10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2003

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-19281

THE AES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	54-1163725
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
1001 North 19th Street, Arlington, Virginia	22209
(Address of Principal Executive Offices)	(Zip Code)

(703) 522-1315

(Registrant’s Telephone Number, Including Area Code)

                Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

                Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes ý    No o

                The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, at May 1, 2003, was 569,651,299.

THE AES CORPORATION

INDEX

Part I.	Financial Information
Item 1.	Interim Financial Statements:
	Consolidated Statements of Operations
	Consolidated Balance Sheets
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
Item 2.	Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II.	Other Information
Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
Signatures
Certifications

2

THE AES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED MARCH 31, 2003 AND 2002

(Unaudited)

	Three Months Ended
	March 31, 2003			March 31, 2002
	(in millions, except per share amounts)
Revenues:
Regulated	$	1,035		$	1,132
Non-regulated	1,188			1,069
Total revenues	2,223			2,201
Cost of sales:
Regulated	(838		)	(818		)
Non-regulated	(783		)	(708		)
Total cost of sales	(1,621		)	(1,526		)
Selling, general and administrative expenses	(29		)	(28		)
Interest expense	(582		)	(436		)
Interest income	84			46
Other expense	(32		)	(11		)
Other income	25			22
Loss on sale of investments	—			(57		)
Foreign currency transaction gains (losses)	52			(70		)
Equity in pre-tax earnings of affiliates	24			29
Income before income taxes and minority interest	144			170
Income tax expense	40			62
Minority interest in net income (losses) of subsidiaries	31			(10		)
Income from continuing operations	73			118
Income from operations of discontinued businesses (net of income taxes of $6 and $31, respectively)	22			42
Income before cumulative effect of accounting change	95			160
Cumulative effect of accounting change (net of income taxes of $1 and $155, respectively)	(2		)	(473		)
Net income (loss)	$	93		$	(313	)
Basic earnings per share:
Income from continuing operations	$	0.13		$	0.22
Discontinued operations	0.04			0.08
Cumulative effect of accounting change	—			(0.89		)
Total	$	0.17		$	(0.59	)
Diluted earnings per share:
Income from continuing operations	$	0.13		$	0.22
Discontinued operations	0.04			0.08
Cumulative effect of accounting change	—			(0.88		)
Total	$	0.17		$	(0.58	)

See Notes to Consolidated Financial Statements.

3

THE AES CORPORATION

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2003 AND DECEMBER 31, 2002

(Unaudited)

	March 31, 2003			December 31, 2002
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	1,163		$	769
Restricted cash	206			160
Short-term investments	239			210
Accounts receivable, net of reserves of $385 and $424, respectively	1,140			1,119
Inventory	387			378
Receivable from affiliates	6			25
Deferred income taxes — current	124			130
Prepaid expenses	107			68
Other current assets	912			950
Current assets of discontinued operations and businesses held for sale	451			540
Total current assets	4,735			4,349
Property, plant and equipment:
Land	725			702
Electric generation and distribution assets	19,558			18,505
Accumulated depreciation and amortization	(4,267		)	(4,070		)
Construction in progress	2,620			3,222
Property, plant and equipment — net	18,636			18,359
Other assets:
Deferred financing costs — net	421			400
Project development costs	6			15
Investments in and advances to affiliates	695			678
Debt service reserves and other deposits	510			508
Goodwill — net	1,375			1,388
Deferred income taxes — noncurrent	979			939
Long-term assets of discontinued operations and businesses held for sale	3,748			5,856
Other assets	1,764			1,768
Total other assets	9,498			11,552
Total assets	$	32,869		$	34,260

See Notes to Consolidated Financial Statements.

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THE AES CORPORATION

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2003 AND DECEMBER 31, 2002

(Unaudited)

	March 31, 2003			December 31, 2002
	($ in millions)
Liabilities & Stockholders’ Deficit
Current liabilities:
Accounts payable	$	1,153		$	1,130
Accrued interest	495			362
Accrued and other liabilities	1,175			1,148
Current liabilities of discontinued operations and businesses held for sale	2,752			537
Recourse debt—current portion	26			26
Non-recourse debt—current portion	3,989			3,308
Total current liabilities	9,590			6,511
Long-term liabilities:
Non-recourse debt	10,030			10,550
Recourse debt	5,463			5,778
Deferred income taxes	957			981
Pension liabilities	1,193			1,166
Long-term liabilities of discontinued operations and businesses held for sale	1,371			5,202
Other long-term liabilities	2,625			2,617
Total long-term liabilities	21,639			26,294
Minority interest (including discontinued operations of $0 and $41, respectively)	806			818
Commitments and contingencies (Note 8)	—			—
Company-obligated Convertible Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Debentures of AES	978			978
Stockholders’ deficit:
Preferred stock	—			—
Common stock	6			6
Additional paid-in capital	5,349			5,312
Accumulated deficit	(606		)	(700		)
Accumulated other comprehensive loss	(4,893		)	(4,959		)
Total stockholders’ deficit	(144		)	(341		)
Total liabilities & stockholders’ deficit	$	32,869		$	34,260

See Notes to Consolidated Financial Statements.

5

THE AES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED MARCH 31, 2003 AND 2002

(Unaudited)

	Three Months Ended
	March 31, 2003			March 31, 2002
	($ in millions)
Operating activities:
Net cash provided by operating activities	$	446		$	627
Investing activities:
Property additions	(265		)	(653		)
Proceeds from sales of interests in subsidiaries and assets, net of cash	585			35
Purchase of short-term investments, net	(23		)	(221		)
Proceeds from sale of available-for-sale securities	—			92
Affiliate advances and equity investments	—			(6		)
(Increase) decrease in restricted cash	(85		)	54
Debt service reserves and other assets	(13		)	78
Other	(4		)	—
Net cash provided by (used in) investing activities	195			(621		)
Financing activities:
Borrowings under the revolving credit facilities, net	8			503
Issuance of non-recourse debt and other coupon bearing securities	269			347
Repayments of non-recourse debt and other coupon bearing securities	(493		)	(478		)
Payments for deferred financing costs	(15		)	(2		)
Contributions by minority interests, net	6			40
Net cash (used in) provided by financing activities	(225		)	410
Effect of exchange rate changes on cash	(1		)	(25		)
Total increase in cash and cash equivalents	415			391
Increase in cash and cash equivalents of discontinued operations and businesses held for sale	(21		)	(174		)
Cash and cash equivalents, beginning	769			771
Cash and cash equivalents, ending	$	1,163		$	988
Supplemental disclosures:
Cash payments for interest — net of amounts capitalized	$	381		$	365
Cash payments for income taxes — net of refunds	23			2
Supplemental schedule of noncash investing and financing activities:
Liabilities consolidated in Eletropaulo transaction	$	—		$	4,907
Common stock issued for debt retirement	23			—

See Notes to Consolidated Financial Statements.

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THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003

(Unaudited)

1.             Basis of Presentation

The consolidated financial statements include the accounts of The AES Corporation, its subsidiaries and controlled affiliates (the “Company” or “AES”). Intercompany transactions and balances have been eliminated. Investments, in which the Company has the ability to exercise significant influence but not control, are accounted for using the equity method.

In the Company’s opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the three months ended March 31, 2003 and 2002, respectively, are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the period ended March 31, 2003 are not necessarily indicative of the results of operations to be expected for the full year. The accompanying consolidated financial statements are unaudited and should be read in conjunction with the consolidated financial statements, which are incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Certain reclassifications have been made to prior-period amounts to conform to the 2003 presentation.

2.             Foreign Currency Translation

A business’s functional currency is the currency of the primary economic environment in which the business operates and is generally the currency in which the business generates and expends cash. Subsidiaries and affiliates whose functional currency is other than the U.S. dollar translate their assets and liabilities into U.S. dollars at the current exchange rates in effect at the end of the fiscal period. The revenue and expense accounts of such subsidiaries and affiliates are translated into U.S. dollars at the average exchange rates that prevailed during the period. The translation differences that result from this process, and gains and losses on intercompany foreign currency transactions which are long-term in nature, and which the Company does not intend to settle in the foreseeable future, are shown in accumulated other comprehensive loss in the stockholders’ deficit section of the balance sheet. Gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in determining net income.

During the first quarter of 2003, the Brazilian real relative to the U.S. dollar, appreciated from 3.53 at December 31, 2002 to 3.35 at March 31, 2003.  This appreciation resulted in foreign currency translation and transaction gains during the first quarter of 2003.  The Company recorded non-cash foreign currency transaction gains at its Brazilian affiliates of approximately $33 million before income taxes during the first quarter of 2003.

During the first quarter of 2003, the Argentine peso relative to the U.S. dollar, appreciated from 3.32 at December 31, 2002 to 2.94 at March 31, 2003.  This appreciation resulted in foreign currency transaction gains during the first quarter of 2003.  The Company recorded non-cash foreign currency transaction gains at its Argentine affiliates of approximately $37 million before income taxes during the first quarter of 2003.

The political environment and economy in Venezuela continue to be in a state of crisis. The economy has suffered from falling oil revenues, capital flight and a decline in foreign reserves. The country is experiencing negative GDP growth, high unemployment, significant foreign currency fluctuations and political instability. Beginning December 2, 2002, Venezuela experienced a forty-five day nationwide general strike that affected a significant portion of the Venezuelan economy, including the city of Caracas and the oil industry.  In February 2002, the Venezuelan Government decided not to continue support of the Venezuelan currency.  As a result, the Venezuelan bolivar experienced significant devaluation relative to the U.S. dollar throughout 2002 and during the first quarter of 2003. As a result of this decision by the Venezuelan government, the U.S. dollar to Venezuelan bolivar exchange rate floated as high as 1,853.

Effective January 21, 2003, the Venezuelan Government and the Central Bank of Venezuela (Central Bank) agreed to suspend the trading of foreign currencies in the country for five business days and to establish new standards for the

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foreign currency exchange regime. Effective February 5, 2003, the Venezuelan Government and the Central Bank entered into an exchange agreement that will govern the Foreign Currency Management Regime, and establish the applicable exchange rate. The exchange agreement established certain conditions including the centralization of the purchase and sale of currencies within the country by the Central Bank, and the incorporation of the Foreign Currency Management Commission (CADIVI) to administer the execution of the exchange agreement and establish certain procedures and restrictions. The acquisition of foreign currencies will be subject to the prior registration of the interested party and the issuance of an authorization to participate in the exchange regime. Furthermore, CADIVI will govern the provisions of the exchange agreement, define the procedures and requirements for the administration of foreign currencies for imports and exports, and authorize purchases of currencies in the country. The exchange rates set by such agreements are 1,596 bolivars per U.S. dollar for purchases and 1,600 bolivars per U.S. dollar for sales.

In a Resolution passed on April 14, 2003, CADIVI published a list of import duty codes identifying goods that have been approved for foreign currency purchases by registered companies.  On April 28, 2003, CADIVI notified EDC that its registration to import such goods had been approved. On April 22, 2003, CADIVI published the general procedures regarding the acquisition of foreign currency for payments of external debt entered into by private companies prior to January 22, 2003.

During the first quarter of 2003, the Venezuelan bolivar continued to devalue relative to the U.S. dollar, declining from 1,403 at December 31, 2002 to 1,600 at March 31, 2003.  EDC uses the U.S. dollar as its functional currency. A portion of its debt is denominated in the Venezuelan bolivar, and as of March 31, 2003, EDC had net Venezuelan bolivar monetary liabilities thereby creating foreign currency gains when the Venezuelan bolivar devalues. The Company recorded foreign currency transaction gains at its Venezuelan affiliates of approximately $9 million before income taxes during the first quarter of 2003.

During the first quarter of 2003, the Company also experienced net foreign currency losses of $27 million at its businesses outside of Brazil, Argentina and Venezuela, which included losses of $23 million at businesses located in the Dominican Republic.

3.             Earnings Per Share

Basic and diluted earnings per share computations are based on the weighted average number of shares of common stock and potential common stock outstanding during the period, after giving effect to stock splits. Potential common stock, for purposes of determining diluted earnings per share, includes the dilutive effects of stock options, warrants, deferred compensation arrangements and convertible securities. The effect of such potential common stock is computed using the treasury stock method or the if-converted method, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share” ($ in millions, except per share amounts).

	Quarter Ended March 31,
	2003					2002
	Net Income		Weighted Average Shares	EPS		Net Income		Weighted Average Shares	EPS
Basic earnings per share:
Income from continuing operations	$	73	561	$	0.13	$	118	534	$	0.22
Effect of assumed conversion of dilutive securities:
Options and warrants	—		—	—		—		2	—
Deferred compensation plan	—		—	—		—		—	—
Debt securities	—		—	—		—		5	—
Interest savings from conversion of debt securities	—		—	—		1			—
Dilutive earnings per share:	$	73	561	$	0.13	$	119	541	$	0.22

There were approximately 32,074,505 and 27,130,889 options outstanding at March 31, 2003 and 2002, respectively, which were omitted from the earnings per share calculation because they were antidilutive.  All term convertible preferred securities (“Tecons”) and convertible debt were also omitted from the earnings per share calculation at March 31, 2003 and 2002 because they were antidilutive.

8

4.             Discontinued Operations

During the first quarter of 2003, after exploring several strategic options related to AES Barry, AES committed to a plan to sell its ownership in this business and has classified it as available for sale.  AES Barry was previously reported in the competitive supply segment.

In March 2003 AES reached an agreement to sell 100% of its ownership interest in both AES Haripur Private Ltd. and AES Meghnaghat Ltd., both generation businesses in Bangladesh, to CDC Globeleq.  The aggregate transaction is valued at $437 million, which includes cash and assumed project debt of $310 million.  The transaction equates to an equity purchase price of $127 million, which is subject to purchase price adjustments at the time of the financial close.  Completion of the sales transactions is subject to certain conditions, including government and lender approvals.  These two businesses were previously reported in the contract generation segment.

In April 2002, AES reached an agreement to sell 100 percent of its ownership interest in CILCORP, a utility holding company whose largest subsidiary is Central Illinois Light Company (“CILCO”), to Ameren Corporation in a transaction valued at $1.4 billion including the assumption of debt and preferred stock at the closing. During the year ended December 31, 2002, a pre-tax goodwill impairment expense of approximately $104 million was recorded to reduce the carrying amount of the Company’s investment to its estimated fair market value. The goodwill was considered impaired since the current fair market value of the business was less than its carrying value. The fair market value of AES’s investment in CILCORP was estimated using the expected sale price under the related sales agreement. The transaction also includes an agreement to sell AES Medina Valley Cogen, a gas-fired cogeneration facility located in CILCO’s service territory. The sale of CILCORP by AES was required under the Public Utility Holding Company Act (PUHCA) when AES merged with IPALCO, a regulated utility in Indianapolis, Indiana in March 2001. The transaction closed in January 2003, and generated approximately $500 million in cash proceeds, net of transaction expenses and subject to certain post-closing adjustments. CILCORP was previously reported in the large utilities segment.

In December 2002, AES reached an agreement to sell 100 percent of its ownership interest in both AES Mt. Stuart and AES Ecogen, both generation businesses in Australia, to Origin Energy Limited and to a consortium of Babcock & Brown and Prime Infrastructure Group, respectively. The total sales price for both businesses was approximately $171 million. The sale of AES Mt. Stuart closed in January 2003 and resulted in a loss on sale of approximately $2 million after tax. The sale of AES Ecogen closed in February 2003 and resulted in a gain on sale of approximately $23 million after tax. AES Mt. Stuart and AES Ecogen were previously reported in the contract generation segment.

In December 2002, AES reached an agreement to sell 100 percent of its ownership interests in Songas Limited (“Songas”) and AES Kelvin Power (Pty.) Ltd. (“AES Kelvin”) to CDC Globeleq for approximately $337 million, which includes the assumption of project debt. The sale of AES Kelvin closed in March 2003, and the sale of Songas closed in April 2003.  Both Songas and AES Kelvin were previously reported in the contract generation segment.

In December 2002, AES classified its investment in Mountainview as held for sale. In the fourth quarter of 2002, the Company recorded a pre-tax impairment charge of $415 million ($270 million after-tax) to reduce the carrying value of Mountainview’s assets to estimated realizable value in accordance with SFAS No. 144. The determination of the realizable value was based on available market information obtained through discussions with potential buyers. In January 2003, the Company entered into an agreement to sell Mountainview for $30 million with another $20 million payment contingent on the achievement of project specific milestones. The transaction closed in March 2003 and resulted in a gain on sale of approximately $4 million after tax. Mountainview was previously reported in the competitive supply segment.

All of the business components discussed above are classified as discontinued operations in the accompanying consolidated statements of operations. Previously issued statements of operations have been restated to reflect discontinued operations reported subsequent to the original issuance date. The revenues associated with the discontinued operations were $146 million and $529 million for the three months ended March 31, 2003 and 2002, respectively. The pretax income (loss) associated with the discontinued operations were $29 million and $119 million for the three months ended March 31, 2003 and 2002, respectively.

9

The loss on disposal and impairment write-downs for those businesses sold or held for sale, net of tax associated with the discontinued operations, was $15 million for the three months ended March 31, 2003 and $33 million for the three months ended March 31, 2002.

The assets and liabilities associated with the discontinued operations and assets held for sale are segregated on the consolidated balance sheets at March 31, 2003 and December 31, 2002. The carrying amount of major asset and liability classifications for businesses recorded as discontinued operations and held for sale are as follows:

	March 31, 2003		December 31, 2002
	(in millions)
ASSETS:
Cash	$	199	$	141
Short-term investments	—		1
Accounts receivable, net	110		202
Inventory	42		121
Property, plant and equipment	3,286		4,659
Other assets	562		1,272
Total assets	$	4,199	$	6,396
LIABILITIES:
Accounts payable	$	16	$	113
Current portion of long-term debt	2,520		177
Long-term debt	269		3,620
Other liabilities	1,318		1,830
Total liabilities	$	4,123	$	5,740

5.             Other Asset Sales

During March 2003, the Company announced an agreement to sell an approximately 32% ownership interest in AES Oasis Limited (“AES Oasis”). AES Oasis is a newly created company that will own two electric generation development projects and desalination plants in Oman and Qatar (AES Barka and AES Ras Laffan, respectively), the oil-fired generating facilities, AES LalPir and AES PakGen in Pakistan, as well as future power projects in the Middle East. AES expects this sale to close in the second or third quarter of 2003. Completion of the AES Oasis transaction is subject to certain conditions, including government and lender approvals. At the time of closing, AES will receive cash proceeds of approximately $150 million.

6.             Investments in and Advances to Affiliates

The Company records its share of earnings from its equity investees on a pre-tax basis. The Company’s share of the investee’s income taxes is recorded in income tax expense.

In August 2000, a subsidiary of the Company acquired a 49% interest in Songas Limited (“Songas”) for approximately $40 million. The Company acquired an additional 16.79% of Songas for approximately $12.5 million, and the Company began consolidating this entity in 2002. Songas owns the Songo Songo Gas-to-Electricity Project in Tanzania. In December 2002, the Company signed a Sales Purchase Agreement to sell Songas. The sale of Songas closed in April 2003.

The following tables present summarized comparative financial information (in millions) for the Company’s investments in 50% or less owned investments accounted for using the equity method.  The results of operations of Eletropaulo

10

Metropolitana Electricidade de Sao Paulo S.A. (“Eletropaulo”) and Light Servicos de Electricidade S.A. (“Light”) are included in the tables for January 2002 since AES acquired a controlling interest in Eletropaulo and began consolidating the subsidiary in February 2002.

	Quarters Ended March 31,
	2003		2002
Revenues	$	578	$	911
Operating income	174		203
Net income	71		69

	March 31, 2003		December 31, 2002
Current assets	$	1,144	$	1,097
Noncurrent assets	6,615		6,751
Current liabilities	1,419		1,418
Long-term liabilities	3,391		3,349
Stockholders’ equity	2,949		3,081

Relevant equity ownership percentages for our investments are presented below:

Affiliate	Country	March 31, 2003		December 31, 2002
CEMIG	Brazil	21.62	%	21.62	%
Chigen affiliates	China	30.00		30.00
EDC affiliates	Venezuela	45.00		45.00
Elsta	Netherlands	50.00		50.00
Gener affiliates	Chile	50.00		50.00
Itabo	Dominican Republic	25.00		25.00
Kingston Cogen Ltd	Canada	50.00		50.00
Medway Power, Ltd	United Kingdom	25.00		25.00
OPGC	India	49.00		49.00

7.             Other Income (Expense)

The components of other income are summarized as follows (in millions):

	For the three months ended
	March 31, 2003		March 31, 2002
Marked-to-market gain on commodity derivatives	$	—	$	6
Gain on extinguishment of liabilities	15		7
Legal dispute settlement	5		—
Gain on sale of assets	1		4
Other non-operating income	4		5
	$	25	$	22

The components of other expense are summarized as follows (in millions):

	For the three months ended
	March 31, 2003			March 31, 2002
Loss on sale of assets	$	(8	)	$	(9	)
Marked-to-market loss on commodity derivatives	(15		)	—
Legal dispute settlement	(5		)	—
Other non-operating expenses	(4		)	(2		)
	$	(32	)	$	(11	)

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Also in the first quarter of 2002, EDC sold an available-for-sale security resulting in proceeds of $92 million. The realized loss on the sale was $57 million. Approximately $48 million of the loss related to recognition of previously unrealized losses.

8.             Commitments, Contingencies and Risks

Project level defaults

As reported in our Annual Report on Form 10-K for the year ended December 31, 2002, Eletropaulo in Brazil and Edelap, Eden/Edes, Parana and TermoAndes, all in Argentina, are still in default. During the first quarter of 2003, CEMIG and Sul in Brazil, and Drax and Barry in the United Kingdom each went into default on its outstanding debt.  The total debt classified as current in the accompanying consolidated balance sheets related to such defaults was $4.4 billion at March 31, 2003.  In addition, during April 2003, AES Cayman Guaiba went into default on its $300 million syndicated loan.  See Note 13 “Subsequent Events”.

None of the AES subsidiaries in default on their non-recourse project financings at March 31, 2003 are material subsidiaries as defined in the parent’s indebtedness agreements, and therefore, none of these defaults can cause a cross-default or cross-acceleration under the parent’s revolving credit agreement or other outstanding indebtedness or the SELLS loans referred to in our Annual Report on Form 10-K, nor are they expected to otherwise have a material adverse effect on the Company’s results of operations or financial condition.

Contingencies

At March 31, 2003, the Company had provided outstanding financial and performance related guarantees or other credit support commitments to or for the benefit of its subsidiaries, which were limited by the terms of the agreements, to an aggregate of approximately $629 million (excluding those collateralized by letter-of-credit obligations discussed below). The Company is also obligated under other commitments, which are limited to amounts, or percentages of amounts, received by AES as distributions from its project subsidiaries. These amounts aggregated $25 million as of March 31, 2003. In addition, the Company has commitments to fund its equity in projects currently under development or in construction. At March 31, 2003, such commitments to invest amounted to approximately $51 million (excluding those collateralized by letter-of-credit obligations).

At March 31, 2003, the Company had $193 million in letters of credit outstanding, which operate to guarantee performance relating to certain project development activities and subsidiary operations. The Company pays a letter-of-credit fee ranging from 0.50% to 6.75% per annum on the outstanding amounts. In addition, the Company had $3 million in surety bonds outstanding at March 31, 2003.

Environmental

In May 2000, the New York State Department of Environmental Conservation (“DEC”) issued a NOV to NYSEG for violations of the Federal Clean Air Act and the New York Environmental Conservation Law at the Greenidge and Westover plants related to NYSEG’s alleged failure to undergo an air permitting review prior to making repairs and improvements during the 1980s and 1990s. Pursuant to the agreement relating to the acquisition of the plants from NYSEG, AES Eastern Energy agreed with NYSEG that AES Eastern Energy will assume responsibility for the NOV, subject to a reservation of AES Eastern Energy’s right to assert any applicable exception to its contractual undertaking to assume pre-existing environmental liabilities. The Company believes it has meritorious defenses to any actions asserted against it and expects to vigorously defend itself against the allegations; however, the NOV issued by the DEC, and any additional enforcement actions that might be brought by the New York State Attorney General, the DEC or the U.S. Environmental Protection Agency (“EPA”), against the Somerset, Cayuga, Greenidge or Westover plants, might result in

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the imposition of penalties and might require further emission reductions at those plants. In addition to the NOV, the DEC alleged, after our acquisition of the Cayuga, Westover, Greenidge, Hickling and Jennison plants from NYSEG in May 1999, air permit violations at each of those plants. Specifically, DEC has alleged exceedences of the opacity emissions limitations at these plants. With respect to pre-May 1999 and post-May 1999 violations, respectively, DEC has notified NYSEG, on the one hand, and AES, on the other, of their respective liability for such alleged violations. To remediate these alleged violations, DEC has proposed that each of AES and NYSEG pay fines and penalties in excess of $100,000. Resolution of this matter could also require AES to install additional pollution control technology at these plants. NYSEG has asserted a claim against AES for indemnification against all penalties and other related costs arising out of DEC’s allegations. However, no formal consent order has been issued by the DEC.

On April 25, 2003, a fuel oil spill occurred at a facility owned by AES Panama SA (AES Panama) which may have led to the contamination of a nearby river.  AES Panama immediately began clean up efforts once the spill was detected, and is currently working with an environmental consultant to evaluate the effectiveness of the clean up, to determine if more action is required, and to assess the extent of any environmental damage caused by the spill.  AES Panama has cooperated fully with the investigating authorities.  On May 7, 2003, the National Environmental Authority of Panama (ANAM) announced that it was fining AES Panama $250,000 for the spill and requiring a report on the clean-up actions and new operational controls to be put in place to ensure that such an incident does not occur in the future.

The Company’s generating plants are subject to emission regulations. The regulations may result in increased operating costs or the purchase of additional pollution control equipment if emission levels are exceeded.

The Company reviews its obligations as it relates to compliance with environmental laws, including site restoration and remediation. Although AES is not aware of any costs of complying with environmental laws and regulations which would reasonably be expected to result in a material adverse effect on its business, consolidated financial position or results of operations except as described above, there can be no assurance that AES will not be required to incur material compliance costs in the future.

Litigation

In September 1999, a judge in the Brazilian appellate state court of Minas Gerais granted a temporary injunction suspending the effectiveness of a shareholders’ agreement between Southern Electric do Brasil Participacoes Ltda. (“SEB”) and the state of Minas Gerais concerning CEMIG.  This shareholders’ agreement granted SEB certain rights and powers in respect of CEMIG (the “Special Rights”). The temporary injunction was granted pending determination by the lower state court of whether the shareholders’ agreement could grant SEB the Special Rights. In October 1999, the full state appellate court upheld the temporary injunction. In March 2000, the lower state court in Minas Gerais ruled on the merits of the case, holding that the shareholders’ agreement was invalid where it purported to grant SEB the Special Rights. In August 2001, the state appellate court denied an appeal of the merits decision, and extended the injunction. In October 2001, SEB filed two appeals against the decision on the merits of the state appellate court, one to the Federal Superior Court and the other to the Supreme Court of Justice. The state appellate court denied access of these two appeals to the higher courts, and in August 2002, SEB filed two interlocutory appeals against such decision, one directed to the Federal Superior Court and the other to the Supreme Court of Justice. These appeals continue to be pending. SEB intends to vigorously pursue by all legal means a restoration of the value of its investment in CEMIG. However, there can be no assurances that it will be successful in its efforts. Failure to prevail in this matter may limit the SEB’s influence on the daily operation of CEMIG.

In November 2000, the Company was named in a purported class action suit along with six other defendants alleging unlawful manipulation of the California wholesale electricity market, resulting in inflated wholesale electricity prices throughout California. Alleged causes of action include violation of the Cartwright Act, the California Unfair Trade Practices Act and the California Consumers Legal Remedies Act. In December 2000, the case was removed from the San Diego County Superior Court to the U.S. District Court for the Southern District of California. The case has been consolidated with five other lawsuits alleging similar claims against other defendants. In March 2002, the plaintiffs filed a new master complaint in the consolidated action, which asserted the claims asserted in the earlier action and names the Company, AES Redondo Beach, L.L.C., AES Alamitos, L.L.C., and AES Huntington Beach, L.L.C. as defendants. Defendants have filed a motion to dismiss the action in its entirety. The Company believes it has meritorious defenses to any actions asserted against it and expects that it will defend itself vigorously against the allegations.

In addition, the crisis in the California wholesale power markets has directly or indirectly resulted in several administrative and legal actions involving the Company’s businesses in California. Each of the Company’s businesses in California (AES Placerita and AES Southland, which is comprised of AES Redondo Beach, AES Alamitos, and AES Huntington Beach) are subject to overlapping state investigations by the California Attorney General’s Office, the Market Oversight and Monitoring Committee of the California Independent System Operator (“ISO”), the California Public Utility Commission and a subcommittee of the California Senate. The businesses have cooperated with the investigation and responded to multiple requests for the production of documents and data surrounding the operation and bidding behavior of the plants.

In August 2000, the Federal Energy Regulatory Commission (“FERC”) announced an investigation into the national wholesale power markets, with particular emphasis upon the California wholesale electricity market, in order to determine whether there has been anti-

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competitive activity by wholesale generators and marketers of electricity. The FERC has requested documents from each of the AES Southland plants and AES Placerita. AES Southland and AES Placerita have cooperated fully with the FERC investigation.

In May 2001, the Antitrust Division of the United States Department of Justice initiated an investigation to determine whether a provision in the AES Southland plants’ Tolling Agreement with Williams Energy Services Company has restricted the addition of new capacity in the Los Angeles area in contravention of the antitrust laws. The AES Southland businesses have provided documents and other information to the Department of Justice.

In July 2001, a petition was filed against CESCO, an affiliate of the Company by the Grid Corporation of Orissa, India (“Gridco”), with the Orissa Electricity Regulatory Commission (“OERC”), alleging that CESCO has defaulted on its obligations as a government licensed distribution company; that CESCO management abandoned the management of CESCO; and asking for interim measures of protection, including the appointment of a government regulator to manage CESCO. Gridco, a state owned entity, is the sole energy wholesaler to CESCO. In August 2001, the management of CESCO was handed over by the OERC to a government administrator that was appointed by the OERC. Gridco also has asserted that a Letter of Comfort issued by the Company in connection with the Company’s investment in CESCO obligates the Company to provide additional financial support to cover CESCO’s financial obligations. In December 2001, a notice to arbitrate pursuant to the Indian Arbitration and Conciliation Act of 1996 was served on the Company by Gridco pursuant to the terms of the CESCO Shareholder’s Agreement (“SHA”), between Gridco, the Company, AES ODPL, and Jyoti Structures. The notice to arbitrate failed to detail the disputes under the SHA for which the Arbitration had been initiated. After both parties had appointed arbitrators, and those two arbitrators appointed the third neutral arbitrator, Gridco filed a motion with the India Supreme Court seeking the removal of AES’ arbitrator and the neutral chairman arbitrator. In the fall of 2002, the Supreme Court rejected Gridco’s motion to remove the arbitrators. Gridco has now asked the arbitrators themselves to rule on the same motion, which motion again requests their removal from the panel. Although that motion remains pending, the parties have filed their respective statement of claims and defenses. The Company believes that it has meritorious defenses to any actions asserted against it and expects that it will defend itself vigorously against the allegations.

In November 2002, the Company was served with a grand jury subpoena issued on application of the United States Attorney for the Northern District of California. The subpoena seeks, inter alia, certain categories of documents related to the generation and sale of electricity in California from January 1998 to the present. The Company intends to comply fully with its legal obligations in responding to the subpoena.

In April 2002, IPALCO and certain former officers and directors of IPALCO were named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of Indiana. On May 28, 2002, an amended complaint was filed in the lawsuit. The amended complaint asserts that former members of the pension committee for the thrift plan breached their fiduciary duties to the plaintiffs under the Employment Retirement Income Securities Act by investing assets of the thrift plan in the common stock of IPALCO prior to the acquisition of IPALCO by the Company. In February 2003, the Court denied the defendants motion to dismiss the lawsuit. On May 2, 2003, plaintiffs’ counsel advised of its intent to seek to amend the complaint and extend the discovery deadline. The subsidiary believes it has meritorious defenses to the claims asserted against them and intends to defend these lawsuits vigorously.

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In July 2002, the Company, Dennis W. Bakke, Roger W. Sant, and Barry J. Sharp were named as defendants in a purported class action filed in the United States District Court for the Southern District of Indiana. In September 2002, two virtually identical complaints were filed against the same defendants in the same court. All three lawsuits purport to be filed on behalf of a class of all persons who exchanged their shares of IPALCO common stock for shares of AES common stock pursuant to the Registration Statement dated and filed with the SEC on August 16, 2000. The complaint purports to allege violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 based on statements in or omissions from the Registration Statement covering certain secured equity-linked loans by AES subsidiaries; the supposedly volatile nature of the price of AES stock, as well as AES’s allegedly unhedged operations in the United Kingdom. In October 2002, the defendants moved to consolidate these three actions with the IPALCO securities lawsuit referred to immediately below. On November 5, 2002, the Court appointed lead plaintiffs and lead and local counsel. On March 19, 2003, the Court entered an order on defendants’ motion to consolidate, in which the Court deferred its ruling on defendants’ motion and referred the actions to a magistrate judge for pretrial supervision.  On April 14, 2003, lead plaintiffs filed an amended complaint, which adds John R. Hodowal, Ramon L. Humke and John R. Brehm as defendants and, in addition to the purported claims in the original complaint, purports to allege against the newly added defendants violations of Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9 promulgated thereunder.  The amended complaint also purports to add a claim based on alleged misstatements or omissions concerning AES’ alleged obligations to Williams Energy Services Co. in connection with the California energy market. The Company and the individual defendants believe that they have meritorious defenses to the claims asserted against them and intend to defend these lawsuits vigorously.

In September 2002, IPALCO and certain of its former officers and directors were named as defendants in a purported class action filed in the United States District Court for the Southern District of Indiana. The lawsuit purports to be filed on behalf of the class of all persons who exchanged shares of IPALCO common stock for shares of AES common stock pursuant to the Registration Statement dated and filed with the SEC on August 16, 2000. The complaint purports to allege violations of Sections 11 of the Securities Act of 1933 and Sections 10(a), 14(a) and 20(a) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14a-9 promulgated thereunder based on statements in or omissions from the Registration Statement covering certain secured equity-linked loans by AES subsidiaries; the supposedly volatile nature of the price of AES stock; and AES’s allegedly unhedged operations in the United Kingdom. The Company and the individual defendants believe that they have meritorious defenses to the claims asserted against them and intend to defend the lawsuit vigorously.

In October 2002, the Company, Dennis W. Bakke, Roger W. Sant and Barry J. Sharp were named as defendants in purported class actions filed in the United States District Court for the Eastern District of Virginia. Between October 29, 2002 and December 4, 2002, six virtually identical lawsuits were filed against the same defendants in the same court. The lawsuits purport to be filed on behalf of a class of all persons who purchased the Company’s stock between April 26, 2001 and February 14, 2002. The complaints purport to allege that certain statements concerning the Company’s operations in the United Kingdom violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. On December 4, 2002 defendants moved to transfer the seven actions to the United States District Court for the Southern District of Indiana. By stipulation dated December 9, 2002, the parties agreed to consolidate these actions into one action. On December 12, 2002 the Court entered an order consolidating the cases under the caption In re AES Corporation Securities Litigation, Master File No. 02-CV-1485. On January 16, 2003, the Court granted defendants’ motion to transfer the

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consolidated action to the United States District Court for the Southern District of Indiana. The Company and the individuals believe that they have meritorious defenses to the claims asserted against them and intend to defend the lawsuit vigorously.

Beginning in September 2002, El Salvador tax and commercial authorities initiated investigations involving four of the Company’s subsidiaries in El Salvador, Compañia de Luz Electrica de Santa Ana S.A. de C.V. (“CLESA”), Compañía de Alumbrado Electrico de San Salvador, S.A. de C.V. (“CAESS”), Empresa Electrica del Oriente, S.A. de C.V. (“EEO”), and Distribuidora Electrica de Usultan S.A. de C.V. (“DEUSEM”), in relation to two financial transactions closed in June 2000 and December 2001, respectively. The authorities have issued document requests and the Company and its subsidiaries are cooperating fully in the investigations. As of March 18, 2003, certain of these investigations have been successfully concluded, with no fines or penalties imposed on the Company’s subsidiaries. The tax authorities’ and attorney general’s investigations are pending conclusion.

In March 2002, the general contractor responsible for the refurbishment of two previously idle units at AES’s Huntington Beach plant filed for bankruptcy in the United States bankruptcy court for the Central District of California. A number of the subcontractors hired by the general contractor, due to alleged non-payment by the general contractor, have asserted claims for non-payment against AES Huntington Beach. The general contractor has also filed claims seeking up to $57 million from AES Huntington Beach for additional costs it allegedly incurred as a result of changed conditions, delays, and work performed outside the scope of the original contract. The general contractor’s claim includes its subcontractors’ claims. All of these claims are adversary proceedings in the general contractor’s bankruptcy case. In the event AES Huntington Beach were required to satisfy any of the subcontractor claims for payment, AES Huntington Beach may be unsuccessful in recovering such amounts from, or offsetting such amounts against claims by, the general contractor. The Company does not believe that any additional amounts are owed by its subsidiary and such subsidiary intends to defend vigorously against such claims.

The U.S. Department of Justice is conducting an investigation into allegations that persons and/or entities involved with the Bujagali hydroelectric power project which the Company is developing in Uganda, have made or have agreed to make certain improper payments in violation of the Foreign Corrupt Practices Act. The Company is conducting its own internal investigation and is cooperating with the Department of Justice in this investigation.

In November 2002, a lawsuit was filed against AES Wolf Hollow LLP and AES Frontier L.P., two subsidiaries of the Company, in Texas State Court by Stone and Webster, Inc. The complaint in the action alleges claims for declaratory judgment and breach of contract allegedly arising out of the denial of certain force majeure claims purportedly asserted by the plaintiff in connection with its construction of the Wolf Hollow project, a gas-fired combined cycle power plant being constructed in Hood County, Texas. Stone and Webster is the general contractor for the Wolf Hollow project. On May 2, 2003 plaintiff amended its complaint to assert additional claims based on purported acts of fraud, negligent misrepresentation and breach of warranty.  The subsidiary believes it has meritorious defenses to the claims asserted against it and intends to defend the lawsuit vigorously.

On August 24, 2002, Bechtel Power Corporation (“Bechtel”) filed a lawsuit against the Company in California State court alleging three claims for breach of guaranty and one claim for fraud. Bechtel contended that AES owes Bechtel approximately $47 million based on AES’s alleged guaranty of purported payment obligations of Mountainview to Bechtel under a certain construction contract. Bechtel also asserted that the Company fraudulently induced Bechtel to enter

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into such construction contract. On March 17, 2003, in connection with the sale of Mountainview, the parties filed a voluntary dismissal of the arbitration.

On September 25, 2002, Mountainview filed a demand for arbitration against Bechtel Power Corporation (the “Bechtel Arbitration”). The claims asserted in the Bechtel Arbitration relate to existing disputes between the parties regarding amounts that Bechtel asserts are owing by Mountainview due to purported services provided in connection with the construction of the Mountainview power project located in California. On March 17, 2003, in connection with the sale of Mountainview, the parties filed a voluntary dismissal of the arbitration.

In March 2003, the office of the Federal Public Prosecutor for the State of Sao Paulo, Brazil notified Eletropaulo that it had commenced an inquiry related to the BNDES financings provided to AES Elpa and AES Transgas and the rationing loan provided to Eletropaulo, changes in the control of Eletropaulo, sales of assets by Eletropaulo and the quality of service provided by Eletropaulo to its customers and requested various documents from Eletropaulo relating to these matters. The Company is still in the process of collecting some of the requested documents concerning the real estate sales to provide to the Public Prosecutor.  Also in March 2003, the Commission for Public Works and Services of the Sao Paulo Congress requested Eletropaulo to appear at a hearing concerning the default by AES Elpa and AES Transgas on the BNDES financings and the quality of service rendered by Eletropaulo.  This hearing was postponed indefinitely.

In April 2003, the office of the Federal Public Prosecutor for the State of Sao Paulo, Brazil notified Eletropaulo that it is conducting an inquiry into possible errors related to the collection by Eletropaulo of customers’ unpaid past-due debt and requesting the company to justify its procedures.

In December 2002, Enron filed a lawsuit in the Bankruptcy Court for the Southern District Court of New York against the Company, NewEnergy, and CILCO. Pursuant to the complaint, Enron seeks to recover approximately $13 million (plus interest) from NewEnergy (and the Company as guarantor of the obligations of NewEnergy). Enron contends that NewEnergy and the Company are liable to Enron based upon certain accounts receivables purportedly owing from NewEnergy and an alleged payment arising from the purported termination by NewEnergy of a “Master Energy Purchase and Sale Agreement.” In the complaint, Enron seeks to recover from CILCO the approximate amount of $31.5 million  (plus interest) arising from the termination by CILCO of a “Master Energy Purchase and Sale Agreement” and certain accounts receivables that Enron claims are due and owing from CILCO to Enron. On February 13, 2003 the Company, NewEnergy and CILCO filed a motion to dismiss certain portions of the action and compel arbitration of the disputes with Enron. Also in February 2003, the Bankruptcy Court ordered the parties to mediate the disputes. The Company believes it has meritorious defenses to the claims asserted against it and intends to defend the lawsuits vigorously.

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In December 2002, plaintiff David Schoellermann filed a purported derivative lawsuit in Virginia State Court on behalf of the Company against the members of the Board of Directors and numerous officers of the Company (the “Schoellermann Lawsuit”). The lawsuit alleges that defendants breached their fiduciary duties to the Company by participating in or approving the Company’s alleged manipulation of electricity prices in California. Certain of the defendants are also alleged to have engaged in improper sales of stock based on purported inside information that the Company was manipulating the California electricity prices. The complaint seeks unspecified damages and a constructive trust on the profits made from the alleged insider sales. On February 28, 2003, a motion to dismiss the action was filed based on the plaintiff’s failure to make a demand on the Company to investigate the allegations.  That motion remains pending.  On February 21, 2003, a second derivative lawsuit was filed by plaintiff Joe Pearce in Virginia State Court on behalf of the Company against the members of the Board of Directors and numerous officers of the Company (the “Pearce Lawsuit”). It is anticipated that a similar motion to dismiss, as filed in the Schoellerman Lawsuit, will be filed to dismiss the Pearce Lawsuit.

On February 26, 2003, the Company, Dennis W. Bakke, Roger W. Sant, and Barry J. Sharp were named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of Indiana captioned Stanley L. Moskal and Barbara A. Moskal v. The AES Corporation, Dennis W. Bakke, Roger W. Sant and Barry J. Sharp, 1:03-CV-0284 (Southern District of Indiana). The lawsuit purports to be filed on behalf of a class of all persons who engaged in “option transactions” concerning AES securities between July 27, 2002 and November 8, 2002. The complaint alleges that AES and the individual defendants failed to disclose information concerning purported manipulation of the California electricity market, the effect thereof on AES’s reported revenues, and AES’s purported contingent legal liabilities as a result thereof, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Company and the individual defendants have not yet responded to the complaint. The Company and the individual defendants believe that they have meritorious defenses to the claims asserted against them and intend to defend the lawsuit vigorously.

On April 16, 2003, Lake Worth Generation, LLC (“Lake Worth”) commenced a voluntary proceeding under Chapter 11 of the United States Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”).  As a debtor in possession, Lake Worth continues to manage its affairs and operate its business.  No trustee or examiner has been appointed for Lake Worth.  Lake Worth has been constructing a combined cycle power generation facility in the City of Lake Worth (the “Project”).  Lake Worth intended to install a single combustion turbine and heat recovery steam generator (“HSRG”), along with a new 47 MW steam turbine, to produce approximately 205 MW of electricity for the residents of Lake Worth.  Construction began in June 2001 under an EPC agreement with NEPCO, a subsidiary of Enron, who provided the financial guaranty in support of the EPC performance obligations.  AES holds secured claims against Lake Worth of approximately $2.8 million.  Lake Worth contemplates that it will sell the Project pursuant to a Memorandum of Understanding executed on March 28, 2003 if Bankruptcy Court approval is obtained and will distribute the proceeds of the sale to the creditors of Lake Worth in accordance with the priorities established by the Bankruptcy Code. Lake Worth reasonably believes that the Project will be sold in the third quarter of 2003, although there are no assurances that the Project will be sold in that time.

On May 2, 2003, the Indiana Securities Commissioner of Indiana’s Office of the Secretary of State, Securities Division, pursuant to Indiana Code 23-2-1, served subpoenas duces tecum on 30 former officers and directors of IPALCO Enterprises, Inc. (“IPALCO”) requesting the production

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of documents in connection with the March 27, 2001 share exchange between the Company and IPALCO pursuant to which stockholders exchanged shares of IPALCO common stock for shares of the Company’s common stock and IPALCO became a wholly-owned subsidiary of the Company.  The subpoenas are returnable on June 2, 2003.

The Company is also involved in certain claims, suits and legal proceedings in the normal course of business.

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9.             Comprehensive Income (Loss)

The components of comprehensive income (loss) for the three months ended March 31, 2003 and 2002 are as follows (in millions):

	Three months ended March 31,
	2003			2002
Net income (loss)	$	93		$	(313	)
Foreign currency translation adjustments:
Foreign currency translation adjustments arising during the period (net of income taxes of $0 and $1, respectively)	29			(765		)
Add: Discontinued foreign entity (no income tax effect)	1			1
Total foreign currency translation adjustments	30			(764		)
Cash flow hedge activity:
Reclassification to earnings (net of income taxes of $27 and $5, respectively)	58			16
Change in derivative fair value (net of income taxes of $48 and $3, respectively)	(84		)	6
Total change in fair value of cash flow hedges	(26		)	22
Realized gain on investment sale (no income tax effect)	—			48
Minimum pension liability:
Minimum pension liability (net of income taxes of $0 and $117, respectively)	1			(280		)
Add: Discontinued business (net of income taxes of $40)	61			—
Total change in minimum pension liability	62			(280		)
Comprehensive income (loss)	$	159		$	(1,287	)

10.          Segments

Information about the Company’s operations by segment is as follows (in millions):

	Revenue (1)		Gross Margin		Equity Earnings
Quarter Ended March 31, 2003:
Contract Generation	$	728	$	291	$	24
Competitive Supply	460		114		—
Large Utilities	699		164		—
Growth Distribution	336		33		—
Total	$	2,223	$	602	$	24
Quarter Ended March 31, 2002:
Contract Generation	$	653	$	270	$	16
Competitive Supply	416		91		(2		)
Large Utilities	766		232		15
Growth Distribution	366		82		—
Total	$	2,201	$	675	$	29

(1)Intersegment revenues for the quarters ended March 31, 2003 and 2002 were $70 million and $39 million, respectively.

	Total Assets
	March 31, 2003		December 31, 2002
Contract Generation	$	13,219	$	12,141
Competitive Supply	6,483		7,192
Large Utilities	8,517		8,451
Growth Distribution	3,143		3,040
Discontinued Businesses	838		3,033
Corporate	669		403
Total Assets	$	32,869	$	34,260

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11.          Change in Accounting Principle

Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred. When a new liability is recorded beginning in 2003, the entity will capitalize the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss upon settlement.

The Company’s retirement obligations covered by SFAS No. 143 primarily include active ash landfills, water treatment basins and the removal or dismantlement of certain plant and equipment. As of December 31, 2002, the Company had a recorded liability of approximately $15 million related to asset retirement obligations. Upon adoption of SFAS No. 143 on January 1, 2003, the Company recorded an additional liability of approximately $13 million, a net asset of approximately $9 million, and a cumulative effect of a change in accounting principle of approximately $2 million, after income taxes. Amounts recorded related to asset retirement obligations during the three month period ended March 31, 2003 were as follows (in millions):

Balance at December 31, 2002	$15
Additional liability recorded from cumulative effect of  accounting change	13
Accretion expense	1
Foreign currency translation	(1	)
Balance at March 31, 2003	$28

Proforma net income (loss) and earnings (loss) per share have not been presented for the three months ended March 31, 2002 because the proforma application of SFAS No. 143 to the prior period would result in proforma net income (loss) and earnings (loss) per share not materially different from the actual amounts reported in the accompanying consolidated statement of operations.  The proforma liability for asset retirement obligations would have been $28 million, $23 million and $21 million as of December 31, 2002, 2001 and 2000, respectively if SFAS No. 143 had been applied during those periods.

