REPORT ------------------------------------------------------------ PROJECTED COMPETITIVENESS OF THE IRONWOOD POWER PLANT IN THE PJM MARKET Privileged and Confidential Prepared for: Lehman Brothers 3 World Financial Center New York, NY 10285-1600 Prepared by: Hagler Bailly Consulting, Inc. 1776 Eye Street, NW Suite 500 Washington, DC 20006 (202) 223-6665 Contact: Alan L. Madian June 1, 1999 C-1 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- CONTENTS Foreword ................................................................................................6 Executive Summary S.1 The Project.....................................................................................7 S.2 PJM Market Structure............................................................................7 S.2.1 Procedure..............................................................................8 S.3 Key Base Case Assumptions and Sensitivity Cases.................................................9 S.4 Forecasted Results.............................................................................11 S.5 Conclusions....................................................................................17 Chapter 1 Introduction 1.1 Background.....................................................................................18 1.2 Organization of the Report.....................................................................18 Chapter 2 Ironwood Project 2.1 The Ironwood Project...........................................................................20 Chapter 3 Proposed Market Structure In PJM 3.1 Background.....................................................................................22 3.2 The PJM Market.................................................................................23 3.2.1 The Spot Energy Market................................................................23 3.2.2 Installed Capacity Market.............................................................25 Chapter 4 Approach To Market Price Forecasting 4.1 Introduction...................................................................................27 4.2 Issues in Predicting Market Prices.............................................................27 4.2.1 Issues in the Capacity Markets........................................................27 4.2.2 Ancillary Services....................................................................29 4.3 Approach to Market Price Forecasting...........................................................30 4.3.1 Market Characteristics................................................................31 4.3.2 Predicting Energy Prices and Dispatch.................................................31 4.3.3 Predicting Capacity Prices: The Capacity Market Simulation Model......................32 4.3.4 Market Entry and Exit.................................................................33
C-2 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- Chapter 5 Market Price Forecasting: Assumptions and Assumption Development 5.1 Introduction...................................................................................35 5.2 Production Cost Model Input Assumptions........................................................35 5.2.1 Existing Generation Units.............................................................37 5.2.2 Load Growth...........................................................................40 5.2.3 Fuel Prices...........................................................................42 5.2.4 Energy Import/Export Forecast.........................................................44 5.2.5 Transmission Constraints..............................................................45 5.3 Capacity Market Simulation: Model Input Assumptions...........................................46 5.3.1 Existing Units Going-Forward Costs....................................................46 5.3.2 New Generating Capacity...............................................................47 Chapter 6 Market Price Forecasts 6.1 Introduction...................................................................................49 6.2 PJM Capacity and Energy Price Forecasts........................................................49 6.2.1 Base Case.............................................................................49 6.3 Implications for AES Ironwood..................................................................56 Chapter 7 Conclusions....................................................................................62
C-3 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- TABLES Executive Summary S.1 Delivered Fuel Prices (1996 $/MMBtu)...........................................................10 S.2 PJM All-In Average (Energy + Capacity) Prices (1996 $).........................................12 Chapter 5 Market Price Forecasting: Assumptions and Assumption Development 5.1 Variable Operating Costs (1996 $ per MWh)......................................................38 5.2 Nuclear Unit Retirement Dates..................................................................40 5.3 Delivered Fuel Prices (1996 $/MMBtu)...........................................................42 5.4 Imports and Exports (1996 $ per MWh)...........................................................45 5.5 Emergency Imports..............................................................................45 5.6 New Generating Unit Characteristics (1996 $)...................................................48 Chapter 6 Market Price Forecasts 6.1 PJM Capacity Additions and Retirements.........................................................51 6.2 PJM Unweighted Average Energy Prices (1996 $/MWh)..............................................53 6.3 PJM Capacity Prices (1996 $/kW-yr).............................................................54 6.4 PJM All-In Average (Energy + Capacity) Prices (1996 $).........................................55
C-4 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- FIGURES Executive Summary S.1 PJM Unweighted Average Energy Prices 1996 $....................................................13 S.2 AES Ironwood Capacity Factors..................................................................14 S.3 PJM Supply Curves (1996 $/MWh).................................................................15 Chapter 4 Approach to Market Price Forecasting 4.1 Approach to Developing Capacity and Energy Prices..............................................30 4.2 Example Supply and Demand Curve................................................................33 Chapter 5 Market Price Forecasting: Assumptions and Assumption Development 5.1 Forecast of Allowance Prices (1996 $ per Ton)..................................................39 5.2 Cumulative Demand Growth in PJM................................................................41 5.3 Delivered Natural Gas Prices 1996 $............................................................43 5.4 PJM Generation Weighted Average Delivered Coal Prices 1996 $...................................44 Chapter 6 Market Price Forecasts 6.1 PJM Unweighted Average Energy Prices 1996 $....................................................52 6.2 AES Ironwood Capacity Factors..................................................................56 6.3 Ironwood's Energy Revenue vs. PJM's Time-Weighted Average Energy Price 1996 $ ...........................................................................58 6.4 PJM Supply Curves (1996 $/MWh)..............................................................59-61
C-5 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- FOREWORD This report presents Hagler Bailly's analysis of the market for power in the Pennsylvania, New Jersey, Maryland (PJM) power pool. i. Some information in the report is necessarily based on predications and estimates of future events and behaviors. ii. Such predictions or estimates may differ from that which other experts specializing in the electricity industry might present. iii. The provision of a report by Hagler Bailly does not obviate the need for potential investors to make further appropriate inquiries as to the accuracy of the information included therein, or to undertake an analysis of its own. iv. This report is not intended to be a complete and exhaustive analysis of the subject issues and therefore will not consider some factors that are important to a potential investor's decision-making. v. Hagler Bailly and its employees cannot accept liability for loss suffered in consequence of reliance on the report. Nothing in our report should be taken as a promise or guarantee as to the occurrence of any future events. FOREWORD o C-6 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- EXECUTIVE SUMMARY Hagler Bailly Consulting, Inc. (Hagler Bailly) was retained by AES Ironwood, Inc., on behalf of, and to prepare this report solely for, Lehman Brothers, as Initial Purchaser of certain Rule 144A bonds to be offered by AES Ironwood, LLC to finance the construction, initial start-up and testing of the Ironwood facility. We have been retained to independently forecast future market prices for electric capacity and energy in the Pennsylvania, New Jersey, Maryland (PJM) power pool and to assess the competitive position of the AES Ironwood Facility in PJM during the term of the bonds. This document presents the results of our analysis. S.1 THE PROJECT AES Ironwood, LLC ("AES Ironwood"), a wholly owned subsidiary of the AES Corporation ("AES"), proposes to build and operate a 705 MW (net) gas combined-cycle power station ("the Project"). The AES Ironwood power station will employ Siemens Westinghouse 5O1G technology and will be fueled primarily by natural gas. The facility will sell its entire output to the Williams Energy Marketing and Trading Company under a fixed price 20 year power purchase agreement ("PPA") and will operate as a merchant plant (or under bilateral contracts) from the expiration of the PPA. The facility will be located in South Lebanon Township, Pennsylvania in the Central region of the Pennsylvania, New Jersey, Maryland (PJM) power pool. S.2 PJM MARKET STRUCTURE The PJM market may be characterized on the supply side as competitive except for the limited hours when transmission is constrained. New capacity is expected to be composed predominantly of gas-fueled combined cycle units, though simple cycle combustion turbines ("peakers") will be added, especially in areas with substantial base load capacity. We have modeled the future PJM market with both an energy market and a capacity market. This is not to say that a separate capacity market will necessarily continue well into the future. However, in the absence of a separate installed capacity market, an at least equivalent revenue increase would be required in the energy or ancillary services market to maintain reserve margins at levels prospectively thought to be essential by system operators and regulators. FOREWORD o C-7 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential We have assumed that energy market participants will base dispatch and payment in the PJM market upon competitive energy bidding and that the bidding will shortly cease to be cost-based for investor owned utilities (IOUs), as is currently required by regulation. The PJM Independent System Operator (ISO), which became operational at the beginning of 1998, has set reserve generation capacity requirements on all load-serving entities (LSEs). These reserve requirements require that load-serving entities that are short of capacity acquire it from others. The PJM ISO has established a capacity market to facilitate capacity provision but bilateral arrangements are also accommodated. Transmission constraints within PJM play a modest role in the operation of the PJM market. There are three defined regions within PJM, West, Central, and East (see Maps 5-1 and 5-2). Each of the historic utilities functions as a control area. Nodal pricing (i.e., pricing that reflects location-specific factors, such as transmission constraints) has been implemented recently. The direction of power flow within PJM is generally from the west, which has a preponderance of the pool's lower-cost coal units, to the east. Transmission capacity is not expected to expand significantly within PJM, but no additional important constraints are forecast. S.2.1 Procedure In our analysis, we have used the RealTime(TM) model to simulate future market conditions and operation. RealTime(TM), a chronological production cost model, was used to estimate energy prices and revenues through the year 2025. In each hour the model schedules the units in a least-cost manner based upon fuel cost, start-up cost, emission cost, and variable O&M cost. The hourly marginal cost is determined by the cost of the least-expensive unit available to follow increasing load, which becomes the market price for that hour. Given that production cost modeling is inherently cost-based, conservative adjustments were made to the model to account for expected upward pressure on price resulting from the evolving bid-based system and market power phenomena./1 PowerWorld(TM), a load flow model, was used to determine if Ironwood would impose additional burdens on the PJM transmission system and if the plant's location would lead to its being dispatched less than anticipated due to transmission constraints. The model was also used to assess whether Ironwood could expect to receive higher revenues due to contributions to voltage support or for transmission constraint-reducing flows. To address capacity revenue requirements, Hagler Bailly utilized a model that calculates the additional revenue, above that earned from energy sales, needed to meet the revenue requirement - ---------- 1 Market power occurs when strategic behavior is possible. This can occur, for example, when a single plant bids just under the price of the next highest cost plant in the stack, or when operators of multiple plants withdraw one or more in order to increase the total revenue they will receive from those that remain on. Market power can be the result of collusion, but collusion is not necessary for market power to be present. FOREWORD o C-8 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential of the marginal plant entering the market. Plants at the end of their useful lives, and those that do not recover their going-forward costs are retired. Based on that model, we have estimated capacity payments necessary to maintain an installed capacity margin of approximately 18 percent including the PJM authorized curtailable load margin. The revenue requirement of a new plant equals the net revenue needed to cover operating costs, taxes, interest and payment of a target return on equity. The results from these models provide the basis for the evaluation of the competitiveness of the Ironwood plant during and after the PPA period, including the determination of the PJM market revenues to AES Ironwood under merchant operation. S.3 KEY BASE CASE ASSUMPTIONS AND SENSITIVITY CASES The key assumptions that drive the results in this analysis include demand growth, fuel prices, capacity additions and reserve margin requirements, and the retirement of nuclear stations. Assumptions were developed for a Base Case and two downside sensitivities, a Low Demand Growth Case and a High Gas Price Case. The Base Case represents the most probable market scenario and consequently what Hagler Bailly believes to be the most likely performance forecast and competitive position for Ironwood. The sensitivity cases are intended to test the Project under significantly more adverse circumstances. Demand Our load forecast is based upon the actual 1995 PJM hourly load profile. Hagler Bailly has forecast that PJM peak demand (load) will grow at 1.00% annually through 2009 and at 0.75% thereafter. Annual energy growth has been forecast at 1.50% through 2002, at 2.00% from 2003 to 2009, and at 1.50% thereafter. Fuel prices CC Pace Consulting, LLC ("CC Pace") provided our fossil fuel price forecasts. Coal price projections were assessed on a plant by plant basis, while gas and oil were based upon regional zones. Table S-1 summarizes the fuel price forecasts used in the Base Case. FOREWORD o C-9 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Table S-1 Delivered Fuel Prices (1996$/MMBtu)/1
Average Annual % Fuel 1998 2005 2010 2020 2025 Change/4 - ------------------------------------------------------------------------------------------- Natural Gas - PJM East/2 $2.57 $2.48 $2.52 $2.63 $2.69 0.17% - ------------------------------------------------------------------------------------------- Natural Gas - PJM West $2.47 $2.38 $2.43 $2.53 $2.60 0.18% - ------------------------------------------------------------------------------------------- Residual #6 $2.10 $2.41 $2.41 $2.41 $2.41 0.51% - ------------------------------------------------------------------------------------------- Distillate #2 $3.20 $3.69 $3.69 $3.69 $3.69 0.53% - ------------------------------------------------------------------------------------------- Jet A $3.40 $3.89 $3.89 $3.89 $3.89 0.50% - ------------------------------------------------------------------------------------------- Coal/3 $1.36 $1.15 $1.09 $1.03 $1.04 -1.00% - -------------------------------------------------------------------------------------------
1 Fuel price estimates are left in real 1996$s to maintain consistency with a proprietary Hagler Bailly RealTime(TM) database. 2 Ironwood is forecast to use PJM East natural gas. The Henry Hub to PJM East basis (transportation) differential is approximately $0.52 per MMBtu. 3 Coal prices were provided on a plant specific basis. Average prices represent the average for all the coal consumed in a given year. The 1998 price is for the period Oct. 1997 - Sept. 1998. 4 Calculated from 1998 to 2025. Capacity Additions It is our belief that PJM will continue to impose a required reserve margin with a target of 18%. Actual reserve levels will not remain constant but instead will fluctuate around this value. We anticipate net capacity additions of 13,221 MW between 1999 and 2025. All of the new capacity is gas-fired combustion turbines (CT) or combined cycle (CC) units. Nuclear Retirements The retirement dates for PJM nuclear units are based on the expiration dates of current operating licenses, with the exceptions of Oyster Creek 1, which GPU Energy ("GPU") intends to retire toward the end of 2000, and Salem-2, which we retire at the end of 2002. Sensitivity Assumptions As noted above, we considered two sensitivity cases: o In the Low Demand Growth Case, the growth rates are reduced by a third, compared to the Base Case, for the period 2017 through 2025. In this case peak and total demand grow at only 0.50% and 1.00% per annum, respectively, beginning in 2017. o In the High Natural Gas Price Case, natural gas prices are uniformly $0.50 per MMBtu (in 1996 $) above the CC Pace forecast levels. FOREWORD o C-10 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Except as noted above, the assumptions underlying all three cases are identical. S.4 FORECASTED RESULTS Hagler Bailly used the RealTime(TM) production cost model and other analytical tools to forecast energy and capacity prices for PJM. The resulting PJM "all-in" price (i.e., capacity price plus energy price) forecast for the Base Case is $27.70/MWh in 2002, $27.96/MWh in 2012, and $29.98/MWh in 2022 (all in constant 1996 dollars/2). Table S-2 (on the next page) summarizes the price forecasts. Forecasted energy prices for PJM are shown in Figure S-1. In the Base Case, energy market prices show a steady, slow price growth throughout the study period. Prices (time-weighted) begin at $22.05 per MWh in 2001 and gradually increase to $25.86 by 2025. In the High Gas Price Case, energy prices are approximately $.60 to $1.20 per MWh above the Base Case throughout the forecast period. In the Low Demand Growth Case, the impact of the reduction in demand growth in 2017 can be clearly seen as a break in the price trend. By the end of the forecast period the Low Demand Growth Case prices are about $2.00 per MWh below the Base Case./3 - ---------- 2 Fuel price estimates are left in real 1996$s to maintain consistency with a proprietary Hagler Bailly RealTime(TM) database. 3 Note that while energy prices in the Low Demand Growth Case are below the Base Case, this is due to prices remaining essentially flat in real terms rather than significantly declining. This flat trend in real prices is maintained although the Low Demand Growth Case assumes no adjustment to the schedule of capacity additions and retirements in reaction to the decline in demand growth. FOREWORD o C-11 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Table S-2 PJM West/Central Average All-In Prices (1996 $)/1 Low Demand Base Case High Gas Case Growth Case 2001 $27.28 $28.25 $27.28 2002 $27.70 $28.59 $27.70 2003 $26.66 $27.28 $26.66 2004 $27.65 $28.32 $27.65 2005 $26.90 $27.84 $26.90 2006 $27.21 $28.24 $27.21 2007 $27.36 $28.24 $27.36 2008 $27.96 $28.67 $27.96 2009 $27.77 $28.43 $27.77 2010 $28.02 $28.89 $28.02 2011 $28.33 $29.18 $28.33 2012 $27.96 $29.18 $27.96 2013 $28.51 $29.38 $28.51 2014 $28.81 $29.81 $28.81 2015 $28.89 $30.08 $28.89 2016 $29.54 $30.40 $29.54 2017 $29.55 $30.39 $29.11 2018 $29.70 $30.36 $29.27 2019 $29.67 $30.98 $29.05 2020 $29.41 $30.56 $28.87 2021 $30.70 $31.79 $29.08 2022 $29.98 $31.17 $28.91 2023 $30.50 $30.94 $29.29 2024 $30.68 $31.40 $28.76 2025 $31.09 $31.70 $29.05 1 All-In prices include energy and capacity payments. Assumes a 100% capacity factor in calculating the capacity price per MWh. This assumption has the effect of understating the capacity price; for capacity factors below 100% the capacity payment per MWh increases. Fuel price estimates are left in real 1996$s to maintain consistency with a proprietary Hagler Bailly RealTime(TM) database. FOREWORD o C-12 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Figure S-1 PJM West/Central Average Energy Prices 1996$ [GRAPHIC OMITTED] FOREWORD o C-13 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential The expected operating regime of the Ironwood plant over the 25-year time frame is indicated by the trend in capacity factor (see Figure S-2)./4 The figure illustrates the consistent growth in utilization experienced by the Project in the Base Case. Figures S-2 AES Ironwood Capacity Factors [GRAPHIC OMITTED] The average annual capacity factor is also shown in Figure S-2 for the sensitivity cases. In both downside cases the model forecasts that Ironwood's capacity utilization decreases somewhat from the Base Case. Nevertheless, Ironwood's position in the stack, in terms of costs, is expected to allow it to effectively compete with other PJM power generators. In the High Gas Price Case, by the end of the forecast period the utilization of the plant is virtually the same as in the Base Case. In the Low Demand Growth Case, utilization during the merchant tail (i.e., the period beginning in the second quarter of 2021 when the Williams PPA will expire and the plant will find new buyers for its output) is also very similar to the Base Case. What the analysis - ---------- 4 Capacity factor is a measure of plant utilization. It is the ratio of actual plant output in MWh to the theoretical maximum output that would result from running the plant at full load every hour of the year (i.e., 8760 hours). The sawtooth pattern in the graph reflects major (every sixth year) and minor (every third year) planned maintenance outages. FOREWORD o C-14 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential indicates is that the growth in demand, combined with unit retirements, creates a "floor" that provides stabile economics for the Project during the merchant period. Figure S-3 illustrates the position of Ironwood in the PJM supply curve in 2002, 2012, 2022 for the Base Case. The figure illustrates that Ironwood is positioned, in all years, well below the highest cost coal unit. These results are consistent with the high utilization of the plant shown in Figure S-2./5 Figure S-3 PJM Supply Curves (1996 $/MWh) 2002 [GRAPHIC OMITTED] - ---------- 5 Units positioned below the lowest cost coal unit include nuclear and hydro. Units positioned above the highest cost coal unit include oil and gas-fired steam units and combustion turbines and other peakers. Note that the supply curves exclude emergency power. Emergency power is incorporated within the RealTime(TM) model in the estimation of energy prices. FOREWORD o C-15 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Figure S-3 (cont'd) PJM Supply Curves (1996 $/MWh) 2012 [GRAPHIC OMITTED] 2022 [GRAPHIC OMITTED] FOREWORD o C-16 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential S.5 CONCLUSIONS Based on our analysis, we believe that the facility's dispatch position on the supply curve will be highly competitive and well below the highest priced baseload coal plant during the post-PPA period (and during the term of the power purchase agreement) due to the facility's high efficiency, low production costs, and the influence of demand growth in conjunction with unit retirements. The facility is expected to have an average capacity factor of 90.7% during the post-PPA period. The addition of new, more efficient gas-fired power generation facilities in PJM over time will not adversely affect the facility's dispatch. Even in the two macroeconomic "downside sensitivity" cases of low demand growth and high gas prices, the Facility's average capacity factor remains significantly high at 89.6% during the post-PPA period. During the term of the power purchase agreement, the economics of the Project are not sensitive to fuel prices because the costs of fuel are the responsibility of the power purchaser under the power purchase agreement's fuel tolling provisions. FOREWORD o C-17 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- CHAPTER 1 INTRODUCTION 1.1 BACKGROUND Hagler Bailly Consulting, Inc. (Hagler Bailly) was retained by AES Ironwood on behalf of, and to prepare this report solely for Lehman Brothers as Initial Purchaser of certain Rule 144A bonds to be offered by AES Ironwood, LLC to finance the construction, start-up and initial testing of the Ironwood Facility. We have been retained to independently assess the competitiveness of the planned AES Ironwood power plant given forecast market prices for electric energy and capacity in the Pennsylvania, New Jersey, Maryland (PJM) power pool. This document presents the results of our analysis. The Northeast power markets are undergoing profound change. Many of the vertically integrated utilities are divesting their generation assets, and tight pools (such as the New England Power Pool (NEPOOL), New York Power Pool ( NYPP) and PJM) are changing as well. Historically, these pools were formed to obtain the benefits of economic dispatch and coordinated planning. The tight pools are being replaced by independent system operators (ISOs) with responsibility for both system operations and market operations. Through the creation of the new market institutions, the market participants intend to create a liquid and vibrant market where buyers and sellers of generation services will be able to transact business efficiently. It is in this evolving environment that the competitive assessment presented in this report is made. There is little doubt that forward-price forecasting is more challenging in a changing market. Our approach is to examine the fundamental economic prospects of AES Ironwood in the context of the planned and forecast market. 1.2 ORGANIZATION OF THE REPORT The remainder of this report is organized as follows: o Chapter 2 describes the Ironwood project. o Chapter 3 describes the proposed structure of the markets in PJM. o Chapter 4 presents our approach to developing forward-price forecasts for generation services. INTRODUCTION o C-18 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential o Chapter 5 discusses the development of assumptions and data to describe the PJM marketplace. o Chapter 6 presents market price forecasts for a base case and two downside sensitivity cases. o Chapter 7 presents our conclusions. INTRODUCTION o C-19 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- CHAPTER 2 THE IRONWOOD PROJECT 2.1 THE IRONWOOD PROJECT AES Ironwood, LLC proposes to build and operate a 705 MW (net) power plant ("Ironwood") in south Lebanon Township, Pennsylvania. South Lebanon is in the central region of PJM. The PJM ISO will operate this region's energy market and transmission system. Ironwood will be a combined cycle power plant using Siemens Westinghouse 501G technology. The entire output of Ironwood will be sold to the Williams Energy Marketing and Trading Company under a 20 year, fixed price power purchase agreement ("PPA"). It is assumed that the Ironwood facility will operate as a merchant power plant and sell directly into the PJM market upon expiration of the PPA. AES Ironwood expects seasonal maximum generating capacities of at least 788 MW in winter, 705 MW in spring and fall, and 655 MW in summer. The power purchase agreement envisages that in ordinary circumstances Ironwood will be dispatched at 100% of available. The economics of AES Ironwood assure a high frequency of commitment and operation at high capacity factors. Ironwood has a ramp rate of 10 MW/minute. It is considered to have a minimum uptime of eight hours and no minimum downtime. A fuel conversion payment of $1.86/MWh (1996 $) is payable to the Ironwood plant under the PPA. Ironwood's projected actual variable O&M cost is $1.71/MWh (1996 $). Ironwood is modeled as a dual-fuel plant, generally burning natural gas but consuming fuel oil during 25 of the highest load days of the winter./6 Since the RealTime(TM) production cost model employed for this study must be given specific time periods for each fuel type, we have chosen the high-load winter days as those most likely to have tight gas supply, necessitating the use of fuel oil to optimize economics. The plant's forced outage rate is conservatively assumed to be 10.0% during the first year, 8.0% during the second year, and 5.0% per year thereafter. - ---------- 6 The PPA requires Ironwood to use Jet A during fuel oil operation. Once the plant enters merchant operation in 2021, the model assumes the alternative fuel will be distillate fuel oil. Also note that the PPA permits up to 31 days of annual operation on fuel oil. THE IRONWOOD PROJECT o C-20 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential The PPA target heat rate (contractual heat) while operating on natural gas is higher than Ironwood's heat rate under its EPC contract. THE IRONWOOD PROJECT o C-21 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- CHAPTER 3 THE PROPOSED MARKET STRUCTURE IN PJM One of the key factors that affect prices is the structure and institutions of the market. This chapter describes the expected structure of generator services for PJM. There are a variety of power market models that are currently being considered, and the PJM market may evolve over time to a structure that differs from that described here. In addition, revenue and cost streams can be significantly affected by arrangements made between the owners of generation assets and the buyer of the plant's generation and capacity. Hagler Bailly's assessment of the PJM market over the near to mid-term is intended to establish the context for considering the range of variables relevant to the modeled performance of Ironwood. In all cases, the description of the PJM market represents the most recent intelligence, research and expert judgment of Hagler Bailly. 3.1 BACKGROUND The PJM power pool was one of the first centrally dispatched power pools in the United States and is one of the largest in the world. Along with other "tight pools," the PJM power pool demonstrated that centralized dispatch and reserve sharing among a large number of utilities could result in increased reliability and provide cost savings for all of the participants. As policy has shifted toward introducing greater competition in the electric industry, tight pools such as the PJM power pool have been encouraged by the Federal Energy Regulatory Commission (FERC) to transform themselves into Independent System Operators. In its Open Access Rule,/7 FERC ordered public utilities that are members of tight pools to file an open access transmission tariff and to open membership in the pool on a nondiscriminatory basis. In response to the FERC order, the members of the PJM power pool developed a restructuring proposal and a pool-wide open access tariff. This restructuring proposal created an ISO to operate the regional bulk power system, maintain system reliability, administer specified electricity markets, and facilitate open access to the regional transmission system under the PJM tariff. The PJM electricity market uses market pricing for generation services, thereby facilitating the development of a more efficient and more competitive wholesale electricity market. - ---------- 7 Order No. 888, FERC Stats. & Regs. Paragraph 31,036 at 31,726-27. THE PROPOSED STRUCTURE IN PJM o C-22 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential PJM was the first power pool to have its open access transmission tariff approved by FERC. The PJM bid-based energy market was initiated on April 1, 1997. PJM Interconnection, LLC was certified as an ISO by FERC on November 25, 1997. Locational marginal pricing took effect on April 1, 1998. An installed capacity (daily capacity) market was launched on October 15, 1998. As PJM shifts to a more competitive environment, many additional changes are expected. In order to assess Ironwood's competitive position, a number of critical factors were addressed. Chief among these are the market structure and rules which define the way in which plant owners will bid and be compensated for the energy and generation capacity that they provide to the market. Assumptions about these market conditions were used to determine unit utilization, energy prices and capacity prices. 3.2 THE PJM MARKET The wholesale market structure includes the following markets for the services of generators: o Spot energy market o Installed capacity market Note that ancillary services do not currently have separate bid-based markets, although such markets are under consideration, as recommended by FERC. Payments for providing regulation are grounded in cost-based formulas. Payments for providing operating reserves are included in an energy market daily reconciliation. 3.2.1 The Spot Energy Market The ISO runs the spot energy market. The closing time for submitting bids to the ISO is noon for the energy markets the following day (for example, noon on Tuesday for bids on energy to be generated on Wednesday). A bid to supply generation consists of an incremental energy bid curve. For each generation level, the curve represents the minimum price a bidder is willing to accept to be dispatched at that generation level. The bid curve is specified by up to 10 price-quantity pairs. The same curve is used for all 24 hours of dispatch. Bidders also specify operating constraints on their units (minimum up time, minimum down time, ramp rates) as well as start-up costs and no-load costs. The ISO determines location-specific market-clearing energy prices for each hour. Prices are in dollars per megawatt-hour (MWh). Prices are based on bids for generation, actual loads, and scheduled bilateral transactions. The ISO constructs a commitment based upon day-ahead bids. Real-time dispatch is conducted by the ISO by sending price signals to those generators on the margin. These marginal generators then respond by ramping up or ramping down. The ISO can also command units to change their output. Settlement prices are currently calculated after the fact using dispatch data. PJM has acquired a new energy management system that is to include a security constrained unit commitment and THE PROPOSED STRUCTURE IN PJM o C-23 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential dispatch module. At the time that this system is implemented, the current procedures for calculating energy prices will be replaced with calculations from the security constrained dispatch model. The location-specific market-clearing prices include any charges for transmission congestion. (The ISO intends in the future to also include charges for transmission losses.) Congestion occurs when the transmission system becomes constrained, and some generating capacity is dispatched while other generating capacity with lower bids is not dispatched. The result is that the market-clearing prices may differ from location to location. The locational market-clearing prices ("locational marginal prices" in the jargon of the PJM ISO) capture any costs associated with the out-of-order dispatch. Important features of the spot energy market include the following: o Only the incremental energy bid curve is used in determining the market-clearing prices. o Generators that do not recover their start-up and minimum load costs over the course of a day's operations are compensated for the shortfall in net revenue ("negative cycle costs") with payments which ensure that a plant does not lose money by being required to operate by the PJM ISO./8 o Aside from some interruptible load and exports, bidding is only allowed by generation resources. o Bilateral transactions are not subject to the market-clearing prices. However, they are subject to the same charges for transmission congestion included in the market-clearing prices. o Fixed transmission rights (FTRs) allow generators, load-serving entities, and others to hedge the costs associated with transmission congestion. An FTR has a financial analogue (transmission congestion credit or TCC) which is a financial right entitling holders of FTRs to the congestion charges associated with the difference in prices from a point of power injection to a point of delivery. When one obtains an FTR, one also acquires a TCC. TCCs thus may be used to offset the costs of transmission congestion. FTR's are obtained through two means: subscription to network service, where FTR's are assigned to the load based upon the location of the capacity resource and the load, or through purchase of firm point-to-point transmission service. In addition, PJM has petitioned the FERC for authority to conduct a periodic auction of uncommitted FTRs, and a secondary market for these rights is expected to develop. - ---------- 8 In any 24-hour period beginning at midnight, a generator may not lose money as a result of being dispatched by the ISO. If a generator does not recover its costs through market payments, then the amount of the operating loss is paid to the generator by the ISO. This means that a generator can not lose money from operating on any given day. THE PROPOSED STRUCTURE IN PJM o C-24 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential o Investor-owned utilities do not currently have FERC authorization for market-based pricing. Unless utility participants have authority for market-based pricing, their bids are capped at cost. 3.2.2 Installed Capacity Market PJM has imposed generation capacity reserve requirements on all LSEs. These requirements are expected to lead to an active capacity market. LSEs are defined as entities providing electricity services to end-use customers under state law. The PJM conducts an annual reliability study to determine the PJM Reserve Requirement, defined as the level of installed reserves needed for PJM to meet the installed generating capability requirements established within the control area. Historically, the required reserve margin has been decreasing due mainly to reductions in forced outage hours, and has averaged 18% to 20% over the past five years./9 To ensure that sufficient capacity is available in the market to meet reliability standards, PJM requires load-serving entities to own or contract with physical generation capacity to cover their peak demand. Important features of the installed capacity market include the following: o There are two capacity obligations. A load-serving entity's installed capacity obligation is determined two years in advance by PJM, based on forecast conditions. This obligation remains in place, and is known as the "planned-for" obligation. The planned-for obligation is then adjusted for actual conditions; this adjusted obligation is known as the "accounted-for" obligation. Capacity acquired in the installed capacity market satisfies the "accounted-for" obligation. o The amount of capacity each generator can supply is determined by a 12-month rolling average of availability, calculated two months in advance of the period for which the capacity is supplied. o There is a day-ahead installed capacity market, and monthly markets extending 12 months into the future. o Each installed capacity market has a single market-clearing price for each day the market is in operation. o Capacity may be acquired by a load-serving entity through bilateral transactions with generators or other load-serving entities. PJM operates a bulletin board to facilitate bilateral transactions. If a load-serving entity fails to meet its capacity requirement, a penalty is assessed. - ---------- 9 "1997 MAAC Reliability Assessment," June 1998, Final Report, Prepared by PJM Interconnection, L.L.C., System Coordination Division. THE PROPOSED STRUCTURE IN PJM o C-25 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Current projections of committed new generating capacity within PJM are insufficient to meet a reserve requirement of nearly 20% after the year 2000. The focus of capacity planning has shifted from large, base load coal-fired generation projects to combustion turbines and combined-cycle plants, which can be planned and constructed in relatively short periods. However, based on forecast reserve margins, PJM will require new capacity on line by the 2000 planning period./10 Additional elements of the evolving market for capacity in PJM are described in the next chapter of this report. - ---------- 10 It should be noted that most LSE's in PJM have discontinued reporting planned capacity additions so as to avoid divulging information related to strategic business plans to competitors within the system. In spite of this understanding, it is apparent that maintenance of historical levels of reserve capacity may not be economically viable. The apparent shortage of reserve capacity supports our projection that even with an active capacity market reduced reserve margins are likely. THE PROPOSED STRUCTURE IN PJM o C-26 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- CHAPTER 4 APPROACH TO MARKET PRICE FORECASTING 4.1 INTRODUCTION This chapter discusses our approach to forecasting forward prices for the services of generation units. The first section discusses general issues related to the capacity and ancillary services markets. The second section describes the specific approach employed in this analysis to develop the energy and capacity price forecasts. 4.2 ISSUES IN PREDICTING MARKET PRICES By far the most important element of the power market is the energy market, which will account for the vast majority of revenue. Although there is the possibility that generators can capture margins in all markets within the PJM pool, some of these other markets are much more difficult to assess. The following section of the report discusses issues involved in evaluating the value of capacity and ancillary services. 4.2.1 Issues in the Capacity Markets What Is the Purpose of a Capacity Market? The Northeast markets, i.e., PJM, NYPP and NEPOOL, have all incorporated a market for capacity as one of the key elements of the new wholesale market design. In all three of these pools, load-serving entities have an administrative obligation to purchase, own or control capacity. The capacity market provides a mechanism for covering any shortfalls in the positions of load serving entities with respect to their administrative obligations to the pool. These three pools represent a departure from how other restructured markets have dealt with the issue of capacity. In other markets that include some compensation for capacity, notably the England and Wales pool, capacity payments are determined administratively and are collected through an "uplift" charge (basically a surcharge) that is added by the pool administrator to the APPROACH TO MARKET PRICE FORECASTING o C-27 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential price of power from the pool. The PJM, NYPP and NEPOOL markets, to our knowledge, are the first markets to attempt to institute a bid market for capacity./11 What is the purpose of capacity compensation? Capacity payments have been included in the market designs for several purposes: o Capacity payments can serve as a mechanism to encourage investment in new generation capacity. This was the predominant rationale for including capacity payments in the England and Wales pool. The premise is that a competitive energy market (one that tends to force energy prices to marginal cost) provides inadequate margins to assure the construction of sufficient new capacity. o Some regulators and market designers believe that a capacity payment will reduce price volatility in the energy market. The premise is that a fixed capacity payment provides base compensation, the result of which is to reduce the volatility in energy prices. If revenue expectations are constant, reduced volatility will reduce risk and financing costs. o In the case of PJM, NYPP and NEPOOL the rationale for a bid market in capacity is due, in part, to gaming that occurred in the England and Wales pool. There, generators strategically declared their capacity unavailable in order to raise capacity payments. The designers of the U.S. capacity markets thought, in part, that a bid market for capacity might reduce the opportunities for gaming./12 However, many restructured electricity markets have not included a capacity market or a capacity payment. In fact, California, Norway, New South Wales, and Victoria all have foregone the option of including a capacity component in the exchange. Capacity Revenues Must Be Included in Market Projections Market institutions evolve and change over time. Given that many debate whether or not a capacity payment should be a part of the market institutions, is the revenue we include from capacity prices at risk? We believe not. Experience in existing energy markets shows that the energy prices arising from the production cost model (discussed below) understate the revenue that generators will earn - ---------- 11 Regulated electricity markets, including PJM, have provided capacity compensation. With deregulation, many continue to do so. What is unique is not the compensation but the effort to establish a bid market. 12 To be specific, capacity payments in the England and Wales pool are determined on a day-ahead basis by calculating the loss of load probability (LOLP, which depends on projected load and capacity). The LOLP is then multiplied by a value of lost load, which was administratively determined and escalates over time. Significant gaming occurred in the pool where generators would declare their capacity not to be available for the next day, thus increasing the LOLP and the resulting capacity payment, then declare their capacity available the next day to capture the inflated capacity payment. APPROACH TO MARKET PRICE FORECASTING o C-28 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential from the energy market. Using a production cost model presumes that energy prices are driven to short-run marginal cost. The result of this assumption is that a significant number of generators (most particularly the peaking and cycling facilities) earn insufficient margins from the energy market to cover all of their going-forward costs. If no other payments were provided, rather then incur these losses or retire, these generators would increase their start-up bids in all hours in which they expected to be dispatched to at least recover their going-forward costs. The results of this bidding behavior would be expected to have results very similar to the method we used in projecting capacity prices from a bid market. There are a number of ways that these capacity revenues might be recovered. o First, the installed capacity markets, although unproven, may function well into the future. o Second, the installed capacity market could be replaced by an operating capacity market, which would have different pricing to cover going forward costs. o Third, the capacity markets could be replaced with an administrative market institution such as those found in the U.K. or Argentina. o Fourth, even if the capacity market were to disappear, generators would recover any shortfall in their going-forward costs by increasing their bid prices in the energy market above marginal cost when market conditions allow. If they could not do so they would exit the market and prices would need to increase to attract sufficient new entry to maintain any required capacity margin. o Fifth, there is a robust bilateral market that currently exists for capacity that is likely to persist in any new market structure. How Do We Model Capacity Payments? Regardless of the ultimate form of capacity markets, we assess prices by determining the economic worth of capacity. In our analysis, we model what the market is willing to pay to retain plant (that might otherwise leave the market) for reliability services. Specifically, our approach is based on a partial equilibrium analysis that assessed returns from the energy and capacity markets and dynamically simulated entry and exit decisions. For these reasons, we believe that the capacity prices reflect returns that will be sustained by the market. Our approach to constructing capacity payments is described in more detail later in this chapter. 4.2.2 Ancillary Services The PJM ISO provides for revenues for ancillary services. There are, potentially, material revenues and margins that could be attributed to these markets. However, it is extremely difficult to predict what the forward price curve might be in these markets, since they do not yet APPROACH TO MARKET PRICE FORECASTING o C-29 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential exist in PJM and there is so little experience with bid-based systems for ancillary services elsewhere. Hence, our price, revenue, and margin projections have assumed that the going forward costs of the marginal unit would be covered and that there would be no contribution from ancillary services markets that would increase the margins of the marginal unit. 4.3 APPROACH TO MARKET PRICE FORECASTING Figure 4-1 provides a graphical view of Hagler Bailly's process for producing forward-price forecasts. The process begins with a definition of the characteristics of the market, including the electric generating units currently in operation, their production efficiencies (including heat rate curves), a projection of plant additions (based in part on announcements and in part on an equilibrium evaluation of market price signals), consumer demand and load, and fuel prices. Figure 4-1 Approach to Developing Capacity and Energy Prices [GRAPHIC OMITTED] Using these data, energy prices are projected through a comprehensive simulation which sets energy price to the short run marginal cost, which also yields estimates of how much each generating unit produces in the market. Capacity prices are then projected based on our simulation of the capacity market. Next, total returns to each generating unit are calculated and used to assess whether market entry and exit occurs. Iteration between these three phases takes place until stability is achieved in the energy and capacity price forecast. Thus, this process develops prices based on a dynamic examination of market entry and exit (including retirement) decisions made by the supply-side actors in the market. The following sections briefly discuss Hagler Bailly's approach to each of these steps. APPROACH TO MARKET PRICE FORECASTING o C-30 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential 4.3.1 Market Characteristics The first step is to ensure that we understand sufficiently the nature and parameters of the market and the generation assets that participate in that market. Hagler Bailly uses a variety of data sources to characterize the market. These include: o Data identifying the generating units, consumer demand and load, and production capacities of existing plants. This included data from public sources and data extracted from Hagler Bailly's proprietary Ramp Up(TM) database. o Fuel price forecasts. o Planned additions, which are developed based on announced plans of developers (tracked in the Hagler Bailly IPP Database) and utilities (contained in planning council reports), weighted by our assessment of how much capacity will actually be built in the early stages of the analysis time horizon. Capacity additions subsequent to 2001 are tested in the entry and exit logic. o Retirements of nuclear plants. We review the experience of nuclear power plant operators (tracked in the Hagler Bailly Operating Plant Experience Code database) to identify the plants most likely to be retired before the end of their operating license and to estimate early retirement dates. 4.3.2 Predicting Energy Prices and Dispatch Hagler Bailly used the RealTime(TM) production cost model to develop the PJM wholesale market price of energy, plant operating costs, and projected dispatch on an hourly basis for the years 2001-2025./13 RealTime(TM) incorporates unit characteristics (e.g., heat rates, minimum and maximum capacities, ramp rate, and fuel type), fuel costs, emissions, hourly load, imports from (exports to) adjoining power pools and many other factors in its calculations. Since RealTime(TM) is an hourly chronological production cost model, it addresses each hour before moving on to the next hour. Thus, in every hour each unit has a generation level (MW) and a cost associated with that generation. A chronological model such as RealTime(TM) more closely simulates reality and its uncertainties than do non-chronological models. RealTime(TM) output includes revenue, fuel costs, emission costs, other variable costs, profit, generation level (and capacity factor), hours connected to the grid, forced outages, number of hot - ---------- 13 Hagler Bailly has used RealTime(TM) to project market clearing prices and unit operations in PJM for asset valuations, regulatory proceedings, and the evaluation of potential merchant plant projects for a number of clients. Hagler Bailly has also used RealTime(TM) elsewhere in the country to model prospective production costs. APPROACH TO MARKET PRICE FORECASTING o C-31 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential and cold starts, and average and load-weighted marginal costs. In addition, other reports are provided for every fossil, nuclear, and hydroelectric unit in PJM. An additional element of the dispatch analysis considered the impact of transmission system characteristics and constraints. PowerWorld(TM), a load flow model, was used to determine if Ironwood would impose additional burdens on the PJM transmission system and if the plant's location would lead to its being dispatched less than anticipated due to transmission constraints. We also used the model to assess whether Ironwood could expect to receive higher revenues due to contributions to voltage support or for transmission constraint-reducing flows. The analysis showed that the plant's location would ease transmission constraints from west to east, the predominant direction of flow, within PJM Central. However, the value of this contribution is too small to measure at present. In the future, if a nodal pricing regime is retained (i.e., location-specific pricing that reflects such factors as transmission congestion), some revenue may be available for transmission congestion relief; none is included in our results. From the energy price analysis, Hagler Bailly determines the energy margin (price minus variable cost) attributable to each generating unit in the market. These margins, along with estimates of "going-forward costs," (fixed costs, such as fixed O&M, property taxes, administrative and general expenses, employee benefits, and incremental capital expenditures) are used in the Capacity Market Simulation model to predict capacity prices. 4.3.3 Predicting Capacity Prices: The Capacity Market Simulation Model Capacity payments are a mechanism for supporting an appropriate amount and mix of capacity in the system. There are two reasons for including a capacity payment in a forward-price analysis. First, if generators bid their short-run marginal costs into an energy market, only inframarginal plants (those not on the margin) earn a contribution toward their going-forward fixed costs. Plants at the top of the supply curve receive little, if any, contribution toward their going-forward costs. In addition, some of the baseload and cycling plants that are not at the top of the supply curve but have high going-forward costs may not earn a sufficient operating margin from the energy market alone to cover all of those costs. We predict capacity prices using our proprietary Capacity Market Simulation Model. This model presumes that the market will retain a sufficient amount of capacity to meet economic reliability targets. In other words, we simulate the capacity market as consisting of a supply curve and a demand curve for reliability (or capacity) services. We assume that the organized capacity market is a competitive market, and that the market-clearing price for capacity is determined by the intersection of the supply and demand curves. We construct supply and demand curves for each year of the simulation time horizon. The supply curve is calculated from the going-forward costs of each generating unit. The net of going-forward costs and energy market margins, expressed on a per-kilowatt basis, represents the minimum amount a generating unit needs to go forward. Ranking these net costs in ascending order produces a supply curve for capacity. APPROACH TO MARKET PRICE FORECASTING o C-32 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Next, the demand curve is estimated. The demand curve is estimated by representing the capacity associated with a target reliability level. The demand curve is a vertical line derived using a target reserve margin or target level of installed capacity. Finally, the intersection of the demand curve and the supply curve represents the capacity payment that the market would support in that year. The capacity price forecast is the capacity payment derived for each year of the study period. An example supply and demand curve is shown in Figure 4-2. For the purposes of the AES Ironwood study, Hagler Bailly applied the results of its most recent capacity valuation studies of the PJM market. The estimated annual capacity values average $45.19/kW-year (1996 $) for the forecast period./14 (The annual values are shown in Chapter 6 of the report.) Figure 4-2 Example Supply and Demand Curve [GRAPHIC OMITTED] 4.3.4 Market Entry and Exit It is necessary to assess the feasibility and timing of new capacity additions as well as the exit of uneconomic existing capacity. Hagler Bailly's proprietary modeling approach serves two purposes: - ---------- 14 Additional revenues may be available in the future to generators that provide operating capacity services and other ancillary services, such as black-start capability. Such revenues are not considered in this analysis. APPROACH TO MARKET PRICE FORECASTING o C-33 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential o First, it identifies generating units that are not able to cover their going-forward costs in the energy market and are therefore at risk of abandoning the market. o Second, it provides a rational method for ascertaining the amount, timing, and type of capacity additions. Hagler Bailly's approach uses a financial model to assess the decision to add new capacity and to retire existing capacity. The approach to plant additions is based on a set of generic plant characteristics, financing assumptions, and economic parameters, and is an iterative process performed simultaneously with the development of the energy price forecast and the capacity price forecast. The methodology assesses the validity of annual capacity additions based on a Discounted Cash Flow (DCF) model using net energy revenues determined in the production cost model simulations, and capacity revenues determined from our Capacity Market Simulation approach. For each increment of new capacity, a "Go" or "No Go" decision is made based on the resulting financials. In addition, economic retirement decisions are made at each step in the iterative process based on the specific financial and operating characteristics of each existing plant. The iterative process begins with the addition of new capacity. A production cost run is executed to determine energy prices, dispatch, and operating costs. The Capacity Market Simulation is then performed. Financial results for the energy and capacity markets are combined in the financial model to determine whether the new unit is a "Go" or "No Go." If the new unit is a "Go," another new unit is added, and the process repeated. This occurs until the next new unit returns a "No Go." Retirements are determined after new units are added. A financial analysis of each unit is performed, combining the results of the energy and capacity markets. If the cumulative operating profit (loss) for an existing unit were negative for any five-year period, it was retired at the end of the third year of consecutive operating loss. Although the decision criterion was somewhat subjective, it was interpreted conservatively. Thus, if a unit lost money for two years, was in the black over the third year, and then lost money for two more years, the unit was maintained online. If units were retired, the iterative process would begin again with the addition of new capacity. In this way, the introduction of new units influences the retirement of existing units, and the retirement of existing units enables the introduction of new units. Since the addition of new units is "lumpy," the iteration generally stops with new generators earning a small increment above their cost of debt and equity. The addition of one more new unit would then push many of the previous additions into losses. This approach reflects a game theoretic concept of a market equilibrium. APPROACH TO MARKET PRICE FORECASTING o C-34 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- CHAPTER 5 MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT 5.1 INTRODUCTION This section of the report describes the key assumptions used in the development of the PJM capacity and energy market price forecasts and the related models. The assumptions are presented in two sections. The first section describes the inputs to the RealTime(TM) production cost model, including: (1) the characteristics of the existing generating units (thermal, hydro, nuclear), (2) the demand and energy forecasts, (3) fuel prices, (4) the modeling of electricity imports/exports in the regions, and (5) intra-PJM transmission constraints. The second section describes the inputs to the Capacity Market Simulation Model. 5.2 PRODUCTION COST MODEL INPUT ASSUMPTIONS As discussed above, to simulate the hourly market-clearing price of energy we use the RealTime(TM) production-costing model. RealTime(TM) allows the characterization of multiple transmission areas within a power pool. Transmission areas for PJM are defined as "PJM-East" and "PJM-Central/West" (see Map 5-1, below). Map 5-1 PJM Regions [GRAPHIC OMITTED] MARKET PRICE FORECASTING o C-35 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Imports and exports are modeled as contracts involving the East Central Area Reliability Council (ECAR) and the New York Power Pool (NYPP). Map 5-2 illustrates the location of PJM, NYPP, ECAR and other adjacent power pools. Map 5-2 Eastern Power Pools [GRAPHIC OMITTED] Each of the PJM region's major generating units is represented individually in the production-costing model using unit-specific cost and operating characteristics. The RealTime(TM) model is used to perform an hour-by-hour chronological simulation of the commitment and dispatch of generation resources. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-36 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential 5.2.1 Existing Generating Units Fossil Units Each fossil generating unit is characterized using the following parameters: o Summer and winter net capability o Heat-rate curve o Operating characteristics |_| Minimum capacity |_| Ramp rate |_| Minimum uptime |_| Minimum downtime o Forced outage rate o Scheduled maintenance outage rate o Variable operation and maintenance cost o Emission costs o Start fuel. Units that operate on more than one fuel have characteristics specified for each fuel. The development of these parameters is discussed below. Summer and Winter Capabilities. Summer and winter capability values were obtained from the 1997 Mid-Atlantic Area Council (MAAC) Regional Reliability Council, EIA-411 Report. (MAAC is contiguous with PJM.) Heat-Rate Curves for Fossil Units. Heat rate estimates were derived primarily from Hagler Bailly's Ramp Up(TM) generation database and analysis system. Ramp Up(TM) contains estimates of unit heat rates based on actual hourly unit performance, as reported to the U.S. Environmental Protection Agency as part of the Continuous Emission Monitoring (CEM) program. Where the CEM data was not available, heat rate curves were estimated, using a proprietary Hagler Bailly methodology, from the full load heat rates reported to the federal Energy Information Administration (EIA) on EIA Form 860. Operating Characteristics. The operating characteristics (minimum capacity, ramp rate, minimum uptime, minimum downtime, forced and scheduled outage rates) are derived from Hagler Bailly proprietary databases. Variable Operation and Maintenance Costs. In RealTime(TM), nonfuel variable O&M cost, hereafter referred to simply as variable O&M, is treated as if it is directly proportional to the generation level of each unit. Variable O&M is a problematic category because, in the short run, the truly variable portion represents only a small part of total variable O&M costs, as traditionally reported. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-37 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential The variable O&M costs in RealTime are derived from FERC Form 1 data. The model assumptions are shown below in Table 5-1. - ------------------------------------------------------------------------------- Table 5-1 Variable Operating Costs (1996 $ per MWh)/15 - ------------------------------------------------------------------------------- Existing Oil, Gas, and Refuse $2.00/MWh - ------------------------------------------------------------------------------- Coal - Not Scrubbed $3.00/MWh - ------------------------------------------------------------------------------- Coal - Scrubbed $4.00/MWh - ------------------------------------------------------------------------------- New CC $1.71 - ------------------------------------------------------------------------------- New CT $3.02 - ------------------------------------------------------------------------------- Sulfur Dioxide Emission Costs. The Clean Air Act Amendments of 1990 (CAAA) provided for tightened restrictions on the emission of sulfur dioxide (SO2) by fossil-fired generating stations, with the primary impact falling on coal plants. In a departure from traditional command-type regulation, the CAAA established a mechanism by which utilities could buy and sell rights to emit SO2. This SO2 "allowance" system accordingly establishes a value or cost to a utility, depending on whether it needs to purchase allowances or, if it emitting less SO2 than it is authorized per the CAAA, it has excess allowances that it can sell or bank for future use. Each allowance represents the right to emit one ton of SO2. The assumptions related to SO2 costs were based upon forward price forecasts developed by Putnam, Hayes & Bartlett, Inc. (PHB). For the purposes of our modeling, we assumed that SO2 emission costs were equal to the number of tons of SO2 emitted multiplied by the price of allowances in a given year. The resulting cost was added to the variable cost of each generating unit and included in the development of the energy price forecast. SO2 allowances are currently priced at about $190 per ton (1996 $). PHB forecasts allowance prices escalating to $200 by 2001, and then gradually ramping up to $400 by 2010, after which prices are flat in real terms (see Figure 5-1). Development of NOx Control Costs and Emission Rates Because of the persistence of a widespread ozone nonattainment problem and the recognition of NOx emissions as the primary precursor pollutant, EPA has recently proposed the State Implementation Plan (SIP) Call. The SIP Call seeks a 70% percent reduction in NOx emissions from large NOx point sources (i.e., power plants and industrial boilers) in 22 states starting in 2003. Despite these large proposed reductions in NOx emissions, modeling of ozone - --------- 15 Note: for modeling purposes all operating costs for nuclear, hydro and pumped storage units are assumed to be fixed. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-38 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential concentrations suggests that many areas east of the Mississippi will be in non-attainment of the 8-hour ozone standard. In order to avoid strict federal penalties for ozone nonattainment, states will need to obtain further reductions in NOx emissions. This will result in a continuous reduction in the number of NOx allowances that are available, which will maintain NOx allowance prices beyond 2020. The forecast SO2 and NOx price curves are shown below in Figure 5-1. Figure 5-1 Forecast Of Allowance Prices (1996$ per Ton) [GRAPHIC OMITTED] The forward price curve for NOx emissions begins in 2001 at a price for summer/16 NOx allowances of $2,150/ton (1996 $). The price of NOx allowances jumps to $2,500/ton for the first summer of SIP Call regulations in 2003, reaches $2,900 by 2005, and remains at this level through 2025./17 Hydroelectric Units The hydroelectric plants in the region are modeled individually, with the exception of small plants, which are consolidated by utility and categorized as peaking or baseload. Similar to the - ---------- 16 The summer NOx period is May 1 through September 30. 17 Source of NOx Allowance Prices: PHB Hagler Bailly estimate MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-39 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential thermal units, the maximum capacity for each unit was taken from sources cited above for summer and winter capabilities. Nuclear Units Table 5-2 lists the shutdown dates for all PJM nuclear units that retire during the forecast period. The retirement dates are based on the expiration dates of current operating licenses, with the exceptions of Oyster Creek 1, which GPU intends to retire at the end of 2000, and Salem-2, which we retire at the end of 2002. - -------------------------------------------------------------------------------- Table 5-2 Nuclear Unit Retirement Dates - -------------------------------------------------------------------------------- Unit Retirement Summer Capacity Cumulative Retired Date (MW) Capacity (MW) - -------------------------------------------------------------------------------- Oyster Creek-1 10/01/00 619 619 - -------------------------------------------------------------------------------- Salem-2 12/31/02 1,106 1725 - -------------------------------------------------------------------------------- Peach Bottom-2 12/31/14 1,093 2818 - -------------------------------------------------------------------------------- Calvert Cliff-1 12/31/15 840 3658 - -------------------------------------------------------------------------------- Peach Bottom-3 12/31/15 1,093 4751 - -------------------------------------------------------------------------------- T.M. Island-1 12/31/15 786 5537 - -------------------------------------------------------------------------------- Calvert Cliff-2 12/31/17 840 6377 - -------------------------------------------------------------------------------- Salem-1 12/31/17 1,106 7483 - -------------------------------------------------------------------------------- Hope Creek-1 12/31/21 1,031 8514 - -------------------------------------------------------------------------------- Susquehanna 1 12/31/23 1,090 9604 - -------------------------------------------------------------------------------- 5.2.2 Load Growth Our load growth assumptions have an important effect upon the analysis of the market. With the output of generating plants and imports and exports held constant, higher load means higher energy prices since units higher in the stack will be dispatched to cover demand. Load, or demand, growth assessments focus on aggregate, or total, demand and on load shape, which directly affect forecasts of peak demand. Changes in the load shape (e.g., peak shaving) may reduce the energy revenues despite higher aggregate demand. PJM load growth on average is generally expected to increase at between 1.5% and 2% per annum, with peak loads growing more slowly to reflect primarily industrial load shifting toward the less expensive hours of the day. In the present study, we utilized the actual hourly load variation pattern of 1995. We escalated the total load and peak load at different rates to reflect our expectation that industrial and commercial peak loads will be shifted in the future as time-of-day pricing and metering are extended. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-40 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential The estimation of load growth through the next two decades is an important input to the analysis. Hagler Bailly has done extensive work on the subject of demand forecasting, and has selected load growth rates that are most probable given this research and analysis. The years 2002-2009 are assigned a higher load growth rate to reflect increased energy use as utilities finish collecting stranded costs, making power less expensive. In the present study, the Base Case assumptions forecast annual demand escalation at the following rates: o to 2002: 1.5% per annum o 2003 to 2009: 2.0% per annum o 2010 to 2025: 1.5% per annum Our peak load escalation rates are as follows: o to 2009: 1.00% per annum o 2010 to 2025: 0.75% per annum We also tested the economics of Ironwood for a Low Demand Growth Case. In this scenario both annual average and peak load growth rates for each year after 2016 are reduced by one-third, with no concomitant adjustment to the schedule of capacity additions or retirements. This encompasses the last four years of the PPA period and the merchant tail. Figure 5-2 illustrates the growth in average and peak load under the Base and Low Demand Growth Cases. Figure 5-2 Cumulative Demand Growth in PJM [GRAPHIC OMITTED] MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-41 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential 5.2.3 Fuel Prices Fossil fuel prices for this study were provided and documented by CC Pace. The forecast for all fossil fuels is shown in Table 5-3, and summary graphs illustrating the natural gas and coal price forecasts are presented in Figures 5-3 and 5-4. Note that Figure 5-3 illustrates the natural gas Base Case values and the High Gas Price Case constructed by Hagler Bailly (a uniform $0.50 per MMBtu increase in the gas price for each year). Because the plant is gas-fired, the High Gas Price Case represents the "downside" fuel price sensitivity. The coal prices shown are the PJM-average delivered price for each year. The model runs are based on individually determined coal prices for each plant, and reflect such factors as the specific transportation costs and sulfur content requirements of each station. Table 5-3 Delivered Fuel Prices (1996$/MMBtu)/1
- ----------------------------------------------------------------------------------------------- Average Annual % Fuel 1998 2005 2010 2020 2025 Change/4 - ----------------------------------------------------------------------------------------------- Natural Gas - PJM East/2 $2.57 $2.48 $2.52 $2.63 $2.69 0.17% - ----------------------------------------------------------------------------------------------- Natural Gas - PJM West $2.47 $2.38 $2.43 $2.53 $2.60 0.18% - ----------------------------------------------------------------------------------------------- Residual #6 $2.10 $2.41 $2.41 $2.41 $2.41 0.51% - ----------------------------------------------------------------------------------------------- Distillate #2 $3.20 $3.69 $3.69 $3.69 $3.69 0.53% - ----------------------------------------------------------------------------------------------- Jet A $3.40 $3.89 $3.89 $3.89 $3.89 0.50% - ----------------------------------------------------------------------------------------------- Coal/3 $1.36 $1.15 $1.09 $1.03 $1.04 -1.00% - ----------------------------------------------------------------------------------------------- 1 Fuel price estimates are left in real 1996$s to maintain consistency with a proprietary Hagler Bailly RealTime(TM) database. 2 Ironwood is forecast to use PJM East natural gas. The Henry Hub to PJM East basis (transportation) differential is approximately $0.52 per MMBtu. 3 Coal prices were provided on a plant specific basis. Average prices represent the average for all the coal consumed in a given year. The 1998 price is for the period Oct. 1997 - Sept. 1998. 4 Calculated from 1998 to 2025.
MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-42 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Figure 5-3 Delivered Natural Gas Prices 1996$ [GRAPHIC OMITTED] MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-43 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Figure 5-4 PJM Generation Weighted Average Coal Prices 1996$ [GRAPHIC OMITTED] 5.2.4 Energy Import/Export Forecast In RealTime(TM), we have modeled two electric energy imports into PJM and one export. The imports are from ECAR and Ohio Edison-Potomac Electric Power Company (OE-PEPCo), with maximum hourly capacities of, respectively, 4300 and 450 MW. The export is into NYPP (maximum hourly capacity of 1000 MW). These imports and exports are utilized when they are economical; electrical energy is imported when the import price is less than the cost of generating that unit of energy within PJM, and energy is exported when the price is greater than the cost of PJM generation. All imports and exports remain in place throughout the model run with the exception of the OE-PEPCo import, which expires at the end of 2005. Table 5-4 displays the properties of the two imports and the export. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-44 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential
- ------------------------------------------------------------------------------------------------------------------ Table 5-4 Imports and Exports (1996 $ per MWh) - ------------------------------------------------------------------------------------------------------------------ On-Peak Location Price in Off-Peak Annual Price Maximum Hourly Minimum Import/Export within PJM 2001 Price in 2001 Escalation Capacity (MW) Take (MW) - ------------------------------------------------------------------------------------------------------------------ ECAR Import/18 West & Central 20.75 15.25 See Note 4,300 10 - ------------------------------------------------------------------------------------------------------------------ OE-PEPCO Import West & Central 11.94 11.94 3.0% 450 10 - ------------------------------------------------------------------------------------------------------------------ NYPP Export East 22.04 15.79 1.0% 1,000 10 - ------------------------------------------------------------------------------------------------------------------
Emergency power purchase contracts were modeled on an economy basis using experience Hagler Bailly has gained in the course of several market studies and the pricing observed during the past year. Given recent market pricing during high demand periods, the assumed pricing of the emergency power purchase contracts is conservative. In all years of the study, the PJM market is assumed to be able to purchase the following amounts of power for each of the two PJM regions at the prices shown in Table 5-5. Emergency power is imported from neighboring control areas using transmission capacity reserved for such purposes (as provided by the capacity benefit margin). - -------------------------------------------------------------------------------- Table 5-5 Emergency Imports - -------------------------------------------------------------------------------- Quantity Available Price (Real 1996 $) - -------------------------------------------------------------------------------- 500 MW $100.00 - -------------------------------------------------------------------------------- 500 MW $150.00 - -------------------------------------------------------------------------------- 200 MW $250.00 - -------------------------------------------------------------------------------- Additional MW $300.00 - -------------------------------------------------------------------------------- 5.2.5 Transmission Constraints The PJM Central-East interface has transfer capability estimated variously at between 4,700 and 5,300 MW located near the New Jersey-Pennsylvania border. Historically, as a consequence of this constraint a price differential exists between the two sides of the interface about 10% of the time. RealTime(TM) models transmission flows based on forecast price differentials resulting from local demand and prices. This PJM East constraint generally becomes binding in times of moderate to high demand, but not at times of peak demand. The reason for this is that - ---------- 18 Note: ECAR import price trajectory approximates PJM trends. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-45 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential significantly greater base-load and intermediate capacity is located in the West and Central regions relative to the East. The East, in contrast, contains a significant quantity of peaking capacity. Thus, as load increases more energy is transmitted from Central to East until the constraint is reached. However, as load levels continue to increase to peak levels, many peaking units in the East are dispatched, lowering transmission demand. This means that plants located in the West and Central regions receive slightly lower market prices than would be the case if PJM were simply a single unconstrained pool. PJM does not expect major new transmission lines to be constructed during the study period. We have adopted this expectation. 5.3 CAPACITY MARKET SIMULATION MODEL INPUT ASSUMPTIONS 5.3.1 Existing Units Going-Forward Costs For fossil units, annual fixed O&M costs are determined using FERC data from 1994-1996. For each year, total annual nonfuel production costs are identified. The fossil fuel experts within Hagler Bailly assume that a reasonable proxy for attributing nonfuel production costs to fixed and variable components is to attribute 30% of total nonfuel costs to fixed costs, and the remainder to variable costs. These fixed costs, in dollars, are then divided by net capability to arrive at a cost in units of $/kW. These costs are then averaged across years to determine an annual fixed production cost in $/kW. No discounting is done to account for inflation, because inflation is a very small component of the year-to-year variability for the three-year time period. For steam units, the following adjustments are made. An increment of $4/kW for annual G&A is added./19 Costs for employee benefits are assumed to be 50% of total salaries reported in FERC Form 402, lines 18 and 28. Incremental capital expenditures are assumed to be 20% of total fixed costs. These costs, which are an important component of going-forward costs, are not reported in the FERC production accounts. While some FERC cost data is available at the generating unit level, most of these data are available only at the power plant or station level. For generating units lacking FERC data at the generating unit level, total station annual nonfuel costs are attributed to generating units in proportion to generating unit capacity. Since fixed production costs are calculated in units of $/kW, this means that all generating units at a station have the same fixed production costs per kW, unless production costs for a generating unit are individually reported in the FERC data. - ---------- 19 An increment for annual G&A is only included for the steam units and not the remaining units since the steam units are the units that are more likely to have G&A costs that are not reflected in the FERC fixed O&M accounts. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-46 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential For units not reported in the FERC data, an average value by unit type was calculated from those units that do report FERC data. Combustion turbines and gas turbines that were not listed in the FERC data were attributed annual fixed production costs of $14.50/kW. Combined cycles were assigned a value of $13.50/kW and steam units a value of $30.50/kW. Property tax data for each unit was derived by applying a mill rate to an assumed market value. We assumed a value for generating capacity of $400/kW. Mill rates were assumed to vary by state and yield values averaging $9.50/kW. 5.3.2 New Generating Capacity Projected unit characteristics for future combined cycle units (CCs) are based upon Hagler Bailly estimates. These estimates were confirmed in conversations with industry sources. These units were assigned seasonal maximum capacities of 788 MW, 705 MW, and 655 MW during the winter, spring/fall, and summer, respectively. These units ramp up at 10 MW/minute, burn pipeline gas, and have a variable O&M cost of $1.71/ MWh (1996 $). Their minimum uptime is eight hours and they have no minimum downtime. Unlike existing stock (those currently operating) in the model, future CCs are assigned hot and cold start-up costs expressed in MMBtu. A cold start is defined as a start after eight or more hours not in operation and has an average cost of 6,172 MMBtu per unit. A hot start is a start after less than eight hours of inactivity, and its average cost is 2,482 MMBtu per unit. Heat rates for CCs improve with time (i.e., newer units have superior technology and performance to earlier units). Table 5-6 shows the heat rates and other key characteristics of the generic combustion turbines (CTs) and CCs used in the model. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-47 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- Table 5-6 New Generating Unit Characteristics (1996 $) - -------------------------------------------------------------------------------- CC CT - -------------------------------------------------------------------------------- Summer Net Capacity (MW) 655 MW/1 345 MW - -------------------------------------------------------------------------------- Total Capital Cost $464 $279 ($/kW) - -------------------------------------------------------------------------------- Heat Rate (Btu/kWh, for Units installed 2001-06: 6768 full load summer Units installed 2007-13: 6339 10,400 operation) Units installed 2014-25: 6235 - -------------------------------------------------------------------------------- Variable O&M ($/MWh) $1.71 $3.02 - -------------------------------------------------------------------------------- Fixed O&M ($/kW Year) $9.75 $5.11 - -------------------------------------------------------------------------------- 1 The 655 MW (summer capacity) is equivalent to 705 MW average capacity. Information on fixed costs, depreciation, and taxes is also developed and incorporated within the DCF analysis to determine the economic viability of the new unit additions. Environmental costs and overhaul expenses are not included due to expectations that such expenses would be minimal in early years of operation. Key economic and financial assumptions include the following: o Property taxes are assumed to be 1% of the initial capital costs. Property taxes are escalated over time at the Projected inflation rate. o Depreciation of the initial all-in cost of the new additions are based on a standard 20-year MACRS (150% DB) with mid-year convention. o General inflation is assumed at 2.5%. o Minimum after-tax return of 13.5%. o Income tax rate is assumed to be 35% federal and 7% state. o Financing assumptions of 60% debt, 40% equity. o Debt interest rate of 8%. o Debt terms are 20 years for combined cycle units with mortgage-style amortization. o Debt terms are 15 years for combustion turbine units. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-48 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- CHAPTER 6 MARKET PRICE FORECASTS 6.1 INTRODUCTION This chapter presents the market price forecasts resulting from our analysis, and our assessment of Ironwood's dispatch given these forecasts. Three cases were developed: o "Base Case," which reflects our best assessment of future market conditions. o "High Gas Price Case," a downside sensitivity that tests the effect of higher prices for gas through a uniform increase of $.50/MMBtu relative to the Base Case in all years, while leaving all other fuel prices unchanged. o "Low Demand Growth Case," a downside sensitivity that tests the effect of a one-third reduction in PJM average and peak demand growth rates for each year beginning in 2017. This encompasses the last four years of the PPA term and each year in the post-PPA period. While demand growth is reduced, this case includes no corresponding adjustment to the schedule of capacity retirements and additions. All three cases use the same schedule of unit additions and retirements. In the Low Demand Growth Case this conservative assumption has the effect of overstating the likely reserve margins and exaggerating the downward impact on energy prices. The remainder of this chapter of the report is organized as follows: o Section 6.2 presents our forecasts of power prices in PJM. o Section 6.3 presents our forecasts of capacity factors and of Ironwood's competitive position. 6.2 PJM CAPACITY AND ENERGY PRICE FORECASTS 6.2.1 Base Case The pressing need for capacity in the PJM market is reflected in Table 6-1, which summarizes PJM market entry and exit. During the study period, 14,744 MW of capacity is retired and 27,965 MW of new combined cycle (CC) and combustion turbine (CT) capacity is added, for a MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-49 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential net increase of 13,221 MW (a 25% increase, compared to current installed capacity of 52,521 MW). These additions provide for an average reserve margin of 18.1% for the study period./20
- ----------------------------------------------------------------------------------------------------------------------- Table 6-1 PJM Capacity Additions and Retirements (MW) - ----------------------------------------------------------------------------------------------------------------------- Net Total Capacity Cumulative Reserve Year CC CT Additions Retirements Cumulative Net Capacity Margin - ----------------------------------------------------------------------------------------------------------------------- 2001 655 - 655 (198) 457 457 17.8% - ----------------------------------------------------------------------------------------------------------------------- 2002 - 240 240 - 240 697 17.1% - ----------------------------------------------------------------------------------------------------------------------- 2003 1,310 1,380 2,690 (2,264) 426 1,123 16.7% - ----------------------------------------------------------------------------------------------------------------------- 2004 1,310 1,035 2,345 (1,791) 554 1,677 16.6% - ----------------------------------------------------------------------------------------------------------------------- 2005 1,310 690 2,000 (1,131) 869 2,546 17.1% - ----------------------------------------------------------------------------------------------------------------------- 2006 - 690 690 - 690 3,236 17.2% - ----------------------------------------------------------------------------------------------------------------------- 2007 1,310 - 1,310 - 1,310 4,546 18.4% - ----------------------------------------------------------------------------------------------------------------------- 2008 655 - 655 - 655 5,201 18.8% - ----------------------------------------------------------------------------------------------------------------------- 2009 - 690 690 - 690 5,891 18.9% - ----------------------------------------------------------------------------------------------------------------------- 2010 655 690 1,345 (835) 510 6,401 19.0% - ----------------------------------------------------------------------------------------------------------------------- 2011 - 345 345 - 345 6,746 18.7% - ----------------------------------------------------------------------------------------------------------------------- 2012 - 345 345 - 345 7,091 18.5% - ----------------------------------------------------------------------------------------------------------------------- 2013 655 - 655 - 655 7,746 18.7% - ----------------------------------------------------------------------------------------------------------------------- 2014 - 345 345 - 345 8,091 18.5% - ----------------------------------------------------------------------------------------------------------------------- 2015 1,310 345 1,655 (1,093) 562 8,653 18.6% - ----------------------------------------------------------------------------------------------------------------------- 2016 1,310 1,725 3,035 (2,719) 316 8,969 18.3% - ----------------------------------------------------------------------------------------------------------------------- 2017 - 690 690 - 690 9,659 18.6% - ----------------------------------------------------------------------------------------------------------------------- 2018 1,310 1,035 2,345 (1,946) 399 10,058 18.4% - ----------------------------------------------------------------------------------------------------------------------- 2019 655 - 655 - 655 10,713 18.6% - ----------------------------------------------------------------------------------------------------------------------- 2020 655 - 655 - 655 11,368 18.8% - ----------------------------------------------------------------------------------------------------------------------- 2021 - 345 345 (571) (226) 11,142 17.6% - ----------------------------------------------------------------------------------------------------------------------- 2022 1,310 - 1,310 (1,106) 204 11,346 17.8% - ----------------------------------------------------------------------------------------------------------------------- 2023 655 - 655 - 655 12,001 18.0% - ----------------------------------------------------------------------------------------------------------------------- 2024 1,310 345 1,655 (1,090) 565 12,566 17.9% - ----------------------------------------------------------------------------------------------------------------------- 2025 655 - 655 - 655 13,221 18.1% - ----------------------------------------------------------------------------------------------------------------------- TOTAL 17,030 10,935 27,965 (14,744) 13,221 Avg. reserve 18.1% - -----------------------------------------------------------------------------------------------------------------------
- ---------- 20 Due to the abundance of inexpensive coal fired generation capacity in PJM-West, there are no economic additions or retirements in this region. All the additions in PJM are in the East and Central regions. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-50 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential The introduction of this substantial new capacity helps to explain why the PJM market is characterized by relatively low energy prices and relatively high capacity prices. When many of the nuclear units are retired, they are immediately replaced in the model by new CC and CT units to meet system reliability requirements. These units, like the nuclear plants, have relatively low variable costs, which perpetuates low prices in the energy market. The going forward costs of these units, coupled with the relatively low energy market prices, require additional revenues from the capacity market. This keeps capacity prices high throughout the study period. By the end of 2005, 5384 MW of uneconomic generation is retired in PJM. At the same time the system adds 7930 MW of new capacity. This new capacity, composed of both CC and CT units, replaces the retired nuclear units. New generating capacity is added in every year of the study period, in order to meet the growing demand for power in the region. At the outset of the forecast period coal generation is at the margin for over half the hours in a year. Over time, as gas-fired units are constructed to meet load growth and nuclear units are retired (which has the effect of increasing the base load utilization of coal), gas-fired units become the marginal source of power for almost a third of the hours. Since Ironwood's costs are lower than many coal units, Ironwood is "inframarginal" in the vast majority of hours; that is, its costs are below the costs of the marginal unit. In the Base Case, energy market prices show a steady, slow price growth throughout the study period. Energy prices begin at $22.05 (1996 $s/21) per MWh in 2001 and gradually increase to $25.86 by 2025 (See Figure 6-1 and Table 6-2). In the High Gas Price Case, energy prices are approximately $.60 to $1.20 per MWh above the Base Case throughout the forecast period. This sensitivity represents the "downside" fuel case because of the increase in Ironwood's fuel costs. In the Low Demand Growth Case, the impact of the reduction in demand growth in 2017 can be clearly seen as a break in the price trend. By the end of the forecast period the Low Demand Growth Case prices are about $2.00 per MWh below the Base Case./22 - ----------- 21 Fuel price estimates are left in real 1996$s to maintain consistency with a proprietary Hagler Bailly RealTime(TM) database. 22 Note that while energy prices in the Low Demand Growth Case are below the Base Case, this is due to prices remaining essentially flat in real terms rather than significantly declining. This flat trend in real prices is maintained although the Low Demand Growth Case assumes no adjustment to the schedule of capacity additions or retirements in reaction to the decline in demand growth. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-51 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Figure 6-1 PJM West/Central Average Energy Prices 1996$ [GRAPHIC OMITTED] MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-52 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Table 6-2 PJM Average Energy Prices (1996 $/MWh) High Gas Low Demand Base Case Price Case Growth Case - -------------------------------------------------------------------------------- 2001 $22.05 $23.02 $22.05 2002 $22.47 $23.36 $22.47 2003 $21.43 $22.05 $21.43 2004 $22.42 $23.09 $22.42 2005 $21.88 $22.82 $21.88 2006 $22.15 $23.18 $22.15 2007 $22.32 $23.20 $22.32 2008 $22.85 $23.56 $22.85 2009 $23.02 $23.68 $23.02 2010 $22.98 $23.85 $22.98 2011 $23.44 $24.29 $23.44 2012 $22.77 $23.99 $22.77 2013 $23.28 $24.15 $23.28 2014 $23.58 $24.58 $23.58 2015 $23.66 $24.85 $23.66 2016 $24.31 $25.17 $24.31 2017 $24.32 $25.16 $23.88 2018 $24.51 $25.17 $24.08 2019 $24.44 $25.75 $23.82 2020 $24.18 $25.33 $23.64 2021 $25.47 $26.56 $23.85 2022 $24.75 $25.94 $23.68 2023 $25.27 $25.71 $24.06 2024 $25.45 $26.17 $23.53 2025 $25.86 $26.47 $23.82 Table 6-3 presents the annual forecast of capacity values used in the study, expressed in 1996 dollars per kW-year. Since it can be difficult to separately assess the effects of capacity and energy prices, we also present in Table 6-4 an "all-in" price forecast that combines energy and capacity prices (calculated using a 100% load factor). The forecasted all-in price for the Base Case is $27.70/MWh in 2002, $27.96/MWh in 2012, and $29.98/MWh in 2022 (all in constant 1996 dollars). MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-53 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Table 6-3 PJM Capacity Prices (1996 $/kW-yr) All Cases --------------------------------- 2001 $45.84 2002 $45.84 2003 $45.84 2004 $45.84 2005 $44.01 2006 $44.34 2007 $44.17 2008 $44.74 2009 $41.65 2010 $44.13 2011 $42.80 2012 $45.49 2013 $45.84 2014 $45.84 2015 $45.84 2016 $45.84 2017 $45.84 2018 $45.46 2019 $45.84 2020 $45.84 2021 $45.78 2022 $45.78 2023 $45.78 2024 $45.78 2025 $45.78 We have used the Base Case capacity values throughout. We do so since the High Gas Case does not affect capacity requirements and the reduced energy margins would, all else equal, increase the revenue required for new capacity. With the Low Demand Growth Case we do not believe that the posited capacity would actually enter the market. As capacity became overbuilt, new entrants would delay or cancel their projects. Over some period, the supply and demand for capacity would return to equilibrium and might go beyond equilibrium to shortage. The posited continual overbuild is not plausible for more than a brief period. Thus we consider this MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-54 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential sensitivity analysis to be a useful stress test for energy prices, but not a credible capacity scenario. Table 6-4 PJM West/Central Average All-In Prices (1996 $)/1 Low Demand Base Case High Gas Case Growth Case - -------------------------------------------------------------------------------- 2001 $27.28 $28.25 $27.28 2002 $27.70 $28.59 $27.70 2003 $26.66 $27.28 $26.66 2004 $27.65 $28.32 $27.65 2005 $26.90 $27.84 $26.90 2006 $27.21 $28.24 $27.21 2007 $27.36 $28.24 $27.36 2008 $27.96 $28.67 $27.96 2009 $27.77 $28.43 $27.77 2010 $28.02 $28.89 $28.02 2011 $28.33 $29.18 $28.33 2012 $27.96 $29.18 $27.96 2013 $28.51 $29.38 $28.51 2014 $28.81 $29.81 $28.81 2015 $28.89 $30.08 $28.89 2016 $29.54 $30.40 $29.54 2017 $29.55 $30.39 $29.11 2018 $29.70 $30.36 $29.27 2019 $29.67 $30.98 $29.05 2020 $29.41 $30.56 $28.87 2021 $30.70 $31.79 $29.08 2022 $29.98 $31.17 $28.91 2023 $30.50 $30.94 $29.29 2024 $30.68 $31.40 $28.76 2025 $31.09 $31.70 $29.05 1 Assumes a 100% capacity factor in calculating the capacity price per MWh. This assumption has the effect of understating the capacity price; for capacity factors below 100% the capacity payment per MWh increases. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-55 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential 6.3 IMPLICATIONS FOR AES IRONWOOD In this section, we discuss capacity factors (CF)/23, energy prices, and dispatch for Ironwood under the three cases. As shown in Figure 6-2, in the Base Case the CF gradually rises from the 85% range to over 90% by 2019. This improvement in utilization reflects an assumed decreased forced outage rate over time (this is a typical pattern as units move past the "break-in" period), and increasing demand for power in PJM in conjunction with unit retirements. During the early years of operation we would expect Ironwood to be backed-down during low load periods, such as some Spring and Fall weekends and some evening periods. As load increases the number of backdown periods declines and operation of the plant is more continuous. Figure 6-2 AES Ironwood Capacity Factors [GRAPHIC OMITTED] - ---------- 23 The capacity factor represents how fully used the plant is in a specific year. It is the ratio of total MWh produced to the total MWh the plant could have produced if fully utilized every hour of the year (i.e., 8760 hours). MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-56 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential The sawtooth pattern in the figure reflects the impact of maintenance outages. Major maintenance outages take place every six years with less significant outages at three-year intervals. Even in the Low Demand Growth Case the capacity factors remain above 90% during three of the first four years of the merchant tail. In the High Gas Price Case dispatch is degraded and the capacity factors are under 85% for the early years of operation. However, as PJM load grows the dispatch of the plant steadily improves and by the merchant tail is closely tracking the Base Case. In short, demand growth combined with unit retirements creates a "floor" that stabilizes the utilization of the Project during the merchant tail. Simultaneous with its high utilization, the Ironwood plant achieves an average energy price for its power that is higher than the time weighted PJM market price for energy (a result shown in Figure 6-3 for the Base Case). AES Ironwood will receive this higher energy price during the merchant period. (The discussion that follows deals only with energy prices and does not cover capacity revenues, which are discussed above.) The reasons the Ironwood plant receives higher than average energy prices are (i) the plant is not dispatched in the lowest price hours; (ii) the plant's planned outages are scheduled during low price periods; iii) ramping from and to shutdown occurs predominantly in low priced hours; and (iv) compensation is received for negative cycle costs./24 Excluding the lowest priced hours and including reimbursement for the negative cycle costs raises the average price received by the plant above the PJM average. - ---------- 24 Negative cycle costs are costs incurred in excess of revenues at times when a unit is dispatched by the ISO to provide spinning reserve, transmission system support, or some other service, or is kept on due to minimum up-time or other constraints or ISO decisions. PJM rules currently provide for make-whole payments to compensate generators for negative cycle costs, and this procedure is expected to continue. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-57 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Figure 6-3 Ironwood's Energy Revenue vs PJM's Average Energy Price 1996$ Base Case [GRAPHIC OMITTED] The plant's economics are such that it is inframarginal to (less expensive than) much coal generation and most other capacity in PJM. Figure 6-4 shows Ironwood's position on the PJM supply curve for 2002, 2012, and 2022. As new, more efficient capacity is added over time, Ironwood moves up the supply curve; however, at the same time the curve is elongated as demand increases. The overall effect is that Ironwood remains at a favorable point on the supply curve throughout the study period. The figure illustrates that Ironwood is positioned, in all years, well below the highest cost coal unit./25 These results are consistent with the high utilization of the plant shown in Figure 6-2. - ---------- 25 Units positioned below the lowest cost coal unit include nuclear and hydro. Units positioned above the highest cost coal unit include oil and gas-fired steam units and combustion turbines and other peakers. Note that the supply curves exclude emergency power. Emergency power is incorporated within the RealTime(TM) model in the estimation of energy prices. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-58 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Figure 6-4 PJM Supply Curves (1996 $/MWh) 2002 [OBJECT OMITTED] MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-59 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential Figure 6-4 (cont.) PJM Supply Curves (1996 $/MWh) 2012 [OBJECT OMITTED] MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-60 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential 2022 [OBJECT OMITTED] MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-61 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential - -------------------------------------------------------------------------------- CHAPTER 7 Conclusions Based on our analysis, we believe that the facility's dispatch position on the supply curve will be highly competitive and well below the highest priced baseload coal plant during the post-PPA period (and during the term of the power purchase agreement) due to the facility's high efficiency, low production costs, and the influence of demand growth in conjunction with unit retirements. The facility is expected to have an average capacity factor of 90.7% during the post-PPA period. The addition of new, more efficient gas-fired power generation facilities in PJM over time will not adversely affect the facility's dispatch. Even in the two macroeconomic "downside sensitivity" cases of low demand growth and high gas prices, the Facility's average capacity factor remains significantly high at 89.6% during the post-PPA period. During the term of the power purchase agreement, the economics of the Project are not sensitive to fuel prices because the costs of fuel are the responsibility of the power purchaser under the power purchase agreement's fuel tolling provisions. In summary, the economics of Ironwood appear to be robust. We cannot, of course, account for all possible circumstances in the energy and fuel markets. What this study does indicate is that given the operating parameters, costs, and other modeling assumptions, and for a range of scenarios which provide a significant test to the economics of the Project, the AES Ironwood project is financially viable. MARKET PRICE FORECASTING: ASSUMPTIONS AND ASSUMPTION DEVELOPMENT o C-62 - ---------------------------------Hagler Bailly--------------------------------- Privileged and Confidential PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 18-108 of the Delaware Limited Liability Company Act provides: Subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever. Section 4.2 of our Company's Limited Liability Company Agreement provides that our Company shall indemnify to the fullest extant permitted by the laws of the State of Delaware, as from time to time in effect, the Directors and Officers of our Company. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Exhibit Number Description - ------ ----------- 3 Amended and Restated Limited Liability Company Agreement, dated as of October 4, 1999, by our Company. 4.1 Indenture and the First Supplemental Indenture, dated as of June 1, 1999, by and among our Company, the Trustee and the Depositary Bank. 4.2 Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, by and among our Company, the Trustee, the Collateral Agent, the DSR LOC Provider, the CP LOC Provider and the Depositary Bank. 4.3 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999, by and among our Company, the DSR LOC Provider and the Banks named therein. 4.4 Construction Period Letter of Credit and the Reimbursement Agreement, dated as of June 1, 1999, by and among our Company, the CP LOC Provider and the Banks named therein. 4.5 Global Bonds, dated June 25, 1999, evidencing 8.857% Senior Secured Bonds of our Company due 2025 in the principal amount of $308,500,000. 4.6 Equity Subscription Agreement, dated as of June 1, 1999, by and among our Company, AES Ironwood and the Collateral Agent. 4.7 Security Agreement, dated as of June 1, 1999, by and between our Company and the Collateral Agent. 4.8 Pledge and Security Agreement, dated as of June 1, 1999, by and between AES Ironwood and the Collateral Agent. 4.9 Consent to Assignment, dated as of June 1, 1999, by and between the Power Purchaser and the Collateral Agent, and consented to by our Company. 4.10 Consent to Assignment, dated as of June 1, 1999, by and between the PPA Guarantor and our Company, and consented to by our Company. 4.11 Consent to Assignment, dated as of June 1, 1999, by and between the Contractor and the Collateral Agent, and consented to by our Company (with respect to the EPC Contract). II-1 Exhibit Number Description - ------ ----------- 4.12 Consent to Assignment, dated as of June 1, 1999, by and between the Contractor and the Collateral Agent and consented to by our Company (with respect to the Maintenance Services Agreement). 4.13 Consent to Assignment, dated as of June 1, 1999, by and between Siemens Corporation and the Collateral Agent, and consented to by our Company. 4.14 Consent to Assignment, dated as of June 1, 1999, by and between Prescott and the Collateral Agent, and consented to by our Company. 4.15 Consent to Assignment, dated as of June 1, 1999, by and between Metropolitan Edison Company d/b/a GPU Energy and the Collateral Agent, and consented to by our Company. 4.16 Consent to Assignment, dated as of June 1, 1999, by and between City of Lebanon Authority and the Collateral Agent, and consented to by our Company. 4.17 Consent to Assignment, dated as of June 1, 1999, by and between Pennsy Supply, Inc. and the Collateral Agent, and consented to by our Company. 4.18 Assignment and Assumption Agreement, dated June 25, 1999, by and between AES Ironwood, Inc. and AES Ironwood, L.L.C. (with respect to the EPC Contract). 4.19 Assignment and Assumption Agreement, dated June 25, 1999, by and between AES Ironwood, Inc. and AES Ironwood, L.L.C. (with respect to the Maintenance Services Agreement). 5* Opinion of Hunton & Williams regarding Legality. 10.1 Guaranty, dated as of February 5, 1999, by and between the PPA Guarantor and our Company. 10.2* Amended and Restated Power Purchase Agreement, dated as of February 5, 1999, and Amendment No. 1 to Amended and Restated Power Purchase Agreement, dated as of June 18, 1999, between our Company and the Power Purchaser. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment.) 10.3* Engineering, Procurement and Construction Services Agreement, dated as of September 23, 1998 (the "EPC Contract"), as amended, by and between our Company and the Contractor. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment.) 10.4 Guaranty, dated as of September 23, 1998, by and between Siemens Corporation and our Company. 10.5* Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of September 23, 1998, and Amendment No. 1 to Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of January 13, 1999 (the "Maintenance Services Agreement"), by and between our Company and the Contractor. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment.) 10.6 Development and Operations Services Agreement, dated as of June 1, 1999, by and between our Company and Prescott. 10.7 Effluent Supply Agreement, dated as of March 3, 1998, by and between our Company and City of Lebanon Authority. II-2 Exhibit Number Description - ------ ----------- 10.8 Generation Facility Transmission Interconnection Agreement, dated as of March 23, 1999, by and between our Company and Metropolitan Edison Company d/b/a GPU Energy. 10.9* Agreement Relating to Real Estate, dated as of October 23, 1998, by and between our Company and Pennsy Supply, Inc. 10.10* Easements and Right of Access Agreement, dated as of April 15, 1999, by and between our Company and Pennsy Supply, Inc. 23.1 Consent of Stone & Webster Management Consultants, Inc. 23.2 Consent of Hagler Bailly Consulting, Inc. 23.3* Consent of Hunton & Williams (contained in Exhibit 5). 23.4 Consent of Deloitte & Touche LLP. 24 Power-of-Attorney (contained on the signature page of this Registration Statement). 25 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as successor Trustee under the Indenture. 27 Financial Data Schedule. 99.1 Form of Letter of Transmittal. 99.2 Form of Letter to Clients. 99.3 Form of Letter to Registered Holders and DTC Participants. 99.4 Form of Notice of Guaranteed Delivery. - ---------- * To be filed by amendment. ITEM 22. UNDERTAKINGS A. The undersigned registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and II-3 (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement. 2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. B. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. C. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in the documents filed subsequent to the effective date of the registration statement through the date of responding to the request. D. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints John Ruggirello and Barry Sharp, and each of them (with full power to act alone) as true and lawful attorneys-in-fact, and stead, in any and all capacities, to sign any amendments, including post-effective amendments, to this registration statement and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lebanon, and State of Pennsylvania, on November 19, 1999. AES IRONWOOD, L.L.C. By: /s/ John Ruggirello ------------------------------- John Ruggirello Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ John Ruggirello President November 19, 1999 - ------------------------ John Ruggirello /s/ Barry Sharp Vice President and - ------------------------ Chief Financial Officer November 19, 1999 Barry Sharp (and principal accounting, officer) and Director /s/ Dennis Bakke Director November 19, 1999 - ------------------------ Dennis Bakke /s/ Roger Naill Director November 19, 1999 - ------------------------ Roger Naill II-5 EX-3 2 LIMITED LIABILITY COMPANY AGREEMENT Exhibit 3 AES Ironwood, L.L.C. AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") is made and entered into as of October 4, 1999 by AES Ironwood, Inc. ("AES") pursuant to and in accordance with the Limited Liability Company Act of 1992 of the State of Delaware and any successor statute (the "Act"). WHEREAS, AES Ironwood, L.L.C. (the "Company") was formed by AES as its sole Initial Shareholder by the filing of a Certificate of Formation on October 30, 1998, and the execution of the AES Ironwood, L.L.C. Limited Liability Company Agreement on November 1, 1998, (the "Original Agreement"); and WHEREAS, AES, the sole Shareholder of the Company, desires to amend the Original Agreement; NOW, THEREFORE, AES does hereby certify and agree as follows: ARTICLE I ORGANIZATION Section 1.1 Formation. The Company has been formed as a Delaware limited liability company by the filing of a certificate of formation (the "Certificate") under and pursuant to Section 18-201 of the Act and the filing of a copy of the Certificate in the Office of the Secretary of State of the State of Delaware. Section 1.2 Name. The name of the Company is AES Ironwood, L.L.C., or such other name as the Members (as defined herein) may determine from time to time and all Company business shall be conducted in such name or such other names that comply with applicable law and as the Members may designate from time to time. Section 1.3 Registered Office; Registered Agent; Principal Office. The registered office of the Company in the State of Delaware shall be 1013 Centre Road, Wilmington, New Castle, Delaware 19805, or at such other location as the Officers may from time to time agree. The registered agent at such address for service of process on the Company in the State of Delaware shall be The Corporation Service Company, or such other person or persons as the Officers may designate from time to time in the manner provided by law. Section 1.4 Purpose. The purpose of the Company is to engage in any business or activity that now or hereafter is not forbidden by Section 18-106 of the Act and which it may lawfully undertake under the law of any jurisdiction in which the Company engages in its business. Section 1.5 Term. The term of the Company shall commence on the date of filing of the Certificate in the Office of the Secretary of State of the State of Delaware and shall continue until terminated in accordance with the terms hereof. ARTICLE II MEMBERS; OWNERSHIP; DISPOSITION OF INTERESTS Section 2.1 Members. The Members of the Company shall be those persons or entities listed on Schedule 1 hereto (each, a "Member" and, jointly, the "Members"), all of which are hereby admitted to the Company. Section 2.2 Title to Company Property. All property owned by the Company, whether real or personal, tangible or intangible, and wherever located, shall be deemed to be owned by the Company as an entity, and no Member, individually, shall have any ownership of such property. The Company may hold its property in its own name or in the name of a nominee, which may be one of the Members or an affiliate thereof, or any trustee or agent designated by the Members. Section 2.3 Disposition of Interests. (a) No interest in the Company of any Member (a "Membership Interest") may be disposed of, in whole or in 2 part, without the prior written consent of all the Members, which consent may be granted or withheld by each such member in its sole and absolute discretion. (b) The person to which a Member's Membership Interest is sold, assigned, transferred or exchanged shall have no right to be admitted as a Member of the Company unless (i) the Membership Interest is sold, assigned, transferred or exchanged by a Member who was properly admitted as such pursuant to the terms hereof, (ii) each Member effecting the sale, assignment, transfer or exchange and the person to whom the Membership Interest is sold, assigned, transferred or exchanged executes and delivers a document to the other Members containing a representation and warranty by each Member effecting such sale, assignment, transfer or exchange and the person to which such Membership Interest is sold, assigned, transferred or exchanged to the effect that such sale, assignment, transfer or exchange was made in accordance with all laws and regulations, including securities laws, applicable to such Member or person, as appropriate and (iii) all of the requirements of Section 2.3(c) are satisfied with respect to such admission. (c) A person to whom a Membership Interest is sold, assigned, transferred or exchanged shall be admitted as a Member of the Company if (i) the existing Members consent (which consent may be granted or withheld by each such member in its sole and absolute discretion) to such admission, and (ii) the Company receives a document setting forth (A) the notice and payment address and facsimile number of the person to be admitted to the Company as a Member, (B) the written acceptance by such person of all the terms and provisions of this Agreement, (C) an agreement by such person to perform and discharge timely all of the obligations and liabilities in respect of the Membership Interest being obtained, (D) a power of attorney in the form of Section 8.1 hereof executed by such person and (E) the effective date of the sale, assignment, transfer or exchange. Section 2.4 Additional Members. Additional persons may be admitted as Members in the Company, without the sale, assignment, transfer or exchange by an existing Member of all or any part of its Membership Interest, only with the consent 3 of all of the existing Members and upon the making of such capital contribution, if any, as the existing Members shall require from such person. In such event, the percentages of the existing and additional Members shall be adjusted pro rata or assigned, as the case may be, to reflect the capital contribution, if any, of such additional Member. If the additional Member makes no capital contribution, the existing Members shall assign a percentage to the additional Member and the percentages of the existing Members shall be adjusted accordingly. Section 2.5 Form of Certificates. Each Member shall receive a certificate in such form as prescribed by the Directors ("Director" defined as a member of the Board elected as provided in Section 4.2.) and by any applicable law, which certificate shall certify the interest of such Member in the Company. Section 2.6 Membership Interests as Securities. All Membership Interests in the Company shall be "securities" governed by Article 8 of the Uniform Commercial Code in any jurisdiction (a) that has adopted revisions to Article 8 of the Uniform Commercial Code substantially consistent with the 1994 revisions to Article 8 adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and (b) whose laws may be applicable, from time to time, to the issues of perfection, the effect of perfection or non-perfection, and the priority of a security interest in Membership Interests in the Company Section 2.7 Liability to Third Parties. The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall always and hereafter be solely the debts, obligations, and liabilities of the Company and no Member shall have any personal liability for any obligation of the Company, whether such obligations arise in contract, tort or otherwise, except to the extent that any such obligations are expressly assumed in writing by such Member. Section 2.8 Resignation. A Member does not have the right or power to resign or withdraw from the Company as a Member unless an additional member or members have been 4 properly admitted in accordance with Section 2.3(c) or Section 2.4. ARTICLE III CAPITALIZATION, ALLOCATIONS AND DISTRIBUTIONS Section 3.1 Percentage Interests. For all purposes of this Agreement, the term Percentage Interest with respect to a particular Member shall mean that percentage interest set forth on Schedule 1 opposite such Member's name. Section 3.2 Capital Contributions. (a) Each Member has made an initial capital contribution to the Company in the aggregate amount set forth opposite such Member's name on Schedule 1 hereto. Except as required by law, no Member shall have an obligation to make additional capital contributions to the Company. (b) Except as may be required by law, at no time during the term of the Company shall a Member with a negative balance in its Capital Account (as defined herein) have any obligation to the Company or to the other Members to restore such negative balance. Section 3.3 Capital Accounts. Each Member's capital account ("Capital Account") shall be maintained on the books of the Company for each Member and the balance of each Member's Capital Account shall be equal to such Member's initial capital contribution pursuant to Section 3.2 above, and shall be (i) increased by (A) the aggregate amount of such Member's additional capital contributions to the Company, (B) the book value of property contributed by such Member to the Company, net of liabilities secured by such property that the Company is considered to assume or take subject to under Section 752 of the Code, and (C) profits and items of income and gain allocated to such Member, and (ii) shall be decreased by (A) cash distributions to such Member from the Company, (B) the book value of property distributed in kind to such Member, net of liabilities secured by such property that such Member is deemed to assume or take subject to under Code Section 752, and (C) losses and items of loss or deduction allocated to such Member. The provisions of this Agreement relating to the 5 maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of Treasury Regulations pursuant to the Code and shall be interpreted and applied in a manner consistent with such regulation. To the extent such provisions are inconsistent with such regulations or are incomplete with respect thereto, the Capital Accounts of the Member shall be maintained in accordance with such regulations. Section 3.4 Allocations and Distributions. (a) Profits and losses of the Company for each fiscal year shall be allocated pro rata to the Members according to the Percentage Interests. (b) Every item of income, gain, loss, deduction, credit or tax preference entering into the computation of profits and losses, or applicable to the period during which such profits or losses were recognized, shall be considered allocated to each Member in the same proportion as profits or losses are allocated to such Members. (c) Distributions to the Members shall be shared pro rata according to the Percentage Interests. Distributions may be made from time to time in such amounts as the Directors in their discretion shall determine. Immediately prior to a distribution of property other than cash, the Capital Accounts shall be adjusted as provided in Treasury Regulation ss. 1.704-1(b)(2)(iv)(f). (d) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m). 6 (e) The allocation of profits and losses, pursuant to Section 3.4 hereof shall not result in any Member having an Adjusted Capital Account Deficit at the end of any fiscal year. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company gross income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 3.4(e) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after making all other allocations provided for hereunder on the basis that the allocation provisions of this Section 3.4(e) are of no force or effect and such allocation does not create or increase an Adjusted Capital Account Deficit of any other Member. (f) If a Membership Interest has been transferred during a fiscal year, distributions shall be made, as among the transferor and the transferee, to the person owning the Member's Membership Interest on the date of the distribution. Profits, losses and items allocated under this Section 3.4 (other than income or loss from a capital event) shall be allocated by the number of days each person held the Membership Interest (except if the transferor and the transferee agree to the contrary and so advise the other Members in writing within 10 days after the end of the Fiscal Year in which the assignment occurs) and profits or losses from any capital event shall be allocated to the holder of the Membership Interest on the day the capital event occurred during such fiscal year. (g) In connection with any distribution, whether upon winding up of the Company or otherwise and whether or not it shall constitute a return of capital, no Member shall have the right to demand or receive property other than cash, although the liquidator may distribute property other than cash. No Member shall have priority over any other Member either as to the return of its capital contribution or as to allocation of profits or losses of the Company. 7 (h) If any Company property has a book value different from its adjusted tax basis to the Company for U.S. federal income tax purposes (whether by reason of the contribution of such property to the Company, the revaluation of such property hereunder, or otherwise), allocations of taxable income, gain, loss and deductions under this Section 3.4(h) with respect to such asset shall take account of any variation between the adjusted tax basis of such asset for federal income tax purposes and its book value in the same manner as under Code Section 704(c) or the principle set forth in Treasury Regulation Section 1.704-1(b)(2)(iv)(g), as the case may be. Each item of income, gain, loss, deduction and credit and all other items governed by Code Section 702(a) shall be allocated among the Members in proportion to the allocation of profits, losses and other items to such Members hereunder, provided that any gain recognized from any disposition of a Company asset which is treated as ordinary income because it is attributable to the recapture of any depreciation or amortization shall be allocated among the Members in the same ratio as the prior allocations of profits, losses or other items which include such depreciation or amortization, but not in excess of the gain otherwise allocable to each such Member. Except as set forth in this Section 3.4(h), allocations for tax purpose of items of income, gain, loss and deduction, and credits and basis therefor, shall be made in the same manner as allocations for book purposes as set forth in Section 3.4(a). Allocations pursuant to this Section 3.4(h) are solely for purposes of federal, state and local income taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of profits, losses, other items or distributions pursuant to any provision of this Agreement, or Membership Interest. 8 ARTICLE IV MANAGEMENT AND OPERATION ARTICLE IV MANAGEMENT 4.1. Management of Company. As provided in this Agreement, all management powers over the business and affairs of the Company shall be vested in a Board of Directors (the "Board") and, subject to the direction of the Board, the Officers, who shall collectively constitute "managers" of the Company within the meaning of the Act. No Member, by virtue of having the status of a Member, shall solely have any management power over the business and affairs of the Company or actual or apparent authority to enter into contracts on behalf of, or to otherwise bind, the Company. Except as specifically provided in this Agreement, the authority and functions of the Board on the one hand and of the Officers on the other shall be identical to the authority and functions of the board of directors and officers, respectively, of a corporation organized under the Delaware General Corporation Law. Thus, except as otherwise specifically provided in this Agreement, the business and affairs of the Company shall be managed under the direction of the Board, and the day-to-day activities of the Company shall be conducted on the Company's behalf by the Officers, who shall be agents of the Company. In addition to the powers that now or hereafter can be granted to managers under the Act and to all other powers granted under any other provision of this Agreement, the Board (subject to Section 4.2) and the Officers (subject to Section 4.4 and the direction of the Board) shall have full power and authority to do all legal things on such terms as they, in their sole discretion, may deem necessary or appropriate to conduct, or cause to be conducted, the business and affairs of the Company 4.2 The Board of Directors. (a) Number; Term of Office; Qualifications; Vacancies. The number of Directors that shall constitute the whole Board shall be three (3). Vacancies and newly created directorships resulting from any increase in the authorized 9 number of directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director, and the Directors so chosen shall hold office, subject to Sections 4.2(c) and 4.2(d), until the next meeting of Members and until their respective successors are elected and qualified. (b) Directors. The initial Board shall be those persons listed on Schedule 2 hereto, who shall serve until successor Directors are elected pursuant to Section 4.2(a). (c) Resignation. Any Director may resign at any time by giving written notice of such resignation to the Board or the President or the Secretary of the Company. Any such resignation shall take effect at the time specified therein or, if no time is specified, upon receipt thereof by the Board or one of the above-named Officers; and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective. When one or more Directors shall resign from the Board, effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereof to take effect when such resignation or resignations shall become effective and each Director so chosen shall hold office as provided in this Agreement in the filling of other vacancies. (d) Removal. Any Director may be removed, with or without cause, by the vote or by the written consent of the holders of a majority of the issued and outstanding Membership Interests. (e) Regular Meetings; Notice. Regular meetings of the Board shall be held at such time and at such place as the Board may from time to time prescribe. No notice need be given of any regular meeting and a notice, if given, need not specify the purposes thereof. (f) Special Meetings; Notice. A special meeting of the Board may be called at any time by the President or any person acting in the place of the President and shall be called by the President or by the Secretary upon receipt of a written request to do so specifying the matter or matters 10 appropriate for action at such a meeting that are proposed to be presented at the meeting and signed by at least two Directors. Any such meeting shall be held at such time and at such place, within or without the State of Delaware, as shall be determined by the body or person calling such meeting. Notice of such meeting stating the date, time and place thereof shall be given by mail, telephone or personally. (g) Quorum. A majority of the whole Board shall constitute a quorum for the transaction of business, but in the absence of a quorum, a majority of those present (or if only one be present, then that one) may adjourn the meeting, without notice other than announcing the meeting, until such time as a quorum is present. Except as otherwise required by this Agreement, the vote of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board. (h) Informal Action By Directors. Any action required or permitted to be taken at a meeting of the Board or of any committee thereof may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the members of the Board or of such committee, as the case may be, entitled to vote with respect to the subject matter thereof, and such consent shall have the same force and effect as a unanimous vote. (i) Indemnification of Directors and Officers. The Company shall indemnify to the full extent permitted by the laws of the State of Delaware, as from time to time in effect, the Directors and Officers of the Company. (j) Limitation of Liability. The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Officer or Director shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being an Officer or Director of the Company. 4.3 Meetings of Members. (a) Special Meetings. A special meeting of Members may be called by the Board or the President or holders of not 11 less than one-tenth (1/10) of the Membership Interests entitled to vote at the meeting. Any such meeting shall be held on such date and at such time and place as shall be determined by the body or person calling such meeting and as shall be stated in the notice of such meeting. (b) Quorum. A majority of the holders of Membership Interests present in person or represented by proxy at a meeting shall constitute a quorum at a meeting of Members. (c) Vote. The affirmative vote of the majority of the Membership Interests represented at a meeting at which a quorum is present and entitled to vote on the subject matter shall be the act of the Members. (d) Informal Action by Members. Any action which may be taken at a meeting of Members may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by the Members having not less than the minimum number of votes that would be necessary to take such action at a meeting at which Members entitled to vote thereon were present and voted. Such consent shall have the same force and effect as if such action had been taken at a meeting of Members. 4.4 Officers. (a) In General. Unless otherwise provided by resolution of the Board, the Officers shall have the titles, powers, authority and duties described below in this Section 4.4. Initial Officers shall be those persons listed on Schedule 2 hereto, who shall serve until successor Officers are elected Section 4.4(b). (b) Election; Qualification. The Officers of the Company shall be a President, a Vice President, a Secretary and a Treasurer, each of whom shall be elected by the Board. The Board may elect one or more other Officers as it may from time to time determine. Any one or more offices may be held by the same person. (c) Term of Office. Each Officer shall hold office from the time of such Officer's election and qualification to 12 the time at which such Officer's successor is elected and qualified, unless such Officer shall die or resign or shall be removed pursuant to Section 4.4(d). (d) Resignation. Any Officer may resign at any time by giving written notice of such resignation to the Board or the President or the Secretary of the Company. Any such resignation shall take effect at the time specified therein or, if no time is specified, upon receipt thereof by the Board or one of the above-named Officers; and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective. (e) Removal. Any Officer may be removed at any time, with or without cause, by the vote of a majority of the whole Board. (f) Vacancies. A vacancy however caused in any office of the Company may be filled for the unexpired portion of the term in the manner provided in this Agreement for election or appointment of such office. (g) President. The President shall be the chief executive officer of the Company and shall have general charge of the business and affairs of the Company subject however to the right of the Board to confer specified powers on Officers and subject generally to the direction of the Board. The President shall preside at all meetings of Members and of the Board. (h) Vice President. The Vice President shall have such powers and duties as generally pertain to the office of Vice President and as the Board or the President may from time to time prescribe. During the absence of the President or his inability to act, the Vice President shall exercise the powers and shall perform the duties of the President, subject to the direction of the Board. (i) Secretary. The Secretary shall keep the minutes of all meetings of Members and of the Board. The Secretary shall exercise the powers and shall perform the duties incident to the office of Secretary, and those that may otherwise from time to time be assigned to the Secretary, subject to the direction of the Board. 13 (j) Treasurer. The Treasurer shall have care of all funds and securities of the Company and shall exercise the powers and shall perform the duties incident to the office of Treasurer, subject to the direction of the Board. The Board may delegate to the Treasurer the power to designate a bank or banks as depositories for the funds of the Company and to designate signatories for the Company's bank accounts, including authorization of the use of facsimile signatures, and to change such signatories from time to time, and the Board may authorize the Treasurer to delegate any of the Treasurer's powers to any other Officer or agent of the Company. (k) Powers of Attorney. The Company may grant powers of attorney or other authority as appropriate to establish and evidence the authority of the Officers and other persons. 4.5. Duties of Officers and Directors. Except as otherwise specifically provided in this Agreement, the duties and obligations owed to the Company and to the Members by the Officers of the Company and by members of the Board, and any such duties that may be owed by any Member or by any affiliate of any Member, shall be the same as the respective duties and obligations owed to a corporation organized under the Delaware General Corporation Law by its officers and directors and any such duties that may be owed to such corporation by any similarly situated stockholder or affiliate thereof, respectively. ARTICLE V TAXES Section 5.1 Tax Returns. (a) The Company shall file a partnership tax return in the United States at the end of each fiscal year and for tax purposes it is the intent of the Members that the Company be taxed as a partnership in the United States for U.S. federal, state, and local tax purposes. The Company is hereby designated to be the "Tax Matters Partner" for U.S. federal income tax purposes pursuant to Section 6231 of the Code with 14 respect to all taxable years of the Company. The Tax Matters Partner shall prepare or cause to be prepared all tax returns required of the Company. (b) The Tax Matters Partner shall, to the extent permitted by applicable law and regulations, and upon obtaining any necessary approval of the United States Commissioner of Internal Revenue, elect to use such methods of depreciation, and make all other U.S. federal income tax elections in such manner, as it determines to be most favorable to the Members. The Tax Matters Partner shall at the Company's expense defend all tax audits and litigation with respect to the Company's tax returns, and shall not undertake any act which would cause the books, records, or tax returns of the Company or the Members to be inconsistent with such acts, elections and steps taken by the Company. (c) The Tax Matters Partner shall, upon the written request of any Member, cause the Company to file an election under Code Section 754 and the Treasury Regulations thereunder to adjust the basis of the Company's assets under Code Section 734(b) or 743(b) and a corresponding election under the applicable sections of U.S. state and local law. ARTICLE VI BOOKS AND REPORTS Section 6.1 Books of Account. The Company shall maintain its books and records and shall determine all items of profits and losses and distributions on a cash basis in accordance with principles applicable in determining taxable income or loss for federal income tax purposes for partnerships and consistent with accounting methods used by the Company in determining taxable income or loss for U.S. federal income tax purposes. The Company shall also keep all other records necessary or convenient to record the Company's business and affairs and sufficient to record the determination and allocation of all profits, losses, distributions and other amounts as may be provided for herein. Section 6.2 Reports. As soon as practicable after the end of each fiscal year, there shall be prepared and delivered to each Member a financial statement for the Company 15 consisting of the following: (i) income statements and balance sheets for such fiscal year showing separately the computation of profits or losses and (ii) the amount of the distributions to the Members and the effect of such distributions on the balance sheet of the Company and the Capital Accounts of each Member, and (iii) a report reviewed setting forth in sufficient detail all such information and data with respect to the business transactions effected by or involving the Company during such fiscal year as shall enable each Member to prepare all its tax returns in accordance with all relevant laws, rules and regulations then prevailing. Section 6.3 Access to Books. The books and records of the Company shall be available to each Member or its representatives for inspection and audit upon reasonable notice during normal business hours at the principal office of the Company. The Company shall cause the auditors to cooperate in such inspection and audit and to provide any of their work papers requested in connection therewith. Section 6.4 Fiscal Year. The fiscal year of the Company shall end on the 31st day of December of each year. ARTICLE VII DISSOLUTION, LIQUIDATION, AND TERMINATION Section 7.1 Dissolution. The Company shall be dissolved and its affairs shall be wound up upon the first to occur of any of the following: (a) the written consent of all the Members; or (b) the entry of a decree of judicial dissolution under Section 18-802 of the Act. Section 7.2 Liquidation and Termination. On dissolution of the Company, the Members shall appoint one or more persons as liquidators of the Company. The liquidators shall forthwith commence the winding up of the Company's business and the liquidation of its property. All proceeds from the sale or disposition of the property of the Company 16 shall, to the maximum extent permitted by law, be applied as follows: (a) All of the Company's debts and liabilities shall be paid and discharged in the order of priority provided by law; and (b) The balance shall be distributed to the Members in accordance with their relative respective positive Capital Account balances until such balances, if any, are reduced to zero and then the balance shall be distributed to each Member in accordance with their Percentage Interests. The liquidator(s) may make distributions of the Company's assets in kind. The choice of which, if any, Company assets are to be distributed in kind shall be within the sole discretion of the liquidator(s) and shall be binding upon all Members. Unless otherwise agreed by the Members, distributions of property in kind shall be shared by all the Members in accordance with their Percentage Interests. The costs of liquidation shall be borne as a Company expense. Until final distribution, the liquidator(s) shall continue to operate the Company properties with all the power and authority of the Officers hereunder. Section 7.3 No Restoration of Negative Capital Accounts. Except as required under applicable laws of the State of Delaware, or in respect of any negative balance resulting from a distribution in contravention of this Agreement, at no time shall a Member with a negative balance in its Capital Account have an obligation to restore such negative balance. Section 7.4 Cancellation of Filings. Upon completion of the distribution of Company assets as provided in Section 8.2 hereof, the Company is terminated, and the Officers shall file a certificate of cancellation with the Secretary of State of the State of Delaware and shall take such other actions as may be necessary to terminate the Company. 17 ARTICLE VIII GENERAL PROVISIONS Section 8.1 Power of Attorney. Each Member, by execution of this Agreement or a counterpart hereof, irrevocably constitutes and appoints the Officers, with full power of substitution, its agent and attorney-in-fact in its name, place and stead to make, execute, swear to, verify, acknowledge, amend, file, record, deliver and publish (a) any certificate of limited liability company or amendments to any certificate of limited liability company required to be filed on behalf of the Company pursuant to the Act, (b) a counterpart of any amendment to this Agreement for the purpose of substituting as a Member an assignee or assignees of a Member or for the purpose of admitting an additional Member, (c) a counterpart of this Agreement for the purpose of filing or recording such counterpart in any jurisdiction in which the Company may own property or transact business, (d) all certificates and other instruments necessary to qualify or continue the Company as a limited liability company in the jurisdictions where the Company may own property or transact business, (e) any other instrument which is now or which may hereafter be required by law to be filed on behalf of the Company which does not increase the obligations of any Member, and (f) any other certificates or instruments necessary, advisable or appropriate to conduct the business and affairs of the Company which do not increase the obligations of any Member. The power of attorney granted by this Section 8.1 is irrevocable and shall survive the assignment or transfer by any Member of all or any part of his interest in the Company and, being coupled with an interest, shall survive the incapacity or other legal disability of each such Member. Any person dealing with the Company may, without further inquiry, conclusively presume and rely upon the fact that any certificate or instrument described in this Section 8.1 and executed by such agent and attorney-in-fact is authorized, valid and binding. Section 8.2 Notices. Except as otherwise expressly provided in this Agreement, all notices, demands, requests, or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be 18 given either (a) in person, (b) by United States mail, certified or registered, return receipt requested, postage prepaid, (c) by prepaid telegram, telex, cable, telecopy, or similar means (with signed confirmed copy to follow by mail in the same manner as prescribed by clause (b) above) or (d) by expedited delivery service (charges prepaid) with proof of delivery to the following: AES Ironwood, L.L.C. 1001 North 19th Street, Suite 2000 Arlington, VA 22209 Attn.: William R. Luraschi Section 8.3 Amendment. This Agreement may be changed, modified or amended only by an instrument in writing duly executed by all the Members. Section 8.4 Partition. Each of the Members hereby irrevocably waives, to the extent it may lawfully do so, any right that such Member may have to maintain any action for partition with respect to the Company property. Section 8.5 Entire Agreement; Waivers and Modifications. (a) This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes any and all prior and contemporaneous contracts, understandings, negotiations and agreements with respect to the Company and the subject matter hereof, whether oral or written. (b) Any waiver or consent, express, implied or deemed, to or of any breach or default by any person in the performance by that person of its obligations with respect to the Company or any action inconsistent with this Agreement is not a consent or waiver to or of any other breach or default in the performance by that person of the same or any other obligations of that person with respect to the Company or any other such action. Failure on the part of a person to complain of any act of any person or to declare any person in default with respect to the Company, irrespective of how long 19 that failure continues, does not constitute a waiver by that person of its rights with respect to that person or its rights with respect to that default until the applicable statute of limitations period has lapsed. All waivers and consents hereunder shall be in writing and shall be delivered to the other Member in the manner set forth in Section 8.2 A Member may grant or withhold any waiver or consent in its absolute sole discretion. Section 8.6 Severability. Every provision in this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement. Section 8.7 Binding Effect; No Third-Party Beneficiaries. Subject to the restrictions set forth in Section 2.3 herein, this Agreement is binding on and inures to the benefit of the Members and their respective heirs, legal representatives, successors and assigns. Nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any claim, cause of action, remedy or right of any kind, it being the intent of the parties that this Agreement shall not be construed as a third-party beneficiary contract. Section 8.8 Governing Law. THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. If any provision of this Agreement or the application thereof to any person or circumstance is held invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision to other persons or circumstances is not affected thereby, and that provision shall be enforced to the greatest extent permitted by law. Section 8.9 Recourse Only to Member. The sole recourse of the Company or any Member for performance of the obligations of a particular Member hereunder shall be against such Member and its assets and not against any assets or property of any present or future Member, officer, employee, 20 servant, executive, director, agent, authorized representative or affiliate of such Member. 8.10 Multiple Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if all signing parties had signed the same document. All 21 counterparts shall be construed together and constitute the same instrument. IN WITNESS WHEREOF, the Member, intending to be legally bound, has executed this Agreement as of the date first set forth above. AES Ironwood, Inc. By: /s/ William R. Luraschi -------------------------------- Name: William R. Luraschi Title: Vice President 22 Schedule 1 Initial capital Percentage Members contribution Interest - -------------------------------------------------------------------------------- AES Ironwood, Inc. $10.00 100% 23 Schedule 2 Name Title - -------------------------------------------------------------------------------- Barry J. Sharp Director Vice President and Chief Financial Officer John R. Ruggirello Director President Roger F. Naill Director Patricia L. Rollin Vice President Bart Rossi Vice President Stephen C. Dahm Vice President Michael Cranna Vice President Ian Miller Vice President Kevin L. Polchow Vice President William R. Luraschi Vice President Willard C. Hoagland III Treasurer Maureen B. Shearer Secretary 24 EX-4.1 3 TRUST INDENTURE Exhibit 4.1 EXECUTION COPY - -------------------------------------------------------------------------------- TRUST INDENTURE dated as of June 1, 1999 among AES Ironwood, L.L.C., IBJ Whitehall Bank & Trust Company, as Trustee and IBJ Whitehall Bank & Trust Company, as Depositary Bank Providing for the Issuance from Time to Time of Bonds in One or More Series - -------------------------------------------------------------------------------- 705 MW (Net) Gas-Fired Combined Cycle Electric Generating Facility South Lebanon Township, Lebanon County, Pennsylvania TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.................................................2 SECTION 1.1 DEFINITIONS, CONSTRUCTION...................................................................2 SECTION 1.2 COMPLIANCE CERTIFICATES AND OPINIONS.......................................................22 SECTION 1.3 FORM OF DOCUMENTS DELIVERED TO TRUSTEE.....................................................23 SECTION 1.4 ACTS OF BONDHOLDERS........................................................................23 SECTION 1.5 NOTICES, ETC. TO TRUSTEE AND COMPANY.......................................................24 SECTION 1.6 NOTICES TO BONDHOLDERS; WAIVER.............................................................25 SECTION 1.7 EFFECT OF HEADING AND TABLE OF CONTENTS....................................................25 SECTION 1.8 SUCCESSORS AND ASSIGNS.....................................................................25 SECTION 1.9 SEVERABILITY...............................................................................25 SECTION 1.10 BENEFITS OF INDENTURE......................................................................26 SECTION 1.11 GOVERNING LAW..............................................................................26 SECTION 1.12 LEGAL HOLIDAYS.............................................................................26 SECTION 1.13 EXECUTION IN COUNTERPARTS..................................................................27 ARTICLE II THE BONDS.............................................................................................27 SECTION 2.1 FORM OF BOND TO BE ESTABLISHED BY SERIES SUPPLEMENTAL INDENTURE............................27 SECTION 2.2 FORM OF TRUSTEE'S AUTHENTICATION...........................................................27 SECTION 2.3 AMOUNT UNLIMITED; ISSUABLE IN SERIES; LIMITATIONS ON ISSUANCE..............................27 SECTION 2.4 AUTHENTICATION AND DELIVERY OF BONDS.......................................................28 SECTION 2.5 FORM AND DENOMINATIONS.....................................................................29 SECTION 2.6 EXECUTION OF BONDS.........................................................................30 SECTION 2.7 TEMPORARY BONDS............................................................................30 SECTION 2.8 REGISTRATION, TRANSFER AND EXCHANGE........................................................31 SECTION 2.9 MUTILATED, DESTROYED, LOST AND STOLEN BONDS................................................32 SECTION 2.10 PAYMENT OF PRINCIPAL AND INTEREST, PRINCIPAL AND INTEREST RIGHTS PRESERVED.................32 SECTION 2.11 PERSONS DEEMED OWNERS......................................................................34 SECTION 2.12 CANCELLATION...............................................................................34 SECTION 2.13 DATING OF BONDS, COMPUTATION OF INTEREST...................................................34 SECTION 2.14 SOURCE OF PAYMENTS LIMITED; RIGHTS AND LIABILITIES OF THE COMPANY..........................34 SECTION 2.15 PARITY OF BONDS............................................................................35 SECTION 2.16 ALLOCATION OF PRINCIPAL AND INTEREST.......................................................35 SECTION 2.17 MONIES UNCLAIMED...........................................................................35 ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................................................35 SECTION 3.1 ORGANIZATION, POWER AND STATUS OF THE COMPANY..............................................35 SECTION 3.2 AUTHORIZATION, ENFORCEABILITY, EXECUTION AND DELIVERY......................................36 SECTION 3.3 NO CONFLICTS; APPLICABLE LAWS AND CONTRACTS; NO DEFAULT....................................36 SECTION 3.4 GOVERNMENTAL APPROVALS.....................................................................37 SECTION 3.5 LITIGATION.................................................................................37 SECTION 3.6 COLLATERAL.................................................................................37 SECTION 3.7 TAXES......................................................................................37 SECTION 3.8 ENVIRONMENTAL MATTERS......................................................................38 SECTION 3.9 COMPLIANCE WITH APPLICABLE LAW.............................................................38 SECTION 3.10 SECURITY DOCUMENTS.........................................................................38 SECTION 3.11 UTILITY REGULATION; EWG STATUS.............................................................38 SECTION 3.12 INVESTMENT COMPANY ACT.....................................................................38 SECTION 3.13 ERISA AND EMPLOYEES........................................................................39 SECTION 3.14 SUBSIDIARIES...............................................................................39 SECTION 3.15 CERTIFICATES...............................................................................39
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Page ARTICLE IV ACCOUNTS..............................................................................................39 SECTION 4.1 ESTABLISHMENT OF ACCOUNTS..................................................................39 SECTION 4.2 INVESTMENT OF FUNDS IN THE INDENTURE ACCOUNTS..............................................40 SECTION 4.3 VALUATION AND SALE OF INVESTMENTS..........................................................40 SECTION 4.4 POSSESSION OF ACCOUNTS; LIQUIDATION........................................................41 SECTION 4.5 THE DEPOSITARY BANK; LIMITED COMPANY RIGHTS................................................41 ARTICLE V COLLECTION AND APPLICATION OF FUNDS IN THE INDENTURE ACCOUNTS..........................................43 SECTION 5.1 BOND PROCEEDS ACCOUNT......................................................................43 SECTION 5.2 BOND PAYMENT ACCOUNT.......................................................................43 SECTION 5.3 INTEREST PAYMENT SUBACCOUNT, PRINCIPAL PAYMENT SUBACCOUNT AND REDEMPTION SUBACCOUNT........43 SECTION 5.4 CONSTRUCTION INTEREST ACCOUNT..............................................................44 ARTICLE VI COVENANTS.............................................................................................44 SECTION 6.1 PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST........................................44 SECTION 6.2 INSURANCE..................................................................................45 SECTION 6.3 REPORTING REQUIREMENTS.....................................................................45 SECTION 6.4 MAINTENANCE OF EXISTENCE, LIENS AND GOVERNMENTAL APPROVALS.................................48 SECTION 6.5 NATURE OF BUSINESS.........................................................................48 SECTION 6.6 OPERATING AND MAINTENANCE..................................................................48 SECTION 6.7 COMPLIANCE WITH APPLICABLE LAWS............................................................48 SECTION 6.8 PROHIBITION ON CHANGE IN CONTROL...........................................................48 SECTION 6.9 PROJECT CONTRACTS; WILLIAMS GUARANTY; OPERATION OF THE FACILITY............................49 SECTION 6.10 TRANSACTIONS WITH AFFILIATES...............................................................49 SECTION 6.11 AMENDMENTS TO PROJECT CONTRACTS............................................................49 SECTION 6.12 PROHIBITION ON FUNDAMENTAL CHANGES AND DISPOSITION OF ASSETS...............................50 SECTION 6.13 ANNUAL BUDGET..............................................................................51 SECTION 6.14 INSURANCE REPORT...........................................................................51 SECTION 6.15 LIENS......................................................................................51 SECTION 6.16 INSPECTION.................................................................................51 SECTION 6.17 LIMITATIONS ON ADDITIONAL INDEBTEDNESS.....................................................52 SECTION 6.18 RESTRICTED PAYMENTS........................................................................52 SECTION 6.19 CONSTRUCTION OF THE FACILITY...............................................................52 SECTION 6.20 CONTRACTOR PERFORMANCE TESTS; FINAL ACCEPTANCE.............................................52 SECTION 6.21 CHANGE ORDERS..............................................................................52 SECTION 6.22 CASUALTY PROCEEDS; EMINENT DOMAIN PROCEEDS.................................................53 SECTION 6.23 PAYMENT OF TAXES AND IMPOSITIONS...........................................................53 SECTION 6.24 PRESERVATION OF LIEN OF MORTGAGE...........................................................53 SECTION 6.25 YEAR 2000..................................................................................54 ARTICLE VII REDEMPTION AND PREPAYMENT OF BONDS...................................................................54 SECTION 7.1 APPLICABILITY OF ARTICLE...................................................................54 SECTION 7.2 ELECTION TO REDEEM OR PREPAY; NOTICE TO TRUSTEE............................................54 SECTION 7.3 OPTIONAL REDEMPTION; MANDATORY REDEMPTION; PREPAYMENT; SELECTION OF BONDS TO BE REDEEMED OR PREPAID....................................................................................54 SECTION 7.4 NOTICE OF REDEMPTION OR PREPAYMENT.........................................................57 SECTION 7.5 BONDS PAYABLE ON REDEMPTION DATE OR PREPAYMENT DATE........................................58 SECTION 7.6 BONDS REDEEMED OR PREPAID IN PART..........................................................58 ARTICLE VIII SINKING FUNDS.......................................................................................58
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Page SECTION 8.1 APPLICABILITY OF ARTICLE...................................................................58 SECTION 8.2 SINKING FUNDS FOR BONDS....................................................................59 ARTICLE IX EVENTS OF DEFAULT; REMEDIES...........................................................................59 SECTION 9.1 EVENTS OF DEFAULT..........................................................................59 SECTION 9.2 ENFORCEMENT OF REMEDIES....................................................................62 SECTION 9.3 SPECIFIC REMEDIES..........................................................................63 SECTION 9.4 JUDICIAL PROCEEDINGS INSTITUTED BY TRUSTEE.................................................63 SECTION 9.5 HOLDERS MAY DEMAND ENFORCEMENT OF RIGHTS BY TRUSTEE........................................65 SECTION 9.6 CONTROL BY BONDHOLDERS.....................................................................66 SECTION 9.7 WAIVER OF PAST DEFAULTS....................................................................66 SECTION 9.8 HOLDER MAY NOT BRING SUIT EXCEPT UNDER CERTAIN CONDITIONS..................................66 SECTION 9.9 UNDERTAKING TO PAY COURT COSTS.............................................................67 SECTION 9.10 RIGHT OF BONDHOLDERS TO RECEIVE PAYMENT NOT TO BE IMPAIRED.................................67 SECTION 9.11 APPLICATION OF FUNDS COLLECTED BY TRUSTEE..................................................67 SECTION 9.12 BONDS HELD BY CERTAIN PERSONS NOT TO SHARE IN DISTRIBUTION.................................69 SECTION 9.13 WAIVER OF APPRAISEMENT, VALUATION, STAY, RIGHT TO MARSHALLING..............................69 SECTION 9.14 REMEDIES CUMULATIVE, DELAY OR OMISSION NOT A WAIVER........................................69 SECTION 9.15 THE COLLATERAL AGENCY AGREEMENT............................................................69 SECTION 9.16 AFFILIATE CURE RIGHTS......................................................................70 ARTICLE X THE TRUSTEE............................................................................................70 SECTION 10.1 CERTAIN DUTIES AND RESPONSIBILITIES........................................................70 SECTION 10.2 NOTICE OF DEFAULTS.........................................................................71 SECTION 10.3 CERTAIN RIGHTS OF TRUSTEE..................................................................71 SECTION 10.4 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF BONDS..........................................72 SECTION 10.5 MAY HOLD BONDS.............................................................................73 SECTION 10.6 FUNDS MAY BE HELD BY TRUSTEE OR PAYING AGENT; INVESTMENTS..................................73 SECTION 10.7 COMPENSATION, REIMBURSEMENT AND INDEMNIFICATION............................................73 SECTION 10.8 DISQUALIFICATION; CONFLICTING INTERESTS....................................................74 SECTION 10.9 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY....................................................79 SECTION 10.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR..........................................79 SECTION 10.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.....................................................80 SECTION 10.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS................................81 SECTION 10.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST ANY OBLIGOR......................................81 SECTION 10.14 MAINTENANCE OF OFFICES AND AGENCIES........................................................84 SECTION 10.15 CO-TRUSTEE OR SEPARATE TRUSTEE.............................................................87 SECTION 10.16 TAXES......................................................................................88 ARTICLE XI HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.....................................................88 SECTION 11.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF BONDHOLDERS..............................88 SECTION 11.2 PRESERVATION OF INFORMATION; COMMUNICATIONS TO BONDHOLDERS.................................88 ARTICLE XII SUPPLEMENTAL INDENTURES..............................................................................89 SECTION 12.1 SUPPLEMENTAL INDENTURES AND AMENDMENTS TO FINANCING DOCUMENTS WITHOUT CONSENT OF BONDHOLDERS................................................................................89 SECTION 12.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS........................................90 SECTION 12.3 DOCUMENTS AFFECTING IMMUNITY OR INDEMNITY..................................................92 SECTION 12.4 EXECUTION OF SUPPLEMENTAL INDENTURES.......................................................92 SECTION 12.5 EFFECT OF SUPPLEMENTAL INDENTURES..........................................................92 SECTION 12.6 REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES..............................................92
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Page ARTICLE XIII SATISFACTION AND DISCHARGE..........................................................................92 SECTION 13.1 SATISFACTION AND DISCHARGE OF BONDS........................................................92 SECTION 13.2 SATISFACTION AND DISCHARGE OF INDENTURE....................................................93 SECTION 13.3 APPLICATION OF TRUST MONEY.................................................................94 ARTICLE XIV MEETINGS OF BONDHOLDERS; ACTION WITHOUT MEETING......................................................95 SECTION 14.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED..................................................95 SECTION 14.2 CALL, NOTICE AND PLACE OF MEETINGS.........................................................95 SECTION 14.3 PERSONS ENTITLED TO VOTE AT MEETINGS.......................................................95 SECTION 14.4 QUORUM; ACTION.............................................................................96 SECTION 14.5 ATTENDANCE AT MEETINGS; DETERMINATION OF VOTING RIGHTS; CONDUCT OF ADJOURNMENT OF MEETINGS....................................................................97 SECTION 14.6 COUNTING VOTES AND RECORDING ACTION OF MEETINGS............................................97 SECTION 14.7 ACTION WITHOUT MEETING.....................................................................98 ARTICLE XV NONRECOURSE LIABILITY.................................................................................98 SECTION 15.1 NONRECOURSE LIABILITY......................................................................98 ARTICLE XVI DEPOSITARY BANK......................................................................................99 SECTION 16.1 DEPOSITARY BANK............................................................................99 SCHEDULES SCHEDULE 3.4 GOVERNMENTAL APPROVALS SCHEDULE 6.2 INSURANCE REQUIREMENTS EXHIBITS EXHIBIT 5.1 FORM OF WIRE INSTRUCTIONS
iv TRUST INDENTURE TRUST INDENTURE, dated as of June 1, 1999 (this "Indenture"), by and among AES Ironwood, L.L.C., a Delaware limited liability company, (the "Company"), its principal office and mailing address being 829 Cumberland Street, Lebanon, Pennsylvania 17042, IBJ WHITEHALL BANK & TRUST COMPANY, as trustee (the "Trustee"), its corporate trust office and mailing address being at One State Street, New York, New York 10004, and IBJ WHITEHALL BANK & TRUST COMPANY, as depositary bank (the "Depositary Bank"), its office and mailing address being at One State Street, New York, New York 10004. W I T N E S S E T H: WHEREAS, the Company has duly authorized the creation of bonds, debentures, promissory notes or other evidences of indebtedness to be issued in one or more series (the "Bonds") up to such principal amount or amounts as may from time to time be authorized in accordance with the terms of this Indenture; and the Company has duly authorized the execution and delivery of this Indenture to secure the Bonds and to provide for the authentication and delivery thereof by the Trustee; WHEREAS, the Company wishes to secure the payment of the principal of, premium, if any, and interest on all the Bonds authenticated and delivered under this Indenture and issued by the Company and the performance of the covenants therein and herein contained and to mortgage, pledge and assign substantially all of its assets, including the proceeds of the sale of the Bonds to the Trustee pursuant to this Indenture; WHEREAS, all obligations of the Company under this Indenture shall be secured as set forth in this Indenture and the other Security Documents; and WHEREAS, all acts necessary to make this Indenture and the other Security Documents valid instruments, in accordance with its and their terms, have been done. NOW, THEREFORE, in consideration of the premises and of the purchase of the Bonds by the Bondholders thereof, and in order to secure the payment of the principal of and premium, if any, and interest on all the Bonds from time to time Outstanding and the performance of the covenants therein and herein contained and to declare the terms and conditions on which such Bonds are secured, the Company has granted certain security interests as provided in the other Security Documents and hereby grants, bargains, mortgages, sells, releases, conveys, assigns, transfers, pledges, sets over and confirms to the Trustee, and grants to the Trustee a security interest in, all right, title and interest of the Company in and to the Indenture Accounts (including any and all funds contained therein or hereafter delivered to the Trustee for deposit therein), including, in each case, all funds received and the right to receive funds thereunder; TO HAVE AND TO HOLD all the same with all privileges and appurtenances hereby given, granted, pledged and assigned or agreed or intended so to be, unto the Trustee, and its successors in such trust and to it and its assigns forever; IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Bondholders from time to time of all Outstanding Bonds; PROVIDED, HOWEVER, that if the right, title and interest of the Trustee in and to the Indenture Accounts shall have ceased, terminated and become void in accordance with Article XIII hereof, then and in that case, subject to the provisions of Article XII, this Indenture and the estate and rights hereby granted shall cease, terminate and be void, and the Trustee shall cancel and discharge this Indenture and execute and deliver to the Company such instruments as the Company shall require to evidence the discharge hereof; otherwise this Indenture shall be and remain in full force and effect; and THE PARTIES HEREBY COVENANT AND AGREE AS FOLLOWS: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions, Construction. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (i) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (ii) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles of the United States; (iii) all references in this Indenture to designated "Schedules," "Exhibits," "Articles," "Sections" and other subdivisions are to the designated Schedules, Exhibits, Articles, Sections and other subdivisions of this Indenture; (iv) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (v) unless otherwise specified herein, any agreement or instrument defined or referred to herein shall include any amendments, modifications and supplements thereto and waivers thereof made in accordance with the terms of such agreement or instrument; (vi) unless otherwise specified herein, each reference to a Person shall include the successors and permitted assigns of such Person; and 2 (vii) unless otherwise specified herein, each reference to an act, law, rule, regulation or ordinance shall include such act, law, rule, regulation or ordinance as amended, modified or supplemented and any successor or replacement for any such act, law, rule, regulation or ordinance. "Acceptable Credit Provider" has the meaning specified in the Collateral Agency Agreement. "Acceptable Credit Support" has the meaning specified in the Collateral Agency Agreement. "Act" when used with respect to any Bondholder, has the meaning specified in Section 1.4. "Advances" has the meaning specified in the Collateral Agency Agreement. "AES" means The AES Corporation, a Delaware corporation. "AES Ironwood" means AES Ironwood, Inc., a Delaware corporation. "Affiliate" with respect to any Person, means any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, the term "control" (including the correlative meanings of the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting stock or other equity interests or by contract or otherwise. "Affiliate Subordinated Debt" means an unsecured, subordinated loan or loans from any Affiliate of the Company pursuant to an Affiliate Subordinated Loan Agreement. "Affiliate Subordinated Debt Provider" means any Affiliate of the Company providing Affiliate Subordinated Debt pursuant to an Affiliate Subordinated Loan Agreement. "Affiliate Subordinated Loan Agreement" means a binding agreement providing nonrecourse, unsecured debt financing from an Affiliate Subordinated Debt Provider to the Company on terms and conditions which meet the requirements set forth in this Indenture and the Collateral Agency Agreement. "Affiliate Transaction" has the meaning specified in Section 6.10. "Annual Budget" means the annual budget prepared by the Company for each Fiscal Year in accordance with the requirements of this Indenture. "Applicable Law" means any constitution, statute, law, rule, regulation, ordinance, judgment, order, decree, Governmental Approval, or any published directive, guideline, requirement or other governmental restriction which has the force of law, or any determination by, or interpretation of any of the foregoing by, any judicial authority, binding on a given Person 3 whether in effect as of the date of any Financing Documents or thereafter and in each case as amended (including, without limitation, all Environmental Laws and any of the foregoing pertaining to land use or zoning restrictions). "Assignment of Leases and Income" means the Assignment of Leases and Income, by and between the Company and the Collateral Agent. "Authenticating Agent" means any Person acting as Authenticating Agent hereunder pursuant to Section 10.14(b). "Authorized Agent" means any Paying Agent, Authenticating Agent or Security Registrar or other agent appointed by the Trustee in accordance with this Indenture to perform any function that this Indenture authorizes the Trustee or such agent to perform. "Authorized Officer" means any officer of the Trustee or any other individual who shall be duly authorized by appropriate corporate action on the part of the Trustee to authenticate Bonds. "Authorized Representative" of any Person means the individual or individuals authorized to act on behalf of such Person by the board of directors, managing member, management committee, board of control or any other governing body of such Person as designated from time to time in a certificate of such Person with specimen signatures. "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, Title II of the United States Code, as amended, and any other Applicable Law with respect to bankruptcy, insolvency or reorganization that is successor thereto. "Bankruptcy Event" has the meaning specified in Section 9.1(h). "Board Resolution" when used with respect to the Company, means a copy of a resolution certified by the Corporate Secretary or an Assistant Corporate Secretary of the Company as having been adopted by the board of directors of the Company and to be in full force and effect on the date of such certification. "Bond Payment Account" means the Bond Payment Account established pursuant to Section 4.1. "Bond Proceeds Account" means the Bond Proceeds Account established pursuant to Section 4.1. "Bondholder" means a holder of record of any of the Bonds from time to time. "Bonds" has the meaning specified in the introductory recitals to this Indenture. "Business Day" means any day other than a Saturday or Sunday or other day on which banks in New York, New York, are authorized or required by law or executive order to remain closed. 4 "Buy-Down Amounts" means amounts received by the Company from the Contractor in respect of performance liquidated damages under the EPC Contract. "Cash Available for Debt Service" means, in respect of a specified period, all funds (i) deposited in the Revenue Account (other than amounts transferred to such account from the Major Maintenance Reserve Account, the Distribution Account or the Construction Account), if such specified date occurred prior to the date of determination or (ii) projected by the Company on a reasonable basis to be deposited, if such specified period is to occur subsequent to the date of determination, in the Revenue Account during such period minus all funds transferred to (a) the Company for payment of Operating and Maintenance Costs, (b) the Trustee, Collateral Agent, DSR LOC Provider and the CP LOC Provider in respect of Trustee Claims, Collateral Agent Claims, DSR LOC Provider Claims and CP LOC Provider Claims, respectively, and (c) a working capital provider in respect of payments on working capital loans during such period. "Casualty Proceeds" means all insurance proceeds (including title insurance proceeds) or other amounts actually received on account of an Event of Loss, except proceeds of business interruption insurance. "Change in Control" means any failure by AES, at any time while Bonds are Outstanding, to maintain directly or indirectly at least a 51% voting and economic interest in the Company, unless prior to giving effect to the reduction in AES's voting or economic interest either (i) each of the Rating Agencies provides a Ratings Reaffirmation to the Trustee or (ii) the reduction in AES's voting or economic interest has been approved by Bondholders holding at least 66-2/3% in aggregate principal amount of the Bonds. "Closing Date" means the date of original issuance of the Bonds. "Code" means the Internal Revenue Code of 1986, as amended, or any comparable successor federal statute. "Collateral" has the meaning specified in the Mortgage and the Security Agreement and the other Security Documents. "Collateral Agency Agreement" means the Collateral Agency and Intercreditor Agreement, by and among the Company, the DSR LOC Provider, the CP LOC Provider, the Trustee, the Collateral Agent and the Depositary Bank. "Collateral Agent" means IBJ Whitehall Bank & Trust Company and any successor or assign as Collateral Agent under the Collateral Agency Agreement. "Commercial Operation Date" has the meaning set forth in the Power Purchase Agreement. "Company" has the meaning specified in the preamble to this Indenture. 5 "Company Request" and "Company Order" means, respectively, a written request or order signed in the name of the Company by an Authorized Representative of the Company, and delivered to the Trustee. "Consents to Assignment" means the consents to assignment with respect to the Project Contracts. "Construction Account" has the meaning specified in the Collateral Agency Agreement. "Construction Interest Account" means the Construction Interest Account established pursuant to Section 4.1. "Contractor" means Siemens Westinghouse Power Corporation, a Delaware corporation. "Corporate Trust Office" means the designated corporate trust office of the Trustee at which at any particular time corporate trust business of the Trustee shall be administered, which at the date of this Indenture is [One State Street, New York, New York 10004], or such other office as may be designated by the Trustee to the Company. "CP Letter of Credit" means the letter of credit issued pursuant to the CP LOC Reimbursement Agreement as provided by the Company to the Power Purchaser in satisfaction of the requirements of Section 19.2 of the Power Purchase Agreement. "CP LOC Issuing Bank" means Dresdner Bank AG, New York Branch or any other financial institution providing the CP Letter of Credit pursuant to the CP LOC Reimbursement Agreement. "CP LOC Provider" means the Agent under the CP LOC Reimbursement Agreement acting for and on behalf of the Banks party thereto and the CP LOC Issuing Bank; provided, however, that references to the long-term debt rating of the CP LOC Provider shall be deemed to refer to the debt rating of the CP LOC Issuing Bank. "CP LOC Provider Claims" means all obligations of the Company, now or hereafter existing, to pay administrative fees, costs, expenses, liabilities or indemnities to the CP LOC Provider under the CP LOC Reimbursement Agreement. "CP LOC Reimbursement Agreement" means the Construction Period Letter of Credit and Reimbursement Agreement, by and among the CP LOC Provider, the Company and the banks named therein, pursuant to which the CP LOC Issuing Bank may issue the CP Letter of Credit. "Date Certain" means the final date by which the Facility must commence commercial operation pursuant to Section 2.1 of the Power Purchase Agreement. "Debt" means, in respect of any Person, Indebtedness. "Debt Service Reserve Account" has the meaning specified in the Collateral Agency Agreement. 6 "Default" means an event or condition that, with the giving of notice or lapse of time, or both, would become an Event of Default. "Depositary Bank" has the meaning specified in the preamble to this Indenture. "DSR Letter of Credit" means a letter of credit provided by the Company in respect of all or a portion of the DSRA Required Balance. "DSR LOC Issuing Bank" means Dresdner Bank AG, New York Branch or any other financial institution providing the DSR Letter of Credit pursuant to the DSR LOC Reimbursement Agreement. "DSR LOC Provider" means the Agent under the DSR LOC Reimbursement Agreement acting for and on behalf of the Banks party thereto and the DSR LOC Issuing Bank; provided, however, that references to the long-term debt rating of the DSR LOC Provider shall be deemed to refer to the debt rating of the DSR LOC Issuing Bank. "DSR LOC Provider Claims" means all obligations of the Company, now or hereafter existing, to pay administrative fees, costs, expenses, liabilities or indemnities under the DSR LOC Reimbursement Agreement. "DSR LOC Reimbursement Agreement" means the Debt Service Reserve Letter of Credit and Reimbursement Agreement, by and among the DSR LOC Provider, the Company and the banks named therein, pursuant to which the DSR LOC Issuing Bank will issue the DSR Letter of Credit. "DSRA Required Balance" means an amount equal to the next succeeding two quarterly scheduled payments of principal and interest due on the Outstanding Bonds, plus if a DSR Letter of Credit is to be provided, six months of interest which would be payable to the DSR LOC Provider assuming there were DSR Loans outstanding in an amount equal to the maximum amount of such DSR Letter of Credit. "Effluent Supply Agreement" means the Effluent Supply Agreement, dated as of March 3, 1998, by and between the Company (as assignee of AES Ironwood) and City of Lebanon Authority. "Emergency Capital Expenditures" means capital expenditures required to be made to prevent or mitigate an emergency situation in respect of the Facility. "Eminent Domain Proceeds" means all amounts and proceeds actually received in respect of any Event of Eminent Domain. "Environmental Law" means any Governmental Requirement in effect from time to time governing or relating to (i) the environment, (ii) releases or threatened releases of Hazardous Materials including, without limitation, investigation, monitoring and abatement of such releases 7 and (iii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Materials or materials containing Hazardous Materials. "EPC Contract" means the Agreement for Engineering, Procurement and Construction Services, dated as of September 23, 1998, as amended, by and between the Company (as assignee of AES Ironwood) and the Contractor. "Equity Subscription Agreement" means the Equity Subscription Agreement, by and among AES Ironwood, the Company and the Collateral Agent, pursuant to which AES Ironwood shall agree to make certain equity contributions to the Company. "ERISA" means the United States Employee Retirement Income Security Act of 1974, as amended. "Event of Default" has the meaning specified in Section 9.1. "Event of Eminent Domain" means any compulsory transfer or taking or transfer under threat of compulsory transfer or taking of all or a material portion of the Facility by any Governmental Authority for more than one year unless such transfer or taking is the subject of a Good Faith Contest. "Event of Loss" means an event which causes all or a material portion of the Facility to be damaged, destroyed or rendered unfit for normal use for any reason whatsoever including through a failure of title. "Facility" means the 705 megawatt (net) gas-fired combined cycle electric generating facility located in South Lebanon Township, Lebanon County, Pennsylvania, together with all machinery, equipment, improvements and other personal property and fixtures constituting such facility. "Facility Capacity" has the meaning specified in the Power Purchase Agreement. "Final Maturity Date" means the latest Stated Maturity of any of the Bonds. "Financing Documents" means the Indenture, the Bonds, the DSR LOC Reimbursement Agreement and any evidence of indebtedness thereunder entered into, the CP LOC Reimbursement Agreement and any evidence of indebtedness thereunder entered into, the Equity Subscription Agreement, the Collateral Agency Agreement and the Security Documents. "Financing Liabilities" has the meaning specified in the Collateral Agency Agreement. "Fiscal Year" means the period of time beginning on January 1 of each year and ending on December 31 of such year; provided, that the initial Fiscal Year shall commence on the Closing Date and shall end on December 31, 1999. "GAAP" means generally accepted accounting principles in the United States as in effect from time to time. 8 "GDPIPD" means the Gross Domestic Product Implicit Price Deflator for a calendar year as published in the United States Department of Commerce, Bureau of Analysis publication entitled "Survey of Current Business". If the Gross Domestic Product Implicit Price Deflator ceases to exist or is no longer available, the Company, with the approval of the Independent Engineer (such approval not to be unreasonably withheld or delayed), shall designate a substitute index that is reasonably similar to the Gross Domestic Product Implicit Price Deflator. "Good Faith Contest" means the contest of an item if: (i) the item is diligently contested in good faith by appropriate proceedings timely instituted, (ii) adequate reserves or bonding are established in accordance with GAAP with respect to the contested item and (iii) during the period of such contest, the enforcement of any contested item is effectively stayed. "Governmental Approval" means any authorization, consent, approval, concession privilege, waiver, exemption, variance, registration, filing, certification, permission, permit and license with or notice to any Governmental Authority. "Governmental Authority" means the federal government of the United States, any state of the United States or political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any other governmental entity, instrumentality, agency, authority or commission. "Governmental Obligations" means any of the following which are noncallable and which at the time of investment are legal investments under the laws of the state for the funds proposed to be invested therein: (i) direct obligations of, or obligations the payment of principal of and interest on which are unconditionally guaranteed as to full and timely payment by, the United States; (ii) direct obligations of, or participation certificates guaranteed by, Federal National Mortgage Association, Government National Mortgage Association, or Federal Home Loan Mortgage Corporation so long as such entities shall be federally chartered or any other comparable federal agency hereafter created to the extent that such obligations or certificates are unconditionally guaranteed by the United States; or (iii) obligations of any state of the United States, any political subdivision thereof or any agency or instrumentality thereof, if such obligations are secured by direct obligations of, or obligations the principal and interest on which are fully or unconditionally guaranteed by, the United States, and the principal of and interest on which shall be sufficient to pay as due the principal of and interest on such obligations. "Governmental Requirement" means any Applicable Law or Governmental Approval applicable to the Company or the Facility. "Guaranteed Investment Contract" means an agreement with a Guaranteed Investment Contract Provider and providing for the investment of funds. "Guaranteed Investment Contract Provider" means a bank, insurance company or other financial institution whose senior unsecured debt obligations are rated at least "A" or the equivalent by Moody's or S&P. 9 "Hazardous Materials" means (i) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls ("PCBs") and any other chemicals, materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances" or "toxic pollutants", or words of similar import, under Environmental Laws, including but not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.); the Hazardous Material Transportation Act, as amended (42 U.S.C. ss. 1801 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. ss. 6901 et seq.); the Toxic Substances Control Act, as amended (15 U.S.C. ss. 2601); the Clean Air Act, as amended (42 U.S.C. ss. 7401 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. ss. 1251 et seq.); or (ii) any other chemical, material, substance or waste declared to be hazardous or toxic by any Governmental Authority, exposure to which is now or hereafter prohibited, limited or regulated by any Governmental Authority. "Holder" means a Person whose name is registered in the Security Register. "Impositions" means all duties, taxes, assessments, dues, charges, fees, excises, levies, license and permit fees, impositions, water rates, sewer rents and other charges, ordinary or extraordinary, whether foreseen or unforeseen, of any kind whatsoever, (i) now or hereafter levied or assessed or imposed against or upon or in respect of the Mortgaged Property or (ii) which now is or may be levied or assessed against the Income (as defined in the Mortgage) by virtue of any present or future law, as well as all income taxes, assessments and other governmental charges levied and imposed by any Governmental Authority upon or against the Company in respect of the Mortgaged Property or any part thereof, to the extent the same is in lieu of or in substitution of the items described in clause (i). Impositions shall not include any taxes imposed on the net income, gross receipts or any franchise taxes of the Trustee or Collateral Agent, except as provided in this Indenture. "Indebtedness" of any Person means, at any date, without duplication, (i) all obligations of such Person for borrowed money (including obligations with respect to letters of credit issued for the account of such Person), (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (excluding "deposit only" endorsements on checks payable to the order of such Person), (iii) all obligations of such Person to pay the deferred purchase price of property or services (excluding accounts payable and similar obligations arising in the ordinary course of business which are not more than 90 days past due), (iv) all obligations of such Person as lessee under capital leases to the extent required to be capitalized on the books of such Person in accordance with GAAP and the debt portion of any leveraged lease not required to be capitalized, (v) all obligations of other Persons of the type referred to in clauses (i) through (iv) of this definition guaranteed by such Person, whether or not secured by a Lien or other security interest on any asset of such Person and (vi) all Indebtedness of another Person secured by a Lien on any property owned by the first Person (whether or not such indebtedness has been assumed or guaranteed by such first Person). 10 "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into in accordance with the provisions hereof. "Indenture Accounts" has the meaning specified in Section 4.1. "Indenture Collateral" has the meaning specified in Section 9.3. "Independent Engineer" means, initially, Stone & Webster Management Consultants, Inc., and thereafter any other engineering or consulting entity acting as independent engineer under the Financing Documents. "Independent Forecast" has the meaning specified in Section 6.3. "Independent Insurance Advisor" means, initially, AON Risk Services, Inc., or another nationally recognized insurance advisory firm appointed as insurance advisor by the Company. "Initial Purchasers" means Lehman Brothers Inc. (as Lead Manager), Morgan Stanley & Co. Incorporated (as Co-Manager) and Dresdner Kleinwort Benson North America LLC, the initial purchasers of the Bonds. "Institutional Accredited Investors" means "accredited investors" as such term is defined under the Securities Act, Rule 501(a)(1), (2), (3) or (7). "Interconnection Agreement" means the Generation Facility Transmission Interconnection Agreement, dated as of March 23, 1999, by and between the Company and Metropolitan Edison Company d/b/a GPU Energy. "Interest Payment Date" means each February 28, May 31, August 31 and November 30, commencing August 31, 1999. "Interest Payment Subaccount" means the Interest Payment Subaccount of the Bond Payment Account established pursuant to Section 4.1. "Investment Grade" means a rating in one of the four highest categories (without regard to subcategories within such rating categories) by S&P and Moody's (or an equivalent rating by another nationally recognized credit rating agency if none of such corporations is rating the subject debt instrument). "Lien" means any mortgage, pledge, security interest, hypothecation, collateral assignment, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). 11 "Maintenance Services Agreement" means the Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of September 23, 1998, by and between the Company (as assignee of AES Ironwood) and the Contractor. "Major Maintenance Reserve Account" has the meaning specified in the Collateral Agency Agreement. "Make-Whole Premium" means an amount calculated as of the date (the "Determination Date") set for the redemption or repurchase of the Bonds of any series as follows: (i) the average life of the remaining scheduled payments of principal in respect of Outstanding Bonds of such series (the "Remaining Average Life") shall be calculated as of the Determination Date; (ii) the yield to maturity shall be calculated for the United States Treasury security having an average life equal to the Remaining Average Life of such series and trading in the secondary market at the price closest to the principal amount thereof (the "Primary Issue"); provided, however, that if no United States Treasury security has an average life equal to the Remaining Average Life of such series, the yields (the "Other Yields") for the two maturities of United States Treasury securities having average lives most closely corresponding to such Remaining Average Life and trading in the secondary market at the price closest to the principal amount thereof shall be calculated, and the yield to maturity for the Primary Issue shall be the yield interpolated or extrapolated from such Other Yields on a straightline basis, rounding in each of such relevant periods to the nearest month; (iii) the discounted present value of the then remaining scheduled payments of principal and interest (but excluding that portion of any scheduled payment of interest that is actually due and paid on the Determination Date) in respect of Outstanding Bonds of such series shall be calculated as of the Determination Date using a discount factor equal to the sum of (x) the yield to maturity for the Primary Issue, plus (y) 50 basis points; (iv) the amount of Make-Whole Premium in respect of Bonds of such series to be redeemed or repurchased shall be an amount equal to (x) the discounted present value of such Bonds to be redeemed determined in accordance with clause (iii) above, minus (y) the unpaid principal amount of such Bonds; provided, however, that the Make-Whole Premium shall not be less than zero; and (v) such calculation shall be made by an independent investment banking institution of national standing appointed by the Trustee. "Material Adverse Effect" means (i) a material adverse change, or an event or occurrence which would reasonably be expected to result in a material adverse change, in the financial condition, or results of operation, of the Company or operation of the Facility or (ii) any event or occurrence of whatever nature which would materially and adversely change (a) the Company's 12 ability to perform its obligations under the Financing Documents or (b) the Senior Parties' security interests in the Collateral under the Security Documents. "Member" means a Person who holds an ownership interest in the Company, which for federal income tax purposes is treated as a partner. "Moody's" means Moody's Investors Service, Inc., a Delaware corporation. "Mortgage" means the Mortgage, by and between the Company and the Collateral Agent. "Mortgaged Property" has the meaning specified in the Mortgage. "Officer's Certificate" means a certificate delivered to the Trustee that has been signed by an Authorized Representative of the Company or an Authorized Representative of the board of directors of the Company. "Operating and Maintenance Costs" means all actual cash maintenance and operation costs to be incurred and paid for with respect to the Facility in any particular period to which such term is applicable, including franchise, sales, property and other similar taxes (but not taxes on or measured by net income), payments for the supply and transportation of fuels, insurance, consumables, payments under any lease, payments pursuant to the Project Contracts (including payments under the Operations Agreement, but excluding payments made under the EPC Contract and any payments under the Project Contracts that are expressly subordinated), repair and replacement costs for equipment included in the Facility, reasonable legal fees and expenses paid by the Company in connection with the management, maintenance or operation of the Facility, fees paid in connection with obtaining, transferring, maintaining or amending any Governmental Approvals, employee salaries, wages and other employment-related costs and reasonable general and administrative expenses, all fees, expenses and other payments due to and all indemnities and other arrangements providing for the payment of amounts to the lenders, arrangers, underwriters, Initial Purchasers, independent consultants, their agents, counsel and employees in connection with the Indebtedness of the Company (but excluding transaction costs associated with the offering and issuance of the Bonds), but exclusive in all cases of (i) non-cash charges, including depreciation or obsolescence charges or reserves therefor, amortization of intangibles or other bookkeeping entries of a similar nature, (ii) all interest charges, (iii) all commitment fees, underwriting fees and other similar fees due and payable in connection with Indebtedness of the Company, (iv) maintenance costs funded from amounts on deposit in the Major Maintenance Reserve Account and (v) solely for purposes of priority of payment, fees (but not costs) payable to the Operator, except to the extent that there are funds available in the Revenue Account to make all required payments and deposits specified in clauses first through sixth of Section 3.10 of the Collateral Agency Agreement. "Operations Agreement" means the Development and Operations Services Agreement, by and between the Company and the Operator. "Operator" means AES Prescott, L.L.C., a Delaware limited liability company. 13 "Opinion of Counsel" means a written opinion of counsel for any Person either expressly referred to herein or otherwise satisfactory to the Trustee which may include, without limitation, counsel for the Company, whether or not such counsel is an employee of any of such Person. "Optional Modifications" means all material modifications to the Facility that are not Required Modifications to the extent that the Company certifies and the Independent Engineer confirms, which confirmation may not be unreasonably withheld or delayed, that such modifications: (i) are not reasonably likely to result in a Material Adverse Effect, (ii) are technically feasible and (iii) are reasonably expected to improve the operation or reliability of the Facility. "Outstanding," when used with respect to Bonds, means, as of the date of determination, all Bonds theretofore authenticated and delivered under this Indenture, except: (i) Bonds theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Bonds or portions thereof deemed to have been paid within the meaning of Section 13.1; and (iii) Bonds that have been exchanged for other Bonds or Bonds in lieu of which other Bonds have been authenticated and delivered pursuant to this Indenture; provided, however, that in determining whether the Bondholders of the requisite principal amount of Outstanding Bonds have given any request, demand, authorization, direction, notice, consent or waiver hereunder or whether or not a quorum is present at a meeting of Bondholders, Bonds owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver or upon any such determination as to presence of a quorum, only Bonds that a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. "Paying Agent" means any Person acting as Paying Agent hereunder pursuant to Section 10.14(b). "Pennsy Agreements" means (i) the Agreement Relating to Real Estate, dated as of October 22, 1998, by and between the Company (as assignee of AES Ironwood) and Pennsy Supply, Inc. and (ii) the Easement and Right of Access Agreement, dated as of April 15, 1999, by and between the Company and Pennsy Supply, Inc. "Permitted Indebtedness" means, collectively: (i) the Bonds, (ii) indebtedness incurred under the DSR LOC Reimbursement Agreement or any CP LOC Reimbursement Agreement; (iii) letters of credit and other financial obligations arising under the Project Contracts; (iv) Affiliate Subordinated Debt; (v) purchase money obligations incurred to finance discrete items of equipment not comprising an integral part of the Project that extend only to the equipment being financed and that do not in the aggregate have annual debt service or lease obligations exceeding $5 million (escalated at GDPIPD); (vi) trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within ninety (90) days of the date the respective goods are delivered or the respective services are rendered; (vii) obligations in respect of surety bonds or similar instruments in an aggregate amount not exceeding $5 million at any one time outstanding; (viii) any lines of credit for working capital purposes in the maximum amount of $5 million; (ix) Senior Debt used 14 for an expansion of the Facility; provided, however, that such Senior Debt may not be issued unless (a) (1) the projected average Senior Debt Service Coverage Ratio (after giving effect to such Senior Debt) is at least 1.50 to 1.0 through the end of the PPA Term (taken as one period) and at least 2.50 to 1.0 during the Post-PPA Period (taken as one period) and (2) the projected minimum Senior Debt Service Coverage Ratio (after giving effect to such Senior Debt) is at least 1.30 to 1.0 through the end of the PPA Term and at least 2.15 to 1.0 during the Post-PPA Period; (b) the Company provides a Ratings Reaffirmation from each of the Rating Agencies; and (c) the Trustee does not, within sixty (60) days of notice to holders of the Bonds setting forth a summary of the terms of such Senior Debt and a description of the facilities to be constructed with the proceeds of such Senior Debt, receive an instruction from Persons holding a majority in principal amount of the Bonds not to permit the issuance of such Senior Debt; and (x) Senior Debt or Subordinated Debt (from Persons who are not Affiliates of the Company) for Required Modifications and Optional Modifications; provided, however, that the Company may issue (a) Senior Debt on a parity basis with the Bonds only for Required Modifications and only if (1) the projected average Senior Debt Service Coverage Ratio (after giving effect to such Senior Debt) is at least 1.30 to 1.0 through the end of the PPA Term (taken as one period) and at least 2.0 to 1.0 in each year during the Post-PPA Period (taken as one period) or (2) the Company provides a Ratings Reaffirmation from each of the Ratings Agencies; (b) Subordinated Debt for Required Modifications only if (1)(A) the projected average Total Debt Service Coverage Ratio (after taking into account such Subordinated Debt) is at least 1.20 to 1.0 through the end of the PPA Term (taken as one period) and at least 1.65 to 1.0 during the Post-PPA Period (taken as one period) and (B) the projected minimum Total Debt Service Coverage Ratio (after giving effect to such Subordinated Debt) is at least 1.1 to 1.0 through the PPA Term and at least 1.35 to 1.0 during the Post-PPA Period, or (2) the Company provides a Ratings Reaffirmation from each of the Ratings Agencies; or (c) Subordinated Debt for Optional Modifications only if the Company provides a Ratings Reaffirmation from each of the Ratings Agencies. In the case of clauses (b) and (c) of the preceding proviso, the final maturity date of such Subordinated Debt shall not be earlier than the Final Maturity Date and the average life of such Subordinated Debt must be no shorter than the average remaining life of the Bonds. "Permitted Investments" means investments that are any of the following, which investments shall be made so as to mature or be subject to potential redemption not later than the date on which the proceeds of the same are expected to be required to pay Project Costs or Operating and Maintenance Costs: (i) Governmental Obligations; (ii) interest-bearing deposit accounts (which may be represented by certificates of deposit) in national, state or foreign commercial banks whose outstanding long-term debt is rated at least A or the equivalent by S&P or Moody's; (iii) bankers' acceptances drawn on and accepted by any domestic or foreign commercial banks whose outstanding long-term debt is rated at least A or the equivalent by S&P or Moody's; (iv) direct obligations of, obligations guaranteed by, and any other obligations the interest on which is excluded from income for federal income tax purposes issued by, any state of the United States, the District of Columbia or the Commonwealth of Puerto Rico or any political subdivision, agency, authority or instrumentality of any of the foregoing, which are rated at least A or the equivalent by S&P or Moody's; (v) commercial paper issued by any corporation which is rated at least A1 or the equivalent by S&P or at least P1 or the equivalent by Moody's; (vi) instruments issued by an investment company rated at least A or the equivalent by S&P or Moody's having a portfolio consisting of at least 95% or more of the securities described in paragraphs (i) through (v) above; 15 (vii) repurchase agreements with banking institutions and securities dealers recognized as primary dealers by the Federal Reserve Bank of New York whose outstanding long-term and short-term debt is rated at least A or the equivalent by S&P or Moody's; (viii) Guaranteed Investment Contracts; (ix) funding agreements with primary dealers reasonably acceptable to the Trustee; and (x) other Investment Grade instruments or instruments issued or guaranteed by Investment Grade entities (including unsecured promissory notes) or permitted investments mutually agreed to by the Trustee and the Company. Each of the investments described in clauses (vii), (viii), (ix) and (x) above shall contain a provision for the unwinding of such investment within three (3) Business Days if the long-term or short-term debt rating of the bank, primary dealer or other financial institution, as the case may be, providing such investment falls below A or the equivalent by S&P or Moody's or such entity defaults on the payment of any of its obligations to or on behalf of the Company, unless such investment is collateralized with government obligations in an amount equal to at least one hundred two percent (102%) of the face amount of such investments or such rating is reinstated on or prior to such unwind date. "Permitted Liens" means, collectively, (i) Liens specifically created, required or permitted by the Financing Documents; (ii) Liens for taxes which are either not yet due, are due but payable without penalty or are the subject of a Good Faith Contest by the Company; (iii) any exceptions to title which are contained in the title insurance policy for the Site; (iv) such minor defects, easements, rights of way, restrictions, irregularities, encumbrances and clouds on title and statutory liens that do not materially impair the property affected thereby and that do not individually or in the aggregate materially impair the value of the security interests granted under the Security Documents; (v) deposits or pledges to secure statutory obligations or appeals; release of attachments, stay of execution or injunction; performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or for purposes of like general nature in the ordinary course of business; (vi) Liens in connection with workmen's compensation, unemployment insurance or other social security or pension obligations; (vii) legal or equitable encumbrances deemed to exist by reason of the existence of any litigation or other legal proceeding if the same is the subject of a Good Faith Contest (excluding any attachment prior to judgment, judgment lien or attachment in aid of execution on a judgment); and (viii) mechanic's, workmen's, materialmen's, construction or other like Liens arising in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due or which are the subject of a Good Faith Contest. "Person" means any individual, sole proprietorship, corporation, partnership, joint venture, trust, unincorporated association, institution, Governmental Authority, limited liability company or any other entity, except under certain provisions of this Indenture, the Trustee is not a "Person". "PJM Market" means the control area recognized by the North American Electric Reliability Council as the "PJM Control Area". "Place of Payment," when used with respect to the Bonds of any series, means the office or agency maintained pursuant to Section 10.14(a) and such other place or places, if any, where the principal of, and premium, if any, and interest on the Bonds of such series are payable as specified in the Series Supplemental Indenture setting forth the terms of the Bonds of such series. 16 "Pledge Agreement" means the Pledge and Security Agreement, by and among AES Ironwood, the Company and the Collateral Agent. "Post-PPA Period" means that period commencing six (6) months prior to the end of the PPA Term and ending on the Final Maturity Date. "Power Marketing Plan" means a marketing and procurement plan prepared by or on behalf of the Company which describes in reasonable detail the Company's plan to (i) procure gas to be burned at the Facility and (ii) sell electric power from the Facility without a Replacement Power Purchase Agreement. "Power Purchase Agreement" means the Amended and Restated Power Purchase Agreement, dated as of February 5, 1999, as amended, by and between the Company and the Power Purchaser. "Power Purchaser" means Williams Energy Marketing & Trading Company, a Delaware corporation. "PPA Guarantor" means The Williams Companies, Inc., a Delaware corporation. "PPA Term" means that period during which the Power Purchaser is obligated to purchase the Facility Capacity pursuant to the terms of the Power Purchase Agreement. "Predecessor Bonds" with respect to any particular Bond, means every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond, for the purposes of this definition, any Bond authenticated and delivered under Section 2.9 in lieu of a lost, destroyed or stolen Bond shall be deemed to evidence the same debt as the lost, destroyed or stolen Bond. "Prepayment Date" has the meaning specified in Section 7.2. "Principal Payment Date" means each February 28, May 31, August 31 and November 30, commencing February 28, 2002, on which principal payments are due to the Bondholders. "Principal Payment Subaccount" means the Principal Payment Subaccount of the Bond Payment Account established pursuant to Section 4.1. "Project Accounts" has the meaning specified in Section 3.1 of the Collateral Agency Agreement. "Project Contracts" means the Power Purchase Agreement, the Williams Guaranty, the EPC Contract, the Siemens Guaranty, the Operations Agreement, the Maintenance Services Agreement, the Interconnection Agreement, the Services Agreement the Effluent Supply Agreement, the Pennsy Agreements and each other material contract or agreement related to the development, construction, ownership, operation or maintenance of the Facility, including any 17 agreement referred to in Section 6.12 with respect to spare parts, but excluding any Financing Document or Security Document not expressly referred to in this definition. "Project Costs" means all costs of developing, financing, constructing, testing and initial operation of the Facility, including but not limited to: (i) all amounts payable under the EPC Contract including any contractor bonuses, site acquisition and preparation costs, costs of acquisition and construction of fuel handling and processing equipment, any electric interconnection and transmission upgrade costs payable by the Company pursuant to the Power Purchase Agreement, all water interconnection costs payable by the Company and all gas interconnection costs payable by the Company; (ii) all development costs and fees, which shall be paid to, or as designated by, the Company on the Closing Date; (iii) all other Facility-related costs, including but not limited to fuel-related costs, fees and expenses payable pursuant to the Operations Agreement and expenses to complete the construction and financing of the Facility; (iv) startup and testing costs and initial working capital costs; (v) initial reserve fund requirements; (vi) fees and costs payable during construction with respect to any DSR Letter of Credit, CP Letter of Credit and any other letters of credit or security provided under any Project Contract; (vii) legal and other transaction costs and financing-related fees; (viii) any other out-of-pocket expenses related to the financing; and (ix) interest on the Bonds. "Project Revenues" means, for any period, the Company's revenues or income received, including, without limitation: (i) except as otherwise specified in the Collateral Agency Agreement, interest and other income earned and credited on funds deposited in the Project Accounts; (ii) amounts paid by the Power Purchaser pursuant to the Power Purchase Agreement; (iii) the proceeds of the sale of any part of the Facility which is not prohibited under this Indenture; (iv) the proceeds of any insurance claims in respect of an event or occurrence concerning the Facility that is not an Event of Loss or an Event of Eminent Domain; and (v) all amounts received by the Company under the Williams Guaranty. "Projected Operating Results" means financial projections relating to revenues, expenses, and debt service coverage during the period the Bonds are scheduled to remain Outstanding and included in the final offering circular with respect to the Bonds. "Prudent Operating and Maintenance Practices" has the meaning specified in the Operations Agreement. "PUHCA" means the Public Utility Holding Company Act of 1935. "Qualified Institutional Buyer" or "QIB" means a "qualified institutional buyer" as such term is defined in Rule 144A. "Rating Agency" means each of Moody's and S&P; provided, that such rating agency maintains a rating on any Outstanding Bonds. "Ratings Reaffirmation" means a reaffirmation by each of the Rating Agencies of their then current credit ratings of any Outstanding Bonds, giving effect to any transactions giving rise to a request for such reaffirmation. 18 "Redemption Date" has the meaning specified in Section 7.2. "Redemption Subaccount" means the Redemption Subaccount of the Bond Payment Account established pursuant to Section 4.1. "Regular Record Date" means, for the Stated Maturity of any Bond of a series, or for the Stated Maturity of any installment of principal thereof or payment of interest thereon, the first day of the month (whether or not a Business Day) in which such Stated Maturity occurs, or any other date specified for such purpose in the form of Bond of such series attached to the Series Supplemental Indenture relating to the Bonds of such series. "Replacement Power Purchase Agreement" means one or more power purchase agreements between the Company and one or more Persons, pursuant to which the Company sells, in aggregate, all or substantially all of the capacity and/or associated electric energy from the Facility to such Person or Persons at a commercially reasonable price for a term of not less than the remaining term of the Power Purchase Agreement. "Required Bondholders" means, at any time, the persons that at such time own a majority in aggregate principal amount of the Outstanding Bonds. "Required Capital Expenditures" means capital expenditures that are identified as required capital expenditures in the Annual Budget then in effect. "Required Modifications" means, collectively, those modifications reasonably necessary for the Facility to (i) remain in compliance with all material Applicable Laws and Governmental Approvals and (ii) maintain, at a minimum, the capacity production levels contemplated by the Projected Operating Results, in either case, as confirmed by the Independent Engineer. "Required Rating" means a rating of at least "A" by S&P and "A2" by Moody's. "Responsible Officer" when used with respect to the Trustee, means any officer in the Corporate Trust Office of the Trustee. "Restricted Payments" means, collectively, (i) distributions including payments of dividends to holders of ownership interests in the Company, (ii) payments of principal, interest or premium, if any, on, and any repurchase of, any Affiliate Subordinated Debt, (iii) prepayments or repurchases of any Subordinated Debt and (iv) the repurchase by the Company of any ownership interests in the Company. "Revenue Account" has the meaning specified in the Collateral Agency Agreement. "Rule 144A" means Rule 144A promulgated under the Securities Act. "S&P" means Standard & Poor's Ratings Group, a division of the McGraw-Hill Companies, Inc. "Secured Obligations" has the meaning specified in the Collateral Agency Agreement. 19 "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Agreement" means the Security Agreement, by and between the Company and the Collateral Agent. "Security Documents" means, collectively, (i) the Mortgage, (ii) the Collateral Agency Agreement, (iii) the Security Agreement, (iv) this Indenture, (v) the Consents to Assignment, (vi) the Pledge Agreement and (vii) the Assignment of Leases and Income. "Security Register" has the meaning specified in Section 2.8. "Security Registrar" means any Person acting as Security Registrar hereunder pursuant to Section 10.14. "Senior Debt" means, collectively, the Outstanding Bonds and any other Debt outstanding which ranks pari passu with the Bonds upon liquidation or foreclosure, including any amounts owed to a working capital provider, the DSR LOC Provider and the CP LOC Provider; provided, however, that no Debt of the Company shall rank senior to the Bonds. "Senior Debt Service" means, for any period, an amount calculated by the Company as equal to the aggregate of (i) all amounts payable by the Company during such period in respect of principal of, and interest and premium, if any, on, the Bonds, (ii) all amounts payable by the Company during such period to the provider of any other Senior Debt, including all fees, interest and other amounts payable under the DSR LOC Reimbursement Agreement or the CP LOC Reimbursement Agreement, and (iii) all amounts payable by the Company during such period as fees and other expenses (including any interest thereon) to any fiduciary acting in such capacity under any of the Security Documents. "Senior Debt Service Coverage Ratio" means for any period, the ratio of (i) Cash Available for Debt Service for such period to (ii) the amount of Senior Debt Service due and payable for such period. "Senior Parties" has the meaning specified in the Collateral Agency Agreement. "Series Supplemental Indenture" means an indenture supplemental to this Indenture entered into by the Company and the Trustee for the purpose of establishing, in accordance with this Indenture, the title, form and terms of the Bonds of any series; "Series Supplemental Indentures" means each and every Series Supplemental Indenture. "Services Agreement" means the Services Agreement, by and between AES and the Operator. "Siemens Guaranty" means the Guaranty, dated as of September 23, 1998, by Siemens Corporation and in favor of the Company. 20 "Sinking Fund" has the meaning specified in Section 8.2. "Sinking Fund Redemption Dates" has the meaning specified in Section 8.2. "Sinking Fund Requirements" has the meaning specified in Section 8.2. "Site" means the Facility site in South Lebanon Township, Lebanon County, Pennsylvania, as further described in the Mortgage. "Special Record Date" for the payment of any defaulted principal or interest means a date fixed by the Trustee pursuant to Section 2.10. "Stated Maturity," when used with respect to any Bond or any installment of principal thereof or payment of interest thereon, means the date specified in such Bond as the fixed date on which such Bond or such installment of principal or payment of interest is due and payable. "Subordinated Debt" means all Debt of the Company issued by a Subordinated Debt Provider pursuant to a Subordinated Loan Agreement and subordinated in right of payment to the Bonds in accordance with the terms of the Collateral Agency Agreement. "Subordinated Debt Provider" means any Person (other than an Affiliate of the Company) providing Subordinated Debt pursuant to a Subordinated Loan Agreement. "Subordinated Loan Agreement" means a binding agreement with a Subordinated Debt Provider providing nonrecourse debt financing to the Company for application toward the payment of Project Costs or Operating and Maintenance Costs on terms and conditions which meet the requirements of the Collateral Agency Agreement. "Term Expiration Date" has the meaning specified in Section 6.3(e). "Third-Party Engineer" has the meaning specified in the Collateral Agency Agreement. "Total Debt" means, collectively, (i) Senior Debt, (ii) Subordinated Debt and (iii) any other Debt permitted under this Indenture and incurred by the Company. "Total Debt Service" means, for any period, an amount calculated by the Company as equal to the aggregate of (i) all amounts payable by the Company during such period in respect of Senior Debt Service, (ii) all amounts payable by the Company during such period in respect of principal of, and interest on, and premium, if any, on Subordinated Debt and any other Debt permitted under this Indenture and incurred by the Company and (iii) all amounts payable by the Company during such period as fees and other expenses (including any interest thereon) to any fiduciary acting in such capacity with respect to any Debt referred to in clause (ii) of this definition. "Total Debt Service Coverage Ratio" means for any period, the ratio of (i) Cash Available for Debt Service for such period to (ii) the amount of Total Debt Service due and payable for such period. 21 "Transaction Documents" means the Project Contracts and the Financing Documents. "Trustee" has the meaning specified in the preamble of this Indenture until a successor Trustee shall have become Trustee pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" means such successor Trustee. "Trustee Claims" means all obligations of the Company, now or hereafter existing, to pay fees, costs, expenses (including fees and expenses of counsel), liabilities or indemnities to the Trustee under this Indenture. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York and any other jurisdiction the laws of which control the creation or perfection of security interests under the Security Documents. "United States" or "U.S." means the United States of America. "Williams Guaranty" means the Guaranty, dated as of February 5, 1999, by the PPA Guarantor in favor of the Company. "Year 2000 Problem" means any significant risk that computer hardware, software or equipment containing embedded microchips essential to the Company's business or operations will not, in the case of dates or periods occurring after December 31, 1999, function at least as effectively and reliably as in the case of dates or time periods occurring before January 1, 2000, including the making of accurate leap year calculations. SECTION 1.2 Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate (upon which the Trustee may conclusively rely to take such requested action) stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel (upon which the Trustee may conclusively rely to take such requested action) stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 22 (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3 Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. The Trustee may conclusively presume that all matters required to take action have been covered by such certificates and opinions delivered at one time. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows or has reason to believe that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company, stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows that the certificate or opinion or representations with respect to such matters are erroneous. Any Opinion of Counsel stated to be based on the opinion of other counsel shall be accompanied by a copy of such other opinion. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4 Acts of Bondholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by any Bondholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Bondholders in person or by an agent duly appointed in writing or, alternatively, may be embodied in and evidenced by the record of such Bondholders voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of such Bondholders duly called and held in accordance with the provisions of Article XIV, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record, or both are delivered to the Trustee. 23 Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Bondholders signing such instrument or instruments and so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 10.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.4. The record of any meeting of any Bondholders shall be proved in the manner provided in Section 14.6. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction authorized to take acknowledgments of deeds or administer oaths that the Person executing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or other such officer, and where such execution is by an officer of a corporation or association or a member of a partnership, on behalf of such corporation, association or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The principal amount and serial numbers of Bonds held by any Person, and the date or dates of holding the same, shall be proved by the Security Register, and the Trustee shall not be affected by notice to the contrary. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by any Bondholder shall bind such Bondholder of every Bond issued upon the transfer thereof or in exchange therefor or in lieu thereof, whether or not notation of such action is made upon such Bond. (e) Until such time as written instruments shall have been delivered with respect to the requisite percentage of principal amount of Bonds for the action contemplated by such instruments, any such instrument executed and delivered by or on behalf of any Bondholder may be revoked with respect to any or all of such Bonds by written notice by such Bondholder or any subsequent Bondholder, proven in the manner in which such instrument was proven. (f) Bonds of any series authenticated and delivered after any Act of any Bondholder may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any action taken by such Act of such Bondholder. If the Company shall so determine, new Bonds of any series so modified as to conform, in the opinion of the Company, to such action may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Bonds of such series. SECTION 1.5 Notices, etc. to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of any Bondholder or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, 24 (a) the Trustee by any Bondholder, by the Company or by an Authorized Agent shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with a Responsible Officer of the Trustee at its Corporate Trust Office, or (b) the Company by the Trustee, by any Bondholder or by an Authorized Agent shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company for such purpose. SECTION 1.6 Notices to Bondholders; Waiver. Where this Indenture provides for notice to the Bondholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Bondholder, at its address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by any Bondholder shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In any case where notice to the Bondholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Bondholder shall affect the sufficiency of such notice with respect to other Bondholders, and any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given. SECTION 1.7 Effect of Heading and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.8 Successors and Assigns. All covenants, agreements, representations and warranties in this Indenture by the Trustee and the Company shall bind and, to the extent permitted hereby, shall inure to the benefit of and be enforceable by their respective successors and assigns, whether so expressed or not. SECTION 1.9 Severability. In case any provision in this Indenture or in the Bonds shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 25 SECTION 1.10 Benefits of Indenture. Nothing in this Indenture or in the Bonds, expressed or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Bondholders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.11 Governing Law. THIS INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK EXCEPT THAT SUCH LAWS SHALL NOT APPLY WITH RESPECT TO (I) ANY COLLATERAL WHERE IT IS NECESSARY TO APPLY THE LAWS OF ANOTHER JURISDICTION TO PERFECT LIENS RELATING TO DEBT ISSUED HEREUNDER OR (II) ENFORCEMENT OF REMEDIES UPON COLLATERAL LOCATED IN ANOTHER JURISDICTION OR (III) ENVIRONMENTAL MATTERS GOVERNED BY THE LAWS OF ANOTHER JURISDICTION. SECTION 1.12 Legal Holidays. In any case where the Redemption Date, Prepayment Date or the Stated Maturity of any Bond or of any installment of principal thereof or payment of interest thereon, or any date on which any defaulted interest is proposed to be paid, shall not be a Business Day, then (notwithstanding any other provision of this Indenture or such Bond) payment of interest and/or principal, and premium, if any, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Redemption Date, Prepayment Date or at the Stated Maturity, or on the date on which the defaulted interest is proposed to be paid, and, except as provided in the Series Supplemental Indenture setting forth the terms of such Bond, if such payment is timely made, no interest shall accrue for the period from and after such Redemption Date, Prepayment Date or Stated Maturity, or date for the payment of defaulted interest, as the case may be, to the date of such payment. 26 SECTION 1.13 Execution in Counterparts. This instrument may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. ARTICLE II THE BONDS SECTION 2.1 Form of Bond to Be Established by Series Supplemental Indenture. The Bonds of each series shall be substantially in the form (not inconsistent with this Indenture, including Section 2.5 hereof) established in the Series Supplemental Indenture relating to the Bonds of such series. SECTION 2.2 Form of Trustee's Authentication. The Trustee's certificate of authentication on all Bonds shall be in substantially the following form: This Bond is one of the Bonds referred to in the within-mentioned Indenture. [____________________________________________________________], as Trustee By ____________________________________________________________ Authorized Officer SECTION 2.3 Amount Unlimited; Issuable in Series; Limitations on Issuance. The aggregate principal amount of Bonds that may be authenticated and delivered under this Indenture is unlimited. The Bonds may be issued in one or more series. There shall be established in one or more Series Supplemental Indentures, prior to the issuance of Bonds of any series: (a) the title of the Bonds of such series (which shall distinguish the Bonds of such series from all other Bonds) and the form or forms of Bonds of such series; (b) any limit upon the aggregate principal amount of the Bonds of such series that may be authenticated and delivered under this Indenture (except for Bonds authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Bonds of such series pursuant to Section 2.7, 2.8, 2.9 or 7.6 and except for Bonds that, pursuant to Section 2.4 hereof, are deemed never to have been authenticated and delivered hereunder); (c) the date or dates on which the principal of the Bonds of such series is payable, the amounts of principal payable on such date or dates and the Regular Record Date for the 27 determination of Bondholders to whom principal is payable; and the date or dates on or as of which the Bonds of such series shall be dated, if other than as provided in Section 2.13; (d) the rate or rates at which the Bonds of such series shall bear interest, or the method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue, the interest payment dates on which such interest shall be payable (which such interest payment dates shall be the Interest Payment Dates specified herein if such securities are to enjoy the benefits of the Debt Service Reserve Account) and the Regular Record Date for the determination of Bondholders to whom interest is payable, and the basis of computation of interest, if other than as provided in Section 2.13(b); (e) if other than as provided in Section 10.14(a), the place or places where (i) the principal of, premium, if any, and interest on Bonds of such series shall be payable, (ii) Bonds of such series may be surrendered for registration of transfer or exchange and (iii) notices and demands to or upon the Company in respect of the Bonds of such series and this Indenture may be served; (f) the price or prices at which, the period or periods within which and the terms and conditions upon which Bonds of such series may be redeemed, in whole or in part, at the option of the Company; (g) the obligation, if any, of the Company to redeem, purchase or prepay Bonds of such series pursuant to any sinking fund or analogous provisions or at the option of a Bondholder thereof and the price or prices at which, the period or periods within which and the terms and conditions upon which Bonds of such series shall be redeemed, purchased or prepaid, in whole or in part, pursuant to such obligations; (h) if other than denominations of $100,000 and integral multiples of $1,000 in excess thereof, the denominations in which Bonds of such series shall be issuable; (i) any other terms of such series (which terms shall not be inconsistent with the provisions of this Indenture); and (j) any trustees, authenticating or paying agents, warrant agents, transfer agents or registrars with respect to the Bonds of such series. SECTION 2.4 Authentication and Delivery of Bonds. Subject to Section 2.3 and Section 6.17, at any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Bonds of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Bonds, and the Trustee shall thereupon authenticate and make available for delivery such Bonds in accordance with such Company Order, without any further action by the Company. No Bond shall be secured by or entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Bond a certificate of authentication, in the form provided for herein, executed by the Trustee by the 28 manual signature of an Authorized Officer, and such certificate upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly authenticated and delivered hereunder. In authenticating such Bonds and accepting the additional responsibilities under this Indenture in relation to such Bonds, the Trustee shall be entitled to receive, and (subject to Section 10.l(a)(ii)) shall be fully protected in relying upon: (a) an executed Series Supplemental Indenture with respect to the Bonds of such series; (b) an Officer's Certificate of the Company certifying (i) as to resolutions of the Company by or pursuant to which the terms of the Bonds of such series were established, (ii) that all conditions precedent under this Indenture to the Trustee's authentication and delivery of such Bonds have been complied with and (iii) as to the incumbency of the persons named in such certificate; (c) an Opinion of Counsel to the effect that (i) the form or forms and the terms of such Bonds have been established by a Series Supplemental Indenture as permitted by Sections 2.1 and 2.3 of this Indenture, and (ii) the Bonds of such series, when authenticated and made available for delivery by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, shall constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as such enforceability (A) may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other similar laws affecting the enforcement of creditors' rights and remedies generally and (B) is subject to general principles of equity (regardless of whether considered in a proceeding in equity or at law); and (d) such other documents and evidence with respect to the Company as the Trustee may reasonably request. Notwithstanding the foregoing, if any Bond shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Bond to the Trustee for cancellation as provided in Section 2.12 together with a written statement (which need not comply with Section 1.2 and need not be accompanied by an Opinion of Counsel) stating that such Bond has never been issued and sold by the Company, for all purposes of this Indenture such Bond shall be deemed never to have been authenticated and delivered hereunder and shall never have been or be entitled to the benefits hereof. SECTION 2.5 Form and Denominations. Except to the extent they are in book-entry form, the Bonds of each series shall be in registered form and may have such letters, numbers or other marks of identification and such legends or endorsements printed, lithographed, engraved, typewritten or photocopied thereon, as may be required to comply with the rules of any securities exchange (if any) upon which the Bonds are to be listed or to conform to any usage in respect thereof, or as may, consistently herewith, be prescribed by the officers executing such Bonds, such determination by such officers to be evidenced by their signing the Bonds. 29 The definitive Bonds shall be printed, lithographed, engraved, typewritten, photocopied or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange, all as determined by the officers executing such Bonds, as evidenced by their execution of such Bonds. All Bonds of any one series shall be substantially identical except as to denomination and except as may otherwise be provided herein or in the Series Supplemental Indenture setting forth the terms of the Bonds of such series. All Bonds in book-entry form shall comply with the requirements of the clearing corporation or clearing agency with whom the registered form of such Bond will be deposited and the Series Supplemental Indenture relating to such Bonds shall set forth such requirements. SECTION 2.6 Execution of Bonds. The Bonds shall be executed on behalf of the Company by the Chief Executive Officer, President, Chief Financial Officer, one of the Vice Presidents or the Corporate Secretaries of the managing Member of the Company, with or without its corporate seal reproduced thereon. The signature of any such officers on the Bonds may be manual or facsimile. Bonds bearing the manual or facsimile signatures of individuals who were at the time such signatures were affixed the proper officers of the Company shall bind the Company notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Bonds or did not hold such offices at the date of such Bonds. SECTION 2.7 Temporary Bonds. Pending the preparation of definitive Bonds of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Bonds of such series that are printed, lithographed, typewritten, photocopied or otherwise produced, in any denomination, substantially of the tenor of the definitive Bonds in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Bonds may determine, as evidenced by their execution of such Bonds. If temporary Bonds of any series are issued, the Company shall cause definitive Bonds of such series to be prepared without unreasonable delay. After the preparation of definitive Bonds of such series, the temporary Bonds of such series shall be exchangeable for definitive Bonds of such series upon surrender of the temporary Bonds of such series at the Corporate Trust Office of the Trustee or at the Place of Payment, without charge to the Bondholder. Upon surrender for cancellation of any one or more temporary Bonds of any series, the Company shall execute and the Trustee shall authenticate and make available for delivery, in exchange therefor, definitive Bonds of such series of authorized denominations and of like tenor and aggregate principal amount. Until so exchanged, such temporary Bonds of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Bonds of such series. 30 SECTION 2.8 Registration, Transfer and Exchange. The Trustee shall cause to be kept at the Corporate Trust Office a register in which, subject to such reasonable regulations as the Company may prescribe, the Company shall provide for the registration of Bonds and for the registration of transfers and exchanges of Bonds. This register and, if there shall be more than one Security Registrar, the combined registers maintained by all such Security Registrars, are herein sometimes referred to as the "Security Register." Upon surrender for registration of transfer of any Bond of any series at the Corporate Trust Office, or at any office or agency maintained for such purpose pursuant to Section 10.14(a), the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Bonds of the same series, of authorized denominations and of like tenor and aggregate principal amount. At the option of the Bondholders, Bonds of any series may be exchanged for other Bonds of the same series, of authorized denominations and of like tenor and aggregate principal amount, upon surrender of the Bonds to be exchanged at any office or agency maintained for such purpose pursuant to Section 10.14(a). Whenever any Bonds are so surrendered for exchange, the Company shall execute, and the Trustee or a duly authorized authenticating agent shall authenticate and make available for delivery, the Bonds which the Bondholder making the exchange is entitled to receive. All Bonds issued upon any registration of transfer or exchange of Bonds shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same security and benefits under this Indenture, as the Bonds surrendered upon such registration of transfer or exchange. Every Bond presented or surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar or any transfer agent, duly executed by the Bondholder or his attorney duly authorized in writing. No service charge shall be required of any Bondholders participating in any transfer or exchange of Bonds in respect of such transfer or exchange, but the Security Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Bonds, other than exchanges pursuant to Section 2.7, 7.6 or 12.6 not involving any transfer. The Security Registrar shall not be required (i) to issue, register the transfer of or exchange any Bond of any series during a period (a) beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Bonds of such series selected for redemption under Section 7.2 or 8.2 and ending at the close of business on the day of such mailing and (b) beginning on the Regular Record Date for the Stated Maturity of any installment of principal of or payment of interest on the Bonds of such series and ending on the Stated Maturity of such installment of principal or payment of interest, or (ii) to issue, register the 31 transfer of or exchange any Bond so selected for redemption in whole or in part, except the unredeemed portion of any Bond selected for redemption in part. SECTION 2.9 Mutilated, Destroyed, Lost and Stolen Bonds. If (i) any mutilated Bond is surrendered to the Trustee or the Company, and the Security Registrar or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Bond, and (ii) there is delivered to the Company, the Security Registrar and the Trustee evidence to their satisfaction of the ownership and authenticity thereof, and such security or indemnity as may be required by them to save each of them harmless, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Bond, a new Bond of the same series and of like tenor and principal amount, bearing a number not then Outstanding. Notwithstanding the foregoing, in case any such mutilated, destroyed, lost or stolen Bond has become or is about to become due and payable, the Company, upon satisfaction of the conditions set forth in clauses (i) and (ii) of the immediately preceding paragraph may, instead of issuing a new Bond, pay such Bond. Upon the issuance of any new Bond under this Section 2.9, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Every new Bond issued pursuant to this Section 2.9 in lieu of any destroyed, lost or stolen Bond shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Bond shall be at any time enforceable by anyone, and shall be entitled to all the security and benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder. The provisions of this Section 2.9 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Bonds. SECTION 2.10 Payment of Principal and Interest, Principal and Interest Rights Preserved. Principal or interest on any Bond that is payable, and is punctually paid or duly provided for, at any Stated Maturity shall be paid to the Person in whose name that Bond (or one or more Predecessor Bonds) is registered at the close of business on the Regular Record Date for such principal or interest. Payment of principal of and interest on the Bonds of any series shall be made at the Corporate Trust Office of the Trustee or by check or in another manner or manners if so provided in the Series Supplemental Indenture creating the Bonds of such series. Any principal of or interest on any Bond of any series that is payable, but is not punctually paid or duly provided for, at any Stated Maturity of an installment of principal or payment of interest shall forthwith cease to be payable to the Bondholder on the relevant Regular 32 Record Date by virtue of having been such Bondholder to the extent that such defaulted principal or interest may be paid by the Company, at its election in each case, as provided in paragraph (a) or paragraph (b) below: (a) The Company may elect to make payment of all or any portion of such defaulted principal or interest to the Persons in whose names the Bonds of such series (or their respective Predecessor Bonds) in respect of which principal or interest is in default are registered at the close of business on a Special Record Date for the payment of such defaulted principal or interest, which shall be fixed in the following manner. The Company shall notify the Trustee and the Paying Agent in writing of the amount of defaulted principal or interest proposed to be paid on each Bond of such series and the date of the proposed payment, and concurrently there shall be deposited with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted principal or interest or there shall be made arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted principal or interest as provided in this paragraph. Thereupon the Trustee shall fix a Special Record Date for the payment of such defaulted principal or interest (together with other amounts payable with respect to such defaulted principal or interest) which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company and the Security Registrar of such Special Record Date and shall direct the Security Registrar to immediately provide notice of the proposed payment of such defaulted principal or interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Bondholder of a Bond of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such defaulted principal or interest and the Special Record Date therefor having been mailed as aforesaid, such defaulted principal or interest shall be paid to the Persons in whose names the Bonds of such series (or their respective Predecessor Bonds) are registered on such Special Record Date and shall no longer be payable pursuant to the following paragraph (b). (b) The Company may make, or cause to be made, payment of any defaulted principal or interest (together with other amounts payable with respect to such defaulted interest) in any other lawful manner not inconsistent with the requirements of any securities exchange (if any) on which the Bonds in respect of which principal or interest is in default may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this paragraph, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 2.10, each Bond delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Bond shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Bond, and each such Bond shall bear interest from whatever date shall be necessary so that neither gain nor loss in interest shall result from such registration of transfer, exchange or replacement. 33 SECTION 2.11 Persons Deemed Owners. Subject to Section 2.10, the Person in whose name any Bond is registered shall be deemed to be the owner of such Bond for the purpose of receiving payment of principal of, and premium, if any, and interest on, such Bond and for all other purposes whatsoever, whether or not such Bond be overdue, regardless of any notice to anyone to the contrary. SECTION 2.12 Cancellation. All Bonds surrendered for payment, redemption or registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee for cancellation. The Company may at any time deliver to the Trustee for cancellation any Bonds previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly canceled by the Trustee. No Bonds shall be authenticated in lieu of or in exchange for any Bonds canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Bonds held by the Trustee shall be destroyed and certification of their destruction delivered to the Company unless, by Company Request, the Company otherwise directs. SECTION 2.13 Dating of Bonds, Computation of Interest. (a) Except as otherwise provided in the Series Supplemental Indenture relating to the Bonds of a series, each Bond of such series shall be dated the date of its authentication. (b) Except as otherwise provided in the Series Supplemental Indenture relating to the Bonds of a series, interest on the Bonds of such series shall be computed on the basis of a 360-day year consisting of twelve 30-day months and, for any period shorter than a full month, on the basis of the actual number of days elapsed. SECTION 2.14 Source of Payments Limited; Rights and Liabilities of the Company. Except as otherwise specifically provided in this Indenture, all payments of principal and premium, if any, and interest to be made in respect of the Bonds and this Indenture shall be made only from the payments from the Project Accounts and the Collateral and the income and proceeds thereof received by the Trustee. Each Bondholder, by its acceptance of a Bond, agrees that recourse shall be limited in accordance with Section 15.1. 34 SECTION 2.15 Parity of Bonds. All Bonds of a series issued and Outstanding hereunder rank on a parity with each other Bond of the same series and with all Bonds of each other series and each Bond of a series shall be secured equally and ratably by this Indenture and the Security Documents with each other Bond of the same series and with all Bonds of each other series, without preference, priority or distinction of any one thereof over any other by reason of difference in time of issuance or otherwise, and each Bond of a series shall be entitled to the same benefits and security in this Indenture and the Security Documents as each other Bond of the same series and with all Bonds of each other series. SECTION 2.16 Allocation of Principal and Interest. Each payment of principal of and premium, if any, and interest on each Bond shall be applied, first, to the payment of accrued but unpaid interest on such Bond (as well as any interest on overdue principal or, to the extent permitted by applicable Applicable Law, overdue interest) to the date of such payment, second, to the payment of the principal amount of and premium, if any, on such Bond then due (including any overdue installment of principal) thereunder, and third, the balance, if any, to the payment of the principal amount of such Bond remaining unpaid. SECTION 2.17 Monies Unclaimed. Any monies paid by the Company to the Trustee for any payments with respect to the Bonds that remain unclaimed for two years will be repaid to the Company, and thereafter the Bondholder will look only to the Company for payments thereof as an unsecured creditor, and the Company shall not be liable to pay any taxes or other duties in connection with such payment; provided, however, that unless otherwise provided by Applicable Law, the right to receive payment of principal and interest on any Bond (whether at maturity, redemption or otherwise) will become void at the end of five (5) years from the date on which the right to receive payment arose (or such shorter period as may be prescribed by Applicable Law). ARTICLE III REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Trustee as follows: SECTION 3.1 Organization, Power and Status of the Company. The Company is (i) a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware and (ii) duly authorized to do business in each jurisdiction where the nature of its activities makes such qualification necessary. The Company has not engaged in any business or activity other than in connection with the development, acquisition, construction, ownership, operation and financing of the Facility as contemplated by the Transaction Documents to which the Company is a party. The Company has all requisite 35 corporate power and authority to own and operate the property it purports to own and to carry on its business as now being conducted and as proposed to be conducted in respect of the Facility. SECTION 3.2 Authorization, Enforceability, Execution and Delivery. (a) The Company has all necessary power and authority to execute, deliver and perform its obligations under the Transaction Documents executed on or prior to the date of original issuance of the Bonds hereunder and to which it is a party. (b) All action on the part of the Company that is required for the authorization, execution, delivery and performance of the Transaction Documents to which the Company is a party, in each case has been duly and effectively taken; and the execution, delivery and performance of the Transaction Documents does not require the approval or consent of any holder or trustee of any Debt or other obligations of the Company or of any contractual counterparty, which has not been obtained. (c) Each Transaction Document to which the Company is a party has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against it in accordance with the terms thereof, except as such enforceability (i) may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting the enforcement of creditors' rights and remedies generally and (ii) is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). SECTION 3.3 No Conflicts; Applicable Laws and Contracts; No Default. (a) Neither the execution, delivery and performance of this Indenture and each other Transaction Document to which the Company is a party nor the consummation of any of the transactions contemplated hereby or thereby nor performance of or compliance with the terms and conditions hereof or thereof (i) contravenes any Applicable Law or Governmental Approval or order, writ or injunction of any court or other Governmental Authority applicable to the Company or any of the Collateral, (ii) constitutes a default under or results in the violation of the Company's certificate of formation or operating agreement or any other material contract to which the Company is a party or by which it or any of its assets is bound, or (iii) results in the creation or imposition of any Liens (other than Permitted Liens) on any of the Collateral, or results in the acceleration of any obligation, hereunder or under the Transaction Documents. (b) The Company and the Facility are in compliance with and not in default under any and all Governmental Approvals applicable to the Company or the Facility and all terms and provisions of all Transaction Documents to which the Company is a party, unless such noncompliance or such default could not reasonably be expected to result in a Material Adverse Effect. (c) The Company has not given or received any notice of default under any executed Transaction Document, and each executed Transaction Document, to the best of the Company's 36 knowledge, is in full force and effect. The Company is not in default under any executed Transaction Document where such Default could reasonably be expected to have a Material Adverse Effect. SECTION 3.4 Governmental Approvals. All Governmental Approvals which are required to be obtained as of the Closing Date in the name of the Company in connection with (i) the construction, operation and maintenance of the Facility and (ii) the execution of the Bonds and the execution, delivery and performance by the Company of the Transaction Documents have been duly obtained or made, were validly issued and are in full force and effect. All such Governmental Approvals are set forth in Part I of Schedule 3.4. The Company is in compliance with all Government Approvals required to be obtained as of the Closing Date unless such noncompliance could not reasonably be expected to result in a Material Adverse Effect. The Company does not have any reason to believe that it will be unable to obtain the required Governmental Approvals that are not required to be obtained prior to the Closing Date, which Governmental Approvals are set forth in Part II of Schedule 3.4, in the ordinary course of business and at such time or times and containing such terms as may be necessary to avoid any substantial delay in, or material impairment to, the consummation and performance of the transactions as contemplated by the Transaction Documents. SECTION 3.5 Litigation. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or to the best of the Company's knowledge, threatened against the Company, any property or other assets or rights of the Company with respect to this Indenture, any other Transactions Documents or the Facility that, if determined adversely to the Company, could reasonably be expected to result in a Material Adverse Effect. SECTION 3.6 Collateral. The Company has, or has valid and enforceable rights to acquire, (i) good title to the interests in the Site, any other real property or fixtures and (ii) good title or a valid leasehold rights to the tangible personal property, in each case, forming a part of the Collateral purported to be covered by the Security Documents subject only to Permitted Liens. SECTION 3.7 Taxes. The Company has filed, or caused to be filed, all tax and information returns that are required to have been filed by it in any jurisdiction, and has paid all taxes shown to be due and payable on such returns and all other taxes and assessments payable thereunder, to the extent the same have become due and payable, except to the extent there is a Good Faith Contest thereof by the Company. 37 SECTION 3.8 Environmental Matters. The Company and the Site are in compliance with all applicable Environmental Laws affecting the Site or the Facility, the noncompliance with which could reasonably be expected to result in a Material Adverse Effect, and, to the Company's knowledge, there are no environmental conditions which could reasonably be expected to materially interfere with the construction or commercial operation of the Facility or adversely affect the Lien of the Collateral Agent thereon. SECTION 3.9 Compliance with Applicable Law. The Company and its officers, directors, employees, agents and all Affiliates acting on their behalf, are in compliance in all material respects with all Applicable Law, in respect of the conduct of the Company's business and the ownership of its property. SECTION 3.10 Security Documents. The provisions of the Security Documents are effective to create, in favor of the Trustee and the Collateral Agent, a legal, valid and enforceable Lien on all of the property, assets and revenues described therein to the extent a security interest may be created therein under Applicable Law and all necessary and appropriate recordings, registrations and filings have been made in all appropriate public offices, and all other necessary and appropriate action has been taken so that each such Security Document creates an effective Lien with respect to the property, assets and revenues covered thereby to the extent a security interest may be created therein under Applicable Law, prior and superior to all other Liens except for Permitted Liens, and all necessary and appropriate Governmental Approvals and consents to the creation, effectiveness, priority and enforcement of such Liens have been obtained from each of the parties to the Transaction Documents and the relevant Governmental Authorities. SECTION 3.11 Utility Regulation; EWG Status. (a) Neither the Company nor the Trustee shall, solely by reason of (i) the ownership, construction, operation and maintenance of the Facility by the Company, (ii) the issuance of the Bonds, or (iii) any other transaction contemplated by the Transaction Documents, be deemed by any Governmental Authority having jurisdiction to be subject to financial, organizational or rate regulation as an "electric utility", "electric corporation", "electrical company", "public utility", "public utility holding company" or any similar entity under any existing Applicable Law. (b) The Company is an "exempt wholesale generator" under Section 32(a) of PUHCA. SECTION 3.12 Investment Company Act. Upon issuance of the Bonds, the Company will not be subject to regulation as an "investment company" under the Investment Company Act of 1940. 38 SECTION 3.13 ERISA and Employees. The Company does not sponsor, maintain, administer, contribute to, participate in, or have any obligation to contribute to or any liability under, any employee benefit plan within the meaning of Section 3(3) of ERISA nor since the date which is six (6) years immediately preceding the Closing Date has the Company established, sponsored, maintained, administered, contributed to, participated in, or had any obligation to contribute to or liability under, any such plan. SECTION 3.14 Subsidiaries. The Company has no subsidiaries. SECTION 3.15 Certificates. Any statements made by the Company in any certificates delivered by the Company under any of the Financing Documents shall constitute a representation and warranty by the Company made as of the date such certificate is delivered. ARTICLE IV ACCOUNTS SECTION 4.1 Establishment of Accounts. (a) The Trustee hereby confirms that it has established with the Depositary Bank at its office at the address listed in the preamble to this Indenture the following special, segregated accounts (the "Indenture Accounts"): (i) Bond Proceeds Account; (ii) Bond Payment Account; and (iii) Construction Interest Account. (b) The Trustee hereby confirms that it has established with the Depositary Bank at its office at the address set forth in the preamble to this Indenture the following subaccounts to the Bond Payment Account: (i) Interest Payment Subaccount; (ii) Principal Payment Subaccount; and (iii) Redemption Subaccount. 39 All amounts from time to time held in each Indenture Account shall be held (x) in the name of the Trustee subject to the lien and security interest granted under this Indenture or certain of them as set forth herein and (y) in the custody of the Depositary Bank for and on behalf of the Trustee for the purposes and on the terms set forth in this Indenture. SECTION 4.2 Investment of Funds in the Indenture Accounts. (a) Amounts deposited in the Indenture Accounts (and each subaccount thereof) and each other account or fund created hereunder (unless expressly stated otherwise), at the written request and direction of the Company, shall be invested by the Trustee in Permitted Investments upon written instructions from the Company. Such investments shall mature in such amounts and not later than such times as may be necessary to provide funds when needed to make payments from such funds as provided in this Indenture. Net interest or gain received from such investments shall be applied as provided in this Indenture. (b) So long as an outstanding balance shall remain in the Indenture Accounts or any other account or fund created hereunder, the Trustee shall provide the Company with statements by the tenth (10th) Business Day of each month showing the amount of all receipts, the net investment income or gain received and collected, all disbursements and the amount then available as of the last Business Day of the prior calendar month in the Indenture Accounts (and each subaccount thereof) and each other account or fund created hereunder. The Depositary Bank agrees to provide the Trustee with such information as it may reasonably have available to it in order to permit the Trustee to provide such statements in accordance with the requirements of this Indenture. SECTION 4.3 Valuation and Sale of Investments. (a) Obligations purchased as an investment of funds in any Indenture Account or any other separate account or fund created under the provisions of this Indenture shall be deemed at all times to be a part of such account or fund and, unless otherwise specified herein, any profit realized from the liquidation of such investment shall be credited to such Indenture Account or such other separate account or fund created hereunder, and any loss resulting from the liquidation of such investment shall be charged to the respective Indenture Account or such other separate account or fund. (b) The Trustee shall determine the value of all investments in any of the Indenture Accounts as of the last Business Day of each month, with any deficit in any account balance to be funded from Project Revenues in accordance with this Section 4.3, and any investments valued in excess of the amounts required to be on deposit in an account shall be liquidated and the amount of such excess shall be deposited in the Bond Payment Account for application in accordance with Section 5.2. (c) In computing the amount of any funds in any Indenture Account, or other separate account or fund created under the provisions of this Indenture for any purpose provided in this Indenture, obligations purchased as an investment of funds therein shall be valued at the market value of such obligations, exclusive of accrued interest; provided, however, if there is no readily 40 determinable market value for such obligations, the value of such obligations shall be determined with reference to the acquisition price of such obligations, plus accrued but unpaid interest. (d) The Depositary Bank agrees to provide the Trustee with such information as it may reasonably have available to it in order to permit the Trustee to make such determinations and transfers as may be required by this Section 4.3. SECTION 4.4 Possession of Accounts; Liquidation. (a) Each of the Indenture Accounts shall at all times be in the exclusive possession of the Depositary Bank acting for and on behalf of the Trustee. (b) If an Event of Default shall have occurred and be continuing, the Trustee shall to the extent permitted by law promptly liquidate all amounts in the Indenture Accounts and all related investments and distribute all such monies so received in accordance with Section 9.11. SECTION 4.5 The Depositary Bank; Limited Company Rights. (a) The Depositary Bank. (i) Establishment of Securities Accounts. The Depositary Bank hereby agrees and confirms that (A) the Depositary Bank has established the Indenture Accounts as set forth in Section 4.1, (B) each Indenture Account is and will be maintained as a "securities account" (within the meaning of Section 8-501 of the UCC), (C) the Trustee is the "entitlement holder" (within the meaning of Section 8-102(a)(7) of the UCC) in respect of the "financial assets" (within the meaning of Section 8-102(a)(9) of the UCC) credited to the Indenture Accounts, (D) all property delivered to the Depositary Bank pursuant to the Transaction Documents or this Agreement will be held by the Depositary Bank and promptly credited to an Indenture Account by an appropriate entry in its records in accordance with this Agreement, (E) all "financial assets" (within the meaning of Section 8-102(a)(9) of the UCC) in registered form or payable to or to the order of and credited to any Indenture Account shall be registered in the name of, payable to or to the order of, or endorsed to, the Trustee or in blank, or credited to another securities account maintained in the name of the Trustee, and in no case will any financial asset credited to any Indenture Account be registered in the name of, payable to or to the order of, or endorsed to, the Company except to the extent the foregoing have been subsequently endorsed by the Company to the Depositary Bank or in blank and (F) the Depositary Bank shall not change the name or account number of any Indenture Account without the prior written consent of the Trustee. (ii) Financial Assets Election. The Depositary Bank agrees that each item of property (excluding cash, but including any security, instrument or obligation, share, participation, interest or other property whatsoever) credited to any Indenture Account shall be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the UCC. 41 (iii) Entitlement Orders. If at any time the Depositary Bank shall receive any "entitlement order" (within the meaning of Section 8-102(a)(8) of the UCC) or any other order from the Trustee acting in accordance with this Agreement directing the transfer or redemption of any financial asset relating to the Indenture Accounts, the Depositary Bank shall comply with such entitlement order or other order without further consent by the Company or any other Person. The parties hereto hereby agree that the Trustee shall have "control" (within the meaning of Section 8-106(d) of the UCC) of the Trustee's "security entitlement" (within the meaning of Section 8-102(a)(17) of the UCC) with respect to the financial assets credited to the Indenture Accounts and the Depositary Bank hereby disclaims any entitlement to claim "control" of such "security entitlement". (iv) Subordination of Lien; Waiver of Set-off. If the Depositary Bank has or subsequently obtains by agreement, operation of law or otherwise a lien or security interest in any Indenture Account or any security entitlement credited thereto, the Depositary Bank agrees that such lien or security interest shall be subordinate to the lien and security interest of the Trustee. The financial assets standing to the credit of the Indenture Accounts will not be subject to deduction, set-off, banker's lien, or any other right in favor of any Person other than the Trustee in its capacity as such (except that the face amount of any checks which have been credited to any Indenture Account but are subsequently returned unpaid because of uncollected or insufficient funds). (v) No Other Agreements. The Depositary Bank and the Company have not entered into any agreement with respect to the Indenture Accounts or any financial assets credited to any Indenture Account other than this Agreement and the other Security Documents. The Depositary Bank has not entered into any agreement with the Company or any other Person purporting to limit or condition the obligation of the Depositary Bank to comply with entitlement orders originated by the Trustee in accordance with this Section 4.5. In the event of any conflict between this Section 4.5 or any other Security Document or any other agreement now existing or hereafter entered into, the terms of this Section 4.5 shall prevail. (vi) Notice of Adverse Claims. Except for the claims and interest of the Trustee and the Company in each of the Indenture Accounts, the Depositary Bank does not know of any claim to, or interest in, any Indenture Account or in any financial asset credited thereto. If any Person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against any Indenture Account or in any financial asset credited thereto, the Depositary Bank will promptly notify the Trustee and the Company thereof. (vii) Rights and Powers of the Depositary Bank. The rights and powers granted by the Trustee to the Depositary Bank have been granted in order to perfect its lien and security interests in the Indenture Accounts, are powers coupled with an interest and will neither be affected by the bankruptcy of the Trustee nor the lapse of time. 42 (viii) Choice of Applicable Law. Both this Agreement and each Indenture Account (including all security entitlements relating thereto) shall be governed by the law of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, the "securities intermediary's jurisdiction" of the Depositary Bank with respect to the Indenture Accounts is the State of New York. (b) Limited Company Rights. The Company shall not have any rights against or to monies held in the Indenture Accounts, as third-party beneficiary or otherwise or any right to direct the Depositary Bank or the Trustee to apply or transfer monies in any Indenture Account, except the right to direct the investment of monies held in the Indenture Accounts as permitted by Section 4.2 of this Agreement. Except as expressly provided in this Agreement, in no event shall any amounts or Permitted Investments deposited in or credited to any Indenture Account be registered in the name of the Company, payable to the order of the Company or specially endorsed to the Company, except to the extent that the foregoing have been specially endorsed to the Trustee or in blank. ARTICLE V COLLECTION AND APPLICATION OF FUNDS IN THE INDENTURE ACCOUNTS SECTION 5.1 Bond Proceeds Account. The Trustee shall deposit the net proceeds of the issuance of the Bonds into the Bond Proceeds Account prior to transferring such proceeds to the Construction Interest Account in amounts specified by the Company on the Closing Date. Such transfer shall be accomplished pursuant to written instruction substantially in the form of Exhibit 5.1. After giving effect to such transfer, on the Closing Date the Trustee shall transfer all amounts remaining in the Bond Proceeds Account to the Collateral Agent for deposit in the Construction Account. SECTION 5.2 Bond Payment Account. The Trustee shall deposit (i) all funds held in the Bond Payment Account and all funds received by it for the payment of interest on the Bonds into the Interest Payment Subaccount for disbursement in accordance with Section 5.3(a) and (ii) all funds received by it for the payment of principal on the Bonds (including any funds transferred from the Redemption Subaccount pursuant to Section 5.3(c)) into the Principal Payment Subaccount for disbursement in accordance with Section 5.3(b). SECTION 5.3 Interest Payment Subaccount, Principal Payment Subaccount and Redemption Subaccount. (a) The Trustee is hereby authorized and directed to disburse from the Interest Payment Subaccount, the amount required to pay interest on the Bonds when due (whether on an Interest Payment Date or upon call for redemption or by acceleration or otherwise). 43 (b) The Trustee is hereby authorized and directed to disburse from the Principal Payment Subaccount, the amount required to pay principal on the Bonds when due (whether on a Principal Payment Date or upon call for redemption or by acceleration or otherwise). (c) The Trustee is hereby authorized and directed to disburse funds from the Redemption Subaccount (when amounts on deposit therein equal or exceed $5,000,000) for the redemption of Bonds in accordance with Section 7.3. The foregoing notwithstanding, the Trustee shall transfer funds remaining in the Redemption Subaccount for more than one (1) year and not applied to the redemption of Bonds pursuant to this Section and Section 7.3 to the Principal Payment Subaccount for application by the Trustee in accordance with Section 5.3(b). SECTION 5.4 Construction Interest Account. (a) The Trustee shall deposit all funds received by it for the payment of interest on the Bonds from and including the Closing Date to and through the Commercial Operation Date into the Construction Interest Account. (b) The Trustee is hereby authorized and directed to disburse from the Construction Interest Account the amount required to pay interest on the Bonds when due (whether on an Interest Payment Date or upon call for redemption or by acceleration or otherwise). (c) On the Commercial Operation Date and upon the Company's delivery to the Collateral Agent and the Trustee of the Commercial Operation Certificate specified in Section 3.9 of the Collateral Agency Agreement, the Trustee shall transfer all monies remaining in the Construction Interest Account to the Bond Payment Account for deposit in the Interest Payment Subaccount. (d) If on any date prior to an Interest Payment Date there are insufficient funds to pay interest due on such Interest Payment Date, the Trustee shall give written notice to the Collateral Agent to such effect and requesting the transfer of funds in an amount sufficient to pay such interest coming due. ARTICLE VI COVENANTS SECTION 6.1 Payment of Principal, Premium, if any, and Interest. The Company shall duly and punctually pay, or cause to be paid, the principal of, premium, if any, and interest on, and all other amounts payable in respect of, the Bonds of each series in accordance with their terms and the terms of this Indenture and of the related Series Supplemental Indenture. 44 SECTION 6.2 Insurance. (a) The Company shall maintain or cause to be maintained insurance coverages meeting the requirements of Schedule 6.2. If at any time any of the required insurance shall no longer be available on commercially reasonable terms (as confirmed by the Independent Insurance Advisor), the Company shall procure substitute insurance coverage reasonably satisfactory to the Independent Insurance Advisor that is the most equivalent to the required coverage and that is available on commercially reasonable terms. (b) The Company shall obtain title insurance in an amount equal to the principal amount of the Senior Debt. (c) Within 30 days after any officer of the Company obtains knowledge of any occurrence which has or might reasonably be expected to result in any: (i) premium increase in excess of 10% over the applicable cost for any such insurance coverages; or (ii) any cancellation, reduction, non-renewal or material alteration of any such required insurance a report describing such occurrences and the potential insurance-related impact thereof. SECTION 6.3 Reporting Requirements. The Company shall furnish to the Senior Parties: (a) as soon as practicable and in any event within 60 days after the end of the first, second and third quarterly accounting periods of each fiscal year of the Company (commencing with the quarter ending September 30, 1999), an unaudited balance sheet of the Company as of the last day of such quarterly period and the related statements of income and cash flows, and reports of all dividends and other distributions paid to owners during such quarterly period prepared in accordance with GAAP and (in the case of second and third quarterly periods) for the portion of the fiscal year ending with the last day of such quarterly period, setting forth in each case in comparative form corresponding unaudited figures from the preceding fiscal year and accompanied by a written statement of an Authorized Representative of the Company to the effect that such financial statements fairly represent the Company's financial condition and results of operations at and as of their respective dates; (b) as soon as practicable and in any event within one hundred-twenty (120) days after the end of each fiscal year of the Company (commencing with the fiscal year ended December 31, 1999), a balance sheet of the Company as of the end of such year and the related statements of income and cash flow during such year setting forth in each case in comparative form corresponding figures from the preceding fiscal year, accompanied by an audit report thereon of a firm of independent public accountants of recognized national standing; (c) at the time of the delivery of the financial statements provided for in clause (a) and (b) above, an Officer's Certificate to the effect that, to the best of such officer's knowledge, (i) the Company is in compliance with all of its material obligations under the terms of the Transaction Documents the non-performance of which has resulted or could reasonably be expected to result in a Material Adverse Effect and (ii) to the best of such officer's knowledge, 45 no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof and what action the Company is taking or proposes to take in response thereto; and (d) each of the following items: (i) promptly after the Company obtains actual knowledge of the occurrence thereof, written notice of the occurrence of any event or condition which constitutes an Event of Default and an Officer's Certificate of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (ii) promptly after the Company obtains actual knowledge of any proceeding, legislation or proposal by any Governmental Authority to acquire compulsorily the Company, all or any portion of the Collateral or a material part of the Company's business or assets or the occurrence thereof, written notice of the occurrence of any Event of Eminent Domain or any event that has caused or could cause the Company to incur a casualty or loss exceeding $100,000 or any Event of Loss and an Officer's Certificate of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (iii) until the occurrence of the Commercial Operation Date, within forty-five (45) days after the end of each fiscal quarter of the Company (commencing with its quarter ending September 30, 1999), a quarterly construction report describing the progress of the Facility's construction and expenditure of funds, including any material problems encountered during the engineering, procurement and construction; provided, that, if any events, conditions or circumstances occur or exist which affect the matters covered in the construction report, which has had or would reasonably be expected to have a Material Adverse Effect, and until the effects of any such events, conditions or circumstances are cured, the Company shall, if requested to do so by any Senior Party, deliver prompt information with respect to such events, conditions or circumstances on a monthly basis; (iv) any litigation, arbitration or governmental proceeding pending or threatened against the Company or any substantial dispute with any Governmental Authority or any party to any Transaction Document (x) involving a claim or claims in excess of $250,000 individually or $1,000,000 in the aggregate or (y) which could reasonably be expected to have a Material Adverse Effect; (v) any material notice or correspondence received or initiated by the Company, other than notices or correspondence received or initiated in the ordinary course of business, relating to a Transaction Document, Governmental Approval or other license or authorization necessary for the performance by the Company of its obligations under the Transaction Documents; 46 (vi) promptly after the Company obtains actual knowledge of any one or more events, conditions or circumstances which has had or could reasonably be expected to have (i) a Material Adverse Effect or (ii) that permits, or, with the passage of time would, excuse performance by the Company or Contractor on account of (x) a Force Majeure condition as defined in and under the PPA or (y) a Force Majeure Event as defined in and under the EPC Contract; and (vii) promptly after the Company's receipt thereof, a copy of any management letter or other similar communication received by the Company from its Auditors in relation to the Company's financial, accounting and other systems, management or accounts. (e) The Company shall furnish or cause to be furnished to the Senior Parties no later than six (6) months prior to the expiration of the term of the Power Purchase Agreement (the "Term Expiration Date"), a report (an "Independent Forecast") prepared by an independent consultant which sets forth projections of (A) electricity prices for the PJM market (or if such market no longer exists at such time, any successor market or substitute market as determined in good faith by the Company which approximates, to the extent practicable, such region) and (B) gas prices on a delivered basis to the Facility, in each case on at least an annual basis through the Final Maturity Date; provided, that in the event (i) the Company enters into a Replacement Power Purchase Agreement that is effective as of the Term Expiration Date and extends to at least the Final Maturity Date, (ii) the projected Senior Debt Service Coverage Ratio through the Final Maturity Date, based on the provisions of such Replacement Power Purchase Agreement, shall be greater than 2.0 to 1 and (iii) the senior unsecured long-term debt of such power purchaser(s) under such agreement(s) is rated at least Investment Grade, then the Company shall not be required to provide the forecast referenced in this Section 6.3(e). (f) Upon the request of any Bondholder (or the Trustee on behalf of a holder of a beneficial interest in the Bonds), the Company shall furnish such information as is specified in paragraph (d)(4) of Rule 144A to such Bondholder (and holders of beneficial interests in the Bonds), to a prospective purchaser of the Bonds (and prospective purchasers of beneficial interests in the Bonds) who is a Qualified Institutional Buyer or Institutional Accredited Investor or to the Trustee for delivery to such Bondholder or prospective purchaser of the Bonds, as the case may be, unless, at the time of such request, the Company is subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act. (g) The information to be provided to the Senior Parties pursuant to Sections 6.3(a), (b), (c) and (d) above shall also be provided by the Trustee to (i) the Bondholders and (ii) the holders of beneficial interests in the Bonds or prospective purchasers of the Bonds or beneficial interests in the Bonds upon written request to the Trustee (which may be a single continuing request). The Company shall furnish the Trustee, upon its request, with sufficient copies of all such information to accommodate the requests of the holders of beneficial interests in the Bonds and shall pay all reasonable costs and expenses of the Trustee incurred with respect to such request. 47 (h) The information specified in Sections 6.3(a), (b), (c), (d) and (e) above shall be provided by the Company to each Rating Agency concurrently with its delivery to the Senior Parties. SECTION 6.4 Maintenance of Existence, Liens and Governmental Approvals. The Company shall at all times: (a) preserve and maintain in full force and effect (i) its existence as a limited liability company and its good standing under the laws of the State of Delaware and (ii) its qualification to do business in each other jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business as conducted or proposed to be conducted makes such qualification necessary; (b) obtain and maintain in full force and effect all Governmental Approvals (including, without limitation, maintaining compliance with Environmental Laws) and other consents and approvals required at any time in connection with the construction, maintenance, ownership or operation of the Facility; (c) preserve and maintain good and marketable title to its properties and assets (subject to no Liens other than Permitted Liens); and (d) preserve and maintain the Liens of the Senior Parties on the Collateral. SECTION 6.5 Nature of Business. The Company shall not engage in any business other than the development, financing, construction, operation and maintenance of the Facility as contemplated by the Project Contracts. SECTION 6.6 Operating and Maintenance. The Company shall, or shall cause the Operator to, use, maintain and operate the Facility and the Site in compliance with generally accepted Prudent Operating and Maintenance Practices and the material provisions of all relevant Project Contracts. SECTION 6.7 Compliance with Applicable Laws. The Company shall comply with, and shall ensure that the Facility is constructed and operated in compliance with, and shall make such alterations to the Facility and the Site as may be required for compliance with, all Applicable Laws, Environmental Laws and Governmental Approvals, except where noncompliance would not reasonably be expected to result in a Material Adverse Effect. SECTION 6.8 Prohibition on Change in Control. The Company shall not engage in, or suffer to occur, any Change in Control. 48 SECTION 6.9 Project Contracts; Williams Guaranty; Operation of the Facility. (a) The Company shall (i) perform and observe in all material respects its covenants and agreements contained in any of the Project Contracts, (ii) enforce, defend and protect all of its rights contained in any of the Project Contracts and (iii) take all reasonable and necessary actions to prevent the termination or cancellation of any of the Project Contracts, except in case of (i) and (ii) above, where such non-performance could not reasonably be expected to have a Material Adverse Effect. (b) The Company (i) shall fully enforce its rights under the Williams Guaranty and the Power Purchase Agreement with respect to substitute security under the circumstances provided for therein and (ii) shall not, without the consent of Bondholders holding a majority in outstanding principal amount of the Bonds, make a demand for or take any legal action under the Williams Guaranty if, as a result of payments made pursuant to such demand or legal action by the Company, the aggregate amount available under the Williams Guaranty would be less than or equal to the principal amount of the then outstanding Senior Debt, including without limitation, the undrawn portions of the maximum amounts of any DSR Letter of Credit or CP Letter of Credit. The Company shall (i) upon any payment event of default or other event of default under the Power Purchase Agreement, exercise its rights to terminate the Power Purchase Agreement in accordance with its terms, (ii) in the event of any termination of the Power Purchase Agreement, fully enforce its rights under the Williams Guaranty and (iii) use any amounts obtained under the Williams Guaranty to redeem the Bonds in accordance with the Indenture and to pay principal and interest on the Company's other Senior Debt in accordance with the Financing Documents and in each case in accordance with the terms of the Collateral Agency Agreement. (c) The Company shall (i) exercise all of its rights under the Operations Agreement to terminate such agreement if (a) a bankruptcy event in respect of the Operator has occurred and is continuing and (b) the Operator has failed to perform any material obligation under the Operations Agreement, and (ii) exercise its rights under the Operations Agreement to cause the Operator to terminate the Services Agreement pursuant to the terms of such agreement if (a) a bankruptcy event in respect of AES has occurred and is continuing and (b) AES has failed to perform any material obligation under the Services Agreement. SECTION 6.10 Transactions with Affiliates. The Company shall not enter into any transaction or agreement, with any Affiliate of the Company (each, an "Affiliate Transaction") other than (i) the Operations Agreement and the Equity Subscription Agreement (and any Affiliate Subordinated Loan Agreement referenced therein) and (ii) transactions in the ordinary course of business on fair and reasonable terms no less favorable to the Company than the Company would obtain in an arm's length transaction with a Person that is not an Affiliate of the Company. SECTION 6.11 Amendments to Project Contracts. The Company shall not terminate, amend or modify (other than pursuant to Sections 6.9(b) and 6.9(c) and other than immaterial amendments or modifications as certified by the 49 Company) any of the Project Contracts to which it is a party, or consent to any assignment by another party thereto, unless the Company certifies to the Senior Parties that (i) such termination, amendment, modification or assignment is not reasonably expected to result in a Material Adverse Effect and such termination, amendment, modification or assignment is not reasonably expected to materially increase the likelihood of the occurrence of a future Material Adverse Effect and (ii) the Independent Engineer does not within ten (10) Business Days of receipt of such certificate disagree in writing to the certification provided pursuant to clause (i); provided, however, that the Company shall not (a) amend or modify the Power Purchase Agreement, unless in addition to the requirements of clauses (i) and (ii) above, the Company certifies that such amendment or modification would not cause the Company's net operating revenues to decrease by more than five (5) percent and such certification is confirmed by the Independent Engineer, (b) subject to Section 6.9(b), terminate the Power Purchase Agreement or consent to any release of, assignment by or change in the identity of the Power Purchaser, unless (1) within ninety (90) days of such termination or consent resulting from an event of default by the Power Purchaser under the Power Purchase Agreement, or prior to any such termination or consent or for any other reason, the Company (A) enters into a Replacement Power Purchase Agreement or (B) provides the Senior Parties and each of the Ratings Agencies with a Power Marketing Plan and (2) the Company provides to the Trustee and the Collateral Agent a Ratings Reaffirmation from each Rating Agency within such ninety (90)-day period or prior to such termination or consent, as the case may be, or (c) release or modify in any way the Williams Guaranty unless the Company obtains substitute security therefor pursuant to Section 19.3 of the Power Purchase Agreement. SECTION 6.12 Prohibition on Fundamental Changes and Disposition of Assets. The Company shall not enter into any transaction of merger or consolidation, change its form of organization or its business, liquidate or dissolve itself (or suffer any liquidation or dissolution), except as permitted herein. The Company shall not amend its governing instruments except where such amendment could not reasonably be expected to result in a Material Adverse Effect. The Company shall not purchase or otherwise acquire all or substantially all of the assets of any other Person; provided, that the Company may maintain ownership interests in subsidiaries if such subsidiaries are involved in operation, maintenance or fuel supply for the Facility. In addition, except as contemplated by the Project Contracts or permitted pursuant to this Indenture, or as authorized by the first and second provisos below, the Company shall not sell, lease (as lessor) or transfer (as transferor) any property or assets material to the operation of the Facility except in the ordinary course of business to the extent that such property is worn out or is no longer useful or necessary in connection with the operation of the Facility; provided, however, that the Company shall not sell, lease or transfer any of such property or assets without the written approval of the Collateral Agent if the aggregate fair market value of all sales, leases and transfers in the current Fiscal Year exceeds $5 million escalated at the GDPIPD; provided, further, that the Company may loan useful spare parts to other electric power generating facilities owned by an Affiliate of the Company without prior approval of the Trustee or the Collateral Agent on the conditions that, with respect to any spare part whose value is in excess of $50,000 (i) at the time of the loan the recipient of the spare part enters into an enforceable obligation to replace the spare part in kind, or to pay an amount equal 50 to the replacement value of the spare part to the Company, within thirty (30) days of the Company's demand for the same, and (ii) the Company certifies to the Collateral Agent that the spare part is not reasonably expected to be required for a planned outage or for scheduled maintenance of the Facility prior to being replaced, and such certificate is confirmed by the Independent Engineer. SECTION 6.13 Annual Budget. Not less than thirty (30) days prior to (i) the anticipated Commercial Operation Date, and thereafter (ii) the commencement of each Fiscal Year, the Company shall provide to the Senior Parties and the Rating Agencies an Annual Budget. The first Annual Budget shall cover the period from the Commercial Operation Date through the end of the Fiscal Year in which the Commercial Operation Date occurs, and if such period consists of less than six months, for the immediately succeeding Fiscal Year. Each Annual Budget shall specify the estimated sales of capacity and energy pursuant to the Power Purchase Agreement and any Replacement Power Purchase Agreement and all other sales of capacity and energy, the estimated rates and revenues for each category of such sales, all Operating and Maintenance Costs, a manpower forecast, a periodic inspection, maintenance and repair schedule, a description of all Required Capital Expenditures and the underlying operating assumption and implementation plans for the Fiscal Year covered by such Annual Budget. The Company shall operate and maintain the Facility, or cause the Facility to be operated and maintained, in accordance with the Annual Budget other than deviations resulting from operating requirements under the Project Contracts or Prudent Operating and Maintenance Practices. SECTION 6.14 Insurance Report. Within thirty (30) days after the end of each Fiscal Year, the Company shall submit to the Senior Parties and each Rating Agency that currently is rating any of the Outstanding Bonds a certificate (i) listing all insurance being carried by, or on behalf of, the Company pursuant to this Indenture and (ii) certifying that all insurance policies required to be maintained pursuant to the Project Contracts and this Indenture are in full force and effect and all premiums therefor have been fully paid. SECTION 6.15 Liens. The Company shall not create or suffer to exist or permit any Lien upon or with respect to any of its properties, other than Permitted Liens. SECTION 6.16 Inspection. The Senior Parties shall have the right, upon reasonable advance written notice to the Company, to inspect the Facility and the Site from time to time; provided that the Company shall have the right to specify reasonable dates and times for any such inspection in order to avoid any material interference with operation of the Facility. 51 SECTION 6.17 Limitations on Additional Indebtedness. The Company shall not create or incur or suffer to exist any Debt or lease obligations except for Permitted Indebtedness. SECTION 6.18 Restricted Payments. The Company shall not make any Restricted Payments unless the Distribution Conditions set forth in Section 3.14 of the Collateral Agency Agreement have been satisfied. SECTION 6.19 Construction of the Facility. The Company shall cause the construction of the Facility to be prosecuted and completed with diligence and continuity (except for interruptions provided for in the EPC Contract or due to events of force majeure, which events of force majeure the Company shall use its best efforts to mitigate), in a good and workmanlike manner and in accordance with sound, generally accepted building and engineering practices, all material applicable Governmental Requirements and the EPC Contract. The Company shall at all times cause a complete set of the current and (when available) as-built plans (and all supplements thereto) relating to the Facility to be maintained on the Site or the Contractor's offices and available for inspection by the Independent Engineer. SECTION 6.20 Contractor Performance Tests; Final Acceptance. (a) The Independent Engineer shall have the right to witness and verify the performance tests required by the EPC Contract. (b) The Company shall not, without the prior written consent of the Independent Engineer, either (i) grant the Final Acceptance Certificate to the Contractor pursuant to Section 6.5.1.2 of the EPC Contract or (ii) elect to effect Final Acceptance pursuant to Section 6.5.2 of the EPC Contract. SECTION 6.21 Change Orders. The Company shall not initiate or approve any change order under the EPC Contract unless (i) such change order is technically feasible, (ii) such change order is not reasonably expected to materially and adversely affect the operation or reliability of the Facility, (iii) the implementation of such change order is not reasonably expected to cause the Commercial Operation Date to occur after the Date Certain and (iv) adequate funds are available to the Company to fund such change orders and all other Project Costs through the Commercial Operation Date, and in the event that such change order individually exceeds $5,000,000 or when aggregated with all other change orders exceeds $10,000,000, unless the Company certifies in writing to the Collateral Agent as to clauses (i) - (iv) above and such certification is confirmed by the Independent Engineer. 52 SECTION 6.22 Casualty Proceeds; Eminent Domain Proceeds. The Company shall cause all Casualty Proceeds and Eminent Domain Proceeds to be deposited in the Restoration Account under the Collateral Agency Agreement. SECTION 6.23 Payment of Taxes and Impositions. (a) Subject to the terms of Section 6.23(c), the Company will pay or cause to be paid, before any fine, interest or penalty is imposed thereon, all Impositions and, upon the request of the Collateral Agent, will deliver to the Collateral Agent photocopies of receipts, cancelled checks and other evidence reasonably satisfactory to the Collateral Agent evidencing such payment. Notwithstanding the foregoing, if pursuant to any Applicable Law, any Impositions may at the option of the Company be paid in installments (whether or not interest shall accrue on the unpaid balance thereof), the Company shall have the right, provided that no Event of Default shall then exist, to exercise such option and to pay or cause to be paid such Impositions and any accrued interest thereon in installments as they fall due and before any fine, penalty, further interest or cost may be added thereto. (b) The Company will pay all taxes and other governmental charges (including without limitation, stamp taxes) assessed by any Governmental Authorities and imposed on the Collateral Agent, its successors or assignees, by reason of the Collateral Agent's ownership of the Mortgage or the other Security Documents or payable by either the Company or the Collateral Agent upon any modification, amendment, extension and/or consolidation thereof. The Company will also pay any tax imposed directly or indirectly on the Mortgage in lieu of a tax on the Mortgaged Property or any part thereof, whether by reason of (i) the passage after the date of the Mortgage of any law of the Commonwealth of Pennsylvania deducting from the value of real property for the purposes of taxation any lien thereon, (ii) any change in the laws for the taxation of mortgages or debts secured by mortgages for state or local purposes, (iii) a change in the means of collection of any such tax, or (iv) any tax, now or hereafter assessed against the Mortgage or assessed against, or withheld from, any payments made by the Company hereunder. Within a reasonable time after payment of any such tax or governmental charge, the Company will deliver to the Trustee and the Collateral Agent satisfactory proof of payment thereof. (c) The Company will not claim or demand or be entitled to any credit or credits for the payment of any Impositions, and no deduction shall otherwise be made or claimed from the taxable value of the Mortgaged Property, or any part thereof, by reason of the Mortgage. SECTION 6.24 Preservation of Lien of Mortgage. The Company will (i) preserve its right, title and interest in and to the Mortgaged Property and will warrant and defend the same against and all claims and demands whatsoever, (ii) continue to have full power and lawful authority to encumber and convey the Mortgaged Property as provided in the Mortgage, and (iii) maintain and preserve the priority of the lien of the Mortgage until all of the obligations under the Financing Documents are paid and performed in full. 53 SECTION 6.25 Year 2000. The Company shall take all actions reasonably necessary to assure that its computer-based and other systems are to process effectively data without experiencing any Year 2000 Problem that could cause a Material Adverse Effect, and shall at the request of any Senior Party provide information reasonably satisfactory to such Senior Party as to its capability to process data without experiencing a Year 2000 Problem that could cause such a Material Adverse Effect. ARTICLE VII REDEMPTION AND PREPAYMENT OF BONDS SECTION 7.1 Applicability of Article. Bonds of any series that are subject to redemption or prepayment before their Stated Maturity (or, if the principal of the Bonds of any series is payable in installments, the Stated Maturity of the final installment of the principal thereof) shall be redeemed or prepaid in accordance with their terms and (except as otherwise specified in the Series Supplemental Indenture creating such series) in accordance with this Article VII. SECTION 7.2 Election to Redeem or Prepay; Notice to Trustee. The election of the Company to redeem or prepay any Bonds otherwise than through a sinking fund shall be evidenced by a Company Order. If the Company determines or is required to redeem or prepay any Bonds, the Company shall, at least fifteen days prior to the date upon which notice of redemption or prepayment is required to be given to the Bondholders pursuant to Section 7.4 (unless a shorter notice period shall be satisfactory to the Trustee), deliver to the Trustee a Company Order specifying the date on which such redemption or prepayment shall occur (the "Redemption Date" or "Prepayment Date," as the case may be) and the series and principal amount of Bonds to be redeemed or prepaid. Upon receipt of any such Company Order, the Trustee shall establish a Redemption Subaccount into which shall be deposited amounts to be held by the Trustee and applied to the redemption or prepayment of such Bonds. In the case of any redemption or prepayment of Bonds (i) prior to the expiration of any restriction on such redemption or prepayment provided in the terms of such Bonds, the Series Supplemental Indenture relating thereto or elsewhere in this Indenture or (ii) pursuant to an election of the Company that is subject to a condition specified in the terms of such Bonds or in the Series Supplemental Indenture relating thereto, the Company shall furnish the Trustee with an Officer's Certificate and Opinion of Counsel evidencing compliance with such restriction or condition. SECTION 7.3 Optional Redemption; Mandatory Redemption; Prepayment; Selection of Bonds to Be Redeemed or Prepaid. (a) The Bonds of any series shall be subject to redemption from time to time at the option of the Company only as provided in the Series Supplemental Indenture relating thereto. 54 (b) All Outstanding Bonds shall be redeemed prior to maturity, as a whole, at a redemption price equal to the principal amount thereof, together with interest on the principal amount of the Bonds accrued through the Redemption Date, in the event the Company or the Collateral Agent receives Casualty Proceeds or Eminent Domain Proceeds upon the occurrence of either an Event of Loss or an Event of Eminent Domain that has been determined in accordance with Section 3.15(d) of the Collateral Agency Agreement to render the Facility substantially destroyed or taken and incapable of being rebuilt, repaired or restored, as the case may be, to permit operation on a commercially feasible basis. All Casualty Proceeds or Eminent Domain Proceeds, as the case may be, received by the Trustee pursuant to Section 4.2 of the Collateral Agency Agreement with respect to such Event of Loss or Event of Eminent Domain, as the case may be, shall be applied by the Trustee to the redemption of the Bonds pursuant to this Section 7.3(b). The foregoing provisions of this Section 7.3(b) may be altered in a Series Supplemental Indenture, but such altered provisions shall not be effective while any Outstanding Bonds on the date of such Series Supplemental Indenture remain Outstanding. Any redemption pursuant to this Section 7.3(b) shall be made within 90 days after the receipt by the Trustee of the Casualty Proceeds or Eminent Domain Proceeds, as the case may be. (c) The Outstanding Bonds shall be redeemed prior to maturity, as a whole or in part, ratably among all outstanding series, at a redemption price equal to the principal amount thereof, together with interest on the principal amount of the Bonds accrued through the Redemption Date, if the Company or the Collateral Agent receives amounts identified by the Company in an Officer's Certificate as proceeds under the Williams Guaranty upon termination of the Power Purchase Agreement by the Company as a result of an event of default by the Power Purchaser under the Power Purchase Agreement. All such proceeds received by the Trustee pursuant to Section 4.1 of the Collateral Agency Agreement with respect to such termination of the Power Purchase Agreement shall be applied by the Trustee to the redemption of the Bonds pursuant to this Section 7.3(c). The foregoing provisions of this Section 7.3(c) may be altered in a Series Supplemental Indenture, but such altered provisions shall not be effective while any Outstanding Bonds on the date of such Series Supplemental Indenture remain outstanding. After payment of certain administrative fees pursuant to clause first of Section 4.1(a) of the Collateral Agency Agreement, the aggregate amount of the Bonds to be redeemed pursuant to this Section 7.3(c) (including accrued and unpaid interest thereon) will equal an amount which is equal to (x) the amount paid under the Williams Guaranty multiplied by (y) a fraction the numerator of which is the then outstanding principal amount of the Bonds and accrued and unpaid interest thereon and the denominator of which is the principal and accrued interest on all Senior Debt including the Bonds, such amount to be calculated by the Company and specified in an Officer's Certificate delivered to the Senior Parties. Any redemption pursuant to this Section 7.3(c) shall be made within 90 days after the receipt by the Trustee of the proceeds under the Williams Guaranty. 55 (d) Outstanding Bonds shall be partially redeemed, ratably among all outstanding series, prior to maturity at a redemption price equal to the principal amount thereof, together with interest on the principal amount of the Bonds accrued through the Redemption Date, if the Company or the Collateral Agent receives Casualty Proceeds or Eminent Domain Proceeds upon the occurrence of either an Event of Loss or an Event of Eminent Domain that has been determined in accordance with Section 3.15(d) of the Collateral Agency Agreement to render a portion of the Facility substantially destroyed or taken and incapable of being rebuilt, repaired, or restored, as the case may be, to permit operation on a commercially feasible basis, but permits the remaining portion of the Facility to be rebuilt, repaired or restored, as the case may be, to permit operation of such remaining portion of the Facility on a commercially feasible basis (except when the proceeds not used for rebuilding, repair or restoration do not exceed $5 million and the Company certifies to the Trustee and the Collateral Agent, which certification is confirmed by the Independent Engineer, that (i) such proceeds are not needed for rebuilding, repair or restoration of the facility and (ii) not using such proceeds for the rebuilding, repair or restoration of the Facility would not reasonably be expected to result in a Material Adverse Effect). The foregoing provisions of this Section 7.3(d) may be altered in a Series Supplemental Indenture, but such altered provisions shall not be effective while any Outstanding Bonds on the date of such Series Supplemental Indenture remain outstanding. The amount (rounded down to the nearest $1,000) by which all of the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, received by the Trustee pursuant to Section 4.2 of the Collateral Agency Agreement exceeds the estimate of the total cost of rebuilding, repairing and restoring the Facility made in accordance with Section 3.15(d) of the Collateral Agency Agreement shall be applied by the Trustee to the redemption of the Bonds pursuant to this Section 7.3(d); provided, that the amount so received is not less than $5,000,000. Any funds received by the Trustee pursuant to this Section 7.3(d) in an amount less than $5,000,000 shall be transferred to the Redemption Subaccount. Any redemption pursuant to this Section 7.3(d) shall be made within 90 days after the receipt by the Trustee of such Casualty Proceeds or Eminent Domain Proceeds (other than such proceeds transferred to the Redemption Subaccount), as the case may be. (e) [Reserved]. (f) Outstanding Bonds shall be partially redeemed, ratably among all outstanding series, prior to maturity at a redemption price equal to the outstanding principal amount thereof, together with interest on the principal amount of the Bonds accrued through the Redemption Date, if the Company or the Collateral Agent receives Buy-Down Amounts. The foregoing provisions of this Section 7.3(f) may be altered in a Series Supplemental Indenture, but such altered provisions shall not be effective while any Securities Outstanding on the date of such Series Supplemental Indenture remain outstanding. The amount (rounded down to the nearest $1,000) of Buy-Down Amounts received by the Trustee from the Collateral Agent pursuant to Section 4.3 of the Collateral Agency Agreement shall be applied by the Trustee to the redemption of Securities pursuant to this 56 Section 7.3(f); provided, that the amount so received is not less than $5,000,000. Any funds received by the Trustee pursuant to this Section 7.3(f) in an amount less than $5,000,000 shall be transferred to the Redemption Subaccount. Any redemption pursuant to this Section 7.3(f) shall be made within 90 days after receipt by the Trustee of such proceeds (other than such proceeds transferred from the Redemption Subaccount). (g) Except as otherwise specified herein or in the Series Supplemental Indenture relating to the Bonds of a series, if less than all the Bonds of such series are to be redeemed or prepaid pursuant to Section 7.3(a), the particular Bonds of such series to be redeemed or prepaid shall be selected by the Trustee from the Outstanding Bonds of such series not previously called for redemption or prepayment in whole, by such method (including by lot) as the Trustee shall deem fair and appropriate. (h) The Trustee shall promptly notify the Company in writing of the Bonds selected for redemption or prepayment and, in the case of any Bonds to be redeemed or prepaid in part, the principal amount thereof to be redeemed or prepaid. (i) For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption or prepayment of Bonds shall relate, in the case of any Bonds redeemed or prepaid or to be redeemed or prepaid only in part, to the portion of the principal amount of such Bonds that has been or is to be redeemed or prepaid. SECTION 7.4 Notice of Redemption or Prepayment. Except as otherwise specified in the Series Supplemental Indenture relating to the Bonds of a series to be redeemed or prepaid, notice of redemption or prepayment shall be given in the manner provided in Section 1.6 to the Bondholders of such series to be redeemed or prepaid at least 30 days but not more than 60 days prior to the Redemption Date or Prepayment Date, as the case may be. All notices of redemption or prepayment shall state: (i) the Redemption Date or Prepayment Date, as the case may be; (ii) the premium payable on redemption or prepayment, if any; (iii) if less than all the Outstanding Bonds of any series are to be redeemed or prepaid in whole, (i) the identification of the particular Bonds of such series to be redeemed or prepaid in whole, or (ii) the portion of the principal amount of each Bond of such series to be redeemed or prepaid in part, and a statement that, on and after the Redemption Date or Prepayment Date, as the case may be, upon surrender of such Bond, a new Bond or Bonds of such series in principal amount equal to the remaining unpaid principal amount thereof shall be issued; (iv) that on the Redemption Date or Prepayment Date, as the case may be, interest thereon shall cease to accrue on and after such date; and 57 (v) the Place or Places of Payment where such Bonds are to be surrendered for payment of the amount in respect of such redemption or prepayment. Notice of redemption of Bonds to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 7.5 Bonds Payable on Redemption Date or Prepayment Date. Notice of redemption or prepayment, as the case may be, having been given as aforesaid, and the conditions, if any, set forth in such notice having been satisfied, the Bonds or portions thereof so to be redeemed or prepaid shall, on the Redemption Date or Prepayment Date, as the case may be, become due and payable, and from and after such date such Bonds or portions thereof shall cease to bear interest. Upon surrender of any such Bond for redemption or prepayment in accordance with such notice, an amount in respect of such Bond or portion thereof shall be paid as provided therein; provided, however, that any payment of interest on any Bond the Stated Maturity of which payment is on or prior to the Redemption Date or Prepayment Date, as the case may be, shall be payable to the Bondholder of such Bond, or one or more Predecessor Bonds, registered as such at the close of business on the related Regular Record Date according to the terms of such Bond and subject to the provisions of Section 2.10. SECTION 7.6 Bonds Redeemed or Prepaid in Part. Any Bond that is to be redeemed or prepaid only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Bondholder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to such Bondholder without service charge, a new Bond or Bonds of the same series, of any authorized denomination requested by such Bondholder and of like tenor and in aggregate principal amount equal to and in exchange for the remaining unpaid principal amount of the Bond so surrendered. ARTICLE VIII SINKING FUNDS SECTION 8.1 Applicability of Article. The provisions of this Article VIII shall be applicable to any sinking fund for the retirement of the Bonds of any series except as otherwise specified in the Series Supplemental Indenture creating the Bonds of such series. 58 SECTION 8.2 Sinking Funds for Bonds. Any Series Supplemental Indenture may provide for a sinking fund for the retirement of the Bonds of the series created thereby (a "Sinking Fund") in accordance with which the Company will be required to redeem on the dates set forth therein ("Sinking Fund Redemption Dates") Bonds of principal amounts set forth therein ("Sinking Fund Requirements"). Except as otherwise specified in the Series Supplemental Indenture relating to the Bonds of a series, the particular Bonds of such series, if any, to be redeemed through a Sinking Fund shall be selected in the manner provided in Section 7.3(g), and notice of such redemption shall be given in the manner provided in Section 7.4. ARTICLE IX EVENTS OF DEFAULT; REMEDIES SECTION 9.1 Events of Default. The term "Event of Default," whenever used herein, means any of the following events (whatever the reason for such event and whether voluntary or involuntary, affected by question of law, or pursuant to or in compliance with any Applicable Law) and such event shall continue to be an Event of Default if and for so long as it shall not have been remedied: (a) The Company shall fail to pay any principal, interest or premium, if any, including any Make-Whole Premium, on a Bond when the same becomes due and payable, whether at scheduled maturity or required prepayment or by acceleration or otherwise and such failure shall continue for ten (10) or more days; or (b) Any representation or warranty made by the Company herein or in any certificate delivered pursuant to any Financing Documents shall prove to have been false or misleading in any respect as of the time made, confirmed or furnished and the inaccuracy has resulted or is reasonably expected to result in a Material Adverse Effect and the circumstances surrounding such misrepresentation shall continue uncured for thirty (30) or more days from the discovery thereof; provided, that if the Company commences efforts to cure the factual situation resulting in such misrepresentation within such 30-day period, the Company may continue to effect such cure of the misrepresentation, and such misrepresentation shall not be deemed an Event of Default, for an additional sixty (60) days so long as an Authorized Representative of the Company certifies that no other Event of Default has occurred and is continuing and the Company is diligently pursuing the cure; or (c) The Company shall fail to maintain insurance in accordance with Section 6.2; or (d) The Company shall fail to perform or observe any covenant or agreement contained in Sections 6.4 (Maintenance of Existence and Governmental Approvals), 6.5 (Nature of Business), 6.7 (Compliance with Applicable Laws), 6.11 (Amendments to Project Contracts), 59 6.12 (Prohibition on Fundamental Changes and Disposition of Assets), 6.15 (Liens), 6.17 (Indebtedness) or 6.18 (Restricted Payments) herein and such failure shall continue uncured for more than thirty (30) days after the Company has actual knowledge of such failure; or (e) A Change in Control shall have occurred; or (f) The Company shall fail to perform or observe any of its covenants or agreements contained in any other provision of this Indenture not referred to above and such failure shall continue uncured for more than thirty (30) days after the Company has actual knowledge of such failure; provided, that if the Company commences efforts to cure such default within such thirty (30)-day period and is diligently attempting to cure such default (and certifies to the Trustee the steps it is taking), the Company may continue to effect such cure of the default (and such default shall not be deemed an "Event of Default" hereunder) for an additional sixty (60) days so long as the Company certifies that no other Event of Default has occurred and is continuing and the Company is diligently pursuing such cure; or (g) The Company or, so long as AES has any outstanding obligations under any Acceptable Credit Support, AES or, so long as AES Ironwood has any outstanding obligations under the Equity Subscription Agreement, AES Ironwood shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or substantially all of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment of the benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy Code, (v) file a petition seeking to take advantage of any law relating to bankruptcy, insolvency, reorganization, winding-up or the composition or readjustment of debts, (vi) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against such Person in an involuntary case under the Bankruptcy Code or (vii) take any corporate or other action for the purpose of effecting any of the foregoing; or (h) A proceeding or case shall be commenced without the application or consent of the Company or, so long as AES has any obligations under any Acceptable Credit Support, AES or, so long as AES Ironwood has any outstanding obligations under the Equity Subscription Agreement, AES Ironwood in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution, winding-up, or the composition or readjustment of debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such Person under any law relating to bankruptcy, insolvency, reorganization, winding-up or the composition or adjustment of debts, and such proceeding or case shall continue undismissed, or any order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of ninety (90) or more consecutive days, or any order for relief against such Person shall be entered in an involuntary case under the Bankruptcy Code (each event described in subsection (g) and (h) of this Section 9.1 is hereinafter referred to as a "Bankruptcy Event"); or 60 (i) A final and non-appealable judgment or judgments for the payment of money in excess of $15,000,000 shall be rendered against the Company, and the same remain unpaid or unstayed for a period of sixty (60) or more consecutive days from the date of entry thereof; or (j) An "Event of Default" has occurred and is continuing in respect of any Indebtedness of the Company under the DSR LOC Reimbursement Agreement, the CP LOC Reimbursement Agreement or any other Indebtedness of the Company the holder of which (or an agent or trustee therefor) is a party to the Collateral Agency Agreement (other than Indebtedness incurred pursuant to this Indenture), or an "Event of Default" has occurred and is continuing in respect of any other Indebtedness of the Company in excess of $15,000,000; or (k) With respect to any Project Contract: (i) such Project Contract is declared unenforceable by a Governmental Authority, (ii) any other party thereto denies it has a material obligation under such Project Contract or (iii) any other party thereto defaults in respect of its obligations under such Project Contract, and in the case of each event described in clause (i), (ii) or (iii), such event would be likely to result in a Material Adverse Effect; provided, however, that none of such events shall be an Event of Default hereunder if within one hundred eighty (180) days (ninety (90) days in respect of the Power Purchase Agreement or the EPC Contract) from the occurrence of such event (A) the other party resumes performance or enters into an alternative agreement with the Company or (B) the Company enters into a replacement contract or contracts with another party or parties which (1) contains, as certified by the Company, substantially equivalent terms and conditions or, if such terms and conditions are no longer available on a commercially reasonable basis, the terms and conditions then available on a commercially reasonable basis and (2) either (I) the Company provides to the Trustee and the Collateral Agent a Ratings Reaffirmation from each Rating Agency or (II) the Company certifies that it would, after giving effect to the alternative agreement, maintain a projected minimum Senior Debt Service Coverage Ratio for each year during the remaining term of the Bonds equal to or greater than the lesser of (x) the projected minimum annual Senior Debt Service Coverage Ratio which would have been in effect had performance under the original Project Contract continued and (y) 1.25 to 1.0 or (C) in the case of the Power Purchase Agreement, the Company delivers to the Trustee and Collateral Agent a Power Marketing Plan and obtains a Ratings Reaffirmation from each Ratings Agency; or (l) Any grant of a Lien contained in the Security Documents shall cease to be effective to grant a perfected Lien to the Trustee or the Collateral Agent on a material portion of the Collateral described therein with the priority purported to be created thereby; provided, however, that the Company shall have ten (10) days from actual knowledge thereof to cure any such cessation; or (m) The construction of the Facility is permanently abandoned; or (n) AES Ironwood fails to perform or breaches any of its payment obligations under the Equity Subscription Agreement and such failure or breach continues for ten (10) Business Days or more; or 61 (o) Any Acceptable Credit Provider fails to perform or breaches any of its payment obligations under any Acceptable Credit Support and such failure or breach continues for ten (10) Business Days or more. SECTION 9.2 Enforcement of Remedies. (a) If one or more Events of Default shall have occurred and be continuing, then: (i) in the case of a Bankruptcy Event, the entire principal amount of the Outstanding Bonds, all interest accrued and unpaid thereon, and all premium payable under the Bonds and this Indenture, if any, shall automatically become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby waived; or (ii) in the case of any other Event of Default the Trustee may and, upon written direction of the Bondholders of not less than 33 1/3% of the aggregate principal amount of the Outstanding Bonds, the Trustee shall, by notice to the Company, declare the entire principal amounts of the Outstanding Bonds, all interest accrued and unpaid thereon, and all premium payable under the Bonds and this Indenture, if any, to be due and payable, whereupon the same shall become due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby waived; or (iii) the Trustee shall (if the Required Bondholders request in writing to the Trustee) direct the Collateral Agent (to the extent permitted under the Collateral Agency Agreement) to take possession of all the Collateral and, pursuant to the Collateral Agency Agreement, to sell the Collateral, as and to the extent permitted under the Collateral Agency Agreement. (b) If an Event of Default occurs and is continuing and is known to the Trustee (as described in Section 10.3(h)), the Trustee shall mail to each Bondholder a notice of the Event of Default within thirty (30) days after the occurrence thereof. Except in the case of an Event of Default in payment of principal of or interest on any Bond, the Trustee may withhold the notice to the Bondholders if a committee of its trust officers in good faith determines that withholding the notice is in the interest of Bondholders. (c) At any time after the principal of the Bonds shall have become due and payable upon a declared (but not an automatic) acceleration as provided herein, and before any judgment or decree for the payment of the money so due, or any portion thereof, shall be entered, the Bondholders of not less than a majority in aggregate principal amount of the Outstanding Bonds, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) there shall have been paid to or deposited with the Trustee a sum sufficient to pay 62 (A) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents and counsel, (B) all overdue installments of interest on the Bonds, (C) the principal of and premium, if any, on any Bonds that have become due otherwise than by such declaration of acceleration and interest thereon at the respective rates provided in the Bonds for late payments of principal or premium, and (D) to the extent that payment of such interest is lawful, interest upon overdue installments of interest at the respective rates provided in the Bonds for late payments of interest. (ii) all Events of Default, other than the non-payment of the principal of the Bonds that has become due solely by such acceleration, have been cured or waived as provided in Section 9.7. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 9.3 Specific Remedies. If any Event of Default shall have occurred and be continuing and an acceleration shall have occurred pursuant to Section 9.2, subject to the provisions of Sections 9.2, 9.5, 9.6, 9.15, 10.3 and 10.7, the Trustee may sell, without recourse, for cash, or credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Trustee in its discretion may determine, the collateral securing the Bonds referred to in the Granting Clause (for the purposes of Article IX, Article X and Article XII, the "Indenture Collateral") as an entirety, or in such portions as the Bondholders of a majority in aggregate principal amount of the Bonds then Outstanding shall request by an Act of Bondholders, or, in the absence of such request, as the Trustee in its discretion shall deem expedient in the interest of the Bondholders, at public or private sale. SECTION 9.4 Judicial Proceedings Instituted by Trustee. (a) Trustee May Bring Suit. If there shall exist an Event of Default, then the Trustee, after receiving any indemnification or assurance of indemnification for its costs pursuant to Sections 10.3(e) and 10.7, in its own name, and as trustee of an express trust, subject to the provisions of Sections 2.14 and 9.2, shall be entitled and empowered to institute any suits, actions or proceedings at law, in equity or otherwise, for the collection of the sums so due and unpaid on the Bonds, and may prosecute any such claim or proceeding to judgment or final decree, and may enforce any such judgment or final decree and collect the funds adjudged or decreed to be payable in any manner provided by law, whether before or after or during the pendency of any proceedings for the enforcement of the Lien of this Indenture, or of any of the 63 Trustee's rights or the rights of the Bondholders under this Indenture, and such power of the Trustee shall not be affected by any sale hereunder or by the exercise of any other right, power or remedy for the enforcement of the provisions of this Indenture or for the foreclosure of the Lien hereof. (b) Trustee Shall Recover Unpaid Indebtedness after Sale of Indenture Collateral. Subject to Section 2.14, in the case of a sale of the Indenture Collateral and of the application of the proceeds of such sale to the payment of the indebtedness secured by this Indenture, the Trustee, after receiving any indemnification or assurance of indemnification for its costs pursuant to Sections 10.3(e) and 10.7, in its own name, and as trustee of an express trust, shall be entitled and empowered, by any appropriate means, legal, equitable or otherwise, to enforce payment of, and to receive all amounts then remaining due and unpaid upon, all or any of the Bonds, for the benefit of the Bondholders thereof, and upon any other portion of the indebtedness remaining unpaid, with interest at the rates specified in the respective Bonds on the overdue principal of and premium, if any, and (to the extent that payment of such interest is legally enforceable) on the overdue installments of interest. (c) Recovery of Judgment Does Not Affect Lien of this Indenture or Other Rights. No recovery of any such judgment or final decree by the Trustee and no levy of any execution under any such judgment upon any of the Indenture Collateral, or upon any other property, shall in any manner or to any extent affect the Lien of this Indenture upon any of the Indenture Collateral, or any rights, powers or remedies of the Trustee, or any liens, rights, powers or remedies of the Bondholders, but all such liens, rights, powers or remedies shall continue unimpaired as before. (d) Trustee Shall File Proofs of Claim, Appointment of Trustee as Attorney-in-Fact in Judicial Proceedings. The Trustee in its own name, or as trustee of an express trust, or as attorney-in-fact for the Bondholders, or in any one or more of such capacities (irrespective of whether the principal of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand for the payment of overdue principal, premium, if any, or interest), shall be entitled and empowered to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Bondholders (whether such claims be based upon the provisions of the Bonds or of this Indenture) allowed in any equity, receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization or any other judicial proceedings relating to the Company or any obligor on the Bonds, the creditors of the Company or any such obligor, the Indenture Collateral or any other property of the Company or any such obligor and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Bondholder to make such payments to the Trustee and, if the Trustee shall consent to the making of such payments directly to the Bondholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. The Trustee is hereby irrevocably appointed (and the successive respective Bondholders, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) the true and lawful attorney-in-fact of the respective Bondholders, with authority to (i) make and file in the 64 respective names of the Bondholders (subject to deduction from any such claims of the amounts of any claims filed by any of the Bondholders themselves), any claim, proof of claim or amendment thereof, debt, proof of debt or amendment thereof, petition or other document in any such proceedings and to receive payment of any amounts distributable on account thereof, (ii) execute any such other papers and documents and to do and perform any and all such acts and things for and on behalf of such Bondholders, as may be necessary or advisable in order to have the respective claims of the Trustee and of the Bondholders against the Company or any such obligor, the Indenture Collateral or any other property of the Company or any such obligor allowed in any such proceeding and (iii) receive payment of or on account of such claims and debt; provided, however, that nothing contained in this Indenture shall be deemed to give to the Trustee any right to accept or consent to any plan or reorganization or otherwise by action of any character in any such proceeding to waive or change in any way any right of any Bondholder. Any funds collected by the Trustee under this Section shall be applied as provided in Section 9.11. (e) Trustee Need Not Have Possession of Bonds. All proofs of claim, rights of action and rights to assert claims under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of the Bonds or the production thereof at any trial or other proceedings instituted by the Trustee. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the Bondholders and it shall not be necessary to make any such Bondholders parties to such proceedings. (f) Suit to Be Brought for Ratable Benefit of Bondholders. Any suit, action or other proceeding at law, in equity or otherwise which shall be instituted by the Trustee under any of the provisions of this Indenture shall be for the equal, ratable and common benefit of all the Bondholders, subject to the provisions of this Indenture. (g) Trustee May Be Restored to Former Position and Rights in Certain Circumstances. In case the Trustee shall have instituted any proceeding to enforce any right, power or remedy under this Indenture by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of the Trustee shall continue as if no such proceedings had been taken. SECTION 9.5 Holders May Demand Enforcement of Rights by Trustee. If an Event of Default shall have occurred and shall be continuing, the Trustee shall, upon the written request of the Bondholders of a majority in aggregate principal amount of the Bonds then Outstanding and upon the offering of indemnity as provided in Section 10.3(e), but subject in all cases to the provisions of Section 9.3, proceed to institute one or more suits, actions or proceedings at law, in equity or otherwise, or take any other appropriate remedy, to enforce payment of the principal of, or premium, if any, or interest on, the Bonds or to foreclose the lien of this Indenture or to sell the Indenture Collateral under a judgment or decree of a court or 65 courts of competent jurisdiction or under the power of sale herein granted, or take such other appropriate legal, equitable or other remedy, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights or powers of the Trustee or the Bondholders, or, in case such Bondholders shall have requested a specific method of enforcement permitted hereunder, in the manner requested; provided, that such action shall not be otherwise than in accordance with law and the provisions of this Indenture, and the Trustee, subject to such indemnity provisions, shall have the right to decline to follow any such request if the Trustee in good faith shall determine that the suit, proceeding or exercise of the remedy so requested would involve the Trustee in personal liability or expense. SECTION 9.6 Control by Bondholders. Subject to Sections 10.3(e) and 10.7, the Bondholders of not less than a majority in aggregate principal amount of the Outstanding Bonds shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, that (i) such direction shall not be in conflict with any Applicable Law or with this Indenture and (ii) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 9.7 Waiver of Past Defaults. The Bondholders of not less than a majority in aggregate principal amount of the Outstanding Bonds may on behalf of the Bondholders of all Bonds waive any past Default and its consequences except that only the Bondholders of all Bonds affected thereby may waive a Default (i) in the payment of the principal of or premium, if any, or interest on, or other amounts due under, any Bond then Outstanding or (ii) in respect of a covenant or provision hereof that under Article XII cannot be modified or amended without the consent of the Bondholder of each Bond Outstanding affected. Upon any such waiver such Default shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 9.8 Holder May Not Bring Suit Except Under Certain Conditions. A Bondholder shall not have the right to institute any suit, action or proceeding at law or in equity or otherwise for the foreclosure of the Lien of this Indenture, for the appointment of a receiver or for the enforcement of any other remedy under or upon this Indenture, unless: (a) such Bondholder previously shall have given written notice to the Trustee of a continuing Event of Default; (b) the Bondholders of at least 25% in aggregate principal amount of the Outstanding Bonds shall have requested the Trustee in writing to institute such action, suit or proceeding and shall have offered to the Trustee indemnity as provided in Section 10.3(e); 66 (c) the Trustee shall have refused or neglected to institute any such action, suit or proceeding for 60 days after receipt of such notice, request and offer of indemnity; and (d) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Bondholders of a majority in principal amount of Outstanding Bonds. It is understood and intended that no one or more of the Bondholders shall have any right in any manner whatever hereunder or under the Bonds to (i) surrender, impair, waive, affect, disturb or prejudice the Lien of this Indenture on any property subject thereto or the rights of the Bondholders of any other Bonds, (ii) obtain or seek to obtain priority or preference over any other such Bondholder or (iii) enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all the Bondholders subject to the provisions of this Indenture. SECTION 9.9 Undertaking to Pay Court Costs. All parties to this Indenture, and each Bondholder by his acceptance of a Bond, shall be deemed to have agreed that any court may in its discretion require, in any suit, action or proceeding for the enforcement of any right or remedy under this Indenture, or in any suit, action or proceeding against the Trustee for any action taken or omitted by it as Trustee hereunder, the filing by any party litigant in such suit, action or proceeding of an undertaking to pay the costs of such suit, action or proceeding, and that such court may, in its discretion, assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, action or proceeding, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, however, that the provisions of this Section 9.9 regarding such agreement by the parties to this Indenture and each Bondholder shall not apply to (a) any suit, action or proceeding instituted by the Trustee, (b) any suit, action or proceeding instituted by any Bondholder or group of Bondholders holding in the aggregate more than 10% in aggregate principal amount of the Outstanding Bonds or (c) any suit, action or proceeding instituted by any Bondholder for the enforcement of the payment of the principal of, or premium, if any, or interest on, any of the Bonds, on or after the respective due dates expressed therein. SECTION 9.10 Right of Bondholders to Receive Payment Not to Be Impaired. Anything in this Indenture to the contrary notwithstanding, the right of any Bondholder to receive payment of the principal of, and premium, if any, and interest on, such Bond, on or after the respective due dates expressed in such Bond (or, in case of redemption, on the Redemption Date fixed for such Bond), or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Bondholder. SECTION 9.11 Application of Funds Collected by Trustee. Any money collected or to be applied by the Trustee pursuant to this Article IX in respect of the Bonds of a series, together with any other funds which may then be held by the Trustee 67 under any of the provisions of this Indenture as security for the Bonds of such series (other than funds at the time required to be held for the payment of specific Bonds of such series at their Stated Maturities or at a time fixed for the redemption thereof) shall be applied in the following order from time to time, on the date or dates fixed by the Trustee and, in the case of a distribution of such funds on account of principal, premium, if any, or interest, upon presentation of the Outstanding Bonds of such series, and stamping thereon of payment, if only partially paid, and upon surrender thereof, if fully paid: first, to the payment of all taxes, assessments or liens prior to the Lien of the Security Documents, except those subject to which any sale shall have been made, all reasonable costs and expenses of collection, including the reasonable costs and expenses of handling the Collateral and of any sale thereof pursuant to the provisions of the Security Documents, and to the payment of all Trustee Claims; second, in case the unpaid principal amount of the indebtedness of the Company under any of the Outstanding Bonds shall not have become due, to the payment of any interest in default, in the order of the maturity of the payments thereof, with interest at the rates specified in the respective Bonds of each series in respect of overdue payments (to the extent that payment of such interest shall be legally enforceable) on the payments of interest then overdue; third, in case the unpaid principal amount of a portion of the indebtedness of the Company under any of but not all the Outstanding Bonds shall have become due, first to the payment of accrued interest on such indebtedness under such Outstanding Bonds in the order of the maturity of the payments thereof, with interest at the respective rates specified in the Bonds of each series for overdue payments of principal, premium, if any, and (to the extent that payment of such interest shall be legally enforceable) interest then overdue, and next to the payment of the unpaid principal amount of all Bonds then due; and fourth, in case the unpaid principal amount of all the indebtedness of the Company under all the Outstanding Bonds shall have become due, to the payment of the whole amount then due and unpaid upon such indebtedness under the Outstanding Bonds for principal, premium, if any, and interest, together with interest at the respective rates specified in each series of the Bonds for overdue payments on principal, premium, if any, and (to the extent that payment of such interest shall be legally enforceable) interest then overdue; provided, however, that all payments in respect of the Bonds of a series to be made pursuant to clauses "second" through "fourth" of this Section 9.11 shall be made ratably to the Bondholders of such series entitled thereto, without discrimination or preference, based upon the ratio of the unpaid principal amount of the Bonds of such series in respect of which such payments are to be made held by each such Bondholder to the unpaid principal amount of all Bonds of such series. 68 SECTION 9.12 Bonds Held by Certain Persons Not to Share in Distribution. Any Bonds known to a Responsible Officer of the Trustee to be owned or held by, or for the account or benefit of, the Company or an Affiliate thereof, shall not be entitled to share in any payment or distribution provided for in this Article IX until all Bonds held by other Persons have been indefeasibly paid in full. SECTION 9.13 Waiver of Appraisement, Valuation, Stay, Right to Marshalling. To the full extent it may lawfully do so, the Company, for itself and for any other Person who may claim through or under it, hereby: (a) agrees that neither it nor any such Person shall set up, plead, claim or in any manner whatsoever take advantage of, any appraisal, valuation, stay, extension or redemption laws, now or hereafter in force in any jurisdiction which may delay, prevent or otherwise hinder (i) the performance or enforcement or foreclosure of this Indenture, (ii) the sale of any of the Indenture Collateral or (iii) the putting of the purchaser or purchasers thereof into possession of such Indenture Collateral immediately after the sale thereof; (b) waives all benefit or advantage of any such laws; (c) consents and agrees that the Indenture Collateral may be sold by the Trustee as an entirety or in parts; and (d) waives and releases all rights to have the Indenture Collateral marshaled upon any foreclosure, sale or other enforcement of this Indenture. SECTION 9.14 Remedies Cumulative, Delay or Omission Not a Waiver. Each and every right, power and remedy herein specifically given to the Trustee shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Trustee and the exercise or the beginning of the exercise of any right, power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy, and no delay or omission by the Trustee in the exercise of any right, power or remedy or in the pursuance of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of the Company or to be an acquiescence therein. SECTION 9.15 The Collateral Agency Agreement. Simultaneously with the execution and delivery of this Indenture, the Trustee shall enter into the Collateral Agency Agreement. Notwithstanding any other provision of this Indenture (other than the provisions of Sections 9.10 and 12.2) to the contrary, all rights and remedies available to the Bondholders, and all future holders of any of the Bonds, or the Trustee with 69 respect to the Collateral, or otherwise pursuant to the Security Documents, shall be subject to the Collateral Agency Agreement including, in all cases, the ability to enforce any remedy and the limitations on the Trustee's ability to vote the interests represented by the Outstanding Bonds. In respect of matters voted on by the Senior Parties collectively, the Trustee shall vote all Bonds according to the votes of a majority of Bondholders voting. SECTION 9.16 Affiliate Cure Rights. Any Affiliate of the Company, at its option, shall have the right (but not the obligation) to cure any Events of Default for which cures are available. ARTICLE X THE TRUSTEE SECTION 10.1 Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that: (i) this subsection shall not be construed to limit the effect of subsection (a) of this Section 10.1; 70 (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Trustee, unless it shall be proved that the Trustee was grossly negligent in ascertaining the pertinent facts; (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Bondholders of not less than a majority in aggregate principal amount of the Outstanding Bonds relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if in its sole discretion it shall determine that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Whether or not herein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 10.1. SECTION 10.2 Notice of Defaults. In addition to its obligation to give notice to Bondholders as provided in Section 1.6, as promptly as practicable after, and in any event within 90 days after, the occurrence of any Default hereunder, the Trustee shall transmit by mail to all Bondholders, as their names and addresses appear in the Security Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of, or premium, if any, or interest on any Bond, the Trustee shall be protected in withholding such notice if and so long as the board of directors the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Bondholders. SECTION 10.3 Certain Rights of Trustee. Except as otherwise provided in Section 10.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting in reliance upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the purported proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Company may be sufficiently evidenced by a Board Resolution of the Company; 71 (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate of the Company and/or, where required herein, an opinion of counsel; (d) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Bondholders pursuant to this Indenture, unless such Bondholders shall have offered to the Trustee adequate security or indemnity (as determined by the Trustee in its reasonable discretion) against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney; (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (h) The Trustee shall not be charged with knowledge of any Event of Default unless either (i) a Responsible Officer of the Trustee shall have actual knowledge of such Event of Default or (ii) written notice of such Event of Default shall have been given to the Trustee by the Company or by any Bondholder. SECTION 10.4 Not Responsible for Recitals or Issuance of Bonds. The recitals contained herein and in the Bonds, except the certificates of authentication, shall not be taken as the statements of the Trustee, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, the Indenture Collateral or the Bonds, except that the Trustee hereby represents and warrants that this Indenture has been executed and delivered by one of its officers who is duly authorized to execute and deliver such document on its behalf. The Trustee shall not be accountable for the use or application by the Company of the Bonds or the proceeds thereof. 72 SECTION 10.5 May Hold Bonds. The Trustee, any Paying Agent, Security Registrar, any Authenticating Agent or any Affiliate thereof, in its individual or any other capacity, may become the owner or pledgee of Bonds and, subject to Sections 10.8 and 10.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar, Authenticating Agent or such other agent. SECTION 10.6 Funds May Be Held by Trustee or Paying Agent; Investments. (a) Subject to subsection (b) of this Section 10.6, any funds held by the Trustee or the Paying Agent hereunder as part of the Indenture Collateral may, until paid out by the Trustee or the Paying Agent as herein provided, be carried by the Trustee or the Paying Agent on deposit with itself, and neither the Trustee nor the Paying Agent shall have any liability for interest upon any such funds. (b) At any time and from time to time prior to the application by the Trustee of any funds to the redemption of Bonds pursuant to Article VII, if at the time no Event of Default has occurred and is continuing, the Trustee (i) shall, on Company Request, invest and reinvest funds at the time on deposit with the Trustee as part of the Indenture Collateral, together with any income and gains from the investment and reinvestment thereof, in Permitted Investments as specified in such Company Request and (ii) may, in the absence of a Company Request, invest and reinvest any such funds in Permitted Investments of the sort described in clause (i) of the definition thereof. Such Permitted Investments shall be held by the Trustee until so sold in trust as part of the Indenture Collateral. In the case of clause (i) above, the Trustee shall sell any Permitted Investment at such prices, including accrued interest, as are set forth in such Company Request and, in the case of clause (ii) above, the Trustee may sell any Permitted Investments at such prices, including accrued interest, as the Trustee shall in its sole discretion determine. The Trustee shall, on Company Request, sell such Permitted Investments as may be specified therein, and the Trustee shall, without Company Request, in the event funds are required for payment of any amounts to be paid by the Trustee pursuant to Article VII in respect of any series of Bonds and for any payment of the principal of, premium, if any, or interest on any series of Bonds, sell such Permitted Investments as are required to restore to cash as part of the Indenture Collateral such amounts as are needed for any such payments. The Trustee shall not be responsible for any losses on any investments or sales of Permitted Investments made pursuant to the procedure specified in this subsection 10.6(b). SECTION 10.7 Compensation, Reimbursement and Indemnification. The Company agrees: (a) to pay, or cause to be paid, to each of the Trustee and any Authorized Agent from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); 73 (b) to reimburse, or cause to be reimbursed, each of the Trustee and any Authorized Agent upon its request for all expenses, disbursements and advances incurred or made by it in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable of its own gross negligence, willful misconduct or bad faith; and (c) to indemnify, or cause to be indemnified, each of the Trustee, any predecessor Trustee and any Authorized Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence, willful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. As security for the performance of the obligations of the Company under this Section 10.7, the Trustee shall have a lien prior to the Bonds upon all property and funds held or collected by the Trustee as such, except funds held in trust under Section 13.3. SECTION 10.8 Disqualification; Conflicting Interests. (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section 10.8, then, within 90 days after ascertaining that it has such conflicting interest, and if the default (for purposes of this Section 10.8, a default means a default in payment of principal which shall have continued for thirty days or more and shall not have been cured) to which such conflicting interest relates has not been cured or duly waived or otherwise eliminated before the end of such 90 day period, it shall resign in the manner and with the effect hereinafter specified in this Article X; (b) If the Trustee shall fail to comply with the provisions of subsection (a) of this Section 10.8, the Trustee shall, within 10 days after the expiration of such 90-day period, transmit by mail to all Bondholders, as their names and addresses appear in the Security Register, notice of such failure. (c) For the purposes of this Section 10.8, the Trustee shall be deemed to have a conflicting interest if the Bonds are in default and: (i) the Trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of any obligor on the Bonds are outstanding unless (A) the Bonds are collateral trust notes under which the only collateral consists of securities issued under such other indenture, (B) such other indenture is a collateral trust indenture under which the only collateral consists of Bonds issued under this Indenture or (C) such obligor has no substantial unmortgaged assets and is engaged primarily in the business of owning, or of owning and developing and/or operating, real estate, and this Indenture and such other indenture are secured by wholly separate and distinct parcels of real estate; provided, that there shall be excluded from the operation of this paragraph other series under this Indenture; 74 (ii) the Trustee or any of its directors or executive officers is an underwriter for an obligor on the Bonds; (iii) the Trustee directly or indirectly controls, is directly or indirectly controlled by or is under direct or indirect common control with an underwriter for an obligor on the Bonds; (iv) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee or representative of any obligor on the Bonds or of an underwriter (other than the Trustee itself) for such obligor who is currently engaged in the business of underwriting, except that (A) one individual may be a director or an executive officer, or both, of the Trustee and a director or an executive officer, or both, of an obligor on the Bonds but may not be at the same time an executive officer of both the Trustee and such obligor; (B) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be director or an executive officer, or both, of the Trustee and a director of an obligor on the Bonds; and (C) the Trustee may be designated by an obligor on the Bonds or by any underwriter for such obligor to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent, or depositary, or in any other similar capacity, or subject to the provisions of paragraph (i) of this subsection, to act as trustee, whether under an indenture or otherwise; (v) 10% or more of the voting securities of the Trustee is beneficially owned either by any obligor on the Bonds or by any director, partner, or executive officer thereof, or 20% or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or 10% or more of the voting securities of the Trustee is beneficially owned either by an underwriter for any obligor on the Bonds or by any director, partner or executive officer thereof, or is beneficially owned collectively by any two or more such persons; (vi) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, (A) 5% or more of the voting securities, or 10% or more of any other class of security, of any obligor on the Bonds not including the Bonds issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (B) 10% or more of any class of security of an underwriter for any obligor on the Bonds; (vii) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, 5% or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10% or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, any obligor on the Bonds; (viii) the Trustee is the beneficial owner of, or holds collateral security for an obligation which is in default, 10% or more of any class of security of any person who, to 75 the knowledge of the Trustee, owns 50% or more of the voting securities of any obligor on the Bonds; (ix) the Trustee owns, on the date of default upon the Bonds or any anniversary of such default while such default upon the Bonds remains outstanding, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25% or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraphs (vi), (vii) or (viii) of this subsection. As to any such securities of which the Trustee acquired ownership through becoming executor, administrator, or testamentary trustee of an estate which included such securities, the provisions of the immediately preceding sentence shall not apply for a period of not more than two years from the date of such acquisition to the extent that such securities included in such estate do not exceed 25% of such voting securities or 25% of any such class of security. Promptly after the dates of any such default upon the Bonds and annually in each succeeding year that the Bonds remain in default, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such dates. If any obligor on the Bonds fails to make payment in full of the principal of, or the premium, if any, or interest on, any of the Bonds when and as the same becomes due and payable and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and after such date, notwithstanding the foregoing provisions of this paragraph, all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall be considered as though beneficially owned by the Trustee for the purposes of paragraphs (vi), (vii) and (viii) of this subsection; or (x) except under the circumstances described in Section 10.13(b) (i), (iii), (iv), (v) or (vi), the Trustee shall be or shall become a creditor of the obligor. For the purposes of paragraph (i) of this subsection, the term "series of securities" or "securities" means a series, class or group of Bonds issuable under this Indenture pursuant to whose terms Bondholders of one such series may vote to direct the Trustee, or otherwise take action pursuant to a vote of such Bondholders, separately from Bondholders of another such series; provided, that "series of securities" or "series" shall not include any series of Bonds issuable under this Indenture if all such series rank equally and are wholly unsecured. The specification of percentages in paragraphs (v) to (ix) inclusive, of this subsection, shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (iii) or (vii) of this subsection. For the purposes of paragraphs (vi), (vii), (viii) and (ix) of this subsection only, (A) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to 76 evidence an obligation to repay funds loaned to a person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness, and (B) the Trustee shall not be deemed to be the owner or Bondholder of (1) any security that it holds as collateral security, as trustee or otherwise, for an obligation which is not in default, or (2) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (3) any security that it holds as agent for collection, or as custodian, escrow agent, or depositary, or in any similar representative capacity. Except as provided in the next preceding paragraph, the word "security" or "securities" as used in this Indenture means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option or privilege on any security, certificate of deposit, or group or index of securities (including, any interest therein or based on the value thereon) or any put, call, straddle, option or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security," or any certificate or interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to purchase, any of the foregoing. (d) For the purposes of this Section only: (i) The term "underwriter" when used with reference to any obligor on the Bonds, means every person who, within one year prior to the time as of which the determination is made, has purchased from such obligor with a view to, or has offered or sold for such obligor in connection with, the distribution of any security of such obligor outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission. (ii) The term "director" means any director of a corporation, or any individual performing similar functions with respect to any organization whether incorporated or unincorporated. (iii) The term "person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, or a government or political subdivision thereof. As used in this paragraph, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security. (iv) The term "voting security" means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby 77 a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person. (v) The term "obligor" means the Company and any other person (including any guarantor) who is liable on the Bonds . (vi) The term "executive officer" means the president, every vice president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors. (e) The percentage of the voting securities and other securities specified in this Section shall be calculated in accordance with the following provisions: (i) A specified percentage of the voting securities of the Trustee, any obligor or any other person referred to in this Section 10.8 (each of whom is referred to as a "person" in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person. (ii) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding. (iii) The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares and the number of units if relating to any other kind of security. (iv) The term "outstanding" as used in this Section 10.8 means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition: (A) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class; (B) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise; (C) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and (D) securities held in escrow if placed in escrow by the issuer thereof; provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof. 78 (v) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders substantially the same rights and privileges; provided, however, that in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes; and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture. SECTION 10.9 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder that shall be a corporation or bank organized and doing business under the laws of the United States or of any State thereof, authorized under such laws to exercise corporate trust powers, having (or whose obligations are unconditionally guaranteed by a corporation or bank having) a combined capital and surplus of at least $250,000,000, and subject to supervision or examination by Federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 10.9, the combined capital and surplus of such corporation or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 10.9, it shall resign immediately in the manner and with the effect hereinafter specified in this Article X. SECTION 10.10 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article X shall become effective until the acceptance of appointment by the successor Trustee under Section 10.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Company and the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, or any Bondholder who has been a bona fide Bondholder for at least 6 months may, subject to Section 10.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Bondholders of not less than a majority in principal amount of the Outstanding Bonds, delivered to the Trustee and the Company. (d) If at any time: 79 (i) the Trustee shall fail to comply with Section 10.8(a) after written request therefor by any Bondholder who has been a bona fide Bondholder for at least six months, or (ii) the Trustee shall cease to be eligible under Section 10.9 and shall fail to resign after written request therefor by any such Bondholder or the Company, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, or (iv) the Trustee shall fail to carry out its obligations under this Indenture in a timely manner and the Company shall have petitioned a court of competent jurisdiction to order the Trustee to carry out such obligations. then, in any such case, (i) the Company may remove the Trustee by Board Resolution or (ii) subject to Section 9.9, any Bondholder who has been a bona fide Bondholder for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company shall promptly appoint by Board Resolution a successor Trustee. If no successor Trustee shall have been so appointed by the Company or by the Bondholders, and accepted appointment in the manner hereinafter provided, any Bondholder who has been a bona fide Bondholder for at least six (6) months may, subject to Section 9.9, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Bondholders as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 10.11 Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument prepared by the Company transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject 80 nevertheless to its lien, if any, provided for in Section 10.7. Such transfer shall not effect or impair any indemnification rights of the retiring Trustee. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article X. SECTION 10.12 Merger, Conversion, Consolidation or Succession to Business. Any corporation or bank into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation or bank resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or bank succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation or bank shall be otherwise qualified and eligible under this Article X, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Bonds shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Bonds so authenticated with the same effect as if such successor Trustee had itself authenticated such Bonds. SECTION 10.13 Preferential Collection of Claims Against any Obligor. (a) Subject to subsection (b) of this Section 10.13, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of any obligor (as defined in subsection (c) of this Section) on the Bonds within three months prior to a default (as defined in subsection (c) of this Section) or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually and the Bondholders: (i) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such three month period and valid as against any obligor on the Bonds and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (ii) of this subsection, or from the exercise of any right of set-off that the Trustee could have exercised if a petition in bankruptcy had been filed by or against any such obligor upon the date of such default; and (ii) all property received by the Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three month period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of any obligor on the Bonds and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of the Trustee: 81 (A) to retain for its own account (1) payments made on account of any such claim by any Person (other than an obligor on the Bonds) who is liable thereon, and (2) the proceeds of the bona fide sale of any such claim by the Trustee to a third person, and (3) distributions made in cash, securities or other property in respect of claims filed against such obligor in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Code or applicable state law; (B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such three month period; (C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such three month period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default (as defined in subsection (c) of this Section 10.13) would occur within three months; or (D) to receive payment on any claim referred to in clause (B) or (C) above, against the release of any property held as security for such claim as provided in clause (B) or (C), as the case may be, to the extent of the fair value of such property. For the purposes of clauses (B), (C) and (D) of the immediately preceding paragraph, property substituted after the beginning of such three month period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such clauses is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim. If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee and the Bondholders in such manner that the Trustee and the Bondholders realize, as a result of payments from such special account and payments of dividends on claims filed against the obligor on the Bonds in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Code or applicable state law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from such obligor of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Bondholders dividends on claims filed against such obligor in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Code or applicable state law, but after crediting thereon receipts on account of the indebtedness represented by their respective 82 claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Bankruptcy Code or applicable state law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion between the Trustee and the Bondholders in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Bondholders with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any Trustee that has resigned or been removed after the beginning of such three month period shall be subject to the provisions of this subsection as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such three month period, it shall be subject to the provisions of this subsection if and only if the following conditions exist: (i) the receipt of property or reduction of claim, which would have given rise to the obligation to account if such Trustee had continued as Trustee, occurred after the beginning of such three month period; and (ii) such receipt of property or reduction of claim occurred within three months after such resignation or removal. (b) There shall be excluded from the operation of subsection (a) of this Section 10.13 a creditor relationship arising from: (i) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee; (ii) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving the property that shall at any time be subject to the Lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Bondholders at the time and in the manner provided in this Indenture; (iii) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity; 83 (iv) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction (as defined in subsection (c) of this Section 10.13); (v) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, that is directly or indirectly a creditor of an obligor upon the securities; or (vi) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper (as defined in subsection (c) of this Section 10.13). (c) For the purposes of this Section 10.13 only: (i) The term "default" means any failure to make payment in full of the principal of or interest on any of the Bonds when and as such principal or interest becomes due and payable; (ii) The term "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; (iii) The term "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by any obligor on the Bonds for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with such obligor arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation; and (iv) The term "obligor" means the Company and any other person (including any guarantor) who is liable on the Bonds. SECTION 10.14 Maintenance of Offices and Agencies. (a) There shall at all times be maintained, as shall be specified for the Bonds of any series in the related Series Supplemental Indenture, an office or agency where Bonds may be presented or surrendered for registration of transfer or exchange and for payment of principal, premium, if any, and interest, and where notices and demands to or upon the Trustee in respect of the Bonds or this Indenture may be served. Such office or agency shall be initially at the Corporate Trust Office. Written notice of the location of each of such other office or agency and of any change of location thereof shall be given by the Company to the Trustee and by the 84 Trustee to the Bondholders in the manner specified in Section 1.6. If no such office or agency shall be maintained or no such notice of location or of change of location shall be given, presentations, surrenders and demands may be made and notices may be served at the Corporate Trust Office. (b) There shall at all times be a Security Registrar and a Paying Agent ("Paying Agent") hereunder. In addition, at any time when any Bonds remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents with respect to the Bonds of one or more series which shall be authorized to act on behalf of the Trustee to authenticate Bonds of such series issued upon original issuance, exchange, registration of transfer or partial redemption thereof or pursuant to Section 2.9, and Bonds so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder (it being understood that wherever reference is made in this Indenture to the authentication and delivery of Bonds by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent). If an appointment of an Authenticating Agent with respect to the Bonds of one or more series shall be made pursuant to this Subsection 10.14(b), the Bonds of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: This Bond is one of the Bonds referred to in the within-mentioned Indenture. [________________________________________] as Trustee By:______________________________________ Authenticating Agent By:______________________________________ Authorized Signatory Any Authorized Agent shall be a bank or trust company, shall be a corporation or bank organized and doing business under the laws of the United States or any State thereof, having a combined capital and surplus of at least $50,000,000, and shall be authorized under such laws to exercise corporate trust powers, subject to supervision by Federal or State authorities. If such Authorized Agent publishes reports of its condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 10.14, the combined capital and surplus of such Authorized Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authorized Agent shall cease to be eligible in accordance with the provisions of this Section 10.14, such Authorized Agent shall resign immediately in the manner and with the effect specified in this Section 10.14. The Trustee at its office specified in the first paragraph of this Indenture, is hereby appointed as Paying Agent and Security Registrar hereunder. 85 (c) Any Paying Agent (other than the Trustee) from time to time appointed hereunder shall execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.14, that such Paying Agent will: (i) hold all sums held by it for the payment of principal of, and premium, if any, and interest on the Bonds in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (ii) give the Trustee within five days thereafter notice of any default by any obligor upon the Bonds in the making of any such payment of principal, premium, if any, or interest; and (iii) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. Notwithstanding any other provision of this Indenture, any payment required to be made to or received or held by the Trustee may, to the extent authorized by written instructions of the Trustee, be made to or received or held by a Paying Agent in the City of New York, County of New York, for the account of the Trustee. (d) Any corporation or bank into which any Authorized Agent may be merged or converted or with which it may be consolidated, or any corporation or bank resulting from any merger, consolidation or conversion to which any Authorized Agent shall be a party, or any corporation or bank succeeding to the corporate trust business of any Authorized Agent, shall be the successor of such Authorized Agent hereunder, if such successor corporation or bank is otherwise eligible under this Section 10.14, without the execution or filing of any paper or any further act on the part of the parties hereto or such Authorized Agent or such successor corporation or bank. (e) Any Authorized Agent may at any time resign by giving written notice of resignation to the Trustee and the Company. The Company may, and at the request of the Trustee shall, at any time, terminate the agency of any Authorized Agent by giving written notice of termination to such Authorized Agent and to the Trustee. Upon the resignation or termination of an Authorized Agent or in case at any time any such Authorized Agent shall cease to be eligible under this Section 10.14 (when, in either case, no other Authorized Agent performing the functions of such Authorized Agent shall have been appointed), the Company shall promptly appoint one or more qualified successor Authorized Agents approved by the Trustee to perform the functions of the Authorized Agent which has resigned or whose agency has been terminated or who shall have ceased to be eligible under this Section 10.14. The Company shall give written notice of any such appointment to all Bondholders as their names and addresses appear on the Security Register. 86 SECTION 10.15 Co-Trustee or Separate Trustee. (a) If at any time or times it shall be necessary or prudent in order to conform to any law of any jurisdiction in which property shall be held subject to the Lien of this Indenture, or the Trustee determines or shall be advised by counsel satisfactory to it that it is so necessary or prudent in the interest of the Bondholders or the Trustee, or the Bondholders of a majority in principal amount of Outstanding Bonds shall in writing so request, the Trustee and the Company shall execute and deliver all instruments and agreements necessary or proper to constitute another bank or trust company or one or more Persons approved by the Trustee either to act as co-trustee or co-trustees of all or any part of the Indenture Collateral jointly with the Trustee originally named herein or any successor or successors, or to act as separate trustee or trustees of all or any such property. Any co-trustee or separate trustee so appointed shall be entitled to all rights and benefits granted to the Trustee under this Indenture, including without limitation, Sections 10.3 and 10.7. In the event the Company shall have not joined in the execution of such instruments and agreements within 10 days after the receipt of a written request from the Trustee so to do, or in case an Event of Default with respect to the Bonds of a series shall have occurred and be continuing, the Trustee may act under the foregoing provisions of this Section 10.15 without the concurrence of the Company; and the Company hereby appoints the Trustee as agent and attorney to act under the foregoing provisions of this Section 10.15 in either of such contingencies. (b) Every additional trustee hereunder shall, to the extent permitted by law, be appointed and act, and such additional trustee and its successors shall act, subject to the following provisions and conditions, namely: (i) the Bonds shall be authenticated and delivered, and all powers, duties, obligations and rights conferred upon the Trustee in respect of the custody, control and management of funds, papers or securities, shall be exercised, solely by the Trustee (or, in the case of authentication and delivery of Bonds, by any Authenticating Agent); (ii) all rights, powers, duties and obligations conferred or imposed upon the Trustee or the additional trustee or trustees shall be conferred or imposed upon and exercised or performed by the Trustee or the Trustee and such additional trustee or trustees jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such additional trustee or trustees; (iii) no power given hereby to, or which it is provided hereby may be exercised by, any such additional trustee or trustees, shall be exercised hereunder by such additional trustee or trustees, except jointly with, or with the consent in writing of, the Trustee, anything herein contained to the contrary notwithstanding; (iv) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and 87 (v) the Company and the Trustee, at any time, by an instrument in writing, executed by them jointly, may remove any such additional trustee, and in that case, by an instrument in writing executed by them jointly, may appoint a successor or successors to such additional trustee or trustees, as the case may be, anything herein contained to the contrary notwithstanding. If the Company shall not have joined in the execution of any such instrument within 10 days after the receipt of a written request from the Trustee to do so, the Trustee shall have the power to remove any such additional trustee and to appoint a successor additional trustee without the concurrence of the Company, the Company hereby appointing the Trustee its agent and attorney to act for it in such connection in such contingency. If the Trustee alone shall have appointed an additional trustee or trustees or co-trustee or co-trustees as above provided, it may at any time, by an instrument in writing, remove any such additional trustee or co-trustee, the successor to any such trustee or co-trustee so removed to be appointed by the Company and the Trustee, or by the Trustee alone, as hereinbefore in this Section 10.15 provided. SECTION 10.16 Taxes. Any United States withholding taxes imposed with respect to payments made to a Bondholder shall be the sole responsibility of such Bondholder and therefore no Bondholder shall have the right to have any payment to it "grossed-up" for, or paid free of, any such withholding taxes. ARTICLE XI HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 11.1 Company to Furnish Trustee Names and Addresses of Bondholders. The Company shall furnish or cause to be furnished to the Trustee quarterly, between March 15 and March 31, between April 15 and April 30, between July 15 and July 31 and between October 15 and October 31, in each year, and at such other times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Bondholders, in each case as of a date not more than 15 days prior to the time such list is furnished; provided, however, that so long as the Trustee is the sole Security Registrar or is otherwise furnished a copy of the Security Register, no such list need be furnished. SECTION 11.2 Preservation of Information; Communications to Bondholders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Bondholders contained in the most recent list furnished to the Trustee as provided in Section 11.1 and received by the Trustee in its capacity as Security Registrar, if so acting. The Trustee may destroy any list furnished to it upon receipt of a new list so furnished. 88 (b) If three or more Bondholders (for the purposes of this Section 11.2, hereinafter referred to as the "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Bond for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Bondholders with respect to their rights under this Indenture or under the Bonds and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either: (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 11.2(a), or (ii) inform such applicants as to the approximate number of Bondholders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 11.2(a), and as to the approximate cost of mailing to such Bondholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Bondholder whose name and address appears in the information preserved at the time by the Trustee in accordance with Section 11.2(a), a copy of the form of proxy or other communication that is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing. (c) Every Bondholder, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Bondholders in accordance with Section 11.2(b), regardless of the source from which such information was derived. ARTICLE XII SUPPLEMENTAL INDENTURES SECTION 12.1 Supplemental Indentures and Amendments to Financing Documents Without Consent of Bondholders. Without the consent of the Bondholders, the Company, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto in form reasonably satisfactory to the Trustee and may amend any of the other Financing Documents, for any of the following purposes: (a) to establish the form and terms of Bonds of any series permitted by Sections 2.1 and 2.3; or 89 (b) to evidence the succession of another entity to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Bonds contained; or (c) to evidence the succession of a new Trustee hereunder or a co-trustee or separate trustee pursuant to Section 10.15; or (d) to add to the covenants of the Company, for the benefit of the Bondholders, or to surrender any right or power herein conferred upon the Company; or (e) to convey, transfer and assign to the Trustee, and to subject to the Lien of this Indenture, additional properties or assets, and to correct or amplify the description of any property at any time subject to the Lien of this Indenture or to assure, convey and confirm unto the Trustee any property subject or required to be subject to the Lien of this Indenture; or (f) to permit or facilitate the issuance of Bonds in uncertificated form; or (g) to change or eliminate any provision of this Indenture; provided, however, that if such change or elimination would adversely affect the interests of the holders of any Bonds of any series, such change or elimination shall become effective with respect to such series only when no Bond of such series remains Outstanding; or (h) to comply with changes in Applicable Law; provided, however, that no such amendment or supplement shall result in a Material Adverse Effect or otherwise adversely affect the interests of the Holders of any Bonds of any series in any material respect; or (i) to make any changes required by S&P or Moody's or any other nationally recognized securities rating agency as a condition to the issuance or maintenance of the then current rating on the Bonds or any series thereof, provided that any such change shall not result in a Material Adverse Effect or otherwise adversely affect the interests of the Holders of any Bonds of any series in any material respect; or (j) to cure any ambiguity, to correct or supplement any provision herein that may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not adversely affect the interest of the Bondholders of any series in any material respect. SECTION 12.2 Supplemental Indentures with Consent of Bondholders. With the consent of the Bondholders of not less than a majority in aggregate principal amount of the Bonds of all series then Outstanding, considered as one class, by Act of such Bondholders delivered to the Company and the Trustee and the Company may, and the Trustee, subject to Section 12.3 and 12.4, shall, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of, this Indenture; provided, however, that if there shall be Bonds of more than one series Outstanding hereunder and if a proposed supplemental indenture shall directly affect the rights of the Bondholders of one or more, but less than all, of such series, then the consent only 90 of the Bondholders of not less than a majority in aggregate principal amount of the Outstanding Bonds of all series so directly affected, considered as one class, shall be required; provided, further, that no such supplemental indenture shall, without the consent of the Bondholder of each Outstanding Bond directly affected thereby, (a) change the Stated Maturity of any Bond (or, if the principal thereof is payable in installments, the Stated Maturity of any such installment), or of any payment of interest thereon, or the dates or circumstances of payment of premium, if any, on, any Bond, or change the principal amount thereof or the interest thereon or any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Bond or the premium, if any, or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment of principal or interest on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date) or such payment of premium, if any, on or after the date such premium becomes due and payable; or (b) except for Permitted Liens, permit the creation of any lien prior to or, pari passu with the Lien of any of the Security Documents with respect to any of the Collateral, or terminate the Lien on any Collateral or deprive any Bondholder of the security afforded by the Lien of this Indenture; or (c) reduce the percentage in principal amount of the Outstanding Bonds, the consent of whose Bondholders is required for any such supplemental indenture, or the consent of whose Bondholders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 14.4 for quorum or voting; or (d) modify any of the provisions of Section 9.2 or Section 9.7 (except to increase the percentage of the principal amount of the Outstanding Bonds required to waive past defaults) or of this Section 12.2 (except to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Bondholder of each Bond affected thereby). A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Bonds, or which modifies the rights of the Bondholders of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Bondholders of any other series. Upon receipt by the Trustee of Board Resolutions of the Company and such other documentation as the Trustee may reasonably require and upon the filing with the Trustee of evidence of the Act of such Bondholders, the Trustee shall join in the execution of such supplemental indenture or other instrument, as the case may be, subject to the provisions of Sections 12.3 and 12.4. It shall not be necessary for any Act of Bondholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. 91 SECTION 12.3 Documents Affecting Immunity or Indemnity. If in the opinion of the Company or the Trustee any document required to be executed by it pursuant to the terms of Section 12.2 affects any interest, right, duty, immunity or indemnity in favor of the Company or the Trustee under this Indenture, the Company or the Trustee, as the case may be, may in its discretion decline to execute such document. SECTION 12.4 Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any Series Supplemental Indenture or other supplemental indenture permitted by this Article XII or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 10.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. SECTION 12.5 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article XII, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Bondholder theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 12.6 Reference in Bonds to Supplemental Indentures. Bonds authenticated and delivered after the execution of any supplemental indenture pursuant to this Article XII may, and shall if required by the Company, bear a notation in form approved by the Company and the Trustee as to any matter provided for in such supplemental indenture; and, in such case, suitable notation may be made upon Outstanding Bonds after proper presentation and demand. If the Company shall so determine, new Bonds so modified as to conform, in the opinion of the Company and the Trustee, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the trustee in exchange for Outstanding Bonds. ARTICLE XIII SATISFACTION AND DISCHARGE SECTION 13.1 Satisfaction and Discharge of Bonds. Except as otherwise provided with respect to the Bonds of any series in the Series Supplemental Indenture relating thereto, the Bonds of such series shall, prior to the Stated Maturity thereof (or, if principal is payable in installments, the Stated Maturity of the final installment of principal thereof), be deemed to have been paid for all purposes of this Indenture, and the entire indebtedness of the Company in respect thereof shall be deemed to have been satisfied and discharged, upon satisfaction of the following conditions: 92 (a) the Company shall have irrevocably deposited with the Trustee, in trust, money or Permitted Investments in an amount which shall be sufficient to pay, without requiring reinvestment by the Trustee, when due the principal of and premium, if any, and interest due and to become due on the Bonds of such series on and prior to the Stated Maturity of principal thereof (or, if principal is payable in installments, the Stated Maturity of the final installment of principal thereof) or upon redemption or prepayment; (b) if any such deposit of money or Permitted Investments shall have been made prior to the Stated Maturity (or, if principal is payable in installments, the Stated Maturity of the final installment of principal) or Redemption Date or Prepayment Date of such Bonds, the Company shall have delivered to the Trustee a Company Order each stating that such money shall be held by the Trustee, in trust, as provided in Section 13.3; (c) in the case of redemption or prepayment of Bonds, the notice requisite to the validity of such redemption or prepayment shall have been given, or irrevocable authority shall have been given by the Company to the Trustee to give such notice, under arrangements satisfactory to the Trustee; and (d) there shall have been delivered to the Trustee an Opinion of Counsel to the effect that as a result of a change in Applicable Law after the date of this Indenture such satisfaction and discharge of the indebtedness of the Company with respect to the Bonds of such series shall not be deemed to be, or result in, a taxable event with respect to Bondholders of such series for purposes of United States Federal income taxation unless the Trustee shall have received documentary evidence that each Bondholder of such series either is not subject to, or is exempt from, United States Federal income taxation. Upon satisfaction of the aforesaid conditions with respect to the Bonds of any series, the Trustee shall, upon receipt of a Company Request, acknowledge in writing that the Bonds of such series are deemed to have been paid for all purposes of this Indenture and that the entire indebtedness of the Company in respect thereof is deemed to have been satisfied and discharged. If Bonds which shall be deemed to have been paid as provided in this Section 13.1 do not mature and are not to be redeemed within the 60 day period commencing on the date of the deposit with the Trustee of funds, the Company shall, as promptly as practicable, give a notice, in the same manner as a notice of redemption with respect to such Bonds, to the Bondholders to the effect that such Bonds are deemed to have been paid and the circumstances thereof. Notwithstanding the satisfaction and discharge of any Bonds as aforesaid, the rights and obligations of the Company and the Trustee in respect of such Bonds under Sections 2.7, 2.8, 2.9, 6.3, 10.3(e) and 10.7 and this Article XIII shall survive. SECTION 13.2 Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as hereinafter expressly provided), and the Trustee, at the expense of the Company, shall execute 93 proper instruments prepared by the Company acknowledging satisfaction and discharge of this Indenture, when: (a) either (i) all Bonds theretofore authenticated and delivered (other than (A) Bonds which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.9 and (B) Bonds deemed to have been paid in accordance with Section 13.1) have been delivered to the Trustee for cancellation; or (ii) all Bonds not theretofore delivered to the Trustee for cancellation shall be deemed to have been paid in accordance with Section 13.1; (b) all other sums due and payable hereunder have been paid; and (c) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Upon satisfaction of the aforesaid conditions, the Trustee shall, upon receipt of a Company Request, acknowledge in writing the satisfaction and discharge of this Indenture. Notwithstanding the satisfaction and discharge of this Indenture as aforesaid, the rights and obligations of the Company and the Trustee under Sections 2.7, 2.8, 2.9, 6.3, 10.3(e), 10.7, 15.1 and this Article XIII shall survive. Upon satisfaction and discharge of this Indenture as provided in this Section 13.2, the Trustee shall assign, transfer and turn over to or upon the order of the Company any and all money, securities and other property then held by the Trustee for the benefit of the Bondholders other than money deposited with the Trustee pursuant to Section 13.1(a) and interest and other amounts earned or received thereon. SECTION 13.3 Application of Trust Money. The money deposited with the Trustee pursuant to Section 13.1 shall not be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of and premium, if any, and interest on the Bonds or portions of principal amount thereof in respect of which such deposit was made, all subject, however, to the provisions of Section 6.1. 94 ARTICLE XIV MEETINGS OF BONDHOLDERS; ACTION WITHOUT MEETING SECTION 14.1 Purposes for Which Meetings May Be Called. A meeting of Bondholders of one or more, or all, series, may be called at any time and from time to time pursuant to this Article XIV to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Bondholders of such series. SECTION 14.2 Call, Notice and Place of Meetings. (a) The Trustee may at any time call a meeting of Bondholders of one or more, or all, series of Bonds for any purposes specified in Section 14.1, to be held at such time and at such place in the City of New York, County of New York, or at such other place, as the Trustee shall determine. Notice of every such meeting, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 14 nor more than 60 days prior to the date fixed for the meeting. (b) If the Trustee shall have been requested to call a meeting of the Bondholders of one or more, or all, series, by the Company or by the Bondholders of 10% in aggregate principal amount of the Outstanding Bonds of such series (or, in the case of a meeting of the Bondholders of the Bonds of all series, 10% in aggregate principal amount of the Outstanding Bonds of all series, considered as one class), by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first mailing of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or such Bondholders, as the case may be, may determine the time and the place in the City of New York, County of New York, or in such other place as the Company or such Bondholders, as the case may be, shall determine, for such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (a) of this Section 14.2. (c) Any meeting of Bondholders or one or more, or all, series shall be valid without notice if the Bondholders of all Outstanding Bonds of such series are present in person or by proxy and the Trustee are present, or if notice is waived in writing before or after the meeting by the Bondholders of all Outstanding Bonds of such series, or by such of them as are not present at the meeting in person or by proxy. SECTION 14.3 Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Bondholders of one or more, or all, series, a Person shall be (a) a Bondholder of one or more Outstanding Bonds of such series or (b) a Person appointed by an instrument in writing as proxy for a Bondholder or Bondholders of one or more 95 Outstanding Bonds of such series by such Bondholder or Bondholders. The only Persons who shall be entitled to attend any meeting shall be the Bondholders described above and any proxies of such Bondholders and their respective counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 14.4 Quorum; Action. The Persons entitled to vote a majority in aggregate principal amount of the Outstanding Bonds of the series with respect to which a meeting shall have been called as hereinbefore provided, considered as one class, shall constitute a quorum for a meeting of Bondholders of such series; provided, however, that if any action is to be taken at such meeting which this Indenture expressly provides may be taken by the Bondholders of a specified percentage that is less than a majority in principal amount of the Outstanding Bonds of such series, considered as one class, the Persons entitled to vote such specified percentage in principal amount of the Outstanding Bonds of such series, considered as one class, shall constitute a quorum. In the absence of a quorum, the meeting may be adjourned for a period of not less than ten days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than ten days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Except as provided in Section 14.5(e), notice of the reconvening of any adjourned meeting shall be given as provided in Section 14.2(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Bonds of such series which shall constitute a quorum. Except as limited by Section 12.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Bondholders of a majority in aggregate principal amount of the Outstanding Bonds of the series with respect to which such meeting shall have been called, considered as one class; provided, however, that, except as so limited, any resolution with respect to any action that this Indenture expressly provides may be taken by the Bondholders of a specified percentage that is less than a majority in principal amount of the Outstanding Bonds of such series, considered as one class, may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Bondholders of such specified percentage in principal amount of the Outstanding Bonds of such series, considered as one class. Any resolution passed or decision taken at any meeting of Bondholders duly held in accordance with this Section 14.4 shall be binding on all the Bondholders of the series with respect to which such meeting shall have been held, whether or not present or represented at the meeting. 96 SECTION 14.5 Attendance at Meetings; Determination of Voting Rights; Conduct of Adjournment of Meetings. (a) Attendance at meetings of Bondholders may be in person or by proxy, and, to the extent permitted by law, any such proxy shall remain in effect and be binding upon any future Bondholder with respect to which it was given, unless and until specifically revoked by the Bondholder or future Bondholder of such Bonds before being voted. (b) Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Bondholders in regard to proof of the holding of such Bonds and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Bonds shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.4 or other proof. (c) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Bondholders as provided in Section 14.2(b), in which case the Company or the Bondholders of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in aggregate principal amount of the Outstanding Bonds of all series represented at the meeting, considered as one class. (d) At any meeting each Bondholder of an Outstanding Bond of any series or his proxy shall be entitled to one vote for each $1,000 original principal amount of Bonds of such series held or represented by him, and each Bondholder of any such Bond or his proxy shall be entitled to divide the votes carried by such Bond, casting some for and some against a particular action, as he sees fit; provided, however, that no vote shall be cast or counted at any meeting in respect of any Bond challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Bondholder of a Bond or proxy. (e) Any meeting duly called pursuant to Section 14.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in aggregate principal amount of the Outstanding Bonds of all series represented at the meeting, considered as one class; and the meeting may be held as so adjourned without further notice. SECTION 14.6 Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Bondholders shall be by written ballots on which shall be subscribed the signatures of the Bondholders of Outstanding Bonds or of their representatives by proxy and the principal amounts and serial numbers of the 97 Outstanding Bonds, of the series with respect to which the meeting shall have been called, held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in quadruplicate of all votes cast at the meeting. A record, at least in quadruplicate, of the proceedings of each meeting of Bondholders shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that such notice was given as provided in Section 14.2 and, if applicable, Section 14.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. SECTION 14.7 Action Without Meeting. In lieu of the vote of Bondholders at a meeting as hereinbefore contemplated in this Article XIV, any request, demand, authorization, direction, notice, consent, waiver or other action may be made, given or taken by Bondholders by written instruments as provided in Section 1.4. ARTICLE XV NONRECOURSE LIABILITY SECTION 15.1 Nonrecourse Liability. Satisfaction of the obligations of the Company under this Indenture, for the payment of the principal of or premium, if any, or interest on any Bonds, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be had solely from the Collateral and the assets of the Company and no recourse shall be had in the event of any non-performance by the Company of any such obligations to (i) any assets or properties of the Members (or any Person that controls any Member within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act) or (ii) any Affiliate of the Company or any incorporators, officers, directors or employees thereof, and no judgment for any deficiency upon the obligations of the Company under this Indenture, for the payment of the principal of or premium, if any, or interest on any Bonds, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be obtainable by the Bondholders or the Trustee against any Member or Affiliate of the Company or any other incorporator, stockholder, officer, employee or director, past, present or future of the Company or any Affiliate of the Company; provided, however, that nothing contained herein shall prevent the taking of any action permitted by law against the Company or any of its Affiliates, or in any way affect or impair the rights of the Trustee or Bondholders to take any action permitted by law, 98 in either case to realize upon the Collateral and; provided, further, that nothing herein shall be deemed to affect the obligations of any Affiliate of the Company under any Transaction Document to which such Affiliate is a party. ARTICLE XVI DEPOSITARY BANK SECTION 16.1 Depositary Bank. The Trustee hereby designates and appoints IBJ Whitehall Bank & Trust Company to act as the Depositary Bank under this Agreement, and the Depositary Bank hereby agrees to act, as "securities intermediary" (within the meaning of Section 8-102(a)(14) of the UCC) with respect to the Indenture Accounts. The Company hereby acknowledges that the Depositary Bank shall act as securities intermediary with respect to the Indenture Accounts and pursuant to this Agreement. The Depositary Bank shall not have any duties or responsibilities except those expressly set forth in this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 99 IN WITNESS WHEREOF, the Parties have executed this Indenture by their duly authorized signatories as of the date first above written. AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin --------------------------------- Name: PATRICIA L. ROLLIN Title: VICE PRESIDENT IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee By: /s/ Thomas McCutcheon --------------------------------- Name: THOMAS MCCUTCHEON Title: ASSISTANT VICE PRESIDENT IBJ WHITEHALL BANK & TRUST COMPANY, as Depository Bank By: /s/ Thomas McCutcheon -------------------------------- Name: THOMAS MCCUTCHEON Title: ASSISTANT VICE PRESIDENT SCHEDULE 3.4 GOVERNMENTAL APPROVALS Part 1:
==================================================================================================================== Applicable Permits and Approvals - -------------------------------------------------------------------------------------------------------------------- Agency Applicable Permits Status - ----------------------------------- -------------------------------------- ----------------------------------------- Federal Energy Regulatory Exempt Wholesale Generator Issued March 29, 1999 Commission Certification - ----------------------------------- -------------------------------------- ----------------------------------------- PaDEP PSD/State Air Permit Final- March 29, 1999 - ----------------------------------- -------------------------------------- ----------------------------------------- U.S. Dept. of Energy, Office of Fuel Use Act Certification Approved Fossil Energy - ----------------------------------- -------------------------------------- ----------------------------------------- PaDOT Roadway Access Permits from Prescott Approved Road to site - ----------------------------------- -------------------------------------- ----------------------------------------- PaDEP NPDES, PAG-2 Approved - ----------------------------------- -------------------------------------- ----------------------------------------- PaDEP NPDES General Permits #4, #4 #5 #7 Approved - ----------------------------------- -------------------------------------- ----------------------------------------- PaDEP NPDES Part 1 Construction Approved - ----------------------------------- -------------------------------------- ----------------------------------------- Delaware River Basin Commission Water Use Approval as per Section Approved 3.8 of DRDC regulations - ----------------------------------- -------------------------------------- ----------------------------------------- Susquehanna River Basin Commission Water Use Approval Approved - ----------------------------------- -------------------------------------- ----------------------------------------- Lebanon County Conservation Soil Erosion and Sediment Control Approved District Approval - ----------------------------------- -------------------------------------- ----------------------------------------- Lebanon Zoning Hearing Board Stack Height Variance Approval for Approved Power Plant - ----------------------------------- -------------------------------------- ----------------------------------------- South Lebanon Board of Land Development Approval for Power Approved Supervisors Plant - ----------------------------------- -------------------------------------- ----------------------------------------- South Lebanon Board of Subdivision Approval for Access Road Approved Supervisors - ----------------------------------- -------------------------------------- ----------------------------------------- City of Lebanon Authority Agreement for Supply of treated Approved effluent and construction, operation and maintenance of pipeline - ----------------------------------- -------------------------------------- ----------------------------------------- Federal Aviation Administration Notice of Alteration or Proposed Approved Construction for AES Ironwood Facility Stack ====================================================================================================================
Schedule 3.4 - 1 Part 2:
==================================================================================================================== Applicable Permits and Approvals - -------------------------------------------------------------------------------------------------------------------- Agency Applicable Permits Status - ----------------------------------- -------------------------------------- ----------------------------------------- Pa Dept of Labor and Industry Onsite Oil Storage Tank Part of (1) Permission to construct SWPC Construction Permit (2) Permit for construction - ----------------------------------- -------------------------------------- ----------------------------------------- Conrail/Norfolk Southern Railroad Crossing Approval and Approval Agreements Pending Railspur Construction - ----------------------------------- -------------------------------------- ----------------------------------------- South Lebanon Township/Lebanon Onsite septic approval for sanitary Conceptually Approved County discharge - ----------------------------------- -------------------------------------- ----------------------------------------- Lebanon County Building Permit To be acquired prior to construction Planning Department - ----------------------------------- -------------------------------------- -----------------------------------------
Schedule 3.4 - 2 SCHEDULE 6.2 INSURANCE POLICIES I. GENERAL CONDITIONS: (a) If at any time any of the required insurance shall no longer be available on commercially reasonable terms (as confirmed by the Independent Insurance Advisor), the Company shall procure substitute insurance coverage reasonably satisfactory to the Independent Insurance Advisor that is the most equivalent to the required coverage and that is available on commercially reasonable terms. (b) All policies shall waive the rights of subrogation against the Collateral Agent. (c) All policies, except workers' compensation policies and automobile liability policies, shall name the Collateral Agent and the Power Purchaser as additional insureds. All policies protecting real and personal property or loss of income shall include a Lenders' Loss Payable provision, pursuant to a form agreed to by the Company and the Independent Insurance Advisor, for the benefit of the Collateral Agent. (d) All policies covering real and personal property and business interruption shall be endorsed to provide a minimum of 45 days' notice of cancellation, nonrenewal, or material change (restricting coverage) to the Collateral Agent. (e) All policies shall stipulate by endorsement or equivalent policy language that the additional insured status of the Collateral Agent or the Power Purchaser places no responsibility on the Collateral Agent or the Power Purchaser for the payment of policy premiums, nor does the action or failure to take action by any other insured or additional insured invalidate coverages under Sections II(a) or (b) or Sections III(a) or (b) for the Collateral Agent or the Power Purchaser under said policies. (f) A severability of interest clause or equivalent cross liability endorsement shall be included in each policy. (g) All policies shall be primary as respects coverage provided for the Project. (h) All policies shall be provided through insurance carriers rated "A-," "IX" or better by the Best's Insurance Guide and Key Rating Guides or other insurance companies reasonably acceptable to the Collateral Agent, in each case, which are authorized to do business in the Commonwealth of Pennsylvania. (i) Any policy under Section II(a) or (b) or Section III(a) or (b) shall stipulate by endorsement or equivalent policy language that following a Trigger Event (as defined in the Collateral Agency Agreement) and the exercise of remedies under the Security Documents, the Collateral Agent shall have the right to participate in the adjustment of all claims made under said policies. 6.2-1 (j) Any policy under Section II(a) or (b) or Section III(a) or (b) shall stipulate by endorsement or equivalent policy language that following a Trigger Event (as defined in the Collateral Agency Agreement) and the exercise of remedies under the Security Documents, said policies can be assigned to the Collateral Agent. II. CONSTRUCTION PERIOD INSURANCE: the following coverages shall be in effect on the date of this Indenture: (a) Builder's Risk. The Company shall maintain or cause to be maintained all-risk builder's risk insurance, covering physical loss or damage to the Facility for perils including but not limited to fire, lightning, hail, explosion, riot and civil commotion, vandalism and malicious mischief, theft, damage from aircraft (and other falling objects), inland transportation, vehicles, smoke, fire, flood, earthquake, landslide, Tsunami, windstorm, collapse, start-up and testing of the Facility and to any and all materials, supplies or equipment comprising the Facility or intended for installation into the Facility and covering all such materials, supplies or equipment during temporary storage and transit to or from the Site during erection and otherwise. Insurance maintained shall be written on a full replacement cost basis; provided such insurance may have a sub-limit of $100,000,000 in case of flood or earthquake. This insurance shall also include Maintenance Coverage for two (2) years following the first to occur of Provisional Acceptance, Interim Acceptance and Final Acceptance of the Facility. Policy Deductible amounts shall be based on a "per occurrence" basis not to exceed $500,000 for Equipment Start-up Testing, $250,000 for earthquake, $250,000 for windstorm, $250,000 for flood, and $250,000 for all other property damage losses, except that with respect to damage to the Row 1 and Row 2 blades and vanes or the steam cooled transition pieces of the 501G turbine generator, the maximum permitted deductible shall be $1,000,000. (b) Delayed Opening. As an extension of Section II(a) hereof or as a separate policy, the Company shall maintain or cause to be maintained cost of delayed opening insurance in an amount equal to 18 months projected continuing expenses and Senior Debt Service of the Company. This extension or policy shall include coverage for delays resulting from (i) damage to the Facility, (ii) damage to equipment while in transit and (iii) damage to any equipment while in storage away from the Site. The "Delay in Start-up" Deductible shall also be based on a "per occurrence" basis with Waiting Period Deductibles not to exceed thirty (30) days, except that such period may be up to (i) forty-five (45) days with respect to the 501G turbine generator and (ii) sixty (60) days with respect to the 501G turbine generator in the event its Row 1 and Row 2 blades and vanes or its steam cooled transition pieces have sustained damage. Earthquake and flood coverage are to be provided at the maximum limits commercially available. Coverage shall remain in effect until replaced by business interruption insurance as specified in Section III(b) hereof. (c) Comprehensive General Liability. The Company shall maintain or cause to be maintained comprehensive (or commercial) general liability insurance written on an occurrence basis and with a combined single limit of not less than $1,000,000 and a $2,000,000 general annual aggregate limit. Such coverage shall include premises/operations, explosion, collapse and underground hazards, broad form contractual, independent contractors, products/completed operations, broad form property damage and personal injury. Such policy shall be written on a 6.2-2 location specific basis and shall apply solely to the construction, use, operation and maintenance of the Facility and the Site. Coverage shall remain in effect until replaced by permanent insurance as specified in Section III(c) hereof. (d) Workers' Compensation and Employer's Liability. The Company shall maintain (i) workers' compensation insurance with statutory limits and (ii) employer's liability with limits of not less than $1,000,000 including occupational disease coverage. Coverage shall remain in effect until replaced by permanent insurance as specified in Section III(d) hereof. (e) Automobile Liability. The Company shall maintain comprehensive (or business) automobile liability insurance for owned (if any), nonowned and hired vehicles with combined single limits of not less than $1,000,000 and containing appropriate no-fault insurance provisions wherever applicable. Coverage shall remain in effect until replaced by permanent insurance as specified in Section III(e) hereof. (f) Umbrella Liability. The Company shall maintain or cause to be maintained excess (or umbrella) liability insurance written on an occurrence basis and providing coverage limits in excess of the coverage under the insurance specified in Sections II(c), (d)(ii) and (e) above. The limits of the insurance so specified and this excess (or umbrella) coverage, when combined, shall be not less than $19,000,000 per occurrence and aggregate annually. Such policy shall be written on a project specific basis naming the Company as the insured and shall apply solely to the construction, use, operation and maintenance of the Facility and the Property. Coverage shall remain in effect until replaced by permanent insurance as specified in Section III(f) hereof. (g) Contractor's Insurance. The Company shall cause the Contractor to obtain and maintain in full force and effect the additional insurance coverage required in the EPC Contract. III. OPERATING PERIOD INSURANCE: the following coverages shall be placed into effect upon transfer of care, custody and control of the Facility to the Company, and shall be maintained in effect at all times until all obligations of the Company pursuant to this Indenture, the Securities, the Collateral Agency Agreement and the other Security Documents have been fully discharged: (a) Property and Boiler and Machinery. The Company shall maintain or cause to be maintained all-risk property and boiler and machinery insurance, covering physical loss or damage to the Facility and transmission lines including but not limited to fire and extended coverage, lightning, hail, explosion, riot and civil commotion, vandalism and malicious mischief, theft, damage from aircraft (and other falling objects), vehicles, smoke, landslide, windstorm, collapse, earthquake, flood and comprehensive boiler and machinery (including electrical malfunction and mechanical breakdown). Such insurance shall cover any and all materials, supplies and equipment comprising the Facility. The all-risk property and boiler and machinery coverage shall not contain an exclusion for resultant damage caused by faulty workmanship, design or materials. Coverage shall be written on a full replacement cost basis; provided such insurance may have a sub-limit of $100,000,000 in case of flood or earthquake. Such policy shall contain a valid agreed amount endorsement waiving any coinsurance penalty. The policy may be subject to deductibles not to exceed $250,000 per occurrence, except that with respect to 6.2-3 the steam turbine generator where the maximum permitted deductible shall be $350,000 and the 501G turbine generator, where the maximum permitted deductible shall be $1,000,000; provided, that the maximum permitted deductible for the 501G turbine generator shall be $500,000 if such coverage is available on commercially reasonable terms. (b) Business Interruption. As an extension of Section III(a) above or as a separate policy, the Company shall maintain or cause to be maintained business interruption insurance in an amount equal to 18 months of debt service and fixed operation and maintenance expenses of the Company. This extension or separate policy shall include coverage for (i) business interruption arising from loss or damage to the Facility and (ii) contingent business interruption arising from damage to the property and equipment of customers and suppliers of the Facility, which is not covered by the insurance specified in Section III(a) above. This extension or separate policy shall also include coverage for expediting expenses and extra expense with a sublimit of $2,000,000. This extension or separate policy shall have a deductible not to exceed 60 days' business interruption. (c) Comprehensive General Liability. The Company shall maintain or cause to be maintained comprehensive (or commercial) general liability insurance written on an occurrence basis and with a combined single limit of not less than $1,000,000 (and $2,000,000 annual aggregate). Such coverage shall include premises/operations, explosion, collapse and underground hazards, broad form contractual, independent contractors, products/completed operations, broad form property damage and personal injury. Such policy shall be written on a project-specific basis. The Company and the Operator shall be named insureds on such policy. (d) Workers' Compensation and Employer's Liability. The Company shall maintain (i) workers' compensation insurance with statutory limits and (ii) employer's liability with limits of not less than $1,000,000 including occupational disease coverage. (e) Automobile Liability. The Company shall maintain comprehensive (or business) automobile liability insurance for owned (if any), nonowned and hired vehicles with combined single limits of not less than $1,000,000 and containing appropriate no-fault insurance provisions wherever applicable. (f) Umbrella Liability. The Company shall maintain or cause to be maintained project specific excess (or umbrella) liability insurance written on an occurrence basis and providing coverage limits in excess of the coverage under the insurance specified in Sections III(c), (d)(ii) and (e) above. The limits of the insurance so specified and this excess (or umbrella) coverage, when combined, shall not be less than $19,000,000 per occurrence and aggregate annually. The Company and Operator shall be named insureds on such policy. (g) Additional Insurance. The Company shall maintain in full force and effect any additional insurance coverage required by the Project Contracts. 6.2-4 Exhibit 5.1 EXHIBIT 5.1 FORM OF WIRE INSTRUCTIONS Payments from Construction Account to be paid on Closing, June 25, 1999. Disbursement Due Disbursement Amount Date Instructions - ------------ ---- ------------ EXECUTION COPY ================================================================================ FIRST SUPPLEMENTAL INDENTURE dated as of June 1, 1999 to TRUST INDENTURE dated as of June 1, 1999 among AES IRONWOOD, L.L.C., IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee and IBJ WHITEHALL BANK & TRUST COMPANY, as Depositary Bank ================================================================================ FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental Indenture"), dated as of June 1, 1999, to the Trust Indenture, dated as of June 1, 1999 (the "Original Indenture"), among AES IRONWOOD, L.L.C., a Delaware limited liability company (together with its successors and assigns, the "Company"), its principal office and mailing address being at 829 Cumberland Street, Lebanon, Pennsylvania 17042, IBJ WHITEHALL BANK & TRUST COMPANY (the "Trustee"), its corporate trust office and mailing address being at One State Street, New York, New York 10004, and IBJ WHITEHALL BANK & TRUST COMPANY, as depositary bank (the "Depositary Bank"), its office and mailing address being at One State Street, New York, New York 10004. W I T N E S S E T H: WHEREAS, the Company and the Trustee have heretofore executed and delivered the Original Indenture to provide for the issuance from time to time of the Company's Bonds (as defined in the Original Indenture) to be issued in one or more series; WHEREAS, Sections 2.1, 2.3 and 12.1 of the Original Indenture provide, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of establishing the designation, form, terms and provisions of Bonds of any series as permitted by Sections 2.1, 2.3 and 12.1 of the Original Indenture; WHEREAS, the Company (i) desires the issuance of one (1) series of Bonds to be designated as hereinafter provided and (ii) has requested the Trustee to enter into this First Supplemental Indenture for the purpose of establishing the designation, form, terms and provisions of the Bonds of such series; WHEREAS, all action on the part of the Company necessary to authorize the issuance of said Bonds under the Original Indenture and this First Supplemental Indenture (the Original Indenture, as supplemented by this First Supplemental Indenture, being hereinafter called the "Indenture") has been duly taken; and WHEREAS, all acts and things necessary to make said Bonds, when executed by the Company and authenticated and delivered by the Trustee as provided in the Original Indenture, the legal, valid and binding obligations of the Company, and to constitute these presents a valid and binding supplemental indenture according to its terms, have been done and performed, and the execution of this First Supplemental Indenture and the creation and issuance under the Indenture of said Bonds have in all respects been duly authorized, and the Company, in the exercise of the legal right and power vested in it, executes this First Supplemental Indenture and proposes to create, execute, issue and deliver said Bonds; NOW, THEREFORE, in order to establish the designation, form, terms and provisions of, and to authorize the authentication and delivery of, said Bonds, and in consideration of the acceptance of said Bonds by the holders thereof and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Indenture. ARTICLE II THE TERMS OF THE BONDS SECTION 2.1 Terms of 8.857% Senior Secured Bonds due 2025. (a) There is hereby created one (1) series of Bonds designated: 8.857% Senior Secured Bonds due 2025, in the aggregate principal amount of $308,500,000 (the "Senior Secured Bonds"). Upon delivery of a Company Order to the Trustee in accordance with the provisions of Section 2.4 of the Original Indenture, the Trustee shall authenticate and deliver the Senior Secured Bonds. Such Company Order shall specify the amount of the Senior Secured Bonds to be authenticated and the date on which such Bonds are to be authenticated. (b) The Senior Secured Bonds, if issued in certificated definitive form, shall be substantially in the form of Schedule A-1 hereto and, if issued in the form of one or more global Bonds, shall comply with the provisions of Section 2.2 and shall be substantially in the form of Schedule A-2. SECTION 2.2 Terms of Bonds Issued Hereunder in Global Form. (a) The Senior Secured Bonds offered and sold within the United States in reliance on Rule 144A ("Rule 144A") under the Securities Act of 1933, as amended (the "Securities Act") will be initially issued in the form of one or more permanent global Bonds (each, a "Global Bond") in fully registered form, without coupons, substantially in the form of Schedule A-2, which Global Bonds will be deposited on behalf of the purchasers of such Senior Secured Bonds represented thereby with the Trustee as custodian for, and registered in the name of, The Depository Trust Company ("DTC") or its nominee. (b) Beneficial interests in a Global Bond (and any Bonds issued in exchange therefor) will be subject to certain restrictions on transfer set forth therein and in the Original Indenture and as set forth on the form of the Global Bond. (c) Except in the limited circumstances described under Section 2.2(h) below, beneficial interest in a Global Bond will only be recorded by book-entry and owners of beneficial interest in a Global Bond will not be entitled to receive physical delivery of certificates representing the Bonds. (d) Upon the issuance of a Global Bond, DTC or its nominee will credit, on its internal system, the respective principal amount of the individual beneficial interests represented 2 by such Global Bond to the accounts of persons who have accounts with DTC. Ownership of beneficial interests in a Global Bond will be limited to persons who have accounts with DTC ("Agent Members") or persons who hold interests through Agent Members. Ownership of beneficial interests in a Global Bond will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of Agent Members) and the records of Agent Members (with respect to interests of persons other than Agent Members). (e) So long as DTC or its nominee is the registered owner or Holder of a Global Bond, DTC or its nominee, as the case may be, will be considered the sole owner or Holder of the Bonds represented by such Global Bond for all purposes under the Original Indenture and under the Bonds. No beneficial owner of an interest in a Global Bond will be able to transfer that interest except in accordance with DTC's applicable procedures unless the Company shall issue certificates for the Bonds in definitive registered form as under Section 2.2(h) below. (f) All payments of the principal of, and interest and additional amounts and premium, if any, on, a Global Bond will be made to DTC or its nominees, as the registered owners thereof. (g) Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds. (h) If (i) the Company notifies the Trustee in writing that DTC or any successor depository is unwilling or unable to continue as a depository for a Global Bond or ceases to be a "clearing agency" registered under the Exchange Act and a successor depository is not appointed by the Company within 90 days of such notice, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Bonds issued hereunder to be in certificated form or (iii) during an Event of Default, a holder of a beneficial interest in a Global Bond requests the issuance of certificated Bonds representing such holder's interest then, the Company shall issue certificates for the Bonds in definitive registered form substantially in the form of Schedule A-1 in exchange for the Global Bond outstanding. (i) The holder of a certificated definitive registered Bond may transfer such Bond in whole or part by surrendering it at the Corporate Trust Office of the Trustee in accordance with the terms of the Indenture and such Bond. Upon the transfer, exchange or replacement of definitive Bonds the Company will deliver only definitive Bonds that bear a restrictive legend unless there is delivered to the Company such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the Company, that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Bonds Act. (j) In case any certificated definitive Bond shall become mutilated, destroyed, lost or stolen, the provisions of Section 2.9 of the Original Indenture shall apply. (k) Certificated definitive Bonds may be in denominations of less than $100,000 to the extent any redemption has reduced such Holder aggregate holding of Bonds of the same series to less than $100,000. 3 (l) If any redemption affecting a series of Bonds would result in the amount to be paid to a Holder of such affected Bond in respect of such redemption not to equal $1,000 or an integral multiple thereof, the Company shall instruct the Trustee to round) the amount to be paid to such Holder to the nearest $1,000 so that the amount to be paid to such Holder equals $1,000 or an integral multiple thereof. SECTION 2.3 Interest, Principal, Maturity Date and Regular Record Date. Each Bond of a series created hereby shall bear interest on the unpaid principal amount thereof from time to time outstanding from the date of authentication thereof until such amount is paid in full at the rate of interest set forth in the forms of such series attached hereto. The principal amount of each Bond of a series shall be due and payable in installments as set forth in the form of Bond of such series attached hereto. Payment of principal of, premium, if any, and interest on each Bond shall be made, unless the Company otherwise so elects, as provided in Section 2.10 of the Original Indenture at the Corporate Trust Office of the Trustee except that the final payment of principal of any series of the Bonds shall be made on the due date therefor to the account of the Holder as such account shall appear in the Security Register, which amount shall be payable upon presentation and surrender of such Bond at the Corporate Trust Office of the Trustee. Each Bond of a series shall mature on the date and in the amounts set forth thereon. The Regular Record Date applicable to all Bonds issued hereunder shall be the Regular Record Date as defined in the Original Indenture. At the direction of the Company, the Trustee shall round principal amounts to be redeemed to the nearest $1,000. All payments of principal and interest with respect to certificated Bonds will be made by dollar check drawn on a bank in The City of New York or, for Bondholders of at least U.S.$1,000,000 in aggregate principal amount of Bonds, by wire transfer to a dollar account maintained by the payee with a bank in The City of New York; provided, that a written request from such Bondholder to such effect designating such account is received by the Trustee or the Paying Agent no later than the Regular Record Date immediately preceding such Bond Payment Date. Unless such designation is revoked, any such designation made by such person with respect to such certificated Bonds will remain in effect with respect to any future payments with respect to such certificated Bond payable to such person. SECTION 2.4 Redemption. (a) Optional Redemption. All Bonds issued hereunder are subject to optional redemption, in whole or in part, at any time at the option of the Company at a redemption price equal to the outstanding principal amount of the Bonds being so redeemed plus accrued and unpaid interest thereon to the Redemption Date together with the Make-Whole Premium applicable thereto. 4 (b) Mandatory Redemption. In accordance with the provisions of Section 7.3 of the Original Indenture, the Bonds issued hereunder are subject to mandatory redemption under certain conditions, on the terms set forth in Section 7.3(b), 7.3(c), 7.3(d) and 7.3(f) of the Original Indenture. ARTICLE III MISCELLANEOUS SECTION 3.1 Execution of Supplemental Indenture. This First Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this First Supplemental Indenture forms a part thereof. SECTION 3.2 Concerning the Trustee. The Trustee shall not be responsible in any manner for or with respect to the validity or sufficiency of this First Supplemental Indenture, or the due execution hereof by the Company, or for or with respect to the recitals and statements contained herein, all of which recitals and statements are made solely by the Company. SECTION 3.3 Counterparts. This First Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but all such counterparts shall together constitute but one and the same instrument. SECTION 3.4 GOVERNING LAW. THIS FIRST SUPPLEMENTAL INDENTURE AND EACH BOND ISSUED HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK. 5 IN WITNESS WHEREOF, the parties have caused this First Supplemental Indenture to be duly executed by their respective officers thereunder duly authorized as of the date and year first above written. AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------------- Name: Patricia L. Rollin Title: Vice President IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee By: /s/ Thomas McCutcheon ------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President IBJ WHITEHALL BANK & TRUST COMPANY, as Depositary Bank By: /s/ Thomas McCutcheon ------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President [FIRST SUPPLEMENTAL INDENTURE] Schedule A-1 Form of Certificated Bond THIS BOND (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM AND IN ANY EVENT MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH THE INDENTURE, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE IN NEW YORK, NEW YORK. EACH PURCHASER OF THIS BOND IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. EACH HOLDER OF THIS BOND REPRESENTS TO AES IRONWOOD, L.L.C. (THE "COMPANY") THAT (A) SUCH HOLDER WILL NOT SELL, PLEDGE OR OTHERWISE TRANSFER THIS BOND (WITHOUT THE CONSENT OF THE COMPANY) OTHER THAN (I) TO A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION COMPLYING WITH RULE 144A UNDER THE SECURITIES ACT, (II) IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, (III) OUTSIDE THE UNITED STATES OF AMERICA IN A TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT, (IV) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, SUBJECT, IN THE CASE OF CLAUSES (II), (III) OR (IV), TO THE RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH RESALE, PLEDGE, OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND THAT (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS BOND OF THE RESALE RESTRICTIONS REFERRED TO HEREIN AND DELIVER TO THE TRANSFEREE (OTHER THAN A QUALIFIED INSTITUTIONAL BUYER) PRIOR TO THE SALE A COPY OF A NOTICE TO INVESTORS (COPIES OF WHICH MAY BE OBTAINED FROM THE TRUSTEE). A1-1 AES IRONWOOD, L.L.C. 8.857% SENIOR SECURED BOND DUE 2025 $0 CUSIP No. [_____________] AES IRONWOOD, L.L.C., a Delaware limited liability company (the "Company"), for value received, hereby promises to pay to the holder of this Bond or registered assigns, the principal sum of Zero Dollars ($0) in consecutive quarterly installments on February 28, May 31, August 31 and November 30 of each year (each such date being a "Bond Payment Date"), beginning August 31, 1999, in an amount equal to the amount thereof specified for such date on Annex 1 hereto until the outstanding principal hereof is repaid in full, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay on each Bond Payment Date occurring after the date hereof at said offices or agencies to the registered owner hereof, in like coin or currency, interest on the outstanding principal hereof from the date of issuance hereof at the rate of 8.857% per annum. The final maturity hereof shall be November 30, 2025. All payments of principal of, premium, if any, and interest on this Bond shall be made at the Corporate Trust Office of the Trustee. The provisions of this Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This Bond shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Authentication Certificate hereon shall have been signed by or on behalf of the Trustee. IN WITNESS WHEREOF, the Company has caused this Bond to be signed in its name by its Authorized Officer. Dated: ____________, 1999 AES IRONWOOD, L.L.C. By: ------------------------------- Name: Title: A1-2 TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the Bonds referred to in the within-mentioned Indenture. IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee By: ------------------------------- Authorized Officer A1-3 Reverse of Certificated Bond AES IRONWOOD, L.L.C. 8.857% SENIOR SECURED BOND DUE 2025 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its certificated 8.857% Senior Secured Bonds Due 2025 (collectively, the "Bonds"), all issued and to be issued under and equally secured (except as to any sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the Bonds of any particular series) by a Trust Indenture, dated as of June 1, 1999, executed and delivered between the Company, and IBJ Whitehall Bank & Trust Company, as Trustee and Depositary Bank (the "Original Indenture"), as amended and supplemented by the First Supplemental Indenture, dated as of June 1, 1999, to which the Original Indenture is so amended and supplemented (herein collectively referred to as the "Indenture"). A description of the rights of the Bondholders and the terms and conditions upon which the Bonds are issued are set forth in the Indenture. Capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Indenture. THE BONDS ARE SUBJECT TO OPTIONAL AND MANDATORY REDEMPTION AND PREPAYMENT AS PROVIDED IN THE INDENTURE. As more fully described in the Indenture, the Company has the right, without the consent of the Bondholders, to amend the Indenture in certain respects. As more fully described in the Indenture, with the consent of Bondholders of not less than a majority in aggregate principal amount of the Bonds of all series then Outstanding, the Company may amend the Indenture in any other respect; provided, however, that no amendment shall, without the consent of the Bondholder of each Outstanding Bond, (1) change the maturity date of any Bond, or change the amount, of any payment of principal, interest or premium, if any, on any Bond, (2) permit the creation of any lien on the Collateral not otherwise permitted, prior to or on a parity with the lien of the Indenture, or terminate the lien of the Indenture, (3) reduce the percentage of the principal amount of Bonds the Bondholders of which are required to approve any such amendment or (4) waive a Default in the payment of principal, interest or premium, if any, or the remedies available in the case of an Event of Default. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, including an acceleration of payment of the principal upon the occurrence and during the continuance of an Event of Default as in the Indenture provided. Recourse under this Bond is limited as set forth under the Indenture. Satisfaction of the obligations of the Company under this Indenture, for the payment of the principal of or premium, if any, or interest on any Bonds, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be had solely from the Collateral and the assets of the Company and no recourse shall be had in the event of any non-performance by the Company of A1-4 any such obligations to (i) any assets or properties of the Members (or any Person that controls any Member within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) or (ii) any Affiliate of the Company or any incorporators, officers, directors or employees thereof, and no judgment for any deficiency upon the obligations of the Company under this Indenture, for the payment of the principal of or premium, if any, or interest on any Bonds, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be obtainable by the Bondholders or the Trustee against any Member or Affiliate of the Company or any other incorporator, stockholder, officer, employee or director, past, present or future of the Company or any Affiliate of the Company; provided, however, that nothing contained herein shall prevent the taking of any action permitted by law against the Company or any of its Affiliates, or in any way affect or impair the rights of the Trustee or Bondholders to take any action permitted by law, in either case to realize upon the collateral and, provided further, that nothing herein shall be deemed to affect the obligations of any Affiliate of the Company under any Transaction Document to which such Affiliate is a party. The Bonds are issuable only as registered bonds without coupons in denominations of $100,000 and integral multiples of $1,000 in excess thereof and authorized multiples thereof. This Bond is transferable as prescribed in the Indenture by the registered owner hereof, in person or by attorney duly authorized, at the Corporate Trust Office of the Trustee upon surrender and cancellation of this Bond, and thereupon a new registered Bond or Bonds for a like principal amount in authorized denominations will be issued to the transferee in exchange therefor, as provided in the Indenture, and upon payment, if the Company shall require it, of the transfer charges therein prescribed. The Company and the Trustee shall deem and treat the person in whose name this Bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Registered Bonds shall be exchangeable at said office of the Trustee for registered Bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. Notwithstanding any provision of the Indenture, (a) neither the Company nor the Trustee shall be required to make transfers or exchanges of Bonds during the period between any interest payment date for such Bonds and the Regular Record Date next preceding such interest payment date, and (b) no charge shall be made upon any transfer or exchange of Bonds other than for any tax or taxes or other government charges required to be paid by the Company. All payments of principal and interest with respect to certificated Bonds will be made by dollar check drawn on a bank in The City of New York or, for Bondholders of at least U.S.$1,000,000 in aggregate principal amount of Bonds, by wire transfer to a dollar account maintained by the payee with a bank in The City of New York; provided, that a written request from such Bondholder to such effect designating such account is received by the Trustee or the Paying Agent no later than the Regular Record Date immediately preceding such Bond Payment Date. Unless such designation is revoked, any such designation made by such person with respect to such certificated Bonds will remain in effect with respect to any future payments with respect to such certificated Bond payable to such person. A1-5 ANNEX 1 PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT PAYABLE
YEAR FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 ANNUAL TOTAL ---- ----------- ------ --------- ----------- ------------ 2001 0.0000% 0.0000% 0.0000% 0.0000% 0.0000% 2002 0.1600% 0.1600% 0.1600% 0.1600% 0.6400% 2003 0.3850% 0.3850% 0.3850% 0.3850% 1.5400% 2004 0.5150% 0.5150% 0.5150% 0.5150% 2.0600% 2005 0.5700% 0.5700% 0.5700% 0.5700% 2.2800% 2006 0.5800% 0.5800% 0.5800% 0.5800% 2.3200% 2007 0.7400% 0.7400% 0.7400% 0.7400% 2.9600% 2008 0.9200% 0.9200% 0.9200% 0.9200% 3.6800% 2009 0.7800% 0.7800% 0.7800% 0.7800% 3.1200% 2010 0.8150% 0.8150% 0.8150% 0.8150% 3.2600% 2011 1.0300% 1.0300% 1.0300% 1.0300% 4.1200% 2012 0.7600% 0.7600% 0.7600% 0.7600% 3.0400% 2013 0.9600% 0.9600% 0.9600% 0.9600% 3.8400% 2014 1.2900% 1.2900% 1.2900% 1.2900% 5.1600% 2015 1.2400% 1.2400% 1.2400% 1.2400% 4.9600% 2016 1.3550% 1.3550% 1.3550% 1.3550% 5.4200% 2017 1.4650% 1.4650% 1.4650% 1.4650% 5.8600% 2018 1.0100% 1.0100% 1.0100% 1.0100% 4.0400% 2019 1.2050% 1.2050% 1.2050% 1.2050% 4.8200% 2020 1.6250% 1.6250% 1.6250% 1.6250% 6.5000% 2021 1.6500% 1.6500% 1.2000% 1.2000% 5.7000% 2022 1.3900% 1.3900% 1.3900% 1.3900% 5.5600% 2023 1.5000% 1.5000% 1.5000% 1.5000% 6.0000% 2024 1.5500% 1.5500% 1.5500% 1.5500% 6.2000% 2025 1.7300% 1.7300% 1.7300% 1.7300% 6.9200% ======= 100%
At the direction of the Company, the Trustee shall round principal amounts to be redeemed to the nearest $1,000. A1-6 Schedule A-2 Form of Global Bond Schedule A-2--Form of Global Bond is filed as Exhibit 4.5 to this Registration Statement. A2-1 EX-4.2 4 COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT Exhibit 4.2 EXECUTION COPY - ------------------------------------------------------------------------------- COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT Dated as of June 1, 1999 among AES IRONWOOD, L.L.C., IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee, DRESDNER BANK AG, NEW YORK BRANCH, as DSR LOC Provider, DRESDNER BANK AG, NEW YORK BRANCH, as CP LOC Provider, IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent, and IBJ WHITEHALL BANK & TRUST COMPANY, as Depositary Bank - ------------------------------------------------------------------------------- 705 MW (Net) Gas-Fired Combined Cycle Electric Generating Facility South Lebanon Township, Lebanon County, Pennsylvania TABLE OF CONTENTS
Page ------ ARTICLE I DEFINITIONS.............................................................................................2 SECTION 1.1 DEFINITIONS........................................................................................2 ARTICLE II SECURITY INTERESTS AND EXERCISE OF RIGHTS..............................................................8 SECTION 2.1 SHARING; PRIORITY OF SECURITY INTERESTS............................................................8 SECTION 2.2 SUBORDINATED DEBT..................................................................................8 SECTION 2.3 EXERCISE OF RIGHTS UNDER SECURITY DOCUMENTS........................................................9 SECTION 2.4 RIGHTS OF SENIOR PARTIES..........................................................................11 SECTION 2.5 CERTAIN AMENDMENTS................................................................................12 ARTICLE III ACCOUNTS.............................................................................................12 SECTION 3.1 ESTABLISHMENT OF PROJECT ACCOUNTS.................................................................12 SECTION 3.2 INVESTMENT OF FUNDS IN THE PROJECT ACCOUNTS.......................................................13 SECTION 3.3 VALUATION AND SALE OF INVESTMENTS.................................................................13 SECTION 3.4 POSSESSION OF ACCOUNTS; LIQUIDATION...............................................................14 SECTION 3.5 THE DEPOSITARY BANK; LIMITED COMPANY RIGHTS.......................................................14 SECTION 3.6 ADVANCES..........................................................................................16 SECTION 3.7 COLLECTION OF PROJECT REVENUES....................................................................17 SECTION 3.8 CONSTRUCTION ACCOUNT..............................................................................17 SECTION 3.9 PAYMENTS ON COMMERCIAL OPERATION DATE.............................................................19 SECTION 3.10 REVENUE ACCOUNT..................................................................................20 SECTION 3.11 OPERATING AND MAINTENANCE ACCOUNT................................................................22 SECTION 3.12 DEBT SERVICE RESERVE ACCOUNT.....................................................................22 SECTION 3.13 MAJOR MAINTENANCE RESERVE ACCOUNT................................................................25 SECTION 3.14 DISTRIBUTION ACCOUNT.............................................................................25 SECTION 3.15 RESTORATION ACCOUNT..............................................................................27 SECTION 3.16 FUEL CONVERSION VOLUME REBATE ACCOUNT............................................................30 SECTION 3.17 SUBORDINATED DEBT ACCOUNT........................................................................30 ARTICLE IV APPLICATION OF CERTAIN PROCEEDS.......................................................................30 SECTION 4.1 DIVISION OF FORECLOSURE PROCEEDS AND PROCEEDS UNDER THE WILLIAMS GUARANTY.........................30 SECTION 4.2 APPLICATION OF CASUALTY PROCEEDS AND EMINENT DOMAIN PROCEEDS......................................31 SECTION 4.3 APPLICATION OF BUY-DOWN AMOUNTS...................................................................33 ARTICLE V COLLATERAL AGENT; DEPOSITARY BANK......................................................................36 SECTION 5.1 APPOINTMENT AND DUTIES OF COLLATERAL AGENT AND DEPOSITARY BANK....................................36 SECTION 5.2 RIGHTS OF COLLATERAL AGENT........................................................................37 SECTION 5.3 LACK OF RELIANCE ON THE COLLATERAL AGENT..........................................................39 SECTION 5.4 INDEMNIFICATION...................................................................................40 SECTION 5.5 RESIGNATION OF THE COLLATERAL AGENT OR DEPOSITARY BANK............................................41 SECTION 5.6 REMOVAL OF THE COLLATERAL AGENT OR DEPOSITARY BANK................................................42 SECTION 5.7 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.......................................42 SECTION 5.8 POWER OF ATTORNEY.................................................................................42 ARTICLE VI REPRESENTATIONS AND WARRANTIES........................................................................43 SECTION 6.1 REPRESENTATIONS AND WARRANTIES....................................................................43 ARTICLE VII MISCELLANEOUS........................................................................................45 SECTION 7.1 AGREEMENT FOR BENEFIT OF PARTIES HERETO...........................................................45 SECTION 7.2 NO WARRANTIES.....................................................................................45 i TABLE OF CONTENTS Page ---- SECTION 7.3 SEVERABILITY......................................................................................46 SECTION 7.4 NOTICES...........................................................................................46 SECTION 7.5 SUCCESSORS AND ASSIGNS............................................................................47 SECTION 7.6 COUNTERPARTS......................................................................................47 SECTION 7.7 GOVERNING LAW.....................................................................................47 SECTION 7.8 IMPAIRMENTS OF OTHER RIGHTS.......................................................................48 SECTION 7.9 AMENDMENT; WAIVER.................................................................................48 SECTION 7.10 HEADINGS.........................................................................................48 SECTION 7.11 TERMINATION......................................................................................48 SECTION 7.12 ENTIRE AGREEMENT.................................................................................48 SECTION 7.13 LIMITATION OF LIABILITY..........................................................................48 SECTION 7.14 REPLACEMENT AND/OR REMOVAL OF INDEPENDENT ENGINEER; PAYMENT OF INDEPENDENT ENGINEER..............49 SECTION 7.15 THIRD-PARTY ENGINEER DISPUTE RESOLUTION..........................................................49 EXHIBITS Exhibit 2.1 Form of Designation Letter Exhibit 2.2 Terms of Subordination Exhibit 2.3 Form of Senior Party Certificate Exhibit 3.6(a) Form of Guaranty Exhibit 3.6(b) Form of Letter of Credit Exhibit 3.8 Form of Requisition Exhibit 3.15 Form of Restoration Certificate Exhibit 4.3 Form of Performance Enhancement Certificate Exhibit 7.14 Third-Party Engineers
ii COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT, dated as of June 1, 1999 (this "Agreement"), among AES IRONWOOD L.L.C., a Delaware limited liability corporation (the "Company"), IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee (the "Trustee"), DRESDNER BANK AG, NEW YORK BRANCH, in its capacity as Agent for the banks (including the DSR LOC Issuing Bank) under the DSR LOC Reimbursement Agreement (the "DSR LOC Provider"), DRESDNER BANK AG, NEW YORK BRANCH, in its capacity as Agent for the banks (including the CP LOC Issuing Bank) under the CP LOC Reimbursement Agreement (the "CP LOC Provider"), IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent (the "Collateral Agent") and IBJ WHITEHALL BANK & TRUST COMPANY, as Depositary Bank (the "Depositary Bank"). W I T N E S S E T H: WHEREAS, the Company is constructing and will own a gas-fired combined cycle electric generating facility in South Lebanon Township, Lebanon County, Pennsylvania, with a net design capacity of approximately 705 megawatts and related property and facilities; WHEREAS, the Company intends to finance the construction and equipping of the Facility primarily through the issuance of the Bonds, the net proceeds of which, shall be received by the Company; WHEREAS, the Company has duly authorized the creation and issuance of the Bonds pursuant to the Indenture; WHEREAS, in connection with the authentication and delivery of the first Bonds to be authenticated and delivered by the Trustee under the Indenture, the Company will deliver (i) the DSR Letter of Credit, which the DSR LOC Issuing Bank has agreed to issue subject to the terms and conditions contained in the DSR LOC Reimbursement Agreement, and (ii) the CP Letter of Credit, which the CP LOC Issuing Bank has agreed to issue subject to the terms and conditions contained in the CP LOC Reimbursement Agreement; WHEREAS, all obligations of the Company under the Indenture, the DSR LOC Reimbursement Agreement, the CP LOC Reimbursement Agreement and this Agreement will be secured as set forth in the Security Documents pursuant to which the Collateral Agent has been granted a Security Interest in the Collateral; and WHEREAS, the parties hereto desire to enter into this Agreement to set forth their mutual understanding with respect to (i) the exercise of certain rights, remedies and options by the respective parties hereto under the above described documents, (ii) the priority of their respective security interests created by the Security Documents, (iii) the appointment of the Collateral Agent and (iv) the appointment of the Depositary Bank. 1 NOW, THEREFORE, for and in consideration of the premises and of the covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, covenant and agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. The following terms shall have the meanings specified herein unless the context otherwise requires. Capitalized terms not otherwise defined herein shall have the meanings specified in the Indenture in the form of such terms as they exist on the date hereof; provided, however, that defined terms from the Indenture that have been added or amended subsequent to the date hereof shall have such added or amended meanings herein upon compliance with the provisions of Section 5.1(d). For the purposes of this Agreement, the rules of construction set forth in the Indenture shall apply as if such rules were set forth herein. "Acceptable Credit Provider" means (i) in the case of an unconditional guaranty, AES (if and for so long as its long-term unsecured debt is rated at least Investment Grade and not lower than the then current lowest rating of the Bonds by each of S&P and Moody's) and (ii) in the case of an irrevocable letter of credit, a bank or trust company with a combined capital and surplus of at least $1,000,000,000 whose long-term unsecured debt is rated at least "A" by S&P or "A2" by Moody's. "Acceptable Credit Support" means (i) an unconditional guaranty substantially in the form of Exhibit 3.6(a) or (ii) an irrevocable letter of credit substantially in the form of Exhibit 3.6(b) (which is not an obligation of the Company and is not secured by the Collateral), in each case from an Acceptable Credit Provider. Each Acceptable Credit Support delivered under this Agreement shall clearly specify the Advance to which such Acceptable Credit Support relates. "Advances" has the meaning specified in Section 3.6. "Authorized Representative" of any Person means the individual or individuals authorized to act on behalf of such Person by the board of directors, management committee, board of control or any other governing body of such Person as designated from time to time in a certificate of such Person with specimen signatures and delivered to the Collateral Agent and upon which the Collateral Agent may conclusively rely. "Available Accounts" means the Project Accounts other than the Construction Account and the Debt Service Reserve Account. "Available Cash Flow" means, with respect to each application of funds required under this Agreement as of any specified date, all funds remaining in the Revenue Account as of such 2 date and available to be applied as set forth in this Agreement after all prior applications of funds in the Revenue Account required on such date. "Bond Payment Date" means February 28, May 31, August 31 and November 30 of each year commencing on August 31, 1999, on which interest on and/or principal of the Bonds shall be payable in accordance with the Indenture. "Certificate as to Redemption" means the certificate filed by an Authorized Representative of the Company in the case of an Event of Loss or an Event of Eminent Domain in order to determine (i) whether the Facility can be rebuilt, repaired or restored and (ii) the availability of Casualty Proceeds or Eminent Domain Proceeds for such rebuilding, repairing or restoring. "Claims" means with respect to any Person, any and all suits, sanctions, legal proceedings, claims, assessments, judgments, damages, penalties, fines, liabilities, demands, out-of-pocket costs, reasonable out-of-pocket expenses of whatever kind (including reasonable attorneys' fees and expenses) and losses incurred or sustained by or against such Person. "Collateral Agent" has the meaning specified in the preamble of this Agreement. "Collateral Agent Claims" means all obligations of the Company, now or hereafter existing, to pay fees, costs, expenses, liabilities or indemnities to the Collateral Agent under the Collateral Agency Agreement. "Combined Exposure" means, as of any date of calculation, the sum (calculated without duplication) of the following, to the extent the same is held by or represented by a Senior Party: (i) the aggregate principal amount of all Outstanding Bonds; (ii) the aggregate principal amount of all outstanding Permitted Indebtedness (other than the Bonds, DSR LOC Loans, DSR LOC Term Loans, DSR Bonds, CP LOC Loans, Subordinated Debt and Affiliate Subordinated Debt); (iii) the aggregate amount of all available undrawn financing commitments under the documents governing the Permitted Indebtedness (other than the Bonds, Subordinated Debt, Affiliate Subordinated Debt, the DSR LOC Reimbursement Agreement and the CP LOC Reimbursement Agreement) which the creditors party to such documents have no right to terminate; (iv) the maximum amounts available to be drawn under the DSR Letter of Credit and the CP Letter of Credit (taking into account, without duplication, in the case of the DSR Letter of Credit, the maximum amount which may become available to be drawn in the future by reason of an increase in the DSRA Required Balance); and (v) the amount, without duplication, of unreimbursed drawings under the DSR Letter of Credit and the CP Letter of Credit. "Commercial Operation Certificate" has the meaning specified in Section 3.9. "Company" has the meaning specified in the preamble of this Agreement. "Construction Account" means the Construction Account established pursuant to Section 3.1. 3 "Contract" means any agreement, lease, license, evidence of Debt, indenture or other contract (including any design, construction, equipment, or other warranty or guarantee under any of the foregoing). "CP LOC Loan" has the meaning specified in the CP LOC Reimbursement Agreement. "CP LOC Provider" has the meaning specified in the preamble of this Agreement. "CP LOC Reimbursement Fund" means the CP LOC Reimbursement Fund established pursuant to Section 3.1. "Debt Service Coverage Ratio" means for any period, without duplication, a ratio the numerator of which is Cash Available for Debt Service for that period and the denominator of which is principal, interest and commitment fees, underwriting fees and other similar fees due for such period on the Bonds and other Permitted Indebtedness which ranks pari passu with the Bonds. "Debt Service Reserve Account" means the Debt Service Reserve Account established pursuant to Section 3.1. "Depositary Bank" has the meaning specified in the preamble to this Agreement. "Designation Letter" means a "Designation Letter" in the form of Exhibit 2.1, pursuant to which a Person agrees to be bound by the terms of this Agreement. "Distribution Account" means the Distribution Account established pursuant to Section 3.1. "Distribution Conditions" has the meaning specified in Section 3.14. "DSR Bond" has the meaning specified in the DSR LOC Reimbursement Agreement. "DSR LOC Loan" has the meaning specified in the DSR LOC Reimbursement Agreement. "DSR LOC Provider" has the meaning specified in the preamble of this Agreement. "DSR LOC Reimbursement Fund" means the DSR Reimbursement Fund established pursuant to Section 3.1. "DSR LOC Term Loan" has the meaning specified in the DSR LOC Reimbursement Agreement. "Equity Contribution" means the equity contribution required to be made by AES Ironwood under the Equity Subscription Agreement. "Event of Default" means, so long as there are any Financing Commitments or any Financing Liabilities outstanding under such documents, an "Event of Default" as such term is 4 defined in the Indenture, an "Event of Default" as such term is defined in the DSR LOC Reimbursement Agreement, an "Event of Default" as such term is defined in the CP LOC Reimbursement Agreement or an "Event of Default" or equivalent term under any working capital facility. "EWG" means "exempt wholesale generator," as defined in Section 32(a) of PUHCA. "Excess Amount" has the meaning specified in Section 3.12(j). "Fair Market Value" has the meaning specified in the Power Purchase Agreement. "Financing Commitment" means any commitment pursuant to the Financing Documents to provide credit to the Company including, but not limited to, (i) the Stated Amount of the DSR Letter of Credit and the CP Letter of Credit and (ii) the obligation of the DSR LOC Provider to issue the DSR Letter of Credit, to reinstate the DSR Letter of Credit upon the reimbursement of drawings thereunder, and to increase the amount of the DSR Letter of Credit from time to time by reason of an increase in the DSRA Required Balance. "Financing Liabilities" means all indebtedness, liabilities and obligations of the Company (of whatsoever nature and howsoever evidenced including, but not limited to, principal, interest, fees, reimbursement obligations, collateralization or deposit obligations, penalties, indemnities and legal expenses, whether due after acceleration or otherwise) under or pursuant to the Indenture, the Bonds and any evidence of indebtedness thereunder entered into, the DSR LOC Reimbursement Agreement and any evidence of indebtedness thereunder entered into, the CP LOC Reimbursement Agreement and any evidence of indebtedness thereunder entered into, the Collateral Agency Agreement and any evidence of indebtedness thereunder entered into, any working capital facility and any evidence of indebtedness thereunder entered into, and the Security Documents, to the extent arising on or prior to the Final Maturity Date, in each case, direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or relating to any such agreements. "Fuel Conversion Payment Volume Rebate Account" means the Fuel Conversion Payment Volume Rebate Account established pursuant to Section 3.1. "Indenture" means the Trust Indenture, by and among the Company, the Trustee and the Depositary Bank. "Liabilities" means, as to any Person, all Debt, obligations and any other liabilities of such Person (whether absolute, accrued, contingent, fixed or otherwise, and whether due or to become due). "Major Maintenance Reserve Account" means the Major Maintenance Reserve Account established pursuant to Section 3.1. "Maximum Stated Amount" has the meaning specified in the DSR LOC Reimbursement Agreement. 5 "Operating and Maintenance Account" means the Operating and Maintenance Account established pursuant to Section 3.1. "Performance Enhancement Certificate" means a certificate of the Company substantially in the form of Exhibit 4.3. "Project Accounts" has the meaning specified in Section 3.1. "PUHCA" means the Public Utility Holding Company Act of 1935. "Required Senior Parties" means, at any time, Persons that at such time hold at least a majority of the Combined Exposure. "Requisition" has the meaning specified in Section 3.8(b). "Responsible Officer" when used with respect to the Collateral Agent, means any officer in the corporate trust and agency group (or any successor group) of the Collateral Agent including without limitation, any vice president, assistant vice president, assistant treasurer, assistant secretary or any other officer of the Collateral Agent customarily performing functions similar to those performed by any of the above designated officers, and with respect to a particular corporate trust matter, also means any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restoration Account" means the Restoration Account established pursuant to Section 3.1. "Restoration Certificate" means a certificate of the Company substantially in the form of Exhibit 3.15. "Revenue Account" means the Revenue Account established pursuant to Section 3.1. "Secured Obligations" means, collectively, the Financing Liabilities, the Trustee Claims, the DSR LOC Provider Claims, the CP LOC Provider Claims and the Collateral Agent Claims. "Security Interest" means any perfected and enforceable Lien on Collateral granted to a Senior Party pursuant to any applicable Security Document. "Senior Debt Termination Date" means the date on which all Financing Liabilities, other than contingent liabilities and obligations which are unasserted at such date, have been paid and satisfied in full and all Financing Commitments have been terminated, including, without limitation, the termination or expiration of the DSR Letter of Credit and the CP Letter of Credit. "Senior Documents" has the meaning specified in Section 6.1. "Senior Parties" means, collectively, the Trustee, the Collateral Agent, the Depositary Bank, the DSR LOC Provider, the CP LOC Provider and any working capital provider and each successor to any of such Persons. 6 "Senior Party Certificate" means a certificate of a Senior Party substantially in the form of Exhibit 2.3, signed by an Authorized Representative of such Senior Party, (i) setting forth the principal amount of the Financing Liabilities owed to such Senior Party as of the date of such certificate and the outstanding unutilized commitments to extend credit to the Company or the Company by such Senior Party as of the date of such certificate, (ii) setting forth a contact person for such Senior Party and including phone and facsimile numbers for such person, (iii) directing the Collateral Agent to take a specified action and (iv) stating specifically the action the Collateral Agent is directed to take and the Security Document and the provision thereof pursuant to which the Collateral Agent is being directed to act. "Stated Amount" means in respect of the DSR Letter of Credit, the "Stated Amount" as defined in the DSR LOC Reimbursement Agreement, and in respect of the CP LOC Letter of Credit, the "Stated Amount" as defined in the CP LOC Reimbursement Agreement. "Step-Up Event" means, in respect of any DSR Letter of Credit, (i) such DSR Letter of Credit has not been extended or replaced within 45 days prior to the termination date of such DSR Letter of Credit or (ii) the credit rating of the DSR LOC Issuing Bank is less than the Required Rating and such DSR Letter of Credit has not been replaced within 45 days of the failure to satisfy the requirements of the Required Rating with a replacement letter of credit issued by an issuer that satisfies the requirements of the Required Rating, and, in each case, the Collateral Agent has drawn on such DSR Letter of Credit in an amount sufficient to fund the Debt Service Reserve Account up to the DSRA Required Balance. "Subordinated Debt Account" means the Subordinated Debt Account established pursuant to Section 3.1. "Tax Reimbursements" has the meaning specified in Section 3.14. "Taxes" or "Tax" means any tax, charge, impost, tariff, duty or fee of any kind charged, imposed or levied, directly or indirectly, by any Governmental Authority, including any value-added tax, sales tax, stamp duty, import duty, withholding tax (whether on income, dividends, interest payments, fees, equipment rentals or otherwise), tax on foreign currency loans or foreign exchange transactions, excise tax, property tax, registration fee or license, water tax or environmental, energy or fuel tax including any interest, penalties or other additions thereon. "Terms of Subordination" means the Terms of Subordination attached hereto as Exhibit 2.2. "Trigger Event" means (i) an "Event of Default" under the Indenture and an acceleration of the indebtedness issued thereunder, (ii) an "Event of Default" under the DSR LOC Reimbursement Agreement and an acceleration of the indebtedness incurred by the Company thereunder, (iii) an "Event of Default" under the CP LOC Reimbursement Agreement and an acceleration of the indebtedness incurred by the Company thereunder, (iv) an "Event of Default" or the equivalent under any working capital facility and an acceleration of the indebtedness entered into thereunder or (v) a Bankruptcy Event in respect of the Company and the expiration of the shortest applicable grace period. 7 "Trustee" has the meaning specified in the preamble of this Agreement. "UCC" means the Uniform Commercial Code as is in effect from time to time in the State of New York and any other jurisdiction the laws of which control the creation or perfection of security interests under the Security Documents. ARTICLE II SECURITY INTERESTS AND EXERCISE OF RIGHTS SECTION 2.1 Sharing; Priority of Security Interests. (a) Each Senior Party agrees that, (i) as among the Senior Parties, the Security Interest of each Senior Party in any Collateral ranks and will rank equally in priority with the Security Interest of the other Senior Parties in the same Collateral and (ii) in respect of matters voted on by the Senior Parties collectively, the Trustee shall vote all Bonds according to the votes of a majority of Bondholders voting. (b) The priorities specified herein are applicable irrespective of any statement in any Security Document or in any other agreement to the contrary, the time or order or method of attachment or perfection of Liens, the time or order of filing of financing statements or the giving or failure to give notice of the acquisition or expected acquisition of purchase money or other security interests. (c) The Company hereby covenants and agrees to cause each person holding Senior Debt to become a party to this Agreement by executing a Designation Letter and becoming a Senior Party hereunder. SECTION 2.2 Subordinated Debt. Notwithstanding any provision in any Transaction Document to the contrary, the Senior Parties hereby agree that (i) the Subordinated Debt Providers shall be entitled to share in the Collateral or any other payment, security or guarantee from the Company or any of its Affiliates only to the extent provided in, and only in accordance with, Articles III and IV and the Terms of Subordination and (ii) the Subordinated Debt Providers shall not be entitled to vote or take any actions pursuant to this Agreement or any other Security Document, or take any other actions with respect to the Collateral until such time as all of the Secured Obligations owing to all of the Senior Parties have been satisfied in full. Each Subordinated Debt Provider agrees to be bound by the Terms of Subordination and agrees that such Terms of Subordination shall be explicitly incorporated into the Subordinated Loan Agreement to which it is a party. Each party becoming a Subordinated Debt Provider pursuant to a Designation Letter shall agree, in such Designation Letter, to be bound by such Terms of Subordination. 8 SECTION 2.3 Exercise of Rights Under Security Documents. So long as any Secured Obligations remain outstanding, the following provisions shall apply: (a) Subject to Section 5.2(e), if a Trigger Event shall have occurred and be continuing, and only in such event, upon the written direction of the Required Senior Parties contained in Senior Party Certificates, the Collateral Agent, on behalf of the Trustee, the DSR LOC Provider, the CP LOC Provider and any other Senior Party that is a party to this Agreement, as applicable, shall be permitted and is hereby authorized to take any and all actions and to exercise any and all rights, remedies and options which it may have under the Security Documents or this Agreement; provided, however, that if the underlying event which caused the Trigger Event is a Bankruptcy Event in respect of the Company of which the Collateral Agent shall have received written notice, no written request of the Required Senior Parties shall be required in order for the Collateral Agent following such Trigger Event to take any and all actions and to exercise any and all rights and remedies specified in the Security Documents or this Agreement to be taken in such circumstances. Nothing contained herein shall be construed as restricting the right of any Senior Party to cause the acceleration, in accordance with the applicable Senior Document, of the Senior Debt held by such Party, or in the case of the DSR LOC Provider and the CP LOC Provider, to terminate the DSR Letter of Credit or CP Letter of Credit (after giving any required notice to the beneficiary thereof), as the case may be, or to terminate the ability of the Company to continue any DSR Loans (as defined in the DSR LOC Reimbursement Agreement) as, or to convert DSR Loans to Eurodollar Loans (as defined in the DSR LOC Reimbursement Agreement), or in the case of the DSR LOC Provider, to terminate the ability of the Company to cause the reinstatement of the DSR Letter of Credit. (b) The Senior Parties hereby agree to give each other and the Collateral Agent written notice of the occurrence of an Event of Default and of a Trigger Event as soon as practicable after the occurrence thereof; provided, however, that the failure to provide such notice shall not limit or impair the rights of the Senior Parties hereunder or under the Financing Documents. (c) Each Senior Party hereby acknowledges and agrees that all funds held by the Trustee in accordance with Article 5 of the Indenture are held for the benefit of the Bondholders and that the Trustee shall hold such funds solely for the benefit of such Bondholders. (d) Each Senior Party hereby acknowledges and agrees that all funds held in the Debt Service Reserve Account by the Collateral Agent in accordance with this Agreement are held for the benefit of the Trustee (on behalf of the Bondholders) and that the Collateral Agent shall hold such funds solely for the benefit of such Persons. (e) Each Senior Party hereby acknowledges and agrees that any DSR Letter of Credit held by the Collateral Agent in accordance with this Agreement is held for the benefit of the Trustee (on behalf of the Bondholders) and for the benefit of the DSR LOC Provider to the extent of its interest in such DSR Letter of Credit and that the Collateral Agent shall hold such letter of credit (and the proceeds thereof) solely for the benefit of such Persons. 9 (f) Each Senior Party hereby acknowledges and agrees that all funds held in the DSR LOC Reimbursement Fund or the CP LOC Reimbursement Fund by the Collateral Agent in accordance with this Agreement are held for the benefit of the DSR LOC Provider or CP LOC Provider, as the case may be, and that the Collateral Agent shall hold such funds solely for the benefit of such Persons. (g) Each Senior Party hereby acknowledges and agrees that the Collateral Agent, subject to Section 5.2(c) and (e), shall administer the Collateral in the manner contemplated by the Security Documents and this Agreement and the Collateral Agent shall exercise, as directed by the Required Senior Parties in Senior Party Certificates in accordance with Section 2.3(a) such rights and remedies with respect to the Collateral (including the curing of defaults under the Transaction Documents) as are granted to it under the Security Documents, this Agreement and Applicable Law. No Senior Party and no class or classes of Senior Parties shall have any right (i) to direct the Collateral Agent to take any action in respect of the Collateral other than in accordance with Section 2.3(a) or (ii) to take any action with respect to the Collateral (A) independently of the Collateral Agent or (B) other than to direct the Collateral Agent in writing to take action in accordance with Section 2.3(a); provided, however, that nothing in this Section 2.3(g) shall be deemed to limit the ability of any Senior Party to take any action in accordance with Section 2.3(i). (h) Each of the Company and each Senior Party covenants and agrees that, upon the occurrence and during the continuation of a Trigger Event, the Collateral Agent shall be entitled, as instructed by the Required Senior Parties in Senior Party Certificates in accordance with Section 2.3(a), to give notices or instructions that the Company would otherwise be entitled to give under this Agreement. (i) From time to time during the continuation of a Trigger Event, the Collateral Agent shall, as instructed by the Required Senior Parties in Senior Party Certificates in accordance with Section 2.3(a), direct the Depositary Bank to render an accounting of the current balance of each Project Account or other amounts or funds administered by the Depositary Bank under this Agreement, and the Depositary Bank agrees to render the same, subject to the terms, conditions and protections contained in this Agreement. (j) The Company covenants and agrees that it shall not take any action that would prohibit or impair the ability of the Collateral Agent from participating in any objection to any foreclosure or similar proceeding instituted by a junior lienor against the Company; provided, however, that nothing in this Section 2.3(j) shall, or shall be deemed to, affect the relationship among the Senior Parties or the relationship between the Senior Parties and the Collateral Agent, nor shall anything in this Section 2.3(j) affect any representation, warranty, covenant or agreement of any Senior Party in this Agreement. (k) The Company covenants and agrees that it shall send to the Collateral Agent on or before five (5) days prior to each Bond Payment Date an Officer's Certificate signed by an Authorized Representative of the Company setting forth (i) the names of each Senior Party as of the date of the certificate, (ii) the principal amount of the Financing Liabilities owed to each such 10 Senior Party as of the date of the certificate and (iii) the unutilized outstanding commitments of each Senior Party to extend credit to the Company as of the date of the certificate, including, but not limited to, (A) the Stated Amount of the DSR Letter of Credit and the CP Letter of Credit and (B) the obligation of the DSR LOC Provider to issue the DSR Letter of Credit, to reinstate the DSR Letter of Credit upon the reimbursement of drawings thereunder and increase the amount of the DSR Letter of Credit from time to time by reason of an increase in the DSRA Required Balance. The Collateral Agent shall be entitled to rely on the information contained in such certificate. (l) Notwithstanding the foregoing provisions of this Article II, each Senior Party individually shall be authorized to cure any default of the Company under any Project Contract in accordance with the consent to assignment executed in connection with such Project Contract; provided, however, that funds advanced in connection with such cure shall not constitute Senior Debt unless such funds would otherwise satisfy the requirements for the issuance of Senior Debt. (m) Each Senior Party hereby acknowledges and agrees that if (i) there is an Event of Default under the Indenture and such Event of Default is not caused directly or indirectly by a default or event of default under the Power Purchase Agreement, (ii) the Collateral Agent receives the written request of the Required Senior Parties specified in Section 2.3(a), and (iii) the Trustee has been directed by the required Bondholders to declare the aggregate principal amount of the Outstanding Bonds, all interest accrued and unpaid thereon and all premium payable thereon in accordance with the terms of the Indenture immediately due and payable, the Collateral Agent at the direction of the Required Senior Parties shall notify the Power Purchaser in writing at the address provided in the Power Purchase Agreement of the opportunity to purchase the Facility for an amount equal to the greater of (x) the Fair Market Value of the Facility and (y) all Financing Liabilities due and owing to the Senior Parties and any Subordinated Debt Provider. If the Power Purchaser has not within 90 days of the date of such notice provided the Collateral Agent with a binding written notice of its intent to purchase the Facility for such amount, the Collateral Agent shall no longer have any obligation under this paragraph. If the Power Purchaser offers within such period to purchase the Facility for such amount within 120 days after the expiration of such 90 day period, the Collateral Agent shall take such actions as required to consummate such sale promptly as directed by the Required Senior Parties in Senior Party Certificates. SECTION 2.4 Rights of Senior Parties. The Senior Parties and the Collateral Agent (upon receipt of Senior Party Certificates from the Required Senior Parties) may, at any time and from time to time, without any consent of or notice to any Subordinated Debt Providers, (i) amend in any manner any Security Document or any agreement under which any of the Financing Liabilities is outstanding in accordance with the terms thereof, (ii) sell, exchange, release, not perfect and otherwise deal with any property at any time pledged, assigned or mortgaged to secure the Financing Liabilities in accordance with the Security Documents, (iii) release anyone liable in any manner under or in respect of the Financing Liabilities, (iv) exercise or refrain from exercising any rights against the Company and 11 others and (v) apply any sums from time to time received to payment or satisfaction of the Financing Liabilities. SECTION 2.5 Certain Amendments. Notwithstanding anything to the contrary in this Agreement or any Security Document, if any consent or direction of the Required Secured Parties is necessary in order for the Collateral Agent to exercise any rights or remedies under any of the Security Documents or this Agreement, or to amend, modify or supplement, give any consent under, or waive any provision of, any of the Security Documents or this Agreement, and if any such exercise of rights or remedies, or any such amendment, modification, supplement, consent or waiver (either alone or together with each then effective amendment, modification, supplement, consent or waiver not previously approved in accordance with this paragraph by the CP LOC Provider or the DSR LOC Provider, as the case may be) could reasonably be expected to have a material adverse effect on the CP LOC Provider or the DSR LOC Provider (which material adverse effect is materially different from the effect with respect to other Senior Parties), the Collateral Agent shall not accept such consent or direction from the Required Senior Parties unless the CP LOC Provider or the DSR LOC Provider, as the case may be, shall have received written notice of such proposed consent or direction at least fifteen days prior to the effectiveness thereof, and the CP LOC Provider or the DSR LOC Provider, as the case may be, shall have approved such amendment, modification or supplement, consent or waiver (which approval shall not be unreasonably withheld). ARTICLE III ACCOUNTS SECTION 3.1 Establishment of Project Accounts. The Collateral Agent hereby confirms that it has established with the Depositary Bank at its office at the address listed in Section 7.4, New York, New York, the following special, segregated accounts (the "Project Accounts"): (i) Construction Account; (ii) Revenue Account; (iii) Operating and Maintenance Account; (iv) Debt Service Reserve Account; (v) DSR LOC Reimbursement Fund; (vi) CP LOC Reimbursement Fund; (vii) Restoration Account; 12 (viii) Major Maintenance Reserve Account; (ix) Fuel Conversion Payment Volume Rebate Account; (x) Subordinated Debt Account; and (xi) Distribution Account. All amounts from time to time held in each Project Account shall be held (a) in the name of the Collateral Agent subject to the lien and security interest of the Collateral Agent for the benefit of the Senior Parties or certain of them as set forth herein and (b) in the custody of the Depositary Bank for and on behalf of the Collateral Agent for the purposes and on the terms set forth in this Agreement. All such amounts shall constitute a part of the Collateral and shall not constitute payment of any Indebtedness or any other obligation of the Company until applied as hereinafter provided. SECTION 3.2 Investment of Funds in the Project Accounts. (a) Amounts deposited in the Project Accounts (and each subaccount thereof) and each other account or fund created hereunder (unless expressly stated otherwise), at the written request and direction of the Company, shall be invested by the Collateral Agent in Permitted Investments. Such investments shall mature in such amounts and not later than such times as may be necessary to provide funds when needed to make payments from such funds as provided in this Agreement. Net interest or gain received from such investments shall be applied as provided in this Agreement. (b) So long as an outstanding balance shall remain in the Project Accounts or any other account or fund created hereunder, the Collateral Agent shall provide the Company, the DSR LOC Provider and the CP LOC Provider with statements by the tenth (10th) Business Day of each month showing the amount of all receipts, the net investment income or gain received and collected, all disbursements and the amount then available as of the last Business Day of the prior calendar month in the Project Accounts (and each subaccount thereof) and each other account or fund created hereunder. The Depositary Bank agrees to provide the Collateral Agent with such information as it may reasonably have available to it in order to permit the Collateral Agent to provide such statements in accordance with the requirements hereof. SECTION 3.3 Valuation and Sale of Investments. (a) Obligations purchased as an investment of funds in any Project Account or any other separate account or fund created under the provisions hereof shall be deemed at all times to be a part of such account or fund and, unless otherwise specified herein, any profit realized from the liquidation of such investment shall be credited to such Project Account or such other separate account or fund created hereunder, and any loss resulting from the liquidation of such investment shall be charged to the respective Project Account or such other separate account or fund. 13 (b) The Collateral Agent shall determine the value of all investments in any of the Project Accounts or the Bond Payment Account as of the last Business Day of each month, with any deficit in any account balance to be funded from Project Revenues in accordance with Section 3.3, and any investments valued in excess of the amounts required to be on deposit in an account shall be liquidated and the amount of such excess shall be deposited in the Revenue Account for application in accordance with Section 3.10. (c) The Collateral Agent shall determine the value of all investments in the Debt Service Reserve Account in accordance with Section 3.12. (d) In computing the amount of any funds in any Project Account, or other separate account or fund created under the provisions hereof for any purpose provided in this Agreement, obligations purchased as an investment of funds therein shall be valued at the market value of such obligations, exclusive of accrued interest; provided, however, that if there is no readily determinable market value for such obligations, the value of such obligations shall be determined with reference to the acquisition price of such obligations, plus accrued but unpaid interest. (e) The Depositary Bank agrees to provide the Collateral Agent with such information as it may reasonably have available to it in order to permit the Collateral Agent to make such determinations and transfers as may be required by this Section 3.3. SECTION 3.4 Possession of Accounts; Liquidation. (a) Each of the Project Accounts shall at all times be in the exclusive possession of the Depositary Bank acting for and on behalf of the Collateral Agent acting for and on behalf of the Senior Parties. (b) Notwithstanding any provision hereof to the contrary, if a Trigger Event shall have occurred and be continuing, the Collateral Agent shall promptly liquidate all amounts in the Project Accounts and all related investments and distribute all such monies so received in accordance with Section 4.1. SECTION 3.5 The Depositary Bank; Limited Company Rights. (a) The Depositary Bank. (i) Establishment of Securities Accounts. The Depositary Bank hereby agrees and confirms that (A) the Depositary Bank has established the Project Accounts as set forth in Section 3.1, (B) each Project Account is and will be maintained as a "securities account" (within the meaning of Section 8-501 of the UCC), (C) the Company is the "entitlement holder" (within the meaning of Section 8-102(a)(7) of the UCC) in respect of the "financial assets" (within the meaning of Section 8-102(a)(9) of the UCC) credited to the Project Accounts, (D) all property delivered to the Depositary Bank pursuant to the Transaction Documents or this Agreement will be held by the Depositary Bank and promptly credited to a Project Account by an appropriate entry in its records in accordance with this Agreement, (E) all "financial assets" (within the meaning of Section 14 8-102(a)(9) of the UCC) in registered form or payable to or to the order of and credited to any Project Account shall be registered in the name of, payable to or to the order of, or endorsed to, the Depositary Bank or in blank, or credited to another securities account maintained in the name of the Depositary Bank, and in no case will any financial asset credited to any Project Account be registered in the name of, payable to or to the order of, or endorsed to, the Company except to the extent the foregoing have been subsequently endorsed by the Company to the Depositary Bank or in blank and (F) the Depositary Bank shall not change the name or account number of any Project Account without the prior written consent of the Collateral Agent. (ii) Financial Assets Election. The Depositary Bank agrees that each item of property (excluding cash, but including any security, instrument or obligation, share, participation, interest or other property whatsoever) credited to any Project Account shall be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the UCC. (iii) Entitlement Orders. If at any time the Depositary Bank shall receive any "entitlement order" (within the meaning of Section 8-102(a)(8) of the UCC) or any other order from the Collateral Agent acting in accordance with this Agreement directing the transfer or redemption of any financial asset relating to the Project Accounts, the Depositary Bank shall comply with such entitlement order or other order without further consent by the Company or any other Person. The parties hereto hereby agree that the Collateral Agent shall have "control" (within the meaning of Section 8-106(d) of the UCC) of the Company's "security entitlement" (within the meaning of Section 8-102(a)(17) of the UCC) with respect to the financial assets credited to the Project Accounts and the Company hereby disclaims any entitlement to claim "control" of such "security entitlement". (iv) Subordination of Lien; Waiver of Set-off. If the Depositary Bank has or subsequently obtains by agreement, operation of law or otherwise a lien or security interest in any Project Account or any security entitlement credited thereto, the Depositary Bank agrees that such lien or security interest shall be subordinate to the lien and security interest of the Collateral Agent. The financial assets standing to the credit of the Project Accounts will not be subject to deduction, set-off, banker's lien, or any other right in favor of any Person other than the Collateral Agent in its capacity as such (except that the face amount of any checks which have been credited to any Project Account but are subsequently returned unpaid because of uncollected or insufficient funds). (v) No Other Agreements. The Depositary Bank and the Company have not entered into any agreement with respect to the Project Accounts or any financial assets credited to any Project Account other than this Agreement and the other Security Documents. The Depositary Bank has not entered into any agreement with the Company or any other Person purporting to limit or condition the obligation of the Depositary Bank to comply with entitlement orders originated by the Collateral Agent in accordance with this Section 3.5. In the event of any conflict between this Section 3.5 or any other 15 Security Document or any other agreement now existing or hereafter entered into, the terms of this Section 3.5 shall prevail. (vi) Notice of Adverse Claims. Except for the claims and interest of the Collateral Agent and the Company in each of the Project Accounts, the Depositary Bank does not know of any claim to, or interest in, any Project Account or in any financial asset credited thereto. If any Person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against any Project Account or in any financial asset credited thereto, the Depositary Bank will promptly notify the Collateral Agent and the Company thereof. (vii) Rights and Powers of the Collateral Agent. The rights and powers granted by the Collateral Agent to the Depositary Bank have been granted in order to perfect its lien and security interests in the Project Accounts, are powers coupled with an interest and will neither be affected by the bankruptcy of the Company nor the lapse of time. (viii) Choice of Law. Both this Agreement and each Project Account (including all security entitlements relating thereto) shall be governed by the law of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, the "securities intermediary's jurisdiction" of the Depositary Bank with respect to the Project Accounts is the State of New York. (b) Limited Company Rights. The Company shall not have any rights against or to monies held in the Project Accounts, as third-party beneficiary or otherwise or any right to direct the Depositary Bank or the Collateral Agent to apply or transfer monies in any Project Account, except the right to receive or make requisitions of monies held in the Project Accounts, as permitted by this Agreement and to direct the investment of monies held in the Project Accounts as permitted by Section 3.2. Except as expressly provided in this Agreement, in no event shall any amounts or Permitted Investments deposited in or credited to any Project Account be registered in the name of the Company, payable to the order of the Company or specially endorsed to the Company except to the extent that the foregoing have been specially endorsed to the Collateral Agent or in blank. SECTION 3.6 Advances. (a) Notwithstanding any other provision hereof to the contrary, the Company may, by delivering an Officer's Certificate to the Collateral Agent, withdraw funds on deposit in or credited to any of the Available Accounts ("Advances"); provided, however, that, at the time of the making of such Advance, (i) no Default or Event of Default shall have occurred and be continuing and the Officer's Certificate of the Company shall so certify and (ii) the Company's obligations to repay such Advances shall be supported by Acceptable Credit Support. The Collateral Agent may conclusively rely on such Officer's Certificate certifying that all conditions for withdrawals from the Available Accounts have been met. (b) The Company shall repay immediately or cause to be repaid any Advances to the extent that the funds on deposit in such Available Accounts are, on the Business Day next 16 preceding the day on which such funds are to be withdrawn or transferred from such Available Accounts pursuant to this Article III, insufficient to make the necessary withdrawals and transfers. In addition, the Company shall cause to be repaid immediately the aggregate amount of all Advances upon the occurrence of (i) a default in the payment of principal of, premium, if any, or interest on the Bonds or pursuant to the DSR LOC Reimbursement Agreement, the CP LOC Reimbursement Agreement or any working capital facility, (ii) any Event of Default, (iii) any default by an Acceptable Credit Provider in respect of its obligations under its Acceptable Credit Support or (iv) the failure of the Company to provide, within five (5) Business Days, Acceptable Credit Support in respect of its obligations to repay Advances upon the failure of the Acceptable Credit Provider to meet the requirements of the definition thereof. Any amounts so repaid shall be allocated to and deposited in the Available Accounts to which such repayment is required to be made as directed by the Company in an Officer's Certificate. (c) If an Advance is repaid but the Acceptable Credit Support in respect of such Advance remains outstanding, the Collateral Agent, upon receipt of a written request of the Company, shall, and hereby is directed to, promptly execute such documents and agreements as the Company may reasonably request in order to terminate such Acceptable Credit Support upon expiration of all obligations thereunder in respect of repayment of such Advance. SECTION 3.7 Collection of Project Revenues. The Company shall arrange for the direct payment to the Collateral Agent of all Project Revenues, and to the extent any such Project Revenues are at any time received by the Company prior to the Commercial Operation Date, the Company shall hold all such revenues and other such amounts in trust for the Collateral Agent and shall transfer to the Collateral Agent for deposit of such Project Revenues in the Construction Account in each case as soon as reasonably practical but no later than three (3) Business Days after receipt thereof (duly endorsed, if necessary, to the Collateral Agent). SECTION 3.8 Construction Account. (a) On the Closing Date, the Company shall cause the Trustee to make the transfer specified in the final sentence of Section 5.1 of the Indenture and the Collateral Agent shall deposit the amount so received in the Construction Account. (b) On the Closing Date, upon receipt by the Collateral Agent of a complete and properly executed requisition substantially in the form of Exhibit 3.8 (a "Requisition") signed by the Company (the contents of which shall be confirmed by the Independent Engineer), the Collateral Agent shall apply the amounts in the Construction Account to the payment, or reimbursement, to the extent the same have been paid or satisfied by the Company, of Project Costs. (c) Monthly after the Closing Date, or as frequently as may reasonably be necessary, the Company may submit a Requisition to disburse monies from the Construction Account; provided, that each Requisition (except for any Requisition with respect to the initial drawing on the Closing Date) shall be submitted to the Collateral Agent no less than three (3) Business Days 17 in advance of the drawing date and shall include the following: (i) a certification that the proceeds thereof shall be used solely to pay Project Costs in accordance with the Indenture; (ii) a certification that work performed to date has been satisfactorily performed in a good and workmanlike manner and according to the EPC Contract; (iii) a statement that undisbursed funds in the Construction Account, together with funds available under the Equity Subscription Agreement and other available sources of funds, are reasonably expected to be sufficient to complete the Facility according to the EPC Contract by the Date Certain; (iv) a statement that no Default or Event of Default under the Indenture, the DSR LOC Reimbursement Agreement, the CP LOC Reimbursement Agreement or any working capital facility has occurred and is continuing; (v) a statement that all proceeds of prior Requisitions have been expended or applied pursuant to the provisions of the Financing Documents and that the items for which amounts are requested in the subject Requisition have not been the basis for a previous Requisition; (vi) a certification that required insurance, material Governmental Approvals and necessary Project Contracts are in full force and effect; and (vii) a certification that the representations set forth in Sections 3.1, 3.3, 3.4, 3.5, 3.8 and 3.10 of the Indenture are true and correct in all material respects. Subject to the remaining provisions of this Section 3.8, upon receipt of a properly delivered Requisition, the Collateral Agent shall transfer funds from the Construction Account in accordance with such Requisition. (d) If the Company cannot satisfy the requirements of clauses (i) or (v) of Section 3.8(c), the Collateral Agent shall not release funds from the Construction Account in respect of such Requisition until such clauses are satisfied. If the Company cannot satisfy clauses (ii), (iii), (iv), (vi) or (vii) of Section 3.8(c), but the Collateral Agent receives a Requisition signed by the Company (the contents of which shall be confirmed by the Independent Engineer) (i) specifying and identifying the failure, and the causes for the failure, to satisfy the requirements of such clauses (ii), (iii), (iv), (vi) or (vii) of Section 3.8(c) and (ii) certifying that (A) the requirements of clauses (i) and (v) of Section 3.8(c) are satisfied, (B) there exists no Bankruptcy Event in respect of the Company or AES Ironwood, and (C) each of the EPC Contract, the Power Purchase Agreement, required insurance policies and material Governmental Approvals needed for construction of the Facility is in full force and effect, then the Collateral Agent shall disburse funds in accordance with such Requisition. Within fifteen (15) days of receipt of such Requisition, the Collateral Agent shall give notice to the Senior Parties describing such failure and specifying that, unless the Required Senior Parties give notice to the Collateral Agent of their objection to payment of further Requisitions containing any such specified failures, the Collateral Agent shall continue to make payment of such Requisitions from available funds in the Construction Account, unless the Collateral Agent shall have received, by the second Business Day prior to the time of payment of such Requisition, notice of objection from the Required Senior Parties. (e) Notwithstanding the foregoing, the Collateral Agent will not release funds from the Construction Account in respect of a requisition if a Trigger Event shall have occurred and be known to the Collateral Agent and be continuing until the Collateral Agent determines that such Trigger Event is no longer continuing or the Required Senior Parties give instructions to the Collateral Agent as to application of funds. 18 (f) If on the date that the Collateral Agent receives a Requisition pursuant to Section 3.8(c) there are insufficient monies in the Construction Account to fully satisfy the uses of funds set forth in such Requisition, the Collateral Agent shall, and is hereby directed to, on the date such Requisition is so received deliver a written notice in accordance with the Equity Subscription Agreement requesting an Equity Contribution in accordance with Section 2 of the Equity Subscription Agreement. The Collateral Agent shall apply the proceeds of such Equity Contribution in accordance with the provisions of Section 3.8 and the remaining provisions hereof. SECTION 3.9 Payments on Commercial Operation Date. Not later than ten (10) days after receipt by the Collateral Agent of an Officer's Certificate (the "Commercial Operation Certificate") (the contents of which shall be confirmed in writing by the Independent Engineer) certifying that (i) all conditions precedent to the occurrence of the Commercial Operation Date have been satisfied, (ii) except as stated in such certificate, all labor and services required to acquire and complete the Facility have been paid for, (iii) the amount, if any, required for the payment of any remaining portion of the Project Costs not then due or payable (or which are being contested) to be retained in the Construction Account, (iv) all permits, licenses, consents and approvals required on such date by Governmental Authorities for the initial operation of the Facility have been obtained, (v) the amounts to be transferred from the Construction Account in accordance with Section 3.8, (vi) no Default or Event of Default has occurred or is continuing and (vii) the CP Letter of Credit has been terminated or drawn, the Collateral Agent shall, after retaining in the Construction Account the amount, if any, specified by the Company pursuant to clause (iii) above as necessary to pay Project Costs which are not then due and payable (or which are being contested), transfer all remaining funds in the Construction Account (plus, to the extent necessary, any amounts available under and pursuant to the Equity Subscription Agreement to fund first through fifth below) by wire transfer in accordance with such Officer's Certificate to the following accounts and recipients in the following order of priority: first, to the Operating and Maintenance Account, an amount to the extent available, as specified by the Company but in any event, no less than one-month's non-fuel Operating and Maintenance Costs; second, to the Bond Payment Account, an amount, to the extent available, as specified by the Company for funding of the Interest Payment Subaccount and Principal Payment Subaccount; third, to the Debt Service Reserve Account, an amount as specified by the Company equal to the DSRA Required Balance to the extent not already funded or provided through a DSR Letter of Credit; fourth, if applicable, to the CP LOC Provider, an amount equal to the principal of and interest on any CP LOC Loans outstanding on the Commercial Operation Date; 19 fifth, to the Major Maintenance Reserve Account, an amount as specified by the Company equal to any initial deposit required therein; and sixth, to the Revenue Account, any remaining amounts. SECTION 3.10 Revenue Account. (a) The Revenue Account shall be funded (i) from transfers made from the Construction Account in accordance with Sections 3.8 and 3.9, (ii) with all Project Revenues received subsequent to the transfer to be made pursuant to Section 3.9 and (iii) as otherwise specified in this Agreement. (b) After the transfer specified in Section 3.9 and upon receipt by the Collateral Agent, not less than three (3) Business Days prior to the date of the proposed transfer, of an Officer's Certificate of the Company detailing the amounts to be paid, the Collateral Agent shall transfer funds in the Revenue Account by wire transfer in accordance with such Officer's Certificate and the following order of priority: first, as and when required, (i) to any working capital provider, an amount certified by the Company as the amount, if any, then payable under any working capital facility and (ii) as and when requested, to the Operating and Maintenance Account, the amount certified by the Company as necessary for payment of Operating and Maintenance Costs, including fees then due and owing to the Operator except in the case of such fees, to the extent that there are insufficient amounts in the Revenue Account to make the payments specified in paragraphs first through sixth of this Section 3.10; second, on a monthly basis, (i) to the Trustee and the Collateral Agent, any amounts certified by the Company as the amounts then due and payable in respect of Trustee Claims and Collateral Agent Claims, respectively, (ii) to any DSR LOC Provider, any amounts certified by the Company as the amounts then due and payable in respect of DSR LOC Provider Claims and (iii) to any CP LOC Provider, any amounts certified by the Company as amounts then due and payable in respect of CP LOC Provider Claims; provided, however, that if funds in the Revenue Account are insufficient on any date to make the payments specified in this paragraph second, distribution of funds shall be made ratably to the specified recipients; third, on a monthly basis, (i) to the Trustee, for deposit in the Interest Payment Subaccount, an amount equal to one-third of the interest becoming due on the Bonds on the next succeeding Bond Payment Date, (ii) to the DSR LOC Reimbursement Fund, (a) an amount equal to one-third of the interest becoming due on any DSR LOC Loan on the next succeeding Bond Payment Date, plus one-third of any fees becoming due under the DSR LOC Reimbursement Agreement on the next succeeding Bond Payment Date, (b) an amount equal to one-third of the interest becoming due on any DSR Bond on the next succeeding Bond Payment Date and (c) an amount equal to one-third of the interest becoming due on any DSR LOC Term Loan on the next succeeding Bond Payment Date and (iii) to the CP LOC Reimbursement Fund, an amount equal to one-third of the interest becoming due on any CP LOC Loan on the next succeeding Bond Payment Date, plus one-third of any fees becoming due under the CP LOC Reimbursement 20 Agreement on the next succeeding Bond Payment Date; provided, however, that if funds in the Revenue Account are insufficient on any date to make the payments specified in this paragraph third, distribution of funds shall be made ratably to the specified recipients; fourth, on a monthly basis, (i) to the Trustee, for deposit in the Principal Payment Subaccount, an amount equal to one-third of the principal becoming due on the Bonds on the next succeeding Bond Payment Date, (ii) to the DSR LOC Reimbursement Fund, (a) an amount equal to one-third of the principal becoming due on such DSR Bond on the next succeeding Bond Payment Date and (b) an amount equal to one-third of the principal becoming due on any DSR LOC Term Loan on the next succeeding Bond Payment Date and (iii) to the CP LOC Reimbursement Fund, an amount equal to one-third of the principal becoming due on any CP LOC Loan on the next succeeding Bond Payment Date; provided, however, that if funds in the Revenue Account are insufficient on any date to make the payments specified in this paragraph fourth, distribution of funds shall be made ratably to the specified recipients; fifth, on a monthly basis, first, to the DSR LOC Provider, an amount equal to the outstanding principal amount of any DSR LOC Loans that have not been converted into DSR LOC Term Loans or DSR Bonds and second, to the Collateral Agent for deposit in the Debt Service Reserve Account, an amount necessary to fund the Debt Service Reserve Account up to the DSRA Required Balance (after taking into account any amounts remaining available to be drawn under the DSR Letter of Credit); provided, however, that if amounts available for drawing under the DSR Letter of Credit are not being reinstated to the full extent of payment made to the DSR LOC Provider and funds in the Revenue Account are insufficient on any date to make the payments specified in this paragraph fifth, distribution of funds shall be made ratably to the specified recipients; sixth, on a monthly basis, to the Major Maintenance Reserve Account, amounts necessary to cause the balance thereof to be equal to the minimum balance required at such time under the Annual Budget; seventh, on a monthly basis, to the Company for payment by the Company to the Power Purchaser, the amount, if any, certified by the Company as required to make any Non-Dispatch Payments to the Power Purchaser pursuant to Appendix 1 to the Power Purchase Agreement; eighth, on a monthly basis, to the Fuel Conversion Payment Volume Rebate Account, an amount equal to one-twelfth of the amount specified by the Company that would be owed to the Power Purchaser at the end of the then current Fiscal Year pursuant to Appendix 1 to the Power Purchase Agreement; ninth, on a monthly basis, if any Subordinated Debt is outstanding, to the Subordinated Debt Account, an amount equal to (x) one-third or one-sixth (depending on the interest payment schedule of such debt) of the interest becoming due on such Subordinated Debt on the next succeeding interest payment date for such debt, plus (y) one-third or one-sixth (depending on the amortization schedule of such debt) of the principal becoming due on such Subordinated Debt on the next applicable principal payment date; 21 tenth, on a monthly basis, to the Contractor, an amount equal to any subordinated bonuses payable to the Contractor under the EPC Contract; and eleventh, on a monthly basis, to the Distribution Account, any remaining amounts for payment of distributions to holders of ownership interests (including any payment in respect of principal or interest then due on Affiliate Subordinated Debt); provided, that no such distribution from the Distribution Account shall be made unless the Distribution Conditions set forth in Section 3.14 have been satisfied. (c) When making the transfers specified in Section 3.10(b), each transfer shall be adjusted as necessary, taking into account investment gains or losses in such Project Account or Indenture Account and further adjusting such transfers by the amount any prior over-fundings or any prior shortfalls in such Project Account or Indenture Account, to ensure that the aggregate amounts so transferred to such Project Accounts or Indenture Accounts are sufficient to pay the amount due and payable from such Project Accounts and Indenture Accounts on the applicable payment date. SECTION 3.11 Operating and Maintenance Account. (a) The Operating and Maintenance Account shall be funded from funds transferred by the Collateral Agent from (i) the Construction Account pursuant to Section 3.9 and (ii) the Revenue Account pursuant to Section 3.10; provided, that at the beginning of each month, the Operating and Maintenance Account shall contain an amount at least sufficient to pay one-month's non-fuel Operating and Maintenance Costs. (b) Upon receipt by the Collateral Agent of an Officer's Certificate of the Company detailing the amounts to be paid, the Collateral Agent shall transfer funds in the Operating and Maintenance Account to the Company or to whomsoever the Company directs for application to the payment of Operating and Maintenance Costs. SECTION 3.12 Debt Service Reserve Account. (a) The Company shall deliver, or cause to be delivered, to the Collateral Agent the DSR Letter of Credit upon the earlier to occur of (i) the Commercial Operation Date, (ii) the Guaranteed Completion Date, or (iii) the Date Certain. The Collateral Agent shall hold the DSR Letter of Credit as security agent for the Trustee and the DSR LOC Provider to the extent of its interest therein. The Collateral Agent is hereby authorized to submit sight drafts and other required documentation under the DSR Letter of Credit, in each case, when and to the extent permitted under the DSR Letter of Credit and for the purposes specified in this Section 3.12. (b) Upon the occurrence of the Commercial Operation Date, the Debt Service Reserve Account, shall be funded, if necessary after taking into account the Outstanding Amount of the DSR Letter of Credit, from monies available in the Construction Account for such purpose in accordance with Section 3.9 in an amount up to the DSRA Required Balance. 22 (c) Subsequent to the Commercial Operation Date, the Debt Service Reserve Account shall be funded, if necessary, from monies transferred from the Revenue Account as and when specified in Section 3.10. (d) Notwithstanding any other provision hereof to the contrary, when determining (i) the amount, if any, required to be deposited (or the amount so required to be deposited) into the Debt Service Reserve Account from time to time or (ii) whether the Debt Service Reserve Account has deposited therein the DSRA Required Balance, amounts on deposit in the Debt Service Reserve Account shall be aggregated with the amount available to be drawn on the DSR Letter of Credit. (e) When there are insufficient monies in the Bond Payment Account on any Bond Payment Date to pay the interest or principal then due on the Bonds, the Collateral Agent shall, upon receipt prior to such Bond Payment Date of an Officer's Certificate of the Company and as directed on such certificate, in the following order of priority: first, withdraw monies on deposit in the Debt Service Reserve Account; and second, draw on the DSR Letter of Credit in accordance with the terms and provisions thereof up to the amount available for such purpose thereunder, in each case, to the extent necessary to make such interest or principal payment on the Bonds and transfer such monies to the Trustee for deposit in the Bond Payment Account for application against such payment. (f) If the Collateral Agent receives a written notice from the Company stating that there has been a reduction in the long-term debt rating of the DSR LOC Provider below the Required Rating, or if a Responsible Officer of the Collateral Agent otherwise becomes aware of such reduction, and the DSR Letter of Credit has not been replaced within the time period specified therefor, the Collateral Agent shall draw on the DSR Letter of Credit in the amount necessary to fund the Debt Service Reserve Account up to the DSRA Required Balance (as certified in an Officer's Certificate of the Company delivered to the Collateral Agent, calculated without aggregating therewith the amount available to be drawn under the DSR Letter of Credit but taking into account amounts then on deposit in or credited to the Debt Service Reserve Account), whereupon the Collateral Agent shall deposit the proceeds of such drawing in the Debt Service Reserve Account, and the DSR Letter of Credit shall thereupon automatically terminate. The Company shall give the notice specified in this Section 3.12(f) within three (3) Business Days of its actual knowledge of the event giving rise to such notice. (g) If the Collateral Agent receives a written notice from the DSR LOC Provider substantially in the form of Annex 2 to the DSR Letter of Credit, stating that the DSR LOC Provider shall terminate the DSR Letter of Credit on the date specified in such notice (which termination date shall be no sooner than 60 days following the giving of such notice), the Collateral Agent shall, within three (3) Business Days of receipt of such notice, draw on the DSR Letter of Credit in an amount equal to the amount necessary to fund the Debt Service Reserve Account up to the DSRA Required Balance (calculated without aggregating therewith the amount available to be drawn under the DSR Letter of Credit), whereupon the Collateral Agent shall deposit the proceeds of such drawing in the Debt Service Reserve Account, and the DSR Letter of Credit shall thereupon automatically terminate. 23 (h) If a Trigger Event shall have occurred and be continuing and the Collateral Agent has received the written request of the Required Senior Parties contained in Senior Party Certificates and such notice has not been rescinded, then the Collateral Agent, upon receipt of an Officer's Certificate of the Company setting forth the DSRA Required Balance (calculated without aggregating therewith the amount available to be drawn under the DSR Letter of Credit), shall draw on the DSR Letter of Credit in an amount equal to the amount necessary to fund the Debt Service Reserve Account up to the DSRA Required Balance (calculated as described in the immediately preceding parenthetical), whereupon the Collateral Agent shall distribute the proceeds of such drawing, together with other amounts available in the Debt Service Reserve Account, to the Trustee, and the DSR Letter of Credit shall thereupon automatically terminate. The failure of the Collateral Agent to receive the written request of the Required Senior Parties contained in Senior Party Certificates shall not limit the rights or obligations of the Collateral Agent otherwise provided for herein. (i) If, subsequent to the Commercial Operation Date, monies transferred to the DSR LOC Provider pursuant to Section 3.10(b) third are insufficient to repay the interest on any DSR LOC Loans due or becoming due on the first day of such month, the Collateral Agent, upon receipt of a certificate of an Authorized Officer of the DSR LOC Provider notifying the Collateral Agent of the existence, and setting forth the amount, of such shortfall, within two (2) Business Days of receipt of such certificate shall draw on the DSR Letter of Credit in an amount equal to the amount of such shortfall and transfer such amount to the DSR LOC Provider in payment (in whole or part) of such interest on such DSR LOC Loans. Notwithstanding the foregoing, in no event shall any draw on the DSR Letter of Credit under this Section 3.12(i) individually or in the aggregate with all other such draws less draws previously reimbursed exceed an amount (the "Interest Portion") equal to six (6) months of interest on the Maximum Stated Amount of the DSR Letter of Credit computed at a rate per annum equal to (x) 2% plus (y) the three-month LIBOR rate as in effect two Business Days prior to the date of issuance of the DSR Letter of Credit plus (z) 50 basis points; provided, however, that to the extent amounts available to be drawn under the DSR Letter of Credit have been reinstated due to reimbursement of prior draws on the DSR Letter of Credit, draws on the DSR Letter of Credit under this Section 3.12(i) may equal (in the aggregate with all other such draws) the sum of (x) the Interest Portion plus (y) an amount equal to the aggregate amount of all reinstatements of amounts available to be drawn under the DSR Letter of Credit allocable to prior reimbursements of draws on the DSR Letter of Credit under this Section 3.12(i) (such allocation shall be determined by multiplying the aggregate amount of prior reimbursements of draws by a fraction, the numerator of which is the aggregate amount of drawings under the DSR Letter of Credit described in this paragraph and the denominator of which is the aggregate amount of drawings under the DSR Letter of Credit for all purposes). (j) Unless the DSR Letter of Credit is not extended or replaced or unless there has been a DSR LOC Event of Default all as described under the DSR LOC Reimbursement Agreement, amounts available for drawing under the DSR Letter of Credit shall be reinstated immediately to the extent of any reimbursement of principal in respect of DSR LOC Loans (but not DSR LOC Term Loans or DSR Bonds). 24 (k) If the Company and the DSR LOC Provider shall agree to issue or reinstate the DSR Letter of Credit in an amount that, when aggregated with cash on deposit in the Debt Service Reserve Account, would exceed the DSRA Required Balance (the amount of such excess being referred to hereinafter as the "Excess Amount"), the Collateral Agent shall, within two (2) Business Days of receipt by the Collateral Agent of (i) such reissued or reinstated DSR Letter of Credit and (ii) an Officer's Certificate of the Company, transfer an amount equal to the Excess Amount to the Revenue Account for application in accordance with clause eleventh of Section 3.10; provided, that the amount of the DSR Letter of Credit may not exceed the DSRA Required Balance. SECTION 3.13 Major Maintenance Reserve Account. (a) The Major Maintenance Reserve Account shall be funded (i) from funds transferred by the Collateral Agent from the Construction Account pursuant to Section 3.9 and (ii) on a monthly basis pursuant to Section 3.10. The Company shall specify funding of the Major Maintenance Reserve Account in light of the Annual Budget and taking into account expected costs of major maintenance, including costs under the Maintenance Services Agreement not included as an Operating and Maintenance Cost and major maintenance intervals. (b) Upon receipt by the Collateral Agent of an Officer's Certificate of the Company detailing the amounts to be paid, the Collateral Agent shall transfer funds in the Major Maintenance Reserve Account to the Company or to whomsoever the Company directs for application to the payment of major maintenance costs and expenses of the Facility that are not otherwise paid as Operating and Maintenance Costs pursuant to Section 3.11. (c) If Project Revenues are insufficient to pay Operating and Maintenance Expenses and debt service, the Company may, through the delivery of an Officer's Certificate to that effect, direct the Collateral Agent to apply funds in the Major Maintenance Reserve Account to the payment of Operating and Maintenance Expenses and debt service. SECTION 3.14 Distribution Account. (a) The Distribution Account shall be funded from funds transferred from the Revenue Account in accordance with Section 3.10. (b) On any date on which the conditions set forth below (the "Distribution Conditions") are satisfied, funds on deposit in or credited to the Distribution Account may be distributed to, or as directed by, the Company for the payment of Affiliate Subordinated Debt, the making of distributions to the holders of ownership interests in the Company or any other lawful purpose, upon receipt by the Collateral Agent of an Officer's Certificate of the Company requesting such a distribution and certifying that: (i) all of the Project Accounts described in Section 3.10(b) and the Bond Payment Account shall be funded to their required levels; 25 (ii) no (A) Default or Event of Default under the Indenture, (B) default or event of default under the DSR LOC Reimbursement Agreement, (C) default or event of default under any CP LOC Reimbursement Agreement or (D) default under any working capital arrangements, if any, shall have occurred and be continuing; (iii) the Commercial Operation Date has occurred and at least one complete fiscal quarter thereafter has elapsed; (iv) if the requested distribution is to be made during the PPA Term, (A) the Senior Debt Service Coverage Ratio for the preceding four (4) fiscal quarters (or, with respect to any date prior to the first anniversary of the Commercial Operation Date, for the number of complete fiscal quarters since the Commercial Operation Date), measured as one period, is greater than or equal to 1.2 to 1 and (B) based on projections prepared by the Company on a reasonable basis, the projected Senior Debt Service Coverage Ratio for the succeeding four (4) fiscal quarters (including the quarter in which such distribution is to be made) (or, with respect to any date within the twelve (12)-month period prior to the end of the PPA Term, the number of complete fiscal quarters, if any, until the end of the PPA Term) is projected to be greater than or equal to 1.2 to 1; and (v) if the requested distribution is to be made on or after the date which is six (6) months prior to the end of the PPA Term, (A) the Senior Debt Service Coverage Ratio for the preceding four (4) fiscal quarters (or, with respect to any date within the first twelve (12) months of the Post-PPA Period, the number of complete fiscal quarters, if any, since the start of the Post-PPA Period), measured as one period, is greater than or equal to 1.70 to 1.0 (or 1.2 to 1.0 with respect to such period occurring prior to the end of the PPA Term) and (B) based on projections prepared by the Company on a reasonable basis, the projected Senior Debt Service Coverage Ratio for the succeeding eight (8) fiscal quarters (including the fiscal quarter in which such distribution is to be made) (or, with respect to any date within the twenty-four (24)-month period prior to the Final Maturity Date, the number of complete fiscal quarters, if any, until such Final Maturity Date), in each case measured as one period, is projected to be greater than or equal to 1.70 to 1 (or 1.2 to 1 with respect to such period occurring prior to the end of the PPA Term), each as certified by an authorized officer of the Company; provided, however, that, (A) if distributions are blocked because the Company fails to satisfy the conditions of clause (v)(B) above, then in lieu of the coverage ratio test set forth in such clause, the projected Senior Debt Service Coverage Ratio through the Final Maturity Date, measured as one period, shall be 1.70 to 1 in order to satisfy such clause (v)(B) in respect of amounts then on deposit in the Distribution Account; (B) for purposes of calculating the projected Senior Debt Service Coverage Ratios in clauses (v)(B) above, the Company shall use (1) for electricity prices, either (x) the electricity prices forecasted in the most recent Independent 26 Forecast furnished to the Trustee, in each case, during the relevant period of calculation or (y) if and to the extent that electricity sales during the relevant period of calculation are made pursuant to one or more power sales agreements at prices other than prices which are by their terms market prices, the electricity prices under such power sales agreements and (2) for gas prices, either (x) the gas prices forecasted in the most recent Independent Forecast furnished to the Trustee, in each case, during the relevant period of calculation or (y) if and to the extent that gas purchases during the relevant period of calculation are made pursuant to one or more gas purchase agreements at prices other than prices which are by their terms market prices, the gas prices under such gas purchase agreements; (C) if, and to the extent that, (x) at least 75% of the Facility Capacity is subject to one or more power sales agreements on terms (other than pricing) substantially similar to the Power Purchase Agreement (but excluding the provision for gas to be supplied for fuel conversion services by the Power Purchaser) or on commercially reasonable terms (other than pricing) typical of power sales agreements entered into at such time for the same term, in each case with a term of not less than one (1) year during the relevant period of calculation, and (y) at least 75% of the gas supply for the Facility is subject to one or more gas supply agreements on commercially reasonable terms (other than pricing) typical of gas supply agreements entered into at such time for the same term, in each case with a term of not less than one (1) year during the relevant period of calculation (compliance with such requirements to be certified by the Company), then clause (v) above shall be deemed satisfied, if the Senior Debt Service Coverage Ratio and the projected Senior Debt Service Coverage Ratio referred to in such clause (v) are each equal to or greater than 1.30 to 1 for the portions of the time periods referred to in such clause (v) in which such agreements were or are to be in effect, as certified by the Company; and (D) if amounts on deposit in or credited to the Revenue Account are insufficient to make the transfers described in priorities first through sixth in Section 3.10, amounts on deposit in or credited to the Distribution Account will be transferred to the Revenue Account to the extent necessary and applied in accordance with Section 3.10. SECTION 3.15 Restoration Account. (a) All Casualty Proceeds and Eminent Domain Proceeds shall be deposited into the Restoration Account. Subject to Sections 3.15(d) and (e), the Collateral Agent shall apply the amounts in the Restoration Account as directed in writing by the Company to the payment, or reimbursement to the extent the same have been paid or satisfied by the Company, of the costs of rebuilding, repair and restoration of the Facility or any part thereof that has been affected by an Event of Loss or an Event of Eminent Domain. 27 (b) The Collateral Agent is hereby authorized to disburse from the Restoration Account the amount required to be paid for the repair or replacement of the Facility or any part thereof as specified in Section 3.15(a). The Collateral Agent is hereby authorized and directed to issue its checks or transfer funds electronically for each disbursement from the Restoration Account, upon receipt of a Restoration Certificate signed by an Authorized Representative of the Company and approved by the Independent Engineer; provided, however, that no such approval of the Independent Engineer shall be required if less than $5,000,000 is requested pursuant to such requisition or requisitions in any one Fiscal Year. The Collateral Agent shall be entitled to rely on all certifications and statements in such Restoration Certificate. The Collateral Agent shall keep and maintain adequate records pertaining to the Restoration Account and all disbursements therefrom and shall file an accounting thereof with the Company and the Independent Engineer within three months following the last business day of each Fiscal Year. (c) If an Event of Loss or an Event of Eminent Domain shall occur with respect to any Collateral, the Company shall (i) diligently pursue all its rights to compensation against any Person with respect to such Event of Loss or Event of Eminent Domain, (ii) in the reasonable judgment of the Company, compromise or settle any claim against any Person with respect to such Event of Loss or Event of Eminent Domain and (iii) hold all amounts of Casualty Proceeds or Eminent Domain Proceeds (including instruments) received in respect of any Event of Loss or Event of Eminent Domain (after deducting all reasonable expenses incurred by it in litigating, arbitrating, compromising or settling any claims) in trust for the benefit of the Collateral Agent segregated from other funds of the Company and will promptly transfer to the Collateral Agent for deposit in the Restoration Account such Casualty Proceeds or Eminent Domain Proceeds. (d) If either an Event of Loss or an Event of Eminent Domain shall occur, as soon as reasonably practicable but no later than the date of receipt by the Company or the Collateral Agent of Eminent Domain Proceeds or Casualty Proceeds, as the case may be, the Company shall make a reasonable good faith determination as to whether (i) the Facility or any portion thereof can be rebuilt, repaired or restored to permit operation of the Facility or a portion thereof on a commercially feasible basis and (ii) the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, together with any other amounts that are available to the Company for such rebuilding, repair or restoration, are sufficient to permit such rebuilding, repair or restoration of the Facility or a portion thereof, including the making of all required payments of interest and principal on the Company's Debt during such rebuilding, repair or restoration. The determination of the Company shall be evidenced by a Certificate as to Redemption filed with the Collateral Agent which, in the event the Company determines that the Facility or a portion thereof can be rebuilt, repaired or restored to permit operation thereof on a commercially feasible basis and that the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, together with any other amounts that are available to the Company for such rebuilding, repair or restoration, are sufficient, shall also set forth a reasonable good faith estimate by the Company of the total cost of such rebuilding, repair or restoration. The Company shall deliver to the Collateral Agent at the time it delivers the Certificate as to Redemption referred to above a certificate of the Independent Engineer, dated the date of the Certificate as to Redemption, stating that, based upon reasonable investigation and review of the determination made by the 28 Company, the Independent Engineer believes the determination and the estimate of the total cost set forth in the Certificate as to Redemption to be reasonable. (e) (i) If, following an Event of Loss or an Event of Eminent Domain, the determination is made pursuant to Section 3.15(d) above that the Facility cannot be rebuilt, repaired or restored to permit operation on a commercially feasible basis or that the Casualty Proceeds or the Eminent Domain Proceeds, together with any other amounts that are available to the Company for such rebuilding, repair or restoration, are not sufficient to permit such rebuilding, repair or restoration, all of the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, shall be distributed in accordance with Section 4.2(a). (ii) If, following an Event of Loss or an Event of Eminent Domain, the determination is made pursuant to Section 3.15(d) above that the entire Facility can be rebuilt, repaired or restored to permit operation on a commercially feasible basis and that the Casualty Proceeds or the Eminent Domain Proceeds, together with any other amounts that are available to the Company for such rebuilding, repair or restoration, are sufficient to permit such rebuilding, repair or restoration, all of the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, together with such other amounts as are available to the Company for such rebuilding, repair or restoration, shall be deposited in the Restoration Account in accordance with Section 3.15(a) and applied in accordance with Section 3.15(b). (iii) If, following an Event of Loss or an Event of Eminent Domain, the determination is made pursuant to Section 3.15(d) above that a portion of the Facility can be rebuilt, repaired or restored to permit operation on a commercially feasible basis and that the Casualty Proceeds or the Eminent Domain Proceeds, together with any other amounts that are available to the Company for such rebuilding, repair or restoration, are sufficient to permit such rebuilding, repair or restoration, (A) an amount equal to the estimate of the total cost of such rebuilding, repair or restoration set forth in the Certificate as to Redemption filed with the Collateral Agent pursuant to Section 3.15(d) above shall be deposited in the Restoration Account in accordance with Section 3.15(a) and applied in accordance with Section 3.15(b) and (B) the amount, if any, by which all of the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, exceed the estimate of the total cost shall be distributed in accordance with Section 4.2(a). (f) In the event the Company receives Casualty Proceeds or Eminent Domain Proceeds, as the case may be, from an Event of Loss or an Event of Eminent Domain that do not exceed in the aggregate $5,000,000 during any Fiscal Year of the Company, the Company shall not have to comply with the provisions of Sections 3.15(d) or (e) and the Casualty Proceeds or the Eminent Domain Proceeds, as the case may be, shall be deposited in the Restoration Account in accordance with Section 3.15(a) and applied in accordance with Section 3.15(b). 29 SECTION 3.16 Fuel Conversion Volume Rebate Account. (a) The Fuel Conversion Volume Rebate Account shall be funded from funds transferred by the Collateral Agent from the Revenue Account as and when specified in Section 3.10. (b) Upon receipt of an Officer's Certificate of the Company detailing the amounts to be paid, funds in the Fuel Conversion Volume Rebate Account shall be transferred to the Power Purchaser in accordance with Annex 1 to the Power Purchase Agreement and as set forth in such Officer's Certificate within two (2) Business Days of receipt of such Officer's Certificate. SECTION 3.17 Subordinated Debt Account. (a) The Subordinated Debt Account shall be funded from funds transferred by the Collateral Agent from the Revenue Account as and when specified in Section 3.10. (b) Upon receipt of an Officer's Certificate of the Company detailing the amounts to be paid, funds in the Subordinated Debt Account shall be transferred to the appropriate Subordinated Debt Providers as set forth in such Officer's Certificate within two (2) Business Days of receipt of such Officer's Certificate. ARTICLE IV APPLICATION OF CERTAIN PROCEEDS SECTION 4.1 Division of Foreclosure Proceeds and Proceeds Under the Williams Guaranty. (a) Following (i) the receipt of proceeds under the Williams Guaranty as a result of a termination of the Power Purchase Agreement or (ii) a foreclosure or bother exercise of remedies following a Trigger Event, the proceeds of any sale, disposition or other realization by the Collateral Agent or by any Senior Party upon the Collateral (or any portion thereof) pursuant to the Security Documents shall be distributed in the following order of priorities: first, to the Collateral Agent, the Trustee, the DSR LOC Provider and the CP LOC Provider, ratably, all administrative fees, costs and expenses owed to such Parties under the Financing Documents; provided, that prior to any such distribution to the Trustee, the DSR LOC Provider or the CP LOC Provider, the Collateral Agent shall have received a certificate signed by an Authorized Representative of the Trustee, the DSR LOC Provider or the CP LOC Provider (as the case may be), in form and substance satisfactory to the Collateral Agent, setting forth the amount payable to the Trustee, the DSR LOC Provider or the CP LOC Provider (as the case may be) as of the date of such distribution; second, to the Senior Parties, ratably (based on the amount owing to specified recipients), an amount equal to the unpaid amount of all Financing Liabilities owed to the 30 Senior Parties by the Company; provided, that prior to any such such distribution, the Collateral Agent shall have received a certificate executed by an Authorized Representative of each such Senior Party, in form and substance reasonably satisfactory to the Collateral Agent, setting forth the amount payable to such Senior Party pursuant to this clause as of the date of such distribution; third, to any Subordinated Debt Providers, ratably, an amount equal to the unpaid obligations owed to such Subordinated Debt Providers by the Company under any Subordinated Loan Agreement; provided, that prior to any such distribution, the Collateral Agent shall have received a certificate executed by an Authorized Representative of each such Subordinated Debt Provider, in form and substance reasonably satisfactory to the Collateral Agent, setting forth the amount payable to such Subordinated Debt Provider pursuant to this clause as of the date of such distribution; and fourth, to the Company (or its successors or assigns) or to whomever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, any surplus then remaining from such proceeds. (b) As used in this Section 4.1, "proceeds" of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of Debt of the Company or any issuer of or obligor on any of the Collateral. (c) The Collateral Agent shall, upon receipt of indemnity satisfactory to it, use reasonable efforts to join in any foreclosure or similar proceeding instituted by a junior lienor with respect to the Collateral. The Collateral Agent shall hold all proceeds of the Collateral received by it in connection with such proceeding instituted by a junior lienor and not consolidated with any action by the Collateral Agent on behalf of the Senior Parties pending application of such proceeds by the Collateral Agent in accordance with the written instructions of the Required Senior Parties. SECTION 4.2 Application of Casualty Proceeds and Eminent Domain Proceeds. (a) If the determination is made pursuant to Section 3.15(d) above that all or a portion of the Facility is incapable of being rebuilt, repaired or restored to permit operation on a commercially feasible basis, all Casualty Proceeds or Eminent Domain Proceeds received by the Collateral Agent and not deposited in the Restoration Account pursuant to Section 3.15(e)(iii) shall be distributed by the Collateral Agent within five (5) Business Days of receipt in the following order of priorities: first, to the Collateral Agent, the Trustee, the DSR LOC Provider and the CP LOC Provider, ratably, in an amount equal to the amounts owed in respect of the Collateral Agent Claims, the Trustee Claims, the DSR LOC Provider Claims and the CP LOC Provider Claims, respectively, due and payable as of the date of such distribution; provided, that, prior to any such distribution to the Collateral Agent, the Trustee, the DSR LOC Provider or the CP LOC Provider, the Collateral Agent shall have received a certificate signed by an 31 Authorized Representative of the Trustee, the DSR LOC Provider or the CP LOC Provider (as the case may be), in form and substance satisfactory to the Collateral Agent, setting forth the amount payable to the Trustee, the DSR LOC Provider or the CP LOC Provider (as the case may be) as of the date of such distribution; second, to the Senior Parties, ratably (based on the amount owing to the specified recipients), an amount equal to the unpaid amount of all Financing Liabilities owed to or required to be deposited for the account of such Senior Parties, including the amount required to be applied to a mandatory redemption of the Bonds pursuant to the Indenture; provided, that prior to any such distribution the Collateral Agent shall have received a certificate executed by an Authorized Representative of each such Senior Party, in form and substance reasonably satisfactory to the Collateral Agent, setting forth the amount payable to such Senior Party pursuant to this clause as of the date of such distribution; third, to the Subordinated Debt Providers, ratably, an amount equal to the unpaid amounts owed to or required to be deposited for the account of such Subordinated Debt Providers by the Company under any Subordinated Loan Agreement; provided, that prior to any such distribution, the Collateral Agent shall have received a certificate executed by an Authorized Representative of each such Subordinated Debt Provider, in form and substance reasonably satisfactory to the Collateral Agent, setting forth the amount payable to such Subordinated Debt Provider pursuant to this clause as of the date of such distribution; and fourth, to the Company or their successors or assigns or to whomever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, any surplus then remaining from such proceeds. (b) At the time the Collateral Agent is to make a distribution pursuant to Section 4.2(a) paragraph second, the Collateral Agent shall deposit, with the same priority as such distribution, ratably, into a separate trust account to be maintained by the Collateral Agent an amount up to the maximum amount available to be drawn under the DSR Letter of Credit (taking into account, without duplication in the case of the DSR Letter of Credit, the maximum amount which may become available to be drawn in the future by reason of an increase in the DSRA Required Balance), and not represented by a DSR LOC Loan, DSR LOC Term Loan or DSR Bond; provided, however, that if funds available are insufficient to make all payments required under Section 4.2(a) paragraph second and the required deposits provided for in this sentence, distribution of funds shall be made ratably to the specified recipients. The Collateral Agent shall hold the funds in such separate account until receipt of a written notice or notices from the DSR LOC Provider (which such notice or notices shall be contemporaneously delivered by the DSR LOC Provider to the other Senior Parties) executed by an Authorized Representative of the DSR LOC Provider to the effect that either (i) the Collateral Agent has made a drawing on the DSR Letter of Credit or (ii) the DSR Letter of Credit has expired or terminated without a drawing being made thereunder. Upon receipt of a notice specified in clause (i) of the preceding sentence, the Collateral Agent shall distribute to the DSR LOC Provider that proportionate share of the amount in the relevant separate account referred to above, equal to such drawing's proportionate share of the DSR Letter of Credit collateralized by such account. Upon receipt of a notice 32 specified in clause (ii) of the second preceding sentence, the Collateral Agent shall distribute from the relevant separate account (in accordance with Section 4.2(a) paragraphs second, third and fourth and without regard to this Section 4.2(b)) to the appropriate Persons an amount equal to the amount in such separate account. (c) At the time the Collateral Agent is to make a distribution pursuant to Section 4.2(a) paragraph second, the Collateral Agent shall deposit, with the same priority as such distribution, ratably, into a separate trust account to be maintained by the Collateral Agent an amount up to the amount available to be drawn under the CP Letter of Credit (and not represented by a CP LOC Loan); provided, however, that if funds available are insufficient to make all payments required under Section 4.2(a) paragraph second and the required deposits provided for in this sentence, distribution of funds shall be made ratably to the specified recipients. The Collateral Agent shall hold the funds in such separate account until receipt of a written notice or notices from the CP LOC Provider (which such notice or notices shall be contemporaneously delivered by the CP LOC Provider to the other Senior Parties) executed by an Authorized Representative of the CP LOC Provider to the effect that either (i) the Collateral Agent has made a drawing on the CP Letter of Credit or (ii) the CP Letter of Credit has expired or terminated without a drawing being made thereunder. Upon receipt of a notice specified in clause(i) of the preceding sentence, the Collateral Agent shall distribute to the CP LOC Provider that proportionate share of the amount in the relevant separate account referred to above, equal to such drawing's proportionate share of the CP Letter of Credit collateralized by such account. Upon receipt of a notice specified in clause(ii) of the second preceding sentence, the Collateral Agent shall distribute from the relevant separate account (in accordance with Section 4.2(a) paragraphs second, third and fourth and without regard to this Section 4.2(c)) to the appropriate Persons an amount equal to the amount in such separate account. (d) The Company and the Senior Parties hereby authorize the Collateral Agent to establish the separate account described in Sections 4.2(b) and 4.2(c) for the purposes specified in such Sections. (e) The DSR LOC Provider hereby covenants and agrees to use reasonable efforts to send the written notice specified in clause (ii) of Section 4.2(b) within three (3) Business Days following the termination or expiration of the DSR Letter of Credit. (f) The CP LOC Provider hereby covenants and agrees to use reasonable efforts to send the written notice specified in clause (ii) of Section 4.2(c) within three (3) Business Days following the termination or expiration of the CP Letter of Credit. SECTION 4.3 Application of Buy-Down Amounts. (a) All Buy-Down Amounts shall be deposited into a separate account maintained by the Depositary Bank on behalf of the Collateral Agent pending application in accordance with the remaining provisions of this Section 4.3. Subject to the remaining provisions of this Section 4.3, the Collateral Agent shall apply the amounts in such separate account to the payment, or reimbursement to the extent the same have been paid or satisfied by the Company, of the costs of modification, repair and replacement of that portion of the Facility that requires modification, 33 repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor to pay such Buy-Down Amounts. (b) The Collateral Agent is hereby authorized to disburse from such separate account the amount required to be paid for the modification, repair or replacement of that portion of the Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor to pay such Buy-Down Amounts as specified in Section 4.3(a). The Collateral Agent is hereby authorized and directed to issue its checks or transfer funds electronically for each disbursement from such separate account, upon receipt of a Performance Enhancement Certificate signed by an Authorized Representative of the Company and approved by the Independent Engineer. The Collateral Agent shall be entitled to rely on all certifications and statements in such Performance Enhancement Certificate. The Collateral Agent shall keep and maintain adequate records pertaining to such separate account and all disbursements therefrom and shall file an accounting thereof with the Company and the Independent Engineer within three months following the last business day of each Fiscal Year. Upon receipt of an Officer's Certificate of the Company, confirmed by the Independent Engineer, certifying that all modifications, repairs or replacements of that portion of the Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor to pay Buy-Down Amounts have been completed, the Collateral Agent shall transfer all funds remaining in such separate account to the Revenue Account for application in accordance with Section 3.10(b); provided, that if such funds or a portion thereof are deposited in the Distribution Account in accordance with Section 3.10(b) eleventh, the provisions of Section 3.14(b)(iv) and (v) shall not apply in respect of such funds. (c) As soon as reasonably practicable following receipt by the Company or the Collateral Agent of Buy-Down Amounts, the Company shall make a reasonable good faith determination as to whether (i) it is technically feasible to modify, repair or replace that portion of the Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor to pay such Buy-Down Amounts, (ii) the Buy-Down Amounts, together with any other amounts that are available to the Company for such modification, repair or replacement, are sufficient to permit such modification, repair or replacement, including the making of all required payments of interest and principal on the Company's Debt during such modification, repair or replacement, (iii) the projected average Senior Debt Service Coverage Ratio (after giving effect to such modification, repair or replacement and the application of the Buy-Down Amounts to accomplish the same) during the PPA Term (taken as one period) and the Post-PPA Period (taken as one period) is equal to or greater than the projected average Senior Debt Service Coverage Ratio set forth in the base case projections for each such period set forth in the final offering circular dated on or before the Closing Date relating to the Bonds and (iv) the projected minimum Senior Debt Service Coverage Ratio (after giving effect to such modification, repair or replacement and the application of the Buy-Down Amounts to accomplish the same) during the PPA Term and the Post-PPA Period is equal to or greater than the projected minimum Senior Debt Service Coverage Ratio set forth in the base case projections for each such period set forth in the final offering circular dated on or before the Closing Date relating to the Bonds. The determination of the Company shall be evidenced by an Officer's Certificate (together with such supporting detail 34 as the Collateral Agent or the Independent Engineer may reasonably request) filed with the Collateral Agent which, in the event the Company determines that such portion of the Facility can be modified, repaired or replaced and that the other statements set forth in clauses (ii)-(iv) of this Section 4.3(c) are true, shall also set forth a reasonable good faith estimate by the Company of the total cost of such modification, repair or replacement. The Company shall deliver to the Collateral Agent at the time it delivers the Officer's Certificate referred to above a certificate of the Independent Engineer, dated the date of the Officer's Certificate, stating that, based upon reasonable investigation and review of the determinations, assumptions, conclusions and estimates of costs made by the Company, the Independent Engineer believes the determinations, assumptions, conclusions and estimates of costs set forth in the Officer's Certificate to be reasonable. (d) If the Company cannot provide the Officer's Certificate referred to in Section 4.3(c) to permit the application of Buy-Down Amounts toward the modification, repair or replacement of that portion of the Facility or the Independent Engineer fails to confirm such Officer's Certificate as required by Section 4.3(c), all of the Buy-Down Amounts received by the Company or the Collateral Agent shall be distributed in accordance with Section 4.3(e). (e) All Buy-Down Amounts to be distributed pursuant to this Section 4.3(e) shall be distributed by the Collateral Agent, ratably (based on the amount owing to the specified recipient), to (i) the Trustee in respect of the amount of the Outstanding Bonds for redemption of Bonds in accordance with the Indenture, (ii) the DSR LOC Provider in respect of the outstanding amount of DSR LOC Loans, DSR LOC Term Loans or DSR LOC Bonds and (iii) the CP LOC Provider in respect of the outstanding amount of any CP LOC Loans. (f) At the time the Collateral Agent is to make a distribution pursuant to Section 4.3(e), the Collateral Agent shall deposit into a separate trust account to be maintained by the Collateral Agent an amount up to the amount available to be drawn under the DSR Letter of Credit (taking into account, without duplication, in the case of the DSR Letter of Credit, the maximum amount which may become available to be drawn in the future by reason of an increase in the DSRA Required Balance), and not represented by a DSR LOC Loan, DSR LOC Term Loan or DSR Bond; provided, however, that if funds available are insufficient to make all payments required under Section 4.2(a) paragraph second and the required deposits provided for in this sentence, distribution of funds shall be made ratably to the specified recipients. The Collateral Agent shall hold the funds in such separate account until receipt of a written notice or notices from the DSR LOC Provider (which such notice or notices shall be contemporaneously delivered by the DSR LOC Provider to the other Senior Parties) executed by an Authorized Representative of the DSR LOC Provider to the effect that either (i) the Collateral Agent has made a drawing on the DSR Letter of Credit or (ii) the DSR Letter of Credit has expired or terminated without a drawing being made thereunder. Upon receipt of a notice specified in clause (i) above, the Collateral Agent shall distribute to the DSR LOC Provider that proportionate share of the amount in the relevant separate account referred to above, equal to such drawing's proportionate share of the DSR Letter of Credit collateralized by such account. Upon receipt of a notice specified in clause (ii) above, the Collateral Agent shall distribute from 35 the relevant separate account to the Trustee an amount equal to the amount in such separate account. (g) At the time the Collateral Agent is to make a distribution pursuant to Section 4.3(e), the Collateral Agent shall deposit into a separate trust account to be maintained by the Collateral Agent an amount available to be drawn under the CP Letter of Credit (and not represented by a CP LOC Loan); provided, however, that if funds available are insufficient to make all payments required under Section 4.2(a) paragraph second and the required deposits provided for in this sentence, distribution of funds shall be made ratably to the specified recipients. The Collateral Agent shall hold the funds in such separate account until receipt of a written notice or notices from the CP LOC Provider (which such notice or notices shall be contemporaneously delivered by the CP LOC Provider to the other Senior Parties) executed by an Authorized Representative of the CP LOC Provider to the effect that either (i) the Collateral Agent has made a drawing on the CP Letter of Credit or (ii) the CP Letter of Credit has expired or terminated without a drawing being made thereunder. Upon receipt of a notice specified in clause (i) above, the Collateral Agent shall distribute to the CP LOC Provider that proportionate share of the amount in the relevant separate account referred to above, equal to such drawing's proportionate share of the CP Letter of Credit collateralized by such account. Upon receipt of a notice specified in clause (ii) above, the Collateral Agent shall distribute from the relevant separate account to the Trustee an amount equal to the amount in such separate account. ARTICLE V COLLATERAL AGENT; DEPOSITARY BANK SECTION 5.1 Appointment and Duties of Collateral Agent and Depositary Bank. (a) The Senior Parties hereby designate and appoint IBJ Whitehall Bank & Trust Company to act as the Collateral Agent under the Security Documents and this Agreement, and each of the Senior Parties hereby authorizes IBJ Whitehall Bank & Trust Company, as the Collateral Agent, to take such actions on its behalf under the provisions of the Security Documents and this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Collateral Agent by the terms of the Security Documents and this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in the Security Documents and this Agreement, the Collateral Agent shall not have any duties or responsibilities, except those expressly set forth in the Security Documents and this Agreement, or any discretionary or fiduciary duties or responsibilities with any Senior Party under this Agreement or any other Security Documents, and no implied covenants, functions or responsibilities shall be read into the Security Documents, this Agreement or otherwise exist against the Collateral Agent. The Collateral Agent shall not be liable for any action taken or omitted to be taken by it hereunder or under any Security Document, or in connection herewith or therewith, or in connection with the Collateral, unless caused by its gross negligence or willful misconduct. 36 (b) The Collateral Agent and each other Senior Party hereby designate and appoint IBJ Whitehall Bank & Trust Company to act as the Depositary Bank under this Agreement, and the Depositary Bank hereby agrees to act as "securities intermediary" (within the meaning of Section 8-102(a)(14) of the UCC) with respect to the Project Accounts. The Company hereby acknowledges that the Depositary Bank shall act as securities intermediary with respect to the Project Accounts and pursuant to this Agreement. The Depositary Bank shall not have any duties or responsibilities except those expressly set forth in this Agreement. (c) The Collateral Agent will give notice to the Senior Parties of any action taken, or notices received, hereunder or under any Security Document; notice of action taken shall be given prior to the taking of such action unless the Collateral Agent determines that to do so would be detrimental to the interest of the Senior Parties, in which event such notice shall be given promptly after the taking of such action. (d) The Senior Parties agree that all liens and security interests in the Collateral securing the Secured Obligations shall be held in the name of the Collateral Agent and administered by and through the Collateral Agent and in accordance with this Agreement and the other Security Documents. If, as of the date hereof, or at any time in the future, any Senior Party at any time holds a lien or security interest on any Collateral in its own name, it agrees to assign it, without warranty or recourse, to the Collateral Agent (to be held by the Collateral Agent as the collateral agent for the Senior Parties). The Collateral Agent shall hold its security interests in and liens on the Collateral for the benefit of the Senior Parties as provided herein and in the Security Documents. (e) Notwithstanding anything to the contrary in this Agreement or any Security Document, the Collateral Agent shall not be required to exercise any rights or remedies under any of the Security Documents or this Agreement or give any consent under any of the Security Documents or this Agreement or enter into any agreement amending, modifying, supplementing or waiving any provision of any Security Document unless it shall have been directed to do so in Senior Party Certificates of the Required Senior Parties. SECTION 5.2 Rights of Collateral Agent. (a) The Collateral Agent may execute any of its duties under the Security Documents or this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. (b) Neither the Collateral Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it under or in connection with any Security Document or this Agreement (except for its gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Senior Parties for any recitals, statements, representations or warranties made in any Security Document or this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Collateral Agent under or in connection with, any Security Document or this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Security Documents or this Agreement or for any failure of the Company or 37 any other Person to perform their obligations thereunder. The Collateral Agent shall not be under any obligation to any Senior Party or any other Person to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, any Security Document or this Agreement, or to inspect the properties, books or records of the Company. (c) The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, request, direction, certificate, notice, consent, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and/or upon advice and/or statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Collateral Agent. In connection with any request or direction of the Required Senior Parties, the Collateral Agent shall be entitled to rely, and shall be fully protected in relying on any Senior Party Certificate delivered by a Senior Party; provided, however, that in the event the Collateral Agent receives conflicting directions contained in Senior Party Certificates representing two or more groups of Required Senior Parties, the Collateral Agent shall act in accordance with directions contained in Senior Party Certificates representing the greatest percentage of the Combined Exposure. The Collateral Agent shall be fully justified in failing or refusing to take any action under any Security Document or this Agreement (i) if such action would, in the opinion of the Collateral Agent (which may be based on the opinion of legal counsel), be contrary to law or the terms of this Agreement or the other Security Documents, (ii) if such action is not specifically provided for in such Security Document or this Agreement or it shall not have received any such advice or concurrence of the Required Senior Parties as it deems appropriate, (iii) if, in connection with the taking of any such action hereunder or under any Security Document that would constitute an exercise of remedies under such Security Document or this Agreement, it shall not first be indemnified to its satisfaction by the Senior Parties (other than the Trustee in its individual capacity and the Collateral Agent) against any and all risk of nonpayment, liability and expense which may be incurred by it by reason of taking or continuing to take any such action or (iv) if, notwithstanding anything to the contrary contained in Section 5.2(e), in connection with the taking of any such action that would constitute a payment due under any Transaction Document, it shall not first have received from the Senior Parties funds equal to the amount payable. The Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under any Security Document or this Agreement in accordance with a request of the Required Senior Parties contained in Senior Party Certificates, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Senior Parties. (d) If, with respect to a proposed action to be taken by it, the Collateral Agent shall determine in good faith that the provisions of any Security Document or this Agreement relating to the functions or responsibilities or discretionary powers of the Collateral Agent are or may be ambiguous or inconsistent, the Collateral Agent shall notify the Senior Parties, identifying the proposed action, and may decline either to perform such function or responsibility or to take the action requested unless it has received the written confirmation of the Required Senior Parties executed by Authorized Representatives of such Persons that the Required Senior Parties concur in the circumstances that the action proposed to be taken by the Collateral Agent is consistent 38 with the terms of this Agreement or such Security Document or is otherwise appropriate. The Collateral Agent shall be fully protected in acting or refraining from acting upon the confirmation of the Required Senior Parties in this respect, and such confirmation shall be binding upon the Collateral Agent and the other Senior Parties. (e) The Collateral Agent shall not be deemed to have actual, constructive, direct or indirect knowledge or notice of the occurrence of any default or Event of Default or any other event unless and until a Responsible Officer of the Collateral Agent has received a written notice or a certificate from an Authorized Representative of a Senior Party or the Company stating that a default or an Event of Default has occurred. The Collateral Agent shall have no obligation whatsoever either prior to or after receiving such notice or certificate to inquire whether a default or an Event of Default has in fact occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any notice or certificate so furnished to it. No provision of this Agreement or any other Security Document shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or under any Security Document or the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability including an advance of funds necessary to take the action requested is not reasonably assured to it, except that in respect of any potential environmental liability or the taking of title to any real property, the Collateral Agent may decline to act unless it receives indemnity satisfactory to it in its sole discretion, including, but not limited to, an advance of funds necessary to take the action requested. If the Collateral Agent receives such a notice of the occurrence of any Event of Default, the Collateral Agent shall give notice thereof to the Senior Parties. The Senior Parties shall provide evidence of satisfactory indemnity to the Collateral Agent for any action directed by the Required Senior Parties including, but not limited to, an advance of funds necessary to take the action requested. The Collateral Agent shall take such action with respect to such Event of Default as so requested pursuant to Section 2.3(a) subject, however, to the third sentence of this Section 5.2(e). (f) The Company will pay upon demand to the Collateral Agent the amount of any and all reasonable fees and out-of-pocket expenses, including the reasonable fees and expenses of its counsel (and any one local counsel) and of any experts and agents, which the Collateral Agent may incur in connection with (i) the administration of this Agreement and the other Security Documents, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement (whether through negotiations, legal proceedings or otherwise) of any of the rights of the Collateral Agent or the Senior Parties hereunder or under the other Security Documents or (iv) the failure by the Company to perform or observe any of the provisions hereof or of any of the other Security Documents. The provision of this Section 5.2(f) shall survive the expiration or earlier termination of this Agreement. SECTION 5.3 Lack of Reliance on the Collateral Agent. Each of the Senior Parties expressly acknowledges that neither the Collateral Agent nor any of its officers, directors, employees, agents or attorneys-in-fact has made any representations 39 or warranties to it and that no act by the Collateral Agent hereafter taken, including, without limitation, any review of the Facility or of the affairs of the Company, shall be deemed to constitute any representation or warranty by the Collateral Agent to any Senior Party. Each Senior Party (other than the Trustee) represents to the Collateral Agent that it has, independently and without reliance upon the Collateral Agent or any other Senior Party, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Facility and the Company. Each Senior Party (other than the Trustee) also represents that it will, independently and without reliance upon the Collateral Agent or any other Senior Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Facility and the Company. Except for notices, reports and other documents expressly required to be furnished to the Senior Parties by the Collateral Agent hereunder, the Collateral Agent shall not have any duty or responsibility to provide any Senior Party with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Facility and the Company which may come into the possession of the Collateral Agent or any of its officers, directors, employees, agents or attorneys-in-fact. SECTION 5.4 Indemnification. (a) The Senior Parties (other than the Collateral Agent) severally agree to indemnify the Collateral Agent in its capacity as such and in its individual capacity (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to the aggregate amounts of their respective Secured Obligations on the date the activities giving rise to the Collateral Agent's demand for indemnification occurred, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time be imposed on, incurred by or asserted against the Collateral Agent in its capacity as such and in its individual capacity in any way relating to or arising out of the Security Documents or this Agreement, or the performance of its duties as Collateral Agent hereunder or thereunder or any action taken or omitted by the Collateral Agent in its capacity as such under or in connection with any of the foregoing (including, but not limited to, any claim that the Collateral Agent is the owner or operator of the Facility and liable as such pursuant to the Comprehensive Environmental Response, Compensation and Liability Act or any other Environmental Requirement); provided, that the Senior Parties shall not be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent that any of the foregoing result from the Collateral Agent's gross negligence or willful misconduct. The agreements in this Section 5.4 shall survive the payment or satisfaction in full of the Secured Obligations or any other termination of this Agreement. (b) The Company agrees to indemnify the Collateral Agent and each Senior Party from and against any and all claims, losses and liabilities growing out of or resulting from (i) any 40 Security Document or this Agreement (including, without limitation, enforcement of such Security Document, but excluding any such claims, losses or liabilities resulting from the Collateral Agent's or such Senior Party's gross negligence or willful misconduct) or (ii) any refund or adjustment of any amount paid or payable to the Collateral Agent or any Senior Party under or in respect of any Transaction Document or any other Collateral, or any interest thereon, which may be ordered or otherwise required by any Person. The agreements under this Section 5.4(b) shall survive the payment in full of any secured obligation or termination of this Agreement or any other Security Document. SECTION 5.5 Resignation of the Collateral Agent or Depositary Bank. (a) Either of the Collateral Agent or Depositary Bank may resign its appointment hereunder at any time without providing any reason therefor by giving not less than 60 days' prior written notice to that effect to each of the other parties hereto, provided that no such resignation pursuant to this Section 5.5 or removal pursuant to Section 5.6 shall be effective until: (i) a successor for the Collateral Agent or Depositary Bank is appointed in accordance with (and subject to) the succeeding provisions of this Section 5.5; (ii) the resigning or removed Collateral Agent or Depositary Bank has transferred to its successor all of its rights and obligations in its capacity as Collateral Agent or Depositary Bank under this Agreement and the other Transaction Documents; and (iii) the successor Collateral Agent or Depositary Bank has executed and delivered an agreement to be bound by the terms hereof and the other Transaction Documents and perform all duties required of the Collateral Agent or Depositary Bank hereunder and under the other Transaction Documents. (b) If the Collateral Agent or Depositary Bank has given notice of its resignation pursuant to this Section 5.5 or if the Required Senior Parties give the Collateral Agent, or the Collateral Agent gives the Depositary Bank, notice of removal pursuant to Section 5.6, then a successor to the Collateral Agent or Depositary Bank may be appointed by the Required Senior Parties during the period of such notice but, if no such successor is so appointed within sixty (60) days after the above notice, the Collateral Agent or Depositary Bank may appoint such a successor which (i) is authorized under the laws of its jurisdiction of formation to exercise corporation trust powers, (ii) shall have a combined capital and surplus of at least U.S.$250,000,000 and (iii) shall be acceptable to the Required Senior Parties (provided, that if the Required Senior Parties do not confirm such acceptance or reject such appointee in writing within thirty (30) days following selection of such successor by the Collateral Agent or Depositary Bank, then they shall be deemed to have given acceptance thereof and such successor shall be deemed appointed as the Collateral Agent or Depositary Bank hereunder by and on behalf of the Senior Parties). 41 (c) If a successor to the Collateral Agent or Depositary Bank is appointed under the provisions of clauses (a) or (b) above, then: (i) the predecessor Collateral Agent or Depositary Bank shall be discharged from any further obligation hereunder (but without prejudice to any accrued liabilities); (ii) the predecessor Collateral Agent or Depositary Bank's resignation pursuant to this Section 5.5 or removal pursuant to Section 5.6 notwithstanding, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement and the other Transaction Documents while it was acting as the Collateral Agent or Depositary Bank; and (iii) the successor Collateral Agent or Depositary Bank and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor Collateral Agent or Depositary Bank had been an original party hereto. SECTION 5.6 Removal of the Collateral Agent or Depositary Bank. The Required Senior Parties may remove the Collateral Agent from its appointment hereunder, and the Collateral Agent may remove the Depositary Bank hereunder, in each case with or without cause by giving not less than 60 days' prior written notice to that effect to the Collateral Agent (or to the Depositary Bank, as the case may be); provided, that no such removal shall be effective until a successor for the Collateral Agent (or the Depositary Bank, as the case may be) is appointed in accordance with Section 5.5. SECTION 5.7 Merger, Conversion, Consolidation or Succession to Business. Any corporation or bank into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation or bank resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation or bank succeeding to all or substantially all of the corporate trust business of the Collateral Agent, shall be the successor of the Collateral Agent hereunder, provided such corporation or bank shall be otherwise qualified and eligible under this Article V, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 5.8 Power of Attorney. Each Senior Party (other than the Collateral Agent) hereby gives a power of attorney, coupled with an interest, to the Collateral Agent and appoints, makes, constitutes and designates the Collateral Agent its true and lawful attorney-in-fact, subject to Section 5.1, to consent on its behalf under the Security Documents and the other Transaction Documents to which the Collateral Agent is a party to the extent that the consent of the Required Senior Parties (whether or not acting through the Collateral Agent) is required under any agreement and upon the instructions of the Required Senior Parties acting pursuant to this Agreement, and to take such actions on its behalf under the provisions of such agreements as are reasonably incidental thereto, 42 to execute and deliver in the name of and on behalf of, or in its own name, as the case may be, all documents required to be executed by such Senior Party (in its capacity as such) in connection therewith and to do, take and perform each and every act and thing whatsoever requisite, proper or necessary to be done, in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as such Senior Party (in its capacity as such) might or could do, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or its substitute or substitutes, shall lawfully do or cause to be done by virtue of this power of attorney and the rights and powers herein granted; provided, that the Collateral Agent shall not so consent or take such other actions other than in accordance with this Agreement, the Security Documents and the other Transaction Documents to which the Collateral Agent is a party. The enumeration of specific items, rights, acts or powers herein does not limit or restrict and is not intended to limit or restrict, and is not to be construed or interpreted as limiting or restricting, the powers herein granted to such attorney-in-fact. The rights, power and authority of such attorney-in-fact herein granted shall commence and be in full force and effect on the date hereof, and such rights, powers and authority shall remain in full force and effect thereafter until this Agreement is terminated or until the Collateral Agent's resignation or removal hereunder. ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.1 Representations and Warranties. (a) The Company hereby makes the following representations and warranties as of the date hereof with respect to itself for the benefit of the Senior Parties: (i) The Company (A) is a limited liability corporation duly formed, validly existing and in good standing under the laws of the State of Delaware and (B) is duly authorized, to the extent necessary, to do business in the Commonwealth of Pennsylvania and in each other jurisdiction where the character of its properties or the nature of its activities makes such qualification necessary, except to the extent any failure could not reasonably be expected to have a Material Adverse Effect. The Company has all requisite power and authority to own and operate the property it purports to own and to carry on its business as now being conducted and as proposed to be conducted in respect of the Facility. (ii) The Company has all necessary power and authority to execute, deliver and perform its obligations under this Agreement. All action on the part of the Company that is required for the authorization, execution, delivery and performance of this Agreement, in each case has been duly and effectively taken; and the execution, delivery and performance of this Agreement does not require the approval or consent of any holder or trustee of any debt or other obligations of the Company which has not been obtained. 43 (iii) This Agreement has been duly executed and delivered by the Company. This Agreement constitutes a legal, valid and binding obligation of the Company enforceable against them in accordance with the terms thereof, except as such enforceability (A) may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights and remedies generally and (B) is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (iv) Neither the execution, delivery and performance of this Agreement nor the consummation of any of the transactions contemplated hereby nor performance of or compliance with the terms and conditions hereof (A) contravenes any material requirement of Applicable Law applicable to the Company or any of the Collateral which contravention would reasonably be expected to have a Material Adverse Effect, (B) constitutes a default under or results in the violation of the provisions of the certificate of formation or operating agreement, or of any Transaction Documents that would reasonably be expected to have a Material Adverse Effect or (C) results in the creation or imposition of any Liens (other than Permitted Liens) on any of the Collateral under, or results in the acceleration of, any obligation. (v) Other than as set forth in the Indenture, there are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending against the Company or, to the best of the Company's knowledge, threatened against the Company or any property or other assets or rights of the Company or with respect to this Agreement that would reasonably be expected to have a Material Adverse Effect. (b) Each of the Trustee, the DSR LOC Provider and the CP LOC Provider hereby makes the following representations and warranties as of the date hereof with respect to itself and for the benefit of the Collateral Agent and the Depositary Bank: (i) It is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business in, and is in good standing in all jurisdictions where the nature of its business makes such qualification necessary, except where the failure to effect such qualification would not have a material adverse effect upon its ability to perform its obligations pursuant to this Agreement or the Senior Documents (as hereinafter defined) to which it is a party. (ii) It has all necessary corporate power to execute, deliver and perform under this Agreement and the Senior Documents. All action on its part that is required for the authorization, execution, delivery and performance of this Agreement and the Senior Documents has been duly and effectively taken; and the execution, delivery and performance of this Agreement and the Senior Documents do not require the approval or consent of any shareholder or the holder or trustee of any debt or other obligations which has not been obtained. (iii) This Agreement and the Senior Documents have been duly executed and delivered by each such Person and constitute the legal, valid and binding obligation of 44 each such Person, enforceable against such Person in accordance with the terms thereof, except as such enforceability (A) may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights and remedies generally and (B) is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (iv) Neither the execution, delivery and performance of this Agreement and the Senior Documents nor the consummation of any of the transactions contemplated hereby or thereby nor performance of or compliance with the terms and conditions hereof or thereof (A) contravenes any material Applicable Law to such Person or (B) constitutes a default under or results in the violation of the provisions in the charter, certificate of incorporation or by-laws of such Person or of any indenture, loan or credit agreement or any other agreement, lease, instrument or document to which such Person is a party or by which it or its properties may be bound. (v) There are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the best of such Person's knowledge, threatened which could reasonably be expected to have a material and adverse effect on the performance by such Person of its obligations hereunder or under the Senior Documents or which questions the validity, binding effect or enforceability hereof or of the Senior Documents, any action to be taken pursuant hereto or thereto or any transactions contemplated hereby or thereby. For the purposes of this Section 6.1(b), the term "Senior Documents" shall mean, with respect to the Trustee, the Indenture, with respect to the DSR LOC Provider, the DSR LOC Reimbursement Agreement and with respect to the CP LOC Provider, the CP LOC Reimbursement Agreement. ARTICLE VII MISCELLANEOUS SECTION 7.1 Agreement for Benefit of Parties Hereto. Nothing in this Agreement, express or implied, is intended or shall be construed to confer upon, or to give to, any Person other than the parties hereto and their respective successors and assigns, any right, remedy or claim under or by reason of this Agreement or any covenant, condition or stipulation hereof; and the covenants, stipulations and agreements contained in this Agreement are and shall be for the sole and exclusive benefit of the parties hereto and their respective successors and assigns. SECTION 7.2 No Warranties. Except as otherwise expressly provided herein, the Senior Parties have not made to each other nor do they hereby or otherwise make to each other any warranties, express or implied, nor 45 do they assume any liability to each other with respect to the enforceability, validity, value or collectability of the Collateral (or any portion thereof). No Senior Party shall be liable to any other Senior Party for any action or failure to act or any error of judgment, negligence, or mistake, or oversight whatsoever on the part of any Senior Party or any Senior Party's agents, officers, employees or attorneys with respect to any transaction relating to any of the notes or agreements evidencing or entered into with respect to any of the Secured Obligations or any security therefor. SECTION 7.3 Severability. In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected and/or impaired thereby. SECTION 7.4 Notices. All notices, demands, certificates or other communications hereunder shall be in writing and shall be deemed sufficiently given or served for all purposes when delivered personally, when sent by certified or registered mail, postage prepaid, return receipt requested or by private courier service, or, if followed and confirmed by mail or courier service notice, when telecopied, in each case, with the proper address as indicated below. Each party may, by written notice given to the other parties, designate any other address or addresses to which notices, certificates or other communications to them shall be sent as contemplated by this Agreement. Until otherwise so provided by the respective parties, all notices, certificates and communications to each of them shall be addressed as follows: Company: AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, PA 17042 Attention: Project Manager Facsimile: 717-228-1271 Trustee: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 DSR LOC Provider: Dresdner Bank AG, New York Branch 75 Wall Street, 25th Floor New York, NY 10005-2889 Attention: Andrew Schroeder Facsimile: 212-429-2081 46 With copy to: Attention: Michael Higgins Facsimile: 212-429-2192 CP LOC Provider: Dresdner Bank AG, New York Branch 75 Wall Street, 25th Floor New York, NY 10005-2889 Attention: Andrew Schroeder Facsimile: 212-429-2081 With copy to: Attention: Michael Higgins Facsimile: 212-429-2192 Collateral Agent: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 Depositary Bank: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 SECTION 7.5 Successors and Assigns. Whenever in this Agreement any party hereto is named or referred to, the successors and assigns of such party shall be deemed to be included and all covenants, promises and agreements in this Agreement by or on behalf of the respective parties hereto shall bind and inure to the benefit of the respective successors and assigns of such parties, whether so expressed or not. SECTION 7.6 Counterparts. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all counterparts together constituting only one instrument. SECTION 7.7 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts made and to be performed in such state. All terms used herein which are not defined herein and are defined in the UCC shall have the meanings therein stated, unless the context otherwise requires. 47 SECTION 7.8 Impairments of Other Rights. Subject to Section 7.13, nothing in this Agreement is intended or shall be construed to impair, diminish or otherwise adversely affect any other rights the Senior Parties may have or may obtain against the Company pursuant to the Financing Documents. SECTION 7.9 Amendment; Waiver. No amendment, modification or supplement of this Agreement shall be effective unless such amendment, modification or supplement was effected in accordance with this Agreement. Any approval of an amendment to, or any waiver of any provision of, this Agreement shall be effective only in the specific instance and for the specific purpose for which such approval or waiver is given. No delay on the part of any Senior Party in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial waiver by such Senior Party of any right, power or remedy preclude any further exercise thereof, or the exercise of any other right, power or remedy. SECTION 7.10 Headings. Headings herein are for convenience only and shall not be relied upon in interpreting or enforcing this Agreement. SECTION 7.11 Termination. This Agreement shall remain in full force and effect until payment in full of all the Financing Liabilities and termination of the Financing Commitments. Following the Senior Debt Termination Date, this Agreement shall continue in full force and effect among the Company, the Subordinated Debt Providers, and the Collateral Agent, and the Subordinated Debt Providers shall have all powers, duties and obligations granted hereunder to the Senior Parties or the Senior Parties as if it were a Senior Party. SECTION 7.12 Entire Agreement. This Agreement, including the documents referred to herein, embodies the entire agreement and understanding of the parties hereto and supersedes all prior agreements and understandings of the parties hereto relating to the subject matter herein contained. SECTION 7.13 Limitation of Liability. Satisfaction of the obligations of the Company under this Agreement and each other Financing Documents, for the payment of the principal of or premium, if any, or interest on any Financing Liability, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be had solely from the Collateral and the assets of the Company and no recourse shall be had in the event of any non-performance by the Company of any such obligations to (i) any assets or properties of the Members (or any Person that controls any Member within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange 48 Act) or (ii) any Affiliate of the Company or any incorporators, officers, directors or employees thereof, and no judgment for any deficiency upon the obligations of the Company under this Agreement or any other Financing Document, for the payment of the principal of or premium, if any, or interest on any Financing Liability, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be obtainable by the Senior Parties or any of them against any Member or Affiliate of the Company or any other incorporator, stockholder, officer, employee or director, past, present or future of the Company or any Affiliate of the Company; provided, however, that nothing contained herein shall prevent the taking of any action permitted by law against the Company or any of its Affiliates, or in any way affect or impair the rights of the Trustee or Bondholders to take any action permitted by law, in either case to realize upon the Collateral and; provided, further, that nothing herein shall be deemed to affect the obligations of any Affiliate of the Company under any Transaction Document to which such Affiliate is a party. SECTION 7.14 Replacement and/or Removal of Independent Engineer; Payment of Independent Engineer. The Company shall in accordance with Section 1 of the Independent Engineer Agreement, have the right to replace the then current Independent Engineer at the expiration of the then current term of the Independent Engineer Agreement and shall appoint a successor Independent Engineer from the engineers listed on Exhibit 7.14. The Collateral Agent shall, upon receipt of a written request contained in Senior Party Certificates of the Required Senior Parties, remove the Independent Engineer if at any time the Independent Engineer becomes incapable of acting or is, or is reasonably likely to be, adjudged bankrupt or insolvent or a receiver is appointed for, or any public officer shall take charge or control of, the Independent Engineer or its property or its affairs for the purpose of rehabilitation, conservation or liquidation, and shall appoint a successor Independent Engineer from those engineers then listed on Exhibit 7.14. Within thirty (30) days of receipt by the Collateral Agent of a written notification from the Company to the effect that the Independent Engineer has failed to carry out its obligations in a timely manner, the Collateral Agent shall, unless directed in Senior Party Certificates of the Required Senior Parties not to do so, remove the Independent Engineer and appoint a successor Independent Engineer from those engineers then listed on Exhibit 7.14. The Company shall pay for all services performed by the Independent Engineer and its reasonable costs and expenses related thereto. SECTION 7.15 Third-Party Engineer Dispute Resolution. (a) If the Company and the Independent Engineer are in dispute in respect of a notice, plan, report, certificate or budget and they are unable to resolve the dispute within seven (7) days of the Independent Engineer expressing its disagreement with such notice, plan, report, certificate or budget, a single independent engineer (the "Third-Party Engineer") shall be designated to consider and decide the issues raised by such dispute. The selection of such Third-Party Engineer shall be made from the list of engineers described below, the initial version of which is attached as Exhibit 7.14. The Company, as the case may be, shall designate the Third-Party Engineer from such list not later than the third (3rd) day following the expiration of the seven (7) 49 day period described above and such designation shall become effective in three (3) days. Within three (3) days of the designation of a Third-Party Engineer, each of the Company and the Independent Engineer shall submit to the Third-Party Engineer a notice setting forth in detail such Person's position in respect of the issues in dispute. Such notice shall include supporting documentation, if appropriate. (b) The Third-Party Engineer shall complete all proceedings and issue his decision with regard to the issues in dispute as promptly as reasonably possible, but in any event within ten (10) days of the date on which he is designated as the Third-Party Engineer unless the Third-Party Engineer reasonably determines that additional time is required in order to give adequate consideration to the issues raised. In such case the Third-Party Engineer shall state in writing his reasons for believing that additional time is needed and shall specify the additional period required, which such period shall not exceed ten (10) days without the Company's agreement. (c) If the Third-Party Engineer determines that the position set forth in the Independent Engineer's notice is correct, it shall so state and shall state the corrective actions to be taken by the Company. In such case, the Company shall promptly take such actions. The Company shall thereafter bear all costs which may arise from actions taken pursuant to the Third-Party Engineer's decision. If the Third-Party Engineer determines that the position set forth in the Independent Engineer's notice is not correct, it shall so state and shall state the appropriate actions to be taken by the Company. In such case, the Company shall take such actions and for purposes of the Financing Documents, the Independent Engineer and the Collateral Agent shall be deemed to have approved, confirmed, concurred in or consented to the notice, plan, report, certificate or budget in dispute. The decision of the Third-Party Engineer shall be final and non-appealable. The Company shall bear all reasonable costs incurred by the Third-Party Engineer in connection with this dispute resolution mechanism. (d) The Third-Party Engineer shall be chosen from the list of qualified engineers set forth in Exhibit 7.14. Such list shall be used by the Collateral Agent (upon written direction of the Required Senior Parties) to choose a successor Independent Engineer as well. At any time either the Company or the Collateral Agent (upon written direction of the Required Senior Parties) may remove a particular engineer from the list by obtaining the other Person's reasonable consent to such removal. However, neither the Company nor the Collateral Agent may remove a name or names from the list if such removal would leave the list without at least two (2) names, unless, concurrently therewith, the Company and the Collateral Agent (upon direction of the Required Senior Parties) reasonably agree to the addition of one (1) or more names to such list. (e) During January of each year, each of the Company and the Collateral Agent (upon direction of the Required Senior Parties) shall review the current list of Third-Party Engineers and give notice to the other of any proposed additions to the list and any intended deletions. Intended deletions shall automatically become effective forty-five (45) days after notice is received by the other Person unless written objection is made by such other Person within thirty (30) days and provided that such deletions do not leave the list without at least two (2) names. Proposed additions to the list shall automatically become effective thirty forty-five (45) after 50 notice is received by the other Person unless written objection is made by such other Person within thirty (30) days. By mutual agreement between the Company and the Collateral Agent (upon direction of the Required Senior Parties), a new name or names may be added to the list of Third-Party Engineers at any time. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 51 IN WITNESS WHEREOF, the parties hereto have caused this Collateral Agency and Collateral Agency Agreement to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------------- Name: Patricia L. Rollin Title: Vice President IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee By: /s/ Thomas McCutcheon ------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President DRESDNER BANK AG, NEW YORK BRANCH, as DSR LOC Provider By: /s/ Kirk Edelman Andrew Schroeder --------------------------------------- Name: Kirk Edelman Andrew Schroeder Title: Vice President Vice President DRESDNER BANK AG, NEW YORK BRANCH, as CP LOC Provider By: /s/ Kirk Edelman Andrew Schroeder --------------------------------------- Name: Kirk Edelman Andrew Schroeder Title: Vice President Vice President [COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT] IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent By: /s/ Thomas McCutcheon ------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President IBJ WHITEHALL BANK & TRUST COMPANY, as Depositary Bank By: /s/ Thomas McCutcheon ------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President [COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT] EXHIBIT 2.1 FORM OF DESIGNATION LETTER [Date] IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, NY 10004 Re: AES Ironwood Project Ladies and Gentlemen: Reference is made to the Collateral Agency and Intercreditor Agreement (the "Collateral Agency Agreement") dated as of June 1, 1999 among AES Ironwood L.L.C. (the "Company"), IBJ Whitehall Bank & Trust Company, as Trustee, Dresdner Bank AG, as DSR LOC Provider, Dresdner Bank AG, as CP LOC Provider, IBJ Whitehall Bank & Trust Company, as Collateral Agent, and IBJ Whitehall Bank & Trust Company, as Depositary Bank. Capitalized terms used herein and not defined herein shall have the meanings set forth in the Collateral Agency Agreement. The Company and the undersigned have agreed that the undersigned shall be [an additional Lender] [the Agent for additional Lenders] under the Collateral Agency Agreement ([each such Lender,] an "Additional Lender") under the [describe new debt document]. The undersigned is delivering this Designation Letter pursuant to the Collateral Agency Agreement in order to permit (i) [the undersigned] [each Additional Lender] to become a [Senior] [Subordinated] Party thereunder and (ii) the undersigned [and the Additional Lender] to become secured parties under the Collateral Agency Agreement and the other Financing Documents and to benefit from the Collateral under the other Security Documents in accordance with the terms of the Collateral Agency Agreement and the other Security Documents. Attached hereto is a copy of the Collateral Agency Agreement. The undersigned [on behalf of itself and the Additional Lenders] accedes to and agrees to be bound by all of the terms and provisions of the Collateral Agency Agreement, the Security Documents and the other Financing Documents. You are hereby instructed to deliver a copy of this Designation Letter to each Person party to the Collateral Agency Agreement. 