12.          New Accounting Pronouncements

Stock-based compensation.  As of January 1, 2003 the Company had two stock-based compensation plans, which are described more fully in Note 14 to the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2002.  Prior to 2003, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations.  No stock-based employee compensation cost is reflected in the net income for the three months ended March 31, 2002, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.  Effective January 1, 2003, the Company adopted the fair value recognition provision of SFAS No. 123, as amended by SFAS No. 148, prospectively to all employee awards granted, modified or settled after January 1, 2003.  Awards under the Company’s plans generally vest over two years.  Therefore, the cost related to stock-based employee compensation included in the determination of net income for the three months ended March 31, 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.  However, if SFAS No. 123 had been applied to all grants since the original effective date the impact on net income would have been minimal since there were very few grants that would have had expense carried over to 2003.  The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.  During the first quarter of 2003, the Company recorded compensation expense of approximately $1million as a result of adopting SFAS No. 148.

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	Three months ended March 31,
	2003			2002
Net income, as reported	$	93		$	(313	)
Add:  Stock-based employee compensation expense included in reported net income, net of related tax effects	1			—
Deduct:  Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(1		)	(45		)
Proforma net income	$	93		$	(358	)
Earnings per share:
Basic — as reported	$	0.17		$	(0.59	)
Basic — proforma	$	0.17		$	(0.67	)
Diluted — as reported	$	0.17		$	(0.58	)
Diluted — proforma	$	0.17		$	(0.67	)

Guarantor accounting.  During the fourth quarter of 2002, the Company adopted the disclosure provisions of FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others.”  Effective January 1, 2003, the Company began applying the initial recognition and measurement provisions on a prospective basis for all guarantees issued after December 31, 2002, which require the Company to record the fair value of the guarantee as a liability, with the offsetting entry being recorded based on the circumstances in which the guarantee was issued. The Company will account for any fundings under the guarantee as a reduction of the liability. After funding has ceased, the Company will recognize the remaining liability in the income statement on a straight-line basis over the remaining term of the guarantee. In general, the Company enters into various agreements providing financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees, letters of credit and surety bonds. FIN 45 does not encompass guarantees issued either between parents and their subsidiaries or between corporations under common control, a parent’s guarantee of its subsidiary’s debt to a third party (whether the parent is a corporation or an individual), a subsidiary’s guarantee of the debt owed to a third party by either its parent or another subsidiary of that parent, nor guarantees of a Company’s own future performance. Adoption of FIN 45 had no impact on the Company’s historical financial statements as guarantees in existence at December 31, 2002 were not subject to the measurement provisions of FIN 45. The Company has recorded a liability of approximately $9 million as a result of applying the initial recognition and measurement provisions of FIN 45 during the first quarter of 2003.  This liability relates to an indemnification provided to the buyer of a discontinued business.

Variable interest entities.  In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.”  FIN 46 was immediately effective for all enterprises with variable interests in variable interest entities created after January 31, 2003. FIN 46 provisions must be applied to variable interests in variable interest entities created before February 1, 2003 from the beginning of the third quarter of 2003. If an entity is determined to be a variable interest entity, it must be consolidated by the enterprise that absorbs the majority of the entity’s expected losses if they occur and/or receives a majority of the entity’s expected residual returns if they occur. If significant variable interests are held in a variable interest entity, the company must disclose the nature, purpose, size and activity of the variable interest entity and the company’s maximum exposure to loss as a result of its involvement with the variable interest entity in all financial statements issued after January 31, 2003. The adoption of FIN 46 did not result in the consolidation of any previously unconsolidated entities nor require material additional disclosure.

DIG Issue C11.  In connection with the January 2003 FASB Emerging Issues Task Force (EITF) meeting, the FASB was requested to reconsider an interpretation of SFAS No. 133. The interpretation, which is contained in the Derivatives Implementation Group’s C11 guidance, relates to the pricing of power sales contracts that include broad market indices. In particular, that guidance discusses whether the pricing in a power sales contract that contains broad market indices (e.g. CPI) could qualify as a normal purchase or sale. In April 2003, the FASB issued an exposure draft of DIG Issue C20 which would supercede DIG Issue C11 and provide additional guidance in this area.  The Company is currently reevaluating which contracts, if any, that have previously been designated as normal purchases or sales would now not qualify for this exception. The Company is currently evaluating the effects that this guidance will have on its results of operations and financial position.

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13.          Subsequent Events

Global insurance program.  On April 4, 2003, the Company established a Global Insurance Program comprised of a captive insurance company (AES Global Insurance Company (“AES Global Insurance”), a wholly owned subsidiary of AES) that will insure a number of AES businesses worldwide for property damage and business interruption.  AES Global Insurance is domiciled in the state of Vermont, and the program commenced transacting business on April 4, 2003.

In any one year, AES Global Insurance is responsible for paying claims up to $20 million for any single event and $20 million in the aggregate (retained amount).  This amount is in addition to the deductibles retained by the businesses within their insurance policies.  To cover losses above the retained amount, AES Global Insurance has purchased from a panel of internationally recognized underwriters insurance coverage up to a loss limit of $450 million, or higher if required by an individual asset.  AES Global Insurance utilizes an internationally recognized underwriter to issue policies and process claims and is completely reinsured by AES Global Insurance for the retained amount.

Brazilian issues.  On April 30, 2003, BNDESPAR Participacoes Ltda. (“BNDESPAR”), a wholly owned subsidiary of BNDES, the National Development Bank of Brazil, took preliminary steps to foreclose on the preferred shares of Eletropaulo held by AES Transgas and AES CEMIG Empreendimentos II.  AES is continuing to negotiate with BNDESPAR, BNDES and other debt holders to seek a resolution to the issues facing Eletropaulo.  There can be no assurance, however, that such negotiations will be successful.

On April 24, 2003 a waiver with respect to the $30 million payment default by AES Cayman Guaiba under its $300 million syndicated loan expired.  The lenders have indicated their willingness to extend the waiver until the earlier of May 24, 2003 or the execution of satisfactory documentation in respect of the restructuring of such loan.  There can be no assurance, however, that such waiver will be granted or that such restructuring will be successful.  AES has guaranteed up to $50 million of AES Cayman Guaiba’s obligations under the $300 million syndicated loan.

Consent solicitation and private placement.  On April 3, 2003, AES successfully completed a consent solicitation to amend the definition of “Material Subsidiary” and certain other provisions in its outstanding senior and senior subordinated notes to conform those provisions to the provisions of its 10% senior secured notes.  On May 8, 2003, AES completed a $1.8 billion private placement of second priority senior secured notes.  The second priority senior secured notes were issued in two tranches: $1.2 billion aggregate principal amount of 8 3/4% second priority senior secured notes due 2013 and $600 million aggregate principal amount of 9% second priority senior secured notes due 2015.  The net proceeds were or will be used to (i) repay $475 million of debt outstanding under its senior secured credit facilities, (ii) to repurchase approximately $1.1 billion aggregate principal amount of its senior notes pursuant to a tender offer, (iii) to repurchase approximately $104 million aggregate principal amount of its senior subordinated notes pursuant to a tender offer and (iv) for general corporate purposes, which may include repurchasing other outstanding securities.  AES also amended its senior secured credit facilities to permit the private placement and tender offer described above and to provide certain additional changes under the covenants contained therein.

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ITEM 2.  Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The AES Corporation (including all its subsidiaries and affiliates, and collectively referred to herein as “AES” or the “Company” or “we”), founded in 1981, is a leading global power company. The Company’s goal is to help meet the world’s need for electric power in ways that benefit all of our stakeholders, to build long-term value for the Company’s shareholders, and to assure sustained performance and viability of the Company for its owners, employees and other individuals and organizations who depend on the Company.  AES participates primarily in four lines of business: contract generation, competitive supply, large utilities and growth distribution.

Contract generation consists of multiple power generation facilities located around the world. Provided that the counterparty’s credit remains viable, these facilities have contractually limited their exposure to commodity price risks and electricity price volatility by entering into long-term (five years or longer) power purchase agreements for 75% or more of their capacity.  Competitive supply consists of generating facilities that sell electricity directly to wholesale customers in competitive markets. Additionally, as compared to the contract generation segment discussed above, these generating facilities generally sell less than 75% of their output pursuant to long-term contracts with pre-determined pricing provisions and/or sell into power pools, under shorter-term contracts or into daily spot markets. Competitive supply results are generally more sensitive to fluctuations in the market price of electricity, natural gas and coal, in particular. The large utility business is comprised of three utilities located in three countries: the U.S. (IPALCO Enterprises, Inc. (“IPALCO”)), Brazil (Eletropaulo Metropolitana Electricidade de Sao Paulo S.A. (“Eletropaulo”)) and Venezuela (C.A. La Electricidad de Caracas (“EDC”)).  Together, these facilities serve nearly 7 million customers in North America, the Caribbean and South America.  Our growth distribution business includes distribution facilities serving approximately 5 million customers that are generally located in developing countries or regions where the demand for electricity is expected to grow at a higher rate than in more developed parts of the world.

The revenues from our facilities that distribute electricity to end-use customers are generally subject to regulation. These businesses are generally required to obtain third party approval or confirmation of rate increases before they can be passed on to the customers through tariffs. These businesses comprise the large utilities and growth distribution segments of the Company. Revenues from contract generation and competitive supply are not regulated.

The distribution of revenues between the segments for the three months ended March 31, 2003 and 2002 is as follows:

	For the Three Months ended
	March 31, 2003		March 31, 2002
Contract generation	33	%	30	%
Competitive supply	21	%	19	%
Large utilities	31	%	35	%
Growth distribution	15	%	16	%

Certain subsidiaries and affiliates of the Company (domestic and non-U.S.) have signed long-term contracts or made similar arrangements for the sale of electricity and are in various stages of developing the related greenfield power plants. Successful completion depends upon overcoming substantial risks, including, but not limited to, risks relating to failures of siting, financing, construction, permitting, governmental approvals or the potential for termination of the power sales contract as a result of a failure to meet certain milestones. At March 31, 2003, capitalized costs for projects under development and in early stage construction were approximately $6 million, and capitalized costs for projects under construction were approximately $2.6 billion. The Company believes that these costs are recoverable; however, no assurance can be given that individual projects will be completed and reach commercial operation.

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Turnaround Initiatives

Refinancing

On April 3, 2003, AES successfully completed a consent solicitation to amend the definition of “Material Subsidiary” and certain other provisions in its outstanding senior and senior subordinated notes to conform those provisions to the provisions of its 10% senior secured notes.  On May 8, 2003, AES completed a $1.8 billion private placement of second priority senior secured notes.  The second priority senior secured notes were issued in two tranches: $1.2 billion aggregate principal amount of 8 3/4% second priority senior secured notes due 2013 and $600 million aggregate principal amount of 9% second priority senior secured notes due 2015.  The net proceeds were or will be used to (i) repay $475 million of debt outstanding under its senior secured credit facilities, (ii) to repurchase approximately $1.1 billion aggregate principal amount of its senior notes pursuant to a tender offer, (iii) to repurchase approximately $104 million aggregate principal amount of its senior subordinated notes pursuant to a tender offer and (iv) for general corporate purposes, which may include repurchasing other outstanding securities.  AES also amended its senior secured credit facilities to permit the private placement and tender offer described above and to provide certain additional flexibility under the covenants contained therein.

Asset Sales

AES has announced a number of strategic initiatives designed to decrease its dependence on access to the capital markets, strengthen its balance sheet, reduce the financial leverage at the parent company and improve short-term liquidity. One of these initiatives involves the sale of all or part of certain of the Company’s subsidiaries.  The Company continues to evaluate which additional businesses it may sell.  However, there can be no guarantee that the proceeds from such sales transactions will cover the entire investment in such subsidiaries. Additionally, depending on which businesses are eventually sold, the entire or partial sale of any subsidiaries may change the current financial characteristics of the Company’s portfolio and results of operations, and in the future may impact the amount of recurring earnings and cash flows the Company would expect to achieve.

Performance Improvement

In early 2002, the Company initiated a corporate-wide effort to more closely focus on performance improvement opportunities, and also to better capture the benefits of scale in the procurement of services and supplies. The Company expects to realize benefits in both earnings and cash flows; however, there can be no assurance that the program will be successful in achieving these savings. The inability of the Company to achieve cost reductions and revenue enhancements may result in less than expected earnings and cash flows in 2003 and beyond. In addition, the shift to a more centralized organizational structure has led, and will continue to lead, to an expansion in the number of people performing certain financial and control functions, and will likely result in an increase in the Company’s selling, general and administrative expenses.

Restructuring

In July, 2002 the Company established a Restructuring Office, formerly referred to as the Turnaround Office, to focus on improving the operating and financial performance of, selling or abandoning certain of its underperforming businesses. Businesses are considered to be underperforming if they do not meet the Company’s internal rate of return criteria, among other factors. The Restructuring Office is actively managing Drax, Barry, Gener, the Company’s businesses within the Dominican Republic, Brazil and Argentina, as well as evaluating Telasi and certain development projects. The Company is evaluating whether the profitability and cash flows of such businesses can be sufficiently improved to achieve acceptable returns on the Company’s investment, or whether such businesses should be disposed of or sold. If the Company determines that certain businesses are to be sold or otherwise disposed of, there can be no guarantee that the proceeds from such transactions would cover the Company’s entire investment in such subsidiaries or that such proceeds will be available to the Company. It is possible that the restructuring efforts will change the ownership structure or the manner in which a business operates, and these efforts may result in an impairment charge if the Company is not able to recover its investment in such business. The inability of the Company to successfully restructure the underperforming businesses may result in less earnings and cash flows in 2003 and beyond.  The responsibilities of the Restructuring Office may become less significant in the future as the Company resolves many of the issues currently being addressed.

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Additional Developments

Argentina

In 2002, Argentina continued to experience a political, social and economic crisis that resulted in significant changes in general economic policies and regulations as well as specific changes in the energy sector. As a result, the Argentine peso experienced a significant devaluation relative to the U.S. dollar during 2002.    In the first quarter of 2003, the political and social situation in Argentina showed signs of stabilization, and the economy and electricity demand started to recover.  Presidential elections and the establishment of a new government regime are expected to occur by the end of May 2003.  The Company recorded approximately $37 million of pre-tax foreign currency transaction gains during the first quarter of 2003 on the U.S. dollar-denominated net liabilities of its Argentine subsidiaries representing a strengthening of the Argentine peso relative to the U.S. dollar from 3.32 at December 31, 2002 to 2.94 at March 31, 2003.  In January 2003, one of the Company’s generation businesses in Argentina changed its functional currency to the U.S. dollar as a result of changes in its revenue profile.

AES has several subsidiaries in Argentina operating in both the competitive supply and growth distribution segments of the electricity business. Eden/Edes and Edelap are distribution companies that operate in the province of Buenos Aires. Generating businesses include Alicura, Parana, CTSN, Rio Juramento and several other smaller hydro facilities. These businesses are experiencing cash flow shortfalls arising from the economic and regulatory changes described earlier, and Eden/Edes, Edelap and Parana are in default on their project financing arrangements. AES is generally not required to support the potential cash flow or debt service obligations of these businesses.

The effects of the current circumstances on future earnings are much more uncertain and difficult to predict. At March 31, 2003, AES total investment in the competitive supply business in Argentina was approximately $112 million and the total investment in the growth distribution business was approximately negative $33 million.

During the first quarter of 2002, the Company recorded an after-tax impairment charge of $190 million which represented the write off of goodwill related to certain of our businesses in Argentina. This charge resulted from the adoption of SFAS No. 142 and is recorded as a cumulative effect of a change in accounting principle on the consolidated statement of operations.

Depending on the ultimate resolution of these uncertainties, AES may be required to record a material impairment loss or write off during 2003 associated with the recorded carrying values of its investments.

Brazil

During the first quarter of 2003, the Brazilian real relative to the U.S. dollar, appreciated from 3.53 reais to the dollar at December 31, 2002 to 3.35 reais at March 31, 2003.  This valuation resulted in foreign currency translation and transaction gains in 2003.  The Company recorded $33 million of pre-tax non-cash foreign currency transaction gains on the U.S. dollar denominated net liabilities on its investments in Brazilian businesses for the quarter ended March 31, 2003 on the accompanying consolidated statement of operations.  The Company recorded $16 million before income taxes of non-cash foreign currency transaction losses on the U.S. dollar denominated net liabilities at its investments in Brazilian businesses for the quarter ended March 31, 2002.

Eletropaulo.  AES has owned an interest in Eletropaulo since April 1998. The Company began consolidating Eletropaulo in February 2002 when AES Elpa acquired a controlling interest in the business. AES financed a significant portion of the acquisition of Eletropaulo, including both common and preferred shares, through loans and deferred purchase price financing arrangements provided by BNDES, the National Development Bank of Brazil, and its wholly owned subsidiary BNDES Participacoes Ltda. (“BNDESPAR”), to AES Elpa and AES Transgas, respectively. All of the common shares of Eletropaulo owned by AES Elpa are pledged to BNDES to secure the AES Elpa debt and all of the preferred shares of Eletropaulo owned by AES Transgas and AES Cemig Empreendimentos II, Ltd. (which owns approximately 7.4% of Eletropaulo’s preferred shares, representing 4.4% economic ownership of Eletropaulo) are pledged to BNDESPAR to secure AES Transgas debt. AES has pledged its share of the proceeds in the event of the sale of certain of its businesses in Brazil, including Sul, Uruguaiana, Eletronet and AES Communications Rio, to secure the indebtedness of AES Elpa to

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BNDES for the repayment of the debt of AES Elpa. The interests underlying the Company’s investments in Uruguaiana, AES Communications Rio and Eletronet have also been pledged as collateral to BNDES under the AES Elpa loan.

As of March 31, 2003, the Eletropaulo operating company had approximately $1.4 billion of outstanding indebtedness, and AES Elpa and AES Transgas had approximately $606 million and $620 million of outstanding BNDES and BNDESPAR indebtedness, respectively. Due, in part, to the effects of power rationing, the decline of the value of the Brazilian real in U.S. dollar terms in 2001 and 2002 and the lack of access to the international capital markets, Eletropaulo, AES Elpa and AES Transgas continue to face significant near-term debt payment obligations that must be extended, restructured, refinanced or repaid. As a result of AES Elpa’s and AES Transgas’ failure to pay amounts due under the financing arrangements, BNDES has the right to call due all of AES Elpa’s outstanding debt with BNDES, and BNDESPAR has the right to call due all of AES Transgas’s outstanding debt with BNDESPAR. The default on the BNDES loan could also result in a cross-default to a BNDES loan in connection with our investment in Companhia Energetica de Minas Gerais (“CEMIG”).  In addition, as a result of a cross default provision, BNDES has the right to call due approximately $234 million loaned to Eletropaulo under the program in Brazil established to alleviate the effects of rationing on electricity companies.  Due to BNDES’s right of acceleration and existing payment, financial covenant and other defaults under Eletropaulo loan agreements, Eletropaulo’s commercial lenders have the right to call due approximately $753million of indebtedness.  Due to a cross-payment default provision, Eletropaulo also faces default on an additional $99 million of indebtedness if waivers are not obtained within the applicable grace period.At March 31, 2003, Eletropaulo, AES Elpa and AES Transgas have a combined $2.3 billion of debt classified as current on the accompanying consolidated balance sheet.

Eletropaulo, AES Elpa and AES Transgas are in negotiations with debt holders, BNDES and BNDESPAR, to seek resolution of these issues, during the course of which additional payment and other defaults may occur.  There can be no assurance that these negotiations will be successful. If the negotiations are not concluded satisfactorily, Eletropaulo would face an increased risk of intervention by ANEEL, loss of its concession and of bankruptcy, resulting in an increased risk of loss of AES’s investment in Eletropaulo.  Dividend restrictions applicable to Eletropaulo are expected to reduce substantially the ability of Eletropaulo to pay dividends. In addition, the refinancing agreement entered into with BNDES in June 2002 provides for Eletropaulo to pay directly to BNDES any dividends in respect of the shares held by AES Elpa, AES Transgas and Cemig Empreendimentos II Ltd. On April 30, 2003, BNDESPAR took preliminary steps to foreclose on the preferred shares of Eletropaulo held by AES Transgas and AES CEMIG Empreendimentos II.  If such foreclosure were to occur, it would result in a loss and a corresponding write-off of a portion or all of the Company’s investment in Eletropaulo.

During the fourth quarter of 2002, the Company recorded a pre-tax impairment charge of approximately $756 million at Eletropaulo.  This charge was taken to reflect the reduced carrying value of certain assets, including goodwill, primarily resulting from slower than anticipated recovery to pre-rationing electricity consumption levels and lower electricity prices due to devaluation of foreign exchange rates.  The Company’s total investment associated with Eletropaulo as of March 31, 2003 was approximately negative $1.0 billion.  AES may have to write-off additional assets of Eletropaulo, AES Elpa or AES Transgas if no satisfactory resolution is reached.

Sul.  Sul and AES Cayman Guaiba, a subsidiary of the Company that owns the Company’s interest in Sul, are facing near-term debt payment obligations that must be extended, restructured, refinanced or paid. Sul had outstanding debentures of $55 million, at the March 31, 2003 exchange rate, that were restructured on December 1, 2002. The restructured debentures have partial interest payments due in June 2003 and December 2003 and principal payments due in 12 equal monthly installments commencing on December 1, 2003. On April 24, 2003 a waiver with respect to a $30 million payment default by AES Cayman Guaiba under its $300 million syndicated loan expired.  The lenders have indicated their willingness to extend the waiver until the earlier of May 24, 2003 or the execution of satisfactory final documentation in respect of the restructuring of such loan.  There can be no assurance, however, that such waiver will be granted or that such restructuring will be successful.  The Company has guaranteed up to $50 million of AES Cayman Guaiba’s obligations under the $300 million syndicated loan.

During the second quarter of 2002, ANEEL promulgated an order (“Order 288”) whose practical effect was to purport to invalidate gains recorded by Sul from inter-submarket trading of energy purchased from the Itaipu power station. The

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Company, in total, recorded a pre-tax provision as a reduction of revenues of approximately $160 million during the second quarter of 2002. Sul filed a motion for an administrative appeal with ANEEL challenging the legality of Order 288 and requested a preliminary injunction in the Brazilian federal courts to suspend the effect of Order 288 pending the determination of the administrative appeal. Both were denied. In August 2002, Sul appealed and in October 2002 the court confirmed the preliminary injunction’s validity. Its effect, however, was subsequently suspended pending an appeal by ANEEL and an appeal by Sul.

In December 2002, prior to any settlement of the Brazilian Wholesale Electricity Market (“MAE”), Sul filed an incidental claim requesting, by way of a preliminary injunction, the suspension of the Company’s debts registered in the MAE. A Brazilian federal judge granted the injunction and ordered that an amount equal to one-half of the amount claimed by Sul from inter-market trading of energy purchased from Itaipu in 2001 be set aside by the MAE in an escrow account. The injunction was subsequently overturned. Sul has appealed that decision and requested the judge to reinstate the injunction. A decision is expected shortly.

The MAE partially settled its registered transactions between late December 2002 and early 2003. If the final settlement occurs with the effect of Order 288 in place, Sul will owe approximately $20 million, based upon the March 31, 2003 exchange rate. Sul does not believe it will have sufficient funds to make this payment. However, if the MAE settlement occurs absent the effect of Order 288, Sul will receive approximately $110 million, based upon the March 31, 2003 exchange rate. If Sul is unable to pay any amount that may be due to MAE, penalties and fines could be imposed up to and including the termination of the concession contract by ANEEL.

Sul continues legal action against ANEEL to seek resolution of these issues. Sul and AES Cayman Guaiba will continue to face shorter-term debt maturities in 2003 and 2004 but, given that a bankruptcy proceeding would generally be an unattractive remedy for each of its lenders, as it could result in an intervention by ANEEL or a termination of Sul’s concession, we think such an outcome is unlikely. We cannot assure you, however, that future negotiations will be successful and AES may have to write off some or all of the assets of Sul or AES Cayman Guaiba. The Company’s total investment associated with Sul as of March 31, 2003 was approximately $157 million.

During the first quarter of 2002, the Company recorded an after-tax impairment charge of $231 million related to the write off of goodwill at Sul. This charge resulted from the adoption of SFAS No. 142 and is recorded as a cumulative effect of a change in accounting principle on the consolidated statements of operations.

CEMIG.  An equity method affiliate of AES received a non-recourse loan from BNDES to finance its investment in CEMIG, and the balance, including accrued interest, outstanding on this loan is approximately $717 million as of March 31, 2003. Approximately $57 million of principal and interest, which represents AES’s share, is scheduled to be repaid on May 15, 2003, but, due to ongoing litigation and adverse market conditions, CEMIG will not make such payment.  If the equity method affiliate of the Company is not able to reschedule, refinance, repay or extend the loan, BNDES may have the right to foreclose on the shares held as collateral. Additionally, the existing default on the debt used to finance the acquisition of Eletropaulo could result in a cross default on the debt used to finance the acquisition of CEMIG.

In the fourth quarter of 2002, a combination of events occurred related to the CEMIG investment. These events included consistent poor operating performance in part caused by continued depressed demand and poor asset management, the inability to adequately service or refinance operating company debt and acquisition debt, and a continued decline in the market price of CEMIG shares. Additionally, our partner in one of the holding companies in the CEMIG ownership structure sold its interest in this company to an unrelated third party in December 2002 for a nominal amount. Upon evaluating these events in conjunction with each other, the Company concluded that an other than temporary decline in value of the CEMIG investment had occurred. Therefore, in December 2002, AES recorded a charge related to the other than temporary impairment of the investment in CEMIG, and the shares in CEMIG were written-down to fair market value. Additionally, AES recorded a valuation allowance against a deferred tax asset related to the CEMIG investment. At March 31, 2003, the Company’s total investment associated with CEMIG was negative.

Tiete.  The MAE settlement for the period from September 2000 to December 2002 for Tiete totals an obligation of approximately $67 million, at the March 31, 2003 exchange rate. Fifty percent of the amount was due on December 26, 2002, and the rest is due after MAE’s numbers are audited, which is expected to occur in the near future. According to the industry-wide agreement reached in December 2001, BNDES was supposed to provide Tiete with a credit facility in the amount of approximately $37 million, at the March 31, 2003 exchange rate, to pay off a part of the liability. This credit facility has not yet been provided. In the meantime, a Brazilian federal court has granted Tiete a temporary injunction suspending the payment of the obligation until BNDES makes this credit facility available. Should the Brazilian federal court lift the temporary injunction, as is possible at any time, Tiete would be obligated to pay the MAE liability immediately.  Tiete has started to receive from the Distribution Companies the extraordinary tariff revenue in order to recover $41 million from the total loss in respect of the MAE of $67 million and the total recovery is expected to be completed over a six-year period.  The Company’s total investment associated with Tiete as of March 31, 2003 was approximately $28 million.

Under Brazilian corporate law, Tiete may only pay to shareholders dividends or interest on net worth from net income less allocations to statutory reserves. In 2002, Tiete’s dividends and interest on net worth paid to shareholders were insufficient to enable payment to be made of amounts due on public debt obligations of AES IHB Cayman, Ltd. (“IHB”), an affiliate of Tiete, guaranteed by Tiete’s parent company, AES Tiete Holdings, Ltd. (“Tiete Holdings”), and Tiete’s direct shareholders, AES Tiete Empreendimentos Ltda (“TE”) and Tiete Participacoes Ltda. As a result, those payments were principally funded through Tiete capital reductions and intercompany loans from Tiete to TE.  IHB’s debt obligations are also supported by a foreign exchange guaranty facility and related political risk insurance provided by the Overseas Private Investment Corporation (“OPIC”),

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an agency of the United States government. A payment of principal and interest plus insurance premiums on the debt obligations in the amount of approximately $22 million is due on June 15, 2003. Because Tiete has no more capital reserves, no interim dividend or interest on net worth will be available to enable that payment to be made.  Instead, the June 15, 2003 payment is expected to be made by a transfer from the debt service reserve account. Given the current macroeconomic situation in Brazil, Tiete expects to be able to submit an application to OPIC for a disbursement under the foreign exchange guaranty facility.  In addition, Tiete Holdings intends to seek certain amendments to the debt obligations and the OPIC documentation designed to reduce the risk of defaults due to the limitation on dividend and interest on net worth payments, including amendments to allow debt payments to be made with the proceeds of loans from Tiete. Any loan by Tiete to its affiliates is subject to ANEEL approval. No assurance can be given, however, that these amendments will be adopted or that ANEEL will grant such approval.

Uruguaiana.  The MAE settlement for the period from September 2000 to September 2002 for Uruguaiana totals an obligation of approximately $12 million at the March 31, 2003, exchange rate. Fifty percent of the outstanding liability was due on December 26, 2002. Uruguaiana disagreed with the liability for the period from December 2000 to March 2002, which represents approximately $11 million at the March 31, 2003, exchange rate, and on December 18, 2002, Uruguaiana obtained an injunction from the Federal Court suspending the payment of the liability under dispute. On February 25, 2003, ANEEL and MAE filed an appeal against the injunction. On March 12, 2003, the judge responsible for the case did not accept the appeal and maintained the injunction for Uruguaiana. Uruguaiana believes that under the terms of its ANEEL Independent Power Producer Operational Permit, power purchase and regulatory contracts, it is not liable for replacement power costs arising directly out of the electric system’s instability. Furthermore, the civil action also discusses the power prices changed by ANEEL in August 2002 related to energy sold at the spot market in June 2001. Uruguaiana does not expect to have sufficient resources to pay the MAE settlement, and if the legal challenge of this obligation is not successful, penalties and fines could be imposed, up to and including the termination of the ANEEL Independent Power Producer Operational Permit. The Company’s total investment associated with Uruguaiana as of March 31, 2003 was approximately $281 million.

Other Regulatory Matters.  The electricity industry in Brazil reached a critical point in 2001 as a result of a series of regulatory, meteorological and market driven problems. The Brazilian government implemented a program for the rationing of electricity consumption effective as of June 2001. In December 2001, an industry-wide agreement was reached with the Brazilian government that applied to Eletropaulo, Tiete, CEMIG, and Sul. There were two parts of the agreement that specifically affected AES. The terms of the agreement were implemented during 2002.

First, Annex V, a provision in the initial contracts between the generators and the distributors that was designed to protect the distribution companies from reduced sales volumes and to limit the financial burden of generation companies during periods of rationing, was replaced with an extraordinary tariff increase that would compensate both generators and distributors for rationing related losses. The net ownership-adjusted impact to AES from the elimination of Annex V and the resulting tariff increase represented additional income before taxes of $60 million. However, the amount recorded under the new methodology at December 31, 2001 was substantially the same as the contractual receivable previously recorded under Annex V. Accordingly, the only impact was the balance sheet reclassification of the receivable to a regulatory asset. The tariff increase will remain in effect for 65 months from the date of the agreement, which the Company believes is sufficient to bill and collect all amounts recorded. The agreement also established that the Brazilian Development Bank (“BNDES”) would fund 90% of the amounts recoverable under the tariff increase up front through loans prior to their recovery through tariffs. The loans are repayable over the tariff increase collection period.  The loan to Eletropaulo was to be disbursed in three tranches.  The disbursements of the first and second tranches occurred in February and August 2002.  However, the disbursement of the third tranche in the amount of $73 million at the March 31, 2003 exchange rate, scheduled for November 2002, has been delayed for an undetermined period by BNDES.

The second part of the agreement relates to the Parcel A costs which are certain costs that each distribution company is permitted to defer and pass through to its customers via a future tariff adjustment. Parcel A costs are limited by the concession contracts to the cost of purchased power and certain other costs and charges. The Brazilian regulator had granted tariff increases to recover a portion of previously deferred Parcel A costs. However, due to uncertainty surrounding the Brazilian economy, the regulator had delayed approval of some Parcel A tariff increases. As part of the agreement, a tracking account that was previously established was officially defined. Parcel A costs incurred previous to January 1, 2001 were not allowed under the definition of the tracking account. As a result, in 2001, the Company wrote-

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off approximately $160 million ($101 million representing the Company’s portion from equity affiliates) of Parcel A costs incurred prior to 2001 that will not be recovered.  However, on April 4, 2003, the Brazilian government issued a decree postponing for a 1-year period tracking account tariff increases. According to this decree, the passing through to tariffs of the amounts accumulated in the tracking account for the distribution concessionaires which tariff reset is scheduled to occur from April 8, 2003 to April 7, 2004 will be postponed to the subsequent year’s tariff adjustment. As a result, for instance, in the case of Eletropaulo, the pass-through of the tracking account balance, which should originally occur on July 4, 2003, is now postponed to July 4, 2004. This amount, added to the amount to be accumulated in the twelve following months, shall be recovered over a 24-month period rather than the usual 12-month period. As a consideration for the delay of the tracking account pass-through, the government has stated that it intends to make available, through BNDES, a special credit line to provide compensation for the tracking account deferral. However, this alternative is still under discussion and a formal decision on its implementation has not been reached.

According to the rules of the Brazilian wholesale energy market (“MAE”) in full force and effect during the rationing period, Sul was permitted to record additional revenue and a corresponding receivable from the MAE in the fourth quarter of 2001. However, the electricity regulator, ANEEL promulgated Order 288 which retroactively changed the MAE rules related to the allocation of Itaipu’s energy, and resulted in a change in the calculation methods for electricity pricing in the MAE. This is the primary reason why Sul has refused to adhere to the industry-wide rationing agreement.  The Company recorded a pretax provision of approximately $160 million, including the amounts for Sul, against revenues during May 2002 to reflect the negative impacts of this retroactive regulatory decision. Sul filed an injunction in October 2002, which was upheld in December 2002, forcing MAE to keep its original values. The injunction was reversed in the beginning of February 2003. Sul continues to pursue judicial options to address this situation.

The Company does not believe that the terms of the industry-wide rationing agreement as currently being implemented restored the economic equilibrium of all of the concession contracts because the agreement covered only the rationing period, the consumption never returned to the previous levels and previously communicated methodologies for implementing the terms of the rationing agreement were retroactively changed.

On September 3, 2002, ANEEL issued an order providing that the formula for adjusting the tariffs applicable to distribution companies, which were scheduled to be reset in 2003, should be based on a replacement cost method. The Company, together with other electric distribution companies, disagrees with the proposed method and filed a lawsuit advocating that a minimum bid price methodology be used to set the rate base. The companies have not obtained an injunction to date, but the lawsuit is ongoing. Taken alone, the methodology proposed in ANEEL’s order would lead to a significantly lower adjustment in the tariff than would methodologies proposed by the distribution companies. Another pending issue relates to the “X” factor determination methodology. The X factor is intended to permit the regulator to adjust tariffs so that consumers may share in the distribution company’s realization of increased operating efficiencies. The X factor can be adjusted by a variable which can range from - -1% to +1%, depending both on the results of the current year consumer satisfaction survey and the changes in the costs related to personnel expenses.  ANEEL is to launch a public hearing process in order to discuss the methodology to be applied. These results are likely to influence Eletropaulo’s tariff reset process, which is currently ongoing and shall be concluded by July 4, 2003, when the regulator will determine the tariff reset number for Eletropaulo. Meanwhile, Eletropaulo is expecting a preliminary tariff reset proposal to be made available by the regulator. Because a number of factors related to the tariff reset process have yet to be determined, we are unable to predict the ultimate impact for Eletropaulo at this point.

On April 19, 2002, Sul was granted a rate increase by ANEEL, the regulatory body in Brazil responsible for tariff changes. The tariff increase would result in an 18.27% increase in revenue without considering any growth or change in customer mix. Sul is appealing several items from the tariff reset process on various levels. Should all appeals fail, the 18.27% increase will remain in effect.

Finally, the recently elected government has made statements in the press of its intention to review the existing electric sector model. The Ministry of Mines and Energy has formed a group to study the purpose of designing a new model; however, the results of which have not been officially disclosed.

Venezuela

The political environment and economy in Venezuela continue to be in a state of crisis. The economy has suffered from falling oil revenues, capital flight and a decline in foreign reserves. The country is experiencing negative GDP growth,

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high unemployment, significant foreign currency fluctuations and political instability. Beginning December 2, 2002, Venezuela experienced a forty-five day nationwide general strike that affected a significant portion of the Venezuelan economy, including the city of Caracas and the oil industry. This general strike has affected the normal conduct of EDC’s business. In combination, these circumstances create significant uncertainty surrounding the performance, cash flow and potential for profitability of EDC. However, AES is not required to support the potential cash flow or debt service obligations of EDC. AES’s total investment in EDC at March 31, 2003 was approximately $1.8 billion.

In February 2002, the Venezuelan Government decided not to continue support of the Venezuelan currency, which has caused significant devaluation. As a result of this decision by the Venezuelan government, the U.S. dollar to Venezuelan exchange rate had floated as high as 1,853 before declining to 1,600 at March 31, 2003, as compared with 1,403 at December 31, 2002. EDC uses the U.S. dollar as its functional currency. A portion of its debt is denominated in the Venezuelan bolivar, and as of March 31, 2003, EDC has net Venezuelan bolivar monetary liabilities thereby creating foreign currency gains when the Venezuelan bolivar devalues. During the first quarter of 2003, the Company recorded pre-tax foreign currency transaction gains of approximately $4 million, as well as approximately $5 million of pre-tax mark to market gains on a foreign currency forward contract due to a decline in the Venezuelan bolivar to the U.S. dollar exchange rate. The tariffs at EDC are adjusted semi-annually to reflect fluctuations in inflation and the currency exchange rate. However, a failure to receive such adjustment to reflect changes in the exchange rate and inflation could adversely affect the Company’s results of operations.

Effective January 21, 2003, the Venezuelan Government and the Central Bank of Venezuela (Central Bank) agreed to suspend the trading of foreign currencies in the country for five business days and to establish new standards for the foreign currency exchange regime. On February 5, 2003, the Venezuelan Government and the Central Bank entered into an exchange agreement that governs the Foreign Currency Management Regime, and establishes the applicable exchange rate. The exchange agreement established certain conditions including the centralization of the purchase and sale of currencies within the country by the Central Bank, and the incorporation of the Foreign Currency Management Commission (CADIVI) to administer the execution of the exchange agreement and establish certain procedures and restrictions. The acquisition of foreign currencies will be subject to the prior registration of the interested party and the issuance of an authorization to participate in the exchange regime. Furthermore, CADIVI will govern the provisions of the exchange agreement, define the procedures and requirements for the administration of foreign currencies for imports and exports, and authorize purchases of currencies in the country. The exchange rates set by such agreements are 1,596 bolivars per U.S. dollar for purchases and 1,600 bolivars per U.S. dollar for sales. These actions may impact the ability of EDC to distribute cash to the parent.  The financial statements for the first quarter of 2003 used the official exchange rate of 1,600 bolivars per U.S. dollar to translate the results of operations for the portion of the first quarter that exchange controls were in place.  However, if the Company had used the last traded exchange rate of 1,853 bolivars per U.S. dollar prior to the effectiveness of exchange controls, pre-tax income for the quarter would have increased by approximately $8 million primarily due to additional gains that would have been realized on bolivar-denominated debt.

In a Resolution passed on April 14, 2003, CADIVI published a list of import duty codes identifying goods that have been approved for foreign currency purchases by registered companies.  On April 28, 2003, CADIVI notified EDC that its registration to import such goods had been approved. On April 22, 2003, CADIVI published the general procedures regarding the acquisition of foreign currency for payments of external debt entered into by private companies prior to January 22, 2003.

In January 1999, a joint resolution of the Ministry of Energy and Mines and the Ministry of Industry and Commerce established the basic tariff rates applicable during the Four Year Tariff Regime from 1999 through 2002. The tariffs were established by the Ministry of Energy and Mines using a combination of cost-plus and return on investment methodologies. The regulation that establishes basic tariff rates is expected to change for 2003, and this change may have an impact on the amount and timing of the cash flows and earnings reported by EDC.

At March 31, 2003, EDC was not in compliance with two of its net worth covenants on $131 million and $9 million of non-recourse debt primarily due to the impact of the devaluation of the Venezuelan Bolivar. EDC has received a verbal notice extending a waiver on the $131 million debt obligation.  The lender has informed EDC that the formal written waiver request is on the agenda for its next scheduled committee meeting.  EDC anticipates receipt of the written waiver in late May 2003. EDC has requested and received a written waiver on the $9 million debt obligation, which is effective

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through June 30, 2003.  Of the above-mentioned debt, approximately $102 million is classified as non-recourse debt—long term in the accompanying consolidated balance sheets. The remainder is classified as non-recourse debt—current portion.

United Kingdom

Drax, a subsidiary of AES, is the operator of the Drax Power Plant, Britain’s largest power station. On November 14, 2002, TXU Europe Energy Trading Limited (“TXU EET”) was required to make a £49 million payment to Drax for power purchased in October under the hedging contract (“Hedging Agreement”) between Drax and TXU EET. TXU EET failed to make the payment, and attempts to negotiate a solution acceptable to both parties proved unsuccessful. On November 18, 2002, Drax terminated the Hedging Agreement, with immediate effect, on the grounds of TXU EET’s failure to provide the credit support of approximately £270 million required under the terms of the Hedging Agreement. On November 19, 2002, TXU EET and certain other entities including the guarantor of the Hedging Agreement, TXU Europe Group plc (“TXU Group”), were placed into administration. Following termination of the Hedging Agreement, and the placing of TXU EET and TXU Group into administration, Drax has been working cooperatively with its lenders to address the liquidity needs of the project, including letters of credit required to support trading Drax’s output in the open market. Drax has submitted a claim for capacity damages of approximately £266 million in accordance with the terms of the Hedging Agreement as well as a claim of approximately £85 million for unpaid electricity delivered in October and November. The Hedging Agreement accounted for approximately 60% of the revenues generated by Drax and payments under this agreement were significantly higher than Drax is currently receiving in the open market. As a result of the termination of the Hedging Agreement, the Company recorded an after-tax impairment loss of approximately $893 million in the fourth quarter of 2002. Drax is classified as held for sale in the accompanying consolidated balance sheets.

On December 13, 2002, Drax signed a standstill agreement (the “Standstill Agreement”) with certain of its senior lenders to provide Drax time to restructure its business after the termination of the Hedging Agreement. Pursuant to the terms of the Standstill Agreement, Drax submitted to the senior creditors a business plan on February 28, 2003 followed by a Restructuring Proposal on March 15, 2003 which are currently being considered by the senior creditors.  The Standstill Agreement provides temporary and/or permanent waivers by certain of the senior lenders of defaults that have occurred or could occur up to the expiry of the standstill period on May 31, 2003 including a permanent waiver resulting from termination of the Hedging Agreement.

Since certain of Drax’s forward looking debt service cover ratios as of June 30, 2002 were below required levels, Drax, was not able to make any cash distributions to Drax Energy, the holding company high-yield note issuer, at that time. Drax expects that the ratios, if calculated as of December 31, 2002, would also have been below the required levels at December 31, 2002 since any improvement in the ratios for the period ended December 31, 2002 would have required a favorable change in the forward curve for electricity prices during the period from June 30, 2002 to December 31, 2002 and such favorable change did not occur. As part of the Standstill Agreement signed by the Drax entities and its senior lenders, the debt service coverage ratios as of December 31, 2002 were not calculated by the bank group. As a consequence of the foregoing, Drax was not permitted to make any distributions to Drax Energy. As a result, Drax Energy was unable to make the full amount of the interest payment of $11.5 million and £7.6 million due on its high-yield notes on February 28, 2003. Drax Energy’s failure to make the full amount of the required interest payment constitutes an event of default under its high-yield notes, although pursuant to intercreditor agreements the holders of the high-yield notes have no enforcement rights until 90 days following the delivery of certain notices under the intercreditor arrangements.

On September 30, 2002, AES Barry entered into a tolling agreement with TXU EET and an associated guarantee agreement (subject to a cap) with TXU Group. On November 19, 2002, TXU EET and certain other entities including TXU Group were placed into administration, and AES Barry subsequently terminated the tolling agreement on November 26, 2002 on the grounds of insolvency of TXU EET and TXU Group. As a result of the termination of the tolling agreement, the Company recorded an after-tax impairment loss of approximately $120 million in the fourth quarter of 2002. On December 20, 2002, AES Barry signed a standstill agreement with its senior lenders to provide time for AES Barry to investigate the options available to restructure the business. The standstill agreement provides waivers by the senior lenders of certain defaults that have occurred or could occur up to the expiry of the standstill period on

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March 31, 2003.  The parties have subsequently agreed to extend the standstill agreement until May 16, 2003.  During the first quarter of 2003, after exploring several strategic options related to AES Barry, AES committed to a plan to sell its ownership in this business and has classified it as available for sale.

Results of Operations

Revenues

Revenues increased $22 million, or 1%, to $2.2 billion during the first quarter of 2003 compared to $2.2 billion for the first quarter of 2002. The increase in revenues is due to new operations from greenfield projects, harsher weather conditions and improved market prices, particularly in North America.  These factors were offset by greater currency devaluation in the first quarter of 2003 compared with the first quarter of 2002.  AES is a global power company which operates in 30 countries around the world. The breakdown of AES’s revenues for the three month periods ended March 31, 2003 and 2002, based on the business segment and geographic region in which they were earned, is set forth below.

	Three Months Ended March 31, 2003		Three Months Ended March 31, 2002		% Change
	(in $millions)
Large Utilities:
North America	$	217	$	198	10	%
South America	354		382		(7	)%
Caribbean*	128		186		(31	)%
Total Large Utilities	$	699	$	766	(9	)%
Growth Distribution:
South America	$	90	$	142	(37	)%
Caribbean*	138		133		4	%
Europe/Africa	108		91		19	%
Total Growth Distribution	$	336	$	366	(8	)%
Total Regulated Revenues	$	1,035	$	1,132	(9	)%

*Includes Venezuela and Colombia

Regulated revenues. Regulated revenues decreased $97 million, or 9%, to $1.0 billion for the first quarter of 2003 compared to the same period in 2002. Generally regulated revenues decreased due to amortization of margin recovery at Eletropaulo, the effects of currency devaluation, and civil unrest in Venezuela. These effects were partially offset by greater revenues at IPALCO due to weather conditions. Regulated revenues will continue to be impacted by temperatures that vary from normal in the state of Indiana and the metropolitan areas of Sao Paulo in Brazil and Caracas in Venezuela, as well as fluctuations in the value of Brazilian and Argentine currencies.

Large utilities revenues decreased $67 million, or 9%, to $699 million for the first quarter of 2003 from $766 million for the first quarter of 2002, which was comprised of decreases at EDC and Eletropaulo partially offset by an increase at IPALCO.  Revenues at EDC declined $59 million during the three months ended March 31, 2003 as a result of several factors.  First, EDC recorded lower energy sales during the first quarter of 2003 than the first quarter of 2002 as a direct result of Venezuela’s general strike that continued through mid-January 2003.  Also, the average exchange rate of the Venezuelan bolivar relative to the US dollar devalued 48% for the first quarter of 2003 compared to the first quarter of 2002.  Economic activity at Eletropaulo increased in 2003 as demonstrated by greater residential and commercial consumption resulting from the end of rationing in February 2002.  However, this increase was offset by the devaluation of the real and amortization of deferred regulatory assets.  These assets represent electricity purchase costs that were capitalized and deferred by

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Eletropaulo during the rationing program.  The net result of these factors was a $28 million decrease in net revenues in 2003. The Company began consolidating Eletropaulo in February 2002 when control of the business was obtained.  Revenues at IPALCO increased $23 million in 2003 as a result of greater retail and wholesale revenues.  Retail revenues increased $18 million, or 10%, mostly due to a 10% increase in kWh volume attributable to an additional 604 heating degree days in 2003. The $5 million increase in wholesale revenues was primarily due to a 62% increase in the average price per kWh sold, partially offset by a 13% decrease in the quantity of wholesale kWh sold. The increase in kWh sale price was primarily due to temperatures being far below normal in the first quarter of 2003 and far above normal in 2002.