2.1 - 1 Our address for notices is: [Insert information] Our wire transfer instructions are: [Insert Information] [Insert in the case of Additional Lenders that are to be Subordinated Debt Providers only: Attached hereto as Annex A are the Terms of Subordination set forth in the Collateral Agency Agreement, and the undersigned [on behalf of the Additional Lenders] agrees that such Terms of Subordination shall be incorporated herein and that [it] [the Additional Lenders] shall be bound by the terms thereof.] If there is any conflict between such Terms of Subordination and the lending documents between the Company and the undersigned, such Terms of Subordination shall govern. This Designation Letter may be executed in any number of counterparts, each executed counterpart constituting an original but all counterparts together constituting only one instrument. THIS DESIGNATION LETTER SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT A NEW YORK COURT WOULD PERMIT) ANY RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. [ADDITIONAL LENDER] By: ------------------------------- Name: Title: ACKNOWLEDGED: AES IRONWOOD, L.L.C. By: ------------------------------- Name: Title: 2.1 - 2 ACKNOWLEDGED: IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent By: ------------------------------- Name: Title: 2.1 - 3 EXHIBIT 2.2 TERMS OF SUBORDINATION Reference is made herein to a certain Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999 (as amended and in effect from time to time, the "Collateral Agency Agreement"), entered into among IBJ Whitehall Bank & Trust Company, as Collateral Agent (in such capacity, together with its successors and permitted assigns in such capacity, the "Collateral Agent"), IBJ Whitehall Bank & Trust Company, (in such capacity, together with its successors and permitted assigns in such capacity, the "Depositary Bank "), IBJ Whitehall Bank & Trust Company, as Trustee under the Indenture named therein, on its own behalf and on behalf of the Bondholders described therein (in such capacity, together with its successors and permitted assigns in such capacity, the "Trustee"), the other Senior Parties identified therein, the Subordinated Debt Providers referred to therein, and AES Ironwood, L.L.C. (the "Company"). Capitalized terms used but not defined herein shall have the respective meanings ascribed thereto in the Collateral Agency Agreement, the terms of which are incorporated herein. (i) Subordination of Subordinated Obligations. The Company, for itself and its successors and assigns, covenants and agrees, and each Subordinated Debt Provider that has entered into these Terms of Subordination set forth in this annex or appendix (the "Terms of Subordination"), who then through the incorporation of these terms into an executed agreement or otherwise, on its own behalf and on behalf of each subsequent holder of the Subordinated Obligations (defined below), likewise covenants and agrees, that, to the extent and in the manner set forth in these Terms of Subordination, the Subordinated Debt, whether of principal of and interest and premium (including any Make-Whole Premium) or prepayment or liquidation penalty (if any) on the Subordinated Debt and fees and expenses incurred in enforcement of the same (collectively, the "Subordinated Obligations"), are hereby expressly made subordinate and subject in right of payment to the prior payment in full in cash of all obligations in respect of Senior Debt, whether of principal, interest or premium (including any Make-Whole Premium), if any, and fees and expenses incurred in the enforcement of the same and the fees, expenses and indemnities to be paid to the Collateral Agent and the Depositary Bank pursuant to the Collateral Agency Agreement (collectively, the "Senior Obligations"); provided, however, that nothing in these Terms of Subordination shall be deemed to prohibit any Subordinated Debt Provider from receiving payments in accordance with the terms of the Collateral Agency Agreement, including but not limited to Section 3.10 and Article IV thereof. (ii) Payment of Proceeds Upon Dissolution. In the event of (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (ii) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in any such event: 2.2 - 1 (A) the Senior Parties shall be entitled to receive payment in full in cash of all amounts due or to become due on or in respect of all Senior Obligations, or provision shall be made for such payment, before any Subordinated Debt Provider shall be entitled to receive any payment of the Subordinated Obligations; (B) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which any Subordinated Party would be entitled but for the provisions of these Terms of Subordination, including any such payment or distribution that may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Subordinated Obligations, 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, to the Collateral Agent for distribution in accordance with the terms of the Collateral Agency Agreement. (C) if, notwithstanding the foregoing provisions of this clause (ii) of these Terms of Subordination, any Subordinated Debt Provider shall have received, before all Senior Obligations are paid in full in cash or payment thereof provided for, any such payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any such payment or distribution arising out of the exercise by any Subordinated Debt Provider of a right of set-off or counterclaim and any such payment or distribution received by reason of any other indebtedness of the Company being subordinated to the Subordinated Obligations, then, and in such event, such payment or distribution shall be held in trust for the benefit of, and shall be immediately paid over or delivered to, the Collateral Agent for distribution in accordance with the terms of the Collateral Agency Agreement; and (D) if any Subordinated Debt Provider shall have failed to file claims or proofs of claim with respect to the Subordinated Obligations earlier than [15] days prior to the deadline for any such filing, the Subordinated Debt Provider shall execute and deliver to the Senior Parties such powers of attorney, assignments or other instruments as the Required Senior Parties may reasonably request to file such claims or proofs of claim. The consolidation of the Company with, or the merger of the Company into, another entity or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another entity upon the terms and conditions set forth in the Indenture or the correlative provisions of any other Financing Document shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshalling of assets and liabilities of the Company for purposes of these Terms of Subordination if the entity formed by such consolidation or into which the Company is merged or the entity that acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in the Indenture or such correlative provisions of any other Financing Document. 2.2 - 2 (iii) No Payment. Each Subordinated Debt Provider hereby agrees that, unless and until the Senior Obligations shall have been paid in full in cash, (i) no payment on account of the Subordinated Obligations or any judgment with respect thereto (and no payment on account of the purchase or redemption or other acquisition of the Subordinated Obligations) shall be made by the Company or by the Collateral Agent or the Depositary Bank on behalf of the Company and (ii) no Subordinated Debt Provider shall (A) ask, demand, sue for, take or receive from the Company, by set-off or in any other manner, or (B) seek any other remedy allowed at law or in equity against the Company for breach of the Company's obligations under the instruments representing such Subordinated Obligations, provided that nothing herein shall be deemed to prohibit payment of any of the Subordinated Obligations on any day that, under the terms thereof, is a scheduled payment date to the extent expressly permitted by Section 3.10 of the Collateral Agency Agreement and the correlative provisions of any other Financing Document and solely to the extent of available funds. In the event that, notwithstanding the foregoing provisions of this clause (iii) of these Terms of Subordination, any Subordinated Debt Provider shall have received any payment prohibited by the foregoing provisions of this clause (iii) including, without limitation, any such payment arising out of the exercise by any Subordinated Debt Provider of a right of set-off or counterclaim and any such payment received by reason of other indebtedness of the Company being subordinated to the Subordinated Obligations, then, and in any such event, such payment shall be held in trust for the benefit of, and shall be immediately paid over or delivered to, the Collateral Agent for application in accordance with the Collateral Agency Agreement. The provisions of this clause (iii) of these Terms of Subordination shall not alter the rights of the Senior Parties under the provisions of clause (ii) of these Terms of Subordination. (iv) Subrogation. Subject to the payment in full in cash of all Senior Obligations, the Subordinated Debt Providers shall be subrogated (equally and ratably with the holders of all indebtedness of the Company that by its express terms is subordinated to Senior Obligations of the Company to the same extent as the Subordinated Obligations are subordinated and that is entitled to like rights of subrogation) to the rights of the Senior Parties to receive payments and distributions of cash, property and securities applicable to the Senior Obligations until the Subordinated Obligations shall be paid in full in cash. For purposes of such subrogation, no payments or distributions to the Senior Parties of any such, property or securities to which any Subordinated Debt Provider would be entitled except for the provisions of these Terms of Subordination, and no payments over pursuant to the provisions of these Terms of Subordination to the Senior Parties by any Subordinated Debt Providers, shall be deemed to be a payment or distribution by the Company to or on account of the Senior Obligations. (v) Provisions Solely to Define Relative Rights. The provisions of these Terms of Subordination are and are intended solely for the purpose of defining the relative rights of the Subordinated Debt Providers on the one hand and the Senior Parties and the Collateral Agent on the other hand. Nothing contained in these Terms of Subordination or elsewhere in any of the Financing Documents relating to the Subordinated Obligations is intended to or shall: 2.2 - 3 (A) affect, as among the Company, its creditors other than the Senior Parties and the Subordinated Debt Providers, the obligation of the Company to pay to the Subordinated Debt Providers, the Subordinated Obligations as and when the same shall become due and payable in accordance with their terms; (B) affect the relative rights against the Company of the Subordinated Debt Providers and creditors of the Company other than the Senior Parties; (C) vitiate the occurrence of an "Event of Default" under the Indenture or the correlative provisions of any other Financing Document to the extent that any failure to make a payment of principal of, or interest on, any Subordinated Obligations by reason of the conditions specified in clause (ii) or (iii) of these Terms of Subordination would otherwise constitute such an Event of Default; or (D) prevent any Subordinated Debt Provider from exercising all remedies otherwise permitted by Applicable Law upon default under any of the Financing Documents relating to the Subordinated Obligations, subject to the rights, if any, under these Terms of Subordination of the Senior Parties, (i) in the event of any proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshalling of assets and liabilities of the Company referred to in clause (ii) of these Terms of Subordination, to receive, pursuant to and in accordance with such clause (ii), cash, property and securities otherwise payable or deliverable to the Subordinated Debt Providers, or (ii) under the conditions specified in clause (iii) of these Terms of Subordination, to prevent any payment or action prohibited by such clause (iii). (vi) No Waiver of Subordination Provisions. No right of any present or future Senior Party or the Collateral Agent to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by such Senior Party, or by any non-compliance by the Company with the terms, provisions and covenants of these Terms of Subordination, regardless of any knowledge thereof such Senior Party may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the occurrence of any one or more of the following (without the consent of or notice to any Subordinated Debt Provider), shall not cause any Senior Party to incur any responsibility to any Subordinated Debt Provider or the obligations hereunder of any Subordinated Debt Provider to the Senior Parties: (A) at any time or from time to time, the time for any performance of or compliance with any Subordinated Obligation or any Senior Obligation shall be extended, or such performance or compliance shall be waived; (B) any of the acts mentioned in any of the provisions of any of the Collateral Agency Agreement, the Indenture, any other Transaction Document, any other Financing Document or any other agreement or instrument referred to herein or therein shall be done or omitted; 2.2 - 4 (C) the maturity of any Subordinated Obligation or Senior Obligation shall be accelerated, or any Subordinated Obligation or any Senior Obligation shall be modified, supplemented or amended in any respect, or any right under any of the Collateral Agency Agreement, the Indenture, any other Transaction Document, any other Financing Document or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any Subordinated Obligation or any Senior Obligation or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (D) any lien or security interest granted to, or in favor of, the Collateral Agent, the Depositary Bank or any Senior Party as security for any Subordinated Obligation or any Senior Obligation shall fail to be perfected. (vii) Notice to Subordinated Debt Providers. The Company shall give prompt written notice to each Subordinated Debt Provider of any fact known to the Company that would prohibit the making of any payment to it in respect of the Subordinated Obligations. Notwithstanding the provisions of these Terms of Subordination, no Subordinated Debt Provider shall be charged with knowledge of the existence of any facts that would prohibit the making of any payment to it in respect of the Subordinated Obligations, unless and until such Subordinated Debt Provider shall have received written notice thereof from the Company or a Senior Party or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, each Subordinated Debt Provider shall be entitled in all respects to assume that no such facts exist. Each Subordinated Debt Provider shall be entitled to rely on the delivery to it of a written notice by a Person representing itself to be a Senior Party (or a trustee, fiduciary or agent therefor) or the Collateral Agent to establish that such notice has been given by a Senior Party (or a trustee, fiduciary or agent therefor). (viii) Reliance on Judicial Order or Certificate of Liquidation Agent. Upon any payment or distribution of assets of the Company referred to in these Terms of Subordination, the Subordinated Debt Providers shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Subordinated Debt Providers, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the Senior Parties and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to these Terms of Subordination. (ix) Specific Performance. Each of the Senior Parties may demand specific performance of these terms of subordination, whether or not the Company shall have complied with any of the provisions hereof applicable to them at any time when the Subordinated Debt Provider shall have failed to comply with any of such provisions applicable to it. The 2.2 - 5 Subordinated Debt Providers hereby irrevocably waive any defense based on the adequacy of a remedy at law, which might be asserted as a bar to such remedy of specific performance. (x) Participation of Subordinated Debt Providers. So long as any of the Senior Obligations shall remain unpaid or otherwise unsatisfied, no Subordinated Debt Provider shall commence or join with any creditor other than the Collateral Agent in commencing any proceeding referred to above for the payment of any amounts which otherwise would be payable or deliverable upon or with respect to the Subordinated Obligations. (xi) Survival. The obligations of the Company under these Terms of Subordination shall survive the repayment of the Subordinated Obligations. (xii) Headings. The section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of these Terms of Subordination. 2.2 - 6 EXHIBIT 2.3 FORM OF SENIOR PARTY CERTIFICATE IBJ Whitehall Bank & Trust Company AES Ironwood Project as Collateral Agent Senior Party Certificate [Date] Reference is made to that certain Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999 (as amended, modified or supplemented from time to time, the "Collateral Agency Agreement"), among AES Ironwood, L.LC., (together with its successors and assigns, the "Company") and IBJ Whitehall Bank & Trust Company, as trustee and depositary bank (together with its successors in such capacity, the "Collateral Agent") and Dresdner Bank AG, New York Branch, as DSR LOC Provider and CP LOC Provider. Each capitalized term used herein and not otherwise defined herein shall have the meaning assigned to it in the Indenture. The undersigned, [INSERT NAME OF SENIOR PARTY], is a Senior Party under the Collateral Agency Agreement and hereby certifies the following: (a) a Trigger Event has occurred and is continuing [insert description of Trigger Event]; (b) the aggregate principal amount of Senior Debt owed to the Senior Party by the Company is $[INSERT AMOUNT]; (c) the aggregate amount of all undrawn financing commitments from the Senior Party to the Company is $[INSERT AMOUNT]1. The undersigned hereby directs the Collateral Agent to, in accordance with the terms of the Security Documents, take the following actions: [INSERT DESCRIPTION OF THE ACTION TO BE TAKEN BY THE COLLATERAL AGENT] [NAME OF SENIOR PARTY] By: ------------------------------- Name: Title: __________________ 1 Include the principal amount of any undrawn letter of credit here. 2.3 - 1 EXHIBIT 3.6(a) FORM OF GUARANTY GUARANTY (this "Guaranty"), made and delivered as of ___________, ____ by THE AES CORPORATION, a Delaware corporation (the "Guarantor"). RECITALS A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company and an indirect subsidiary of Guarantor (the "Guaranteed Party"), certain parties providing financing to the Company (the "Financing Parties") and IBJ Whitehall Bank & Trust Company, as Collateral Agent on behalf of the Financing Parties, have entered into a Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999 (as the same may be amended, supplemented or otherwise modified from time to time, the ("Collateral Agency Agreement"). B. Section 3.6 of the Collateral Agency Agreement provides that the Company may from time to time under certain circumstances and upon certain conditions, one of which is the provision of this Guaranty to the Guaranteed Party, withdraw monies on deposit in, or credited to, any of the Available Accounts. C. The Guarantor is entering into this Guaranty in order to support the repayment obligations of the Company under Section 3.6 of the Collateral Agency Agreement for the Advance made on [INSERT DATE] in the amount of $[INSERT AMOUNT] (the "Guaranteed Obligations"). AGREEMENT In consideration of the foregoing and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby agrees for the benefit of the Guaranteed Party as follows: SECTION 1. Definitions. Unless otherwise defined herein, all terms used herein which are defined in the Collateral Agency Agreement shall have their respective meanings as therein defined. SECTION 2. Guaranty. The Guarantor hereby unconditionally and irrevocably guarantees, as the primary obligor and not merely as surety, to and for the benefit of the Guaranteed Party, punctual and full payment by the Company of the Guaranteed Obligations as and when the same shall become due and payable in accordance with the terms of the Collateral Agency Agreement. The guaranty contained herein is an absolute, unconditional, present and continuing guaranty of payment, and not of collection, is in no way conditioned or contingent upon any attempt to collect from or enforce payment by the Company or upon any other event, contingency or circumstance whatsoever, and shall be binding upon and against the Guarantor without regard to the validity or enforceability of the Collateral Agency Agreement. If, for any reason whatsoever, the Company shall fail or be unable duly, punctually and fully to pay any 3.6(a)-1 Guaranteed Obligation as and when the same shall become due and payable, the Guarantor shall forthwith pay or cause to be paid such Guaranteed Obligation to the Guaranteed Party. Such amount will not be paid out of funds or other assets of the Company. SECTION 3. Obligations Absolute and Unconditional, Continuing, Etc. The Guarantor agrees that the obligations of the Guarantor set forth in this Guaranty shall be direct obligations of the Guarantor, and such obligations shall be absolute and unconditional, shall not be subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense (other than full and strict compliance by the Guarantor with its obligations hereunder) based upon any claim the Guarantor or any other Person may have against the Guaranteed Party, the Company or any other Person, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected or impaired by, any circumstance or condition whatsoever (other than full and strict compliance by the Guarantor with its obligations hereunder), whether or not the Guarantor shall have any knowledge or notice thereof, including, without limitation: (i) any amendment or modification of or supplement to or other change in the Collateral Agency Agreement or any other Financing Document; (ii) any failure, omission or delay on the part of the Company or the Guaranteed Party to conform or comply with any term of the Collateral Agency Agreement; (iii) any waiver, consent, extension, indulgence, compromise, release or other action or inaction under or in respect of the Collateral Agency Agreement or any other Financing Document or any obligation or liability of the Company or the Guaranteed Party, or any exercise or non-exercise of any right, remedy, power or privilege under or in respect of any such instrument or agreement or any such obligation or liability; (iv) any bankruptcy, insolvency, reorganization, arrangement, readjustment, liquidation or similar proceeding with respect to the Company or the Guaranteed Party or any of their respective properties, or any action taken by any Guaranteed Party or receiver or by any court in any such proceeding; (v) any discharge, termination, cancellation, frustration, irregularity, invalidity or unenforceability, in whole or in part, of the Collateral Agency Agreement or any other Financing Document or any term or provision thereof; (vi) any merger or consolidation of the Company or the Guarantor into or with any other corporation or any sale, lease or transfer of all or any of the assets of the Company or the Guarantor to any other Person; (vii) any change in the ownership of the Company; (viii) to the extent as may be waived under Applicable Law, the benefit of all principles or provisions of law, statutory or otherwise, which may be in conflict with the terms hereof; (ix) the occurrence of any condition affecting (adversely or otherwise) the value of the Guarantor's or the Company's property; or (x) to the extent permitted under Applicable Law, any other occurrence or circumstance whatsoever, whether similar or dissimilar to the foregoing, which might otherwise constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or which might otherwise limit recourse under this Guaranty against the Guarantor. The obligations of the Guarantor set forth herein constitute the full recourse obligations of the Guarantor enforceable against it to the full extent of all its assets and properties. Without limiting the generality of the foregoing, the Guarantor agrees that (a) repeated and successive demands may be made and recoveries may be had hereunder as and when, from time to time, the Company shall default under or fail to comply with the terms of Section 3.6 of the Collateral Agency Agreement and that notwithstanding the recovery hereunder for or in respect of any given default or failure to so comply by the Company under the Collateral Agency Agreement, this Guaranty shall remain in force and effect and shall apply to each and 3.6(a)-2 every subsequent default, and (b) if any Guaranteed Obligation is paid by the Company, and thereafter all or any part of such payment is recovered from the Guaranteed Party upon the insolvency, bankruptcy or reorganization of the Company, the liability of the Guarantor hereunder with respect to such Guaranteed Obligation so paid and recovered shall, notwithstanding any prior release or termination hereof, continue and remain in full force and effect, or shall be reinstated, as the case may be, as if, to the extent of such recovery, such payment had not been made. If (x) an event permitting the exercise of remedies under the Collateral Agency Agreement shall at any time have occurred and be continuing and (y) such exercise, or any consequences thereof provided in the Collateral Agency Agreement shall at any time be prevented by reason of the pendency against the Company of a case or proceeding under any bankruptcy or insolvency law, the Guarantor agrees that, solely for purposes of this Guaranty and its obligations hereunder, the Collateral Agency Agreement shall be deemed to have been declared in default and all amounts thereunder shall be deemed to be due and payable, with all the attendant consequences as provided in the Collateral Agency Agreement as if declaration of default and the consequence thereof had been accomplished in accordance with the terms thereof, and the Guarantor shall forthwith pay any amounts guaranteed hereunder. SECTION 4. Waiver of Demands, Notices, Etc. The Guarantor hereby unconditionally waives, to the extent permitted by Applicable Law, (i) notice of any of the matters referred to in the first sentence of Section 3 hereof; (ii) all notices which may be required by statute, rule of law or otherwise, now or hereafter in effect, to preserve any rights against the Guarantor hereunder, including, without limitation, any demand, proof or notice of non-payment of any Guaranteed Obligation; (iii) any right to the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of the Collateral Agency Agreement; (iv) notice of acceptance of this Guaranty, demand, protest, presentment, notice of default and any requirement of diligence; (v) any requirement to exhaust any remedies or to mitigate any damages resulting from default by the Company under the Collateral Agency Agreement; (vi) the benefit of any and all Applicable Laws which are or might be in conflict with the terms of this Guaranty; and (vii) any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge, release or defense of a guarantor or surety, or which might otherwise limit recourse under this Guaranty against the Guarantor. SECTION 5. Subrogation. The Guarantor shall be subrogated to all rights of the Guaranteed Party in respect of any amounts paid by the Guarantor pursuant to the provisions of this Guaranty; provided, however, that the Guarantor shall be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation only after all of the Guaranteed Obligations and any other payment obligations under the Financing Documents have been paid in full. Without prejudice to the rights set forth in the preceding sentence, the Guarantor acknowledges and agrees that no proper payment by the Guarantor under this Guaranty shall give rise to (i) any claim by the Guarantor against the Guaranteed Party or (ii) any indebtedness of the Guaranteed Party. SECTION 6. Certain Rights and Powers of Guaranteed Party. The Guaranteed Party shall have all of the rights and remedies available under Applicable Law and may proceed by appropriate court action to enforce the terms hereof and to recover damages for the breach 3.6(a)-3 hereof. Each and every remedy of the Guaranteed Party shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy now or hereafter existing at law or in equity. At the option of the Guaranteed Party and upon notice to the Guarantor, the Guarantor may be joined in any action or proceeding commenced by such Guaranteed Party against the Company in respect of any Guaranteed Obligation, and recovery may be had against the Guarantor in such action or proceeding or in any independent action or proceeding against the Guarantor, without any requirement that such Guaranteed Party first assert, prosecute or exhaust any remedy or claim against the Company. SECTION 7. Representations, Warranties. The Guarantor represents and warrants to the Guaranteed Party, on and as of the date hereof: (d) The Guarantor is duly organized and validly existing in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to enter into and perform its obligations under this Guaranty; (e) No governmental action is required to be taken, given or obtained, as the case may be, by or from any Governmental Authority, and no filing, recording, publication or registration in any public office or any other place is necessary to authorize the execution, delivery and performance by the Guarantor of this Guaranty or for the legality, validity, binding effect or enforceability hereof; (f) The execution and delivery of this Guaranty by the Guarantor and the performance of its obligations hereunder will not contravene any Applicable Law, or any judgment or order applicable to or binding on it, or contravene or result in any breach of, or constitute any default under its certificate of incorporation or its bylaws or any mortgage, contract, agreement or instrument to which the Guarantor is a party or by which any of its properties may be bound; (g) The execution, delivery and performance of this Guaranty by the Guarantor have been duly authorized by all necessary corporate action; this Guaranty has been duly executed and delivered by the Guarantor and constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, liquidation or similar laws affecting creditors' rights generally and by general principles of equity; and (h) There is no action, suit or proceeding pending or, to the knowledge of the Guarantor, threatened against the Guarantor before or by any Governmental Authority that questions the validity or enforceability of this Guaranty or if adversely determined would materially impair the ability (financial or otherwise) of the Guarantor to perform its obligations hereunder. SECTION 8. Corporate Existence, Etc. The Guarantor agrees that, so long as this Guaranty is in effect, the Guarantor shall (i) preserve and maintain its corporate existence; (ii) preserve and maintain all of its material rights, privileges and franchises, except where the failure to preserve and maintain any such right, privilege or franchise would not materially and adversely affect the ability of the Guarantor to perform its obligations under this Guaranty; and 3.6(a)-4 (iii) comply with all the requirements of all Applicable Laws, rules, regulations and orders of governmental or regulatory authorities except where the failure to comply with any such requirement would not materially and adversely affect the ability of the Guarantor to perform its obligations under this Guaranty. SECTION 9. Payments. The Guarantor shall make all payments of amounts owing pursuant to this Guaranty in immediately available funds to the Guaranteed Party by wire or electronic transfer to [ ] at ABA No. [ ], for credit to [ ], Attention: [ ], or to such other account as the Guaranteed Party may specify from time to time by notice to the Guarantor, by not later than noon (New York City time) on the due date for such payment. Any such payment shall, to the extent so made, discharge the obligations of the Guarantor hereunder. SECTION 10. Termination. This Guaranty and all obligations of the Guarantor hereunder shall terminate upon the repayment of the Advance to which this Guaranty relates. SECTION 11. Notices. All notices and other communications required or permitted under the terms and provisions hereof shall be given to the Guarantor in writing, addressed to the Guarantor at 1001 North 19th Street, Arlington, VA 22209, Attention: General Counsel, Facsimile: 703-528-4510, or at such other address or addresses as the Guarantor may provide from time to time in writing to the Guaranteed Party. SECTION 12. Amendments, Waiver, Assignment, etc. Neither this Guaranty nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally but only by an instrument in writing signed by the Guarantor and the Guaranteed Party. The obligations of the Guarantor under this Guaranty may not be assigned or otherwise transferred without the prior written consent of the Guaranteed Party. SECTION 13. Section Headings, etc. The headings of the various sections of this Guaranty are for the convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. SECTION 14. Severability of Provisions. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 15. Successors and Assigns. This Guaranty shall be binding upon the Guarantor and its successors and assigns and shall inure to the benefit of the Guaranteed Party and its successors and assigns as Collateral Agent under the Collateral Agency Agreement. This Guaranty shall not be deemed to create any right in any Person other than the Guaranteed Party and its successors and assigns and shall not be construed in any respect to be a contract in whole or in part for the benefit of any Person other than the Guaranteed Party and its successors and assigns. 3.6(a)-5 SECTION 16. GOVERNING LAW. THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED, INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PROVISIONS OF SUCH LAWS. SECTION 17. SUBMISSION OF JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) ANY LEGAL ACTION OR PROCEEDING AGAINST THE GUARANTOR WITH RESPEC TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, THE GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NY 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT WITH RESPECT TO ANY ACTION OR PROCEEDING IN NEW YORK TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING AND AGREES THAT THE FAILURE OF SUCH AGENT TO GIVE ANY ADVICE OF ANY SUCH SERVICE OF PROCESS TO THE COMPANY SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR OF ANY CLAIM BASED THEREON. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE GUARANTOR AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THETERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT. THE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH IN SECTION 11, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. (b) THE GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY BROUGHT IN THE COURTS REFERRED TO IN SECTION 17(a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 3.6(a)-6 (c) THE GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THIS GUARANTY. SECTION 18. Entire Agreement. This Guaranty constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the Guarantor and the Guaranteed Party with respect to the subject matter hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3.6(a)-7 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunder duly authorized on the date first above written. THE AES CORPORATION By: ------------------------------- Name: Title: [FORM OF AES GUARANTY] EXHIBIT 3.6(b) FORM OF LETTER OF CREDIT [INSERT DATE OF ISSUE] Beneficiary: IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, NY 10004 ________________________________________ Attention: ______________________ ________________________ Subject: Irrevocable Standby Letter of Credit No. [L/C______] Gentlemen: We hereby issue in your favor our Irrevocable Letter of Credit No. __________ (this "Letter of Credit") for the account of [INSERT NAME OF AFFILIATE OF IRONWOOD], an affiliate of AES Ironwood, L.L.C. (the "Company") for an amount (the "Stated Amount") on any date equal to the difference between (x) $[INSERT AMOUNT TO BE WITHDRAWN FROM ACCOUNTS] (the "Maximum Stated Amount") and (y) the total amount of prior draws received and honored by us pursuant to this Letter of Credit. This Letter of Credit relates to the Advance made pursuant to and as defined in the Collateral Agency Agreement referred to below of [INSERT DATE] in the amount of $[INSERT AMOUNT]. We understand that this Letter of Credit is being issued to you in connection with that certain Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999 (as the same may be amended, modified or supplemented from time to time, the "Collateral Agency Agreement"), among the Company, certain parties providing financing to the Company named therein (the "Financing Parties") and IBJ Whitehall Bank & Trust Company, as Collateral Agent on behalf of the Financing Parties (the "Collateral Agent"). Prior to the Termination Date (as hereinafter defined) of this Letter of Credit, you may draw from time to time an amount not exceeding the Stated Amount, on the conditions set forth herein against presentation of this Letter of Credit in the manner provided herein and your sight draft on us (marked "Drawn under Letter of Credit No. L/C ") accompanied by a signed Drawing Certificate in the form attached hereto as Annex A appropriately completed (such sight draft and Drawing Certificate being referred to hereinafter collectively as the "Documents"). Presentation of this Letter of Credit and such draft and certificate shall be made at our office, __________________________________________________ (fax no. __________) Attn: Letter of Credit Department, either by physical delivery of such documents or by facsimile transmission of such documents to the office stated above. Upon such presentation, the payment 3.6(b) - 1 of a drawing shall be made in accordance with the terms herein. Such documents shall be sent to our office by overnight courier for receipt by us within one Business Day of the date of such facsimile transmission. Our only obligation with regard to a drawing under this Letter of Credit shall be to examine the Documents and to pay in accordance therewith, and we shall not be obligated to make any inquiry in connection with the presentation of the Documents. If this Letter of Credit and the requisite Documents are presented to us at or prior to 12:00 noon (New York time) on a Business Day (as hereinafter defined), and provided that such Documents conform to the terms and conditions hereof, payment of the amount specified shall be made to you in immediately available funds on or prior to 3:00 p.m. (New York time) on such day. If a drawing is made hereunder after 12:00 noon (New York time) on a Business Day, and provided that such Documents conform to the terms and conditions hereof, payment of the amount specified shall be made to you in immediately available funds, not later than 12:00 noon (New York time), on the following Business Day. If a demand for payment made hereunder does not, in any instance, conform to the terms and conditions of this Letter of Credit, we shall give you prompt notice that the Documents were not in accordance with the terms and conditions of this Letter of Credit, stating the reasons therefor and that we will hold the Documents at your disposal or return the same to you. Upon being notified that the Documents were not in conformity with this Letter of Credit, you may attempt to correct any such nonconforming Documents if and to the extent that you are entitled and able to do so. This Letter of Credit is effective immediately and, unless terminated earlier in accordance with the provisions hereof, expires at the close of business at our office in _______________ three hundred sixty four (364) days from today's date (the "Stated Expiration Date") but such Stated Expiration Date shall be automatically extended for a period of three hundred sixty four (364) days effective upon the Stated Expiration Date and each annual anniversary of the Stated Expiration Date (each such annual anniversary date being referred to herein as the "New Stated Expiration Date") unless, thirty days prior to the Stated Expiration Date or any such New Stated Expiration Date, we notify you, by registered mail or courier service at the above address, that this Letter of Credit shall not be extended beyond the Stated Expiration Date or the New Stated Expiration Date, as the case may be; provided that this Letter of Credit shall not be extended for more than three (3) such additional periods. If you are so notified that this Letter of Credit will not be extended, you may on or within fifteen (15) Business Days before the Stated Expiration Date or the New Stated Expiration Date, as the case may be, draw the full Stated Amount then available hereunder. Any drawing under this Letter of Credit will be paid with our own funds and not out of funds or other assets of the Company. Only you may make a drawing under this Letter of Credit. Multiple drawings may be made under this Letter of Credit. Upon the payment of a drawing, we shall be fully discharged of our obligation under this Letter of Credit in respect of any amount in excess of the Stated Amount, as the case may be, after giving effect to such drawing, and we shall not thereafter be obligated to make any further payments under this Letter of Credit in respect of any amount in excess of the Stated Amount, as the case may be, after giving effect to such drawing. 3.6(b) - 2 Upon payment of any drawing hereunder, if any amount remains to be drawn hereunder, the new Stated Amount shall be evidenced by an endorsement on the reverse of the original Letter of Credit and we shall promptly return such endorsed Letter of Credit by overnight courier to you at the address specified herein, provided that we receive the original Letter of Credit for such endorsement. Upon the earliest of (i) the close of business at our office in ______________ on the New Stated Expiration Date or, if there is none, the Stated Expiration Date, (ii) the date we have paid the Maximum Stated Amount under all drawings made hereunder or (iii) the date of our receipt of a certificate in the form of Annex B purportedly signed by an Authorized Officer (a "Certificate as to Defeasance"), (which earliest date of (i), (ii) or (iii) is referred to herein as the "Termination Date") this Letter of Credit shall automatically terminate and expire and the original of this Letter of Credit shall be immediately delivered to us for cancellation. Communications with respect to this Letter of Credit shall be in writing and shall be addressed to us at ______________________________________, specifically referring therein to this Letter of Credit by number. As used herein (a) "Authorized Officer" shall mean any of your Vice Presidents and (b) "Business Day" shall mean any day on which commercial banks in New York, New York are open for the purpose of conducting commercial banking business. This Letter of Credit sets forth in full our undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein, except only the certificates referred to herein, and any such reference shall not be deemed to incorporate herein by reference any documents, instrument or agreement except for such certificates. This Letter of Credit shall be subject to the provisions (to the extent that such provisions are not inconsistent with this Letter of Credit) of the Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 500. To the extent that the provisions of this Letter of Credit are not covered by such Uniform Customs and Practice, this Letter of Credit shall be governed by, and enforced and construed in accordance with, the laws of the State of New York. Very truly yours, [-------------------- --------------------- Vice President Vice President] 3.6(b) - 3 ANNEX A (Form of Drawing Certificate) Date: TO: [Letter of Credit Provider] ("Issuing Bank") Attn: Letter of Credit Department RE: Irrevocable Letter of Credit No. ____________ (the "Letter of Credit") The undersigned, duly authorized officers of [INSERT NAME OF COLLATERAL AGENT], in its capacity as Collateral Agent hereby, certifies to Issuing Bank with reference to the Letter of Credit that: (1) _____ No Certificate as to Defeasance (as defined in the Letter of Credit) has been delivered and the Company has become obligated to make or cause to be made a payment in respect of the Advance to which the Letter of Credit relates pursuant to Section 3.6 of the Collateral Agency Agreement referred to in the Letter of Credit in the amount of $[INSERT AMOUNT OF PAYMENT DUE], which amount does not exceed $___________, such amount being the current Stated Amount under the Letter of Credit; and [or (1)] _____ No Certificate as to Defeasance has been delivered and the Letter of Credit will expire within fifteen (15) Business Days and the Company has not furnished Acceptable Credit Support (as defined in the Collateral Agency Agreement) in substitution for the Letter of Credit and as a consequence thereof the entire Stated Amount of $___________ is due and payable; and [or (1)] _____ No Certificate as to Defeasance has been delivered and the Acceptable Credit Provider has ceased to have a long-term unsecured debt rating of at least "A" by S&P or "A2" by Moody's and the Company has not furnished an Acceptable Credit Support from a replacement Acceptable Credit Provider. 3.6(b) - 4 (2) The amount of the sight draft accompanying this certificate equals the amount due and payable as set forth above and does not exceed the Stated Amount (as defined in the Letter of Credit). IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: 3.6(b) - 5 ANNEX B (Form of Certificate as to Defeasance) Date: TO: [Letter of Credit Provider] ("Issuing Bank") Attn: Letter of Credit Department RE: Irrevocable Letter of Credit No. ____________ (the "Letter of Credit") The undersigned, duly authorized officers of IBJ Whitehall Bank & Trust Company, in its capacity as Collateral Agent (the "Collateral Agent") hereby certifies to Issuing Bank with reference to the Letter of Credit that: _____ the amount of the Advance (as defined in the Collateral Agency Agreement referred to in the Letter of Credit) to which the Letter of Credit relates has been repaid as a result of drawings on the Letter of Credit or payments by others; or _____ Acceptable Credit Support (as defined in the Collateral Agency Agreement referred to in the Letter of Credit) in replacement for the Letter of Credit has been provided to the Collateral Agent by or on behalf of the Company; and as a result of the foregoing, the Letter of Credit may be terminated. IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent By: ------------------------------- Name: Title: 3.6(b) - 6 EXHIBIT 3.8 FORM OF REQUISITION Requisition No.______ Date:________________ IBJ Whitehall Bank & Trust Company, as Collateral Agent [address] Reference is hereby made to the Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, among AES Ironwood, L.L.C. (the "Company"), IBJ Whitehall Bank & Trust Company, as Collateral Agent, Trustee and Depositary Bank, and Dresdner Bank AG, New York Branch, as DSR LOC Provider and CP LOC Provider (as the same may be amended, modified or supplemented from time to time, the "Collateral Agency Agreement"). Each capitalized term used herein and not otherwise defined herein shall have the meaning assigned to it in the Collateral Agency Agreement. The Company hereby requests, pursuant to Section 3.8 of the Collateral Agency Agreement, that the Collateral Agent make a disbursement from the Construction Account in the aggregate amount of $_________ (the "Company Requested Disbursement"). The total funding to date from the Construction Account is equal to $__________. The date that the Company Requested Disbursement is to be made is ________. Proceeds of the Company Requested Disbursement shall be used as follows: Cash to be Paid to Contractor $______________ Cash to be Paid to the Senior Parties $______________ Cash to be Paid to Trustee for deposit in the Construction Interest Account $______________ Cash for Other Project Costs $______________ Total Funds in This Requisition $______________ Total Equity Funding to Date $______________ Total Funding to Date $______________ Cash disbursement instructions (including wire and account information) for the Company Requested Disbursement are set forth in Annex 1 hereto. The date that the Company Requested Disbursement is to be made is ________. The Company hereby certifies, in connection with this Requisition, that: 3.8 - 1 (a) the proceeds of the requested disbursements will be used solely to pay Project Costs in accordance with the Indenture; (b) all work performed to date has been satisfactorily performed in a good and workmanlike manner and according to the EPC Contract; (c) undisbursed funds in the Construction Account, together with funds available under the Equity Subscription Agreement or other available sources of funds, are reasonably expected to be sufficient to complete the Facility according to the EPC Contract by the Date Certain; (d) no Default or Event of Default under the Indenture has occurred and is continuing; (e) all proceeds of prior Requisitions have been expended or applied pursuant to provisions of the Financing Documents and the items for which amounts are requested in this Requisition have not been the basis for a previous Requisition; (f) the insurance policies required pursuant to Schedule 6.2 of the Indenture, the material Governmental Approvals required to have been obtained as of the date of this Requisition, and all necessary Project Contracts are in full force and effect; and (g) the representations set forth in Sections 3.1, 3.3, 3.4, 3.5, 3.8 and 3.10 of the Indenture are true and correct in all material respects. This Requisition is accompanied by the following items: (a) if any amount of the Company Requested Disbursement is to be applied to any payment under the EPC Contract, a payment request under the EPC Contract (which request is attached hereto), approved by the Company; (b) if any amount of a Company Requested Disbursement is to be applied to the payment of a Project Cost other than the payment of interest, fees, expenses or other costs required to be paid by the obligors under the Financing Documents or the EPC Contract, a statement detailing such amounts and describing the services rendered, together with attached bills for individual Project Costs in excess of $100,000, except for estimated amounts which represent a Project Cost which as of the date of this Requisition is not due and payable but which will become due and payable prior to the next scheduled requested disbursement ("Estimated Project Costs") and for which bills for such Estimated Project costs will be attached to the next Requisition for individual Project Costs in excess of $100,000; and 3.8 - 2 (c) bills for any Project Costs which as of the date of the last Requisition were Estimated Project Costs and are required pursuant to such last Requisition to be attached hereto. 3.8 - 3 [A certificate of the Independent Engineer, substantially in the form of Exhibit A hereto, will be submitted to the Collateral Agent by the time required under the Collateral Agency Agreement.]1 AES IRONWOOD, L.L.C. By: ------------------------------- Name: Title: __________________ 1 A certificate of the Independent Engineer is required to be delivered only as contemplated by Section 3.8(d). 3.8 - 4 FORM OF INDEPENDENT ENGINEER CONFIRMATION Requisition No. _____ Date:________________ IBJ Whitehall Bank & Trust Company, as Collateral Agent [address] Reference is hereby made to the Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, among AES Ironwood, L.L.C. (the "Company"), IBJ Whitehall Bank & Trust Company, as Collateral Agent, Trustee and Depositary Bank, and Dresdner Bank AG, New York Branch, as DSR LOC Provider and CP LOC Provider (as the same may be amended, modified or supplemented from time to time, the "Collateral Agency Agreement"). Each capitalized term used herein and not otherwise defined herein shall have the meaning assigned to it in the Collateral Agency Agreement. [ ], as Independent Engineer (the "Independent Engineer") confirms receipt of Requisition No. _________ (the "Subject Requisition") and confirms that, to the best of its knowledge and belief, the matters set forth in the Subject Requisition are [correct] [incorrect in the following respects:] 3.8 - 5 EXHIBIT 3.15 FORM OF RESTORATION CERTIFICATE IBJ Whitehall Bank & Trust Company AES Ironwood Project as Collateral Agent Restoration Certificate [Date] Reference is made to that certain Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999 (as amended, modified or supplemented from time to time, the "Collateral Agency Agreement"), among AES Ironwood, L.LC., (together with its successors and assigns, the "Company") and IBJ Whitehall Bank & Trust Company, as trustee and depositary bank (together with its successors in such capacity, the "Collateral Agent") and Dresdner Bank AG, New York Branch, as DSR LOC Provider and CP LOC Provider. Each capitalized term used herein and not otherwise defined herein shall have the meaning assigned to it in the Indenture. The Company hereby requests, pursuant to Section 3.15(b) of the Collateral Agency Agreement, that the Collateral Agent make a disbursement from the Restoration Account in the aggregate amount of _________ (the "Requested Disbursement"). The date that the Requested Disbursement is to be made is ________. Cash disbursement instructions for the Requested Disbursement are set forth in Annex 1 hereto. All monies released from the Restoration Account pursuant to this Certificate shall be secured by the Security Documents, including, without limitation, the Mortgage. The undersigned, an authorized representative of the Company hereby certifies, in connection with this Certificate, that the proceeds of the Requested Disbursement will be used solely for the payment (or reimbursement, to the extent the same have been paid or satisfied by the Company) of the costs of repair and replacement of the Facility or portion thereof that has been affected by an Event of Loss or an Event of Eminent Domain The Requested Disbursement, together with all other such requisitions in the current Fiscal Year, totals $______ in the aggregate, and the approval of the Independent Engineer hereto [is/is not] required pursuant to Section 3.15(b) of the Indenture. The Company hereby certifies that all conditions precedent to the Requested Disbursement as set forth in the Collateral Agency Agreement have been satisfied. AES IRONWOOD, L.L.C. By: ------------------------------- Name: Title: 3.15 - 1 Approved this ___ day of ______, ___.1 STONE & WEBSTER MANAGEMENT CONSULTANTS, INC. By: ------------------------------- Name: Title: __________________ 1 Required only if aggregate amount of disbursements requested in any one Fiscal Year exceeds $5,000,000. 3.15 - 2 EXHIBIT 4.3 FORM OF PERFORMANCE ENHANCEMENT CERTIFICATE IBJ Whitehall Bank & Trust Company AES Ironwood Project as Collateral Agent Performance Enhancement Certificate [Date] Reference is made to that certain Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999 (as amended, modified or supplemented from time to time, the "Collateral Agency Agreement"), among AES Ironwood, L.LC., (together with its successors and assigns, the "Company") and IBJ Whitehall Bank & Trust Company, as trustee and depositary bank (together with its successors in such capacity, the "Collateral Agent") and Dresdner Bank AG, New York Branch, as DSR LOC Provider and CP LOC Provider. Each capitalized term used herein and not otherwise defined herein shall have the meaning assigned to it in the Indenture. The Company hereby requests, pursuant to Section 4.3(b) of the Collateral Agency Agreement, that the Collateral Agent make a disbursement from a separate account maintained by the Depositary Bank on behalf of the Collateral Agent in the aggregate amount of _________ (the "Requested Disbursement"). The date that the Requested Disbursement is to be made is ________. Cash disbursement instructions for the Requested Disbursement are set forth in Annex 1 hereto. All monies released from such account pursuant to this Certificate shall be secured by the Security Documents, including, without limitation, the Mortgage. The undersigned, an authorized representative of the Company hereby certifies, in connection with this Certificate, that the proceeds of the Requested Disbursement will be used solely for the payment (or reimbursement, to the extent the same have been paid or satisfied by the Company) of the costs of modification, repair and replacement of that portion of the Facility that requires modification, repair or replacement in order to remedy the circumstances giving rise to the obligation of the Contractor to pay Buy-Down Amounts. The Company hereby certifies that all conditions precedent to the Requested Disbursement as set forth in the Collateral Agency Agreement have been satisfied. AES IRONWOOD, L.L.C. By: ------------------------------- Name: Title: 4.3 - 1 Approved this ___ day of ______, ___. STONE & WEBSTER MANAGEMENT CONSULTANTS, INC. By: --------------------------- Name: Title: 4.3 - 2 EXHIBIT 7.14 THIRD-PARTY ENGINEERS Black & Veatch - Kansas City Office R.W. Beck - Framingham (Boston) Office Sergeant & Lundy Stone & Webster (to the extent not the Independent Engineer) 7.14 - 1 EX-4.3 5 DEBT SERVICE RESERVE LETTER OF CREDIT Exhibit 4.3 EXECUTION COPY - ------------------------------------------------------------------------------- DEBT SERVICE RESERVE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT Dated as of June 1, 1999 among AES IRONWOOD, L.L.C., as Company, DRESDNER BANK AG, NEW YORK BRANCH, as the Issuing Bank, a Bank and Agent and THE BANKS PARTY HERETO - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ------ ARTICLE I DEFINITIONS.............................................................................................1 SECTION 1.1 DEFINITIONS..................................................................................1 SECTION 1.2 CONSTRUCTION.................................................................................7 ARTICLE II DSR LETTER OF CREDIT...................................................................................7 SECTION 2.1 COMMITMENTS..................................................................................7 SECTION 2.2 AMOUNT AND TERM OF DSR LETTER OF CREDIT......................................................7 SECTION 2.3 PARTICIPATION IN DSR LETTER OF CREDIT........................................................9 SECTION 2.4 DRAWING AND REIMBURSEMENT....................................................................9 SECTION 2.5 FEES........................................................................................10 SECTION 2.6 INTEREST....................................................................................11 SECTION 2.7 REPAYMENT...................................................................................14 SECTION 2.8 PREPAYMENTS.................................................................................15 SECTION 2.9 SECURITY....................................................................................15 SECTION 2.10 PAYMENTS....................................................................................15 SECTION 2.11 COMPUTATION OF INTEREST AND FEES............................................................16 SECTION 2.12 PAYMENTS ON NON-BUSINESS DAYS...............................................................16 SECTION 2.13 SHARING OF PAYMENTS, ETC....................................................................16 SECTION 2.14 EVIDENCE OF DEBT............................................................................17 SECTION 2.15 INCREASED COSTS AND REDUCED RETURNS.........................................................17 SECTION 2.16 CAPITAL ADEQUACY............................................................................19 SECTION 2.17 TAXES.......................................................................................20 SECTION 2.18 ILLEGALITY..................................................................................21 SECTION 2.19 EXTENSION OF DSR LETTER OF CREDIT; ASSIGNMENTS BY BANKS.....................................22 SECTION 2.20 REDUCTION IN COMMITMENTS/REIMBURSEMENTS.....................................................23 SECTION 2.21 RIGHT OF SET-OFF............................................................................23 ARTICLE III CONDITIONS PRECEDENT.................................................................................23 SECTION 3.1 CONDITIONS PRECEDENT TO CLOSING DATE........................................................23 SECTION 3.2 CONDITIONS PRECEDENT TO ISSUE DATE..........................................................24 ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................25 SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF COMPANY...................................................25 SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE ISSUING BANK..........................................25 ARTICLE V COVENANTS..............................................................................................26 SECTION 5.1 COVENANTS...................................................................................26 ARTICLE VI DEFAULTS AND REMEDIES.................................................................................27 SECTION 6.1 EVENTS OF DEFAULT...........................................................................27 SECTION 6.2 REMEDIES....................................................................................27 SECTION 6.3 COLLATERALIZATION UPON ACCELERATION OF THE BONDS............................................27 ARTICLE VII CHARACTER OF OBLIGATIONS.............................................................................28 SECTION 7.1 OBLIGATIONS ABSOLUTE........................................................................28 SECTION 7.2 LIMITED LIABILITY OF AGENT AND BANKS........................................................29 ARTICLE VIII THE AGENT...........................................................................................29 SECTION 8.1 AUTHORIZATION AND ACTION....................................................................29 SECTION 8.2 AGENT'S RELIANCE, ETC.......................................................................30 SECTION 8.3 THE AGENT, THE ISSUING BANK AND AFFILIATES..................................................30 SECTION 8.4 BANK CREDIT DECISION........................................................................31
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TABLE OF CONTENTS Page ------ SECTION 8.5 INDEMNIFICATION.............................................................................31 SECTION 8.6 SUCCESSOR AGENT.............................................................................31 SECTION 8.7 COLLATERAL..................................................................................32 ARTICLE IX MISCELLANEOUS.........................................................................................32 SECTION 9.1 AMENDMENTS, ETC.............................................................................32 SECTION 9.2 NOTICES, ETC................................................................................32 SECTION 9.3 NO WAIVER, REMEDIES.........................................................................33 SECTION 9.4 COSTS AND EXPENSES..........................................................................33 SECTION 9.5 APPLICATION OF MONEY........................................................................34 SECTION 9.6 SEVERABILITY................................................................................34 SECTION 9.7 NON-RECOURSE LIABILITY......................................................................34 SECTION 9.8 BINDING EFFECT..............................................................................35 SECTION 9.9 ASSIGNMENTS AND PARTICIPATIONS..............................................................35 SECTION 9.10 INDEMNIFICATION.............................................................................36 SECTION 9.11 GOVERNING LAW; SUBMISSION OF JURISDICTION; VENUE; WAIVER OF JURY TRIAL......................37 SECTION 9.12 HEADINGS....................................................................................38 SECTION 9.13 EXECUTION IN COUNTERPARTS...................................................................38 Exhibit A Form of DSR Letter of Credit Exhibit B Form of DSR LOC Loan Promissory Note Exhibit C Form of Assignment and Acceptance Exhibit D Amortization Schedule Exhibit E Form of DSR LOC Term Loan Promissory Note Exhibit F Form of DSR Bond Note
ii DEBT SERVICE RESERVE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT This DEBT SERVICE RESERVE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, dated as of June 1, 1999 (this "Agreement"), is entered into by and among (1) AES IRONWOOD, L.L.C., a Delaware limited liability company (the "Company"); (2) DRESDNER BANK AG, NEW YORK BRANCH, as the Issuing Bank (the "Issuing Bank"); (3) DRESDNER BANK AG, NEW YORK BRANCH, in its individual capacity, together with each other bank that becomes a party hereto pursuant to Section 9.9 (each, including the Issuing Bank, a "Bank" and collectively, the "Banks"); and (4) DRESDNER BANK AG, NEW YORK BRANCH, as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). WHEREAS, the Company is constructing and will own a gas-fired combined cycle electric generating facility in South Lebanon Township, Lebanon County, Pennsylvania, with a net design capacity of approximately 705 megawatts and related property and facilities; WHEREAS, the Company intends to finance the construction and equipping of the Facility primarily through the issuance of the Bonds, the net proceeds of which shall be received by the Company and shall be used to pay project costs related to the Facility; WHEREAS, the Company has duly authorized the creation and issuance of the Bonds pursuant to the Indenture; and WHEREAS, in order to provide assurances in respect of the Company's satisfaction of its payment obligations under the Bonds and the Indenture, the Company has requested that the Issuing Bank agree to issue and the Banks participate in, and the Issuing Bank is willing to agree to issue and the Banks are willing to participate in, the DSR Letter of Credit upon the terms and conditions hereinafter set forth. ARTICLE I DEFINITIONS SECTION 1.1 Definitions. (a) Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Indenture. (b) The following terms are used in this Agreement with the following respective meanings: "Adjusted Base Rate" means the higher of (i) the Federal Funds Rate plus .50% and (ii) the Reference Rate. 1 "Assignment and Acceptance" means an Assignment and Acceptance entered into by a Bank and another Person, substantially in the form of Exhibit C. "Bank" has the meaning set forth in the preamble of this Agreement. "Base Rate Loan" means a DSR Loan, or portion thereof, bearing interest at a rate determined with reference to the Adjusted Base Rate. "Bond Conversion Event" means, in respect of a DSR LOC Loan, the failure by the Company to have repaid (i) at least 50% of the original amount of such DSR LOC Loan on the date 30 months after the making of such DSR LOC Loan or (ii) the full amount of such DSR LOC Loan by the DSR LOC Loan Required Payment Date. "Business Day" means a day (other than a Saturday or Sunday) on which banks are open for business in New York, New York, and with respect to all notices and determinations in connection with, advances of, continuations of, conversions from and to, and payments of principal and interest on, Eurodollar Rate Loans, any day that is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market. "Closing Date" means the date on which the conditions precedent set forth in Section 3.1 have been fulfilled. "Commitment" of a Bank at any time means (i) an amount equal to the product of (A) the Maximum Stated Amount at such time, as the same may be reduced from time to time in accordance with the provisions of this Agreement, and (B) such Bank's Percentage Interest as set forth opposite the name of such Bank on the signature pages hereof, or if one or more Assignments and Acceptances shall have been entered into, as set forth in the register of the Agent set forth for such purpose, or (ii) as the context may require, the obligation of such Bank to make loans in an aggregate amount of principal at any time outstanding not exceeding such amount. "Commitments" means all of the Commitments. "Company" has the meaning set forth in the preamble of this Agreement. "Credit Documents" means this Agreement, the Security Documents, the Collateral Agency Agreement, each DSR Note and the DSR Letter of Credit. "Default" means an event that with the giving of any required notice and/or the lapse of any required time would constitute an Event of Default. "Dollars" and "$" means freely transferable United States dollars. "Drawing" means a drawing under the DSR Letter of Credit. "DSR Bond" has the meaning set forth in Section 2.7(h). 2 "DSR Bond Note" has the meaning set forth in Section 2.7(j). "DSR Letter of Credit" means a letter of credit in favor of the Collateral Agent substantially in the form of Exhibit A, issued or to be issued by the Issuing Bank. "DSR Loan" means any DSR LOC Loan, DSR LOC Term Loan or DSR Bond, as applicable. "DSR LOC Loan" has the meaning set forth in Section 2.4. "DSR LOC Loan Note" has the meaning set forth in Section 2.14(a). "DSR LOC Loan Required Payment Date" means, in respect of each DSR LOC Loan, the date five years from the date such DSR LOC Loan is made by the Banks pursuant to the terms of this Agreement. "DSR LOC Term Loan" means a DSR LOC Term Loan made as a result of the occurrence of a Step-Up Event either to fund a Drawing made upon such occurrence or by way of the conversion of then outstanding DSR LOC Loans. "DSR LOC Term Loan Note" has the meaning set forth in Section 2.7(f). "DSR LOC Term Loan Required Payment Date" means, in respect of each DSR LOC Term Loan, the fortieth (40th) Quarterly Date occurring after such DSR LOC Term Loan is made by the Banks pursuant to the terms of this Agreement. "DSR Note" means any DSR LOC Note, DSR LOC Term Note or DSR Bond Note, as applicable. "Eurocurrency Liabilities" has the meaning set forth in Regulation D. "Eurocurrency Reserve Period" has the meaning set forth in Section 2.15(b). "Eurodollar Rate" means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the average (rounded upwards, if necessary, to the nearest 1/100 of 1%) of the offered rates which appear on the Telerate page 3750, British Bankers Association Interest Settlement Rates for deposits in Dollars (or such other system for the purpose of displaying rates of leading reference banks in the London interbank market, as designated by the Agent) as of 11:00 a.m. (London time) on the day two Business Days prior to the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Rate Loan to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Eurodollar Rate Loan" means a DSR Loan, or portion thereof, bearing interest at a rate determined with reference to the Eurodollar Rate. "Event of Default" has the meaning set forth in Section 6.1. 3 "Excluded Taxes" has the meaning set forth in Section 2.17(a). "Expiration Date" means the earlier of (i) five years from the Issue Date and (ii) the 60th day after written notice of termination of the DSR Letter of Credit is given by the Agent to the Collateral Agent and the Trustee upon or after the occurrence of an Event of Default; provided, however, that the Expiration Date of the DSR Letter of Credit may be extended as set forth in Section 2.2(b) whereupon the Expiration Date of the DSR Letter of Credit shall be such extended Expiration Date. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "Guaranteed Completion Date" has the meaning set forth in the EPC Contract. "Indemnified Party" has the meaning set forth in Section 9.10. "Interest Period" means with respect to each Eurodollar Rate Loan, a period commencing on the date specified in the applicable Notice of Interest Rate Election and ending one, three or six calendar months thereafter, as the Company may elect in the applicable Notice of Interest Rate Election; provided, that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (c) no Interest Period shall be selected to be applicable to a DSR Loan if such Interest Period ends after the next scheduled principal payment date therefor pursuant to this Agreement and the relevant DSR Note unless, at the time of such selection, there are DSR Loans outstanding of the same type (i.e., DSR LOC Loans, DSR LOC Term Loans or DSR Bonds) the Interest Period(s) applicable to which end on or before such scheduled payment date which the Company reasonably determines are in an aggregate principal amount at least equal to the amount of such next scheduled principal payment; and (d) no Interest Period shall end after the latest relevant Required Payment Date. 4 "Issue Date" means the Business Day on which the Issuing Bank shall issue the DSR Letter of Credit in accordance with Section 2.2(a) and Section 3.2. "Issuing Bank" has the meaning set forth in the preamble of this Agreement. "Loan Obligations" means the Drawings and the principal of all DSR Loans (including but not limited to the Company's obligations in respect of amounts not yet disbursed). "Maximum Stated Amount" means at any time, the highest amount set forth as a Stated Amount Value shown in Schedule 1 to the DSR Letter of Credit as in effect at such time. "Mortgage Basis" means in respect of each DSR LOC Term Loan, an amortization schedule which, taking into account the interest rate applicable to such DSR LOC Term Loan determined in accordance with Section 2.7(e) and assuming payments are made on Interest Payment Dates, results in levelized payment of the principal of and interest on such DSR LOC Term Loan to and including the DSR LOC Term Loan Required Payment Date applicable thereto. "Non-Recourse Party" has the meaning specified in Section 9.7. "Notice Date" has the meaning set forth in Section 2.2(b). "Notice of Interest Rate Election" has the meaning set forth in Section 2.6(b). "Obligations" means all of the Loan Obligations and any and all other obligations of the Company to the Issuing Bank, the Banks or the Agent under or in connection with the Credit Documents, whether for interest, fees, expenses, indemnification or otherwise. "Participant" has the meaning set forth in Section 9.9(b). "Percentage Interest" means, for each Bank, the fraction, expressed as a percentage, where the numerator is the Commitment of such Bank and the denominator is the aggregate of all the Commitments held by all the Banks, as set forth on the signature page opposite the name and signature of each respective Bank or if applicable, in Schedule 1 to any Assignment and Acceptance. "Purchasing Bank" has the meaning set forth in Section 9.9(a). "Quarterly Date" means each Bond Payment Date during the term of this Agreement. "Reference Rate" means the variable rate of interest per annum officially announced or published by the Agent from time to time as its "reference rate," such rate being set by the Agent as a general reference rate of interest, taking into account such factors as the Agent may deem appropriate, it being understood that many of the Agent's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Agent may make various commercial or other loans at rates of interest having no relationship to such rate. For purposes of this Agreement, each change in the 5 Reference Rate shall be effective as of the opening of business on the date announced as the effective date of the change in such "reference rate." "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Regulatory Change" means, subsequent to the date of this Agreement, any adoption or change in United States Federal, state or municipal or foreign law or regulations (including Regulation D) or the adoption or change or making of any application, interpretation, directive, request or guideline of or under any United States Federal, state or municipal or foreign law or regulations by any court, central bank or Governmental Authority. "Required Banks" means, at any time, Banks (one of which shall be the Agent) owed at least 66-2/3% of the sum of Loan Obligations then outstanding and/or the Commitments; provided, however, that, if and so long as there are only two Banks, then "Required Banks" shall mean both of such Banks. "Required Payment Date" means in the case of any DSR LOC Loan, the DSR LOC Loan Required Payment Date, in the case of a DSR LOC Term Loan, the applicable DSR LOC Term Loan Required Payment Date or in the case of any DSR Bond, the Final Maturity Date. "Stated Amount" means the amount (not to exceed the Maximum Stated Amount) available to be drawn under the DSR Letter of Credit as of each Quarterly Date, which amount shall equal the Stated Amount Value for such date as in effect from time to time pursuant to the terms of this Agreement. "Stated Amount Value" means, for any date, the Stated Amount Value for such date set forth in Schedule 1 to the Letter of Credit and as adjusted from time to time pursuant to Sections 2.2 and 2.7. "Step-Up Event" means (i) the failure of the DSR Letter of Credit to have been extended or replaced at least 45 days prior to the termination date of such DSR Letter of Credit or (ii) if the credit rating of the Issuing Bank is less than the Required Rating, the failure of the DSR Letter of Credit to have been replaced within 45 days after the failure to satisfy the requirements of the Required Rating with a replacement letter of credit issued by an issuer that satisfies the requirements of the Required Rating and, in either case, the Collateral Agent has made a Drawing on such DSR Letter of Credit in an amount sufficient to fund the Debt Service Reserve Account up to the DSRA Required Balance. "Taxes" means any and all present or future income, stamp, transfer, turnover and other taxes, levies, imposts, duties, charges, fees, deductions or withholdings now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, and any and all interest, penalties, claims or other liabilities arising under or relating thereto, including those imposed on any of the Banks or on payments to be made to or received by any of them from the Company hereunder. 6 "Termination Notice" has the meaning set forth in Section 2.2(f). SECTION 1.2 Construction. In this Agreement, unless expressly specified to the contrary: the singular includes the plural and the plural the singular; words importing any gender include the other genders; references to statutes or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending or replacing the statute or regulation referred to; references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible, visible form, but shall not include electronic mail; the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation;" references to articles, sections (or subdivisions of sections), recitals, appendices, exhibits, annexes or schedules are to those of this Agreement; references to agreements and other instruments shall be deemed to include all amendments and other modifications to such agreements and instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement; references to Persons include their respective permitted successors and assigns and, in the case of Governmental Authorities, Persons succeeding to their respective functions and capacities; and all accounting terms used in this Agreement shall be interpreted, all accounting determinations under this Agreement shall be made and all financial statements required to be delivered under this Agreement shall be prepared in accordance with GAAP as in effect from time to time, on a basis consistent with the most recent audited financial statements, if any, of the relevant Person delivered to the Agent, or otherwise reasonably acceptable to the Agent. ARTICLE II DSR LETTER OF CREDIT SECTION 2.1 Commitments. Each Bank irrevocably agrees severally, on the terms and conditions contained in this Agreement, to participate in the DSR Letter of Credit and each Drawing thereunder in the Percentage Interest of such Bank and in an aggregate amount not to exceed at any time such Bank's Commitment. SECTION 2.2 Amount and Term of DSR Letter of Credit. (a) Subject to the terms and conditions contained in this Agreement: (i) The Issuing Bank irrevocably agrees to issue the DSR Letter of Credit on the Issue Date for the account of the Company and in the Stated Amount equal to the Stated Amount Value set forth for the Issue Date in Schedule 1 to the form of the DSR Letter of Credit attached to this Agreement as Exhibit A (Schedule 1 shall be prepared by the Company and submitted to the Issuing Bank no later than 1 Business Day prior to the Issue Date). Schedule 1 to the DSR Letter of Credit when issued shall include a schedule of Stated Amount Values in effect for the entire term of the DSR Letter of Credit. For 7 each date during the term of the DSR Letter of Credit, the Stated Amount Value shall be the sum of (x) the total amount of principal and interest on the Bonds payable on the first two Quarterly Dates next succeeding such date, plus (y) an amount equal to six months' interest on the amount described in the preceding clause (i), computed at a rate per annum equal to (A) 2% plus (B) the Eurodollar Rate for a three month Interest Period as in effect two Business Days prior to the Issue Date (or in the case of an extension of the Expiration Date of the DSR Letter of Credit, two Business Days prior to the date on which the Issuing Bank issues its notice of confirmation extending the Expiration Date of the DSR Letter of Credit) plus (C) 50 basis points. (ii) If the DSRA Required Balance for any period is reduced by a prepayment of the principal of the Bonds, the Stated Amount Values for such period shall be correspondingly reduced. (iii) Each of the Stated Amount Values set forth in Schedule 1 to the DSR Letter of Credit as in effect from time to time shall be reduced and/or from time to time in accordance with the provisions of Section 2.2(c), (e) and (f) and shall be reduced and reinstated from time to time in accordance with Section 2.7(b) and (c). (b) On or prior to the date that is 120 days prior to the original Expiration Date of the DSR Letter of Credit or any extension thereof pursuant to this Section 2.2(b) (the "Notice Date"), the Agent may on behalf of the Banks in accordance with Section 2.19(a) extend the original or extended Expiration Date, as the case may be, of such DSR Letter of Credit for an additional one or more years beyond the original or extended Expiration Date, as the case may be. The Agent shall notify the Company, the Collateral Agent and the Trustee of the Banks' decision regarding such extension on or prior to the applicable Notice Date. Failure of the Agent to provide the Company, the Collateral Agent and the Trustee with written notice of renewal on or prior to the applicable Notice Date in respect of the original Expiration Date or any extended Expiration Date, as the case may be, or imposition of additional terms and conditions adverse to the Company (in the Company's reasonable judgment) in respect of such renewal, shall be deemed to constitute non-renewal of the DSR Letter of Credit beyond the original or extended Expiration Date, as the case may be. If the Agent agrees to extend the then current Expiration Date, the Expiration Date of the DSR Letter of Credit shall, effective upon the giving of such notice to the Company, be such extended date. (c) (i) If a Step-Up Event shall have occurred and the Collateral Agent shall have made a Drawing in accordance with Section 2.4, the DSR Letter of Credit shall thereupon terminate. (ii) If a Bond Conversion Event shall have occurred, and the Agent, subject to the approval of the Required Banks, elects to convert any DSR LOC Loan into a DSR Bond in accordance with Section 2.7(h), each of the Stated Amount Values set forth in Schedule 1 to the DSR Letter of Credit as then in effect shall be reduced by an amount equal to the amount of the DSR LOC Loan so converted, and the Maximum Stated Amount correspondingly reduced. 8 (d) [Reserved]. (e) To the extent the DSRA Required Balance for any period is reduced by a prepayment of the principal of the Bonds at a time when there are amounts on deposit in the Debt Service Reserve Account, then the Stated Amount Value for each affected date, as set forth in Schedule 1 to the DSR Letter of Credit, shall be reduced to an amount equal to not less than the excess of (i) the DSRA Required Balance (with interest calculated as provided for in Section 2.2(a)(i)) applicable to such affected date, over (ii) the amount on deposit in the Debt Service Reserve Account on the date such prepayment is made. (f) The Issuing Bank shall have the right, upon the occurrence and during the continuance of an Event of Default, to deliver to the Collateral Agent and the Trustee a notice in the form of Annex 2 to the DSR Letter of Credit (a "Termination Notice"), which notice shall be given at least sixty (60) days prior to the date of termination referred to in such notice. After the delivery by the Issuing Bank of a Termination Notice, the Stated Amount shall be neither increased, nor reinstated upon payment of any DSR LOC Loans, notwithstanding any other provision of this Agreement to the contrary. (g) The Agent shall, solely for informational purposes, deliver to the Company a copy of any Termination Notice given to the beneficiary under the DSR Letter of Credit; provided, however, that the Banks' ability to terminate the DSR Letter of Credit shall not be contingent upon the Agent's delivery to the Company of such notice and that neither the Agent nor the Banks shall incur any liability whatsoever as a result of the Agent's failure to deliver such notice to the Company. SECTION 2.3 Participation in DSR Letter of Credit. Simultaneously with the issuance of the DSR Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred to each Bank, and each Bank shall be deemed to have purchased and received from the Issuing Bank, in each case irrevocably and without any further action by any party, an undivided interest and participation in the DSR Letter of Credit, each Drawing and the other Loan Obligations in respect thereof in an amount equal to such Bank's Percentage Interest therein. The Agent shall promptly advise each Bank of any reduction in the Maximum Stated Amount, change in the Stated Amount or Expiration Date in respect of the DSR Letter of Credit or the cancellation or other termination of the DSR Letter of Credit and any Drawing; provided, however, that failure to provide such notice shall not limit or impair the rights of the Agent hereunder or under the Financing Documents. SECTION 2.4 Drawing and Reimbursement. (a) The payment by the Issuing Bank of a Drawing shall constitute the making by the Issuing Bank of a loan to the Company in the amount of such payment. In the event that a Drawing is not repaid by the Company by 10:00 a.m. (New York City time), on the day of such Drawing, the Agent shall promptly notify each other Bank. Each such Bank (including the Issuing Bank in its capacity as a Bank) shall, on the day of such notification, make a loan to the Company, which shall be used to repay the applicable portion of the Issuing Bank's loan with 9 respect to such Drawing, in an amount equal to the amount of such Bank's Percentage Interest in such Drawing, for application to repay the Issuing Bank (each such loan by a Bank to be referred to as a "DSR LOC Loan"), and shall deliver to the Agent for the Issuing Bank's account, on the day of such notification and in immediately available funds, the amount of such DSR LOC Loan. In the event that any Bank fails to make available to the Agent for the account of the Issuing Bank the amount of such DSR LOC Loan, the Issuing Bank shall be entitled to recover such amount on demand from such Bank together with interest thereon at the Federal Funds Rate and until such reimbursement is made, the unreimbursed amount of the Issuing Bank's loan shall be deemed to be a DSR LOC Loan for all purposes of this Agreement. (b) If a Step-Up Event shall have occurred, the Collateral Agent shall (i) make a Drawing on the DSR Letter of Credit in an amount equal to the lesser of (A) the Stated Amount of the DSR Letter of Credit as in effect immediately prior to such Drawing and (B) the positive difference between (x) the DSRA Required Balance and (y) amounts then on deposit in the Debt Service Reserve Account (such Drawing shall be funded as a DSR LOC Term Loan), and (ii) deposit such amount in the Debt Service Reserve Account, and the DSR Letter of Credit shall thereupon terminate. SECTION 2.5 Fees. The Company shall pay the following fees to the Agent for the respective accounts of the Persons specified below: (a) on the Closing Date, for the account of the Issuing Bank an upfront fee equal to the product of (x) the Maximum Stated Amount and (y) 1% per annum; (b) after the Closing Date and up to but not including the Issue Date, for the respective accounts of the Banks, a commitment fee equal to the product of (x) the Maximum Stated Amount and (y) 0.375% per annum, payable quarterly in arrears on the last Business Day of each February, May, August and November (each such Business Day, a "Quarterly Date") occurring after the Closing Date; (c) from and including the Issue Date, for the respective accounts of the Banks, a letter of credit fee equal to the product of (x) the average daily Maximum Stated Amount and (y) 1.3% per annum, payable quarterly in arrears on each Quarterly Date occurring after the Issue Date; and (d) from and including the Issue Date, for the account of the Issuing Bank, a fronting fee equal to the product of (x) the average daily Maximum Stated Amount and (y) 0.15% per annum payable quarterly in arrears on each Quarterly Date occurring after the Issue Date. 10 SECTION 2.6 Interest. (a) Rate. The Company shall pay interest on the unpaid principal amount of each DSR Loan from the date such DSR Loan is made until such principal amount has been paid in full as follows: (i) Base Rate Loans. As to Base Rate Loans, at a rate per annum equal to the sum of (x) the Adjusted Base Rate plus (y) 1%, payable monthly in arrears on the first Business Day of each month; and (ii) Eurodollar Rate Loans. As to Eurodollar Rate Loans, at a rate per annum equal to the sum of (x) the Eurodollar Rate plus (y) 2%, payable on the last day of the applicable Interest Period or, if such Interest Period exceeds three months, at intervals of three months from the first day of such Interest Period. (b) Method of Electing Interest Rates. (i) Each DSR Loan shall constitute a Base Rate Loan unless the Company elects otherwise pursuant to the following provisions of this Section 2.6(b). (ii) Each DSR Loan shall constitute a Base Rate Loan or a Eurodollar Rate Loan as the Company may elect in accordance with this Section 2.6(b). If no such election is timely made with respect to a DSR Loan, such DSR Loan shall constitute a Base Rate Loan in accordance with Section 2.6(b)(i); provided that, in the case of DSR LOC Term Loans or DSR Bonds that arise on the occasion of a conversion from DSR LOC Loans in accordance with Section 2.7(d) or 2.7(h), such DSR LOC Term Loans shall be continued as the same type of DSR Loan (i.e., Base Rate Loan or Eurodollar Loan), and if any such DSR LOC Loan was a Eurodollar Loan, the then current Interest Period shall continue after such conversion, until the end of such Interest Period, at which time the provisions for election of Interest Periods contained in this Section 2.6(b) shall apply. The Company may from time to time elect to change or continue the interest rate borne by each DSR Loan, subject to the conditions set forth below, as follows: (A) with respect to DSR Loans that are Base Rate Loans, the Company may elect to convert all or any portion of such DSR Loans to Eurodollar Rate Loans as of any Business Day; and (B) with respect to DSR Loans that are Eurodollar Rate Loans, the Company may elect to convert all or any portion of such DSR Loans to Base Rate Loans or elect to continue all or any portion of such DSR Loans as Eurodollar Rate Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such DSR Loans. 11 Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Agent (1) in the case of a conversion to or continuation of a Eurodollar Rate Loan, not later than 10:00 a.m. (New York City time) on the third Business Day prior to the day on which such conversion or continuation is to be effective or (2) in the case of a conversion to a Base Rate Loan, at any time prior to the day on which such conversion is to be effective. Each Notice of Interest Rate Election shall be in writing (including facsimile transmission) or by voice, promptly confirmed in writing. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant DSR Loan. (iii) Each Notice of Interest Rate Election shall specify: (A) the DSR Loans (or portion thereof) together with amount of each thereof to which such notice applies; (B) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (i) above; (C) if DSR Loans are to be converted, each new type of DSR Loan together with amount thereof, and if such new DSR Loans are Eurodollar Rate Loans, the duration of the initial Interest Period applicable thereto; and (D) if such DSR Loans are to be continued as Eurodollar Rate Loans for additional Interest Periods, the duration of such Interest Periods. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. No conversion into or continuation of a Eurodollar Rate Loans shall be permitted when a Default or an Event of Default has occurred and is continuing, and if a Default or an Event of Default has occurred and is continuing, each Eurodollar Rate Loan shall automatically be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. (iv) A Notice of Interest Rate Election shall not be revocable by the Company. If the Company fails to deliver a timely Notice of Interest Rate Election to the Agent for any Eurodollar Rate Loan, such DSR Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto. (v) Anything to the contrary in this Agreement notwithstanding, at no time shall there be outstanding more than four different Interest Periods applicable to the DSR Loans, and Eurodollar Rate Loans that bear a single Interest Period shall not be less than $1 million and shall be in integral multiples of $100,000. (c) Funding Losses. If the Company makes any payment of principal with respect to any Eurodollar Rate Loan or any Eurodollar Rate Loan is converted to a Base Rate Loan on any day other than the last day of an Interest Period applicable thereto, or if the Company fails to 12 borrow, repay or prepay any Eurodollar Rate Loan after notice has been given to the Agent in accordance with the terms hereof, the Company shall reimburse the Agent, for the ratable account of the Banks, within 30 days after demand for any resulting loss or expense incurred by them, including any loss incurred in obtaining, liquidating or employing deposits from third parties. Without prejudice to the foregoing, the Company shall indemnify the Agent and the Banks against any direct (as opposed to consequential) loss or expense that the Agent or the Banks may sustain or incur as a consequence of a failure by the Company in payment of principal of, or interest on, any Eurodollar Rate Loan, or any part thereof, including any interest, premium or penalty paid by the Agent or any Bank to lenders of funds borrowed by it or deposited with it for the purpose of making or maintaining such Eurodollar Rate Loan. A certificate as to the amount of any such loss or expense in reasonable detail (specifying the basis of such loss or expense) shall be promptly submitted by the Agent, or by any Bank through the Agent, to the Company and shall be conclusive and binding as to the amount thereof, absent manifest error. (d) Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Eurodollar Rate Loan: (i) the Agent or any Bank determines, in its reasonable judgment, that deposits in Dollars (in the applicable amounts) are not being offered to the Agent or such Bank in the relevant market for such Interest Period, or (ii) the Agent or such Bank, in its reasonable judgment, shall determine that the Eurodollar Rate will not adequately and fairly reflect the cost to the Agent or such Bank of funding its Eurodollar Rate Loans for such Interest Period, the Agent, or such Bank through the Agent, shall forthwith give notice thereof (which notice shall describe in reasonable detail the basis for such determination) to the Company, whereupon until the Agent, or such Bank through the Agent, notifies the Company that the circumstances giving rise to such suspension no longer exist, (A) the obligations of the Agent or such Bank to make or continue Eurodollar Rate Loans or to convert outstanding DSR Loans into Eurodollar Rate Loans shall be suspended and (B) each outstanding Eurodollar Rate Loan, or if a Bank only shall be affected, each Eurodollar Rate Loan held by such Bank shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. (e) Maximum Rate. This Agreement is hereby expressly limited so that in no contingency or event, whether by reason of acceleration of the maturity of any indebtedness hereunder or otherwise, shall the interest contracted for or charged or received by the Banks exceed the maximum amount permissible under Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to the Banks in excess of the maximum lawful amount, the interest payable to the Banks shall be reduced to the maximum amount permitted under Applicable Law, and the amount of interest for any subsequent period, to the extent less than that permitted by Applicable Law, shall to that extent be increased by the amount of such reduction. 13 SECTION 2.7 Repayment. (a) The Company shall repay the principal amount of each DSR LOC Loan as, when and to the extent monies are available for such purpose pursuant to Section 3.10 of the Collateral Agency Agreement. Each DSR LOC Loan shall mature on the applicable DSR LOC Loan Required Payment Date; provided, that the outstanding principal of each such DSR LOC Loan shall be due and payable as, when and to the extent that monies are available for the purpose of repayment of principal pursuant to Section 3.10 of the Collateral Agency Agreement. (b) The Issuing Bank shall reduce the Stated Amount by the outstanding principal amount of each DSR LOC Loan. (c) Subject to Sections 2.2 and 6.2, the Issuing Bank shall, upon receipt of written notice from the Company, reinstate the Stated Amount Values set forth in Schedule 1 to the DSR Letter of Credit to the extent of any repayment or prepayment of the principal amount of any DSR LOC Loan; provided, that such reinstatement shall not cause the Stated Amount to exceed the Maximum Stated Amount as then in effect or (when added to the cash balance in the Debt Service Reserve Account) to exceed the DSRA Required Balance (with interest calculated as provided for in Section 2.2(a)(i)) as then in effect. (d) Notwithstanding the foregoing provisions of this Section 2.7, if a Step-Up Event shall have occurred, all outstanding DSR LOC Loans shall be automatically converted into DSR LOC Term Loans on the date the Collateral Agent makes the Drawing pursuant to Section 2.4(b), and such DSR LOC Term Loan shall for purposes of this Agreement be treated as made when so converted. (e) Each DSR LOC Term Loan shall (i) amortize and be payable on successive Quarterly Dates in amounts of principal and interest computed on a Mortgage Basis, and (ii) finally mature and be due and payable on the applicable DSR LOC Term Loan Required Payment Date in the amount of remaining principal thereof and accrued interest thereon. (f) Upon the expiration of the thirty (30)-day period specified in Section 2.7(d), or such shorter period agreed to by the Agent and the Company, the Company shall deliver to the Agent an appropriately completed DSR LOC Term Loan Note substantially in the form of Exhibit E (each a "DSR LOC Term Loan Note"). (g) The Company shall pay interest and principal on each DSR LOC Term Loan quarterly in arrears in accordance with Section 3.10 of the Collateral Agency Agreement. Payments of DSR LOC Term Loans shall not give rise to a reinstatement of the Stated Amount of the DSR Letter of Credit. (h) If a Bond Conversion Event shall have occurred, then from and after the date such Bond Conversion Event occurs, the Agent may, subject to the approval of the Required Banks and upon thirty (30) days' prior written notice to the Company and the other Senior Parties, convert any such DSR LOC Loan into a substitute security (such converted DSR LOC Loan, a "DSR Bond"), the interest and principal of which shall be payable at the same level of priority as 14 the Bonds. The Company shall pay the entire remaining principal amount of such DSR Bond in accordance with Section 3.10 of the Collateral Agency Agreement. (i) Each DSR Bond shall (x) amortize and be payable on successive Quarterly Dates in amounts of principal (proportionate in amount to the amount of the Bonds being paid) and interest computed on the same amortization schedule as the Bonds and (y) finally mature and be due and payable on the Final Maturity Date in the amount of remaining principal thereof and interest accrued thereon. (j) Upon the expiration of the thirty (30)-day period specified in Section 2.7(h), or such shorter period agreed to by the Agent and the Company, the Company shall deliver to the Agent an appropriately completed DSR Bond Note substantially in the form of Exhibit F (each a "DSR Bond Note"). (k) The Company shall pay interest and principal on each DSR Bond quarterly in arrears in accordance with Section 3.10 of the Collateral Agency Agreement. Payments of DSR Bonds shall not give rise to a reinstatement of the Stated Amount of the DSR Letter of Credit. SECTION 2.8 Prepayments. The Company may, at any time and from time to time on any Business Day, upon prior written notice to the Agent not later than 11:00 a.m. (New York City time), at least one Business Day before the day of any prepayment of the DSR LOC Loans, such notice stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Company shall, prepay without premium or penalty, except as provided in Section 2.6(c), the outstanding principal amounts of the DSR LOC Loans in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid. DSR LOC Term Loans and DSR Bonds shall be prepaid ratably with the Bonds in the event the Bonds are prepaid. All prepayments made hereunder shall be applied by the Agent and the Banks against the installments of principal amount of outstanding DSR Loans of a particular class (i.e., DSR LOC Loans, DSR LOC Term Loans or DSR Bonds), in inverse order of maturity; such prepayments shall first be applied to the prepayment of outstanding Base Rate Loans of a particular class (i.e., DSR LOC Loans, DSR LOC Term Loans or DSR Bonds) to the extent thereof and then to the prepayment of outstanding Eurodollar Rate Loans of such class. SECTION 2.9 Security. The Obligations shall be secured by the Security Documents, the rights and remedies in respect of which shall be exercised pursuant to the Collateral Agency Agreement. SECTION 2.10 Payments. (a) The Company shall make each payment hereunder and under any DSR Note not later than 10:00 a.m. (New York City time), on the day when due to the Agent at its address set forth in Section 9.2, in Dollars in immediately available funds. The Agent will promptly 15 thereafter cause to be distributed like funds relating to the payment of principal (including reimbursement of Drawings), interest or fees ratably (other than amounts payable for the account of the Issuing Bank pursuant to Section 2.5(a) and (d), which shall be payable solely to the Issuing Bank, or payable pursuant to Section 9.4) to the Banks and like funds relating to the payment of any other amount payable to any Bank, to such Bank, in each case to be applied in accordance with the terms of this Agreement. The Agent may withhold from any interest payment to any Bank an amount equal to any applicable withholding tax (including upon the failure of any Bank to provide the forms or other documentation required under Section 2.17(e)). (b) Unless the Agent receives notice from the Company before the date on which any payment is due to the Banks hereunder that the Company will not make such payment in full, the Agent may assume that the Company has made such payment in full to the Agent on such date, and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due to such Bank. If and to the extent that the Company has not so made such payment in full to the Agent on the date on which such payment is due, each Bank agrees, irrevocably and without qualification or exception, to repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date on which such Bank repays such amount to the Agent, at the Federal Funds Rate. (c) All payments made by the Company to each of the Banks and the Agent under this Agreement and the DSR Notes will be made without set-off, counterclaim or other defense. SECTION 2.11 Computation of Interest and Fees. All computations of interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each calculation and each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.12 Payments on Non-Business Days. Whenever any payment hereunder or under any DSR Note is stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be. If no due date is specified for the payment of any amount payable by the Company hereunder, such amount shall be due and payable not later than 10 Business Days after receipt by the Company of written demand from the Agent for payment thereof. SECTION 2.13 Sharing of Payments, Etc. (a) Each Bank agrees that if, as a result of the exercise of a right of set-off, banker's lien or counterclaim or other similar right or the receipt of a secured claim it receives any payment in respect of the DSR Loans or other Obligations hereunder it shall promptly notify the 16 Agent thereof (and the Agent shall promptly notify the other Banks). If, as a result of such payment, such Bank receives a greater percentage of the Obligations owed to it under this Agreement than the percentage received by any other Bank, such Bank shall purchase a participation (which it shall be deemed to have purchased simultaneously upon the receipt of such payment) in the Obligations then held by such other Banks so that all such recoveries of principal and interest with respect to all Obligations owed to each Bank shall be pro rata on the basis of its respective amount of such Obligations owed to all Banks; provided, that if all or part of such proportionately greater payment received by such purchasing Bank is thereafter recovered by or on behalf of the Company from such Bank, such purchase shall be rescinded and the purchase price paid for such participation shall be returned to such Bank to the extent of such recovery, but without interest. (b) Each Bank which receives a secured claim as described in subsection (a) above shall, to the extent practicable, exercise its rights in respect of such secured claim in accordance with such subsection (a) and otherwise in a manner consistent with the rights of the Banks entitled under this Section 2.13 to share in the benefits of any recovery on such secured claim. (c) The Company expressly consents to the foregoing arrangements and agrees that any holder of a participation in any Obligation so purchased or otherwise acquired of which the Company has received notice may exercise any and all rights of set-off, banker's lien or counterclaim with respect to any and all monies owing by the Company to such holder as fully as if such holder were a holder of such Obligation in the amount of the participation held by such holder. SECTION 2.14 Evidence of Debt. (a) The indebtedness of the Company resulting from all DSR Loans shall be evidenced by this Agreement and the promissory note substantially in the form of Exhibit B in the case of the DSR LOC Loans (the "DSR LOC Loan Note"), the DSR LOC Term Loan Note and the DSR Bond Note delivered by the Company to the Agent for the benefit of the Banks in accordance with the terms hereof. (b) The books and accounts of the Agent shall be conclusive evidence, absent manifest error, of the amounts of all Drawings, DSR Loans, fees, interest and other amounts advanced, due, outstanding, payable or paid pursuant to this Agreement or the DSR Notes. SECTION 2.15 Increased Costs and Reduced Returns. (a) If, on or after the date hereof, the adoption of any Applicable Law, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Agent or any Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall subject the Agent or such Bank to any tax, duty or other charge (other than routine examination fees or Taxes) with respect to the Eurodollar Rate Loans, 17 the DSR Notes or its obligation to make or continue Eurodollar Rate Loans, or shall change the basis of taxation of payments to the Agent or any Bank of the principal of or interest on its Eurodollar Rate Loans or any other amounts due under this Agreement in respect of its Eurodollar Rate Loans or its obligation to make or continue DSR Loans or Eurodollar Rate Loans (except for changes in the rate of tax on the net income of the Agent or such Bank imposed by the federal, state or local jurisdiction in which the Agent's or such Bank's principal executive office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Eurodollar Rate Loan any such requirement provided in Section 2.17(b)), against assets of, deposits with or for the account of, or credit extended by, the Agent or any Bank or shall impose on the Agent or any Bank or on the London interbank market any other condition affecting the Eurodollar Rate Loans, the DSR Notes or its obligation to advance Eurodollar Rate Loans; and the result of any of the foregoing is to increase the cost to the Agent or such Bank of making or continuing any Eurodollar Rate Loan or to reduce the amount of any sum received or receivable by the Agent or such Bank under this Agreement or under the DSR Notes with respect thereto by an amount deemed by the Agent or such Bank to be material, then, the Agent, or such Bank through the Agent, shall deliver to the Company as promptly as practicable a certificate setting forth in reasonable detail the additional amounts that the Agent or such Bank, as the case may be, determines will fully compensate it for such reduction, increased cost or payment and the basis for the determination of such amount; provided, that the Company shall not be obligated to compensate the Agent or any Bank for the amount of such increased cost incurred with respect to a period of time prior to the date which is 90 days before the date on which the Agent first notifies the Company of a claim for such compensation or that an event had occurred which will entitle the Agent or a Bank to such compensation. Any such amount claimed by the Agent or any Bank shall, in the case of clause (i) above, be net of applicable tax savings, if any, directly attributable thereto. Within 30 days after demand by the Agent, the Company shall pay to the Agent, for its account or for the account of the applicable Bank, as the case may be, such additional amount shown as due on any such certificate, absent manifest error. (b) In the event that the Agent or any Bank shall determine (which determination shall, absent manifest error, be final and conclusive and binding on all the parties hereto) at any time that the Agent or such Bank is required to maintain reserves in respect of Eurocurrency Liabilities during any period during which any DSR Loan owing to it bears interest based on the Eurodollar Rate (each such period, for the Agent or such Bank, a "Eurocurrency Reserve Period"), but only in respect of any period during which any reserve shall actually be maintained by the Agent or such Bank for any Eurodollar Rate Loan as a result of a reserve requirement applicable to it under Regulation D in connection with Eurocurrency Liabilities, then the Agent, or such Bank through the Agent, shall promptly give notice to the Company of such determination, and the Company shall directly pay to the Agent, for its account or for the account of the applicable Bank, as the case may be, additional interest on the unpaid principal amount of 18 such DSR Loan during such Eurocurrency Reserve Period at a rate per annum which shall, during each monthly period applicable to such DSR Loan, be the amount by which (x) the Eurodollar Rate for such monthly period divided (and rounded upward to the next whole multiple of 1/100 of 1%) by a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including any marginal, emergency, supplemental, special or other reserves) applicable to the Agent or such Bank in respect of Eurocurrency Liabilities exceeds (y) the Eurodollar Rate for such monthly period. The Agent, or such Bank through the Agent, shall furnish along with such notice a certificate setting forth in reasonable detail the cost actually incurred to maintain such reserves and the basis for the determination of such amount; provided, that the Company shall not be obligated to compensate the Agent or any Bank for the amount of such increased cost incurred with respect to a period of time prior to the date which is 90 days before the date on which the Agent first notifies the Company of a claim for such compensation or that an event has occurred which will entitle the Agent or a Bank to such compensation. Additional interest payable pursuant to the immediately preceding sentence shall be paid by the Company at the time that it is otherwise required to pay interest in respect of such DSR Loan, or, if later demanded by the Agent or any Bank, promptly on demand. Each of the Agent and the Banks agrees that, if notice is given to the Company of the existence of a Eurocurrency Reserve Period, the Agent, or the applicable Bank through the Agent, shall promptly notify the Company of any termination thereof, at which time the Company shall cease to be obligated to pay additional interest to the Agent or such Bank pursuant to the first sentence of this paragraph until such time, if any, as a subsequent Eurocurrency Reserve Period shall occur. (c) The Agent, and each Bank through the Agent, will promptly notify the Company of any event of which it has knowledge, occurring after the date hereof, which will entitle the Agent or such Bank to compensation pursuant to this Section and will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole judgment of the Agent or such Bank, be otherwise disadvantageous to the Agent or such Bank. SECTION 2.16 Capital Adequacy. If the Agent or any Bank shall determine that, after the date hereof, the adoption of any Applicable Law regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of the Agent or such Bank or its holding company as a consequence of the Agent's or such Bank's obligations hereunder to a level below that which the Agent or such Bank could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by the Agent or such Bank to be material, then the Agent, or such Bank through the Agent, shall deliver to the Company as promptly as practicable (but in no event later than 120 days after the Agent or such Bank has actual knowledge of such claim for capital adequacy) a certificate setting forth in reasonable detail the amount being charged by the Agent or such Bank and the basis for the 19 determination of such amount. Within 30 days after the delivery of such certificates by the Agent, the Company shall pay to the Agent, for its account or for the account of the applicable Bank, as the case may be, the amount shown as due on any such certificate. SECTION 2.17 Taxes. (a) Payments by the Company to the Agent and the Banks under this Agreement and the DSR Notes will be made free and clear of and without deduction for Taxes, other than Taxes based on the net income of the Agent or any Bank (including franchise taxes imposed in lieu of net income taxes) imposed by (i) the United States federal government, (ii) the jurisdiction where the Agent or such Bank is organized or has its principal office or (iii) the jurisdiction of the branch of such Bank maintaining any DSR Loan or the branch of the Agent through which it renders its services as the Agent ("Excluded Taxes"). If the Company is required by law to deduct Taxes (other than Excluded Taxes) from such a payment, then the sum payable under the instrument to which the payment relates will be increased so that such deduction does not result in a diminution in the amount the Agent or any Bank actually receives. (b) To the extent permitted by law, without duplication of amounts paid by the Company under Section 2.17(a), the Company hereby indemnifies and holds harmless the Agent and each Bank from and against, and agrees to reimburse the Agent and each Bank on an after-tax basis (computed taking into account any deductions or other benefits available for federal income tax purposes for the Agent or such Bank if it is a United States taxpayer and any deductions and benefits available for income tax purposes in any jurisdiction in which the Agent or such Bank is a taxpayer) on demand for, any and all Taxes paid or incurred by the Agent or such Bank in connection with the transactions contemplated by this Agreement; provided, however, that the foregoing indemnity does not cover Excluded Taxes. Reimbursement on an "after-tax basis" means on a basis such that the Agent or such Bank is made whole after taking into account income taxes that the Agent or such Bank will owe on the indemnity or reimbursement payment in any jurisdiction and any related tax benefits, assuming the Agent or such Bank is subject to income taxes at the highest marginal rates. Nothing in this paragraph shall interfere with the right of the Agent or any Bank to arrange its tax affairs in whatever manner it thinks fit and, in particular, the Agent and the Banks are under no obligation to claim a deduction or other benefit relating to these transactions ahead of any other claim, relief, credit, deduction or other benefit to which it is entitled. The Agent, or applicable Bank through the Agent, shall promptly give written notice to the Company after (but in no event later than 60 days after) the Agent or such Bank has actual knowledge of the imposition of any Taxes subject to indemnification hereunder; provided, however, that failure to give such notice within such 60 day period will not relieve the Company of the obligation to indemnify the Agent or such Bank in accordance with the terms hereof, except to the extent of interest that would have been avoided had the notice been given prior to the end of such 60-day period. (c) The Company will provide evidence that all Taxes imposed on payments under this Agreement, any DSR Loan or any DSR Note have been fully paid to the appropriate authorities by delivering official receipts or notarized copies to the Agent within 30 days after payment. The Company will compensate the Agent or any Bank that has to pay any Taxes 20 because the Company failed to timely furnish such evidence; provided, that prior to paying such Taxes, the Agent, or such Bank through the Agent, shall have notified the Company of its intent to make such payment. (d) If the Company so requests promptly in writing after receipt of any notice under Section 2.17 hereof, the Agent or applicable Bank will contest in good faith the Taxes at the Company's expense, keep the Company fully informed about the progress of the contest, consult in good faith with the Company's counsel regarding conduct of the contest, and not compromise or otherwise settle the contest without the Company's consent (which shall not be unreasonably withheld or delayed); provided, that the Agent or such Bank may in its sole discretion select the forum for the contest and determine whether the contest will be by resisting payment of the Taxes or by paying the Taxes and seeking a refund; provided, further that the Agent or such Bank will be under no obligation to contest unless (A) if the Agent or such Bank requests, the Company has provided the Agent or such Bank an opinion of independent tax counsel selected by the Company and reasonably acceptable to the Agent or such Bank to the effect that there is a reasonable basis for the contest, (B) the amount in controversy is at least $75,000, (C) the Agent or such Bank has received satisfactory indemnification and security for any liability, loss, cost or expense arising out of the contest (including, but not limited to, all reasonable legal and accounting fees and expenses, penalties, interest and additions to tax), (D) if requested by the Agent or such Bank, the Company has admitted in writing its duty to indemnify the Agent or such Bank for the Taxes if the contest is lost (but such admission shall not preclude the Company from raising a defense to liability if a court of competent jurisdiction has rendered a decision articulating the cause of such Taxes, and the cause is not one for which the Company is responsible under this Section 2.17), and (E) if the contest is conducted in a manner that requires paying all or part of the Taxes, the Company has paid the amount required. (e) If the Company so requests within 10 days of notice to the Company of the imposition of any Taxes on payments to any of the Banks of a type not generally imposed on United States or foreign lenders making advances of the types contemplated hereunder, such Banks shall (consistent with legal and regulatory restrictions) comply with Section 2.19 hereof. (f) At such times as may be required by Applicable Law or as the Agent or the Company may reasonably request, each Bank agrees that it will deliver to the Agent and the Company duly completed forms of any applicable jurisdiction or other documentation reasonably satisfactory to the Agent and the Company that such Bank is entitled to receive payments under this Agreement without deduction or withholding of income tax under the Applicable Law of such jurisdiction. Each Bank further agrees to notify the Agent and the Company of the occurrence of any event (including any change in treaty, law or regulation) that would render such Bank unable to receive payments hereunder without such deduction or withholding. The provisions of this Section 2.17(f) shall apply to any successor holder of a DSR Note. SECTION 2.18 Illegality. If, on or after the date of this Agreement, the adoption of any Applicable Law, or any change therein, or any change in the interpretation or administration thereof by any 21 Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Agent or any Bank with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency shall make it unlawful or impossible for the Agent or such Bank to make, continue or convert its Eurodollar Rate Loans, the Agent, or such Bank through the Agent, shall so notify the Company, whereupon until the Agent, or such Bank through the Agent, notifies the Company that the circumstances giving rise to such suspension no longer exist, the obligation of the Agent or such Bank to make or continue Eurodollar Rate or convert outstanding DSR Loans into Eurodollar Rate Loans, shall be suspended. Before giving any notice to the Company pursuant to this Section, the Agent or applicable Bank shall designate a different lending office for the Eurodollar Rate Loans if such designation will avoid the need for giving such notice and will not, in the sole judgment of the Agent or such Bank, be otherwise disadvantageous to the Agent or such Bank. If such notice is given, each Eurodollar Rate Loan of the Agent or such Bank then outstanding shall either (i) be converted to a Base Rate Loan on the last day of the then current Interest Period applicable to such Eurodollar Rate Loan if the Agent or such Bank may lawfully make or continue such DSR Loan to such day, or (ii) be immediately converted to a Base Rate Loan if the Agent or such Bank shall determine that it may not lawfully continue to make or continue such DSR Loan to such day; provided, that the Company shall not be obligated to make any payment pursuant to Section 2.6(c) as a result of such conversion. If the Company so requests within 10 days of receipt of the notice referred to above, the applicable Bank shall (consistent with legal and regulatory restrictions) comply with Section 2.19(b) hereof. SECTION 2.19 Extension of DSR Letter of Credit; Assignments by Banks. (a) If at least one hundred and eighty (180) days before the Expiration Date, the Agent shall have requested the consent of each of the other Banks to the extension of the DSR Letter of Credit, and if the Agent shall not, within twenty-five (25) days of issuing such request, have received the written consent of any such Bank to the extension proposed by the Agent, the Agent shall have the right to require such Bank to transfer all of its proportionate share of the DSR Loans in accordance with Section 2.19(b). Prior to the Notice Date, each Bank shall give the Agent written notice of such Bank's election to extend or not to extend the original or extended Expiration Date of the DSR Letter of Credit for an additional one or more years as specified by the Agent. (b) In the event that (i) a Bank is required to comply with this Section 2.19(b) after a request from the Company pursuant to Sections 2.17 or 2.18, (ii) the Company or the Issuing Bank requests that the provisions of this Section 2.19(b) apply to a Bank within 10 days after the Company receives a notice from the Agent that (A) such Bank has failed to make available to the Agent its portion of any DSR LOC Loan or DSR LOC Term Loan on the date required to be made available to the Agent pursuant to this Agreement after the Agent has made written demand upon such Bank for such payment, (B) such Bank has provided the Agent with notice that such Bank shall not make available to the Agent such portion of any DSR LOC Loan or DSR LOC Term Loan required to be made available to the Agent pursuant to this Agreement or (C) such Bank has failed to reimburse the Agent pursuant to the terms of this Agreement, (iii) the Issuing Bank requests that the provisions of this Section 2.19(b) apply to a Bank in the event the 22 long-term debt rating of such Bank shall at any time be less than a rating of "A" or the equivalent by S&P or by Moody's, or (iv) the Agent requests that the provisions of this Section 2.19(b) apply to a Bank in the event that such Bank has failed to consent to extend the original or extended Expiration Date within twenty-five (25) days after the Agent's request for such consent, then such Bank shall assign all or a part of its proportionate share of the DSR Loans (as applicable) and its Commitment to a replacement Bank (which may be, but is not required to be, one of the other Banks, and shall be subject to the prior written consent of the Issuing Bank) designated by the Company; provided, that any assignment or transfer made by a Bank to a replacement Bank shall substantially be in the form of Exhibit C hereto, and any assignment of all or part of the DSR Loans or other obligations with respect to any DSR Letter of Credit shall be made without recourse, representation or warranty. The Company shall promptly pay when due all reasonable fees and expenses which such Bank incurs in connection with such transfer or assignment and the Company shall cause the replacement Bank to pay to the Agent for the account of the assigning Bank in immediately available funds all amounts outstanding or payable under this Agreement to each Bank assigning its interest in the DSR Loans or other obligations with respect to the DSR Letter of Credit. SECTION 2.20 Reduction in Commitments/Reimbursements. The Company shall have the right to refinance the Commitment and any outstanding DSR Loans, if any, without premium or penalty, except as provided in Section 2.6(c), upon at least 10 Business Days' prior written notice to the Agent. SECTION 2.21 Right of Set-off. Subject to the terms and conditions of the Collateral Agency Agreement, the Company hereby authorizes each Bank (in addition to, and without limitation of, any right of set-off, banker's lien or counterclaim a Bank may otherwise have), upon the occurrence and during the continuance of any Event of Default, at any time and from time to time, without notice to the Company or any Person other than the Collateral Agent (any such notice being hereby expressly waived by the Company to the extent it may legally do so) to set off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final) at any time held, and other indebtedness at any time owing, by such Bank in any of its offices, wherever located (whether such deposits or indebtedness be in dollars or in any other currency), to or for the credit or the account of the Company against any and all of the Obligations and liabilities of the Company now or hereafter existing under this Agreement, irrespective of whether or not such Bank shall have made any demand hereunder or thereunder and although such Obligations may be contingent or unmatured. ARTICLE III CONDITIONS PRECEDENT SECTION 3.1 Conditions Precedent to Closing Date. 23 The occurrence of the Closing Date is subject to satisfaction or waiver of the following conditions precedent: (a) issuance of the Bonds and submission to the Agent of duplicate originals or certified copies of all of the documents submitted in connection with the issuance of the Bonds on the Closing Date, which shall be in form and substance satisfactory to the Agent; (b) receipt by the Issuing Bank of the following, in each case in the form approved by the Agent on the Closing Date: (i) this Agreement and the DSR LOC Loan Note duly executed by the Company; (ii) an original of each of the Security Documents, duly executed by the parties thereto; (iii) a copy of each other Financing Document, duly executed by the parties thereto and certified by the Company as to completeness and authenticity; (iv) written opinions of counsel acceptable to the Agent, addressed to the Agent and the Banks, and in form and substance satisfactory to the Agent and covering such matters as the Agent may reasonably request; (v) evidence satisfactory to the Agent that each of the parties to the Project Contracts, Financing Documents and Security Documents shall have duly and irrevocably appointed a process agent to act for and on behalf of such person, to receive summonses and other legal process in connection with any suit, action or proceeding relating to such documents in the jurisdictions in which it is required to submit to such jurisdiction and such appointment shall have been accepted and all fees scheduled to accrue to each such agent for the service of process shall have been paid in full; and (vi) evidence satisfactory to the Agent that all actions necessary or appropriate in order to effectively establish, create or perfect the Security Interest have been duly taken. (c) payment by the Company of all accrued fees and expenses (as provided in Sections 2.5 and 9.4) of the Agent and the Banks (including the reasonable accrued fees and disbursements of counsel to the Agent and the Banks), to the extent that one or more statements for such fees and expenses have been presented for payment. SECTION 3.2 Conditions Precedent to Issue Date. The DSR Letter of Credit shall be issued by the Issuing Bank and immediately thereafter shall be available for drawing upon the earliest to occur of (i) the Commercial Operation Date, (ii) the Guaranteed Completion Date, and (iii) the Date Certain, the occurrence of which event 24 shall be conclusively evidenced by the Collateral Agent's delivery of a certificate to the Agent substantially in the form of Annex 3 to the DSR Letter of Credit. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1 Representations and Warranties of Company. The Company hereby makes for the benefit of the Agent and the Banks all of the representations and warranties of the Company contained in Article III of the Indenture (which representations and warranties are incorporated by reference herein as if fully set forth herein together with all related definitions and which representations and warranties shall be true and correct as of the date hereof and the Closing Date). SECTION 4.2 Representations and Warranties of the Issuing Bank. The Issuing Bank represents and warrants to the Company as of the Closing Date that: (a) The Issuing Bank is duly formed, validly existing and in good standing under the laws of its jurisdiction of organization. (b) The Issuing Bank has all necessary power and authority to execute and deliver, and to perform its obligations under this Agreement, and when issued, the DSR Letter of Credit. (c) All action on the part of the Issuing Bank that is required for the authorization, execution and delivery of, and performance by the Issuing Bank of its obligations under this Agreement, and when issued, the DSR Letter of Credit has been duly and effectively taken. (d) This Agreement has been, and when issued, the DSR Letter of Credit will have been, duly executed and delivered by the Issuing Bank on behalf of Dresdner Bank AG ("Dresdner"), a banking corporation under the laws of the Republic of Germany. (e) The contractual obligations incurred by virtue of the execution and delivery by the Issuing Bank of this Agreement and, when issued, the DSR Letter of Credit, are and will be the obligations of Dresdner and if the Issuing Bank ceases to exist or defaults on its obligations under the Agreement or, when issued, the DSR Letter of Credit, then Dresdner has no defense against the performance of such defaulted obligations that is based on the fact that Dresdner acted through the Issuing Bank in executing this Agreement or, when issued, the DSR Letter of Credit, subject to exceptions based on public policy of the Republic of Germany and the exceptions and qualifications set forth in subsection (f) and (g) below. (f) This Agreement constitutes, and the DSR Letter of Credit upon the issuance thereof will constitute, the legal, valid and binding obligations of the Issuing Bank and Dresdner, enforceable against the Issuing Bank in accordance with the respective terms thereof, and (to the extent such obligations are embodied in a final and conclusive judgment for a definite sum by the 25 courts of the State of New York or the United States District Court of the Southern District of New York), enforceable against Dresdner in accordance with the respective terms thereof at its head office in Germany in a German court if the Issuing Bank ceases to exist or defaults in such obligations; except as such enforceability (i) is limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, liquidation, moratorium and similar laws relating to or affecting the enforcement of creditors' rights and remedies generally, including but not limited to any implied contractual obligations of good faith and limitations on enforcement of specific performance, (ii) is subject to general principles of equity and similar laws (regardless of whether enforceability is considered in a proceeding in equity or at law), (iii) is subject to the equitable power of a court or the power of a governmental or regulating authority to restrain payments by the Issuing Bank or Dresdner under the Agreement and to similar laws and powers, and (iv) is subject to the rules of civil procedure of the Federal Republic of Germany or similar laws (including but not limited to the German Code of Civil Procedure) which might exclude enforceability. (g) The representations and warranties herein by the Issuing Bank are based on the assumption that the Agreement constitutes the legal, valid and binding agreement of each of the other parties thereto other than the Issuing Bank, and are solely for the benefit of the Company, the Collateral Agent and the Senior Parties, and may not be relied upon for any other purpose or by any other person. To the extent that these representations and warranties depend on the status of applicable law, it is assumed that at the time this Agreement is required to be performed and the DSR Letter of Credit is required to be issued and performed, the law relevant to the foregoing representations and warranties will be the same as it is on the date of the making of such representations and warranties. ARTICLE V COVENANTS SECTION 5.1 Covenants. So long as any Commitment is in effect, the DSR Letter of Credit is outstanding or the Obligations remain unpaid, the Company shall observe and perform all of the covenants of the Company contained in Article VI of the Indenture (which covenants together with all related definitions are incorporated herein by reference as if fully set forth herein). 26 ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.1 Events of Default. Each of the following shall constitute an "Event of Default" under this Agreement so long as the same shall be continuing: (a) the Company shall fail to pay any amount due under this Agreement (including under any DSR Note) within 15 days after the due date thereof; or (b) an "Event of Default" under the Indenture shall have occurred and be continuing; or (c) an "Event of Default" under the CP LOC Reimbursement Agreement shall have occurred and be continuing. SECTION 6.2 Remedies. Upon the occurrence and during the continuation of an Event of Default, the Agent shall, at the request of the Required Banks, take one or more of the following actions: (i) after giving any required notice to the beneficiary of the DSR Letter of Credit and the lapse of the time period required prior to termination of the DSR Letter of Credit, terminate the DSR Letter of Credit in accordance with Section 2.2(f), (ii) declare the Obligations, all interest thereon and all other amounts payable under this Agreement, and any DSR Note to be forthwith due and payable, including but not limited to the amount of any and all DSR LOC Loans which may be made upon a Drawing under the DSR Letter of Credit which occurs after the date on which the Agent declares such amounts to be due and payable, but prior to the effective date of a termination of the DSR Letter of Credit in accordance with Section 2.2(f), whereupon the Obligations, all such interest and all such amounts shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company, (iii) terminate the ability of the Company to cause reinstatement of the Stated Amount through the reimbursement of Drawings, as contemplated by the terms hereof, or (iv) terminate the ability of the Company to continue DSR Loans as, or convert DSR Loans to, Eurodollar Rate Loans; provided, that, in each case, the Agent and the Banks shall not have the right to exercise any other remedy hereunder or otherwise available to the Agent or any Bank except in accordance with the provisions of the Collateral Agency Agreement. SECTION 6.3 Collateralization upon Acceleration of the Bonds. In the event that an Event of Default hereunder results from an "Event of Default" under the Indenture and the Trustee accelerates amounts due under the Indenture, the DSR LOC Provider shall be entitled to require collateralization of the Maximum Stated Amount by having the Collateral Agent deposit (in a separate account to be held by the Collateral Agent), at the time that any amounts are paid to the Trustee in respect of accelerated amounts due under the 27 Indenture, an amount equal to the amount that would have been disbursed to the Agent at such time (based on pro rata payment requirements) if Drawings had been made to the full extent of the Maximum Stated Amount ("Deemed DSR LOC Loans") and the Deemed DSR LOC Loans had been accelerated at the same time as an acceleration under the Indenture. Upon a Drawing on the DSR Letter of Credit, a portion of the amount in the separate account equal to such Drawing's proportionate share of the Maximum Stated Amount shall be transferred by the Collateral Agent to the DSR LOC Provider. The Agent, the Issuing Bank and each Bank agree that upon termination or expiration of the DSR Letter of Credit, the Collateral Agent shall become entitled to all amounts in such separate collateral account that have not been transferred pursuant to the previous sentence (to the extent of such expiration or termination) for application in accordance with the provisions of Section 4.1(a) of the Collateral Agency Agreement. ARTICLE VII CHARACTER OF OBLIGATIONS SECTION 7.1 Obligations Absolute. The Obligations shall be absolute, unconditional and irrevocable and shall not be affected or impaired under any circumstances whatsoever, including the following circumstances: (a) any lack of validity or enforceability of any provision of any Project Contract or Financing Document; (b) any amendment or waiver of, or any consent to departure from, any provision of any Project Contract or Financing Document; (c) the existence of any claim, set-off, defense or other right that the Company may have at any time against the beneficiary of the DSR Letter of Credit (or any Person for whom such beneficiary may be acting), any Bank, the Agent or any other Person, whether in connection with any Project Contract or Financing Document, the transactions contemplated thereby or any unrelated transaction; (d) any statement or signature in any certificate or other document presented under the DSR Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any such statement being untrue or inaccurate in any respect whatsoever; (e) any exchange, release or nonperfection of any Collateral or other collateral, or any release, amendment or waiver of or consent to departure from any Project Contract, Financing Document or any guaranty, for any of the Obligations; (f) payment by the Issuing Bank under the DSR Letter of Credit against presentation of a draft or certificate that does not comply with the terms of the DSR Letter of Credit; or (g) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. 28 SECTION 7.2 Limited Liability of Agent and Banks. As among the Company, the Agent and the Banks (including the Issuing Bank), the Company assumes all risks of the acts or omissions of the beneficiaries of the DSR Letter of Credit with respect to the use of the DSR Letter of Credit. Neither the Agent nor any Bank nor any of their respective officers, directors, employees or agents shall be liable or responsible for (i) the use that may be made of the DSR Letter of Credit or any acts or omissions of any beneficiaries of the DSR Letter of Credit in connection with the DSR Letter of Credit; (ii) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted in connection with the DSR Letter of Credit or of any endorsement thereon, even if such document or endorsement should prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (iii) payment by the Issuing Bank against presentation of any document that does not comply with the terms of the DSR Letter of Credit, including failure of any document to bear any reference or adequate reference to the DSR Letter of Credit; or (iv) any other circumstance whatsoever in making, delaying to make or failing to make payment under the DSR Letter of Credit; provided, however, that the Company shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Company, to the extent of any direct, as opposed to consequential, damages suffered by the Company that the Company proves were the result of the Issuing Bank's willful misconduct or gross negligence in paying under the DSR Letter of Credit or the Issuing Bank's willful or grossly negligent failure to pay under the DSR Letter of Credit after the presentation to it by the beneficiary of a draft and certificate strictly complying with the terms and conditions of the DSR Letter of Credit (unless the Issuing Bank in good faith believed itself (based upon an opinion of counsel) to be prohibited by law or legal authority from making such payment). In furtherance and not in limitation of the foregoing, the Issuing Bank may accept any document that appears on its face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. ARTICLE VIII THE AGENT SECTION 8.1 Authorization and Action. (a) Each Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by the Credit Documents (including enforcement of and collection under any Credit Document or other Project Contract), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks, and such instructions shall be binding upon all Banks and the holders of any DSR Note; provided, however, that the Agent shall not be required to take any action that, in the Agent's sole judgment, exposes the Agent to personal liability or that is contrary to any Credit Document or other Project Contract or Applicable Law. In performing its function and duties hereunder as Agent, the Agent shall act solely as the agent of the Banks and in its capacity as 29 Issuing Bank it shall act solely as issuer of the DSR Letter of Credit, and does not assume and shall not be deemed to have assumed in either such capacity any obligation towards or relationship of agency or trust or other fiduciary relationship with or for the Company or any other party to any Project Contract. (b) Each Bank hereby authorizes the Agent in the name of and on behalf of such Bank to sign such documents, take all such actions and perform such obligations that the Agent deems necessary or appropriate to bind each of the Banks under the Credit Documents and to create, perfect or maintain the existence or perfected status of any security interest created pursuant to any such Credit Documents. SECTION 8.2 Agent's Reliance, Etc. Neither the Agent nor the Issuing Bank nor any of its or their directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with any Credit Document or other Project Contract, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent and the Issuing Bank (i) may treat any Bank that has signed an Assignment and Acceptance as the holder of the applicable portion of the Obligations; (ii) may consult with legal counsel (including counsel for the Company or any Affiliate), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with any Credit Document or other Project Contract; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Credit Document or other Project Contract on the part of the Company or any Affiliate or to inspect the property (including the books and records) of the Company or any Affiliate thereof; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Credit Document or other Project Contract or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of any Credit Document or other Project Contract by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier or otherwise) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.3 The Agent, the Issuing Bank and Affiliates. With respect to its Commitment and participation in the DSR Letter of Credit, the Issuing Bank shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent or the Issuing Bank, as the case may be; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include the Agent and the Issuing Bank in their capacity as a Bank (including the Issuing Bank in its capacity as such). The Agent and the Issuing Bank and their Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Company, any Affiliate thereof and any Person that may do business with or own securities of 30 the Company or any Affiliate thereof, all as if the Agent and the Issuing Bank, respectively, were not the Agent and the Issuing Bank and without any duty to account therefor to the Banks. SECTION 8.4 Bank Credit Decision. Each Bank agrees that it has, independently and without reliance on the Agent, the Issuing Bank or any other Bank and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also agrees that it will, independently and without reliance on the Agent, the Issuing Bank or any other Bank and based on such documents and information as it deems appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.5 Indemnification. The Banks agree to indemnify the Agent and the Issuing Bank (to the extent not promptly reimbursed by the Company and without limiting the obligation of the Company to do so), on demand, ratably according to such Bank's Percentage Interest, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever that may at any time (including at any time following the payment of any Obligations or termination of this Agreement) be imposed on, incurred by or asserted against the Agent or the Issuing Bank in any way relating to or arising out of any Credit Document or other Project Contract or any action taken or omitted by the Agent under any Credit Document or other Project Contract; provided, however, that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting solely from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any costs and expenses payable by the Company under Section 9.4, to the extent that the Agent is not reimbursed for such costs and expenses by the Company. SECTION 8.6 Successor Agent. The Agent may resign at any time by giving written notice thereof to the Banks and the Company and may be removed at any time with or without cause with the written approval of the Required Banks. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent with the consent of the Company, which shall not be unreasonably withheld. If no successor Agent has been so appointed by the Required Banks, and has accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent with the consent of the Company (which shall not be unreasonably withheld), which successor Agent shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Credit Documents and the other Project 31 Contracts. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was agent under this Agreement. SECTION 8.7 Collateral. (a) Except as expressly provided herein, the Agent shall have no duty to take any affirmative steps with respect to the collection of amounts payable in respect of the Collateral. The Agent shall incur no liability as a result of any private sale of the Collateral. (b) The Banks hereby consent, and agree upon written request by the Agent to execute and deliver such instruments and other documents as the Agent may deem desirable to confirm such consent, to the release of the Liens on the Collateral, including any release in connection with any sale, transfer or other disposition of the Collateral or any part thereof, in accordance with the Project Contracts. ARTICLE IX MISCELLANEOUS SECTION 9.1 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any DSR Note or consent to any departure by the Company therefrom, shall be effective unless in writing and signed or consented to (in writing) by the Required Banks (and, in the case of amendments, the Company), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that (A) no amendment, waiver or consent shall, unless in writing and signed or consented to (in writing) by all of the Banks do any of the following: (i) waive any of the conditions specified in Article 3; (ii) increase the Commitments of the Banks or subject the Banks to any additional obligations; (iii) reduce the principal of, or interest on, the DSR Loans or any fees or other amounts payable hereunder; (iv) postpone any date fixed for (a) payment of principal of, or interest on, any DSR Loans (b) reimbursement of drawings under the DSR Letter of Credit or (c) payment of fees or other amounts payable hereunder; (v) change the percentage of the Commitments or the number of Banks, required for the Banks or any of them to take any action hereunder; or (vi) amend this Section 9.1; (B) no amendment, waiver or consent shall, unless in writing or consented to (in writing) by the Issuing Bank, affect the rights and obligations of the Issuing Bank hereunder; (C) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Persons required above to take such action, affect the rights or duties of the Agent under this Agreement or any other Credit Document and (D) any provision that is a part of this Agreement as a result of an incorporation by reference to the Indenture shall be amended or waived as provided in Section 2.5 of the Collateral Agency Agreement. SECTION 9.2 Notices, Etc. 32 All notices and other communications provided for hereunder shall be in writing (including by telecopier and shall be mailed, telecopied or delivered, if to the Company, to it at AES Ironwood, L.L.C., 829 Cumberland Street, Lebanon, Pennsylvania 17042, Attention: Project Manager, telephone 717-228-1328, telecopier 717-228-1271; if to any Bank other than the Issuing Bank, to it at the address or telecopier number set forth below its name in the Assignment and Acceptance by which it became a party hereto; if to the Agent or the Issuing Bank, to it at Dresdner Bank AG, New York Branch, 75 Wall Street, 25th Floor, New York, New York 10005-2889, Attention: Project Finance Group; telephone 212-429-2226, telecopier 212-429-2192, or as to each party, to it at such other address or telecopier number as designated by such party in a written notice to the other parties. All such notices and communications shall be deemed received, (i) if personally delivered, upon delivery, (ii) if sent by first-class mail, on the third Business Day following deposit into the mails and (iii) if sent by telecopier, upon acknowledgment of receipt thereof by the intended recipient, except that notices and communications to the Agent pursuant to Article 2 or 8 shall not be effective until received by the Agent. SECTION 9.3 No Waiver, Remedies. No failure on the part of any Bank (including the Issuing Bank) or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, and no single or partial exercise of any such right shall preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. SECTION 9.4 Costs and Expenses. The Company agrees to pay on demand (i) all reasonable costs and expenses of the Agent and the Banks (including the Issuing Bank) in connection with the preparation, execution, delivery, syndication, administration, modification and amendment of this Agreement, any DSR Note, the other Credit Documents, and the other documents to be delivered hereunder, including (a) the reasonable fees and out-of-pocket expenses of counsel for the Agent and the Banks with respect thereto and with respect to advising the Agent and the Banks as to their rights and responsibilities, or the perfection, protection or reservation of rights or interests, under this Agreement, the other Credit Documents, the other Project Contracts and the other documents to be delivered hereunder, (b) the reasonable fees and expenses of any consultants, auditors or accountants engaged by the Agent with the written consent (which shall not be unreasonably withheld) of the Company pursuant hereto, and (ii) all reasonable costs and expenses of the Agent and the Banks (including the Issuing Bank) (including reasonable counsel fees and expenses of the Agent and the Banks) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the other Credit Documents, the other Project Contracts and the other documents to be delivered hereunder, whether in any action, suit or litigation, bankruptcy, insolvency or similar proceeding. In addition, the Company shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of the aforementioned documents, and the Company agrees to indemnify and hold the Agent and the Banks (including the Issuing 33 Bank) harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay any of the foregoing. SECTION 9.5 Application of Money. If any sum paid or recovered in respect of the Obligations is less than the amount then due, the Agent may apply that sum to principal, interest, fees or any other amount due under this Agreement in such proportions and order and generally in such manner as the Agent shall reasonably determine. SECTION 9.6 Severability. Any provision of this Agreement that is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions of this Agreement or affecting the validity, enforceability or authorization of such provision in any other jurisdiction. SECTION 9.7 Non-Recourse Liability. Satisfaction of the Obligations shall be had solely from the Collateral. Notwithstanding any provision to the contrary in the Transaction Documents, there shall be no recourse against any Affiliates, stockholders, officers, directors, representatives or employees of the Company, other than the Company (each a "Non-Recourse Party"), for any payment due hereunder or under any other Financing Document or Security Document from the Company or for the performance of any obligation of such Non-Recourse Party, or breach of any representation or warranty made by such Non-Recourse Party hereunder or thereunder. The sole recourse of the Agent and the Banks hereunder or under any other Transaction Document or for the performance of any obligation of the Company, or breach of any representation or warranty made hereunder or thereunder by the Company, shall be against the Company and its assets, it being expressly understood by the Senior Parties that such obligations of the Company are obligations solely of the Company and that no such personal liability shall attach to, or be incurred by any Non-Recourse Party; provided, that nothing contained in this Section 9.7 shall (i) impair in respect of the Company the validity of any DSR Note, or any other Credit Document, as applicable, prevent the taking of any action permitted by law against the Company or any of its Affiliates, or in any way affect or impair the rights of the Agent and the Banks to take any action permitted by law, in either case to realize upon the Collateral, (ii) be deemed to release the Company or any of its Affiliates, or any past, present or future shareholder, partner, officer, employee, director or agent of any thereof, from liability for its fraudulent actions, fraudulent misrepresentations, gross negligence or willful misconduct or (iii) limit or affect the obligations and liabilities of any Non-Recourse Party in accordance with the terms of any other Transaction Document creating such obligations and liabilities to which such Non-Recourse Party is a party. 34 SECTION 9.8 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company, the Agent and the Banks and their respective successors and assigns, except that the Company shall not have the right to assign any of its rights and obligations hereunder without the prior written consent of the Required Banks, and, except as provided in Section 9.9, no Bank other than the Issuing Bank shall have the right to assign any of its rights and obligations hereunder. SECTION 9.9 Assignments and Participations. (a) Any Bank may at any time (with the consent of the Company, such consent not to be unreasonably withheld or delayed, the consent of the Agent, such consent not to be unreasonably withheld or delayed, and the consent of the Issuing Bank) sell to one or more banks or other entities whose long-term unsecured debt is rated at least "A" or the equivalent by S&P and Moody's (a "Purchasing Bank") all or any part of its rights and obligations under this Agreement and any DSR Note (which, except in the case of an assignment to a Person that, immediately before such assignment, was a Bank, shall be in an amount equal to not less than the lesser of (x) $7,000,000 and (y) 33 1/3% of the Maximum Stated Amount pursuant to an Assignment and Acceptance, executed by such Purchasing Bank, such transferor Bank, the Agent and the Issuing Bank (and, in the case of a Purchasing Bank that is not then a Bank or an Affiliate thereof, by the Company). Upon (i) such execution of such Assignment and Acceptance and (ii) delivery of a copy thereof to the Company and payment of the amount of its participation to the Agent or such transferor Bank, such Purchasing Bank shall for all purposes be a Bank party to this Agreement and shall have all the rights and obligations of a Bank under this Agreement, to the same extent as if it were an original party hereto with the Percentage Interest as set forth in such Assignment and Acceptance, which shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of Percentage Interests arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such transferor Bank under this Agreement and any DSR Note. (b) Any Bank may, from time to time, sell or offer to sell participating interests in any DSR Loans owing to such Bank, such Bank's interest in any DSR Note, any Commitment of such Bank or any other interests and obligations of such Bank hereunder, to one or more banks or other entities (each, a "Participant"), on such terms and conditions as may be determined by the selling Bank, without the consent of or notice to the Company, and the grant of such participation shall not relieve any Bank of its obligations, or impair the rights of any Bank, hereunder. In the event of any such sale by a Bank of a participating interest to a Participant, such Bank shall remain solely responsible for the performance of such Bank's obligations under this Agreement, the Company, the Agent and the Issuing Bank will continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and such Bank shall retain the sole right and responsibility to exercise the rights of such Bank, and enforce the obligations of the Company, including the right to approve any amendment, modification, supplement or waiver of any provision of any Credit Document and the right to take action under Article 6 hereof and such Bank shall not grant any such Participant 35 any voting rights or veto power over any such action by such Bank under this Agreement (provided, that such Bank may agree not to consent to any modification, amendment or waiver of this Agreement, without the consent of the Participant, that would alter the principal of or interest on any DSR Loans, postpone the date fixed for any payment of principal of or interest thereon or extend the term of any Commitment). No Participant shall have any rights under this Agreement to receive payment of principal, interest or any other amount payable hereunder except through a Bank and as provided in this Section 9.9. The Company agrees that, upon the occurrence and during the continuance of any Event of Default, each Participant shall have the right of set-off in respect of its participating interest in amounts owing under this Agreement and any DSR Note as set forth in Section 2.21 hereof to the same extent as if the amount of its participating interest was owing directly to it as a Bank under this Agreement or any DSR Note. The Company also agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 2.18 hereof with respect to its participation granted hereunder; provided, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the Bank transferring such participation would have been entitled to receive in respect of the amount of the participation transferred to such Participant had no such transfer occurred. (c) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.9, disclose to the Purchasing Bank or Participant or proposed Purchasing Bank or Participant any information relating to the Company furnished to such Bank by or on behalf of the Company; provided, however, that prior to any such disclosure, the Person receiving such disclosure shall sign such confidentiality agreements as the Company may reasonably request. SECTION 9.10 Indemnification. The Company agrees to indemnify, on demand, and hold harmless the Agent and each Bank (including the Issuing Bank) and each of their respective officers, directors, employees, agents and affiliates from and against any and all claims, damages, losses, liabilities, costs and expenses whatsoever that such indemnified party may incur (or that may be claimed against such indemnified party by any Person) by reason of (i) any untrue statement or alleged untrue statement of any material fact concerning the Company or the Collateral, or the omission or alleged omission to state any fact concerning the Company or the Collateral necessary to make any such statement, in light of the circumstances under which it was made, not misleading; (ii) the issuance, sale or delivery of the Senior Debt; (iii) the use of the proceeds of the Senior Debt or any Drawing; (iv) any reasonable action taken by such indemnified party in protecting and enforcing the rights and remedies of the Agent and the Banks under the Project Contracts; (v) subject to Section 7.2, the execution, delivery or transfer of, or payment or failure to pay under, the DSR Letter of Credit; (vi) any claim of any Person with respect to any finder's fee, brokerage commission or other similar sum due in connection with any Project Contract; or (vii) any failure by the Company to comply with any Environmental Requirement; provided, however, that the Company shall not be required to indemnify the Issuing Bank for any claims, damages, losses, liabilities, costs or expenses to the extent caused by the Issuing Bank's willful misconduct or gross negligence in paying under the DSR Letter of Credit or the Issuing Bank's willful or grossly negligent failure to pay under the DSR Letter of Credit after the presentation to it by the 36 beneficiary of a draft and certificate strictly complying with the terms and conditions of the DSR Letter of Credit (unless the Issuing Bank in good faith believed itself (based upon an opinion of counsel) to be prohibited by law or legal authority from making such payment). The Company, upon demand by any party indemnified or intended to be indemnified pursuant to this Section 9.10 at any time, shall also reimburse such party for any reasonable legal or other expenses incurred in connection with investigating or defending against any of the foregoing. If any action, suit or proceeding arising from any of the foregoing is brought against any party indemnified or intended to be indemnified pursuant to this Section 9.10 (an "Indemnified Party"), such Indemnified Party shall promptly notify the Company in writing, enclosing a copy of all papers served, but the omission so to notify the Company of any such action shall not relieve it of any liability that it may have to any Indemnified Party otherwise than under this Section 9.10; provided, however, that the Company shall not be liable for any settlement of any such action effected without the Company's prior written consent. In case any such action shall be brought against any Indemnified Party and it shall notify the Company of the commencement thereof, the Company shall be entitled to participate in and, to the extent that it shall wish, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Company to such Indemnified Party of the Company's election so to assume the defense thereof, the Company shall not be liable to such Indemnified Party for any subsequent legal or other expenses attributable to such defense, except as provided below, other than reasonable costs of investigation subsequently incurred by such Indemnified Party in connection with the defense thereof. The Indemnified Party shall have the right to employ its own counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the employment of counsel by such Indemnified Party has been authorized by the Company, (ii) the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnified Party in the conduct of the defense of such action (in which case the Company shall not have the right to direct the defense of such action on behalf of the Indemnified Party) or counsel for the Company shall have declined to represent the Indemnified Party in light of a potential conflict of interest or (iii) the Company shall not in fact have employed counsel reasonably satisfactory to the Indemnified Party to assume the defense of such action. SECTION 9.11 Governing Law; Submission of Jurisdiction; Venue; Waiver of Jury Trial. (a) THE RIGHTS AND OBLIGATIONS OF EACH OF THE PARTIES UNDER THIS AGREEMENT AND ANY DSR NOTE SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING AGAINST THE COMPANY WITH RESPECT TO THIS AGREEMENT, ANY DSR NOTE OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF 37 THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NY 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT WITH RESPECT TO ANY ACTION OR PROCEEDING IN NEW YORK TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING AND AGREES THAT THE FAILURE OF SUCH AGENT TO GIVE ANY ADVICE OF ANY SUCH SERVICE OF PROCESS TO THE COMPANY SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR OF ANY CLAIM BASED THEREON. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH IN SECTION 9.2, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. (b) THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY DSR NOTE OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN SECTION 9.11(a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THIS AGREEMENT, ANY DSR NOTE, OR THE CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 9.12 Headings. The section and subsection headings used herein have been inserted for convenience of reference only and do not constitute matters to be considered in interpreting this Agreement. SECTION 9.13 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 38 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin --------------------------------- Name: PATRICIA L. ROLLIN Title: VICE PRESIDENT Commitment Percentage Interest $17,529,452.00 100% DRESDNER BANK AG, NEW YORK BRANCH, as Agent, the Issuing Bank and as a Bank By: /s/ Andrew Schroeder ------------------------------------- Name: ANDREW SCHROEDER Title: VICE PRESIDENT By: /s/ Kirk Edelman ------------------------------------- Name: KIRK EDELMAN Title: VICE PRESIDENT [DSR LETER OF CREDIT AND REIMBURSEMENT AGREEMENT] EXHIBIT A FORM OF DEBT SERVICE RESERVE LETTER OF CREDIT Dresdner Bank AG Letter of Credit No. [__________] New York Branch 75 Wall Street, 25th Floor Irrevocable Standby Credit New York, New York 10005-2889 Date and Place of Issue: Date and Place of Expiry: New York, New York New York, New York [__________], 200_ [five years from Issue Date], as the same may be extended from time to time in accordance with the terms hereof Applicant: AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, PA 17042 Amount: Up to an aggregate of [__________] United States Dollars (US$ [________]) Beneficiary: Credit Available With: [ ] Dresdner Bank AG [Address] New York Branch Attn: 75 Wall Street, 25th Floor New York, New York 10005-2889 By: Negotiation, Against Presentation of the Documents Detailed Herein Drawn on Dresdner Bank AG New York Branch 75 Wall Street, 25th Floor New York, New York 10005-2889
Ladies and Gentlemen: We irrevocably authorize you to draw on us for the account of the Applicant up to an aggregate amount of [_______________________________________] [to be revised in accordance with Section 2.2(a)(i) prior to issuance] or, on any day, such other amount as shall be specified for such day on Schedule 1 attached to this Letter of Credit, (as reinstated from time to time as set forth in this Letter of Credit, the "Stated Amount") available against Ex. A-1 presentation of a dated drawing request drawn on Dresdner Bank AG, New York Branch, manually signed by an authorized officer of the Beneficiary (who is identified as such) appropriately completed in the form of Annex 1 hereto. The above drawing request and all communications with respect to this Letter of Credit shall be in writing, addressed to us at: Dresdner Bank AG, New York Branch 75 Wall Street New York, NY 10005 Attention: Christina Fiore Credit Administration Department Telephone: 212-429-2280 Facsimile: 212-429-2130 with a copy to: Dresdner Bank, New York Branch Global Project Finance 75 Wall Street New York, NY 10005 Attention: Andrew Cullinan Portfolio Management Group Telephone: 212-429-2226 Facsimile: 212-429-2192 referencing this Letter of Credit No. [ ] and presented to us by delivery in person or facsimile transmission at such address, provided that the original of the above drawing request or such communications, as the case may be, shall be sent to us at such address by overnight courier for receipt by us within two (2) Business Days of the date of any such facsimile transmission. If the drawing request is presented in compliance with the terms of this Letter of Credit to us at such address by 12:00 noon New York City time on any Business Day, payment will be made no later than 3:00 p.m. New York City time on such Business Day and if such drawing request is so presented to us after 12:00 noon New York City time on any Business Day, payment will be made no later than 12:00 noon New York City time on the following Business Day. Payment under this Letter of Credit shall be made in immediately available funds by wire transfer to such account as may be designated by the Beneficiary in the applicable drawing request. Ex. A-2 As used in this Letter of Credit, "Business Day" means any day on which commercial banks located in New York, New York are not required or authorized to remain closed. This Letter of Credit shall expire on the then applicable Stated Expiration Date or New Stated Expiration Date (as each such term is hereinafter defined), as the case may be. Notwithstanding the foregoing, we may at any time, subject to the provisions of the Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999, among the Applicant, the Issuing Bank and the other Banks party thereto and the Issuing Bank, as Agent (the "Reimbursement Agreement"), terminate this Letter of Credit by giving the Beneficiary and IBJ Whitehall Bank & Trust Company, as Trustee (in such capacity, the "Trustee") under the Indenture referred to in the Reimbursement Agreement, written notice thereof in the form of Annex 2 hereto by delivery in person or facsimile transmission (with written confirmation by overnight courier for receipt by the Beneficiary and the Trustee within two (2) Business Days) addressed to in the case of the Beneficiary, [ ], Attention: [ ], telephone no. ____________, telecopier no. ____________, and in the case of the Trustee, [ ], Attention: [ ], telephone no. ____________, telecopier no. ____________, at least sixty (60) days prior to termination whereupon the Beneficiary is authorized to draw on us prior to such termination the Stated Amount of this Letter of Credit by presentation to us, in the manner and at the address specified in the third preceding paragraph, of a drawing request appropriately completed in the form of Annex 1 hereto and signed by the Beneficiary's authorized officer. This Letter of Credit is effective immediately but drawings hereunder shall not be permitted until we shall have received at the address set forth in the fourth preceding paragraph a dated certificate manually signed by an officer of the Beneficiary in the form of Annex 3 hereto. Unless terminated earlier in accordance with the provisions hereof, the date of expiry set forth hereinabove (the "Stated Expiration Date") may be extended for a period of one or more years at the option of the Agent effective upon the Stated Expiration Date (each expiration date of any extension being referred to as the "New Stated Expiration Date") upon notice of such extension given by Dresdner Bank AG, New York Branch, to the Beneficiary, the Collateral Agent and the Trustee by delivery in person or facsimile transmission (with written confirmation by overnight courier for receipt by the Beneficiary, the Collateral Agent and the Trustee within two (2) Business Days) addressed to in the case of the Beneficiary, [ ], Attention: [ ], the Collateral Agent, [ ], Attention: [ ], and in the case of the Trustee, [ ], Attention: [ ] on or before the date that is forty-five (45) days prior to the Stated Expiration Date or any such New Stated Expiration Date which notice of extension shall have attached to it a revised Schedule 1, to be attached to this Letter of Credit, setting forth the Stated Amount Values (as defined in the Reimbursement Agreement) for each day of the term of this Letter of Credit (including any reductions effected pursuant to a Certificate in the form of Annex 6, but not including any reductions or reinstatements effected pursuant to a Certificate in the form of Annex 5) for the period from and including the effective date of the extension, to and including the New Stated Expiration Date. In the event that a drawing request fails to comply with the terms of this Letter of Credit, we shall provide the Beneficiary prompt notice of same stating the reasons therefor and shall upon your instructions hold any non-conforming drawing request and other documents at your Ex. A-3 disposal or return any non-conforming drawing request and other documents to the Beneficiary at the address set forth above by delivery in person or facsimile transmission (with originals thereof sent by overnight courier for receipt within two (2) Business Days). Upon being notified that the drawing was not effected in compliance with this Letter of Credit, the Beneficiary may attempt to correct such non-complying drawing request in accordance with the terms of this Letter of Credit. This Letter of Credit sets forth in full the terms of our undertaking and this undertaking shall not in any way be modified, amended, limited or amplified by reference to any document, instrument or agreement referred to herein, except only defined terms used herein and the drawing requests and certificates referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument, or agreement except for such defined terms, drawing requests and certificates. This Letter of Credit may be assigned upon presentation to us of a signed transfer certificate in the form of Annex 4 accompanied by this Letter of Credit, in which the Beneficiary irrevocably transfers to such transferee all of its rights hereunder, whereupon we agree to either issue a substitute letter of credit to such successor or endorse such transfer on the reverse of this Letter of Credit. Partial drawings under this Letter of Credit are allowed and each such partial drawing shall reduce the amount thereafter available hereunder for drawings under this Letter of Credit. This Letter of Credit shall be reinstated as provided in Section 2.7(c) of the Reimbursement Agreement and we shall so advise the Beneficiary in a certificate in the form of Annex 5 hereto. The Stated Amount shall be reduced as provided in Section 2.7(b) of the Reimbursement Agreement. In addition, the Stated Amount Values in Schedule 1 to this Letter of Credit shall be reduced as provided in Sections 2.2(c)(ii) and (e) of the Reimbursement Agreement to the extent that we so advise the Beneficiary pursuant to a certificate in the form of Annex 6 hereto. All banking charges, including any advising and negotiating bank charges, are for the account of the Applicant. All drawing requests under this Letter of Credit must bear the clause: "Drawn under [the Issuing Bank], Letter of Credit No. [ ] dated __________ __, 200_." This Letter of Credit shall not be amended except with the written concurrence of Dresdner Bank AG, New York Branch, the Applicant and the Beneficiary. We hereby engage with you that a drawing request drawn strictly in compliance with the terms of this Letter of Credit and amendments thereto shall meet with due honor upon presentation. Ex. A-4 This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision in force as from 1st of January 1994), International Chamber of Commerce Publication Number 500 (the "Uniform Customs"). This Letter of Credit shall be deemed to be a contract made under the laws of the State of New York and shall, as to matters not governed by the Uniform Customs, be governed by and construed in accordance with the laws of such State. We irrevocably agree with you that any legal action or proceeding with respect to this Letter of Credit shall be brought in the courts of the State of New York in the County of New York or of the United States of America in the Southern District of New York. By signing this Letter of Credit, we irrevocably submit to the jurisdiction of such courts solely for the purposes of this Letter of Credit. We hereby waive, to the fullest extent permitted by law, any objection we may now or hereafter have to the laying of venue in any such action or proceeding in any such court. DRESDNER BANKAG, NEW YORK BRANCH By: ------------------------------ Authorized Signature By: ------------------------------ Authorized Signature Ex. A-5 ANNEX 1 DRAWING REQUEST [Date] "Drawn under Dresdner Bank AG, New York Branch Letter of Credit No. [ ] Irrevocable Standby Letter of Credit dated __________ __, 200_." Dresdner Bank AG, New York Branch 75 Wall Street New York, NY 10005 Attention: Christina Fiore Credit Administration Department cc: Dresdner Bank, New York Branch Global Project Finance 75 Wall Street New York, NY 10005 Attention: Andrew Cullinan Portfolio Management Group Ladies and Gentlemen: The undersigned hereby draws on Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] Irrevocable Standby Letter of Credit (the "Letter of Credit"), dated __________ __, 200_, issued by you in favor of us. Any capitalized term used herein and not defined herein shall have its respective meaning as set forth in the Letter of Credit. In connection with this drawing, we hereby certify that: (A) "This drawing in the amount of US$_________ is being made pursuant to Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] Irrevocable Standby Letter of Credit issued to [Collateral Agent] pursuant to Section 3.12 of the Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, by and among the Company, IBJ Whitehall Bank & Trust Company, as Trustee, Collateral Agent and Depositary Bank, and Dresdner Bank AG, New York Branch, as DSR LOC Provider, and CP LOC Provider (as the same may be amended, supplemented or modified from time to time, the "Collateral Agency Agreement")"; and (B) "The [Commercial Operation Date] [Guaranteed Completion Date] [Date Certain] has occurred (each capitalized term being used as defined in the Indenture)"; and Ex. A-6 [Use one or more of the following forms of paragraph C, as applicable] (C) "After the transfer of monies on deposit in the Debt Service Reserve Account to the Bond Payment Account, there are insufficient monies in the Bond Payment Account on the [Interest] [Principal] Payment Date occurring _______________, 200_ to pay the [interest] [and] [principal] due on the Bonds on such date (each capitalized term being used as defined in the Indenture)"; or (C) "The long-term debt rating of Dresdner Bank AG, New York Branch has fallen below the Required Rating, and the Company has failed within 45 days to deliver a replacement letter of credit from a financial institution which meets the Required Rating (each capitalized term being used as defined in the Collateral Agency Agreement)"; or (C) "A Trigger Event has occurred and is continuing and the written request of the Required Senior Parties contained in the Senior Party Certificates has been delivered to the Collateral Agent and not been rescinded (each capitalized term being used as defined in the Collateral Agency Agreement)"; or (C) "You have delivered to us notice that the Letter of Credit will not be extended or replaced upon its stated expiry date of [insert Stated Expiration Date or New Stated Expiration Date, as applicable] and the Company has failed to deliver no later than 45 days prior to such stated expiry date a replacement letter of credit from a financial institution which meets the Required Rating (each capitalized term being used as defined in the Collateral Agency Agreement)"; or (C) "There are insufficient funds available pursuant to Section 3.10(b) of the Collateral Agency Agreement to repay interest now due and payable on any DSR LOC Loans made by Dresdner Bank AG, New York Branch, in respect of drawings under Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] Irrevocable Standby Letter of Credit[, and the drawing requested hereunder, together with all drawings under the Letter of Credit do not exceed the LOC Interest Amount $____________ in the aggregate] (each capitalized term being used as defined in the Collateral Agency Agreement)"; and (D) "The amount requested to be drawn does not exceed the Stated Amount"; and (E) "You are directed to make payment of the requested drawing to account no. ____________ at ____________________________ [insert bank name, address and account number]." Ex. A-7 IN WITNESS WHEREOF, the undersigned has executed and delivered this request on this _____ day of _______________, 200_. [ ], AS COLLATERAL AGENT By: ------------------------------ Name: Title: Ex. A-8 ANNEX 2 NOTICE OF TERMINATION OF LETTER OF CREDIT [Date] [Name of Trustee], as Trustee [Address] [Address] Attention: [Name of Collateral Agent], as Collateral Agent [Address] [Address] Attention: AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, PA 17042 Attention: Project Manager Facsimile: 717-228-1271 Ladies and Gentlemen: Reference is made to Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] Irrevocable Standby Letter of Credit (the "Letter of Credit"), dated __________ __, 200_, issued by us in favor of [Collateral Agent]. This constitutes our notice to you pursuant to the Letter of Credit that the Letter of Credit shall terminate on ___________, 200_ [insert a date which is 60 or more days after the date of this notice of termination (the "Termination Date")]. Ex. A-9 Pursuant to the terms of the Letter of Credit, you are authorized to draw (pursuant to one or more drawings), prior to the Termination Date, on the Letter of Credit in an aggregate amount that does not exceed the Stated Amount (as defined in the Letter of Credit). Very truly yours, DRESDNER BANK AG, NEW YORK BRANCH By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: Ex. A-10 ANNEX 3 CERTIFICATE AS TO OCCURRENCE OF COMMERCIAL OPERATION DATE/GUARANTEED COMPLETION DATE/DATE CERTAIN [Date] "Delivered under Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] dated __________ __, 200_." Dresdner Bank AG, New York Branch 75 Wall Street New York, NY 10005 Attention: Christina Fiore Credit Administration Department cc: Dresdner Bank, New York Branch Global Project Finance 75 Wall Street New York, NY 10005 Attention: Andrew Cullinan Portfolio Management Group Ladies and Gentlemen: The undersigned hereby refers to Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] Irrevocable Standby Letter of Credit (the "Letter of Credit"), dated __________ __, 200_, issued by you in favor of us. We hereby certify that we have received a certificate of the Company stating that the [Commercial Operation Date] [Guaranteed Completion Date] [Date Certain] has occurred (each capitalized word being used as defined in the Trust Indenture, dated as of June 1, 1999, by and among the Company, IBJ Whitehall Bank & Trust Company, as Trustee, and IBJ Whitehall Bank & Trust Company, as Depositary Bank (as the same may be amended, supplemented or modified from time to time)). Ex. A-11 IN WITNESS WHEREOF, the undersigned has executed and delivered this request on this _____ day of ______________, 200_. [ ], AS COLLATERAL AGENT By: ------------------------------ Name: Title: Ex. A-12 ANNEX 4 TRANSFER OF LETTER OF CREDIT [Date] "Delivered under Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] dated __________ __, 200_." Dresdner Bank AG, New York Branch 75 Wall Street New York, NY 10005 Attention: Christina Fiore Credit Administration Department cc: Dresdner Bank, New York Branch Global Project Finance 75 Wall Street New York, NY 10005 Attention: Andrew Cullinan Portfolio Management Group Gentlemen: Reference is made to Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] Irrevocable Standby Letter of Credit, dated __________ __, 200_, originally issued by you in favor of [Collateral Agent] (the "Letter of Credit"). Any capitalized terms used, but not defined, herein shall have its respective meaning as set forth in the Letter of Credit. For value received, the undersigned, as Beneficiary under the Letter of Credit, hereby irrevocably transfers to _____________ (the "Transferee") all rights of the undersigned to draw under the Letter of Credit in their entirety. The Transferee is the successor to the Beneficiary, as Collateral Agent under the Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, by and among the Company, IBJ Whitehall Bank & Trust Company, as Trustee, Collateral Agent and Depositary Bank, and Dresdner Bank AG, New York Branch, as DSR LOC Provider, and CP LOC Provider (as the same may be amended, supplemented or modified from time to time, the "Collateral Agency Agreement") and all conditions to appointment of such successor set forth in the Collateral Agency Agreement have been satisfied. Ex. A-13 By this transfer, all rights of the undersigned, as Beneficiary under the Letter of Credit, are transferred to the Transferee, and the Transferee shall have the sole rights with respect to the Letter of Credit relating to any amendments thereof and any notices thereunder. All amendments to the Letter of Credit are to be consented to by the Transferee without necessity of any consent of or notice to the undersigned. Simultaneously with the delivery of this notice to you, copies of this notice are being transmitted to the Transferee. The Letter of Credit is returned herewith, and we ask you to either issue a substitute letter of credit for the benefit of the Transferee or endorse the transfer on the reverse thereof, and forward it directly to the Transferee with your customary notice of transfer. Very truly yours, [ ], AS COLLATERAL AGENT By: ------------------------------ Name: Title: Ex. A-14 ANNEX 5 CERTIFICATE OF REINSTATEMENT OF STATED AMOUNT [Date] [ ], as Collateral Agent [Address] [Address] Attention: Ladies and Gentlemen: Reference is made to Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] Irrevocable Standby Letter of Credit (the "Letter of Credit"), dated __________ __, 200_, issued by us in your favor. Any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit. Reference is also made to that certain Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, by and among the Company, IBJ Whitehall Bank & Trust Company, as Trustee, Collateral Agent and Depositary Bank, and Dresdner Bank AG, New York Branch, as DSR LOC Provider, and CP LOC Provider (as the same may be amended, supplemented or modified from time to time, the "Collateral Agency Agreement"). This constitutes our notice to you pursuant to the Letter of Credit that: [use one or more of the following paragraphs] We have received repayment of a DSR LOC Loan in accordance with the provisions of the Reimbursement Agreement in the amount of $_________, and, pursuant to Section 2.7(c) of the Reimbursement Agreement, the Stated Amount is therefore increased by such amount to $___________. or We have received payment of a DSR LOC Loan in accordance with the provisions of the Reimbursement Agreement in the amount of $____________. The DSRA Required Balance (as defined in the Collateral Agency Agreement) has been previously reduced. Accordingly, the Stated Amount is hereby increased by $___________ to $__________ to the extent that such Ex. A-15 increase shall not cause the Stated Amount (when added to the balance in the Debt Service Reserve Account (as defined in the Collateral Agency Agreement)) to exceed the DSRA Required Balance. Very truly yours, DRESDNER BANK AG, NEW YORK BRANCH By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: Ex. A-16 ANNEX 6 CERTIFICATE OF REDUCTION OF STATED AMOUNT [Date] [ ], as Collateral Agent [Address] [Address] Attention: Ladies and Gentlemen: Reference is made to Dresdner Bank AG, New York Branch, Letter of Credit No. [ ] Irrevocable Standby Letter of Credit (the "Letter of Credit"), dated __________ __, 200_, issued by us in your favor. Any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit. Reference is also made to that certain Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, by and among the Company, IBJ Whitehall Bank & Trust Company, as Trustee, Collateral Agent and Depositary Bank, and Dresdner Bank AG, New York Branch, as DSR LOC Provider, and CP LOC Provider (as the same may be amended, supplemented or modified from time to time, the "Collateral Agency Agreement"). This constitutes our notice to you pursuant to the Letter of Credit that we have been advised by the Applicant that: [use one or more of the following paragraphs] An event specified in Section 2.2(c)(ii) of the Reimbursement Agreement has occurred and, accordingly, each of the Stated Amount Values specified in Schedule 1 attached to this Letter of Credit is reduced by $______ [insert amount of DSR LOC Loan being converted into DSR Bond]. or The DSRA Required Balance (as defined in the Collateral Agency Agreement) has been reduced by the amount of $__________. Accordingly, pursuant to Section 2.2(e) of the Reimbursement Agreement, each of the Stated Amount Values specified in Schedule 1 attached to this Letter of Credit is reduced by $__________ [insert appropriate portion of reduction in DSRA Required Balance]. Ex. A-17 Attached hereto is a revised Schedule 1, to be attached to the Letter of Credit, modifying the Stated Amount Values in accordance with this Certificate. Very truly yours, DRESDNER BANK AG, NEW YORK BRANCH By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: Ex. A-18 EXHIBIT B FORM OF DSR LOAN PROMISSORY NOTE [$__________] New York, New York _________ __, 200_ FOR VALUE RECEIVED, the undersigned, AES Ironwood, L.L.C., a Delaware limited liability company (the "Company"), hereby unconditionally promises to pay to the order of Dresdner Bank AG, New York Branch (the "Agent") for the benefit of the Banks party from time to time to the Reimbursement Agreement referred to below the lesser of (i) the principal sum of dollars ($________) and (ii) the aggregate unpaid principal amount of DSR LOC Loans owing to the Banks by the Company under the Reimbursement Agreement, on the dates and in the amounts described therein and, if any such DSR LOC Loans shall have been converted into DSR LOC Term Loans or DSR Bonds, and replacement DSR Notes (as defined in the Reimbursement Agreement) evidencing such converted Loans shall not have been executed and delivered to the Agent, the aggregate unpaid principal amount of such DSR LOC Term Loans or DSR Bonds. The Company further promises to pay interest on the daily unpaid principal amount hereof from time to time outstanding on the dates and at the rates specified in the Reimbursement Agreement. This DSR LOC Loan Note is hereby expressly limited so that in no contingency or event, whether by reason of acceleration of the maturity of any indebtedness evidenced hereby or otherwise, shall the interest contracted for or charged or received by the Agent for the account of the Banks exceed the maximum amount permissible under Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to the Agent for the account of the Banks, in excess of the maximum lawful amount, the interest payable to the Agent for the account of the Banks shall be reduced to the maximum amount permitted under Applicable Law, and the amount of interest for any subsequent period, to the extent less than that permitted by Applicable Law, shall to that extent be increased by the amount of such reduction. The holder hereof is irrevocably authorized to endorse on the schedule attached hereto, or on a continuation thereof, the date each such interest payment is due and the amount of each such interest payment determined in accordance with the Reimbursement Agreement. All such notations shall constitute prima facie evidence of the accuracy of the information so recorded and be enforceable against the Company with the same force and effect as if such amounts were each set forth in a separate DSR LOC Loan Note executed by the Company. All payments due hereunder shall be made without set-off, counterclaim or deduction of any nature to the Agent, for the account of the Banks, in lawful money of the United States of America and in immediately available funds, at such place and in such manner as may be specified by the Agent pursuant to the Reimbursement Agreement. The holder hereof is irrevocably authorized to endorse on the schedule attached hereto, or on a continuation thereof, the date and amount of each DSR LOC Loan made by the Banks and Ex. B-1 each payment or prepayment of principal thereof, provided that the failure of the holder to make, or any error in making, any such recordation or endorsement shall not affect the obligations of the Company hereunder or under the Reimbursement Agreement. All such notations shall constitute prima facie evidence of the accuracy of the information so recorded and be enforceable against the Company with the same force and effect as if such amounts were each set forth in a separate DSR LOC Loan Note executed by the Company. This DSR LOC Loan Note is the "DSR LOC Loan Note" of the Company to the Agent, for the benefit of the Banks, referred to in, evidences each DSR LOC Loan owing to the Banks by the Company under, is subject to the provisions of, and entitles the holder to the benefits of, the Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999 (the "Reimbursement Agreement"), among the Company, the Banks (including the Issuing Bank), parties thereto, and the Agent, as the same may be amended, supplemented or otherwise modified from time to time and to which reference is hereby made for a more complete statement of the terms and conditions under which each DSR LOC Loan evidenced hereby is to be incurred and paid. Capitalized terms in this DSR LOC Loan Note that are not specifically defined herein shall have the meanings ascribed to them in the Reimbursement Agreement. The Reimbursement Agreement provides for, among other things, the acceleration of the maturity of the unpaid principal amount hereof upon the occurrence of certain stated events and for voluntary prepayments in certain circumstances and upon certain terms and conditions. The obligations of the Company under the Reimbursement Agreement and this DSR LOC Loan Note are secured by, and the holder hereof is entitled to the benefit of, the Security Documents. In addition to any and all costs, fees and expenses for which the Company is liable under the Reimbursement Agreement, the Company promises to pay all costs and expenses, including reasonable attorneys' fees and disbursements, incurred in the collection and enforcement hereof or any appeal of any judgment rendered hereon. The Company hereby expressly waives diligence, presentment, protest, demand, dishonor, nonpayment and notice of every kind to the fullest extent permitted by Applicable Law. No failure or delay by the holder of this DSR LOC Loan Note to exercise any right or remedy under this DSR LOC Loan Note or any other document or instrument entered into pursuant to the Reimbursement Agreement shall operate or be construed as a waiver or modification hereof or thereof. This DSR LOC Loan Note shall be binding upon the successors and assigns of the Company and shall inure to the Agent and its successors, endorsees and assigns. If any term or provision of this DSR LOC Loan Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. Recourse under this DSR LOC Loan Note is limited in accordance with Section 9.7 of the Reimbursement Agreement, and the provisions of said Section 9.7 are incorporated herein by reference. Ex. B-2 THIS DSR LOC LOAN NOTE SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING AGAINST THE COMPANY WITH RESPECT TO THIS DSR LOC LOAN NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS DSR LOC LOAN NOTE, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS DSR LOC LOAN NOTE BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. AES IRONWOOD, L.L.C. By: ------------------------------ Name: Title: Ex. B-3 SCHEDULE
Total Principal Principal Amount and Amount of DSR Amount of Date of Unpaid Date Interest LOC Loans Date Reimbursement Principal Paid Principal Payment is Amount of Outstanding Notation Made Obligation or Prepaid Balance Due Interest Due Made By
Ex. B-4 EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTANCE Dated __________, 199__/200__ Reference is made to the Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999 (the "Reimbursement Agreement"), among AES Ironwood, L.L.C., a Delaware limited liability company (the "Company"), the Issuing Bank (as defined in the Reimbursement Agreement), the Banks (as defined in the Reimbursement Agreement) and Dresdner Bank AG, New York Branch, as Agent for the Banks (the "Agent"). Terms defined in the Reimbursement Agreement are used herein with the same meaning. _________________ (the "Assignor") and ___________________ (the "Assignee") agree as follows: (1) The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, the percentage interest specified on Schedule 1 hereto in and to all of the Assignor's rights and obligations under the Reimbursement Agreement as of the date hereof (after giving effect to any other assignments thereof made before the date hereof, whether or not such assignments have become effective, but without giving effect to any other assignments thereof also made on the date hereof), including, without limitation, such percentage interest in the Assignor's Commitment, each of the DSR Loans owing to the Assignor and the DSR Letter of Credit. The Assignee shall pay to the Assignor, at or before 12:00 noon, local time of the Assignor, on the Effective Date, the purchase price therefor in an amount equal to the percentage interest of each of the the DSR Loans owing to the Assignor, as reflected on Schedule 1 hereto, in immediately available funds. (2) The Assignor (a) represents and warrants that as of the date hereof its Commitment, each of the DSR Loans owing to it and its participation in the DSR Letter of Credit (after giving effect to any other assignments of the foregoing made before the date hereof, whether or not such assignments have become effective, but without giving effect to any other such assignments also made on the date hereof) are in the respective dollar amounts specified therefor on Schedule 1 hereto; (b) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (c) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any of the Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any of the Credit Documents or any other instrument or document furnished pursuant thereto; and (d) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the performance or observance by the Company or any other Person of any of its obligations under any of the Credit Documents or any other instrument or document furnished pursuant thereto. Ex. C-1 (3) The Assignee (a) confirms that it has received copies of the Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance, including such documents evidencing satisfaction of the conditions precedent set forth in the Reimbursement Agreement; (b) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Bank (including the Issuing Bank) and based on such documents and information as it may deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Reimbursement Agreement; (c) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (d) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Reimbursement Agreement are required to be performed by it as a Bank; and (e) specifies as its address for notices the address set forth beneath its name on Schedule 1 hereto. (4) Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Agent for acceptance and recording by the Agent in the Register maintained by the Agent for such purpose. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Agent, unless otherwise specified on Schedule 1 hereto (the "Effective Date"). (5) Upon such acceptance and recording by the Agent, as of the Effective Date (a) the Assignee shall be a party to the Reimbursement Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Reimbursement Agreement. (6) Upon such acceptance and recording by the Agent, from and after the Effective Date the Agent shall make all payments under the Reimbursement Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and fees with respect thereto) to the Assignee. The Assignor and the Assignee shall make all appropriate adjustments directly between themselves in respect of payments of principal, interest and/or fees under the Reimbursement Agreement for periods before the Effective Date. (7) Each of the Assignor and the Assignee agrees that at any time and from time to time upon the written request of the other party, it will execute and deliver such further documents and do such further acts and things as the other party may reasonably request in order to effect the purposes of this Assignment and Acceptance. (8) THE RIGHTS AND OBLIGATIONS OF EACH OF THE PARTIES UNDER THIS ASSIGNMENT AND ACCEPTANCE SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (9) This Assignment and Acceptance is executed by the parties on Schedule 1 hereto and may be executed in one or more counterparts, each of which shall be deemed an original and Ex. C-2 all of which together shall constitute one and the same document. Execution of this Assignment and Acceptance by the Agent and the Company on Schedule 1 hereto shall constitute any consent of such Person required pursuant to Section 9.9 of the Reimbursement Agreement. Ex. C-3 Schedule 1 to Assignment and Acceptance Section 1. Percentage of Assignor interest in Drawings, Commitments, and DSR Loans to be assigned: _______% Section 2. Immediately prior to Effective Date: Assignor's Commitment: $_______ DSR Loans owing to Assignor: DSR LOC Loan $_______ DSR LOC Term Loan $_______ DSR Bond $_______ Assignor's participation in DSR Letter of Credit: $_______ Assignor's Percentage Interest (as defined in the Reimbursement Agreement) _______% Section 3. Upon Effective Date: Assignor's Commitment: $_______ Assignor's Percentage Interest: _______% Assignee's Commitment: $_______ Assignee's Percentage Interest: _______% Section 4. Effective Date: ____________________ Ex. C-4 [ASSIGNOR] By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: [ASSIGNEE] By: ------------------------------ Name: Title: [ADDRESS FOR NOTICES] Consented to on this _____ day of __________, 199__/200__: Dresdner Bank AG, New York Branch, as Agent and the Issuing Bank By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: Ex. C-5 Consented to on this _____ day of __________, 199__/200__: AES IRONWOOD, L.L.C. By: ------------------------------ Name: Title: Ex. C-6 EXHIBIT D AMORTIZATION SCHEDULE The principal amount of each DSR LOC Loan shall be due and payable to the extent of 100% of the cost available therefor on consecutive Quarterly Dates, commencing on the first such Quarterly Date to occur after such DSR LOC Loan is made, and shall in any event be due and payable, to the extent not previously paid, on the applicable DSR LOC Loan Required Payment Date. The Company shall pay interest on any DSR LOC Loan on such Quarterly Dates and on the DSR LOC Loan Required Payment Date out of cash available in the Revenue Account at the same level in the flow of funds as interest on other Senior Debt and shall repay the principal amount, if any, of DSR LOC Loans on such Quarterly Dates and on the DSR LOC Loan Required Payment Date out of 100% of the cash available in the Revenue Account after payment of Debt Service on all Senior Debt other than principal of DSR LOC Loans. The principal amount of each DSR LOC Term Loan shall be due and payable in quarterly installments on consecutive Quarterly Dates, commencing on the first such Quarterly Date to occur after such DSR LOC Term Loan is made, and maturing in full on the applicable DSR LOC Term Loan Required Payment Date. The amount of principal payable on each such Quarterly Date shall be equal to the amount of the principal component only of an amortization schedule based on the foregoing payment schedule and a final maturity date ten (10) years after the date on which such DSR LOC Term Loan is made and assuming (i) a fixed per annum interest rate equal to the interest rate (whether determined with reference to the Adjusted Base Rate or the Eurodollar Rate) applicable to such DSR LOC Term Loan on such date and (ii) mortgage-style payments of principal and interest. The principal amount of each DSR Bond shall be due and payable in quarterly installments on consecutive Quarterly Dates, commencing on the first such Quarterly Date to occur after such DSR Bond is issued, and maturing in full on the Final Maturity Date. Each DSR Bond shall be amortized on the same amortization schedule and in an amount on each Quarterly Date that bears the same proportion to the original principal amount of such DSR Bond (on the date of the conversion of the relevant DSR LOC Loan into such DSR Bond) as the amount of the required payment of principal on the Bonds bears to the remaining unpaid principal amount of the Bonds outstanding on the date of such conversion. Interest on and principal of any DSR Bond will be paid, respectively, at the same levels as interest on and principal of the Bonds. Ex. D-1 EXHIBIT E FORM OF DSR LOC TERM LOAN PROMISSORY NOTE [$________] New York, New York _________ __, 200_ FOR VALUE RECEIVED, the undersigned, AES Ironwood, L.L.C., a Delaware limited liability company (the "Company"), hereby unconditionally promises to pay to the order of Dresdner Bank AG, New York Branch (the "Agent") for the benefit of the Banks party from time to time to the Reimbursement Agreement referred to below the lesser of (i) the principal sum of dollars ($________) and (ii) the aggregate unpaid principal amount of the DSR LOC Term Loans owing to the Banks by the Company under the Reimbursement Agreement, on the dates and in the amounts described therein. The Company further promises to pay interest on the daily unpaid principal amount hereof from time to time outstanding on the dates and at the rates specified in the Reimbursement Agreement. This DSR LOC Term Loan Note is hereby expressly limited so that in no contingency or event, whether by reason of acceleration of the maturity of any indebtedness evidenced hereby or otherwise, shall the interest contracted for or charged or received by the Agent for the account of the Banks exceed the maximum amount permissible under Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to the Agent for the account of the Banks in excess of the maximum lawful amount, the interest payable to the Agent for the account of the Banks shall be reduced to the maximum amount permitted under Applicable Law, and the amount of interest for any subsequent period, to the extent less than that permitted by Applicable Law, shall to that extent be increased by the amount of such reduction. The holder hereof is irrevocably authorized to endorse on the schedule attached hereto, or on a continuation thereof, the date each such interest payment is due and the amount of each such interest payment determined in accordance with the Reimbursement Agreement. All such notations shall constitute prima facie evidence of the accuracy of the information so recorded and be enforceable against the Company with the same force and effect as if such amounts were each set forth in a separate DSR LOC Term Loan Note executed by the Company. All payments due hereunder shall be made without set-off, counterclaim or deduction of any nature to the Agent, for the account of the Banks, in lawful money of the United States of America and in immediately available funds, at such place and in such manner as may be specified by the Agent pursuant to the Reimbursement Agreement. The holder hereof is irrevocably authorized to endorse on the schedule attached hereto, or on a continuation thereof, the date and amount of each DSR LOC Term Loan made by the Banks and each payment or prepayment of principal thereof, provided that the failure of the holder to make, or any error in making, any such recordation or endorsement shall not affect the obligations of the Company hereunder or under the Reimbursement Agreement. All such notations shall constitute prima facie evidence of the accuracy of the information so recorded and be enforceable Ex. E-1 against the Company with the same force and effect as if such amounts were each set forth in a separate DSR LOC Term Loan Note executed by the Company. This DSR LOC Term Loan Note is the "DSR LOC Term Loan Note" of the Company to the Agent, for the benefit of the Banks, referred to in, evidences each DSR LOC Term Loan owing to the Banks by the Company under, is subject to the provisions of, and entitles the holder to the benefits of, the Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999 (the "Reimbursement Agreement"), among the Company, the Banks (including the Issuing Bank) parties thereto, and the Agent, as the same may be amended, supplemented or otherwise modified from time to time and to which reference is hereby made for a more complete statement of the terms and conditions under which each DSR LOC Term Loan evidenced hereby is to be incurred and paid. Capitalized terms in this DSR LOC Term Loan Note that are not specifically defined herein shall have the meanings ascribed to them in the Reimbursement Agreement. The Reimbursement Agreement provides for, among other things, the acceleration of the maturity of the unpaid principal amount hereof upon the occurrence of certain stated events and for voluntary prepayments in certain circumstances and upon certain terms and conditions. The obligations of the Company under the Reimbursement Agreement and this DSR LOC Term Loan Note are secured by, and the holder hereof is entitled to the benefit of, the Security Documents. In addition to any and all costs, fees and expenses for which the Company is liable under the Reimbursement Agreement, the Company promises to pay all costs and expenses, including reasonable attorneys' fees and disbursements, incurred in the collection and enforcement hereof or any appeal of any judgment rendered hereon. The Company hereby expressly waives diligence, presentment, protest, demand, dishonor, nonpayment and notice of every kind to the fullest extent permitted by Applicable Law. No failure or delay by the holder of this DSR LOC Term Loan Note to exercise any right or remedy under this DSR LOC Term Loan Note or any other document or instrument entered into pursuant to the Reimbursement Agreement shall operate or be construed as a waiver or modification hereof or thereof. This DSR LOC Term Loan Note shall be binding upon the successors and assigns of the Company and shall inure to the Agent and its successors, endorsees and assigns. If any term or provision of this DSR LOC Term Loan Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. Recourse under this DSR LOC Term Loan Note is limited in accordance with Section 9.7 of the Reimbursement Agreement, and the provisions of said Section 9.7 are incorporated herein by reference. THIS DSR LOC TERM LOAN NOTE SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING AGAINST THE COMPANY WITH RESPECT TO THIS DSR Ex. E-2 LOC TERM LOAN NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS DSR LOC TERM LOAN NOTE, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS DSR LOC TERM LOAN NOTE BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. AES IRONWOOD, L.L.C. By: ------------------------------ Name: Title: Ex. E-3 SCHEDULE