Growth distribution revenues decreased $30 million, or 8%, to $336 million for the first quarter of 2003 from $366 million for the first quarter of 2002.   Overall, segment revenues decreased $52 million in South America, increased $17 million in Europe/Africa, and increased $5 million in the Caribbean.  The decrease in South America was primarily due to a $45 million decline at Sul in Brazil caused by a 32% devaluation in the average exchange rate of the Brazilian real from the first quarter of 2002 to the first quarter of 2003.  This effect was somewhat offset by a 15% increase in mWh sold by Sul in 2003. Other decreases at our Argentine businesses related to devaluation of the Argentine peso also contributed to the decline in South America. This effect on segment revenues was partially offset by revenue increases at SONEL in Cameroon, and at CLESA, CAESS, and EEO in El Salvador.

	Three Months Ended March 31, 2003		Three Months Ended March 31, 2002		% Change
	(in millions)
Contract Generation:
North America	$	207	$	201	3	%
South America	206		244		(16	)%
Caribbean*	113		33		242	%
Europe/Africa	122		100		22	%
Asia	80		75		7	%
Total Contract Generation	$	728	$	653	11	%
Competitive Supply:
North America	$	128	$	92	39	%
South America	31		25		24	%
Caribbean*	19		15		27	%
Europe/Africa	256		258		(1	)%
Asia	26		26		—
Total Competitive Supply	$	460	$	416	11	%
Total Non-Regulated Revenues	$	1,188	$	1,069	11	%

*Includes Venezuela and Colombia

Non-regulated revenues.  Non-regulated revenues increased $119 million, or 11%, to $1.2 billion for the first quarter of 2003 compared to the same period in 2002. This increase was primarily the result of placing new greenfield projects into service subsequent to March 31, 2002, improved market prices in the U.S., and increased production offset by the effects of foreign currency devaluation.  Non-regulated revenues will continue to be strongly influenced by weather and market prices for electricity in the U.K. and the Northeastern U.S.

Contract generation revenues increased $75 million, or 11%, to $728 million for the first quarter of 2003 from $653 million for the first quarter of 2002, principally due to revenues from greenfield projects put into operation subsequent to the first quarter of 2002 and revenue enhancements at other businesses.  New greenfield projects include Red Oak in North America, Puerto Rico in the Caribbean and Kelanitissa in Asia.  Among existing businesses, revenue improvements were made at

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Warrior Run in North America, Los Mina and Merida in the Caribbean, and Kilroot, Tisza, Ebute and Mtkvari in Europe/Africa.  Contract generation revenues increased in all regions except South America which experienced a decrease of $38 million primarily from foreign currency devaluation.

Competitive supply revenues increased $44 million, or 11%, to $460 million for the first quarter of 2003 from $416 million for the first quarter of 2002. The increase in competitive supply revenues was due to increases in North America, South America and the Caribbean offset by a slight decrease in Europe/Africa.  In North America, competitive supply revenues increased $36 million due mainly to improved market prices in New York and the start of commercial operations at Granite Ridge subsequent to March 31, 2002. In South America revenues increased $6 million due to increased production at the Argentine businesses.  Revenues decreased by $2 million in Europe/Africa.

Gross Margin

	Three Months Ended March 31, 2003		% of Revenue		Three Months Ended March 31, 2002		% of Revenue		% Change
	(in $millions)				(in $millions)
Large Utilities:
North America	$	82	38	%	$	76	38	%	8	%
South America	43		12	%	89		23	%	(52	)%
Caribbean*	39		30	%	67		36	%	(42	)
Total Large Utilities:	$	164	23	%	$	232	30	%	(29	)%
Growth Distribution:
South America	$	21	23	%	$	50	35	%	(58	)%
Caribbean*	6		4	%	16		12	%	(63	)%
Europe/Africa	6		6	%	16		18	%	(63	)%
Total Growth Distribution	$	33	10	%	$	82	22	%	(60	)%
Total Regulated Gross Margin	$	197	19	%	$	314	28	%	(37	)%

*Includes Venezuela and Colombia

Regulated Gross Margin.  Regulated gross margin, which represents total revenues reduced by cost of sales, decreased $117 million, or 37%, to $197 million for the first quarter of 2003 from $314 million compared to the same period in 2002. The decrease in regulated gross margin is mainly due to lower revenues, increased purchased energy costs, and higher fuel costs.  Regulated gross margin as a percentage of revenues decreased to 19% for the first quarter of 2003 from 28% for the first quarter of 2002.

Large utilities gross margin decreased $68 million, or 29%, to $164 million for the first quarter of 2003 from $232 million for the first quarter of 2002.  Gross margin decreased $48 million at Eletropaulo due to higher costs of purchased energy and increased operating costs.  Gross margin at EDC decreased $27 million in 2003 primarily due to lower revenues and higher fuel costs.  IPALCO’s gross margin improved $7 million in 2003 due to increased prices on wholesale kWh and increased retail kWh volume primarily resulting from harsher weather conditions in the Midwestern U.S.  This effect was partially offset by greater maintenance expense and additional costs associated with purchased power resulting from a scheduled maintenance outage at one of its facilities and higher than normal wholesale energy prices in March 2003.  The large utilities gross margin as a percentage of revenues decreased to 23% for the first quarter of 2003 from 30% for the first quarter of 2002. Gross margin ratios decreased in South America and Caribbean, and remained flat in North America.

Growth distribution gross margin decreased $49 million, or 60%, to $33 million for the first quarter of 2003 from $82 million for the first quarter of 2002. Gross margin decreased in all geographic areas.  South America gross margin decreased $29 million due to reductions at Sul caused by lower revenues, effects of foreign currency devaluation, and higher

35

non-fuel operating costs as a percentage of revenue.  Caribbean gross margin decreased $10 million mainly due to a 38% increase in the average cost of energy at Ede Este due to a combination of greater fuel costs and unfavorable foreign exchange rates. Europe/Africa gross margin decreased $10 million mainly due to an inventory adjustment and change in tax laws at Telasi offset by improved gross margin at SONEL.  The growth distribution gross margin as a percentage of revenues decreased to 10% for the first quarter of 2003 from 22% for the first quarter of 2003.

	Three Months Ended March 31, 2003		% of Revenue		Three Months Ended March 31, 2002		% of Revenue		% Change
	(in millions)				(in millions)
Contract Generation:
North America	$	90	43	%	$	99	49	%	(9	)%
South America	89		43	%	84		34	%	6	%
Caribbean*	30		27	%	4		12	%	NM
Europe/Africa	49		40	%	44		44	%	11	%
Asia	33		41	%	39		52	%	(15	)%
Total Contract Generation	$	291	40	%	$	270	41	%	8	%
Competitive Supply:
North America	$	39	30	%	$	13	14	%	200	%
South America	9		29	%	—		—		NM
Caribbean*	8		42	%	7		47	%	14	%
Europe/Africa	49		19	%	64		25	%	(23	)%
Asia	9		35	%	7		27	%	29	%
Total Competitive Supply	$	114	25	%	$	91	22	%	25	%
Total Non-Regulated Gross Margin	$	405	34	%	$	361	34	%	12	%

*Includes Venezuela and Colombia

NM - Not Meaningful

Non-regulated gross margin. Non-regulated gross margin increased $44 million, or 12%, to $405 million for the first quarter of 2003 from $361 million during the same period in 2002. The overall increase in non-regulated gross margin is mainly due to placing certain greenfield projects into service subsequent to the first quarter of 2002, as well as operational improvements at certain businesses.  Non-regulated gross margin as a percentage of revenues remained constant at 34% for the first quarter of 2003 and 2002.

Contract generation gross margin increased $21 million, or 8%, to $291 million for the first quarter of 2003 from $270 million for the first quarter of 2002, The contract generation gross margin as a percentage of revenues decreased slightly to 40% for the first quarter of 2003 from 41% for the first quarter of 2002. Gross margin increased in South America, Caribbean and Europe/Africa but was partially offset by decreases in North America and Asia.  South America gross margin increased $5 million due to improvements at Uruguaiana and Tiete in Brazil offset by lower margin at Gener in Chile.  Caribbean gross margin increased $26 million as a result of placing Puerto Rico into operation subsequent to the first quarter of 2002.  Europe/Africa gross margin increased $5 million due to increased production at Ebute.  North America gross margin decreased $9 million mainly due to a reduction in contracted capacity payments at Shady Point. Asia gross margin decreased $6 million mainly due to lower margins at our Chigen business.

Competitive supply gross margin increased $23 million, or 25%, to $114 million for the first quarter of 2003 from $91 million for the first quarter of 2002.  Competitive supply gross margin as a percentage of revenues increased to 25% for the first quarter of 2003 from 22% for the first quarter of 2002. Gross margin increased in North America, South America, the Caribbean and Asia, and decreased in Europe/Africa. North America gross margin increased $26 million due to improved market prices in New York. South America gross margin increased $9 million mainly due to operational improvements at our Argentine businesses. Europe/Africa gross margin decreased $15 million mainly due to weaker prices at Drax resulting from the loss of the TXU Hedging Agreement and increased costs due to higher volume.

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Selling, general and administrative expenses. Selling, general and administrative expenses increased $1 million to $29 million for the first quarter of 2003 compared to the same period in 2002. Selling, general and administrative costs as a percentage of revenues remained constant at 1% for the first quarter of 2003 and 2002.

Interest expense. Interest expense increased $146 million, or 33%, to $582 million for the first quarter of 2003 compared to the same period in 2002. Interest expense as a percentage of revenue increased from 20% during the first quarter of 2002 to 26% during the same period in 2003. Interest expense increased primarily due to the interest expense at new businesses, penalties incurred at businesses in default, and additional corporate interest costs arising from the senior debt issued within the past twelve months at higher interest rates to refinance prior obligations at lower interest rates.

Interest income. Interest income increased $38 million, or 83%, to $84 million for the first quarter of 2003 compared to the same period in 2002. Interest income as a percentage of revenue increased to 4% for the first quarter of 2003 from 2% for the first quarter of 2002. Interest income increased primarily due to the consolidation of Eletropaulo for three months in the first quarter of 2003 compared with two months during the first quarter of 2002.

Other expense. Other expense increased $21 million to $32 million for the first quarter of 2003 compared to $11 million for the same period in 2002. Other expense primarily consists of losses on the sale of assets, marked-to-market losses on commodity derivatives, and costs associated with the settlement of litigation.

Other income. Other income increased $3 million to $25 million for the first quarter of 2003 compared to the same period in 2002. Other income primarily includes gains on the extinguishment of liabilities and settlement of litigation.

Loss on sale of investments and asset impairment expense. In the first quarter of 2002, EDC sold an available-for-sale security resulting in proceeds of $92 million. The realized loss on the sale was $57 million. Approximately $48 million of the loss related to recognition of previously unrealized losses which had been recorded in other comprehensive income.

Foreign currency transaction gains (losses). The Company recognized foreign currency transaction gains of $52 million during the first quarter of 2003 compared to losses from foreign currency transactions of $70 million in the first quarter of 2002. This change was the result of several factors.  The Company recorded $25 million of foreign currency transaction gains at Parana during the first quarter of 2003 compared with $134 million of foreign currency transaction losses in the first quarter of 2002.  Also, the Company experienced a $31 million reduction in foreign currency transaction losses within the growth distribution segment, primarily at the businesses located in South America and the Caribbean.  These improvements were partially offset by a $65 million decrease in foreign currency transaction gains recorded at EDC in the first quarter of 2003.

Equity in pre-tax earnings of affiliates. Equity in pre-tax earnings of affiliates decreased $5 million, or 17%, to $24 million compared to the same period in 2002. Equity in earnings of affiliates decreased in 2003 due to the completion of the swap in February 2002 and the resulting consolidation of Eletropaulo, plus a reduction in earnings from our investment in CEMIG. For the quarter ended March 31, 2002, equity in pre-tax earnings of our large utilities included non-cash Brazilian foreign currency transaction losses of $34 million due to the devaluation of the Brazilian real during that period.

Income taxes. Income taxes (including income taxes on equity in earnings) decreased $22 million to $40 million for the first quarter of 2003 compared to the same period in 2002. The company’s effective tax rate was 35% for the first quarter of 2003 and 34% for the first quarter of 2002.

Minority interest in net income (losses) of subsidiaries. The Company recorded $31 million of minority interest expense during the first quarter of 2003 compared to minority interest income of $10 million during the first quarter of 2002.  Increased minority interest expense in growth distribution, contract generation and competitive supply were somewhat offset by decreased large utilities minority interest expense.

Large utilities minority interest expense decreased $31 million to expense of $4 million in the first quarter of 2003 from expense of $35 million for the first quarter of 2002. Decreases in minority interest expense occurred at Eletropaulo, EDC and CEMIG.

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Growth distribution minority interest changed to an expense of $9 million for the first quarter of 2003 compared to a benefit of $11 million for the first quarter of 2002. $13 million of the change in growth distribution minority interest occurred at our businesses in South America. Additional expense was also recognized at SONEL and Ede Este in 2003.

Contract generation minority interest expense increased $6 million to $14 million in the first quarter of 2003 compared to expense of $8 million in the first quarter of 2002. The change is primarily due to the sharing of earnings by the minority partners of Tiete in Brazil and at several of our Asian businesses.

Competitive supply minority interest changed by $46 million to expense of $4 million in the first quarter of 2003 compared to a benefit of $42 million in the first quarter of 2002. The change in competitive supply minority interest is primarily due to sharing of losses in the first quarter of 2002 at Parana.

Income from continuing operations.  Income from continuing operations decreased $45 million, or 38%, to $73 million for the first quarter of 2003 from $118 million for the first quarter of 2002. The decrease was primarily due to lower regulated gross margin, and greater interest expense and minority interest expense during the first quarter of 2003.  These changes were slightly offset by improved non-regulated gross margin, greater interest income, and from foreign currency transaction gains.

Income from operations of discontinued businesses.  During the first quarters of 2003 and 2002, the Company recorded income from operations of discontinued businesses of $22 million and $42 million, net of tax, respectively.  During the quarter ended March 31, 2003, the Company reached an agreement to sell 100% of its ownership interest in both AES Haripur Private Ltd. and AES Meghnaghat Ltd., which are generation businesses in Bangladesh.  Additionally, during the first quarter of 2003, the Companycommitted to a plan to sell its ownership in AES Barry.  Accordingly, these businesses were classified as discontinued in the first quarter of 2003.  During the quarter ended March 31, 2002, the Company wrote-off its investment in Fifoots after the plant was placed in administrative receivership.

Accounting change.Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred. When a new liability is recorded beginning in 2003, the entity will capitalize the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss upon settlement.  The adoption of SFAS No. 143 resulted in a cumulative reduction to income of $2 million, net of income tax effects, during the first quarter of 2003.

Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” which establishes accounting and reporting standards for goodwill and other intangible assets. The adoption of SFAS No. 142 resulted in a cumulative reduction to income of $473 million, net of income tax effects, during the first quarter of 2002.

Net income (loss).  The Company recorded net income of $93 million for the first quarter of 2003 compared to a net loss of $313 million during the same period in 2002. Most of this change is due to recording expense of $473 million in the first quarter of 2002 related to the cumulative effect of an accounting change.

FINANCIAL POSITION, CASH FLOWS AND FOREIGN CURRENCY EXCHANGE RATES

Non-recourse project financing

General

AES is a holding company that conducts all of its operations through subsidiaries. AES has, to the extent practicable, utilized non-recourse debt to fund a significant portion of the capital expenditures and investments required to construct and acquire its electric power plants, distribution companies and related assets. Non-recourse borrowings are substantially non-recourse to other subsidiaries and affiliates and to AES as the parent company, and are generally secured by the capital stock, physical

38

assets, contracts and cash flow of the related subsidiary or affiliate. At March 31, 2003, AES had $5.5 billion of recourse debt and $14.0 billion of non-recourse debt outstanding.

The Company intends to continue to seek, where possible, non-recourse debt financing in connection with the assets or businesses that the Company or its affiliates may develop, construct or acquire. However, depending on market conditions and the unique characteristics of individual businesses, non-recourse debt financing may not be available or available on economically attractive terms.  If the Company decides not to provide any additional funding or credit support, the inability of any of its subsidiaries that are under construction or that have near-term debt payment obligations to obtain non-recourse project financing may result in such subsidiary’s insolvency and the loss of the Company’s investment in such subsidiary. Additionally, the loss of a significant customer at any of the Company’s subsidiaries may result in the need to restructure the non-recourse project financing at that subsidiary, and the inability to successfully complete a restructuring of the non-recourse project financing may result in a loss of the Company’s investment in such subsidiary.

In addition to the non-recourse debt, if available, AES as the parent company provides a portion, or in certain instances all, of the remaining long-term financing or credit required to fund development, construction or acquisition. These investments have generally taken the form of equity investments or loans, which are subordinated to the project’s non-recourse loans. The funds for these investments have been provided by cash flows from operations and by the proceeds from issuances of debt, common stock and other securities issued by the Company. Similarly, in certain of its businesses, the Company may provide financial guarantees or other credit support for the benefit of counterparties who have entered into contracts for the purchase or sale of electricity with the Company’s subsidiaries. In such circumstances, were a subsidiary to default on a payment or supply obligation, the Company would be responsible for its subsidiary’s obligations up to the amount provided for in the relevant guarantee or other credit support.

As a result of the trading prices of AES’s equity and debt securities, counterparties may not be willing to accept general unsecured commitments by AES to provide credit support. Accordingly, with respect to both new and existing commitments, AES may be required to provide some other form of assurance, such as a letter of credit, to backstop or replace any AES credit support.  AES may not be able to provide adequate assurances to such counterparties. In addition, to the extent AES is required and able to provide letters of credit or other collateral to such counterparties, it will limit the amount of credit available to AES to meet its other liquidity needs.

At March 31, 2003, AES had provided outstanding financial and performance related guarantees or other credit support commitments to or for the benefit of its subsidiaries, which were limited by the terms of the agreements, to an aggregate of approximately $629 million (excluding those collateralized by letter-of-credit obligations discussed below). The Company is also obligated under other commitments, which are limited to amounts, or percentages of amounts, received by AES as distributions from its project subsidiaries. These amounts aggregated $25 million as of March 31, 2003. In addition, the Company has commitments to fund its equity in projects currently under development or in construction. At March 31, 2003, such commitments to invest amounted to approximately $51 million (excluding those collateralized by letter-of-credit obligations).

At March 31, 2003, the Company had $193 million in letters of credit outstanding, which operate to guarantee performance relating to certain project development activities and subsidiary operations. The Company pays a letter-of-credit fee ranging from 0.50% to 6.75% per annum on the outstanding amounts. In addition, the Company had $3 million in surety bonds outstanding at March 31, 2003.

Project level defaults

While the lenders under AES’s non-recourse project financings generally do not have direct recourse to the parent, defaults thereunder can still have important consequences for AES’s results of operations and liquidity, including, without limitation:

•Reducing AES’s cash flows since the project subsidiary will typically be prohibited from distributing cash to AES during the pendancy of any default

•Triggering AES’s obligation to make payments under any financial guarantee, letter of credit or other credit support AES has provided to or on behalf of such subsidiary

•Causing AES to record a loss in the event the lender forecloses on the assets

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•Triggering defaults in the parent’s outstanding debt. For example, the parent’s revolving credit agreement and outstanding senior notes, senior subordinated notes, and junior subordinated notes include events of default for certain bankruptcy related events involving material subsidiaries. In addition, the parent’s revolving credit agreement includes events of default related to payment defaults and accelerations of outstanding debt of material subsidiaries.

As reported in our Annual Report on Form 10-K for the year ended December 31, 2002, Eletropaulo in Brazil and Edelap, Eden/Edes, Parana and TermoAndes, all in Argentina, are still in default. In addition, during the first quarter of 2003, CEMIG and Sul in Brazil, and Drax and Barry in the United Kingdom each went into default on its outstanding debt.  The total debt classified as current in the accompanying consolidated balance sheets related to such defaults was $4.4 billion at March 31, 2003.

At March 31, 2003, EDC was not in compliance with two of its net worth covenants on $131 million and $9 million of non-recourse debt primarily due to the impact of the devaluation of the Venezuelan Bolivar. EDC has received a verbal notice extending a waiver on the $131 million debt obligation.  The lender has informed EDC that the formal written waiver request is on the agenda for its next scheduled committee meeting.  EDC anticipates receipt of the written waiver in late May 2003. EDC has requested and received a written waiver on the $9 million debt obligation, which is effective through June 30, 2003.  Of the above-mentioned debt, approximately $102 million is classified as non-recourse debt—long term in the accompanying consolidated balance sheets. The remainder is classified as non-recourse debt—current portion.

Sul and AES Cayman Guaiba, a subsidiary of the Company that owns the Company’s interest in Sul, are facing near-term debt payment obligations that must be extended, restructured, refinanced or paid. Sul had outstanding debentures of $55 million, at the March 31, 2003 exchange rate, that were restructured on December 1, 2002. The restructured debentures have partial interest payments due in June 2003 and December 2003 and principal payments due in 12 equal monthly installments commencing on December 1, 2003. On April 24, 2003 a waiver with respect to a $30 million payment default by AES Cayman Guaiba under its $300 million syndicated loan expired.  The lenders have indicated their willingness to extend the waiver until the earlier of May 24, 2003 and the execution of satisfactory final documentation in respect of the restructuring of such loan.  There can be no assurance, however, that such waiver will be granted or that such restructuring will be successful.  The Company has guaranteed up to $50 million of AES Cayman Guaiba’s obligations under the $300 million syndicated loan.

None of the AES subsidiaries in default on their non-recourse project financings at March 31, 2003 are material subsidiaries as defined in the parent’s indebtedness agreements, and therefore, none of these defaults can cause a cross-default or cross-acceleration under the parent’s revolving credit agreement or other outstanding indebtedness or the SELLS loans referred to in our Annual Report on Form 10-K, nor are they expected to otherwise have a material adverse effect on the Company’s results of operations or financial condition.

Consolidated cash flow

At March 31, 2003, cash and cash equivalents totaled $1.2 billion compared to $769 million at December 31, 2002. The $394 million increase resulted from the $446 million provided by operating activities and the $195 million provided by investing activities offset by the $225 million used by financing activities. The net use of cash by financing activities was primarily the result of a $224 million net repayment of non-recourse debt and other coupon-bearing securities during the first quarter of 2003. At March 31, 2003, the Company had a consolidated net working capital deficit of ($4.9) billion compared to ($2.2) billion at December 31, 2002. Included in net working capital at March 31, 2003 is approximately $4.0 billion from the current portion of long-term debt. The Company expects to refinance a significant amount of the current portion of long-term non-recourse debt.  There can be no guarantee that these refinancings can be completed or will have terms as favorable as those currently in existence. There are some subsidiaries that issue short-term debt and commercial paper in the normal course of business and continually refinance these obligations. The decrease in working capital is mainly due to the increased current liabilities of discontinued operations and businesses held for sale.

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Parent company liquidity

Because of the non-recourse nature of most of AES’s indebtedness, AES believes that unconsolidated parent company liquidity is an important measure of the liquidity position of AES and its consolidated subsidiaries as presented on a consolidated basis.

The parent company’s principal sources of liquidity are:

•Dividends and other distributions from its subsidiaries, including refinancing proceeds

•Proceeds from debt and equity financings at the parent company level, including borrowings under its revolving credit facility, and

•Proceeds from asset sales

•Consulting and management fees

•Tax sharing payments

•Interest and other distributions paid during the period with respect to cash and other temporary cash investments less parent operating expenses

The parent company’s cash requirements through the end of 2003 are primarily to fund:

•Interest and preferred dividends

•Principal repayments of debt

•Construction commitments

•Other equity commitments

•Compliance with environmental laws

•Taxes, and

•Parent company overhead

During March 2003, the Company reached an agreement to sell 100 percent of its ownership interest in both AES Haripur and AES Meghnaghat, both generation businesses in Bangladesh, for approximately $127 million in cash, plus assumption of debt and subject to certain closing adjustments.  The Company expects this sale to close in the second or third quarter of 2003.  Also during March 2003, the Company announced an agreement to sell an approximately 32% ownership interest in AES Oasis Limited (“AES Oasis”). AES Oasis is a newly created company that will own two electric generation development projects and desalination plants in Oman and Qatar (AES Barka and AES Ras Laffan, respectively), the oil-fired generating facilities, AES LalPir and AES PakGen in Pakistan, as well as future power projects in the Middle East. AES expects this sale to close in the second or third quarter of 2003. Completion of the AES

41

Oasis transaction is subject to certain conditions, including government and lender approvals. At the time of closing, AES will receive cash proceeds of approximately $150 million.

The ability of the Company’s project subsidiaries to declare and pay cash dividends to the Company is subject to certain limitations in the project loans, governmental provisions and other agreements entered into by such project subsidiaries.

In addition, certain of the Company’s regulatory subsidiaries are subject to rules and regulations that could possibly result in a restriction on their ability to pay dividends. For example, on February 12, 2003, the Indiana Utility Regulatory Commission (IURC) issued an Order in connection with a petition filed by Indianapolis Power & Light Company (“IPL”), the principal subsidiary of IPALCO, for approval of its financing program, including the issuance of additional long-term debt. The Order approved the requested financing but set forth a process whereby IPL must file a report with the IURC, prior to declaring or paying a dividend, that sets forth (1) the amount of any proposed dividend, (2) the amount of dividends distributed during the prior twelve months, (3) an income statement for the same twelve-month period, (4) the most recent balance sheet, and (5) IPL’s capitalization as of the close of the preceding month, as well as a pro forma capitalization giving effect to the proposed dividend, with sufficient detail to indicate the amount of unappropriated retained earnings. If within twenty (20) calendar days the IURC does not initiate a proceeding to further explore the implications of the proposed dividend, the proposed dividend will be deemed approved. The Order stated that such process should continue in effect during the term of the financing authority, which expires December 31, 2006. On February 28, 2003, IPL filed a petition for reconsideration, or in the alternative, for rehearing with the IURC. This petition seeks clarification of certain provisions of the Order. In addition, the petition requests that the IURC establish objective criteria in connection with the reporting process related to IPL’s long term debt capitalization ratio. On March 14, 2003 IPL filed a Notice of Appeal of the IURC Order, as amended, in the Indiana Court of Appeals.  On April 16, 2003, the IURC issued its Order in response to IPL’s petition for reconsideration. The IURC declined to provide objective criteria relating to the dividend reporting process, and did not set a definitive time frame within which an investigation of a proposed dividend would be concluded. The IURC did make certain requested clarifications and corrections with regard to the Order, including the following: (1) the dividend reporting process applies only to dividends on IPL’s common stock, not on its preferred stock; (2) a confidentiality process is established to maintain confidentiality of information filed under the dividend reporting process until such information has been publicly released and is no longer confidential; (3) dividends are not to be paid until after the twenty calendar days have passed, or the Commission approves the dividend after initiating a proceeding to explore the implications of a proposed dividend; and (4) certain technical corrections.

IPL has filed three reports with the IURC under the dividend reporting process. The IURC did not initiate any proceeding in response to the three reports and they were deemed approved after twenty days had elapsed.  The Company continues to believe that IPL will not be prevented from paying future dividends in the ordinary course of prudent business operations.

At March 31, 2003, parent and qualified holding company liquidity was $489 million.  Of this amount, cash at the parent company was $395 million, availability under the revolving credit facility was $28 million and cash at qualified holding companies was $66 million.  The cash held at qualifying holding companies represents cash sent to subsidiaries of the Company domiciled outside of the U.S.  Such subsidiaries had no contractual restrictions on their ability to send cash to AES. AES believes that parent and qualified holding company liquidity is an important measure of liquidity for the Company because of the non-recourse nature of most of the Company’s indebtedness.  Letters of credit outstanding at March 31, 2003 under the $350 million senior secured revolving credit facility amounted to $87 million. Letters of credit outstanding outside the $350 million senior secured revolving credit facility amounted to $106 million.

While AES believes that its sources of liquidity will be adequate to meet its needs through the end of 2003, this belief is based on a number of material assumptions, including, without limitation, assumptions about exchange rates, power market pool prices, the ability of its subsidiaries to pay dividends and the timing and amount of asset sale proceeds. In addition, there can be no assurance that these sources will be available when needed or that AES’s actual cash requirements will not be greater than anticipated.

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Foreign currency exchange rates

Through its equity investments in foreign affiliates and subsidiaries, AES operates in jurisdictions with currencies other than the Company’s functional currency, the U.S. dollar. Such investments and advances were made to fund equity requirements and to provide collateral for contingent obligations. Due primarily to the long-term nature of the investments and advances, the Company accounts for any adjustments resulting from translation of the financial statements of its foreign investments as a charge or credit directly to a separate component of stockholders’ equity until such time as the Company realizes such charge or credit. At that time, any differences would be recognized in the statement of operations as gains or losses.

In addition, certain of the Company’s foreign subsidiaries have entered into obligations in currencies other than their own functional currencies or the U.S. dollar. These subsidiaries have attempted to limit potential foreign exchange exposure by entering into revenue contracts that adjust to changes in the foreign exchange rates. Certain foreign affiliates and subsidiaries operate in countries where the local inflation rates are greater than U.S. inflation rates. In such cases the foreign currency tends to devalue relative to the U.S. dollar over time.  The Company’s subsidiaries and affiliates have entered into revenue contracts which attempt to adjust for these differences; however, there can be no assurance that such adjustments will compensate for the full effect of currency devaluation, if any. The Company had approximately $4.0 billion in cumulative foreign currency translation adjustment losses at March 31, 2003 reported in accumulated other comprehensive loss in the accompanying consolidated balance sheet.

Forward-looking statements

Certain statements contained in this Form 10-Q are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date hereof. Forward-looking statements can be identified by the use of forward-looking terminology such as “believe,” “expects,” “may,” “intends,” “will,” “should” or “anticipates” or the negative forms or other variations of these terms or comparable terminology, or by discussions of strategy. Future results covered by the forward-looking statements may not be achieved. Forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant risks, uncertainties and other factors are discussed in the Company’s Annual Report on Form 10-K.  You are urged to read this document and carefully consider such factors.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

The Company believes that there have been no material changes in its exposure to market risks during the first quarter of 2003 compared with the exposure set forth in the Company’s Annual Report filed with the Commission on Form 10-K for the year ended December 31, 2002.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  Our chief executive officer and our chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14 (c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that material information relating to us and our consolidated subsidiaries is recorded, processed, summarized and reported in a timely manner.

Changes in Internal Controls.  There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect such controls subsequent to the Evaluation Date.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

See discussion of litigation and other proceedings in Part I, Note 8 to the consolidated financial statements which is incorporated herein by reference.

Item 2. Changes in Securities and Use of Proceeds.

 In February 2003 the Company issued an aggregate of 1,798,780 shares of its common stock in exchange for $36,885,000 aggregate principal amount of the Company’s outstanding senior subordinated notes. The shares were issued without registration in reliance upon Section 3(a)(9) under the Securities Act of 1933.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

None

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

3.1	Sixth Amended and Restated Certificate of Incorporation of The AES Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 filed on March 26, 2003).
3.2	By-Laws of The AES Corporation. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 filed on March 26, 2003).
4.1	Indenture dated as of May 8, 2003, between The AES Corporation and Wells Fargo Bank Minnesota, National Association, as Trustee, relating to the 8.75% Second-Priority Senior Secured Notes due 2013 and 9.00% Second-Priority Senior Secured Notes due 2015.
4.2	Second Priority Collateral Trust Agreement dated as of May 8, 2003 among The AES Corporation, AES International Holdings II, Ltd., Wells Fargo Bank Minnesota, National Association, as corporate trustee and Jeffery T. Rose, as individual trustee.
4.3	Second Priority Security Agreement dated as of May 8, 2003 made by The AES Corporation to Wells Fargo Bank Minnesota, National Association, as corporate trustee and Jeffery T. Rose, as individual trustee.
4.4	The Second Priority Charge Over Shares dated as of May 8, 2003 between AES BVI II and Wells Fargo Bank Minnesota, National Association, as corporate trustee and Jeffery T. Rose, as individual trustee.
10.1	Amendment No. 1 dated as of April 14, 2003, to the Amended and Restated Credit, Reimbursement and Exchange Agreement dated as of December 31, 2002 among The AES Corporation, the Subsidiary Guarantors party thereto, the Banks party thereto, the Revolving Fronting Banks and the Drax LOC Fronting Bank party thereto and Citicorp USA, Inc., as Administrative Agent and as Collateral Agent for the Bank Parties.
10.2	The AES Corporation Employment Agreement with Mark Fitzpatrick
99.1	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act

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(b) Reports on Form 8-K.

The Company filed the following reports on Form 8-K during the quarter ended March 31, 2003. Information regarding the items reported on is as follows:

Date	Item Reported On
January 31, 2003	Item 5— announcement of the Company’s completion of its sale of  its subsidiary, CILCORP, Inc., to Ameren Corporation.
February 20, 2003	Item 5— disclosure of the Company’s financial results for the year ended December 31, 2002.
February 28, 2003	Item 9— announcement of information regarding an order issued by the Indiana Utility Regulatory Commission (IURC) in connection with a petition filed by the Company’s indirect subsidiary, Indianapolis Power & Light Company (IPL), a regulated utility subsidiary of the Company’s subsidiary IPALCO Enterprises, Inc., for approval of its financing program, including the issuance of additional long-term debt.
April 4, 2003	Item 5— announcement of the Company’s intent to launch a proposed refinancing transaction that will include an offering of new second priority senior secured notes which will fund a cash tender offer to acquire a portion of certain of its outstanding senior and subordinated notes and an amendment and partial paydown of outstanding borrowings under its senior bank facility
April 10, 2003	Item 9— disclosure of non-recourse debt maturity schedule.
April 15, 2003	Item 5— announcement that the Company’s lenders have approved a proposed amendment and partial paydown in the amount of $475 million of outstanding borrowings under its senior bank facility.
April 24, 2003	Item 9— announcement of additional information regarding the IPL dividend approval process ordered by the IURC.
April 24, 2003	Item 5— announcement of the Company’s launching of private placement of approximately $1 billion principal amount of second priority senior secured notes which will be secured by second priority liens on (1) the capital stock of certain subsidiaries of AES and (2) certain intercompany receivables, certain intercompany notes and intercompany tax sharing agreements owed to AES by its subsidiaries.
April 25, 2003	Item 9 and Item 12— disclosure of the Company’s expected financial results for the first quarter of 2003.
May 1, 2003	Item 5, Item 9 and Item 12— disclosure of the Company’s financial results for the first quarter of 2003.
May 2, 2003	Item 5— announcement that the Company had priced an offering of $1.8 billion of second priority senior secured notes.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	The AES Corporation
	(Registrant)
Date:  May 15, 2003	By:	/s/ Barry J. Sharp
		Name: Barry J. Sharp Title: Executive Vice President and Chief Financial Officer

46

EXHIBIT INDEX

Exhibit	Description of Exhibit	SequentiallyNumbered Page
3.1	Sixth Amended and Restated Certificate of Incorporation of The AES Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 filed on March 26, 2003).
3.2	By-Laws of The AES Corporation. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 filed on March 26, 2003).
4.1	Indenture dated as of May 8, 2003, between The AES Corporation and Wells Fargo Bank Minnesota, National Association, as Trustee, relating to the 8.75% Second-Priority Senior Secured Notes due 2013 and 9.00% Second-Priority Senior Secured Notes due 2015.
4.2	Second Priority Collateral Trust Agreement dated as of May 8, 2003 among The AES Corporation, AES International Holdings II, Ltd., Wells Fargo Bank Minnesota, National Association, as corporate trustee and Jeffery T. Rose, as individual trustee.
4.3	Second Priority Security Agreement dated as of May 8, 2003 made by The AES Corporation to Wells Fargo Bank Minnesota, National Association, as corporate trustee and Jeffery T. Rose, as individual trustee.
4.4	The Second Priority Charge Over Shares dated as of May 8, 2003 between AES BVI II and Wells Fargo Bank Minnesota, National Association, as corporate trustee and Jeffery T. Rose, as individual trustee.
10.1	Amendment No. 1 dated as of April 14, 2003, to the Amended and Restated Credit, Reimbursement and Exchange Agreement dated as of December 31, 2002 among The AES Corporation, the Subsidiary Guarantors party thereto, the Banks party thereto, the Revolving Fronting Banks and the Drax LOC Fronting Bank party thereto and Citicorp USA, Inc., as Administrative Agent and as Collateral Agent for the Bank Parties.
10.2	The AES Corporation Employment Agreement with Mark Fitzpatrick
99.1	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act

47

Form of Certification Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934

I, Paul T. Hanrahan, certify that:

1.I have reviewed this quarterly report on Form 10-Q of The AES Corporation;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements are made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.             Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.             Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to filing date of this quarterly report (the “Evaluation Date”); and

c.             Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.             All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

May 15, 2003

/s/ Paul T. Hanrahan

Name: Paul T. Hanrahan

Chief Executive Officer

48

Form of Certification Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934

I, Barry J. Sharp, certify that:

1.I have reviewed this quarterly report on Form 10-Q of The AES Corporation;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements are made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.             Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.             Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to filing date of this quarterly report (the “Evaluation Date”); and

c.             Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.             All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

May 15, 2003

/s/ Barry J. Sharp

 Name: Barry J. Sharp

Chief Financial Officer

49

EX-4.1

Exhibit 4.1

THE AES CORPORATION
as the Company

and

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

as Trustee

8³/4 % Second Priority Senior Secured Notes due 2013
9% Second Priority Senior Secured Notes due 2015

Senior Indenture

Dated as of May 8, 2003

TABLE OF CONTENTS

(1) Note:  The Table of Contents shall not for any purposes be deemed to be a part of the Indenture.

i

ii

iii

iv

INDENTURE, dated as of May 8, 2003, between The AES Corporation (the “Company”), a Delaware corporation, as the issuer, and Wells Fargo Bank Minnesota, National Association, a national banking association, as trustee (the “Trustee”).

RECITALS OF THE COMPANY

WHEREAS, the Company has duly authorized the execution and delivery of the Indenture to provide for the issuance from time to time of up to such Principal amount or amounts as may from time to time be authorized of the Company’s 8¾% Second Priority Senior Secured Notes Due 2013 (the “Notes due 2013”) and the Company’s 9% Second Priority Senior Secured Notes Due 2015 (the “Notes due 2015” and collectively with the Notes due 2013, the “Notes”) in accordance with the terms of this Indenture; and

WHEREAS, all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done, and the Company has done all things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company as hereinafter provided;

NOW, THEREFORE THIS INDENTURE WITNESSETH

For and in consideration of the premises and the purchases of the Notes by the Holders thereof, the Company and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders as follows:

ARTICLE 1DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.01.  Definitions.

“Additional Collateral Trust Agreement Collateral” means the “Additional Second Priority Collateral Trust Agreement Collateral” referred to in the Collateral Trust Agreement.

“Additional Notes” means any notes issued under the Indenture in addition to the Original Notes having the same terms in all respects as the Original Notes due 2013 or the Original Notes due 2015, as the case may be, except that interest will accrue on the Additional Notes from the most recent date to which interest has been paid on the Notes of the applicable Series (other than Additional Notes) or, if no interest has been paid, from the Original Issue Date.

“Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person.  For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”) when used with respect to any Person is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agent” means any Registrar, Paying Agent, transfer agent or Authenticating Agent.

“Agent Member” means a member of, or a participant in, the Depositary.

“Announced Asset Sale” means the sale by the Company of (i) its majority ownership of Songas Limited, a gas-to-electricity business currently under construction in Tanzania, (ii) its ownership interest in two generation businesses in Bangladesh (AES Haripur Private Limited, a 360 MW gas fired combined cycle power plant and AES Meghnaghat Limited, a 450 MW gas fired combined cycle power plant) and (iii) approximately 32% of the ownership interest in AES Oasis Limited, a newly created company that will own two electric generation and desalination plants in Oman and Qatar, the oil-fired generating facilities AES LalPir and AES PakGen in Pakistan and other future power projects in the Middle East.

“Asset Disposition” means, with respect to any Person, any sale, transfer, conveyance, lease or other disposition (including by way of merger, consolidation or sale-leaseback) by such Person or any of its Subsidiaries to any Person (other than to the Company or a Consolidated Subsidiary of the Company and other than in the ordinary course of business) of (i) any assets (excluding cash and cash equivalents) of such Person or any of its Subsidiaries or (ii) any shares of Capital Stock of such Person’s Subsidiaries.

For purposes of this definition, any disposition in connection with directors’ qualifying shares or investments by foreign nationals mandated by applicable law shall not constitute an Asset Disposition.  In addition, the term “Asset Disposition” shall not include any sale, transfer, conveyance, lease or other disposition of assets governed by Article 5. The term “Asset Disposition” also shall not include (i) any sale of shares of Preferred Stock of a Subsidiary other than a Collateral Subsidiary, (ii) the grant of a security interest by any Person in any assets or shares of Capital Stock securing a borrowing by, or contractual performance obligation of, such Person or any Subsidiary of such Person, (iii) a sale-leaseback transaction involving substantially all of the assets of a Power Supply Business where a Subsidiary of the Company sells the Power Supply Business to a Person in exchange for the assumption by that Person of the Debt financing the Power Supply Business and the Subsidiary leases the Power Supply Business from such Person, (iv) dispositions of

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contract rights, development rights and resource data made in connection with the initial development of a Power Supply Business, made prior to the commencement of commercial operation of such Power Supply Business, (v) transactions made in order to enhance the repatriation of cash proceeds in connection with a Foreign Asset Disposition or in order to increase the after-tax proceeds thereof available for immediate distribution, (vi) any dividend or other distribution on any shares of such Person’s Capital Stock, (vii) any payment on account of the purchase, redemption, retirement or acquisition for value of such Person’s Capital Stock or any option, warrant or other right to purchase shares of such Person’s Capital Stock, (viii) any defeasance, redemption, repurchase or other acquisition or retirement for value of any First-Priority Secured Debt or Debt of any Subsidiary of the Company or (ix) any conversion of such Person’s Debt into Capital Stock of such Person or its Subsidiaries. Notwithstanding the foregoing, any sale, transfer, conveyance, lease or other disposition of assets (excluding cash and cash-equivalents or any grant of a security interest) by a Collateral Subsidiary to the Company or a Subsidiary of the Company that is not a Collateral Subsidiary shall be an Asset Disposition unless such Subsidiary becomes a Collateral Subsidiary or such assets are pledged as Collateral under the Second-Priority Security Documents, in each case, substantially concurrently with such sale, transfer, conveyance, lease or other disposition.

“Attributable Debt” means the present value (discounted at the rate of  8¾ % per annum compounded monthly) of the obligations for rental payments required to be paid during the remaining term of any lease of more than 12 months.

“Board of Directors” means either the Board of Directors of the Company or (except for the purposes of clause (iii) of the definition of “Change of Control”) any committee of such Board duly authorized to act hereunder.

“Board Resolution” means one or more resolutions of the Board of Directors, certified by the secretary or an assistant secretary to have been duly adopted and to be in full force and effect on the date of certification, and delivered to the Trustee.

“Business Day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in the City of New York.

“BVI Cayman Pledge Agreement” means the Second-Priority Charge and Assignment over Shares dated May 8, 2003 between AES International Holdings II, Ltd., as Chargor, Wells Fargo Bank Minnesota, National Association, as Corporate Trustee and Jeffery T. Rose, as Individual Trustee.

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“BVI Collateral” means the “Collateral” referred to in the BVI Cayman Pledge Agreement.

“Capital Stock” means, with respect to any Person, any and all shares, interests, participants or other equivalents (however designated, whether voting or non-voting) of, or interests in (however designated), the equity of such Person which is outstanding or issued on or after the date hereof, including, without limitation, all Common Stock and Preferred Stock and partnership and joint venture interests of such Person.

“Capitalized Lease” means, as applied to any Person, any lease of any Property of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person; and “Capitalized Lease Obligation” is defined to mean the rental obligations, as aforesaid, under such lease.

“Change of Control” means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company (determined on a consolidated basis) to any Person or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of Persons, (ii) a Person or group (as so defined) of Persons (other than management of the Company on the date of the Indenture or their Affiliates) shall have become the beneficial owner of more than 35% of the outstanding Voting Stock of the Company, or (iii) during any one-year period, individuals who at the beginning of such period constitute the Board of Directors (together with any new director whose election or nomination was approved by a majority of the directors then in office who were either directors at the beginning of such period or who were previously so approved) cease to constitute a majority of the Board of Directors

“Clearstream” means Clearstream Banking S.A.

“Collateral” means the Security Agreement Collateral, the Additional Collateral Trust Agreement Collateral and the BVI Collateral and any other assets pledged to secure the Notes.

“Collateral Assets” means the Collateral and any and all assets and Capital Stock of or owned by any Collateral Subsidiary.

“Collateral Subsidiary” means a Consolidated Subsidiary of the Company all or a portion of the Capital Stock of which has been pledged as Collateral pursuant to the Second-Priority Security Documents and any Subsidiary thereof.

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“Collateral Trust Agreement” means the agreement dated May 8, 2003 among the Grantors referred to therein and the Collateral Trustees.

“Collateral Trustees” means Wells Fargo Bank Minnesota, National Association, as Corporate Trustee and Jeffery T. Rose, as Individual Trustee under the Collateral Trust Agreement (or their respective successors in such capacities).

“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act.

“Common Stock” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of common stock of such Person which is outstanding or issued on or after the date of the Indenture, including, without limitation, all series and classes of such common stock.

“Company” means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to Article 5 of this Indenture and thereafter means the successor.

“Consolidated Fixed Charge Ratio” means the ratio of (i) Parent Operating Cash Flow for the Reference Period immediately prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Ratio (the “Transaction Date”) to (ii) the aggregate Consolidated Fixed Charges of the Company during such Reference Period; provided that in calculating the Consolidated Fixed Charges pro forma effect shall be given to (A) the acquisition or disposition of companies, divisions or lines of business by the Company and its Subsidiaries during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date (or any person that became a Subsidiary of the Company or was merged into the Company or any Subsidiary of the Company during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date) and (B) the incurrence or repayment of any Debt during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date and, in the case of any incurrence, the application of the proceeds therefrom, in each case as if such events had occurred on the first day of the Reference Period.

“Consolidated Fixed Charges” means, with respect to any Person, for any period, the aggregate of (i) Consolidated Interest Expense, (ii) the interest component of Capitalized Leases, determined on a consolidated basis for such Person and its Consolidated Subsidiaries in accordance with GAAP, excluding any interest component of Capitalized Leases in respect of that portion of a Capitalized Lease Obligation of a Subsidiary that is Non-Recourse to such Person and (iii) cash and non-cash dividends due (whether or not declared) on any

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Redeemable Stock of such Person or on any Preferred Stock of a Subsidiary of such Person.

“Consolidated Interest Expense” means, with respect to any Person, for any period, the aggregate interest expense in respect of Debt (including amortization of original issue discount and non-cash payments or accruals) of such Person and its Consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, including all commissions, discounts, other fees and charges owed with respect to letters of credit and bankers’ acceptance and net costs associated with Interest Rate Agreements and any amounts paid during such period in respect of such interest expense, commissions, discounts, other fees and charges that have been capitalized; provided that Consolidated Interest Expense of the Company shall not include any interest expense (including all commissions, discounts, other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs associated with Interest Rate Agreements) in respect of that portion of Debt of a Subsidiary of the Company that is Non-Recourse to the Company; and provided further that Consolidated Interest Expense of the Company in respect of a Guarantee by the Company of any Debt of a Subsidiary shall be equal to the commissions, discounts, other fees and charges that would be due with respect to a hypothetical letter of credit issued under the Senior Secured Credit Facilities that can be drawn by the beneficiary thereof in the amount of the Debt so guaranteed if (i) the Company is not actually making directly or indirectly interest payments on such Debt and (ii) GAAP does not require the Company on an unconsolidated basis to record such Debt as a liability of the Company.

“Consolidated Net Assets” means the aggregate amount of assets (less reserves and other deductible items) after deducting current liabilities, as shown on the consolidated balance sheet of the Company and its Subsidiaries contained in the latest annual report to the stockholders of the Company and prepared in accordance with GAAP.

“Consolidated Subsidiary” means, at any date with respect to any Person, any Subsidiary of such Person or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date.

“Corporate Trust Office” means the office of the Trustee at which the corporate trust business of the Trustee in Minnesota, shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota.

“Currency Agreement” means with, respect to any Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against

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fluctuations in currency values to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary thereafter.

“Debt”of any Person means at any date, without duplication, (i) all indebtedness of such Person for borrowed money; (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all Obligations of such Person in respect of letters of credit or bankers acceptance or other similar instruments (or reimbursement Obligations with respect thereto); (iv) all Obligations of such Person to pay the deferred purchase price of property or services, except Trade Payables; (v) all Obligations of such Person as lessee under Capitalized Leases; (vi) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; provided that, for purposes of determining the amount of any Debt of the type described in this clause, if recourse with respect to such Debt is limited to such asset, the amount of such Debt shall be limited to the lesser of the fair market value of such asset or the amount of such Debt; (vii) all Debt of others Guaranteed by such Person to the extent such Debt is Guaranteed by such Person; (viii) all Redeemable Stock valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and (ix) to the extent not otherwise included in this definition, all Obligations of such Person under Currency Agreements and Interest Rate Agreements.

“Default” means any Event of Default as defined in Section 6.01 and any event that is, or after notice or passage of time or both would be, an Event of Default.

“Depositary” means the depositary of each Global Note, which initially will be DTC or, as to an Offshore Global Note, a common depositary for Euroclear and Clearstream, unless and until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Depositary” shall mean or include each Person who is then a Depositary hereunder.

“DTC” means The Depository Trust Company, a New York corporation.

“DTC Legend” means the legend set forth in Exhibit C.

“Equity Interest” means, with respect to any Person, shares of Capital Stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of Capital Stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of Capital Stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares of (or such other

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interests in), such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

“Euroclear” means Euroclear Bank S.A./N.V., and its successors or assigns, as operator of the Euroclear system.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“First-Priority Collateral Documents” means (i) the security agreement dated December 12, 2002 by and among the Company, the other Persons listed on the signature page thereof and the Additional Grantors (as defined therein), as grantors, to Wilmington Trust Company, as corporate trustee and Bruce L. Bisson, as individual trustee, under the collateral trust agreement referred to in the following clause (ii), (ii) the collateral trust agreement dated December 12, 2002 among the grantors referred to therein, as grantors and the collateral trustees, (iii) the charge and assignment over shares dated December 12, 2002 between AES International Holdings II, Ltd., as chargor, Wilmington Trust Company, as corporate trustee and Bruce L. Bisson, as individual trustee, each as amended from time to time, and (iv) any other agreement that creates a first-priority Lien on the Collateral securing Debt of the Company that is permitted to be secured by a first-priority Lien on the Collateral pursuant to Section 4.07 and Section 4.06 hereof.

“First-Priority Secured Debt” means Debt of the Company secured by a first-priority lien on the Collateral pursuant to the First-Priority Collateral Documents; provided that Debt owed to an Affiliate of the Company shall not be First-Priority Secured Debt.

“Foreign Asset Disposition” means any Asset Disposition in respect of the Capital Stock and/or Property of any Subsidiary of any Person where such Subsidiary is organized under the laws of any jurisdiction other than the U.S. or any state thereof or any Subsidiary of the type described in Section 936 of the Internal Revenue Code of 1986, as amended, to the extent that the proceeds of such Asset Disposition are received by a Person subject in respect of such proceeds to the tax laws of a jurisdiction other than the U.S. or any state thereof.

“Funded Debt” means indebtedness for borrowed money having a maturity of, or by its terms extendible or renewable for, a period of more than 12 months after the determination of the amount thereof.

“GAAP” means generally accepted accounting principles in the U.S. as in effect, as of the date hereof applied on a basis consistent with the principles, methods, procedures and practices employed in the preparation of the Company’s

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audited financial statements, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as is approved by a significant segment of the accounting profession.

“Global Note” means a Registered Note in global form without interest coupons.

“Guarantee”by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation of such Person (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.  The term “Guarantee” used as a verb has a corresponding meaning.

“Holder” or “Noteholder” means the registered holder of any Note.

“Incur” means with respect to any Debt, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Debt; provided that neither the accrual of interest (whether such interest is payable in cash or kind) nor the accretion of original issue discount shall be considered an Incurrence of Debt.

“Independent Financial Advisor” means a nationally recognized investment banking firm (i) which does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in the Company and (ii) which, in the sole judgment of the Board of Directors, is otherwise independent and qualified to perform the task for which such firm is being engaged.

“Indenture” means this Indenture as originally executed and delivered or as it may be amended or supplemented from time to time by one or more indentures supplemental to this Indenture entered into pursuant to the applicable provisions of this Indenture.

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“Interest Payment Date” means each May 15 and November 15 of each year, commencing with November 15, 2003.

“Interest Rate Agreement” means with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary thereafter.

“Investment” means:

(i)any direct or indirect advance, loan or other extension of credit to another Person,

(ii)any capital contribution to another Person, by means of any transfer of cash or other property or in any other form,

(iii)any purchase or acquisition of Capital Stock, bonds, notes or other Debt, or other instruments or securities issued by another Person, including the receipt of any of the above as consideration for the disposition of assets or rendering of services, or

(iv)any Guarantee of any obligation of another Person.

“Investment Grade” means with respect to any security, a rating of Baa3 or higher of such security by Moody’s Investors Service Inc. (or any successor) together with a rating of BBB- or higher of such security by Standard & Poor’s, a division of the McGraw-Hill Companies, Inc. (or any successor).

“Joint Venture” means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that, as to any such arrangement in corporate form, such corporation shall not, as to any Person of which such corporation is a Subsidiary, be considered to be a Joint Venture to which such Person is a party.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.  For the purposes of this Indenture, the Company or any of its Subsidiaries shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any

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conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Make-Whole Amount” means, the excess, if any, of (i) the aggregate present value as of the date of such redemption of each dollar of Principal being redeemed and the amount of interest (exclusive of interest accrued to the redemption date) that would have been payable in respect of such dollar if such prepayment had not been made, determined by discounting, on a semi-annual basis, such Principal and interest at the Reinvestment Rate (determined on the Business Day preceding the date of such redemption) from the respective dates on which such Principal and interest would have been payable if such payment had not been made, over (ii) the aggregate Principal amount of the applicable series of Notes being redeemed.

“Material Subsidiary” of the Company means, as of any date, any Subsidiary of which the Company’s proportionate share of such Subsidiary’s total assets (after intercompany eliminations) exceeds 15 percent of the total assets of the Company on a consolidated basis.

“Net Cash Proceeds” from an Asset Disposition, means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received (including any cash received upon sale or disposition of such note or receivable), excluding any other consideration received in the form of assumption by the acquiring Person of Debt or other obligations relating to the Property disposed of in such Asset Disposition or received in any other noncash form) therefrom, in each case, net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred (including, without limitation, consent and waiver fees and any applicable premiums, earn-out or working interest payments or payments in lieu or in termination thereof), and all federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP (i) as a consequence of such Asset Disposition, (ii) as a result of the repayment of any Debt in any jurisdiction other than the jurisdiction where the Property disposed of was located or (iii) as a result of any repatriation to the U.S. of any proceeds of such Asset Disposition and, in each case, net of a reasonable reserve for the after tax-cost of any indemnification payments (fixed and contingent) attributable to seller’s indemnities to the purchaser undertaken by the Company or any of its Subsidiaries in connection with such Asset Disposition (but excluding any payments, which by the terms of the indemnities will not, under any circumstances, be made during the term of the Notes), and net of all payments made on any Debt which is secured by such Property, in accordance with the terms of any lien upon or with respect to such Property or which must by its terms or by applicable law be repaid out of the proceeds from such Asset Disposition and net of all distributions and other payments made to minority interest holders in Subsidiaries or Joint Ventures as a result of such Asset Disposition.

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“Net Income” of any Person for any period means the net income (loss) of such Person for such period, determined in accordance with GAAP, except that extraordinary and non-recurring gains and losses as determined in accordance with GAAP shall be excluded.

“Non-Recourse” to a Person as applied to any Debt (or portion thereof) means that such Person is not directly or indirectly liable to make any payments with respect to such Debt (or portion thereof), that no Guarantee of such Debt (or portion thereof) has been made by such Person and that such Debt (or portion thereof) is not secured by a Lien on any asset of such Person.

“Notes” means any of the notes, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture including any Additional Notes.

“Obligation” means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(f) or (g) of this Indenture.  Without limiting the generality of the foregoing, the Obligations of the Company under the Indenture include (a) the obligation to pay principal, interest, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by the Company under the Indenture and (b) the obligation of the Company to reimburse any amount in respect of any of the foregoing that the Trustee, in its sole discretion, may elect to pay or advance on behalf of the Company.

“Officer” means, with respect to the Company, the chairman of the Board of Directors, the president or chief executive officer, any vice president, the chief financial officer, the treasurer or any assistant treasurer, or the secretary or any assistant secretary.

“Officers’ Certificate” means a certificate signed in the name of the Company (i) by the chairman of the board of directors, the president or chief executive officer or a vice president and (ii) by the chief financial officer, the treasurer or any assistant treasurer, or the secretary or any assistant secretary, complying with Section 10.03 and delivered to the Trustee.  Each such certificate shall include (except as otherwise expressly provided in this Indenture) the statements provided in Section 10.03.

“Offshore Global Note” means a Global Note representing Notes issued and sold pursuant to Regulation S.

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“Opinion of Counsel” means a written opinion signed by legal counsel, who may be an employee of or counsel to the Company, satisfactory to the Trustee and complying with Section 10.03.  Each such opinion shall include the statements provided in Section 10.03, if and to the extent required thereby.

“Original Issue Date” means the date on which the Original Notes are first issued under the Indenture.

“Original Notes” means collectively, the Original Notes due 2013 and the Original Notes due 2015.

“Original Notes due 2013” means the Notes due 2013 issued on the Original Issue Date and any Notes issued in replacement thereof.

“Original Notes due 2015” means the Notes due 2015 issued on the Original Issue Date and any Notes issued in replacement thereof.

“Outstanding AES Notes” means (i) the Company’s outstanding 8.00% Senior Notes, Series A, Due 2008, 8.75% Senior Notes, Series G, Due 2008, 9.50% Senior Notes, Series B, Due 2009, 9.375% Senior Notes, Series C, Due 2010, 8.875% Senior Notes, Series E, Due 2011, 8.375% Senior Notes, Series F, Due 2011, 7.375% Remarketable or Redeemable Securities Due 2013, 8.375% Senior Subordinated Notes Due 2007, 10.25% Senior Subordinated Notes Due 2006, 8.50% Senior Subordinated Notes Due 2007, 8.875% Senior Subordinated Notes Due 2027 and 4.50% Convertible Junior Subordinated Debentures Due 2005 and (ii) the 6.75% Trust Convertible Preferred Securities of AES Trust III and 6.0% Trust Convertible Preferred Securities of AES Trust VII and any of the Company’s subordinated debentures related thereto and, in each case, any Debt of the Company (other than First-Priority Secured Debt) issued in exchange therefor or the proceeds of which were used to refinance such obligations.

“Parent Operating Cash Flow” means for any period, the sum of the following amounts (determined without duplication), but only to the extent received in cash by the Company from a Person during such period:

(i)dividends paid to the Company by its Subsidiaries during such period;

(ii)consulting and management fees paid to the Company for such period;

(iii)tax sharing payments made to the Company during such period;

(iv)interest and other distributions paid during such period with respect to cash and other temporary cash investments other than amounts on deposit to secure contingent exposure under letters of credit issued

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under the Senior Secured Credit Facilities or any successor facility or facilities; and

(v)other cash payments made to the Company by its Subsidiaries other than (A) returns of invested capital; (B) payments of the principal of Debt of any such Subsidiary to the Company; and (C) payments in an amount equal to the aggregate amount released from debt service reserve accounts upon the issuance of letters of credit for the account of the Company and for the benefit of the beneficiaries of such accounts.

For purposes of determining Parent Operating Cash Flow:

(1)net cash payments received by a Qualified Holding Company whose Equity Interests have been pledged to the Collateral Trustees under the Second Priority Collateral Documents during any period which could have been (without regard for any cash held by such Qualified Holding Company at the beginning of such period), but were not, paid as a dividend to the Company during such period due to tax or other cash management considerations may be included in Parent Operating Cash Flow for such period; provided that any amounts so included will not be included in Parent Operating Cash Flow if and when paid to the Company in any subsequent period; and

(2)Net Cash Proceeds from asset sales, equity issuances or the incurrence of Debt received by the Company shall not be included in Parent Operating Cash Flow for any period.

“Permitted Payments” means with respect to the Company or any of its Subsidiaries:

(i)any dividend on shares of Capital Stock payable (or to the extent paid) solely in shares of Capital Stock (other than Redeemable Stock) or in options, warrants or other rights to purchase Capital Stock (other than Redeemable Stock) and any distribution of Capital Stock (other than Redeemable Stock) in respect of the exercise of any right to convert or exchange any instrument (whether Debt or equity and including Redeemable Stock);

(ii)the repurchase or other acquisition or retirement for value of any shares of Capital Stock of the Company, or any option, warrant or other right to purchase shares of Capital Stock of the Company, in each case, with additional shares of, or out of the proceeds of a substantially contemporaneous issuance of, Capital Stock of the Company other than Redeemable Stock (unless the redemption

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provisions of such Redeemable Stock prohibit the redemption thereof prior to the date on which the Capital Stock to be acquired or retired was by its terms required to be redeemed);

(iii)the declaration and payment of dividends to holders, or any payment on account of the purchase, redemption, retirement or acquisition for value, of any class or series of Redeemable Stock; and

(iv)any other Restricted Payment that, together with all other Restricted Payments made pursuant to this clause (iv) after the date hereof, does not exceed $50 million.

“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Power Supply Business”means an electric power or thermal energy generation or cogeneration facility or related facilities, or electric power transmission, distribution, fuel supply and fuel transportation facilities, or any combination thereof (all subject to relevant security interests, if any, under related project financing arrangements), together with its or their related power supply, thermal energy and fuel contracts as well as other contractual arrangements with customers, suppliers and contractors.

“Preferred Stock” means with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of preferred or preference stock of such Person which is outstanding or issued on or after the date hereof.

“Principal” of a Note means the principal amount of, and, unless the context indicates otherwise, includes any premium payable on, the Note.

“Principal Property” means any building, structure or other facility (together with the land on which it is erected and fixtures comprising a part thereof) used primarily for manufacturing, processing, research, warehousing or distribution owned or leased by the Company and having a net book value in excess of 2% of Consolidated Net Assets, other than any such building, structure or other facility or portion thereof which is a pollution control facility financed by state or local governmental obligations or which the principal executive officer, president and principal financial officer of the Company determine in good faith is not of material importance to the total business conducted or assets owned by the Company and its Subsidiaries as an entirety.

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“Property” of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person under GAAP.

“Qualified Capital Stock” means any Capital Stock of a Person that is not Redeemable Stock.

“Qualified Holding Company” means any Wholly-Owned Consolidated Subsidiary of the Company and any direct or indirect holding company (other than the Company) of such Wholly-Owned Consolidated Subsidiary, which is also a Wholly-Owned Consolidated Subsidiary of the Company, whose direct and indirect interest in any Power Supply Business is limited to the ownership of Capital Stock or Debt obligations of a Person with a direct or indirect interest in such Power Supply Business.

“Redeemable Stock” means any class or series of Capital Stock of any Person that by its terms or otherwise is (i) required to be redeemed prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Notes or (iii) convertible into or exchangeable for (unless solely at the option of the Company) Capital Stock referred to in clause (i) or (ii) above or Debt having a scheduled maturity prior to the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of an “asset sale” or a “change of control” occurring prior to the Stated Maturity of the Notes shall not constitute Redeemable Stock if the “asset sale” or “change of control” provision applicable to such Capital Stock is no more favorable to the holders of such Capital Stock than the provisions contained in Sections 4.09 and 4.10 hereof, and such Capital Stock specifically provides that the Company will not repurchase or redeem any such Capital Stock pursuant to such provisions prior to the Company’s repurchase of Notes required to be repurchased by the Company under Sections 4.09 and 4.10 hereof.

“Reference Period” means the four fiscal quarters for which financial information is available immediately preceding the date of a transaction giving rise to the need to make a financial calculation.

“Registered Note” means any Note registered on the Note Register (as defined in Section 2.05).

“Regular Record Date” for the interest payable on any Interest Payment Date means the fifteenth calendar day preceding such Interest Payment Date.

“Regulation S” means Regulation S under the Securities Act.

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“Regulation S Certificate” means a certificate substantially in the form of Exhibit D hereto.

“Reinvestment Rate” means 1.00% (one percent) plus the arithmetic mean of the yields under the respective headings “This Week” and “Last Week” published in the Statistical Release under the caption “Treasury Constant Maturities” for the applicable maturity (rounded to the nearest month) corresponding to the date on which the applicable Series of Notes are first redeemable at par.  If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month.  For the purpose of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used.

“Responsible Officer” means, when used with respect to the Trustee, any senior trust officer, any vice president, any trust officer, any assistant trust officer, or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject.

“Restricted Legend” means the legend set forth in Exhibit B hereto.

“Restricted Payment” means (i) the declaration or payment of any dividend or other distribution on any shares of the Company’s Capital Stock, (ii) any payment on account of the purchase, redemption, retirement or acquisition for value of the Company’s Capital Stock, (iii) any Investment (excluding any Investment of cash or cash-equivalents or any direct or indirect advance, loan or other extension of credit to any Person or Guarantee of any obligation of another Person) by the Company or a Collateral Subsidiary in any Subsidiary of the Company that is not a Collateral Subsidiary unless such Subsidiary becomes a Collateral Subsidiary or the assets invested are pledged as Collateral under the Second-Priority Security Documents, in each case, substantially concurrently with the making of such Investment and (iv) any dividend or other distribution (excluding any dividend or other distribution of cash or cash-equivalents) on any shares of Capital Stock of a Collateral Subsidiary payable to the Company or a Subsidiary of the Company that is not a Collateral Subsidiary unless such Subsidiary becomes a Collateral Subsidiary or the assets subject to such dividend or other distribution are pledged as Collateral under the Second-Priority Security Documents, in each case, substantially concurrently with the payment of such dividend or other distribution. Notwithstanding the foregoing, “Restricted Payment” shall not include any Permitted Payment.

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“Restricted Period” means the relevant 40 day distribution compliance period as defined in Regulation S.

“Rule 144A” means Rule 144A under the Securities Act.

“Rule 144A Certificate” means a written certification addressed to the Company and the Trustee to the effect that the Person making such certification (i) is acquiring such Note (or beneficial interest) for its own account or one or more accounts with respect to which it exercises sole investment discretion and that it and each such account is a qualified institutional buyer within the meaning of Rule 144A, (ii) is aware that the transfer to it or exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A and (iii) acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A(d)(4) or has determined not to request such information.

“Second Priority Collateral Documents” means (i) the Security Agreement, the Collateral Trust Agreement, the BVI Cayman Pledge Agreement and any other agreement that creates or purports to create a Lien in favor of the Collateral Trustees (as defined in the Collateral Trust Agreement) for the benefit of the Secured Holders (including the Holders of the Notes), each as amended from time to time and (ii) any other agreement that creates a second-priority Lien on the Collateral securing Debt of the Company that is permitted to be secured by a second-priority Lien on the Collateral pursuant to Section 4.07 and Section 4.06 hereof.

“Second-Priority Secured Debt” means Debt of the Company that is secured by a Lien on the Collateral that is pari passu with the Lien securing the Notes.

“Secured Holders” has the meaning set forth in the Collateral Trust Agreement.

“Secured Leverage Ratio” means, on any date, the ratio of

(x)the sum of the First-Priority Secured Debt and the Second-Priority Secured Debt outstanding on such date to

(y)the aggregate amount of Parent Operating Cash Flow for the Reference Period.

In making the foregoing calculation, pro forma effect will be given to the acquisition or disposition of companies, divisions or lines of business by the Company and its Subsidiaries, including any acquisition or disposition of a company, division or line of business since the beginning of the Reference Period

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by a Person that became a Subsidiary after the beginning of the Reference Period, as if such events had occurred, and, in the case of any disposition, the proceeds thereof applied, on the first day of the Reference Period. To the extent that pro forma effect is to be given to an acquisition or disposition of a company, division or line of business, the pro forma calculation will be based upon the most recent four full fiscal quarters for which the relevant financial information is available.

“Securities Act” means the Securities Act of 1933, as amended.

“Security Agreement” means the security agreement dated May 8, 2003 by the Company, the other Persons listed on the signature page thereof and the Additional Grantors (as defined therein), as Grantors, to Wells Fargo Bank Minnesota, National Association, as Corporate Trustee and Jeffery T. Rose, as Individual Trustee, under the Collateral Trust Agreement, as amended from time to time.

“Security Agreement Collateral” means the “Collateral” referred to in the Security Agreement.

“Senior Secured Credit Facilities” means the Amended and Restated Credit and Reimbursement Agreement dated as of December 12, 2002, as further amended between the Company, as Borrower, the Subsidiary Guarantors (as defined therein), as Subsidiary Guarantors, Citicorp USA, Inc., as Administrative Agent and Collateral Agent, Salomon Smith Barney, Inc., as Lead Arranger and Book Runner, Bank of America, N.A., as Lead Arranger and Book Runner and as Syndication Agent, Union Bank of California, N.A., as Lead Arranger and Book Runner and as Syndication Agent, the Banks listed therein, the Revolving Banks (as defined therein) and the Drax LOC Fronting Banks (as defined therein) listed therein and any related notes, guarantees, letters of credit, collateral documents, rate protection or hedging arrangements, instruments and agreements executed in connection therewith, and in each case, as amended, modified, renewed, refunded, replaced or refinanced from time to time, including any agreement (i) extending or shortening the maturity of any indebtedness incurred thereunder or contemplated thereby; (ii) adding or deleting borrowers or guarantors thereunder; or (iii) otherwise altering the terms and conditions thereof.

“Senior Secured Credit Facility Obligations” means all Obligations of the Company and its Subsidiaries outstanding under the Senior Secured Credit Facilities, including, without limitation, interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition for bankruptcy, whether or not such interest is an allowable claim in such bankruptcy proceeding.

“Series” means either the Notes due 2013 or the Notes due 2015, but not both, as the context requires.

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“Stated Maturity” means , with respect to any debt security or any installment of interest thereon, the date specified in such debt security as the fixed date on which any principal of such debt security or any such installment of interest is due and payable.

“Statistical Release” means the statistical release designated “H.15(519)” or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company.

“Subsidiary” means, with respect to any Person, any corporation, association or other business entity of which a majority of the Voting Stock is at the time directly or indirectly owned by such Person.

“Trade Payables” means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Restricted Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services.

“Trustee” means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of Article 7 and thereafter means such successor.

“Unrelated Business” means any business not of the same general type now conducted by the Company and its Subsidiaries.

“U.S. Global Note” means a Global Note that bears the Restricted Legend representing Notes issued and sold pursuant to Rule 144A.

“U.S. Government Obligations” means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not collectible or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the

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custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt.

“Voting Stock” means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors of such Person or other Persons performing similar functions.

“Wholly-Owned Consolidated Subsidiary” means any Subsidiary all of the shares of Capital Stock or other ownership interests of which (except directors’ qualifying shares) are at the time directly or indirectly owned by the Company.

“Wholly-Owned Subsidiary” means, with respect to any Person, any Subsidiary of such Person if all the Voting Stock in such Subsidiary (other than any director’s qualifying shares or Investments by foreign nationals mandated by applicable law) is owned directly or indirectly by such Person.

Section 1.02.  Other Definitions.  Each of the following terms is defined in the section set forth opposite such term:

Term	Section
Authenticating Agent	2.02
Change of Control Offer	4.10
Event of Default	6.01
Extinguished Covenants	4.16
Judgment Currency	10.14
Note Register	2.05
Paying Agent	2.05
Purchase Date	4.09
Registrar	2.05
Repurchase Date	4.10
Required Currency	10.14
special record date	2.14
Tender Offer	4.15

Section 1.03.  Rules of Construction.  Unless the context otherwise requires:

(i)         an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

(ii)        words in the singular include the plural, and words in the plural include the singular;

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(iii)       “herein,” “hereof” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision;

(iv)       all references to Sections or Articles refer to Sections or Articles of this Indenture unless otherwise indicated; and

(v)        use of masculine, feminine or neuter pronouns should not be deemed a limitation, and the use of any such pronouns should be construed to include, where appropriate, the other pronouns.

ARTICLE 2THE NOTES

Section 2.01.  Forms Generally, Certain Issues Regarding Preconditions for Transfer and Payment.  (a)  Each Note due 2013 and the related Trustee’s certificate of authentication will be substantially in the form attached hereto as Exhibit A-1 and each Note due 2015 and the related Trustee’s certificate of authentication will be substantially in the form attached as Exhibit A-2.  The terms and provisions contained in the form of the Notes annexed as Exhibits A-1 and A-2 constitute, and are hereby expressly made, a part of the Indenture.  The Notes may have notations, legends or endorsements required by law, rules of or agreements with national securities exchanges to which the Company is subject, or usage.

(b)        Except as otherwise provided in paragraph (c), each Note will bear the Restricted Legend.

(c)        If the Company determines (upon the advice of counsel and such other certifications and evidence as the Company may reasonably require) that any Note is eligible for resale pursuant to Rule 144(k) under the Securities Act (or a successor provision) and that the Restricted Legend is no longer necessary or appropriate in order to ensure that subsequent transfers of the Note (or a beneficial interest therein) are effected in compliance with the Securities Act, the Company may instruct the Trustee to cancel the Note and issue to the Holder thereof (or to its transferee) a new Note of like tenor and amount, registered in the name of the Holder thereof (or its transferee), that does not bear the Restricted Legend, and the Trustee will comply with such instruction.

(d)        By its acceptance of any Note bearing the Restricted Legend (or any beneficial interest in such a Note), each Holder thereof and each owner of a beneficial interest therein acknowledges the restrictions on transfer of such Note (and any such beneficial interest) set forth in the Indenture and in the Restricted

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Legend and agrees that it will transfer such Note (and any such beneficial interest) only in accordance with the Indenture and such legend.

Section 2.02.  Execution and Authentication.  Two Officers shall execute the Notes for the Company by facsimile or manual signature in the name and on behalf of the Company.  If an Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note shall nevertheless be valid.

The Trustee, at the expense of the Company, may appoint an authenticating agent (the “Authenticating Agent”) to authenticate Notes.  The Authenticating Agent may authenticate Notes whenever the Trustee may do so.  Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent.

A Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on the Note.  The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.  In authenticating the Notes, the Trustee shall be entitled to receive prior to the first authentication of any Notes and (subject to Article 7) shall be fully protected in relying upon, unless and until such documents have been superseded or revoked:

(a)        any Board Resolution by or pursuant to which the form and terms of the Notes were established;

(b)        an Officers’ Certificate setting forth the form and terms of the Notes, stating that the form and terms of the Notes have been, or will be when established in accordance with such procedures as shall be referred to therein, established in compliance with this Indenture; and

(c)        an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee.

Section 2.03.  Amount Unlimited.  The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is unlimited.  The Company may issue Additional Notes under the Indenture from time to time.

Section 2.04.  Denomination and Date of Securities; Payment of Interest.  The Notes shall be issuable in denominations of $1,000 and any integral multiple thereof.  If as a result of the exchange or redemption in part of any Notes issued hereunder any Holder is entitled to receive Notes in an aggregate principal amount that is not an integral multiple of $1,000, the principal amount of such Holder’s notes shall be reduced to the nearest $1,000 and such Holder shall receive a substitute cash payment equal to the principal amount by which that

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Holder’s Notes are reduced.  The Notes shall be numbered, lettered or otherwise distinguished in such manner or in accordance with such plan as the Officers of the Company executing the same may determine, as evidenced by their execution thereof.

Each Note shall be dated the date of its authentication.  The Notes of each Series shall bear interest from the most recent date to which interest has been paid on the Notes of such Series or, if no interest has been paid, from the Original Issue Date.  Interest on the Notes shall be payable on each Interest Payment Date.

The person in whose name any Note is registered at the close of business on any Regular Record Date with respect to any Interest Payment Date shall be entitled to receive the interest, if any, payable on such Interest Payment Date notwithstanding any transfer or exchange of such Note subsequent to the Regular Record Date and prior to such Interest Payment Date, except if and to the extent the Company shall default in the payment of the interest due on such Interest Payment Date for such Series, in which case the provisions of Section 2.14 shall apply.

Section 2.05. Registrar and Paying Agent; Agents Generally.  The Company shall maintain an office or agency where Notes may be presented for registration, registration of transfer or for exchange (the “Registrar”) and an office or agency where Notes may be presented for payment (the “Paying Agent”), which shall be in the Borough of Manhattan, The City of New York. The Company shall cause the Registrar to keep a register of the Notes due 2013 and the Notes due 2015 and of their registration, transfer and exchange (each a “Note Register”).  The Company may have one or more additional Paying Agents or transfer agents with respect to the Notes.

The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture.  The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any Agent and any change in the name or address of an Agent.  If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such.  The Company may remove any Agent upon written notice to such Agent and the Trustee; provided that no such removal shall become effective until (i) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (i) of this proviso.  The Company or any Affiliate of the Company may act as Paying Agent or Registrar; provided that neither the Company nor an Affiliate of the Company shall act as Paying Agent in connection with the defeasance of the Notes or the discharge of this Indenture under Article 8.

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The Company initially appoints the Trustee as Registrar, Paying Agent and Authenticating Agent.  If, at any time, the Trustee is not the Registrar, the Registrar shall make available to the Trustee ten days prior to each Interest Payment Date and at such other times as the Trustee may reasonably request the names and addresses of the Holders as they appear in the Note Register.

Section 2.06.  Paying Agent to Hold Money in Trust.  Not later than 10:00 a.m. New York City time on each due date of any Principal or interest on any Notes, the Company shall deposit with the Paying Agent money in immediately available funds sufficient to pay such Principal or interest.  The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders of such Notes or the Trustee all money held by the Paying Agent for the payment of Principal of and interest on such Notes and shall promptly notify the Trustee of any default by the Company in making any such payment.  The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed.  Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee.  If the Company or any Affiliate of the Company acts as Paying Agent, it will, on or before each due date of any Principal of or interest on the Notes, segregate and hold in a separate trust fund for the benefit of the Holders thereof a sum of money sufficient to pay such Principal or interest so becoming due until such sum of money shall be paid to such Holders or otherwise disposed of as provided in this Indenture, and will promptly notify the Trustee in writing of its action or failure to act as required by this Section.

Section 2.07.  Restrictions on Transfer and Exchange.  (a) The transfer or exchange of any Note (or a beneficial interest therein) may only be made in accordance with this Section, Section 2.08 and in the case of a Global Note (or a beneficial interest therein), the applicable rules and procedures of the Depositary. The Trustee shall refuse to register any requested transfer or exchange that does not comply with the preceding sentence.

(b)        The transfer or exchange of any Note (or a beneficial interest therein) that bears the Restricted Legend may only be made in compliance with the provisions of the Restricted Legend.

(c)        The transfer or exchange of a beneficial interest in an Offshore Global Note for a beneficial interest in a U.S. Global Note may only be made upon receipt by the Trustee of a duly completed Rule 144A Certificate.

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(d)        The transfer or exchange of a beneficial interest in a U.S. Global Note for a beneficial interest in an Offshore Global Note may only be made upon receipt by the Trustee of a duly completed Regulation S Certificate.

(e)        During the Restricted Period, beneficial interests in an Offshore Global Note may be held through the Depositary only through Euroclear and Clearstream, and their respective direct and indirect participants.

(f)         The Trustee will retain copies of all certificates, opinions and other documents received in connection with the transfer or exchange of a Note (or a beneficial interest therein), and the Company will have the right to inspect and make copies thereof at any reasonable time upon written notice to the Trustee.

Section 2.08.  Registration, Transfer and Exchange.  (a) Registered Global Form Only. The Notes will be issued in registered form only, without coupons.  The Notes will be issued in global form only except for Notes to be issued under the circumstances described in clause (b)(iv) of this Section which shall be issued as certificated notes.

(b)           Global Notes. (i)  Each Global Note will be registered in the name of the Depositary or its nominee and, so long as DTC is serving as the Depositary thereof, will bear the DTC Legend.

(ii)           Each Global Note will be delivered to the Trustee as custodian for the Depositary. Transfers of a Global Note (but not a beneficial interest therein) will be limited to transfers thereof in whole, but not in part, to the Depositary, its successors or their respective nominees, except as set forth in paragraph (b)(iv) of this Section.

(iii)          Agent Members will have no rights under the Indenture with respect to any Global Note held on their behalf by the Depositary, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, the Depositary or its nominee may grant proxies and otherwise authorize any person (including any Agent Member and any Person that holds a beneficial interest in a Global Note through an Agent Member) to take any action which a Holder is entitled to take under the Indenture or the Notes, and nothing herein will impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any security.

(iv)          If (x) the Depositary (1) notifies the Company that it is unwilling or unable to continue as Depositary for a Global Note and a successor depositary is not appointed by the Company within 90 days of

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the notice or (2) has ceased to be a clearing agency registered under the Exchange Act, (y) an Event of Default has occurred and is continuing and the Trustee has received a request from the Depositary, or (z) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of certificated notes, the Trustee will promptly exchange each beneficial interest in a Global Note for one or more certificated notes of the applicable Series in authorized denominations having an equal aggregate principal amount registered in the name of the owner of such beneficial interest, as identified to the Trustee by the Depositary, and thereupon the Global Note will be deemed canceled.  Each certificated note issued in exchange therefor will bear the Restricted Legend.

(c)        Transfers and Exchanges Generally. A Holder may transfer a Note (or a beneficial interest therein) to another Person or exchange a Note (or a beneficial interest therein) for another Note or Notes of the same Series of any authorized denomination by presenting to the Trustee a written request therefor stating the name of the proposed transferee or requesting such an exchange, accompanied by any certification, opinion or other document required by Section 2.07. The Trustee will promptly register any such transfer or exchange that meets the requirements of this Section by noting the same in the register maintained by the Trustee for the purpose; provided that (x) no transfer or exchange will be effective until the transfer or exchange is registered in such register and (y) the Trustee will not be required (i) to issue, register the transfer of or exchange any Note for a period of 15 days before a selection of Notes to be redeemed, (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except, in the case of a partial redemption, that portion of any such Note not being redeemed, or (iii) if a redemption is to occur after a Regular Record Date but on or before the corresponding Interest Payment Date, to register the transfer of or exchange any Note on or after such Regular Record Date and before the date of redemption. Prior to the registration of any transfer, the Company, the Trustee and their agents will treat the person in whose name a Note is registered as the owner and Holder thereof for all purposes (whether or not any Note is overdue), and will not be affected by notice to the contrary.

From time to time the Company will execute and the Trustee will authenticate replacement or substitute Notes of the applicable Series as necessary in order to permit the registration of a transfer or exchange in accordance with this Section.

No service charge will be imposed in connection with any transfer or exchange of any Note, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer tax or other similar governmental charge payable upon exchange pursuant to paragraph (b)(iv) of this Section).

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(d)        Procedures to Be Followed by the Trustee.  Global Note to Global Note.  A beneficial interest in a Global Note may only be transferred or exchanged for a beneficial interest in another Global Note of the same Series.  If a beneficial interest in a Global Note is transferred or exchanged for a beneficial interest in another Global Note of the same Series, the Trustee will (x) record a decrease in the principal amount of the Global Note of the same Series being transferred or exchanged equal to the principal amount of such transfer or exchange and (y) record a like increase in the principal amount of the other Global Note of the same Series. Any beneficial interest in one Global Note that is transferred to a Person who takes delivery in the form of an interest in another Global Note of the same Series, or exchanged for an interest in another Global Note of the same Series, will, upon transfer or exchange, cease to be an interest in such Global Note and become an interest in the other Global Note of the same Series and, accordingly, will thereafter be subject to all transfer and exchange restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note of the same Series for as long as it remains such an interest.

Section 2.09.  Replacement Notes.  If a defaced or mutilated Note is surrendered to the Trustee or if a Holder claims that its Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note of the same Series and of such tenor and principal amount bearing a number not contemporaneously outstanding.  If required by the Trustee or the Company, an indemnity bond must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Trustee and any Agent from any loss that any of them may suffer if a Note is replaced.  The Company may charge such Holder for its expenses and the expenses of the Trustee (including without limitation attorneys’  fees and expenses) in replacing a Note.  In case any such mutilated, defaced, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay such Note of the same Series instead of issuing a new Note in replacement thereof.

Every replacement Note is an additional obligation of the Company and shall be entitled to the benefits of this Indenture.

To the extent permitted by law, the foregoing provisions of this Section are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Notes.

Section 2.10.  Outstanding Notes.  Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding.

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If a Note is replaced pursuant to Section 2.09, it ceases to be outstanding unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a holder in due course.

If the Paying Agent (other than the Company or an Affiliate of the Company) holds on the maturity date or any redemption date or date for repurchase of Notes of either or both Series money sufficient to pay Notes of such Series payable or to be redeemed or repurchased on that date, then on and after that date such Notes cease to be outstanding and interest on them shall cease to accrue.

A Note does not cease to be outstanding because the Company or one of its Affiliates holds such Note, provided, however, that, in determining whether the Holders of the requisite principal amount of the outstanding Notes of such Series have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes 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, only Notes as to which a Responsible Officer of the Trustee has received written notice to be so owned shall be so disregarded.  Any Notes so owned which are pledged by the Company, or by any Affiliate of the Company, as security for loans or other obligations, otherwise than to another such Affiliate of the Company, shall be deemed to be outstanding, if the pledgee is entitled pursuant to the terms of its pledge agreement and is free to exercise in its or his discretion the right to vote such Notes, uncontrolled by the Company or by any such Affiliate.

Section 2.11.  Temporary Notes.  Until definitive Notes of the respective Series are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes of such Series.  Temporary Notes of the respective Series shall be substantially in the form of definitive Notes of such Series but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Notes, as evidenced by their execution of such temporary Notes.  If temporary Notes are issued, the Company will cause definitive Notes of such Series to be prepared without unreasonable delay.  After the preparation of definitive Notes, the temporary Notes of such Series shall be exchangeable for definitive Notes of such Series of such tenor upon surrender of such temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 4.02, without charge to the Holder.  Upon surrender for cancellation of any one or more temporary Notes the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of such Series and of such tenor and authorized denominations.  Until so exchanged, any temporary Notes shall be entitled to the same benefits under this Indenture as definitive Notes.

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Section 2.12.  Cancellation.  The Company at any time may deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold.  The Registrar, any transfer agent and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment.  The Trustee shall retain, cancel and destroy all Notes surrendered for transfer, exchange, payment or cancellation and shall deliver a certificate of destruction, or copies of the cancelled Notes to the Company.  The Company may not issue new Notes of any Series to replace Notes of such Series it has paid in full or delivered to the Trustee for cancellation.

Section 2.13.  CUSIP Numbers.  The Company in issuing the Notes may use “CUSIP” and “CINS” numbers for each Series, and the Trustee shall use CUSIP numbers or CINS numbers, as the case may be, in notices of redemption or exchange as a convenience to Holders and no representation shall be made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange.

Section 2.14.  Defaulted Interest.  If the Company defaults in a payment of interest on the Notes of either or both Series, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay, the defaulted interest plus (to the extent lawful) any interest payable on the defaulted interest to the Persons who are Holders on a subsequent special record date, which shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day.  At least 15 days before such special record date, the Company shall mail to each Holder of such Series of Notes and to the Trustee a notice that states the special record date, the payment date and the amount of defaulted interest to be paid on such Notes.

ARTICLE 3
REDEMPTION

Section 3.01.  Optional Redemption.  With respect to each Series of Notes, at any time and from time to time, the Company may redeem the Notes of either or both Series in whole or in part at a redemption price equal to (a) the sum of (i) 100% of the Principal amount thereof plus accrued and unpaid interest to the redemption date plus (ii) a Make-Whole Amount, if any, if redeemed prior to May 15, 2008; or (b) if redeemed on or after May 15, 2008, at a redemption price equal to the percentage of Principal amount set forth below for the applicable Series, plus accrued and unpaid interest to the redemption date if redeemed during the 12 month period commencing on May 15, of the years set forth below ; provided that if the date fixed for redemption is May 15 or November 15, then the interest

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payable on such date shall be paid to the holder of record on the immediately preceding Regular Record Date.

8 3/4% Second Priority Senior Secured Notes due 2013

12-month period commencing May 15 in Year	Percentage
2008	104.375	%
2009	102.917	%
2010	101.458	%
2011 and thereafter	100.000	%

9% Second Priority Senior Secured Notes due 2015

12-month period commencing May 15 in Year	Percentage
2008	104.500	%
2009	103.000	%
2010	101.500	%
2011 and thereafter	100.000	%

Section 3.02.  Notice of Redemption; Partial Redemptions.  Notice of redemption to the Holders of the Notes to be redeemed as a whole or in part shall be given by mailing notice of such redemption by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for redemption to the Holders of such Notes at their last addresses as they shall appear upon the Note Register.  Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. Failure to give notice by mail, or any defect in the notice to the Holder of any Note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note.

The notice of redemption to each such Holder shall specify the principal amount of each Note held by such Holder to be redeemed, the CUSIP numbers of the Notes to be redeemed, the date fixed for redemption, the redemption price, the place or places of payment, that payment will be made upon presentation and surrender of such Notes, that interest accrued to the date fixed for redemption will be paid as specified in such notice and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue.  In case any Note is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes of such

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Series and in such tenor and in principal amount equal to the unredeemed portion thereof will be issued.

The notice of redemption of Notes to be redeemed at the option 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.

On or before 10:00 a.m. New York City time on the redemption date specified in the notice of redemption given as provided in this Section, the Company will deposit with the Trustee or with one or more Paying Agents (or, if the Company is acting as its own Paying Agent, set aside, segregate and hold in trust as provided in Section 2.06) an amount of money sufficient to redeem on the redemption date all the Notes so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption.  If all of the outstanding Notes of either or both Series are to be redeemed, the Company will deliver to the Trustee at least 10 days prior to the last date on which notice of redemption may be given to Holders pursuant to the first paragraph of this Section 3.02 (or such shorter period as shall be acceptable to the Trustee) an Officers’ Certificate stating that all such Notes are to be redeemed.  If less than all the outstanding Notes of either or both Series are to be redeemed, the Company will deliver to the Trustee at least 15 days prior to the last date on which notice of redemption may be given to Holders pursuant to the first paragraph of this Section 3.02 (or such shorter period as shall be acceptable to the Trustee) an Officers’ Certificate stating the aggregate principal amount of such Notes to be redeemed.  In case of a redemption at the election of the Company prior to the expiration of any restriction on such redemption, the Company shall deliver to the Trustee, prior to the giving of any notice of redemption to Holders pursuant to this Section, an Officers’ Certificate stating that such redemption is not prohibited by such restriction.

If less than all the Notes of either or both Series are to be redeemed, the Trustee shall select, pro rata, by lot or in such manner as it shall deem appropriate and fair, Notes of the applicable Series to be redeemed in whole or in part.  Notes may be redeemed in part in multiples equal to the minimum authorized denomination for Notes or any multiple thereof.  The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed.  For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Notes shall relate, in the case of any Note redeemed or to be redeemed only in part, to the portion of the principal amount of such Note which has been or is to be redeemed.

Section 3.03.  Payment of Notes Called for Redemption.  If notice of redemption has been given as above provided, the Notes or portions of Notes specified in such notice shall become due and payable on the date and at the place

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stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after such date (unless the Company shall default in the payment of such Notes at the redemption price, together with interest accrued to such date) interest on the Notes or portions of Notes so called for redemption shall cease to accrue, and, except as provided in Section 7.09 and Section 8.02, such Notes shall cease from and after the date fixed for redemption to be entitled to any benefit under this Indenture, and the Holders thereof shall have no right in respect of such Notes except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption.  On presentation and surrender of such Notes at a place of payment specified in said notice, said Notes or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption; provided that payment of interest becoming due on or prior to the date fixed for redemption, shall be payable to the Holders of such Notes registered as such on the relevant record date subject to the terms and provisions of Section 2.01 and Section 2.14 hereof.

If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the Principal shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate of interest borne by such Note.

Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Company, a new Note or Notes of such Series and of such tenor, of authorized denominations, in principal amount equal to the unredeemed portion of the Note so presented.

Section 3.04.  Exclusion of Certain Notes from Eligibility for Selection for Redemption.  Notes shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in a written statement signed by an authorized officer of the Company and delivered to the Trustee at least 40 days prior to the last date on which notice of redemption may be given as being owned of record and beneficially by, and not pledged or hypothecated by, either (a) the Company or (b) an entity specifically identified in such written statement as directly or indirectly controlling or controlled by or under direct or indirect common control with the Company.

ARTICLE 4
COVENANTS

Section 4.01.  Payment of Notes.  The Company shall pay the Principal of and interest on the Notes on the dates and in the manner provided in the Notes and this Indenture.  The interest on the Notes shall be payable only to the Holders

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thereof and at the option of the Company may be paid by mailing checks for such interest payable to or upon the written order of such Holders at their last addresses as they appear on the Note Register of the Company.

Notwithstanding any provisions of this Indenture and the Notes to the contrary, if the Company and a Holder of any Note so agree, payments of interest on, and any portion of the Principal of, such Holder’s Note (other than interest payable at maturity or on any redemption or repayment date or the final payment of Principal on such Note) shall be made by the Paying Agent, upon receipt from the Company of immediately available funds by 11:00 A.M., New York City time (or such other time as may be agreed to between the Company and the Paying Agent), directly to the Holder of such Note (by Federal funds wire transfer or otherwise) if the Holder has delivered written instructions to the Trustee 15 days prior to such payment date requesting that such payment will be so made and designating the bank account to which such payments shall be so made and in the case of payments of Principal, surrenders the same to the Trustee in exchange for a Note or Notes aggregating the same principal amount as the unredeemed principal amount of the Notes surrendered.  The Trustee shall be entitled to rely on the last instruction delivered by the Holder pursuant to this Section 4.01 unless a new instruction is delivered 15 days prior to a payment date.  The Company will indemnify and hold each of the Trustee and any Paying Agent harmless against any loss, liability or expense (including attorneys’ fees) resulting from any act or omission to act on the part of the Company or any such Holder in connection with any such agreement or from making any payment in accordance with any such agreement.

The Company shall pay interest on overdue Principal, and interest on overdue installments of interest, to the extent lawful, at the rate per annum specified in the Notes.

Section 4.02.  Maintenance of Office or Agency.  The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company hereby initially designates Wells Fargo Corporate Trust, c/o The Depository Trust Company, the corporate trust office of the Trustee’s Agent, located at 55 Water Street, 1st Floor, TADS Department, New York, NY 10041, in the Borough of Manhattan, The City of New York, as such office or agency of the Company.  The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency.  If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.01.

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The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes.  The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

Section 4.03.  Noteholders’ Lists.  Unless the Trustee is acting as registrar for the Notes, the Company will furnish or cause to be furnished to the Trustee a list in such form as the Trustee may reasonably require of the names and addresses of the holders of the Notes (a) semi-annually not more than 15 days after each Regular Record Date, as hereinabove specified, as of such record date and (b) at such other times as the Trustee may request in writing, within thirty days after receipt by the Company of any such request as of a date not more than 15 days prior to the time such information is furnished.

Section 4.04.  Certificate to Trustee.  The Company will furnish to the Trustee annually, on or before a date not more than four months after the end of its fiscal year (which, on the date hereof, is a calendar year), a brief certificate (which need not contain the statements required by Section 10.03) from its principal executive, financial or accounting officers to his or her knowledge of the compliance of the Company with all conditions and covenants under this Indenture (such compliance to be determined without regard to any period of grace or requirement of notice provided under this Indenture).

Section 4.05.  Reports by the Company.  The Company covenants to file with the Trustee, within 15 days after the Company has filed the same with the Commission, copies of the annual reports and of the information, documents, and other reports which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act.