Principal Amount and Total Principal Amount of Date of Unpaid Date Interest Amount of DSR Date Reimbursement Principal Paid Principal Payment is Amount of LOC Term Loans Notation Made Obligation or Prepaid Balance Due Interest Due Outstanding Made By
Ex. E-4 EXHIBIT F FORM OF DSR BOND PROMISSORY NOTE [$________] New York, New York _________ __, 200_ FOR VALUE RECEIVED, the undersigned, AES Ironwood, L.L.C., a Delaware limited liability company (the "Company"), hereby unconditionally promises to pay to the order of Dresdner Bank AB, New York Branch (the "Agent") for the benefit of the Banks party from time to time to the Reimbursement Agreement referred to below the lesser of (i) the principal sum ___________________________________________ dollars ($________) and (ii) the aggregate unpaid principal amount of the DSR Bonds owing to the Banks by the Company under the Reimbursement Agreement, on the dates and in the amounts described therein. The Company further promises to pay interest on the daily unpaid principal amount hereof from time to time outstanding on the dates and at the rates specified in the Reimbursement Agreement. This DSR Bond Note is hereby expressly limited so that in no contingency or event, whether by reason of acceleration of the maturity of any indebtedness evidenced hereby or otherwise, shall the interest contracted for or charged or received by the Agent for the account of the Banks exceed the maximum amount permissible under Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to the Agent for the account of the Banks in excess of the maximum lawful amount, the interest payable to the Agent for the account of the Banks shall be reduced to the maximum amount permitted under Applicable Law, and the amount of interest for any subsequent period, to the extent less than that permitted by Applicable Law, shall to that extent be increased by the amount of such reduction. The holder hereof is irrevocably authorized to endorse on the schedule attached hereto, or on a continuation thereof, the date each such interest payment is due and the amount of each such interest payment determined in accordance with the Reimbursement Agreement. All such notations shall constitute prima facie evidence of the accuracy of the information so recorded and be enforceable against the Company with the same force and effect as if such amounts were each set forth in a separate DSR Bond Note executed by the Company. All payments due hereunder shall be made without set-off, counterclaim or deduction of any nature to the Agent, for the account of the Banks, in lawful money of the United States of America and in immediately available funds, at such place and in such manner as may be specified by the Agent pursuant to the Reimbursement Agreement. The holder hereof is irrevocably authorized to endorse on the schedule attached hereto, or on a continuation thereof, the date and amount of each DSR Bond made by the Banks and each payment or prepayment of principal thereof, provided that the failure of the holder to make, or any error in making, any such recordation or endorsement shall not affect the obligations of the Company hereunder or under the Reimbursement Agreement. All such notations shall constitute prima facie evidence of the accuracy of the information so recorded and be enforceable against Ex. F-1 the Company with the same force and effect as if such amounts were each set forth in a separate DSR Bond Note executed by the Company. This DSR Bond Note is the "DSR Bond Note" of the Company to the Agent, for the benefit of the Banks, referred to in, evidences each DSR Bond owing to the Banks by the Company under, is subject to the provisions of, and entitles the holder to the benefits of, the Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999 (the "Reimbursement Agreement"), among the Company, the Banks (including the Issuing Bank) parties thereto, and the Agent, as the same may be amended, supplemented or otherwise modified from time to time and to which reference is hereby made for a more complete statement of the terms and conditions under which each DSR Bond evidenced hereby is to be incurred and paid. Capitalized terms in this DSR Bond Note that are not specifically defined herein shall have the meanings ascribed to them in the Reimbursement Agreement. The Reimbursement Agreement provides for, among other things, the acceleration of the maturity of the unpaid principal amount hereof upon the occurrence of certain stated events and for voluntary prepayments in certain circumstances and upon certain terms and conditions. The obligations of the Company under the Reimbursement Agreement and this DSR Bond Note are secured by, and the holder hereof is entitled to the benefit of, the Security Documents. In addition to any and all costs, fees and expenses for which the Company is liable under the Reimbursement Agreement, the Company promises to pay all costs and expenses, including reasonable attorneys' fees and disbursements, incurred in the collection and enforcement hereof or any appeal of any judgment rendered hereon. The Company hereby expressly waives diligence, presentment, protest, demand, dishonor, nonpayment and notice of every kind to the fullest extent permitted by Applicable Law. No failure or delay by the holder of this DSR Bond Note to exercise any right or remedy under this DSR Bond Note or any other document or instrument entered into pursuant to the Reimbursement Agreement shall operate or be construed as a waiver or modification hereof or thereof. This DSR Bond Note shall be binding upon the successors and assigns of the Company and shall inure to the Agent and its successors, endorsees and assigns. If any term or provision of this DSR Bond Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. Recourse under this DSR Bond Note is limited in accordance with Section 9.7 of the Reimbursement Agreement, and the provisions of said Section 9.7 are incorporated herein by reference. THIS DSR BOND NOTE SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING AGAINST THE COMPANY WITH RESPECT TO THIS DSR BOND NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK Ex. F-2 OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS DSR BOND NOTE, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS DSR BOND NOTE BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. AES IRONWOOD, L.L.C. By: ------------------------------ Name: Title: Ex. F-3 SCHEDULE
Principal Amount and Total Principal Amount of Date of Unpaid Date Interest Amount of DSR Date Reimbursement Principal Paid Principal Payment is Amount of Bonds Notation Made Obligation or Prepaid Balance Due Interest Due Outstanding Made By
Ex. F-4 EX-4.4 6 CONSTRUCTION PERIOD LETTER OF CREDIT Exhibit 4.4 EXECUTION COPY - -------------------------------------------------------------------------------- CONSTRUCTION PERIOD LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT Dated as of June 1, 1999 among AES IRONWOOD, L.L.C., as Company, DRESDNER BANK AG, NEW YORK BRANCH, as the Issuing Bank, a Bank and Agent and THE BANKS PARTY HERETO - -------------------------------------------------------------------------------- Table of Contents Page ---- ARTICLE I DEFINITIONS..........................................................1 SECTION 1.1 DEFINITIONS...............................................1 SECTION 1.2 CONSTRUCTION..............................................5 ARTICLE II CP LETTER OF CREDIT.................................................6 SECTION 2.1 COMMITMENTS...............................................6 SECTION 2.2 AMOUNT AND TERM OF CP LETTER OF CREDIT....................6 SECTION 2.3 PARTICIPATION IN CP LETTER OF CREDIT......................6 SECTION 2.4 DRAWING AND REIMBURSEMENT.................................6 SECTION 2.5 FEES......................................................7 SECTION 2.6 INTEREST..................................................7 SECTION 2.7 REPAYMENT................................................10 SECTION 2.8 PREPAYMENTS..............................................10 SECTION 2.9 SECURITY.................................................10 SECTION 2.10 PAYMENTS.................................................10 SECTION 2.11 COMPUTATION OF INTEREST AND FEES.........................11 SECTION 2.12 PAYMENTS ON NON-BUSINESS DAYS............................11 SECTION 2.13 SHARING OF PAYMENTS, ETC.................................11 SECTION 2.14 EVIDENCE OF DEBT.........................................12 SECTION 2.15 INCREASED COSTS AND REDUCED RETURNS......................12 SECTION 2.16 CAPITAL ADEQUACY.........................................14 SECTION 2.17 TAXES....................................................14 SECTION 2.18 ILLEGALITY...............................................16 SECTION 2.19 ASSIGNMENTS BY BANKS.....................................17 SECTION 2.20 REDUCTION IN COMMITMENTS/REIMBURSEMENTS..................17 SECTION 2.21 RIGHT OF SET-OFF.........................................17 ARTICLE III CONDITIONS PRECEDENT..............................................18 SECTION 3.1 CONDITIONS PRECEDENT TO THE CLOSING DATE.................18 SECTION 3.2 [RESERVED]...............................................19 ARTICLE IV REPRESENTATIONS AND WARRANTIES.....................................19 SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF COMPANY................19 SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE ISSUING BANK.......19 ARTICLE V COVENANTS...........................................................20 SECTION 5.1 COVENANTS................................................20 ARTICLE VI DEFAULTS AND REMEDIES..............................................20 SECTION 6.1 EVENTS OF DEFAULT........................................20 SECTION 6.2 REMEDIES.................................................20 SECTION 6.3 COLLATERALIZATION UPON ACCELERATION OF THE BONDS.........21 ARTICLE VII CHARACTER OF OBLIGATIONS..........................................21 SECTION 7.1 OBLIGATIONS ABSOLUTE.....................................21 SECTION 7.2 LIMITED LIABILITY OF AGENT AND BANKS.....................22 ARTICLE VIII THE AGENT........................................................22 SECTION 8.1 AUTHORIZATION AND ACTION.................................22 SECTION 8.2 AGENT'S RELIANCE, ETC....................................23 SECTION 8.3 THE AGENT, THE ISSUING BANK AND AFFILIATES...............23 i Table of Contents Page ---- SECTION 8.4 BANK CREDIT DECISION.....................................24 SECTION 8.5 INDEMNIFICATION..........................................24 SECTION 8.6 SUCCESSOR AGENT..........................................24 SECTION 8.7 COLLATERAL...............................................25 ARTICLE IX MISCELLANEOUS......................................................25 SECTION 9.1 AMENDMENTS, ETC..........................................25 SECTION 9.2 NOTICES, ETC.............................................26 SECTION 9.3 NO WAIVER, REMEDIES......................................26 SECTION 9.4 COSTS AND EXPENSES.......................................26 SECTION 9.5 APPLICATION OF MONEY.....................................27 SECTION 9.6 SEVERABILITY.............................................27 SECTION 9.7 NON-RECOURSE LIABILITY...................................27 SECTION 9.8 BINDING EFFECT...........................................28 SECTION 9.9 ASSIGNMENTS AND PARTICIPATIONS...........................28 SECTION 9.10 INDEMNIFICATION..........................................29 SECTION 9.11 GOVERNING LAW; SUBMISSION OF JURISDICTION; VENUE; WAIVER OF JURY TRIAL.....................................30 SECTION 9.12 HEADINGS.................................................31 SECTION 9.13 EXECUTION IN COUNTERPARTS................................31 Exhibit A Form of CP Letter of Credit Exhibit B Form of CP LOC Loan Promissory Note Exhibit C Form of Assignment and Acceptance Exhibit D Amortization Schedule ii CONSTRUCTION PERIOD LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT This Construction Period Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999 (this "Agreement"), is entered into by and among (1) AES IRONWOOD, L.L.C., a Delaware limited liability company (the "Company"); (2) DRESDNER BANK AG, NEW YORK BRANCH, as the Issuing Bank (the "Issuing Bank"); (3) DRESDNER BANK AG, NEW YORK BRANCH, in its individual capacity, together with each other bank that becomes a party hereto pursuant to Section 9.9 (each, including the Issuing Bank, a "Bank" and collectively, the "Banks"); and (4) DRESDNER BANK AG, NEW YORK BRANCH, as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). WHEREAS, the Company is constructing and will own a gas-fired combined cycle electric generating facility in South Lebanon Township, Lebanon County, Pennsylvania, with a net design capacity of approximately 705 megawatts and related property and facilities; WHEREAS, the Company intends to finance the construction and equipping of the Facility primarily through the issuance of the Bonds, the net proceeds of which shall be received by the Company and shall be used to pay project costs related to the Facility; WHEREAS, the Company has duly authorized the creation and issuance of the Bonds pursuant to the Indenture; and WHEREAS, the Company has requested that the Issuing Bank agree to issue and the Banks participate in, and the Issuing Bank is willing to agree to issue and the Banks are willing to participate in, the CP Letter of Credit upon the terms and conditions hereinafter set forth. ARTICLE I DEFINITIONS SECTION 1.1 Definitions. (a) Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Indenture. (b) The following terms are used in this Agreement with the following respective meanings: "Adjusted Base Rate" means the higher of (i) the Federal Funds Rate plus .50% and (ii) the Reference Rate. "Assignment and Acceptance" means an Assignment and Acceptance entered into by a Bank and another Person, substantially in the form of Exhibit C. 1 "Bank" has the meaning set forth in the preamble of this Agreement. "Base Rate Loan" means a CP LOC Loan, or a portion thereof, bearing interest at a rate determined with reference to the Adjusted Base Rate. "Business Day" means a day (other than a Saturday or Sunday) on which banks are open for business in New York, New York, and with respect to all notices and determinations in connection with, advances of, continuations of, conversions from and to, and payments of principal and interest on, Eurodollar Rate Loans, any day that is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market. "Closing Date" means the date on which the conditions precedent set forth in Section 3.1 have been fulfilled. "Commitment" of a Bank means (i) the amount set forth opposite such Bank's name on the signature pages hereof or, if such Bank has entered into one or more Assignments and Acceptances, set forth for such Bank in the register maintained by the Agent for such purpose, as the same may be reduced from time to time in accordance with the provisions of this Agreement or (ii) as the context may require, the obligation of such Bank to make loans in an aggregate amount of principal not exceeding such amount. "Commitments" means all of the Commitments. "Company" has the meaning set forth in the preamble of this Agreement. "CP Letter of Credit" means a letter of credit in favor of the Collateral Agent substantially in the form of Exhibit A, issued or to be issued by the Issuing Bank. "CP LOC Loan" has the meaning set forth in Section 2.4. "CP LOC Loan Note" has the meaning set forth in Section 2.14(a). "CP LOC Loan Required Payment Date" means, in respect of each CP LOC Loan, the date ten (10) years from the date such CP LOC Loan is made by the Banks pursuant to the terms of this Agreement. "Credit Documents" means this Agreement, the Security Documents, the Collateral Agency Agreement, the CP LOC Loan Note and the CP Letter of Credit. "Default" means an event that with the giving of any required notice and/or the lapse of any required time would constitute an Event of Default. "Dollars" and "$" means freely transferable United States dollars. "Drawing" means a drawing under the CP Letter of Credit. "Eurocurrency Liabilities" has the meaning set forth in Regulation D. "Eurocurrency Reserve Period" has the meaning set forth in Section 2.15(b). 2 "Eurodollar Rate" means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the average (rounded upwards, if necessary, to the nearest 1/100 of 1%) of the offered rates which appear on the Telerate page 3750, British Bankers Association Interest Settlement Rates for deposits in Dollars (or such other system for the purpose of displaying rates of leading reference banks in the London interbank market, as designated by the Agent) as of 11:00 a.m. (London time) on the day two Business Days prior to the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Rate Loan to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Eurodollar Rate Loan" means a CP LOC Loan, or a portion thereof, bearing interest at a rate determined with reference to the Eurodollar Rate. "Event of Default" has the meaning set forth in Section 6.1. "Excluded Taxes" has the meaning set forth in Section 2.17(a). "Expiration Date" means the earlier of (i) the date on which the CP LOC Provider receives notice from the Company that the Commercial Operation Date has occurred, (ii) four years from the Issue Date and (iii) the 30th day after written notice of termination of the CP Letter of Credit is given by the Agent to the Collateral Agent and the Power Purchaser upon the occurrence of an Event of Default; provided, however, that if the Company replaces the CP Letter of Credit with substitute collateral in accordance with the requirements of the Power Purchase Agreement, the Expiration Date of the CP Letter of Credit shall be the date upon which the CP LOC Provider receives notice of such replacement. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "Indemnified Party" has the meaning set forth in Section 9.10. "Interest Period" means with respect to each Eurodollar Rate Loan, a period commencing on the date specified in the applicable Notice of Interest Rate Election and ending one, three or six calendar months thereafter, as the Company may elect in the applicable Notice of Interest Rate Election; provided, that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; 3 (b) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (c) no Interest Period shall be selected to be applicable to a CP LOC Loan or portion thereof if such Interest Period ends after the next scheduled principal payment date pursuant to this Agreement and the CP LOC Loan Note unless, at the time of such selection, there are outstanding Base Rate Loans and/or Eurodollar Rate Loans the Interest Period(s) applicable to which end on or before such scheduled payment date which the Company reasonably determines are in an aggregate principal amount at least equal to the amount of such next scheduled principal payment; and (d) no Interest Period shall end after the CP LOC Loan Required Payment Date. "Issuing Bank" has the meaning set forth in the preamble of this Agreement. "Loan Obligations" means the Drawing and the principal of all CP LOC Loans (including but not limited to the Company's obligations in respect of amounts not yet disbursed). "Non-Recourse Party" has the meaning specified in Section 9.7. "Notice of Interest Rate Election" has the meaning set forth in Section 2.6(b). "Obligations" means all of the Loan Obligations and any and all other obligations of the Company to the Issuing Bank, the Banks or the Agent under or in connection with the Credit Documents whether for interest, fees, expenses, indemnification or otherwise. "Participant" has the meaning set forth in Section 9.9(b). "Percentage Interest" means, for each Bank, the fraction, expressed as a percentage, where the numerator is the Commitment of such Bank and the denominator is the aggregate of all the Commitments held by all the Banks, as set forth on the signature page opposite the name and signature of each respective Bank or if applicable, in Schedule 1 to any Assignment and Acceptance. "Purchasing Bank" has the meaning set forth in Section 9.9(a). "Quarterly Date" means each Bond Payment Date during the term of this Agreement. "Reference Rate" means the variable rate of interest per annum officially announced or published by the Agent from time to time as its "reference rate," such rate being set by the Agent as a general reference rate of interest, taking into account such factors as the Agent may deem appropriate, it being understood that many of the Agent's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Agent may make various commercial or other loans at rates of interest having no relationship to such rate. For purposes of this Agreement, each change in the Reference Rate shall be effective as of the opening of business on the date announced as the effective date of the change in such "reference rate." 4 "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Regulatory Change" means, subsequent to the date of this Agreement, any adoption or change in United States Federal, state or municipal or foreign law or regulations (including Regulation D) or the adoption or change or making of any application, interpretation, directive, request or guideline of or under any United States Federal, state or municipal or foreign law or regulations by any court, central bank or Governmental Authority. "Required Banks" means, at any time, Banks (one of which shall be the Agent) owed at least 66-2/3% of the sum of Loan Obligations then outstanding and/or the Commitments; provided, however, that, if and so long as there are only two Banks, then "Required Banks" shall mean both of such Banks. "Stated Amount" means $30,000,000. "Taxes" means any and all present or future income, stamp, transfer, turnover and other taxes, levies, imposts, duties, charges, fees, deductions or withholdings now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, and any and all interest, penalties, claims or other liabilities arising under or relating thereto, including those imposed on any of the Banks or on payments to be made to or received by any of them from the Company hereunder. "Termination Notice" has the meaning set forth in Section 2.2(b). SECTION 1.2 Construction. In this Agreement, unless expressly specified to the contrary: the singular includes the plural and the plural the singular; words importing any gender include the other genders; references to statutes or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending or replacing the statute or regulation referred to; references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible, visible form, but shall not include electronic mail; the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation;" references to articles, sections (or subdivisions of sections), recitals, appendices, exhibits, annexes or schedules are to those of this Agreement; references to agreements and other instruments shall be deemed to include all amendments and other modifications to such agreements and instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement; references to Persons include their respective permitted successors and assigns and, in the case of Governmental Authorities, Persons succeeding to their respective functions and capacities; and all accounting terms used in this Agreement shall be interpreted, all accounting determinations under this Agreement shall be made and all financial statements required to be delivered under this Agreement shall be prepared in accordance with GAAP as in effect from time to time, on a basis consistent with the most recent audited financial statements, if any, of the relevant Person delivered to the Agent, or otherwise reasonably acceptable to the Agent. 5 ARTICLE II CP LETTER OF CREDIT SECTION 2.1 Commitments. Each Bank irrevocably agrees severally, on the terms and conditions contained in this Agreement, to participate in the CP Letter of Credit and in the Drawing thereunder in the Percentage Interest of such Bank and in an aggregate amount not to exceed at any time such Bank's Commitment. SECTION 2.2 Amount and Term of CP Letter of Credit. (a) Subject to the terms and conditions contained in this Agreement, the Issuing Bank irrevocably agrees to issue the CP Letter of Credit on the Closing Date for the account of the Company and in a face amount not to exceed the Stated Amount. The conditions precedent to the Issue Date are set forth in Section 3.2. (b) The Issuing Bank shall have the right, upon the occurrence and during the continuance of an Event of Default, to deliver to the Collateral Agent and the Power Purchaser a notice in the form of Annex 2 to the CP Letter of Credit (a "Termination Notice"), which notice shall be given at least thirty (30) days prior to the date of termination referred to in such notice. (c) The Agent shall, solely for informational purposes, deliver to the Company a copy of any Termination Notice given to the beneficiary under the CP Letter of Credit; provided, however, that the Issuing Banks' ability to terminate the CP Letter of Credit shall not be contingent upon the Agent's delivery to the Company of such notice and that neither the Agent nor the Banks shall incur any liability whatsoever as a result of the Agent's failure to deliver such notice to the Company. SECTION 2.3 Participation in CP Letter of Credit. Simultaneously with the issuance of the CP Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred to each Bank, and each Bank shall be deemed to have purchased and received from the Issuing Bank, in each case irrevocably and without any further action by any party, an undivided interest and participation in the CP Letter of Credit, the Drawing and the other Loan Obligations in respect thereof in an amount equal to such Bank's Percentage Interest therein. The Agent shall promptly advise each Bank of any cancellation or other termination of the CP Letter of Credit and any Drawing; provided, however, that failure to provide such notice shall not limit or impair the rights of the Agent hereunder or under the Financing Documents. SECTION 2.4 Drawing and Reimbursement. The payment by the Issuing Bank of the Drawing shall constitute the making by the Issuing Bank of a loan to the Company in the amount of such payment. In the event that the Drawing is not repaid by the Company by 10:00 a.m. (New York City time), on the day of such 6 Drawing, the Agent shall promptly notify each other Bank. Each such Bank (including the Issuing Bank in its capacity as a Bank) shall, on the day of such notification, make a loan to the Company, which shall be used to repay the applicable portion of the Issuing Bank's loan with respect to the Drawing, in an amount equal to the amount of such Bank's Percentage Interest in the Drawing, for application to repay the Issuing Bank (such loan by a Bank to be referred to as a "CP LOC Loan"), and shall deliver to the Agent for the Issuing Bank's account, on the day of such notification and in immediately available funds, the amount of such loan. In the event that any Bank fails to make available to the Agent for the account of the Issuing Bank the amount of such CP LOC Loan, the Issuing Bank shall be entitled to recover such amount on demand from such Bank together with interest thereon at the Federal Funds Rate and until such reimbursement is made, the unreimbursed amount of the Issuing Bank's loan shall be deemed to be a CP LOC Loan for all purposes under this Agreement. SECTION 2.5 Fees. The Company shall pay the following fees to the Agent for the respective accounts of the Persons specified below: (a) on the Closing Date, for the account of the Issuing Bank, an upfront fee equal to the product of (x) the Stated Amount and (y) 1.0% per annum; (b) from and including the Closing Date, for the respective accounts of the Banks, a letter of credit fee equal to the product of (x) the Stated Amount and (y) 1% per annum, payable quarterly in arrears on each Quarterly Date occurring after the Closing Date; and (c) from and including the Closing Date, for the account of the Issuing Bank, a fronting fee equal to the product of (x) the Stated Amount and (y) 0.15% per annum, payable quarterly in arrears on each Quarterly Date occurring after the Closing Date. SECTION 2.6 Interest. (a) Rate. The Company shall pay interest on the unpaid principal amount of each CP LOC Loan from the date such CP LOC Loan is made until such principal amount has been paid in full as follows: (i) Base Rate Loans. As to Base Rate Loans, at a rate per annum equal to the sum of (x) the Adjusted Base Rate plus (y) 1%, payable monthly in arrears on the first Business Day of each month; and (ii) Eurodollar Rate Loans. As to Eurodollar Rate Loans, at a rate per annum equal to the sum of (x) the Eurodollar Rate plus (y) 2%, payable on the last day of the applicable Interest Period or, if such Interest Period exceeds three months, at intervals of three months from the first day of such Interest Period. (b) Method of Electing Interest Rates. (i) Each CP LOC Loan shall constitute a Base Rate Loan unless the Company elects otherwise pursuant to the following provisions of this Section 2.6(b). 7 (ii) Each CP LOC Loan shall constitute a Base Rate Loan or a Eurodollar Rate Loan as the Company may elect in accordance with this Section 2.6(b). If no such election is timely made with respect to a CP LOC Loan, such CP LOC Loan shall initially constitute a Base Rate Loan in accordance with Section 2.6(b)(i). The Company may from time to time elect to change or continue the interest rate borne by each CP LOC Loan, subject to the conditions set forth below, as follows: (A) with respect to CP LOC Loans that are Base Rate Loans, the Company may elect to convert all or any portion of such CP LOC Loans to Eurodollar Rate Loans as of any Business Day; and (B) with respect to CP LOC Loans that are Eurodollar Rate Loans, the Company may elect to convert all or any portion of such CP LOC Loans to Base Rate Loans or elect to continue all or any portion of such CP LOC Loans as Eurodollar Rate Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such CP LOC Loans. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Agent (1) in the case of a conversion to or continuation of a Eurodollar Rate Loan, not later than 10:00 a.m. (New York City time) on the third Business Day prior to the day on which such conversion or continuation is to be effective or (2) in the case of a conversion to a Base Rate Loan, at any time prior to the day on which such conversion is to be effective. Each Notice of Interest Rate Election shall be in writing (including facsimile transmission) or by voice, promptly confirmed in writing. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant CP LOC Loan. (iii) Each Notice of Interest Rate Election shall specify: (A) the CP LOC Loan (or portion thereof) together with the amount of each thereof, to which such notice applies; (B) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (ii) above; (C) if CP LOC Loans are to be converted, each new type of CP LOC Loan together with the amount thereof, and if such new CP LOC Loans are Eurodollar Rate Loans, the duration of the initial Interest Period applicable thereto; and (D) if such CP LOC Loans are to be continued as Eurodollar Rate Loans for additional Interest Periods, the duration of such Interest Periods. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. No conversion into or continuation of a Eurodollar Rate Loans shall be permitted when a Default or an Event of Default has occurred and is continuing, and if a Default or an Event of Default has occurred and is continuing, each 8 Eurodollar Rate Loan shall automatically be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. (iv) A Notice of Interest Rate Election shall not be revocable by the Company. If the Company fails to deliver a timely Notice of Interest Rate Election to the Agent for any Eurodollar Rate Loan, such CP LOC Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto. (v) Anything to the contrary in this Agreement notwithstanding, at no time shall there be outstanding more than four different Interest Periods applicable to the CP LOC Loans, and Eurodollar Rate Loans that bear a single Interest Period shall not be less than $1 million and shall be in integral multiples of $100,000. (c) Funding Losses. If the Company makes any payment of principal with respect to any Eurodollar Rate Loan or any Eurodollar Rate Loan is converted to a Base Rate Loan on any day other than the last day of an Interest Period applicable thereto, or if the Company fails to borrow, repay or prepay any Eurodollar Rate Loan after notice has been given to the Agent in accordance with the terms hereof, the Company shall reimburse the Agent, for the ratable account of the Banks, within 30 days after demand for any resulting loss or expense incurred by them, including any loss incurred in obtaining, liquidating or employing deposits from third parties. Without prejudice to the foregoing, the Company shall indemnify the Agent and the Banks against any direct (as opposed to consequential) loss or expense that the Agent or the Banks may sustain or incur as a consequence of a failure by the Company in payment of principal of, or interest on, any Eurodollar Rate Loan, or any part thereof, including any interest, premium or penalty paid by the Agent or any Bank to lenders of funds borrowed by it or deposited with it for the purpose of making or maintaining such Eurodollar Rate Loan. A certificate as to the amount of any such loss or expense in reasonable detail (specifying the basis of such loss or expense) shall be promptly submitted by the Agent, or by any Bank through the Agent, to the Company and shall be conclusive and binding as to the amount thereof, absent manifest error. (d) Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Eurodollar Rate Loan: (i) the Agent or any Bank determines, in its reasonable judgment, that deposits in Dollars (in the applicable amounts) are not being offered to the Agent or such Bank in the relevant market for such Interest Period, or (ii) the Agent or such Bank, in its reasonable judgment, shall determine that the Eurodollar Rate will not adequately and fairly reflect the cost to the Agent or such Bank of funding its Eurodollar Rate Loans for such Interest Period, the Agent, or such Bank through the Agent, shall forthwith give notice thereof (which notice shall describe in reasonable detail the basis for such determination) to the Company, whereupon until the Agent, or such Bank through the Agent, notifies the Company that the circumstances giving rise to such suspension no longer exist, (A) the obligations of the Agent or such Bank to make Eurodollar Rate 9 Loans or to convert outstanding CP LOC Loans into Eurodollar Rate Loans shall be suspended and (B) each outstanding Eurodollar Rate Loan or, if only a Bank shall be affected, each Eurodollar Rate Loan held by such Bank shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. (e) Maximum Rate. This Agreement is hereby expressly limited so that in no contingency or event, whether by reason of acceleration of the maturity of any indebtedness hereunder or otherwise, shall the interest contracted for or charged or received by the Banks exceed the maximum amount permissible under Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to the Banks in excess of the maximum lawful amount, the interest payable to the Banks shall be reduced to the maximum amount permitted under Applicable Law, and the amount of interest for any subsequent period, to the extent less than that permitted by Applicable Law, shall to that extent be increased by the amount of such reduction. SECTION 2.7 Repayment. On each Quarterly Date, the Company shall repay the principal amount of each CP LOC Loan in accordance with Exhibit D to this Agreement. Each CP LOC Loan shall mature and be repaid in full on the applicable CP LOC Loan Required Payment Date. SECTION 2.8 Prepayments. The Company may, at any time and from time to time on any Business Day, upon prior written notice to the Agent not later than 11:00 a.m. (New York City time), at least one Business Day before the day of any prepayment of the CP LOC Loans, such notice stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Company shall, prepay without premium or penalty, except as provided in Section 2.6(c), the outstanding principal amounts of the CP LOC Loans in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid. All prepayments made hereunder shall be applied by the Agent and the Banks against the principal amount of outstanding CP LOC Loans in inverse order of maturity; provided, that such prepayments shall first be applied to the prepayment of outstanding Base Rate Loans to the extent thereof and then to the prepayment of outstanding Eurodollar Rate Loans. SECTION 2.9 Security. The Obligations shall be secured by the Security Documents, the rights and remedies in respect of which shall be exercised pursuant to the Collateral Agency Agreement. SECTION 2.10 Payments. (a) The Company shall make each payment hereunder and under the CP LOC Loan Note not later than 10:00 a.m. (New York City time), on the day when due to the Agent at its address set forth in Section 9.2, in Dollars in immediately available funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal (including reimbursement of the Drawing), interest or fees ratably (other than amounts payable for the account of the Issuing Bank pursuant to Section 2.5(a) and (c), which shall be payable 10 solely to the Issuing Bank, or payable pursuant to Section 9.4) to the Banks and like funds relating to the payment of any other amount payable to any Bank to such Bank, in each case to be applied in accordance with the terms of this Agreement. The Agent may withhold from any interest payment to any Bank an amount equal to any applicable withholding tax (including upon the failure of any Bank to provide the forms or other documentation required under Section 2.17(e)). (b) Unless the Agent receives notice from the Company before the date on which any payment is due to the Banks hereunder that the Company will not make such payment in full, the Agent may assume that the Company has made such payment in full to the Agent on such date, and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due to such Bank. If and to the extent that the Company has not so made such payment in full to the Agent on the date on which such payment is due, each Bank agrees, irrevocably and without qualification or exception, to repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date on which such Bank repays such amount to the Agent, at the Federal Funds Rate. (c) All payments made by the Company to each of the Banks and the Agent under this Agreement and the CP LOC Loan Note will be made without set-off, counterclaim or other defense. SECTION 2.11 Computation of Interest and Fees. All computations of interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each calculation and each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.12 Payments on Non-Business Days. Whenever any payment hereunder or under the CP LOC Loan Note is stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be. If no due date is specified for the payment of any amount payable by the Company hereunder, such amount shall be due and payable not later than 10 Business Days after receipt by the Company of written demand from the Agent for payment thereof. SECTION 2.13 Sharing of Payments, Etc. (a) Each Bank agrees that if, as a result of the exercise of a right of set-off, banker's lien or counterclaim or other similar right or the receipt of a secured claim, it receives any payment in respect of the CP LOC Loans or other Obligations hereunder it shall promptly notify the Agent thereof (and the Agent shall promptly notify the other Banks). If, as a result of such payment, such Bank receives a greater percentage of the Obligations owed to it under this Agreement than the percentage received by any other Bank, such Bank shall purchase a 11 participation (which it shall be deemed to have purchased simultaneously upon the receipt of such payment) in the Obligations then held by such other Banks so that all such recoveries of principal and interest with respect to all Obligations owed to each Bank shall be pro rata on the basis of its respective amount of such Obligations owed to all Banks; provided, that if all or part of such proportionately greater payment received by such purchasing Bank is thereafter recovered by or on behalf of the Company from such Bank, such purchase shall be rescinded and the purchase price paid for such participation shall be returned to such Bank to the extent of such recovery, but without interest. (b) Each Bank which receives a secured claim as described in subsection (a) above shall, to the extent practicable, exercise its rights in respect of such secured claim in accordance with such subsection (a) and otherwise in a manner consistent with the rights of the Banks entitled under this Section 2.13 to share in the benefits of any recovery on such secured claim. (c) The Company expressly consents to the foregoing arrangements and agrees that any holder of a participation in any Obligation so purchased or otherwise acquired of which the Company has received notice may exercise any and all rights of set-off, banker's lien or counterclaim with respect to any and all monies owing by the Company to such holder as fully as if such holder were a holder of such Obligation in the amount of the participation held by such holder. SECTION 2.14 Evidence of Debt. (a) The indebtedness of the Company resulting from all CP LOC Loans shall be evidenced by this Agreement and the promissory note substantially in the form of Exhibit B (the "CP LOC Loan Note"), delivered by the Company to the Agent for the benefit of the Banks in accordance with the terms hereof. (b) The books and accounts of the Agent shall be conclusive evidence, absent manifest error, of the amounts of the Drawing, all CP LOC Loans, fees, interest and other amounts advanced, due, outstanding, payable or paid pursuant to this Agreement or the CP LOC Loan Note. SECTION 2.15 Increased Costs and Reduced Returns. (a) If, on or after the date hereof, the adoption of any Applicable Law, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Agent or any Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall subject the Agent or such Bank to any tax, duty or other charge (other than routine examination fees or Taxes) with respect to the Eurodollar Rate Loans, the CP LOC Loan Note or its obligation to make or continue Eurodollar Rate Loans, or shall change the basis of taxation of payments to the Agent or any Bank of the principal of or interest on its Eurodollar Rate Loans or any other amounts due under this Agreement in respect of its Eurodollar Rate Loans or its obligation to make or continue Eurodollar Rate Loans (except for changes in the rate of tax on the net income of the l2 Agent or such Bank imposed by the federal, state or local jurisdiction in which the Agent's or such Bank's principal executive office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Eurodollar Rate Loan any such requirement provided in Section 2.17(b), against assets of, deposits with or for the account of, or credit extended by, the Agent or any Bank or shall impose on the Agent or any Bank or on the London interbank market any other condition affecting the Eurodollar Rate Loans, the CP LOC Loan Note or its obligation to advance Eurodollar Rate Loans; and the result of any of the foregoing is to increase the cost to the Agent or such Bank of making or continuing any Eurodollar Rate Loan or to reduce the amount of any sum received or receivable by the Agent or such Bank under this Agreement or under the CP LOC Loan Note with respect thereto by an amount deemed by the Agent or such Bank to be material, then the Agent, or such Bank through the Agent, shall deliver to the Company as promptly as practicable a certificate setting forth in reasonable detail the additional amounts that the Agent or such Bank, as the case may be, determines will fully compensate it for such reduction, increased cost or payment and the basis for the determination of such amount; provided, that the Company shall not be obligated to compensate the Agent or any Bank for the amount of such increased cost incurred with respect to a period of time prior to the date which is 90 days before the date on which the Agent first notifies the Company of a claim for such compensation or that an event had occurred which will entitle the Agent or a Bank to such compensation. Any such amount claimed by the Agent or any Bank shall, in the case of clause (i) above, be net of applicable tax savings, if any, directly attributable thereto. Within 30 days after demand by the Agent, the Company shall pay to the Agent, for its account or for the account of the applicable Bank, as the case may be, such additional amount shown as due on any such certificate, absent manifest error. (b) In the event that the Agent or any Bank shall determine (which determination shall, absent manifest error, be final and conclusive and binding on all the parties hereto) at any time that the Agent or such Bank is required to maintain reserves in respect of Eurocurrency Liabilities during any period during which any CP LOC Loan owing to it bears interest based on the Eurodollar Rate (each such period, for the Agent or such Bank, a "Eurocurrency Reserve Period"), but only in respect of any period during which any reserve shall actually be maintained by the Agent or such Bank for any Eurodollar Rate Loan as a result of a reserve requirement applicable to it under Regulation D in connection with Eurocurrency Liabilities, then the Agent, or such Bank through the Agent, shall promptly give notice to the Company of such determination, and the Company shall directly pay to the Agent, for its account or for the account of the applicable Bank, as the case may be, additional interest on the unpaid principal amount of such CP LOC Loan during such Eurocurrency Reserve Period at a rate per annum which shall, during each monthly period applicable to such CP LOC Loan, be the amount by which (x) the Eurodollar Rate for such monthly period divided (and rounded upward to the next whole multiple of 1/100 of 1%) by a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including any marginal, emergency, supplemental, special or other reserves) applicable to the Agent or such Bank in respect of Eurocurrency Liabilities exceeds (y) the Eurodollar Rate for such monthly period. The Agent, or such Bank through the Agent, shall 13 furnish along with such notice a certificate setting forth in reasonable detail the cost actually incurred to maintain such reserves and the basis for the determination of such amount; provided, that the Company shall not be obligated to compensate the Agent or any Bank for the amount of such increased cost incurred with respect to a period of time prior to the date which is 90 days before the date on which the Agent first notifies the Company of a claim for such compensation or that an event has occurred which will entitle the Agent or a Bank to such compensation. Additional interest payable pursuant to the immediately preceding sentence shall be paid by the Company at the time that it is otherwise required to pay interest in respect of such CP LOC Loan, or, if later demanded by the Agent or any Bank, promptly on demand. Each of the Agent and the Banks agrees that, if notice is given to the Company of the existence of a Eurocurrency Reserve Period, the Agent, or the applicable Bank through the Agent, shall promptly notify the Company of any termination thereof, at which time the Company shall cease to be obligated to pay additional interest to the Agent or such Bank pursuant to the first sentence of this paragraph until such time, if any, as a subsequent Eurocurrency Reserve Period shall occur. (c) The Agent, and each Bank through the Agent, will promptly notify the Company of any event of which it has knowledge, occurring after the date hereof, which will entitle the Agent or such Bank to compensation pursuant to this Section and will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole judgment of the Agent or such Bank, be otherwise disadvantageous to the Agent or such Bank. SECTION 2.16 Capital Adequacy. If the Agent or any Bank shall determine that, after the date hereof, the adoption of any Applicable Law regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of the Agent or such Bank or its holding company as a consequence of the Agent's or such Bank's obligations hereunder to a level below that which the Agent or such Bank could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by the Agent or such Bank to be material, then the Agent, or such Bank through the Agent, shall deliver to the Company as promptly as practicable (but in no event later than 120 days after the Agent or such Bank has actual knowledge of such claim for capital adequacy) a certificate setting forth in reasonable detail the amount being charged by the Agent or such Bank and the basis for the determination of such amount. Within 30 days after the delivery of such certificates by the Agent, the Company shall pay to the Agent, for its account or for the account of the applicable Bank, as the case may be, the amount shown as due on any such certificate. SECTION 2.17 Taxes. (a) Payments by the Company to the Agent and the Banks under this Agreement and the CP LOC Loan Note will be made free and clear of and without deduction for Taxes, other than Taxes based on the net income of the Agent or any Bank (including franchise taxes imposed 14 in lieu of net income taxes) imposed by (i) the United States federal government, (ii) the jurisdiction where the Agent or such Bank is organized or has its principal office or (iii) the jurisdiction of the branch of such Bank maintaining any CP LOC Loan or the branch of the Agent through which it renders its services as the Agent ("Excluded Taxes"). If the Company is required by law to deduct Taxes (other than Excluded Taxes) from such a payment, then the sum payable under the instrument to which the payment relates will be increased so that such deduction does not result in a diminution in the amount the Agent or any Bank actually receives. (b) To the extent permitted by law, without duplication of amounts paid by the Company under Section 2.17(a), the Company hereby indemnifies and holds harmless the Agent and each Bank from and against, and agrees to reimburse the Agent and each Bank on an after-tax basis (computed taking into account any deductions or other benefits available for federal income tax purposes for the Agent or such Bank if it is a United States taxpayer and any deductions and benefits available for income tax purposes in any jurisdiction in which the Agent or such Bank is a taxpayer) on demand for, any and all Taxes paid or incurred by the Agent or such Bank in connection with the transactions contemplated by this Agreement; provided, however, that the foregoing indemnity does not cover Excluded Taxes. Reimbursement on an "after-tax basis" means on a basis such that the Agent or such Bank is made whole after taking into account income taxes that the Agent or such Bank will owe on the indemnity or reimbursement payment in any jurisdiction and any related tax benefits, assuming the Agent or such Bank is subject to income taxes at the highest marginal rates. Nothing in this paragraph shall interfere with the right of the Agent or any Bank to arrange its tax affairs in whatever manner it thinks fit and, in particular, the Agent and the Banks are under no obligation to claim a deduction or other benefit relating to these transactions ahead of any other claim, relief, credit, deduction or other benefit to which it is entitled. The Agent, or applicable Bank through the Agent, shall promptly give written notice to the Company after (but in no event later than 60 days after) the Agent or such Bank has actual knowledge of the imposition of any Taxes subject to indemnification hereunder; provided, however, that failure to give such notice within such 60 day period will not relieve the Company of the obligation to indemnify the Agent or such Bank in accordance with the terms hereof, except to the extent of interest that would have been avoided had the notice been given prior to the end of such 60-day period. (c) The Company will provide evidence that all Taxes imposed on payments under this Agreement, any CP LOC Loan or the CP LOC Loan Note, have been fully paid to the appropriate authorities by delivering official receipts or notarized copies to the Agent within 30 days after payment. The Company will compensate the Agent or any Bank that has to pay any Taxes because the Company failed to timely furnish such evidence; provided, that prior to paying such Taxes, the Agent, or such Bank through the Agent, shall have notified the Company of its intent to make such payment. (d) If the Company so requests promptly in writing after receipt of any notice under Section 2.17 hereof, the Agent or applicable Bank will contest in good faith the Taxes at the Company's expense, keep the Company fully informed about the progress of the contest, consult in good faith with the Company's counsel regarding conduct of the contest, and not compromise or otherwise settle the contest without the Company's consent (which shall not be unreasonably withheld or delayed); provided, that the Agent or such Bank may in its sole discretion select the forum for the contest and determine whether the contest will be by resisting payment of the 15 Taxes or by paying the Taxes and seeking a refund; provided, further that the Agent or such Bank will be under no obligation to contest unless (A) if the Agent or such Bank requests, the Company has provided the Agent or such Bank an opinion of independent tax counsel selected by the Company and reasonably acceptable to the Agent or such Bank to the effect that there is a reasonable basis for the contest, (B) the amount in controversy is at least $75,000, (C) the Agent or such Bank has received satisfactory indemnification and security for any liability, loss, cost or expense arising out of the contest (including, but not limited to, all reasonable legal and accounting fees and expenses, penalties, interest and additions to tax), (D) if requested by the Agent or such Bank, the Company has admitted in writing its duty to indemnify the Agent or such Bank for the Taxes if the contest is lost (but such admission shall not preclude the Company from raising a defense to liability if a court of competent jurisdiction has rendered a decision articulating the cause of such Taxes, and the cause is not one for which the Company is responsible under this Section 2.17), and (E) if the contest is conducted in a manner that requires paying all or part of the Taxes, the Company has paid the amount required. (e) If the Company so requests within 10 days of notice to the Company of the imposition of any Taxes on payments to any of the Banks of a type not generally imposed on United States or foreign lenders making advances of the types contemplated hereunder, such Banks shall (consistent with legal and regulatory restrictions) comply with Section 2.19 hereof. (f) At such times as may be required by Applicable Law or as the Agent or the Company may reasonably request, each Bank agrees that it will deliver to the Agent and the Company duly completed forms of any applicable jurisdiction or other documentation reasonably satisfactory to the Agent and the Company that such Bank is entitled to receive payments under this Agreement without deduction or withholding of income tax under the Applicable Law of such jurisdiction. Each Bank further agrees to notify the Agent and the Company of the occurrence of any event (including any change in treaty, law or regulation) that would render such Bank unable to receive payments hereunder without such deduction or withholding. The provisions of this Section 2.17(f) shall apply to any successor holder of a CP LOC Loan Note. SECTION 2.18 Illegality. If, on or after the date of this Agreement, the adoption of any Applicable Law, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Agent or any Bank with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency shall make it unlawful or impossible for the Agent or such Bank to make, continue or convert its Eurodollar Rate Loans, the Agent, or such Bank through the Agent, shall so notify the Company, whereupon until the Agent, or such Bank through the Agent, notifies the Company that the circumstances giving rise to such suspension no longer exist, the obligation of the Agent or such Bank to make or continue Eurodollar Rate Loans, or to convert outstanding CP LOC Loans into Eurodollar Rate Loans, shall be suspended. Before giving any notice to the Company pursuant to this Section, the Agent or applicable Bank shall designate a different lending office for the Eurodollar Rate Loans if such designation will avoid the need for giving such notice and will not, in the sole judgment of the Agent or such Bank, be otherwise 16 disadvantageous to the Agent or such Bank. If such notice is given, each Eurodollar Rate Loan of the Agent or such Bank then outstanding shall either (i) be converted to a Base Rate Loan on the last day of the then current Interest Period applicable to such Eurodollar Rate Loan if the Agent or such Bank may lawfully continue to make and continue such CP LOC Loan to such day, or (ii) be immediately converted to a Base Rate Loan if the Agent or such Bank shall determine that it may not lawfully continue to make and continue such CP LOC Loan to such day; provided, that the Company shall not be obligated to make any payment pursuant to Section 2.6(c) as a result of such conversion. If the Company so requests within 10 days of receipt of the notice referred to above, the applicable Bank shall (consistent with legal and regulatory restrictions) comply with Section 2.19 hereof. SECTION 2.19 Assignments by Banks. In the event that (i) a Bank is required to comply with this Section 2.19 after a request from the Company pursuant to Sections 2.17 or 2.18, (ii) the Company or the Issuing Bank requests that the provisions of this Section 2.19 apply to a Bank within 10 days after the Company receives a notice from the Agent that (a) such Bank has failed to make available to the Agent its portion of any CP LOC Loan on the date required to be made available to the Agent pursuant to this Agreement after the Agent has made written demand upon such Bank for such payment, (b) such Bank has provided the Agent with notice that such Bank shall not make available to the Agent such portion of any CP LOC Loan required to be made available to the Agent pursuant to this Agreement or (c) such Bank has failed to reimburse the Agent pursuant to the terms of this Agreement, or (iii) the Issuing Bank requests that the provisions of this Section 2.19 apply to a Bank in the event the long-term debt rating of such Bank shall at any time be less than a rating of "A" or the equivalent by S&P or by Moody's, then such Bank shall assign all or a part of its proportionate share of the CP LOC Loans and its Commitment to a replacement Bank (which may be, but is not required to be, one of the other Banks, and shall be subject to the prior written consent of the Issuing Bank) designated by the Company; provided, that any assignment or transfer made by a Bank to a replacement Bank shall substantially be in the form of Exhibit C hereto, and any assignment of all or part of the CP LOC Loans or other obligations with respect to the CP Letter of Credit shall be made without recourse, representation or warranty. The Company shall promptly pay when due all reasonable fees and expenses which such Bank incurs in connection with such transfer or assignment and the Company shall cause the replacement Bank to pay to the Agent for the account of the assigning Bank in immediately available funds all amounts outstanding or payable under this Agreement to each Bank assigning its interest in the CP LOC Loans or other obligations with respect to the CP Letter of Credit. SECTION 2.20 Reduction in Commitments/Reimbursements. The Company shall have the right to refinance the Commitment and any outstanding CP LOC Loans, if any, without premium or penalty, except as provided in Section 2.6(c), upon at least 10 Business Days' prior written notice to the Agent. SECTION 2.21 Right of Set-off. Subject to the provisions of the Collateral Agency Agreement, the Company hereby authorizes each Bank (in addition to, and without limitation of, any right of set-off, banker's lien 17 or counterclaim a Bank may otherwise have), upon the occurrence and during the continuance of any Event of Default, at any time and from time to time, without notice to the Company or any Person other than the Collateral Agent (any such notice being hereby expressly waived by the Company to the extent it may legally do so) to set off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final) at any time held, and other indebtedness at any time owing, by such Bank in any of its offices, wherever located (whether such deposits or indebtedness be in dollars or in any other currency), to or for the credit or the account of the Company against any and all of the Obligations and liabilities of the Company now or hereafter existing under this Agreement, irrespective of whether or not such Bank shall have made any demand hereunder or thereunder and although such Obligations may be contingent or unmatured. ARTICLE III CONDITIONS PRECEDENT SECTION 3.1 Conditions Precedent to the Closing Date. The occurrence of the Closing Date is subject to satisfaction or waiver of the following conditions precedent: (a) issuance of the Bonds and submission to the Agent of duplicate originals or certified copies of all documents submitted in connection with the issuance of the Bonds on the Closing Date, which shall be in form and substance satisfactory to the Agent; (b) receipt by the Issuing Bank and the Agent of the following, in each case in the form approved by the Agent on the Closing Date: (i) this Agreement and the CP LOC Loan Note duly executed by the Company; (ii) an original of each of the Security Documents, duly executed by the parties thereto; (iii) a copy of each other Financing Document, certified by the Company as to completeness and authenticity; (iv) written opinions of counsel acceptable to the Agent, addressed to the Agent and the Banks, and in form and substance satisfactory to the Agent and covering such matters as the Agent may reasonably request; (v) evidence satisfactory to the Agent that each of the parties to the Project Contracts, Financing Documents and Security Documents shall have duly and irrevocably appointed a process agent to act for and on behalf of such person, to receive summonses and other legal process in connection with any suit, action or proceeding relating to such documents in the jurisdictions in which it is required to submit to such 18 jurisdiction and such appointment shall have been accepted and all fees scheduled to accrue to each such agent for the service of process shall have been paid in full; and (vi) evidence satisfactory to the Agent that all actions necessary or appropriate in order to effectively establish, create or perfect the security interest have been duly taken. (c) payment by the Company of all accrued fees and expenses (as provided in Sections 2.5 and 9.4) of the Agent and the Banks (including the reasonable accrued fees and disbursements of counsel to the Agent and the Banks), to the extent that one or more statements for such fees and expenses have been presented for payment. SECTION 3.2 [Reserved]. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1 Representations and Warranties of Company. The Company hereby makes for the benefit of the Agent and the Banks all of the representations and warranties of the Company contained in Article III of the Indenture (which representations and warranties are incorporated by reference herein as if fully set forth herein and which representations and warranties shall be true and correct as of the date hereof and the Closing Date). SECTION 4.2 Representations and Warranties of the Issuing Bank. The Issuing Bank hereby represents and warrants to the Company and the Agent as follows: (a) The Issuing Bank is duly formed, validly existing and in good standing under the laws of its jurisdiction of organization. (b) The Issuing Bank has all necessary power and authority to execute and deliver, and to perform its obligations under, this Agreement and the CP Letter of Credit. (c) All action on the part of the Issuing Bank that is required for the authorization, execution and delivery of, and performance by the Issuing Bank of its obligations under, this Agreement and the CP Letter of Credit has been duly and effectively taken. (d) This Agreement has been, and, upon issuance thereof, the CP Letter of Credit will have been, duly executed and delivered by the Issuing Bank. (e) This Agreement constitutes, and the CP Letter of Credit upon issuance thereof will constitute, legal, valid and binding obligations of the Issuing Bank, enforceable against it in accordance with the respective terms thereof, except as such enforceability (i) may be limited by 19 applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights and remedies generally and (ii) is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law. ARTICLE V COVENANTS SECTION 5.1 Covenants. So long as any Commitment is in effect, the CP Letter of Credit is outstanding or the Obligations remain unpaid, the Company shall observe and perform all of the covenants of the Company contained in Article VI of the Indenture (which covenants are incorporated herein by reference as if fully set forth herein. ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.1 Events of Default. Each of the following shall constitute an "Event of Default" under this Agreement so long as the same shall be continuing: (a) the Company shall fail to pay any amount due under this Agreement (including under any CP LOC Loan Note) within 15 days after the due date thereof; or (b) an "Event of Default" under the Indenture shall have occurred and be continuing; or (c) an "Event of Default" under the DSR LOC Reimbursement Agreement shall have occurred and be continuing. SECTION 6.2 Remedies. Upon the occurrence and during the continuation of an Event of Default, the Agent shall, at the request of the Required Banks, take one or more of the following actions: (i) terminate the CP Letter of Credit, (ii) declare the Obligations, all interest thereon and all other amounts payable under this Agreement and the CP LOC Loan Note to be forthwith due and payable, including but not limited to the amount of any and all CP LOC Loans which may be made upon a Drawing under the CP Letter of Credit which occurs after the date on which the Agent declares such amounts to be due and payable, but prior to the effective date of termination of such CP Letter of Credit in accordance with Section 2.2(f), whereupon the Obligations, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company or (iii) terminate the ability of the Company to continue CP LOC Loans as, or to 20 convert CP LOC Loans to, Eurodollar Rate Loans; provided, that the Agent and the Banks shall not have the right to exercise any other remedy hereunder or otherwise available to the Agent or any Bank except in accordance with the provisions of the Collateral Agency Agreement. SECTION 6.3 Collateralization upon Acceleration of the Bonds. In the event that an Event of Default hereunder results from an "Event of Default" under the Indenture and the Trustee accelerates amounts due under the Indenture, the CP LOC Provider shall be entitled to require collateralization of the Stated Amount by having the Collateral Agent deposit (in a separate account to be held by the Collateral Agent), at the time that any amounts are paid to the Trustee in respect of accelerated amounts due under the Indenture, an amount equal to the amount that would have been disbursed to the Agent at such time (based on pro rata payment requirements) if Drawings had been made to the full extent of the Stated Amount ("Deemed CP LOC Loans") and the Deemed CP LOC Loans had been accelerated at the same time as an acceleration under the Indenture. Upon a Drawing on the CP Letter of Credit, a portion of the amount in the separate account equal to such Drawing's proportionate share of the Stated Amount shall be transferred by the Collateral Agent to the CP LOC Provider. The Agent, the Issuing Bank and each Bank agree that upon termination or expiration of the CP Letter of Credit, all amounts in such separate collateral account that have not been transferred pursuant to the previous sentence (to the extent of such expiration or termination) shall be transferred to the Collateral Agent. ARTICLE VII CHARACTER OF OBLIGATIONS SECTION 7.1 Obligations Absolute. The Obligations shall be absolute, unconditional and irrevocable and shall not be affected or impaired under any circumstances whatsoever, including the following circumstances: (a) any lack of validity or enforceability of any provision of any Project Contract or Financing Document; (b) any amendment or waiver of, or any consent to departure from, any provision of any Project Contract or Financing Document; (c) the existence of any claim, set-off, defense or other right that the Company may have at any time against the beneficiary of the CP Letter of Credit (or any Person for whom such beneficiary may be acting), any Bank, the Agent or any other Person, whether in connection with any Project Contract or Financing Document, the transactions contemplated thereby or any unrelated transaction; (d) any statement or signature in any certificate or other document presented under the CP Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any such statement being untrue or inaccurate in any respect whatsoever; 21 (e) any exchange, release or nonperfection of any Collateral or other collateral, or any release, amendment or waiver of or consent to departure from any Project Contract, Financing Document or any guaranty, for any of the Obligations; (f) payment by the Issuing Bank under the CP Letter of Credit against presentation of a draft or certificate that does not comply with the terms of the CP Letter of Credit; or (g) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. SECTION 7.2 Limited Liability of Agent and Banks. As among the Company, the Agent and the Banks (including the Issuing Bank), the Company assumes all risks of the acts or omissions of the beneficiaries of the CP Letter of Credit with respect to the use of the CP Letter of Credit. Neither the Agent nor any Bank nor any of their respective officers, directors, employees or agents shall be liable or responsible for (i) the use that may be made of the CP Letter of Credit or any acts or omissions of any beneficiaries of the CP Letter of Credit in connection with the CP Letter of Credit; (ii) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted in connection with the CP Letter of Credit or of any endorsement thereon, even if such document or endorsement should prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (iii) payment by the Issuing Bank against presentation of any document that does not comply with the terms of the CP Letter of Credit, including failure of any document to bear any reference or adequate reference to the CP Letter of Credit; or (iv) any other circumstance whatsoever in making, delaying to make or failing to make payment under the CP Letter of Credit; provided, however, that the Company shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Company, to the extent of any direct, as opposed to consequential, damages suffered by the Company that the Company proves were the result of the Issuing Bank's willful misconduct or gross negligence in paying under the CP Letter of Credit or the Issuing Bank's willful or grossly negligent failure to pay under the CP Letter of Credit after the presentation to it by the beneficiary of a draft and certificate strictly complying with the terms and conditions of the CP Letter of Credit (unless the Issuing Bank in good faith believed itself (based upon an opinion of counsel) to be prohibited by law or legal authority from making such payment). In furtherance and not in limitation of the foregoing, the Issuing Bank may accept any document that appears on its face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. ARTICLE VIII THE AGENT SECTION 8.1 Authorization and Action. (a) Each Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any 22 matters not expressly provided for by the Credit Documents (including enforcement of and collection under any Credit Document or other Project Contract), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks, and such instructions shall be binding upon all Banks and the holders of any CP LOC Loan Note; provided, however, that the Agent shall not be required to take any action that, in the Agent's sole judgment, exposes the Agent to personal liability or that is contrary to any Credit Document or other Project Contract or Applicable Law. In performing its function and duties hereunder as Agent, the Agent shall act solely as the agent of the Banks and in its capacity as Issuing Bank it shall act solely as issuer of the CP LOC Letter of Credit, and does not assume and shall not be deemed to have assumed in either such capacity any obligation towards or relationship of agency or trust or other fiduciary relationship with or for the Company or any other party to any Project Contract. (b) Each Bank hereby authorizes the Agent in the name of and on behalf of such Bank to sign such documents, take all such actions and perform such obligations that the Agent deems necessary or appropriate to bind each of the Banks under the Credit Documents and to create, perfect or maintain the existence or perfected status of any security interest. SECTION 8.2 Agent's Reliance, Etc. Neither the Agent nor the Issuing Bank nor any of their directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with any Credit Document or other Project Contract, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent and the Issuing Bank (i) may treat any Bank that has signed an Assignment and Acceptance as the holder of the applicable portion of the Obligations; (ii) may consult with legal counsel (including counsel for the Company or any Affiliate), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with any Credit Document or other Project Contract; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Credit Document or other Project Contract on the part of the Company or any Affiliate or to inspect the property (including the books and records) of the Company or any Affiliate thereof; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Credit Document or other Project Contract or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of any Credit Document or other Project Contract by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier or otherwise) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.3 The Agent, the Issuing Bank and Affiliates. With respect to its Commitment and participation in the CP Letter of Credit, the Agent and the Issuing Bank shall have the same rights and powers under this Agreement as any other 23 Bank and may exercise the same as though it were not the Agent or the Issuing Bank, as the case may be; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include the Agent and Issuing Bank in their capacity as a Bank (including the Issuing Bank in its capacity as such). The Agent and the Issuing Bank and their Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Company, any Affiliate thereof and any Person that may do business with or own securities of the Company or any Affiliate thereof, all as if the Agent and the Issuing Bank, respectively, were not the Agent and the Issuing Bank, and without any duty to account therefor to the Banks. SECTION 8.4 Bank Credit Decision. Each Bank agrees that it has, independently and without reliance on the Agent, the Issuing Bank or any other Bank and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also agrees that it will, independently and without reliance on the Agent, the Issuing Bank or any other Bank and based on such documents and information as it deems appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.5 Indemnification. Each of the Banks agree to indemnify the Agent and the Issuing Bank (to the extent not promptly reimbursed by the Company and without limiting the obligation of the Company to do so), on demand, ratably according to such Bank's Percentage Interest, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever that may at any time (including at any time following the payment of any Obligations or termination of this Agreement) be imposed on, incurred by or asserted against the Agent or the Issuing Bank in any way relating to or arising out of any Credit Document or other Project Contract or any action taken or omitted by the Agent under any Credit Document or other Project Contract; provided, however, that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting solely from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any costs and expenses payable by the Company under Section 9.4, to the extent that the Agent is not reimbursed for such costs and expenses by the Company. SECTION 8.6 Successor Agent. The Agent may resign at any time by giving written notice thereof to the Banks and the Company and may be removed at any time with or without cause with the written approval of the Required Banks. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent with the consent of the Company, which shall not be unreasonably withheld. If no successor Agent has been so appointed by the Required Banks, and has accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent with the consent of the Company (which shall not be unreasonably withheld), which successor Agent shall be a commercial bank organized under the 24 laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Credit Documents and the other Project Contracts. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was agent under this Agreement. SECTION 8.7 Collateral. (a) Except as expressly provided herein, the Agent shall have no duty to take any affirmative steps with respect to the collection of amounts payable in respect of the Collateral. The Agent shall incur no liability as a result of any private sale of the Collateral. (b) The Banks hereby consent, and agree upon written request by the Agent to execute and deliver such instruments and other documents as the Agent may deem desirable to confirm such consent, to the release of the Liens on the Collateral, including any release in connection with any sale, transfer or other disposition of the Collateral or any part thereof, in accordance with the Project Contracts. ARTICLE IX MISCELLANEOUS SECTION 9.1 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any CP LOC Loan Note, or consent to any departure by the Company therefrom, shall be effective unless in writing and signed or consented to (in writing) by the Required Banks (and, in the case of amendments, the Company), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that (A) no amendment, waiver or consent shall, unless in writing and signed or consented to (in writing) by all of the Banks do any of the following: (i) waive any of the conditions specified in Article 3; (ii) increase the Commitments of the Banks or subject the Banks to any additional obligations; (iii) reduce the principal of, or interest on, the CP LOC Loans or any fees or other amounts payable hereunder; (iv) postpone any date fixed for (a) payment of principal of, or interest on, any CP LOC Loans, (b) reimbursement of drawings under any of the CP Letter of Credit or (c) payment of fees or other amounts payable hereunder; (v) change the percentage of the Commitments, or the number of Banks, required for the Banks or any of them to take any action hereunder; or (vi) amend this Section 9.1; (B) that no amendment, waiver or consent shall, unless in writing or consented to (in writing) by the Issuing Bank, affect the rights and obligations of the Issuing Bank hereunder; (C) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Persons required above to take such action, affect the rights or duties of the Agent under this Agreement or any other Credit Document and (D) any provision that is a part of this 25 Agreement as a result of an incorporation by reference to the Indenture shall be amended or waived as provided in Section 2.5 of the Collateral Agency Agreement. SECTION 9.2 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including by telecopier) and shall be mailed, telecopied or delivered, if to the Company, to it at AES Ironwood, L.LC., 829 Cumberland Street, Lebanon, Pennsylvania 17042, Attention: Project Manager, telephone no. 717-228-1328, telecopier no. 717-228-1271; if to any Bank other than the Issuing Bank, to it at the address or telecopier number set forth below its name in the Assignment and Acceptance by which it became a party hereto; if to the Agent or the Issuing Bank, to it at Dresdner Bank AG, New York Branch, 75 Wall Street, 25th Floor, New York, New York 10005-2889, Attention: Project Finance Group, telecopier no. 212-429-2192, telephone no. 212-429-2226, or, as to each party, to it at such other address or telecopier number as designated by such party in a written notice to the other parties. All such notices and communications shall be deemed received, (i) if personally delivered, upon delivery, (ii) if sent by first-class mail, on the third Business Day following deposit into the mails and (iii) if sent by telecopier, upon acknowledgment of receipt thereof by the intended recipient, except that notices and communications to the Agent pursuant to Article 2 or 8 shall not be effective until received by the Agent. SECTION 9.3 No Waiver, Remedies. No failure on the part of any Bank (including the Issuing Bank) or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, and no single or partial exercise of any such right shall preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. SECTION 9.4 Costs and Expenses. The Company agrees to pay on demand (i) all reasonable costs and expenses of the Agent and the Banks (including the Issuing Bank) in connection with the preparation, execution, delivery, syndication, administration, modification and amendment of this Agreement, any CP LOC Loan Note, the other Credit Documents and the other documents to be delivered hereunder, including (a) the reasonable fees and out-of-pocket expenses of counsel for the Agent and the Banks with respect thereto and with respect to advising the Agent and the Banks as to their rights and responsibilities, or the perfection, protection or reservation of rights or interests, under this Agreement, the other Credit Documents, the other Project Contracts and the other documents to be delivered hereunder, (b) the reasonable fees and expenses of any consultants, auditors or accountants engaged by the Agent with the written consent (which shall not be unreasonably withheld) of the Company pursuant hereto, and (ii) all reasonable costs and expenses of the Agent and the Banks (including the Issuing Bank) (including reasonable counsel fees and expenses of the Agent and the Banks) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the other Credit Documents, the other Project Contracts and the other documents to be delivered hereunder, whether in any action, suit or litigation, bankruptcy, insolvency or similar proceeding. In addition, the Company 26 shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of the aforementioned documents, and the Company agrees to indemnify and hold the Agent and the Banks (including the Issuing Bank) harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay any of the foregoing. SECTION 9.5 Application of Money. If any sum paid or recovered in respect of the Obligations is less than the amount then due, the Agent may apply that sum to principal, interest, fees or any other amount due under this Agreement in such proportions and order and generally in such manner as the Agent shall reasonably determine. SECTION 9.6 Severability. Any provision of this Agreement that is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions of this Agreement or affecting the validity, enforceability or authorization of such provision in any other jurisdiction. SECTION 9.7 Non-Recourse Liability. Satisfaction of the Obligations shall be had solely from the Collateral. Notwithstanding any provision to the contrary in the Transaction Documents, there shall be no recourse against any Affiliates, stockholders, officers, directors, representatives or employees of the Company, other than the Company (each a "Non-Recourse Party"), for any payment due hereunder or under any other Financing Document or Security Document from the Company or for the performance of any obligation of such Non-Recourse Party, or breach of any representation or warranty made by such Non-Recourse Party hereunder or thereunder. The sole recourse of the Agent and the Banks hereunder or under any other Transaction Document or for the performance of any obligation of the Company, or breach of any representation or warranty made hereunder or thereunder by the Company, shall be against the Company and its assets, it being expressly understood by the Senior Parties that such obligations are obligations solely of the Company and that no such personal liability shall attach to, or be incurred by any Non-Recourse Party; provided, that nothing contained in this Section 9.7 shall (i) impair in respect of the Company the validity of any CP LOC Loan Note, or any other Credit Documents, as applicable, prevent the taking of any action permitted by law against the Company or any of its Affiliates, or in any way affect or impair the rights of the Agent and the Banks to take any action permitted by law, in either case to realize upon the Collateral, (ii) be deemed to release the Company or any of its Affiliates, or any past, present or future shareholder, partner, officer, employee, director or agent of any thereof, from liability for its fraudulent actions, fraudulent misrepresentations, gross negligence or willful misconduct or (iii) limit or affect the obligations and liabilities of any Non-Recourse Party in accordance with the terms of any other Transaction Document creating such obligations and liabilities to which such Non-Recourse Party is a party. 27 SECTION 9.8 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company, the Agent and the Banks and their respective successors and assigns, except that the Company shall not have the right to assign any of its rights and obligations hereunder without the prior written consent of the Required Banks, and, except as provided in Section 9.9, no Bank other than the Issuing Bank shall have the right to assign any of its rights and obligations hereunder. SECTION 9.9 Assignments and Participations. (a) Any Bank may at any time (with the consent of the Company, such consent not to be unreasonably withheld or delayed, the consent of the Agent, such consent not to be unreasonably withheld or delayed, and the consent of the Issuing Bank) sell to one or more banks or other entities whose long-term unsecured debt is rated at least "A" or the equivalent by S&P and Moody's (a "Purchasing Bank") all or any part of its rights and obligations under this Agreement and any CP LOC Loan Note (which, except in the case of an assignment to a Person that, immediately before such assignment, was a Bank, shall be in an amount equal to not less than the lesser of (x) $7,000,000 and (y) 33 1/3% of the Maximum Stated Amount pursuant to an Assignment and Acceptance, executed by such Purchasing Bank, such transferor Bank, the Agent and the Issuing Bank (and, in the case of a Purchasing Bank that is not then a Bank or an Affiliate thereof, by the Company). Upon (i) such execution of such Assignment and Acceptance and (ii) delivery of a copy thereof to the Company and payment of the amount of its participation to the Agent or such transferor Bank, such Purchasing Bank shall for all purposes be a Bank party to this Agreement and shall have all the rights and obligations of a Bank under this Agreement, to the same extent as if it were an original party hereto with the Percentage Interest as set forth in such Assignment and Acceptance, which shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of Percentage Interests arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such transferor Bank under this Agreement and any CP LOC Loan Note. (b) Any Bank may, from time to time, sell or offer to sell participating interests in any CP LOC Loans owing to such Bank, such Bank's interest in any CP LOC Loan Note, any Commitment of such Bank or any other interests and obligations of such Bank hereunder, to one or more banks or other entities (each, a "Participant"), on such terms and conditions as may be determined by the selling Bank, without the consent of or notice to the Company, and the grant of such participation shall not relieve any Bank of its obligations, or impair the rights of any Bank, hereunder. In the event of any such sale by a Bank of a participating interest to a Participant, such Bank shall remain solely responsible for the performance of such Bank's obligations under this Agreement, the Company, the Agent and the Issuing Bank will continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and such Bank shall retain the sole right and responsibility to exercise the rights of such Bank, and enforce the obligations of the Company, including the right to approve any amendment, modification, supplement or waiver of any provision of any Credit Document and the right to take action under Article 6 hereof and such Bank shall not grant any such Participant any voting rights or veto power over any such action by such Bank under this Agreement (provided, that such Bank may agree not to consent to any modification, amendment 28 or waiver of this Agreement, without the consent of the Participant, that would alter the principal of or interest on any CP LOC Loans, postpone the date fixed for any payment of principal of or interest thereon or extend the term of any Commitment). No Participant shall have any rights under this Agreement to receive payment of principal, interest or any other amount payable hereunder except through a Bank and as provided in this Section 9.9. The Company agrees that, upon the occurrence and during the continuance of any Event of Default, each Participant shall have the right of set-off in respect of its participating interest in amounts owing under this Agreement and any CP LOC Loan Note as set forth in Section 2.21 hereof to the same extent as if the amount of its participating interest was owing directly to it as a Bank under this Agreement or any CP LOC Loan Note. The Company also agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 2.18 hereof with respect to its participation granted hereunder; provided, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the Bank transferring such participation would have been entitled to receive in respect of the amount of the participation transferred to such Participant had no such transfer occurred. (c) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.9, disclose to the Purchasing Bank or Participant or proposed Purchasing Bank or Participant any information relating to the Company furnished to such Bank by or on behalf of the Company; provided, however, that prior to any such disclosure, the Person receiving such disclosure shall sign such confidentiality agreements as the Company may reasonably request. SECTION 9.10 Indemnification. The Company agrees to indemnify, on demand, and hold harmless the Agent and each Bank (including the Issuing Bank) and each of their respective officers, directors, employees, agents and affiliates from and against any and all claims, damages, losses, liabilities, costs and expenses whatsoever that such indemnified party may incur (or that may be claimed against such indemnified party by any Person) by reason of (i) any untrue statement or alleged untrue statement of any material fact concerning the Company or the Collateral, or the omission or alleged omission to state any fact concerning the Company or the Collateral necessary to make any such statement, in light of the circumstances under which it was made, not misleading; (ii) the issuance, sale or delivery of the Senior Debt; (iii) the use of the proceeds of the Senior Debt or any Drawing; (iv) any reasonable action taken by such indemnified party in protecting and enforcing the rights and remedies of the Agent and the Banks under the Project Contracts; (v) subject to Section 7.2, the execution, delivery or transfer of, or payment or failure to pay under, the CP Letter of Credit; (vi) any claim of any Person with respect to any finder's fee, brokerage commission or other similar sum due in connection with any Project Contract; or (vii) any failure by the Company to comply with any Environmental Requirement; provided, however, that the Company shall not be required to indemnify the Issuing Bank for any claims, damages, losses, liabilities, costs or expenses to the extent caused by the Issuing Bank's willful misconduct or gross negligence in paying under the CP Letter of Credit or the Issuing Bank's willful or grossly negligent failure to pay under the CP Letter of Credit after the presentation to it by the beneficiary of a draft and certificate strictly complying with the terms and conditions of the CP Letter of Credit (unless the Issuing Bank in good faith believed itself (based upon an opinion of counsel) to be prohibited by law or legal authority from making such payment). The 29 Company, upon demand by any party indemnified or intended to be indemnified pursuant to this Section 9.10 at any time, shall also reimburse such party for any reasonable legal or other expenses incurred in connection with investigating or defending against any of the foregoing. If any action, suit or proceeding arising from any of the foregoing is brought against any party indemnified or intended to be indemnified pursuant to this Section 9.10 (an "Indemnified Party"), such Indemnified Party shall promptly notify the Company in writing, enclosing a copy of all papers served, but the omission so to notify the Company of any such action shall not relieve it of any liability that it may have to any Indemnified Party otherwise than under this Section 9.10; provided, however, that the Company shall not be liable for any settlement of any such action effected without the Company's prior written consent. In case any such action shall be brought against any Indemnified Party and it shall notify the Company of the commencement thereof, the Company shall be entitled to participate in and, to the extent that it shall wish, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Company to such Indemnified Party of the Company's election so to assume the defense thereof, the Company shall not be liable to such Indemnified Party for any subsequent legal or other expenses attributable to such defense, except as provided below, other than reasonable costs of investigation subsequently incurred by such Indemnified Party in connection with the defense thereof. The Indemnified Party shall have the right to employ its own counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the employment of counsel by such Indemnified Party has been authorized by the Company, (ii) the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnified Party in the conduct of the defense of such action (in which case the Company shall not have the right to direct the defense of such action on behalf of the Indemnified Party) or counsel for the Company shall have declined to represent the Indemnified Party in light of a potential conflict of interest or (iii) the Company shall not in fact have employed counsel reasonably satisfactory to the Indemnified Party to assume the defense of such action. SECTION 9.11 Governing Law; Submission of Jurisdiction; Venue; Waiver of Jury Trial. (a) THE RIGHTS AND OBLIGATIONS OF EACH OF THE PARTIES UNDER THIS AGREEMENT AND ANY CP LOC LOAN NOTE SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING AGAINST THE COMPANY WITH RESPECT TO THIS AGREEMENT, ANY CP LOC LOAN NOTE OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NY 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT WITH RESPECT TO ANY ACTION OR PROCEEDING IN NEW YORK TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND 30 IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING AND AGREES THAT THE FAILURE OF SUCH AGENT TO GIVE ANY ADVICE OF ANY SUCH SERVICE OF PROCESS TO THE COMPANY SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR OF ANY CLAIM BASED THEREON. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH IN SECTION 9.2, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. (b) THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY CP LOC LOAN NOTE OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN SECTION 9.11(a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THIS AGREEMENT, ANY CP LOC LOAN NOTE OR THE CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 9.12 Headings. The section and subsection headings used herein have been inserted for convenience of reference only and do not constitute matters to be considered in interpreting this Agreement. SECTION 9.13 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------------ Name: Patricia L. Rollin Title: Vice President Commitment - ---------- $30,000,000.00 DRESDNER BANK AG, NEW YORK BRANCH, as Agent, the Issuing Bank and as a Bank By: /s/ Andrew Schroeder ------------------------------ Name: Andrew Schroeder Title: Vice President By: /s/ Kirk Edelman ------------------------------ Name: Kirk Edelman Title: Vice President [CP LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT] EXHIBIT A FORM OF ------- Construction Period Letter of Credit ------------------------------------ Dresdner Bank AG, Letter of Credit No. [________] New York Branch 75 Wall Street Irrevocable Standby Credit New York, New York 10005 Date and Place of Issue: Date and Place of Expiry: New York, New York Dresdner Bank AG, [ ,] 2000 New York Branch New York, New York June 25, 2003 as the same may be extended from time to time in accordance with the terms hereof Applicant: AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, PA 17042 Amount: Up to an aggregate of [ ] United States Dollars (US$[ ]) Beneficiary: Credit Available With: [________] Dresdner Bank AG, [Address] New York Branch Attn: By: Negotiation, Against Presentation of the Documents Detailed Herein Drawn on Dresdner Bank AG New York Branch Ladies and Gentlemen: We irrevocably authorize you to draw on us for the account of the Applicant up to an aggregate amount of [________]UNITED STATES DOLLARS (US$[________]) (the "Stated Amount") available against presentation of a dated drawing request drawn on Dresdner Bank AG, New York Branch, manually signed by an authorized officer of the Beneficiary (who is identified as such) appropriately completed in the form of Annex 1 hereto. The above drawing request shall be in writing, addressed to us at Dresdner Bank AG, New York Branch, 75 Wall Street, New York, NY 10005, Attn: Maria Penna, Credit Administration Department telecopier no. 212-429-2130, or 212-429-2115 and all other communications with respect to this Letter of Credit shall be in writing addressed to us at Dresdner Bank AG, New York Branch, 75 Wall Street, New York, NY 10005, Attn: Andrew Schroeder, telecopier no. 212-429-2081, with a copy to Michael Higgins, telecopier no. 212-429-2192, referencing this Ex. A-1 Letter of Credit No. [________] and presented to us by delivery in person or facsimile transmission at such address, provided that the original of the above drawing request or such communications, as the case may be, shall be sent to us at such address by overnight courier for receipt by us within two (2) Business Days of the date of any such facsimile transmission. If the drawing request is presented in compliance with the terms of this Letter of Credit to us at such address by 12:00 noon New York City time on any Business Day, payment will be made no later than 3:00 p.m. New York City time on such Business Day and if such drawing request is so presented to us after 12:00 noon New York City time on any Business Day, payment will be made no later than 12:00 noon New York City time on the following Business Day. Payment under this Letter of Credit shall be made in immediately available funds by wire transfer to such account as may be designated by the Beneficiary in the applicable drawing request. As used in this Letter of Credit, "Business Day" means any day on which commercial banks located in New York, New York are not required or authorized to remain closed. This Letter of Credit shall expire on the date of expiry set forth above. Notwithstanding the foregoing, we may at any time, subject to the provisions of the Construction Period Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999, among the Applicant, the Issuing Bank and the other Banks party thereto and on Dresdner Bank AG, New York Branch, as Agent (the "Reimbursement Agreement"), terminate this Letter of Credit by giving the Beneficiary written notice thereof in the form of Annex 2 hereto by delivery in person or facsimile transmission (with written confirmation by overnight courier for receipt by the Beneficiary within two (2) Business Days) addressed to [________], Attn: [________], telephone no. [________], telecopier no. [________], at least thirty (30) days prior to termination whereupon the Beneficiary is authorized to draw on us prior to such termination the Stated Amount of this Letter of Credit by presentation to us, in the manner and at the address specified in the third preceding paragraph, of a drawing request appropriately completed in the form of Annex 1 hereto and signed by the Beneficiary's authorized officer. This Letter of Credit is effective immediately. In the event that a drawing request fails to comply with the terms of this Letter of Credit, we shall provide the Beneficiary prompt notice of same stating the reasons therefor and shall upon your instructions hold any non-conforming drawing request and other documents at your disposal or return any non-conforming drawing request and other documents to the Beneficiary at the address set forth above by delivery in person or facsimile transmission (with originals thereof sent by overnight courier for receipt within two (2) Business Days). Upon being notified that the drawing was not effected in compliance with this Letter of Credit, the Beneficiary may attempt to correct such non-complying drawing request in accordance with the terms of this Letter of Credit. This Letter of Credit sets forth in full the terms of our undertaking and this undertaking shall not in any way be modified, amended, limited or amplified by reference to any document, instrument or agreement referred to herein, except only defined terms used herein and the drawing requests and certificates referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument, or agreement except for such defined terms, drawing requests and certificates. Ex. A-2 This Letter of Credit may be assigned upon presentation to us of a signed transfer certificate in the form of Annex 3 accompanied by this Letter of Credit, in which the Beneficiary irrevocably transfers to such transferee all of its rights hereunder, whereupon we agree to either issue a substitute letter of credit to such successor or endorse such transfer on the reverse of this Letter of Credit. Only one drawing will be allowed under this Letter of Credit. All banking charges, including any advising and negotiating bank charges, are for the account of the Applicant. All drawing requests under this Letter of Credit must bear the clause: "Drawn under Dresdner Bank AG, New York Branch, Letter of Credit No.[________] dated June 25, 1999." This Letter of Credit shall not be amended except with the written concurrence of Dresdner Bank AG, New York Branch, the Applicant and the Beneficiary. We hereby engage with you that a drawing request drawn strictly in compliance with the terms of this Letter of Credit and amendments thereto shall meet with due honor upon presentation. This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision in force as from 1st of January 1994), International Chamber of Commerce Publication Number 500 (the "Uniform Customs"). This Letter of Credit shall be deemed to be a contract made under the laws of the State of New York and shall, as to matters not governed by the Uniform Customs, be governed by and construed in accordance with the laws of such State, other than its conflict of laws rules that would result in the application of the law of any jurisdiction other than the laws of such State. We irrevocably agree with you that any legal action or proceeding with respect to this Letter of Credit shall be brought in the courts of the State of New York in the County of New York or of the United States of America in the Southern District of New York. By signing this Letter of Credit, we irrevocably submit to the jurisdiction of such courts solely for the purposes of this Letter of Credit. We hereby waive, to the fullest extent permitted by law, any objection we may now or hereafter have to the laying of venue in any such action or proceeding in any such court. Dresdner Bank AG, New York Branch By: ------------------------ Authorized Signature By: ------------------------ Authorized Signature Ex. A-3 ANNEX 1 DRAWING REQUEST --------------- [Date] ------ "Drawn under Dresdner Bank AG, New York Branch, ----------------------------------------------- Letter of Credit No. [________] Irrevocable Standby Letter of Credit -------------------------------------------------------------------- dated [________]." ------------------ Dresdner Bank AG New York Branch 75 Wall Street New York, NY 10005 Attn: Maria Penna, Credit Administration Department Ladies and Gentlemen: The undersigned hereby draws on Dresdner Bank AG, New York Branch, Letter of Credit No. [________] Irrevocable Standby Letter of Credit (the "Letter of Credit"), dated [________], issued by you in favor of us. Any capitalized term used herein and not defined herein shall have its respective meaning as set forth in the Letter of Credit. In connection with this drawing, we hereby certify that: A "This drawing in the amount of US$_________ is being made pursuant to Dresdner Bank AG, New York Branch, Letter of Credit No. [________] Irrevocable Standby Letter of Credit issued to [________] pursuant to Section 19.2 of the Amended and Restated Power Purchase Agreement dated February 5, 1999, by and between the Company and [________] (as the same may be amended, supplemented or modified from time to time, the "Power Purchase Agreement")"; and B The Facility has not achieved the Commercial Operation Date by the date specified in Section 2.2 of the Power Purchase Agreement (each capitalized term being used as defined in the Power Purchase Agreement)"; and C "The amount requested to be drawn does not exceed the Stated Amount"; and D "You are directed to make payment of the requested drawing to account no. ____________ at ____________________________ [insert bank name, address and account number]." Ex. A-4 IN WITNESS WHEREOF, the undersigned has executed and delivered this request on this _____ day of _______________, 199_/200_. [________] By: ------------------------ Name: Title: Ex. A-5 ANNEX 2 NOTICE OF TERMINATION OF LETTER OF CREDIT ----------------------------------------- [Date] ------ [--------] [--------] [--------] Attn: [________] AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, PA 17042 Attn: Project Manager Ladies and Gentlemen: Reference is made to [the Issuing Bank], Letter of Credit No. [________] Irrevocable Standby Letter of Credit (the "Letter of Credit"), dated [________], 1999, issued by us in favor of [________]. This constitutes our notice to you pursuant to the Letter of Credit that the Letter of Credit shall terminate on ___________, 199_/200_ [insert a date which is 30 or more days after the date of this notice of termination (the "Termination Date")]. Pursuant to the terms of the Letter of Credit, you are authorized to draw, in a single drawing, prior to the Termination Date, on the Letter of Credit in an amount that does not exceed the Stated Amount (as defined in the Letter of Credit). Very truly yours, DRESDNER BANK AG, NEW YORK BRANCH By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: Ex. A-6 ANNEX 3 TRANSFER OF LETTER OF CREDIT ---------------------------- [Date] ------ "Delivered under Dresdner Bank AG, New York Branch -------------------------------------------------- Letter of Credit No. [________] ------------------------------- dated _[________], 1999." ------------------------- Dresdner Bank AG New York Branch 75 Wall Street New York, New York 10005 Attn: Maria Penna, Credit Administration Department Gentlemen: Reference is made to Dresdner Bank AG, New York Branch, Letter of Credit No. [________] Irrevocable Standby Letter of Credit, dated [________], 1999, originally issued by you in favor of [________] (the "Letter of Credit"). Any capitalized terms used, but not defined, herein shall have its respective meaning as set forth in the Letter of Credit. For value received, the undersigned, as Beneficiary under the Letter of Credit, hereby irrevocably transfers to _____________ (the "Transferee") all rights of the undersigned to draw under the Letter of Credit in their entirety. The Transferee is the successor to the Beneficiary, as Power Purchaser under the Amended and Restated Power Purchase Agreement, dated as of February 5, 1999, by and between the Company and the Power Purchaser (as the same may be amended, supplemented or modified from time to time, the "Power Purchase Agreement") and all conditions to appointment of such successor set forth in the Power Purchase Agreement have been satisfied. By this transfer, all rights of the undersigned, as Beneficiary under the Letter of Credit, are transferred to the Transferee, and the Transferee shall have the sole rights with respect to the Letter of Credit relating to any amendments thereof and any notices thereunder. All amendments to the Letter of Credit are to be consented to by the Transferee without necessity of any consent of or notice to the undersigned. Simultaneously with the delivery of this notice to you, copies of this notice are being transmitted to the Transferee. The Letter of Credit is returned herewith, and we ask you to either issue a substitute letter of credit for the benefit of the Transferee or endorse the transfer on the reverse thereof, and forward it directly to the Transferee with your customary notice of transfer. Ex. A-7 Very truly yours, [--------] By: ------------------------ Name: Title: Ex. A-8 EXHIBIT B FORM OF CP LOC LOAN PROMISSORY NOTE [$___________] New York, New York ____________, 2000 FOR VALUE RECEIVED, the undersigned, AES Ironwood, L.L.C., a Delaware limited liability company (the "Company"), hereby unconditionally promises to pay to the order of Dresdner Bank AG, New York Branch (the "Agent") for the benefit of the Banks party from time to time to the Reimbursement Agreement referred to below the lesser of (i) the principal sum of _______ _______________________ dollars ($___________) and (ii) the aggregate unpaid principal amount of the CP LOC Loans owing to the Banks by the Company under the Reimbursement Agreement, on the dates and in the amounts specified therein. The Company further promises to pay interest on the daily unpaid principal amount hereof from time to time outstanding on the dates and at the rates specified in the Reimbursement Agreement. This CP LOC Loan Note is hereby expressly limited so that in no contingency or event, whether by reason of acceleration of the maturity of any indebtedness evidenced hereby or otherwise, shall the interest contracted for or charged or received by the Agent for the account of the Banks exceed the maximum amount permissible under Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to the Agent for the account of the Banks in excess of the maximum lawful amount, the interest payable to the Agent for the account of the Banks shall be reduced to the maximum amount permitted under Applicable Law, and the amount of interest for any subsequent period, to the extent less than that permitted by Applicable Law, shall to that extent be increased by the amount of such reduction. The holder hereof is irrevocably authorized to endorse on the schedule attached hereto, or on a continuation thereof, the date each such interest payment is due and the amount of each such interest payment determined in accordance with the Reimbursement Agreement. All such notations shall constitute prima facie evidence of the accuracy of the information so recorded and be enforceable against the Company with the same force and effect as if such amounts were each set forth in a separate CP LOC Loan Note executed by the Company. All payments due hereunder shall be made without set-off, counterclaim or deduction of any nature to the Agent, for the account of the Banks, in lawful money of the United States of America and in immediately available funds, at such place and in such manner as may be specified by the Agent pursuant to the Reimbursement Agreement. The holder hereof is irrevocably authorized to endorse on the schedule attached hereto, or on a continuation thereof, the date and amount of each CP LOC Loan incurred by the Company and each payment or prepayment of principal thereof, provided that the failure of the holder to make, or any error in making, any such recordation or endorsement shall not affect the obligations of the Company hereunder or under the Reimbursement Agreement. All such notations shall constitute prima facie evidence of the accuracy of the information so recorded and be enforceable against the Company with the same force and effect as if such amounts were each set forth in a separate CP LOC Loan Note executed by the Company. Ex. B-1 This CP LOC Loan Note is the "CP LOC Loan Note" of the Company to the Agent, for the benefit of the Banks, referred to in, evidences each CP LOC Loan owing to the Banks by the Company under, is subject to the provisions of, and entitles the holder to the benefits of, the Construction Period Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999 (the "Reimbursement Agreement"), among the Company, the Banks (including the Issuing Bank), parties thereto, and the Agent, as the same may be amended, supplemented or otherwise modified from time to time and to which reference is hereby made for a more complete statement of the terms and conditions under which each CP LOC Loan evidenced hereby is to be incurred and paid. Capitalized terms in this CP LOC Loan Note that are not specifically defined herein shall have the meanings ascribed to them in the Reimbursement Agreement. The Reimbursement Agreement provides for, among other things, the acceleration of the maturity of the unpaid principal amount hereof upon the occurrence of certain stated events and for voluntary prepayments in certain circumstances and upon certain terms and conditions. The obligations of the Company under the Reimbursement Agreement and this CP LOC Loan Note are secured by, and the holder hereof is entitled to the benefit of, the Security Documents. In addition to any and all costs, fees and expenses for which the Company is liable under the Reimbursement Agreement, the Company promises to pay all costs and expenses, including reasonable attorneys' fees and disbursements, incurred in the collection and enforcement hereof or any appeal of any judgment rendered hereon. The Company hereby expressly waives diligence, presentment, protest, demand, dishonor, nonpayment and notice of every kind to the fullest extent permitted by Applicable Law. No failure or delay by the holder of this CP LOC Loan Note to exercise any right or remedy under this CP LOC Loan Note or any other document or instrument entered into pursuant to the Reimbursement Agreement shall operate or be construed as a waiver or modification hereof or thereof. This CP LOC Loan Note shall be binding upon the successors and assigns of the Company and shall inure to the Agent and its successors, endorsees and assigns. If any term or provision of this CP LOC Loan Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. Recourse under this CP LOC Loan Note is limited in accordance with Section 9.7 of the Reimbursement Agreement, and the provisions of said Section 9.7 are incorporated herein by reference. THIS CP LOC LOAN NOTE SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING AGAINST THE COMPANY WITH RESPECT TO THIS CP LOC LOAN NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS CP LOC LOAN NOTE, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND Ex. B-2 UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS CP LOC LOAN NOTE BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. AES IRONWOOD, L.L.C. By: ------------------------ Name: Title: Ex. B-3 SCHEDULE --------
Principal Amount and Total Principal Amount of Date of Unpaid Date Interest Amount of CP Date Reimbursement Principal Paid Principal Payment is Amount of LOC Loans Notation Made Obligation or Prepaid Balance Due Interest Due Outstanding Made By
EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTANCE Dated __________, 199__/200_ Reference is made to the Construction Period Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999 (the "Reimbursement Agreement"), among AES Ironwood, L.L.C., a Delaware limited liability company (the "Company"), the Issuing Bank (as defined in the Reimbursement Agreement), the Banks (as defined in the Reimbursement Agreement) and Dresdner Bank AG, New York Branch, as Agent for the Banks (the "Agent"). Terms defined in the Reimbursement Agreement are used herein with the same meaning. _________________ (the "Assignor") and ___________________ (the "Assignee") agree as follows: (1) The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, the percentage interest specified on Schedule 1 hereto in and to all of the Assignor's rights and obligations under the Reimbursement Agreement as of the date hereof (after giving effect to any other assignments thereof made before the date hereof, whether or not such assignments have become effective, but without giving effect to any other assignments thereof also made on the date hereof), including, without limitation, such percentage interest in the Assignor's Commitment, each of the CP LOC Loans owing to the Assignor and the CP Letter of Credit. The Assignee shall pay to the Assignor, at or before 12:00 noon, local time of the Assignor, on the Effective Date, the purchase price therefor in an amount equal to the percentage interest of the CP LOC Loans owing to the Assignor, as reflected on Schedule 1 hereto, in immediately available funds. (2) The Assignor (a) represents and warrants that as of the date hereof its Commitment, the CP LOC Loans owing to it and its participation in the CP Letter of Credit (after giving effect to any other assignments of the foregoing made before the date hereof, whether or not such assignments have become effective, but without giving effect to any other such assignments also made on the date hereof) are in the respective dollar amounts specified therefor on Schedule 1 hereto; (b) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (c) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any of the Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any of the Credit Documents or any other instrument or document furnished pursuant thereto; and (d) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the performance or observance by the Company or any other Person of any of its obligations under any of the Credit Documents or any other instrument or document furnished pursuant thereto. Ex. C-1 (3) The Assignee (a) confirms that it has received copies of the Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance, including such documents evidencing satisfaction of the conditions precedent set forth in the Reimbursement Agreement; (b) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Bank (including the Issuing Bank) and based on such documents and information as it may deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Reimbursement Agreement; (c) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (d) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Reimbursement Agreement are required to be performed by it as a Bank; and (e) specifies as its address for notices the address set forth beneath its name on Schedule 1 hereto. (4) Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Agent for acceptance and recording by the Agent in the Register maintained by the Agent for such purpose. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Agent, unless otherwise specified on Schedule 1 hereto (the "Effective Date"). (5) Upon such acceptance and recording by the Agent, as of the Effective Date (a) the Assignee shall be a party to the Reimbursement Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Reimbursement Agreement. (6) Upon such acceptance and recording by the Agent, from and after the Effective Date the Agent shall make all payments under the Reimbursement Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and fees with respect thereto) to the Assignee. The Assignor and the Assignee shall make all appropriate adjustments directly between themselves in respect of payments of principal, interest and/or fees under the Reimbursement Agreement for periods before the Effective Date. (7) Each of the Assignor and the Assignee agrees that at any time and from time to time upon the written request of the other party, it will execute and deliver such further documents and do such further acts and things as the other party may reasonably request in order to effect the purposes of this Assignment and Acceptance. (8) THE RIGHTS AND OBLIGATIONS OF EACH OF THE PARTIES UNDER THIS ASSIGNMENT AND ACCEPTANCE SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Ex. C-2 (9) This Assignment and Acceptance is executed by the parties on Schedule 1 hereto and may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Execution of this Assignment and Acceptance by the Agent and the Company on Schedule 1 hereto shall constitute any consent of such Person required pursuant to Section 9.9 of the Reimbursement Agreement. Ex. C-3 Schedule 1 to Assignment and Acceptance Section 1. Percentage of Assignor's interest in Commitments, Drawing and CP LOC Loans to be assigned: _______% Section 2. Immediately prior to Effective Date: Assignor's Commitment: $_______ CP LOC Loans then owing to Assignor: $_______ Assignor's participation in CP Letter of Credit: $_______ Assignor's Percentage Interest (as defined in the Reimbursement Agreement) _______% Section 3. Upon Effective Date: Assignor's Commitment: $_______ Assignor's Percentage Interest: _______% Assignee's Commitment: $_______ Assignee's Percentage Interest: _______% Section 4. Effective Date: __________________ [Assignor] By: ------------------------------ Name: Title: Ex. C-4 By: ------------------------------ Name: Title: [Assignee] By: ------------------------------ Name: Title: [address for notices] Consented to on this _____ day of __________, 199__/200__: [ ], as Agent and the Issuing Bank By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: Consented to on this _____ day of __________, 199__/200__: AES IRONWOOD, L.L.C. By: ------------------------------ Name: Title: Ex. C-5 EXHIBIT D AMORTIZATION SCHEDULE The principal amount of each CP LOC Loan shall be due and payable in quarterly installments on consecutive Quarterly Dates, commencing on the first such Quarterly Date to occur after such CP LOC Loan is made, and maturing in full on the applicable CP LOC Loan Required Payment Date. The amount of principal payable on each such Quarterly Date shall be equal to the amount of the principal component only of an amortization schedule based on the foregoing payment schedule and a final maturity date ten years from the date on which such CP LOC Loan is made and assuming (i) a fixed per annum interest rate equal to the interest rate (whether determined with reference to the Adjusted Base Rate or the Eurodollar Rate) applicable to such CP LOC Loan on such date and (ii) mortgage-style payments of principal and interest. Ex. D-1 EX-4.5 7 GLOBAL BONDS Exhibit 4.5 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS 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. THIS BOND (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM AND IN ANY EVENT MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH THE INDENTURE, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE IN NEW YORK, NEW YORK. EACH PURCHASER OF THIS BOND IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. EACH HOLDER OF THIS BOND REPRESENTS TO AES IRONWOOD, L.L.C. (THE "COMPANY") THAT (A) SUCH HOLDER WILL NOT SELL, PLEDGE OR OTHERWISE TRANSFER THIS BOND (WITHOUT THE CONSENT OF THE COMPANY) OTHER THAN (I) TO A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION COMPLYING WITH RULE 144A UNDER THE SECURITIES ACT, (II) IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, (III) OUTSIDE THE UNITED STATES OF AMERICA IN A TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT, (IV) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, SUBJECT, IN THE CASE OF CLAUSES (II), (III) OR (IV), TO THE RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH RESALE, PLEDGE, OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND THAT (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS BOND OF THE RESALE RESTRICTIONS REFERRED TO HEREIN AND DELIVER TO THE TRANSFEREE (OTHER THAN A QUALIFIED INSTITUTIONAL BUYER) PRIOR TO THE SALE A COPY OF A NOTICE TO INVESTORS (COPIES OF WHICH MAY BE OBTAINED FROM THE TRUSTEE). AES IRONWOOD, L.L.C. 8.857% SENIOR SECURED BOND DUE 2025 B-1 $200,000,000 CUSIP No. 00103XAA1 AES IRONWOOD, L.L.C., a Delaware limited liability company (the "Company"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Two Hundred Million Dollars ($200,000,000) in consecutive quarterly installments on February 28, May 31, August 31 and November 30 of each year (each such date being a "Bond Payment Date"), beginning August 31, 1999, in an amount equal to the amount specified for such date on Annex 1 hereto until the outstanding principal hereof is repaid in full, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay on each Bond Payment Date occurring after the date hereof at said offices or agencies to the registered owner hereof, in like coin or currency, interest on the outstanding principal hereof from the date of issuance hereof at the rate of 8.857% per annum. The final maturity hereof shall be November 30, 2025. All payments of principal of, premium, if any, and interest on this Bond shall be made at the Corporate Trust Office of the Trustee. The provisions of this Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This Bond shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Authentication Certificate hereon shall have been signed by or on behalf of the Trustee. IN WITNESS WHEREOF, the Company has caused this Bond to be signed in its name by its Authorized Officer. Dated: June 25, 1999 AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ---------------------------------- Name: Patricia L. Rollin Title: Vice President TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the Bonds referred to in the within-mentioned Indenture. IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee By: /s/ Thomas McCutcheon ---------------------------------- Authorized Officer Dated: June 25, 1999 Reverse of Global Bond AES IRONWOOD, L.L.C. 8.857% SENIOR SECURED BOND DUE 2025 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its 8.857% Senior Secured Bonds Due 2025 (collectively, the "Bonds"), all issued and to be issued under and equally secured (except as to any sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by a Trust Indenture, dated as of June 1, 1999, executed and delivered between the Company and IBJ Whitehall Bank & Trust Company, as Trustee and Depositary Bank (the "Original Indenture"), as amended and supplemented by the First Supplemental Indenture, dated as of June 1, 1999, to which the Original Indenture is so amended and supplemented (herein collectively referred to as the "Indenture"). A description of the rights of the Bondholders and the terms and conditions upon which the Bonds are issued are set forth in the Indenture. Capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Indenture. THE BONDS ARE SUBJECT TO OPTIONAL AND MANDATORY REDEMPTION AND PREPAYMENT AS PROVIDED IN THE INDENTURE. As more fully described in the Indenture, the Company has the right, without the consent by Holders of the Bonds, to amend the Indenture in certain respects of the Bondholders. As more fully described in the indenture, with the consent of Bondholders of not less than a majority in aggregate principal amount of the Bonds of all series then Outstanding, the Company may amend the Indenture in any other respect; provided, however, that no amendment shall, without the consent of the Holder of each Outstanding Bond, (1) change the maturity date of any Bond, or change the amount, of any payment of principal, interest or premium, if any, on any Bond, (2) permit the creation of any lien on the Collateral not otherwise permitted, prior to or on a parity with the lien of the Indenture, or terminate the lien of the Indenture, (3) reduce the percentage of the principal amount of Bonds the Holders of which are required to approve any such amendment or (4) waive a Default in the payment of principal, interest or premium, if any, or the remedies available in the case of an Event of Default. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, including an acceleration of payment of the principal upon the occurrence and during the continuance of an Event of Default as in the Indenture provided. Recourse under this Bond is limited as set forth under the Indenture. Satisfaction of the obligations of the Company under this Indenture, for the payment of the principal of or premium, if any, or interest on any Bonds, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be had solely from the Collateral and the assets of the Company and no recourse shall be had in the event of any non-performance by the Company of any such obligations to (i) any assets or properties of the Members (or any Person that controls any Member within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) or (ii) any Affiliate of the Company or any incorporators, officers, directors or employees thereof, and no judgment for any deficiency upon the obligations of the Company under this Indenture, for the payment of the principal of or premium, if any, or interest on any Bonds, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be obtainable by the Bondholders or the Trustee against any Member or Affiliate of the Company or any other incorporator, stockholder, officer, employee or director, past, present or future of the Company or any Affiliate of the Company; provided, however, that nothing contained herein shall prevent the taking of any action permitted by law against the Company or any of its Affiliates, or in any way affect or impair the rights of the Trustee or Bondholders to take any action permitted by law, in either case to realize upon the Collateral and, provided further, that nothing herein shall be deemed to affect the obligations of any Affiliate of the Company under any Transaction Document to which such Affiliate is a party. The Bonds are issuable only as bonds without coupons in denominations of $100,000 and integral multiples of $1,000 in excess thereof and authorized multiples thereof. This Bond is transferable as prescribed in the Indenture by the registered owner hereof, in person or by attorney duly authorized, at the Corporate Trust Office of the Trustee, upon surrender and cancellation of this Bond, and thereupon a new registered Bond or Bonds for a like principal amount in authorized denominations will be issued to the transferee in exchange therefor, as provided in the Indenture, and upon payment, if the Company shall require it, of the transfer charges therein prescribed. The Company and the Trustee shall deem and treat the person in whose name this Bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Registered Bonds shall be exchangeable at said office of the Trustee for registered Bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. Notwithstanding any provision of the Indenture, (a) neither the Company nor the Trustee shall be required to make transfers or exchanges of Bonds during the period between any interest payment date for such Bonds and the Regular Record Date next preceding such interest payment date, and (b) no charge shall be made upon any transfer or exchange of Bonds other than for any tax or taxes or other government charges required to be paid by the Company. All payments of principal and interest with respect to certificated Bonds will be made by dollar check drawn on a bank in The City of New York or, for Bondholders of at least U.S.$1,000,000 in aggregate principal amount of Bonds, by wire transfer to a dollar account maintained by the payee with a bank in The City of New York; provided, that a written request from such Bondholder to such effect designating such account is received by the Trustee or the Paying Agent no later than the Regular Record Date immediately preceding such Bond Payment Date. Unless such designation is revoked, any such designation made by such person with respect to such certificated Bonds will remain in effect with respect to any future payments with respect to such certificated Bond payable to such person. ANNEX 1 PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT PAYABLE
YEAR FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 ANNUAL TOTAL - ---- ----------- ------ --------- ----------- ------------ 2001 0.0000% 0.0000% 0.0000% 0.0000% 0.0000% 2002 0.1600% 0.1600% 0.1600% 0.1600% 0.6400% 2003 0.3850% 0.3850% 0.3850% 0.3850% 1.5400% 2004 0.5150% 0.5150% 0.5150% 0.5150% 2.0600% 2005 0.5700% 0.5700% 0.5700% 0.5700% 2.2800% 2006 0.5800% 0.5800% 0.5800% 0.5800% 2.3200% 2007 0.7400% 0.7400% 0.7400% 0.7400% 2.9600% 2008 0.9200% 0.9200% 0.9200% 0.9200% 3.6800% 2009 0.7800% 0.7800% 0.7800% 0.7800% 3.1200% 2010 0.8150% 0.8150% 0.8150% 0.8150% 3.2600% 2011 1.0300% 1.0300% 1.0300% 1.0300% 4.1200% 2012 0.7600% 0.7600% 0.7600% 0.7600% 3.0400% 2013 0.9600% 0.9600% 0.9600% 0.9600% 3.8400% 2014 1.2900% 1.2900% 1.2900% 1.2900% 5.1600% 2015 1.2400% 1.2400% 1.2400% 1.2400% 4.9600% 2016 1.3550% 1.3550% 1.3550% 1.3550% 5.4200% 2017 1.4650% 1.4650% 1.4650% 1.4650% 5.8600% 2018 1.0100% 1.0100% 1.0100% 1.0100% 4.0400% 2019 1.2050% 1.2050% 1.2050% 1.2050% 4.8200% 2020 1.6250% 1.6250% 1.6250% 1.6250% 6.5000% 2021 1.6500% 1.6500% 1.2000% 1.2000% 5.7000% 2022 1.3900% 1.3900% 1.3900% 1.3900% 5.5600% 2023 1.5000% 1.5000% 1.5000% 1.5000% 6.0000% 2024 1.5500% 1.5500% 1.5500% 1.5500% 6.2000% 2025 1.7300% 1.7300% 1.7300% 1.7300% 6.9200% ======= 100%
At the direction of the Company, the Trustee shall round principal amounts to be redeemed to the nearest $1,000. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS 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. THIS BOND (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM AND IN ANY EVENT MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH THE INDENTURE, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE IN NEW YORK, NEW YORK. EACH PURCHASER OF THIS BOND IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. EACH HOLDER OF THIS BOND REPRESENTS TO AES IRONWOOD, L.L.C. (THE "COMPANY") THAT (A) SUCH HOLDER WILL NOT SELL, PLEDGE OR OTHERWISE TRANSFER THIS BOND (WITHOUT THE CONSENT OF THE COMPANY) OTHER THAN (I) TO A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION COMPLYING WITH RULE 144A UNDER THE SECURITIES ACT, (II) IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, (III) OUTSIDE THE UNITED STATES OF AMERICA IN A TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT, (IV) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, SUBJECT, IN THE CASE OF CLAUSES (II), (III) OR (IV), TO THE RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH RESALE, PLEDGE, OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND THAT (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS BOND OF THE RESALE RESTRICTIONS REFERRED TO HEREIN AND DELIVER TO THE TRANSFEREE (OTHER THAN A QUALIFIED INSTITUTIONAL BUYER) PRIOR TO THE SALE A COPY OF A NOTICE TO INVESTORS (COPIES OF WHICH MAY BE OBTAINED FROM THE TRUSTEE). AES IRONWOOD, L.L.C. 8.857% SENIOR SECURED BOND DUE 2025 B-2 $108,500,000 CUSIP No. 00103XAA1 AES IRONWOOD, L.L.C., a Delaware limited liability company (the "Company"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of One Hundred Eight Million Five Hundred Thousand Dollars ($108,500,000) in consecutive quarterly installments on February 28, May 31, August 31 and November 30 of each year (each such date being a "Bond Payment Date"), beginning August 31, 1999, in an amount equal to the amount specified for such date on Annex 1 hereto until the outstanding principal hereof is repaid in full, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay on each Bond Payment Date occurring after the date hereof at said offices or agencies to the registered owner hereof, in like coin or currency, interest on the outstanding principal hereof from the date of issuance hereof at the rate of 8.857% per annum. The final maturity hereof shall be November 30, 2025. All payments of principal of, premium, if any, and interest on this Bond shall be made at the Corporate Trust Office of the Trustee. The provisions of this Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This Bond shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Authentication Certificate hereon shall have been signed by or on behalf of the Trustee. IN WITNESS WHEREOF, the Company has caused this Bond to be signed in its name by its Authorized Officer. Dated: June 25, 1999 AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ----------------------------- Name: Patricia L. Rollin Title: Vice President TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the Bonds referred to in the within-mentioned Indenture. IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee By: /s/ Thomas McCutcheon ----------------------------- Authorized Officer Dated: June 25, 1999 Reverse of Global Bond AES IRONWOOD, L.L.C. 8.857% SENIOR SECURED BOND DUE 2025 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its 8.857% Senior Secured Bonds Due 2025 (collectively, the "Bonds"), all issued and to be issued under and equally secured (except as to any sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by a Trust Indenture, dated as of June 1, 1999, executed and delivered between the Company and IBJ Whitehall Bank & Trust Company, as Trustee and Depositary Bank (the "Original Indenture"), as amended and supplemented by the First Supplemental Indenture, dated as of June 1, 1999, to which the Original Indenture is so amended and supplemented (herein collectively referred to as the "Indenture"). A description of the rights of the Bondholders and the terms and conditions upon which the Bonds are issued are set forth in the Indenture. Capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Indenture. THE BONDS ARE SUBJECT TO OPTIONAL AND MANDATORY REDEMPTION AND PREPAYMENT AS PROVIDED IN THE INDENTURE. As more fully described in the Indenture, the Company has the right, without the consent by Holders of the Bonds, to amend the Indenture in certain respects of the Bondholders. As more fully described in the indenture, with the consent of Bondholders of not less than a majority in aggregate principal amount of the Bonds of all series then Outstanding, the Company may amend the Indenture in any other respect; provided, however, that no amendment shall, without the consent of the Holder of each Outstanding Bond, (1) change the maturity date of any Bond, or change the amount, of any payment of principal, interest or premium, if any, on any Bond, (2) permit the creation of any lien on the Collateral not otherwise permitted, prior to or on a parity with the lien of the Indenture, or terminate the lien of the Indenture, (3) reduce the percentage of the principal amount of Bonds the Holders of which are required to approve any such amendment or (4) waive a Default in the payment of principal, interest or premium, if any, or the remedies available in the case of an Event of Default. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, including an acceleration of payment of the principal upon the occurrence and during the continuance of an Event of Default as in the Indenture provided. Recourse under this Bond is limited as set forth under the Indenture. Satisfaction of the obligations of the Company under this Indenture, for the payment of the principal of or premium, if any, or interest on any Bonds, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be had solely from the Collateral and the assets of the Company and no recourse shall be had in the event of any non-performance by the Company of any such obligations to (i) any assets or properties of the Members (or any Person that controls any Member within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) or (ii) any Affiliate of the Company or any incorporators, officers, directors or employees thereof, and no judgment for any deficiency upon the obligations of the Company under this Indenture, for the payment of the principal of or premium, if any, or interest on any Bonds, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be obtainable by the Bondholders or the Trustee against any Member or Affiliate of the Company or any other incorporator, stockholder, officer, employee or director, past, present or future of the Company or any Affiliate of the Company; provided, however, that nothing contained herein shall prevent the taking of any action permitted by law against the Company or any of its Affiliates, or in any way affect or impair the rights of the Trustee or Bondholders to take any action permitted by law, in either case to realize upon the Collateral and, provided further, that nothing herein shall be deemed to affect the obligations of any Affiliate of the Company under any Transaction Document to which such Affiliate is a party. The Bonds are issuable only as bonds without coupons in denominations of $100,000 and integral multiples of $1,000 in excess thereof and authorized multiples thereof. This Bond is transferable as prescribed in the Indenture by the registered owner hereof, in person or by attorney duly authorized, at the Corporate Trust Office of the Trustee, upon surrender and cancellation of this Bond, and thereupon a new registered Bond or Bonds for a like principal amount in authorized denominations will be issued to the transferee in exchange therefor, as provided in the Indenture, and upon payment, if the Company shall require it, of the transfer charges therein prescribed. The Company and the Trustee shall deem and treat the person in whose name this Bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Registered Bonds shall be exchangeable at said office of the Trustee for registered Bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. Notwithstanding any provision of the Indenture, (a) neither the Company nor the Trustee shall be required to make transfers or exchanges of Bonds during the period between any interest payment date for such Bonds and the Regular Record Date next preceding such interest payment date, and (b) no charge shall be made upon any transfer or exchange of Bonds other than for any tax or taxes or other government charges required to be paid by the Company. All payments of principal and interest with respect to certificated Bonds will be made by dollar check drawn on a bank in The City of New York or, for Bondholders of at least U.S.$1,000,000 in aggregate principal amount of Bonds, by wire transfer to a dollar account maintained by the payee with a bank in The City of New York; provided, that a written request from such Bondholder to such effect designating such account is received by the Trustee or the Paying Agent no later than the Regular Record Date immediately preceding such Bond Payment Date. Unless such designation is revoked, any such designation made by such person with respect to such certificated Bonds will remain in effect with respect to any future payments with respect to such certificated Bond payable to such person. ANNEX 1 PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT PAYABLE
YEAR FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 ANNUAL TOTAL ---- ----------- ------ --------- ----------- ------------ 2001 0.0000% 0.0000% 0.0000% 0.0000% 0.0000% 2002 0.1600% 0.1600% 0.1600% 0.1600% 0.6400% 2003 0.3850% 0.3850% 0.3850% 0.3850% 1.5400% 2004 0.5150% 0.5150% 0.5150% 0.5150% 2.0600% 2005 0.5700% 0.5700% 0.5700% 0.5700% 2.2800% 2006 0.5800% 0.5800% 0.5800% 0.5800% 2.3200% 2007 0.7400% 0.7400% 0.7400% 0.7400% 2.9600% 2008 0.9200% 0.9200% 0.9200% 0.9200% 3.6800% 2009 0.7800% 0.7800% 0.7800% 0.7800% 3.1200% 2010 0.8150% 0.8150% 0.8150% 0.8150% 3.2600% 2011 1.0300% 1.0300% 1.0300% 1.0300% 4.1200% 2012 0.7600% 0.7600% 0.7600% 0.7600% 3.0400% 2013 0.9600% 0.9600% 0.9600% 0.9600% 3.8400% 2014 1.2900% 1.2900% 1.2900% 1.2900% 5.1600% 2015 1.2400% 1.2400% 1.2400% 1.2400% 4.9600% 2016 1.3550% 1.3550% 1.3550% 1.3550% 5.4200% 2017 1.4650% 1.4650% 1.4650% 1.4650% 5.8600% 2018 1.0100% 1.0100% 1.0100% 1.0100% 4.0400% 2019 1.2050% 1.2050% 1.2050% 1.2050% 4.8200% 2020 1.6250% 1.6250% 1.6250% 1.6250% 6.5000% 2021 1.6500% 1.6500% 1.2000% 1.2000% 5.7000% 2022 1.3900% 1.3900% 1.3900% 1.3900% 5.5600% 2023 1.5000% 1.5000% 1.5000% 1.5000% 6.0000% 2024 1.5500% 1.5500% 1.5500% 1.5500% 6.2000% 2025 1.7300% 1.7300% 1.7300% 1.7300% 6.9200% ======= 100%
At the direction of the Company, the Trustee shall round principal amounts to be redeemed to the nearest $1,000. EX-4.6 8 EQUITY SUBSCRIPTION AGREEMENT Exhibit 4.6 EXECUTION COPY - -------------------------------------------------------------------------------- EQUITY SUBSCRIPTION AGREEMENT Dated as of June 1, 1999 among AES IRONWOOD, L.L.C., AES IRONWOOD, INC., and IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent - -------------------------------------------------------------------------------- 705 MW (Net) Gas-Fired Combined Cycle Electric Generating Facility South Lebanon Township, Lebanon County, Pennsylvania TABLE OF CONTENTS Page ---- SECTION 1. DEFINITIONS.............................................1 SECTION 2. EQUITY CONTRIBUTIONS....................................3 SECTION 3. NOTIFICATION OF SECURITY INTEREST.......................5 SECTION 4. REPRESENTATIONS AND WARRANTIES..........................5 SECTION 5. COVENANTS...............................................6 SECTION 6. ADDITIONAL COVENANTS OF AESI............................6 SECTION 7. EVENTS OF DEFAULT.......................................8 SECTION 8. TRANSFERS OF INTEREST IN THE COMPANY....................8 SECTION 9. OBLIGATIONS ABSOLUTE, ETC...............................8 SECTION 10. WAIVER.................................................10 SECTION 11. SUPPORT INSTRUMENTS....................................10 SECTION 12. RESCISSION OF PAYMENT..................................12 SECTION 13. SEPARATE UNDERTAKINGS..................................12 SECTION 14. NOTICES................................................13 SECTION 15. SUCCESSORS AND ASSIGNS.................................14 SECTION 16. AMENDMENT, ETC.........................................14 SECTION 17. REMEDIES...............................................14 SECTION 18. HEADINGS...............................................14 SECTION 19. GOVERNING LAW..........................................15 SECTION 20. CONSENT TO JURISDICTION................................15 SECTION 21. WAIVER OF JURY TRIAL...................................15 SECTION 22. EXPENSES...............................................15 SECTION 23. COUNTERPARTS...........................................15 SECTION 24. SEVERABILITY...........................................15 SECTION 25. TERMINATION............................................16 EXHIBIT A FORM OF ACCEPTABLE LETTER OF CREDIT EXHIBIT B FORM OF ACCEPTABLE BOND i EQUITY SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of June 1, 1999, made by and among AES IRONWOOD, L.L.C., a Delaware limited liability company (the "Company"), AES IRONWOOD, INC., a Delaware corporation ("AESI") and IBJ WHITEHALL BANK & TRUST COMPANY, in its capacity as Collateral Agent under the Collateral Agency Agreement referred to below (together with its successors and assigns, the "Collateral Agent"). (Each of the Company, AESI and the Collateral Agent, a "Party" and collectively, the "Parties"). RECITALS AESI owns 100% of the membership interests of the Company. The Company will issue certain Senior Secured Bonds in one or more series pursuant to the Trust Indenture dated as of the date hereof (as amended, restated, supplemented or otherwise modified, the "Indenture") among the Company, IBJ Whitehall Bank & Trust Company, as Trustee (together with its successors in such capacity, the "Trustee") and IBJ Whitehall Bank & Trust Company, as Depositary Bank, in the aggregate principal amount of $308,500,000 (the "Bonds"), the proceeds of which will be used (i) to pay costs incurred in connection with the development, construction, startup and testing of the Facility and (ii) to pay certain transaction costs incurred in connection with the issuance of the Bonds. The Company, the Collateral Agent, the Trustee, the DSR Letter of Credit Provider and the CP Letter of Credit Provider have entered into the Collateral Agency and Intercreditor Agreement, dated as of even date herewith (as the same may be amended, supplemented or otherwise modified from time to time, the "Collateral Agency Agreement"), pursuant to which the Collateral Agent has been appointed to act as Collateral Agent and representative for the Senior Parties in connection with, among other things, the matters referred to herein. In order to ensure the making of certain equity contributions that may become due under the Collateral Agency Agreement, the Collateral Agent, solely on behalf of the Senior Secured Parties, requires commitments from AESI to contribute capital to the Company on the terms and conditions, and for the purposes, provided herein. It is a condition precedent to the obligation of Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and Dresdner Kleinwort Benson North America LLC (the "Initial Purchasers") to purchase and pay for the Bonds pursuant to the Bond Purchase Agreement (the "Purchase Agreement") dated as of June 18, 1999, between the Company and Lehman Brothers on behalf of the Initial Purchasers, that the parties hereto enter into this Agreement. THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. (a) All capitalized terms used in this Agreement shall have the meanings ascribed 1 thereto in the Indenture. As used and not defined herein, the following additional terms shall have the following meanings: "Acceptable Letter of Credit" means an irrevocable letter of credit or letters of credit in the form of Exhibit A or otherwise in form and substance satisfactory to the Collateral Agent in its reasonable judgment, issued for the benefit of the Collateral Agent and for the account of AESI or an Affiliate other than the Company, in the stated amount of $50,149,285.00, by a domestic or foreign commercial bank whose outstanding senior unsecured long-term debt is rated at least A or the equivalent by S&P and Moody's. "Acceptable Bond" means a bond or bonds, issued by a domestic or foreign insurance company whose outstanding senior unsecured long-term debt is rated at least "A" by Standard & Poor's and "A2" by Moody's issued for the benefit of the Collateral Agent in the aggregate initial stated amount of $50,149,285.00, and in the form attached hereto as Exhibit B or otherwise in form and substance satisfactory to the Collateral Agent in its reasonable judgment and as to which the Company shall have no obligations to the insurance company or its Affiliates. "AESI Event of Default" has the meaning given such term in Section 7. "AESI Support Account" has the meaning set forth in Section 11(d) of this Agreement. "AESI Support Amount" means, as of any date, $50,149,285.00 reduced by the sum of all Equity Contributions made prior to such date. "AESI Support Instrument" means (i) an Acceptable Letter of Credit, (ii) an Acceptable Bond, or (iii) a Substitute Support Instrument. "Bond Payment Account" shall mean the Account of such name created pursuant to Section 4.1 of the Indenture. "Cash Deposit" means a cash deposit to a AESI Support Account in an amount equal to all or a portion of the AESI Support Amount. "Commercial Operation Date" has the meaning given such term in the Power Purchase Agreement. "Construction Account" shall mean the account of such name created pursuant to Section 3.1 of the Collateral Agency Agreement. "Construction Interest Account" shall mean the Account of such name created pursuant to Section 4.1 of the Indenture. "Downgrade Event" has the meaning given such term in Section 11(f). "Equity Contribution" has the meaning given such term in Section 2(a). "Equity Contribution Commitment" shall mean $50,149,285.00. 2 "Equity Contribution Date" shall mean any date on which AESI is required to contribute equity to the Construction Account pursuant to the terms of this Agreement. "Final Acceptance" shall have the meaning given such term in the EPC Contract. "Final Acceptance Date" shall mean the later of (i) the Commercial Operation Date and (ii) the date on which Final Acceptance is achieved (or is deemed to have been achieved) pursuant to Section 6.5 of the EPC Contract. "IC Downgrade Event" has the meaning given such term in Section 11(g). "Moody's" shall mean Moody's Investors Service, Inc., a Delaware corporation. "Remaining Required Equity Contribution" shall mean the amount required as of the Final Acceptance Date to pay Project Costs and principal, if any, on the Bonds less the aggregate of the amounts then on deposit in or credited to the Construction Account, the Construction Interest Account and the Bond Payment Account. "SEC" shall mean the United States Securities and Exchange Commission. "Securities" shall mean any shares, stock, bonds, debentures, notes, evidences of indebtedness or any other instruments commonly known as "securities". "S&P" shall mean Standard & Poor's Ratings Group, a New York corporation. "Substitute Support Instrument" means (i) an Acceptable Letter of Credit, (ii) a Cash Deposit with Support Account Documentation as set forth in Section 11(d), or (iii) an Acceptable Bond. "Support Account Documentation" has the meaning set forth in Section 11(d) of this Agreement. (b) All references to Persons herein shall include their permitted successors and assigns. SECTION 2. Equity Contributions. AESI shall make or cause to be made to the Company cash equity contributions or loans pursuant to an Affiliate Subordinated Loan Agreement between AESI, and/or an Affiliate of AESI, and the Company (each an "Equity Contribution") by depositing such Equity Contributions in the Construction Account in accordance with the following terms and conditions; provided, however, that the aggregate amount of such Equity Contributions shall not at any time exceed the Equity Contribution Commitment: (a) Commencing on the Closing Date to and including the Final Acceptance Date, the Collateral Agent shall notify AESI on the Business Day immediately following any date on which (i) the aggregate amount then required to pay Project Costs in accordance with Section 3.8 3 of the Collateral Agency Agreement is greater than (ii) the aggregate amount of the available amounts then on deposit in or credited to the Construction Account, the Interest Payment Subaccount of the Bond Payment Account and the Construction Interest Subaccount (such difference, the "Shortfall Amount"). On the second Business Day immediately following the Collateral Agent's notice, AESI shall make an Equity Contribution to the Construction Account in an amount equal to the lesser of (i) such Shortfall Amount as specified in such notice from the Collateral Agent or (ii) the then current unutilized Equity Contribution Commitment. On the Final Acceptance Date, AESI shall make an Equity Contribution to the Construction Account in an amount equal to the then current unutilized Equity Contribution Commitment, provided that the amount required to be contributed pursuant to this sentence shall be reduced to the Remaining Required Equity Contribution if the Company delivers an Officer's Certificate to the Collateral Agent on the Final Acceptance Date certifying that: (A) all other amounts due and payable under this Agreement have been paid as required under this Agreement on and as of the Final Acceptance Date; (B) Final Acceptance has occurred; (C) the Commercial Operation Date has occurred; (D) no Default or Event of Default under the Indenture or any other Financing Document has occurred and is continuing on and as of the Final Acceptance Date; and (E) all Accounts are fully funded on and as of the Final Acceptance Date to the extent required under the Collateral Agency Agreement. (b) Upon the occurrence of any Event of Default under the Indenture or an AESI Event of Default on or prior to the Final Acceptance Date, AESI shall immediately make an Equity Contribution to the Construction Account in an amount equal to the then current unutilized Equity Contribution Commitment. Any Equity Contribution made pursuant to this clause (b) shall be applied in accordance with Section 3.8 of the Collateral Agency Agreement. (c) As security for its obligations under Section 2(a) and Section 2(b), AESI shall provide to the Collateral Agent, on the Closing Date, one or more AESI Support Instruments in the aggregate amount of the AESI Support Amount. In the event that AESI shall fail to make any Equity Contribution when due in accordance with Section 2(a) or Section 2(b), the Collateral Agent shall promptly make a drawing on an AESI Support Instrument or AESI Support Instruments in the amount of such Equity Contribution required to be made by AESI and not paid under Section 2(a) or Section 2(b); provided that the Collateral Agent's failure to make such demand for payment shall not relieve AESI of its obligations under this Agreement, including but not limited to its obligations under Section 2(a) and Section 2(b). Any proceeds of a drawing on an AESI Support Instrument received by the Collateral Agent shall be applied to, and in satisfaction of, AESI's obligations under this Agreement. In the event that AESI has provided two or more AESI Support Instruments in fulfillment of its obligations under this Section 2(c), drawings made by the Collateral Agent pursuant to the first sentence of this Section 2(c) shall be made by drawings on one of such AESI Support Instruments until the earlier of (i) such time as 4 all amounts available under such AESI Support Instrument have been drawn and (ii) such time as the provider of such AESI Support Instrument fails to make payment in accordance with the terms of such AESI Support Instrument, and then, subject to the same conditions, by drawings on the other AESI Support Instrument or AESI Support Instruments in turn. (d) Any amount which is not paid when due pursuant to this Section 2 shall bear interest at a rate per annum equal to two percent (2%) plus the interest rate on the Bonds until paid in full. (e) AESI agrees that, unless otherwise instructed by the Collateral Agent following an Event of Default, it shall make all payments required to be made by it in immediately available funds directly to the Collateral Agent for the benefit of the Company, and such amounts shall be applied as provided in the Collateral Agency Agreement. SECTION 3. Notification of Security Interest. In order to perfect the security interest of the Collateral Agent in the Collateral in accordance with Section 9-103 of the Uniform Commercial Code of the State of New York, Company hereby notifies AESI of the existence of such security interest and AESI hereby acknowledges the receipt and sufficiency of such notice. SECTION 4. Representations and Warranties. AESI represents and warrants to the Collateral Agent that: (a) Organization and Qualification. It (i) is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with full right, power and authority under its corporate charter and by-laws and under the laws of the state of its incorporation to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, (ii) is duly qualified to do business and in good standing in each other jurisdiction where the character of its properties or the nature of its activities makes such qualification necessary, except where the failure to so qualify or be authorized would not materially and adversely affect its ability to perform its obligations hereunder, and, (iii) has the corporate power to carry on its business as now being conducted and as proposed to be conducted. (b) Authorization and Enforceability. It has taken all necessary corporate action to authorize the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally and (ii) general equitable principles regardless of whether the issue of enforceability is considered in a proceeding in equity or at law. (c) No Conflict. Neither the execution and delivery of this Agreement nor compliance with any of the terms and provisions hereof (i) contravenes any Applicable Law or 5 Governmental Approval applicable to it or any of its respective properties or other assets, (ii) conflicts with, breaches or contravenes the provisions of its corporate charter or by-laws or any contractual obligation applicable to it, or (iii) results in the creation or imposition of any Lien upon any of its property or assets under, or in a condition or event that constitutes (or that, upon notice or lapse of time or both, would constitute) an event of default under, any of its contractual obligations. (d) Governmental Approvals. No Governmental Approval is required to authorize, or is required in connection with, its execution, delivery and performance of this Agreement or the taking of any action by it contemplated hereby. (e) Litigation. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or, to the best of its knowledge, threatened against or affecting it or any of its properties or rights which could materially and adversely affect its right or ability to fulfill its obligations hereunder, or which questions or challenges the validity of this Agreement or any action taken or to be taken by it pursuant to this Agreement or in connection with the transactions contemplated hereby. SECTION 5. Covenants. So long as any obligation of AESI under this Agreement is outstanding, AESI covenants and agrees with the Collateral Agent, as follows: (a) Corporate Existence. It shall (i) preserve and maintain its legal existence, (ii) preserve and maintain all of its rights, privileges and franchises, if any, necessary for the operation of its business and the maintenance of its existence, and (iii) comply in all material respects with all Applicable Laws, where in the case of clause (ii) and (iii) any failure to comply would reasonably be expected to have a material adverse effect on its ability to comply with its obligations under this Agreement. (b) Reporting Requirements. It shall furnish (i) written notice of any AESI Event of Default, specifically stating that an AESI Event of Default has occurred and describing such AESI Event of Default and any action being taken with respect to such AESI Event of Default, and (ii) notice of the occurrence of a Material Adverse Change with respect to it. (c) Other Activities. It shall not amend the Company's certificate of formation or limited liability company agreement in a manner that would reasonably be expected to result in a Material Adverse Effect or take any action which might result in the dissolution of the Company. SECTION 6. Additional Covenants of AESI. (a) So long as any of its obligations under this Agreement is outstanding and it is a party to this Agreement, AESI covenants and agrees with the Collateral Agent that it shall not enter into any transaction of merger or consolidation, or change its form of organization or its business or liquidate or dissolve itself (or suffer any liquidation or dissolution) or transfer all or substantially all of its assets other than to an Affiliate in accordance with Section 8 below. 6 (b) Notwithstanding any other provision in AESI's Certificate of Incorporation and any other provision of law to the contrary, until such time as the Bonds shall be indefeasibly paid in full and all liens and security interests securing such indebtedness shall be indefeasibly released and discharged, AESI at all times shall: (i) maintain its books, records and bank accounts separate and apart from those of all other Persons; (ii) not commingle any of its assets with those of any other Person; (iii) pay the salaries of its own employees, if any, and maintain a sufficient number of employees in light of its contemplated business operations (iv) pay its own liabilities out of its own funds; (v) maintain financial statements separate and apart from those of all other Persons; (vi) observe all corporate formalities, organizational formalities and other applicable or customary formalities; (vii) not guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person; (viii) not pledge its assets for the benefit of any other Person or make any loans or advances to any other Person; (ix) not acquire the direct obligations of, or securities issued by, its shareholders or any Affiliate; (x) allocate fairly and reasonably any overhead for expenses that are shared with an Affiliate, including paying for the office space and services performed by any employee of any Affiliate; (xi) use stationery, invoices and checks bearing its own name; (xii) conduct business in its own name, promptly correct any known misunderstandings regarding its separate identity, and not identify itself as a division of any other Person; (xiii) maintain adequate capital in light of its contemplated business operations; (xiv) maintain arm's length relationships with all Affiliates and enter into transactions with Affiliates only on commercial reasonable bases; and (xv) not have any employees other than employees necessary to perform authorized activities. 7 SECTION 7. Events of Default. If any of the following events (each an "AESI Event of Default") shall occur and be continuing: (a) AESI shall fail to make or cause to be made any Equity Contribution when required pursuant to Section 2(a) or Section 2(b) of this Agreement; (b) A Bankruptcy Event in respect of AESI shall have occurred and be continuing; or (c) This Agreement shall at any time for any reason cease to be valid and binding and in full force and effect or the validity or enforceability thereof shall be contested by any party thereto or any party thereto (other than the Collateral Agent) shall deny that it has any liability or obligation under such Agreement; then at any time thereafter if an AESI Event of Default shall then be continuing, the Collateral Agent may, and at the direction of the Required Senior Parties shall, by notice to the Company, take any or all of the following actions, without prejudice to the rights of the Collateral Agent to enforce its claims against the Company, in respect of such AESI Event of Default: (i) declare all Equity Contributions required under this Agreement to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company and the AESI and (ii) exercise any other remedies against the Company and AESI available at law or in equity. SECTION 8. Transfers of Interest in the Company. AESI shall not directly or indirectly transfer any of its interest in the Company if such transfer would result in a Change in Control or would otherwise conflict with the Indenture; provided, however, AESI may, if such transfer would not result in a Change in Control and is otherwise in accordance with the Indenture, transfer its entire interest in the Company to an Affiliate and be released from all of its obligations under this Agreement so long as (A) such Affiliate assumes all of AESI's obligations under this Agreement, (B) such Affiliate provides Substitute Support Instruments satisfactory to the Collateral Agent and (C) the Parties and any such transferee or transferees enter into conforming amendments to this Agreement reflecting any applicable transfer, assumption and release of obligations hereunder. SECTION 9. Obligations Absolute, Etc. AESI further covenants and agree as follows: (a) The obligations of AESI to make, or cause to be made, Equity Contributions pursuant to Section 2 of this Agreement constitute direct obligations of AESI to the Collateral Agent, and shall be enforceable by the Collateral Agent. (b) The obligations of AESI to make, or cause to be made, Equity Contributions pursuant to Section 2 hereof are and shall be absolute and unconditional and are not, and shall 8 not be, subject to any defense or right of set-off, counterclaim, deduction, diminution, abatement, recoupment, defense, suspension, deferment or reduction or any other legal or equitable defense which such party has or hereafter may have, against any other Person (including the Company) for any reason whatsoever (including, without limitation, any circumstance which constitutes, or might be construed to constitute, an equitable or legal discharge of any or all of the Company's obligations in bankruptcy or otherwise). (c) To the extent permitted by Applicable Law, the obligations of AESI hereunder shall be absolute and unconditional, shall remain in full force and effect, and shall not be released, discharged or in any way affected, notwithstanding: (i) any lack of validity, enforceability or value of any Financing Documents or any other agreement or instrument relating thereto or to any collateral therefor; (ii) any change in the time, manner or place of payment of, or in any other term of, the Financing Documents or any amendment or waiver thereof, or any consent to departure from any of those documents; (iii) any failure to pay any taxes which may be payable with respect to the performance of its obligations hereunder by AESI or failure to obtain any authorization or approval from or other action by, or to notify or file with, any Governmental Authority required in connection with the performance of such obligations by AESI; (iv) any impossibility or impracticality of performance, force majeure, any act of any government, or other circumstance which might constitute a defense available to, or a discharge of, AESI, or any other circumstance, event or happening whatsoever, whether foreseen or unforeseen and whether similar or dissimilar to anything referred to above in this Section 9; (v) any merger or consolidation of the Company or AESI into or with any other entity, or any sale, lease or transfer of all or any of the assets of the Company or AESI to any other Person; (vi) any change in the ownership in the Company; or (vii) to the fullest extent permitted by law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, AESI or the Company. (d) AESI has no right, and shall have no right, to terminate this Agreement or to be released, relieved or discharged (other than by full and strict compliance by it with the terms hereof) from any obligation or liability hereunder for any reason whatsoever. (e) The obligations of the AESI hereunder will be performed regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of the terms of the Financing Documents or any other document related thereto or the rights of any Person with respect thereto. 9 SECTION 10. Waiver. To the fullest extent permitted by Applicable Law, AESI hereby expressly waives diligence, presentment, demand for payment, protest, benefit of any statute of limitations affecting the liability of the Company under the Financing Documents, benefit of any act or omission by the Collateral Agent which directly or indirectly results in or aids the discharge of the Company by operation of law or otherwise, all notices relating to this Agreement, including, without limitation, notice of acceptance of this Agreement and the incurring of the obligation to make or to cause to be made any payment hereunder and notice of any of the circumstances referred to in Section 8, and any requirement that the Collateral Agent exhaust any right, power, or remedy, or proceed against the Company for the Equity Contributions. SECTION 11. Support Instruments. (a) Any payments made to the Collateral Agent under, or pursuant to drawings on or from, an AESI Support Instrument shall (i) be deemed to be a capital contribution by AESI to the Company and to satisfy, to the extent of such payment, the obligation of AESI to make the applicable AESI Equity Contribution hereunder. (b) At any time prior to the termination of AESI's obligations under this Agreement, AESI may deliver to the Collateral Agent a Substitute Support Instrument or Substitute Support Instruments having a stated amount or combined stated amounts, as the case may be, equal to the amount covered by any previously delivered AESI Support Instrument, in substitution for such existing Support Instrument. Upon such delivery, the previously delivered AESI Support Instrument may be terminated by the issuer thereof. (c) Upon the earlier of (i) the termination of AESI's obligations under this Agreement or (ii) the delivery to the Collateral Agent of a Substitute Support Instrument, or Substitute Support Instruments, as the case may be, pursuant to and in the amount specified in Section 11(b), the Collateral Agent shall promptly return to the issuer thereof, with a copy to AESI, the applicable Support Instrument or Support Instruments, as the case may be, previously delivered to the Collateral Agent, together with any certificate or other documentation that may be required to effect the cancellation of such Support Instrument or Support Instruments. (d) (i) Upon the request of AESI and subject to the receipt of the Support Account Documentation, as defined below, in form and substance satisfactory to the Collateral Agent, the Collateral Agent shall open with a bank or trust company an account in the name of AESI but under the sole dominion and control of the Collateral Agent (the "AESI Support Account"). Any Cash Deposit by AESI and any Equity Contribution made upon the occurrence of an event set forth in Section 11(f) shall be deposited in the AESI Support Account (as provided therein). The Collateral Agent shall not withdraw funds from the AESI Support Account except as provided in this Section 11(d). The term "Support Account Documentation" shall mean documentation in form and substance satisfactory to the Collateral Agent which (A) grants the Collateral Agent, for the benefit of the Senior Parties, a security interest in any Cash Deposit or other amounts deposited in the AESI Support Account and (B) contains the agreement of AESI to transfer additional cash to the AESI Support Account in 10 the event that the aggregate market value of the Permitted Investments (plus any cash deposits) in such AESI Support Account is, at any time, less than the AESI Support Amount. (ii) On each Equity Contribution Date, the Collateral Agent shall withdraw an amount equal to the required Equity Contribution from the AESI Support Account, and such withdrawal shall be deemed to satisfy the obligation of AESI to make, or cause to be made, the related Equity Contribution hereunder. The Collateral Agent shall apply all such withdrawn amounts to the satisfaction of amounts owing as Equity Contributions. (iii) Amounts on deposit in the AESI Support Account shall be invested and reinvested by the Collateral Agent, at the direction, expense and risk of AESI, in Permitted Investments. If the amount on deposit in such AESI Support Account exceeds the applicable AESI Support Amount, an amount equal to the amount of such excess shall be withdrawn at the end of each calendar quarter by the Collateral Agent and the net amount thereof (after giving effect to any broker commissions or other expenses of withdrawal or sale) shall be paid to AESI. (iv) If, following a Cash Deposit by AESI into the AESI Support Account, AESI shall deliver a Substitute Support Instrument or Substitute Support Instruments in respect of such amount to the Collateral Agent, the Collateral Agent shall promptly withdraw and pay to AESI such amount (after giving effect to any broker commissions or other expenses of withdrawal or sale). (v) Upon the satisfaction or other termination of the obligations of AESI hereunder, the remaining balance, if any, of the AESI Support Account shall be paid forthwith to AESI. (e) If, at any time prior to the termination of this Agreement, an AESI Support Instrument then in effect shall fail to be renewed or extended in accordance with the terms of such Support Instrument fifteen (15) Business Days prior to the day upon which such Support Instrument is scheduled to expire or terminate and AESI shall have failed to furnish a Substitute Support Instrument or Substitute Support Instruments in substitution for such Support Instrument, then the Collateral Agent shall draw upon such Support Instrument in accordance with its terms prior to such expiration or termination date and shall deposit the proceeds of any such drawing into the AESI Support Account; provided that if no such AESI Support Account is then currently in existence, the Collateral Agent shall hold such proceeds in a separate account until such AESI Support Account is established in accordance with Section 11(d)(i) and shall promptly deposit such proceeds in such AESI Support Account upon its establishment. (f) AESI shall cause any AESI Support Instrument that is an Acceptable Letter of Credit to be issued by a bank whose senior unsecured debt is rated at least "A-" or the equivalent by S&P and Moody's. If, at any time prior to the termination of this Agreement, the outstanding long-term senior unsecured debt of the bank providing an AESI Support Instrument that is an Acceptable Letter of Credit fails at any time to be rated at least "A-" or the equivalent by S&P and Moody's (such event, a "Downgrade Event"), AESI shall, within fifteen (15) Business Days of its receipt of written notice from the Collateral Agent of the occurrence of such event, furnish 11 a Substitute Support Instrument in substitution for such Support Instrument and if prior to the expiration of such fifteen (15) day period, AESI shall have failed to furnish a Substitute Support Instrument, then the Collateral Agent shall draw upon the Support Instrument then in effect in accordance with its terms and shall deposit the proceeds of such drawing into the AESI Support Account for application in accordance with the provisions of Section 11(d); provided that if no such AESI Support Account is then currently in existence, the Collateral Agent shall hold such proceeds in a separate account until such AESI Support Account is established in accordance with Section 11(d)(i) and shall promptly deposit such proceeds in such AESI Support Account upon its establishment. (g) AESI shall cause any AESI Support Instrument that is an Acceptable Bond to be issued by an insurance company whose senior unsecured debt is rated at least "A" or the equivalent by S&P and Moody's. If, at any time prior to the termination of this Agreement, the outstanding senior unsecured long-term debt of the bank providing an AESI Support Instrument that is an Acceptable Bond fails at any time to be rated at least "A" or the equivalent by S&P and Moody's (such event, an "IC Downgrade Event"), AESI shall, within fifteen (15) Business Days of its receipt of written notice from the Collateral Agent of the occurrence of such event, furnish a Substitute Support Instrument or Substitute Support Instruments in substitution for such AESI Support Instrument and if prior to the expiration of such fifteen (15) day period, AESI shall have failed to furnish a Substitute Support Instrument, then the Collateral Agent shall draw upon the AESI Support Instrument then in effect in accordance with its terms and shall deposit in the proceeds of such drawing into the AESI Support Account for application in accordance with the provisions of Section 11(d); provided, that if no such AESI Support Account is then currently in existence, the Collateral Agent shall hold such proceeds in a separate account until such AESI Support Account is established in accordance with Section 11(d)(i) and shall promptly deposit such proceeds in such AESI Support Account upon its establishment. SECTION 12. Rescission of Payment. To the fullest extent permitted by Applicable Law and notwithstanding any prior release or termination, this Agreement shall continue to be effective or be reinstated, as the case may be, with respect to AESI if at any time any payment (or part thereof) made or caused to be made by AESI pursuant to this Agreement is rescinded or must otherwise be restored or returned to AESI or the Company by any beneficiary of this Agreement upon the insolvency, bankruptcy or reorganization of AESI or the Company or otherwise, all as though such payment has not been made or caused to be made. SECTION 13. Separate Undertakings. Without limiting the generality of any of the foregoing provisions of this Agreement, AESI irrevocably waives, to the fullest extent permitted by applicable law and for the benefit of, and as a separate undertaking with, the Collateral Agent, for the benefit of the Senior Parties, any defense to the performance of this Agreement which may be available to it as a consequence of this Agreement being rejected or otherwise not assumed by the Company or any trustee or other similar official for the Company or for any substantial part of the property of the Company, or as 12 a consequence of this Agreement being otherwise terminated or modified, in any proceeding seeking to adjudicate the Company a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, protection, relief or composition of the Company or the debts of the Company under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors, whether such rejection, non-assumption, termination or modification be by reason of this Agreement being held to be an executory contract or by reason of any other circumstance. If this Agreement shall be so rejected or otherwise not assumed, or so terminated or modified, AESI agrees for the benefit of, and as a separate undertaking with the Collateral Agent, for the benefit of the Senior Parties, that it will be unconditionally liable to pay or to cause to be paid to the Collateral Agent, for the benefit of the Senior Parties, an amount equal to each payment which would otherwise be payable by it pursuant to the provisions of this Agreement, or by such party that it would have caused to make payment, under or in connection with this Agreement if this Agreement were not so rejected or otherwise not assumed or were otherwise not so terminated or modified, such amount to be payable to the Collateral Agent, for the benefit of the Senior Parties, in accordance with the instructions of the Collateral Agent, as and when such payment would otherwise be payable hereunder and such amount to be applied as such payment would otherwise be applied hereunder. SECTION 14. Notices. Any notice or other communication hereunder shall be given in the manner set forth in the Collateral Agency Agreement to the Parties at the following addresses: (a) If to Company, at: AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, PA 17042 Attention: Project Manager (Telephone): 717-228-1328 (Facsimile): 717-228-1271 (with a copy to AESI at its addresses set forth below) (b) If to AESI, at: AES Ironwood, Inc. 1001 North 19th Street Arlington, VA 22209 Attention: General Counsel (Telephone): 703-522-1315 (Facsimile): 703-528-4510 13 (c) If to the Collateral Agent, at: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 Attention: Capital Markets Trust Services (Telephone): 212-858-2814 (Facsimile): 212-858-2952 SECTION 15. Successors and Assigns. This Agreement shall be binding upon each of the Parties and their successors and inure to the benefit of the Collateral Agent and its respective successors and permitted assigns as Collateral Agent under the Collateral Agency Agreement. This Agreement may not be assigned by either AESI or the Company; provided, however, the obligations of the AESI and the Company hereunder may be assigned as provided in Section 8 or otherwise with the prior express written consent of the Required Senior Parties. SECTION 16. Amendment, Etc. No amendment or waiver of any provision of this Agreement nor any consent to any departure by a Party herefrom shall in any event be effective unless the same shall be in writing and signed by each Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure or delay on the part of the Collateral Agent in exercising any right or remedy hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other right or remedy. SECTION 17. Remedies. No remedy herein conferred upon or reserved to the Collateral Agent is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. In order to entitle the Collateral Agent to exercise any remedy reserved to it in this Agreement, it shall not be necessary to give any notice, other than such notice as may be expressly required by this Agreement. No notice to or demand on AESI in any case shall entitle it to any other or further notice or demand in the same or similar circumstances. Each and every right and remedy of the Collateral Agent shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy given hereunder or under the Collateral Agency Agreement or any other document now or hereafter existing at law or in equity or by statute. SECTION 18. Headings. The headings herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. 14 SECTION 19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PROVISIONS OF SUCH LAWS). SECTION 20. Consent to Jurisdiction. To the fullest extent permitted by applicable law, with respect to any legal action or proceeding against AESI arising out of or in connection with this Agreement, AESI hereby irrevocably (i) consents to the jurisdiction of any court of the State of New York or of the United States of America located in The City of New York, (ii) consents to the service of process outside the territorial jurisdiction of said courts in any such action or proceeding by mailing copies thereof by registered United States mail, postage prepaid, to the address specified pursuant to Section 12 hereof, and (iii) waives any objection to the venue of the aforesaid courts and any objection that the aforesaid courts are an inconvenient forum. SECTION 21. Waiver of Jury Trial. THE COLLATERAL AGENT, THE COMPANY AND AESI HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 22. Expenses. The Company will, upon demand, pay to the Collateral Agent any and all reasonable expenses, including attorneys' fees and expenses, which the Collateral Agent may incur in connection with the exercise or enforcement of any of the rights or interests of the Collateral Agent hereunder. SECTION 23. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. SECTION 24. Severability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatever. 15 SECTION 25. Termination. This Agreement and the obligations hereunder shall terminate upon the payment in full of all Equity Contributions required under this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 16 IN WITNESS WHEREOF, the Parties have each caused this Agreement to be executed by its duly appointed representatives as of the date first written above. AES IRONWOOD, L.L.C., a Delaware limited liability company By: /s/ Patricia L. Rollin -------------------------------- Name: Patricia L. Rollin Title: Vice President AES IRONWOOD, INC., a Delaware corporation By: /s/ Patricia L. Rollin -------------------------------- Name: Patricia L. Rollin Title: Vice President IBJ WHITEHALL BANK & TRUST COMPANY,as Collateral Agent By: /s/ Thomas McCutcheon -------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President [EQUITY SUBSCRIPTION AGREEMENT] EXHIBIT A _______ __, 1999 Beneficiary: IBJ Whitehall Bank & Trust Company, as Collateral Agent c/o________________________ ___________________________ ___________________________ Attention: ______________ ______________ Subject: Irrevocable Standby Letter of Credit No. [L/C______] Gentlemen: We hereby issue in your favor our Irrevocable Letter of Credit No. __________ (this "Letter of Credit") for the account of AES Ironwood, Inc. ("Ironwood") for an amount (the "Stated Amount") on any date equal to the difference between (x) $50,149,285.00 (the "Maximum Stated Amount") and (y) the total amount of prior draws received and honored by us pursuant to this Letter of Credit. We understand that this Letter of Credit is being issued to you in connection with that certain Equity Subscription Agreement dated as of June 1, 1999, among Ironwood, AES Ironwood, L.L.C. and IBJ Whitehall Bank & Trust Company, in its capacity as Collateral Agent (the "Collateral Agent") under the Collateral Agency Agreement by and among Ironwood, AES Ironwood, L.L.C., the Collateral Agent and the other parties thereto and each other person party thereto, and Prior to the Termination Date (as hereinafter defined) of this Letter of Credit, you may draw from time to time an amount not exceeding the Stated Amount, on the conditions set forth herein against presentation in the manner provided herein of your sight draft on us (marked "Drawn under Letter of Credit No. L/C ") accompanied by a signed Drawing Certificate in the form attached hereto as Annex A appropriately completed (such sight draft and Drawing Certificate being referred to hereinafter collectively as the "Documents"). Presentation of the Documents shall be made at our office, ___________________ __________________________________________________ (fax no. __________) Attn: Letter of Credit Department, either by physical delivery of such documents or by facsimile transmission of such documents to the office stated above. Upon such presentation, the payment of a drawing shall be made in accordance with the terms herein. Such Documents shall be sent to our office by overnight courier for receipt by us within one Business Day of the date of such facsimile transmission. Our only obligation with regard to a drawing under this Letter of Credit shall be to Exhibit A-1 examine the Documents and to pay in accordance therewith, and we shall not be obligated to make any inquiry in connection with the presentation of the Documents. If the requisite Documents are presented to us at or prior to 12:00 noon (New York time) on a Business Day (as hereinafter defined), and provided that such Documents conform to the terms and conditions hereof, payment of the amount specified shall be made to you in immediately available funds on or prior to 3:00 p.m. (New York time) on such day. If a drawing is made hereunder after 12:00 noon (New York time) on a Business Day, and provided that such Documents conform to the terms and conditions hereof, payment of the amount specified shall be made to you in immediately available funds, not later than 12:00 noon (New York time), on the following Business Day. If a demand for payment made hereunder does not, in any instance, conform to the terms and conditions of this Letter of Credit, we shall give you prompt notice that the Documents were not in accordance with the terms and conditions of this Letter of Credit, stating the reasons therefor and that we will hold the Documents at your disposal or return the same to you. Upon being notified that the Documents were not in conformity with this Letter of Credit, you may attempt to correct any such nonconforming Documents if and to the extent that you are able to do so. This Letter of Credit is effective immediately and, unless terminated earlier in accordance with the provisions hereof, expires at the close of business at our office in _______________ three hundred sixty four (364) days from today's date (the "Stated Expiration Date") but such Stated Expiration Date shall be automatically extended for a period of three hundred sixty four (364) days effective upon the Stated Expiration Date and each annual anniversary of the Stated Expiration Date (each such annual anniversary date being referred to herein as the "New Stated Expiration Date") unless, thirty days prior to the Stated Expiration Date or any such New Stated Expiration Date, we notify you, by registered mail or courier service at the above address, that this Letter of Credit shall not be extended beyond the Stated Expiration Date or the New Stated Expiration Date, as the case may be, provided that this letter of credit shall not be extended for more than three (3) such additional periods. If you are so notified, you may on or within fifteen (15) Business Days before the Stated Expiration Date or the New Stated Expiration Date, as the case may be, draw the full Stated Amount then available hereunder. Any drawing under this Letter of Credit will be paid with our own funds and not out of any other funds or other assets. Only you may make a drawing under this Letter of Credit. Multiple drawings may be made under this Letter of Credit. Upon the payment of a drawing, we shall be fully discharged of our obligation under this Letter of Credit in respect of any amount in excess of the Stated Amount, as the case may be, after giving effect to such drawing, and we shall not thereafter be obligated to make any further payments under this Letter of Credit in respect of any amount in excess of the Stated Amount, as the case may be, after giving effect to such drawing. Upon the earliest of (i) the close of business at our office in ______________ on the Stated Expiration Date or New Stated Expiration Date, as the case may be, (ii) the date we have paid the Maximum Stated Amount under all drawings made hereunder or (iii) the date of our receipt of a Exhibit A-2 certificate in the form of Annex B purportedly signed by two (2) Authorized Officers (a "Certificate as to Defeasance"), (which earliest date of (i), (ii) or (iii) is referred to herein as the "Termination Date"), this Letter of Credit shall automatically terminate and expire and the original of this Letter of Credit shall be immediately delivered to us for cancellation. Communications with respect to this Letter of Credit shall be in writing and shall be addressed to us at ______________________________________, specifically referring therein to this Letter of Credit by number. As used herein (a) "Authorized Officer" shall mean any of your Vice Presidents and (b) "Business Day" shall mean any day on which commercial banks in New York, New York are open for the purpose of conducting commercial banking business. This Letter of Credit sets forth in full our undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein, except only the certificates referred to herein, and any such reference shall not be deemed to incorporate herein by reference any documents, instrument or agreement except for such certificates. This Letter of Credit shall be subject to the provisions (to the extent that such provisions are not inconsistent with this Letter of Credit) of the Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 500. To the extent that the provisions of this Letter of Credit are not covered by such Uniform Customs and Practice, this Letter of Credit shall be governed by, and enforced and construed in accordance with the laws of the State of New York. Very truly yours, [_______________________ _______________________ Vice President Vice President] Exhibit A-3 ANNEX A (Form of Drawing Certificate) Date: TO: [Letter of Credit Provider] ("Issuing Bank") Attn: Letter of Credit Department RE: Irrevocable Letter of Credit No. ____________ (the "Letter of Credit") The undersigned, duly authorized officers of IBJ Whitehall Bank & Trust Company in its capacity as Collateral Agent (the "Collateral Agent") hereby certify to Issuing Bank with reference to the Letter of Credit that: (1) _____ No Certificate as to Defeasance (as defined in the Letter of Credit) has been delivered and AESI has become obligated to make or cause to be made an Equity Contribution under Section 2 of the Equity Subscription Agreement referred to in the Letter of Credit in the amount of $____________, which amount does not exceed $___________, such amount being the current AESI Support Amount under the Equity Subscription Agreement; and [or (1)] _____ No Certificate as to Defeasance has been delivered and the Letter of Credit will expire within fifteen (15) Business Days and AESI has not furnished a Substitute Support Instrument (as defined in the Equity Subscription Agreement) in substitution for the Letter of Credit and as a consequence thereof the entire Stated Amount of $___________ is due and payable. [or (1)] _____ No Certificate as to Defeasance has been delivered and there has been a Downgrade Event (as defined in the Equity Subscription Agreement) and AESI has not furnished a Substitute Support Instrument (as defined in the Equity Subscription Agreement) in substitution for the Letter of Credit and as a consequence thereof the entire Stated Amount of $______ is due and payable. Exhibit A-4 (2) The amount of the sight draft accompanying this certificate equals the amount due and payable as set forth above and does not exceed the Stated Amount (as defined in the Letter of Credit). IBJ WHITEHALL BANK & TRUST COMPANY, as Agent By: __________________________________ Name: Title: By: __________________________________ Name: Title: Exhibit A-5 ANNEX B (Form of Certificate as to Defeasance) Date: TO: [Letter of Credit Provider] ("Issuing Bank") Attn: Letter of Credit Department RE: Irrevocable Letter of Credit No. ____________ (the "Letter of Credit") The undersigned, duly authorized officers of IBJ Whitehall Bank & Trust Company, in its capacity as Collateral Agent (the "Collateral Agent") hereby certify to Issuing Bank with reference to the Letter of Credit that: _____ the AESI Support Amount (as defined in the Equity Subscription Agreement referred to in the Letter of Credit) has been reduced to zero as a result of drawings on the Letter of Credit or Equity Contributions pursuant to Section 2(a) or (b) of the Equity Subscription Agreement which have the effect of reducing the AESI Support Amount; or _____ a Substitute Support Instrument (as defined in the Equity Subscription Agreement referred to in the Letter of Credit) for the Stated Amount has been provided to the Collateral Agent by or on behalf of AESI. IBJ WHITEHALL BANK & TRUST COMPANY, AS COLLATERAL AGENT By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: Exhibit A-6 Exhibit B EXHIBIT B ___________ INSURANCE COMPANY ________________________________ (A Stock Company) BOND NO. ______________ EQUITY CONTRIBUTION BOND KNOW ALL PERSONS BY THESE PRESENTS, that we, AES IRONWOOD, INC., 1001 North 19th Street, Arlington,VA 22209 as Principal, and ____________________, as Surety, are held and firmly bound unto IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT, as Obligee, in the amount of _______________________US DOLLARS ($___________ ), lawful money of the United States, the payment of which we bind ourselves, our heirs, administrators, executors and assigns, jointly and severally, firmly by these presents. WHEREAS, Principal and AES Ironwood L.L.C. (the "Company") have entered into an Equity Subscription Agreement with the Obligee dated as of June 1, 1999 (the "Equity Subscription Agreement") which is incorporated herein by reference as if copied at length herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Surety hereby agrees for the benefit of the Obligee as follows: 1. The Surety's obligation under this Equity Contribution Bond is such that, if the Principal strictly abides by the terms and conditions of Sections 2(a) and (b) of the Equity Subscription Agreement, then such obligation shall become void, but otherwise will remain in full force and effect during the term hereof. 2. This Equity Contribution Bond is for the term beginning JUNE 25, 1999 and ending JUNE 25, 2002 (the "Expiration Date"), and may be renewed by the Surety with notification to the Obligee and Principal thirty (30) days prior to the Expiration Date through issuance of a continuation certificate to such effect. 3. Any request for payment under this Equity Contribution Bond must be in writing, accompanied by the Obligee's certification in the form attached hereto as Annex A, which certification shall supersede all information that Surety may have received to the contrary as to the matters so certified. The Obligee shall direct its request for payment by facsimile to _____________________________________, FACSIMILE NUMBER ( ) ____________________. Surety hereby agrees that all claims submitted in said manner during the term of this Equity Contribution Bond will be paid by the close of business on the second business day after the day the claim is made by wire transfer in immediately available funds to the account of Obligee specified in such certification. Any request for payment under this Equity Contribution Bond in accordance with this paragraph 3 purporting to be signed by the Obligee is conclusive and binding on Surety as to the Exhibit B-1 matters stated therein and the obligation of Surety to pay upon receipt of such request is irrevocable and binding on Surety. 4. Subject to paragraph 7 hereof, Surety may terminate this Equity Contribution Bond as to future liability by delivering to the Obligee at the above address via certified mail return receipt, thirty (30) days prior to the date of such termination, notice of its intention to be relieved of its liability hereunder. Said notice shall in no way exonerate the Surety from liability incurred during the term of this Equity Contribution Bond or limit in any manner Obligee's ability to make, and be paid with respect to, claims submitted as provided in the Form of Drawing Certificate attached hereto as Annex A. 5. Multiple claims may be made on this Equity Contribution Bond; provided, however, that all such claims in the aggregate shall not exceed _______ _________________U.S. Dollars ($_____________ ) (the "Maximum Amount"). 6. If, for any reason whatsoever, the Principal shall fail or be unable duly, punctually and fully to pay any Equity Contribution as and when the same shall become due and payable, Surety shall forthwith pay or cause to be paid such Equity Contribution to the Obligee in accordance with the terms hereof and of the Equity Subscription Agreement. Surety's obligations under this Equity Contribution Bond are absolute, unconditional, present and continuing obligations and are in no way conditioned or contingent upon any attempt to collect from or enforce payment by the Principal or upon any other event, contingency or circumstance whatsoever, including payment under any other AESI Support Instrument as such term is defined in the Equity Subscription Agreement, and shall be binding upon and against Surety without regard to the validity or enforceability of the Equity Subscription Agreement. 7. Any other provision of this Equity Contribution Bond to the contrary notwithstanding, Surety agrees that the obligations of Surety set forth in this Equity Contribution Bond shall be direct obligations of Surety, and such obligations shall be absolute and unconditional, shall not be subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense (other than full and strict compliance by the Surety with its obligations hereunder) based upon any claim Surety or any other Person may have against the Obligee, the Principal, the Company or any other Person, including the provider of any other AESI Support Instrument, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected or impaired by, any circumstance or condition whatsoever (other than full and strict compliance by the Surety with its obligations hereunder), whether or not Surety shall have any knowledge or notice thereof, including, without limitation any occurrence or circumstance whatsoever which might otherwise constitute a legal or equitable defense or discharge of the liabilities of a surety or which might otherwise limit recourse under this Equity Contribution Bond against Surety. The obligations of Surety set forth herein constitute the full recourse obligations of Surety enforceable against it to the full extent of all its assets and properties. Without limiting the generality of the foregoing, Surety agrees that (a) repeated and successive demands may be made and Exhibit B-2 recoveries may be had hereunder as and when, from time to time, the Principal shall default under or fail to comply with the terms of Section 2 of the Equity Subscription Agreement and that notwithstanding the recovery hereunder for or in respect of any such default or failure to so comply by the Principal under the Equity Subscription Agreement, this Equity Contribution Bond shall remain in full force and effect and shall apply to each and every subsequent such default or failure, and (b) if any Equity Contribution is paid by the Principal, and thereafter all or any part of such payment is recovered from the Obligee upon the insolvency, bankruptcy or reorganization of the Principal, the liability of Surety hereunder with respect to such Equity Contribution so paid and recovered shall, notwithstanding any prior release or termination hereof, continue and remain in full force and effect, or shall be reinstated, as the case may be, as if, to the extent of such recovery, such payment had not been made. 8. Surety hereby unconditionally waives, to the extent permitted by applicable law, (i) all notices which may be required by statute, rule of law or otherwise, now or hereafter in effect, to preserve any rights against the Surety hereunder, including, without limitation, any demand, proof or notice of non-payment of any Equity Contribution; (ii) any right to the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of the Equity Subscription Agreement; (iii) notice of acceptance of this Equity Contribution Bond, demand, protest, presentment, notice of default and any requirement of diligence; (iv) any requirement to exhaust any remedies or to mitigate any damages resulting from default by the Principal under the Equity Subscription Agreement; (v) the benefit of any and all applicable laws which are or might be in conflict with the terms of this Equity Contribution Bond; and (vi) any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge, release or defense of a surety, or which might otherwise limit recourse under this Equity Contribution Bond against Surety. 9. Surety shall be subrogated to all rights of the Company against Principal under the Equity Subscription Agreement in respect of any amounts paid by Surety pursuant to the provisions of this Equity Contribution Bond; provided, however, that Surety shall be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation only after all required Equity Contributions under and as defined in the Equity Subscription Agreement have been paid in full. Surety acknowledges and agrees that no proper payment by Surety under this Equity Contribution Bond shall give rise to (i) any claim by Surety against the Obligee or (ii) any indebtedness of the Company. 10. The Obligee shall have all of the rights and remedies available under applicable law and may proceed by appropriate court action to enforce the terms hereof and to recover damages for the breach hereof. Each and every remedy of the Obligee shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy now or hereafter existing at law or in equity. At the option of the Obligee and upon notice to Surety, Surety may be joined in any action or proceeding commenced by such Obligee against the Principal in respect of any Equity Contribution, and recovery may be had against Surety in such action or proceeding or in any independent action or proceeding Exhibit B-3 against Surety, without any requirement that such Obligee first assert, prosecute or exhaust any remedy or claim against the Principal. 11. THIS EQUITY CONTRIBUTION BOND SHALL IN ALL RESPECTS BE GOVERNED, INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PROVISIONS OF SUCH LAWS. 12. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, WITH RESPECT TO ANY LEGAL ACTION OR PROCEEDING AGAINST SURETY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, SURETY HEREBY IRREVOCABLY (I) CONSENTS TO THE JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA LOCATED IN THE CITY OF NEW YORK, (II) CONSENTS TO THE SERVICE OF PROCESS OUTSIDE THE TERRITORIAL JURISDICTION OF SAID COURTS IN ANY SUCH ACTION OR PROCEEDING BY MAILING COPIES THEREOF BY REGISTERED UNITED STATES MAIL, POSTAGE PREPAID, TO THE ADDRESS SPECIFIED IN THE FIRST PARAGRAPH OF THE EQUITY CONTRIBUTION BOND, AND (III) WAIVES ANY OBJECTION TO THE VENUE OF THE AFORESAID COURTS AND ANY OBJECTION THAT THE AFORESAID COURTS ARE IN INCONVENIENT FORUM. Signed, sealed and dated this the ____________ day of June 1999. WITNESS: AES IRONWOOD, INC. - --------------------------------- ------------------------------------ WITNESS: ____________INSURANCE COMPANY - --------------------------------- ------------------------------------ , ATTORNEY-IN-FACT Exhibit B-4 ANNEX A (Form of Drawing Certificate) Date: TO: [Name of Insurance Company issuing the Equity Contribution Bond] ("Issuer") RE: Equity Contribution Bond No. ____________ (the "Bond") The undersigned, duly authorized officers of IBJ Whitehall Bank & Trust Company, in its capacity as Collateral Agent (the "Agent"), hereby certify to Issuer with reference to the Equity Contribution Bond (the "Bond"): (1) Principal (as such term is defined in the Bond) has become obligated to make or cause to be made an Equity Contribution under Section 2 of the Equity Subscription Agreement referred to in the Bond in the amount of $____________; [or (1)] The Bond will terminate or expire within fifteen (15) Business Days and Principal has not furnished a Substitute Support Instrument(s) (as defined in the Equity Subscription Agreement) in substitution for the Bond and as a consequence thereof the entire remaining amount of the Bond ($___________) is due and payable; and [or (1)] There has been an IC Downgrade Event (as defined in the Equity Subscription Agreement) and Principal has not furnished a Substitute Support Instrument(s) (as defined in the Equity Subscription Agreement) in substitution for the Bond and as a consequence thereof the entire remaining amount of the Bond ($________) is due and payable; and Exhibit B-5 (2) The amount specified above equals the amount due and payable as set forth above and, when added to all previous amounts paid under the Bond, does not exceed the Maximum Amount (as defined in the Bond); (3) The amount specified above is to be sent by wire transfer to ________. IBJ WHITEHALL BANK & TRUST COMPANY, AS COLLATERAL AGENT By: ________________________________ Name: Title: By: ________________________________ Name: Title: Exhibit B-6 EX-4.7 9 SECURITY AGREEMENT Exhibit 4.7 EXECUTION COPY - -------------------------------------------------------------------------------- SECURITY AGREEMENT by and between AES Ironwood, L.L.C. and IBJ Whitehall Bank & Trust Company, as Collateral Agent Dated as of June 1, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions.................................................2 Section 1.2 References to Assignment....................................8 ARTICLE II ASSIGNMENT, SECURITY INTEREST; POWER OF ATTORNEY Section 2.1 Pledge and Security Interest................................8 Section 2.2 Power of Attorney...........................................9 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1 Representations and Warranties of the Company..............10 ARTICLE IV COVENANTS AND SPECIAL PROVISIONS Section 4.1 Maintenance of Records.....................................11 Section 4.2 Payment under Contracts and Receivables....................11 Section 4.3 Instruments................................................11 Section 4.4 Consents...................................................11 ARTICLE V COLLATERAL Section 5.1 Protection of the Collateral Agent's Interests.............12 Section 5.2 Further Action.............................................12 Section 5.3 Financing Statements.......................................12 i ARTICLE VI REMEDIES UPON OCCURRENCE OF TRIGGER EVENT Section 6.1 Remedies...................................................12 Section 6.2 Disposition of the Collateral..............................13 Section 6.3 Waiver of Claims...........................................14 Section 6.4 Application of Proceeds....................................15 Section 6.5 Remedies Cumulative........................................15 Section 6.6 Discontinuance of Proceedings..............................15 ARTICLE VII INDEMNITY Section 7.1 Indemnity..................................................16 Section 7.2 Indemnity Obligations Secured by Collateral................17 ARTICLE VIII MISCELLANEOUS Section 8.1 Notices....................................................17 Section 8.2 Amendment..................................................18 Section 8.3 No Waiver..................................................18 Section 8.4 Obligations of the Company.................................18 Section 8.5 Successors and Assigns.....................................19 Section 8.6 Governing Law..............................................19 Section 8.7 Continuing Liability of the Company........................20 Section 8.8 No Third Party Beneficiaries...............................20 Section 8.9 Continuing Assignment and Security Interest................20 Section 8.10 Headings...................................................20 Section 8.11 Severability...............................................20 Section 8.12 Counterparts...............................................20 Section 8.13 Non-Recourse...............................................21 ii SECURITY AGREEMENT SECURITY AGREEMENT dated as of June 1, 1999, by and between AES IRONWOOD, L.L.C., a limited liability company organized and validly existing under the laws of the State of Delaware (the "Company") and IBJ WHITEHALL BANK & TRUST COMPANY, a bank duly organized and existing under the laws of the State of New York ("IBJ"), as collateral agent (together with its successors in such capacity, the "Collateral Agent") for the benefit of and on behalf of the Senior Parties defined below. A. The Company is providing for the development, construction, ownership and operation of a nominal 705 MW (net) gas-fired combined cycle electric generating facility and related equipment and facilities (the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the development and construction of the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ, as trustee (the "Trustee") and depositary bank, as it may be amended or supplemented from time to time (the "Indenture"). C. In connection with the commencement of commercial operation of the Project, the Company is required to deliver the Debt Service Reserve Letter of Credit (the "DSR Letter of Credit"). Dresdner Bank AG, New York Branch ("Dresdner"), as issuing bank, has agreed to issue the DSR Letter of Credit subject to the terms and conditions contained in the DSR LOC Reimbursement Agreement, dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "DSR LOC Reimbursement Agreement"), among each of the banks and financial institutions parties thereto and Dresdner, as issuing bank and as agent for such banks (including the issuing bank) and financial institutions (in such capacity as agent, and together with its successors and assigns, the "DSR LOC Provider"). D. In connection with the Company's obligations under Section 19.2 of the Power Purchase Agreement, the Company may deliver the Construction Period Letter of Credit (the "CP LOC"). Dresdner, as issuing bank, has agreed to issue the CP LOC subject to the terms and conditions contained in the CP LOC Reimbursement Agreement, dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "CP LOC Reimbursement Agreement"), among each of the banks (including the issuing bank) and financial institutions parties thereto and Dresdner, as issuing bank and as agent for such banks and financial institutions (in such capacity as agent, and together with its successors and assigns, the "CP LOC Provider"). E. The Company may finance certain working capital requirements of the Project by entering into a working capital agreement with a financial institution for the provision of credit to the Company (such financial institution, the "Working Capital Provider"). F. All obligations of the Company under the Securities, the DSR LOC Reimbursement Agreement and related evidences of indebtedness, the CP LOC Reimbursement Agreement and related evidences of indebtedness, the Collateral Agency Agreement (defined below), and any working capital agreement (collectively, the "Financing Documents") to the Trustee, the DSR LOC Provider, the CP LOC Provider, the Collateral Agent, any Working Capital Provider, each successor to any such person and any person providing Senior Debt to the Company who becomes a party to the Collateral Agency Agreement in accordance with its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, this Agreement, the Indenture, the Pledge Agreement and the Assignment of Leases and Income, each between the Company and the Collateral Agent (collectively, the "Security Documents"). G. The Collateral Agent, the Company, the DSR LOC Provider, the CP LOC Provider and the Trustee entered into the Collateral Agency and Intercreditor Agreement (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. H. It is a condition precedent to the obligations of the Senior Parties under the Financing Documents that the Company duly execute and deliver this Agreement to further secure the Company's obligations under the Financing Documents and the other Obligations (as hereinafter defined). NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company hereby agrees with the Collateral Agent as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Except as otherwise provided herein, for the purposes of this Agreement, capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Indenture. Unless otherwise stated, any reference herein to any document shall mean such document and all schedules, exhibits, and attachments thereto as amended, supplemented or modified in accordance with the terms of this Agreement or the Collateral Agency Agreement and in effect from time to time and any reference herein to any Person shall include its successors and permitted assigns. References to any law or regulations shall be deemed references to such law or regulation or any successor law or regulation as the same may have been or may be amended or supplemented from time to time. In addition, wherever used in this Agreement and unless the context requires otherwise, the following terms shall have the following meanings: "Account" and "Accounts" shall mean, individually and collectively, the Construction Account, Revenue Account, Operating and Maintenance Account, Restoration Account, Major Maintenance Reserve Account, Fuel Conversion Volume Rebate Account, Subordinated Debt Account, Distribution Account, DSR LOC Reimbursement Fund, CP LOC Reimbursement Fund, Bond Payment Account, Bond Proceeds Account, Construction Interest Account and Debt 2 Service Reserve Account, as each such account (and each such subaccount thereof) is defined under the Collateral Agency Agreement, and each other account established, created or modified from time to time pursuant to the provisions of the Indenture and the Collateral Agency Agreement. "Agreement" means this Security Agreement as originally executed and as the same may from time to time be amended, modified or supplemented. "Assigned Agreements" means the following contracts: (a) i. the Power Purchase Agreement; ii. the Williams Guaranty; iii. the EPC Contract; iv. the Siemens Guaranty; v. the Operations Agreement; vi. the Maintenance Services Agreement; vii. the Interconnection Agreement; viii. the Services Agreement; ix. the Effluent Supply Agreement; x. the Pennsy Agreements; xi. the Equity Subscription Agreement; (b) any contract with a third party assigned to the Company; (c) the Consents; and (d) all Contracts (and Contract Rights), other than the Contracts (and Contract Rights) specifically itemized in the foregoing list of Assigned Agreements, as each such Assigned Agreement identified in (a)-(d) above may be amended, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement or the Collateral Agency Agreement, including, without limitation, to the extent of the Company's rights in such Assigned Agreement, (i) all rights of the Company to receive moneys due and to become due under or pursuant to the Assigned Agreements, (ii) all rights of the Company to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to any Assigned Agreement, (iii) all claims of the Company for damages arising out of default under any Assigned Agreement, (iv) the right of the Company to terminate, amend, supplement or modify any Assigned Agreement, to give any waiver, consent or notice thereunder, to make any election 3 thereunder, to exercise and perform any option or purchase right thereunder, to perform thereunder, and to compel performance and otherwise exercise all remedies thereunder and (v) to the extent not included in the foregoing, all proceeds of any and all of the foregoing. "Bank Account" means (i) a deposit, custody, or other account (whether, in any case, time or demand or interest or non-interest bearing and whether maintained at a branch or office located within or without the United States) of the Company or in which the Company has any interest, (ii) all amounts from time to time credited to such account, (iii) all cash, securities, instruments, documents, Chattel Paper, general intangibles, accounts and other property from time to time credited to such account or representing investments and reinvestments of amounts from time to time credited to such account and (iv) all interest, principal payments, dividends and other distributions payable on or with respect to, and all proceeds of, (A) all property so credited or representing such investments and reinvestments and (B) such account. "Chattel Paper" shall have the meaning assigned to that term under the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Collateral" means, in each case whether now or hereafter existing or now owned or hereafter acquired by the Company whether or not the same is now contemplated, anticipated or foreseeable, choate or inchoate, tangible or intangible, all of the rights, titles and interests of the Company in and to the following wherever the same may be located except to the extent that the assignment of any of the following is prohibited under Applicable Law or that under such law the assignment of such Collateral would create a significant risk of termination or loss of such Collateral or the Company's rights thereto or therein:, (a) the Assigned Agreements; (b) to the extent permitted by Applicable Law and all Governmental Approvals; (c) all Receivables; (d) proceeds of all insurance contracts; (e) all (i) Accounts, subject to the qualifications below, (ii) other accounts (including all Bank Accounts), (iii) any funds held in any escrow account established or created by the Contracts and (iv) Eminent Domain Proceeds; (f) proceeds of any Permitted Investments; (g) all Information; (h) any guarantees, and, to the extent evidencing or pertaining to other items of Collateral, all documents of title, policies and certificates of insurance, surety bonds, securities, Chattel Paper, other Documents or Instruments, including but not limited to all insurance with respect to the Project, business interruption, workers compensation and comprehensive automobile, bodily, injury, and property damage; 4 (i) all General Intangibles including but not limited to the name and goodwill of the Company; (j) all claims (including the right to sue or otherwise recover on such claims) with respect to (i) the items referred to in the definition of Collateral, (ii) warranties relating to any Collateral, (iii) any breach of any Contract constituting Collateral or any Assigned Agreement and (iv) rights against third parties for (A) loss, destruction, requisition, confiscation, condemnation, seizure, forfeiture or infringement of, or damage to, any Collateral, (B) payments due or to become due under leases, rentals and hires of any Collateral and (C) proceeds payable under or unearned premiums with respect to policies of insurance relating to any Collateral; (k) all Inventory; (l) all Machinery and Equipment; (m) all books, manuals, records, charts, ledgercards, files, correspondence, drawings, schematics, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any Collateral or are otherwise necessary or helpful in the collection thereof, realization thereupon or operation or maintenance of the Facility; (n) all goods and other property, whether or not delivered (i) the sale, lease or furnishing of which gives or purports to give rise to any Receivables or (ii) securing any Receivables, including all of the Company's rights as an unpaid vendor or lienor, including stoppage in transit, replevin and reclamation with respect to such goods and other properties; (o) all documents of title, policies and certificate of insurance, securities, chattel paper and other documents or instruments evidencing or pertaining to any Collateral; (p) any fixture and improvement to the Site including, without limitation, the structures, buildings and chattels constituting the Facility, and otherwise contemplated by the Contracts, except to the extent a valid and perfected first priority security interest in such assets has been created by the Mortgage; (q) any other assets of the Company except to the extent a valid and perfected first priority security interest in such assets has been created by the Mortgage; (r) all products and proceeds (including cash) of all of the foregoing Collateral; provided, however, that, notwithstanding anything to the contrary herein or hereto, (i) the Bond Payment Account, the Bond Proceeds Account, the Construction Interest Account and the Debt Service Reserve Account (and each Subaccount thereof) shall constitute Collateral absolutely and exclusively for the 5 benefit of the holders of Securities (and the Trustee on their behalf), (ii) the DSR LOC Reimbursement Fund shall constitute Collateral absolutely and exclusively for the benefit of the DSR LOC Provider and (iii) the CP LOC Reimbursement Fund shall constitute Collateral absolutely and exclusively for the benefit of the CP LOC Provider. "Consents" shall mean each of the following Consents: (i) Consent to Assignment, dated as of June 1, 1999, by and between the Power Purchaser and the Collateral Agent, and consented to by the Company; (ii) Consent to Assignment, dated as of June 1, 1999, by and between the PPA Guarantor and the Collateral Agent, and consented to by the Company; (iii) Consent to Assignment, dated as of June 1, 1999, by and between the Contractor and the Collateral Agent, and consented to by the Company; (iv) Consent to Assignment, dated as of June 1, 1999, by and between Siemens Corporation and the Collateral Agent, and consented to by the Company; (v) Consent to Assignment, dated as of June 1, 1999, by and between AES Prescott, L.L.C. and the Collateral Agent, and consented to by the Company; (vi) Consent to Assignment, dated as of June 1, 1999, by and between Metropolitan Edison Company d/b/a GPU Energy and the Collateral Agent, and consented to by the Company; (vii) Consent to Assignment, dated as of June 1, 1999, by and between City of Lebanon Authority and the Collateral Agent, and consented to by the Company; and (viii) Consent to Assignment, dated as of June 1, 1999, by and between Pennsy Supply, Inc. and the Collateral Agent, and consented to by the Company "Contract Rights" means all rights of the Company (including, without limitation, all rights to payment) under each Contract, except to the extent that a valid and perfected first priority security interest over such rights is created by and contained within the Mortgage. "Contracts" means all contracts or agreements to which the Company is or becomes a party or under which the Company is a beneficiary or has rights thereto. "Documents" shall have the meaning assigned to that term under the Uniform Commercial Code as in effect on the date hereof in the State of New York, and shall include, but not be limited to, any bills of lading, dock warrants, dock receipts or warehouse receipts. "General Intangibles" means general intangibles as defined in the Uniform Commercial Code in effect on the date hereof in the State of New York, and shall include, but not be limited to, all trademarks, trademark applications, trademark and service mark registrations (including, without limitation, all renewals of trademark and servicemark registrations, and all rights corresponding thereto throughout the world, but excluding any such registration that would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Collateral), tradenames, business names, fictitious business names, company names, business 6 identifiers, prints, labels, trade styles and service marks (whether or not registered), trade dress, including logos or designs, copyrights, patents, patent applications (including, without limitation, the inventions and improvements described and claimed therein together with the reissues, division, continuations, renewals, extensions and continuations in-part thereof), goodwill of the Company's business symbolized by any of the foregoing, all inventions, processes, production methods, proprietary information, know-how, trade secrets, license rights, license agreements, permits, franchises and any rights to tax refunds. "Indemnitee" means the Trustee, any co-Trustee or Successor Trustee, the DSR LOC Provider, the DSR LOC Issuing Bank, the DSR LOC Banks, the CP LOC Provider, the CP LOC Issuing Bank, the CP LOC Banks, the holders of Securities, the Collateral Agent and their respective officers, directors, employees, representatives and agents. "Information" means all information, data, plans, blueprints, designs, recorded knowledge, surveys, architectural, structural, mechanical and engineering plans and specifications, studies, data, reports and drawings, test reports, manuals, material standards, processing standards, performance standards, catalogs, computer and automatic machinery software and programs, all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data, prepared by or on behalf of, or acquired by and on behalf of, the Company specifically for the acquisition, occupancy, use, operation, maintenance, repair or restoration of the Facility or any part thereof. "Instrument" shall have the meaning assigned that term under the Uniform Commercial Code in effect on the date hereof in the State of New York, and shall include, but not be limited to, any drafts, checks, certificates of deposit, notes, shares, participation or transferable warrants. "Inventory" means (i) all inventory, including (A) all goods held for sale or lease or to be furnished under the Assigned Agreements, (B) all work in process and (C) all raw materials, other by-products and other materials, and supplies of every nature and description used or that might be used or consumed in the Company's business and (ii) all documents evidencing and general intangibles relating to any of the foregoing. "Machinery and Equipment" means (i) all machinery, equipment, spare parts, tools, furniture, furnishings and instruments of conveyance, including vessels and automotive vehicles, (ii) all other goods except goods that constitute General Intangibles and (iii) all replacements and substitutions for, and all accessions to, the foregoing, in each case wherever located and whether or not the same constitutes a "fixture". "Obligations" means, collectively, all indebtedness, obligations and Financing Liabilities for which the Company is liable to the Senior Parties under or pursuant to any and all Financing Documents whether direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or in relation to any such agreements. "Receivables" means any and all rights to the payment of money or other forms of consideration of any kind at any time now or hereafter owing or to be owing to the Company, 7 including, without limitation, all of the Company's rights to payment for capacity and energy, fuel conversion services and ancillary services under the Power Purchase Agreement, and any other goods or products sold or services performed, whether now in existence or arising from time to time hereafter, including, without limitation, accounts receivable, letters of credit and the right of the Company to receive payment thereunder, insurance proceeds, notes, drafts, Instruments, Documents, acceptances, the right to receive payment from AES and AES Ironwood pursuant to, and subject to the conditions of, the Equity Subscription Agreement, and all other debts, obligations, and liabilities in whatever form, now or hereafter owing to the Company from any other Person, and whether evidenced by an account, note, contract, security agreement, Chattel Paper or other evidence of indebtedness or security, together with (i) all security pledged, assigned, hypothecated or granted to or held by the Company to secure the foregoing, (ii) all of the Company's right, title and interest in and to any goods of the Company, the sale of which gave rise thereto, (iii) all guarantees (if any), endorsements and indemnifications on, or of, any of the foregoing, (iv) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (v) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers and (vi) all other writings related in any way to the foregoing. "Uniform Commercial Code" means the Uniform Commercial Code in effect in the State of New York. Section 1.2 References to Assignment. Any reference in this Agreement to an assignment shall include, as the case may require, a sale, conveyance, setting over or transfer whether conditional or unconditional and whether direct or indirect. ARTICLE II ASSIGNMENT, SECURITY INTEREST; POWER OF ATTORNEY Section 2.1 Pledge and Security Interest. (a) As security for the prompt and complete payment and performance and observance when due of the Obligations, the Company hereby grants, pledges, assigns and transfers to the Collateral Agent for the benefit of the Senior Parties a continuing lien on and a continuing security interest in, to and under the Collateral, which shall at all times be (i) a valid and, upon the making of all necessary filings or the taking of possession of all requisite items of Collateral, to the extent perfectible in accordance with applicable law, perfected lien and security interest, (ii) a first priority lien and security interest (subject only to Permitted Liens) and (iii) enforceable against the Company, and (upon the making of all necessary filings or the taking of possession of all requisite items of Collateral to the extent perfectible under applicable law) all third parties in accordance with the terms hereof as security for the Obligations, and the Collateral shall not at any time be subject to any lien (other than Permitted Liens) that is prior to, on a parity with or junior to the lien and security interest created hereunder. (b) The Company agrees and confirms that the execution and delivery of the Consents to which the Company is a party will constitute, (i) notice to each consenting party of 8 the assignment by the Company of all of the Company's right, title and interest in and to the Collateral that is the subject of such Consent and its proceeds and (ii) if such party is required to make payments to the Collateral Agent of amounts due under the relevant Assigned Agreement, unconditional and (subject to provisions regarding release in this Agreement and the Collateral Agency Agreement) irrevocable instructions from the Company to each such party, that all payments due or to become due and all amounts payable to the Company thereunder shall, until the Obligations are paid in full, be made directly to the Revenue Account or as otherwise directed by the Collateral Agent. Section 2.2 Power of Attorney. To the fullest extent permitted by applicable law and until the Obligations are paid in full, the Company hereby irrevocably appoints the Collateral Agent as its attorney-in-fact with right of substitution, to act, upon the occurrence and during the continuance of a Trigger Event and provided the Collateral Agent has received the Senior Party Certificates from the Required Senior Parties pursuant to Section 2.3 of the Collateral Agency Agreement (except with respect to a bankruptcy event in respect of the Company in which case no Senior Party Certificates are required), as the Company's attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Collateral Agent's discretion, to take any action and to execute any and all documents and instruments that the Collateral Agent may deem necessary or advisable to accomplish the purpose of this Agreement. To the fullest extent permitted by applicable law, the Company hereby confirms and ratifies any and all actions and things performed or done by the Collateral Agent, or any of its representatives hereunder, as attorney-in-fact for the Company in each case pursuant to the powers granted hereunder and exercised in accordance with this Agreement and in a manner not inconsistent with the Collateral Agency Agreement. The powers conferred on the Collateral Agent hereunder, and the exercise by the Collateral Agent of such powers, shall not impose any duty on the Collateral Agent to exercise any such powers. This special power of attorney shall be deemed to be coupled with an interest and cannot be revoked by the Company until the Obligations have been fully paid, performed and indefeasibly discharged. Upon the occurrence and during the continuance of a Trigger Event, and provided the Collateral Agent has received the Senior Party Certificates from the Required Senior Parties pursuant to Section 2.3 of the Collateral Agency Agreement (except with respect to a bankruptcy event in respect of the Company in which case no Senior Party Certificates are required), the Company shall abstain from exercising any rights under any of the Contracts or the Security Documents which shall be inconsistent with the exercise of the rights and functions herein granted to the Collateral Agent as the attorney-in-fact, including abstaining from collecting, claiming and receiving any moneys under the Assigned Agreements; provided, that nothing herein shall prevent the Company from undertaking the Company's operations in the ordinary course of business in accordance with the Security Documents and the Contracts. 9 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1 Representations and Warranties of the Company. The Company represents and warrants, which representations and warranties shall survive execution and delivery of this Agreement and the repayment and full performance of the Obligations, as follows: (a) All filings, registrations and recordings necessary to create, preserve, protect and (in the case of the security interest in the Collateral, to the extent perfectible in accordance with applicable law) perfect the security interest granted by the Company to the Collateral Agent hereby in respect of the Collateral have been accomplished and such security interest constitutes a valid and enforceable and (to the extent perfectible in accordance with applicable law) perfected security interest in the Collateral superior and prior to the rights of all other Persons and subject to no other Liens or assignments, other than Permitted Liens. The Company hereby represents that it has not, prior to the date of this Agreement, assigned or granted any other security interest in the Collateral, respectively, to any other Person. (b) The Company is the owner of all Receivables and all of its rights, title and interest in and to all Assigned Agreements, free from any Lien or other right, title or interest of any Person, other than the Liens created under this Agreement and other than Permitted Liens. The Company is not in default under or in breach of, and no Authorized Officer of the Company knows of any default by any other party under or breach by any other party of, any of the Contracts that in either case could reasonably be expected to result in a Material Adverse Effect. (c) As to Collateral (other than Assigned Agreements and Receivables), the Company is or will become the sole owner of all such Collateral, free from any Lien or other right, title or interest of any Person (other than the Liens created under this Agreement and other than Permitted Liens). (d) Except for the Consents and for approvals to transfer Governmental Approvals, no other consent of any other Person and no Governmental Approval is required as at the date of the execution and delivery of this Agreement (i) for the grant by the Company of its respective pledge, assignment, and security interest with respect to the Collateral or for the execution, delivery or performance of this Agreement by the Company, (ii) for the pledge, assignment and security interest granted by the Company with respect to the Collateral or (iii) for the exercise by the Collateral Agent of the rights, remedies and powers provided for in this Agreement or the Collateral Agency Agreement or the remedies with respect to the Collateral pursuant to this Agreement or the Collateral Agency Agreement, assuming in the case of this clause (iii) that the Collateral Agent has all requisite power and authority to conduct its business generally. (e) Except for financing statements filed or to be filed in respect of the security interests granted by the Company under or as permitted by this Agreement or the Collateral Agency Agreement, there is no financing statement (or similar instrument) filed under the law of any jurisdiction covering or purporting to cover any interest of any kind in the Collateral. 10 ARTICLE IV COVENANTS AND SPECIAL PROVISIONS Section 4.1 Maintenance of Records. The Company will keep and maintain, at its own cost and expense, complete (in all material respects) records of the Collateral (including the Information, any records to be prepared and maintained under the Assigned Agreements, the Receivables and the Contracts), including, but not limited to, the originals of all documentation, records of all payments received, all credits granted thereon and all other dealings therewith, and the Company will make the same available to the Collateral Agent, at the Company's own cost and expense, at all reasonable times upon demand. The Company shall, at the Company's own cost and expense, deliver copies (or, if a Trigger Event has occurred and is continuing, originals) of all Collateral (including the Assigned Agreements, the Information, the Receivables and the Contracts), including documentation and relevant books and records, to the Collateral Agent or to its representatives at any time upon its demand. Section 4.2 Payment under Contracts and Receivables. If the Company receives any payment or moneys directly from any party to the Assigned Agreements, or from any account debtor or other obligor under any Receivable constituting a part of the Collateral, the Company shall receive such payments in a constructive trust for the benefit of the Collateral Agent and shall immediately transmit and deliver such payment or moneys to the Collateral Agent in the same form as received, together with any necessary endorsement, for application as set forth in the Collateral Agency Agreement. Section 4.3 Documents and Instruments. If the Company owns or acquires any Document or Instrument, the Company shall forthwith, but in any event no later than 10 days after such acquisition, as the case may be, promptly deliver such Document or Instrument to the Collateral Agent, appropriately endorsed to the order of the Collateral Agent as further security under this Agreement. Section 4.4 Consents. The Company shall use its commercially reasonable efforts to obtain, at the expense of the Company, after the date of the execution and delivery of this Agreement, such other consents and Government Approvals as may be necessary after the date of this Agreement, (i) for the grant by the Company of its pledge, assignment, and security interest granted hereby or for the execution, delivery or performance of this Agreement by the Company, (ii) for the perfection (to the extent perfectible in accordance with applicable law) or maintenance of the pledge, assignment, and security interest created hereby with respect to the Collateral (including the first priority nature of such pledge, assignment and security interest with respect to the Collateral) or (iii) for the exercise by the Collateral Agent of the rights, remedies and powers provided for in this Agreement or the Collateral Agency Agreement or the remedies with respect to the Collateral pursuant to this Agreement or the Collateral Agency Agreement. 11 ARTICLE V COLLATERAL Section 5.1 Protection of the Collateral Agent's Interests. The Company will not do anything to impair the rights of the Collateral Agent or the Senior Parties in the Collateral, provided that, nothing herein shall prevent the Company, prior to the exercise by the Collateral Agent of any such rights, from undertaking its operations in the ordinary course of business as contemplated by the Project Contracts, Security Documents and the Financing Documents. The Company retains all liability and responsibility in connection with the Collateral, and agrees that its liability with respect to the Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to the Company; provided, that this sentence shall not limit the remedies that the Company might otherwise have under the Collateral Agency Agreement in the event the Collateral Agent, or its agents or designees, fails to perform its obligations under the Collateral Agency Agreement in accordance with the standards set forth therein. Section 5.2 Further Action. The Company will, at the Company's own expense, make, execute, endorse, acknowledge, file and deliver to the Collateral Agent such lists, descriptions and designations of the Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the interests hereby granted, which the Collateral Agent reasonably requests to perfect, preserve or protect its ownership and security interests in the Collateral. Section 5.3 Financing Statements. The Company agrees to sign and file in the appropriate jurisdictions such financing statements and continuation statements (or similar statements or instruments of registration under the law of any applicable jurisdiction) as are necessary to establish and maintain the security interests contemplated hereunder as, to the extent stated herein, valid, enforceable, first priority security interests and the other rights and security contemplated herein, all in accordance with the Uniform Commercial Code, or its equivalent, as enacted in any relevant jurisdictions or any other relevant law. The Company will pay any applicable filing fees and related expenses in connection therewith. The Company authorizes the Collateral Agent to file any such financing statements and any continuation statement or amendments thereto naming the Company as debtor with respect to its interest in the Collateral without the signature of the Company. ARTICLE VI REMEDIES UPON OCCURRENCE OF TRIGGER EVENT Section 6.1 Remedies. If a Trigger Event under the Collateral Agency Agreement shall have occurred and be continuing and, subject to the provisions of the Collateral Agency Agreement (including without limitation Section 2.3 thereof) and any mandatory requirements of applicable law then in effect, the Collateral Agent, in addition to any rights under applicable law 12 or the Collateral Agency Agreement, may exercise, without any further demand, advertisement or notice (except as provided herein or otherwise required under applicable law or the Collateral Agency Agreement) all rights as a secured party under the Uniform Commercial Code, or its equivalent, in any relevant jurisdiction and may, acting pursuant to the Collateral Agency Agreement to the fullest extent permitted by law (and the Company hereby waives all restrictions on exercise that lawfully may be waived): (a) personally, or by agents or attorneys, immediately retake possession, physical or otherwise, of the Collateral or any part thereof, from the Company or any other Person who then has possession of any part thereof with or without notice or process of law and, for that purpose, may enter upon the Company's premises where any of the Collateral is located and remove the same, and use any and all services, supplies and other facilities and materials of in connection with such removal; (b) instruct the obligor under any agreement or instrument evidencing or constituting Collateral to make any payment required by the terms of such agreement or instrument directly to the Collateral Agent; (c) apply all amounts, securities, investments and other property credited to the Accounts in accordance with the Collateral Agency Agreement; (d) sell, assign or otherwise liquidate, or direct the Company to sell, assign or otherwise liquidate, any or all of the Collateral, and take possession of the proceeds of any such sale or liquidation to the fullest extent permitted by Applicable Law; (e) take possession of the Collateral or any part thereof, by directing the Company in writing to deliver the same to the Collateral Agent at any place designated by the Collateral Agent, in which event the Company shall, at its own expense, forthwith cause the same to be moved and delivered to the place so designated by the Collateral Agent, it being understood that the obligation of the Company to deliver its interest in the Collateral is of the essence of this Agreement and that the Collateral Agent shall be entitled to a decree requiring specific performance by the Company, of such obligation; and (f) enforce any or all of the rights and remedies of the Company under the Assigned Agreements. Section 6.2 Disposition of the Collateral. (a) Any Collateral repossessed by the Collateral Agent pursuant to and in accordance with Section 6.1, and any other Collateral whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of, in general, in such manner, at such time, at such place and on such terms as the Collateral Agent may fix in the notice of sale described below. Any of the Collateral may be sold, leased or otherwise disposed of in any commercially reasonable manner. Any such disposition shall be by public or private sale upon not less than 10 days' written notice (which the Company agrees is reasonable notification) to the Company specifying the time at which such disposition is to be made and the intended sale or offering price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the 13 Company to acquire the Collateral at a price or for such other consideration at least equal to the intended sale or offering price or other consideration so specified. To the extent permitted by applicable law, the Collateral Agent on behalf of the Senior Parties may bid for and become the purchaser of the Collateral or any item thereof, offered for sale in accordance with this Section 6.2. If, under mandatory requirements of applicable law, the Collateral Agent shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the Company as specified, then the Collateral Agent shall only be required to give the Company such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. In lieu of exercising the power of sale hereunder, the Collateral Agent may proceed by a suit at law or in equity to foreclose the pledge and security interest under this Agreement and sell the Collateral or any portion thereof under a judgment or decree of a court or courts of competent jurisdiction. (b) As used herein, the term "proceeds" includes all cash, securities and other property received in respect of the Collateral, including any cash, securities or other property received under any reorganization, liquidation or adjustment of debt of the Company, and any portion of the Collateral or the products, profits or proceeds thereof which are distributed in kind. (c) The Collateral Agent shall incur no liability as a result of the manner of sale of the Collateral or any part thereof, at any private sale conducted in a commercially reasonable manner and in good faith. The Company hereby waives, to the full extent permitted by applicable law, any claims against the Collateral Agent arising by reason of the fact that the price at which the Collateral or any part thereof may have been sold at a private sale was less than the price which might have been obtained at a public sale, or was less than the aggregate amount of the Obligations, even if the Collateral Agent accepts the first offer received which the Collateral Agent in good faith deems to be commercially reasonable under the circumstances and does not offer the Collateral to more than one offeree. Section 6.3 Waiver of Claims. (a) Except as otherwise provided in this Agreement, the Company hereby waives, to the extent permitted by applicable law, notice and judicial hearing in connection with the Collateral Agent's taking possession or the Collateral Agent's disposition of any of the Collateral, including, without limitation, any and all prior notice and hearing for any prejudgment remedy or remedies and any such right which the Company would otherwise have under the constitution or any statute of the United States, state, or any political subdivision of any such jurisdiction, and the Company hereby further waives, to the extent permitted by applicable law: (i) all damages occasioned by such taking of possession except any damages which are the direct result of the gross negligence or willful misconduct of the Collateral Agent or any Person acting on its behalf or instruction; (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and (iii) all rights of redemption, appraisal, valuation, stay, extension or moratorium in force under any applicable law in order to prevent or delay the 14 enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and the Company, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. (b) Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Company therein, and shall be a perpetual bar both at law and in equity against the Company and against any Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, through the Company. Section 6.4 Application of Proceeds. (a) The proceeds in cash of any Collateral obtained pursuant to Section 6.1 or disposed of pursuant to Section 6.2 shall be applied in accordance with Section 4.1 of the Collateral Agency Agreement. (b) The Company shall remain liable to the extent of any deficiency between (i) the amount of the proceeds in cash of the Collateral received and recovered by the Collateral Agent and (ii) the aggregate amount of the Obligations. Section 6.5 Remedies Cumulative. (a) No failure or delay on the part of the Collateral Agent or any Senior Party in exercising any right, power or privilege hereunder or under the Collateral Agency Agreement and no course of dealing between the Company, on the one hand, and the Collateral Agent or any Senior Party, on the other hand, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement, the Mortgage or the Collateral Agency Agreement preclude any other exercise thereof or the exercise of any other right, power or privilege hereunder. To the fullest extent permitted by law, the rights, powers and remedies herein, in the Mortgage or in the Collateral Agency Agreement are cumulative and not exclusive of any rights, powers or remedies which the Collateral Agent or any Senior Party would otherwise have. No notice to or demand on the Company shall entitle the Company to any further notice or demand in similar circumstances or constitute a waiver of the rights of the Collateral Agent or any Senior Party to any other action in any circumstances without notice or demand. (b) The Collateral Agent is not required to take any discretionary action under this Agreement unless it receives written direction from the Required Senior Parties. The Collateral Agent is entitled to receive indemnification to its satisfaction before taking any action as directed by the Required Senior Parties. Section 6.6 Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then the Company, the Collateral Agent and each Senior Party shall be restored to their former positions and rights under this Agreement with respect to the Collateral subject to the security interests created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. 15 ARTICLE VII INDEMNITY Section 7.1 Indemnity. (a) The Company shall indemnify, reimburse and hold each Indemnitee harmless from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements of whatsoever kind or nature, including reasonable attorneys' fees and expenses in connection therewith (herein referred to as "expenses"), which may be imposed on, asserted against or incurred by any of the Indemnitees in any way arising out of their entering into, or the enforcement by the Collateral Agent (by itself or through one of more other Indemnitees) of its rights under, this Agreement or the documents executed in connection herewith, or in any other way connected with the performance or the administration of the transactions contemplated hereby or thereby or the enforcement of any of the terms of or the preservation of any rights, remedies and powers of the Collateral Agent (or such other Indemnitees) hereunder or thereunder, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or for property damage, or negligence of any form) or any contract claim arising from the transactions contemplated hereby or by the Collateral Agency Agreement; provided, that no Indemnitee shall be indemnified for expenses to the extent caused by the gross negligence or willful misconduct of such Indemnitee. The Company agrees that upon notice by any Indemnitee of any assertion that could give rise to an expense, the Company shall assume full responsibility for the defense thereof, and the Company may assume such responsibility regardless of any notice by the Collateral Agent or an Indemnitee if the Company shall unconditionally assume such responsibility pursuant to an assumption agreement reasonably satisfactory in form and substance to the Collateral Agent (unless such Indemnitee shall decline to permit such assumption); provided, that the Collateral Agent shall retain the right, at the expense of the Company, to monitor any such assertion by engaging a single firm of counsel of its choice, and provided, further, that the Company shall obtain the consent of the Collateral Agent, which consent shall not be unreasonably withheld or delayed, prior to the settlement of any such assertion. Each Indemnitee agrees to notify the Company promptly of any such assertion of which such Indemnitee has knowledge; provided, that its failure to do so or delay in doing so shall not impair its right to indemnification in accordance with this paragraph, except to the extent such failure or delay shall materially impair the ability of the Company to defend such claim. (b) Without limiting the application of Section 7.l(a), to the extent there are insufficient revenues in the Revenue Account for such purpose, the Company agrees, promptly on demand, to pay or reimburse the Collateral Agent for any fees, costs and expenses of whatever kind or nature paid or incurred in connection with the exercise of any of the rights, remedies or powers granted under this Agreement, including without limitation the creation, preservation or protection of the Collateral Agent's rights to the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection 16 with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs, and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. From the date such amounts shall have been paid by the Collateral Agent or its agents, representatives, successors and assigns until actually paid by the Company. (c) Without limiting the application of Section 7.1(a) or (b), the Company agrees to pay, indemnify and hold each Indemnitee harmless from and against any expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any misrepresentation by the Company in this Agreement or in any statement or writing contemplated by or made or delivered pursuant to or in connection with this Agreement. (d) If and to the extent that the obligations of the Company under this Section 7.1 are unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. Section 7.2 Indemnity Obligations Secured by Collateral. (a) Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of the Company contained in this Article VII shall continue in full force and effect notwithstanding the full repayment of the Obligations or the prior termination of this Agreement, the Collateral Agency Agreement or any Project Contracts. (b) The Collateral Agent shall, as soon as practicable after any claim for which it will seek indemnification hereunder is made against it, (i) provide the Company with reasonable detail thereof, (ii) apprise the Company of the Collateral Agent's proposals to define or to settle such claims and any development in relation thereto and (iii) to the extent reasonably available, provide the Company with an estimate as to the likely costs (legal or otherwise) which the Collateral Agent may have to incur in relation to such claim. ARTICLE VIII MISCELLANEOUS Section 8.1 Notices. All notices required to be given under this Agreement shall be in writing and shall be delivered personally (by hand delivery or by overnight courier) or by facsimile transmission (with receipt of transmission confirmation) or mailed (certified mail, postage prepaid) to the Parties at the following addresses or facsimile numbers and shall be effective upon receipt (when sent by personal delivery or by certified mail) and upon receipt of transmission conformation (when sent by facsimile): 17 If to Collateral Agent, to: IBJ Whitehall Bank & Trust Company One State Street New York, New York 10004 Attention: Capital Markets Trust Services, 10th Floor Facsimile: 212-858-2952 If to the Company, to: AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, Pennsylvania 17042 Attention: Facsimile: 717-228-1271 Either Party from time to time may change its address, facsimile number or other information for the purposes of notices to such Party by giving notice specifying such change to the other Party. Section 8.2 Amendment. This Agreement may be changed, waived, discharged, or terminated only by an instrument in writing and signed by the Collateral Agent and the Company and any waiver shall be effective only in the specific instance and for the specific purpose for which given. Section 8.3 No Waiver. No failure on the part of the Collateral Agent or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. Section 8.4 Obligations of the Company. Notwithstanding anything to the contrary contained in this Agreement, the obligations of the Company specified in this Agreement shall be absolute and unconditional (except to the extent expressly provided otherwise) and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever (other than termination as provided in Section 8.9), including, without limitation: (i) any renewal, extension, amendment or modification of, or addition or supplement to or deletion from, the Collateral Agency Agreement, any other Security Document, any Financing Document, Project Contract or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such instrument or agreement or this Agreement or any exercise or non-exercise of any right, remedy, power or privilege under or in respect of this Agreement, the Collateral Agency Agreement, any other Security Document, any Financing Document or any Project Contract; (iii) any furnishing of any additional security to the Collateral Agent or any acceptance thereof or any sale, exchange, release, surrender or realization of or upon any security by the Collateral Agent; or (iv) any invalidity, irregularity or unenforceability 18 of all or part of the Obligations or of any security therefor. In the event of any inconsistency between this Agreement and the Collateral Agency Agreement, the latter shall govern. Section 8.5 Successors and Assigns. Any corporation or bank into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation or bank resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation or bank succeeding to all or substantially all of the corporate trust business of the Collateral Agent, shall be the successor of the Collateral Agent hereunder, provided such corporation or bank shall be otherwise qualified and eligible under this Section 8.5, without the execution or filing of any paper or any further act on the part of any of the parties hereto. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties and shall inure to the benefit of the Collateral Agent; provided, that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Collateral Agent (which consent shall be subject to the terms of the Collateral Agency Agreement), and the Collateral Agent may assign its rights only to a successor Collateral Agent under the Collateral Agency Agreement or in connection with the exercise of its rights and remedies under this Agreement. All agreements, statements, representations and warranties made by the Company herein or in any certificate or other instrument delivered by the Company or on its behalf under this Agreement shall be considered to have been relied upon by the Senior Parties and the Collateral Agent and shall survive the execution and delivery of this Agreement, the Collateral Agency Agreement, any other Financing Document or any Project Contract, regardless of any investigation made by the Collateral Agent or any other Person. Section 8.6 Governing Law. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Security Agreement and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Security Agreement, the Company hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. The Company hereby irrevocably designates, appoints and empowers CT Corporation System, 1633 Broadway, New York, New York, 10019, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Company, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Collateral Agent. The Company irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, in accordance with Section 8.1. The Company hereby irrevocably waives any objection 19 which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Security Agreement brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Collateral Agent to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. Section 8.7 Continuing Liability of the Company. Notwithstanding anything to the contrary contained in this Agreement, the Company shall remain liable to perform all of the obligations binding upon it with respect to the Collateral to the same extent as if this Agreement had not been executed. The exercise by the Collateral Agent of any of the rights hereunder shall not release the Company from any of its duties or obligations in respect of any of the Collateral except, to the extent that such Collateral is foreclosed upon hereunder, in which event the Company shall be released only in respect of the obligations under or in respect of such Collateral that arise after such foreclosure. Section 8.8 No Third-Party Beneficiaries. The agreements of the parties hereto are solely for the benefit of the Company, the Collateral Agent, the Indemnitees and the Senior Parties, and no other Person shall have any rights hereunder. Section 8.9 Continuing Assignment and Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the discharge of the Collateral Agency Agreement as provided in Section 7.11 thereof. At such time, the security interest granted and Liens and the assignment made hereby shall terminate and all rights to the Collateral shall revert to the Company. Upon any such termination, the Collateral Agent shall, at the Company's expense, execute and deliver to the Company such documents as the Company shall reasonably request to evidence such termination. Section 8.10 Headings. Headings used in this Agreement are for convenience of reference only and do not constitute part of this Agreement for any purpose. Section 8.11 Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (a) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Collateral Agent in order to carry out the intentions of the parties hereto as nearly as may be possible and (b) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. Section 8.12 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 20 Section 8.13 Limited-Recourse. In the event of no-performance by the Company of its Obligations under this Agreement, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, no recourse shall be had to (i) any assets or properties of any of the Members (or any person that controls any Members within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) or (ii) any Affiliate of the Company or any incorporators, officers, directors or employees thereof, and no judgment relating to the obligations of the Company under this Agreement, the Obligations, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be obtainable by the Senior Parties or the Collateral Agent against any Members or Affiliate of the Company or any other incorporator, stockholder, officer, employee or director past, present or future of the Company or any Affiliate of the Company; provided, however, that nothing contained herein shall prevent the taking of any action permitted by law against the Company or any of its Affiliates, or in any way affect or impair the rights of the Collateral Agent or Senior Parties to take any action permitted by law, in either case to realize upon the Collateral and, provided further, that nothing herein shall be deemed to affect the obligations of any Affiliate of the Company under any Transaction Document to which such Affiliate is a party. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 21 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. AES IRONWOOD, L.L.C. By /s/ Patricia L. Rollin -------------------------------- Name: Patricia L. Rollin Title: Vice President IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent By /s/ Thomas McCutcheon -------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President IN PRESENCE OF: /s/ Cynthia Fraser - ------------------------------- Witness: /s/ Cynthia Fraser - ------------------------------- Witness: CORPORATE ACKNOWLEDGMENT STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this 25th day of June, 1999 by Patricia L. Rollin, who is Vice President of AES Ironwood, L.L.C., a Delaware limited liability company, on behalf of the company. /s/ Katherine Lee Dominus --------------------------------------- Notary Public KATHERINE LEE DOMINUS Notary Public, State of New York No. 31-6014464 Qualified in New York County Commission Expires Oct. 13, 2000 My Commission Expires: October 13, 2000 CORPORATE ACKNOWLEDGMENT STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this 25th day of June, 1999 by Thomas McCutcheon, who is Assistant Vice President of IBJ Whitehall Bank & Trust Company, a New York banking corporation, on behalf of the corporation. /s/ Katherine Lee Dominus --------------------------------------- Notary Public KATHERINE LEE DOMINUS Notary Public, State of New York No. 31-6014464 Qualified in New York County Commission Expires Oct. 13, 2000 My Commission Expires: October 13, 2000 EX-4.8 10 PLEDGE AND SECURITY AGREEMENT Exhibit 4.8 EXECUTION COPY - -------------------------------------------------------------------------------- PLEDGE AND SECURITY AGREEMENT between AES IRONWOOD, INC. as Pledgor and IBJ WHITEHALL BANK & TRUST COMPANY as Collateral Agent Dated as of June 1, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- 1. Definitions............................................................2 2. Pledge.................................................................2 3. Representations, Warranties and Covenants..............................3 4. Default................................................................5 5. Rights and Remedies Upon Event of Default..............................5 6. Security Interest Absolute.............................................5 7. Pledgor Remains Liable.................................................6 8. No Duty on Collateral Agent's Part.....................................6 9. Notices................................................................6 10. Waiver.................................................................6 11. Time of Essence........................................................7 12. Binding Upon Successors................................................7 13. Captions...............................................................7 14. Governing Law, Legal Proceedings and Waiver of Jury Trial..............7 15. Amendments, Changes and Modifications..................................8 16. Severability...........................................................8 17. Collateral Agent Not Liable............................................8 18. Limitation of Recourse.................................................8 19. Counterparts...........................................................9 20. Continuing Assignment, Pledge and Security Interest....................9 21. Security Only..........................................................9 22. Payments Set Aside.....................................................9 Annexes i PLEDGE AND SECURITY AGREEMENT This PLEDGE AND SECURITY AGREEMENT (this "Pledge Agreement"), dated as of June 1, 1999, by and between AES IRONWOOD, INC., a corporation organized and validly existing under the laws of the State of Delaware (the "Pledgor") and IBJ Whitehall Bank and Trust Company, a bank duly organized and existing under the laws of the State of New York ("IBJ"), as collateral agent (together with its successors in such capacity, the "Collateral Agent") for the benefit of and on behalf of the Senior Parties defined below. A. AES IRONWOOD, L.L.C., a limited liability company organized and validly existing under the laws of the State of Delaware (the "Company") is providing for the development, construction, ownership and operation of a nominal 705 MW (net) gas-fired combined cycle electric generating facility and related equipment and facilities (the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the development and construction of the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ, as trustee (the "Trustee") and depositary bank, as it may be amended or supplemented from time to time (the "Indenture"). C. In connection with the commencement of commercial operation of the Project, the Company is required to deliver the Debt Service Reserve Letter of Credit (the "DSR Letter of Credit"). Dresdner Bank New York Branch ("Dresdner"), as issuing bank, has agreed to issue the DSR Letter of Credit subject to the terms and conditions contained in the DSR LOC Reimbursement Agreement, dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "DSR LOC Reimbursement Agreement"), among each of the banks and financial institutions parties thereto and Dresdner, as issuing bank and as agent for such banks including the issuing bank and financial institutions (in such capacity as agent, and together with its successors and assigns, the "DSR LOC Provider"). D. In connection with the Company's obligations under Section 19.2 of the Power Purchase Agreement, the Company may deliver the Construction Period Letter of Credit (the "CP LOC"). Dresdner, as issuing bank, has agreed to issue the CP LOC subject to the terms and conditions contained in the CP LOC Reimbursement Agreement, dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "CP LOC Reimbursement Agreement"), among each of the banks and financial institutions parties thereto and Dresdner, as issuing bank and as agent for such banks and the issuing bank and financial institutions (in such capacity as agent, and together with its successors and assigns, the "CP LOC Provider"). E. The Company may finance certain working capital requirements of the Project by entering into a working capital agreement with a financial institution for the provision of credit to the Company (such financial institution, the "Working Capital Provider"). F. All obligations of the Company under the Securities, the DSR LOC Reimbursement Agreement and related evidences of indebtedness, the CP LOC Reimbursement Agreement and related evidences of indebtedness, the Collateral Agency Agreement (defined below), and any working capital agreement (collectively, the "Financing Documents") to the Trustee, the DSR LOC Provider, the CP LOC Provider, the Collateral Agent, any Working Capital Provider, each successor to any such person and any person providing Senior Debt to the Company who becomes a party to the Collateral Agency Agreement in accordance with its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, the Security Agreement, the Indenture, this Pledge Agreement and the Assignment of Leases and Income, each between the Company and the Collateral Agent (collectively, the "Security Documents"). G. The Collateral Agent, the Company, the DSR LOC Provider, the CP LOC Provider and the Trustee entered into the Collateral Agency and Intercreditor Agreement dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. H. On the Closing Date, the Pledgor owns 100% of all of the ownership interests of the Company. I. In order to better secure the benefits of the other Collateral subject of the Security Documents, the Pledgor has agreed to pledge the ownership interests of the Company owned by the Pledgor from time to time. NOW, THEREFORE, in consideration of the premises set forth above, the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and FOR THE PURPOSE OF SECURING the payment and performance of the Senior Debt, which Senior Debt may increase, decrease and increase again, from time to time, the parties hereto hereby agree as follows: 1. Definitions. Except as otherwise expressly provided herein, capitalized terms used in this Pledge Agreement and its Annexes shall have the meaning given to them in the Indenture and the rules of construction set forth in Section 1.1. of the Indenture shall apply herein as if set forth in this Pledge Agreement. 2. Pledge. (a) As security for the full payment or performance when due (whether at stated maturity, by acceleration or otherwise) of any and all of the Senior Debt now existing or 2 hereafter arising, the Pledgor hereby grants, pledges and collaterally assigns to and creates in favor of the Collateral Agent, a lien on (the "Security Interest") in all estate, right, title and interest of the Pledgor in, to and under the following collateral, whether now existing or hereafter acquired (the "LLC Collateral"): (i) the ownership interests in the Company and to the extent any of the following shall now or hereinafter exist any certificates identified in Annex I hereto and all other ownership interests of whatever class in the Company, now or hereafter owned by the Pledgor, in each case together with the certificates evidencing the same (collectively, the "Pledged Interests"); (ii) to the extent any of the following shall now or hereafter exist all shares, securities, moneys or property representing a dividend on any of the Pledged Interests, or representing a distribution or return of capital upon or in respect of the Pledged Interests (a "Dividend"), or resulting from a split-up, revision, reclassification or other like change of the Pledged Interests or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Interests; provided, however, that such Security Interest in any Dividend shall not apply to, or to the extent such Security Interest is then existing, shall be released without any notice or required action from, such Dividend once such Dividend is distributed from the Distribution Account in accordance with the terms of the Collateral Agency Agreement and is no longer an asset of the Company; (iii) without affecting the obligations of the Pledgor or the Company under any provision prohibiting such action hereunder, in the event of any consolidation or merger in which the Company is not the surviving entity, all shares owned by the Pledgor of each class of the capital stock of the successor entity formed by or resulting from such consolidation or merger; (iv) to the extent not included in the foregoing, all proceeds, products and accessions of and to any and all of the foregoing, including, without limitation, "proceeds," as defined in the Uniform Commercial Code of the State of New York (the "UCC"), including whatever is received upon any collection, exchange, sale or other disposition of any of the LLC Collateral, and any property into which any of the LLC Collateral is converted, whether cash or noncash proceeds, and any and all other amounts paid or payable under or in connection with any of the LLC Collateral; it being understood that the Security Interest in the proceeds, products and accessions of and to any LLC Collateral shall not apply to, or to the extent such Security Interest is then existing, shall be released without any notice or required action from, such LLC Collateral once such LLC Collateral is distributed from the Distribution Account in accordance with the terms of the Collateral Agency Agreement and is no longer an asset of the Company. (b) This Pledge Agreement secures, in accordance with the provisions hereof, the Senior Debt. 3 (c) The Collateral Agent and the Pledgor acknowledge and agree that remedies, if any, that may be exercised from time to time hereunder during the continuance of a Trigger Event under the Collateral Agency Agreement, will be exercised by the Collateral Agent subject to, and in accordance with, the terms of the Collateral Agency Agreement. 3. Representations, Warranties and Covenants. The Pledgor hereby represents, warrants and covenants as follows: (a) The Security Interest granted and created pursuant to this Pledge Agreement is a legal and valid security interest in the LLC Collateral now owned by the Pledgor or hereafter acquired. (b) The Security Interest granted and created pursuant to this Pledge Agreement (i) with respect to such of the LLC Collateral in which a security interest may be perfected by the filing of a Financing Statement, will, upon the filing of the necessary Financing Statements in all appropriate jurisdictions, create a perfected security interest in the LLC Collateral now owned by the Pledgor or hereafter acquired in which a security interest may be perfected by filing; and (ii) with respect to such of the LLC Collateral in which a security interest may be perfected by possession, will, upon the Collateral Agent's taking possession of such LLC Collateral, create a perfected security interest in such LLC Collateral now owned by the Pledgor or hereafter acquired in which a security interest may be perfected by possession. (c) The Pledgor shall cause (i) the organizational documents in respect of the formation of the Company and (ii) the certificates representing the Pledged Interests in the Company to each recite that such organizational documents and Pledged Interests shall be governed by Article 8 of the UCC. (d) The Pledgor is the legal and beneficial owner of the LLC Collateral now owned by it, free and clear of all Liens. (e) The Pledgor shall notify the Collateral Agent promptly in writing of any claim against the LLC Collateral adverse (other than to a de minimis extent) to the interest of the Collateral Agent hereunder. (f) The Pledgor agrees that from time to time upon the request of the Collateral Agent, the Pledgor will, at its sole cost and expense, promptly execute and deliver all further instruments and documents, and take all further action, which may be necessary or reasonably advisable, or that the Collateral Agent may reasonably request, in order to perfect, maintain, preserve and protect the Security Interest granted or purported to be granted hereby. Without limiting the generality of the foregoing, the Pledgor will: (i) if any LLC Collateral shall be evidenced by a promissory note or other instrument, deliver and pledge to the Collateral Agent hereunder such note or instrument duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Collateral Agent, and (ii) execute and file such financing or continuation statements, or amendments thereto and assignments thereof, and such other instruments, endorsements or notices, as may be necessary, or as the Collateral Agent may reasonably request in writing, in order to perfect, maintain, preserve and protect the Security Interest granted or purported to be granted hereby. 4 The Pledgor hereby authorizes the Collateral Agent to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relating to all or any part of the LLC Collateral without the signature of the Pledgor where permitted by law. (g) The Pledgor shall keep and maintain, at its sole cost and expense, satisfactory and complete records of the LLC Collateral. The Pledgor shall furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the LLC Collateral and such other reports in connection with the LLC Collateral as the Collateral Agent may reasonably request, all in reasonable detail. (h) The Pledgor shall not create, incur or permit to exist, and will defend the LLC Collateral against, and shall take such other action as is necessary, to remove any Lien or claim on or to the LLC Collateral and will defend the right, title and interest of the Collateral Agent in and to any of the LLC Collateral against the claims and demands of all Persons whomsoever. In furtherance thereof, the Pledgor agrees (i) not to enter into a "control agreement" with or grant "control" (within the meaning of the UCC) to any Person other than the Collateral Agent in respect of any of the LLC Collateral that constitutes "uncertificated securities" (within the meaning of the UCC) or (ii) not to cause the Collateral Agent to register any transfer of any of the LLC Collateral that constitutes "uncertificated securities" (within the meaning of the UCC) to any Person other than the Collateral Agent. (i) The principal place of business and chief executive office of the Pledgor and the office where the Pledgor keeps its records concerning the LLC Collateral, including the registration book in which all ownership interests of the Company and pledges and transfers thereof are recorded (hereinafter, collectively called the "Records") is located at the Pledgor's address for notices set forth in the signature pages hereto. (j) The Pledged Interests are duly authorized, validly existing, fully paid and non-assessable and none of such Pledged Interests are subject to any contractual restriction, or any restriction under the organic documents of the Company, upon the transfer of such Pledged Interests (except for any such restriction contained herein). (k) The Pledged Interests constitute all of the issued and outstanding shares of ownership interests of any class of the Company beneficially owned by the Pledgor on the date hereof (whether or not registered in the name of the Pledgor). (l) The Pledgor owns 100% of the issued and outstanding ownership interests of the Company as of the date hereof. 4. Default. The occurrence and continuation of a Trigger Event under the Collateral Agency Agreement shall be deemed an "Event of Default" under this Pledge Agreement: 5. Rights and Remedies Upon Event of Default. The remedies of the Collateral Agent following an Event of Default hereunder or otherwise are set forth in the Collateral Agency Agreement and the exercise of such remedies, if any, shall be done by the Collateral Agent as, when and to the extent permitted thereunder. 5 6. Security Interest Absolute. All rights of the Collateral Agent hereunder, the Security Interest and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Collateral Agency Agreement or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Senior Debt, or any other amendment or waiver of or any consent to any departure from the Collateral Agency Agreement or any of the LLC Collateral; (iii) any exchange, release or non-perfection of any LLC Collateral or any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Senior Debt; or (iv) to the fullest extent permitted by law, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Pledgor or any third party pledgor. 7. Pledgor Remains Liable. Anything herein to the contrary notwithstanding, the Pledgor shall remain liable under any agreements included in the LLC Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Pledge Agreement had not been executed. The exercise by the Trustee or the Collateral Agent of any of the rights or remedies hereunder shall not release the Pledgor from any of its duties or obligations under any agreements included in the LLC Collateral, except to the extent the Pledgor is expressly released therefrom by the Trustee or the Collateral Agent in writing. The Collateral Agent shall not have any obligation or liability under the LLC Collateral by reason of this Pledge Agreement, nor shall the Collateral Agent be obligated to perform any of the obligations or duties of the Pledgor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder, except to the extent the Collateral Agent expressly assumes such obligations or duties in writing consistent with its rights under this Pledge Agreement. 8. No Duty on Collateral Agent's Part. The powers conferred on the Collateral Agent hereunder are solely to protect the Collateral Agent's interests in the LLC Collateral and shall not impose any duty upon it to exercise any such powers. The Collateral Agent shall be accountable only for amounts that it receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Pledgor for any act or failure to act hereunder, except for its own gross negligence or willful misconduct. 9. Notices. All notices, demands, requests and other communications required or permitted hereunder shall be in writing and shall be given and deemed to have been given in accordance with the Collateral Agency Agreement. 10. Waiver. By exercising or failing to exercise any of its rights, options or elections hereunder (without also expressly waiving the same in writing), the Collateral Agent shall not be 6 deemed to have waived any breach or default on the part of the Pledgor or to have released the Pledgor from any of its obligations secured hereby. No failure on the part of the Collateral Agent to exercise, and no delay in exercising (without also expressly waiving the same in writing), any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. 11. Time of Essence. TIME IS OF THE ESSENCE WITH RESPECT TO THIS PLEDGE AGREEMENT AND ALL OF ITS PROVISIONS. 12. Binding Upon Successors. This Pledge Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of each of the parties hereto. 13. Captions. The captions, headings and table of contents used in this Pledge Agreement are for convenience only and do not and shall not be deemed to affect, limit, amplify or modify the terms and provisions hereof. 14. Governing Law, Legal Proceedings and Waiver of Jury Trial. (a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Pledge Agreement and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Pledge Agreement, the Pledgor hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. The Pledgor hereby irrevocably designates, appoints and empowers CT Corporation System, 1633 Broadway, New York, New York, 10019, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Pledgor, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Collateral Agent. The Pledgor irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, in accordance with Section 9. The Pledgor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Pledge Agreement brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Collateral Agent to serve process in any other 7 manner permitted by law or to commence legal proceedings or otherwise proceed against the Pledgor in any other jurisdiction. (c) EACH PARTY HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS PLEDGE AGREEMENT AND ANY AGREEMENTS CONTEMPLATED HEREBY TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EACH PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS PLEDGE AGREEMENT. 15. Amendments, Changes and Modifications. This Pledge Agreement may not be effectively amended or terminated except with the written consent of the Pledgor and the Collateral Agent. 16. Severability. Any provision of this Pledge Agreement that is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization, without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. 17. Collateral Agent Not Liable. Neither this Pledge Agreement nor any action on the part of the Collateral Agent (other than an express written assumption) shall constitute an assumption by the Collateral Agent of any of the obligations of the Pledgor related to any of the LLC Collateral, and the Pledgor shall continue to be liable for all such obligations whether incurred before or after an Event of Default. 18. Limitation of Recourse. In the event of non-performance by the Pledgor under this Pledge Agreement, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, no recourse shall be had to (i) any other assets or properties of the Pledgor (or any person that controls the Pledgor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) or (ii) any Affiliate of the Pledgor or any incorporators, officers, directors or employees thereof, and no judgment relating to the obligations of the Pledgor under this Pledge Agreement, or any part thereof, or for any claim based thereon or otherwise in respect thereof or related thereto, shall be obtainable by the Senior Parties or the Collateral Agent against the Pledgor or any Affiliate of the Pledgor or any other incorporator, stockholder, officer, employee or director past, present or future of the Pledgor or any Affiliate of the Pledgor; provided, however, that nothing contained herein shall prevent the taking of any action permitted by law against the Pledgor or any of its Affiliates, or in any way affect or impair the rights of the Collateral Agent or Senior Parties to take any action permitted by law, in either case to realize upon the LLC Collateral and, provided further, that nothing herein shall be deemed to affect the obligations of any Affiliate of the Pledgor under any Transaction Document to which such Affiliate is a party. 8 19. Counterparts. This Pledge Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 20. Continuing Assignment, Pledge and Security Interest. This Pledge Agreement shall create a continuing assignment, pledge and security interest in the LLC Collateral and shall remain in full force and effect for the benefit of the Collateral Agent until the satisfaction in full of the Senior Debt. Except as set forth in Section 22 hereof, upon the payment in full of the Senior Debt and all other amounts owing to the Collateral Agent under the Financing Documents, the Security Interest granted hereby shall terminate and all rights to the LLC Collateral shall revert to the Pledgor. In connection with such termination, the Collateral Agent shall execute such instruments of release prepared by the Pledgor as the Pledgor shall reasonably request at the Pledgor's sole cost and expense. 21. Security Only. This Pledge Agreement is granted for security purposes only. Accordingly, the Collateral Agent shall not enforce its rights with respect to the LLC Collateral until such time as an Event of Default shall have occurred and be continuing. 22. Payments Set Aside. To the extent that the Pledgor or any other Person on behalf of the Pledgor makes a payment or payments to the Collateral Agent, or the Collateral Agent enforces its security interests or exercise its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff of any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the Senior Debt or any part thereof originally intended to be satisfied, and this Pledge Agreement and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 9 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed as of the date first written above. AES IRONWOOD, INC. By: /s/ Patricia L. Rollin -------------------------------- Name: Patricia L. Rollin Title: Vice President IBJ WHITEHALL BANK & TRUST COMPANY By: /s/ Thomas McCutcheon -------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President [PLEDGE AND SECURITY AGREEMENT] Annex I AES IRONWOOD, L.L.C. Witnesseth, this Certificate represents TEN (10) COMMON SHARES of AES IRONWOOD, L.L.C. (the "Company") and is registered in the name of AES IRONWOOD, INC. (the "Initial Shareholder"). The Initial Shareholder is entitled to those preferences and rights as set forth in Article III of the Limited Liability Company Agreement (the "Agreement") of the Company. This Certificate is transferable only in accordance with Section 3.2 and Section 6.1 of the Agreement. This Certificate is governed by Article 8 of the Uniform Commercial Code of the State of New York. /s/ Patricia L. Rollin /s/ Eileen M. Cates - ----------------------------- ----------------------------- Annex II to PLEDGE AND SECURITY AGREEMENT DATED AS OF JUNE 1, 1999 FORM OF STOCK POWER FOR VALUE RECEIVED, the undersigned, AES IRONWOOD, INC., a corporation organized and validly existing under the laws of the State of Delaware, does hereby sell, assign and transfer to ___________________________________ ten (10) Common Shares of AES IRONWOOD, L.L.C. (the "Company"), a limited liability company organized and validly existing under the laws of the State of Delaware (the "Stock"), standing in the name of the undersigned on the books of said company and does hereby irrevocably constitute and appoint ______________________ _________________ as the undersigned's true and lawful attorney, for it and in its name and stead, to, as and to the extent permitted pursuant to Section 2.3 of the Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, among the Company, IBJ Whitehall Bank & Trust Company, in its various capacities as described therein and Dresdner Bank AG, New York Branch, in its various capacities as described therein (the "Collateral Agency Agreement"), sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof in accordance with the provisions of the Collateral Agency Agreement. Dated: AES IRONWOOOD, INC. By: -------------------------------- Name: Title: II-1 EX-4.9 11 CONSENT TO ASSIGNMENT Exhibit 4.9 EXECUTION VERSION WILLIAMS ENERGY MARKETING & TRADING COMPANY CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by WILLIAMS ENERGY MARKETING & TRADING COMPANY, a Delaware corporation (the "Consenting Party"), and IBJ WHITEHALL BANK & TRUST COMPANY, as collateral agent (the "Collateral Agent", together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, is providing for the development, construction, ownership and operation of a nominal 705 MW (net) gas-fired combined cycle electric generating facility (the "Facility") and the financing, development and construction thereof (the Facility, equipment and facilities associated with the Facility and such financing, development and construction, the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the development and construction of the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. All obligations of the Company under the Securities, the Collateral Agency Agreement (defined below) and any other agreements evidencing senior debt of the Company (collectively, the "Financing Documents") to the Trustee, the Collateral Agent, each successor to any such person and each other person providing senior debt to the Company who is or becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). D. The Senior Parties and the Company have entered into the Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. E. The Company and the Consenting Party have entered into that certain Amended and Restated Power Purchase Agreement, dated as of February 5, 1999, as amended by that certain amendment dated June 18, 1999 (as amended, the "Assigned Agreement") for the sale of the Facility's net capacity and ancillary services and the provision of fuel conversion services. F. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Agreement is to be assigned to the Assignee as security pursuant to one or more of the Security Documents. G. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Agreement. 2. Consent to Assignment. Subject to the terms and conditions of this Consent to Assignment, the Consenting Party hereby irrevocably consents to the assignment of the Assigned Agreement by the Company to the Assignee for the benefit of the Senior Parties as security, and the Consenting Party shall continue performance under the Assigned Agreement in accordance with its terms and the terms of this Consent to Assignment. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Agreement is in full force and effect and there are no amendments, modifications or supplements thereto, either oral or written agreed to by it, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Agreement or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any provision of the Assigned Agreement and no knowledge of any grounds for termination of the Assigned Agreement by the Consenting Party, (d) to its knowledge none of the Company's rights under the Assigned Agreement has been waived, (e) the assignment by the Company of the Assigned Agreement to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party pursuant to and in accordance with this Consent to Assignment, will not cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement, and (f) a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof pursuant to and in accordance with this Consent to Assignment, shall not require the consent of the Consenting Party or cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement. 2 4. Notice of Company's Defaults and Termination. Anything in the Assigned Agreement notwithstanding, for so long as any financing liabilities are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not exercise any right it may have under the Assigned Agreement, at law or in equity, to cancel, suspend or terminate the Assigned Agreement, or any of its obligations thereunder, as the result of any default or other action or omission of the Company without first giving a copy of a notice of default to the Assignee, such notice to be coupled with an opportunity to cure any such default during the same cure period as provided to the Company in the Assigned Agreement, but in no event less than sixty (60) days from notice to Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances, but not more than 120 days beyond the expiration of the cure period provided in the Assigned Agreement, to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties, or any of their respective assignees or designees is diligently pursuing such cure or foreclosure), such cure period to commence upon delivery of such notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period. Such notice shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith, or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 Failure of the Consenting Party to provide such notice to the Assignee shall not constitute a breach of this Consent to Assignment, and the Assignee agrees that the Consenting Party shall have no liability to the Assignee for such failure whatsoever; however, no cancellation, suspension or termination of the Assigned Agreement by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the applicable cure period. Any dispute that may arise under the Assigned Agreement notwithstanding, the Consenting Party shall continue performance under the Assigned Agreement and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods. The Assignee, any of the Senior Parties or any of their respective assignees or designees may, but shall be under no obligation to, make any payment or perform 3 any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. If the Assignee, any of the Senior Parties or any of their respective assignees or designees fails to cure or rectify the effect of a default under the Assigned Agreement within the same cure period as provided to the Company in the Assigned Agreement or within sixty (60) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the curing party's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances, but not more than 120 days beyond the expiration of the cure period provided in the Assigned Agreement, to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties or any of their respective assignees or designees is diligently pursuing such cure or such foreclosure), whichever is longer, such cure period to commence upon such notice to the Assignee, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Agreement. 5. Amendment and Modification Without Consent. The Consenting Party shall not amend, modify or consent to the amendment or modification of the Assigned Agreement without the prior written consent of the Assignee, unless the Company has certified to the Consenting Party in writing that such amendment, modification or consent to amendment or modification is permitted under the terms of the Financing Documents. 6. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Agreement shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Agreement directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C., for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. Any such payment shall be deemed to be a payment by the Consenting Party to the Company under the Assigned Agreement. 7. Protection of the Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Agreement under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, and in either case (i) no funds payable under the Assigned Agreement shall be due and payable to the Consenting Party, (ii) the effect upon the Consenting Party of any default not susceptible of being corrected shall have been rectified to Consenting Party's reasonable satisfaction, (iii) the Assigned Agreement shall have been validly terminated pursuant to the terms of the Assigned Agreement by reason of a default or a rejection by the Company or a trustee in bankruptcy under Title 11, United States Code, or other similar Federal or state statute, and (iv) the Assignee or any of the Senior Parties shall have cured, or shall be diligently pursuing a cure of, or shall have entered into a binding obligation providing 4 for the cure of, any default susceptible of being corrected by Assignee or any of the Senior Parties or by a purchaser at any judicial or non-judicial sale, the Consenting Party shall, promptly, and in no event longer than ten (10) days after receipt of written request therefor; provided, such request is received by the Consenting Party not more than 60 days after any event specified in clause (a) or (b) above, execute and deliver an agreement to the Assignee, any of the Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, for the remainder of the term of the Assigned Agreement and with the same terms as are contained therein; provided, that any nominee, purchaser, assignee, or transferee of the Assignee or the Senior Parties (x) shall have operated, or contracted with a party that has operated a power generating facility using technology similar to that of the Facility and (y) shall assume in writing the obligations of the Company under the Assigned Agreement. References in this Consent to Assignment to "Assigned Agreement" shall be deemed also to include such new agreement. 8. Acknowledgement of the Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. Neither the Assignee nor any of the Senior Parties shall have any obligation to the Consenting Party under the Assigned Agreement unless and until such time as such entity succeeds to the interest of the Company under the Assigned Agreement pursuant to the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized under the Security Documents, to (a) take possession of the Project and operate the same, (b) sell or otherwise transfer their interest in the Project and any purchaser at such sale shall succeed to the Assignee's or the Senior Parties' rights hereunder, as the case may be, and (c) exercise all rights of the Company under the Assigned Agreement in accordance with the terms thereof. In the case of subsection (b) above, the Assignee and the Senior Parties agree that any purchaser, assignee, or transferee of the Project (x) shall have operated, or contracted with a party that has operated a power generating facility using technology similar to that of the Facility and (y) shall assume in writing the obligations of the Company under the Assigned Agreement. Subject to the Assignee's compliance with the provisions of the Assigned Agreement (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee and comply in all respects in the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees satisfying the qualifications set forth in clause (x) and (y) of this Section 8 shall have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Agreement and to otherwise exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement. The Assignee, any of the Senior Parties or any of their respective assignees or designees satisfying the qualifications set forth in clause (x) and (y) of this Section 8 shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder within the time periods provided in the Assigned Agreement; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective 5 designees or assignees to cure any default of the Company under the Assigned Agreement or to perform any act, duty or obligation of the Company under the Assigned Agreement. 9. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a new consent to assignment as requested by such lenders; provided that the terms and conditions contained in such consent to assignment shall be no less favorable to the Consenting Party than those terms and conditions contained in this Consent to Assignment unless the documentation governing such refinancing adversely affects the Consenting Party's rights or remedies under the Assigned Agreement compared to its position prior to such refinancing. 10. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in all jurisdictions where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Agreement) and the properties it owns. (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Agreement and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Agreement and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party (except those previously obtained, in full force and effect and attached hereto as Exhibit 10(b)(i)), (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party, (iii) result in a breach of or constitute a default under any material indenture, loan or credit agreement or any other material agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party or any agreement referred to above in clause (iii) of this subsection (b), which violation could have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (c) The Assigned Agreement and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting 6 Party, enforceable in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained, in full force and effect and attached hereto as Exhibit 10(d)) is required in connection with the execution and delivery of the Assigned Agreement or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained all permits, licenses, approvals, consents, authorizations and exemptions, if any, with respect to the performance of its obligations under the Assigned Agreement and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof. (e) The Consenting Party is not in default with respect to the Assigned Agreement and has no knowledge, as of the date hereof, of any claims or rights of set-off by the Consenting Party or by any of its affiliates against the Company. (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the business, condition (financial or otherwise) or operations of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Agreement or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal. 11. Concerning the Assigned Agreement. (a) Section 9.9. The Consenting Party acknowledges and accepts that certain maintenance services will be provided to the Company pursuant to that certain Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of September 23, 1998 between the Company and Siemens Westinghouse Power Corporation. (b) Section 11.4. The Consenting Party agrees that Fuel Conversion Volume Rebates and Non-Dispatch Payments from the Company to the Consenting Party that are expressly stated under the Assigned Agreement to be paid on a basis subordinate to the Company's debt service shall be so subordinated and shall not be subject to set-off under the Assigned Agreement. 7 (c) Section 22.2. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, and to the extent authorized under the Security Documents, the Assignee or any of the Senior Parties, subject to the prior right of the Consenting Party pursuant to Section 27.6 of the Assigned Agreement, shall have the right to sell or otherwise transfer their interest in the Project, including their interest in the Assigned Agreement, to any purchaser and Section 22.2 of the Assigned Agreement shall not apply to such sale or other transfer. (d) Section 27.6. The Consenting Party acknowledges that, in calculating the amount referred to in clause (ii) of the second sentence of Section 27.6, the amount due and owing to the Senior Secured Parties shall be determined by reference to the Financing Documents and that no consummation of the transaction contemplated by Section 27.6 shall occur without the execution and delivery by the Collateral Agent of an agreement of satisfaction and release in a form satisfactory to the Collateral Agent and the Consenting Party. 12. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 13. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 14. Governing Law. (a) THIS CONSENT TO ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Consent to Assignment and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Consent to Assignment, each of the Consenting Party, the Company and the Collateral Agent hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. Each of the Consenting Party and the Company hereby irrevocably designates, appoints and empowers CT Corporation System as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Company or the Consenting Party, as applicable, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Collateral Agent. Each of the Consenting Party, the Company and the Collateral Agent irrevocably consents to the service of process out of any of 8 the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address provided herein. Each of the Consenting Party, the Company and the Collateral Agent hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Consent to Assignment brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Collateral Agent or its designees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. 15. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 16. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 17. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 9 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. WILLIAMS ENERGY MARKETING & TRADING COMPANY By: /s/ Philip J. Scalzo ------------------------------- Name: Philip J. Scalzo Title: Vice President IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon ------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------------ Name: Patricia L. Rollin Title: Vice President EX-4.10 12 CONSENT TO ASSIGNMENT Exhibit 4.10 EXECUTION VERSION THE WILLIAMS COMPANIES, INC. CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by THE WILLIAMS COMPANIES, INC., a Delaware corporation (the "Consenting Party"), and IBJ WHITEHALL BANK & TRUST COMPANY, as collateral agent (the "Collateral Agent", together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, is providing for the development, construction, ownership and operation of a nominal 705 MW (net) gas-fired combined cycle electric generating facility (the "Facility") and the financing, development and construction thereof (the Facility, equipment and facilities associated with the Facility and such financing, development and construction, the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the development and construction of the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. All obligations of the Company under the Securities, the Collateral Agency Agreement (defined below) and any other agreements evidencing senior debt of the Company (collectively, the "Financing Documents") to the Trustee, the Collateral Agent, each successor to any such person and each other person providing senior debt to the Company who is or becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). D. The Senior Parties and the Company have entered into the Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. E. The Consenting Party has issued in favor of the Company that certain Guaranty (the "Assigned Agreement") dated as of June 25, 1999 in respect of the Power Purchase Agreement. F. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Agreement is to be assigned to the Assignee as security pursuant to one or more of the Security Documents. G. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Agreement. 2. Consent to Assignment. Subject to the terms and conditions of this Consent to Assignment, the Consenting Party hereby irrevocably consents to the assignment of the Assigned Agreement by the Company to the Assignee for the benefit of the Senior Parties as security, and the Consenting Party shall continue performance under the Assigned Agreement in accordance with its terms and the terms of this Consent to Assignment. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Agreement is in full force and effect and there are no amendments, modifications or supplements thereto, either oral or written agreed to by it, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Agreement or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any provision of the Assigned Agreement and no knowledge of any grounds for termination of the Assigned Agreement by the Consenting Party, (d) to its knowledge none of the Company's rights under the Assigned Agreement has been waived, (e) the assignment by the Company of the Assigned Agreement to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party pursuant to and in accordance with this Consent to Assignment, will not cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement, and (f) a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof pursuant to and in accordance with this Consent to Assignment, shall not require the consent of the Consenting Party or cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement. 4. Notice of Company's Defaults and Termination. Anything in the Assigned Agreement notwithstanding, for so long as any financing liabilities are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not exercise any right it may have under the Assigned Agreement, at law or in equity, to cancel, 2 suspend or terminate the Assigned Agreement, or any of its obligations thereunder, as the result of any default or other action or omission of the Company without first giving a copy of a notice of default to the Assignee, such notice to be coupled with an opportunity to cure any such default during the same cure period as provided to the Company in the Assigned Agreement, but in no event less than sixty (60) days from notice to Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances, but not more than 120 days beyond the expiration of the cure period provided in the Assigned Agreement, to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties, or any of their respective assignees or designees is diligently pursuing such cure or foreclosure), such cure period to commence upon delivery of such notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period. Such notice shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith, or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 Failure of the Consenting Party to provide such notice to the Assignee shall not constitute a breach of this Consent to Assignment, and the Assignee agrees that the Consenting Party shall have no liability to the Assignee for such failure whatsoever; however, no cancellation, suspension or termination of the Assigned Agreement by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the applicable cure period. Any dispute that may arise under the Assigned Agreement notwithstanding, the Consenting Party shall continue performance under the Assigned Agreement and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods. The Assignee, any of the Senior Parties or any of their respective assignees or designees may, but shall be under no obligation to, make any payment or perform any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. If the Assignee, any of the Senior Parties or any of their respective assignees or designees fails to cure or rectify the effect of a default under the Assigned Agreement within the same cure period as provided to the Company in the Assigned Agreement 3 or within sixty (60) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the curing party's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances, but not more than 120 days beyond the expiration of the cure period provided in the Assigned Agreement, to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties or any of their respective assignees or designees is diligently pursuing such cure or such foreclosure), whichever is longer, such cure period to commence upon such notice to the Assignee, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Agreement. 5. Amendment and Modification Without Consent. The Consenting Party shall not amend, modify or consent to the amendment or modification of the Assigned Agreement without the prior written consent of the Assignee, unless the Company has certified to the Consenting Party in writing that such amendment, modification or consent to amendment or modification is permitted under the terms of the Financing Documents. 6. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Agreement shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Agreement directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C., for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. Any such payment shall be deemed to be a payment by the Consenting Party to the Company under the Assigned Agreement. 7. Protection of the Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Agreement under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, and in either case (i) no funds payable under the Assigned Agreement shall be due and payable to the Consenting Party, (ii) the effect upon the Consenting Party of any default not susceptible of being corrected shall have been rectified to Consenting Party's reasonable satisfaction, (iii) the Assigned Agreement shall have been validly terminated pursuant to the terms of the Assigned Agreement by reason of a default or a rejection by the Company or a trustee in bankruptcy under Title 11, United States Code, or other similar Federal or state statute, and (iv) the Assignee or any of the Senior Parties shall have cured, or shall be diligently pursuing a cure of, or shall have entered into a binding obligation providing for the cure of, any default susceptible of being corrected by Assignee or any of the Senior Parties or by a purchaser at any judicial or non-judicial sale, the Consenting Party shall, promptly, and in no event longer than ten (10) days after receipt of written request therefor; provided, such request is received by the Consenting Party not more than 60 days after any event 4 specified in clause (a) or (b) above, execute and deliver an agreement to the Assignee, any of the Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, for the remainder of the term of the Assigned Agreement and with the same terms as are contained therein; provided, that any nominee, purchaser, assignee, or transferee of the Assignee or the Senior Parties (x) shall have operated, or contracted with a party that has operated a power generating facility using technology similar to that of the Facility and (y) shall assume in writing the obligations of the Company under the Assigned Agreement. References in this Consent to Assignment to "Assigned Agreement" shall be deemed also to include such new agreement. 8. Acknowledgement of the Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. Neither the Assignee nor any of the Senior Parties shall have any obligation to the Consenting Party under the Assigned Agreement unless and until such time as such entity succeeds to the interest of the Company under the Assigned Agreement pursuant to the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized under the Security Documents, to (a) take possession of the Project and operate the same, (b) sell or otherwise transfer their interest in the Project and any purchaser at such sale shall succeed to the Assignee's or the Senior Parties' rights hereunder, as the case may be, and (c) exercise all rights of the Company under the Assigned Agreement in accordance with the terms thereof. In the case of subsection (b) above, the Assignee and the Senior Parties agree that any purchaser, assignee, or transferee of the Project (x) shall have operated, or contracted with a party that has operated a power generating facility using technology similar to that of the Facility and (y) shall assume in writing the obligations of the Company under the Assigned Agreement. Subject to the Assignee's compliance with the provisions of the Assigned Agreement (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee and comply in all respects in the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees satisfying the qualifications set forth in clause (x) and (y) of this Section 8 shall have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Agreement and to otherwise exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement. The Assignee, any of the Senior Parties or any of their respective assignees or designees satisfying the qualifications set forth in clause (x) and (y) of this Section 8 shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder within the time periods provided in the Assigned Agreement; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective designees or assignees to cure any default of the Company under the Assigned Agreement or to perform any act, duty or obligation of the Company under the Assigned Agreement. 9. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds 5 or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a new consent to assignment as requested by such lenders; provided that the terms and conditions contained in such consent to assignment shall be no less favorable to the Consenting Party than those terms and conditions contained in this Consent to Assignment unless the documentation governing such refinancing adversely affects the Consenting Party's rights or remedies under the Assigned Agreement compared to its position prior to such refinancing. 10. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in all jurisdictions where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Agreement) and the properties it owns. (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Agreement and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Agreement and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party (except those previously obtained, in full force and effect and attached hereto as Exhibit 10(b)(i)), (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party, (iii) result in a breach of or constitute a default under any material indenture, loan or credit agreement or any other material agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party or any agreement referred to above in clause (iii) of this subsection (b), which violation could have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (c) The Assigned Agreement and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting Party, enforceable in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. 6 (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained, in full force and effect and attached hereto as Exhibit 10(d)) is required in connection with the execution and delivery of the Assigned Agreement or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained all permits, licenses, approvals, consents, authorizations and exemptions, if any, with respect to the performance of its obligations under the Assigned Agreement and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof. (e) The Consenting Party is not in default with respect to the Assigned Agreement and has no knowledge, as of the date hereof, of any claims or rights of set-off by the Consenting Party or by any of its affiliates against the Company. (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the business, condition (financial or otherwise) or operations of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Agreement or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal. 11. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 12. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 13. Governing Law. (a) THIS CONSENT TO ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Consent to Assignment and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Consent to Assignment, each of the Consenting Party, the Company and the Collateral Agent hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. Each of the Consenting Party and the Company hereby 7 irrevocably designates, appoints and empowers CT Corporation System as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Company or the Consenting Party, as applicable, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Collateral Agent. Each of the Consenting Party, the Company and the Collateral Agent irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address provided herein. Each of the Consenting Party, the Company and the Collateral Agent hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Consent to Assignment brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Collateral Agent or its designees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. 14. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 15. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 16. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 8 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. THE WILLIAMS COMPANIES, INC. By: /s/ James G. Ivey -------------------------------- Name: James G. Ivey Title: Treasurer IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon -------------------------------- Name: Thomas McCutcheon Title: Assistant Vice Preisdent REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ----------------------------- Name: Patricia L. Rollin Title: Vice President EX-4.11 13 CONSENT TO ASSIGNMENT Exhibit 4.11 EXECUTION COPY SIEMENS WESTINGHOUSE POWER CORPORATION CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by SIEMENS WESTINGHOUSE POWER CORPORATION, a Delaware corporation (the "Consenting Party"), and IBJ WHITEHALL BANK & TRUST COMPANY, as collateral agent (the "Collateral Agent", together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, intends to develop, construct, own, operate and finance a nominal 705 MW (net) gas-fired combined cycle electric generating facility (the "Facility") (the Facility, equipment and facilities associated with the Facility and such financing, development and construction, the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. All obligations of the Company under the Securities, the Collateral Agency Agreement (defined below), and any other agreements evidencing senior debt of the Company (collectively, the "Financing Documents") to the Trustee, the Collateral Agent, each successor to any such person and each other person providing senior debt to the Company who is or becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). D. The Senior Parties and the Company have entered into the Collateral Agency Agreement (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. E. The Company (as assignee of AES Ironwood, Inc.) and the Consenting Party have entered into that certain Agreement for Engineering, Procurement and Construction Services, as amended by the letters set forth in Annex A hereto (the "Assigned Agreement") dated as of September 23, 1998, pursuant to which, among other things, the Consenting Party will design, engineer, procure and construct the Project on a fixed-price turnkey basis and will provide certain warranties and guarantees. F. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Agreement are to be assigned to the Collateral Agent as security pursuant to one or more of the Security Documents. G. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Agreement. 2. Consent to Assignment. The Consenting Party acknowledges that prior to the date hereof, AES Ironwood, Inc. has assigned all of its right, title and interest in the Assigned Agreement to the Company. The Consenting Party hereby irrevocably consents to the assignment of the Assigned Agreement by the Company to the Assignee for the benefit of the Senior Parties as security. The Consenting Party shall continue performance under the Assigned Agreement in accordance with its terms and the terms of this Consent to Assignment. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Agreement is in full force and effect and there are no amendments, modifications or supplements thereto, either oral or written, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Agreement or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any material provision of the Assigned Agreement and without having performed any specific due diligence no knowledge of any event or condition which would either immediately or with the passage of any applicable grace period or giving of notice or both, enable the Consenting Party to terminate or suspend its obligations under the Assigned Agreement, (d) none of the Company's rights under the Assigned Agreement has been waived in writing, (e) the assignment by the Company of the Assigned Agreement to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party, will not cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement, and (f) subject to the provisions of Section 9 hereof, a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof, shall not require the consent of the Consenting Party, or cause or constitute a default under the Assigned Agreement or an event or condition which would, 2 with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement. 4. Notice of Company's Defaults and Termination. Anything in the Assigned Agreement notwithstanding, for so long as any Financing Liabilities (as defined in the Collateral Agency Agreement) are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not exercise any right it may have under the Assigned Agreement, at law or in equity, to cancel, suspend or terminate the Assigned Agreement, or any of its obligations thereunder, as the result of any default or other action or omission (each herein a "default") of the Company unless the Consenting Party, shall have given a copy of any notice of default to the Assignee when such notice was given to the Company, such notice to be coupled with an opportunity to cure any such default , in the case of a payment default within the time period provided for in the Assigned Agreement (plus accrued interest thereon pursuant to Section 25.1 of the Assigned Agreement) or, with respect to nonmonetary defaults, 30 days after the expiration of all periods for cure to which the Company is entitled under the Assigned Agreement, and written notice of such expiration has been given to the Assignee (or for defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be reasonably necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties, or any of their respective designees or assignees is diligently pursuing such cure or foreclosure, such cure period to commence upon delivery of such further notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period provided, however, that if any such party is prohibited from curing any such default by any process, stay or injunction issued by any governmental authority or pursuant to any bankruptcy or insolvency proceeding, then the time periods specified in this Section 4 for curing a default shall be extended for the period of such prohibition if the Assignee shall have notified the Consenting Party in writing of its intent to commence such cure or cause such cure to be commenced immediately upon cessation of such prohibition. All notices provided hereunder shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith, or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. 3 IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 No cancellation, suspension or termination of the Assigned Agreement by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the applicable cure period. Any dispute that may arise under the Assigned Agreement notwithstanding, the Consenting Party shall continue performance under the Assigned Agreement for the benefit of the Assignee and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods in favor of the Assignee as provided herein. Except as otherwise provided in Section 9 hereof, the Assignee, any of the Senior Parties or any of their respective designees or assignees may, but shall be under no obligation to, make any payment or perform any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. Except as otherwise specifically provided in the immediately preceding paragraph, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Agreement. The Assignee shall promptly notify the Company upon satisfaction in full of all Financing Liabilities. 5. No Previous Assignment. The Consenting Party represents and warrants to the Assignee that it has not assigned, transferred or hypothecated, nor previously consented to any assignment, transfer or hypothecation by the Company of the Assigned Agreement or any interest therein. 6. Amendment and Modification Without Consent. The Consenting Party acknowledges and confirms that under the terms of the Financing Documents, the Company is not permitted to request or approve Scope Changes that exceed $5 million individually or $10 million in the aggregate without certain certifications to the Assignee. The Consenting Party shall not agree to any Scope Changes that exceed such amounts unless the Company shall have provided the Consenting Party with evidence (with a copy to the Assignee) of such certification. 7. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations, or any other Financing Liabilities, are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Agreement shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Agreement directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C., for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. All payments required to be made by the Consenting Party under the Assigned Agreement shall be made without any offset, recoupment, abatement, withholding, reduction or 4 defense whatsoever, except for such offset, recoupment, abatement, withholding or reduction as is not prohibited by the terms of the Assigned Agreement. 8. Protection of Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Agreement under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, the Consenting Party shall, promptly, and in no event longer than ten (10) days after receipt of written request therefor which request shall be made no more than thirty (30) days after the date such assignment, sale, transfer or rejection is approved or is otherwise made effective (as applicable), execute and deliver an agreement, which shall in the case of (a) supersede the earlier agreement, to the Assignee, any Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, for the remainder of the term of the Assigned Agreement and with substantially the same terms as are contained therein provided that such Assignee, Senior Party or their respective nominee, purchaser, assignee or transferee, as the case may be, (i) shall agree in writing, to the extent curable, to cure any existing default under the Assigned Agreement, (ii) shall in the reasonable opinion of the Consenting Party be as financially and otherwise capable of performing all obligations of the Company under the Assigned Agreement as the Company at the time it closed the financing of the Project and received the first advance thereunder, (iii) shall not be a direct competitor of the Consenting Party in the manufacture and sale of power generation equipment or a wholly owned subsidiary of such entity and (iv) shall not be an adverse party to the Consenting Party or any of its affiliates in any arbitration or litigation. If the Assignee notifies the Consenting Party of the identity of any proposed purchaser, assignee or transferee, as the case may be, the Consenting Party shall notify the Assignee within 10 days of receipt of such notification by the Assignee as to whether such purchaser, assignee or transferee of the Company fails to meet the requirements of clause (iii) or (iv), and stating the reasons therefor. 9. Acknowledgement of Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. The Assignee shall have no obligation to the Consenting Party under the Assigned Agreement until such time as the Assignee notifies the Consenting Party in writing of the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized under the Security Documents, to (a) take possession of the Project and operate the same as attorney-in-fact for the Company, (b) foreclose upon, sell or otherwise transfer their interest in the Project and any purchaser at such sale which may include the Assignee or its designees or assignees, shall have the right to succeed to the Assignee's or the Senior Parties' rights hereunder ("Substitute Owner"), as the case may be, provided that the (i) Substitute Owner shall on or before succeeding to such rights agree in writing to assume the obligations of the Company under the Assigned Agreement and (where curable) to cure any existing default thereunder, (ii) Substitute Owner shall in the reasonable opinion of the Consenting Party be as financially and otherwise capable of performing all obligations of the Company under the Assigned Agreement as the Company at the time it closed the financing of the Project and received the first advance thereunder 5 and (iii) Substitute Owner shall not be an adverse party to the Consenting Party or any of its affiliates in any arbitration or litigation and (iv) Substitute Owner shall not be a direct competitor in the manufacture and sale of power generation equipment or a wholly owned subsidiary of such entity, (provided that if the Assignee notifies the Consenting Party of the identity of any proposed purchaser, assignee or transferee, as the case may be, the Consenting Party shall notify the Assignee within 10 days of receipt of such notification by the Assignee as to whether such purchaser, assignee or transferee of the Company fails to meet the requirements of clause (iii) or (iv), and stating the reasons therefor) and (c) as attorney-in-fact for the Company exercise all rights of the Company under the Assigned Agreement in accordance with the terms thereof. Subject to compliance with the provisions of the Assigned Agreement (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee and with the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Agreement and otherwise to exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement. The Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder at any time; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective designees or assignees to cure any default of the Company under the Assigned Agreement or to perform any act, duty or obligation of the Company under the Assigned Agreement except during any such period that it shall have become a Substitute Owner and assumed such duties and obligations. The obligations of any Substitute Owner shall be no more than that of the Company under such Assigned Agreement, any Substitute Owner shall have no personal liability to the Consenting Party for the performance of such obligations and the sole recourse of the Consenting Party, if there is a Substitute Owner, shall be to Substitute Owner's interest in the Facility. The Assignee is not required to take any discretionary action under this Agreement unless it receives written direction from the Required Senior Parties. The Assignee is entitled to receive indemnification to its satisfaction before taking any action as directed by the Required Senior Parties. 10. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a consent to assignment containing terms and conditions that are mutually agreed between the parties. 11. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in all jurisdictions 6 where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Agreement) and the properties it owns. (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Agreement and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Agreement and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party, (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party and the performance of the Assigned Agreement and this Consent to Assignment, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party and the performance of the Assigned Agreement and this Consent to Assignment or any agreement referred to above in clause (iii) of this subsection (b), which violation could reasonably be expected to have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (c) The Assigned Agreement and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting Party, enforceable in accordance with their terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained and in full force and effect) is required in connection with the execution and delivery of the Assigned Agreement or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained all Applicable Permits designated in the Assigned Agreement as being the responsibility of the Contractor, if any, with respect to the performance of its obligations under the Assigned Agreement and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof other than Applicable Permits which are not yet required and which the Consenting Party has no reason to believe will not be obtained in due course when required. 7 (e) The Consenting Party is not in default with respect to the Assigned Agreement and has no knowledge, as of the date hereof, of any claims or rights of set off by the Consenting Party or by any of its affiliates against the Company. To the best of the Consenting Party's knowledge after due inquiry, each other party to the Assigned Agreement have complied with all conditions precedent to the respective obligations of such party to perform under the Assigned Agreement. (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the property, business, prospects, profits or condition (financial or otherwise) of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Agreement or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal which default could reasonably be expected to have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (g) All representations, warranties and other statements made by the Consenting Party in the Assigned Agreement were true and correct as of the date when made and are true and correct as of the date of this Consent to Assignment. 12. Concerning the Assigned Agreement. Independent Engineer: The Consenting Party acknowledges that the Company has designated Stone and Webster Management Consultants, Inc. together with Stone and Webster Engineering Corporation as Independent Engineer. 13. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 14. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 15. Governing Law. (a) THIS CONSENT TO ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Consent to Assignment and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Consent to Assignment, each of the Consenting Party and the 8 Assignee hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. Each of the Consenting Party and the Assignee hereby irrevocably designates, appoints and empowers CT Corporation System, 1633 Broadway, New York, NY 10019, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Assignee or the Consenting Party, as applicable, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Assignee. Each of the Consenting Party and the Assignee irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address being 4400 Alafaya Trail, Orlando, Florida 32826, Attn: Law Department MC 475 and to the Assignee at the address set forth in Section 4. Each of the Consenting Party and the Assignee hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Consent to Assignment brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Assignee or any of their respective designees or assignees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. 16. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 17. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 18. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 19. Authority to Take Specific Actions. Notwithstanding any provision of this Consent to Assignment to the contrary, if an action by the Assignee is authorized by the Assigned Agreement or by this Consent to Assignment, the Consenting Party shall be obligated to recognize or follow instructions given by a Senior Party or any of its respective designees or assignees, or any successor or assign of the Assignee or any Senior Party, only if such person has provided to the Consenting Party reasonable written documentation of its authority by or on behalf of the Assignee 9 to undertake the action which it is requesting or directing, and a written certification to the Consenting Party that it is so authorized to act. 20. Consenting Party Liability. This Consent to Assignment is intended to be solely for the benefit of the Assignee and is not intended to provide any additional rights to the Company. In no event shall the Consenting Party be liable for damages or have any liability pursuant to this Consent to Assignment in excess of the maximum liability for which the Consenting Party is liable under the Assigned Agreement. In addition, the terms of Article 9 of the Assigned Agreement shall apply to the Consenting Party's liability under this Consent to Assignment. 10 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. SIEMENS WESTINGHOUSE POWER CORPORATION By: /s/ James Mackey ------------------------------------ Name: James Mackey Title: Director Project Management IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon ------------------------------------ Name: Thomas McCutcheon Title: Assistant Vice President REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------- Name: Patricia L. Rollin Title: Vice President Annex A ------- 1. Letter, dated May 3, 1999 to Siemens Westinghouse Power Corporation from AES Ironwood, Inc. 2. Letter Agreement, dated February 3, 1999 between Siemens Westinghouse Power Corporation and AES Enterprises, Inc. 3. Letter Agreement, dated March 31, 1999 between Siemens Westinghouse Power Corporation and AES Ironwood, Inc. 4. Letter Agreement, dated May 12, 1999 between Siemens Westinghouse Power Corporation and AES Enterprises, Inc. 5. Letter Agreement, dated May 26, 1999 between Siemens Westinghouse Power Corporation and AES Ironwood, Inc. 6. Letter, dated February 4, 1999 to Siemens Westinghouse Power Corporation from AES Ironwood, Inc. 7. Letter Agreement, dated April 7, 1999 between Siemens Westinghouse Power Corporation and AES Ironwood, Inc. 12 EX-4.12 14 CONSENT TO ASSIGNMENT Exhibit 4.12 EXECUTION COPY SIEMENS WESTINGHOUSE POWER CORPORATION CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by SIEMENS WESTINGHOUSE POWER CORPORATION, a Delaware corporation (the "Consenting Party"), and IBJ WHITEHALL BANK & TRUST COMPANY, as collateral agent (the "Collateral Agent", together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, intends to develop, construct, own, operate and finance a nominal 705 MW (net) gas-fired combined cycle electric generating facility (the "Facility") (the Facility, equipment and facilities associated with the Facility and such financing, development and construction, the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. All obligations of the Company under the Securities, the Collateral Agency Agreement (defined below), and any other agreements evidencing senior debt of the Company (collectively, the "Financing Documents") to the Trustee, the Collateral Agent, each successor to any such person and each other person providing senior debt to the Company who is or becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). D. The Senior Parties and the Company have entered into the Collateral Agency Agreement (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. E. The Company (as assignee of AES Ironwood, Inc.) and the Consenting Party have entered into that certain Maintenance Program parts, Shop Repairs and Scheduled Outage TFA Services Contract (the "Assigned Agreement") dated as of September 23, 1998, pursuant to which, among other things, the Consenting Party will provide to the Company certain combustion turbine parts, shop repairs and scheduled outage technical field assistance services. F. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Agreement are to be assigned to the Collateral Agent as security pursuant to one or more of the Security Documents. G. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Agreement. 2. Consent to Assignment. The Consenting Party acknowledges that prior to the date hereof, AES Ironwood, Inc. has assigned all of its right, title and interest in the Assigned Agreement to the Company. The Consenting Party hereby irrevocably consents to the assignment of the Assigned Agreement by the Company to the Assignee for the benefit of the Senior Parties as security. The Consenting Party shall continue performance under the Assigned Agreement in accordance with its terms and the terms of this Consent to Assignment. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Agreement is in full force and effect and there are no amendments, modifications or supplements thereto, either oral or written, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Agreement or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any material provision of the Assigned Agreement and without having performed any specific due diligence no knowledge of any event or condition which would either immediately or with the passage of any applicable grace period or giving of notice or both, enable the Consenting Party to terminate or suspend its obligations under the Assigned Agreement, (d) none of the Company's rights under the Assigned Agreement has been waived in writing, (e) the assignment by the Company of the Assigned Agreement to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party, will not cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement, and (f) subject to the provisions of Section 9 hereof, a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof, shall not require the consent of the Consenting Party, or cause or constitute a default under the Assigned Agreement or an event or condition which would, 2 with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement. 4. Notice of Company's Defaults and Termination. Anything in the Assigned Agreement notwithstanding, for so long as any Financing Liabilities (as defined in the Collateral Agency Agreement) are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not exercise any right it may have under the Assigned Agreement, at law or in equity, to cancel, suspend or terminate the Assigned Agreement, or any of its obligations thereunder, as the result of any default or other action or omission (each herein a "default") of the Company unless the Consenting Party, shall have given a copy of any notice of default to the Assignee when such notice was given to the Company, such notice to be coupled with an opportunity to cure any such default, in the case of a payment default, within the time period provided for in the Assigned Agreement (plus accrued interest thereon pursuant to Section 4.6 of the Assigned Agreement) or, with respect to nonmonetary defaults, 30 days after the expiration of all periods for cure to which the Company is entitled under the Assigned Agreement, and written notice of such expiration has been given to the Assignee (or for defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be reasonably necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties, or any of their respective designees or assignees is diligently pursuing such cure or foreclosure, such cure period to commence upon delivery of such further notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period provided, however, that if any such party is prohibited from curing any such default by any process, stay or injunction issued by any governmental authority or pursuant to any bankruptcy or insolvency proceeding, then the time periods specified in this Section 4 for curing a default shall be extended for the period of such prohibition if the Assignee shall have notified the Consenting Party in writing of its intent to commence such cure or cause such cure to be commenced immediately upon cessation of such prohibition. All notices provided hereunder shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith, or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. 3 IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 No cancellation, suspension or termination of the Assigned Agreement by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the applicable cure period. Any dispute that may arise under the Assigned Agreement notwithstanding, the Consenting Party shall continue performance under the Assigned Agreement for the benefit of the Assignee and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods in favor of the Assignee as provided herein. Except as otherwise provided in Section 9 hereof, the Assignee, any of the Senior Parties or any of their respective designees or assignees may, but shall be under no obligation to, make any payment or perform any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. Except as otherwise specifically provided in the immediately preceding paragraph, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Agreement. The Assignee shall promptly notify the Company upon satisfaction in full of all Financing Liabilities. 5. No Previous Assignment. The Consenting Party represents and warrants to the Assignee that it has not assigned, transferred or hypothecated, nor previously consented to any assignment, transfer or hypothecation by the Company of the Assigned Agreement or any interest therein. 6. Amendment and Modification. The Consenting Party acknowledges and confirms that under the terms of the Financing Documents, the Company is not permitted to request or approve Changes without certain certifications to the Assignee. 7. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations, or any other Financing Liabilities, are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Agreement shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Agreement directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C, for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. All payments required to be made by the Consenting Party under the Assigned Agreement shall be made without any offset, recoupment, abatement, withholding, reduction or defense whatsoever, except for such offset, recoupment, abatement, withholding or reduction as is not prohibited by the terms of the Assigned Agreement. 4 8. Protection of Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Agreement under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, the Consenting Party shall, promptly, and in no event longer than ten (10) days after receipt of written request therefor which request shall be made no more than thirty (30) days after the date such assignment, sale, transfer or rejection is approved or is otherwise made effective (as applicable), execute and deliver an agreement, which shall in the case of (a) supersede the earlier agreement, to the Assignee, any Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, for the remainder of the term of the Assigned Agreement and with substantially the same terms as are contained therein provided that such Assignee, Senior Party or their respective nominee, purchaser, assignee or transferee, as the case may be, (i) shall agree in writing, to the extent curable, to cure any existing default under the Assigned Agreement, (ii) shall in the reasonable opinion of the Consenting Party be as financially and otherwise capable of performing all obligations of the Company under the Assigned Agreement as the Company at the time it closed the financing of the Project and received the first advance thereunder, (iii) shall not be a direct competitor of the Consenting Party in the manufacture and sale of power generation equipment or a wholly owned subsidiary of such entity and (iv) shall not be an adverse party to the Consenting Party or any of its affiliates in any arbitration or litigation. If the Assignee notifies the Consenting Party of the identity of any proposed purchaser, assignee or transferee, as the case may be, the Consenting Party shall notify the Assignee within 10 days of receipt of such notification by the Assignee as to whether such purchaser, assignee or transferee of the Company fails to meet the requirements of clause (iii) or (iv), and stating the reasons therefor. 9. Acknowledgement of Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. The Assignee shall have no obligation to the Consenting Party under the Assigned Agreement until such time as the Assignee notifies the Consenting Party in writing of the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized under the Security Documents, to (a) take possession of the Project and operate the same as attorney-in-fact for the Company, (b) foreclose upon, sell or otherwise transfer their interest in the Project and any purchaser at such sale which may include the Assignee or its designees or assignees, shall have the right to succeed to the Assignee's or the Senior Parties' rights hereunder ("Substitute Owner"), as the case may be, provided that the (i) Substitute Owner shall on or before succeeding to such rights agree in writing to assume the obligations of the Company under the Assigned Agreement and (where curable) to cure any existing default thereunder, (ii) Substitute Owner shall in the reasonable opinion of the Consenting Party be as financially and otherwise capable of performing all obligations of the Company under the Assigned Agreement as the Company at the time it closed the financing of the Project and received the first advance thereunder and (iii) Substitute Owner shall not be an adverse party to the Consenting Party or any of its affiliates in any arbitration or litigation and (iv) Substitute Owner shall not be a direct competitor of the Consenting Party in the manufacture and sale of power generation equipment or a wholly 5 owned subsidiary of such entity, (provided that if the Assignee notifies the Consenting Party of the identity of any proposed purchaser, assignee or transferee, as the case may be, the Consenting Party shall notify the Assignee within 10 days of receipt of such notification by the Assignee as to whether such purchaser, assignee or transferee of the Company fails to meet the requirements of clause (iii) or (iv), and stating the reasons therefor) and (c) as attorney-in-fact for the Company exercise all rights of the Company under the Assigned Agreement in accordance with the terms thereof. Subject to compliance with the provisions of the Assigned Agreement (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee and with the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Agreement and otherwise to exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement. The Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder at any time; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective designees or assignees to cure any default of the Company under the Assigned Agreement or to perform any act, duty or obligation of the Company under the Assigned Agreement except during any such period that it shall have become a Substitute Owner and assumed such duties and obligations. The obligations of any Substitute Owner shall be no more than that of the Company under such Assigned Agreement, any Substitute Owner shall have no personal liability to the Consenting Party for the performance of such obligations and the sole recourse of the Consenting Party, if there is a Substitute Owner, shall be to Substitute Owner's interest in the Facility. The Assignee is not required to take any discretionary action under this Agreement unless it receives written direction from the Required Senior Parties. The Assignee is entitled to receive indemnification to its satisfaction before taking any action as directed by the Required Senior Parties. 10. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a consent to assignment containing terms and conditions that are mutually agreed between the parties. 11. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in all jurisdictions where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Agreement) and the properties it owns. 6 (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Agreement and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Agreement and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party, (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party and the performance of the Assigned Agreement and this Consent to Assignment, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party and the performance of the Assigned Agreement and this Consent to Assignment or any agreement referred to above in clause (iii) of this subsection (b), which violation could reasonably be expected to have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (c) The Assigned Agreement and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting Party, enforceable in accordance with their terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained and in full force and effect) is required in connection with the execution and delivery of the Assigned Agreement or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained all permits, licenses, approvals, consents, authorizations and exemptions, if any, with respect to the performance of its obligations under the Assigned Agreement and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof other than permits, licenses, approvals, consents, authorizations and exemptions, which are not yet required and which the Consenting Party has no reason to believe will not be obtained in due course when required. (e) The Consenting Party is not in default with respect to the Assigned Agreement and has no knowledge, as of the date hereof, of any claims or rights of set off by the Consenting Party or by any of its affiliates against the Company. To the best of the Consenting Party's knowledge after due inquiry, each other party to the Assigned Agreement have complied 7 with all conditions precedent to the respective obligations of such party to perform under the Assigned Agreement. (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the property, business, prospects, profits or condition (financial or otherwise) of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Agreement or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal which default could reasonably be expected to have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (g) All representations, warranties and other statements made by the Consenting Party in the Assigned Agreement were true and correct as of the date when made and are true and correct as of the date of this Consent to Assignment. 12. Concerning the Assigned Agreement. Independent Engineer: The Consenting Party acknowledges that the Company has designated Stone and Webster Management Consultants, Inc. together with Stone and Webster Engineering Corporation as Independent Engineer. 13. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 14. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 15. Governing Law. (a) THIS CONSENT TO ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Consent to Assignment and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Consent to Assignment, each of the Consenting Party and the Assignee hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. Each of the Consenting Party and the Assignee hereby irrevocably designates, appoints and empowers CT Corporation System, 1633 Broadway, New York, NY 10019, as its designee, 8 appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Assignee or the Consenting Party, as applicable, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Assignee. Each of the Consenting Party and the Assignee irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address being 4400 Alafaya Trail, Orlando, Florida 32826, Attn: Law Department MC 475 and to the Assignee at the address set forth in Section 4. Each of the Consenting Party and the Assignee hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Consent to Assignment brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Assignee or any of their respective designees or assignees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. 16. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 17. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 18. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 19. Authority to Take Specific Actions. Notwithstanding any provision of this Consent to Assignment to the contrary, if an action by the Assignee is authorized by the Assigned Agreement or by this Consent to Assignment, the Consenting Party shall be obligated to recognize or follow instructions given by a Senior Party or any of its respective designees or assignees, or any successor or assign of the Assignee or any Senior Party, only if such person has provided to the Consenting Party reasonable written documentation of its authority by or on behalf of the Assignee to undertake the action which it is requesting or directing, and a written certification to the Consenting Party that it is so authorized to act. 9 20. Consenting Party Liability. This Consent to Assignment is intended to be solely for the benefit of the Assignee and is not intended to provide any additional rights to the Company. In no event shall the Consenting Party be liable for damages or have any liability pursuant to this Consent to Assignment in excess of the maximum liability for which the Consenting Party is liable under the Assigned Agreement. In addition, the terms of Article 14 of the Assigned Agreement shall apply to the Consenting Party's liability under this Consent to Assignment. 10 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. SIEMENS WESTINGHOUSE POWER CORPORATION By: /s/ James Mackey ---------------------------------- Name: James Mackey Title: Director Project Management IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon ---------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------------ Name: Patricia L. Rollin Title: Vice President EX-4.13 15 CONSENT TO ASSIGNMENT Exhibit 4.13 EXECUTION COPY SIEMENS CORPORATION CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by SIEMENS CORPORATION, a Delaware corporation (the "Consenting Party"), and IBJ WHITEHALL BANK & TRUST COMPANY, as collateral agent (the "Collateral Agent," together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, intends to develop, construct, own, operate and finance a nominal 705 MW (net) gas-fired combined cycle electric generating facility (the "Facility") (the Facility, equipment and facilities associated with the Facility and such financing, development and construction, the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. All obligations of the Company under the Securities, the Collateral Agency Agreement (defined below), and any other agreements evidencing senior debt of the Company (collectively, the "Financing Documents") to the Trustee, the Collateral Agent, each successor to any such person and each other person providing senior debt to the Company who is or becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). D. The Senior Parties and the Company have entered into the Collateral Agency Agreement (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. E. The Company (as assignee of AES Ironwood, Inc.) and the Consenting Party have entered into that certain Guaranty (the "Assigned Guaranty") dated as of September 23, 1998 pursuant to which, among other things, the Consenting Party will guarantee to the Company Siemens Westinghouse Power Corporation's obligations under the EPC Contract (as defined in the Assigned Guaranty). F. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Guaranty are to be assigned to the Collateral Agent as security pursuant to one or more of the Security Documents. G. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Guaranty. 2. Consent to Assignment. The Consenting Party acknowledges that on or prior to the date hereof, AES Ironwood, Inc. has assigned all of its right, title and interest in the Assigned Guaranty to the Company. The Consenting Party hereby irrevocably consents to the assignment of the Assigned Guaranty by the Company to the Assignee for the benefit of the Senior Parties as security. The Consenting Party shall continue performance under the Assigned Guaranty in accordance with its terms and the terms of this Consent to Assignment. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Guaranty is in full force and effect and there are no amendments, modifications or supplements thereto, either oral or written, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Guaranty or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any material provision of the Assigned Guaranty and without having performed any specific due diligence no knowledge of any event or condition which would either immediately or with the passage of any applicable grace period or giving of notice or both, enable the Consenting Party to terminate or suspend its obligations under the Assigned Guaranty, (d) none of the Company's rights under the Assigned Guaranty has been waived in writing, (e) the assignment by the Company of the Assigned Guaranty to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party, will not cause or constitute a default under the Assigned Guaranty or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Guaranty, and (f) a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof, shall not require the consent of the Consenting Party subject to the provisions of Section 9 hereof, or cause or constitute a default under the Assigned Guaranty or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Guaranty. 2 4. Notice of Company's Defaults and Termination. Anything in the Assigned Guaranty notwithstanding, for so long as any Financing Liabilities (as defined in the Collateral Agency Agreement) are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not exercise any right it may have under the Assigned Guaranty, at law or in equity, to cancel, suspend or terminate the Assigned Guaranty, or any of its obligations thereunder, as the result of any default or other action or omission (each herein a "default") of the Company unless the Consenting Party, shall have given (i) a copy of a notice of default to the Assignee when such notice was given to the Company and (ii) following expiry of all periods given the Company to cure such default, the Consenting Party shall have given a further notice of default (the "further notice") to the Assignee, such notice to be coupled with an opportunity to cure any such default within 15 days from the further notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be reasonably necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties, or any of their respective designees or assignees is diligently pursuing such cure or foreclosure such cure period to commence upon delivery of such further notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period provided, however, that if any such party is prohibited from curing any such default by any process, stay or injunction issued by any governmental authority or pursuant to any bankruptcy or insolvency proceeding, then the time periods specified in this Section 4 for curing a default shall be extended for the period of such prohibition if the Assignee shall have notified the Consenting Party in writing of its intent to commence such cure or cause such cure to be commenced immediately upon cessation of such prohibition. All notices provided hereunder shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith, or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 No cancellation, suspension or termination of the Assigned Guaranty by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the applicable cure period. Any dispute that may arise under the Assigned Guaranty notwithstanding, the Consenting Party shall continue performance under the Assigned Guaranty for the benefit of the 3 Assignee and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods. The Assignee, any of the Senior Parties or any of their respective designees or assignees may, but shall be under no obligation to, make any payment or perform any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. Except as otherwise specifically provided in the immediately preceding paragraph, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Guaranty. The Assignee shall promptly notify the Company upon satisfaction in full of all Financing Liabilities. 5. No Previous Assignment. The Consenting Party represents and warrants to the Assignee that it has not assigned, transferred or hypothecated, nor previously consented to any assignment, transfer or hypothecation by the Company of the Assigned Guaranty or any interest therein. 6. Amendment and Modification Without Consent. The Consenting Party shall not amend, modify or consent to the amendment or modification of the Assigned Guaranty without giving 30 days prior written notice to the Assignee, unless the Company has certified to the Consenting Party in writing that such amendment, modification or consent to amendment or modification is permitted under the terms of the Financing Documents. 7. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations, or any other Financing Liabilities, are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Guaranty shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Guaranty directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C, for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. All payments required to be made by the Consenting Party under the Assigned Guaranty shall be made without any offset, recoupment, abatement, withholding, reduction or defense whatsoever, except for such offset, recoupment, abatement, withholding or reduction as is not prohibited by the terms of the Assigned Guaranty. 8. Protection of Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Guaranty under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, the Consenting Party shall, promptly, and in no event longer than ten (10) days after receipt of written request therefor, execute and deliver an agreement to the Assignee, any Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, for the remainder of the term of the Assigned Guaranty and with the 4 same terms as are contained therein. References in this Consent to Assignment to "Assigned Guaranty" shall be deemed also to include such new agreement. 9. Acknowledgement of Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. The Assignee shall have no obligation to the Consenting Party under the Assigned Guaranty until such time as the Assignee notifies the Consenting Party in writing of the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized under the Security Documents, to (a) take possession of the Project and operate the same, (b) sell or otherwise transfer their interest in the Project and any purchaser at such sale shall succeed to the Assignee's or the Senior Parties' rights hereunder ("Substitute Owner"), as the case may be, provided that the Substitute Owner thereof shall agree in writing to assume the obligations of the Company under the EPC Agreement and (c) exercise all rights of the Company under the Assigned Guaranty in accordance with the terms thereof. Subject to compliance with the provisions of the Assigned Guaranty (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee and with the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Guaranty and otherwise to exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Guaranty. The Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder at any time; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective designees or assignees to cure any default of the Company under the Assigned Guaranty or to perform any act, duty or obligation of the Company under the Assigned Guaranty except during any such period that it shall have become a Substitute Owner and assumed such duties and obligations. The obligations of any Substitute Owner shall be no more than that of the Company under such Assigned Guaranty, any Substitute Owner shall have no personal liability to the Consenting Party for the performance of such obligations and the sole recourse of the Consenting Party, if there is a Substitute Owner, shall be to Substitute Owner's interest in the Facility. The Collateral Agent is not required to take any discretionary action under this Agreement unless it receives written direction from the Required Senior Parties. The Collateral Agent is entitled to receive indemnification to its satisfaction before taking any action as directed by the Required Senior Parties. 10. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a consent to assignment containing terms and conditions that are customary for such transactions. 5 11. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in all jurisdictions where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Guaranty) and the properties it owns. (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Guaranty and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Guaranty and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party, (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party and the performance of the Assigned Guaranty and this Consent to Assignment, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party and the performance of the Assigned Guaranty and this Consent to Assignment or any agreement referred to above in clause (iii) of this subsection (b), which violation could reasonably be expected to have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Guaranty. (c) The Assigned Guaranty and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting Party, enforceable in accordance with their terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained and in full force and effect) is required in connection with the execution and delivery of the Assigned Guaranty or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained all permits, licenses, approvals, consents, authorizations and exemptions, if any, with respect to the performance of its obligations under the Assigned Guaranty and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof. 6 (e) The Consenting Party is not in default with respect to the Assigned Guaranty and has no knowledge, as of the date hereof, of any claims or rights of set off by the Consenting Party against the Company. To the best of the Consenting Party's knowledge after due inquiry, each other party to the Assigned Guaranty have complied with all conditions precedent to the respective obligations of such party to perform under the Assigned Guaranty. (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the property, business, prospects, profits or condition (financial or otherwise) of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Guaranty or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal which default could reasonably be expected to have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Guaranty. (g) All representations, warranties and other statements made by the Consenting Party in the Assigned Guaranty were true and correct as of the date when made and are true and correct as of the date of this Consent to Assignment. 12. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 13. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 14. Governing Law. (a) THIS CONSENT TO ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Consent to Assignment and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Consent to Assignment, each of the Consenting Party and the Assignee hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. Each of the Consenting Party and the Assignee hereby irrevocably designates, appoints and empowers CT Corporation System, 1633 Broadway, New York, New York, 10019, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be 7 served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Assignee or the Consenting Party, as applicable, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Assignee. Each of the Consenting Party and the Assignee irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address being 4400 Alafaya Trail, Orlando, Florida 32826, Attn: Law Department MC 475 and to the Assignee at the address set forth in Section 4. Each of the Consenting Party and the Assignee hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Consent to Assignment brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Assignee or any of their respective designees or assignees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. 15. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 16. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 17. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 18. Authority to Take Specific Actions. Notwithstanding any provision of this Consent to Assignment to the contrary, if an action by the Assignee is authorized by the Assigned Guaranty or by this Consent to Assignment, the Consenting Party shall be obligated to recognize or follow instructions given by a Senior Party or any of its respective designees or assignees, or any successor or assign of the Assignee or any Senior Party, only if such person has provided to the Consenting Party reasonable written documentation of its authority by or on behalf of the Assignee to undertake the action which it is requesting or directing, and a written certification to the Consenting Party that it is so authorized to act. 19. Consenting Party Liability. This Consent to Assignment is intended to be solely for the benefit of the Assignee and is not intended to provide any additional rights to the Company. In no event shall the Consenting Party be liable for damages or have any liability pursuant to this 8 Consent to Assignment in excess of the maximum liability for which the Consenting Party is liable under the Assigned Guaranty. Any rights herein granted Assignee, Company, Collateral Agent, Trustee, or the Senior Parties and any of their respective permitted successors and assigns with respect to the EPC Contract shall be subject to the provisions of the Consent to Assignment for said EPC Contract between Siemens Westinghouse Power Corporation and IBJ Whitehall Bank and Trust Company effective June 1, 1999. 9 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. SIEMENS CORPORATION By: /s/ Walter G. Gans --------------------------------- Name: Walter G. Gans Title: Vice President, General Counsel and Secretary IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon --------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin -------------------------------- Name: Patricia L. Rollin Title: Vice President 10 EX-4.14 16 CONSENT TO ASSIGNMENT Exhibit 4.14 EXECUTION COPY AES PRESCOTT, L.L.C. CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by AES PRESCOTT, L.L.C., a Delaware limited liability company (the "Consenting Party"), and IBJ WHITEHALL BANK & TRUST COMPANY, as collateral agent (the "Collateral Agent", together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, intends to develop, construct, own, operate and finance a nominal 705 MW (net) gas-fired combined cycle electric generating facility (the "Facility") (the Facility, equipment and facilities associated with the Facility and such financing, development and construction, the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. All obligations of the Company under the Securities, the Collateral Agency Agreement (defined below), and any other agreements evidencing senior debt of the Company (collectively, the "Financing Documents") to the Trustee, the Collateral Agent, each successor to any such person and each other person providing senior debt to the Company who is or becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). D. The Senior Parties and the Company have entered into the Collateral Agency Agreement (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. E. The Company and the Consenting Party have entered into that certain Management and Operations Services Agreement (the "Assigned Agreement") dated as of May 1, 1999 pursuant to which, among other things, the Consenting Party will manage the development and construction of the Project and, following the Commercial Operation Date, operate and maintain the Project. F. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Agreement are to be assigned to the Collateral Agent as security pursuant to one or more of the Security Documents. G. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Agreement. 2. Consent to Assignment. The Consenting Party hereby irrevocably consents to the assignment of the Assigned Agreement by the Company to the Assignee for the benefit of the Senior Parties as security. The Consenting Party shall continue performance under the Assigned Agreement in accordance with its terms and the terms of this Consent to Assignment and shall maintain the Assigned Agreement in full force and effect. Until all obligations under the Financing Documents have been performed and paid in full, all obligations of the Consenting Party under the Assigned Agreement shall inure to the benefit of the Assignee for the benefit of the Senior Parties to the same extent as if the Assignee was an original party to the Assigned Agreement instead of the Company. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Agreement is in full force and effect and there are no amendments, modifications or supplements thereto, either oral or written, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Agreement or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any provision of the Assigned Agreement and no knowledge of any event or condition which would either immediately or with the passage of any applicable grace period or giving of notice or both, enable the Consenting Party to terminate or suspend its obligations under the Assigned Agreement, (d) none of the Company's rights under the Assigned Agreement has been waived, (e) the assignment by the Company of the Assigned Agreement to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party, will not cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement, and (f) a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof, shall not require the consent 2 of the Consenting Party or cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement. 4. Notice of Company's Defaults and Termination. Anything in the Assigned Agreement notwithstanding, for so long as any Financing Liabilities (as defined in the Collateral Agency Agreement) are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not claim prevention of or interference with performance of its obligations under the Assigned Agreement, nor shall the Consenting Party exercise any right it may have under the Assigned Agreement, at law or in equity, to cancel, suspend or terminate the Assigned Agreement, or any of its obligations thereunder, as the result of any default or other action or omission (each, herein, a "default") of the Company unless the Consenting Party, following expiry of all periods given the Company to cure such default, action or omission, shall have given a copy of a notice of default to the Assignee, such notice to be coupled with an opportunity to cure any such default within a reasonable period, but in no event less than ninety (90) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties, or any of their respective designees or assignees is diligently pursuing such cure or foreclosure), such cure period to commence upon delivery of such notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period provided, however, that if any such party is prohibited from curing any such default by any process, stay or injunction issued by any governmental authority or pursuant to any bankruptcy or insolvency proceeding, then the time periods specified in this Section 4 for curing a default shall be extended for the period of such prohibition . Such notice shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith, or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 No cancellation, suspension or termination of the Assigned Agreement by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the 3 applicable cure period. Any dispute that may arise under the Assigned Agreement notwithstanding, the Consenting Party shall continue performance under the Assigned Agreement and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods. The Assignee, any of the Senior Parties or any of their respective designees or assignees may, but shall be under no obligation to, make any payment or perform any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. If the Assignee, any of the Senior Parties or any of their respective designees or assignees fails to cure or rectify the effect of a default under the Assigned Agreement or within ninety (90) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the curing party's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties or any of their respective designees or assignees is diligently pursuing such cure or such foreclosure), whichever is longer, such cure period to commence upon such notice to the Assignee, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Agreement. 5. No Previous Assignment. The Consenting Party represents and warrants to the Assignee that it has not assigned, transferred or hypothecated, nor previously consented to any assignment, transfer or hypothecation of, the Assigned Agreement or any interest therein. 6. No Amendments Without Consent. The Consenting Party shall not amend, modify or consent to the amendment or modification of the Assigned Agreement without the prior written consent of the Assignee, unless the Company has certified to the Consenting Party in writing that such amendment, modification or consent to amendment or modification is permitted under the terms of the Financing Documents. 7. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations, or any other Financing Liabilities, are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Agreement shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Agreement directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C., for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. All payments required to be made by the Consenting Party under the Assigned Agreement shall be made without any offset, recoupment, abatement, withholding, reduction or defense whatsoever, except as specifically permitted under the Assigned Agreement. 4 8. Protection of Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Agreement under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, the Consenting Party shall, promptly, and in no event longer than ten (10) days after receipt of written request therefor, execute and deliver an agreement to the Assignee, any Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, for the remainder of the term of the Assigned Agreement and with the same terms as are contained therein.. References in this Consent to Assignment to "Assigned Agreement" shall be deemed also to include such new agreement. 9. Acknowledgement of Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. The Assignee shall have no obligation to the Consenting Party under the Assigned Agreement until such time as the Assignee notifies the Consenting Party in writing of the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized under the Security Documents, to (a) take possession of the Project and operate the same, (b) sell or otherwise transfer their interest in the Project and any purchaser at such sale which may include the Assignee or its designees or assignees, shall have the right to succeed to the Assignee's or the Senior Parties' rights hereunder ("Substitute Owner"), as the case may be, and (c) exercise all rights of the Company under the Assigned Agreement in accordance with the terms thereof. Subject to compliance with the provisions of the Assigned Agreement (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee comply in all respects in the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Agreement and otherwise to exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement. The Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder at any time; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective designees or assignees to cure any default of the Company under the Assigned Agreement or to perform any act, duty or obligation of the Company under the Assigned Agreement except during any such period that it shall have been a Substitute Owner and assumed such duties and obligations. The obligations of any Substitute Owner shall be no more than that of the Company under such Assigned Agreement, any Substitute Owner shall have no personal liability to the Consenting Party for the performance of such obligations and the sole recourse of the Consenting Party, if there is a Substitute Owner, shall be to Substitute Owner's 5 interest in the Facility. The Collateral Agent is not required to take any discretionary action under this Agreement unless it receives written direction from the Required Senior Parties. The Collateral Agent is entitled to receive indemnification to its satisfaction before taking any action as directed by the Required Senior Parties. 10. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a consent to assignment containing terms and conditions that are no less favorable to the Consenting Party than those terms and conditions contained in this Consent to Assignment. 11. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in all jurisdictions where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Agreement) and the properties it owns. (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Agreement and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Agreement and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party, (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party or any agreement referred to above in clause (iii) of this subsection (b), which violation could have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (c) The Assigned Agreement and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting Party, enforceable in accordance with their terms, except to the extent that enforceability may be limited 6 by applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained and in full force and effect) is required in connection with the execution and delivery of the Assigned Agreement or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained all permits, licenses, approvals, consents, authorizations and exemptions, if any, with respect to the performance of its obligations under the Assigned Agreement and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof. (e) The Consenting Party is not in default with respect to the Assigned Agreement and has no knowledge, as of the date hereof, of any claims or rights of set off by the Consenting Party or by any of its affiliates against the Company. To the best of the Consenting Party's knowledge after due inquiry, each other party to the Assigned Agreement have complied with all conditions precedent to the respective obligations of such party to perform under the Assigned Agreement. (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the property, business, prospects, profits or condition (financial or otherwise) of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Agreement or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal. (g) All representations, warranties and other statements made by the Consenting Party in the Assigned Agreement were true and correct as of the date when made and are true and correct as of the date of this Consent to Assignment. 12. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 13. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 14. Governing Law. (a) THIS CONSENT TO ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN 7 ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Consent to Assignment and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Consent to Assignment, each of the Consenting Party and the Assignee hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. Each of the Consenting Party and the Assignee hereby irrevocably designates, appoints and empowers CT Corporation System, 1633 Broadway, New York, New York, 10019, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Assignee or the Consenting Party, as applicable, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Assignee. Each of the Consenting Party and the Assignee irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address being [ ] and to the Assignee at the address set forth in Section 4. Each of the Consenting Party and the Assignee hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Consent to Assignment brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Assignee or any of their respective designees or assignees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. 15. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 16. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and 8 enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 17. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 18. Authority to Take Specific Actions. Notwithstanding any provision of this Consent to Assignment to the contrary, if an action by the Assignee is authorized by the Assigned Agreement or by this Consent to Assignment, the Consenting Party shall be obligated to recognize or follow instructions given by a Senior Party or any of its respective designees or assignees, or any successor or assign of the Assignee or any Senior Party, only if such person has provided to the Consenting Party reasonable written documentation of its authority by or on behalf of the Assignee to undertake the action which it is requesting or directing, and a written certification to the Consenting Party that it is so authorized to act. 9 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. AES PRESCOTT, L.L.C. By: /s/ Patricia L. Rollin ---------------------------------- Name: Patricia L. Rollin Title: Vice President IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon ---------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------------ Name: Patricia L. Rollin Title: Vice President EX-4.15 17 CONSENT TO ASSIGNMENT Exhibit 4.15 EXECUTION COPY Metropolitan Edison Company d/b/a GPU Energy CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by Metropolitan Edison Company d/b/a GPU Energy, a corporation and public utility organized and existing under the laws of the Commonwealth of Pennsylvania (the "Consenting Party"), and IBJ WHITEHALL BANK & TRUST COMPANY, as collateral agent (the "Collateral Agent", together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, intends to develop, construct, own, operate and finance a nominal 705 MW (net) gas-fired combined cycle electric generating facility (the "Facility") (the Facility, equipment and facilities associated with the Facility and such financing, development and construction, the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. All obligations of the Company under the Securities, the Collateral Agency Agreement (defined below), and any other agreements evidencing senior debt of the Company (collectively, the "Financing Documents") to the Trustee, the Collateral Agent, each successor to any such person and each other person providing senior debt to the Company who is or becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). D. The Senior Parties and the Company have entered into the Collateral Agency Agreement (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. E. The Company and the Consenting Party have entered into that certain Generation Facility Transmission Interconnection Agreement (the "Assigned Agreement") dated as of March 23, 1999. F. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Agreement is to be assigned to the Collateral Agent as security pursuant to one or more of the Security Documents. G. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Agreement. 2. Consent to Assignment. The Consenting Party hereby irrevocably consents to the assignment of the Assigned Agreement by the Company to the Assignee for the benefit of the Senior Parties as security. The Consenting Party shall continue performance under the Assigned Agreement in accordance with its terms and the terms of this Consent to Assignment and shall maintain the Assigned Agreement in full force and effect. Until all obligations under the Financing Documents have been performed and paid in full, all obligations of the Consenting Party under the Assigned Agreement shall inure to the benefit of the Assignee for the benefit of the Senior Parties to the same extent as if the Assignee was an original party to the Assigned Agreement instead of the Company. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Agreement is in full force and effect and other than the agreement between the Consenting Party and the Company to defer until financial closing payment of $1,000,000 that was formerly due at the time of execution of the Assigned Agreement, there are no amendments, modifications or supplements thereto, either oral or written, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Agreement or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any provision of the Assigned Agreement and no knowledge of any event or condition which would either immediately or with the passage of any applicable grace period or giving of notice or both, enable the Consenting Party to terminate or suspend its obligations under the Assigned Agreement, (d) none of the Company's rights under the Assigned Agreement has been waived, (e) the assignment by the Company of the Assigned Agreement to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party, will not cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement, and (f) a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof, shall not require the consent of the Consenting Party or cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement. 4. Notice of Company's Defaults and Termination. Anything in the Assigned Agreement notwithstanding, for so long as any Financing Liabilities (as defined in the Collateral Agency 2 Agreement) are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not claim prevention of or interference with performance of its obligations under the Assigned Agreement, nor shall the Consenting Party exercise any right it may have under the Assigned Agreement, at law or in equity, to cancel, suspend or terminate the Assigned Agreement, or any of its obligations thereunder, as the result of any default or other action or omission (each, herein, a "default") of the Company unless the Consenting Party, following expiry of all periods given the Company to cure such default, action or omission, shall have given a copy of a notice of default to the Assignee, such notice to be coupled with an opportunity to cure any such default within a reasonable period, but in no event less than sixty (60) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties, or any of their respective designees or assignees is diligently pursuing such cure or foreclosure), such cure period to commence upon delivery of such notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period provided, however, that if any such party is prohibited from curing any such default by any process, stay or injunction issued by any governmental authority or pursuant to any bankruptcy or insolvency proceeding, then the time periods specified in this Section 4 for curing a default shall be extended for the period of such prohibition. Such notice shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith, or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 No cancellation, suspension or termination of the Assigned Agreement by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the applicable cure period. Any dispute that may arise under the Assigned Agreement notwithstanding, the Consenting Party shall continue performance under the Assigned Agreement and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods. The Assignee, any of the Senior Parties or any of their respective designees or assignees may, but shall be under no obligation to, make any payment or perform any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. If the Assignee, any of the Senior Parties or any of their respective designees or 3 assignees fails to cure or rectify the effect of a default under the Assigned Agreement or within sixty (60) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the curing party's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties or any of their respective designees or assignees is diligently pursuing such cure or such foreclosure), whichever is longer, such cure period to commence upon such notice to the Assignee, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Agreement. 