Section 4.06.  Limitation on Liens.  (a) If the Company shall incur, issue, assume or Guarantee any indebtedness for borrowed money represented by notes, bonds, debentures or other similar evidences of indebtedness, secured by a mortgage, pledge or other Lien on any Principal Property or any Capital Stock or indebtedness held directly by the Company of any Subsidiary of the Company, the Company shall secure the Notes equally and ratably with (or prior to) such indebtedness, so long as such indebtedness shall be so secured, unless after giving effect thereto the aggregate amount of all such indebtedness so secured, together with all Attributable Debt in respect of sale and leaseback transactions involving Principal Properties, would not exceed 15% of the Consolidated Net Assets of the Company.  This restriction will not apply to, and there shall be excluded in computing secured indebtedness for the purpose of this restriction, indebtedness

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secured by (i) property of any Subsidiary of the Company, (ii) Liens on property of, or on any shares of stock or Debt of, any corporation existing at the time such corporation becomes a Subsidiary of the Company, (iii) Liens in favor of the Company or any Subsidiary of the Company, (iv) Liens in favor of U.S. or foreign governmental bodies to secure partial, progress, advance or other payments, (v) Liens on property, shares of stock or Debt existing at the time of acquisition thereof (including acquisition through merger or consolidation), purchase money mortgages and construction cost mortgages existing at or incurred within 180 days of the time of acquisition thereof, (vi) Liens existing on the Original Issue Date, (vii) Liens under one or more credit facilities for indebtedness in an aggregate principal amount not to exceed $900 million at any time outstanding, (viii) Liens incurred in connection with pollution control, industrial revenue or similar financings, and (ix) any extension, renewal or replacement of any Debt secured by any Liens referred to in the foregoing clauses (i) through (viii), inclusive.

(b)           Notwithstanding the foregoing, the Company shall not permit any Lien on any Collateral Assets to secure Debt of the Company that would violate Section 4.07.

Section 4.07.  Limitation on the Incurrence of Debt Secured by the Collateral Assets.  (a) The Company shall not incur any Debt secured by a Lien on Collateral Assets unless the Notes are secured by at least a second-priority Lien on such Collateral Assets under the Second Priority Collateral Documents. In addition, the Company shall not incur any First-Priority Secured Debt or Second-Priority Secured Debt, if, on the date of incurrence, after giving effect to such incurrence, the Secured Leverage Ratio would have been greater than 2.75 to 1.0.

(b)        Notwithstanding the foregoing, the Company will be permitted to incur any of the following:

(i)            First-Priority Secured Debt and Second-Priority Secured Debt if, on the date of incurrence, after giving effect to such incurrence the aggregate principal amount (or accreted value, if applicable) of First-Priority Secured Debt and Second-Priority Secured Debt (excluding First-Priority Secured Debt and Second-Priority Secured Debt described in clauses (ii) through (v) below) does not exceed $3.0 billion reduced by the aggregate principal amount (or accreted value, if applicable) of First-Priority Secured Debt and Second-Priority Secured Debt (other than First-Priority Secured Debt and Second-Priority Secured Debt described in clauses (ii) through (v) below) repaid, repurchased or otherwise retired pursuant to Section 4.09; provided that no such reduction will be required with respect to any repayment, repurchase or other retirement of First-Priority Secured Debt or Second-Priority Secured Debt out of the Net

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Cash Proceeds of any Announced Asset Sale or with respect to the first $500 million aggregate principal amount (or accreted value, if applicable) of other First-Priority Secured Debt or Second-Priority Secured Debt repaid, repurchased or otherwise retired that but for this proviso would have required a reduction;

(ii)           Obligations under interest rate and foreign currency hedging agreements, and cash management services arrangements;

(iii)          Obligations relating to the secured equity linked loans outstanding on the date hereof issued by AES New York Funding LLC;

(iv)          Obligations relating to the Guarantee by the Company of certain obligations of AES Sul outstanding on the date hereof; and

(v)           Obligations the net proceeds of which are used to refinance any of the obligations listed in the foregoing clauses (ii) through (iv).

(c)        Notwithstanding the foregoing, to the extent that the Company incurs Debt that is secured by a Lien on any Collateral Assets that is not First-Priority Secured Debt or Second-Priority Secured Debt, the security documents or other agreements creating, or related to, the Lien securing such Debt shall provide that (i) such Lien shall be subordinate to the Lien securing the Notes, (ii) the holders of such Debt will not be entitled to any proceeds from any sale or liquidation of any of the Collateral after the Notes are due and payable until the Notes have been paid in full, (iii) prior to the time that the Notes have been paid in full and are no longer outstanding, the Holders of the Notes, or the Trustee on behalf of the Holders of the Notes, or the lenders under the Senior Secured Credit Facilities, or the holders of a majority of other First-Priority Secured Debt, as the case may be, will have the sole ability to control remedies (including any sale or liquidation after the Notes are due and payable) with respect to the Collateral and, prior to such time, neither the holders of such Debt or any of their representatives will have any authority to, or to direct any collateral agent to, foreclose or otherwise realize upon any of the Collateral pursuant to any of the security documents and (iv) such junior Liens shall automatically be released if the second-priority Lien is released under the Second Priority Collateral Documents or (except with respect to the proceeds thereof) upon any sale or liquidation in connection with any foreclosure on the Collateral by or on behalf of the Holders of the Notes.

Section 4.08.  Limitations on Restricted Payments.  (a) The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, make any Restricted Payment if, after giving effect to such Restricted Payment:

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(i)            an Event of Default or event that, after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing;

(ii)           the Consolidated Fixed Charge Ratio of the Company would be less than 1.75 to 1.0; or

(iii)          the aggregate amount expended by the Company and its Subsidiaries for all Restricted Payments (the amount of any single or related series of Restricted Payments so expended or distributed, if in excess of $15 million and other than in cash, to be determined in good faith by the Board of Directors, as evidenced by a Board resolution) after the date hereof shall exceed the sum of:

(A)             50% of the Net Income of the Company and its Consolidated Subsidiaries for the period (taken as one accounting period) beginning on April 1, 2003 and ending on the last day of the fiscal quarter for which financial information is available immediately prior to the date of such calculation; provided that if Net Income for such period is less than zero, then minus 100% of such net loss; plus

(B)              the aggregate net proceeds (including the fair market value of proceeds other than cash, as determined in good faith by the Board of Directors, as evidenced by a Board resolution if the fair market value of such non-cash proceeds is in excess of $15 million) received by the Company from and after the date hereof from the issuance and sale (other than to a Subsidiary) of its Capital Stock (excluding Redeemable Stock, but including Capital Stock other than Redeemable Stock issued upon conversion of, or in exchange for, Redeemable Stock or securities other than its Capital Stock), and warrants, options and rights to purchase its Capital Stock (other than Redeemable Stock), but excluding the net proceeds from the issuance, sale, exchange, conversion or other disposition of its Capital Stock convertible (unless solely at the option of the Company) into (x) any security other than its Capital Stock or (y) its Redeemable Stock; less

(C)              the aggregate amount expended by the Company and its Subsidiaries after the date hereof to optionally repay, repurchase or otherwise retire for value any Debt of the Company other than First-Priority Secured Debt, Second-Priority Secured Debt or any revolving credit facility (it being understood that the repurchase of senior and senior subordinated notes pursuant to the Tender Offer as required by Section 4.15 is not optional);

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provided that the foregoing clause (iii) shall not prevent the payment of any dividend within 60 days after the date of its declaration if such dividend could have been made on the date of its declaration without violation of the provisions of this covenant.

(b)        For purposes of clause (a)(iii)(B) above, the aggregate net proceeds received by the Company (i) from the issuance of its Capital Stock upon the conversion of, or exchange for, securities evidencing Debt of the Company, shall be calculated on the assumption that the gross proceeds from such issuance are equal to the aggregate principal amount (or, if discount Debt, the accreted principal amount) of the Debt evidenced by such securities converted or exchanged and (ii) upon the conversion or exchange of other securities of the Company shall be equal to the aggregate net proceeds of the original sale of the securities so converted or exchanged if such proceeds of such original sale were not previously included in any calculation for the purposes of clause (a)(iii)(B) above plus any additional sums payable to the Company upon conversion or exchange.

Section 4.09.  Limitations on Asset Dispositions.  (a) The Company shall not make, and shall not permit any of its Subsidiaries to make, any Asset Disposition unless:

(i)            the Company (or the Subsidiary, as the case may be) receives consideration at the time of each such Asset Disposition at least equal to the fair market value of the shares or assets sold or otherwise disposed of (such amounts in excess of $50 million determined in good faith by the Board of Directors, as evidenced by a Board resolution);

(ii)           not less than 75% of the consideration received by the Company (or such Subsidiary, as the case may be) is in the form of cash or property or assets used or useful in a Power Supply Business or Capital Stock of a Person primarily engaged in a Power Supply Business, provided that any note or other obligation received by the Company (or such Subsidiary, as the case may be) that is converted into cash within 180 days of such Asset Disposition and any liabilities (as shown on the Company’s or such Subsidiary’s most recent balance sheet) of the Company or any Subsidiary that are assumed by the transferee of any such assets shall be deemed to be cash for purposes of this clause (ii); provided further that any property or assets received from Asset Dispositions of Collateral Assets shall be either (x) pledged as Collateral under the Second-Priority Security Documents or (y) received by a Collateral Subsidiary; and

(iii)          (A) first, the Net Cash Proceeds of such Asset Disposition are applied within 90 days from the later of the date of such Asset

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Disposition or the receipt of Net Cash Proceeds related thereto, to the payment of the principal of, premium and interest on any First-Priority Secured Debt of the Company (including to cash collateralize letters of credit) and, in connection with any such payment, any related loan commitment, standby facility or the like shall be permanently reduced in an amount equal to the principal amount so repaid; provided that no such permanent reduction will be required with respect to any such payment out of the Net Cash Proceeds of any Announced Asset Sale or with respect to the first $500 million aggregate principal amount (or accreted value, if applicable) of other repaid Debt that but for this proviso would be required to be permanently reduced; and second, (B) to the extent such Net Cash Proceeds are not required by the lenders, or the terms, of the First-Priority Secured Debt to be applied in accordance with the foregoing or, if after being so applied there remain Net Cash Proceeds, then at the Company’s election, such Net Cash Proceeds are either:

(x)            invested in the business or businesses of the Company or any of its Subsidiaries; provided that (1) such investment is made within 365 days from the later of the date of such Asset Disposition or the receipt of the Net Cash Proceeds related thereto and (2) the Net Cash Proceeds from Asset Dispositions of Collateral Assets may only be invested pursuant to this clause (x) in (I) assets (including Capital Stock) that are pledged as Collateral under the Second Priority Collateral Documents substantially concurrently with such acquisition or (II) a business or businesses owned by a Collateral Subsidiary; or

(y)           applied to the payment, repurchase or other retirement of any First-Priority Secured Debt of the Company, Second-Priority Secured Debt of the Company (provided that payment, repurchase or other retirement of any Second-Priority Secured Debt shall be pro rata with the Notes) or Debt of any Consolidated Subsidiary of the Company (other than Debt owed to the Company or another Subsidiary of the Company), and in connection with any such payment, repurchase or other retirement, any related loan commitment, standby facility or the like shall be permanently reduced in an amount equal to the principal amount so repaid; provided that (1) such Net Cash Proceeds are so applied within three months after the expiration of the 365-day period referred to in clause (x) above, (2) the Net Cash Proceeds from Asset Dispositions of Collateral Assets may only be used pursuant to this clause (y) to pay, repurchase or retire First-Priority Secured Debt of the Company, Second-Priority Secured Debt of the Company or Debt of any Collateral Subsidiary (other than Debt owed to the Company or another Subsidiary of the Company) and

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(3) no such permanent reduction will be required with respect to any such payment out of the Net Cash Proceeds of any Announced Asset Sale or with respect to the first $500 million aggregate principal amount (or accreted value, if applicable) of other repaid, repurchased or retired Debt that but for this proviso would be required to be permanently reduced; or

(z)            applied to make a tender offer (the “Offer”) to purchase the Notes and other First-Priority Secured Debt or Second-Priority Secured Debt of the Company secured by the Collateral from time to time outstanding with similar provisions requiring the Company to make an offer to purchase or to redeem such Debt with the proceeds from assets sales, pro rata in proportion to the respective principal amounts (or accreted values in the case of Debt issued with an original issue discount) of the Notes and such other Debt then outstanding at a purchase price of 100% of their principal amount (or accreted value in the case of Debt issued with an original issue discount), plus accrued interest (subject to proration in the event of oversubscription in the manner set forth below).

(b)        Notwithstanding the foregoing, to the extent that any or all of the Net Cash Proceeds of any Foreign Asset Disposition are prohibited or delayed by applicable local law from being repatriated to the U.S., the Company (or such Subsidiary, as the case may be) shall not be required to apply the portion of such Net Cash Proceeds so affected in accordance with clauses (a)(ii) and (a)(iii) above (the Company hereby agrees to cause the applicable Subsidiary to promptly take all actions required by the applicable local law to permit such repatriation); provided that (i) in the case of Net Cash Proceeds from Asset Dispositions of Collateral Assets, such Net Cash Proceeds shall be held by a Collateral Subsidiary pending such repatriation or application in accordance with clauses (a)(ii) and (a)(iii) above and (ii) once such repatriation of any such affected Net Cash Proceeds is permitted under the applicable local law, such repatriation will be immediately effected and such repatriated Net Cash Proceeds will be applied in the manner set forth in this Section 4.09. To the extent that dividends or distributions of any or all of the Net Cash Proceeds of any Foreign Asset Disposition would result in a tax liability greater than that which would be incurred if such Net Cash Proceeds were not so dividended or distributed, the Net Cash Proceeds so affected may be retained by the applicable Subsidiary for so long as such adverse tax liability would continue to be incurred.

(c)        Notwithstanding anything in this Section 4.09 to the contrary, the Company and any Subsidiary may make the following Asset Dispositions:

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(i)            a disposition resulting from the bona fide exercise by governmental authority of its claimed or actual power of eminent domain; provided that to the extent the Company or any Subsidiary receives any cash consideration in connection with such Asset Disposition, the Net Cash Proceeds from such Asset Disposition shall be applied in accordance with clauses (a)(ii) and (a)(iii) of this Section 4.09;

(ii)           a realization upon a security interest; provided that to the extent the Company or any Subsidiary receives any cash consideration in connection with such Asset Disposition, the Net Cash Proceeds from such Asset Disposition shall be applied in accordance with clauses (a)(ii) and (a)(iii) of this Section 4.09;

(iii)          any Permitted Payment or Restricted Payment that is permitted hereunder;

(iv)          any sale, transfer, conveyance, lease or other disposition of the Capital Stock or Property of a Subsidiary pursuant to the terms of any power sales agreement or steam sales agreement or other agreement or contract related to the output or product of, or services rendered by, a Power Supply Business as to which such Subsidiary is the supplying party; provided that to the extent the Company or any Subsidiary of the Company receives any cash consideration in connection with such Asset Disposition, the Net Cash Proceeds from such Asset Disposition shall be applied in accordance with clauses (a)(ii) and (a)(iii) of this Section 4.09; or

(v)           any Investment made by the Company or any Subsidiary of the Company, other than any Investment made by a Collateral Subsidiary in a Subsidiary of the Company that is not a Collateral Subsidiary (x) in exchange for which such Collateral Subsidiary receives less than fair value or (y) which constitutes all or substantially all of the assets of such Collateral Subsidiary.

(d)        If the aggregate purchase price of Notes and other Debt tendered pursuant to an Offer made pursuant to clause (a)(iii)(B)(z) of this Section 4.09 is less than the Net Cash Proceeds allotted to the purchase of the Notes and other Debt, the Company may use the remaining Net Cash Proceeds for general corporate purposes.  The Company will not be required to comply with the provisions of clause (a)(iii) of this Section 4.09 if the Net Cash Proceeds from one or more Asset Dispositions occurring on or after the date hereof are less than $40 million in any one fiscal year. Any lesser amounts so carried forward and cumulated need not be segregated or reserved and may be used for general corporate purposes.

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(e)        The Company shall make an Offer pursuant to clause (a)(iii)(B)(z) by mailing to each Holder of the Notes, within 30 days from the receipt of Net Cash Proceeds, a written notice specifying the purchase date, which shall be not less than 30 days nor more than 60 days after the date of such notice (the “Purchase Date”) and shall contain certain information concerning the business of the Company which the Company believes in good faith will enable the Holders of the Notes to make an informed decision. Holders electing to have their notes purchased will be required to surrender such Notes at least one Business Day prior to the Purchase Date. If at the expiration of the offer period the aggregate principal amount of Notes surrendered by Holders exceeds the amount available to purchase Notes, the Company will select the Notes to be purchased on a pro rata basis.

(f)         In the event the Company is unable to purchase Notes from Holders in an Offer because of provisions of applicable law, the Company need not make an Offer.  The Company shall then be obligated to use the Net Cash Proceeds in accordance with clauses (a)(iii)(B)(x) or (a)(iii)(B)(y) of this Section 4.09.

(g)        The Company shall comply with all applicable tender offer rules, including without limitation Rule 14e-1 under the Exchange Act, in connection with an Offer under this Section 4.09.

Section 4.10.  Repurchase of Notes Upon a Change of Control.  (a) Upon a Change of Control, each holder of the Notes shall have the right to require that the Company repurchase such holder’s Notes at a repurchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.

(b)        Within 30 days following any Change of Control, the Company shall mail a notice to each Holder of the Notes with a copy to the Trustee stating

(i)            that a Change of Control has occurred and that such Holder has the right to require the Company to repurchase such Holder’s Notes at a repurchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase (the “Change of Control Offer”),

(ii)           the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control),

(iii)          the repurchase date (which shall be not earlier than 30 days or later than 60 days from the date such notice is mailed) (the “Repurchase Date”),

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(iv)          that any Note not tendered shall continue to accrue interest,

(v)           that any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Repurchase Date,

(vi)          that Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled “Option of Holder to Elect Purchase” on the reverse of the Note completed, to the paying agent at the address specified in the notice prior to the close of business on the Repurchase Date,

(vii)         that Holders will be entitled to withdraw their election if the paying agent receives, not later than the close of business on the third Business Day (or such shorter periods as may be required by applicable law) preceding the Repurchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes the Holder delivered for purchase, and a statement that such Holder is withdrawing his election to have such Notes purchased, and

(viii)        that Holders which elect to have their Notes purchased only in part will be issued new Notes of the same Series in a principal amount equal to the unpurchased portion of the Notes surrendered.

(c)        On the Repurchase Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer; (ii) deposit with the Trustee money sufficient to pay the purchase price of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers’ Certificate identifying the Notes or portions thereof tendered to the Company.

(d)        The Trustee shall promptly mail to the Holders of the Notes so accepted payment in an amount equal to the purchase price, and promptly authenticate and mail to such Holders a new Note of the same Series in a principal amount equal to any unpurchased portion of the Note surrendered.  The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Repurchase Date.

(e)        The Company shall comply with all applicable tender offer rules, including without limitation Rule 14e-1 under the Exchange Act, in connection with a Change of Control Offer.

Section 4.11.  Limitations on Transactions with Affiliates.  (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any transaction or series of related transactions (including, without limitation, the sale, purchase or lease of any assets or properties or the

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rendering of any services) involving aggregate consideration in excess of $5 million with any Affiliate (other than a Person that constitutes an Affiliate solely because of the Company’s or its Subsidiary ‘s control of such Person) or holder of 5% or more of any class of Capital Stock of the Company except for transactions (including any loans or advances by or to, or Guarantee on behalf of, any Affiliate or any such holder) made in good faith the terms of which are fair and reasonable to the Company or such Subsidiary, as the case may be, and are at least as favorable as the terms which could be obtained by the Company or such Subsidiary, as the case may be, in a comparable transaction made on an arm’s-length basis with Persons who are not such a holder or Affiliate; provided that

(i)            any such transaction shall be conclusively deemed to be on terms which are fair and reasonable to the Company or any of its Subsidiaries and on terms which are at least as favorable as the terms which could be obtained on an arm’s-length basis with Persons who are not such a holder or Affiliate if such transaction is approved by a majority of the Company’s Board of Directors (including a majority of the Company’s independent directors); and

(ii)           with respect to the purchase or disposition of assets of the Company or any of its Subsidiaries having a net book value in excess of $15 million, in addition to approval of its Board of Directors, the Company shall obtain a written opinion of an Independent Financial Advisor stating that the terms of such transaction are fair to the Company or its Subsidiary, as the case may be, from a financial point of view;

provided that the fairness, reasonableness and arm’s-length nature of the terms of any transaction which is part of a series of related transactions may be determined on the basis of the terms of the series of related transactions taken as a whole.

(b)        Clause (a) of this Section 4.11 shall not apply to

(i)            transactions between the Company or any of its Subsidiaries and any employee of the Company or any of its Subsidiaries that are approved by the Board of Directors or any committee of the Board of Directors consisting of the Company’s independent directors; provided that the terms of such transaction are at least as favorable as the terms which could be obtained by the Company or its Subsidiaries, as the case may be, in a comparable transaction or consistent with past practice;

(ii)           the payment of reasonable and customary regular fees to directors of the Company or a Subsidiary of the Company;

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(iii)          any transaction between the Company and any of its Consolidated Subsidiaries or between any of its Consolidated Subsidiaries;

(iv)          any Permitted Payment and any Restricted Payment not otherwise prohibited by Section 4.08; or

(v)           the provision of general corporate administrative, operating and management services, including, without limitation, procurement, construction engineering, construction administration, legal, accounting, financial, money management, risk management, personnel, administration and business planning services, in each case, in the ordinary course and provided that the terms of such provision of services are at least as favorable as the terms which could be obtained by the Company or its Subsidiaries, as the case may be, in a comparable transaction made on an arm’s-length basis.

Section 4.12.  Second-Priority Liens.  To the extent the Company or any Subsidiary of the Company grants a Lien upon any of its property or assets to secure the First-Priority Secured Debt, the Company or such Subsidiary, as the case may be, shall, contemporaneously with the granting of such Lien, secure the Company’s Obligations under the Indenture and the Notes with a second-priority Lien upon such property or assets pursuant to the Second Priority Collateral Documents.  Notwithstanding the foregoing, the Company shall not permit any Lien on any Collateral Assets to secure Debt of AES that would violate Section 4.07.

Section 4.13.  Limitation on Sale Leaseback Transactions.  The Company shall not enter into any sale and leaseback transaction involving any Principal Property, the acquisition or completion of construction and commencement of full operation of which has occurred more than 180 days prior thereto, unless (a) the Company could incur a Lien on such property under the restrictions described in Section 4.06 hereof in an amount equal to the Attributable Debt with respect to the sale and leaseback transaction without equally and ratably securing the Notes or (b) the Company, within 180 days after the sale or transfer by the Company, applies to the retirement of its Funded Debt an amount equal to the greater of (i) the net proceeds of the sale of the Principal Property sold and leased pursuant to such arrangement or (ii) the fair market value of the Principal Property so sold and leased as determined by the Board of Directors; provided that the amount to be applied to the retirement of Funded Debt of the Company shall be reduced by (A) the principal amount of any Notes delivered within 180 days after such sale or transfer to the Trustee for retirement and cancellation, and (B) the principal amount of Funded Debt, other than Notes, voluntarily retired by the Company within 180 days after such sale or transfer; provided further that no retirement referred to in this clause (b) may be effected by payment at maturity or pursuant to any mandatory sinking fund payment or any mandatory prepayment provision.

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Section 4.14.  Restrictions on Securing or Guaranteeing Outstanding AES Notes.  The Company shall not pledge any asset to secure (other than in connection with the defeasance thereof) or permit any of its Subsidiaries to Guarantee or pledge any asset to secure any Outstanding AES Notes unless such asset is pledged to secure the Notes or such Subsidiary Guarantees the Notes, as the case may be, on an equal and ratable basis.

Section 4.15.  Use of Proceeds from the Notes.  Of the net proceeds received by the Company on the date hereof from the offering of the Original Notes, the Company shall use (a) $475 million to repay Debt outstanding under the Senior Secured Credit Facilities, (b) an amount necessary to purchase its senior subordinated notes in accordance with the terms of the tender offer it launched on April 4, 2003 as amended as of May 2, 2003 (the “Tender Offer”) and (c) an amount necessary to purchase its senior notes in accordance with the terms of the Tender Offer. The Company may use the remaining proceeds for general corporate purposes.  If for any reason, the Company terminates the Tender Offer and does not apply the proceeds to purchase outstanding notes as described in clauses (b) and (c) above in accordance with the terms of the Tender Offer, within 180 days of the date of such termination, the Company shall use such proceeds to repay additional debt under its Senior Secured Credit Facilities and/or to repurchase its outstanding debt securities.

Section 4.16.  Investment Grade Fallaway.  (a) Notwithstanding anything to the contrary contained in this Article 4, the Company’s obligation to comply with the provisions of Section 4.08, Section 4.09 (but only with respect to assets that do not constitute Collateral Assets) and Section 4.10 (collectively the “Extinguished Covenants”) will terminate and cease to have any further effect from and after the first date when the Notes are rated Investment Grade; provided that if the Notes subsequently cease to be rated Investment Grade, then from and after the time the Notes cease to be rated Investment Grade, the Company’s obligation to comply with the Extinguished Covenants shall be reinstated.

(b)        Notwithstanding the foregoing, in the event of any such reinstatement described above, no action taken or omitted to be taken by the Company or any of its Subsidiaries prior to such reinstatement shall give rise to a Default or Event of Default under the Extinguished Covenants upon reinstatement; provided that with respect to Restricted Payments made after any such reinstatement, the amount of Restricted Payments made after the date hereof will be calculated as though Section 4.08 had been in effect during the entire period after the date hereof.

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ARTICLE 5SUCCESSOR CORPORATION

Section 5.01.  When Company May Merge, Etc.  The Company shall not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company unless either (x) the Company shall be the continuing Person or (y) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which properties and assets of the Company are transferred shall be a solvent corporation organized and validly existing under the laws of the United States of America or any state thereof or the District of Columbia and shall expressly assume, by a supplemental indenture and any other agreement reasonably satisfactory to the Trustee, executed and delivered to the Trustee, all of the Obligations of the Company under the Notes, this Indenture and the Second Priority Collateral Documents and the Company shall have delivered to the Trustee (a) an Opinion of Counsel stating that such consolidation, merger or transfer and such supplemental indenture and/or other agreement complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with and that each of such supplemental indenture and/or other agreement constitutes the legal, valid and binding obligation of the Company or such successor enforceable against such entity in accordance with its terms, subject to customary exceptions and (b) an Officers’ Certificate to the effect that immediately after giving effect to such transaction, no Event of Default or Default shall have occurred and be continuing.

Section 5.02.  Successor Substituted.  Upon any consolidation or merger, or any sale, conveyance, transfer, lease or other disposition of all or substantially all of the property and assets of the Company in accordance with Section 5.01 of this Indenture, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, conveyance, transfer, lease or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein.

ARTICLE 6DEFAULT AND REMEDIES

Section 6.01.  Events of Default.  An “Event of Default” shall occur with respect to any Series of Notes if:

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(a)           the Company defaults in the payment of the Principal or premium, if any, on any Notes of such Series when the same becomes due and payable at maturity, upon acceleration, redemption or mandatory repurchase, or otherwise;

(b)           the Company defaults in the payment of interest on any Note of such Series when the same becomes due and payable, and such default continues for a period of 30 days;

(c)           the Company defaults in the performance of or breaches any other covenant or agreement of the Company in this Indenture or in the Notes and such default or breach continues for a period of 60 consecutive days after written notice to the Company by the Trustee or to the Company and the Trustee by the Holders of 25% or more in aggregate principal amount of the Notes affected by such breach;

(d)           an event of default, as defined in any indenture or instrument evidencing or under which the Company has at the date of the Indenture or shall thereafter have outstanding any indebtedness, shall happen and be continuing and, either (i) such default results from the failure to pay the principal of such indebtedness in excess of $50 million at final maturity of such indebtedness or (ii) as a result of such default the maturity of such indebtedness shall have been accelerated so that the same shall be or become due and payable prior to the date on which the same would otherwise have become due and payable, and such acceleration shall not be rescinded or annulled within 60 days and, the principal amount of such indebtedness, together with the principal amount of any other indebtedness of the Company the maturity of which has been accelerated, aggregates $50 million or more; provided that the Trustee shall not be charged with knowledge of any such default unless written notice thereof shall have been given to the Trustee by the Company, by the holder or an agent of the holder of any such indebtedness, by the trustee then acting under any indenture or other instrument under which such default shall have occurred, or by the Holders of not less than 25% in the aggregate principal amount of the Notes at the time outstanding; and provided further that if such default shall be remedied or cured by the Company or waived by the holder of such indebtedness, then the Event of Default under the Indenture by reason thereof shall be deemed likewise to have been remedied, cured or waived without further action on the part of the Trustee, any Holder or any other person;

(e)           any of the Second Priority Collateral Documents ceases to be in full force and effect, or any of the Second Priority Collateral Documents ceases to give the Holders any of the Liens purported to be created thereby, or any of the Second Priority Collateral Documents is declared null and void or the Company denies in writing that it has any further liability under any Second Priority Collateral Document or gives written notice to such effect (in each case other than in accordance with the terms of the Indenture or the terms of the Second Priority

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Collateral Documents); provided that if a failure of the sort described in this clause (e) is susceptible of cure, no Event of Default shall arise under this clause (e) with respect thereto until 30 days after notice of such failure shall have been given to the Company by the Trustee or Holders of at least 25% in principal amount of the then outstanding Notes;

(f)            a court having jurisdiction in the premises shall enter a decree or order for (i) relief in respect of the Company or any of its Material Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar official of the Company or any of its Material Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Material Subsidiaries or (iii) the winding up or liquidation of the affairs of the Company or any of its Material Subsidiaries, and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or

(g)           the Company or any of its Material Subsidiaries (i)  commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Material Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Material Subsidiaries or (iii) effects any general assignment for the benefit of creditors.

Section 6.02.  Acceleration.  (a) If an Event of Default (other than as described in clauses (f) or (g) of Section 6.01 with respect to the Company) with respect to the Notes then outstanding occurs and is continuing, then, and in each and every such case, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding (or in the case of an Event of Default specified in clauses (a) or (b), the Holders of not less than 25% of the aggregate principal amount of the Series so affected) by notice in writing to the Company (and to the Trustee if given by Noteholders), may, and the Trustee at the request of such Holders (or in the case of an Event of Default specified in clauses (a) or (b), the Holders of not less than 25% of the aggregate principal amount of the Series so affected) shall, declare the entire Principal of all Notes (or the applicable Series of Notes so affected, as the case may be) and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable.

(b)           If an Event of Default described in clause (f) or (g) of Section 6.01 occurs and is continuing with respect to the Company, then the Principal of all the Notes then outstanding and interest accrued thereon, if any, shall ipso facto be and

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become immediately due and payable, without any declaration or other action by any Holder or the Trustee.

The foregoing provisions, however, are subject to the condition that if, at any time after the Principal of the Notes (or the applicable Series of Notes so affected, as the case may be) shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Notes (or the applicable Series of Notes so affected, as the case may be) and the Principal of any and all Notes (or the applicable Series of Notes so affected, as the case may be) which shall have become due otherwise than by acceleration (with interest upon such Principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest specified in the Notes to the date of such payment or deposit) and such amount as shall be sufficient to cover all amounts owing the Trustee under Section 7.06, and if any and all Events of Default under the Indenture, other than the non-payment of the Principal of Notes (or the applicable Series of Notes so affected, as the case may be) which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein, then and in every such case the Holders of a majority in aggregate Principal amount of all the then outstanding Notes (or the applicable Series of Notes so affected, as the case may be) that have been accelerated, by written notice to the Company and to the Trustee, may waive all defaults with respect to the Notes (or the applicable Series of Notes so affected, as the case may be) and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon.

Section 6.03.  Other Remedies.  If a payment Default or an Event of Default with respect to the Notes occurs and is continuing, the Trustee may pursue, in its own name or as trustee of an express trust, any available remedy by proceeding at law or in equity to collect the payment of Principal of and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.

The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding.

Section 6.04.  Waiver of Past Defaults.  Subject to Section 6.02, Section 6.07 and Section 9.02, the Holders of at least a majority in Principal amount of the outstanding Notes affected, by notice to the Trustee, may waive an existing Default or Event of Default with respect to the Notes and its consequences, except a Default in the payment of Principal of or interest on any Note as specified in clauses (a) or (b) of Section 6.01 or in respect of a covenant or provision of this

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Indenture which cannot be modified or amended without the consent of the Holder of each outstanding Note affected.  Upon any such waiver, such Default shall cease to exist, and any Event of Default with respect to the Notes 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 Event of Default or impair any right consequent thereto.

Section 6.05.  Control by Majority.  Subject to Section 7.01 and Section 7.02(e), the Holders of at least a majority in aggregate Principal amount of the outstanding Notes (or in the case of an Event of Default specified in clauses (a) or (b) of Section 6.01 , the Holders of at least a majority in aggregate Principal amount of the applicable Series of Notes so affected) may 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 with respect to the Notes by this Indenture; provided, that the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders not joining in the giving of such direction; and provided further, that the Trustee may take any other action it deems proper that is not inconsistent with any directions received from Holders of Notes pursuant to this Section 6.05.

Section 6.06.  Limitation on Suits.  Subject to Section 6.07, no Holder of any Note may institute any proceeding, judicial or otherwise, with respect to this Indenture or the Notes of the same Series, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

(i)            such Holder has previously given to the Trustee written notice of a continuing Event of Default with respect to the Notes of such Series;

(ii)           the Holders of at least 25% in aggregate Principal amount of outstanding Notes (or the applicable Series of Notes so affected, as the case may be) shall have made written request to the Trustee to pursue the remedy;

(iii)          such Holder or Holders have offered and, if requested, provided to the Trustee indemnity reasonably satisfactory to the Trustee against any costs, liabilities or expenses to be incurred in compliance with such request;

(iv)          the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

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(v)           during such 60-day period, the Holders of a majority in aggregate Principal amount of the outstanding Notes (or the applicable Series of Notes so affected, as the case may be) have not given the Trustee a direction that is inconsistent with such written request.

A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder.

Section 6.07.  Rights of Holders to Receive Payment.  The provisions of Section 6.06 shall not apply to the right of any Holder of a Note to receive payment of Principal of or interest, if any, on such Holder’s Note on or after the respective due dates expressed on such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, and notwithstanding any other provision of this Indenture, such right shall not be impaired or affected without the consent of such Holder.

Section 6.08.  Collection Suit by Trustee.  If an Event of Default with respect to the Notes in payment of Principal or interest specified in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of Principal of, and accrued interest remaining unpaid on, together with interest on overdue Principal of, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest on, the Notes, in each case at the rate specified in such Notes, and such further amount as shall be sufficient to cover all amounts owing the Trustee under Section 7.06.

Section 6.09.  Trustee May File Proofs of Claim.  The Trustee may 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 (including any claim for amounts due the Trustee under Section 7.06) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor on the Notes), its creditors or its property and shall be entitled and empowered to collect and receive any moneys, securities or other property payable or deliverable upon conversion or exchange of the Notes or upon any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it under Section 7.06.  Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding

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Section 6.10.  Application of Proceeds.  Any moneys or properties collected by the Trustee pursuant to this Article in respect of the Notes shall be applied in the following order at the date or dates fixed by the Trustee:

FIRST:  To the payment of all amounts due the Trustee under Section 7.06;

SECOND:  to Holders for amounts then due and unpaid for Principal of and interest on the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for Principal and interest; and

THIRD:  To the payment of the remainder, if any, to the Company or any other person lawfully entitled thereto.

Section 6.11.  Restoration of Rights and Remedies.  If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored to their former positions hereunder and thereafter all rights and remedies of the Company, Trustee and the Holders shall continue as though no such proceeding had been instituted.

Section 6.12.  Undertaking for Costs.  In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, in either case in respect to the Notes, a court may require any party litigant in such suit (other than the Trustee) to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant (other than the Trustee) in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant.  This Section 6.12 does not apply to a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in Principal amount of the outstanding Notes.

Section 6.13.  Rights and Remedies Cumulative.  Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Notes in Section 2.09, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not

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prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 6.14.  Delay or Omission Not Waiver.  No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein.  Every right and remedy given by this Article 6 or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

ARTICLE 7TRUSTEE

Section 7.01.  General.  The duties and responsibilities of the Trustee shall be as set forth herein.  The Trustee undertakes to perform only the duties expressly set forth herein and no implied covenant or obligation shall be read into this Indenture against the Trustee.  Notwithstanding the foregoing, 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, unless it receives indemnity satisfactory to it against any loss, liability or expense.  Whether or not therein 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 Article 7.

Section 7.02.  Certain Rights of Trustee.  (a)The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, Officers’ Certificate, Opinion of Counsel (or both), statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper person or persons.  The Trustee need not investigate any fact or matter stated in the document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit;

(b)           before the Trustee acts or refrains from acting, it may require an Officers’ Certificate and/or an Opinion of Counsel, which shall conform to Section 10.03.  The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion.  Subject to Section 7.01 and Section 7.02, whenever in the administration of the trusts of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed)

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may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers’ Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof;

(c)           the Trustee may act through its attorneys and agents not regularly in its employ and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care;

(d)           any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers’ Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company;

(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, order or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction;

(f)            the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Holders in accordance with Section 6.05 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;

(g)           the Trustee may consult with counsel and the written 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; and

(h)           prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, Officers’ Certificate, Opinion of Counsel, Board Resolution, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, security, or other paper or document unless requested in writing so to do by the Holders of not less than a majority in aggregate Principal amount of the Notes then outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the

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opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding.

Section 7.03.  Individual Rights of Trustee.  The Trustee, in its individual or any other capacity, may become the owner or pledgee of the Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee.  Any Agent may do the same with like rights.

Section 7.04.  Trustee’s Disclaimer.  The recitals contained herein and in the Notes (except the Trustee’s certificate of authentication) and the Second Priority Collateral Documents shall be taken as statements of the Company and not of the Trustee and the Trustee assumes no responsibility for the correctness of the same.  Neither the Trustee nor any of its agents (i) makes any representation as to the validity or adequacy of this Indenture or the Notes and (ii) shall be accountable for the Company’s use or application of the proceeds from the Notes, if any.

Section 7.05.  Notice of Default.  If any Default with respect to the Notes occurs and is continuing and if such Default is known to the actual knowledge of a Responsible Officer of the Trustee, the Trustee shall give to each Holder of Notes notice of such Default within 90 days after it occurs (or after such Responsible Officer of the Trustee acquires knowledge thereof) to all Holders, unless such Default shall have been cured or waived before the mailing or publication of such notice; provided, however, that, except in the case of a Default in the payment of the Principal of or interest on any Note, the Trustee shall be protected in withholding such notice if the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders.

Section 7.06.  Compensation and Indemnity.  The Company shall pay to the Trustee such compensation as shall be agreed upon in writing from time to time for its services.  The compensation of the Trustee shall not be limited by any law on compensation of a Trustee of an express trust.  The Company shall reimburse the Trustee upon request for all reasonable out-of pocket expenses, disbursements and advances incurred or made by the Trustee.  Such expenses shall include the reasonable compensation and expenses of the Trustee’s agents, counsel and other persons not regularly in its employ.  The Trustee shall not be required to make any advances hereunder.

The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability or expense incurred by it without gross negligence or bad faith on its part arising out of or in connection with the acceptance or administration of this Indenture and the Notes or the issuance of the Notes or the trusts hereunder and the performance of duties under this Indenture and the Notes, including the costs and expenses of defending itself against or investigating any

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claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under this Indenture and the Notes.

To secure the Company’s payment obligations in this Section 7.06, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay Principal of, and interest on particular Notes.

The obligations of the Company under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the rejection or termination of this Indenture under bankruptcy law.  Such additional indebtedness shall be a senior claim to that of the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Notes, and the Notes are hereby subordinated to such senior claim.  If the Trustee renders services and incurs expenses following an Event of Default under Section 6.01(f) or Section 6.01(g) hereof, the parties hereto and the Holders by their acceptance of the Notes hereby agree that such expenses are intended to constitute expenses of administration under any bankruptcy law.

Section 7.07.  Replacement of Trustee.  A resignation or removal of the Trustee as Trustee and appointment of a successor Trustee as Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 7.07.

The Trustee may resign as Trustee with respect to the Notes at any time by so notifying the Company in writing.  The Holders of a majority in Principal amount of the outstanding Notes may remove the Trustee as Trustee with respect to the Notes by so notifying the Trustee in writing and may appoint a successor Trustee with respect thereto with the consent of the Company.  The Company may remove the Trustee as Trustee with respect to the Notes if: (i) the Trustee is adjudged a bankrupt or insolvent; (ii) a receiver or other public officer takes charge of the Trustee or its property; or (iii) the Trustee becomes incapable of acting.

If the Trustee resigns or is removed as Trustee with respect to the Notes, or if a vacancy exists in the office of Trustee with respect to the Notes for any reason, the Company shall promptly appoint a successor Trustee with respect thereto.  Within one year after the successor Trustee takes office, the Holders of a majority in Principal amount of the outstanding Notes may appoint a successor Trustee in respect of such Notes to replace the successor Trustee appointed by the Company.  If the successor Trustee with respect to the Notes does not deliver its

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written acceptance required by the next succeeding paragraph of this Section 7.07 within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in Principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect thereto.

A successor Trustee with respect to the Notes shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company.  Immediately after the delivery of such written acceptance, subject to the Lien provided for in Section 7.06, (i) the retiring Trustee shall transfer all property held by it as Trustee in respect of the Notes to the successor Trustee, (ii) the resignation or removal of the retiring Trustee in respect of the Notes shall become effective and (iii) the successor Trustee shall have all the rights, powers and duties of the Trustee in respect of the Notes under this Indenture.  A successor Trustee shall mail notice of its succession to each Holder of Notes.

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 referred to in the preceding paragraph.

The Company shall give notice of any resignation and any removal of the Trustee with respect to the Notes and each appointment of a successor Trustee in respect of the Notes to all Holders of Notes.  Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.

Notwithstanding replacement of the Trustee with respect to the Notes pursuant to this Section 7.07, the Company’s obligations under Section 7.06 shall continue for the benefit of the retiring Trustee.

Section 7.08.  Successor Trustee by Merger, Etc.  If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national, banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein.

Section 7.09.  Money Held in Trust.  The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company.  Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article 8 of this Indenture.

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ARTICLE 8SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS

Section 8.01.  Satisfaction and Discharge of Indenture.  If at any time (a) the Company shall have paid or caused to be paid the Principal of, and interest on all the Notes of a Series outstanding hereunder (other than Notes of such Series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.09) as and when the same shall have become due and payable, or (b) the Company shall have delivered to the Trustee for cancellation all Notes of such Series theretofore authenticated (other than any Notes of such Series which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.09) or (c)(i) all the Notes of such Series not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and (ii) the Company shall have irrevocably deposited or caused to be deposited with the Trustee as trust funds the entire amount in cash (other than moneys repaid by the Trustee or any paying agent to the Company in accordance with Section 8.04) or U.S. Government Obligations, maturing as to principal and interest in such amounts and at such times as will insure the availability of cash sufficient to pay at maturity or upon redemption all Notes of such Series (other than any Notes of such Series which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.09) not theretofore delivered to the Trustee for cancellation, including Principal, and interest due or to become due on or prior to such date of maturity as the case may be, and if, in any such case, the Company shall also pay or cause to be paid all other sums payable hereunder by the Company with respect to Notes of such Series, then this Indenture shall cease to be of further effect with respect to the Notes of such Series (except as to (i) rights of registration of transfer and exchange of Notes of such Series, and the Company’s right of optional, redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders to receive payments of Principal and interest thereon, upon the original stated due dates therefor (but not upon acceleration), (iv) the rights, obligations and immunities of the Trustee hereunder and (v) the rights of the Holders of the Notes of such Series as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them), and the Trustee, on demand of the Company accompanied by an Officers’ Certificate and an Opinion of Counsel, and at the cost and expense of the Company, shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture; provided, that the rights of Holders of the Notes of such Series to receive amounts in respect of Principal of and interest on the Notes of such Series held by them shall not be delayed longer than required by then-applicable mandatory rules or policies of any securities exchange upon which the Notes of such Series are listed.  The

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Company agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Notes.

Section 8.02.  Application by Trustee of Funds Deposited for Payment of Notes.  Subject to Section 8.04, all moneys deposited with the Trustee pursuant to Section 8.01 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company acting as its own paying agent), to the Holders of the particular Notes for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for Principal and interest; but such money need not be segregated from other funds except to the extent required by law.

Section 8.03.  Repayment of Moneys Held by Paying Agent.  In connection with the satisfaction and discharge of this Indenture with respect to the Notes of any Series, all moneys then held by any paying agent under the provisions of this Indenture, with respect to the Notes of such Series, shall, upon demand of the Company, be repaid to it or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys.

Section 8.04.  Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two Years.  Any moneys deposited with or paid to the Trustee or any paying agent for the payment of the Principal of or interest on any Note and not applied but remaining unclaimed for two years after the date upon which such Principal or interest shall have become due and payable, shall, upon the written request of the Company and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee or such paying agent, and the Holder of the Note shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such moneys shall thereupon cease.

Section 8.05.  Defeasance and Discharge of Indenture.  The Company shall be deemed to have paid and shall be discharged from any and all obligations in respect of the Notes of any Series, on the 123rd day after the deposit referred to in clause (i) of this Section 8.05 has been made, and the provisions of this Indenture shall no longer be in effect with respect to the Notes of such Series (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except as to: (a) rights of registration of transfer and exchange, and the Company’s right of optional redemption, (b) substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes of such Series, (c) rights of Holders to receive payments of Principal thereof and interest thereon, upon the original stated due dates therefore (but not upon acceleration), (d) the

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rights, obligations and immunities of the Trustee hereunder and (e) the rights of the Noteholders as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them; provided that the following conditions shall have been satisfied:

(i)            with reference to this provision the Company has deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.07) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Notes of such Series, (A) money in an amount, or (B) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the due date of any payment referred to in clause (C) of this clause (i) money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee the Principal of, premium, if any, and each installment of interest on the outstanding Notes of such Series on the due dates thereof or earlier redemption (irrevocably provided for under agreements satisfactory to the Trustee), as the case may be, in accordance with the terms of the Notes of such Series and the Indenture;

(ii)           the Company has delivered to the Trustee (A) either (x) an Opinion of Counsel to the effect that Holders of Notes of such Series will not recognize income, gain or loss for federal income tax purposes as a result of the Company’s exercise of its option under this Section 8.05 and will be subject to U.S. federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon a ruling of the Internal Revenue Service to the same effect or a change in applicable U.S. federal income tax law or related treasury regulations after the date of this Indenture or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (B) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and after the passage of 123 days following the deposit, the trust fund will, not be subject to the effect of Section 547 of the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law;

(iii)          immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or

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lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which the Company is bound; and

(iv)          if at such time the Notes of such Series are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge.

Section 8.06.  Defeasance of Certain Obligations.  The Company may omit to comply with any term, provision or condition set forth in, and this Indenture will no longer be in effect with respect to, any covenant in Article 4 (other than Section 4.01), Section 5.01, or Article 11 or in any indenture supplemental hereto and clause (c) (with respect to any covenants in Article 4 or Section 5.01 or in any indenture supplemental) and clause (e) of Section 6.01 shall be deemed not to be an Event of Default with respect to the Notes of a Series on the 123^rd day after the deposit referred to in clause (a) of this Section 8.06 has been made and provided that the following conditions have been satisfied:

(a)           with reference to this Section 8.06, the Company has deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.07) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Notes of such Series and the Indenture with respect to the Notes of such Series, (i) money in an amount or (ii) U.S. Government Obligations which through the payment of principal and interest in respect thereof in accordance with their terms will provide not later than one day before the due dates thereof or earlier redemption (irrevocably provided for under agreements satisfactory to the Trustee), as the case may be, of any payment referred to in clause (iii) of this clause (a) money in an amount, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the Principal of, premium, if any, and each installment of interest on the outstanding Notes of such Series on the due date thereof or earlier redemption (irrevocably provided for under arrangements satisfactory to the Trustee), as the case may be;

(b)           the Company has delivered to the Trustee (i) an Opinion of Counsel to the effect that Holders of Notes of such Series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the Company’s exercise

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of its option under this Section 8.06 and will be subject to U.S. federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred and (ii) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law;

(c)           immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which the Company is bound; and

(d)           if at such time the Notes of such Series are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes of such Series will not be delisted as a result of such deposit, defeasance and discharge.

Section 8.07.  Reinstatement.  If the Trustee or paying agent is unable to apply any monies or U.S. Government Obligations in accordance with Article 8 with respect to a Series of Notes, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company’s obligations under this Indenture and such Series of Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article until such time as the Trustee or paying agent is permitted to apply all such monies or U.S. Government Obligations in accordance with Article 8; provided, however, that if the Company has made any payment of Principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the monies or U.S. Government Obligations held by the Trustee or paying agent.

ARTICLE 9AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 9.01.  Without Consent of Holders.  The Company and the Trustee may amend or supplement this Indenture or the Notes or the Second Priority Collateral Documents without notice to or the consent of any Holder:

(i)              to cure any ambiguity, defect or inconsistency in this Indenture or the Second Priority Collateral Documents; provided that

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such amendments or supplements shall not adversely affect the interests of the Holders in any material respect;

(ii)             to comply with Article 5;

(iii)            to comply with any requirements of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act of 1939;

(iv)            to evidence and provide for the acceptance of appointment hereunder with respect to the Notes by a successor Trustee;

(v)             establish the form or forms or terms of Notes;

(vi)            to provide for certificated or unregistered securities and to make all appropriate changes for such purpose;

(vii)           to directly or indirectly release the Liens created by the Second Priority Collateral Documents on less than all or substantially all the Collateral in accordance with the terms of the Second Priority Collateral Documents; or

(viii)          to make any change that does not materially and adversely affect the rights of any Holder.

The Collateral Documents may be amended or supplemented as provided therein and compliance with any of the provisions of the Collateral Documents  may be waived as provided therein.

Section 9.02.  With Consent of Holders.  Subject to Section 6.04 and Section 6.07, without prior notice to any Holders, the Company and the Trustee may amend this Indenture and the Notes and the Second Priority Collateral Documents with the written consent of the Holders of not less than a majority in aggregate Principal amount of the outstanding Notes affected by such amendment (voting as a single class) and the Holders of a majority in principal amount of the outstanding Notes affected thereby (voting as a single class) by written notice to the Trustee may waive future compliance by the Company with any provision of this Indenture or the Notes.

Notwithstanding the provisions of this Section 9.02, without the consent of each Holder affected thereby, an amendment or waiver, including a waiver pursuant to Section 6.04, may not:

(a)           change the Stated Maturity of the Principal of or any installment of interest on, such Holder’s Note;

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(b)           modify the provisions of Section 4.10;

(c)           reduce the Principal amount thereof or the rate of interest thereon;

(d)           reduce the above stated percentage of outstanding Notes the consent of whose holders is necessary to modify or amend the Indenture; or

(e)           reduce the percentage or aggregate Principal amount of outstanding Notes the consent of whose Holders is required for any supplemental indenture, for any waiver of compliance with certain provisions of this Indenture or certain Defaults and their consequences provided for in this Indenture.

It shall not be necessary for the consent of any Holder under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof.

After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall give to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver.  The Company will mail supplemental indentures to Holders upon request.  Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver.

Section 9.03.  Revocation and Effect of Consent.  Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same Debt as the Note of the consenting Holder, even if notation of the consent is not made on any Note.  However, any such Holder or subsequent Holder may revoke the consent as to its Note or portion of its Note.  Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective.  An amendment, supplement or waiver shall become effective with respect to any Notes affected thereby on receipt by the Trustee of written consents from the requisite Holders of outstanding Notes affected thereby.

The Company may, but shall not be obligated to, fix a record date (which may be not more than 60 days prior to the solicitation of consents) for the purpose of determining the Holders of the Notes entitled to consent to any amendment, supplement or waiver.  If a record date is fixed, then, notwithstanding the immediately preceding paragraph, those Persons who were such Holders at such record date (or their duly designated proxies) and only those Persons shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be such Holders after such record date.  No such consent shall be valid or effective for more than 90 days after such record date.

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After an amendment, supplement or waiver becomes effective with respect to the Notes, it shall bind every Holder unless it is of the type described in any of clauses (a) through (e) of Section 9.02.  In case of an amendment or waiver of the type described in clauses (a) through (e) of Section 9.02, the amendment or waiver shall bind each such Holder who has consented to it and every subsequent Holder of a Note that evidences the same indebtedness as the Note of the consenting Holder.

Section 9.04.  Notation on or Exchange of Notes.  If an amendment, supplement or waiver changes the terms of any Note, the Trustee may require the Holder thereof to deliver it to the Trustee.  The Trustee may place an appropriate notation (provided in writing by the Company) on the Note about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Note thereafter authenticated.  Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note of such Series of the same tenor that reflects the changed terms.

Section 9.05.  Trustee to Sign Amendments, Etc.  The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article 9 is authorized or permitted by this Indenture, stating that all requisite consents have been obtained or that no consents are required and stating that such supplemental indenture constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to customary exceptions.  Subject to the preceding sentence, the Trustee shall sign such amendment, supplement or waiver if the same does not adversely affect the rights of the Trustee.  The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver that affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

ARTICLE 10MISCELLANEOUS

Section 10.01.  Notices.  Any notice or communication shall be sufficiently given if written and (a) if delivered in person when received, or (b) if mailed by first class mail 5 days after mailing, or (c) as between the Company and the Trustee if sent by facsimile transmission, where transmission is confirmed, in each case addressed as follows:

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if to the Company:

The AES Corporation
1001 North 19th Street
Arlington, VA 22209
Telecopy:  (703) 528-4510
Attention:  General Counsel

if to the Trustee:

Wells Fargo Bank Minnesota,
National Association
Corporate Trust Services
Sixth Street and Marquette Avenue
MAC N9303-120
Minneapolis, MN  55479
Telecopy: (612) 669-9825
Attention: AES Corporation Administrator

The Company or the Trustee by written notice to the other may designate additional or different addresses for subsequent notices or communications.

Any notice or communication shall be sufficiently given to Holders by mailing to such Holders at their addresses as they shall appear on the Note Register.  Notice mailed shall be sufficiently given if so mailed within the time prescribed.  Copies of any such communication or notice to a Holder shall also be mailed to the Trustee and each Agent at the same time.

Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.  Except as otherwise provided in this Indenture, if a notice or communication is mailed in the manner provided in this Section 10.01, it is duly given, whether or not the addressee receives it.

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 Holders 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 case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give notice as herein contemplated, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.

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Section 10.02.  Certificate and Opinion as to Conditions Precedent.  Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:

(a)           an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

(b)           an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

Section 10.03.  Statements Required in Certificate or Opinion.  Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

(a)           a statement that each person 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 statement or opinion contained in such certificate or opinion is based;

(c)           a statement that, in the opinion of each such person, 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 or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that, with respect to matters of fact, an Opinion of Counsel may rely on an Officers’ Certificate or certificates of public officials.

Section 10.04.  Evidence of Ownership.

The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the person in whose name any Note shall be registered upon the Note Register as the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the Principal of and, subject to the provisions of this Indenture, interest on such Note and for all other purposes; and neither the Company nor the Trustee nor any agent of the Company or the Trustee shall be affected by any notice to the contrary.

Section 10.05.  Rules by Trustee, Paying Agent or Registrar.  The Trustee may make reasonable rules for action by or at a meeting of Holders.  The Paying Agent or Registrar may make reasonable rules for its functions.

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Section 10.06.  Payment Date Other Than a Business Day.  If any date for payment of Principal or interest on any Note shall not be a Business Day at any place of payment, then payment of Principal of or interest on such Note, as the case nay be, need not be made on such date, but may be made on the next succeeding Business Day at any place of payment with the same force and effect as if made on such date and no interest shall accrue in respect of such payment for the period from and after such date.

Section 10.07.  Governing Law.  The laws of the State of New York shall govern this Indenture and the Notes.

Section 10.08.  No Adverse Interpretation of Other Agreements.  This Indenture may not be used to interpret another indenture or loan or debt agreement of the Company or any Subsidiary of the Company.  No indenture or agreement may be used to interpret this Indenture except as provided in Section 1.01 with respect to the Senior Secured Credit Facilities.

Section 10.09.  Successors.  All agreements of the Company in this Indenture and the Notes shall bind its successors.  All agreements of the Trustee in this Indenture shall bind its successors.

Section 10.10.  Duplicate Originals.  The parties may sign any number of copies of this Indenture.  Each signed copy shall be an original, but all of them together represent the same agreement.

Section 10.11.  Separability.  In case any provision in this Indenture or in the Notes 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.

Section 10.12.  Table of Contents, Headings, Etc.  The Table of Contents and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof.

Section 10.13.  Incorporators, Stockholders, Officers and Directors of Company Exempt from Individual Liability.  No recourse under or upon any obligation, covenant or agreement contained in this Indenture or any indenture supplemental hereto, or in any Note, or because of any indebtedness evidenced thereby, shall be had against any incorporator, as such or against any past, present or future stockholder, officer, director or employee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability

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being expressly waived and released by the acceptance of the Notes by the Holders thereof and as part of the consideration for the issue of the Notes.

Section 10.14.  Judgment Currency.  The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the Principal of or interest on the Notes (the “Required Currency”) into a currency in which a judgment will be rendered (the “Judgment Currency”), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the day on which final unappealable judgment is entered, unless such day is not a Business Day, then, to the extent permitted by applicable law, the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the Business Day preceding the day on which final unappealable judgment is entered and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture.

ARTICLE 11SECURITY ARRANGEMENTS

Section 11.01.  Security.  (a)  In order to secure the Company’s Obligations under the Indenture and the Notes with a second-priority Lien on the Collateral, the Company will, and will cause each of its Subsidiaries named in any of the Second Priority Collateral Documents as a party thereto, to execute and deliver to the Collateral Trustees prior to the Original Issue Date each Second Priority Collateral Document to which it is a party.  The Company and its Subsidiaries shall comply with all covenants and agreements contained in the Second Priority Collateral Documents the failure to comply with which would have a material and adverse effect on the Liens purported to be created thereby.

(b)           The Trustee and each holder of each Note by its acceptance of that Note acknowledges and agrees that:

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(i)              this Indenture, as originally executed and delivered by the parties hereto, does not create any Lien on any property or securities which secures the Company’s Obligations under this Indenture or this Indenture;

(ii)             the Second Priority Collateral Documents provide, and any security document that becomes effective after the Original Issue Date, may provide, that the Liens created thereby or thereunder automatically will be released and extinguished with respect to any property or security that is transferred or otherwise disposed of in accordance with the terms of the First-Priority Collateral Documents; provided that any amendment, modification, supplement or termination of the First-Priority Collateral Documents which would release, in one transaction or in a series of related transactions, the Liens created by the Second Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding;

(iii)            without the necessity of any consent of or notice to the Trustee or any Holder of the Notes, the Company and the Collateral Trustees may amend, modify, supplement or terminate any Second Priority Collateral Document as long as the Company remains in compliance with Sections 4.06, 4.07 and 4.12; provided that any such amendment, modification, supplement or termination which would release, in one transaction or in a series of related transactions, the Liens created by the Second Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding;

(iv)            as among the Trustee, the Holders of the Notes, the lenders under the Senior Secured Credit Facilities and the other holders of First-Priority Secured Debt and the Collateral Trustees, prior to the termination of the Senior Secured Credit Facilities and other First-Priority Secured Debt in existence on the date hereof (or thereafter at any time when at least $100 million aggregate principal amount of other First-Priority Secured Debt incurred after the date hereof is outstanding), the lenders under the Senior Secured Credit Facilities (or if there is no outstanding Senior Secured Credit Facility Obligations, the holders of a majority of the other First-Priority Secured Debt) will have the sole ability to control and obtain remedies with respect to all Collateral (including on sale or liquidation of any Collateral after acceleration of the Senior Secured Credit Facility Obligations) without the necessity of any consent of or notice to the Trustee, the Collateral Trustee or any Holder of the Notes;

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(v)             as more fully set forth in the Second Priority Collateral Documents, at any time after the termination of the Senior Secured Credit Facilities and the other First-Priority Secured Debt in existence on the date hereof, when there is less than $100 million aggregate principal amount of other First-Priority Secured Debt, incurred after the date hereof, outstanding, neither the Trustee nor the Holders of the Notes will have any authority to, or to direct the Collateral Trustees to, foreclose or otherwise realize upon any of the Collateral, unless and until the holders of such First-Priority Secured Debt fail to commence the exercise of remedies with respect to or in connection with the Collateral within 120 days following notice to the First-Priority Secured Debt of the occurrence of an Event of Default under the Indenture;

(vi)            any or all Liens granted under the Second Priority Collateral Documents for the benefit of the Holders of the Notes will be automatically released, without the necessity of any consent of the Trustee or any Holders of the Notes, upon a release of such Lien or Liens pursuant to the terms of the First-Priority Collateral Documents and the Senior Secured Credit Facilities or if such release is approved by the requisite lenders under the Senior Secured Credit Facilities; provided that any release, in one transaction or a series of related transactions, of the Liens created by the Second Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding;

(vii)           the relative rights of the Holders of the Notes and the holders of indebtedness or other obligations secured by Liens on the Collateral are governed by, and are subject to the terms and conditions of, the Second Priority Collateral Documents and not this Indenture; and

(viii)          without the necessity of any consent of or notice to the Trustee or any Holder of the Notes, the Company may, on behalf of itself or any of its Subsidiaries, request and instruct the Collateral Trustees to, on behalf of each secured party under the Second Priority Collateral Documents, (A) execute and deliver to the Company, for the benefit of any Person, such release documents as the Company may reasonably request, of all liens and security interests held by the Collateral Trustees in such assets, and such Person shall be entitled to rely conclusively on such release document, and (B) deliver any such assets in the possession of the Collateral Trustees to the Company; provided  that any such release complies with the terms of the Second Priority Collateral Documents and this Indenture.

Section 11.02.  Notice of Payment, Discharge or Defeasance.  The Trustee and each Holder, by its acceptance of a Note, agree that upon the payment in full

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or discharge pursuant to Article 8 of the Company’s Obligations under the Indenture (including the Notes), the Trustee shall without notice to or consent of any Holder, upon the written request of the Company, certify to the Collateral Trustees, in writing, that the Company’s Obligations under the Indenture have been paid in full, or that this Indenture has been discharged in accordance with Article 8.

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SIGNATURES

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above.

	THE AES CORPORATION as the Company
Attest:
	By:	/s/ Barry J. Sharp
		Name:	Barry J. Sharp
		Title:	Executive VP & CFO

	WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as the Trustee
Attest:
	By:	/s/ Jeffery T. Rose
		Name:	Jeffery T. Rose
		Title:	Corporate Trust Officer

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EXHIBIT A-1

[FACE OF NOTE]

THE AES CORPORATION

8¾% Second-Priority Senior Secured Note due 2013

CUSIP 144A:               

CUSIP Regulation S:               

$                         

The AES Corporation, a Delaware corporation (the “Company”, which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to CEDE & CO, or its registered assigns, the principal sum of                  DOLLARS ($          ) on the Final Maturity Date (as defined on the reverse hereof).

Interest Rate:                              8¾% per annum.

Interest Payment Dates: May 15 and November 15, commencing November 15, 2003.

Regular Record Dates: May 1 and November 1.

Reference is hereby made to the further provisions of this Note due 2013 set forth on the reverse hereof, which will for all purposes have the same effect as if set forth at this place.

IN WITNESS WHEREOF, the Company has caused this Note due 2013 to be signed manually or by facsimile by its duly authorized officers.

Date:	THE AES CORPORATION
	By:
		Name: Paul T. Hanrahan
		Title: President & CEO
	By:
		Name: Barry J. Sharp
		Title: Ex VP & CFO

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(Form of Trustee’s Certificate of Authentication)

This is one of the 8¾% Second Priority Senior Secured Notes Due 2013 described in the Indenture referred to in this Note.

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee
By:
	Authorized Signatory

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[REVERSE SIDE OF NOTE]

THE AES CORPORATION

SECOND PRIORITY SENIOR SECURED NOTE DUE 2013

1.        Principal and Interest.  THE AES CORPORATION, a Delaware corporation (the “Company”, which definition shall include any successor thereto in accordance with the Indenture (as defined below)), promises to pay the Principal amount set forth on the reverse side hereof on the Final Maturity Date.

The “Final Maturity Date” means May 15, 2013.

The Company promises to pay, until the Principal hereof is paid or made available for payment, interest on the Principal amount set forth on the reverse side hereof at a rate of 8¾% per annum.  Interest on this Note due 2013 will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from May 8, 2003 through but excluding the date on which interest is paid.  Interest shall be payable in arrears on May 15 and November 15 of each year (each an “Interest Payment Date”), commencing November 15, 2003.  Interest will be computed on the basis of a 360-day year of twelve 30-day months.  In the event that any date on which interest is payable on the Notes due 2013 is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay).

2.        Method of Payment.  The Company will pay interest on the Notes due 2013 (except defaulted interest) to the Persons who are registered Holders of Notes due 2013 at the close of business on the fifteenth calendar day prior to each Interest Payment Date (each, a “Regular Record Date”).

All payments of Principal of, and any interest on the Notes due 2013 issued in global form will be made to the Depositary as the registered holder thereof.  The Company expects that the Depositary, upon receipt of any payment of Principal or interest on such Notes due 2013, will credit the accounts of persons who have accounts with the Depositary (“participants”) with payment of Principal or interest on the date payable in amounts proportionate to their respective beneficial interests in the Principal amount of such Note due 2013 as shown on the records of the Depositary.  The Company also expects that payments by participants to owners of beneficial interests in any Note due 2013 held through such participants will be governed by standing instructions and customary practices.  Such payments will be the responsibility of such participants.  The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts.

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3.        Paying Agent and Registrar.  Initially, Wells Fargo Bank Minnesota, National Association (the “Trustee”) will act as Paying Agent and Registrar.  The Company may change any Paying Agent, Registrar or co-Registrar without notice.

4.        Indenture.  The Company issued the Notes due 2013 under an Indenture dated as of May 8, 2003 between the Company and the Trustee.  The terms of the Notes due 2013 include those stated in the Indenture.  The Notes due 2013 are subject to all such terms, and Holders of the Notes due 2013 are referred to the Indenture for a statement of them.  Capitalized terms used herein and not otherwise defined have the meanings set forth in the Indenture.  The Notes due 2013 are senior secured obligations of the Company.  The Indenture limits, among other things, the ability of the Company to incur certain additional secured indebtedness, create liens, enter into certain sale and leaseback transactions, pay dividends or make other equity distributions, sell assets, engage in transactions with affiliates or effect a consolidation or merger.

5.        Optional Redemption.  The Notes due 2013 will be redeemable, in whole or in part, at any time, and from time to time, at the option of the Company upon not less than 30 nor more than 60 days’ notice at a redemption price equal to (a) the sum of (i) 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date plus (ii) a Make-Whole Amount (as defined in the Indenture), if any, if redeemed prior to May 15, 2008 or (b) the percentage of the principal amount set forth below plus accrued and unpaid interest to the redemption date if redeemed during the 12 month period commencing on May 15, of the years set forth below.

12-month period commencing May 15 in Year	Percentage
2008	104.375	%
2009	102.917	%
2010	101.458	%
2011 and thereafter	100.000	%

6.        Partial Redemption, Notice of Redemption.

If less than all the Notes due 2013 are to be redeemed at any time, selection of Notes due 2013 for redemption will be made by the Trustee on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes due 2013 of $1,000 or less shall be redeemed in part.

Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes due 2013 to be redeemed at its registered address. If any Note due 2013 is to be redeemed in part only, the notice of redemption that relates to such Note due 2013 shall state

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the portion of the Principal amount thereof to be redeemed.  A new Note due 2013 in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon surrender of the original Note due 2013.  Notes due 2013 called for redemption become due on the date fixed for redemption.  On and after the redemption date the Notes due 2013 shall cease to be entitled to any benefit under the Indenture and the Holders thereof shall have no right in respect of such Notes due 2013 except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption.

7.        Denominations, Transfer, Exchange.  The Notes due 2013 are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000.  A Holder may transfer or exchange Notes due 2013 only in accordance with the Indenture and as set forth in the Restricted Legend and the DTC Legend.  The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay to it any taxes and fees required by law or permitted by the Indenture.  The Registrar need not transfer or exchange any Notes due 2013 or portion of a Note due 2013 selected for redemption, or transfer or exchange any Notes for a period of 15 days before selection of such Notes due 2013 to be redeemed.

8.        Persons Deemed Owners.  The registered holder of a Note due 2013 may be treated as the owner of it for all purposes.

9.        Unclaimed Money.  If money for the payment of Principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its written request.  After that, Holders entitled to the money must look to the Company for payment as general creditors unless an “abandoned property” law designates another Person.

10.      Amendment, Supplement, Waiver.  The Company and the Trustee may, without the consent of the holders of any outstanding Notes due 2013, amend, waive or supplement the Indenture or the Notes due 2013 or the Second Priority Collateral Documents for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, directly or indirectly releasing the Liens created by the Second Priority Collateral Documents on less than all or substantially all the Collateral or making any other change that does not adversely affect the rights of any Holder in any material respect.  Without the consent of each Holder affected thereby, an amendment or waiver may not: (a) change the Stated Maturity of the Principal of or any installment of interest on, such Holder’s Note; (b) modify the provisions of Section 4.10 of the Indenture; (c) reduce the Principal amount thereof or the rate of interest thereon; or (d) reduce the percentage or aggregate Principal amount of outstanding Notes the consent of whose Holders is required for any supplemental indenture, for any amendment, waiver of compliance with certain provisions of the Indenture or certain Defaults and their consequences provided for in the Indenture.  Other amendments and

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modifications of the Indenture or the Notes due 2013 or the Second Priority Collateral Documents may be made by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the outstanding Notes due 2013 and the Notes due 2015, voting together as a single class.

11.      Successor Corporation.  When a successor corporation assumes all the obligation of its predecessor under the Notes due 2013 and the Indenture and the transaction complies with the terms of Article 5 of the Indenture, the predecessor corporation, subject to certain exceptions, will be released from those obligations.

12.      Defaults and Remedies.  Events of Default are set forth in the Indenture.  Subject to certain limitations in the Indenture, if an Event of Default (other than an Event of Default specified in Section 6.01(f) or (g) of the Indenture with respect to the Company) occurs and is continuing, then either the Trustee or the Holders of not less than 25% in aggregate principal amount of the outstanding Notes (voting as a single class) (or in the case of an Event of Default specified in Section 6.01(a) or (b) of the Indenture with respect to the Notes due 2013, the Holders of not less than 25% in aggregate Principal amount of the Notes due 2013) may, or the Trustee at the request of such Holders shall, declare the Principal of, plus accrued interest, if any, to be due and payable immediately.

If an Event of Default specified in Section 6.1(f) or (g) of the Indenture with respect to the Company occurs and is continuing, the Principal of and accrued interest on all of the Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.  Holders of Notes due 2013 may not enforce the Indenture or the Notes due 2013 except as provided in the Indenture.  The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Notes due 2013.  Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes (or in the case of an Event of Default specified in Section 6.01(a) or (b) of the Indenture with respect to the Notes due 2013, the Holders of at least a majority in principal amount of the Notes due 2013) may direct the Trustee in its exercise of any trust or power.  The Trustee may withhold from Holders of the Notes due 2013 notice of any continuing default (except a default in payment of Principal or interest or a failure to comply with Article 5 of the Indenture) if it determines in good faith that withholding notice is in their interests.

13.      Security.  In order to secure the Company’s Obligations under the Indenture, the Company and certain of its Subsidiaries have entered into the Second-Priority Collateral Documents.  The Company’s Obligations under the Indenture shall be secured by second-priority Liens on the Collateral in accordance with the terms and provisions of the Second-Priority Collateral Documents.  The

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Indenture requires that Holders of the Notes due 2013 be granted a second-priority lien equally and ratably with any lien granted on additional assets pledged to secure the First-Priority Secured Debt subsequent to the Issue Date.  Each Holder of this Note due 2013, by accepting the same, agrees that (i) the Second-Priority Collateral Documents provide, and any security document that becomes effective after the Original Issue Date, may provide, that the Liens created thereby or thereunder automatically will be released and extinguished with respect to any property or security that is transferred or otherwise disposed of in accordance with the terms of the First-Priority Collateral Documents; provided that any amendment, modification, supplement or termination of the First-Priority Collateral Documents which would release, in one transaction or in a series of related transactions, the Liens created by the Second-Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding; (ii) without the necessity of any consent of or notice to the Trustee or any Holder of the Notes, the Company and the Collateral Trustees may amend, modify, supplement or terminate any Second-Priority Collateral Document as long as the Company remains in compliance with Sections 4.06, 4.07 and 4.12 of the Indenture; provided that any such amendment, modification, supplement or termination which would release, in one transaction or in a series of related transactions, the Liens created by the Second-Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding; (iii) as among the Trustee, the Holders of the Notes, the lenders under the Senior Secured Credit Facilities and the other holders of First-Priority Secured Debt and the Collateral Trustees, prior to the termination of the Senior Secured Credit Facilities and other First-Priority Secured Debt in existence on the date hereof (or thereafter at any time when at least $100 million aggregate principal amount of other First-Priority Secured Debt incurred after the date hereof is outstanding), the lenders under the Senior Secured Credit Facilities (or if there is no outstanding Senior Secured Credit Facility Obligations, the holders of a majority of the other First-Priority Secured Debt) will have the sole ability to control and obtain remedies with respect to all Collateral (including on sale or liquidation of any Collateral after acceleration of the Senior Secured Credit Facility Obligations) without the necessity of any consent of or notice to the Trustee, the Collateral Trustee or any such Holder of the Notes; (iv) as more fully set forth in the Second-Priority Collateral Documents, at any time after the termination of the Senior Secured Credit Facilities and the other First-Priority Secured Debt in existence on the date hereof, when there is less than $100 million aggregate principal amount of other First-Priority Secured Debt, incurred after the date hereof, outstanding, neither the Trustee nor the Holders of the Notes will have any authority to, or to direct the Collateral Trustees to, foreclose or otherwise realize upon any of the Collateral, unless and until the holders of such First-Priority Secured Debt fail to commence the exercise of remedies with respect to or in connection with the Collateral within 120 days following notice to the

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First-Priority Secured Debt of the occurrence of an Event of Default under the Indenture; (v) any or all Liens granted under the Second-Priority Collateral Documents for the benefit of the Holders of the Notes will be automatically released, without the necessity of any consent of the Trustee or any Holders of the Notes, upon a release of such Lien or Liens pursuant to the terms of the First-Priority Collateral Documents and the Senior Secured Credit Facilities or if such release is approved by the requisite lenders under the Senior Secured Credit Facilities; provided that any release, in one transaction or a series of related transactions, of the Liens created by the Second-Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding; (vi) the relative rights of the Holders of the Notes and the holders of indebtedness or other obligations secured by Liens on the Collateral are governed by, and are subject to the terms and conditions of, the Second-Priority Collateral Documents and not the Indenture; and (vii) without the necessity of any consent of or notice to the Trustee or any Holder of the Notes, the Company may, on behalf of itself or any of its Subsidiaries, request and instruct the Collateral Trustees to, on behalf of each secured party under the Second-Priority Collateral Documents, (A) execute and deliver to the Company, for the benefit of any Person, such release documents as the Company may reasonably request, of all liens and security interests held by the Collateral Trustees in such assets, and such Person shall be entitled to rely conclusively on such release document, and (B) deliver any such assets in the possession of the Collateral Trustees to the Company; provided  that any such release complies with the terms of the Second-Priority Collateral Documents and the Indenture.

14.      Trustee Dealing with Company.  The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee.

15.      No Recourse Against Others.  A director, officer, employee, stockholder or beneficiary, as such, of the Company shall not have any liability for any obligations of the Company under the Second-Priority Senior Secured Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation.  Each Holder of the Notes due 2013 by accepting a Note due 2013 waives and releases all such liability.  The waiver and release are part of the consideration for the issue of the Notes due 2013.

16.      Defeasance.  The Indenture contains provisions (which provisions apply to this Note due 2013) for defeasance at any time of (a) the entire indebtedness of the Company in respect of this Note due 2013 and (b) certain restrictive covenants, certain provisions relating to the Collateral and Defaults and Events of Default, in each case upon compliance by the Company with certain conditions set forth therein.

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17.      Authentication.  This Note due 2013 shall not be valid until the Trustee signs the certificate of authentication on the other side of this Note due 2013.

18.      Abbreviations.  Customary abbreviations may be used in the name of a Holder of Notes due 2013 or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

19.      GOVERNING LAW.  THE INDENTURE AND THIS NOTE DUE 2013 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

The Company will furnish to any Holder of Notes due 2013 upon written request and without charge a copy of the Indenture.  Requests may be made to:

THE AES CORPORATION
1001 North 19^th Street, Suite 2000
Arlington, Virginia 22209
Telephone: (703) 522-1315
Telecopy:  (703) 528-4510
Attention:  General Counsel

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[FORM OF TRANSFER NOTICE]

FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto

Insert Taxpayer Identification No.

Please print or typewrite name and address including zip code of assignee

the within Note and all rights thereunder, hereby irrevocably constituting and appointing

attorney to transfer said Note on the books of the Company with full power of substitution in the premises.

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[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES BEARING A RESTRICTED LEGEND]

In connection with any transfer of this Note due 2013 occurring prior to                     , the undersigned confirms that such transfer is made without utilizing any general solicitation or general advertising and further as follows:

Check One

o(a) This Note is being transferred to a “qualified institutional buyer” in compliance with Rule 144A under the Securities Act of 1933, as amended and a Rule 144A Certificate (as defined in the Indenture) is being furnished herewith.

o(b) This Note is being transferred to a Non-U.S. Person in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Regulation S thereunder, and certification in the form of Exhibit D to the Indenture is being furnished herewith.

o(c) This Note is being transferred to the Company.

or

o(d) This Note is being transferred other than in accordance with (a), (b) or (c) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture.

If none of the foregoing boxes is checked, the Trustee is not obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in the Indenture have been satisfied.

Date:
	Seller
	By

NOTICE:  The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.

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Signature Guarantee:
	By

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Association Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

To be executed by an executive officer

A1-13

SCHEDULE OF EXCHANGES OF NOTES

The following exchanges of a part of this Global Note for a part of another Global Note have been made:(1)

Date of Exchange Amount of
decrease in
principal amount
of this Global Note Amount of increase
in principal
amount of this
Global Note Principal amount
of this Global Note
following such
decrease (or
increase) Signature of
authorized officer
of Trustee

(1)           This Schedule applies to Global Notes only and will not be attached to any Certificated Notes.

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EXHIBIT A-2

[FACE OF NOTE]

THE AES CORPORATION

9% Second-Priority Senior Secured Note due 2015

CUSIP 144A:                 

CUSIP REGULATION S:                 

$                           

The AES Corporation, a Delaware corporation (the “Company”, which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to CEDE & CO, or its registered assigns, the principal sum of                               DOLLARS ($          ) on the Final Maturity Date (as defined on the reverse hereof).

Interest Rate:                              9% per annum.

Interest Payment Dates: May 15 and November 15, commencing November 15, 2003.

Regular Record Dates: May 1 and November 1.

Reference is hereby made to the further provisions of this Note due 2015 set forth on the reverse hereof, which will for all purposes have the same effect as if set forth at this place.

IN WITNESS WHEREOF, the Company has caused this Note due 2015 to be signed manually or by facsimile by its duly authorized officers.

Date:	THE AES CORPORATION
	By:
		Name: Paul T. Hanrahan
		Title: President & CEO

By:
	Name: Barry J. Sharp
	Title: Ex VP & CFO

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(Form of Trustee’s Certificate of Authentication)

This is one of the 9% Second-Priority Senior Secured Notes Due 2015 described in the Indenture referred to in this Note.

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee
By:
	Authorized Signatory

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[REVERSE SIDE OF NOTE]

THE AES CORPORATION

SECOND PRIORITY SENIOR SECURED NOTE DUE 2015

1.        Principal and Interest.  THE AES CORPORATION, a Delaware corporation (the “Company”, which definition shall include any successor thereto in accordance with the Indenture (as defined below)), promises to pay the Principal amount set forth on the reverse side hereof on the Final Maturity Date.

The “Final Maturity Date” means May 15, 2015.

The Company promises to pay, until the Principal hereof is paid or made available for payment, interest on the Principal amount set forth on the reverse side hereof at a rate of 9% per annum.  Interest on this Note due 2015 will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from May 8, 2003 through but excluding the date on which interest is paid.  Interest shall be payable in arrears on May 15 and November 15 of each year (each an “Interest Payment Date”), commencing November 15, 2003.  Interest will be computed on the basis of a 360-day year of twelve 30-day months.  In the event that any date on which interest is payable on the Notes due 2015 is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay).

2.        Method of Payment.  The Company will pay interest on the Notes due 2015 (except defaulted interest) to the Persons who are registered Holders of Notes due 2015 at the close of business on the fifteenth calendar day prior to each Interest Payment Date (each, a “Regular Record Date”).

All payments of Principal of, and any interest on the Notes due 2015 issued in global form will be made to the Depositary as the registered holder thereof.  The Company expects that the Depositary, upon receipt of any payment of Principal or interest on such Notes due 2015, will credit the accounts of persons who have accounts with the Depositary (“participants”) with payment of Principal or interest on the date payable in amounts proportionate to their respective beneficial interests in the Principal amount of such Note due 2015 as shown on the records of the Depositary.  The Company also expects that payments by participants to owners of beneficial interests in any Note due 2015 held through such participants will be governed by standing instructions and customary practices.  Such payments will be the responsibility of such participants.  The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts.

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3.        Paying Agent and Registrar.  Initially, Wells Fargo Bank Minnesota, National Association (the “Trustee”) will act as Paying Agent and Registrar.  The Company may change any Paying Agent, Registrar or co-Registrar without notice.

4.        Indenture.  The Company issued the Notes due 2015 under an Indenture dated as of May 8, 2003 between the Company and the Trustee.  The terms of the Notes due 2015 include those stated in the Indenture.  The Notes due 2015 are subject to all such terms, and Holders of the Notes due 2015 are referred to the Indenture for a statement of them.  Capitalized terms used herein and not otherwise defined have the meanings set forth in the Indenture.  The Notes due 2015 are senior secured obligations of the Company.  The Indenture limits, among other things, the ability of the Company to incur certain additional secured indebtedness, create liens, enter into certain sale and leaseback transactions, pay dividends or make other equity distributions, sell assets, engage in transactions with affiliates or effect a consolidation or merger.

5.        Optional Redemption.  The Notes due 2015 will be redeemable, in whole or in part, at any time, and from time to time, at the option of the Company upon not less than 30 nor more than 60 days’ notice at a redemption price equal to (a) the sum of (i) 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date plus (ii) a Make-Whole Amount (as defined in the Indenture), if any, if redeemed prior to May 15, 2008 or (b) the percentage of the principal amount set forth below plus accrued and unpaid interest to the redemption date if redeemed during the 12 month period commencing on May 15, of the years set forth below.

12-month period commencing May 15 in Year	Percentage
2008	104.500	%
2009	103.000	%
2010	101.500	%
2011 and thereafter	100.000	%

6.        Partial Redemption, Notice of Redemption.

If less than all the Notes due 2015 are to be redeemed at any time, selection of Notes due 2015 for redemption will be made by the Trustee on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes due 2015 of $1,000 or less shall be redeemed in part.

Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes due 2015 to be redeemed at its registered address. If any Note due 2015 is to be redeemed in part only, the notice of redemption that relates to such Note due 2015 shall state

A2-5

the portion of the Principal amount thereof to be redeemed.  A new Note due 2015 in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon surrender of the original Note due 2015.  Notes due 2015 called for redemption become due on the date fixed for redemption.  On and after the redemption date the Notes due 2015 shall cease to be entitled to any benefit under the Indenture and the Holders thereof shall have no right in respect of such Notes due 2015 except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption.

7.        Denominations, Transfer, Exchange.  The Notes due 2015 are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000.  A Holder may transfer or exchange Notes due 2015 only in accordance with the Indenture and as set forth in the Restricted Legend and the DTC Legend.  The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay to it any taxes and fees required by law or permitted by the Indenture.  The Registrar need not transfer or exchange any Notes due 2015 or portion of a Note due 2015 selected for redemption, or transfer or exchange any Notes for a period of 15 days before selection of such Notes due 2015 to be redeemed.

8.        Persons Deemed Owners.  The registered holder of a Note due 2015 may be treated as the owner of it for all purposes.

9.        Unclaimed Money.  If money for the payment of Principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its written request.  After that, Holders entitled to the money must look to the Company for payment as general creditors unless an “abandoned property” law designates another Person.

10.      Amendment, Supplement, Waiver.  The Company and the Trustee may, without the consent of the holders of any outstanding Notes due 2015, amend, waive or supplement the Indenture or the Notes due 2015 or the Second Priority Collateral Documents for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, directly or indirectly releasing the Liens created by the Second Priority Collateral Documents on less than all or substantially all the Collateral or making any other change that does not adversely affect the rights of any Holder in any material respect.  Without the consent of each Holder affected thereby, an amendment or waiver may not: (a) change the Stated Maturity of the Principal of or any installment of interest on, such Holder’s Note; (b) modify the provisions of Section 4.10 of the Indenture; (c) reduce the Principal amount thereof or the rate of interest thereon; or (d) reduce the percentage or aggregate Principal amount of outstanding Notes the consent of whose Holders is required for any supplemental indenture, for any amendment, waiver of compliance with certain provisions of the Indenture or certain Defaults and their consequences provided for in the Indenture.  Other amendments and

A2-6

modifications of the Indenture or the Notes due 2015 or the Second Priority Collateral Documents may be made by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the outstanding Notes due 2015 and the Notes due 2013, voting together as a single class.

11.      Successor Corporation.  When a successor corporation assumes all the obligation of its predecessor under the Notes due 2015 and the Indenture and the transaction complies with the terms of Article 5 of the Indenture, the predecessor corporation, subject to certain exceptions, will be released from those obligations.

12.      Defaults and Remedies.  Events of Default are set forth in the Indenture.  Subject to certain limitations in the Indenture, if an Event of Default (other than an Event of Default specified in Section 6.01(f) or (g) of the Indenture with respect to the Company) occurs and is continuing, then either the Trustee or the Holders of not less than 25% in aggregate principal amount of the outstanding Notes (voting as a single class) (or in the case of an Event of Default specified in Section 6.01(a) or (b) of the Indenture with respect to the Notes due 2015, the Holders of not less than 25% in aggregate Principal amount of the Notes due 2015) may, or the Trustee at the request of such Holders shall, declare the Principal of, plus accrued interest, if any, to be due and payable immediately.

If an Event of Default specified in Section 6.1(f) or (g) of the Indenture with respect to the Company occurs and is continuing, the principal of and accrued interest on all of the Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.  Holders of Notes due 2015 may not enforce the Indenture or the Notes due 2015 except as provided in the Indenture.  The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Notes due 2015.  Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes (or in the case of an Event of Default specified in Section 6.01(a) or (b) of the Indenture with respect to the Notes due 2015, the Holders of at least a majority in principal amount of the Notes due 2015) may direct the Trustee in its exercise of any trust or power.  The Trustee may withhold from Holders of the Notes due 2015 notice of any continuing default (except a default in payment of Principal or interest or a failure to comply with Article 5 of the Indenture) if it determines in good faith that withholding notice is in their interests.

13.      Security.  In order to secure the Company’s Obligations under the Indenture, the Company and certain of its Subsidiaries have entered into the Second-Priority Collateral Documents.  The Company’s Obligations under the Indenture shall be secured by second-priority Liens on the Collateral in accordance with the terms and provisions of the Second-Priority Collateral Documents.  The

A2-7

Indenture requires that Holders of the Notes due 2015 be granted a second-priority lien equally and ratably with any lien granted on additional assets pledged to secure the First-Priority Secured Debt subsequent to the Issue Date.  Each Holder of this Note due 2015, by accepting the same, agrees that (i) the Second-Priority Collateral Documents provide, and any security document that becomes effective after the Original Issue Date, may provide, that the Liens created thereby or thereunder automatically will be released and extinguished with respect to any property or security that is transferred or otherwise disposed of in accordance with the terms of the First-Priority Collateral Documents; provided that any amendment, modification, supplement or termination of the First-Priority Collateral Documents which would release, in one transaction or in a series of related transactions, the Liens created by the Second-Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding; (ii) without the necessity of any consent of or notice to the Trustee or any Holder of the Notes, the Company and the Collateral Trustees may amend, modify, supplement or terminate any Second-Priority Collateral Document as long as the Company remains in compliance with Sections 4.06, 4.07 and 4.12 of the Indenture; provided that any such amendment, modification, supplement or termination which would release, in one transaction or in a series of related transactions, the Liens created by the Second-Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding; (iii) as among the Trustee, the Holders of the Notes, the lenders under the Senior Secured Credit Facilities and the other holders of First-Priority Secured Debt and the Collateral Trustees, prior to the termination of the Senior Secured Credit Facilities and other First-Priority Secured Debt in existence on the date hereof (or thereafter at any time when at least $100 million aggregate principal amount of other First-Priority Secured Debt incurred after the date hereof is outstanding), the lenders under the Senior Secured Credit Facilities (or if there is no outstanding Senior Secured Credit Facility Obligations, the holders of a majority of the other First-Priority Secured Debt) will have the sole ability to control and obtain remedies with respect to all Collateral (including on sale or liquidation of any Collateral after acceleration of the Senior Secured Credit Facility Obligations) without the necessity of any consent of or notice to the Trustee, the Collateral Trustee or any such Holder of the Notes; (iv) as more fully set forth in the Second-Priority Collateral Documents, at any time after the termination of the Senior Secured Credit Facilities and the other First-Priority Secured Debt in existence on the date hereof, when there is less than $100 million aggregate principal amount of other First-Priority Secured Debt, incurred after the date hereof, outstanding, neither the Trustee nor the Holders of the Notes will have any authority to, or to direct the Collateral Trustees to, foreclose or otherwise realize upon any of the Collateral, unless and until the holders of such First-Priority Secured Debt fail to commence the exercise of remedies with respect to or in connection with the Collateral within 120 days following notice to the

A2-8

First-Priority Secured Debt of the occurrence of an Event of Default under the Indenture; (v) any or all Liens granted under the Second-Priority Collateral Documents for the benefit of the Holders of the Notes will be automatically released, without the necessity of any consent of the Trustee or any Holders of the Notes, upon a release of such Lien or Liens pursuant to the terms of the First-Priority Collateral Documents and the Senior Secured Credit Facilities or if such release is approved by the requisite lenders under the Senior Secured Credit Facilities; provided that any release, in one transaction or a series of related transactions, of the Liens created by the Second-Priority Collateral Documents on all or substantially all of the Collateral will require the consent of the Holders of a majority in aggregate principal amount of the Notes outstanding; (vi) the relative rights of the Holders of the Notes and the holders of indebtedness or other obligations secured by Liens on the Collateral are governed by, and are subject to the terms and conditions of, the Second-Priority Collateral Documents and not the Indenture; and (vii) without the necessity of any consent of or notice to the Trustee or any Holder of the Notes, the Company may, on behalf of itself or any of its Subsidiaries, request and instruct the Collateral Trustees to, on behalf of each secured party under the Second-Priority Collateral Documents, (A) execute and deliver to the Company, for the benefit of any Person, such release documents as the Company may reasonably request, of all liens and security interests held by the Collateral Trustees in such assets, and such Person shall be entitled to rely conclusively on such release document, and (B) deliver any such assets in the possession of the Collateral Trustees to the Company; provided  that any such release complies with the terms of the Second-Priority Collateral Documents and the Indenture.

14.      Trustee Dealing with Company.  The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee.

15.      No Recourse Against Others.  A director, officer, employee, stockholder or beneficiary, as such, of the Company shall not have any liability for any obligations of the Company under the Second-Priority Senior Secured Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation.  Each Holder of the Notes due 2015 by accepting a Note due 2013 waives and releases all such liability.  The waiver and release are part of the consideration for the issue of the Notes due 2015.

16.      Defeasance.  The Indenture contains provisions (which provisions apply to this Note due 2015) for defeasance at any time of (a) the entire indebtedness of the Company in respect of this Note due 2015 and (b) certain restrictive covenants, certain provisions relating to the Collateral and Defaults and Events of Default, in each case upon compliance by the Company with certain conditions set forth therein.

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17.      Authentication.  This Note due 2015 shall not be valid until the Trustee signs the certificate of authentication on the other side of this Note due 2015.

18.      Abbreviations.  Customary abbreviations may be used in the name of a Holder of Notes due 2015 or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

19.      GOVERNING LAW.  THE INDENTURE AND THIS NOTE DUE 2015 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

The Company will furnish to any Holder of Notes due 2015 upon written request and without charge a copy of the Indenture.  Requests may be made to:

THE AES CORPORATION
1001 North 19^th Street, Suite 2000
Arlington, Virginia 22209
Telephone: (703) 522-1315
Telecopy:  (703) 528-4510
Attention:  General Counsel

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[FORM OF TRANSFER NOTICE]

FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto

Insert Taxpayer Identification No.

Please print or typewrite name and address including zip code of assignee

the within Note and all rights thereunder, hereby irrevocably constituting and appointing

attorney to transfer said Note on the books of the Company with full power of substitution in the premises.

A2-11

[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES BEARING A RESTRICTED LEGEND]

In connection with any transfer of this Note due 2015 occurring prior to                     , the undersigned confirms that such transfer is made without utilizing any general solicitation or general advertising and further as follows:

Check One

o(a) This Note is being transferred to a “qualified institutional buyer” in compliance with Rule 144A under the Securities Act of 1933, as amended and a Rule 144A Certificate (as defined in the Indenture) is being furnished herewith.

o(b) This Note is being transferred to a Non-U.S. Person in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Regulation S thereunder, and certification in the form of Exhibit D to the Indenture is being furnished herewith.

o(c) This Note is being transferred to the Company.

or

o(d) This Note is being transferred other than in accordance with (a), (b) or (c) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture.

If none of the foregoing boxes is checked, the Trustee is not obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in the Indenture have been satisfied.

Date:
	Seller
	By

NOTICE:  The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.

A2-12

Signature Guarantee:
	By

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Association Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

To be executed by an executive officer

A2-13

SCHEDULE OF EXCHANGES OF NOTES

The following exchanges of a part of this Global Note for a part of another Global Note have been made:(1)

Date of Exchange Amount of
decrease in
principal amount
of this Global Note Amount of increase
in principal
amount of this
Global Note Principal amount
of this Global Note
following such
decrease (or
increase) Signature of
authorized officer
of Trustee

(1)           This Schedule applies to Global Notes only and will not be attached to any Certificated Notes.

A2-14

EXHIBIT B

RESTRICTED LEGEND

THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR THE LAWS OF ANY STATE OR OTHER JURISDICTION AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE.  BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER

(1)           REPRESENTS THAT

(A)          IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT, OR

(B)           IT IS NOT A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT), AND

(2)           AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE OR ANY BENEFICIAL INTEREST HEREIN, EXCEPT IN ACCORDANCE WITH THE SECURITIES ACT AND ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ONLY

(A)          TO THE COMPANY,

(B)           PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT,

(C)           TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,

(D)          IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,

(E)           PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION

FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.  NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY RULE 144 EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

B-2

EXHIBIT C

DTC LEGEND

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY 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 A BENEFICIAL INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE TRANSFER PROVISIONS OF THE INDENTURE.

EXHIBIT D

Regulation S Certificate

                    ,             

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

Attention: Corporate Trust Services

Sixth Street and Marquette Avenue

MAC N9303-120

Minneapolis, MN 55470

Re: THE AES CORPORATION
[8¾] [9]% Second Priority Senior Secured Notes Due
20[13][15] (the “Notes”) Issued under the Indenture (the
“Indenture”) dated as of May 8, 2003 relating to the
Notes

Ladies and Gentlemen:

Terms are used in this Certificate as used in Regulation S (“Regulation S”) under the Securities Act of 1933, as amended (the “Securities Act”), except as otherwise stated herein.

[CHECK A OR B AS APPLICABLE.]

o  A.This Certificate relates to our proposed transfer of $        principal amount of Notes issued under the Indenture.  We hereby certify as follows:

1.The offer and sale of the Notes was not and will not be made to a person in the United States (unless such person is excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(vi) or the account held by it for which it is acting is excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3)) and such offer and sale was not and will not be specifically targeted at an identifiable group of U.S. citizens abroad.

2.Unless the circumstances described in the parenthetical in paragraph 1 above are applicable, either (a) at the time the buy order was originated, the buyer was outside the United States or we and any person acting on our behalf reasonably believed that the buyer was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market, and neither we nor any person acting on our behalf knows that the transaction was pre-arranged with a buyer in the United States.

3.Neither we, any of our affiliates, nor any person acting on our or their behalf has made any directed selling efforts in the United States with respect to the Notes.

4.The proposed transfer of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act.