5. No Previous Assignment. The Consenting Party represents and warrants to the Assignee that it has not assigned, transferred or hypothecated, nor previously consented to any assignment, transfer or hypothecation of, the Assigned Agreement or any interest therein. 6. No Amendments Without Consent. The Consenting Party shall not amend, modify or consent to the amendment or modification of the Assigned Agreement without the prior written consent of the Assignee, unless the Company has certified to the Consenting Party in writing that such amendment, modification or consent to amendment or modification is permitted under the terms of the Financing Documents. 7. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations, or any other Financing Liabilities, are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Agreement shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Agreement directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C., for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. All payments required to be made by the Consenting Party under the Assigned Agreement shall be made without any offset, recoupment, abatement, withholding, reduction or defense whatsoever, except as specifically permitted under the Assigned Agreement. 8. Protection of Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Agreement under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, the Consenting Party shall, promptly, and in no event longer than thirty (30) days after receipt of written request therefor, execute and deliver an agreement to the Assignee, any Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, for the remainder of the term of the Assigned Agreement and with the same terms as are contained therein. In such event, the Assignee represents and warrants that it will procure the requisite expertise needed in order to operate the Facility pursuant to Good Utility Practice and the entity that undertakes the operation of the Facility will fully perform all of the Power Producer obligations set forth in the 4 Assigned Agreement. References in this Consent to Assignment to "Assigned Agreement" shall be deemed also to include such new agreement. 9. Acknowledgement of Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. The Assignee shall have no obligation to the Consenting Party under the Assigned Agreement until such time as the Assignee notifies the Consenting Party in writing of the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized under the Security Documents, to (a) take possession of the Project and operate the same, (b) sell or otherwise transfer their interest in the Project and any purchaser at such sale which may include the Assignee or its designees or assignees, shall have the right to succeed to the Assignee's or the Senior Parties' rights hereunder ("Substitute Owner"), as the case may be, and (c) exercise all rights of the Company under the Assigned Agreement in accordance with the terms thereof. Subject to compliance with the provisions of the Assigned Agreement (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee comply in all respects in the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Agreement and otherwise to exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement. The Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder at any time; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective designees or assignees to cure any default of the Company under the Assigned Agreement or to perform any act, duty or obligation of the Company under the Assigned Agreement except during any such period when it shall have become a Substitute Owner and assumed such duties and obligations. The obligations of any Substitute Owner shall be no more than that of the Company under such Assigned Agreement, any Substitute Owner shall have no personal liability to the Consenting Party for the performance of such obligations and the sole recourse of the Consenting Party, if there is a Substitute Owner, shall be to Substitute Owner's interest in the Facility. The Collateral Agent is not required to take any discretionary action under this Agreement unless it receives written direction from the Required Senior Parties. The Collateral Agent is entitled to receive indemnification to its satisfaction before taking any action as directed by the Required Senior Parties. 10. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a consent to assignment containing terms and conditions that are no less favorable to the Consenting Party than those terms and conditions contained in this Consent to Assignment. 5 11. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in all jurisdictions where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Agreement) and the properties it owns. (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Agreement and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Agreement and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party, (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party or any agreement referred to above in clause (iii) of this subsection (b), which violation could have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (c) The Assigned Agreement and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting Party, enforceable in accordance with their terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained and in full force and effect) is required in connection with the execution and delivery of the Assigned Agreement or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained all permits, licenses, approvals, consents, authorizations and exemptions, if any, with respect to the performance of its obligations under the Assigned Agreement and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof other than clarification from the Pennsylvania Public Utility Commission staff that no approval is required for construction of the 230kV looped tap and stress bus interconnection that will connect the AES Ironwood facility to the Consenting Party's 230kV system. The Consenting Party has requested an opinion from the PaPUC's Chief Council clarifying that the 6 proposed 230kV tap and interconnection is not high voltage line construction which would be subject to the Commission's High Voltage Line Application Regulations at 52 Pa Code 57.71 et seq. The Consenting Party expects this to be a routine ruling from the Chief Council which would close out the matter in about 30 days. If that were not the case, however, it would mean preparing a filing that would take several months but which should not effect our ability to proceed with construction of the interconnection and complete it on schedule. (e) The Consenting Party is not in default with respect to the Assigned Agreement and has no knowledge, as of the date hereof, of any claims or rights of set off by the Consenting Party or by any of its affiliates against the Company. To the best of the Consenting Party's knowledge after due inquiry, each other party to the Assigned Agreement have complied with all conditions precedent to the respective obligations of such party to perform under the Assigned Agreement. (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the property, business, prospects, profits or condition (financial or otherwise) of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Agreement or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal. (g) All representations, warranties and other statements made by the Consenting Party in the Assigned Agreement were true and correct as of the date when made and are true and correct as of the date of this Consent to Assignment. 12. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 13. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 14. Governing Law. (a) THIS CONSENT TO ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Consent to Assignment and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Consent to Assignment, each of the Consenting Party and the Assignee hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive 7 jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. Each of the Consenting Party and the Assignee hereby irrevocably designates, appoints and empowers CT Corporation System, 1633 Broadway, New York, New York, 10019, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Assignee or the Consenting Party, as applicable, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Assignee. Each of the Consenting Party and the Assignee irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address being 2800 Pottsville Pike, P.O. Box 16001, Reading, Pennsylvania, 19640-0001 and to the Assignee at the address set forth in Section 4. Each of the Consenting Party and the Assignee hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Consent to Assignment brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Assignee or any of their respective designees or assignees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. 15. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 16. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 17. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 18. Authority to Take Specific Actions. Notwithstanding any provision of this Consent to Assignment to the contrary, if an action by the Assignee is authorized by the Assigned Agreement or by this Consent to Assignment, the Consenting Party shall be obligated to recognize or follow instructions given by a Senior Party or any of their respective designees or assignees, or any successor or assign of the Assignee or any Senior Party, only if such person has provided to the Consenting Party reasonable written documentation of its authority by or on behalf of the Assignee to undertake the action which it is requesting or directing, and a written certification to the Consenting Party that it is so authorized to act. 8 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. Metropolitan Edison Company d/b/a GPU Energy By: /s/ Robert S. Zechman ---------------------------------- Name: Robert S. Zechman Title: VP-Engineering & Operations IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon ---------------------------------- Name: Thomas McCutcheon Title: Assistant Vice President REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------- Name: Patricia L. Rollin Title: Vice President EX-4.16 18 CONSENT TO ASSIGNMENT Exhibit 4.16 EXECUTION COPY CITY OF LEBANON AUTHORITY CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by CITY OF LEBANON AUTHORITY, a Pennsylvania governmental authority (the "Consenting Party"), and IBJ WHITEHALL BANK & TRUST COMPANY, as collateral agent (the "Collateral Agent", together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, intends to develop, construct, own, operate and finance a nominal 705 MW (net) gas-fired combined cycle electric generating facility (the "Facility") (the Facility, equipment and facilities associated with the Facility and such financing, development and construction, the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. All obligations of the Company under the Securities, the Collateral Agency Agreement (defined below), and any other agreements evidencing senior debt of the Company (collectively, the "Financing Documents") to the Trustee, the Collateral Agent, each successor to any such person and each other person providing senior debt to the Company who is or becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). D. The Senior Parties and the Company have entered into the Collateral Agency Agreement (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. E. The Company (as assignee of AES Ironwood, Inc.) and the Consenting Party have entered into that certain Effluent Supply Agreement (the "Assigned Agreement") dated as of March 3, 1998 pursuant to which, among other things, the Consenting Party will make available to the Company a supply of Effluent. F. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Agreement is to be assigned to the Collateral Agent as security pursuant to one or more of the Security Documents. G. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Agreement. 2. Consent to Assignment. The Consenting Party acknowledges that on or prior to the date hereof, AES Ironwood, Inc. has assigned all of its right, title and interest in the Assigned Agreement to the Company. The Consenting Party hereby irrevocably consents to the assignment of the Assigned Agreement by the Company to the Assignee for the benefit of the Senior Parties as security. The Consenting Party shall continue performance under the Assigned Agreement in accordance with its terms and the terms of this Consent to Assignment and shall maintain the Assigned Agreement in full force and effect. Until all obligations under the Financing Documents have been performed and paid in full, all obligations of the Consenting Party under the Assigned Agreement shall inure to the benefit of the Assignee for the benefit of the Senior Parties to the same extent as if the Assignee was an original party to the Assigned Agreement instead of the Company. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Agreement is in full force and effect and there are no amendments, modifications or supplements thereto, either oral or written, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Agreement or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any provision of the Assigned Agreement and no knowledge of any event or condition which would either immediately or with the passage of any applicable grace period or giving of notice or both, enable the Consenting Party to terminate or suspend its obligations under the Assigned Agreement, (d) none of the Company's rights under the Assigned Agreement has been waived, (e) the assignment by the Company of the Assigned Agreement to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party, will not cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement, and (f) a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof, shall not require the consent of the Consenting Party or cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement. 4. Notice of Company's Defaults and Termination. Anything in the Assigned Agreement notwithstanding, for so long as any Financing Liabilities (as defined in the Collateral Agency 2 Agreement) are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not claim prevention of or interference with performance of its obligations under the Assigned Agreement, nor shall the Consenting Party exercise any right it may have under the Assigned Agreement, at law or in equity, to cancel, suspend or terminate the Assigned Agreement, or any of its obligations thereunder, as the result of any default or other action or omission (each, herein, a "default") of the Company unless the Consenting Party, following expiry of all periods given the Company to cure such default, action or omission, shall have given a copy of a notice of default to the Assignee, such notice to be coupled with an opportunity to cure any such default within a reasonable period, but in no event less than ninety (90) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties, or any of their respective designees or assignees is diligently pursuing such cure or foreclosure), such cure period to commence upon delivery of such notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period provided, however, that if any such party is prohibited from curing any such default by any process, stay or injunction issued by any governmental authority or pursuant to any bankruptcy or insolvency proceeding, then the time periods specified in this Section 4 for curing a default shall be extended for the period of such prohibition . Such notice shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith, or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 No cancellation, suspension or termination of the Assigned Agreement by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the applicable cure period. Any dispute that may arise under the Assigned Agreement notwithstanding, the Consenting Party shall continue performance under the Assigned Agreement and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods. The Assignee, any of the Senior Parties or any of their respective designees or assignees may, but shall be under no obligation to, make any payment or perform any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. If the Assignee, any of the Senior Parties or any of their respective designees or 3 assignees fails to cure or rectify the effect of a default under the Assigned Agreement or within ninety (90) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the curing party's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances to complete such foreclosure or cure such default, provided the Assignee, any of the Senior Parties or any of their respective designees or assignees is diligently pursuing such cure or such foreclosure), whichever is longer, such cure period to commence upon such notice to the Assignee, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Agreement. 5. No Previous Assignment. The Consenting Party represents and warrants to the Assignee that it has not assigned, transferred or hypothecated, nor previously consented to any assignment, transfer or hypothecation of, the Assigned Agreement or any interest therein. 6. No Amendments Without Consent. The Consenting Party shall not amend, modify or consent to the amendment or modification of the Assigned Agreement without the prior written consent of the Assignee, unless the Company has certified to the Consenting Party in writing that such amendment, modification or consent to amendment or modification is permitted under the terms of the Financing Documents. 7. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations, or any other Financing Liabilities, are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Agreement shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Agreement directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C., for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. All payments required to be made by the Consenting Party under the Assigned Agreement shall be made without any offset, recoupment, abatement, withholding, reduction or defense whatsoever, except as specifically permitted under the Assigned Agreement. 8. Protection of Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Agreement under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, the Consenting Party shall, promptly, and in no event longer than ten (10) days after receipt of written request therefor, execute and deliver an agreement to the Assignee, any Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, for the remainder of the term of the Assigned Agreement and with the same terms as are contained therein.. References in this Consent to Assignment to "Assigned Agreement" shall be deemed also to include such new agreement. 4 9. Acknowledgement of Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. The Assignee shall have no obligation to the Consenting Party under the Assigned Agreement until such time as the Assignee notifies the Consenting Party in writing of the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized under the Security Documents, to (a) take possession of the Project and operate the same, (b) sell or otherwise transfer their interest in the Project and any purchaser at such sale which may include the Assignee or its designees or assignees, shall have the right to succeed to the Assignee's or the Senior Parties' rights hereunder ("Substitute Owner"), as the case may be, and (c) exercise all rights of the Company under the Assigned Agreement in accordance with the terms thereof. Subject to compliance with the provisions of the Assigned Agreement (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee comply in all respects in the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Agreement and otherwise to exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement. The Assignee, any of the Senior Parties or any of their respective designees or assignees shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder at any time; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective designees or assignees to cure any default of the Company under the Assigned Agreement or to perform any act, duty or obligation of the Company under the Assigned Agreement except during any such period that it shall have become a Substitute Owner and assumed such duties and obligations. The obligations of any Substitute Owner shall be no more than that of the Company under such Assigned Agreement, any Substitute Owner shall have no personal liability to the Consenting Party for the performance of such obligations and the sole recourse of the Consenting Party, if there is a Substitute Owner, shall be to Substitute Owner's interest in the Facility. The Collateral Agent is not required to take any discretionary action under this Agreement unless it receives written direction from the Required Senior Parties. The Collateral Agent is entitled to receive indemnification to its satisfaction before taking any action as directed by the Required Senior Parties. 10. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a consent to assignment containing terms and conditions that are no less favorable to the Consenting Party than those terms and conditions contained in this Consent to Assignment. 11. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a municipal authority duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and is in good standing in 5 all jurisdictions where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Agreement) and the properties it owns. (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Agreement and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Agreement and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party other than Resolution No. 4-99 of the City of Lebanon Authority authorizing and approving this Consent to Assignment, (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party or any agreement referred to above in clause (iii) of this subsection (b), which violation could have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (c) The Assigned Agreement and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting Party, enforceable in accordance with their terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained and in full force and effect) is required in connection with the execution and delivery of the Assigned Agreement or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained or will obtain all permits, licenses, approvals, consents, authorizations and exemptions, if any, with respect to the performance of its obligations under the Assigned Agreement and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof. (e) The Consenting Party is not in default with respect to the Assigned Agreement and has no knowledge, as of the date hereof, of any claims or rights of set off by the Consenting Party or by any of its affiliates against the Company. To the best of the Consenting Party's knowledge after due inquiry, each other party to the Assigned Agreement have complied with all conditions precedent to the respective obligations of such party to perform under the Assigned Agreement. 6 (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the property, business, prospects, profits or condition (financial or otherwise) of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Agreement or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal. (g) All representations, warranties and other statements made by the Consenting Party in the Assigned Agreement were true and correct as of the date when made and are true and correct as of the date of this Consent to Assignment. 12. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 13. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 14. Governing Law. (a) THIS CONSENT TO ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW). (b) Any legal action or proceeding with respect to this Consent to Assignment and any action for enforcement of any judgment in respect thereof may be brought in the courts of the Commonwealth of Pennsylvania or of the United States of America for the Middle District of Pennsylvania, and, by execution and delivery of this Consent to Assignment, each of the Consenting Party and the Assignee hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. Each of the Consenting Party and the Assignee hereby irrevocably designates, appoints and empowers CT Corporation System as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Assignee or the Consenting Party, as applicable, agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Assignee. Each of the Consenting Party and the Assignee irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address being 400 South Eighth Street, Lebanon, Pennsylvania, 17042, and to the Assignee at the address set forth in Section 4. Each of the Consenting Party and the Assignee hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in 7 connection with this Consent to Assignment brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Assignee or any of their respective designees or assignees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. 15. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 16. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 17. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 18. Authority to Take Specific Actions. Notwithstanding any provision of this Consent to Assignment to the contrary, if an action by the Assignee is authorized by the Assigned Agreement or by this Consent to Assignment, the Consenting Party shall be obligated to recognize or follow instructions given by a Senior Party or any of its respective designees or assignees, or any successor or assign of the Assignee or any Senior Party, only if such person has provided to the Consenting Party reasonable written documentation of its authority by or on behalf of the Assignee to undertake the action which it is requesting or directing, and a written certification to the Consenting Party that it is so authorized to act. 8 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. CITY OF LEBANON AUTHORITY By: /s/ David S. Etter ----------------------- Name: David S. Etter Title: Chairman IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon ------------------------------------ Name: Thomas McCutcheon Title: Assistant Vice President REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------- Name: Patricia L. Rollin Title: Vice President EX-4.17 19 CONSENT TO ASSIGNMENT Exhibit 4.17 PROJECT PARTY CONSENT TO ASSIGNMENT THIS CONSENT TO ASSIGNMENT (this "Consent to Assignment") is entered into as of June 1, 1999 by Pennsy Supply, Inc. (the "Consenting Party"), and IBJ Whitehall Bank & Trust Company, as Collateral Agent (hereinafter, in such capacity, together with any successors thereto in such capacity, referred to as the "Assignee"), for the benefit of and on behalf of the Senior Parties defined below. A. AES Ironwood, L.L.C. (the "Company"), a Delaware limited liability company, is providing for the development, construction, ownership and operation of a nominal 705 MW (net) gas-fired combined cycle electric generating facility and related equipment and facilities (the "Project") to be located in South Lebanon Township, Lebanon County, Pennsylvania. B. The Company intends to finance the development and construction of the Project, in part, through the issuance, from time to time, of certain securities (the "Securities") pursuant to a Trust Indenture, dated as of June 1, 1999 between the Company and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), as it may be amended or supplemented from time to time (the "Indenture"). C. In connection with the commencement of commercial operation of the Project, the Company is required to deliver the Debt Service Reserve Letter of Credit (the "DSR Letter of Credit"). Dresdner Bank AG, New York Branch, as issuing bank, has agreed to issue the DSR Letter of Credit subject to the terms and conditions contained in the DSR LOC Reimbursement Agreement, dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "DSR LOC Reimbursement Agreement"), among each of the banks and financial institutions parties thereto and Dresdner Bank AG, New York Branch, as issuing bank and as agent for such banks and financial institutions (in such capacity as agent, and together with its successors and assigns, the "DSR LOC Provider"). D. In connection with the Company's fulfillment of its obligations under Section 19.2 of the Power Purchase Agreement, the Company may deliver the Construction Period Letter of Credit (the "CP LOC"). Dresdner Bank AG, New York Branch, as issuing bank, has agreed to issue the CP LOC subject to the terms and conditions contained in the CP LOC Reimbursement Agreement, dated as of June 1, 1999 (as amended, supplemented or modified and in effect from time to time, the "CP LOC Reimbursement Agreement"), among each of the banks and financial institutions parties thereto and Dresdner Bank AG, New York Branch, as issuing bank and as agent for such banks and financial institutions (in such capacity as agent, and together with its successors and assigns, the "CP LOC Provider"). E. The Company may finance certain working capital requirements of the Project by entering into a working capital agreement with a financial institution for the provision of credit to the Company (such financial institution, the "Working Capital Provider"). F. All obligations of the Company under the Securities, the DSR LOC Reimbursement Agreement, the CP LOC Reimbursement Agreement, the Collateral Agency Agreement (defined below), and any working capital agreement (collectively, the "Financing Documents") to the Trustee, the DSR LOC Provider, the CP LOC Provider, the Collateral Agent, any Working Capital Provider, each successor to any such person and each other person providing Senior Debt to the Company who becomes a party to the Collateral Agency Agreement pursuant to its terms (collectively, the "Senior Parties") will be secured by a certain Mortgage, Security Agreement, Indenture, Pledge Agreement and Assignment of Leases and Income, each between the Company and IBJ Whitehall Bank & Trust Company (collectively, the "Security Documents"). G. The Collateral Agent, the Company, the DSR LOC Provider and the Trustee entered into the Collateral Agency and Intercreditor Agreement (as amended, supplemented or modified and in effect from time to time, the "Collateral Agency Agreement") to set forth their mutual understanding with respect to (a) the exercise of certain rights, remedies and options by the respective parties thereto under the above described documents, (b) the priority of their respective security interests created by the Security Documents, (c) the application of project revenues and certain other monies and items and (d) the appointment of the Collateral Agent as collateral agent. H. The Company and the Consenting Party have entered into that certain Agreement Relating to Real Estate dated October 22, 1998 and Easement and Right of Access Agreement dated April 15, 1999, as amended from time to time, (collectively the "Assigned Agreement") for the purposes therein set forth. I. The Company has notified the Consenting Party that all of the Company's right, title and interest in the Assigned Agreement is to be assigned to the Collateral Agent as security pursuant to one or more of the Security Documents. J. It is a condition precedent to the extension of credit by the Senior Parties that the Consenting Party execute and deliver this Consent to Assignment for the benefit of the Senior Parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, and intending to be legally bound, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the respective meanings specified herein or, if not defined herein, as defined in the Assigned Agreement. 2. Consent to Assignment. The Consenting Party hereby irrevocably consents to the assignment of the Assigned Agreement by the Company to the Assignee for the benefit of the Senior Parties as security, and the Consenting Party shall continue performance under the Assigned Agreement in accordance with its terms and the terms of this Consent to Assignment. Until all 2 obligations under the Financing Documents have been performed and paid in full, all obligations of the Consenting Party under the Assigned Agreement, subject to the terms and conditions of the Assigned Agreement with respect to the rights of the parties thereunder, shall inure to the benefit of the Assignee for the benefit of the Senior Parties to the same extent as if the Assignee instead of the Company were an original party to the Assigned Agreement. 3. No Defaults. The Consenting Party acknowledges and agrees that (a) the Assigned Agreement is in full force and effect and there are no amendments, modifications or supplements thereto, either oral or written, (b) the Consenting Party has not assigned, transferred or hypothecated the Assigned Agreement or any interest therein, (c) the Consenting Party has no knowledge of any default by the Company in any respect of the performance of any provision of the Assigned Agreement and no knowledge of any grounds for termination of the Assigned Agreement by the Consenting Party, (d) none of the Company's rights under the Assigned Agreement has been waived, (e) the assignment by the Company of the Assigned Agreement to the Assignee, as security, and the acknowledgment of and consent to such assignment by the Consenting Party, will not cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement, and (f) a foreclosure or other exercise of remedies under any of the Security Documents or any sale thereunder by the Assignee, any of the Senior Parties or any of their respective designees or assignees, whether by judicial proceedings or under any power of sale contained therein, or any conveyance from the Company to the Assignee, any of the Senior Parties or any of their respective designees or assignees, in lieu thereof, if made to a Permitted Assignee (only) in accordance with the terms and provisions of the Assigned Agreement (a "Permitted Assignee") and provided such remedies do not violate the terms of the Assigned Agreement, shall not require further consent of the Consenting Party or cause or constitute a default under the Assigned Agreement or an event or condition which would, with the giving of notice or lapse of time or both, constitute a default under the Assigned Agreement. 4. Notice of Company's Defaults and Termination. Anything in the Assigned Agreement notwithstanding, for so long as any financing liabilities are outstanding under the Financing Documents and until the same have been satisfied in full, the Consenting Party shall not claim prevention of or interference with performance of its obligations under the Assigned Agreement, nor shall the Consenting Party exercise any right it may have under the Assigned Agreement, at law or in equity, to cancel, suspend or terminate the Assigned Agreement, or any of its obligations thereunder, as the result of any default or other action or omission of the Company without first giving a copy of a notice of default to the Assignee, such notice to be coupled with an opportunity to cure any such default within forty-five (45) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances to cure such default or complete such foreclosure, provided the Assignee, any of the Senior Parties, or any of their respective assignees or designees is diligently pursuing such cure or foreclosure), such cure period to commence upon delivery of such notice to the Assignee, or, with respect to any defaults which are not susceptible of being so corrected, to rectify to the Consenting Party's reasonable satisfaction the effect upon the Consenting Party of such default by the Company within such period. Such notice shall be in writing and shall be deemed to have been given (a) when presented personally, (b) one business day after being deposited for 3 overnight delivery with a nationally recognized overnight courier, such as FedEx, (c) when received, if deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the Assignee at the address indicated below or such other address as the Assignee may have specified by written notice delivered in accordance herewith), or (d) when transmitted by telecopy to the number specified below and the receipt confirmed telephonically by recipient, provided that such telecopy is then followed by a copy of such notice delivered by a method specified in clause (a), (b) or (c) above. IBJ Whitehall Bank & Trust Company, as Collateral Agent One State Street New York, New York 10004 Attention: Capital Markets Trust Services Facsimile: 212-858-2952 Notwithstanding the foregoing or anything in the Assigned Agreement, (a) with respect to Emergency Defaults only, the Assignee shall not be entitled to any additional cure periods beyond the cure periods provided to the Company under the Assigned Agreement; (b) the Consenting Party acknowledges that the Consenting Party shall have no right to exercise any remedy for an Emergency Default other than self-help and monetary damages; (c) the Consenting Party agrees that it shall not unreasonably interfere with the operations of the Project in exercising its self-help remedies; and (d) the Assignee may at any time step in, in a commercially reasonable manner, to cure any Event of Default whether or not the Consenting Party is exercising its self-help remedies with respect thereto, and, upon the Assignee's assumption of the remedies being exercised by the Consenting Party in a commercially reasonable manner, the Consenting Party shall cease exercising self-help; provided, however, that, with respect to an Event of Default relating to water pumping obligations, the Assignee (or its Contractor) must meet the standards applicable to a Permitted Assignee under Section 4(c) of the Assigned Agreement. Failure of the Consenting Party to provide such notice to the Assignee shall not constitute a breach of this Consent to Assignment, and the Assignee agrees that the Consenting Party shall have no liability to the Assignee for such failure whatsoever; however, no cancellation, suspension or termination of the Assigned Agreement by the Consenting Party, or of any of the Consenting Party's obligations thereunder by the Consenting Party, shall be binding upon the Assignee or any of the Senior Parties without such notice and the lapse of the applicable cure period. Any dispute that may arise under the Assigned Agreement notwithstanding, the Consenting Party shall continue performance under the Assigned Agreement and resolve any dispute without discontinuing such performance until the lapse of the notice and applicable cure periods or extension periods. The Assignee or any of the Senior Parties may, but shall be under no obligation to, make any payment or perform any act required thereunder to be made or performed by the Company, with the same effect as if made or performed by the Company. If the Assignee or any of the Senior Parties fails to cure or rectify the effect of a default under the Assigned Agreement within forty-five (45) days from notice to the Assignee (or, with respect to nonmonetary defaults or defaults the curing of which requires the Assignee's possession of the Facility through foreclosure, such longer period of time as may be necessary under the circumstances to cure such default or complete such foreclosure, provided the Assignee, any of the Senior Parties, or any of their respective assignees or designees is diligently pursuing such cure or such foreclosure), whichever is longer, such cure period to 4 commence upon such notice to the Assignee, the Consenting Party shall have all its rights and remedies with respect to such default as set forth in the Assigned Agreement. 5. Payments to Revenue Account. The Consenting Party hereby agrees that, so long as any notes, bonds, loans, letters of credit, commitments or other obligations are outstanding under the Financing Documents and until the same have been satisfied in full, all payments to be made by the Consenting Party with respect to the Assigned Agreement shall be in lawful money of the United States of America, in immediately available funds. The Company hereby directs the Consenting Party to, and the Consenting Party hereby agrees to, make all such payments with respect to the Assigned Agreement directly to the Assignee at ABA No. 026007825, for credit to AES Ironwood, L.L.C., for further credit to Account No. 630000041.2 (Revenue Account) Attention: Capital Markets Trust Services, or to such other person and/or at such other address as the Assignee may from time to time specify in writing to the Consenting Party. Any such payment shall be deemed to be a payment by the Consenting Party to the Company under the Assigned Agreement. 6. Protection of the Assignee. In the event that either (a) the Company's interest in the Project shall be sold, assigned or otherwise transferred to a Permitted Assignee pursuant to the exercise of any right, power or remedy by the Assignee or pursuant to judicial proceedings, or (b) the Company rejects all or a portion of the Assigned Agreement under Title 11, United States Code, or other similar Federal or state statute and such rejection is approved by the appropriate bankruptcy court or is otherwise effective pursuant to such statute, and in either case (i) no funds payable under the Assigned Agreement shall be due and payable to the Consenting Party, (ii) the effect upon the Consenting Party of any default not susceptible of being corrected shall have been rectified to the Consenting Party's reasonable satisfaction, (iii) the Assigned Agreement shall have been validly terminated pursuant to the terms of the Assigned Agreement by reason of a default or a rejection by the Company or a trustee in bankruptcy under Title 11, United States Code, or other similar Federal or state statute, and (iv) the Assignee or any of the Senior Parties (or a designee or nominee) and shall be obligated to cure, or shall have arranged for the curing, of any default susceptible of being corrected by the Assignee or any of the Senior Parties or by a purchaser at any judicial or non-judicial sale, provided the party actually curing the default is a Permitted Assignee, the Consenting Party shall, promptly, and in no event longer than ten (10) days after receipt of written request therefor, execute and deliver an agreement to the Assignee, any of the Senior Parties or any of their respective nominees, purchasers, assignees or transferees, as the case may be, provided such party is a Permitted Assignee, for the remainder of the term of the Assigned Agreement and with the same terms as are contained therein. References in this Consent to Assignment to "Assigned Agreement" shall be deemed also to include such new agreement. 7. Acknowledgement of the Assignee's Obligations and Rights. Neither the Assignee nor any of the Senior Parties has any obligation hereunder to extend credit to the Consenting Party or any contractor of the Consenting Party at any time for any purpose. Neither the Assignee nor any of the Senior Parties shall have any obligation to the Consenting Party under the Assigned Agreement unless and until such time as such entity succeeds to the interest of the Company under the Assigned Agreement pursuant to the Assignee's election to exercise its rights hereunder. Upon the occurrence and during the continuance of an event of default under any of the Security Documents, the Assignee or any of the Senior Parties shall have the right to the extent authorized 5 under the Assigned Agreement and the Security Documents, to (a) take possession of the Project and operate the same, (b) sell or otherwise transfer their interest in the Project if such purchaser at such sale is a Permitted Assignee, and such purchaser shall succeed to the Assignee's or the Senior Parties' rights hereunder, as the case may be, in accordance with the terms of the Assigned Agreement and this Consent to Assignment and (c) exercise all rights of the Company under the Assigned Agreement in accordance with the terms thereof. Subject to the Assignee's compliance with the provisions of the Assigned Agreement (if applicable) and the terms of this Consent to Assignment, the Consenting Party shall cooperate with the Assignee and comply in all respects in the Assignee's exercise of such rights. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an event of default under any of the Financing Documents, the Assignee, any of the Senior Parties or any of their respective designees or assignees shall, in accordance with the terms of the Assigned Agreement, have the full right and power to enforce directly against the Consenting Party all obligations of the Consenting Party under the Assigned Agreement and otherwise to exercise all remedies thereunder, and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement. The Assignee, any of the Senior Parties or any of their respective designees shall have the right, but not the obligation, to perform any act, duty or obligation required of the Company thereunder at any time; provided that nothing herein shall require the Assignee, any of the Senior Parties or any of their respective designees or assignees to cure any default of the Company under the Assigned Agreement or to perform any act, duty or obligation of the Company under the Assigned Agreement. 8. Refinancing. The Consenting Party hereby acknowledges that the Company may from time to time obtain refinancing for the Project (including privately or publicly placed bonds or notes), and the Consenting Party agrees that it will promptly upon request execute in favor of the lenders providing such refinancing a consent to assignment as requested by such lenders; provided that the terms and conditions contained in such consent to assignment shall be no less favorable to the Consenting Party than those terms and conditions contained in this Consent to Assignment. 9. Representations. The Consenting Party represents and warrants to the Assignee as follows: (a) The Consenting Party is a corporation duly organized, validly subsisting and in good standing under the laws of the Commonwealth of Pennsylvania and is in good standing in all jurisdictions where necessary in light of the business it conducts (including, without limitation, performance of its obligations under the Assigned Agreement) and the properties it owns. (b) The Consenting Party has the necessary corporate power, corporate authority and legal right to execute, deliver and perform its obligations under the Assigned Agreement and this Consent to Assignment, and the execution and delivery by the Consenting Party of the Assigned Agreement and this Consent to Assignment and the performance of its obligations thereunder and hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Consenting Party's board of directors or any shareholder of the Consenting Party, (ii) violate any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule or regulation, or any material order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting 6 Party, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Consenting Party is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Consenting Party; and the Consenting Party is not in violation, breach or default of any provision of the corporate charter or by-laws of the Consenting Party or any provision of any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Consenting Party or any agreement referred to above in clause (iii) of this subsection (b), which violation could have a material adverse effect on the ability of the Consenting Party to perform its obligations under this Consent to Assignment or the Assigned Agreement. (c) The Assigned Agreement and this Consent to Assignment have been duly executed and delivered and each constitutes a valid and binding obligation of the Consenting Party, enforceable in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization or other similar laws affecting the enforcement of creditors' rights and general equitable principles. (d) No consent or approval of, or other action by, or any notice or filing with, any court or administrative or governmental body (except those previously obtained and in full force and effect) is required in connection with the execution and delivery of the Assigned Agreement or this Consent to Assignment or the performance by the Consenting Party of its obligations thereunder or hereunder. The Consenting Party has obtained all permits, licenses, approvals, consents, authorizations and exemptions, if any, with respect to the performance of its obligations under the Assigned Agreement and this Consent to Assignment required by applicable laws, statutes, rules and regulations in effect as of the date hereof. (e) The Consenting Party is not in default with respect to the Assigned Agreement and has no knowledge, as of the date hereof, of any claims or rights of set-off by the Consenting Party or by any of its affiliates against the Company. (f) There are no proceedings pending or, to the best of the Consenting Party's knowledge after due inquiry, threatened against or affecting the Consenting Party in any court or before any governmental authority or arbitration board or tribunal (whether or not purportedly on behalf of the Consenting Party) which may result in a material or adverse effect upon the property, business, prospects, profits or condition (financial or otherwise) of the Consenting Party, or the ability of the Consenting Party to perform its obligations under, or which purports to affect the legality, validity or enforceability of, the Assigned Agreement or this Consent to Assignment; and the Consenting Party is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal. 10. Binding Upon Successors. All agreements, covenants, conditions and provisions of this Consent to Assignment shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. 7 11. Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties hereto only and are not a part of this Consent to Assignment. 12. Governing Law. In accordance with New York General Obligations Law Section 5-1401, this Consent to Assignment shall be governed by and construed in accordance with the internal laws of the State of New York, provided, that the parties agree that any interpretation of the Assigned Agreement shall be in accordance with the laws of the Commonwealth of Pennsylvania. 13. Amendment. This Consent to Assignment may be modified, amended or rescinded only by a writing expressly referring to this Consent to Assignment and signed by both the Consenting Party and the Assignee. The Assignee may request the direction of the Senior Parties prior to signing any amendments described herein. 14. Severability. Every provision of this Consent to Assignment is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the other terms and provisions hereof, which terms and provisions shall remain binding and enforceable, and to the extent possible all of such other provisions shall remain in full force and effect. 15. Counterparts. This Consent to Assignment may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 16. Authority to Take Specific Actions. Notwithstanding any provision of this Consent to Assignment to the contrary, if an action by the Assignee is authorized by the Assigned Agreement or by this Consent to Assignment, the Consenting Party shall be obligated to recognize or follow instructions given by a Senior Party or any of its respective designees or assignees, or any successor or assign of Assignee or any Senior Party, only if such person has provided to the Consenting Party reasonable written documentation of its authority by or on behalf of the Assignee to undertake the action which it is requesting or directing, and a written certification to the Consenting Party that it is so authorized to act. 8 IN WITNESS WHEREOF, each of the Consenting Party and the Assignee has duly executed this Consent to Assignment as of the date first above written. PENNSY SUPPLY, INC. By: /s/ Harry G. Lake, Jr. -------------------------------- Name: Harry G. Lake, Jr. Title: Sr. VP Sales & Marketing IBJ WHITEHALL BANK & TRUST COMPANY, as COLLATERAL AGENT By: /s/ Thomas McCutcheon ------------------------------------ Name: Thomas McCutcheon Title: Assistant Vice President REVIEWED AND CONSENTED TO: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------- Name: Patricia L. Rollin Title: Vice President 9 EX-4.18 20 ASSIGNMENT AND ASSUMPTION AGREEMENT Exhibit 4.18 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement, dated as of June 25, 1999 (this "Agreement"), is between AES Ironwood, Inc., a Delaware corporation (the "Assignor"), having its principal office at 829 Cumberland Street, Lebanon, Pennsylvania 17042, and AES Ironwood, L.L.C., a Delaware limited liability company (the "Assignee"), having its principal office at 1001 North 19th Street, Arlington, Virginia 22209. W I T N E S S E T H: WHEREAS, the Assignor is party to that certain Agreement for Engineering, Procurement and Construction Services, dated as of September 23, 1998 (the "EPC Contract"), with Siemens Westinghouse Power Corporation; WHEREAS, the Assignor desires to assign to the Assignee, and the Assignee desires to assume, all of the Assignor's right, title and interest in, to and under the EPC Contract. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Assignor and the Assignee hereby act and agree as follows: 1. Assignment. The Assignor hereby conveys, assigns and transfers to the Assignee and its successors and assigns all of the Assignor's right, title and interest in, to and under the EPC Contract. 2. Assumption. The Assignee hereby accepts the foregoing assignment, transfer and conveyance of the Assignor's right, title and interest in, to and under the EPC Contract, and the Assignee hereby agrees and confirms that it shall be bound by all the terms of, and undertake, assume and accept all of the rights, obligations and liabilities of, the Assignor under the EPC Contract whether arising before, on or after the date of this Agreement. 3. Release and Waiver. The Assignee hereby releases and forever discharges the Assignor from all claims and liabilities arising out the EPC Contract, and the Assignee hereby waives any and all claims it may have against the Assignor now existing or hereafter arising out of the EPC Contract. 4. Counterparts. This Agreement may be executed in any number of counterparts, and each counterpart hereof shall be deemed to be an original instrument, but all such counterparts shall constitute but one assignment. 5. Further Assurances. The Assignor agrees to take all such further reasonable actions and execute and deliver all such further documents as are necessary to effectuate the purposes of this Agreement. 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York except any such laws that would direct the application of the law of another jurisdiction. 7. Successors and Assigns. This Agreement shall bind the Assignor and its respective successors and assigns and inure to the benefit of the Assignee and its successors and assigns. 8. Descriptive Headings. The descriptive headings of the several paragraphs of this Agreement are for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 2 IN WITNESS WHEREOF, the Assignor and the Assignee have executed this Agreement by their duly authorized representatives as of the date and year first above written. ASSIGNOR: AES IRONWOOD, INC., By: /s/ Patricia L. Rollin ------------------------------- Name: Patricia L. Rollin Title: Vice President ASSIGNEE: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------------- Name: Patricia L. Rollin Title: Vice President [ASSIGNMENT AND ASSUMPTION AGREEMENT] CONSENT, ACKNOWLEDGMENT AND AGREEMENT: Siemens Westinghouse Power Corporation hereby (i) consents to the assignment contemplated by this Agreement, (ii) acknowledges the assumption contemplated by this Agreement and (iii) agrees that the Assignor shall have no liability for any claim now existing or hereafter arising under the EPC Contract. SIEMENS WESTINGHOUSE POWER CORPORATION By: /s/ James Mackey ----------------------------- Name: James Mackey Title: Director Project Management EX-4.19 21 ASSIGNMENT AND ASSUMPTION AGREEMENT Exhibit 4.19 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement, dated as of June 25, 1999 (this "Agreement"), is between AES Ironwood, Inc., a Delaware corporation (the "Assignor"), having its principal office at 829 Cumberland Street, Lebanon, Pennsylvania 17042, and AES Ironwood, L.L.C., a Delaware limited liability company (the "Assignee"), having its principal office at 1001 North 19th Street, Arlington, Virginia 22209. W I T N E S S E T H: WHEREAS, the Assignor is party to that certain Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of September 23, 1998 (the "Maintenance Services Contract"), with Siemens Westinghouse Power Corporation; WHEREAS, the Assignor desires to assign to the Assignee, and the Assignee desires to assume, all of the Assignor's right, title and interest in, to and under the Maintenance Services Contract. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Assignor and the Assignee hereby act and agree as follows: 1. Assignment. The Assignor hereby conveys, assigns and transfers to the Assignee and its successors and assigns all of the Assignor's right, title and interest in, to and under the Maintenance Services Contract. 2. Assumption. The Assignee hereby accepts the foregoing assignment, transfer and conveyance of the Assignor's right, title and interest in, to and under the Maintenance Services Contract, and the Assignee hereby agrees and confirms that it shall be bound by all the terms of, and undertake, assume and accept all of the rights, obligations and liabilities of, the Assignor under the Maintenance Services Contract whether arising before, on or after the date of this Agreement. 3. Release and Waiver. The Assignee hereby releases and forever discharges the Assignor from all claims and liabilities arising out the Maintenance Services Contract, and the Assignee hereby waives any and all claims it may have against the Assignor now existing or hereafter arising out of the Maintenance Services Contract. 4. Counterparts. This Agreement may be executed in any number of counterparts, and each counterpart hereof shall be deemed to be an original instrument, but all such counterparts shall constitute but one assignment. 5. Further Assurances. The Assignor agrees to take all such further reasonable actions and execute and deliver all such further documents as are necessary to effectuate the purposes of this Agreement. 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York except any such laws that would direct the application of the law of another jurisdiction. 7. Successors and Assigns. This Agreement shall bind the Assignor and its respective successors and assigns and inure to the benefit of the Assignee and its successors and assigns. 8. Descriptive Headings. The descriptive headings of the several paragraphs of this Agreement are for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 2 IN WITNESS WHEREOF, the Assignor and the Assignee have executed this Agreement by their duly authorized representatives as of the date and year first above written. ASSIGNOR: AES IRONWOOD, INC., By: /s/ Patricia L. Rollin -------------------------- Name: Patricia L. Rollin Title: Vice President ASSIGNEE: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin -------------------------- Name: Patricia L. Rollin Title: Vice President [ASSIGNMENT AND ASSUMPTION AGREEMENT] CONSENT, ACKNOWLEDGMENT AND AGREEMENT: - -------------------------------------- Siemens Westinghouse Power Corporation hereby (i) consents to the assignment contemplated by this Agreement, (ii) acknowledges the assumption contemplated by this Agreement and (iii) agrees that the Assignor shall have no liability for any claim now existing or hereafter arising under the Maintenance Services Contract. SIEMENS WESTINGHOUSE POWER CORPORATION By: /s/ James Mackey --------------------- Name: James Mackey Title: Director Project Management EX-10.1 22 GUARANTY Exhibit 10.1 GUARANTY BY THE WILLIAMS COMPANIES, INC. GUARANTY (this "Guaranty"), dated as of June 18, 1999, by The Williams Companies, Inc., a Delaware corporation (the "Guarantor"), in favor of AES Ironwood, L.L.C., a Delaware limited liability company ("Guaranteed Party"), pursuant to Section 19.3 of that certain Amended and Restated Power Purchase Agreement, dated as of February 5, 1999, by and between Guaranteed Party and Williams Energy Marketing & Trading Company, a Delaware corporation and a subsidiary of Guarantor (the "Company"), as modified or supplemented from time to time (the "PPA"). RECITALS WHEREAS, Guaranteed Party has agreed to enter into the PPA in reliance upon the Guarantor's agreement, pursuant to the terms and conditions set forth below, to provide this Guaranty to Guaranteed Party; and WHEREAS, Guarantor is willing to provide this Guaranty to Guaranteed Party, on the terms and conditions set forth below, as an inducement to Guaranteed Party to enter into the PPA with the Company. NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be bound hereby, the Guarantor agrees as follows: 1. Obligations of Guarantor. Subject to the Guaranty Cap set forth in Section 2 of this Guaranty, the Guarantor unconditionally and irrevocably guaranties, as primary obligor and not merely as surety, to and for the benefit of Guaranteed Party, the prompt payment and performance when due of all present and future obligations (i) of the Company to make Total Fixed Payments pursuant to, and as such term is defined in, the PPA and (ii) to pay damages arising under the PPA in respect of the Company's obligation to make Total Fixed Payments under the PPA (including damages related to the loss by Guaranteed Party of the Total Fixed Payments arising from any breach by the Company of the PPA or a termination of the PPA for cause by Guaranteed Party) together with any and all reasonable expenses (including reasonable attorneys' fees and expenses) incurred by Guaranteed Party in enforcing this Guaranty (the obligations referred to in clauses (i) and (ii) collectively and individually, the "Obligations"). Subject to the Guaranty Cap set forth in Section 2 of this Guaranty, the Guarantor agrees, that upon the failure of the Company to pay any of the Obligations when they become due, the Guarantor will pay, or cause to be paid, to Guaranteed Party any and all such unpaid Obligations. 2. Maximum Guaranteed Amount. (a) The aggregate liability of the Guarantor under this Guaranty and Guaranteed Party's right of recovery hereunder is limited to a total aggregate amount of Four Hundred Eight Million, Four Hundred Thirty Two Thousand, Eight Hundred Dollars ($408,432,800), as reduced from time to time as provided for in the following paragraph (the "Guaranty Cap"). 1 (b) The Guaranty Cap shall in each semi-annual period commencing on January 1 of the first full calendar year after the Commercial Operation Date (as such term is defined in the PPA), be reduced by the sum of (i) the proportion of the amount set forth in Exhibit A hereto and corresponding to such semiannual period that the amount of Fixed Payments for such semiannual period actually paid by or on behalf of the Company under the PPA (other than pursuant to clause (b)(ii) hereof) bears to the amount of Fixed Payments due and payable for such semiannual period and (ii) without duplication of amounts referred to in clause (i) of this paragraph (b), the amount paid by the Guarantor in such semiannual period pursuant to the demand of or legal action by Guaranteed Party. Each reduction in the Guaranty Cap shall be automatic and without further action on the part of any Person (as such term is defined in the PPA). 3. Nature of Obligations. The Guarantor guaranties that the Obligations shall be paid strictly in accordance with the terms of the PPA, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Guaranteed Party with respect thereto. The duties of the Guarantor under this Guaranty are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Guarantor to enforce this Guaranty, irrespective of whether any action is brought against the Company or whether the Company is joined in any such action or actions. Guaranteed Party shall not be obligated to file any claim relating to the Obligations if the Company becomes subject to a bankruptcy, reorganization or similar proceeding and neither the failure of Guaranteed Party to so file, nor the existence of any such proceeding, shall affect the Guarantor's obligations hereunder. The liability of the Guarantor under this Guaranty as specified in Section 1 of this Guaranty shall, to the fullest extent permitted by law, be absolute and unconditional irrespective of: (i) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from the PPA, including, without limitation, any increase in the Obligations; provided, however, no action taken pursuant to this Section 3(i) shall be construed to extend the term of this Guaranty or increase the amount of the Guaranty Cap; (ii) any manner of sale or other disposition of assets of the Company or any of its Affiliates (as such term is defined in the PPA); or (iii) any change, restructuring or termination of the structure or existence of the Company or any of its Affiliates. The Guarantor shall not contest the amount, Guaranteed Party's right to collect, or Guaranteed Party's collection of, the Obligations (as they may be revised from time to time as provided for herein) in any future proceeding including, without limitation, civil, criminal, regulatory, administrative, judicial, equitable, or appellate, on the basis that the Obligations constitute a penalty, are or will result in a forfeiture, or are otherwise unlawful; provided, however, that, notwithstanding anything to the contrary contained herein, the Guarantor may assert that Guaranteed Party's actual damages are less than the Obligations, contest liability or assert any other claim or defense that the Company could assert, except as expressly limited 2 herein, so long as the Guarantor does not duplicate or reassert any claims or initiate any proceedings that were resolved or concluded previously by the Company. The Guarantor agrees that the obligations of the Guarantor set forth in this Guaranty shall be direct obligations of the Guarantor, and such obligations shall be absolute and unconditional and shall not be subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense (other than full and strict compliance by the Guarantor with its obligations hereunder) based upon any claim the Guarantor or any other Person (as such term is defined in the PPA) may have against Guaranteed Party or the Company. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. 4. Waiver. The Guarantor hereby waives demand, promptness, diligence, presentment, notice of acceptance, notice of protest for non-payment and any other notice or similar action with respect to any of the Obligations and this Guaranty and any requirement that Guaranteed Party exhaust any right or take any action against the Company or any other Person. 5. Subrogation. The Guarantor shall not exercise any rights which it may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all Obligations and all other amounts payable under this Guaranty shall have been paid in full to Guaranteed Party. If any amount shall be paid to the Guarantor on account of any subrogation rights at any time prior to the payment in full of the Obligations and all other amounts payable under this Guaranty, such amount(s) shall be paid immediately to Guaranteed Party to be credited and applied to the Obligations, whether matured or unmatured, in accordance with the terms hereof and the PPA. Upon full payment of the Obligations and all other amounts payable under this Guaranty, Guarantor shall be subrogated to the rights of Guaranteed Party, and Guaranteed Party shall take all such reasonable actions, at the Guarantor's sole expense, as Guarantor shall reasonably request to effect such subrogation rights. 6. Certain Rights and Powers of Guaranteed Party. Guaranteed Party shall have all of the rights and remedies available under applicable law and may proceed by appropriate court action to enforce the terms hereof and to recover damages for the breach hereof. Each and every remedy of Guaranteed Party shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy now or hereafter existing at law or in equity. At the option of Guaranteed Party and upon notice to the Guarantor, the Guarantor may be joined in any action or proceeding commenced by Guaranteed Party against the Company in respect of any Obligation, and recovery may be had against the Guarantor in such action or proceeding or in any independent action or proceeding against the Guarantor, without any requirement that Guaranteed Party first assert, prosecute or exhaust any remedy or claim against the Company. 7. Representations and Warranties. The Guarantor represents and warrants to Guaranteed Party as follows: 3 (a) Organization and Good Standing. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and each jurisdiction in which it currently conducts its business. The Guarantor has all requisite corporate power and authority to carry on its business at it is now conducted and as contemplated by this Guaranty, and to enter into and perform its obligations hereunder. (b) Due Authorization; No Conflicts. The execution, delivery and performance by the Guarantor of the Guaranty has been duly and effectively authorized by all necessary corporate action of the Guarantor. No other corporate proceedings are necessary to authorize the execution and delivery by the Guarantor of this Guaranty; and this Guaranty is the valid and binding obligation of Guarantor, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or similar laws from time to time in effect that affect creditors' rights generally or by general principles of equity. Neither the execution and delivery of this Guaranty nor compliance by the Guarantor with any of the provisions hereof will (i) violate, or conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or laps of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in the creation of any lien upon any of the properties or assets of the Guarantor under any of the terms, conditions or provisions of, the Certificate of Incorporation or By-Laws of the Guarantor in effect on the date of this Guaranty (hereinafter, the "Effective Date") or any agreement or other instrument or obligation to which the Guarantor is a party at the Effective Date, or by which the Guarantor or any of its properties or assets or may be bound or affected as of the Effective Date, or (ii) violate any order, writ, injunction decree, arbitration award, statute, rule or regulation applicable at the Effective Date to the Guarantor or any of its properties or assets. (c) No Consent Required. No permit, authorization, consent, approval, waiver, exception, variance, ruling, order decree, exemption, filing, recording, registration, notice or declaration (collectively, "Governmental Approval"), is required or to be made on the Guarantor's behalf with any federal, state, county, municipal, regional, local, territorial or other governmental department, regulatory body, commission, board, bureau, agency, taxing authority or other instrumentality (collectively, "Governmental Authority") to authorize the execution and delivery of this Guaranty or the taking of any future action contemplated hereby, except for those Governmental Approvals (i) which have already been obtained or (ii) the failure of which to obtain would not have an adverse effect on the ability of the Guarantor to perform and satisfy its obligations hereunder. (d) No Default under Other Agreements. The Guarantor is not in default, and no condition exists that with notice or lapse of time or both would constitute a default, under any mortgage, deed of trust, indenture or other instrument or agreement to which it is a party or by which it or any of its properties or assets may be bound, that would have a material adverse effect on the Guarantor's ability to perform under this Guaranty; and the Guarantor is not in violation of any federal, state, or local rules, ordinances, judgments, decrees, injunctions, writs, interpretations, licenses and permits or orders of any court, arbitrator (collectively, "Requirements of Law"), or Governmental Authority that could have a material adverse effect on the Guarantor's ability to perform under this Guaranty. 4 (e) Litigation. There is no litigation, proceeding, arbitration or government investigation pending or, so far as known to the Guarantor, threatened with respect to or otherwise relating to the Guarantor which if adversely determined could, in any one case or in the aggregate, have a material adverse effect on the ability of the Guarantor to comply with its obligations under this Guaranty. (f) Compliance with Law. (i) The Guarantor has complied in all material respects with all Requirements of Law relating to this Guaranty, the Guarantor has received no written notice to the effect that, or otherwise been advised in writing that, it is not in compliance with any requirement of law or governmental approval relating to this Guaranty, and the Guarantor has no reason to believe that any currently existing circumstances are likely to result in violations by the Guarantor of any such requirement of law which could in any one case or in the aggregate, have a material adverse effect on the ability of the Guarantor to perform under this Guaranty; and (ii) to the best of the knowledge of the Guarantor, there is not now pending any proceeding, hearing or investigation with respect to the adoption of amendments or modifications to any existing requirement of law or governmental approval with respect to such matters which, if adopted, would have a material adverse effect on the ability of the Guarantor to comply with its obligations under the Guaranty. 8. Covenants. The Guarantor covenants and agrees that, so long as any part of the Obligations shall remain unpaid, the Guarantor shall: (a) Performance and Compliance with Other Agreements. Perform and comply with each of the material provisions of each material indenture, credit agreement, contract or other agreement by which the Guarantor is bound, non-performance or non-compliance with which would have a material adverse effect on its ability to perform its obligations hereunder, except material contracts or other agreements being contested in good faith. (b) Preservation of Corporate Existence, Etc. Preserve and maintain its corporate existence and preserve its material rights, franchises and privileges to conduct its business substantially as conducted on the date hereof. (c) Compliance with Laws, Etc. Comply with all Requirements of Law and Governmental Approvals, non-compliance with which would have a material adverse effect on its ability to perform its obligations herein, except laws, rules, regulations and orders being contested in good faith. (d) Notice of Breach. Provide, as soon as possible and in any event within three (3) business days after the occurrence of any default or breach of the obligations applicable to the Guarantor hereunder, a statement of the Chief Financial Officer or Vice-President and Treasurer of the Guarantor setting forth details of the circumstances leading to such breach or default hereof and the action which the Guarantor proposes to take with respect thereto. (e) Mergers, Etc. Not merge with any person, corporation, partnership, or other entity unless: (i) the surviving and resulting entity agrees in writing to be bound hereby to the same 5 extent as the Guarantor, and (ii) immediately after giving effect thereto, no event of default or breach of this Guaranty shall have occurred and be continuing. 9. No Waiver. No failure on the part of Guaranteed Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. 10. Continuing Guaranty. This Guaranty is a continuing guaranty and shall (i) remain in full force and effect until the payment in full of all amounts payable under this Guaranty, (ii) be binding upon the Guarantor, its successors and assigns, and (iii) inure to the benefit of, and be enforceable by, Guaranteed Party and its successors, transferees and assigns. 11. Waiver of Notices. The Guarantor hereby unconditionally and irrevocably waives all notices to and demands upon the Company or the Guarantor and all other formalities, the omission of any of which or delay in performance of which, might, but for the provisions of this paragraph, by rule of law, under equitable principles or otherwise, constitute grounds for relieving or discharging the Guarantor in whole or in part from its obligations hereunder. 12. No Consequential Damages. Neither Party shall be liable to the other under this Guaranty or otherwise for any exemplary, consequential, special, or punitive losses or damages that may be incurred by either Party as a result of their execution of and performance under this Guaranty. 13. Further Assurances. The Guarantor, at its sole cost and expense, shall cause to be promptly and duly taken, executed, acknowledged and delivered, such further documents and instruments as Guaranteed Party may from time to time reasonably request in order to carry-out more effectively the intent and purposes of this Guaranty. 14. Severability. If any provision of this Guaranty shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatsoever. 15. Counterparts; Effectiveness. This Guaranty may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The effective date of this Guaranty for all purposes shall be the date specified on page one (1) above. 16. Amendment; Waiver; Requirement of Writing. This Guaranty cannot be amended, changed, modified, released or discharged except by a writing signed by the party against whom enforcement of the amendment, change, modification or waiver is sought. 17. Address for Notices. Any notice, request, consent, waiver or other communication required or permitted hereunder shall be effective only if it is in writing and personally delivered or sent by certified or registered mail, postage prepaid, or by nationally recognized overnight courier, addressed as set forth below: 6 If to Guaranteed Party: The AES Corporation 1001 North 19th Street Arlington, VA 22209 Attention: General Counsel Telephone: (703) 522-1315 Facsimile: (703) 528-4510 If to Guarantor: The Williams Companies, Inc. One Williams Center Tulsa, OK 74172 Attention: Treasurer Telephone: (918) 573-5551 Facsimile: (918) 573-2065 or to such other person or address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice or communication shall be deemed to have been given as of the date received by the recipient thereof. 18. Governing Law. This Guaranty shall be construed in accordance with and governed by the laws of the State of New York without regard to the conflict of laws provisions of such laws. 19. Submission to Jurisdiction. Each of Guaranteed Party and the Guarantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Guaranty, or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of the Southern District of New York, and appellate courts with jurisdiction over any appeals therefrom; (b) consents and agrees that any such action or proceeding may be brought in and only in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to its address set forth in Section 17 of this Guaranty, or at such other address of which the other party shall have been notified pursuant thereto; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. 7 20. Assignment. This Guaranty may be assigned by the Guarantor only with prior written consent of Guaranteed Party, which consent shall not be unreasonably withheld. Guaranteed Party may assign this Guaranty only as permitted under the PPA with respect to assignments by Guaranteed Party of its rights thereunder. This Guaranty shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 8 IN WITNESS WHEREOF, the Guarantor and Guaranteed Party have each caused this Guaranty to be executed on its behalf by its duly authorized office as of the date shown above. THE WILLIAMS COMPANIES, INC. as Guarantor [seal] By: /s/ James G. Ivey --------------------- Name: James G. Ivey Title: Tresurer ACCEPTED AND ACKNOWLEDGED: AES IRONWOOD, L.L.C. By: /s/ Patricia L. Rollin ------------------------ Name: Patricia L. Rollin Title: Vice President EXHIBIT A AES Ironwood Project The Williams Companies, Inc. Guaranty Cap Reduction Schedule At end At end Year of May of November ---- ------ ----------- 2001 - - 2002 $987,200 $987,200 2003 $2,375,500 $2,375,500 2004 $3,177,600 $3,177,600 2005 $3,516,900 $3,516,900 2006 $3,578,600 $3,578,600 2007 $4,565,800 $4,695,600 2008 $5,676,400 $5,676,400 2009 $4,812,600 $4,812,600 2010 $5,028,600 $5,028,600 2011 $6,355,100 $6,355,100 2012 $4,689,200 $4,689,200 2013 $6,433,400 $6,105,300 2014 $7,959,300 $7,959,300 2015 $8,487,300 $7,650,800 2016 $8,431,900 $8,567,100 2017 $9,039,100 $9,039,100 2018 $6,231,700 $6,231,700 2019 $8,297,000 $7,664,200 2020 $10,026,300 $12,223,600 2021 $10,180,500 $7,404,000 2022 $9,443,900 $8,788,000 Exhibit A-1 EX-10.4 23 GUARANTY Exhibit 10.4 GUARANTY GUARANTY, made effective as of September 23, 1998, by SIEMENS CORPORATION, a corporation organized and existing under the laws of Delaware ("Guarantor"), in favor of AES IRONWOOD, INC., a Delaware corporation ("Owner") or its AES Ironwood L.L.C. assignee. WHEREAS, Owner wishes to have engineered, designed, procured, constructed, equipped, commissioned and tested a combined-cycle electric generating facility with a nominal electric generating capacity of 700 megawatts (net) to be located in Lebanon, Pennsylvania (such facility and the construction thereof, as more fully defined in the EPC Agreement referred to below, the "Project"); WHEREAS, concurrently with the execution and delivery of this Guaranty, Owner has entered into that certain Agreement for Engineering, Procurement and Construction Services, of even date herewith, with Siemens Westinghouse Power Corporation, a wholly-owned subsidiary of Guarantor ("Contractor") (as such Agreement may be amended, supplemented or modified from time to time, the "EPC Agreement"); WHEREAS, Guarantor owns one hundred percent (100%) of the capital stock of Contractor and does and will continue to obtain substantial benefits as a result of the EPC Agreement; WHEREAS, in order to induce Owner to enter into the EPC Agreement, Contractor has agreed that it would cause Guarantor to execute and deliver to Owner this Guaranty; NOW, THEREFORE, in consideration of Owner's entering into the EPC Agreement, the foregoing premises, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Guarantor, intending to be legally bound, hereby agrees as follows: SECTION 1 Definitions Unless otherwise defined herein, capitalized terms used in this Guaranty shall have the respective meanings assigned thereto in the EPC Agreement. SECTION 2 Guaranty Guarantor hereby irrevocably and unconditionally guarantees to Owner, as a primary obligor and not as a surety, the punctual performance and payment in full of all obligations of Contractor under the EPC Agreement in accordance with the terms and conditions thereof (subject to any rights and defenses of Contractor thereunder, other than any rights and defenses arising out of the matters described in Section 4 hereof) and agrees that if for any reason whatsoever Contractor shall fail duly, punctually and fully to perform or pay any such obligation under the EPC Agreement, Guarantor shall, upon receipt of written notice from Owner of such failure, immediately perform or pay each and every such obligation, or cause each such obligation to be performed or paid, without regard to any exercise or nonexercise by Owner of any right, remedy, power or privilege under or in respect of the EPC Agreement against Contractor or under or in respect of any other guaranty or security relating thereto. In addition, Guarantor agrees to reimburse Owner on demand for any and all reasonable expenses (including, without limitation, attorneys' fees and disbursements) incurred by Owner in enforcing or attempting to enforce any rights under this Guaranty. SECTION 3 No Subrogation Notwithstanding any payment or payments made by Guarantor hereunder or any set-off or application of funds of Guarantor by Owner, until all of the obligations of Contractor under the EPC Agreement are performed or paid in full, Guarantor shall not (a) be entitled to be subrogated to any of the rights of Owner against Contractor or any other guarantor or in any collateral security or guaranty or right of offset held by Owner for the performance and payment of the obligations of Contractor under the EPC Agreement, or (b) seek any reimbursement or contribution from Contractor or any other guarantor in respect of any payment, set-off or application of funds made by Guarantor hereunder. 2 SECTION 4 Guaranty Absolute The liability of Guarantor under this Guaranty with respect to the guaranteed obligations shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of the EPC Agreement or any other agreement, guaranty or instrument relating thereto; (b) any amendment to, waiver of or consent to departure from, or failure to exercise any right, remedy, power or privilege under or in respect of the EPC Agreement or any other guaranty; provided, however, that for the avoidance of doubt, the Guarantor and Owner hereby agree that the obligations of Contractor under the EPC Agreement guaranteed by Guarantor hereunder shall be such obligations of Contractor as they may have been amended or waived in accordance with the terms of the EPC Agreement; (c) any exchange, release or nonperfection of any collateral, or any release or amendment or waiver of, or consent to departure from, any other guaranty of or security for the performance of all or any of the obligations of Contractor under the EPC Agreement; (d) the insolvency of Guarantor or Contractor or any other party or guarantor or any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, arrangement, dissolution or liquidation of Guarantor or Contractor or any other guarantor or any defense which Guarantor or Contractor or any other guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding; (e) any change in ownership of Contractor or any change, whether direct or indirect, in Guarantor's relationship to Contractor or in the relationship of Contractor to any other guarantor, including, without limitation, any such change by reason of any merger or any sale, transfer, issuance, or other disposition 3 of any stock of, or other equity interest in, Contractor, Guarantor or any other entity; and (f) any other circumstance of a similar or different nature which might otherwise constitute a defense available to Guarantor as a guarantor (provided, however, that this clause 4(f) shall not prevent Guarantor from being able to assert as a defense to its performance under this Guaranty, any defense which is available to Contractor under the EPC Agreement, other than any defenses arising out of the matters described in this Section 4). This Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time any payment, or any part thereof, to Owner by Contractor under the EPC Agreement or by Guarantor hereunder or by any other guarantor under any other guaranty of the EPC Agreement is rescinded or must otherwise be returned by Owner to Guarantor or Contractor or any of their representatives or any other guarantor for any reason, including, without limitation, upon the insolvency, bankruptcy, reorganization, dissolution or liquidation of Guarantor or Contractor or any other guarantor, all as though such payment had not been made. SECTION 5 Waiver Guarantor hereby waives notice from Owner of its acceptance and reliance on this Guaranty and notice of any liability to which it may apply, and waives presentment, demand of payment, protest, notice of dishonor or nonpayment of any such liability, and the taking of any other action by Owner against, and (except for the notice specified in Section 2 hereof) any other notice to, any party liable thereon, including Guarantor, and any requirement that Owner exhaust any right or take any action against or with respect to Contractor or any other person or entity or any property. SECTION 6 Consent to Jurisdiction; Waiver of Immunities (a) Guarantor hereby irrevocably submits to the jurisdiction of any State or Federal court sitting in the Borough of Manhattan, City of New York, in any action 4 or proceeding arising out of or relating to this Guaranty, and Guarantor hereby irrevocably agrees that, subject to the terms of Section 6(d) hereof and without limiting Owner's rights under Section 6(b) hereof, all claims in respect of such action or proceeding shall be heard and determined in such State or Federal court. Guarantor hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. Guarantor hereby irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to Guarantor at its address specified in Section 11 hereof. Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner permitted by law. (b) Nothing in this Section shall affect the right of Owner to serve legal process in any other manner permitted by law or affect the right of Owner to bring any action or proceeding against Guarantor or its property in the courts of any other jurisdiction. (c) To the extent that Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Guarantor hereby irrevocably waives such immunity in respect of its obligations under this Guaranty. (d) Notwithstanding the foregoing, any dispute arising under the EPC Agreement and any claims under any of the EPC Agreement and/or this Guaranty relating to any such dispute, whether arising contemporaneously with or subsequent to such dispute, shall be resolved by Owner, Contractor and Guarantor in a single, combined arbitration proceeding in accordance with the provisions of Article 21 of the EPC Agreement. In any such arbitration proceeding, Contractor and Guarantor shall together select one arbitrator, Owner shall select one arbitrator, and the two selected arbitrators shall select the third arbitrator, in accordance with Section 21.1 of the EPC Agreement. Subject to the Guarantor's ability to assert as a defense to its performance under this Guaranty Contractor's rights under Section 15.2.1 of the EPC Agreement, notwithstanding the existence of a dispute between Owner and Guarantor and regardless of whether such dispute is the subject of dispute resolution pursuant to this Section 6(d), Guarantor shall not be 5 entitled to suspend or otherwise delay the performance of this Guaranty. SECTION 7 Representations and Warranties Guarantor hereby represents and warrants as follows: (a) Guarantor (i) is a duly organized and validly existing corporation in good standing under the laws of Delaware and (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged; (b) Guarantor has the corporate power, authority and legal right to execute, deliver and carry out the terms and provisions of this Guaranty and has taken all necessary corporate action to authorize the execution, delivery and performance of this Guaranty; (c) This Guaranty has been duly executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor enforceable against it in accordance with its terms, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally or by general principles of equity; (d) Neither the execution, delivery or performance by Guarantor of this Guaranty nor the consummation of the transactions herein contemplated, nor compliance with the terms and provisions hereof, (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality or authority, or requires the authorization or approval of or any filing with any such instrumentality or authority, (ii) will conflict or be inconsistent with, or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any lien upon or assignment of any of the property or assets of Guarantor pursuant to the terms of any agreement or other instrument to which Guarantor is a party or by which it or any of its property or assets is bound or to which it is subject, or (iii) will violate any provision of the charter, by-laws or like organizational documents of Guarantor; and 6 (e) As of the date on which this Guaranty is executed by Guarantor, there are no actions, suits or proceedings pending or, to the best of the knowledge of Guarantor, threatened against or affecting Guarantor before any court or before any governmental or administrative body or agency which, if adversely determined, would be reasonably likely to materially and adversely affect its ability to fully perform its obligations hereunder. SECTION 8 Covenants Guarantor hereby covenants and agrees that, until performance and payment in full of all obligations of Contractor under the EPC Agreement: (a) Guarantor shall furnish to Owner: (i) as soon as possible and in any event within five days after an executive officer of Guarantor obtains knowledge thereof, notice of the occurrence of any Event of Default (as defined in Section 9 hereof) or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, and setting forth the details thereof and the action which Guarantor has taken and proposes to take with respect thereto; and (ii) such other information necessary to demonstrate the ability of Guarantor to perform its obligations under this Guaranty as Owner may from time to time reasonably request; (b) Guarantor shall comply, and shall cause each of its subsidiaries to comply, with all applicable laws to the extent that noncompliance therewith would be reasonably likely to have a material adverse effect on the financial condition of Guarantor or on its ability to fully perform its obligations under this Guaranty; (c) Guarantor shall preserve and maintain, and shall cause each of its subsidiaries to preserve and maintain, its corporate or legal existence, rights and franchises to the extent that noncompliance therewith would be reasonably likely to have a material adverse effect on the financial condition of Guarantor or on its ability to fully perform its obligations under this Guaranty; and (d) Guarantor shall, in the event that at any time Owner shall have reasonable grounds for believing that, were Contractor to default under the EPC Agreement at that time, Guarantor would be unable to fully perform its obligations hereunder, then within 15 days of Owner's 7 written request therefor, Guarantor shall provide either (i) financial or other information reasonably demonstrating its ability to so fully perform or (ii) other assurances of its ability to so fully perform that are reasonably satisfactory to Owner. SECTION 9 Events of Default (a) If any of the following events shall occur and be continuing it shall constitute an "Event of Default" hereunder: (i) Guarantor shall fail to observe or perform any covenant or agreement contained in Section 2 hereof; provided, that if and to the extent Contractor is entitled by the terms of the EPC Agreement to a grace or cure period with respect to the failure of performance thereunder that Guarantor's failure under Section 2 hereof relates to, Guarantor shall have the same period of time as is available to Contractor under the EPC Agreement to remedy such failure of performance before such failure constitutes an Event of Default hereunder, but in no event shall any such grace or cure period for Guarantor hereunder extend past the grace or cure period available to Contractor under the EPC Agreement; (ii) Guarantor shall fail to observe or perform any other covenant or agreement contained in this Guaranty (including without limitation the covenants and agreements contained in Section 8 hereof), and such failure is not remedied within (1) 30 days after Guarantor receives actual knowledge thereof, or (2) such longer period as may be necessary for Guarantor to cure such failure, not to exceed 120 days, provided that Guarantor diligently pursues the cure of such failure and such cure is effected in such a manner and within such time that such failure to comply could not reasonably be expected to have a material adverse effect on Owner or the Project; (iii) Guarantor shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect, or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of 8 it or any substantial part of its property, or shall consent to any such relief or the appointment of or taking of possession by any such official in an involuntary case or other proceeding commenced against it, or shall generally not pay its debts as they become due, or shall make a general assignment for the benefit of creditors, or shall take any corporate action to authorize any of the foregoing; (iv) An involuntary case or other proceeding shall be commenced against Guarantor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of 60 days; or (v) Any representation or warranty made by Guarantor hereunder shall prove to have been false or misleading in any material respect when made or deemed made and Guarantor fails to remedy such false or misleading representation or warranty within 30 days after Contractor receives a notice from Owner with respect thereto. (b) Upon the occurrence of an Event of Default, Guarantor shall be in material breach of this Guaranty and Owner may exercise any and all remedies it may have hereunder or at law or in equity. Notwithstanding anything stated to the contrary in this Guaranty, except as otherwise provided in this sentence, Guarantor shall not be liable under this Guaranty, whether based in contract, in tort (including negligence and strict liability), under warranty or otherwise, for any indirect, incidental, special or consequential loss or damage of any type, including but not limited to loss of use or loss of profit or revenue, and Owner hereby releases Guarantor from any such liability; provided, however, that this sentence shall not limit Guarantor's obligations to pay to Owner the Provisional Acceptance Late Completion Payments and Performance Guarantee Payments under Articles 7 and 8 of the EPC Agreement (as such terms are defined therein) in accordance with the terms and provisions of the EPC Agreement and this Guaranty. 9 SECTION 10 Amendments No amendment or waiver of any provision of this Guaranty nor consent to any departure by Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by Owner, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 11 Addresses for Notices All notices and other communications provided for hereunder shall be in writing and, (i) if to Guarantor, mailed or communicated by facsimile or delivered to it, addressed to Siemens Corporation, 186 Wood Avenue South, Iselin, New Jersey 08830-2770, Attention: Vice President, Corporate Finance, Facsimile # (732) 321-3879, (ii) if to Owner, mailed or delivered to it, addressed to it at its address specified in the EPC Agreement, or (iii) as to each party at such other address as shall be designated by such party in a written notice to the other party. All such notices and other communications shall, when mailed or communicated by facsimile transmission, respectively, be effective when deposited in the mails addressed as aforesaid or when such facsimile transmission is confirmed. SECTION 12 No Waiver; Remedies No failure on the part of Owner to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right operate as a waiver thereof. The remedies herein provided are cumulative and are not exclusive of any remedies provided at law or in equity. SECTION 13 Continuing Guaranty; Assignments (a) This Guaranty shall be construed as a continuing, absolute and unconditional guaranty of 10 payment and performance, and not of collection only, and the obligations of Guarantor hereunder shall not be conditioned or contingent upon the pursuit by Owner at any time of any right or remedy against Contractor or against any other person or entity which may be or become liable in respect of all or any part of the obligations of Contractor under the EPC Agreement or against any collateral security or guaranty therefor. This Guaranty shall: (i) remain in full force and effect until satisfaction in full of all obligations of Contractor under the EPC Agreement; (ii) be binding upon Guarantor and its successors and assigns; and (iii) inure to the benefit of and be enforceable by Owner and its successors and permitted assigns. (b) Guarantor shall have no right, power or authority to delegate all or any of its obligations hereunder. Guarantor hereby expressly agrees that Owner may assign all or any of its rights hereunder without Guarantor's approval to any person or entity to which it has assigned its rights under the EPC Agreement (including, without limitation, the Financing Parties referred to in the EPC Agreement) and that any such assignee of Owner may further assign such rights assigned to it. Notwithstanding anything to the contrary contained in the foregoing, no such assignment to any Person which directly competes with Siemens AG or any of its affiliates in the field of design, engineering, manufacturing, procurement and construction of power generation, transmission or distribution facilities shall be permitted without the prior written consent of Guarantor. In the event of any such assignment, references herein to "Owner" shall be deemed to include references to the relevant assignee. If in connection with such an assignment by Owner any Financing Party requests Guarantor to consent in writing to such permitted assignment even though such consent is not required hereunder, Guarantor shall do so promptly, with such acknowledgment and consent agreement to contain such terms and conditions as are mutually and reasonably agreed upon by Guarantor, Owner and the Financing Parties. In addition, at Owner's request, Guarantor shall provide to the Financing Parties a certificate from Guarantor and/or an opinion of counsel addressed to the Financing Parties, in form and substance reasonably satisfactory to Owner and the Financing Parties, concerning such matters as the Financing Parties reasonably request, including that (w) Guarantor is duly organized, validly existing and in good standing under the laws of the state or commonwealth of its formation or incorporation, as the case may be, (x) the execution, 11 delivery and performance of this Guaranty and the related acknowledgment and consent agreement are within the power and authority of Guarantor, and this Guaranty and such acknowledgment and consent agreement are not in conflict with Guarantor's organizational documents or any agreement to which Guarantor is a party or by which it is bound or affected, (y) there is no law, rule or regulation, nor is there any judgment, decree or order of any court or governmental entity binding on Guarantor which would be contravened by the execution, delivery, performance or enforcement of this Guaranty and such acknowledgment and consent agreement, and (z) each of this Guaranty and such acknowledgment and consent agreement is a legal, valid and binding obligation enforceable against Guarantor in accordance with its terms, subject to usual and customary qualifications. SECTION 14 Waiver of Jury Trial Guarantor hereby irrevocably and unconditionally waiveS any and all right to trial by jury in any action, suit or counterclaim arising in connection with this Guaranty. SECTION 15 Governing Law This Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York, the United States of America, without regard to the conflict of laws rules thereof. SECTION 16 Severability If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally construed in order to carry out the provisions hereof. The invalidity or unenforceability of any provision of this Guaranty in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction. 12 SECTION 17 Survival of Provisions All provisions of this Guaranty which are expressly or by implication to come into or continue in force and effect after the expiration or termination of this Guaranty shall remain in effect and be enforceable following such expiration or termination. SECTION 18 Confidential Information (a) Guarantor and Owner agree to hold in confidence for a period commencing with the date hereof and ending five years from the date of Project Completion any information supplied to it hereunder by the other. Guarantor and Owner hereby further agree to require third parties to enter into appropriate non-disclosure agreements relative to such confidential information as may be communicated to them by Guarantor or Owner; provided, however, that in the event Guarantor or Owner disclose any confidential information to a third party pursuant to such non-disclosure agreement, Guarantor or Owner, as the case may be, shall remain liable hereunder for any further disclosure by such third-party which is in breach of such non-disclosure agreement or would be in breach of this Section 18 if such further disclosure were made by Guarantor or Owner, as applicable. The provisions of this Section 18(a) shall not apply to information within any one of the following categories: (i) information which was in the public domain prior to receipt thereof from the other party or which subsequently becomes part of the public domain by publication or otherwise, except by the receiving party's wrongful act; (ii) information which the receiving party can show was in its possession prior to its receipt thereof from the other party; (iii) information received by a party from a third party without a confidentiality obligation with respect thereto known to Owner; (iv) information which the receiving party developed independently; or (v) information which a party is required by law to disclose; provided, however, that prior to making any such disclosure under clause (v) of this Section 18(a), such disclosing party shall: (1) provide the other party with timely advance written notice of the confidential information requested by such government authority and such disclosing party's intent 13 to so disclose; (2) minimize the amount of confidential information to be provided consistent with the interests of the non-disclosing party and the requirements of the government authority involved; and (3) at the request and expense of the non-disclosing party make every reasonable effort (which shall include participation by the non-disclosing party in discussions with the government authority involved) to secure confidential treatment and minimization of the confidential information to be provided. Neither Guarantor nor Owner shall publish the terms and conditions of this Guaranty, unless the other party provides its express prior written consent thereto; provided, however, that Owner shall be permitted to disclose, subject to the provisions of this Section 18(a), such terms and provisions to the Financing Parties or any applicable rating agency and otherwise to the extent required to obtain financing for the Facility. Notwithstanding any other provision of this Section 18(a), Owner shall be permitted to summarize the material terms and conditions of this Guaranty for purposes of including such summary in any offering document associated with the issuance of debt by Owner for the purpose of obtaining financing for the Facility. (b) Guarantor shall not issue any press or publicity release or any advertisement, or publish or otherwise disclose any photograph or other information, concerning this Guaranty, the EPC Agreement or the Project without the express prior written consent of Owner. 14 IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. SIEMENS CORPORATION By: /s/ Walter G. Gans ------------------------------------- Name: Walter G. Gans Title: Vice President, General Counsel and Secretary By: /s/ Thomas J. Keller ------------------------------------- Name: Thomas J. Keller Title: Vice President, Corporate Relations 15 ACCEPTED AND AGREED AES IRONWOOD, INC. By:/s/ Patricia L. Rollin ----------------------------------- Name: Patricia L. Rollin Title: Vice President Appendix A Actions, Suits and Proceedings [None.] EX-10.6 24 DEVELOPMENT AND OPERATIONS SERVICES AGREEMENT Exhibit 10.6 EXECUTION COPY - -------------------------------------------------------------------------------- DEVELOPMENT AND OPERATIONS SERVICES AGREEMENT between AES PRESCOTT, L.L.C. and AES IRONWOOD, L.L.C. Dated as of June 1, 1999 - -------------------------------------------------------------------------------- 705 MW (Net) Gas-Fired Combined Cycle Electric Generating Facility South Lebanon Township, Lebanon County, Pennsylvania TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS..........................................................................1 SECTION 1.1 DEFINITIONS..................................................................1 ARTICLE II DEVELOPMENT AND CONSTRUCTION MANAGEMENT.............................................4 SECTION 2.1 DEVELOPMENT AND CONSTRUCTION MANAGEMENT SERVICES.............................4 SECTION 2.2 PAYMENT FOR DEVELOPMENT AND CONSTRUCTION MANAGEMENT SERVICES.................4 ARTICLE III OPERATION AND MAINTENANCE..........................................................5 SECTION 3.1 OPERATING AND MAINTENANCE PERSONNEL AND OTHER SERVICES.......................5 SECTION 3.2 PAYMENT FOR OPERATING AND MAINTENANCE SERVICES...............................5 ARTICLE IV PAYMENT OF FEES.....................................................................7 SECTION 4.1 PAYMENT OF FEES..............................................................7 ARTICLE V TERM, TERMINATION AND RELATIONSHIP OF PARTIES........................................8 SECTION 5.1 TERM.........................................................................8 SECTION 5.2 TERMINATION..................................................................8 ARTICLE VI REPRESENTATIONS AND WARRANTIES......................................................8 SECTION 6.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATOR...............................8 SECTION 6.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................9 ARTICLE VII ARBITRATION........................................................................9 SECTION 7.1 ARBITRATION..................................................................9 ARTICLE VIII LIMITATIONS OF LIABILITY.........................................................10 SECTION 8.1 NO CONSEQUENTIAL DAMAGES....................................................10 SECTION 8.2 LIMITATION OF OPERATOR'S LIABILITY..........................................10 ARTICLE IX FORCE MAJEURE......................................................................10 SECTION 9.1 FORCE MAJEURE...............................................................10 ARTICLE X INDEMNIFICATION.....................................................................11 SECTION 10.1 INDEMNIFICATION.............................................................11 ARTICLE XI MISCELLANEOUS......................................................................11 SECTION 11.1 FURTHER ASSURANCES..........................................................11 SECTION 11.2 ENTIRE AGREEMENT............................................................11 SECTION 11.3 COUNTERPARTS................................................................11 SECTION 11.4 GOVERNING LAW...............................................................11 SECTION 11.5 ASSIGNABILITY...............................................................12 SECTION 11.6 BINDING EFFECT..............................................................12 SECTION 11.7 HEADINGS....................................................................12 SECTION 11.8 NOTICES.....................................................................12 SECTION 11.9 AMENDMENT...................................................................13 SECTION 11.10 NO IMPLIED WAIVER...........................................................13 SECTION 11.11 OVERDUE OBLIGATIONS TO BEAR INTEREST........................................13 SECTION 11.12 INDEPENDENT CONTRACTOR......................................................13 SECTION 11.13 ACCESS......................................................................13
i DEVELOPMENT AND OPERATIONS SERVICES AGREEMENT DEVELOPMENT AND OPERATIONS SERVICES AGREEMENT (this "Agreement"), dated as of June 1, 1999, by and between AES PRESCOTT, L.L.C. a Delaware limited liability company (the "Operator"), and AES IRONWOOD, L.L.C, a Delaware limited liability company (the "Company") (the Company and Operator, each a "Party", and collectively, the "Parties"). W I T N E S S E T H: WHEREAS, the Company has been organized to develop, construct, own, operate and maintain the Facility located at the Facility Site; WHEREAS, the Company desires that the Operator provide certain personnel and support services required by the Company for the development and construction management of the Facility and for operation and maintenance of the Facility after completion of such development and construction; and WHEREAS, the Operator desires to provide such personnel and support services in accordance with the terms hereof. NOW, THEREFORE, in consideration of the agreements and covenants hereinafter set forth, and intending to be legally bound hereby, the Parties hereto covenant and agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. Capitalized terms not otherwise defined herein shall have the meanings specified in the Indenture (as defined below). For the purposes of this Agreement, the rules of construction set forth in the Indenture shall apply as if such rules were set forth herein. The following terms shall have the meanings specified below: "AES Direct Costs" shall have the meaning specified in the Services Agreement. "AES Direct Labor Costs" shall have the meaning specified in the Services Agreement. "AES Overhead" shall have the meaning specified in the Services Agreement. "Annual Adjustment Date" means each January 1st occurring after the date hereof. "Annual Revision Date" means each March 1st occurring after the date hereof. "Capital Contributions" means the contributions by the Manager to the Company required pursuant to the LLC Agreement. 1 "Commercial Operation Date" has the necessary specified in the Power Purchase Agreement. "Company" has the meaning specified in the preamble to this Agreement. "Direct Costs" means expenditures for all goods and services which, in the opinion of the Operator, are necessary for the operation, maintenance and management of the Facility or the performance by the Operator of its obligations under this Agreement, including but not limited to goods and services (i) necessary to operate the Facility and all associated facilities and equipment and (ii) necessary to maintain, repair, replace and otherwise keep the Facility and all associated facilities and equipment in good and serviceable working order. Such goods and services shall include without limitation raw materials to operate the boiler, pollution control equipment and other equipment, including limestone, magnesium oxide, ammonia, urea, sand and any other additives as appropriate; utilities, including natural gas, oil, electricity, raw water, potable water, industrial waste water discharge, sanitary sewer and waste disposal; transportation charges, including demurrage, for fuel, raw materials, waste, personnel, equipment, and other items; contract maintenance services, including electrical, mechanical, civil, chemical and instrumentation and control; outside shops, warehousing and storage; expendable supplies, including chemicals, resins, abrasives, lab supplies, protective clothing, paper products, rags, rope, wire, glue, caulking, soaps, paint, primer and painting supplies, clean-up supplies and equipment, lubricants and solvents; shop tools and equipment; equipment rental and leasing; spare and replacement parts, repair and replacement items and material and upgrading equipment and material; communications, including telephone, facsimile transmission, postage, express mail and parcel delivery; office furniture, supplies and equipment, computers and computer equipment, and reproduction equipment, services and supplies; mobile equipment and vehicles; insurance premiums; contract employee charges; community relations programs and expenses; recruiting and training costs, including advertising, physicals, recruiter fees and the like; professional services, including legal, accounting, engineering, management and other; safety arid employee relations expenses (awards, picnics, bonuses, etc.); travel and business entertainment; taxes (such as sales, property, value added and gross receipts taxes but excluding taxes based solely on income); and Direct Labor Costs. Direct Costs shall include but not be duplicative of AES Direct Costs. "Direct Labor Costs" means all labor costs of the Operator, including but not limited to salaries, wages, overtime pay, shift differentials, fringe benefits, profit sharing and pension, holiday pay, vacation pay, bonuses, termination payments, travel and other similar costs of the Operator personnel primarily engaged in activities at the Site pursuant to this Agreement. Direct Labor Costs shall not include (i) labor costs related to Operator personnel who are not primarily located at the Site or (ii) labor costs related to activities unrelated to the Operator's performance of this Agreement which are undertaken by Operator personnel who are primarily engaged in activities at the Site. Direct Labor Costs shall include, but not be duplicative of, AES Direct Labor Costs. "Effective Date" means the date of this Agreement. "Electric Delivery Point" has the meaning specified in the Power Purchase Agreement. 2 "Financing Parties" means the Trustee, acting on behalf of the Bondholders, and any and all other lenders providing the construction or long-term financing or any refinancing of the Facility pursuant to the Financing Documents, and any trustee or agent acting in their behalf, including the Collateral Agent. The term "Financing Parties" shall not include the Company, any Affiliate of the Company or any Affiliate of any Partner. "Force Majeure Event" shall have the meaning set forth in Section 9.1. "Indenture" means the Trust Indenture, dated as of June 1, among the Company, the Trustee and the Depositary Bank. "LLC Agreement" means the Limited Liability Company Agreement of AES Ironwood, L.L.C., dated as of November 1, 1998, as such agreement may be amended, modified or supplemented from time to time. "Management Fee"' means the monthly fee described in Section 2.2(a)(ii). "Manager" means AES Ironwood, Inc., the owner of all of the membership interests in the Company and the Manager of the Company pursuant to the LLC Agreement. "Operating and Maintenance Fee" means the monthly fee described in Section 3.2(a)(ii). "Operations" means any transaction in the ordinary course of the Company's business, but does not include the making of Capital Contributions to the Company or a Capital Event. "Operator" has the meaning specified in the preamble to this Agreement. "Operator Costs" means all Direct Costs and Overhead. "Operator Fees" means, collectively, the Management Fee and the Operating and Maintenance Fee. "Overhead" means (to the extent not included in Direct Costs) the Operator's cost of and any expenses related to employee relations, financial controls, data processing, management and administration, and other similar services required for performance by the Operator of its obligations under this Agreement, including labor costs of the Operator's overhead personnel, if any; provided, that all Overhead hereunder shall be allocated on a reasonable basis to services rendered by Operator in the performance of its obligations under this Agreement. Overhead shall include but not be duplicative of AES Overhead. Notwithstanding anything herein to the contrary, from and after the Commercial Operation Date through the remaining term of this Agreement, Overhead payable under Sections 2.2 and 3.2 with respect to any period shall be deemed in the aggregate to equal [45%] of Direct Labor Costs for such period. "Prime-Based Rate" means the interest rate equal to the sum of (i) the prime commercial lending rate announced by Citibank NA as in effect from time to time, and (ii) two (2) percentage points, provided that such interest rate shall in no event be greater than the maximum interest rate permitted by applicable law. 3 "Unpaid Fee Amount" shall have the meaning set forth in Section 4.1. ARTICLE II DEVELOPMENT AND CONSTRUCTION MANAGEMENT SECTION 2.1 Development and Construction Management Services. The Parties acknowledge that, under the Financing Documents and the Project Contracts, the Company has certain obligations to develop and construct the Facility. In order to assist the Company in the performance of such obligations, but subject to Section 2.2(b), the Operator shall from the date hereof until the Commercial Operation Date (i) supervise and manage the development of the Facility, and the design, engineering and construction of the Facility in accordance with (a) generally accepted engineering practices, (b) generally accepted construction procedures, (c) the plans and standards set forth in the EPC Contract, (d) the requirements of the Power Purchase Agreement and (e) applicable law; (ii) exercise all rights of the Company under the EPC Contract and any other contracts for the construction of the interconnection or other facilities related to the Facility (including, but not limited to, operational responsibilities arising prior to the Commercial Operation Date); and (iii) use commercially reasonable efforts to provide the services and perform the obligations the Company is then obligated to provide and perform under the EPC Contract and to procure or provide any goods and services necessary for the completion of the Facility for which provision is not made in the EPC Contract. SECTION 2.2 Payment for Development and Construction Management Services. (a) On the tenth (10th) Business Day of each calendar month following the date of this Agreement, the Company, upon receipt of an invoice, shall pay in arrears to the Operator, in consideration for the services provided in the previous month and described in Section 2.1, as follows: (i) Until the first calendar month following the Commercial Operation Date, all Operator Costs after the Effective Date up to said calendar month, to the extent the Operator has not been previously paid therefor and to the extent it submits cost substantiation therefor, it being understood that payment of certain cost items included in Operator Costs may be made by the Collateral Agent pursuant to the Financing Documents; and (ii) A Management Fee of $125,000 for each calendar month (or a pro rata portion of such fee for any portion of each calendar month) from the Effective Date through the Commercial Operation Date (at which date such fee shall cease) for services rendered during such calendar month (or portion thereof). (b) The Operator may suspend the performance of its obligations hereunder during such time as any amount payable pursuant to Sections 2.2(a)(i) or (ii) is more than 60 days past due; provided, however, that the Operator shall not so suspend performance of its obligations hereunder if the amount payable that is more than 60 days past due hereunder is subject to a good faith dispute by the Company as to whether the cost in question was in fact incurred by the Operator. 4 ARTICLE III OPERATION AND MAINTENANCE SECTION 3.1 Operating and Maintenance Personnel and Other Services. The Parties acknowledge that, under the Financing Documents and the Project Contracts, the Company has certain obligations to maintain and operate the Facility and in order to assist the Company therewith, but subject to Section 3.2(c), the Operator shall provide operating personnel and other support services necessary for the Company to perform its obligations arising out of or in connection with, the ownership, management, maintenance and operation of the Facility, including without limitation the following obligations: (a) Operating and maintaining the Facility in accordance with the Power Purchase Agreement, the Financing Documents and the practices, standards and procedures customary in the independent power industry with respect to natural gas and fuel oil-fired combined cycle electric generating facilities; (b) Obtaining and maintaining insurance as required under the Financing Documents and the Project Contracts, without limiting the rights of each of the Company and the Operator to provide independently for its own additional insurance coverage; (c) Maintaining full and complete records of accounts and of technical operations of the Facility and preparing all reports, statements, data and information that may be required from time to time under the Financing Documents, the Project Contracts or by any federal, state, or local governmental authorities, and retaining records relating to a given year during the term hereof, other than those records which are necessary to provide a history of the operation and maintenance of the Facility (which the Operator agrees to retain for the full term of this Agreement), for a period of at least three years after the end of such year; (d) Opening and maintaining bank accounts and performing cash management functions in connection with the operation of the Facility, including, subject to the provisions of the Financing Documents, the receipt of revenues generated by the Company and the payment of all costs, expenses, rentals and taxes incurred by the Company; (e) Preparing all federal, state and local tax returns of the Company; and (f) Inspecting and testing metering devices used to measure and record fuel oil and natural gas delivered to the Facility pursuant to the Power Purchase Agreement and electricity delivered to the Electric Delivery Point pursuant to the Power Purchase Agreement. SECTION 3.2 Payment for Operating and Maintenance Services. (a) (i) On the tenth (10th) Business Day of each calendar month following the Commercial Operation Date through the remaining term of this Agreement, the Company shall pay in arrears to the Operator, in consideration for the services provided in the previous month and described in Section 3.1, all Operator Costs incurred prior to and after the Commercial Operation Date up to said calendar month to the extent the Operator has not been previously paid therefor and to the extent it submits cost 5 substantiation therefor, it being understood that payment of certain cost items included in Operator Costs may be made by the Collateral Agent directly pursuant to the Financing Documents; and (ii) On each Bond Payment Date commencing with the first Bond Payment Date after the Commercial Operation Date, and through the remaining term of this Agreement, the Company shall pay in arrears to the Operator, in consideration for the services provided in the previous months comprising the most recent quarter and described in Section 3.1, an Operating and Maintenance Fee of $400,000, as adjusted pursuant to Section 3.2(b), for each calendar month of such quarter (or a pro rata portion of such fee for any portion of each calendar month) for services rendered during such calendar month (or portion thereof); provided, however, the Operating and Maintenance Fee shall be payable to the Company only to the extent that funds are available for such payment pursuant to the Collateral Agency Agreement and in accordance with Section 4.1. (b) (i) Effective on each Annual Adjustment Date, the Operating and Maintenance Fee shall be adjusted in accordance with the following formula: AOMF = $400,000 x EGDP O&M Base GDP -------- WHERE: AOMF = The adjusted Operating and Maintenance Fee. EGDP = The Manager's good faith estimate of the GDPIPD for the calendar quarter immediately preceding such Annual Adjustment Date. O&M Base GDP = The GDPIPD for the second quarter 1999. (ii) Effective on each Annual Revision Date, the Operating and Maintenance Fee for the calendar year in which such calculation is made shall be recalculated in accordance with the following formula: RAOMF = $400,000 x AGDP --------- O&M Base GDP WHERE: RAOMF = The readjusted Operating and Maintenance Fee. AGDP = The actual GDPIPD for the calendar quarter immediately preceding such Annual Adjustment Date. O&M Base GDP = The GDPIDP for the second quarter 1999. 6 (iii) The Operating and Maintenance Fee payable pursuant to Section 3.2(a)(ii) for the first two calendar months of each calendar year shall be calculated in accordance with Section 3.2(b)(i). The Operating and Maintenance Fee payable pursuant to Section 3.2(a)(ii) for each calendar month of each calendar year commencing with the third calendar month of such calendar year shall be calculated in accordance with the formula set forth in this Section 3.2(b)(ii) and the monthly amounts to be paid to the Operator by the Company over the remainder of such calendar year shall be equitably adjusted by an allocation thereover of the amount equal to the difference between (x) the sum of the monthly fee calculated pursuant to Section 3.2(b)(i) and payable in accordance with the first sentence of this Section 3.2(b)(iii) for the first two calendar months of such calendar year and (y) the sum of the monthly fees that would have been payable for the first two calendar months of such calendar year if such monthly fees had been calculated pursuant to Section 3.2(b)(ii). (c) The Operator may suspend performance of its obligations during such time as any amount payable pursuant to Section 3.2(a)(i) is more than 60 days past due; provided, however, that the Operator shall not so suspend performance of its obligations hereunder if the amount payable that is more than 60 days past due hereunder is subject to a good faith dispute by the Company as to whether the cost in question was in fact incurred by the Operator. (d) The Operator may suspend the performance of its obligations hereunder during such time as any amount payable pursuant to Section 3.2(a)(ii) is past due for more than 60 days; provided, however, that the Operator shall not so suspend performance of its obligations if the amount payable pursuant to Section 3.2(a)(ii) is past due as a result of the application of Section 4.1 of this Agreement and the provisions of the Collateral Agency Agreement. ARTICLE IV PAYMENT OF FEES SECTION 4.1 Payment of Fees. Notwithstanding anything to the contrary contained herein, the Operating and Maintenance Fee payable pursuant to Section 3.2(a)(ii) shall be payable by the Company if and to the extent that funds are available in the Revenue Account for such payment after giving effect to the transfers and payments (other than payment of such Operating and Maintenance Fee) specified in paragraphs first through fifth of Section 3.10(b) of the Collateral Agency Agreement. In the event that the Company is at any time unable to make payment of the Operating and Maintenance Fee due pursuant to Section 3.2(a)(ii) because of the unavailability of funds under the Collateral Agency Agreement, such unpaid Operating and Maintenance Fee shall accumulate and shall accrue interest at the Prime-Based Rate (or, if lower, the maximum rate permitted by applicable law), compounded annually (the "Unpaid Fee Amount"). Until such time as the Unpaid Fee Amount equals zero, if any amount of funds are available therefor pursuant to Section 3.10(b) of the Collateral Agency Agreement, the Company shall, after payment of the current quarter's Operating and Maintenance Fee on a Bond Payment Date, pay to the Operator, on such Bond Payment Date (but only to the extent that funds are available therefor pursuant to the Collateral Agency Agreement and this Section 4.1), an amount equal to the lesser of such available funds and the Unpaid Fee Amount. 7 ARTICLE V TERM, TERMINATION AND RELATIONSHIP OF PARTIES SECTION 5.1 Term. The term of this Agreement shall commence as of the Effective Date and, except as otherwise provided herein, shall terminate upon the earlier of (i) the last day of the month in which the twenty-seventh anniversary of the Effective Date occurs, (ii) the date which is sixty (60) days after receipt by Operator of a notice from the Collateral Agent specifying that (a) a Trigger Event under the collateral Agency Agreement has occurred and the Collateral Agent, any Financing Party or any agent, assignee or designee thereof has commenced the exercise of remedies in respect of such Trigger Event and (b) the Collateral Agent has been devoted by the Required Senior Partner to terminate this Agreement, and (iii) the date specified by mutual written agreement of the Parties hereto. SECTION 5.2 Termination. This Agreement may be terminated by either Party upon the failure of the other Party to perform any of its material obligations hereunder; provided, that the Party seeking to terminate this Agreement under this Section 5.2 has given the breaching Party 120 days' prior written notice of such breach, and such breach has not been remedied within such 120-day period. Furthermore, this Agreement may be terminated upon written notice by either Party upon the bankruptcy, reorganization, dissolution or liquidation of the other Party. Upon termination of this Agreement pursuant to this Section 5.2, the Operator agrees to provide to the Company originals or copies of all records retained by the Operator in accordance with Section 3.1(c) pertaining to the services rendered by the Operator hereunder up to and including the date of such termination. ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.1 Representations and Warranties of the Operator. Operator represents and warrants as follows: (a) It is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business and is in good standing in the Commonwealth of Pennsylvania; (b) It has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement, which action has not been superseded or terminated, and this Agreement constitutes the legal, valid and binding obligation of the Operator, enforceable against the Operator in accordance with the terms hereof, except as the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other such laws affecting the rights of creditors generally or by general equitable principles; (c) The execution, delivery and performance of this Agreement do not violate (i) the Operator's certificate of formation or Limited Liability Company Agreement or any resolution of 8 its members, (ii) any contract to which it is a party or (iii) any law, rule, regulation, order, writ, judgment, injunction, decree or determination binding upon the Operator or any of its properties; and (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (other than those which have been obtained) are required for the due execution, delivery and performance by the Operator of this Agreement. SECTION 6.2 Representations and Warranties of the Company. The Company represents and warrants as follows: (a) It is a limited liability company duly organized and validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business and is in good standing in the Commonwealth of Pennsylvania; (b) It has taken all necessary Company action to authorize the execution, delivery and performance of this Agreement, which action has not been superseded or terminated, and this Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with the terms hereof, except as the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other such laws affecting the rights of creditors generally or by general equitable principles; (c) The execution, delivery and performance of this Agreement do not violate (i) the Company's certificate of formation or Limited Liability Company Agreement or any rules of any committee charged thereunder with the governance of its affairs, (ii) any contract to which it is a party or (iii) any law, rule, regulation, order, writ, judgment, injunction, decree or determination binding upon the Company or any of its properties; and (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (other than those which have been obtained) are required for the due execution, delivery and performance by the Company of this Agreement. ARTICLE VII ARBITRATION SECTION 7.1 Arbitration. In the event of a dispute between the Parties under this Agreement, such dispute shall be submitted to a single arbitrator pursuant to the commercial arbitration rules of the American Arbitration Association, and the Parties shall proceed diligently so that the arbitrator shall render a decision within 90 days from the filing of a demand for arbitration. This Agreement shall not be terminated on the basis of any disputed matter until the arbitrator has rendered his decision. Such arbitration shall be conducted in Washington, D.C., unless a related arbitration shall be contemplated under the provisions of any of the Financing Documents or Project Contracts, in which event arbitration hereunder shall be conducted where such related arbitration is conducted and, whenever expedient, shall be consolidated with such related arbitration. 9 ARTICLE VIII LIMITATIONS OF LIABILITY SECTION 8.1 No Consequential Damages. Neither Party shall be liable to the other for any indirect, special, incidental or consequential damages arising from or connected with its performance hereunder or any breach of its obligations hereunder. SECTION 8.2 Limitation of Operator's Liability. The total aggregate liability of the Operator to the Company for all liability, including without limitation the Operator's indemnity obligations hereunder, arising out of or in connection with the performance of services under this Agreement in any calendar year shall not exceed the amount of the Operator Fees earned and paid for that calendar year. ARTICLE IX FORCE MAJEURE SECTION 9.1 Force Majeure. Notwithstanding any other provision of this Agreement to the contrary, if the performance of the obligations of either Party under this Agreement, or the fulfillment of any of the conditions hereof, shall be wholly or partially prevented by any act or event beyond the reasonable control of the Party alleging disability to perform obligations or fulfill conditions under this Agreement, including without limitation, an act of God, nuclear emergency, explosion, fire, epidemic, landslide, lightning, earthquake, flood or similar cataclysmic occurrence, an act of public enemy, war, blockade, insurrection, riot, civil disturbance, sabotage, unavailability of labor, fuel, power or raw materials, strike, lockout or other labor disturbance, restrictions or restraints imposed by law or by rule, regulation, or order of governmental authorities, whether federal, state, or local, delays or interruptions in transportation and interruption or loss of utilities ("Force Majeure Event"), the Party alleging inability to perform obligations or fulfill conditions hereunder shall be excused from whatever performance is affected by the Force Majeure Event to the extent so affected; provided, however, that (i) economic hardship shall not constitute a Force Majeure Event and (ii) no obligations of either Party which arose before the Force Majeure Event causing the suspension of performance and no payment obligations of either Party shall be excused as a result of the Force Majeure Event. In the event that a Force Majeure Event occurs: (a) the non-performing Party shall give the other Party prompt written notice describing the particulars of the Force Majeure Event, including but not limited to the nature of the occurrence and its expected duration, and shall continue to furnish timely regular reports with respect thereto during the period of the Force Majeure Event; (b) the suspension of performance shall be of no greater scope and of no longer duration than is required by the Force Majeure Event; and 10 (c) the non-performing Party shall use its best efforts to remedy its inability to perform. ARTICLE X INDEMNIFICATION SECTION 10.1 Indemnification. Each Party shall indemnify, defend and hold the other Party and its successors, assigns and agents harmless from and against all damages, losses or expenses of every kind or character suffered or paid as a result of any and all claims, demands, suits, penalties, causes of action, proceedings, judgments, administrative and judicial orders and liabilities (including reasonable counsel fees incurred in any litigation or otherwise) assessed, incurred or sustained by or against such other Party and its successors, assigns and agents to the extent arising out of any negligence or willful misconduct by the indemnifying Party in performing its obligations hereunder. ARTICLE XI MISCELLANEOUS SECTION 11.1 Further Assurances. If either Party reasonably determines or is reasonably advised that any further instruments (including without limitation a consent to assignment for the benefit of the Financing Parties or any similar documents) or actions are necessary or desirable to carry out the terms of this Agreement, the other Party shall execute and deliver all such instruments and perform all such actions reasonably necessary and proper to carry out the terms of this Agreement. SECTION 11.2 Entire Agreement. This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements, negotiations and understandings. Neither of the Parties shall be bound by or be deemed to have made any representations, warranties or commitments except those contained herein. SECTION 11.3 Counterparts. This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute one agreement. SECTION 11.4 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without regard to principles of conflicts of laws. 11 SECTION 11.5 Assignability. Neither this Agreement, nor the respective rights, obligations and duties of either Party hereunder are assignable by such Party without the prior written consent of the non-assigning Party, and any assignment without such written consent shall be void, except (i) that the Operator may engage agents or subcontractors to provide the services described herein, and may enter into the Services Agreement, (ii) the Operator may assign any and all of its rights to payments made, due or to become due hereunder, and (iii) the Company may assign its rights and obligations hereunder to the Financing Parties pursuant to the Financing Documents. SECTION 11.6 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. This Agreement is not made for the benefit of any person or entity not a Party hereto, and nothing in this Agreement shall be construed as giving any person or entity, other than the Parties hereto and their respective successors and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any provision hereof. SECTION 11.7 Headings. The headings used in this Agreement are for convenience only and shall not affect the construction of any of the terms of this Agreement. SECTION 11.8 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and shall be deemed sufficiently given (i) upon delivery, if delivered personally, (ii) five days after deposit in a U.S. Postal Office mail box, (iii) the day it is received, if it is delivered by overnight courier or (iv) upon the effective sending of electronic transmission, facsimile, telex or telegram, to the addresses set forth below or such other address as the addressee may have specified in a notice duly given to sender as provided herein: If to the Operator: AES Prescott, L.L.C. 1001 N. 19th Street Arlington, VA 22209 Attention: Patricia L. Rollin, Vice President (Telephone): 703-358-0538 (Facsimile): 703-528-4510 12 If to the Company: AES Ironwood, L.L.C 827 Cumberland Street Lebanon, PA 17402 Attn: Project Manager (Telephone): (717) 228-1328 (Facsimile): (717) 228-1271 SECTION 11.9 Amendment. Neither Party hereto shall be bound by any termination, amendment, supplement, waiver or modification of any term hereof unless such Party shall have consented thereto in writing. This Agreement may not be amended, modified or supplemented without the consent of the Financing Parties to the extent such consent is required under the Financing Documents. SECTION 11.10 No Implied Waiver. No delay or failure on the part of either Party in exercising any rights hereunder, and no partial or single exercise thereof, shall constitute a waiver of such rights or of any other rights hereunder. SECTION 11.11 Overdue Obligations to Bear Interest. Except as provided in Section 4.1, all amounts due hereunder, whether as damages, credits, revenue or reimbursements, that are not paid when due shall bear interest at the Prime-Based Rate or, if lower, the maximum interest rate permitted by law, on the amount outstanding from time to time, on the basis of a 365-day year and the actual number of days elapsed. SECTION 11.12 Independent Contractor. The Operator shall at all times act as and be deemed an independent contractor and shall not act as nor be deemed to be an agent, servant or employee of the Company. SECTION 11.13 Access. The Company and its representatives shall have the right at all times to visit and inspect the Facility and the Site, and shall have the right, upon reasonable notice and at reasonable times, to take visitors onto the Site and into the Facility; provided, however, that such visits shall be conducted in a manner so as to minimize interference with the Operator's performance hereunder and to be in accordance with reasonable rules and procedures prescribed by the Operator for such visits; and provided, further, that the Company and its representatives and invitees shall have the right to enter the Facility and the Site without notice or obligation to minimize interference with the Operator's performance in the event of an emergency, including fire, vandalism or other threats to public health or safety. During the term of this Agreement, the Company shall provide the Operator and its agents, employees, subcontractors and consultants full and free access at all times to the Facility to the extent required to perform the services required by this Agreement. 13 IN WITNESS WHEREOF, each of the Parties hereto, intending to be legally bound, has caused this Agreement to be duly executed on its behalf on the date first above written. AES Prescott, L.L.C. By: /s/ Patricia L. Rollin -------------------------- Name: Patricia L. Rollin Title: Vice President AES Ironwood, L.L.C., By AES Ironwood, Inc. By: /s/ Patricia L. Rollin -------------------------- Name: Patricia L. Rollin Title: Vice President [DEVELOPMENT AND OPERATIONS SERVICES AGREEMENT] EX-10.7 25 EFFLUENT SUPPLY AGREEMENT Exhibit 10.7 EXECUTION COPY - -------------------------------------------------------------------------------- EFFLUENT SUPPLY AGREEMENT by and between AES IRONWOOD, INC. and CITY OF LEBANON AUTHORITY -------------------------------------- Dated as of March 3, 1998 -------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS.............................................................................................1 ARTICLE II SUPPLY OF EFFLUENT.....................................................................................4 SECTION 2.1 EFFLUENT SUPPLY..............................................................................4 SECTION 2.2 COMPENSATION.................................................................................5 SECTION 2.3 SERVICE INTERRUPTIONS........................................................................6 SECTION 2.4 NON-CONFORMING EFFLUENT......................................................................6 ARTICLE III PIPELINE AND REAL ESTATE RIGHTS.......................................................................7 SECTION 3.1 CONCERNING THE PIPELINE......................................................................7 SECTION 3.2 OPERATION AND MAINTENANCE OF THE PIPELINE....................................................8 SECTION 3.3 CAPITAL IMPROVEMENTS TO THE PIPELINE.........................................................9 ARTICLE IV POTABLE WATER.........................................................................................10 SECTION 4.1 POTABLE WATER GENERALLY.....................................................................10 SECTION 4.2 ADDITIONAL POTABLE WATER....................................................................10 SECTION 4.3 CONNECTION TO POTABLE WATER SYSTEM..........................................................11 ARTICLE V ADDITIONAL OBLIGATIONS OF THE PARTIES..................................................................12 SECTION 5.1 ADDITIONAL OBLIGATIONS OF THE AUTHORITY.....................................................12 SECTION 5.2 ADDITIONAL OBLIGATIONS OF IRONWOOD..........................................................12 ARTICLE VI FORCE MAJEURE.........................................................................................13 SECTION 6.1 FORCE MAJEURE...............................................................................13 ARTICLE VII TERM.................................................................................................14 SECTION 7.1 TERM........................................................................................14 SECTION 7.2 EARLY TERMINATION FOR EVENT OF DEFAULT......................................................14 ARTICLE VIII MISCELLANEOUS.......................................................................................15 SECTION 8.1 AMENDMENTS, ETC.............................................................................15 SECTION 8.2 AMENDMENT...................................................................................15 SECTION 8.3 COOPERATION IN FINANCING....................................................................15 SECTION 8.4 NOTICES, ETC................................................................................16 SECTION 8.5 SEVERABILITY................................................................................16 SECTION 8.6 BINDING EFFECT..............................................................................16 SECTION 8.7 GOVERNING LAW...............................................................................16 SECTION 8.8 HEADINGS....................................................................................16 SECTION 8.9 EXECUTION IN COUNTERPARTS...................................................................16 SECTION 8.10 WAIVER OF JURY TRIAL........................................................................16 ARTICLE IX REPRESENTATION AND WARRANTIES OF THE PARTIES..........................................................17 SECTION 9.1 REPRESENTATIONS AND WARRANTIES OF THE AUTHORITY.............................................17 SECTION 9.2 REPRESENTATIONS AND WARRANTIES OF IRONWOOD..................................................18
i EFFLUENT SUPPLY AGREEMENT EFFLUENT SUPPLY AGREEMENT (this "Agreement"), dated as of March 3, 1998, by and between AES Ironwood, Inc. ("Ironwood") and the City of Lebanon Authority (the "Authority"). Both Ironwood and the Authority are hereinafter sometimes referred to as a "Party" and, collectively as the "Parties". WHEREAS, Ironwood is developing a power generation facility (as further defined below, the "Project") which will provide substantial benefits for the Commonwealth of Pennsylvania and the Lebanon area. WHEREAS, the Authority owns and operates a publicly-owned wastewater treatment facility (as further defined below, the "Authority's Facility") for the handling, treatment and disposal of wastewater which meets and is anticipated to continue to meet all applicable governmental requirements (such treated water, as further defined below, "Effluent"); and WHEREAS, the Authority is willing to provide and Ironwood is willing to accept, in each case pursuant to the terms of this Agreement, Effluent; NOW THEREFORE, the Parties hereto, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, do hereby agree as follows: ARTICLE I DEFINITIONS "Additional Potable Water" has the meaning specified in Section 4.2. "Authority's Facility" means the wastewater treatment facility owned and operated by the Authority located in Lebanon, Pennsylvania which will provide Effluent transported by and through the Pipeline under and in accordance with the terms of this Agreement. "Bankruptcy Event" means, in respect of any Person, (a) such Person shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or substantially all of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment of the benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy Code or any similar or corresponding insolvency law, (v) file a petition seeking to take advantage of any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (vi) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against such Person in an involuntary case under the Bankruptcy Code or any similar or corresponding insolvency law, or (vii) take any other action for the purpose of effecting any of the foregoing; or (b) a proceeding or case shall be commenced without the application or consent of such Person in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution, winding-up, or the composition or readjustment of debts, 1 (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such Person under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or any order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 90 or more consecutive days, or any order for relief against such Person shall be entered in an involuntary case under the Bankruptcy Code or any similar or corresponding insolvency law. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions are authorized or obligated by law or executive order to close in the City of New York or the Commonwealth of Pennsylvania. "Capital Improvements" means any new equipment or facilities, or replacement of existing equipment or facilities (in either case such as force main piping or pumps) and related items necessary to ensure that the Pipeline is capable of delivering Effluent to the Point of Delivery in the quantities specified in this Agreement. "Commencement Notice" means a written notice from Ironwood to the Authority specifying that delivery of Effluent is to commence in accordance with the terms of this Agreement. "Effluent" means treated water provided from the Authority's Facility which meets all applicable Governmental Approvals and is delivered through the Pipeline. "Excess Effluent" has the meaning specified in Section 2.1(d). "Financing Parties" shall mean those Persons (other than Ironwood) party to the loan contracts, promissory notes, documents, guarantee contracts, mortgages, pledges, subordination contracts, assignment contracts, subscription contracts, capital contribution contracts and other documents related to the acquisition of debt (whether senior or subordinate) and capital to carry out the Project, including any modification, extension, renewal, refinancing or replacement of the same. "Force Majeure" means an event beyond the reasonable control, and not attributable to the negligence or willful misconduct, of the Party affected, including but not limited to the following: flood; earthquake; storm; lightning; fire; explosion; war; riot; civil disturbance; strike; sabotage; or electrical outage; provided, however, that Force Majeure shall not include any equipment failure due to normal wear and tear or due to neglected maintenance or repair. "GDPIPD" means the Gross Domestic Price Implicit Price Deflator for a calendar year as published in the United States Department of Commerce, Bureau of Analysis publication entitled "Survey of Current Business". "Governmental Approval" means any law, rule or regulation of any Governmental Authority and any authorization, consent, approval, license, franchise, lease, ruling, permit (including but not limited to any National Pollutant Discharge Elimination System (NPDES) 2 permit), tariff, rate, certification, exemption, filing or registration by or with any Governmental Authority (including, without limitation, zoning variances, special exceptions and non-conforming uses) relating to the construction, ownership, operation or maintenance of the Project, the Pipeline or the Authority's Facility (including those relating to Effluent), as the case may be. "Governmental Authority" means any national, federal, state, provincial, departmental or municipal government or any political subdivision thereof, and any other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any other governmental entity with authority over any aspect of the construction or operation of the Project, the Pipeline or the Authority's Facility, but excluding in each case the Authority. "Non-Conforming Effluent" means treated wastewater from the Authority's Facility which would otherwise be Effluent but for its failure to meet all requirements of applicable Governmental Approvals. "Non-Conforming Notice" has the meaning specified in Section 2.4(a). "Person" means any individual, corporation, partnership, limited liability company, joint venture, incorporated or unincorporated association, joint stock company, trust, or other unincorporated organization, governmental body, instrumentality or agency, or other entity of any kind. "Pipeline" means the approximately 7 mile pipeline, related pumphouse and ancillary facilities required to connect the Project with the Authority's Facility for the purpose of delivery of Effluent in accordance with this Agreement. The Pipeline will be comprised of, among other things, an approximately 18" diameter force main piping and related pumphouse with a design capacity of 3000 gallon per minute rate, such pumphouse to include separate electric metering equipment to measure the consumption of electricity by the equipment comprising the pumphouse. "Point of Delivery" means the point where the Pipeline, including any Capital Improvements thereto, is physically connected to the Project, which location shall be at or inside the border of Ironwood's property and which shall be as otherwise agreed to by the Parties. "Potable Connection" has the meaning specified in Section 4.3. "Potable Delivery Point" means the point where the Authority's potable water system is physically connected to the Project, which location shall be at or inside the border of Ironwood's property and which shall be as otherwise agreed to by the Parties. "Project" means the power generation facility to be constructed in South Lebanon, Pennsylvania, including any water supply facilities installed by Ironwood on Ironwood's side of the Point of Delivery. 3 "Project Financial Closing" means the date Ironwood obtains an initial drawdown on the financing for the construction of the Project. Ironwood agrees to provide written notice to the Authority within thirty (30) days after Ironwood obtains such initial drawdown. "Real Estate Rights" means those interests in real estate of a recordable and insurable nature, including but not limited to fee interests, easements and rights of way and any other interests in real estate reasonably acceptable to Ironwood including revocable or irrevocable licenses, necessary or desirable for the siting of the Pipeline. All Real Estate Rights shall be in the name of the Authority and shall explicitly provide for a right of access to Ironwood or its contractors or agents in order to carry out Ironwood's rights or obligations under this Agreement. "Shortfall Notice" has the meaning specified in Section 2.1(b). ARTICLE II SUPPLY OF EFFLUENT SECTION 2.1 Effluent Supply. (a) Subsequent to completion of the Pipeline and promptly following delivery of a Commencement Notice and throughout the Term of this Agreement, the Authority shall make available to Ironwood a supply of Effluent not less than the quantity specified in Section 2.1(b). Except as contemplated by Section 2.1(d), but without prejudice to Section 2.1(b), the amount of Effluent required to be made available to Ironwood shall not exceed: (i) 4,600,000 gallons per day; or (ii) 1,679,000,000 gallons per calendar year. (b) Upon commencement of deliveries of Effluent, the Authority shall make available a daily quantity of Effluent of not less than 2,160,000 gallons per day. If the Authority is unable on any day to make available such daily minimum quantity of Effluent, whether due to a shortage of Effluent, due to the presence of Non-Conforming Effluent or otherwise, the Authority shall promptly (but in any event within 5 hours of obtaining knowledge thereof) notify Ironwood orally (with prompt written confirmation thereof) or in writing of such inability to provide the minimum daily quantity of Effluent (a "Shortfall Notice"). Each Shortfall Notice shall specify (i) that a shortfall in the delivery of Effluent has occurred or will occur, the amount of such shortfall, the reasons for such shortfall and the anticipated length of such shortfall, including in each case all relevant dates, (ii) the steps the Authority is taking to remedy the shortfall, and (iii) the amount of additional potable water, if any, that the Authority determines in its sole discretion that it can make available to Ironwood from its potable water system. If Ironwood elects to accept potable water from the Authority, the provisions of Section 4.2 shall apply to such acceptances. 4 (c) All Effluent shall be provided at a pressure customary for similar service and mutually agreed to by the Parties. Actual acceptances of Effluent by Ironwood may be less than the maximum allowed, and actual usage will, at the sole discretion of Ironwood, vary according to the electric dispatch of the Project, weather conditions and electrical outages (forced or scheduled). Ironwood shall not be obligated to purchase any minimum amount of Effluent under this Agreement and shall be entitled to seek and obtain water from other available sources. Title and risk of loss of Effluent shall pass to Ironwood upon Ironwood's receipt of such Effluent at the Point of Delivery. Until such time as title to Effluent passes to Ironwood, the Authority shall bear risk of loss of Effluent and shall retain liability for any and all claims, costs, demands, damages, expenses, liabilities and losses relating to Effluent or other discharges from the Authority's Facility. (d) The Authority shall use best efforts to comply with requests by Ironwood for Effluent in excess of the amounts specified in Section 2.1(a) above ("Excess Effluent") and any acceptances of Excess Effluent shall be in accordance with the terms of this Agreement, including but not limited to Section 2.2. The foregoing provisions of this Section 2.1(d) notwithstanding, if the Authority shall receive a good faith proposal from an unaffiliated third-party to purchase Excess Effluent on terms and conditions substantially equivalent to those set forth in this Agreement (other than price), the Authority may elect to provide such Excess Effluent to such unaffiliated third-party; provided, however, prior to the Authority executing any binding agreements with such unaffiliated third-party for the supply of Excess Effluent, Ironwood shall have 90 days to match the offer of such unaffiliated third-party and, provided Ironwood matches or exceeds the price specified by such unaffiliated third-party, the Authority shall supply such Excess Effluent to Ironwood pursuant to the terms of this Agreement and the Parties shall amend this Agreement to provide for delivery of Excess Effluent and the price therefore. (e) Solely for informational purposes, Ironwood shall from time to time notify the Authority of its anticipated Effluent needs and the Parties shall work together in good faith to coordinate the timing of delivery of Effluent in accordance with such notice and the other terms of this Agreement. Subject to the requirements of applicable Governmental Approval and prudent practice, the Authority shall use its best efforts to coordinate any transmission of Effluent discharge so as to maximize the quantity of Effluent made available to Ironwood with due regard to the timing of the Project's Effluent requirements. (f) notwithstanding, the Authority shall, at all times during the Term, use its best efforts to meet Ironwood's minimum Effluent requirements. SECTION 2.2 Compensation. (a) Ironwood will pay the Authority monthly for all Effluent delivered to the Point of Delivery during the prior month. The base rate for Effluent supplied shall be according to the following schedule: GALLONS PER DAY $/PER THOUSAND GALLONS 5 0 - 2,160,000 $0.29 2,160,001 or greater $0.21 (b) The amounts specified in Section 2.2(a) above are stated as of January 1, 1998. During the Term such rates shall be subject to annual escalation in accordance with GDPIPD (with 1998 being the base year), or if the parties so elect, such other mutually agreeable escalation index. SECTION 2.3 Service Interruptions. Upon the event of a temporary interruption or curtailment in Effluent delivery attributable to a break or leak in the Pipeline or otherwise, the Authority shall have a reasonable period of time, not to exceed 18 hours from the commencement of the interruption or curtailment, to make needed repairs and to restore full service. The Authority shall provide a Shortfall Notice in accordance with Section 2.1(b) upon the interruption or curtailment of Effluent under this Section. If the Authority fails to restore full service within such period of time, the following provisions shall apply: (a) Ironwood has the right, but not the obligation, to contract with such contractors as reasonably approved by the Authority from time to time to step in and remedy the interruption or curtailment, with the good faith cooperation and under the direction of an Authority engineer or other duly appointed official of the Authority. (b) All reasonable costs associated with the taking of actions under Section 2.3(a) will be borne by Ironwood. SECTION 2.4 Non-Conforming Effluent. (a) If the Authority becomes aware that it has provided or will provide Non-Conforming Effluent, the Authority shall promptly (but in any event within 5 hours of obtaining knowledge thereof) notify Ironwood orally (with prompt written confirmation thereof) or in writing (a "Non-Conforming Notice"). Each Non-Conforming Notice shall specify (i) when deliveries of Non-Conforming Effluent began or will begin, (ii) the amount of Non-Conforming Effluent delivered or to be delivered, (iii) the cause of such effluent being Non-Conforming Effluent, (iv) the steps the Authority is taking to remedy the situation and (v) the amount of potable water, if any, that the Authority determines in its sole discretion it can make available to Ironwood from its potable water system. If Ironwood elects to accept potable water from the Authority, the provisions of Section 4.2 shall apply to such acceptances. (b) Ironwood shall have the right to reject all Non-Conforming Effluent. Authority shall have the responsibility at its own cost and expense to accept and treat or re-treat any Non-Conforming Effluent rejected by Ironwood. Ironwood shall have the responsibility at its own cost and expense to transport to the Authority at the nearest available and practicable point of entry into the Authority's Waste Water collection system any Non-Conforming Effluent it rejects. Ironwood and the Authority will cooperate in Ironwood's creation of the transportation 6 system for such rejected Non-Conforming Effluent in the same manner as set forth in Section 3.1 of this Agreement. If Ironwood elects to construct a pipeline to transport to the Authority Non-Conforming Effluent which it has rejected to said point of entry, the Authority will, subject to its approval of plans and specifications for said pipeline, accept, own and maintain said pipeline. (c) If Ironwood elects to accept any Non-Conforming Effluent, the Parties shall meet and agree to the price which shall apply to such Non-Conforming Effluent. (d) The Authority acknowledges and agrees that it shall, subject to the applicable law of the Commonwealth of Pennsylvania (including those that relate to municipality authorities) be solely responsible to pay for, or reimburse Ironwood to the extent Ironwood has paid for, all claims, costs, demands, damages, expenses, increased operation and maintenance expenses or costs (including those relating to the Project, the Pipeline or the Authority's Facility), liabilities and repairs or replacement of equipment (including repairs or replacement of equipment of the Project, the Pipeline or the Authority's Facility) arising, directly or indirectly, from the delivery of any Non-Conforming Effluent under this Agreement unless the delivery of such Non-Conforming Effluent was notified and accepted in accordance with the terms of this Agreement. ARTICLE III PIPELINE AND REAL ESTATE RIGHTS SECTION 3.1 Concerning the Pipeline. (a) Ironwood shall be solely responsible, at its cost and expense, for constructing and installing the Pipeline. As soon as is reasonably practical following the execution of this Agreement and from time to time thereafter as is reasonably necessary, the Parties shall meet to discuss the final design and siting of the Pipeline. The Parties agree to cooperate in good faith to effect the purposes of this Article. (b) Ironwood shall be solely responsible, at its cost and expense, for final design of the Pipeline, the selection of the contractor to construct the Pipeline and the siting of the Pipeline. The Authority shall have the right to review and comment on the design of the Pipeline, the selection of the Contractor and the siting of the Pipeline and Ironwood shall incorporate those of the Authority's comments that it finds reasonable and in accordance with prudent practice and applicable Governmental Approvals. (c) Ironwood and the Authority shall cooperate in good faith to obtain the necessary Real Estate Rights for the construction, operation and maintenance of and access to the Pipeline. From time to time Ironwood and the Authority shall meet and discuss the siting of the Pipeline and the course of action best suited to obtain such Real Estate Rights in the most time efficient manner and with the least cost. If Ironwood provides the Authority with written notice requesting the Authority to exercise its power of eminent domain in order to obtain the Real Estate Rights, the Authority promptly shall exercise such eminent domain power to obtain the applicable Real Estate Rights. 7 (d) Ironwood shall, from time to time, provide the Authority with progress reports (whether oral or written) relating to the design, siting and construction of the Pipeline. Ironwood shall give the Authority prompt written notice of completion of the Pipeline. Upon completion of the Pipeline, the Parties shall execute such agreements and documents as shall be necessary to evidence the Authority's ownership of the Pipeline. No compensation shall be due to Ironwood from the Authority for construction of the Pipeline or for the Authority accepting ownership of the Pipeline. (e) Ironwood shall bear the costs and expenses in connection with the design, construction and siting of the Pipeline. In addition, Ironwood shall reimburse the Authority for its reasonable costs and expenses (including reasonable costs and expenses of legal counsel and technical advisors approved by Ironwood in writing) in connection with the design, construction and siting of the Pipeline, including obtaining the necessary Real Estate Rights. SECTION 3.2 Operation and Maintenance of the Pipeline. (a) The Authority shall operate and maintain the Pipeline in a workmanlike manner, consistent with prudent practices and shall continuously maintain the Pipeline in good operating condition and in compliance with all Governmental Approvals applicable to the Pipeline. Such operation and maintenance shall be accomplished in a manner so as to minimize to the maximum extent practicable any disruption or interruption in the services to be provided under this Agreement. (b) Ironwood shall own and maintain, on its side of the Point of Delivery, metering equipment to measure the delivery of Effluent to the Point of Delivery. Ironwood shall read the meters daily to determine the quantities of Effluent supplied for billing purposes. Ironwood shall keep records of the daily amount of Effluent delivered to the Point of Delivery in accordance with this Agreement and, not later than five (5) days after the end of each month following the commencement of delivery of Effluent under this Agreement, provide written notice to the Authority of the amount of Effluent so delivered for each day of such month. At least once every year, or more frequently if the Authority reasonably requests, and with at least one week prior written notice to the Authority, Ironwood shall test the accuracy of the metering equipment, at which time the Authority shall have the right to be present. If such test indicates that the metering equipment is not measuring accurately, Ironwood shall recalibrate or replace the metering equipment and, if appropriate, a billing adjustment shall be made. (c) The Authority shall own and maintain metering equipment to measure the delivery of Effluent to the Point of Delivery. The Authority may elect to read the meters monthly to confirm the quantities of Effluent supplied. At least once every year, or more frequently if requested by Ironwood, and with at least one week prior written notice to Ironwood, the Authority shall test the accuracy of the metering equipment, at which time Ironwood shall have the right to be present. If such test indicates that the metering equipment is not measuring accurately, the Authority shall recalibrate or replace the metering equipment. (d) As compensation for the Authority operating and maintaining the Pipeline in accordance with this Agreement, Ironwood shall pay to the Authority $18,250 per year, pro rated 8 for partial years. Such amount is stated as of January 1, 1998 and during the Term such amount shall be subject to escalation in accordance with GDPIPD (with 1998 being the base year), or if the parties so elect, such other mutually agreeable escalation index. (e) In addition to the amount specified in the preceding subsection, Ironwood shall reimburse the Authority for the cost of electricity consumed by the pumphouse comprising part of the Pipeline, as measured by the electricity meters included in the Pipeline. At least once every year, or more frequently if reasonably requested by Ironwood, and with at least one week prior written notice to Ironwood, the Authority shall test the accuracy of the electric metering equipment, at which time Ironwood shall have the right to be present. If such test indicates that the metering equipment is not measuring accurately, the Authority shall recalibrate or replace the metering equipment and, if appropriate, a billing adjustment shall be made. If Ironwood may, consistent with all applicable Governmental Approvals and prudent practice, provide the electric power required to operate the Pipeline, then Ironwood may elect to do so by providing to the Authority written notice to that effect and the Parties agree to cooperate in good faith to achieve that end. If Ironwood does provide such electric power the other terms of this subsection shall no longer be applicable. (f) If the Authority reasonably determines that the compensation provided for in the two preceding subsections does not adequately reimburse the Authority for the costs and expenses actually incurred by the Authority in connection with operation and maintenance of the Pipeline in accordance with this Agreement, the Authority may provide written notice to Ironwood to that effect. Thereafter the Parties shall meet in good faith to discuss the issue with the goal of reaching a mutually acceptable reimbursement level for the Authority's costs and expenses relating to operation and maintenance of and access to the Pipeline. If the Parties are not able to reach a mutually acceptable arrangement in respect thereof, Ironwood shall have the right to determine if it may operate and maintain, or cause a third-party to operate and maintain, the Pipeline. In connection therewith, the Authority shall use its best efforts to accommodate any reasonable request of Ironwood or such third-party to allow the operation and maintenance of the Pipeline, including but not limited to the execution of all such documents and instruments as may be necessary or advisable to allow such operation and maintenance. The foregoing notwithstanding, until such time as mutually acceptable alternative arrangements have been agreed to by the Parties, a dispute concerning the level of reimbursement to the Authority shall not relieve the Authority of its obligation to operate and maintain the Pipeline in accordance with the requirements of this Agreement. SECTION 3.3 Capital Improvements to the Pipeline. (a) In the event the Authority or Ironwood reasonably determines that Capital Improvements to the Pipeline are required, such Party shall notify the other Party and the Parties shall meet in good faith to determine the scope of such Capital Improvements. (b) Ironwood shall determine if it would be more cost effective or expeditious for it or a contractor, as opposed to the Authority, to implement the Capital Improvements agreed upon in accordance with Section 3.3(a). 9 (c) In the event Ironwood determines to implement the Capital Improvements itself or through a contractor reasonably acceptable to the Authority, Ironwood or such contractor shall coordinate with the Authority in order to ensure the minimum disruption of the Parties' activities under this Agreement. The Authority agrees to use its best efforts to assist Ironwood or such contractor in completing the Capital Improvements and agrees to promptly execute such documents and instruments as may be necessary or desirable to complete the Capital Improvements. (d) In the event Ironwood determines that it would be more cost effective or expeditious for the Authority to implement the Capital Improvements, Ironwood shall give the Authority written notice to that effect. Upon receipt of such notice the Authority shall use its best efforts to promptly implement the Capital Improvements with the minimum disruption of the Parties' activities under this Agreement; provided, that prior to implementing such Capital Improvements the Authority shall allow Ironwood to approve any contractor performing the work (which approval shall not be unreasonably withheld), and shall provide to Ironwood a budget and work plan (including timetable) for the implementation of the Capital Improvements. (e) Ironwood shall bear its own costs and expenses in connection with the implementation of the Capital Improvements. In addition, Ironwood shall reimburse the Authority for its reasonable costs and expenses in connection with the implementation of the Capital Improvements; provided such costs and expenses are consistent with the budget provided by the Authority and approved by Ironwood. (f) In the event that the Authority or its agents causes damage to the property of Ironwood (including but not limited to the Project) while constructing, installing, operating, maintaining or repairing the Capital Improvements or the Pipeline, the Authority shall restore or pay Ironwood to restore, at Ironwood's election, Ironwood's property or the Project as nearly as possible to its condition prior to such damage. In the event that Ironwood causes damage to the Capital Improvements or Pipeline while constructing, installing, operating, maintaining or repairing the Project, Ironwood shall restore or pay the Authority to restore, at the Authority's election, the Capital Improvements or Pipeline as nearly as possible to its condition prior to such damage. The provisions of this Section 3.3(f) are subject to all applicable laws of the Commonwealth of Pennsylvania (including those that relate to municipality authorities). ARTICLE IV POTABLE WATER SECTION 4.1 Potable Water Generally. The Authority shall make available to Ironwood on a continuous basis a potable water supply of not less than fifty (50) gallons per minute. Ironwood shall not be obligated to purchase a minimum amount of potable water under this Agreement. Ironwood shall pay the Authority for potable water accepted at the Potable Delivery Point at the rate applicable to Ironwood (based on 10 user classification or consumption rate, as applicable) set forth in the Authority's applicable rate schedule. SECTION 4.2 Additional Potable Water. In addition to the potable water to be provided under Section 4.1, in the event the Authority has delivered a Shortfall Notice or a Non-Conforming Notice specifying that Additional Potable Water is available, the Authority will in accordance with the applicable notice delivered by the Authority, but subject to prudent practice and applicable Governmental Approvals, make available to Ironwood at the Potable Delivery Point such Additional Potable Water. Ironwood shall pay the Authority for Additional Potable Water accepted at the Potable Delivery Point at the rate applicable to Ironwood (based on user classification or consumption rate, as applicable) set forth in the Authority's applicable rate schedule. SECTION 4.3 Connection to Potable Water System. (a) As soon as reasonably practical after execution of this Agreement, Ironwood and the Authority shall meet to discuss the connection of the Project with the Authority's potable water system (the "Potable Connection"). (b) Ironwood shall determine if it would be more cost effective or expeditious for it or a contractor, as opposed to the Authority, to implement the Potable Connection agreed upon in accordance with Section 4.3(a). (c) In the event Ironwood determines to implement the Potable Connection itself or through a contractor reasonably acceptable to the Authority, Ironwood or such contractor shall coordinate with the Authority in order to ensure proper implementation of the Potable Connection. The Authority agrees to use its best efforts to assist Ironwood or such contractor in completing the Potable Connection and agrees to promptly execute such documents and instruments as may be necessary or desirable to complete the Potable Connection. (d) In the event Ironwood determines that it would be more cost effective or expeditious for the Authority to implement the Potable Connection, Ironwood shall give the Authority written notice to that effect. Upon receipt of such notice the Authority shall use its best efforts to promptly implement the Potable Connection; provided, that prior to implementing such Potable Connection the Authority shall allow Ironwood to approve any contractor performing the work (which approval shall not be unreasonably withheld), and shall provide to Ironwood a budget and work plan (including timetable) for the implementation of the Potable Connection. (e) Ironwood shall bear its own costs and expenses in connection with the implementation of the Potable Connection. In addition, Ironwood shall reimburse the Authority for its reasonable costs and expenses in connection with the implementation of the Potable Connection; provided such costs and expenses are consistent with the budget provided by the Authority and approved by Ironwood. 11 ARTICLE V ADDITIONAL OBLIGATIONS OF THE PARTIES SECTION 5.1 Additional Obligations of the Authority. (a) Promptly upon obtaining knowledge thereof (but in any event within 5 hours of obtaining knowledge thereof), the Authority shall provide Ironwood with oral (with prompt written confirmation thereof) or written notice of any violation of applicable Governmental Approvals relating to the Authority's Facility. (b) Promptly after submission thereof to the applicable Governmental Authority, the Authority shall provide Ironwood with a copy of any report, filing, notice, request for variance or similar document filed with or submitted to a Governmental Authority that relates to the Authority's Facility. (c) Not later than the fifteenth day of each month following the commencement of delivery of Effluent or at such other time as required in accordance with this Agreement, the Authority shall provide to Ironwood a written invoice specifying in reasonable detail (including the method of calculation of any amounts invoiced) the amount claimed by the Authority from Ironwood in accordance with this Agreement, including amounts under Sections 2.2, 3.1(e), 3.2(C), 3.2(d), 3.3, 4.1, 4.2 and 4.3. Undisputed amounts set forth in any invoice shall be due and payable by Ironwood not later than 30 days following receipt of such invoice. (d) The Authority shall, upon prior written or oral request therefore, provide Ironwood, the Financing Parties and each of their respective agents and representatives with escorted access during normal business hours to the Authority's Facility, the Pipeline and the other property of the Authority as may be reasonably requested in connection with the development, financing, construction, operation and maintenance of the Project. The Authority shall, upon prior written or oral request therefore, provide Ironwood, the Financing Parties and each of their respective agents and representatives with access during normal business hours to (and the right to reproduce) the Authority's books and records (including books and records relating to Governmental Approvals and compliance therewith) as may be reasonably necessary in connection with the development, financing, construction, operation and maintenance of the Project. (e) Upon the reasonable request of Ironwood, the Authority shall, at the cost and expense of Ironwood, execute such additional certificates, documents, instruments, agreements and take such actions as may be reasonably required to give effect to the terms and conditions of this Agreement. SECTION 5.2 Additional Obligations of Ironwood. (a) Promptly upon obtaining knowledge thereof (but in any event within 5 hours of obtaining knowledge thereof), Ironwood shall provide the Authority with oral (with prompt 12 written confirmation thereof) or written notice of any violation by the Authority of applicable Governmental Approvals relating to Effluent delivery by the Authority in accordance with this Agreement. (b) Not later than the fifteenth day of each month following the commencement of delivery of Effluent or at such other time as required in accordance with this Agreement, Ironwood shall provide to the Authority a written invoice specifying in reasonable detail (including the method of calculation of any amounts invoiced) the amount claimed by Ironwood from the Authority in accordance with this Agreement. Undisputed amounts set forth in any invoice shall be due and payable by the Authority not later than 30 days following receipt of such invoice. (c) Upon the reasonable request of the Authority, Ironwood shall, at its cost and expense, execute such additional certificates, documents, instruments, agreements and take such actions as may be reasonably required to give effect to the terms and conditions of this Agreement. ARTICLE VI FORCE MAJEURE SECTION 6.1 Force Majeure. If either Party shall be unable to carry out any obligation under this Agreement due to Force Majeure, this Agreement shall remain in effect, but such obligation shall be suspended for the period necessary as a result of the Force Majeure, provided, that: (a) the non-performing Party gives the other Party written notice not later than forty-eight (48) hours after the occurrence of the Force Majeure describing the particulars of the Force Majeure, including but not limited to the nature of the occurrence and the expected duration of the disability, and continues to furnish timely regular reports with respect thereto during the period of Force Majeure and the disability; (b) the suspension of performance is of no greater scope and of no longer duration than is required by the Force Majeure; and (c) the non-performing Party uses its best efforts to remedy its inability to perform. Notwithstanding the foregoing, the settlement of strikes, lockouts, and other labor disputes shall be entirely within the discretion of the affected Party, and such Party shall not be required to settle any strike, lockout or other labor dispute on terms which it deems inadvisable. 13 ARTICLE VII TERM SECTION 7.1 Term. (a) This Agreement shall take effect upon execution of the appropriate counterpart by each Party and, except as provided in Section 7.1(b), Section 7.1(c) or Section 7.2 below, shall remain in effect for a period of twenty-five (25) years (the "Term"). Ironwood may elect, in its sole election, to extend this Agreement for one (1) or more (but in no event more than four (4)) successive five (5) year terms by providing written notice to that effect to the Authority not later than one (1) month prior to the expiration of the then effective Term. All references in this Agreement to the word "Term" shall mean the initial twenty-five (25) year Term as extended by Ironwood. (b) This Agreement may be terminated by Ironwood in its sole discretion (i) if Ironwood is unable to obtain financing for the Project or (ii) if Ironwood is unable to obtain all permits, licenses, and approvals necessary to construct and operate the Project. Termination under this Section 7.1(b) shall be effective upon the Authority's receipt of notice to that effect. (c) Either Party may terminate this Agreement if Ironwood has not delivered a Commencement Notice on or prior to December 31, 2004. In the event a Commencement Notice is delivered subsequent to December 31, 2004, but prior to the delivery of written notice terminating this Agreement under this Section 7.1(c), this Section 7.1(c) shall become inapplicable. SECTION 7.2 Early Termination for Event of Default. (a) Ironwood may terminate this Agreement (i) upon a Bankruptcy Event of the Authority or (ii) if the Authority fails to perform or observe any of its material obligations under this Agreement within the time contemplated by this Agreement and such failure continues for a period of time greater than thirty (30) days from the Authority's receipt of notice thereof; provided, that if the Authority is diligently pursuing a cure of such failure and such failure is not capable of remedy within such thirty (30) day period, such thirty (30) day period shall be extended to such period of time as Ironwood may agree in its sole discretion. For the avoidance of doubt, it is understood that the failure to provide Effluent shall be grounds for early termination under this Section; provided, that if the failure to provide Effluent is excused due to the occurrence of Force Majeure, Ironwood may only terminate this Agreement if such Force Majeure continues for a period of time in excess of 60 days whether or not such failure is excused by the occurrence of such Force Majeure. (b) The Authority may terminate this Agreement (i) upon a Bankruptcy Event of Ironwood or (ii) if Ironwood fails to perform or observe any of its material obligations under this Agreement within the time contemplated by this Agreement and such failure continues for a period of time greater than thirty (30) days from the Authority's receipt of notice thereof; 14 provided, that if Ironwood is diligently pursuing a cure of such failure and such failure is not capable of remedy within such thirty (30) day period, such thirty (30) day period shall be extended to such period of time as the Authority may agree in its sole discretion. The foregoing notwithstanding, the Authority may not terminate this Agreement without first giving the Financing Parties written notice of the Authority's intention to terminate this Agreement and giving such Financing Parties an additional reasonable period of time (but in any event not less than an additional 90 days) to remedy the event giving rise to the right of the Authority to terminate this Agreement. Ironwood covenants and agrees to give written notice to the Authority concerning the identities and contact information of the Financing Parties from time to time and the Authority shall only be obligated to provide the aforementioned notice to Financing Parties of which it has received notice. ARTICLE VIII MISCELLANEOUS SECTION 8.1 Amendments, Etc.. No amendment or waiver of any provision of this Agreement shall be effective unless in writing and signed or consented to by the Parties and then such waiver shall be effective only in the specific instance and for the specific purpose for which given. SECTION 8.2 Amendment. Neither Party may assign this Agreement without the prior written consent of the other Party; provided, however, that Ironwood may assign this Agreement to the Financing Parties without the prior written consent of the Authority. SECTION 8.3 Cooperation in Financing. The Authority agrees to cooperate from time to time with Ironwood and the Financing Parties in connection with the financing of the Project. In furtherance thereof, the Authority agrees to enter into such consents to assignments or other agreements as Ironwood or the Financing Parties may reasonably request and the Authority agrees to provide such certificates from its officers and such opinions of counsel (which may be outside counsel) as Ironwood or the Financing Parties may reasonably request. Ironwood agrees to reimburse the Authority for any costs and expenses reasonably incurred by the Authority in complying with its obligations under this Section 8.3, including the reasonable fees and expenses of counsel to the Authority. 15 SECTION 8.4 Notices, Etc.. All notices and other communications provided for hereunder shall be in writing (including by telecopier) and shall be mailed, telecopied or delivered, if to Ironwood, to it at 829 Cumberland Street, Lebanon, Pennsylvania 17042, Attention: Project Manager and a copy to The AES Corporation, 1001 North 19th Street, Arlington, Virginia 22209; if to the Authority, to it at 400 South Eighth Street, Lebanon, Pennsylvania 17042, Attention: Public Works Director, as to each Party, to it at such other address or telecopier number as designated by such Party in a written notice to the other Parties. All such notices and communications shall be deemed received, (a) if personally delivered, upon delivery, (b) if sent by first class mail, on the third business day following deposit into the mails and (c) if sent by telecopier, upon acknowledgement of receipt thereof by the recipient. SECTION 8.5 Severability. Any provision of this Agreement that is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions of this Agreement or affecting the validity, enforceability or authorization of such provision in any other jurisdiction. SECTION 8.6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. SECTION 8.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF. SECTION 8.8 Headings. The section and subsection headings used herein have been inserted for convenience of reference only and do not constitute matters to be considered in interpreting this Agreement. SECTION 8.9 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different Parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 8.10 Waiver of Jury Trial. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY 16 LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENTS CONTEMPLATED HEREBY TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EACH PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT. ARTICLE IX REPRESENTATION AND WARRANTIES OF THE PARTIES SECTION 9.1 Representations and Warranties of the Authority. The Authority hereby represents and warrants to and for the benefit of Ironwood as follows: (a) Organization and Qualification. The Authority (i) is a governmental body, duly organized and validly existing under the laws of the Commonwealth of Pennsylvania, with full right, power and authority under its organizational documents and under the laws of the Commonwealth of Pennsylvania to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, and (ii) has the power to carry on its business as now being conducted and as proposed to be conducted. (b) Authorization and Enforceability. The Authority has taken all necessary action to authorize the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by the Authority and constitutes the legal, valid and binding obligation of the Authority enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and (ii) general equitable principles regardless of whether the issue of enforceability is considered in a proceeding in equity or at law. (c) No Conflict. Neither the execution and delivery of this Agreement nor compliance with any of the terms and provisions hereof (i) contravenes any Governmental Approval applicable to the Authority or any of its respective properties or other assets, (ii) conflicts with, breaches or contravenes the provisions of the organizational documents of the Authority or any contractual obligation of the Authority, or (iii) results in the creation or imposition of any lien upon any of the property or assets of the Authority under, or in a condition or event that constitutes (or that, upon notice or lapse of time or both, would constitute) an event of default under any contractual obligation of the Authority. (d) Governmental Approvals. No Governmental Approval is required (other than those which have previously been obtained and are in full force and effect) to authorize, or is required in connection with the execution and delivery of this Agreement by the Authority. 17 SECTION 9.2 Representations and Warranties of Ironwood. Ironwood hereby represents and warrants to and for the benefit of the Authority as follows: (a) Organization and Qualification. Ironwood (i) is a corporation, duly organized and validly existing under the laws of the state of its incorporation, with full right, power and authority under its organizational documents and under the laws of the state of its incorporation to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, and (ii) has the power to carry on its business as now being conducted and as proposed to be conducted. (b) Authorization and Enforceability. Ironwood has taken all necessary action to authorize the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by Ironwood and constitutes the legal, valid and binding obligation of Ironwood enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and (ii) general equitable principles regardless of whether the issue of enforceability is considered in a proceeding in equity or at law. (c) No Conflict. Neither the execution and delivery of this Agreement nor compliance with any of the terms and provisions hereof (i) contravenes any Governmental Approval applicable to Ironwood or any of its respective properties or other assets, (ii) conflicts with, breaches or contravenes the provisions of the organizational documents of Ironwood or any contractual obligation of Ironwood, or (iii) results in the creation or imposition of any lien upon any of the property or assets of Ironwood under, or in a condition or event that constitutes (or that, upon notice or lapse of time or both, would constitute) an event of default under any contractual obligation of Ironwood. (d) Governmental Approvals. No Governmental Approval is required (other than those which have previously been obtained and are in full force and effect) to authorize, or is required in connection with the execution and delivery of this Agreement by Ironwood. 18 IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers and attested on the date first above written. AES IRONWOOD, INC. ATTEST: By: /s/ Alicia J. Slinn By: /s/ Patricia L. Rollin ----------------------------- -------------------------- Name: Alicia J. Slinn Name: Patricia L. Rollin Title: Administrative Assistant Title: Vice President AES Ironwood, Inc. AES Ironwood, Inc. CITY OF LEBANON AUTHORITY ATTEST: By: /s/ George E. Patton, Jr. By: /s/ David S. Etter ----------------------------- -------------------------- Name: George E. Patton, Jr. Name: David S. Etter Title: Secretary Title: Chairman EX-10.8 26 TRANSMISSION INTERCONNECTION AGREEMENT Exhibit 10.8 GENERATION FACILITY TRANSMISSION INTERCONNECTION AGREEMENT BETWEEN METROPOLITAN EDISON COMPANY d/b/a GPU Energy AND AES IRONWOOD, L.L.C. TABLE OF CONTENTS Page ---- ARTICLE 1: DEFINITIONS...................................................2 ARTICLE 2: EFFECTIVE DATE AND TERM.......................................8 ARTICLE 3: RESPONSIBILITIES OF THE COMPANY...............................9 ARTICLE 4: RESPONSIBILITIES OF THE POWER PRODUCER.......................11 ARTICLE 5: MODIFICATIONS TO FACILITIES, INTERCONNECTIONS................14 ARTICLE 6: OPERATION....................................................17 ARTICLE 7: MAINTENANCE NOTIFICATION AND COORDINATION....................18 ARTICLE 8: REVENUE METERING.............................................20 ARTICLE 9: LAND RIGHTS AND ACCESS.......................................23 ARTICLE 10: INSURANCE....................................................23 ARTICLE 11: PERFORMANCE..................................................26 ARTICLE 12: LIABILITY AND DEDICATION.....................................27 ARTICLE 13: INDEMNIFICATION..............................................28 ARTICLE 14: REPRESENTATIONS, WARRANTIES AND COVENANTS....................31 ARTICLE 15: EVENTS OF DEFAULT............................................33 ARTICLE 16: ASSIGNMENT...................................................36 ARTICLE 17: NOTICES......................................................38 ARTICLE 18: AMENDMENT AND MODIFICATION...................................38 ARTICLE 19: DISPUTES.....................................................39 ARTICLE 20: MISCELLANEOUS................................................40 APPENDIX A - Description of Facility APPENDIX B - Interconnection Facilities APPENDIX C - Transmission Operation Interconnection Requirements APPENDIX D - System Protection and Control Interconnection Requirements APPENDIX E - Interconnection Installation Agreement GENERATION FACILITY TRANSMISSION INTERCONNECTION AGREEMENT THIS AGREEMENT, made and entered into this 23rd day of March, 1999, by and between Metropolitan Edison Company d/b/a GPU Energy ("Company"), a corporation and a public utility organized and existing under the laws of the Commonwealth of Pennsylvania, and AES Ironwood, L.L.C., an entity organized and existing under the laws of the State of Delaware ("Power Producer"), both Company and Power Producer hereinafter sometimes referred to collectively as the "Parties", or individually as a "Party". The Parties acknowledge that GPU Service, Inc., may act as agent for the Company concerning the administration of this Agreement. RECITALS WHEREAS, the Company is a public utility engaged in the production, transmission, distribution and sale of electric energy; and WHEREAS, the Company is a member of the PJM Interconnection, L.L.C. ("PJM") operated under the PJM Agreement; and WHEREAS, the Company is a member of the Mid-Atlantic Area Council ("MAAC"), a reliability council under Section 202 of the Federal Power Act established pursuant to the Mid-Atlantic Coordination Agreement, dated December 26, 1967, and as amended and restated as of August 1, 1994 by the MAAC Executive Board, and as may be further amended from time to time thereafter; and WHEREAS, the Power Producer is an entity engaged or intending to be engaged in the production and sale of electric energy and/or capacity from an electric power generation 1 facility to be located in the Commonwealth of Pennsylvania, and more fully described in Appendix A; and WHEREAS, in order for the Power Producer to sell electric energy and capacity generated from the Facility, it must be interconnected with the Transmission System; and WHEREAS, the Parties are willing to enter into this agreement under which the Facility will be interconnected with the Transmission System, subject to terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual representations, covenants, promises, and agreements hereinafter set forth, the Parties hereto, intending to be legally bound, hereby covenant, promise and agree as follows: ARTICLE 1 DEFINITIONS 1.1 Any capitalized or abbreviated term not elsewhere defined in this Agreement shall have the definition set forth below: (a) Affiliate - With respect to a corporation, partnership or other entity, each such other corporation, partnership or other entity that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such corporation, partnership or other entity. (b) Agreement - This Generation Facility Transmission Interconnection Agreement including all appendices attached hereto, and all amendments and supplements. (c) Capacity - The maximum generating capability of the Facility, measured in 2 megawatts at a defined ambient air temperature, as set forth in Appendix A. (d) Company Interconnection Facilities All structures, facilities, equipment, devices and apparatus owned or leased by, or under contract to, the Company or its Affiliates, as identified in Appendix B, which facilities are necessary, together with the Power Producer Interconnection Facilities, to allow the interconnection of the Facility to the Transmission System. (e) Emergency - A condition or situation which the PJM OI, the Company or the Power Producer deem imminently likely to (i) endanger life or property; (ii) adversely affect or impair the Transmission System, or imminently will affect or impair, the Company's electrical system or the electrical or transmission systems of others to which the Company's electrical system is directly or indirectly connected; or (iii) adversely affect or impair the Facility. Such a condition or situation includes, but is not limited to, overloading or potential overloading of or excessive voltage drop on the Company's or regional transmission and/or distribution circuits, unusual operating conditions on either the Company's, regional or the Power Producer's electrical system or conditions such that the output of the Power Producer's Facility must be adjusted to avoid jeopardizing the Facility, the Company's electrical system or the electrical systems of others to which the Company's electrical system is directly or indirectly connected. (f) Facility - The real and personal property owned by the Power Producer at the electric power generating facility including, but not limited to, the following assets: (a) the real property (including all buildings, structures and other improvements thereon); (b) the turbines machinery, equipment, vehicles, furniture, and other personal property located on the Power Producer's property, and shall include any additions, modifications or replacements thereto, as further defined in Appendix A. 3 (g) FERC - The Federal Energy Regulatory Commission or any successor agency thereto. (h) Force Majeure Shall mean an event or occurrence or circumstance beyond the reasonable control of and without the fault or negligence of the Party claiming Force Majeure, including, but not limited to, acts of God, labor dispute (including strike), acts of public enemy, war, civil disturbance, riot, fire, storm, flood, explosion, earthquake, lightning, epidemic, sabotage, breakage or accident to machinery or equipment, electric system disturbance, change in law or applicable regulation subsequent to the date hereof and action or inaction by any federal, state or local legislative, executive, administrative, military, or judicial agency or body which, in any of the foregoing cases, by exercise of due foresight such Party could not reasonably have been expected to avoid, and which, by the exercise of due diligence, is unable to overcome, and which wholly or in substantial part prevents such Party from performing its obligations under this Agreement. The settlement of strikes and labor disturbances shall be wholly within the discretion of the Party experiencing the event. Economic hardship of either Party shall not constitute a Force Majeure under this Agreement. (i) Generator Forced Outage - Shall have the meaning given that term in the PJM Agreement. (j) Generator Maintenance Outage - Shall have the meaning given that term in the PJM Agreement. (k) Generator Planned Outage - Shall have the meaning given that term in the PJM Agreement. (l) Good Utility Practice - (i) Any of those practices, methods and acts engaged in or 4 approved by a significant portion of the electric utility industry in North America during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition; and (ii) any of those practices, methods, standards and equipment commonly used, from time to time, in electrical engineering and operations to operate electrical equipment lawfully and with safety, dependability and efficiency and in accordance with the National Electrical Safety Code and the National Electrical Code and Standards of the Institute of Electrical and Electronic Engineers, and standards established by the National Electrical Manufacturers Association, the PJM OI, the Mid-Atlantic Area Council ("MAAC"), the American National Standards Institute and any such other standards practiced by the industry and electrical equipment manufacturers in North America in a manner sufficient to provide safe and reliable service. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted and consistently adhered to in the MAAC region. (m) Interconnection Facilities - The Company Interconnection Facilities and the Power Producer Interconnection Facilities, together. (n) Lenders - Those entities, including their successors and assigns and any trustee or agent acting on their behalf, who have advanced or who will advance to the Power Producer, directly or indirectly, the economic resources (whether on a senior or unsubordinated basis) for the development and construction of the Facility or the Interconnection Facilities. The Power Producer shall notify the Company of the name and addresses of the Lenders for the purposes of 5 this Agreement. (o) NERC - The North American Electric Reliability Council or any successor thereto. (p) PaPUC - The Pennsylvania Public Utility Commission or any successor agency thereto. (q) PJM Agreement - Shall mean the Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., dated as of June 2, 1997, and revised as of December 31, 1997, January 30, 1998, and March 17, 1998, and as may be further amended or superseded from time to time. (r) PJM Control Area - The control area recognized by NERC as the PJM Control Area. (s) PJM Interconnection, L.L.C. - The entity formerly known as the PJM Interconnection Association, converted into a limited liability company pursuant to the Delaware Limited Liability Company Act, Title 6, Sections 18-101 et seq. of the Delaware Code, by virtue of the filing of both the Certificate of Formation and Certificate of Conversion with the Recording Office, effective as of March 31, 1997. The L.L.C. operates in accordance with the FERC requirements as an Independent System Operator, comprised of the PJM Board, the PJM OI, and the PJM Members Committee. (t) PJM OI - The Office of the Interconnection as supervised by the Board of Managers of the PJM Interconnection, L.L.C., acting pursuant to the PJM Agreement. The PJM OI has the responsibility for the continued operation of the PJM Control Area and the administration of the PJM Tariff, subject to regulation by the FERC. (u) PJM Tariff - The PJM Open Access Transmission Tariff filed by the PJM 6 Interconnection L.L.C. with FERC on July 14, 1997, in Docket No.OA97-261-000 as amended and effective April 1, 1998, and as may be further modified, amended or superseded from time to time, under which transmission service is provided within the PJM Control Area. (v) Point of Interconnection - Each ownership point of demarcation on the Transmission System where capacity, energy, and ancillary services each are transferred between the Facility and the Transmission System. The Point of Interconnection shall be located as shown on the schematic diagram attached hereto as Appendix A. (w) Power Producer Interconnection Facilities - All structures, facilities, equipment, devices and apparatus owned or controlled by Power Producer, as identified in Appendix B, and as may be amended from time to time. (x) Protective Apparatus - All equipment and apparatus included in the Interconnection Facilities, including but not limited to protective relays, circuit breakers and the like, as set forth in Appendix B, necessary to isolate the Facility from the Company's electrical system consistent with Good Utility Practice. (y) Revenue Meters - All MWh, MVARh meters, pulse isolation relays, pulse conversion relays and transducers used by the PJM OI or the Company for billing purposes, and associated totalizing equipment and appurtances (including voltage transformers and current transformers) used to measure the transfer of energy and the applicable ancillary services between the Parties. (z) Transmission System - The electric transmission facilities owned, controlled, or operated by the Company at or above 34.5 kV delta for purposes of providing transmission service, including services under the PJM Tariff and the PJM Agreement. 7 1.2 Unless a different interpretation arises from the context: (a) the reference to any article, section, paragraph or appendix is a reference to an article, section, paragraph or appendix of this Agreement, (b) with respect to the definitions set forth in Article 1, whenever applicable the singular shall include the plural and vice-versa; and (c) the words "includes" or "including" mean "including, but not limited to" and are not limiting. Any conflict between an article or section of the Agreement and any provision of an appendix shall be resolved by reference to the article or section of this Agreement. ARTICLE 2 EFFECTIVE DATE AND TERM 2.1 This Agreement shall become effective on the effective date established by the FERC, and shall continue in full force and effect until a mutually agreeable termination date not to exceed the retirement date for the Facility, unless terminated on an earlier date by mutual agreement of the Parties or otherwise in accordance with the terms set forth in this Agreement. 2.2 The applicable provisions of this Agreement shall continue in effect after cancellation or termination hereof to the extent necessary to provide for final billings, billing adjustments, and the determination and enforcement of liability and indemnification obligations arising from acts or events that occurred while this Agreement was in effect. 2.3 In the event that the FERC (i) fails to accept this Agreement without suspension or (ii) finds that this Agreement is not just and reasonable or imposes conditions that are not acceptable to either Party, the Parties will use commercially reasonable efforts to agree upon amendments or modifications of this Agreement that would eliminate any such condition or result in a just and 8 reasonable finding by the FERC. If the Parties are unable to mutually agree upon such amendment or modification within a reasonable period of time, the Parties agree to proceed pursuant to Article 19 in order to attempt to resolve any impasse or dispute. 2.4 In the event that this Agreement is terminated the Power Producer agrees that it will reimburse the Company for all unpaid costs and expenses expended by the Company in the installation of the Company's Interconnection Facilities, up to the date of termination, plus actual removal costs and less actual salvage value. 2.5 In the event of a changing law or regulation or the issuance of an order or other directive by a regulatory authority with jurisdiction over either Party that affects or may reasonably be expected to affect either "Party's" performance under this Agreement, the Parties will negotiate in good faith any amendment or amendments to this Agreement necessary to adapt the terms of this Agreement to such change, order, or directive provided that the Parties are not obligated to agree to such amendment which may adversely affect their current economic positions as of the effective date of this Agreement. In the event that the Parties are unable to mutually agree to such an amendment within a reasonable time period, the Parties agree to proceed pursuant to Article 19 in order to attempt to resolve any impasse or dispute. Nothing in this Agreement shall limit the rights of the parties or the FERC under Section 205 or 206 of the Federal Power Act and FERC's Rules and Regulations thereunder. ARTICLE 3 RESPONSIBILITIES OF THE COMPANY 3.1 The Company shall: 9 (a) Install all Company Interconnection Facilities at the Power Producer's sole cost and expense in accordance with the terms and conditions and the schedule set forth in Appendix E which is attached hereto and made a part hereof. Payment of such costs and expenses shall be in accordance with the schedule set forth in Appendix E hereof. The Company shall use reasonable efforts to install all Company Interconnection Facilities within the estimated costs set forth in Appendix E and shall inform the Power Producer of the amount and reason for any increase in such estimated cost promptly after Company learns of such cost increase. The Company and Power Producer shall conduct periodic information meetings concerning the construction milestones set forth in Appendix E. If the Company is materially delayed in meeting the milestone dates for any reason, excluding an event of Force Majeure, the Company, following its receipt of the Power Producer's demand for adequate assurance, shall promptly take all reasonable steps necessary to rectify the delay condition. (b) Own, maintain, and operate Company Interconnection Facilities. The Power Producer shall reimburse the Company for all actual and verifiable costs and expenses including, but not limited to, overheads and applicable taxes, directly associated with the maintenance and operation of the Company Interconnection Facilities. (c) Operate and maintain all Company Interconnection Facilities and the Transmission System as part of the single PJM Control Area in accordance with the provisions of the PJM Agreement and PJM Tariff, using due diligence, in accordance with Good Utility Practice. (d) Provide to the Power Producer all design specifications and equipment characteristics for the interconnection of the Facility with the Transmission System. (e) Maintain in full force and effect at the Power Producer's sole cost and expense all 10 permits, licenses, rights of way and other authorizations as may be required to maintain and operate the Company Interconnection Facilities. (f) Upon the expiration of the Agreement and retirement of the Facility, remove all Company Interconnection Facilities at the Power Producer's sole cost and expense less salvage value. 3.2 Unless otherwise required by law, regulation, or Good Utility Practice, the Company shall not be required at any time, at its expense or otherwise, to upgrade or otherwise modify the Transmission System in order to accommodate the interconnection of the Facility with the Transmission System. 3.3 The Company does not guarantee the non-occurrence of, or warrant against, and the Power Producer releases the Company from, any claims or damages associated with: (a) any interruption in the availability of Company Interconnection Facilities or the Transmission System; or (b) damage to the Facility resulting from electrical transients including, without limitation, short circuits (faults), solar magnetic disturbances, or events of Force Majeure, except to the extent caused by the Company's gross negligence or willful misconduct. ARTICLE 4 RESPONSIBILITIES OF THE POWER PRODUCER 4.1 The Power Producer shall: (a) Own, maintain and operate the Power Producer Interconnection Facilities and Protective Apparatus at its sole cost and expense. (b) Maintain in full force and effect at its sole cost and expense all permits, licenses, 11 rights of way and other authorizations as may be required to maintain and operate the Power Producer Interconnection Facilities and Protective Apparatus unless otherwise required by law or regulation. (c) Install, at its sole cost and expense, any and all equipment in order to maintain the reliability of the Facility and all Interconnection Facilities. (d) Subject to any right of the Power Producer, or any entity purchasing the output of the Facility, to schedule and sell ancillary services under the PJM Agreement or the PJM Tariff, operate the Facility in accordance with the appropriate voltage schedules and/or reactive schedules developed as specified in Appendix C. Subject to the foregoing, if the Power Producer fails to operate the Facility in accordance with Appendix C, the Company will provide written notice to the Power Producer of the Company's intent to remedy that failure. If the Power Producer does not promptly commence appropriate action after receiving such notice, the Company may then take necessary action at the Power Producer's expense to remedy such failure, including the installation of capacitor banks or other reactive compensation equipment necessary to ensure the proper voltage or reactive supply at the Facility. The Company shall take, to the extent feasible, reasonable efforts to minimize the impact of such action, in accordance with Good Utility Practice on the operation of the Facility. (e) Make or assure that all necessary arrangements have been made under the applicable tariffs for transmission service (i.e., from the Point of Interconnection to Power Producer's load serving or end use customers), losses, and ancillary services associated with the delivery of the capacity and/or energy produced by the Facility, which services shall not be provided under this Agreement. 12 (f) Obtain capacity and/or energy for the purpose of satisfying the Facility station service requirements or for any other uses by the Power Producer. (g) Make or assure that all necessary arrangements have been made under the applicable tariffs for transmission service, losses, and ancillary services associated with the use of the Transmission System for the delivery of capacity and/or energy to the Facility for the purpose of supplying generation station service or for any other service which is available and/or required under the PJM Tariff or any retail wheeling tariff, including any distribution service tariff or contract, in each case as may be amended from time to time. (h) Operate, install and maintain at its sole cost and expense all equipment required to control the Facility in accordance with Section 6.1. (i) Maintain or cause to be maintained such records relating to the Power Producer Interconnection Facilities as may be required by Good Utility Practice or applicable law. 4.2 The Power Producer acknowledges that this Agreement does not encompass transmission service for the output of the Facility under the PJM Tariff and that, to the extent the Company is required under the PJM Tariff or the PJM Agreement, including any direction of the PJM OI pursuant thereto, to upgrade, reinforce or otherwise modify its Transmission System (other than the installation of the Company Interconnection Facilities) to provide such transmission service on behalf of the Power Producer, the Power Producer will be responsible for the costs of such upgrades, reinforcements or modifications in accordance with the terms of the PJM Tariff, the PJM Agreement or any other applicable PJM agreements. 13 ARTICLE 5 MODIFICATIONS TO FACILITIES, INTERCONNECTIONS 5.1 In the event the Power Producer plans additions, modifications or replacements to the Facility, Power Producer Interconnection Facilities or Protective Apparatus that will increase the Capacity of the Facility, the Power Producer shall submit to the Company any and all plans and specifications that the Company may reasonably request related to such additions, modifications or replacements. Such specifications and plans shall be submitted by the Power Producer not later than eighteen (18) months prior to the respective commercial operation date for additions, modifications, or replacements to the Facility, except as otherwise agreed to by the Company. Any such additions, modifications, or replacements shall comply with the criteria imposed by the PJM OI, the MAAC Reliability Principles and Standards, Good Utility Practice, and the criteria included in Appendix C and Appendix D. 5.2 If the Power Producer plans any additions, modifications or replacements to the Facility, Power Producer Interconnection Facilities or Protective Apparatus that in the Company's view will not increase the amount of Capacity to be delivered to the Company's electrical system, but could reasonably be expected to affect the Transmission System, the Company Interconnection Facilities, the operation of the Facility, the availability of Capacity and/or the delivery of electric energy and capacity from the Facility, the Power Producer shall give the Company reasonable notice, but not less than sixty (60) days prior written notice thereof; provided, however, that the Power Producer shall provide the Company with at least nine (9) months prior written notice, and shall submit to the Company any and all plans and specifications which the Company may reasonably request related to such additions, modifications or 14 replacements which involves Power Producer Interconnection Facilities or which the Power Producer anticipates will result in an outage of the Facility for thirty (30) days or more. All such additions, modifications, or replacements shall: (a) comply with the criteria imposed by the PJM OI, the PJM Agreement, the MAAC Reliability Principles and Standards, Good Utility Practice, and the criteria included in Appendix C and Appendix D; (b) be accompanied by appropriate information and operating instructions; and (c) be subject to review and approval of the Company, which review shall be based on Good Utility Practice. Failure by the Company to object to any such proposed addition, modification or replacement within thirty (30) days and, in the case of the proviso to the first sentence of this Section, ninety (90) days following the Company's receipt of notice thereof shall be deemed acceptance thereof by the Company. 5.3 The Company shall inform the Power Producer of any additions, modifications, or replacements to the Transmission System or the Company Interconnection Facilities that are necessary as a result of the addition, modification, or replacement to the Facility made pursuant to Sections 5.1 or 5.2. The Power Producer shall reimburse the Company for all costs incurred by the Company associated with any modifications, additions, or replacements made to the Company Interconnection Facilities or the Transmission System related to any proposed additions, modifications, or replacements of the Facility to the extent reasonably required by the Company including, but not limited to those necessary to meet different voltage requirements of the Transmission System or to enhance the Transmission System, regardless of whether the expanded Facility enters into (or has entered into) service or is interconnected with the Transmission System. The Company shall provide an estimate as early as practicable. 5.4 The Company's acceptance of the Power Producer's interconnection plans and 15 specifications for any proposed additions, modifications, or replacement of the Power Producer's Facility whether pursuant to this Agreement and the Company's participation in interconnected operations with the Power Producer are not, and shall not be construed as its: (a) confirmation or endorsement of the design of the Facility, Power Producer Interconnection Facilities or Protective Apparatus; (b) warranty of safety, durability or reliability of the Facility or equipment appurtenant thereto; (c) assumption of responsibility for strength, details of design, adequacy, or capability of the Facility, Power Producer Interconnection Facilities or Protective Apparatus; or (d) endorsement or warranty. 5.5 The Power Producer shall modify, at its sole cost and expense (only to the extent responsibility for such costs and expenses are not allocated to the Company or a third party consistent with FERC policy), the Interconnection Facilities and/or Protective Apparatus as may be reasonably required to conform with changes to Good Utility Practice or to conform with additions, modifications, or replacements required by PJM Interconnection L.L.C. 5.6 The Power Producer shall compensate the Company for all reasonable costs and fees required to enable the Company to fulfill its obligations under this Agreement including any tax liability, any costs of acquiring land necessary for the Interconnection Facilities, the costs and fees of all permits, licenses, franchises or regulatory or other approvals necessary for the construction, maintenance and operation of any Interconnection Facilities. 5.7 The Company may undertake additions, modifications, or replacements of its Transmission System or Company Interconnection Facilities. If such additions, modifications, or replacements might reasonably be expected to affect the Power Producer's operation of the Facility, the Company shall provide written notice to the Power Producer in a manner consistent 16 with FERC Order No. 889 prior to undertaking such additions, modifications, or replacements. Any such additions, modifications, or replacements shall comply with Good Utility Practice. The Company shall use reasonable efforts with respect to such addition, modification, or replacement to minimize any adverse impact on the Facility. ARTICLE 6 OPERATION 6.1 The Facility, all Interconnection Facilities and Protective Apparatus shall be operated and maintained in accordance with Good Utility Practice, including, without limitation, those with regard to synchronization, voltage and reactive power control, and in compliance with all permits, licenses, laws, rules and regulations applicable thereto. Operation and maintenance of all Interconnection Facilities shall at all times conform to applicable requirements and guidelines adopted by the PJM OI and the Company as set forth in Appendix C and Appendix D, and modified by the PJM OI and/or the Company respectively from time to time. 6.2 The Power Producer shall be required to comply with the requests, orders, and directives of the Company to the extent such requests, orders or directives are (a) necessary to comply with Good Utility Practice, and (b) in accordance with applicable tariffs and the PJM Agreement. 6.3 In the event the Power Producer believes that a request, order, or directive of the Company exceeds the limitations in Section 6.2, it shall nevertheless comply with the request, order, or directive of the Company pending resolution of the dispute under Article 19. The Parties agree to cooperate in good faith to expedite the resolution of any disputes arising under 17 Sections 6.2 and 6.3. 6.4 If it appears to the Company at any time, in the reasonable exercise of its judgment in accordance with Good Utility Practice, that the operation of the Facility or any Interconnection Facility is adversely affecting or may adversely affect the quality of service rendered by the Company (including transmission or distribution services and services provided to end users), or is interfering or may interfere with the safe and reliable operation of the Transmission System or the regional transmission system, the Company may, upon such notice specified below, disconnect the Facility from the Transmission System and/or curtail, interrupt, or reduce energy deliveries from the Facility until the condition has been corrected. In the event of an Emergency, the Company may immediately take any and all steps it reasonably believes to be necessary to mitigate or cure the Emergency condition including, without limitation, disconnecting the Facility from the Transmission System. The Company shall use reasonable efforts to (i) minimize, to the extent practicable under the circumstances, any such disconnection, curtailment, interruption, or reduction, (ii) provide the Power Producer with prior notification of any such disconnection, curtailment, interruption, or reduction, to the extent practicable, (iii) resume acceptance of electric energy as promptly as practicable following elimination of the condition causing the disconnection, curtailment, interruption, or reduction, and (iv) confer with the Power Producer regarding the interfering conditions that gave rise to the disconnection, curtailment, or reduction. ARTICLE 7 MAINTENANCE NOTIFICATION AND COORDINATION 7.1 The Power Producer shall maintain, at its own expense, the Power Producer 18 Interconnection Facilities and Protective Apparatus. The Company shall maintain the Company Interconnection Facilities. The Power Producer shall reimburse the Company for all actual and verifiable costs and expenses including, but not limited to, overheads and applicable taxes directly associated with the maintenance and operation of the Company Interconnection Facilities. 7.2 In accordance with Good Utility Practice, the Company may remove the Interconnection Facilities from service as necessary, in the reasonable exercise of the Company's judgment, to perform maintenance or testing or to install or replace equipment on the Company Interconnection Facilities or the Transmission System. Unless an Emergency exists or the risk of one in the Company's view is imminent, the Company shall, if practical, give the Power Producer prior notice of the removal. The Company shall use due diligence to restore the Interconnection Facilities to service as promptly as practicable. 7.3 If the Company determines, in its sole judgment, that the Power Producer is maintaining the Power Producer's Interconnection Facilities and Protective Apparatus in a manner which may lead to an Emergency condition, the Power Producer, within thirty (30) days of notification thereof from the Company, shall take all reasonable steps to conform its maintenance practices to the requirements of Good Utility Practice and this Agreement. 7.4 At any reasonable time upon advance notice, each Party shall permit the representatives of the other Party access to the records for its interconnection facilities in order to examine, inspect and test such records. In the event of an Emergency, the Power Producer shall ensure that Company representatives have immediate and unimpeded access to the Power Producer Interconnection Facilities as necessary to address the Emergency in accordance with Good Utility Practice working with the Power Producer. The Power Producer hereby grants to the Company 19 the right to enter upon the Power Producer's property for such purposes. ARTICLE 8 REVENUE METERING 8.1 The Company shall utilize Revenue Meters to measure the electrical energy on an hour-by-hour basis, or such shorter intervals as may be agreed upon, at the Point of Interconnection in order to determine the transfer of energy between the Parties. 8.2 All Revenue Meters shall be of advanced meter design that have an internal recorder and a communications capability that the Company can utilize to retrieve diagnostic messages, the recorded transfer of energy between the Parties, and any other information deemed necessary by the Company. The Power Producer may, at its sole cost and expense, install telemetering or other communications equipment to retrieve such information as is deemed necessary by the Power Producer. 8.3 The Parties shall agree that, if the Revenue Meters and analog equipment and the Point of Interconnection are not at the same location electrically, the metering data shall be adjusted, or the Revenue Meters shall be compensated, as the Company shall deem appropriate, to record delivery of electricity in a manner that accounts for the total (load plus no-load) electrical energy losses occurring between the metering point and the Point of Interconnection, both when the Power Producer is delivering energy to the Company and when the Company is delivering station service energy to the Facility, or for any other use. 8.4 In the event that the Company's Revenue Meters at any time fail to register, or should their registration be so erratic so as to be meaningless, the hourly energy transferred between the 20 Parties shall be determined from the best information available, including, but not limited to, the Power Producer's meters, operator's logs and real-time communications data of the meter results. 8.5 If at any time, any Revenue Meters and analog equipment is found to be inaccurate by a margin greater than that allowed under the applicable criteria, rules, and standards, the Company shall cause the Revenue Meters and analog equipment to be made accurate or replaced at the Power Producer's expense. Meter readings for the period of inaccuracy shall be adjusted insofar as the extent of the inaccuracy can be reasonably ascertained; provided, however, no adjustment shall be made for meter readings made prior to the point in time halfway between the time of the last test that showed the Revenue Meters and analog equipment in question to be functioning accurately and the time the subsequent inaccuracy is corrected, except by agreement of the Parties. 8.6 The Company shall read and report Revenue Meter data to the Power Producer. The Power Producer shall have the right to read the Revenue Meters upon reasonable notice to the Company. 8.7 The Parties shall each keep and maintain accurate and detailed records relating to the Revenue Meters for a period of not less than seven (7) years. Such records shall be made available for inspection by either Party or any governmental agency having jurisdiction with respect thereto during normal business hours upon reasonable notice. 8.8 The Company shall at the Power Producer's expense (i) install, own, maintain, and repair and have the right to change the location of all Revenue Meters, instrument transformers and appurtenances associated with the Revenue Meters, and analog equipment (transducers and telemetry) and (ii) install, own, maintain, and repair all additional or updated metering and 21 associated equipment, as mutually agreed upon by the Parties, needed to update its metering facilities, in accordance with Good Utility Practice. 8.9 The Company shall, at the Power Producer's expense, test all Revenue Meters and analog equipment at such time as Company deems reasonably necessary in accordance with all applicable regulatory requirements or standards. However, all Revenue Meters and analog equipment shall be tested at least once every two (2) years. 8.10 Upon written request by the Power Producer, the Company shall test designated Revenue Meters and analog equipment more frequently than once every two (2) years. In the event a test requested by the Power Producer establishes such Revenue Meters to be registering inaccurately by more than one (1%) percent of full scale, the cost of said test shall be borne by the Company. In all other instances, the cost of any such test, regardless of which Party requests it or the results thereof, shall be paid by the Power Producer. 8.11 The Company shall give reasonable notice to the Power Producer of the time when any Revenue Meters and analog equipment test shall take place, and the Power Producer may have representatives present at said test. Any Revenue Meters found to be inaccurate by more than one (1%) percent of full scale or defective shall be adjusted, repaired or replaced, at the sole cost and expense of the Power Producer. 8.12 The Company shall install, own, and maintain, at the Power Producer's expense, equipment, except for associated telephone link(s) which shall be the sole responsibility of the Power Producer, for real-time communications, real-time reactive power, hourly MWh information, interval revenue data and such other information as the Company or the PJM OI may require. The Power Producer shall install, operate, maintain and repair, at its own expense, an 22 operating telephone link(s) to provide information deemed necessary by the Company or the PJM OI, or as reasonably deemed necessary by the Company, to integrate operation of the Facility with the Transmission System. ARTICLE 9 LAND RIGHTS AND ACCESS 9.1 The Power Producer hereby grants, or confirms its prior grant to the Company, for nominal consideration, all necessary rights of way, easements, and licenses as the Company may require to install, operate, maintain, replace and remove the Company's metering equipment and other Company Interconnection Facilities, including adequate and continuing access rights to the Power Producer's property for any purpose reasonably related to this Agreement. The Power Producer hereby agrees to execute such grants, deeds, licenses, instruments and other documents as the Company may require to enable it to record such rights of way, easements and licenses. ARTICLE 10 INSURANCE 10.1 The Power Producer shall keep the Facility continuously insured against loss or damage in amounts and for risks that property of similar character is usually so insured by entities owning and operating like properties. 10.2 The Power Producer, the operator of the Facility, and their respective successors and assigns shall procure or cause to be procured and shall maintain in effect continuously during the term of the Agreement the following minimum insurance coverages: 23 Type of Coverage Liability Limits - ---------------- ---------------- Worker's Compensation Statutory Employer's Liability $500,000 per occurrence/injury Comprehensive/General $1,000,000 combined single limit, Liability including: each occurrence $2,000,000 aggregate limit applicable for the Facility Bodily Injury Property Damage Blanket Contractual Underground Explosion and Collapse Hazard Products and Completed Operations Hazard Broad Form Property Damage Personal Injury Automobile Liability (Owned, Hired, Non-Owned) Bodily Injury $1,000,000 combined single limit Property Damage Commercial Umbrella Liability $9,000,000 per occurrence following form of Commercial General Liability, Automobile Liability and Employers Liability 10.3 In order to meet changed circumstances or changes in industry practice in a manner consistent with the requirements of Section 10.1, the Company may notify the Power Producer of a proposed change to the types of coverage or the liability limits set forth in Section 10.2. The Parties agree to negotiate in good faith to revise the provisions of Section 10.2 within ninety (90) days of such notice or such other time period as the Parties agree upon for such negotiations. 24 10.4 All insurance policies identified in Section 10.2, except Worker's Compensation Insurance, shall name the Company as an additional insured. 10.5 The Power Producer's liability insurance (other than its Worker's Compensation Insurance) shall include provisions or endorsements (i) stating that such insurance is primary insurance with respect to the interest of the Company and that any insurance maintained by the Company is excess and not contributory insurance with the insurance required hereunder, and (ii) providing that such policies shall not be canceled or their limits of liability reduced except upon thirty (30) days prior written notice to the Company. 10.6 The Power Producer shall provide and shall continue to provide to the Company during the term the Agreement (including any extensions), by delivering to its corporate office at 2800 Pottsville Pike, P.O. Box 16001, Reading, Pennsylvania 19640-0001, Attention: Manager - Transmission Investment Planning, properly executed and current certificates of insurance relative to insurance policies. Certificates of insurance shall provide the following information: (i) Name of insurance company, policy number and expiration date. (ii) The coverage required and the limits on each, including the amount of deductibles or self-insured retentions, which shall be for the account of the Power Producer. (iii) A statement indicating that the Company shall receive at least thirty (30) days prior written notice of cancellation or reduction of liability limits with respect to said insurance policies, and (iv) To the extent applicable, a statement indicating that the Company has been named as an additional insured. 10.7 A copy of each insurance policy, certified as a true copy by an authorized 25 representative of the issuing insurance company, or in lieu thereof or in addition thereto, at the Company's discretion, a certificate in form satisfactory to the Company certifying to the issuance of such insurance, shall be furnished to the Company not less than ten (10) days prior to the interconnection of the Facility and fifteen (15) days prior to the expiration date of each such policy and/or certificate. 10.8 The Company shall have the right to inspect the original policies of insurance applicable to this Agreement at the Power Producer's place of business during regular business hours. ARTICLE 11 PERFORMANCE 11.1 If at any time the Power Producer fails to operate, maintain, administer, or insure the Facility, the Power Producer Interconnection Facilities or Protective Apparatus, the Company may, following prior written notice and the right of the Power Producer to cure such condition within thirty (30) days after the Power Producer's receipt of notice, immediately disconnect the Facility from the Transmission System or otherwise refuse to accept electric energy and capacity for delivery. 11.2 If, in the sole judgment of the Company exercised in accordance with Good Utility Practice, operation of the Facility, the Power Producer Interconnection Facilities or Protective Apparatus endangers the safety of the Company's personnel or the safe operation of the Company's electrical system or the electrical systems of others to which the Company's electrical system is directly or indirectly interconnected, the Company may immediately disconnect the Facility from the Transmission System or otherwise refuse to accept electric energy and capacity for delivery therefrom until such condition has been corrected to the Company's satisfaction in a 26 manner consistent with Good Utility Practice. 11.3 The Power Producer shall be solely responsible for correcting any condition necessitating such disconnection. If the condition is corrected in accordance herewith, the Company shall use reasonable efforts to promptly reconnect the Facility. 11.4 The Parties shall use due diligence to perform their respective obligations under this Agreement. However, in the event that either Party is delayed in or prevented from performing or carrying out its obligations under this Agreement by reason of Force Majeure as defined herein, such Party shall not be liable to the other Party for or on account of any loss, damage, injury or expense resulting from or arising out of such delay or prevention; provided, however, that the Party encountering such delay or prevention shall use due diligence to remove the cause or causes thereof. ARTICLE 12 LIABILITY AND DEDICATION 12.1 Nothing in this Agreement shall be construed to create any duty to, standard of care with respect to, or any liability to any person not a Party to this Agreement. 12.2 Neither the Company nor the Power Producer, nor their respective officers, directors, partners, agents, employees, or Affiliates, shall be liable to the other Party or its Affiliates, officers, directors, partners, agents, employees, successors or assigns, for claims for incidental, special, indirect or consequential damages of any nature connected with or resulting from performance or non-performance of this Agreement, including without limitation, claims in the nature of lost revenues, income or profits or losses, damages or liabilities under any financing, 27 lending, construction, or maintenance contracts, agreements or arrangements to which the Power Producer may be party irrespective of whether such claims are based upon warranty, negligence, strict liability, contract, operation of law or otherwise. The provisions of this section 12.2 shall survive the termination, cancellation, suspension, completion or expiration of this Agreement. 12.3 No undertaking by either Party under any provision of this Agreement shall constitute the dedication of that Party's electrical system, equipment or facilities, or any portion thereof, to the other Party or to the public, nor affect the status of the Company as a public utility corporation. 12.4 The Company does not, by acceptance of the Power Producer's interconnection plans and specifications or by engaging in interconnected operations with the Power Producer, assume any responsibility or liability for damage or physical injury to (a) Company property or electrical equipment; (b) the real or personal property of third persons or corporations not a party to this Agreement; (c) the Facility, real property, equipment and/or facilities and/or any appurtenances thereto of the Power Producer; and (d) any persons who may come into contact with or upon the Facility, real property, equipment and/or facilities(electric or gas) and/or any appurtenances thereto. ARTICLE 13 INDEMNIFICATION 13.1 The Power Producer shall indemnify, hold harmless and defend the Company, and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, partners, subcontractors, invitees and successors, from and against any and all claims, liabilities, costs, 28 damages, losses, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by the Company in any action or proceeding between the Company and a third party, the Power Producer, or any other party) for damage to property, injury to or death of any persons, including the Company's employees or any third parties (collectively, "Company's Damages"), to the extent caused wholly or in part by any act and/or omission, negligent or otherwise, relating to the design, construction, ownership, operation, or maintenance of the Facility, Power Producer Interconnection Facilities and Protective Apparatus used in connection with this Agreement and provided, however; that Power Producer, or its respective Affiliates, and successors, and their respective officers, agents, directors, partners or employees shall not be liable to the Company, its Affiliates, and successors, and their respective agents, officers, directors, partners or employees for incidental, special indirect or consequential damages of any nature connected with or resulting from performance or non-performance of this Agreement. Company hereto will furnish the Power Producer with written notification after the Company becomes aware of any event or circumstances, or the threat thereof (but in no event later than ten (10) days prior to the time any response is required by law), which might give rise to such indemnification. At the Company's request, the Power Producer shall defend (with counsel reasonably acceptable to the Company) any suit asserting a claim covered by this indemnity and shall pay all costs and expenses (including the cost of investigation and attorney's fees and expenses) that may be incurred in enforcing this indemnity. The Company may, at its own expense, retain separate counsel and participate in the defense of any such suit or action. 13.2 The indemnity in Section 13.1 shall apply to all claims against the Company including, but not limited to, all claims made or threatened by, or in the name of or on behalf of the 29 Company's employees for personal injuries (including death) which arise in the course of their employment; provided, however that said indemnity shall not apply to any liability ultimately determined to be based upon the negligence of the Company. The Power Producer hereby waives any defense it may otherwise have under applicable workers' compensation laws. 13.3 In addition to Sections 13.1 and 13.2 above, the Power Producer shall indemnify, hold harmless and defend the Company from and against any and all liability, loss, cost, damage and expense, associated with any and all Federal, State and/or local tax liability, arising out of, resulting from or in connection with Power Producer's payment (or failure to pay) to the Company, of the costs associated with the purchase and installation of any portion of the Company's Interconnection Facilities, Protective Apparatus and/or any and all associated and/or related structures, equipment, facilities and devices in performance of, pursuant to or in connection with this Agreement, including any expense resulting from such payment being deemed to be a Contribution In Aid of Construction ("CIAC") pursuant to U.S. Internal Revenue Service Notices 88-129 and 90-60 (and any future applicable U.S. Internal Revenue Service notices), which Notices are incorporated by reference herein. The foregoing indemnification obligations of the Power Producer shall not, however, apply with respect to any of the equipment or facilities referred to immediately above which the Company has included in its rate base and is collecting revenues from its customers. The Parties expressly acknowledge and agree that Sections 13.1, 13.2 and 13.3 shall survive the termination or expiration of this Agreement. 13.4 Power Producer shall provide the Company with an Independent Engineering Certification (i.e., the professional engineer's seal shall be affixed), as specified in IRS Notice 88-129, attesting that the anticipated power flows through the Interconnection Facilities to the Power 30 Producer for the first ten years commencing with the taxable year in which the Interconnection Facilities are placed in service, (or alternatively, for the first nine years ignoring the year such facilities are placed in service) will comprise no more than 5% of the projected total power flows over the Interconnection Facilities. This engineering certification will be provided to the Company within forty-five days of the execution of this Agreement. In the event this certification is not provided to the Company, the Company retains the right to include the tax gross-up in the final billing for the actual costs of the Interconnection Facilities. In the event the 5% test, as specified in IRS Notice 88-129, is exceeded during any measuring period, described in section 4(A) of Notice 88-129 (a "disqualifying event"), Power Producer agrees to make the Company whole for any increase in the Company's Federal and State income tax liabilities arising from this condition. This increase in the Company's Federal and State income tax liabilities will be determined in accordance with the requirements of IRS Notice 90-60, as amended or supplemented. ARTICLE 14 REPRESENTATIONS, WARRANTIES AND COVENANTS 14.1 The Power Producer hereby represents and warrants as follows: (a) The Power Producer is a limited liability company duly organized validly existing and in good standing under the laws of the State of Delaware and is duly registered and authorized to do business and in good standing in the Commonwealth of Pennsylvania; (b) The Power Producer has all requisite power and authority to carry on the business to be conducted by it and to enter into and perform its obligations under this Agreement; 31 (c) The execution and delivery of this Agreement and the Power Producer's performance of its obligations hereunder have been duly authorized by all necessary action on the part of the Power Producer and do not and will not conflict with or result in a breach of the Power Producer's charter documents or by-laws or any indenture, mortgage, other agreement or instrument subject to receipt of all necessary regulatory approval, or any statute or rule, regulation, order, judgment or decree of any judicial or administrative body to which the Power Producer is a party or by which the Power Producer or any of its properties is bound or subject. 14.2 The Company hereby represents and warrants as follows: (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. (b) The Company has the corporate power and authority to own its properties, carry on its electric utility business as now being conducted, enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (c) The execution and delivery of this Agreement by the Company and the performance of its obligations hereunder have been duly authorized by all necessary corporate action on the part of the Company. (d) This Agreement is the valid and binding obligation of the Company, enforceable with its terms except that, in the Company's view, (i) such enforceability may be limited by applicable bankruptcy, insolvency or similar laws from time to time in effect that affect creditors' rights generally or by general principles of equity, and (ii) contracts entered into by the Company may be subject to the power and authority of state and/or federal regulatory agencies. 32 ARTICLE 15 EVENTS OF DEFAULT 15.1 Any one of the following shall constitute an event of default under this Agreement: (a) A breach of any material term or condition of this Agreement, including but not limited to any material breach of a representation, warranty or covenant made in this Agreement, including the Appendices. Failure by a Party to provide any required schedule, report or notice hereunder may constitute a material breach hereof if such failure is not cured within sixty (60) days after notice to the defaulting Party. (b) The failure or refusal of a Party to permit the representatives of the other Party access to the maintenance records, or its Interconnection Facilities or Protective Apparatus in order to examine, inspect and test such records. (c) A receiver or liquidator or trustee of either Party or of any of its property shall be appointed by a court of competent jurisdiction, and such receiver, liquidator or trustee shall not have been discharged within sixty (60) days; or by decree of such a court, a Party shall be adjudicated bankrupt or insolvent or any substantial part of its property shall have been sequestered, and such decree shall have continued undischarged and unstayed for a period of sixty (60) days after the entry thereof; or a petition to declare bankruptcy or to reorganize a Party pursuant to any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, shall be filed against a Party and shall not be dismissed within (60) days after such filing; or (d) A Party shall file a voluntary petition in bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization 33 petition against it under any similar law; or, without limiting the generality of the forgoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law; or, without limiting the generality of the foregoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a proceeding under any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, or an answer admitting the material allegations of a petition filed against if in such a proceeding; or a Party shall make an assignment for the benefit of its creditors; or a Party shall admit in writing its inability to pay its debts generally as they become due; or a Party shall consent to the appointment of a receiver, trustee, or liquidator of it or of all or any part of its property. (e) The failure of either Party to provide the other Party reasonable written assurance of its ability to perform fully and completely any of its material duties and responsibilities under this Agreement within sixty (60) days of any reasonable request for such assurances by a Party hereto. 15.2 (a) Upon the occurrence of an event of default, the Party not in default may give written notice of the default to the defaulting Party. Such notice shall set forth, in reasonable detail, the nature of the default and, where known and applicable, the steps necessary to cure such default. The defaulting Party shall have sixty (60) days following receipt of such notice either to (i) cure such default or (ii) commence in good faith all such steps as are appropriate to cure such default in the event such default cannot, in the reasonable judgment of such non-defaulting Party, 34 be completely cured within such sixty (60) day period. (b) If the defaulting Party fails to cure such default or take such steps as provided under subparagraph (a) above, this Agreement may be terminated by written notice to the Party in default hereof. This Agreement shall thereupon terminate and the non-defaulting Party may exercise all such rights and remedies as may be available to it to recover damages caused by such default. (c) Notwithstanding the foregoing, upon the occurrence of any such event of default, the non-defaulting Party shall be entitled (i) to commence an action to require the defaulting Party to remedy such default and specifically perform its duties and obligations hereunder in accordance with the terms and conditions hereof and (ii) to exercise such other rights and remedies as it may have at equity or at law subject however to the provisions of Article 12 . 15.3 The Company shall be entitled to operate and/or purchase from the Power Producer such DC power systems, protection and metering circuit components, Supervisory Control and Data Acquisition ("SCADA") equipment, transformers, secondary systems, communications equipment, building facilities, software, documentation, structural components; and other facilities and appurtenances that are necessary for the Company to operate and maintain the Transmission System if: (a) the Power Producer shall commence any case under federal bankruptcy laws or other proceeding under any similar law or any jurisdiction for 35 the relief of debtors, or shall petition or apply for the appointment of a trustee or other custodian, liquidator, or receiver for the Power Producer or for any substantial part of the Power Producer's Facilities; (b) a decree or order for relief shall be entered in respect of the Power Producer in an involuntary case under federal bankruptcy laws or in any other proceeding under any similar law of any jurisdiction for the relief of debtors or a decree or order shall be entered appointing a trustee or other custodian, liquidator, or receiver for the Power Producer or for any substantial part of the Power Producer's Facilities and such a decree or order is not dismissed within sixty (60) days after it is entered; or (c) the Power Producer shall cease its operations for more than thirty (30) consecutive days without having an assignee, successor, or transferee in place. Upon the occurrence of any of the foregoing events, the Company shall give the Power Producer or the Power Producer's assignee, successor or transferee written notice, pursuant to Article 17, of its intent to implement its rights under this Section 15.3, which notice shall specify the actual or alleged failure of the Power Producer to comply with its obligations or duties. If the failure endangers life or property, or impairs or creates a significant risk to the safety, reliability, stability, or integrity of the Transmission System, the Company may implement this Section 15.3 without such prior notice as necessary in its judgment to avert such condition. ARTICLE 16 ASSIGNMENT 16.1 No Party may assign, transfer or otherwise encumber or dispose of this Agreement or any rights, duties, interests or obligations hereunder without the prior written consent of the other Party; provided, however, that the Company may at any time and without the consent of the Power Producer, assign this Agreement together with its rights, interests, duties or obligations hereunder to any Affiliate of the Company or any successor entity; provided, further, that in any event the assignee shall agree to be bound by all of the terms and conditions hereof to the same extent as the Company. Notwithstanding the foregoing, the Power Producer may assign and 36 encumber its respective rights under this Agreement in favor of the Lenders without the consent of the Company. The Lenders may further assign this Agreement to other persons following the prior consent of the Company which shall not be unreasonably withheld. Provided, further, that in any event the assignee shall agree to be bound by all of the terms and conditions hereof to the same extent as the Power Producer. Each Party shall give its consent to assignments made in accordance with this Article in the form reasonably requested by the interested Party. In the event of an assignment without consent as set forth above, the assigning Party agrees to provide the other Party with prompt notice of such assignment. 16.2 In the event of any sale, transfer, assignment, lease or any other disposition of the Facility or any substantial portion thereof by the Power Producer, or upon termination of the Agreement, or termination of any operation at the Facility, the Power Producer hereby agrees to indemnify and hold harmless the Company for any and all costs, expenses, liabilities and damages (including reasonable attorneys' fees) for which the Company may be obligated in order to comply with any applicable requirements of the federal, state, or local regulations. ARTICLE 17 NOTICES 17.1 All notices required or permitted under this Agreement shall be in writing and shall be personally delivered or sent by certified United States mail, postage prepaid, telex, facsimile transmission, or overnight express mail or courier service addressed as follows: 37 If to the Power Producer to: Patricia Rollin Vice President AES Ironwood, L.L.C. 1001 North 19th Street Arlington, VA 22209 If to the Company to: Bradley J. Breidinger Manager - Transmission Investment Planning GPU Energy 2800 Pottsville Pike Post Office Box 16001 Reading, PA 19640-0001 and GPU Energy Legal Department 2800 Pottsville Pike Post Office Box 16001 Reading, PA 19640-0001 or to such other person at such other address as a Party shall designate by like notice to the other Party. 17.2 Unless otherwise provided herein, all notices hereunder shall be deemed to be given when sent pursuant to Section 17.1 mailed or personally delivered. ARTICLE 18 AMENDMENT AND MODIFICATION 18.1 This Agreement may not be amended or modified except by a written instrument signed by each of the Parties hereto. 18.2 Nothing contained in this Agreement shall be construed as affecting in any way the right of the Company to unilaterally make application to FERC for a change in rates, terms and conditions, charges, classification of service, rule or regulation under Section 205 of the Federal Power Act or applicable laws and requirements. 38 18.3 Nothing contained in this Agreement shall be construed as affecting in any way the ability of the Power Producer to exercise its rights under the applicable rules and requirements of the Federal Power Act and pursuant to FERC's rules and regulations promulgated thereunder. ARTICLE 19 DISPUTES 19.1 Any claim or dispute, which either Party may have against the other, arising out of the Agreement shall be submitted in writing to the other Party not later than thirty (30) days after the circumstances which gave rise to the claim or dispute have taken place. The submission of any claim or dispute shall include a concise statement of the question or issue in dispute, together with relevant facts and documentation to fully support the claim. 19.2 If any such claim or dispute arises, the parties shall attempt to resolve the claim or dispute, initially through good faith negotiations or upon the failure of such negotiations, through Alternative Dispute Resolution ("ADR") techniques in accordance with the Model Procedure for Mediation of Business Disputes as published by the Center for Public Resources; however, either Party may terminate its participation in ADR during any stage of ADR and proceed under section 19.3. 19.3 If any claim or dispute arising hereunder is not resolved pursuant to section 19.2, either Party may, upon giving the other Party at least ten (10) days prior written notice, initiate litigation to submit such claim or dispute for decision by a court of competent jurisdiction of the Commonwealth of Pennsylvania in accordance with the laws of the Commonwealth of Pennsylvania. 39 19.4 Nothing in this Article 19 shall restrict the rights of any Party to file a complaint with FERC under relevant provisions of the Federal Power Act. ARTICLE 20 MISCELLANEOUS 20.1 Except as may be otherwise provided herein, the duties, obligations and liabilities of the Parties hereto are intended to be several and not joint or collective. Nothing contained in this Agreement shall ever be construed to create an association, trust, partnership, or joint venture or impose a trust or partnership duty, obligation or liability or agency relationship on or with regard to either Party. Each Party shall be individually and severally liable for its own obligations under this Agreement. 20.2 Any waiver at any time by either Party of its rights with respect to a default under this Agreement, or with respect to any other matters arising in connection with this Agreement, shall not be deemed a waiver with respect to any subsequent default or any other matter. 20.3 All indexes, titles, subject headings, section titles and similar items are provided for the purpose of reference and convenience only and are not intended to be inclusive, definitive or to affect the meaning of the contents or scope of this Agreement. 20.4 The Company shall prohibit its employees from using their official position for personal financial gain, or from accepting any personal advantage from anyone under circumstances which might reasonably be interpreted as an attempt to influence the recipients in the conduct of their official duties. The Power Producer and its employees and representatives shall not, under circumstances which might reasonably be interpreted as an attempt to influence the recipients in 40 the conduct of their duties, extend any gratuity or special favor to employees of the Company. 20.5 This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts made and to be performed in that State, irrespective of the application of any conflicts of laws provisions. 20.6 This Agreement supersedes any and all oral or written agreements and understanding heretofore made relating to the subject matter hereof. 20.7 (a) Upon the Power Producer's written request, the Company shall maintain and not disclose to any Party, except Authorized Parties, as defined below, Confidential Information, as defined below, which is disclosed to the Company by the Power Producer hereunder. (b) For purposes hereof, "Confidential Information" means contracts, insurance policies, documents, plans, drawings, specifications and other information which the Power Producer maintains as confidential and which is clearly so marked or identified when it is disclosed to the Company, except that Confidential Information shall not include information which (i) is available to the public, (ii) becomes available to the public other than as a result of a breach by the Company of its obligations hereunder, (iii) was known to the Company prior to its disclosure to the Company by the Power Producer, or (iv) is required to be disclosed pursuant to statute, rule, regulation or order or any court, governmental authority or regulatory body. (c) For purposes hereof, "Authorized Party" means any officer, employee, representative, agent or attorney of the Company or any officer, employee, representative, agent or attorney of any Affiliate of the Company whose duties include the negotiation, evaluation, approval, performance or administration of this Agreement and who needs to know the Confidential Information in order to perform his duties. 41 20.8 No information relating to this Agreement may be published or released for publication by the Power Producer without the prior written approval of the Company, which shall not be unreasonably withheld; provided, however, that the foregoing shall not restrict the Power Producer from making any filing or public disclosure with respect to this Agreement which may be required by applicable law. 20.9 This Agreement may be executed in any number of counterparts, and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. 20.10 Should any provision of this Agreement be held invalid or unenforceable, such provisions shall be invalid or unenforceable only to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any other provision hereof. 20.11 The Company shall furnish such information, certificates, opinions of counsel, consents to assignment or pledge and other documents and assistance as may be reasonably requested by the Lenders in connection with the financing of the Facility. The Company agrees to negotiate in good faith concerning any reasonable amendment or addition to this Agreement required by any Lender in connection with the financing of the Facility. The Power Producer shall reimburse the Company for any and all costs associated with furnishing such information including reasonable attorneys fees. 42 IN WITNESS WHEREOF, the Parties by their authorized representatives have executed this Agreement as of the day and year first set forth above. ATTEST: AES IRONWOOD, L.L.C. /s/ Alicia Slinn By: /s/ Patricia L. Rollin - ---------------------------- ---------------------------- ATTEST: METROPOLITAN EDISON COMPANY d/b/a GPU ENERGY /s/ William C. Matthews By: /s/ R. S. Zechman - ---------------------------- ---------------------------- 43 APPENDIX A Description of Facility 1. Written Description of the Facility to include the location, type, size and capacity of the Facility 2. Topographical Map to locate the facility 3. One-Line Interconnection Diagram that includes a description of the Company and Power Producer Interconnection Facilities A1 IRONWOOD FACILITY DESCRIPTION Net Facility Capacity at 92F = 655MW +/- 10% Expected Capacity at ISO conditions (59F) = 705MW +/- 10% The Site is located off Prescott Road, in South Lebanon Township, PA. The Site elevation is 507 feet above sea level. With the exception of the twin flue stack and the HRSG drums, all buildings and structures comprising the Facility are not more than 75 feet tall. The Facility main power block consists of two Westinghouse 501G combustion turbine-generators with their associated heat recovery steam generators and ancillary plant, and a single 240MW steam turbine generator with side condensers. The three turbine generators are arranged in the turbine building, which is connected to the control building. The heat recovery steam generators are located outside, to the east of the turbine house. Other plant buildings and structures outside of the main power block include the following: Water Treatment plant Zero liquid discharge facility Cooling towers Fuel oil storage tank (No 1 GT fuel or similar) Fuel oil unloading facilities Gas metering station Gas compressor building Administration building Workshop and store The turbine generators will be nominally rated at 288MVA, 0.9 power factor lagging and can operate at approximately 0.95 power factor leading (measured at the generator), 16kV at 60Hz., 0.53 short circuit ratio, and 60 psi rated hydrogen pressure. The Facility will be capable of operation with a voltage range of +/- 5% on the 230kV system. The Facility will be supplied with three generator start up transformers rated at 300MVA, 16% impedance, with off line tap changing, and two auxiliary transformers. Interconnection with the GPU system will be via a 230kV single bus, single breaker out door substation with two transmission lines. The Facility has no black start capability. A2 TOPOGRAPHICAL MAP AES IRONWOOD [LOCATION MAP GRAPHIC OMITTED] A3 INTERCONNECTION ONE LINE DIAGRAM AES IRONWOOD [TOTAL GENERATING CAPACITY GRAPHIC OMITTED] A4 APPENDIX B Interconnection Facilities The following information is included in Appendix B: 1. Detailed one-line diagram 2. List of equipment 3. Design characteristics It is understood by the Parties that the information contained in Appendix B is preliminary and included to show the general concepts of the Interconnection Facilities. Additional items for interconnection and reinforcement may be identified, the interconnection configuration may change, and specific material items and quantities may change. B1 INTERCONNECTION ONE LINE DIAGRAM AES IRONWOOD [ASSET STRATEGY GRAPHIC OMITTED] B2 EQUIPMENT TO BE PROVIDED BY THE POWER PRODUCER 230kV Switchyard including but not limited to the following Three 300MVA Generator Step Up Transformers Two Station Auxiliary Tranformers Power Circuit Breakers Disconnect Switches Surge Arrestors Instrument Transformers Control and Protective Relay Panels Switchyard Storage Battery Switchyard Battery Charger Low Voltage switchboard Miscellaneous Switchyard Equipment Switchyard Equipment Installation Design and Fabrication of Substation structures Cast in Place concrete for substation structures Excavation and Fill Aggregate surfacing Chain link Fencing Revenue Metering System Back up metering system Voice and Data telephone circuits SCADA system Protective Relaying as required by Appendix D to this Agreement EQUIPMENT TO BE PROVIDED BY THE COMPANY Item 1 - 230 kV Line Tap on Existing North-South Transmission Line West of Project Site Quantity Description 1 Steel Pole Tap Structure Insulators and Hardware Item 2 - Ironwood Substation, 230 kV Switch Yard Quantity Description 1 230 kV 2000A Circuit Breaker (40 kA) 4 230 kV 2000A Disc Switch 2 M.O. Mechanism-230 kV B3 4 230 kV Line Termination 4 230 kV Switch Stand 12 230 kV 1Ph Bus&Stand 2 230kV CCVT, w/Carrier Acc., 1200/2000:1, 0.003 mfd 2 230kV CCVT Stand, 6'0" (Steel) 2 230 kV Wave Trap 6 Chain Link Fence - 100 ft 10 Grading Fill-1000 Cu Yd 1 Grdg-4/0 Per 1000Sq Ft 20 Conduit 100ft 1 Building, 28x36, +Installation, w/Heat Pump 1 125 Vdc Charger (12A) 1 125 Vdc Battery, Rack (60 Cells, 100 Ah) 2 AC Panel and DC Panel 1 RTUs and Telecommunications Equipment 1 Miscellaneous Purchases Relays at Substation: 2 Bitronics Multicomm 2 Bitronics Analog Output Converter 4 ABB FT-1 Test Switch (6 Cur) 2 SEL-321 2 ABB FT-1 Test Switch (10 V) 4 ABB FT-19R (6 CUR, 10 V) 2 GE DLP System 4 Cutler-Hammer Toggle Switch w/Guard 2 GE SBM Switch 2 EMAX RAW-1D 2 Eletroswitch LOR Lockout Relay 2 SEL-501 2 SEL-279 2 GE E150 2 RFL Powerline Carrier System 2 GE Carrier System 1 GE CT51 Receiver Misc.- fuses, lights, wires, etc. 2 Relay Panel Item 3 - Tie 1071 Line to 1001 Line Quantity Description 5 Poles Polymer Dead End Insulators B4 Polymer Post Insulators Guys Feet of 1590 Conductor Lot Misc. Materials Item 4 - Replace 76-1 Line Drop Loops at Fifth & Green (0.84 miles of 69kV) New Conductor New Poles, Crossarms, Insulators, etc. as required Item 5 - S. Lebanon Sub 230 kV Breaker, Terminals & Relaying Quantity Description 1 230 kV 2000A Circuit Breaker (50 kA) 1 230 kV 2000 A Disconnect Switch 1 230kV CCVT, w/Carrier Acc., 1200/2000:1, 0.003 mfd 1 230kV CCVT Stand, 6'0" (Steel) + shipping 1 230 kV Wave Trap 4 Conduit 100ft 20 Control Cable (per 100 FT) 1 Miscellaneous Purchases Relaying at Substation: 1 Bitronics Multicomm 1 Bitronics Analog Output Converter 6 ABB FT-1 Test Switch (6 Cur) 3 SEL-321 3 ABB FT-1 Test Switch (10 V) 6 ABB FT-19R (6 CUR, 10 V) 1 GE DLP System 6 Cutler-Hammer Toggle Switch w/Guard 3 GE SBM Switch 3 EMAX RAW-1D 3 Eletroswitch LOR Lockout Relay 1 SEL-501 1 SEL-279 3 GE E150 3 RFL Powerline Carrier System 1 GE Carrier System Misc.- fuses, lights, wires, etc. 3 Relay Panel B5 Item 6 - North Hershey Sub Relaying Quantity Description 1 Bitronics Multicomm 1 Bitronics Analog Output Converter 2 ABB FT-1 Test Switch (6 Cur) 1 SEL-321 1 ABB FT-1 Test Switch (10 V) 2 ABB FT-19R (6 CUR, 10 V) 1 GE DLP System 2 Cutler-Hammer Toggle Switch w/Guard 1 GE SBM Switch 1 EMAX RAW-1D 1 Eletroswitch LOR Lockout Relay 1 SEL-501 1 SEL-279 1 GE E150 1 RFL Powerline Carrier System 1 GE Carrier System 1 GE CT51 Receiver Misc.- fuses, lights, wires, etc. 1 Relay Panel Item 7 - Lyons Sub 230 kV Breaker and Relaying Quantity Description 1 230 kV 2000A Circuit Breaker (50 kA) 1 230 kV 2000A Disconnect Switch 2 230 kV Wave Trap, 2000A, 100.0-300.0 kHz Blocking 2 230 kV Wave Trap Stand 2 230kV CCVT, w/Carrier Acc., 1200/2000:1, 0.003 mfd 2 230kV CCVT Stand, 6'0" (Steel) + shipping 1 230 kV Wave Trap 5 Conduit 100ft 15 Control Cable (per 100 FT) 1 Lot Conductors 1 High Voltage Relay Panel 1 Miscellaneous Purchases Relaying at Substation: 2 Bitronics Multicomm 2 Bitronics Analog Output Converter 4 ABB FT-1 Test Switch (6 Cur) B6 2 SEL-321 2 ABB FT-1 Test Switch (10 V) 4 ABB FT-19R (6 CUR, 10 V) 2 GE DLP System 4 Cutler-Hammer Toggle Switch w/Guard 2 GE SBM Switch 2 EMAX RAW-1D 2 Eletroswitch LOR Lockout Relay 2 SEL-501 2 SEL-279 2 GE E150 2 RFL Powerline Carrier System 1 GE Carrier System 1 GE CT51 Receiver Misc.- fuses, lights, wires, etc. 2 Relay Panel Item 8 - Middletown Jct. Sub Relaying Quantity Description 2 ABB FT-1 Test Switch (6 Cur) 1 SEL-321 1 ABB FT-1 Test Switch (10 V) 2 ABB FT-19R (6 CUR, 10 V) 1 GE DLP System 2 Cutler-Hammer Toggle Switch w/Guard 1 GE SBM Switch 1 EMAX RAW-1D 1 Eletroswitch LOR Lockout Relay 1 SEL-501 1 SEL-279 1 GE E150 1 RFL Powerline Carrier System Misc.- fuses, lights, wires, etc. 1 Relay Panel Item 9 - S. Reading Sub Relaying Quantity Description 2 ABB FT-1 Test Switch (6 Cur) 1 SEL-321 1 ABB FT-1 Test Switch (10 V) 2 ABB FT-19R (6 CUR, 10 V) B7 1 GE DLP System 2 Cutler-Hammer Toggle Switch w/Guard 1 GE SBM Switch 1 EMAX RAW-1D 1 Eletroswitch LOR Lockout Relay 1 SEL-501 1 SEL-279 1 GE E150 1 RFL Powerline Carrier System Misc.- fuses, lights, wires, etc. 1 Relay Panel RELAY MODIFICATIONS BY SUBSTATION The following relay requirements are based on high-speed clearing for stability reasons up to two (2) busses away from the Ironwood site. In addition to the items listed below, the normal complement of relay communications equipment and miscellaneous equipment will be required. 1. Middletown Junction Substation a. Middletown Junction to South Lebanon Circuit (1004) Install new primary carrier blocking scheme with new carrier set. This scheme does not replace the existing set, but will function as a second high-speed scheme. 2. South Lebanon Substation a. South Lebanon to Middletown Junction Circuit (1004) Install new primary carrier blocking scheme with new carrier set. This scheme does not replace the existing set, but will function as a second high-speed scheme. b. South Lebanon to South Reading Circuit (1074) - Install new primary carrier blocking scheme with new carrier set. This scheme does not replace the existing set, but will function as a second high-speed scheme. c. South Lebanon to AES Circuit - Install dual high-speed carrier blocking schemes. Primary relay SEL-321, back up relay GE DLP, with stuck breaker and reclosing relays. 3. AES Substation a. AES to South Lebanon - Install dual high-speed carrier blocking schemes. Primary relay SEL-321, back up relay GE DLP, with stuck breaker and reclosing relays. b. AES to North Hershey to Lyons (Alburtis) - Install dual high-speed carrier blocking schemes. Primary relay SEL-321, back up relay GE DLP, with stuck B8 breaker and reclosing relays. Install DTR equipment to trip on a signal from Lyons substation. 4. North Hershey Substation a. North Hershey to AES to Lyons Circuit - Install dual high-speed carrier blocking schemes. Primary relay SEL-321, back up relay GE DLP, with stuck breaker and reclosing relays. Install DTR equipment to trip on a signal from Lyons substation. 5. Lyons Substation a. Lyons to North Hershey to AES - Install dual high-speed carrier blocking schemes. Primary relay SEL-321, back up relay GE DLP, with stuck breaker and reclosing relays. Install DTT equipment to send trip signal to North Hershey and AES. b. Lyons to Alburtis - Install dual high-speed carrier blocking schemes. Primary relay SEL-321, back up relay GE DLP, with stuck breaker and reclosing relays. Change DTT equipment to send trip signal to Alburtis. B9 APPENDIX C Transmission Operation Interconnection Requirements C1 GPU Energy's Transmission Operation Interconnection Requirements For Generation Facilities I. DEFINITIONS The definitions set forth in the Generation Facility Transmission Interconnection Agreement are incorporated herein by reference. In addition, the following definitions apply: PJM Manuals - The instructions, rules, procedures and guidelines established by the PJM OI for the operation, planning, and accounting requirements of the PJM Control Area and PJM interchange energy market. Supervisory Control and Data Acquisition (SCADA) - A system of remote control and real-time communications used to monitor and control the Transmission System. Transmission Operator - The Company person(s), who coordinates the day-to-day interconnection and operation of the Facility with the Transmission System. II. POLICY Every Facility which is interconnected with and synchronized to the Transmission System shall at all times coordinate its operation with the assigned Company control center and provide all necessary and requested information and equipment to assure that the Company can operate its electrical system in a safe and reliable manner. Continuous cooperation and communication between the Power Producer and the Company are essential to assure that the Transmission System is operated in a safe and reliable manner. The Power Producer shall develop the operating principles and procedures which shall be coordinated with the Company's requirements, provide the necessary training for all employees, and provide for the necessary communication of information between the Power Producer and the Company. This includes the following: (a) Provide the following information necessary to ensure the safe and reliable operation of the Company's electrical system: (i) a copy of the Power Producer's switching procedures; (ii) a completed Generator Data Form (Attachment 1) for each generating unit, unit step-up transformer and auxiliary transformer. (b) Implement Facility practices and procedures which are consistent with the Company and PJM OI transmission requirements as defined in the PJM Manuals and/or herein. (c) Implement operating principles and procedures which shall be coordinated with C2 the Company's and the PJM OI's requirements for normal operating conditions as defined in the PJM Manuals and/or herein. (d) Implement operating principles and procedures which shall be coordinated with the Company's and the PJM OI's requirements for emergency operating conditions as defined in the PJM Manuals and/or herein. (e) Provide data to the Company regarding the operation and maintenance of the Facility in accordance with the Operating Agreement of PJM Interconnection, L.L.C. III. SYSTEM REQUIREMENTS A. Reliability The Power Producer shall deliver the electric energy generated by the Facility to the Company at the point(s) of interconnection in the form of 3 phase, 60 Hertz alternating current at the nominal system voltage at the point of interconnection. At no time shall the operation of the Facility, including the associated generators or any of their auxiliary devices, result in an electrical output in which individual harmonic distortion exceeds 1% of the Company's voltage wave form or the sum of all harmonics exceeds 1.5% of the Company's wave form, as measured at the point of interconnection. The Facility shall be operated with all of the Power Producer's Protective Apparatus in service whenever the Facility is connected to or operating in parallel with the Company's electric system. B. Switching The Power Producer shall be responsible for switching all equipment it owns, operates or controls. A specified device(s) to isolate the Facility from the Transmission System shall be switched by the Power Producer whenever requested by the Company, and locked and tagged by the Company to provide safety clearance. The Power Producer's switching procedures shall at all times be followed precisely by the Power Producer and be closely coordinated between the Power Producer and the Transmission Operator. The Company shall provide a copy of its written switching procedures to the Power Producer upon request. If requested by the Power Producer, specified Company devices shall be operated and tagged by the Company according to the Company's switching and tagging practices and safety rules. Company switching and tagging practices and safety rules shall apply to (i) all situations involving the Company and (ii) any Power Producer personnel involved with Company switching and tagging. C3 C. Relaying The Facility relaying systems shall be consistent with the PJM OI and Company relaying practices as defined in the PJM Manuals and Appendix D of the Generation Facility Transmission Interconnection Agreement. Any changes to the design and/or setting of the protective relay system shall be subject to the prior review and acceptance by the Company. The relaying system for the Facility shall be sufficient to prevent or limit equipment damage for contingencies (i) within the facility and (ii) external to the Facility and on the Company system. D. Real-Time Communications The Power Producer shall provide data via a SCADA system and an associated, dedicated communications channel to the Company's Energy Management System computer. Data shall include, but is not limited to: MW; MVAR; MWh; voltage; 3 phase amps; and equipment status (i.e., open/close, on/off, etc.). SCADA system and metering shall be consistent with the Company's practices, and compatible with the Company's computer and communication systems. In addition, the Company may require the ability to disconnect the Facility from the Company's system via the SCADA system. It is required that data shall be sent to the Company automatically. In the event that the data is not automatically received by the Company on a temporary basis, the Power Producer shall call the Company with the operating data at intervals specified by the Company. The Power Producer shall correct any problems associated with the failure of equipment within a reasonable time. E. Communications of Information The Power Producer and Transmission Operator shall promptly exchange all information relating to all conditions which affect (or could affect) the operations of the Facility and/or the Company's electrical system and facilities. The Power Producer shall provide adequate and reliable telephone communication channels, manned by responsible personnel, to integrate the Facility operation with the system under both normal and emergency conditions. The Power Producer shall communicate the outage of any electrical equipment connecting the Facility to the Company's system in accordance with the following requirements: a. Each Facility will be assigned one of the Company operations centers as its primary contact. This assignment is based upon the voltage level of the connection to the Transmission System and the geographic location of the Facility. C4 b. All planned and maintenance outages of electrical equipment requiring Company personnel involvement must be requested by the Power Producer, providing the appropriate information in a format as defined by the Company and shown on Attachment 2. c. Advance notifications of planned and maintenance outages shall conform to the requirements as defined in the PJM Manuals. The Power Producer shall keep and maintain accurate and complete records for Power Producer Interconnection Facilities containing such information regarding the operation and maintenance of all equipment as is appropriate and consistent with industry practice and as may be necessary for the Company to comply with its applicable requirements. The Company will advise the Power Producer of such requirements as in effect from time to time. The Power Producer shall make such records available to the Company for inspection and copying from time to time as the Company may reasonably request. IV. NORMAL OPERATION REQUIREMENTS A. Generator Governor Control For any Facility engaged in parallel operation with the Company, the Facility shall: 1. Operate on automatic governor control, except for the periods immediately before generating equipment is being removed from service and immediately after it has been placed in service, and 2. Minimize governor outages during periods of operation. B. Synchronization and Disconnection Procedures When synchronizing the Facility to or disconnecting the Facility from the Company's electrical system: 1. The Power Producer shall obtain the Transmission Operator's prior approval (i.e., at least 30 minutes), except that equipment may be disconnected from the system without Company approval to prevent injury to personnel or equipment damage. If for any reason the disconnection occurs without prior Company approval, the Power Producer shall immediately notify the Transmission Operator as to the energy reduction and the expected return time. 2. In order to support the Transmission Operator's responsibility to plan and operate the normal and emergency operations of the transmission system, the Power Producer shall keep the Transmission Operator informed at all times of the Facility's availability or any change(s) to its status. C5 C. Voltage and Reactive Control Procedures 1. The Power Producer shall operate the Facility with automatic voltage regulation equipment in service at all times, except for outages of the regulator for maintenance or equipment failure. Such operation will normally involve a prescribed voltage limited to +/- 1% of schedule. The Power Producer, at the option of the Company, shall operate the Facility either (i) according to a predefined voltage schedule provided by the Company or (ii) according to a reactive power schedule as provided by the Company, consistent with the Facility's generation capability and the Company's electrical system. From time to time, the Company may request alternate schedules consistent with the Facility's generation capability and the Company's electrical system. 2. The Power Producer shall notify the Transmission Operator prior to performing all voltage regulator maintenance. The Power Producer shall notify the Company of the outage with as much lead time as possible. The Power Producer shall minimize the duration of regulator equipment outages. The Power Producer shall notify the Transmission Operator at least 30 minutes prior to removing the voltage regulator from service, or returning the voltage regulator to service. 3. The Power Producer may be requested by the Company to deviate from prescribed voltage or reactive power schedules if, in the Company's sole judgment, conditions warrant such changes including, without limitation, operating the Facility in the leading, lagging, or unity power factor mode, but within the capability of the machine. 4. The Power Producer shall operate automatic voltage regulation to a tolerance of +/- 1% of scheduled voltage, except for regulator maintenance outages or equipment failures, or conditions prevailing on the system and/or the Power System which necessitate other voltage levels. 5. The Power Producer shall provide manual voltage regulation to maintain the prescribed voltage schedule or reactive power schedule during voltage regulator equipment outages. 6. Momentary voltage fluctuations shall be permitted, provided that they neither disturb service provided by the Company or the Power Producer on their respective systems nor hinder the Company from maintaining proper voltage conditions on their respective systems. D. Maintenance Scheduling 1. The Power Producer shall provide the Company with at least thirty (30) days prior written notice of its intent to take a Generator Planned Outage C6 or Generator Maintenance Outage of the Facility, including turbine, generator, and boiler overhauls or inspections, testing, and nuclear refueling. 2. The Power Producer shall provide the Company with at least thirty (30) days prior written notice of its intent to test Protective Apparatus associated with Power Producer Interconnection Facilities, including circuit breakers, relays and auxiliary equipment. Company personnel may observe such testing. 3. The Power Producer shall notify the Transmission Operator of its intent to remove electrical equipment from service by 10:00 a.m. five (5) working days prior to, and again 30 minutes before the Generator Planned Outage or Generator Maintenance Outage begins. The Transmission Operator may request the Power Producer to delay or reschedule the Generator Planned Outage or Generator Maintenance Outage if system reliability conditions warrant. To the extent practical, the Company shall provide to the Power Producer not less than one week advance notice of its intention to perform planned maintenance on its facilities that may affect the Facility's operations. The Company shall notify the Power Producer when any changes occur. E. Power Producer Generator Forced Outages The Power Producer may remove any of its equipment from service without prior notification to the Transmission Operator due to a Generator Forced Outage. However, if the Power Producer has advance knowledge of a Generator Forced Outage, the Power Producer shall notify the Transmission Operator with as much lead time as practical. For reliability reasons the Power Producer shall notify the Transmission Operator as soon as reasonably possible of the following: - the starting time of the Generator Forced Outage - the energy reduction resulting (or expected to result) from the Generator Forced Outage - the estimated time the equipment incurring the Generator Forced Outage is expected to return to service - the time the Power Producer equipment is actually returned to service. F. Facility Equipment and Contract Data In order to ensure that all Company personnel responsible for the design and operation of the Company's system affected by the Facility are familiar with its equipment configurations, capabilities and operating parameters, the Company may from time to time request, and the Power Producer shall provide in a timely manner to the Company, detailed information about the type, nature, and operating characteristics of the Facility and all related equipment. C7 V. EMERGENCY OPERATION REQUIREMENTS The Power Producer and Company shall maintain communications and contact during all Company or PJM emergency operations. A. System Emergency Conditions During an Emergency, as determined/declared by the Company or the PJM OI, the Power Producer shall respond as promptly as possible to all directives from the Transmission Operator with respect to all matters affecting the operation of the Facility including, without limitation, the following: a. Thermal overload of electrical circuits (actual or contingency) b. High or low voltage conditions (actual or contingency) The Transmission Operator may also direct the Power Producer to (i) adjust (increase or decrease) the Facility energy and/or reactive output (ii) connect or disconnect the Facility from the Company's electrical system and/or (iii) deviate from the prescribed voltage or reactive schedules. If safety or system reliability conditions warrant, the Transmission Operator may isolate the Facility from the Company's electrical system without prior notice to the Power Producer or upon such notice as is possible under the circumstances. The Transmission Operator shall advise the Power Producer as soon as possible of any forced outages of the Company's electrical system which affect the Facility's operations. When the Transmission Operator has determined that the emergency conditions have been alleviated, he/she shall inform the Power Producer and allow the Facility to return to normal operations consistent with Good Utility Practice. In order to safely and rapidly restore the Transmission System following an outage of any or all of that system, a Facility that has been isolated from the Company's electrical system shall be allowed to reconnect only under the direction of the Transmission Operator. In all cases, the Facility shall be made ready to return to service and provide energy to the Company as soon as possible. Unless the Company requests a manual adjustment, the Power Producer shall maintain the Facility automatic voltage regulator in service during an Emergency. The Power Producer shall participate in any voltage reduction declared by the Company at any time, and operate the Facility at the voltage level then requested by the Transmission Operator. C8 Appendix C Attachment 1 Generator Data Form ------------------- Station Name ________________________ Unit No. __________ Generator ____________________ Rated Capacity __________ MVA Operating Limits: Minimum KV _________ Maximum KV _________ Alarm Limits: Minimum KV _________ Maximum KV _______ Alarm Action: Minimum: ___________________________ Maximum: ___________________________ Max. Output (Installed Capacity) ________ MW Max. Gross Output ________ MW Capability LAG Curve Breakpoint __________ MW __________ MVAR Rated Stator Voltage _______ Rated Stator Current _______ Amps Generator Terminal Voltage - High Limit ______ Low Limit ______ Rated Field Current _________ Amps D.C. @ _________ Volts D.C. Rated Hydrogen Pressure _______ PSIG Power Factor _________ Field Current High Limits: Rated ________ Amps D.C. Field Voltage High Limits: Rated ________ Volts D.C. Maximum: _______ Volts Field Limit Alarms: Volts _______ Amps _______ Temp. _______ Alarm Action: Volts _______________________________________ Amps _______________________________________ Temperature _______________________________________ Line Drop Compensation: Type ________________________________ Setting _______________________________ Generator Stator Current High Limit _________ C9 System Voltage: Nominal KV _______ Min. _______ Max. _______ Alarm Limits: Minimum _____________ Maximum ________________ Alarm Action: Minimum _______________________________________ Maximum _______________________________________ Other Limitations ___________________________________________________ Misc. Important Information ________________________________________ ________________________________________________________________________________ Generator Unit Step-Up Transformer Data --------------------------------------- Station Name ________________________ Unit No. __________ Unit Step-Up Transformer __________________________ Phase ________________ Connection _____________ __________ Class ________________ Rated Capacity ________ MVA at __________ C Rise ________ MVA at __________ C Rise Rated Winding Voltage: (Primary) _________ KV (Secondary) _________ KV Available Taps/Impedance (Xt at Rated MVA) ------------------------------------------ Position Primary KV Secondary KV Impedance % Max. Amps - -------- ---------- ------------ ----------- --------- ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ C10 Alarm Limits: KV _______________________ Amps _______________________ MVA _______________________ Temperature _______________________ Primary Tap Setting ___________ Secondary Tap Setting ___________ Voltage Limits (if applicable) Primary ____________ Secondary ____________ Loading Limitations (if any) ________________________________________________________________________________ ________________________________________________________________________________ __________ Auxiliary Transformer Data -------------------------- Station Name __________________________ Unit No. __________ Auxiliary Transformer ________________ Connection _______ _______ Class ________________ Rated Capacity _______ MVA at __________ C Rise _______ MVA at __________ C Rise Rated Winding Voltage: (Primary) _________ KV (Secondary) _________ KV Available Taps/Impedance (Xt at Rated MVA) Position Primary KV Secondary KV Impedance % Max. Amps - -------- ---------- ------------ ----------- --------- ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ ________ __________ ____________ ___________ _________ C11 Alarm Limits: KV _______________________ Amps _______________________ MVA _______________________ Temperature _______________________ Primary Tap Setting ___________ Secondary Tap Setting ___________ Automatic Tap Changer Range ______________ to _____________ Volts Raise Positions _____________ Lower Positions _____________ Voltage Limits (if applicable) Primary High ____________ Low ____________ Secondary High ____________ Low ____________ Load at Max. Generation _________ MW _________ Amps (Avg) _________ MVAR _________ Volts Load at Min. Generation _________ MW _________ Amps (Avg) _________ MVAR _________ Volts Loading Limitations (if any) ________________________________________ _____________________________________________________________________ ____ C12 Miscellaneous Information Required ---------------------------------- 1. A copy of the Generator Reactive Capability Curve 2. A copy of the Generator VEE Curve 3. A copy of the Generator Saturation Curve 4. A report of any special Operating Restrictions - such as vibration or field problems 5. A report of any Environmental Restrictions - such as SO2 emissions or river flow or temperature 6. A report of any known limiting facilities C13 APPENDIX C ATTACHMENT 2 APPLICATION FOR PROTECTIVE TAGGING ON LINES OR EQUIPMENT Date Submitted _________ W.O. No. ______________ Application No.___________ APPLICANT: - ---------- Switch-Hours_____ Date____ Day_____ Finish-Hours A_______ Date______ Day ____ Start-Hours_____ Date____ Day_____ Finish-Hours A_______ Date______ Day ____ Apparatus/Line Requested:____________________________________________________ Location:____________________________________________________________________ _____________________________________________________________________________ Work to be done:_____________________________________________________________ _____________________________________________________________________________ Switches Required:___________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Remarks:_____________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Emergency Clearance Time ___________________ Truck or Phone No. _____________ Tags Placed For ____________________________ Signed__________________________ Can Do The Required Switching? Yes No Counter Signed________________ Out of Service Overnight? Yes No ________________________________________________________________________________ SYSTEM OPERATOR: - ---------------- Switches to be Tagged:_______________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ System Operator Approval (1) ____________________ (2) _______________________ ________________________________________________________________________________ Date _______ Clearance @ _______ By __________ Clear @ __________ By ________ Date _______ Clearance @ _______ By __________ Clear @ __________ By ________ Date _______ Clearance @ _______ By __________ Clear @ __________ By ________ Date _______ Clearance @ _______ By __________ Clear @ __________ By ________ Date _______ Clearance @ _______ By __________ Clear @ __________ By ________ Application Completed @ ___________ Date _______ Date _______ Time ________ Party Notified _________ By ______ Remarks _______ Date _______ Time ________ Party Notified _________ By ______ Remarks _______ Date _______ Time ________ Party Notified _________ By ______ Remarks _______ Date _______ Time ________ Party Notified _________ By ______ Remarks _______ C14 APPENDIX D System Protection and Control Interconnection Requirements D1 GPU ENERGY'S SYSTEM PROTECTION AND CONTROL INTERCONNECTION REQUIREMENTS Revised: November 17, 1997 A. Definitions GPU Energy - The trade name used individually and collectively by the three operating electric utilities in the GPU System (i.e., Jersey Central Power and Light Company, Metropolitan Edison Company, and Pennsylvania Electric Company). GPU System - The transmission and distribution facilities owned by GPU Energy. Generation Facility - A facility for generating electricity which is connected to the GPU system. Generation - The electrical energy being produced by: rotating generators driven by steam turbines, internal combustion engines, hydraulic turbines, windmills, etc; fuel cells, photovoltaic or battery arrays with a DC or AC inverter; or any other electric generating device. Power Producer - The owner or operator of the Generation Facility. B. Objectives This document was prepared to assist GPU Energy engineers and Power Producers when planning protection and control requirements for interconnection between GPU Energy and the Generation Facility. To ensure all proposed installations are handled uniformly and to minimize the possibility of misinterpreting GPU Energy / /s requirements, this document outlines the minimum protection requirements for the safe and effective operation of this interconnection, and provides technical and administrative guidelines. C. General Policy The minimum protection requirements stated in this document are intended to achieve the following goals: - Insure the safety of the general public and GPU Energy personnel. - Minimize the possible damage to the property of the general public, GPU Energy , GPU Energy customers, and neighboring utility systems. - Minimize adverse conditions on the GPU System. - Permit the Power Producer to operate its generating equipment in parallel with the GPU System in a safe and reliable manner. D2 In order to achieve these goals, certain protective devices (relays, circuit breakers, etc.) must be installed to promptly disconnect the Generating Facilities from the GPU System whenever a fault or abnormality occurs. The determination of what type of protective devices are required depends primarily on three (3) major factors: 1) The type and size of the Generation Facility. 2) The location of the Generation Facility on the GPU System. 3) The manner in which the installation will operate. In addition to the protective devices, certain modifications and/or additions may be required to be made to the GPU System due to the addition and/or modification of the Generation Facility. Each request will be handled individually, and the final determination of the protective devices, modifications, and/or additions required will be made by GPU Energy. Any modifications to the GPU Energy distribution or transmission systems necessitated by these changes to the Generation Facility will be specified, purchased, and installed by GPU Energy at the expense of the Power Producer. GPU Energy will work with the Power Producer to achieve an installation which meets the requirements of both the Power Producer and GPU Energy. GPU Energy cannot assume any responsibility for protection of the Generation Facility's generating equipment, or any portion of the Generation Facility's equipment. The Power Producer is solely responsible for protecting its equipment in such a manner that faults, imbalances or other disturbances on the GPU System do not cause damage to the Generation Facility's equipment. It is the responsibility of the Power Producer to comply with all applicable Federal, State, and Local Regulatory Agencies and all electrical and safety codes. Further, the Power Producer may be required, in GPU Energy?s sole and exclusive judgement, to retrofit its interconnection protection systems due to obsolescence, operational problems, enhancements in microprocessor/solid state technology leading to improved sensitivity, modifications to the GPU system or the Generation Facility, and in accordance with the most recently published industry standards and practices. Any interconnection of a Generation Facility to the GPU System must not impair the quality and quantity of transmission or distribution service available to its customers, create reliability problems, or interfere with the operation and economic dispatch of power sources in which GPU Energy has entitlement or with GPU Energy?s ability to carry out its obligations under pre-existing agreements. A Generation Facility will not be permitted to be connected to the GPU Energy low voltage (< 1 kV) looped network system. A GPU Energy controlled disconnecting device is required on the GPU Energy side of all Generation Facility interties. A Generation Facility's disconnecting device used to isolate the facility's generation from the GPU System shall be blocked from closing in on a de-energized utility circuit. The Power Producer is responsible for properly synchronizing its generation with the GPU System. D. Review Process In order to process all Power Producer requests in an efficient and con-sistent manner, the following Review Process for Protection Requirements must be followed. 1. Preliminary Protection Requirements Review The GPU Energy System Relay and Control Engineering Department will have primary responsibility for D3 the review and comment of all required protection design and associated settings. The following information shall be supplied to GPU Energy : a) Detailed One-Line Diagram of entire Generation Facility system. b) A potential schematic of Generation Facility. c) A current schematic of Generation Facility. d) A control schematic of Generation Facility. e) A connection diagram indicating all external connections to individual components of the protective scheme. f) A three-line diagram of Generation Facility. g) Instruction manuals for all protective equipment. Component specifications and internal wiring diagrams shall be included if not provided in manuals. h) All protective equipment ratings. i) Generator data, complete Attachment 2. j) Equipment specifications and details of transformers, circuit breakers, current transformers, voltage transformers, and any other major equipment or special items. k) Specific setting information on all the Generation Facility's protective relays associated with the generator protection and generator step-up transformer protection or auxiliary transformer protection. One set of all the above information is required. GPU Energy may in its discretion require that meeting(s) be held between GPU System Relay and Control Engineering personnel and the Power Producer's Consulting Engineer, Contractor, etc. during this process. Upon completion of the Preliminary Protection Requirements Review process, the Power Producer's representative will be notified of any modifications and/or additions, required to the GPU System or to the Generation Facility. The Power Producer's representative shall also be notified by GPU Energy that the Preliminary Protection Requirements Review process is to be accomplished in a timely manner and that it must represent an as accurate as possible determination of protection requirements, however the Power Producer's representative shall be notified that the information submitted will be subject to change modification and/or addition by GPU Energy, in its sole and exclusive discretion. 2. Final Protection Requirements Review The Final Protection Requirements Review process will proceed in the same manner as the Preliminary Protection Requirements Review process outlined in Section D-1 above. The information identified in Section D-1, including any modifications and/or additions made by GPU Energy during the Preliminary Protection Requirements Review process, will be required in triplicate. The Instruction manuals for all protective equipment required pursuant to Section D.1.(g) must contain at least one vendor original copy. All information supplied for this review process shall be Final\As-Built submittal information. Upon GPU Energy's completion of its initial review of the Power Producer's final submittal, the Power Producer's representative will be notified of any final modifications and/or additions required to the GPU System or to the Generation Facility. Upon the Generation Facility's satisfactory completion, as determined by GPU Energy in its sole and exclusive judgement, of any required final modifications and/or additions, GPU Energy will notify the Power Producer's representative that the Final Protection Requirements Review process has been completed. D4 E. Design Consideration 1. Automatic Reclosing The need for automatic reclosing modifications is directed towards protection of the GPU System and the equipment of GPU Energy customers from potential damage. It is the Power Producer's responsibility to evaluate the potential effect of GPU Energy's reclosing practices on its generator and to provide suitable protection. GPU Energy normally provides automatic multiple shot reclosing with no intentional time delay on the first shot on all distribution line circuit breakers. Additionally, automatic sectionalizing for faults is provided on the distribution system with electronic and hydraulic reclosers that reclose in approximately 2 seconds following a trip operation. To protect both GPU Energy and GPU Energy customers' equipment from possible damage due to out-of-phase reclosing, the substation distribution line circuit breaker and the line reclosers may have to be modified, at the expense of the Power Producer, with voltage check relays unless the size and characteristics of the generator indicate that immediate reclosing would not be hazardous to the GPU System. These relays will block reclosing until the parallel generation on a line or line section is de-energized. Lines operated at 34.5 kV Delta and above also utilize multi-shot automatic reclosing with the first shot delayed approximately 20 cycles. Reclosing logic for these lines must be modified, at the expense of the Power Producer, to include synchronism checking. 2. Protection Requirements Typical protection is illustrated in Appendix A Figures 1 and 2 inclusive. The design of the Isolation and Fault Protection shall be based upon a single failure philosophy, i.e., the failure of any single component shall not render the protection inoperative. Isolation and fault protective relays shall be purchased, installed and owned by the Power Producer. The required fault and isolation protection shall be utility grade and conform to the most recent ANSI Standard C37.90. Only solid state/microprocessor based relay models are acceptable. Isolation Protection All relay settings associated with the Isolation Protection shall be specified by GPU Energy. GPU Energy shall have exclusive control and access to the Isolation Protection. a) Undervoltage (27) with Time Delay (62). Relay to be set at approximately 90% of nominal voltage (108 secondary volts on a 120 volt base). Time delay to be set at approximately 2.0 seconds in order to provide coordination with motor starting and system faults. b) Overvoltage (59) with Time Delay (62). Relay to be set at approximately 110% of nominal voltage (132 secondary volts on a 120 volt base). Time delay to be set at approximately 2.0 seconds to over-ride relay response to transients and external fault clearing which may cause nuisance operations. c) Overfrequency (81O). Relay to be set at 60.5 Hertz with no intentional time delay in its operation. D5 d) Underfrequency (81U) with Time Delay (62). Relay to be set at 57.5 Hertz with a 5.0 second time delay. This setting is necessary in order to coordinate with GPU Energy 's system loadshedding underfrequency relaying. GPU Energy , as a member of the Pennsylvania- New Jersey-Maryland Interconnection (PJM) agreement, has agreed to trip generators connected to its system at a frequency of 57.5 Hertz after a delay of 5.0 seconds. Therefore, the Power Producer must also comply with this agreement. The Power Producer is responsible to insure that setting is compatible with all equipment purchased, installed and operated at the Generation Facility. Fault Protection Generation Facility's fault protection shall coordinate with GPU System protective devices for faults. All fault protection settings are to be specified by the Power Producer and approved by GPU Energy for coordination purposes only. e) Out-of-Step Relaying (21 ZOS). Relays maybe required to isolate the generator from the GPU System during unstable conditions. The need for out-of-step relaying will be based on the results of stability studies. The Power Producer will be responsible for providing the appropriate relay and settings. f) Synchronism Check (25). A synchronism check relay will be required on all breakers that may be used to synchronize the generator to the system. The synchronism check relay shall be capable of being set for an angular difference of 10-60 degrees and have an internal timer function allowing a time delay setting between 0.5-5 seconds. The relay chosen must also have an optional hot-bus dead-line; dead-bus hot-line accessory. g) Non-directional phase overcurrent (50/51), non-directional ground overcurrent (50/51G), and non-directional neutral overcurrent (51N) relays. Where high-side of transformer (GPU System side) is connected to the GPU System via a device other than a fuse, the above mentioned protective relays are required. Current transformers for the 50/51 and 50/51G relays shall be located on the high-side of the transformers protective device (breaker, circuit switcher, etc.) If high-side grounding of the transformer is provided, the 51N relay shall be connected to a current transformer installed in the neutral connection of the transformer. h) Voltage controlled time overcurrent relays (51V). In applications where the Generation Facility is interconnected to GPU Energy's distribution system (34.5 kV Wye and below), voltage - controlled time overcurrent relays must be provided. These relays shall be connected to current transformers located on the generator or its associated breaker. These relays shall receive potential from the generator voltage transformers. i) System backup impedance (21) relay(s). In applications where the Generation Facility is interconnected to GPU Energy's transmission system (34.5 kV Delta and above), an impedance relay must be provided as a backup function to clear faults on the GPU Energy System. This relay(s) shall be connected to current transformers located on the generator or its associated breaker. These relays shall receive potential from the generator voltage transformers. An external timer (0.1 - 5.0 sec) must be provided if not provided internal to the impedance relay design. Time delay will be typically set between 1.0 and 2.0 seconds. F. CONTROL SYSTEMS The Power Producer has the option to use either an AC or DC control system, as described below. 1. AC SYSTEM D6 The AC control system supply must use 60 Hz power derived from the GPU Energy line. The system must be designed to be fail-safe and the failure of any single component must result in a trip of the generator breaker. NOTE: In AC powered schemes, the generator breaker will probably be a contactor. In such cases, a latching contactor is not acceptable. The AC System shall use continuously energized auxiliary relays with contacts arranged to trip the generator circuit breaker whenever the relays drop out. If a molded case circuit breaker (or equal) is used, it must be equipped with an undervoltage trip option. All installations must isolate (trip) the generator in such a manner that: a manual operation or a time-delayed automatic synchro-check or voltage check supervised operation is required to close the generator or point-of-contact breaker (contactor) after the GPU Energy source has returned to normal. Under no circumstances is the generator contactor (breaker) to close immediately upon restoration of the GPU Energy source. A white lamp should be provided to monitor the AC source and shall have a nameplate. 2. DC SYSTEM This system must use a battery of 48 or 125 VDC to supply tripping energy to the generator circuit breaker. All such installations must isolate (trip) the generator in such a manner that: a manual operation or a time-delayed automatic synchro-check or voltage check supervised operation is required to close the generator or point-of-contact breaker (contactor) after the GPU Energy source has returned to normal. Under no circumstances is the generator contactor (breaker) to close immediately upon restoration of the GPU Energy source. An amber or yellow lamp shall provided to monitor the DC source and shall have a nameplate. G. TARGETS All protective relays shall be equipped with targets that indicate operation. These targets are to be arranged in the D7 control circuit to operate only when the associated relays trip the generator or point-of-contact circuit breaker. H. REMOTE TERMINAL UNIT (RTU) For all Generation Facility installations, a Remote Terminal Unit (RTU) will be purchased and installed by GPU Energy at the expense of the Power Producer. This RTU will utilize the CDC II protocol and provide the necessary point counts required by the Energy Management System (EMS) of GPU Energy to operate and monitor the generation and interconnection facilites at the Generation Facility site. Point count will include, but not be limited to, analog, MWH, control, and status. The Power Producer will provide an indoor weather controlled location to mount an RTU and supply a four (4) wire data telephone circuit in order for the RTU to communicate with the GPU Energy EMS. Furthermore, a telephone and telephone circuit must be provided in the location of the RTU in order that GPU Energy personnel may communicate with the distribution or transmission operator for installation and maintenance purposes. If necessary, provisions shall be made at the bottom of each enclosure to allow all cables to be wired to the RTU. The Power Producer must also supply the power necessary for the RTU. The supply power can be, but not limited to, 125 VDC, 120 VAC, and 48 VDC. I. GROUNDING Neutral and ground are not to be confused. All current and potential neutrals are to be isolated from all other circuits. Each neutral is to be grounded at one point only. The preferred grounding location will be at the protective relay cabinet, on the internal side of the States links. J. WIRING All wiring must agree exactly with schematics and wiring drawings. All wires must be anchored to the cabinet or bundled when running between devices. Bundling is permitted but all wiring must be traceable. Wiring must be installed so that it can be visually traced and checked. Use of conduit, or equal, wire trough is generally acceptable but must be verified with GPU Energy. Wiring shall be installed so as to avoid damage to the cable and its insulation. Movement of the hinged panel shall not damage the cable or its insulation or cause stress to the termination points on the panel or on the door. Wiring and device location shall not prevent the removal of any equipment, block access to equipment for inspection and maintenance, nor block spare space in the cabinet. All equipment shall be mounted and wired in such a manner that no energized terminals or connections are exposed or accessible to personnel with the hinged relay panel in a closed position. Any protective relay not equipped with internal isolation device must be connected through an external test device (i.e., ABB FT-1 or sliding link terminal blocks as determined and approved by GPU Energy .) All incoming and outgoing cables/conductors will terminate on sliding link terminal blocks located in the protective relay cabinet. D8 Terminal blocks shall be the States Company Type NT or equivalent. The incoming side shall have one (1) nut, for mounting incoming cables. The internal panel side shall have double nuts for mounting of internal wires and marker tags. Marker tags should carry wire or cable conductor identification. Terminal blocks shall be mounted such that the connections and lines are accessible and not blocked by projecting equipment. Terminal blocks shall be mounted a minimum of 6" from side walls and adjacent equipment and a minimum of 4" above the bottom of the housing. Terminal blocks shall be mounted such that the sliding link: Falls closed when loosened, if mounted in horizontal rows; Moves toward the front of the cabinet when opened, if mounted in vertical rows on side panels; Moves away from the panel centerline when opened, if mounted on the rear panel. There shall be a minimum of 10% or 2, whichever is greater, spare terminals included in the cabinet for modifications. Pressure type connections with insulated sleeves shall be used. Ring tongue lugs which completely encircle the screw or the stud shall be used. The crimping tool must be one approved by the Manufacturer for use on the connector. No soldered terminals or connections shall be used. K. DRAWINGS CONTENT 1. One-Line Diagram This drawing shows the functional arrangement, using single line and standard symbol notations (per ANSI 432.2-1970, 41.1-1972) for the following equipment and accompanying information: a) Equipment Names and/or Numerical Designations for all circuit breakers, contactors, switches, transformers, generators, transmission lines, etc., associated with the generation as required by GPU Energy to facilitate switching. b) Power Transformers - Name or designation, nominal KVA, nominal primary, secondary, tertiary D9 voltages, vector diagram, impedance and tap settings. c) Station Service/Operating Transformers - Designate phase(s) connected to, and estimated KVA load. d) Instrument Transformers - Voltage and current, used to supply the Protective Relay cabinet and phase connections. e) Lightning Arresters/Spill Gaps/Surge Capacitors - Ratings. f) Capacitor Banks - kvar rating. g) Switches - Indicate status normally open with a (N.O.) and type of operation manual or motor. h) Safety Switch - Continuous ampere and interrupting ratings. I) Circuit Breakers and/or Contactors - Interrupting rating, continuous rating, operating times. j) Generator(s) - Include type, connection, KVA, voltage, current, rpm, PF, etc. k) Point of interconnection to the GPU System and phase identification. l) Fuses - Size, type location. m) Grounding. n) Relay Nomenclature - A "1" outside a relay function shall indicate a single phase relay and a "3" shall indicate a three phase relay or three individual relays. 2. Control Schematic Control schematics are to be functionally complete schematics. They shall be as simple and uncluttered as possible, and shall contain the following information: a) Terminal designation of all devices - relay coils and contacts, switches, transducers, etc. If a device is not supplied with terminal numbers, the cabinet supplier shall number the device terminals clearly and use those numbers on all drawings. b) Relay functional designation - per latest ANSI Standard. The same functional designation shall be used on all drawings showing the relay. c) Complete relay type, manufacturer, style number, and relay range. d) Numbers or wire designations for all cable connections. D10 e) Switch contacts shall be referenced to the switch development if development is shown on a separate drawing. f) Switch developments and escutcheons shall be shown on the drawing where the majority of contacts are used. Where contacts of a switch are used on a separate drawing, that drawing shall be referenced adjacent to the contacts in the switch development. Any contacts not used shall be referenced as spare. All switch developments shall include the manufacturer name, complete style number and notations indicating spring return to normal operation, when appropriate. g) All switch contacts are to be shown open with each labeled to indicate the positions in which the contact will be closed. h) Explanatory notes defining switch coordination and adjustment where misadjustment could result in equipment failure or safety hazard. i) Auxiliary relay contacts shall be referenced to the coil location drawing if coil is shown on a separate drawing. All contacts of auxiliary relays must be shown and the appropriate drawing referenced adjacent to the respective contacts. j) Device auxiliary switches (circuit breakers, contactor) must be referenced to the drawing where they are used. k) Any interlocks electromechanical, key, etc., associated with the generation. l) Ranges of all timers, and setting if dictated by control logic. m) All target ratings (on dual ratings underline the appropriate tap setting). n) Complete internal for all protective relays. Solid-state relays may be shown as a "black box" but manufacturers instruction book number shall be referenced, and terminal connections shown. o) Isolation points (States links or FT-1 blocks) including terminal identification. p) All circuit elements and components, with device designation, rating and setting where applicable. Coil voltage is shown only if different from nominal control voltage. q) Size, type, rating and designation of all fuses. 3. Current Schematic NOTE: This drawing is a primary three line and shall contain the following information: a) Relay functional designation per latest ANSI Standard. The same functional designation shall be used on all drawings showing the relay. D11 b) Terminal designations of all devices - relay coils and contacts, switches, transducers, etc. c) Numbers or wire designations for all cable connections. d) Phases shall be designated as A, B, C, N and rotation (sequence) indicated as ABC or CBA. e) Switch developments and escutcheons shall be shown on the drawing where the majority of contacts are used. Where contacts of a switch are used on a separate drawing, that drawing shall be referenced adjacent to the contacts in the switch development. Any contacts not used shall be referenced as spare. All switch developments shall include the manufacturer name, complete style number and notations indicating spring return to normal operation, where appropriate. f) Auxiliary relay contacts shall be referenced to the coil location drawing if coil is shown on a separate drawing. Switch contacts shall be referenced to the switch development drawing if development is shown on a separate drawing. g) Current transformers (CT) - polarity marks, rating, tap, ratio and connection. h) Auxiliary CT ratios, connection, winding current rating and arrows to indicate assumed current flow. I) Grounding of cables, CT's, etc. j) Isolating points (States links, test switches, etc.). k) Complete relay type, manufacturer, style number and relay range. l) All circuit elements and components, with device designation, size, rating and setting where applicable. 4. Potential Schematic This drawing is a primary three line schematic with only switching devices shown and shall contain the following information: a) Terminal designations of all devices - relay coils and contacts, switches, transducers, etc. b) Relay functional designation - per latest ANSI Standard. The same functional designation shall be used on all drawings showing the relay. c) Complete relay type, manufacturer, style number and relay range. d) Numbers or wires designations for all cable connections. e) Phases shall be designated as A, B, C, N and rotation (sequence) indicated as ABC or CBA. D12 f) Auxiliary relay contacts shall be referenced to the coil location drawing if coil is shown on a separate drawing. All contacts of auxiliary relays shall be shown with each referenced to the appropriate drawing. g) Switch developments and escutcheons shall be shown on the drawing where the majority of contacts are used. Where contacts of a switch are used on a separate drawing, that drawing must be referenced adjacent to the contacts in the switch development. Any contacts not used shall be referenced as spare. All switch developments shall include the manufacturer name, complete style number and notations indicating spring return to normal operation, when appropriate. h) Switch contacts shall be referenced to the switch development drawing if development is shown on a separate drawing. I) All switch contacts are to be shown in the open position, and labeled to indicate closed position(s). j) Explanatory notes defining switch coordination and adjustment where misadjustment could result in equipment failure. k) Ranges of all timers, and setting if dictated by control logic. l) Isolating points (States links, test switches, etc.). m) Grounding of cables, VTs, etc. n) Potential transformers (PTs, VTs), nameplate ratio, polarity marks, rating, primary and secondary connections. o) All circuit elements and components, with device designation, rating and setting where applicable. Coil voltage is shown for all auxiliary relays. p) Size, type, designations of all fuses. 5. Panel Wiring Drawing NOTE: Wiring diagrams shall follow the physical equipment layout. The following equipment must be identified on this drawing. a) Front view sketch with functional designation and device type for all components and nameplates. b) External cables, wire designations (number, destination and drawing number). Each wire designation shall be unique. c) Terminal block location and number. d) Equipment identification - functional designation and device wiring designation (ratings shall appear D13 by components only when required for specific identification and clarity). e) Reference to relay internals, schematic, and Instruction Book(s). f) Current transformer tap ratio tables where applicable. g) Ground bus and connections. h) Current circuits must be identified with asterisks. i) Reference to switch developments. j) Complete panel wiring details for all equipment included on panel. k) When external devices are connected to the protective relaying cabinet, wiring drawings must be supplied for those devices. 6. Three-Line Diagram This drawing must include all the equipment shown on the one line diagram and all information necessary for correct phasing. a) Phases shall be designated as A, B, C, N and rotation (sequence) indicated as ABC or CBA. b) Both GPU Energy and Generation Facility phase designations, rotation (sequence), as well as necessary interconnections shall be designated. c) Terminal numbers shall be identified for all primary equipment (i.e., breakers, transformers, generators, etc.) shown on the one-line diagram. d) Bushing designations shall be identified for all circuit breakers and transformers. L. PROTECTIVE RELAY TEST REQUIREMENTS 1. Commissioning as well as periodic and functional testing of required fault protection (21 ZOS, 25, 50/51, 50/51G, 51N, 51V, 21, 62, 27, 59, 81, etc.) shall be performed and documented by the Power Producer at intervals specified by GPU Energy and to specifications established by the manufacturer. All required testing of the fault protection shall be performed and certified by a qualified testing organization acceptable to GPU Energy. See Attachment 3. A maintenance and test log will be developed and maintained by the Power Producer. This log will detail all maintenance information recommended by the manufacturers and then instruction manuals. This log will contain specific information pertinent to the equipment maintained, e.g. location, manufacturer, year, type, serial number, date and type of test (functional trip test calibration test results, etc.) and any corrective D14 action taken due to test/maintenance findings. This log shall be available for inspection by GPU Energy at any reasonable time. Each year, a letter indicating that all required testing and maintenance has been completed with acceptable results shall be submitted to GPU Energy. GPU Energy has the right upon request to inspect all required protective equipment associated with the Generation Facility's interconnection(s). 2. GPU Energy shall reserve the right to specify settings of all isolation devices which are part of the Generation Facility's system. 3. GPU Energy shall require initial inspection and testing as well as subsequent inspection and testing of the Generating Facilty's isolation and fault protection systems (27-62, 59-62, 81o, 81u-62, etc.) at the Generation Facility's expense on an annual basis. All required testing shall be performed and certified by a qualified testing organization acceptable to GPU Energy (Attachment 3). GPU Energy reserves the right to observe any tests performed. Maintenance of these systems must be performed and documented by the Power Producer at specified intervals to the satisfaction of GPU Energy. GPU Energy shall reserve the right to disconnect the Generation Facility and/or the cogeneration equipment from the GPU system for failure to comply with these inspections, testing and maintenance requirements. M. FINAL INTERCONNECTION APPROVAL Final interconnection approval will be given upon: 1. Positive engineering review of the Generation Facility's Electrical Plans (See Section C2). 2. Receipt of all information required in Section C1 in triplicate. 3. Written certification from an approved relay testing organization (Attachment 3) that all fault protection relays have been successfully acceptance tested, commissioned, set, and functionally trip tested. 4. Settings, acceptance testing, commissioning and functional trip testing of all Isolation Protection Relays shall have been successfully completed by the relay testing organization and approved by GPU Energy. D15 Attachment 1 PROTECTION REQUIREMENTS Figure 1 Generation Connected to System Voltages 34.5 kV Wye and Below 2 Generation Connected to System Voltages 34.5 kV Delta and Above with Wye-Wye and Delta-Wye Transformer Connections 3 Generation Connected to System Voltages 34.5 kv Delta and Above with Wye-Delta and Delta-Delta Transformer Connections D16 GENERATION CONNECTED TO SYSTEM VOLTAGES [FIGURE 1 GRAPHIC OMITTED] D17 GENERATION CONNECTED TO SYSTEM VOLTAGES [FIGURE 2 GRAPHIC OMITTED] D18 GENERATION CONNECTED TO SYSTEM VOLTAGES [FIGURE 3 GRAPHIC OMITTED] D19 Attachment 2 GENERATOR DATA FOR STABILITY CALCULATIONS Machine MVA base for each machine: ____________ ____________ ____________ Step-up transformer percent impedance and MVA base __________ % R + J __________ % X ____________ MVA __________ % R + J __________ % X ____________ MVA | Value* | Description (for each machine) |________|________________________________________________________________________________________________________ | | |________| T'do (sec. 0) | | |________| T'do (sec. 0) | | |________| T'qo (sec. 0) | | |________| T"qo (sec. 0) | | |________| Inertia H Total Shaft Inertia (Turbine, exciter, generator) | | |________| Speed Damping D If unavailable, program defaults to 0.0 | | |________| Xd |-----------------------------------------| | | | Excitation System | |________| Xq | ----------------- | | | | | |________| X'd | Brand Name_______________________ | | | | | |________| X'q | | | | | Type______________________________ | |________| X"d = X"q | | | | ------------------------------------------ |________| X1 If unavailable, program defaults to 0.05Xd | | |________| S(1.0) Saturation values 1.0 p.u. voltage; if unavailable, program defaults to 0.11 | | |________| S(1.2) Saturation values 1.2 p.u. voltage; if unavailable, program defaults to 0.48 | | |________| * Xd, Xq, X'd, X'q, X"d, X"q, X1, H, and D are in p.u. machine base. X"q must be equal to X"d.
D20 Attachment 3 ACCEPTED RELAY TESTING ORGANIZATIONS GPU Energy ABB Power T&D Company One Bala Plaza Bala Cynwyd, Pennsylvania 10994 Doble Engineering Company 85 Walnut Street Watertown, Massachusetts 02172 General Electric Company 205 Great Valley Parkway Malvern, Pennsylvania 19355 GPU Energy Company 2800 Pottsville Pike Post Office Box 16001 Reading, PA 19640-0001 MET Electrical Testing Company, Inc. 916 W. Patapsco Avenue Baltimore, Maryland 21230 Multi-Amp Corporation 4271 Bronze Way Dallas, Texas 75237 Addresses identified above are GPU Energy's regional contacts for relay testing services. Other regional contacts may be more appropriate for the consulting engineer. D21 REFERENCES 1. Guide for Interconnection Requirements and Parallel Operation of Customer-Owned Generation Georgia Power Company - Electric Operations Bulletin No. 51 2. Protection Requirements for Parallel Operation of Non-Utility Generation, Pennsylvania Power & Light Company - Revision #5 dated June 20, 1988 D22 APPENDIX E INTERCONNECTION INSTALLATION AGREEMENT BETWEEN METROPOLITAN EDISON COMPANY d/b/a GPU ENERGY AND AES IRONWOOD, L.L.C. TABLE OF CONTENTS ARTICLE TITLE OF ARTICLE PAGE NO. ------- ---------------- -------- I Scope of Work E2 II Schedule of Work E2 III Payment E2 IV Bonus/Liquidated Damages E3 V General Provisions E5 VI Notices E5 VII Authorization for Changes and Approvals E5 VIII Entire Agreement E6 Attachment I Scope of Work Attachment II Schedule of Work Attachment III General Provisions INTERCONNECTION INSTALLATION AGREEMENT THIS AGREEMENT ("Installation Agreement"), entered into the ______ day of ____________, 19_____, between Metropolitan Edison Company d/b/a GPU Energy, (hereinafter referred to as the "Company") and AES Ironwood, L.L.C., (hereinafter referred to as "Power Producer"), collectively "Parties". RECITALS WHEREAS, Power Producer desires to build the Ironwood power plant and interconnect with the Transmission System; and WHEREAS, the Company is willing to design, furnish, install and own certain facilities required to interconnect Power Producer's Facility with the Transmission System, as more fully defined and described in the Generation Facility Transmission Interconnection Agreement between the Parties ("Company Interconnection Facilities"). WHEREAS, Power Producer has placed a high priority on the Schedule of Work and desires that the Company accept Bonus/Liquidated Damages provisions relating to this Installation Agreement. WHEREAS, the Company is willing to accept Bonus/Liquidated Damages provisions relating to this Installation Agreement. NOW, THEREFORE, in consideration of the mutual representations, covenants, promises and agreements hereinafter set forth, the Parties hereto, intending to be legally bound, hereby covenant and agree as follows: E1 ARTICLE I - SCOPE OF WORK The Company shall, in accordance with the provisions set forth herein, provide all labor, supervision, materials and equipment necessary to perform the interconnection installation as more fully described in Attachment I, attached hereto and made a part hereof, entitled "Scope of Work". ARTICLE II - SCHEDULE OF WORK The Company shall use reasonable efforts to perform the Scope of Work on a timely basis in accordance with the schedule set forth in Attachment II, which is attached hereto and made a part hereof, entitled "Schedule of Work". ARTICLE III - PAYMENT Power Producer shall pay the Company for the actual costs of all services performed by the Company, as specified in Attachment I - Scope of Work. Costs shall include, but not be limited to, all labor charges, expenses, materials and equipment charges, subcontractor costs, overheads and all applicable permits, fees and sales, use or any other taxes. Power Producer shall provide an advanced payment of $1,500,000.00 at the time this Installation Agreement is executed. This amount shall be used by the Company during the execution of the work first to offset AFUDC charges, then to offset the final invoiced costs. The Company shall submit monthly invoices for work performed. Each invoice shall include supporting documentation and shall state the dates of performance covered by the E2 invoice. Invoices in the final stages of the project will be adjusted to credit for the application of advance payment. Terms of payment shall be Net 30 days from the date of invoice issuance. Interest shall be assessed on payments received after their due date at the interest rate applied to prime commercial loans then in effect at the main office of Citibank N.A., located in New York, N.Y. or its successor, calculated from the due date to the date of payment. Power Producer may, at any time, assign its payment obligations hereunder to the purchaser of the output of the Ironwood facility. Power Producer shall provide the Company with such notice of such assignment, identifying the assignee. Following receipt of such notice, the Company shall direct its invoices under this Installation Agreement to the assignee with a copy to Power Producer. No such assignment, however, shall release or in any way discharge Power Producer from the performance of its obligations (including any or all payment obligations) under this Installation Agreement. ARTICLE IV - BONUS/LIQUIDATED DAMAGES If the actual completion date for Phase 1 varies from the date shown in the Schedule of Work Attachment II, the following provisions shall apply: 1. If the actual completion date is later than the scheduled completion date, the Company will pay Power Producer Liquidated Damages in the amount of $5,000.00 per day for each day by which the Phase 1 work is not complete for up to and including 42 days delay (August 11, 2000). 2. If the actual completion date is earlier than the scheduled completion date, Power Producer will pay the Company a Bonus for early completion in the amount of $5,000.00 per day for each day by which the Phase 1 work is completed early, for up to and including 30 days early E3 (May 31, 2000). It is understood by the Parties that the Company will utilize overtime from time to time during the installation of the Interconnection Facilities for the purpose of properly scheduling the work. Examples of this are the use of overtime when working in active substations as required to minimize the duration of substation outages or to complete work activities which are better completed in one day rather than extending the work into a second day. It is also understood by the parties that overtime is not intended to be used purely for the benefit of accelerating schedule to achieve the Bonus. If overtime is used for this purpose, the premium portion of overtime cost will be deducted from the Bonus amount. If it becomes apparent at any time that the Company will not complete the Phase 1 work within 42 days after the scheduled completion date, and the Company cannot within 30 days (of the delay becoming known) propose a recovery plan reasonably acceptable to Power Producer, then Power Producer shall have step in rights to complete the work in accordance with Company's specifications and pursuant to Good Utility Practice, provided that Power Producer can demonstrate that they could complete more quickly than the Company. In further consideration of agreement to the Bonus/Liquidated Damages provisions above and to an earlier agreement that the Company would proceed with engineering before execution of the Installation Agreement and set the completion date for Phase 1 work at June 30, 2000, Power Producer will pay the Company for the work undertaken by the Company prior to December 17, 1998 in the amount of $40,000. This payment shall be due within 30 days of signing this Installation Agreement. E4 ARTICLE V - GENERAL PROVISIONS The terms and conditions contained in Attachment III, attached hereto and made part hereof, entitled "General Provisions", dated March 18, 1999 shall apply to all services performed under this Installation Agreement. ARTICLE VI - NOTICES Any notice required under this Installation Agreement shall be deemed to have been given at the time it is received in writing by the party being notified. The designees authorized to give and receive such notices are as follows: 1. The Company designees authorized to give and receive such notices are as follows: Bradley J. Breidinger Manager - Transmission Investment Planning 2800 Pottsville Pike Reading, PA 19605 Or Post Office Box 16001 Reading, PA 19604-0001 2. The Power Producer designees authorized to give and receive such notices are as follows: Patricia Rollin Vice President AES Ironwood, L.L.C. 1001 North 19th Street Arlington, VA 22209 ARTICLE VII - AUTHORIZATION FOR CHANGES AND APPROVALS A. This Installation Agreement may not be amended or modified except by a written instrument signed by each of the Parties hereto. E5 B. The Company designated representatives listed below are the only persons authorized to bind the Company under this Installation Agreement, including any written direction or amendment hereto: Robert S. Zechman VP - Engineering & Operations ARTICLE VIII - ENTIRE AGREEMENT This Installation Agreement, together with that certain Generation Facility Transmission Interconnection Agreement between the Parties of even date herewith, constitute the entire agreement between the Company and the Power Producer with respect to the performance by the Parties of the interconnection installation described herein. They supersede all prior or contemporaneous communications, representations, or agreements, representations, statements, or agreements other than those herein expressed, whether oral or written, with respect to the subject matter hereof and has been induced by no representations, statements, or agreements other than those herein expressed. E6 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by the undersigned thereunto duly authorized as of the date first written above. METROPOLITAN EDISON COMPANY WITNESS: d/b/a GPU ENERGY By: /s/ William C. Matthews By: /s/ R. S. Zechman ----------------------------- ----------------------------- Title: Title: Vice-President -------------------------- --------------------------- Date: Date: March 23, 1999 --------------------------- ---------------------------- WITNESS: AES Ironwood, Inc. By: /s/ Alicia Slinn By: /s/ Patricia L. Rollin ----------------------------- ----------------------------- Title: Administrative Assistant Title: Vice President -------------------------- --------------------------- Date: March 23, 1999 Date: March 23, 1999 --------------------------- ---------------------------- E7 Attachment I Page 1 INTERCONNECTION INSTALLATION AGREEMENT SCOPE OF WORK Services to be performed by the Company: The Company will provide all labor, supervision, materials, equipment and tools needed to design, furnish and install the Company Interconnection Facilities for the AES Ironwood project. It is understood by the Parties, additional items for interconnection and reinforcement may be identified, the interconnection configuration may change, and the actual costs will differ from the estimated costs shown below. In addition, it is understood by the Parties that the Power Producer will pay for all actual costs incurred by the Company under this Installation Agreement. Estimated Amount Item Project Description Reimbursable by AES - ---- ------------------- ------------------- 1 230kV Line Tap & In/Out $150,000 2 GPU Bus at AES $1,791,000 3 Tap of 1071 to 1001 $36,000 4 Replace 76-1 Line Drop Loops at Fifth & Green (0.84 miles of 69kV) $400,000 5 S. Lebanon Sub 230kV Breaker, Terminals & Relaying $499,000 6 N. Hershey Sub Relaying $84,000 7 Lyons Sub 230 kV Breaker and Relaying $619,000 8 Middletown Jct. Sub Relaying $62,000 9 S. Reading Sub Relaying $62,000 Sub Total $3,703,000 Return (8.69% of Items 1 through 9) $322,000 Total $4,025,000 Attachment II Page 1 INTERCONNECTION INSTALLATION AGREEMENT SCHEDULE OF WORK Power Producer Commitments: Provide the area for the GPU Substation in a final subgrade condition ready for the start of construction plus provide an easement and continuous access to that area and the area over which the transmission line travels to the edge of the existing GPU right-of-way. July 1, 1999 Note: Any delay in meeting the above date will delay the Company in meeting their commitment dates on a day-for-day basis. GPU Energy Commitments: Phase 1: Provide those Company Interconnection Facilities necessary to permit the Power Producer to energize the switchyard and commence commissioning of the Facility. June 30, 2000 Phase 2: Complete all remaining Company Interconnection Facilities necessary to interconnect Power Producer with the Transmission System. August 31, 2000
Attachment III Page 1 Dated March 18, 1999 INTERCONNECTION INSTALLATION AGREEMENT GENERAL PROVISIONS INSURANCE The Company shall, at its sole expense, obtain and maintain in effect at all times on and after the date hereof the insurance described below, with insurers reasonably acceptable to Power Producer, and shall provide Power Producer with evidence of such insurance upon request. All insurance policies identified herein, except Worker's Compensation Insurance, shall name the Power Producer as an additional insured: (a) workers' compensation insurance in forms and within statutory limits and employer's liability with limits of not less than $1,000,000; (b) comprehensive general liability insurance (excluding automobile liability) covering personal injury and property damage to third parties and having a limit of not less than $1,000,000 per occurrence and $1,000,000 in the aggregate; and (c) automobile liability insurance covering owned and leased vehicles used in the performance of services pursuant to this Installation Agreement, covering personal injury and property damage to third parties, with a limit of not less than $1,000,000 per occurrence. LIMITATION OF LIABILITY A. Notwithstanding any other provisions of this Installation Agreement, in no event shall the Company nor its respective officers, directors, partners, agents, employees or Affiliates, be liable to the Power Producer or its Affiliates, officers, directors, partners, agents, employees, successors or assigns, for claims for incidental, special, indirect or consequential damages of any nature connected with or resulting from performance or non-performance of this Installation Agreement, including without limitation, claims in the nature of lost revenues, income or profits or losses, damages or liabilities under any financing, lending, construction, or maintenance contracts, agreements or arrangements to which the Power Producer may be party irrespective of whether such claims are based on warranty, negligence, strict liability, contract, or operational loss or otherwise. Provisions of this Section A shall survive the termination, cancellation, suspension or completion or expiration of this Installation Agreement. B. The total liability of the Company under this Installation Agreement for all claims of any kind, whether based on contract, indemnity, warranty, tort (including negligence), strict liability, duty to warn, or otherwise, for all damages or losses relating to or resulting from the performance of services by the Company pursuant to this Installation Agreement, or the performance of or failure to perform the services described more fully under the Scope of Attachment III Page 2 Work within this Installation Agreement is limited to the amount of money paid to the date of the claim. For purposes of this Installation Agreement the Company includes Metropolitan Edison Company, its parent and affiliates and officers, directors, employees, representatives, associates, agents, successors and assigns of all such companies. Also, the remedies expressed in this Installation Agreement are the only remedies for any claims made in connection with this Installation Agreement. C. The provisions of this paragraph and any other provisions of this Installation Agreement providing for limitation of or protection against liability shall apply to the full extent permitted by law. D. The provisions of this paragraph and any other provisions of this Installation Agreement providing for limitation of or protection against liabilities between the Parties hereto shall survive termination of this agreement or completion of the work as described herein. GRATUITIES The Company prohibits their employees from using their official position for personal financial gain, or from accepting any personal advantage from anyone under circumstances which might reasonably be interpreted as an attempt to influence the recipients in the conduct of their official duties. Power Producer or its employees shall not, under circumstances which might reasonably be interpreted as an attempt to influence the recipients in the conduct of their duties, extend any gratuity or special favor to employees of the Company. CLAIMS/DISPUTES/GOVERNING LAWS A. Any claim or dispute which either party may have against the other party, arising out of this Installation Agreement or the Scope of Work, shall be presented by the claimant in writing to the other party no later than Thirty (30) Days after circumstances which give rise to the claim or dispute have taken place. The claim or dispute shall contain a concise statement of the question or dispute, together with relevant facts and data to fully support the claims. B. In the event of any such claim or dispute, the Parties shall use their best effort to resolve the claim or dispute, initially, through good faith negotiations or upon the failure of such negotiations, through Alternative Dispute Resolution (ADR) techniques in accordance with the Model Procedure for Mediation of Business Disputes as published by the Center for Public Resources; provided however, that nothing therein contained shall prohibit either party from terminating its participation in ADR during any stage of ADR or if either party believes that the dispute is not suitable for ADR techniques or if such techniques do not produce results satisfactory to the Parties from proceeding in accordance with Paragraph C hereof. Attachment III Page 3 C. If any claim or dispute arising hereunder is not resolved in accordance with Paragraph B above, either party may, upon giving the other party at least ten (10) days prior written notice, initiate litigation to submit such claims or disputes for decision by a court of competent jurisdiction of the Commonwealth of Pennsylvania in accordance with and governed by the laws of Pennsylvania. ACCESS The Power Producer will allow access to any premises under the Power Producer's immediate control and obtain appropriate permission to allow the Company's employees or subcontractor's access to premises not under the Power Producer's control that the Company finds necessary to access in order to perform the services more fully described herein. WORKMANSHIP A. The Company represents to the Power Producer that it will perform the services as described in this agreement, in a good and workmanlike manner and in accordance with all applicable laws, rules, regulations, orders and policies. B. POWER PRODUCER ACKNOWLEDGES THAT THERE ARE NO IMPLIED WARRANTIES FROM THE COMPANY AND/OR WAIVES ANY WARRANTIES THAT MAY ARISE BY OPERATION OF LAW, CUSTOM, USAGE, INCLUDING AMONG OTHER THINGS, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. C. Damages resulting from any and all causes whatsoever, including but not limited to, breach of contract, breach of warranty, negligence, or strict product liability, will be exclusively limited to this paragraph and the Limitation of Liability paragraph contained herein. EX-23.1 27 CONSENT OF STONE & WEBSTER Exhibit 23.1 [Graphic Omitted] Stone & Webster Founded 1889 October 29, 1999 AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, PA 17042 Lehman Brothers Inc. 3 World Financial Center New York, NY 10285 Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Dresdner Kleinwort Benson North America LLC 75 Wall Street New York, NY 10005 Re: AES Ironwood Project Dear Sirs: Stone & Webster Management Consultants, Inc. hereby submits our Independent Technical Review of the AES Ironwood Project (the "Project"), dated June 18, 1999 (the "Report"). We understand that our Report will be used by (i) purchasers of AES Ironwood L.L.C.'s 8.857% Exchange Senior Secured Bonds due 2025 (the "Bonds") and (ii) subsequent purchasers of the Bonds, in evaluating the technical, operating, and economic aspects of the Project, and that it will be included, in reliance upon our experience in the review of the design, construction, and operation of electric generating facilities, as an appendix to the Prospectus included in a Registration Statement on Form S-4 which will be filed with the Securities and Exchange Commission by AES Ironwood, L.L.C. in connection with the exchange of outstanding 8.857% Senior Secured Bonds due 2025 for the Bonds. We hereby consent to such inclusion and to the reference to us as experts under the heading "Experts" in the Prospectus. Very truly yours, /s/ K.H. Applewhite, Jr. - ------------------------------ K.H. Applewhite, Jr. Vice President Stone & Webster Management Consultants, Inc. 1430 Enclave Parkway Houston, Texas 77077-2023 Phone: 281.368.4460 Fax: 281.368.4488 281.368.4491 www.stoneweb.com EX-23.2 28 OPINION OF HAGLER BAILLY Exhibit 23.2 [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- Hagler Bailly - -------------------------------------------------------------------------------- PHB Hagler Bailly, Inc. Alan L. Madian 1776 Eye Street, NW Senior Vice President Washington, DC 20006-3700 Tel 202-828-3928 Fax 202-296-3858 E-mail amadian@haglerbailly.com October 28, 1999 AES Ironwood, L.L.C. 829 Cumberland Street Lebanon, PA 17042 Lehman Brothers Inc. 3 World Financial Center New York, NY 10285 Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Dresdner Kleinwort Benson North America LLC 75 Wall Street New York, NY 10005 Re: AES Ironwood Project Dear Sirs: PHB Hagler Bailly, Inc. hereby submits our Report on Projected Competitiveness of the AES Ironwood Project in the PJM Market, dated June 1, 1999 (the "Report"). We hereby consent to the inclusion of the Report as an appendix to the Prospectus included in a Registration Statement on Form S-4 which will be filed with the Securities and Exchange Commission by AES Ironwood, L.L.C. (the "Company") in connection with the exchange of the Company's outstanding 8.857% Senior Secured Bonds due 2025 for the Company's 8.857% Exchange Senior Secured Bonds due 2025 and to the reference to us as experts under the heading "Experts" in the Prospectus, as long as the material included (and any summaries or discussions of the material) includes the points noted in the Foreward of the Report. Very truly yours, /s/ Alan L. Madian - ------------------------ Alan L. Madian Senior Vice President Professional Services Worldwide EX-23.4 29 INDEPENDENT AUDITORS' CONSENT Exhibit 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of AES Ironwood L.L.C. on Form S-4 of our report dated November 12, 1999, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP McLean, VA November 12, 1999 EX-25 30 FORM T-1 Exhibit 25 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| --------------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) --------------- AES IRONWOOD, L.L.C. (Exact name of obligor as specified in its charter) Delaware 54-145-7537 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 829 Cumberland Street Lebanon, PA 17042 (Address of principal executive offices) (Zip code) ------------- 8.857% Exchange Senior Secured Bonds due 2025 (Title of the indenture securities) ======================================================================== 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of 2 Rector Street, New York, the State of New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of 33 Liberty Plaza, New York, New York N.Y. 10045 Federal Deposit Insurance Washington, D.C. 20429 Corporation New York Clearing House New York, New York 10005 Association (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 10th day of November, 1999. THE BANK OF NEW YORK By: /s/ MARY LAGUMINA ---------------------------------- Name: MARY LAGUMINA Title: ASSISTANT VICE PRESIDENT Exhibit 7 Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1999, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS In Thousands - ------ -------------- Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ............. $ 5,597,807 Interest-bearing balances ...................................... 4,075,775 Securities: Held-to-maturity securities .................................... 785,167 Available-for-sale securities .................................. 4,159,891 Federal funds sold and Securities purchased under agreements to resell ..................................... 2,476,963 Loans and lease financing receivables: Loans and leases, net of unearned income .........................38,028,772 LESS: Allowance for loan and lease losses ................... 568,617 LESS: Allocated transfer risk reserve ........................ 16,352 Loans and leases, net of unearned income, allowance, and reserve ....................................... 37,443,803 Trading Assets .................................................... 1,563,671 Premises and fixed assets (including capitalized leases) ............................................ 683,587 Other real estate owned ........................................... 10,995 Investments in unconsolidated subsidiaries and associated companies ........................................... 184,661 Customers' liability to this bank on acceptances outstanding .................................................. 812,015 Intangible assets ................................................. 1,135,572 Other assets ...................................................... 5,607,019 ----------- Total assets ...................................................... $64,536,926 =========== -i- LIABILITIES Deposits: In domestic offices ............................................ $26,488,980 Noninterest-bearing .................. 10,626,811 Interest-bearing ..................... 15,862,169 In foreign offices, Edge and Agreement subsidiaries, and IBFs ....................................... 20,655,414 Noninterest-bearing .................. 156,471 Interest-bearing ..................... 20,498,943 Federal funds purchased and Securities sold under agreements to repurchase ....................................... 3,729,439 Demand notes issued to the U.S.Treasury ........................... 257,860 Trading liabilities ............................................... 1,987,450 Other borrowed money: With remaining maturity of one year or less .................... 496,235 With remaining maturity of more than one year through three years ......................................... 465 With remaining maturity of more than three years ............... 31,080 Bank's liability on acceptances executed and outstanding .......... 822,455 Subordinated notes and debentures ................................. 1,308,000 Other liabilities ................................................. 2,846,649 ----------- Total liabilities ................................................. 58,624,027 =========== EQUITY CAPITAL Common stock ...................................................... 1,135,284 Surplus ........................................................... 815,314 Undivided profits and capital reserves ............................ 4,001,767 Net unrealized holding gains (losses) on available-for-sale securities ................................. (7,956) Cumulative foreign currency translation adjustments ............... (31,510) ----------- Total equity capital .............................................. 5,912,899 ----------- Total liabilities and equity capital .............................. $64,536,926 =========== I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the -ii- instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. --- Thomas A. Reyni | Directors Alan R. Griffith | Gerald L. Hassell | --- -iii- EX-27 31 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements of the company for the three months ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 1000 3-MOS DEC-31-1999 JUN-25-1999 SEP-30-1999 573 99,975 0 492 0 1,065 216,667 0 319,997 4,124 308,500 0 0 0 0 319,997 0 0 0 0 162 (1,858) 3,695 (1,858) 0 (1,858) 0 0 0 (1,858) 0.00 0.00
EX-99.1 32 LETTER OF TRANSMITTAL THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________, 2000, UNLESS EXTENDED. AES Ironwood, L.L.C. LETTER OF TRANSMITTAL Offer To Exchange Its 8.857% Senior Secured Bonds due 2025 Which Have Been Registered Under The Securities Act of 1933 For Any And All Of Its Outstanding 8.857% Senior Secured Bonds due 2025 Pursuant To The Prospectus Dated ___________, 2000 The exchange agent for the exchange offer is: THE BANK OF NEW YORK By Facsimile: By Mail or Hand (9:00 a.m. to 5:00 p.m., local time): (212) 815-6339 The Bank of New York Attention: Terence Rawlings 101 Barclay Street, 7E Confirm by Telephone to: (212) 815-5988 New York, New York 10286 Attention: Terence Rawlins
Delivery of this Letter of Transmittal to an address other than as set forth above or transmission of this Letter of Transmittal via facsimile to a number other than as set forth above does not constitute a valid delivery. The instructions contained herein should be read carefully before this Letter of Transmittal is completed. This Letter of Transmittal is to be completed by holders of old bonds (as defined below) if either (i) old bonds are to be forwarded herewith, or (ii) tenders of old bonds are to be made by book-entry transfer to an account maintained by The Bank of New York (the "exchange agent") at The Depository Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange Offer - Procedures for Tendering" in the prospectus. An "agent's message" (as defined below) may also be used in lieu of physically completing, executing and delivering to the exchange agent this Letter of Transmittal, if delivery of the old bonds is to be made through the DTC's automated tender offer program. The "agent's message" means a message, transmitted by the DTC and received by the exchange agent and forming part of the confirmation of book-entry ("book-entry confirmation"), which states that the DTC has received an express acknowledgment from a participant tendering old bonds which are the subject of such book-entry confirmation and that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the agreement may be enforced against such participant. For additional information regarding DTC's automated tender offer program, please refer to "The Exchange Offer - Procedures for Tendering - Tendering Through the DTC's Automated Tender Offer Program" section of the prospectus. Holders of old bonds whose certificates for such old bonds are not immediately available or who cannot deliver their certificates, this Letter of Transmittal and all other required documents to the exchange agent on or prior to the expiration date or who cannot complete the procedures for book-entry transfer on a timely basis, may tender their old bonds according to the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for Tendering" in the prospectus. Delivery of documents to DTC does not constitute delivery to the exchange agent. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY List below the old bonds of which you are a holder. If the space provided below is inadequate, list the certificate numbers and principal amount on a separate signed schedule and attach that schedule to this Letter of Transmittal. See Instruction 3. ALL TENDERING HOLDERS COMPLETE THIS BOX: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Description of Old Bonds Tendered - --------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Old Bonds Tendered (Fill in, if blank) - ------------------------------------------------------------------------------------------------------------------------ | Certificate | | Number(s)* Principal Principal | | (Attach Amount (Attach Amount | | additional list additional list Tendered (if | | if necessary) if necessary) less than all)** | | | | --------------- $ ------------- $ ------------ | | | | --------------- $ ------------- $ ------------ | | | | --------------- $ ------------- $ ------------ | | | | --------------- $ ------------- $ ------------ | | | | | Total Amount Tendered: | --------------- $ ------------- $ ------------ | | | - ------------------------------------------------------------------------------------------------------------------------
o Check here if any additional lists are attached. * Need not be completed by book-entry holders. Such holders should check the appropriate box below and provide the requested information. ** Need not be completed if tendering for exchange all old bonds held. Old bonds may be tendered in whole or in part in integral multiples of $1,000 principal amount. All old bonds held shall be deemed tendered unless a lesser number is specified in this column. See Instruction 4. (Boxes Below To Be Checked By Eligible Institutions Only. See Instruction 1.) o Check here if tendered old bonds are enclosed herewith. 2 o Check here if tendered old bonds are being delivered by book-entry transfer made to the account maintained by the exchange agent at DTC and complete the following: Name of Tendering Institution: -------------------------------------------------- DTC Account Number: ------------------------------------------------------------- Transaction Code Number: -------------------------------------------------------- o Check here and enclose a photocopy of the Notice of Guaranteed Delivery if tendered old bonds are being delivered pursuant to a Notice of Guaranteed Delivery previously sent to the exchange agent and complete the following: Name(s) of Registered Holder(s): ------------------------------------------------ Window Ticket Number (if any): -------------------------------------------------- Date of Notice of Guaranteed Delivery: ------------------------------------------ Institution Which Guaranteed Delivery: ------------------------------------------ If Guaranteed Delivery is to be made by book-entry transfer: -------------------- Name of Tendering Institution: -------------------------------------------------- DTC Account Number: ------------------------------------------------------------- Transaction Code Number: -------------------------------------------------------- o Check here if you are a broker-dealer who acquired old bonds for your own account as a result of market-making activities or other trading activities (a "Participating Broker-Dealer") and wish to receive 10 additional copies of the prospectus and 10 copies of any amendments or supplements thereto. Name: --------------------------------------------------------------------------- Address: ------------------------------------------------------------------------ ------------------------------------------------------------------------ Telephone Number and Contact Person: -------------------------------------------- 3 Ladies and Gentlemen: The undersigned hereby tenders to AES Ironwood, L.L.C., a Delaware limited liability company ("AES Ironwood" or the "Company"), the above described principal amount of AES Ironwood's 8.857% Senior Secured Bonds due 2025 (the "old bonds") in exchange for a like principal amount of AES Ironwood's 8.857% Senior Secured Bonds due 2025 (the "new bonds"), which have been registered under the Securities Act of 1933 (the "Securities Act"), upon the terms and subject to the conditions set forth in the prospectus dated ___________, 2000 (as the same may be amended or supplemented from time to time, the "prospectus"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the prospectus, constitute the "exchange offer"). Subject to and effective upon the acceptance for exchange of the old bonds tendered herewith, the undersigned hereby sells, assigns and transfers to or upon the order of AES Ironwood all right, title and interest in and to such old bonds as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the exchange agent as its agent and attorney-in-fact (with full knowledge that the exchange agent is also acting as agent of AES Ironwood in connection with the exchange offer and as trustee under the indenture for the old bonds and the new bonds) with respect to the tendered old bonds, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the prospectus, to: (i) deliver such old bonds to AES Ironwood together with all accompanying evidences of transfer and authenticity to, or upon the order of, AES Ironwood upon receipt by the exchange agent, as the undersigned's agent, of the new bonds to be issued in exchange for such old bonds; (ii) present certificates for such old bonds for transfer, and to transfer such old bonds on the account books maintained by DTC; and (iii) receive for the account of AES Ironwood all benefits and otherwise exercise all rights of beneficial ownership of such old bonds, all in accordance with the terms and conditions of the exchange offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, sell, assign and transfer the old bonds tendered hereby and that, when the same are accepted for exchange, AES Ironwood will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances, and that the old bonds tendered hereby are not subject to any adverse claims or proxies. The undersigned will, upon request, execute and deliver any additional documents deemed by AES Ironwood or the exchange agent to be necessary or desirable to complete the exchange, sale, assignment and transfer of the old bonds tendered hereby. The undersigned has read and agrees to all of the terms of the exchange offer. The name(s) and address(es) of the registered holder(s) of the old bonds tendered hereby should be printed above, if they are not already set forth above, as they appear on the certificates representing such old bonds. The certificate number(s) and the old bonds that the undersigned wishes to tender should be indicated in the appropriate boxes above. If any tendered old bonds are not exchanged pursuant to the exchange offer for any reason, or if certificates are submitted for more old bonds than are tendered or accepted for exchange, certificates for such nonexchanged or nontendered old bonds will be returned (or, in the case of old bonds tendered by book-entry transfer, such old bonds will be credited to an account maintained at DTC), without expense to the tendering holder promptly following the expiration or termination of the exchange offer. The undersigned understands that tenders of old bonds pursuant to any one of the procedures described in "The Exchange Offer - Procedures for Tendering" in the prospectus and in the instructions herein will, upon AES Ironwood's acceptance for exchange of such tendered old bonds, constitute a 4 binding agreement between the undersigned and AES Ironwood upon the terms and subject to the conditions of the exchange offer. The undersigned recognizes that, under certain circumstances set forth in the prospectus, AES Ironwood may not be required to accept for exchange any of the old bonds tendered hereby. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the new bonds be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of old bonds, that such new bonds be credited to the account indicated above maintained at DTC. If applicable, substitute certificates representing old bonds not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of old bonds, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions," please deliver new bonds to the undersigned at the address shown below the undersigned's signature. By tendering old bonds and executing this Letter of Transmittal, the undersigned hereby represents and agrees that: (i) The undersigned is not an "affiliate" of AES Ironwood (within the meaning of Rule 405 under the Securities Act), or if the undersigned is an affiliate, the undersigned will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable; (ii) Any new bonds to be received by the undersigned are being acquired in the ordinary course of its business; and (iii) The undersigned has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of new bonds to be received in the exchange offer. If the undersigned is not a broker-dealer, by tendering old bonds and executing this Letter of Transmittal, the undersigned represents and agrees that it is not engaged in, and does not intend to engage in, a distribution of new bonds. If the undersigned is a broker-dealer that will receive new bonds for its own account in exchange for old bonds pursuant to the exchange offer, by tendering old bonds and executing this Letter of Transmittal, the undersigned represents and agrees that such old bonds were acquired by such broker-dealer for its own account as a result of market-making activities or other trading activities and it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of new bonds (provided that, by so acknowledging and by delivering a prospectus, such broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act). AES Ironwood has agreed that starting on the expiration date and ending on the close of business on the first anniversary of the expiration date, it will make the prospectus available to any participating broker-dealer in connection with any such resale. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the prospectus and in the instructions contained in this Letter of Transmittal, this tender is irrevocable. 5 PLEASE SIGN HERE PLEASE SIGN HERE - ----------------------------------------------- ----------------------------------------------- Authorized Signature Authorized Signature Name: Name: ------------------------------------------ ------------------------------------------ Title: Title: ----------------------------------------- ----------------------------------------- Address: Address: --------------------------------------- --------------------------------------- Telephone Number: Telephone Number: ------------------------------ ------------------------------ Dated: Dated: ----------------------------------------- ----------------------------------------- - ----------------------------------------------- ----------------------------------------------- Taxpayer Identification or Taxpayer Identification or Social Security Number Social Security Number
(NOTE: Signature(s) must be guaranteed if required by Instructions 2 and 5. This Letter of Transmittal must be signed by the registered holder(s) exactly as the name(s) appear(s) on certificate(s) for the old bonds hereby tendered or on a security position listing, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith, including such opinions of counsel, certifications and other information as may be required by AES Ironwood or the trustee for the old bonds to comply with the restrictions on transfer applicable to the old bonds. If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary capacity or representative capacity, please set forth the signer's full title. See Instructions 2 and 5. Please complete substitute Form W-9 below.) 6 Guarantee of Signature(s) (If required--see Instructions 2 and 5) Signature(s) Guaranteed by an Eligible Institution: Date: ---------------------------- -------------------------------------------------- Authorized Signature
Name of Eligible Institution Guaranteeing Signature: ------------------------------------------------------------------------------------------ Address: Capacity (full title): ------------------------------------------------- ------------------------------ ------------------------------------------------- Telephone Number: ------------------------------------------------- ------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS (See SPECIAL DELIVERY INSTRUCTIONS (See Instructions 2, 5 and 6) Instructions 2, 5 and 6) To be completed ONLY if the new bonds or any old To be completed ONLY if new bonds or any old bonds that are not tendered are to be issued in the bonds that are not tendered are to be sent to name of someone other than the registered holder(s) someone other than the registered holder(s) of the of the old bonds whose name(s) appear(s) above. old bonds whose name(s) appear(s) above, or to such registered holder(s) at an address other than that shown above. Issue: Mail: o Old bonds not tendered, to: o Old bonds not tendered, to: o New bonds, to: o New bonds, to: Name(s) Name(s) --------------------------------------------- --------------------------------------------- Address Address --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- Telephone Number Telephone Number - ---------------------------------------------------- ---------------------------------------------------- (Tax Identification or (Tax Identification or Social Security Number) Social Security Number)
7 INSTRUCTIONS (Forming part of the terms and conditions of the exchange offer) 1. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery Procedures. This Letter of Transmittal is to be completed either if (a) certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer Procedures for Tendering" in the prospectus. Certificates, or timely confirmation of a book-entry transfer of such old bonds into the exchange agent's account at DTC, as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other documents required by this Letter of Transmittal (or if applicable, an "agents message" (as defined above)), must be received by the exchange agent at its address set forth herein on or prior to the expiration date. The term "book-entry confirmation" means a timely confirmation of book-entry transfer of old bonds into the exchange agent's account at DTC. Old bonds may be tendered in whole or in part in integral multiples of $1,000 principal amount. The minimum denomination of new bonds issued will be $100,000 with integral multiples of $1,000 in excess thereof. Holders who wish to tender their old bonds and: (i) whose certificates for such old bonds are not immediately available; (ii) who cannot deliver their certificates, this Letter of Transmittal and all other required documents to the exchange agent prior to the expiration date; or (iii) who cannot complete the procedures for delivery by book-entry transfer on a timely basis, may tender their old bonds by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer - Procedures for Tendering" in the prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form accompanying this Letter of Transmittal, must be received by the exchange agent prior to the expiration date; and (iii) the certificates (or a book-entry confirmation) representing all tendered old bonds, in proper form for transfer, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by the exchange agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in "The Exchange Offer - Procedures for Tendering" in the prospectus. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile or mail to the exchange agent and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. For old bonds to be properly tendered pursuant to the guaranteed delivery procedure, the exchange agent must receive a Notice of Guaranteed Delivery prior to the expiration date. As used herein and in the prospectus, "Eligible Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association. The method of delivery of old bonds, this Letter of Transmittal and all other required documents is at the option and sole risk of the tendering holder, and delivery will be deemed made only when actually received by the exchange agent. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery and proper insurance should be obtained. No Letter of Transmittal or old 8 bonds should be sent to AES Ironwood. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect these transactions for such holders. AES Ironwood will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. Guarantee of Signatures. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the registered holder (which shall include any participant in DTC whose name appears on a security position listing as the owner of the old bonds) of old bonds tendered herewith, unless such holder has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above; or (ii) such old bonds are tendered for the account of a firm that is an Eligible Institution. In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. Inadequate Space. If the space provided in the box captioned "Description of Old Bonds Tendered" is inadequate, the certificate number(s) and/or the principal amount of old bonds and any other required information should be listed on a separate signed schedule and attached to this Letter of Transmittal. 4. Partial Tenders and Withdrawal Rights. Tenders of old bonds will be accepted only in integral multiples of $1,000 principal amount. If less than all the old bonds evidenced by any certificate submitted are to be tendered, fill in the principal amount of old bonds which are to be tendered in the box entitled "Principal Amount Tendered (if less than all)." In such case, new certificate(s) for the remainder of the old bonds that were evidenced by the old certificate(s) will be sent to the tendering holder, unless the appropriate boxes on this Letter of Transmittal are completed, promptly after the expiration date. All old bonds represented by certificates delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of old bonds may be withdrawn at any time prior to the expiration date. In order for a withdrawal to be effective, a written, telegraphic or facsimile transmission of such notice of withdrawal must be timely received by the exchange agent at its address set forth above prior to the expiration date. Any such notice of withdrawal must specify the name of the person who tendered the old bonds to be withdrawn, the aggregate principal amount of old bonds to be withdrawn, and (if certificates for such old bonds have been tendered) the name of the registered holder of the old bonds as set forth on the certificate(s), if different from that of the person who tendered such old bonds. If certificates for old bonds have been delivered or otherwise identified to the exchange agent, the notice of withdrawal must specify the serial numbers on the particular certificates for the old bonds to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of old bonds tendered for the account of an Eligible Institution. If old bonds have been tendered pursuant to the procedures for book-entry transfer set forth in "The Exchange Offer - Procedures for Tendering," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of old bonds and must otherwise comply with the procedures of DTC. Withdrawals of tenders of old bonds may not be rescinded. Old bonds properly withdrawn will not be deemed validly tendered for purposes of the exchange offer, but may be retendered at any subsequent time prior to the expiration date by following any of the procedures described in the prospectus under "The Exchange Offer - Procedures for Tendering." 9 All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by AES Ironwood, in its sole discretion, which determination shall be final and binding on all parties. None of AES Ironwood, any affiliates of AES Ironwood, the exchange agent or any other person shall be under any duty to give any notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any old bonds which have been tendered but which are withdrawn will be returned to the holder thereof promptly after withdrawal. 5. Signatures on Letter of Transmittal, Assignments and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the old bonds tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the certificate(s) or on a security position listing, without alteration, enlargement or any change whatsoever. If any of the old bonds tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered old bonds are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are names in which certificates are registered. If this Letter of Transmittal or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to AES Ironwood, in its sole discretion, of such persons' authority to so act. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the old bonds listed and transmitted hereby, the certificate(s) must be endorsed or accompanied by appropriate bond power(s), signed exactly as the name(s) of the registered owner appear(s) on the certificate(s), and also must be accompanied by such opinions of counsel, certifications and other information as AES Ironwood or the trustee for the old bonds may require in accordance with the restrictions on transfer applicable to the old bonds. Signature(s) on such certificate(s) or bond power(s) must be guaranteed by an Eligible Institution. 6. Special Issuance and Delivery Instructions. If new bonds or certificates for old bonds not exchanged are to be issued in the name of a person other than the signer of this Letter of Transmittal, or are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. In the case of issuance in a different name, the taxpayer identification number of the person named must also be indicated. Holders tendering old bonds by book-entry transfer may request that old bonds not exchanged be credited to such account maintained at DTC as such holder may designate. If no such instructions are given, old bonds not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. 7. Irregularities. AES Ironwood will determine, in its sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of old bonds, which determination shall be final and binding on all parties. AES Ironwood reserves the absolute right, in its sole and absolute discretion, to reject any and all tenders determined by it not to be in proper form or the acceptance for exchange of which may, in the view of counsel to AES Ironwood, be unlawful. AES Ironwood also reserves the right, exercising reasonable discretion and subject to applicable law, to waive any of the conditions of the exchange offer set forth in the prospectus under "The Exchange Offer--Conditions to the Exchange Offer" or any defect or irregularity in any 10 tender of old bonds of any particular holder whether or not similar defects or irregularities are waived in the case of other holders. AES Ironwood's interpretation of the terms and conditions of the exchange offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of old bonds will be deemed to have been validly made until all defects or irregularities with respect to such tender have been cured or waived. None of AES Ironwood, any affiliates of AES Ironwood, the exchange agent, or any other person shall be under any duty to give any notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. 8. Questions, Requests for Assistance and Additional Copies. Questions and requests for assistance may be directed to the exchange agent at its address and telephone number set forth above. Additional copies of the prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the exchange agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. Backup Withholding; Substitute Form W-9. Under U.S. federal income tax law, a holder whose tendered old bonds are accepted for exchange is required to provide the exchange agent with such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the exchange agent is not provided with the correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or other payee to a $50 penalty. In addition, payments to such holders or other payees with respect to old bonds exchanged pursuant to the exchange offer may be subject to 31% backup withholding. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the holder or other payee must also complete the certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the exchange agent will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the exchange agent. The exchange agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W-9. If the holder furnishes the exchange agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the exchange agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 31% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided. The holder is required to give the exchange agent the TIN (e.g., social security number or employer identification number) of the registered owner of the old bonds or of the last transferee appearing on the transfers attached to, or endorsed on, the old bonds. If the old bonds are registered in more than one name or are not in the name of the actual owner, consult the Instructions to Form W-9 (Request for Identification Number and Certification) for additional guidance on which number to report. Certain holders (including, among others, corporations, financial institutions and certain foreign persons) may not be subject to these backup withholding and reporting requirements. Such holders should nevertheless complete the attached Substitute Form W-9 below, and write "exempt" on the face thereof, to avoid possible erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting a properly completed IRS Form W-8, signed under penalties of perjury, attesting to that holder's exempt status. Please consult the Instructions to Form W-9 (Request for Identification 11 Number and Certification) for additional guidance on which holders are exempt from backup withholding. Backup withholding is not an additional U.S. federal income tax. Rather, the U.S. federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 10. Mutilated, Lost, Destroyed or Stolen Certificates. If any certificate representing old bonds has been mutilated, lost, destroyed or stolen, the holder should promptly notify the exchange agent. The holder will then be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing mutilated, lost, destroyed or stolen certificates have been followed. 11. Security Transfer Taxes. Holders who tender their old bonds for exchange will not be obligated to pay any transfer taxes in connection therewith, except that if new bonds are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the old bonds tendered, or if a transfer tax is imposed for any reason other than the exchange of old bonds in connection with the exchange offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such transfer tax or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer tax will be billed directly to such tendering holder. Important: This Letter of Transmittal (or a facsimile thereof), together with certificates representing tendered old bonds or a book entry confirmation and all other required documents, must be received by the exchange agent prior to the expiration date. 12 TO BE COMPLETED BY ALL TENDERING HOLDERS (See Instruction 9) PAYER'S NAME: THE BANK OF NEW YORK SUBSTITUTE PART I-PLEASE PROVIDE YOUR Social Security Number OR Form W-9 TIN ON THE LINE AT RIGHT AND Employer Identification Number CERTIFY BY SIGNING AND DATING BELOW ------------------------------------ Department of the PART II-CERTIFICATION-Under penalties of perjury, I certify that: Treasury Internal (1) The number shown on this form is my correct taxpayer identification number Revenue Service (or I am waiting for a number to be issued to me); Payer's Request for (2) I am not subject to backup withholding either because: (a) I am exempt from Taxpayer Identification backup withholding; (b) I have not been notified by the Internal Revenue Service Number (TIN) ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends; or (c) the IRS has notified me that I am no longer subject to backup withholding; and (3) Any other information provided on this form is true and correct. Certification Instructions-You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return and you have not been notified by the IRS that you are no longer subject to backup withholding. SIGNATURE ------------------------------------------------------------------------------------ PRINTED NAME --------------------------------------------------------------------------------- DATE ----------------------------------------------------------------------------------------- PART III--Awaiting TIN o - ----------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments made to me on account of the New bonds shall be retained until I provide a taxpayer identification number to the Exchange Agent and that, if I do not provide my taxpayer identification number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a taxpayer identification number. SIGNATURE: DATE: ------------------------------------- -------------------- EX-99.2 33 FORMAL LETTER TO CLIENTS EXHIBIT 99.2 AES Ironwood, L.L.C. Offer to Exchange its 8.857% Senior Secured Bonds due 2025 Which Have Been Registered Under the Securities Act of 1933 For Any and All of its Outstanding 8.857% Senior Secured Bonds due 2025 TO OUR CLIENTS: Enclosed for your consideration is a prospectus, dated ___________, 2000 (the "prospectus"), and a form of Letter of Transmittal (the "Letter of Transmittal"), relating to the offer (the "exchange offer") of AES Ironwood, L.L.C. ("AES Ironwood") to exchange its 8.857% Senior Secured Bonds due 2025, which have been registered under the Securities Act of 1933 (the "new bonds"), for any and all of its outstanding 8.857% Senior Secured Bonds due 2025 (the "old bonds"), upon the terms and subject to the conditions described in the prospectus and the Letter of Transmittal. The exchange offer is being made in order to satisfy certain of AES Ironwood's obligations contained in the Registration Rights Agreement dated as of May 12, 1999, among AES Ironwood, Lehman Brothers, Morgan Stanley Dean Witter and Dresdner Kleinwort Benson North America LLC. This material is being forwarded to you as the beneficial owner of the old bonds carried by us in your account but not registered in your name. A tender of such old bonds may only be made by us as the holder of record and pursuant to your instructions. Accordingly, we request instructions as to whether you wish us to tender on your behalf the old bonds held by us for your account, pursuant to the terms and conditions set forth in the enclosed prospectus and Letter of Transmittal. Your instructions should be forwarded to us as promptly as possible in order to permit us to tender the old bonds on your behalf in accordance with the provisions of the exchange offer. The exchange offer will expire at 5:00 p.m., New York City time, on __________, 2000, unless extended by AES Ironwood (the "expiration date"). Any old bonds tendered pursuant to the exchange offer may be withdrawn, subject to the procedures described in the prospectus and the Letter of Transmittal, at any time prior to the expiration date. If you wish to have us tender your old bonds, please so instruct us by completing, executing and returning to us the instruction form included with this letter. The Letter of Transmittal is furnished to you for information only and may not be used directly by you to tender old bonds. INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein, including the prospectus and the accompanying form of Letter of Transmittal, relating to the exchange offer made by AES Ironwood, L.L.C. with respect to its old bonds. This will instruct you as to the action to be taken by you relating to the exchange offer with respect to the old bonds held by you for the account of the undersigned, upon and subject to the terms and conditions set forth in the prospectus and the Letter of Transmittal. The aggregate principal amount of the old bonds held by you for the account of the undersigned is (fill in amount): $ _________________ of the 8.857% Senior Secured Bonds due 2025 With respect to the exchange offer, the undersigned hereby instructs you (check appropriate box): o To TENDER the following old bonds held by you for the account of the undersigned (insert aggregate principal amount at maturity of old bonds to be tendered, in integral multiples of $1,000): $ ___________________ of the 8.857% Senior Secured Bonds due 2025 o NOT to tender any old bonds held by you for the account of the undersigned. If the undersigned instructs you to tender the old bonds held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations, warranties and agreements contained in the Letter of Transmittal that are to be made with respect to the undersigned as beneficial owner. SIGN HERE Name of beneficial owner(s): --------------------------------------------------- Signature(s): ------------------------------------------------------------------ Name(s) (please print): -------------------------------------------------------- Address: ----------------------------------------------------------------------- Telephone Number: -------------------------------------------------------------- Taxpayer Identification or Social Security Number(s): -------------------------- Date: -------------------------------------------------------------------------- None of the old bonds held by us for your account will be tendered unless we receive written instructions from you to do so. Unless a specific contrary instruction is given in the space provided, your signature(s) hereon shall constitute an instruction to us to tender all the old bonds held by us for your account. 2 EX-99.3 34 FORM OF LETTER TO REGISTERED HOLDERS EXHIBIT 99.3 AES Ironwood, L.L.C. Offer to Exchange its 8.857% Senior Secured Bonds due 2025 Which Have Been Registered Under the Securities Act of 1933 For Any and All of its Outstanding 8.857% Senior Secured Bonds due 2025 Pursuant to the Prospectus Dated ___________, 2000 TO: REGISTERED HOLDERS AND DEPOSITORY TRUST COMPANY PARTICIPANTS: AES Ironwood, L.L.C. ("AES Ironwood") is offering to exchange, upon and subject to the terms and conditions set forth in the enclosed prospectus, dated ___________, 2000 (the "prospectus"), and the enclosed Letter of Transmittal (the "Letter of Transmittal"), its 8.857% Senior Secured Bonds due 2025, which have been registered under the Securities Act of 1933 (the "new bonds"), for any and all of its outstanding 8.857% Senior Secured Bonds due 2025 (the "old bonds"). The exchange offer is being made in order to satisfy certain of AES Ironwood's obligations contained in the Registration Rights Agreement dated as of May 12, 1999, among AES Ironwood, Lehman Brothers, Morgan Stanley Dean Witter and Dresdner Kleinwort Benson North America LLC. In connection with the exchange offer, we are requesting that you contact your clients for whom you hold old bonds registered in your name or in the name of your nominee, or who hold old bonds registered in their own names. AES Ironwood, Lehman Brothers, Morgan Stanley Dean Witter and Dresdner Kleinwort Benson North America LLC will not pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders pursuant to the exchange offer. However, you will, upon request, be reimbursed for reasonable out-of-pocket expenses incurred in connection with soliciting acceptances of the exchange offer. AES Ironwood, Lehman Brothers, Morgan Stanley Dean Witter and Dresdner Kleinwort Benson North America LLC will pay or cause to be paid all transfer taxes applicable to the exchange of old bonds pursuant to the exchange offer, except as set forth in the prospectus and the Letter of Transmittal. For your information and for forwarding to your clients, we are enclosing the following documents: 1. Prospectus dated ___________, 2000; 2. A Letter of Transmittal for your use and for the information of your clients; 3. A form of Notice of Guaranteed Delivery; and 4. A form of letter which may be sent to your clients for whose account you hold old bonds registered in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the exchange offer. Your prompt action is requested. The exchange offer will expire at 5:00 p.m., New York City time, on __________, 2000 (the "expiration date"), unless extended by AES Ironwood (in which case the term "expiration date" shall mean the latest date and time to which the exchange offer is extended). The old bonds tendered pursuant to the exchange offer may be withdrawn, subject to the procedures described in the prospectus and the Letter of Transmittal, at any time prior to the expiration date. To participate in the exchange offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, should be sent to the exchange agent and certificates representing the old bonds should be delivered to the exchange agent, all in accordance with the instructions set forth in the prospectus and the Letter of Transmittal. If holders of old bonds wish to tender, but it is impracticable for them to forward their certificates for old bonds prior to the expiration of the exchange offer or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in the prospectus and the Letter of Transmittal. Any inquiries you may have with respect to the exchange offer, or requests for additional copies of the enclosed materials, should be directed to the exchange agent for the old bonds, at its address and telephone number set forth on the front of the Letter of Transmittal. Very truly yours, AES IRONWOOD, L.L.C. Nothing herein or in the enclosed documents shall constitute you or any other person as an agent of AES Ironwood or the exchange agent, or authorize you or any other person to use any document or make any statements on behalf of either of them with respect to the exchange offer, except for statements expressly made in the prospectus or the Letter of Transmittal. EX-99.4 35 NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.4 NOTICE OF GUARANTEED DELIVERY for Tender of 8.857% Senior Secured Bonds due 2025 (the "old bonds") of AES Ironwood, L.L.C. This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used to tender old bonds pursuant to the exchange offer described in the prospectus dated ___________, 2000 (as the same may be amended or supplemented from time to time, the "prospectus") of AES Ironwood, L.L.C., a Delaware limited liability company ("AES Ironwood"), if certificates for the old bonds are not immediately available, or time will not permit the old bonds, the Letter of Transmittal and all other required documents to be delivered to The Bank of New York (the "exchange agent") prior to 5:00 p.m., New York City time, on __________, 2000 or such later date and time to which the exchange offer may be extended (the "expiration date"), or the procedures for delivery by book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be delivered by hand or sent by facsimile transmission or mail to the exchange agent, and must be received by the exchange agent prior to the expiration date. See "The Exchange Offer -- Procedures for Tendering" in the prospectus. Capitalized terms used but not defined herein shall have the same meaning given them in the prospectus. The exchange agent for the exchange offer is: THE BANK OF NEW YORK By Facsimile: By Mail or Hand Delivery: (212) 815-6339 The Bank of New York Attention: Terence Rawlins 101 Barclay Street, 7E Confirm by Telephone to: New York, New York 10286 (212) 815-5988 Attention: Terence Rawlins Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of this Notice of Guaranteed Delivery via facsimile other than as set forth above does not constitute a valid delivery. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to AES Ironwood, upon the terms and subject to the conditions set forth in the prospectus and the related Letter of Transmittal, the old bonds indicated below pursuant to the guaranteed delivery procedures set forth in the prospectus under the caption "The Exchange Offer - Procedures for Tendering." Name(s) of Registered Holder(s): ------------------------------------------------ (Please Print or Type) Signature(s): ------------------------------------------------------------------- Address(es): -------------------------------------------------------------------- - -------------------------------------------------------------------------------- Area Code(s) and Telephone Number(s): ------------------------------------------- Account Number: ----------------------------------------------------------------- Date: ---------------------------------------------------------------------------
Certificate No(s). Principal Amount of Old Bonds Tendered * (if available) - ----------------------------------------- ----------------------------------------- - ----------------------------------------- ----------------------------------------- - ----------------------------------------- ----------------------------------------- - ----------------------------------------- ----------------------------------------- - ----------------------------------------- ----------------------------------------- - ----------------------------------------- -----------------------------------------
* Must be in integral multiples of $1,000 principal amount. 2 GUARANTEE OF DELIVERY (Not to be used for signature guarantee) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or a correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees that the undersigned will deliver to the exchange agent the certificates representing the old bonds being tendered hereby in proper form for transfer (or a confirmation of book-entry transfer of such old bonds, into the exchange agent's account at the book-entry transfer facility of The Depository Trust Company ("DTC")) with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, all within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery. Name of Firm: --------------------------------- ------------------------------------------ Authorized Signature Address: Name: -------------------------------------- ------------------------------------- Please Print or Type Title: - ---------------------------------------------- ------------------------------------ Telephone Number: Dated: ----------------------------- ------------------------------------
The institution that completes this form must communicate the guarantee to the exchange agent and must deliver the certificates representing any old bonds (or a confirmation of book-entry transfer of such old bonds into the exchange agent's account at DTC) and the Letter of Transmittal to the exchange agent within the time period shown herein. Failure to do so could result in a financial loss to such institution. 3 -----END PRIVACY-ENHANCED MESSAGE-----