5.If we are a dealer or a person receiving a selling concession, fee or other remuneration in respect of the Notes, and the proposed transfer takes place during the Restricted Period (as defined in the Indenture), or we are an officer or director of the Company, we certify that the proposed transfer is being made in accordance with the provisions of Rule 904(b) of Regulation S.

o  B.      This Certificate relates to our proposed exchange of $          principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us.  We hereby certify as follows:

1.At the time the offer and sale of the Notes was made to us, either (i) we were not in the United States or (ii) we were excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(vi) or the account held by us for which we were acting was excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3); and we were not a member of an identifiable group of U.S. citizens abroad.

2.Unless the circumstances described in paragraph 1(ii) above are applicable, either (a) at the time our buy order was originated, we were outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and we did not pre-arrange the transaction in the United States.

3.The proposed exchange of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act.

D-2

You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

	Very truly yours,
	[NAME OF SELLER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)]
	By:
		Name:
		Title:
		Address
Date:

D-3

EX-4.2

Exhibit 4.2

EXECUTION COPY

SECOND PRIORITY COLLATERAL TRUST AGREEMENT

dated as of May 8, 2003

among

The Grantors referred to herein,

as Grantors,

and

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,

as Second Priority Corporate Trustee,

and

Jeffery T. Rose,

as Second Priority Individual Trustee

TABLE OF CONTENTS

i

ii

iii

SECOND PRIORITY COLLATERAL TRUST AGREEMENT

SECOND PRIORITY COLLATERAL TRUST AGREEMENT, dated May 8, 2003 (said agreement, as amended, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”) by and among The AES Corporation, a Delaware corporation (the “Borrower”), the other Persons listed on the signature pages hereof and the Additional Grantors (the Borrower, the Persons so listed and the Additional Grantors being, collectively, the “Grantors”), Wells Fargo Bank Minnesota, National Association, a national banking corporation, not in its individual capacity but solely as corporate trustee (together with any successor corporate trustee appointed pursuant to Article VII, the “Second Priority Corporate Trustee”), and Jeffery T. Rose, an individual residing in the State of Minnesota, not in his individual capacity but solely as individual trustee (together with any successor individual trustee appointed pursuant to Article VII, the “Second Priority Individual Trustee”; and, together with the Second Priority Corporate Trustee, the “Second Priority Collateral Trustees”), the foregoing trustees being trustees for the Second Priority Secured Holders as hereinafter defined.  Certain capitalized terms used herein are defined in Article I of this Agreement.  Terms defined in the Senior Note Indenture and the Second Priority Security Agreement and not otherwise defined in Article I of this Agreement are used in this Agreement as defined in the Senior Note Indenture and the Second Priority Security Agreement.

PRELIMINARY STATEMENTS:

(1)           The Borrower entered into an Amended and Restated Credit, Reimbursement and Exchange Agreement dated as of December 12, 2002 (said agreement, as amended, amended and restated, supplemented, extended, renewed, replaced, refinanced or otherwise modified from time to time, being the “Credit Agreement”) with the subsidiary guarantors party thereto, the financial institutions party thereto (the “Credit Agreement Parties”) and Citicorp USA, Inc., as administrative agent (in such capacity, the “Agent”) and as collateral agent (in such capacity, the “Credit Agreement Collateral Agent”; and, together with the Agent, the “Agents”).

(2)           In order to induce the Credit Agreement Parties and the Agents to enter into the Credit Agreement, the Grantors granted, pursuant to the terms of (a) a Security Agreement dated as of December 12, 2002 (said agreement (including, without limitation, the schedules thereto), as amended, amended and restated, supplemented or otherwise modified from time to time, being the “First Priority Security Agreement”) made by the Grantors to Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as corporate trustee (together with any successor corporate trustee appointed pursuant to Article VII of the First Priority Collateral Trust Agreement (as hereinafter defined), the “Existing Corporate Trustee”), and Bruce L. Bisson, an individual residing in the State of Delaware, not in his individual capacity but solely as individual trustee (together with any successor individual trustee appointed pursuant to Article VII of the First Priority Collateral Trust Agreement, the “Existing Individual Trustee”; and, together with the Existing Corporate Trustee, the “Existing Collateral Trustees”), as trustees under the Collateral Trust Agreement dated as of December 12, 2002 (said agreement, as amended, amended and restated,

supplemented or otherwise modified from time to time, being the “First Priority Collateral Trust Agreement”) and (b) a Charge and Assignment Over Shares dated as of December 12, 2002 (said agreement (including, without limitation, the schedules thereto), as amended, amended and restated, supplemented or otherwise modified from time to time, being the “First Priority Charge”) made by AES International Holdings II, Ltd. (the “Chargor”) to the Existing Collateral Trustees, as trustees under the First Priority Collateral Trust Agreement, a continuing first priority security interest in and to the Collateral (as hereinafter defined) to the Existing Collateral Trustees for the ratable benefit of the Lender Parties (as defined in the First Priority Collateral Trust Agreement) to secure the obligations of the Borrower and the other Obligors (as defined in the Credit Agreement) under the Credit Agreement and the Notes (as defined in the Credit Agreement) issued pursuant thereto.

(3)           The Borrower entered into an Indenture dated as of December 13, 2002 (said agreement, as amended, amended and restated, supplemented or otherwise modified from time to time, being the “Exchange Note Indenture”) with Wells Fargo Bank Minnesota, National Association (the “Exchange Note Trustee”) to exchange the Borrower’s (i) 8.75% Senior Notes due 2002 and (ii) 7.375% Remarketable or Redeemable Securities due 2013 for the 10% Senior Secured Exchange Notes due 2005 issued on December 13, 2002 (the “Exchange Notes”, and together with the Exchange Note Indenture (only to the extent relating to the Exchange Notes), the “Exchange Note Agreements”).

(4)           In order to induce the Exchange Note Trustee to enter into the Exchange Note Indenture, the Grantors agreed pursuant to the First Priority Security Agreement and the First Priority Charge, as the case may be, to grant a continuing security interest in and to the Collateral to the Existing Collateral Trustees for the ratable benefit of the holders of the Exchange Notes to secure the obligations of the Borrower under the Exchange Note Agreements.

(5)           In order to satisfy certain other obligations of the Borrower, the Grantors agreed pursuant to the First Priority Security Agreement and the First Priority Charge, as the case may be, to grant a continuing security interest in and to the Collateral to the Existing Collateral Trustees for the ratable benefit of the other First Priority Secured Holders to secure the obligations of the Borrower under the other First Priority Secured Agreements.

(6)           The Borrower entered into an Indenture dated as of May 8, 2003 (said agreement, as amended, amended and restated, supplemented or otherwise modified from time to time, being the “Senior Note Indenture”) with Wells Fargo Bank Minnesota, National Association, as indenture trustee  (the “Senior Note Trustee”) in connection with the Borrower’s issuance on May 8, 2003 of (i) 8.75% Second Priority Senior Secured Notes due 2013 and (ii) 9.00% Second Priority Senior Secured Notes due 2015 (the “Senior Notes”, and together with the Senior Note Indenture, the “Senior Note Indenture Agreements”).

(7)           In order to induce the Senior Note Trustee to enter into the Senior Note Indenture, the Grantors have agreed to grant, pursuant to the terms of (a) a Security Agreement dated as of May 8, 2003 (said agreement (including, without limitation, the schedules thereto), as amended, amended and restated, supplemented or otherwise modified from time to time, being the “Second Priority Security Agreement”) made by the Grantors (as such term is defined in the Second Priority Security Agreement) to the Second Priority Collateral Trustees, as trustees

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under this Agreement and (b) a Charge and Assignment Over Shares dated as of May 8, 2003 (said agreement (including, without limitation, the schedules thereto), as amended, amended and restated, supplemented and otherwise modified from time to time, being the “Second Priority Charge”) made by the Chargor to the Second Priority Collateral Trustees, as trustees under this Agreement, a continuing security interest in and to the Collateral to the Second Priority Collateral Trustees for the ratable benefit of the Senior Note Holders (as hereinafter defined) to secure the obligations of the Borrower under the Senior Note Indenture.

(8)           This Agreement and the other Second Priority Collateral Documents (as hereinafter defined) are intended to secure the other Second Priority Secured Agreements (as hereinafter defined) and the Second Priority Collateral Trustees have agreed to undertake the rights, powers, duties and responsibilities set forth in this Agreement and the other Second Priority Collateral Documents in order to effect such purpose.

NOW, THEREFORE, in consideration of the premises and in order to induce the Senior Note Trustee to enter into the Senior Note Indenture, each Grantor hereby agrees with the Second Priority Collateral Trustees for their benefit and in trust for the ratable benefit of the Second Priority Representatives (as hereinafter defined) and the Second Priority Secured Holders as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Certain Defined Terms.  The following terms shall have the following meanings as used herein (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Additional Second Priority Collateral Trust Agreement Collateral” has the meaning specified in Section 2.01.

“Affiliate” means (a) any Person that directly, or indirectly through one or more intermediaries, controls the Borrower (a “Controlling Person”), or (b) any Person (other than the Borrower or a Subsidiary) which is controlled by or is under common control with a Controlling Person or (c) as to any Person (other than the Borrower and its Subsidiaries), any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person.  As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Applicable Agreement” means the First Priority Secured Agreements, the First Priority Collateral Documents, the Senior Note Indenture Agreements, the Second Priority Collateral Documents and the Other Indenture Debt Agreements.

“Authorized Officer” means the Chairman, the President, the Chief Executive Officer, the Chief Financial Officer, the Comptroller, any Vice President, the Secretary, Assistant Secretary, Treasurer or the Assistant Treasurer of a Person or any other officer

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designated as an “Authorized Officer” by the Board of Directors (or equivalent governing body) of such Person.

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”, as amended from time to time.

“Bankruptcy Law” means any law relating to bankruptcy, insolvency, winding up, reorganization, suspension of payments, arrangement, liquidation, relief of debtors, receivership, compromise, amalgamation, assignment for the benefit of creditors or composition or readjustment of debts, or any equivalent or similar proceeding or action.

“Borrower” has the meaning specified in the recital of parties to this Agreement.

“Business Day” means a day of the year on which banks are not required or authorized by law to close in New York City or the city in which the Second Priority Corporate Trustee maintains its corporate trust office.

“Cash Equivalents” means any of the following, to the extent owned by the Borrower or any of its Subsidiaries free and clear of all Liens other than Liens created under the Second Priority Collateral Documents and the First Priority Collateral Documents and having a maturity of not greater than 360 days from the date of issuance thereof:  (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the Government of the United States, (b) insured certificates of deposit of or time deposits with any commercial bank that is a Lender Party or a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (c) below, is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1 billion or (c) commercial paper in an aggregate amount of no more than $5,000,000 per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States and rated at least “Prime–1” (or the then equivalent grade) by Moody’s Investor’s Service, Inc. or “A–1” (or the then equivalent grade) by Standard & Poor’s, a division of The McGraw–Hill Companies, Inc.  The term “Cash Equivalents” shall include any mutual fund sponsored or managed by an Affiliate of the Second Priority Corporate Trustee which mutual fund’s assets consist of “Cash Equivalents” as defined herein.

“CFC” means any entity that is a controlled foreign corporation under Section 957 of the Internal Revenue Code (or any successor provision thereto).

“Chargor” has the meaning specified in the Preliminary Statements to this Agreement.

“Controlling Collateral Trustees” means (a) at any time that the First Priority Secured Obligations are secured by any Lien under the First Priority Collateral Documents, the First Priority Collateral Trustees and (b) otherwise, the Second Priority Collateral Trustees.

“Credit Agreement” has the meaning specified in the Preliminary Statements to this Agreement.

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“Credit Agreement Collateral Agent” has the meaning specified in the Preliminary Statements to this Agreement.

“Credit Agreement Parties” has the meaning specified in the Preliminary Statements to this Agreement.

“Debt” has the meaning set forth in the Senior Note Indenture.

“Defaulted Party” means the Senior Note Indenture Defaulted Party or the Other Indenture Debt Defaulted Party.

“Distribution Date” means any date on which the Second Priority Collateral Trustees shall distribute moneys from the Second Priority Collateral Account pursuant to Section 5.01.

“Eligible Debt” means any Debt permitted to be incurred by the Borrower pursuant to Section 4.07 of the Senior Note Indenture and which constitutes a First Priority Secured Obligation other than an Existing First Priority Secured Obligation.

“Eligible Debt Agreement” means any other agreement or instrument pursuant to which the Borrower has incurred Eligible Debt.

“Eligible Debt Agreement Default” means the occurrence and continuance of an event of default under the Eligible Debt Agreements, and as a result thereof, the Eligible Debt Defaulted Party has the right to declare all of the obligations of the Borrower under the Eligible Debt Agreements to be due and payable prior to the stated maturity thereof.

“Eligible Debt Defaulted Party” means the Eligible Debt Representative or the percentage of Eligible Debt Holders specified in the Eligible Debt Agreements that have the right thereunder upon the occurrence and continuance of an event of default under such Eligible Debt Agreements (without the requirement that any further time elapse) to declare all of the obligations of the Borrower under such Eligible Debt Agreements to be due and payable prior to the stated maturity thereof.

“Eligible Debt Holders” means at any time the registered holders of Eligible Debt under the Eligible Debt Agreements.

“Eligible Debt Representatives” means the representatives of the Eligible Debt Holders under the Eligible Debt Agreements.

“Equity Interest” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not

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such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

“Exchange Note Agreements” has the meaning specified in the Preliminary Statements to this Agreement.

“Exchange Note Indenture” has the meaning specified in the Preliminary Statements to this Agreement.

“Exchange Notes” has the meaning specified in the Preliminary Statements to this Agreement.

“Exchange Note Trustee” has the meaning specified in the Preliminary Statements to this Agreement.

“Existing Collateral Trustees” has the meaning specified in the Preliminary Statements to this Agreement.

“Existing Corporate Trustee” has the meaning specified in the Preliminary Statements to this Agreement.

“Existing First Priority Secured Obligations” has the meaning specified in the definition of  “First Priority Secured Obligations”.

“Existing Individual Trustee” has the meaning specified in the Preliminary Statements to this Agreement.

“First Priority Agreement Default” means (a) for so long as any Existing First Priority Secured Obligations are secured by the First Priority Collateral Documents, the “Collateral Trust Agreement Default” as defined in the First Priority Collateral Trust Agreement or (b) during any time that an Eligible Debt Agreement is outstanding, an Eligible Debt Agreement Default.

“First Priority Charge” has the meaning specified in the Preliminary Statements to this Agreement.

“First Priority Collateral Documents” means the “Shared Collateral Documents” as defined in the First Priority Collateral Trust Agreement and any similar collateral documents executed in connection with the granting of security pursuant to the Eligible Debt Agreements.

“First Priority Collateral Trust Agreement” has the meaning specified in the Preliminary Statements to this Agreement.

“First Priority Collateral Trustees” means the Existing Collateral Trustees and any collateral trustee appointed pursuant to the terms of an Eligible Debt Agreement.

“First Priority Defaulted Party” means (a) for so long as any Existing First Priority Secured Obligations are secured by the First Priority Collateral Documents, the

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“Defaulted Party” as defined in the First Priority Collateral Trust Agreement or (b) during any time that an Eligible Debt Agreement is outstanding, the Eligible Debt Defaulted Party.

“First Priority Representatives” means at any time, collectively, (a) the “Representatives” as defined in the First Priority Collateral Trust Agreement and (b) the Eligible Debt Representatives, as the representative for the Eligible Debt Holders under the Eligible Debt Agreements.

“First Priority Secured Agreements” means the “Secured Agreements” as defined in the First Priority Collateral Trust Agreement and the Eligible Debt Agreements.

“First Priority Secured Holders” means the “Secured Holders” as defined in the First Priority Collateral Trust Agreement and the Eligible Debt Holders.

“First Priority Secured Obligations” means (a) the “Secured Obligations” as defined in the First Priority Collateral Trust Agreement (the “Existing First Priority Secured Obligations”) and (b) any obligations, whether matured or unmatured, contingent or liquidated, of each Grantor arising out of or evidenced by the Eligible Debt Agreements, whether for principal, interest, expenses, premiums, indemnities, fees or other amounts, whether or not such obligations are due and payable at such time.

“First Priority Security Agreement” has the meaning specified in the Preliminary Statements to this Agreement.

“Governmental Approval” means any order, directive, decree, permit, concession, grant, franchise, license, consent, authorization or validation of, or filing, recording or registration of or with, any Governmental Authority pursuant to Law.

“Governmental Authority” means any federal, national, state, provincial, municipal, local, territorial or other governmental department, commission, board, bureau, agency, regulatory authority, instrumentality or judicial or administrative body, whether domestic or foreign.

“Grantors” has the meaning specified in the recitals of parties to this Agreement.

“Indemnified Event” has the meaning specified in the Section 7.05(e) of this Agreement.

“Law” means any law, statute, treaty, constitution, regulation, rule, ordinance, order or Governmental Approval, or other governmental restriction, requirement or determination, of or by any Governmental Authority.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.  For the purposes of this Agreement, the Borrower or any of its Subsidiaries shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under

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any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Material Adverse Effect” means a material adverse effect on (a) the business, consolidated results of operations, consolidated financial condition or prospects of the Borrower and its Subsidiaries, taken as a whole, (b) the ability of the Borrower and its Subsidiaries to perform their material obligations under any Second Priority Secured Agreement or (c) the rights and remedies available to any Senior Note Holder under any Senior Note Indenture Agreement.

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

“Non-Pledged Subsidiaries” means (a) as of the date hereof, each of the direct Subsidiaries of the Borrower or the Chargor listed on Schedule II hereto or (b) after the date hereof, in addition to the “Non-Pledged Subsidiaries” set forth on Schedule II hereto, any newly formed or acquired direct (1) Subsidiary of the Borrower whose aggregate assets have a fair market value not in excess of $1,000,000 and, together with the fair market value of the assets of all Non-Pledged Subsidiaries (other than any Subsidiary which is described in clause (2) below), does not exceed $50,000,000 or (2) Subsidiaries of the Borrower for which a grant or perfection of a Lien on such Subsidiary’s stock would require approvals and consents from foreign and domestic regulators and from lenders to, and suppliers, customers or other contractual counterparties of, such Subsidiary.

“Obligation” means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Sections 6.01(f) and 6.01(g) of the Senior Note Indenture.  Without limiting the generality of the foregoing, the Obligations of the Borrower under the Second Priority Secured Agreements and the Second Priority Collateral Documents include the obligation to pay principal, interest, commissions, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by the Borrower under any Second Priority Secured Agreement or Second Priority Collateral Document.

“Other Indenture Debt” means Debt issued pursuant to any Other Indenture Debt Agreement.

“Other Indenture Debt Agreement” means any other agreement or instrument pursuant to which the Borrower has incurred Debt permitted by Section 4.07 of the Senior Note Indenture.

“Other Indenture Debt Defaulted Party” means the Other Indenture Debt Representative acting on behalf of the Second Priority Secured Holders that own or hold more than 50% of the aggregate amount of the outstanding Debt under the Other Indenture Debt Agreements at any given time.

“Other Indenture Debt Holders” means at any time the registered holders of Other Indenture Debt issued under any Other Indenture Debt Agreement.

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“Other Indenture Debt Representative” means the representative of the Other Indenture Debt Holders under any Other Indenture Debt Agreement.

“Payment Information” has the meaning specified in Section 6.02(a) of this Agreement.

“Payment in Full” means (a) the payment in full in cash of (i) all principal and interest in respect of the First Priority Secured Obligations and (ii) all other valid First Priority Secured Obligations that are claimed within 30 days of the last date on which all principal and interest in respect of the First Priority Secured Obligations shall have been paid in full and (b) the termination in full of all Commitments in respect of the First Priority Secured Obligations.  “Paid in Full” shall have the correlative meaning.

“Person”means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Pledged Subsidiaries” means a direct Subsidiary of the Borrower listed in Schedule II, Part I to the Second Priority Security Agreement or a direct Subsidiary of AES BVI II listed on Schedule 1 to the Second Priority Charge, whose Equity Interests have been pledged to the Second Priority Collateral Trustees for the benefit of the Second Priority Secured Holders by the Borrower or AES BVI II, as applicable, pursuant to the Second Priority Security Agreement or the Second Priority Charge, as applicable.

“Remedies Limitations” has the meaning set forth in Section 7(k) of the Second Priority Security Agreement.

“Required Second Priority Representative(s)” means the Second Priority Representatives acting at the direction of the Required Second Priority Secured Holders; provided, however, that amounts held at such time by the Second Priority Collateral Trustees on behalf of a Second Priority Representative and such Second Priority Representative’s Second Priority Secured Holders in an account of the Second Priority Corporate Trustee established at the request of such Second Priority Representative pursuant to Section 5.02 hereof shall be deemed to have been applied to repay the Second Priority Secured Obligations of such Second Priority Secured Holders whether or not such amount has been so applied.

“Required Second Priority Secured Holders” means Second Priority Secured Holders that own or hold more than 50% of the aggregate principal amount of the outstanding Debt under the Senior Note Indenture Agreements and the Other Indenture Debt Agreements at any given time.

“Second Priority Charge” has the meaning specified in the Preliminary Statements to this Agreement.

“Second Priority Collateral Account” has the meaning specified in Section 3.01.

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“Second Priority Collateral Documents” means this Agreement, the Second Priority Security Agreement, the Second Priority Charge and each Successor Collateral Agreement.

“Second Priority Collateral Trust Agreement Default” means (a) in respect of the exercise of remedies with respect to the Account Collateral, the Additional Second Priority Collateral Trust Agreement Collateral and the Securities Accounts (and all Collateral from time to time credited to the Deposit Accounts and the Securities Accounts) or the exercise of remedies under Section 15 of the Second Priority Security Agreement or Section 11 of the Second Priority Charge, an event of default described in clauses (a), (b), (d), (f) and (g) of Section 6.01 of the Senior Note Indenture or an event of default under the Other Indenture Debt Agreements of the same type as described in such clauses of Section 6.01 of the Senior Note Indenture and (b) in respect of any other exercise of rights and remedies under the Second Priority Collateral Documents, an event of default shall have occurred and be continuing under the Senior Note Indenture Agreements or any of the Other Indenture Debt Agreements, and as a result thereof, the Defaulted Party has the right to declare all of the Second Priority Indenture Obligations of the Borrower under the Second Priority Indenture Agreements or any Other Indenture Debt Agreements to be due and payable prior to the stated maturity thereof.

“Second Priority Collateral Trust Agreement Default Notice” means a written notice delivered in connection with a Second Priority Collateral Trust Agreement Default.

“Second Priority Collateral Trustees” has the meaning specified in the recital of parties to this Agreement.

“Second Priority Collateral Trustees’ Fees” means the fees and other amounts payable to the Second Priority Collateral Trustees pursuant to Sections 6.03, 6.04 and 6.05 and amounts claimed and unpaid pursuant to Section 6.06.

“Second Priority Collateral Trust Estate” means all of the right, title and interest of the Second Priority Collateral Trustees, whether now owned or hereafter acquired, in and to the Collateral.

“Second Priority Corporate Trustee” has the meaning specified in the recital of parties to this Agreement.

“Second Priority Individual Trustee” has the meaning specified in the recital of parties to this Agreement.

“Second Priority Representatives” means at any time, collectively, the Senior Note Trustee, as the representative hereunder for the Senior Note Holders and the Other Indenture Debt Representative, as the representative hereunder for the Other Indenture Debt Holders.

“Second Priority Secured Agreements” means, collectively, the Senior Note Indenture Agreements, the Other Indenture Debt Agreements and each agreement or instrument delivered by the Grantors pursuant thereto (including, without limitation, the Second Priority Collateral Documents).

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“Second Priority Secured Holders” means, at any time, the Senior Note Holders and the Other Indenture Debt Holders.

“Second Priority Secured Obligations” means at any time any obligations, whether matured or unmatured, contingent or liquidated, of each Grantor arising out of or evidenced by the Second Priority Secured Agreements, whether for principal, interest, expenses, premiums, indemnities, fees or other amounts, whether or not such obligations are due and payable at such time.

“Second Priority Security Agreement” has the meaning set forth in the Preliminary Statements to this Agreement.

“Senior Note Holders” means at any time the registered holders of the Senior Notes issued under the Senior Note Indenture.

“Senior Note Indenture” has the meaning specified in the Preliminary Statements to this Agreement.

“Senior Note Indenture Agreements” has the meaning specified in the Preliminary Statements to this Agreement.

“Senior Note Indenture Defaulted Party” means the Senior Note Trustee or the percentage of Senior Note Holders specified in the Senior Note Indenture that have the right thereunder upon the occurrence and continuance of an Event of Default under the Senior Note Indenture (without the requirement that any further time elapse) to declare all of the Second Priority Secured Obligations of the Borrower under the Senior Note Indenture to be due and payable prior to the stated maturity thereof.

“Senior Note Trustee” has the meaning specified in the Preliminary Statements to this Agreement.

“Senior Notes” has the meaning specified in the Preliminary Statements to this Agreement.

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

“Subsidiary” means, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.

“Successor Collateral” means, with respect to each Grantor, any property and assets of such Grantor (or any of its successors and assigns) as such Grantor (or any such successor or any such assign) may, from time to time, upon notice to the Second Priority Collateral Trustees, pursuant to the Senior Note Indenture Agreements, the Other Indenture Debt Agreements, or otherwise, grant to the Second Priority Collateral Trustees as additional collateral

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for their benefit and in trust for the equal and ratable benefit of the Second Priority Representatives, on their behalf and on behalf of the Second Priority Secured Holders.

“Successor Collateral Agreements” means all documents creating, evidencing or relating to any of the Successor Collateral.

SECTION 1.02. Certain References.  In this Agreement, the words “hereof”, “herein” and “hereunder”, and words of similar import, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  All section, schedule and exhibit references set forth in this Agreement are, unless otherwise specified, references to such section in, or schedule or exhibit to, this Agreement.

ARTICLE II

CONFIRMATION AND CREATION OF SECURITY INTERESTS

SECTION 2.01. Second Priority Collateral Trust Estate.  Each Grantor hereby confirms that, pursuant to the terms of the Second Priority Security Agreement and the Second Priority Charge, such Grantor has pledged and assigned to the Second Priority Collateral Trustees for their benefit and in trust for the equal and ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders, and has granted the Second Priority Collateral Trustees for their benefit and in trust for the equal and ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders, a lien on, and security interest in, the Collateral described therein of such Grantor in order to secure the Second Priority Secured Obligations.  The Borrower, in order to secure the Second Priority Secured Obligations, hereby further pledges and assigns to the Second Priority Collateral Trustees for their benefit and in trust for the equal and ratable benefit of the Second Priority Representatives, on their behalf and on behalf of the Second Priority Secured Holders, and hereby grants to the Second Priority Collateral Trustees for their benefit and in trust for the equal and ratable benefit of the Second Priority Representatives, on their behalf and on behalf of the Second Priority Secured Holders, a lien on, and security interest in, the following (collectively, together with any Successor Collateral, the “Additional Second Priority Collateral Trust Agreement Collateral”):

(i)            the Second Priority Collateral Account established pursuant to Section 3.01(a) with the Second Priority Corporate Trustee at its offices at its corporate trust department in the State of Minnesota and is, and shall at all times remain, under the sole dominion and control of the Second Priority Corporate Trustee, all funds held therein and all certificates and instruments, if any, from time to time representing each Second Priority Collateral Account;

(ii)           all Cash Equivalents held in the Second Priority Collateral Account from time to time and all certificates and instruments, if any, from time to time representing or evidencing such Cash Equivalents;

(iii)          all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time delivered to or otherwise possessed by the Second Priority Collateral Trustees for or on behalf of the Borrower in substitution for or in addition to

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any or all of the then existing Additional Second Priority Collateral Trust Agreement Collateral;

(iv)          all interest, income, dividends, instruments and other property and assets from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Additional Second Priority Collateral Trust Agreement Collateral referred to in clauses (i) through (iii) of this Section 2.01(a); and

(v)           all proceeds of any and all of the foregoing Additional Second Priority Collateral Trust Agreement Collateral (including, without limitation, proceeds that constitute property and assets of the types described in clauses (i) through (iv) of this Section 2.01(a)) and, to the extent not otherwise included, all (A) payments under any indemnity, warranty or guaranty payable with respect to any of the foregoing Additional Second Priority Collateral Trust Agreement Collateral and (B) cash.

SECTION 2.02. Security for Second Priority Secured Obligations.  (a) All of the right, title and interest of the Second Priority Collateral Trustees in and to the Second Priority Collateral Trust Estate secures the payment of all of the Second Priority Secured Obligations now or hereafter existing under or in respect of the Second Priority Secured Agreements and the performance of, and the compliance with, all of the covenants and conditions of this Agreement, the other Second Priority Collateral Documents and the other Second Priority Secured Agreements.  Without limiting the generality of the foregoing, the Second Priority Collateral Trust Estate secures the payment of all amounts that constitute part of the Second Priority Secured Obligations that would be owed by each Grantor to the Second Priority Collateral Trustees, any Second Priority Representative or any Second Priority Secured Holder under the Second Priority Collateral Documents or the other Second Priority Secured Agreements but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Grantor.

(b)  The Lien created by the Second Priority Security Agreement and the other Second Priority Collateral Documents shall be subordinate in all respects (including the exercise of remedies with respect to such Collateral) to the prior Lien of the First Priority Collateral Documents in existence from time to time, in accordance with Article IX hereof.

ARTICLE III

SECOND PRIORITY COLLATERAL ACCOUNT

SECTION 3.01. Second Priority Collateral Account.  (a)  Until the date that the Second Priority Collateral Trustees release all of the Collateral pursuant to Section 8.02(a), a non-interest bearing cash collateral account (the “Second Priority Collateral Account”) for the Second Priority Representatives and the Second Priority Secured Holders shall be maintained by the Second Priority Corporate Trustee at its offices at its corporate trust department in the State of Minnesota in accordance with the terms of this Agreement.  All moneys that are received by the Second Priority Collateral Trustees, upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, or upon liquidation or otherwise in respect of the Collateral shall be deposited in the Second Priority Collateral Account and, thereafter,

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shall be held and applied by the Second Priority Corporate Trustee all in accordance with the terms of this Agreement.

(b)           The Second Priority Corporate Trustee shall, subject to the provisions of Article IV and Article VIII, from time to time (i) invest amounts on deposit in the Second Priority Collateral Account in Cash Equivalents and (ii) invest interest paid on such Cash Equivalents, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in additional Cash Equivalents, in each case at the direction of the Grantors so long as no Second Priority Collateral Trust Agreement Default shall have occurred and be continuing and at the direction of the Required Second Priority Representative(s) if a Second Priority Collateral Trust Agreement Default shall have occurred and be continuing.  Interest and proceeds that are not invested or reinvested in Cash Equivalents as provided in the immediately preceding sentence shall be deposited and held in the Second Priority Collateral Account.  Notwithstanding the foregoing, the Second Priority Corporate Trustee shall, to the extent possible, invest any funds to be distributed on a Distribution Date in Cash Equivalents that shall mature or become liquid on or prior to such Distribution Date.  All Cash Equivalents made in respect of the Second Priority Collateral Account and all interest and income received thereon and therefrom and the net proceeds realized on the maturity or sale thereof shall be held in the Second Priority Collateral Account as part of the Second Priority Collateral Trust Estate pursuant to the terms hereof.

(c)           The Second Priority Collateral Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or regulatory authority, as are in effect from time to time.

(d)           All dividends, interest and other distributions deposited into the Second Priority Collateral Account pursuant to Section 10(b) of the Second Priority Security Agreement or Section 6.2 of the Second Priority Charge shall be released and returned to the applicable Grantor upon notice to the Second Priority Collateral Trustees from the Required Second Priority Representative(s) that the Second Priority Collateral Trust Agreement Default giving rise to such deposit has been cured or waived; provided that no Second Priority Collateral Trust Agreement Default shall have occurred and be continuing at such time.

ARTICLE IV

SECOND PRIORITY COLLATERAL TRUST AGREEMENT DEFAULTS; REMEDIES

SECTION 4.01. Second Priority Collateral Trust Agreement Default Notice.  (a) Subject to Article IX hereof, upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, the Defaulted Party shall have the right to give the Second Priority Collateral Trustees a Second Priority Collateral Trust Agreement Default Notice, and if the Defaulted Party gives the Second Priority Collateral Trustees, with a copy to the Grantors, a Second Priority Collateral Trust Agreement Default Notice, stating:

(i)            the nature of the Second Priority Collateral Trust Agreement Default; and

(ii)           the action requested to be taken by the Second Priority Collateral Trustees with respect to the Collateral and the Second Priority Collateral Documents (which action

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may include, without limitation, the institution of any remedies provided by law or this Agreement or any other Second Priority Collateral Document),

then the Second Priority Collateral Trustees shall forthwith send a copy of the Collateral Trust Agreement Default Notice to each Second Priority Representative. The Required Second Priority Representative(s) shall provide the Second Priority Collateral Trustees with a certificate that shall state whether or not they favor the Second Priority Collateral Trustees taking such action.  If the Required Second Priority Representative(s) shall not have provided the Second Priority Collateral Trustees with such certificate within 30 Business Days of receipt of the copy of the Second Priority Collateral Trust Agreement Default Notice, the Required Second Priority Representative(s) shall be deemed to have not favored the taking of such action.  If the Required Second Priority Representative(s) shall have directed the Second Priority Collateral Trustees to commence the action set forth in the Second Priority Collateral Trust Agreement Default Notice then, subject to Section 4.01(b) and the right of the Second Priority Collateral Trustees to commence such action under the Second Priority Collateral Documents, the Second Priority Collateral Trustees shall forthwith undertake such action.  The Second Priority Collateral Trustees shall, subject to Sections 4.01(b), 4.08 and 6.06, follow the directions of the Required Second Priority Representative(s) with respect to the time, method and place of taking any action requested in a Second Priority Collateral Trust Agreement Default Notice.  Each Second Priority Collateral Trustee shall be entitled to assume conclusively that no Second Priority Collateral Trust Agreement Default has occurred and is continuing until it receives a Second Priority Collateral Trust Agreement Default Notice.

(b)           If the Second Priority Collateral Trust Agreement Default, which was the basis for the giving of a Second Priority Collateral Trust Agreement Default Notice, shall be cured or waived in accordance with the terms of the applicable Second Priority Secured Agreement, the Defaulted Party which gave such Second Priority Collateral Trust Agreement Default Notice shall promptly notify the Second Priority Collateral Trustees in writing of such cure or waiver, upon receipt of such written notice of a cure or waiver (i) such Second Priority Collateral Trust Agreement Default Notice shall be deemed withdrawn and (ii) any direction to the Second Priority Collateral Trustees to take any action in connection with such Second Priority Collateral Trust Agreement Default Notice shall be deemed immediately rescinded.  If in connection solely with such withdrawn Second Priority Collateral Trust Agreement Default Notice the Second Priority Collateral Trustees shall have been directed to take, and shall have commenced taking but shall not have completed, any action, the Second Priority Collateral Trustees shall promptly terminate any such action which they shall not also have been directed to take in connection with a Second Priority Collateral Trust Agreement Default Notice other than that withdrawn.

SECTION 4.02. Direction by Required Second Priority Representative(s).  As to any matters not expressly provided for under this Agreement or the other Second Priority Collateral Documents (including, without limitation, matters relating to enforcement and collection of the Second Priority Secured Obligations), the Second Priority Collateral Trustees shall not be required to exercise any discretion or to take any action under this Agreement or the other Second Priority Collateral Documents, or in respect of the Collateral, but shall be required to act or to refrain from acting (and shall be fully protected in acting or refraining from acting) in

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accordance with the written instructions of the Required Second Priority Representative(s) which instructions shall reference Section 6.06 hereof.

SECTION 4.03. Right to Initiate Judicial Proceedings, Etc.  (a)  Notwithstanding any other provision of this Agreement but subject to Article IX hereof, upon the occurrence of and during the continuance of any Second Priority Collateral Trust Agreement Default and the receipt by the Second Priority Collateral Trustees of a Second Priority Collateral Trust Agreement Default Notice that has not been withdrawn pursuant to Section 4.01(b), the Second Priority Corporate Trustee, and if the Second Priority Corporate Trustee deems necessary or desirable, the Second Priority Individual Trustee, jointly or individually as the Second Priority Corporate Trustee may determine, (i) shall have the right and power to institute and maintain such suits and proceedings as it or they, as the case may be, or the Required Second Priority Representative(s) may deem appropriate to protect and enforce the rights vested in it by this Agreement and the other Second Priority Collateral Documents and (ii) may either, after entry or without entry, proceed by suit or suits at law or in equity to enforce such rights and to foreclose upon the Collateral and to dispose of, collect or otherwise realize upon, all or any portion of the Second Priority Collateral Trust Estate under the judgment or decree of a court of competent jurisdiction.

(b)           If a receiver of the Second Priority Collateral Trust Estate shall be appointed in judicial proceedings, the Second Priority Collateral Trustees may be appointed, at its discretion, as such receiver.  Notwithstanding the appointment of a receiver, the Second Priority Collateral Trustees shall be entitled to retain possession and control of all cash held by or deposited with them or their agents or co-trustees pursuant to any provision of this Agreement or any other Second Priority Collateral Document.

SECTION 4.04. Remedies Not Exclusive.  (a)  No remedy conferred upon or reserved to the Second Priority Collateral Trustees herein or in the other Second Priority Collateral Documents is intended to be a limitation exclusive of any other remedy or remedies, but every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or in the other Second Priority Collateral Documents or now or hereafter existing at law or in equity or by statute.

(b)           No delay or omission of either of the Second Priority Collateral Trustees to exercise any right, remedy or power accruing upon any Second Priority Collateral Trust Agreement Default shall impair any such right, remedy or power or shall be construed to be a waiver of any such Second Priority Collateral Trust Agreement Default or any acquiescence therein; and every right, power and remedy given by this Agreement or any other Second Priority Collateral Document to the Second Priority Collateral Trustees may be exercised from time to time and as often as may be deemed expedient by the Second Priority Collateral Trustees.

(c)           In case either of the Second Priority Collateral Trustees shall have proceeded to enforce any right, remedy or power under this Agreement or any other Second Priority Collateral Document and the proceeding for the enforcement thereof shall have been discontinued or abandoned for any reason or shall have been determined adversely to such Second Priority Collateral Trustees, then and in every such case the Grantors, the Second Priority Collateral Trustees, the Second Priority Representatives and Second Priority Secured Holders

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shall, subject to any determination in such proceeding, severally be restored to their former positions and rights hereunder and under such other Second Priority Collateral Document with respect to the Second Priority Collateral Trust Estate, the Second Priority Collateral Account and in all other respects, and thereafter all rights, remedies and powers of such Second Priority Collateral Trustees shall continue as though no such proceeding had been taken.

(d)           Each Grantor expressly agrees that all rights of action and rights to assert claims upon or under this Agreement and the other Second Priority Collateral Documents may be enforced by the Second Priority Collateral Trustees without the possession of any debt instrument or the production thereof in any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Second Priority Collateral Trustees shall be brought in either of their names as Second Priority Collateral Trustees and any recovery of judgment shall be held as part of the Second Priority Collateral Trust Estate; provided that nothing in this Section 4.04(d) shall constitute a waiver of any right that the Grantors may have or may hereafter acquire to challenge the amounts outstanding under the Second Priority Secured Agreements.

SECTION 4.05. Waiver of Certain Rights.  Subject to the Remedies Limitations, each Grantor, on behalf of itself and all who may claim through or under it, including, without limitation, any and all subsequent Affiliates, creditors, vendees, assignees and lienors, expressly waives and releases, to the fullest extent permitted by law, any, every and all rights to demand or to have any marshalling of the Second Priority Collateral Trust Estate upon any enforcement of any Second Priority Collateral Document, including, without limitation, upon any sale, whether made under any power of sale herein granted or pursuant to judicial proceedings or upon any foreclosure or any enforcement of any Second Priority Collateral Document and consents and agrees that all the Second Priority Collateral Trust Estate and any such sale may be offered and sold as an entirety.

SECTION 4.06. Limitation on Second Priority Collateral Trustees’ Duties in Respect of Collateral.  Beyond the duties set forth in this Agreement, the Second Priority Collateral Trustees shall not have any duty to the Grantors or the Second Priority Representatives as to any Collateral in the Second Priority Collateral Trustees’ possession or control or in the possession or control of any agent or nominee of the Second Priority Collateral Trustees or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except that each Second Priority Collateral Trustee shall be liable for its failure to exercise ordinary care in the handling of moneys and securities and other property actually received by it.

SECTION 4.07. Limitation by Law.  All rights, remedies and powers provided by this Article IV may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Article IV are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or, if the Second Priority Representatives elect that this Agreement should be recorded, registered or filed, not entitled to be recorded, registered, or filed under the provisions of any applicable law.

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SECTION 4.08. Absolute Rights of Second Priority Secured Holders and Second Priority Representatives.  Notwithstanding any other provision of this Agreement or any of the other Second Priority Collateral Documents but subject to the provisions of Article IX hereof, each of the Second Priority Representatives and each of the Second Priority Secured Holders has an absolute and unconditional right to receive payment of all of the Second Priority Secured Obligations owing to such Second Priority Representative or such Second Priority Secured Holder, as the case may be, when the same becomes due and payable and at the time and place and otherwise in the manner set forth in the applicable Second Priority Secured Agreement, and the right of each such Second Priority Representative and each such Second Priority Secured Holder to institute proceedings for the enforcement of such payment on or after the date such payment becomes due and to assert its position as a secured creditor in a proceeding under the Bankruptcy Code in which any Grantor is a debtor, and the obligation of such Grantor to pay all of the Second Priority Secured Obligations owing to each of the Second Priority Representatives and each of the Second Priority Secured Holders at the time and place expressed therein, shall not be impaired or affected without the consent of such Second Priority Representative or such Second Priority Secured Holder.  In addition, subject to the provisions of Article IX hereof, the right of any Second Priority Secured Holder or any Second Priority Representative, on behalf of itself or on behalf of any such Second Priority Secured Holder, to receive payment or security from sources other than the Collateral shall not be, and is not hereby, impaired or affected in any manner.  Without limiting the generality of the foregoing provisions of this Section 4.08, no Second Priority Representative and no Second Priority Secured Holder, on behalf of itself or on behalf of any Second Priority Secured Holder, shall be obligated to share with any other Second Priority Representative or any other Second Priority Secured Holder any proceeds of any collateral, guaranty or right of setoff other than pursuant to, and to the extent expressly required under, this Agreement and the other Second Priority Secured Agreements; nor shall any Second Priority Representative’s or any Second Priority Secured Holder’s right to receive its ratable share of any amounts maintained in the Second Priority Collateral Account, if any, or any proceeds of any of the Collateral, or any part thereof, under the terms of this Agreement and the other Second Priority Collateral Documents be diminished or affected in any way by its right to receive proceeds of any other collateral or right of setoff, or payment upon a guaranty or from any other source.

ARTICLE V

APPLICATION OF PROCEEDS

SECTION 5.01. Application of Proceeds.

(a)           Subject to the provisions of Article IX hereof, if, pursuant to the exercise by the Defaulted Party of any rights and remedies set forth in any First Priority Collateral Document or Second Priority Collateral Document, any Collateral is sold or otherwise realized upon by the Controlling Collateral Trustees, (ii) the proceeds received by the Second Priority Collateral Trustees in respect of such Collateral shall be deposited in the Second Priority Collateral Account, and all moneys held by the Second Priority Corporate Trustee in the Second Priority Collateral Account shall, to the extent available for distribution, be distributed by the Second Priority Corporate Trustee on each date upon which a distribution is made (each, a “Distribution Date”) as follows:

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FIRST, to the payment (in such priority as the Second Priority Corporate Trustee shall elect, but without duplication) of all reasonable legal fees and expenses and other reasonable costs or expenses or other liabilities of any kind incurred by the Second Priority Collateral Trustees as secured parties under any Second Priority Collateral Document or otherwise in connection with any Second Priority Collateral Document or this Agreement (including, without limitation, any reasonable costs or expenses or liabilities incurred in connection with the sale of any assets covered by any Second Priority Collateral Document, or in the operation or maintenance of any of the assets covered by any Second Priority Collateral Document), including the reimbursement to any Second Priority Representative of any amounts theretofore advanced by such Second Priority Representative for the payment of such fees, costs and expenses, except only for any such fees, expenses, costs or liabilities incurred by any Second Priority Collateral Trustee as a result of its gross negligence or willful misconduct in performing or failing to perform any of its duties to the parties hereto expressly set forth herein; provided, however, that nothing herein is intended to relieve the Grantors of their duties to pay such costs, fees, expenses and liabilities otherwise payable to the Second Priority Collateral Trustees from funds outside of the Second Priority Collateral Account, as required by this Agreement;

SECOND, to the Second Priority Collateral Trustees (without duplication) in an amount equal to the Second Priority Collateral Trustees’ Fees which are unpaid as of the Distribution Date and to any Second Priority Representative which has theretofore advanced or paid any such Second Priority Collateral Trustees’ Fees in an amount equal to the amount thereof so advanced or paid by such Second Priority Representative prior to such Distribution Date; provided, however, that nothing herein is intended to relieve the Grantors of their duties to pay such fees and claims from funds outside of the Second Priority Collateral Account, as required by this Agreement;

THIRD, in accordance with paragraph (b) below, with respect to any proceeds, ratably to the Second Priority Representatives on behalf of the respective Second Priority Secured Holders for application to the Second Priority Secured Obligations of such Second Priority Secured Holders,or, to be held by such Second Priority Representative (or by the Second Priority Corporate Trustee on behalf of such Second Priority Representative pursuant to Section 5.02 or otherwise) pending such application, until all such Second Priority Secured Obligations have been paid in full; and

FOURTH, any surplus remaining after the payment in full in cash of the Second Priority Secured Obligations shall, pursuant to the provisions of Section 8.02, be paid to the applicable Grantor, its successors or assigns, or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

(b)           In order to determine the ratable amount to be distributed to each of the Second Priority Representatives pursuant to clause THIRD above on each Distribution Date, unless otherwise directed in writing by the Required Second Priority Representative(s), the Second Priority Corporate Trustee may rely on a certificate of an Authorized Officer of the Borrower setting forth the Second Priority Secured Obligations (identified by type and amount) outstanding under each Second Priority Secured Agreement on such Distribution Date.  The

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ratable portion of the aggregate amount available for distribution hereunder on any Distribution Date which shall be distributed to each Second Priority Representative on such Distribution Date shall be a fraction, (x) the numerator of which shall be the aggregate amount of Second Priority Secured Obligations of the Second Priority Secured Holders represented by such Second Priority Representative on such Distribution Date and (y) the denominator of which shall be the aggregate amount of Second Priority Secured Obligations of all the Second Priority Secured Holders represented by the Second Priority Representatives on such Distribution Date; provided, however, that, for such purposes, amounts distributable to a Second Priority Representative on a prior Distribution Date and held on behalf of such Second Priority Representative and the Second Priority Secured Holders of such Second Priority Representative pursuant to Section 5.02 of this Agreement shall be deemed to have been applied to the Second Priority Secured Obligations of the Second Priority Secured Holders represented by such Second Priority Representative, regardless of whether such application has occurred.

(c)           Any amounts to be paid to the Second Priority Representatives of the Senior Note Holders or the Other Indenture Debt Holders pursuant to clause THIRD above shall be applied by the Second Priority Collateral Trustees for the ratable benefit of the Senior Note Holders or the Other Indenture Debt Holders as follows:

FIRST, paid to the Second Priority Representatives of the Senior Note Holders and the Other Indenture Debt Holders for any amounts then owing to them under the Senior Note Indenture Agreements or the Other Indenture Debt Agreements ratably in accordance with the respective amounts then owing to such Second Priority Representatives; and

SECOND, ratably paid to the Senior Note Holders and the Other Indenture Debt Holders for any amounts then owing to them under the Senior Note Indenture Agreements and the Other Indenture Debt Agreements.

SECTION 5.02. Application of Withheld Amounts.  If on any Distribution Date any amounts on deposit to the Second Priority Collateral Account are distributable pursuant to Section 5.01 to any Second Priority Representative, and if such Second Priority Representative shall have given notice to the Second Priority Collateral Trustees on or prior to such Distribution Date that all or a portion of such proceeds which are otherwise distributable to such Second Priority Representative pursuant to Section 5.01 shall be held by the Second Priority Collateral Trustees on behalf of such Second Priority Representative for the benefit of the Second Priority Secured Holders of such Second Priority Representative, then the Second Priority Collateral Trustees shall hold such amount in a separate non-interest bearing cash collateral account of the Second Priority Corporate Trustee for the benefit of such Second Priority Representative and such Second Priority Secured Holders, until such time as such Second Priority Representative shall deliver a written request for the delivery thereof from such account to such Second Priority Representative in accordance with Section 5.01(c).  If thereafter the Second Priority Secured Obligations of the Second Priority Secured Holders represented by any such Second Priority Representative shall have been repaid in full in cash on any date, then (a) upon the written request of the Borrower certifying as to such payment in full, and (b) after delivery of such notice by the Second Priority Collateral Trustees to such Second Priority Representative, the Second Priority Collateral Trustees shall not have received a written notice of objection from

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such Second Priority Representative within 30 days of such Second Priority Representative’s receipt of such notice, promptly following such 30^th day (or the earlier receipt by the Second Priority Collateral Trustees of the written consent of such Second Priority Representative),any amounts held on account for such Second Priority Representative pursuant to this Section 5.02 shall be again deposited by the Second Priority Collateral Trustees to the Second Priority Collateral Account and thereafter distributed as provided in Section 5.01.  If the Borrower shall have failed to deliver to the Second Priority Collateral Trustees the certificate provided for in clause (a) of the immediately preceding sentence, the Second Priority Collateral Trustees may request payment instructions from the Required Second Priority Representative(s) and the Second Priority Collateral Trustees shall not be required to make any distributions until such instructions are received.  The Second Priority Corporate Trustee shall invest amounts on deposit to any such account in such Cash Equivalents as the applicable Second Priority Representative may direct from time to time.

SECTION 5.03. Release of Amounts in Second Priority Collateral Account.  Amounts distributable to a Second Priority Representative on any Distribution Date pursuant to Section 5.01 shall be paid to such Second Priority Representative for the benefit of such Second Priority Representative and its Second Priority Secured Holders by the Second Priority Corporate Trustee (or deposited to an account for the benefit of such Second Priority Representative and its Second Priority Secured Holders pursuant to Section 5.02) upon receipt by the Second Priority Corporate Trustee of a written certificate of such Second Priority Representative setting forth appropriate payments instructions for such Second Priority Representative.  If no such notice is delivered by a Second Priority Representative within 10 Business Days thereafter, the Second Priority Corporate Trustee shall deposit amounts otherwise distributable to such Second Priority Representative to an account for the benefit of such Second Priority Representative and its Second Priority Secured Holders pursuant to Section 5.02 hereof.

SECTION 5.04. Distribution Date.  Upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, any amounts on deposit in the Second Priority Collateral Account shall, at the written request of the Required Second Priority Representative(s) (with a copy to the Grantors) be distributed as provided in this Article V.

ARTICLE VI

AGREEMENTS WITH THE COLLATERAL TRUSTEES

SECTION 6.01. Delivery of Agreements.  On the date hereof, the Borrower shall deliver to the Second Priority Collateral Trustees a true and complete copy of each Second Priority Secured Agreement, including each Second Priority Collateral Document, as in effect on the date hereof.  The Borrower agrees that, promptly upon the execution thereof, the Borrower will deliver to the Second Priority Collateral Trustees a true and complete copy of any and all Second Priority Collateral Documents and other Second Priority Secured Agreements entered into subsequent to the date hereof and a true and complete copy of any and all amendments, modifications or supplements to any of the foregoing.

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SECTION 6.02. Information as to Second Priority Representatives.  (a)  The Borrower agrees that it shall deliver to the Second Priority Collateral Trustees from time to time upon the request of the Second Priority Collateral Trustees a list setting forth, for each Second Priority Secured Agreement, (i) the aggregate principal amount outstanding thereunder, (ii) the accrued and unpaid interest thereunder, (iii) the accrued and unpaid fees (if any) thereunder, (iv) the names of the Second Priority Representatives and of the Second Priority Secured Holders (to the extent known to the Borrower) thereunder, and all other unpaid amounts thereunder known to the Borrower, owing to each such Second Priority Representative, for its own account and on behalf of such Second Priority Secured Holders and (v) such other information regarding the Second Priority Representatives, such Second Priority Secured Holders and the Second Priority Secured Agreements as the Second Priority Collateral Trustees may reasonably request.  In addition, the Borrower shall deliver to the Second Priority Collateral Trustees, each time a distribution from the Second Priority Collateral Trust Estate or, the Second Priority Collateral Account is to be made pursuant to the terms hereof, not later than two Business Days after receipt of a copy of the applicable distribution request delivered by the Required Second Priority Representative(s) pursuant to Section 5.04 hereof, a certificate of an Authorized Officer of the Borrower, setting forth the amounts to be distributed and the Persons to whom such distributions are to be made, including appropriate payment instructions therefor (the “Payment Information”), provided that if any distribution is directed to be made to any Second Priority Representative, if such Second Priority Representative shall have notified the Second Priority Collateral Trustees in writing that such Second Priority Representative is unable to accept such distribution, such distribution shall be made instead to an account established pursuant to Section 5.02 hereof for the benefit of such Second Priority Representative and its Second Priority Secured Holders.  The Borrower will furnish to the Second Priority Collateral Trustees, with a copy to each Second Priority Representative, on the date hereof, a list setting forth the name and address of each Second Priority Representative and each Person to whom notices must be sent under the Second Priority Secured Agreements and the Borrower agrees to furnish promptly to the Second Priority Collateral Trustees any changes or additions to such list of which the Borrower is made aware.  Unless otherwise specified herein, the Second Priority Collateral Trustees may for all purposes hereunder, rely on such information given by the Borrower unless (i) the Second Priority Collateral Trustees shall have actual knowledge of an inaccuracy or (ii) any Second Priority Representative shall provide contrary information in writing with respect to such Second Priority Representative in which case, unless such Second Priority Representative and the Borrower can reach an agreement on such issue within a period of 10 days, the Second Priority Collateral Trustees shall appoint an independent arbitrator (who shall be reasonably acceptable to the Borrower and such Second Priority Representative) to resolve the dispute (at the expense of the Borrower).  Upon the request of the Second Priority Collateral Trustees, the Senior Note Trustee and the other the Second Priority Representatives shall deliver the information provided for in this Section 6.02.

(b)           If the Borrower shall not have delivered the Payment Information to the Second Priority Collateral Trustees at least two Business Days prior to the applicable Distribution Date, the Second Priority Collateral Trustees shall request the Payment Information from the Senior Note Trustee and the other Second Priority Representatives, and if after such request the Second Priority Collateral Trustees shall not have received the Payment Information from any of the Borrower, the Senior Note Trustee or the other Second Priority Representatives,

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the Second Priority Collateral Trustees shall not be required to take any action under clause THIRD of Section 5.01(a) until it receives such Payment Information.

SECTION 6.03. Compensation and Expenses.  Each Grantor agrees to pay to the Second Priority Collateral Trustees and any co-trustees or successor trustees appointed hereunder, from time to time upon demand, (a) such compensation for their services hereunder and under the other Second Priority Collateral Documents and for administering the other Second Priority Collateral Trust Estate, the Second Priority Collateral Account and any account or accounts established pursuant to Section 5.02 hereof as set forth on the fee schedule attached hereto as Schedule I, as such Schedule I may be amended, supplemented or otherwise modified by the written agreement of the Grantors and the Second Priority Collateral Trustees from time to time and (b) all the reasonable fees, costs and expenses incurred by any of them (including, without limitation, the reasonable fees and disbursements of counsel) (i) arising in connection with the preparation, execution, delivery, modification and termination of this Agreement and each other Second Priority Collateral Document or the enforcement of any of the provisions hereof or thereof or (ii) incurred or required to be advanced in connection with the administration of the Second Priority Collateral Trust Estate, the Second Priority Collateral Account, any account or accounts established pursuant to Section 5.02 hereof, the sale or other disposition of Collateral pursuant to any Second Priority Collateral Document and the preservation, protection or defense of their rights under this Agreement and in and to the Collateral, the Second Priority Collateral Account, any account or accounts established pursuant to Section 5.02 hereof and the Second Priority Collateral Trust Estate.  As security for such payment, the Second Priority Collateral Trustees shall have a prior lien upon all Collateral and other property and funds held or collected by the Second Priority Collateral Trustees as part of the Second Priority Collateral Trust Estate.  Each Grantor’s obligation under this Section 6.03 shall survive the termination of this Agreement.

SECTION 6.04. Stamp and Other Similar Taxes.  Each Grantor agrees to indemnify and hold harmless the Second Priority Collateral Trustees, each Second Priority Representative and each Second Priority Secured Holder from any present or future claim for liability for any stamp or other similar tax and any penalties or interest with respect thereto, which may be assessed, levied or collected by any jurisdiction in connection with this Agreement, any Second Priority Collateral Document, the Second Priority Collateral Trust Estate, the Second Priority Collateral Account, any account or accounts established pursuant to Section 5.02 hereof or any Collateral.  The obligations of each Grantor under this Section 6.04 shall survive the termination of this Agreement.

SECTION 6.05. Filing Fees, Excise Taxes, Etc.  Each Grantor agrees to pay or to reimburse the Second Priority Collateral Trustees for any and all amounts in respect of all reasonable search, filing, recording and registration fees, taxes, excise taxes and other similar imposts which may be payable or determined to be payable in respect of the execution, delivery, performance and enforcement of this Agreement and each other Second Priority Collateral Document.  The obligations of each Grantor under this Section 6.05 shall survive the termination of this Agreement.

SECTION 6.06. Indemnification.  (a)  Each Grantor agrees to pay, indemnify, and hold harmless the Second Priority Collateral Trustees and each of the agents of either thereof

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from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the costs and expenses of defending any claim against any of them) with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the other Second Priority Collateral Documents unless and to the extent arising from the gross negligence or willful misconduct of such of the Second Priority Collateral Trustees or such of the agents thereof as are seeking indemnification or any failure of any Second Priority Collateral Trustee or any such agent to exercise ordinary care in the handling of moneys and securities and other property actually received by any such Second Priority Collateral Trustee or any such agent.  As security for such payment, any such Second Priority Collateral Trustee shall have a prior lien upon all Collateral and other property and funds held or collected by the Second Priority Collateral Trustees as part of the Second Priority Collateral Trust Estate.

(b)           In any suit, proceeding or action brought by the Second Priority Collateral Trustees under or with respect to any Second Priority Collateral Document or the Collateral for any amount owing thereunder, or to enforce any provisions thereof, each Grantor will save, indemnify and hold harmless the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction of liability whatsoever of the obligee thereunder (unless and to the extent that such expense, loss or damage is caused by the gross negligence or willful misconduct of the such Second Priority Collateral Trustees or the failure of any Second Priority Collateral Trustee to exercise ordinary care in the handling of moneys and securities and other property actually received by such Second Priority Collateral Trustee), arising out of a breach by such Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such obligee or its successors from such Grantor and all such obligations of such Grantor shall be and remain enforceable against and only against such Grantor and shall not be enforceable against the Second Priority Collateral Trustees, any Second Priority Representative or any Second Priority Secured Holder.  The agreements in this Section 6.06 shall survive the termination of this Agreement.

SECTION 6.07. Further Assurances.  (a)  Each Grantor agrees, from time to time, at its own expense to execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, and cause its Subsidiaries, if any, to promptly execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other instruments as may be reasonably necessary or desirable, or as any Second Priority Collateral Trustee, any Second Priority Representative, any Second Priority Secured Holder through its Second Priority Representative, may reasonably request from time to time in order (i) to carry out more effectively the purposes of this Agreement, (ii) to subject to the liens and security interests created by any of the Second Priority Collateral Documents any of the properties, rights or interests of such Grantor covered or now or hereafter intended to be covered by any of the Second Priority Collateral Documents, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Second Priority Collateral Documents and the liens and security interests intended to be created thereby, (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm unto the Second Priority Collateral Trustees, the Second Priority

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Representatives and the Second Priority Secured Holders the rights granted or now or hereafter intended to be granted to the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders under any Second Priority Collateral Document or under any other instrument executed in connection with any Second Priority Collateral Document to which it is or may become a party, and (v) to enable the Second Priority Collateral Trustees to exercise and enforce their rights and remedies hereunder and under each other Second Priority Collateral Document with respect to any Collateral; provided, however, that this Section 6.07 shall not be construed to require any Grantor to grant any interest in Collateral other than pursuant to this Agreement, the Second Priority Secured Agreements or any other Second Priority Collateral Document.  Without limiting the generality of the foregoing, each Grantor will take any such action required to be taken by it pursuant to any Second Priority Collateral Document.

(b)           Each Grantor hereby authorizes the Second Priority Collateral Trustees to file one or more financing or continuation statements relative to all or any part of the Collateral, and amendments thereto to correct the name and address of such Grantor or the Second Priority Collateral Trustees or to correct the description of the “Collateral” contained in any of the Second Priority Collateral Documents to be consistent with the description of the Collateral contained in such Second Priority Collateral Document, in each case without the signature of such Grantor where permitted by law and which shall be filed by the Second Priority Collateral Trustees upon the receipt of an instruction letter from the Required Second Priority Representative(s) requesting the taking of such action and attaching the form of financing statement.  A photocopy or other reproduction of this Agreement, any other Second Priority Collateral Document or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

(c)           The Grantors will furnish such information about the Collateral as the Second Priority Collateral Trustees may reasonably request from time to time.

ARTICLE VII

THE COLLATERAL TRUSTEES

SECTION 7.01. Declaration of Trust.  Each of the Second Priority Corporate Trustee and the Second Priority Individual Trustee, for itself and its successors, hereby accepts the trusts created by this Agreement upon the terms and conditions hereof, including those contained in this Article VII.  Further, each of the Second Priority Corporate Trustee and the Second Priority Individual Trustee, for itself and its successors, does hereby declare that it will hold all of the estate, right, title and interest in (a) the Second Priority Collateral Trust Estate and the Second Priority Collateral Account for the equal and ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders as provided herein, and (b) each account as may be established pursuant to Section 5.02 at the request of a Second Priority Representative upon the trust herein set forth and for the benefit of such Second Priority Representative on behalf of its applicable Second Priority Secured Holders as provided herein.

SECTION 7.02. Exculpatory Provisions.  (a)  The Second Priority Collateral Trustees shall not be responsible in any manner whatsoever for the correctness of any recitals,

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statements, representations or warranties contained herein or in the other Second Priority Collateral Documents, all of which are made solely by the Grantors party thereto.  The Second Priority Collateral Trustees make no representations as to the value or condition of the Second Priority Collateral Trust Estate, the Second Priority Collateral Account or any part thereof, or as to the title of the Grantors thereto or as to the security afforded by this Agreement or the other Second Priority Collateral Documents or as to the validity, execution (except its own execution), enforceability, legality or sufficiency of this Agreement, any other Second Priority Collateral Document or any Second Priority Secured Agreement, and the Second Priority Collateral Trustees shall incur no liability or responsibility in respect of any such matters.  The Second Priority Collateral Trustees shall not be responsible for insuring the Second Priority Collateral Trust Estate or for the payment of taxes, charges, assessments or liens upon the Second Priority Collateral Trust Estate or otherwise as to the maintenance of the Second Priority Collateral Trust Estate or the Second Priority Collateral Account, except that in any event that any Second Priority Collateral Trustee enters into possession of a part or all of the Second Priority Collateral Trust Estate or the Second Priority Collateral Account, such Second Priority Collateral Trustee, shall preserve the part in its possession.

(b)           The Second Priority Collateral Trustees shall not be required to ascertain or inquire as to the performance by the Grantors of any of the covenants or agreements contained herein, in any other Second Priority Collateral Document or in any Second Priority Secured Agreement.

SECTION 7.03. Delegation of Duties.  The Second Priority Collateral Trustees may execute any of the trusts or powers hereof and perform any duty hereunder either directly or by or through agents or attorneys-in-fact (which shall not include officers and employees of any Grantor or any Affiliate of any Grantor).  The Second Priority Collateral Trustees shall be entitled to rely upon advice of reasonably selected counsel and other professionals concerning all matters pertaining to such trusts, powers and duties.  The Second Priority Collateral Trustees shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact reasonably selected by them in good faith.

SECTION 7.04. Reliance by Second Priority Collateral Trustees.  (a)  Whenever in the administration of the trusts of this Agreement or, pursuant to any other Second Priority Collateral Document, the Second Priority Collateral Trustees shall deem it necessary or desirable that a matter be proved or established in connection with the taking, suffering or omitting any action hereunder by the Second Priority Collateral Trustees unless otherwise provided herein, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved or established by a certificate of an Authorized Officer of the Borrower delivered to the Second Priority Collateral Trustees and the Second Priority Representatives, and such certificate shall constitute a full warranty to the Second Priority Collateral Trustees for any action taken, suffered or omitted in reliance thereon unless (i) the Second Priority Collateral Trustees shall have actual knowledge of an inaccuracy therein or (ii) the Required Second Priority Representative(s) shall provide contrary information in writing with respect to such matter within 10 days of receipt thereof by such Required Second Priority Representative(s), in which case unless such Required Second Priority Representative(s) and the Grantors can reach agreement on such issue within a period of 10 days, the Second Priority Collateral Trustees shall appoint, at the expense of the Grantors, an independent arbitrator (who

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shall be reasonably acceptable to the Grantors and such Required Second Priority Representative(s)) to resolve the dispute.

(b)           The Second Priority Collateral Trustees may consult with independent counsel, independent public accountants and other experts selected by it (excluding, counsel to or any employee of any Grantor or any Affiliate of any Grantor) and any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by them hereunder in accordance therewith unless such Second Priority Collateral Trustees have actual knowledge of a reason to question the validity or accuracy of such opinion or of any assumptions expressed therein as the basis for such opinion.  The Second Priority Collateral Trustees shall have the right at any time to seek instructions concerning the administration of the Second Priority Collateral Trust Estate or the Second Priority Collateral Account or any account established pursuant to Section 5.02 hereof from any court of competent jurisdiction.

(c)           The Second Priority Collateral Trustees may rely, and shall be fully protected in acting, upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document which they reasonably believe to be genuine and to have been signed or presented by the proper party or parties or, in the case of telecopies and telexes, to have been sent by the proper party or parties.  In the absence of its gross negligence or willful misconduct, each Second Priority Collateral Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any notices, certificates or opinions furnished to such Second Priority Collateral Trustee that conform to the requirements of this Agreement or any other Second Priority Collateral Document.

SECTION 7.05. Limitations on Duties of the Trustees.  (a)  The Second Priority Collateral Trustees undertake to perform only the duties expressly set forth herein and no implied covenant or obligation shall be read into this Agreement against the Second Priority Collateral Trustees.

(b)           The Second Priority Collateral Trustees may exercise the rights and powers granted to them by this Agreement and the other Second Priority Collateral Documents, but only pursuant to the terms of this Agreement, and the Second Priority Collateral Trustees shall not be liable with respect to any action taken or omitted by them in accordance with the direction of the Required Second Priority Representative(s).

(c)           Except as herein otherwise expressly provided, the Second Priority Collateral Trustees shall not be under any obligation to take any action which is discretionary with the Second Priority Collateral Trustees under the provisions hereof or under any other Second Priority Collateral Document except upon the written request of the Required Second Priority Representative(s).  The Second Priority Collateral Trustees shall make available for inspection and copying by each Second Priority Representative each certificate or other paper furnished to the Second Priority Collateral Trustees by the Grantors, by any Second Priority Representative, or by any other Person, under or in respect of this Agreement, any other Second Priority Collateral Document or any of the Second Priority Collateral Trust Estate.

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(d)           The Second Priority Collateral Trustees shall be under no obligation to exercise any of the rights or powers vested in them by this Agreement or any other Second Priority Collateral Document at the request or direction of any Second Priority Representatives pursuant to this Agreement, unless such Second Priority Representatives shall have offered to the Second Priority Collateral Trustees security or indemnity satisfactory to the Second Priority Collateral Trustees against the costs, expenses and liabilities which might be incurred by them in compliance with such request or direction.

(e)           Each Second Priority Secured Holder (other than the Senior Note Trustee and any other Second Priority Representative, in its capacity as a “representative”) shall, ratably (determined as provided below) indemnify the Second Priority Collateral Trustees, each of their respective Affiliates and the respective directors, officers, agents and employees of any of them (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees’ gross negligence or willful misconduct) (an “Indemnified Event”) that such indemnitees may suffer or incur in connection with its exercise of rights and remedies with respect to the Account Collateral and the Securities Accounts.  For purposes of this Section 7.05(e), each Second Priority Secured Holder’s ratable share shall be based on the amounts owing to each such Second Priority Secured Holder under its respective Second Priority Secured Agreement at the time the Indemnified Event arose.

(f)            The Obligations of the Second Priority Collateral Trustees hereunder are several and not joint.

SECTION 7.06. Moneys to Be Held in Trust.  All moneys received by the Corporate Trustee under or pursuant to any provision of this Agreement or any other Second Priority Collateral Document shall be segregated and held in trust for the purposes for which they were paid or are held and the Second Priority Corporate Trustee shall exercise ordinary care in the handling of any such moneys actually received by it.  The Second Priority Individual Trustee shall promptly turn over to the Second Priority Corporate Trustee any Collateral, or any part thereof, delivered to or received by the Second Priority Individual Trustee.

SECTION 7.07. Resignation and Removal of Second Priority Collateral Trustees.  (a) Each or both of the Second Priority Collateral Trustees may at any time, by giving 30 days’ prior written notice to the Grantors and the Second Priority Representatives, resign and be discharged of their responsibilities hereby created, such resignation to become effective upon the appointment of a successor trustee or trustees by the Required Second Priority Representative(s), the acceptance of such appointment by such successor trustee or trustees and, unless a Second Priority Collateral Trust Agreement Default has occurred and is continuing, the consent to the appointment of such successor trustee or trustees by the Grantors.  If a Second Priority Collateral Trust Agreement Default has occurred, the Grantors’ consent to any such resignation shall not be required.  The Second Priority Collateral Trustees shall be entitled to their fees and expenses accrued to the date of the resignation becoming effective.  Either or both of the Second Priority Collateral Trustees may be removed at any time (with or without cause) and a successor trustee or trustees appointed by the affirmative vote of the Required Second Priority Representative(s), subject to, unless a Second Priority Collateral Trust Agreement Default has occurred and is continuing, the consent of the Grantors, provided that the Second Priority Collateral Trustees or

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either of them shall be entitled to their fees and expenses accrued to the date of removal.  If either or both of the Second Priority Collateral Trustees resigns or is removed as provided in this Section 7.07 the consent to the appointment of a successor trustee or trustees shall not be unreasonably withheld and shall be deemed to have been given if the Grantors shall not have reasonably objected to any proposed successor trustee or trustees within five Business Days of receipt of notice of the identity thereof from the Second Priority Representatives.  If no successor trustee or trustees shall be appointed and approved within 30 days from the date of the giving of the aforesaid notice of resignation or within 30 days from the date of such vote for removal, the Second Priority Collateral Trustees, shall, or the Required Second Priority Representative(s) may, apply to any court of competent jurisdiction to appoint a successor trustee or trustees to act until such time, if any, as a successor trustee or trustees shall have been appointed as above provided.  Any successor trustee or trustees so appointed by such court shall immediately and without further act be superseded by any successor trustee or trustees approved by the Required Second Priority Representative(s) as above provided.

(b)           If at any time either or both of the Second Priority Collateral Trustees shall become incapable of acting, or if at any time a vacancy shall occur in the office of the Second Priority Collateral Trustees for any other cause, a successor trustee or trustees shall be promptly appointed by the Required Second Priority Representative(s), subject to, unless a Second Priority Collateral Trust Agreement Default has occurred and is continuing, the consent of the Grantors, which consent shall not be unreasonably withheld, and the powers, duties, authority and title of the predecessor trustee or trustees terminated and cancelled without procuring the resignation of such predecessor trustee or trustees, and without any formality (except as may be required by applicable law) other than appointment and designation of a successor trustee or trustees in writing, duly acknowledged, delivered to the predecessor trustee or trustees and the Grantors and filed for record in each public office, if any, in which this Agreement is required to be filed.

(c)           The appointment and designation referred to in Section 7.07(b) shall, after any required filing, be full evidence of the right and authority to make the same and of all the facts therein recited, and this Agreement shall vest in such successor trustee or trustees, without any further act, deed or conveyance, all of the estate and title of its predecessor, and upon such filing for record the successor trustee or trustees shall become fully vested with all the estates, properties, rights, powers, trusts, duties, authority and title of its predecessor; but such predecessor shall, nevertheless, on the written request of the Required Second Priority Representative(s), the Grantors or its successor trustee or trustees, execute and deliver an instrument transferring to such successor all the estates, properties, rights, powers, trusts, duties, authority and title of such predecessor hereunder and shall deliver all securities and moneys held by it or them to such successor trustee or trustees.  Should any deed, conveyance or other instrument in writing from the Grantors be required by any successor trustee or trustees for more fully and certainly vesting in such successor trustee or trustees the estates, properties, rights, powers, trusts, duties, authority and title vested or intended to be vested in the predecessor trustee or trustees, any and all such deeds, conveyances and other instruments in writing shall, on request of such successor trustee or trustees, be executed, acknowledged and delivered by the Grantors.

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(d)           Any required filing for record of the instrument appointing a successor trustee or trustees as hereinabove provided shall be at the expense of the Grantors.  The resignation of any trustee or trustees and the instrument removing any trustee or trustees, together with all other instruments, deeds and conveyances provided for in this Article VII shall, if permitted by law, be forthwith recorded, registered and filed by and at the expense of the Grantors, wherever this Agreement is recorded, registered and filed.

SECTION 7.08. Status of Successors to Trustees.  Every successor to the Second Priority Corporate Trustee appointed pursuant to Section 7.07 shall be a bank or trust company in good standing and having power so to act, incorporated under the laws of the United States or any State thereof or the District of Columbia and having its principal corporate trust office within the State of Delaware, the State of Minnesota or another state acceptable to the Required Second Priority Representative(s), and shall also have capital, surplus and undivided profits of not less than $100,000,000, if there be such an institution with such capital, surplus and undivided profits willing, qualified and able to accept the trust upon reasonable or customary terms.  Any successor to the Second Priority Individual Trustee appointed pursuant to Section 7.07 shall be an individual residing in the State of Delaware, the State of Minnesota, the State of New York or another state of the United States acceptable to the Required Second Priority Representative(s).

SECTION 7.09. Merger of the Second Priority Corporate Trustee.  Any corporation into which the Second Priority Corporate Trustee may be merged, or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Second Priority Corporate Trustee shall be a party, shall be the Second Priority Corporate Trustee under this Agreement without the execution or filing of any paper or any further act on the part of the parties hereto.

SECTION 7.10. Powers of Second Priority Individual Trustee.  The Second Priority Individual Trustee has been joined as a party hereunder so that if, by any present or future applicable law in any jurisdiction in which it may be necessary to perform any act in the execution or enforcement of the trusts hereby created, the Second Priority Corporate Trustee may be incompetent, unqualified or unable to act as a collateral trustee, then all of the acts required to be performed in such jurisdiction, in the execution or enforcement of the trusts hereby created, shall and will be performed by the Second Priority Individual Trustee, acting alone.  Notwithstanding any other term or provision of this Agreement to the contrary, the Second Priority Corporate Trustee alone shall have and exercise the rights and powers granted herein and shall be solely charged with the performance of the duties herein declared on the part of the Second Priority Collateral Trustees to be had and exercised or to be performed without any action taken by the Second Priority Individual Trustee; provided, however, that if the Second Priority Corporate Trustee or the Required Second Priority Representative(s) deem it necessary or desirable for the Second Priority Individual Trustee to act in a particular jurisdiction, the Second Priority Individual Trustee shall have and exercise the rights and powers granted herein (but no greater powers) and shall be charged with the performance of the duties herein declared on the part of the Second Priority Collateral Trustees to be had and exercised or to be performed, but only in such particular jurisdiction.

SECTION 7.11. Additional Co-Trustees; Separate Trustees.  (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

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any of the Collateral shall be located, or the Second Priority Collateral Trustees shall be advised by counsel satisfactory to them that it is so necessary or prudent in the interest of the Second Priority Representatives on behalf of the Second Priority Secured Holders, or the Required Second Priority Representative(s) shall in writing so request by notice to the Second Priority Collateral Trustees and the Grantors, or the Second Priority Collateral Trustees shall deem it desirable for their own protection in the performance of their duties hereunder, or the Grantors shall in writing so request by notice to the Second Priority Collateral Trustees with the consent of the Required Second Priority Representative(s), the Second Priority Collateral Trustees and the Grantors 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 Second Priority Collateral Trustees, the Grantors and the Second Required Priority Representative(s), either to act as co-trustee or co-trustees of all or any of the Collateral, jointly with the Second Priority Collateral Trustees originally named herein or any successor, or to act as separate trustee of any such property.  In the event the Grantors shall not have joined in the execution of such instruments and agreements within 10 days after the receipt of a written request from the Second Priority Collateral Trustees so to do, or in case a Second Priority Collateral Trust Agreement Default shall have occurred and be continuing, the Second Priority Collateral Trustees may act under the foregoing provisions of this Section 7.11 without the concurrence of the Grantors (but with the concurrence of the Required Second Priority Representative(s)), and the Grantors hereby appoint the Second Priority Collateral Trustees as their agents and attorneys to act for them under the foregoing provisions of this Section 7.11 in either of such contingencies.

(b)           Any separate trustee and any co-trustee (other than any trustee which may be appointed as successor to the Second Priority Corporate Trustee or the Second Priority Individual Trustee pursuant to Section 7.07) shall, to the extent permitted by law, be appointed and act and be such, subject to the following provisions and conditions, namely:

(i)            all rights, powers, duties and obligations conferred upon the trustees in respect of the custody, control and management of moneys, papers or securities shall be exercised solely by the Second Priority Collateral Trustees originally named herein or their successors appointed pursuant to Section 7.07;

(ii)           all rights, powers, duties and obligations conferred or imposed upon the Second Priority Collateral Trustees hereunder shall be conferred or imposed and exercised or performed by the Second Priority Collateral Trustees and such separate trustee or co-trustee, jointly, as shall be provided in the instrument appointing such separate trustee or co-trustee, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Second Priority Collateral Trustees 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 separate trustee or co-trustee;

(iii)          no power given hereby to, or which it is provided hereby may be exercised by, any such co-trustee or separate trustee, shall be exercised hereunder by such co-trustee or separate trustee, except jointly with, or with the consent in writing of, the Second Priority Collateral Trustees, anything herein contained to the contrary notwithstanding;

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(iv)          no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and

(v)           the Grantors and the Second Priority Collateral Trustees, at any time, by an instrument in writing, executed by them jointly, may accept the resignation of or remove any such separate trustee, and in that case, by an instrument in writing executed by the Grantors and the Second Priority Collateral Trustees jointly, may appoint a successor (who shall be acceptable to the Required Second Priority Representative(s)) to such a separate trustee or co-trustee, as the case may be, anything herein contained to the contrary notwithstanding.  In the event that the Grantors shall not have joined in the execution of any such instrument within 10 days after the receipt of a written request from the Second Priority Collateral Trustees so to do, or in case a Second Priority Collateral Trust Agreement Default shall have occurred and be continuing, the Second Priority Collateral Trustees shall have the power to accept the resignation of or remove any such separate trustee or co-trustee and to appoint (with the consent of the Required Second Priority Representative(s)) a successor without the concurrence of the Grantors and the Grantors hereby appoint the Second Priority Collateral Trustees their agents and attorneys to act for them in such connection in either of such contingencies.  In the event that the Second Priority Collateral Trustees shall have appointed a separate trustee or co-trustee or as above provided, they may at any time, by an instrument in writing, accept the resignation of or remove any such separate trustee, the successor to any such separate trustee to be appointed by the Grantors and the Second Priority Collateral Trustees, or by the Second Priority Collateral Trustees alone, as hereinbefore provided in this Section 7.11.

SECTION 7.12. Trustees Appointed Attorneys-in-Fact.  Each Grantor hereby irrevocably constitutes and appoints the Second Priority Collateral Trustees and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full power and authority in the name of such Grantor or their own name and in the place and stead of such Grantor and in the name of such Grantor, from time to time at the direction of the Required Second Priority Representative(s), to take any action and to execute any instrument which the same may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to such Grantor representing any dividend, interest payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same in accordance with the terms of the Second Priority Collateral Documents.  Each Grantor acknowledges and agrees that the foregoing power of attorney is coupled with an interest and may not be revoked or modified except with the consent of the Second Priority Collateral Trustees or as otherwise provided herein.

SECTION 7.13. Ordinary Care.  The Second Priority Collateral Trustees shall be deemed to have exercised ordinary care in the custody and preservation of the Collateral in their possession if the Collateral is accorded treatment substantially equal to that which the Second Priority Collateral Trustees accord their own property, it being understood that the Second Priority Collateral Trustees shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Second Priority Collateral Trustees have or are deemed to have

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knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral.

ARTICLE VIII

RELEASE OF COLLATERAL

SECTION 8.01. Partial Release of Collateral.  (a)  Notwithstanding anything to the contrary herein, the First Priority Collateral Trustees are authorized to and shall, at the request and expense of the Borrower and without the consent of or notice to the Second Priority Collateral Trustees, the Second Priority Representatives or any Second Priority Secured Holder, release any Collateral from any of the liens created by any of the First Priority Collateral Documents to the extent permitted in accordance with the terms of the First Priority Collateral Trust Agreement, whereupon such Collateral shall automatically be released from the Second Priority Collateral Estate, except to the extent that such release would have the effect of releasing all or substantially all of the Collateral from the Second Priority Collateral Estate.

(b)           Any Grantor may, from time to time so long as no Second Priority Collateral Trust Agreement Default shall have occurred and be continuing, request the release of the lien and security interest of the Second Priority Collateral Documents in any portion of the Collateral of such Grantor proposed to be released or sold or otherwise disposed of by such Grantor to any other Person, upon notice to the Second Priority Collateral Trustees from an Authorized Officer of the Borrower (a “Notice of Partial Release”), which Notice of Partial Release shall be delivered to the other Grantors, the Second Priority Collateral Trustees and the Second Priority Representatives at least twenty Business Days prior to the date of the proposed release, sale or other disposition of such Collateral (unless a shorter period of time is acceptable to the Second Priority Collateral Trustees and the Required Second Priority Representative(s)) and shall

(i)            specify the Collateral to be so released, sold or otherwise disposed of and the proposed date of such sale or other disposition, and

(ii)           certify that the release, sale or other disposition of such Collateral is in compliance with the terms of the Applicable Agreements, and the Grantors are not, and after giving effect to such release, would not be, in default under the Applicable Agreements.

If a Notice of Partial Release is delivered to the Second Priority Collateral Trustees in accordance with the immediately preceding sentence and (a) the Required Second Priority Representative(s), shall not have objected in writing thereto prior to the date of the proposed sale or other disposition of such Collateral or (b) in the case of any other release of such Collateral, the Required Second Priority Secured Holders shall have consented to such release pursuant to the terms of the Applicable Agreement, the security interest in such Collateral shall automatically, without further action, be released and the Second Priority Collateral Trustees shall execute and deliver to the Grantors, on the date of the proposed release (or as promptly thereafter as possible), a release or releases (including, without limitation, Uniform Commercial Code release statements and instruments of satisfaction, discharge and/or reconveyance) in

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recordable form as to the Collateral specified in such Notice of Partial Release from the liens, security interests, conveyances and assignments evidenced by the Second Priority Collateral Documents, which release shall state that it is effective as of the date of such disposition; provided, however, that any release, in one transaction or a series of related transactions, of the lien and security interest of the Second Priority Collateral Documents in all or substantially all of the Collateral will require the consent of the Required Second Priority Secured Holders; provided, further, that, if prior to the time that the Second Priority Collateral Trustees deliver a release pursuant to this Section 8.01(b), the Second Priority Collateral Trustees shall have received either (A) a Second Priority Collateral Trust Agreement Default Notice that shall not have been withdrawn prior to such time and the Required Second Priority Representative(s) shall have directed the Second Priority Collateral Trustees either not to deliver such a release or not to deliver releases generally or (B) a written objection from the Required Second Priority Representative(s) stating that such release, sale or other disposition is not permitted under the Applicable Agreement, then, in either case, the Second Priority Collateral Trustees shall so notify the Grantors and shall not sign any release or releases in connection with such disposition.

(c)           If, at any time the Second Priority Collateral Trustees shall receive a written notice from an Authorized Officer of the Borrower, (i) stating that any promissory note or other similar or related instrument evidencing obligations payable to such Grantor and included in the Collateral has been paid in full in accordance with its terms (or will be so paid concurrently with the surrender thereof), and (ii) identifying such note or other instrument in reasonable detail (including, without limitation, by its date of issuance, the name of its payee and the principal amount thereof), then the Second Priority Collateral Trustees shall promptly deliver a copy of each such notice to the other Grantors, each Second Priority Representative and, unless the Required Second Priority Representative(s) shall have disputed the accuracy of such notice within ten Business Days of the delivery of such notice, the Controlling Collateral Trustees shall promptly deliver such note or other instrument to the Borrower, and promptly execute and deliver a release or releases (including, without limitation, Uniform Commercial Code release statements) in recordable form as to any such note or other instrument from the liens, security interests, conveyances and assignments evidenced by the Second Priority Collateral Documents, which release shall state that it is effective as of the date of its delivery.

SECTION 8.02. Full Release of Collateral upon Satisfaction of Certain Second Priority Secured Obligations.  (a)  The Second Priority Collateral Trustees shall promptly release, in accordance with Section 8.03, all the Collateral upon the latest of the (i) cash payment in full of all Second Priority Secured Obligations arising under the Senior Note Indenture, the Senior Notes,  the Other Indenture Debt Agreements and each other agreement or instrument delivered by the Grantors pursuant thereto, and (ii) termination of the Senior Note Indenture.

(b)           In furtherance of the undertaking set forth above in Section 8.02(a), the Second Priority Collateral Trustees shall, upon the request of the Grantors accompanied by a certificate of an Authorized Officer of each Grantor, upon which the Second Priority Collateral Trustees may conclusively rely without independent verification, to the effect that all Second Priority Secured Obligations under the Second Priority Secured Agreements referred to in clause (i) of the preceding subsection (a) have been, or will, concurrently with the release of the Collateral be, paid in full in cash (and if such Second Priority Secured Obligations have not

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previously been so paid, describing the source(s) of funds for such repayment), deliver a notice by registered mail to each of the Second Priority Representatives containing the following:

(i)            a statement as to the total amount of moneys in the Second Priority Collateral Account and any account which has been established at the request of any Second Priority Representative pursuant to Section 5.02; and

(ii)           a statement that the Second Priority Collateral Trustees will release such Collateral only upon receipt from the Second Priority Representatives of instructions to do so.

If the Second Priority Collateral Trustees receive a direction from the Second Priority Representatives to so release such Collateral (and the Second Priority Collateral Trustees shall not have received any notice that a Second Priority Collateral Trust Agreement Default has occurred or is continuing), then the Second Priority Collateral Trustees shall release all the Collateral from the security interest in their favor and deliver to the Grantors all Collateral in the possession of the Second Priority Collateral Trustees as specified in such instruction; provided, however, that the Grantors shall have made adequate provision for the expenses of the Second Priority Collateral Trustees associated with such release of Collateral and all other expenses of, or payable to, the Second Priority Collateral Trustees hereunder.  If the Second Priority Collateral Trustees shall not have received an instruction so to release such Collateral (or shall have received a Second Priority Collateral Trust Agreement Default Notice which has not been withdrawn), the Second Priority Collateral Trustees shall not release the Collateral unless and until the Second Priority Representatives or a court of competent jurisdiction so directs the Second Priority Collateral Trustees pursuant to a final, non-appealable judgment (including a judgment that becomes non-appealable by reason of expiration of any period of time limiting the right to appeal therefrom).

SECTION 8.03. Effect of Release of Collateral.  Upon the effectiveness of the release of the Collateral pursuant to Section 8.02, all right, title and interest of the Second Priority Collateral Trustees and the Second Priority Representatives on behalf of the Second Priority Secured Holders in, to and under the Second Priority Collateral Trust Estate, the Collateral and the Second Priority Collateral Documents shall terminate and shall revert to the Grantors and their successors and assigns, and the estate, right, title and interest of the Second Priority Collateral Trustees therein shall thereupon cease; and in such case, upon the written request of the Grantors, their successors or assigns, and at the cost and expense of the Grantors, their successors or assigns, the Second Priority Collateral Trustees shall promptly execute and deliver a satisfaction of the Second Priority Collateral Documents and such instruments as are necessary or desirable to terminate and remove of record any documents constituting public notice of the Second Priority Collateral Documents and the security interests granted thereunder and shall transfer, or cause to be transferred, and shall deliver or cause to be delivered to the Grantors, all property, including all moneys, instruments and securities of the Grantors then held by the Second Priority Collateral Trustees.  The cancellation and satisfaction of the Second Priority Collateral Documents shall be without prejudice to the rights of the Second Priority Collateral Trustees or any successor trustee or trustees to charge and be reimbursed for any expenditures which they may thereafter incur in connection therewith.

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ARTICLE IX

RELATIVE PRIORITIES OF LIENS IN COLLATERAL

SECTION 9.01.  Relative Priorities of Security Interests and Liens.  (a) By its acceptance of the benefits hereof and of the other Second Priority Collateral Documents, each of the Second Priority Collateral Trustees, on behalf of themselves and each Second Priority Representative and each Second Priority Secured Holder (i) acknowledges and agrees that each Grantor has granted a security interest in the Collateral owned by it under the First Priority Collateral Documents to the First Priority Collateral Trustees, for the benefit of the First Priority Representatives and the First Priority Secured Holders, to secure the First Priority Secured Obligations and that such security interest is prior in all respects to the security interests in the Collateral granted to the Second Priority Collateral Trustees, for the benefit of the Second Priority Representatives and the Second Priority Secured Holders, under the Second Priority Collateral Documents, (ii) agrees that neither the Second Priority Representatives, the Second Priority Collateral Trustees nor any Second Priority Secured Holder shall have any claim to or in respect of Collateral that is subject to the security interests granted under the First Priority Collateral Documents, or any proceeds of or realization on such Collateral, on a parity with or prior to the claim of the First Priority Secured Obligations and (iii) subject to Section 9.01(b), agrees that notwithstanding such security interest and any rights of the Second Priority Representatives, the Second Priority Collateral Trustees and the Second Priority Secured Holders under the Second Priority Collateral Documents or otherwise, so long as (1) any First Priority Secured Obligations are secured by a Lien under the First Priority Collateral Documents and (2) the applicable Collateral is subject to the security interests granted under the First Priority Collateral Documents, none of the Second Priority Representatives, the Second Priority Collateral Trustees nor any Second Priority Secured Holder shall have any right or claim in respect of the exercise of rights and remedies of the First Priority Collateral Trustees, First Priority Representatives and the First Priority Secured Holders, whether under the First Priority Collateral Documents or otherwise, in respect of the Collateral, nor shall the First Priority Collateral Trustees, the First Priority Representatives or the First Priority Secured Holders have any obligation regarding any such exercise or any other obligation or duty in respect of the interests of the Second Priority Representatives, the Second Priority Collateral Trustees or the Senior Secured Note Holders.

(b)           Notwithstanding anything to the contrary in this Agreement, if (i) no Existing First Priority Secured Obligations are outstanding and less than $100 million of Eligible Debt is outstanding and held by a non-Affiliate of the Borrower, (ii) the Second Priority Collateral Trustees have provided the Controlling Collateral Trustees with a Second Priority Collateral Trust Agreement Default Notice that has not been withdrawn pursuant to Section 4.01(b) and (iii) the Controlling Collateral Trustees have failed to commence the exercise of remedies with respect to or in connection with the Collateral for a period of 120 days following receipt of such Second Priority Collateral Trust Agreement Default Notice, the Second Priority Collateral Trustees shall be entitled to commence the exercise of remedies with respect to or in connection with the Collateral; provided that if pursuant to the terms of this Section 9.01(b) the Second Priority Collateral Trustees hold cash proceeds from the sale or other disposition of the Collateral and until Payment in Full of all First Priority Secured Obligations, the Second Priority

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Collateral Trustees shall turn over any such proceeds to the First Priority Collateral Trustees for application as set forth in the First Priority Collateral Documents.

SECTION 9.02.  Rights in Collateral.  (a)  The parties hereto agree that, after the date hereof and for so long as any First Priority Secured Obligations are outstanding, in no event shall the Second Priority Representatives, the Second Priority Collateral Trustees or any Second Priority Secured Holder have a Lien on or security interest in any Collateral that is not subject to the first priority lien of the First Priority Collateral Trustees created under the First Priority Collateral Documents with respect to such Collateral. Notwithstanding (i) anything to the contrary contained in any Second Priority Collateral Document and irrespective of the time, order or method of attachment or perfection of the security interests created by the First Priority Collateral Documents or the Second Priority Collateral Documents, (ii) anything contained in any filing or agreement to which the First Priority Representatives, First Priority Collateral Trustees, any First Priority Secured Holders, any Second Priority Secured Holder or any other party hereto may be a party and (iii) the rules for determining priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, any security interest in any Collateral pursuant to the First Priority Collateral Documents has and shall have priority over any security interest in such Collateral pursuant to the Second Priority Collateral Documents.

(b)           Subject to Section 9.01(b), whether or not any bankruptcy proceeding or similar event or proceeding has been commenced by or against any Grantor, (i) the Second Priority Collateral Trustees will not (A) exercise or seek to exercise any rights or exercise any remedies with respect to any Collateral that is subject to the security interests granted under the First Priority Collateral Documents, (B) institute any action or proceeding with respect to such rights or remedies, including without limitation, any action of foreclosure, (C) contest, protest or object to any foreclosure proceeding or action brought by the First Priority Collateral Trustees or any other exercise by the First Priority Collateral Trustees of any rights and remedies under any First Priority Collateral Documents relating to the Collateral that is subject to the security interests granted under the First Priority Collateral Documents, (D) object to the forbearance by the First Priority Collateral Trustees to the bringing or pursuing of any foreclosure proceeding or action or any other exercise of any rights or remedies relating to the Collateral that is subject to the security interests granted under the First Priority Collateral Documents, (E) take or receive from the Grantors or any of their Subsidiaries, directly or indirectly, in cash or other property or by set off or in any other manner, the Collateral or any part thereof or proceeds therefrom in satisfaction of the Second Priority Secured Obligations or (F) take or permit any action prejudicial to or inconsistent with the priority position of the Lien on the Collateral to secure the First Priority Secured Obligations over the Lien on the Collateral to secure the Second Priority Secured Obligations and (ii) the First Priority Collateral Trustees shall have the exclusive right to enforce rights and exercise remedies with respect to the Collateral that is subject to the security interests granted under the First Priority Collateral Documents; provided that this Section 9.02(b) shall not impair the Second Priority Collateral Trustees in otherwise taking any action deemed proper by it to preserve the rights of the Second Priority Representatives and the Second Priority Secured Holders under the Second Priority Collateral Documents (including by way of filing proof of claim or otherwise).

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(c)           In exercising rights and remedies with respect to the Collateral, the Controlling Collateral Trustees may enforce the provisions of the First Priority Collateral Documents and exercise remedies thereunder, all in such order and in such manner as it may determine in the exercise of its sole and exclusive discretion (as between the Controlling Collateral Trustees and the First Priority Representatives and First Priority Secured Holders, on the one hand, and the Second Priority Collateral Trustees and the Second Priority Secured Holders and Second Priority Secured Holders, on the other hand), including, without limitation, (i) the exercise of all rights and remedies in respect of the Collateral and/or the First Priority Secured Obligations, (ii) the enforcement or forbearance from enforcement of any Lien in respect of the Collateral (subject to Section 9.01(b)), (iii) the release, with or without consideration, of the Collateral from the Liens of the First Priority Collateral Documents, (iv) the exercise of rights and powers of a holder of shares of stock included in the Collateral under the First Priority Collateral Documents, (v) the acceptance of the Collateral in full or partial satisfaction of the First Priority Secured Obligations and (vi) the exercise of all rights and remedies of a secured lender under the Uniform Commercial Code or any similar Law of any applicable jurisdiction.

(d)           If, after the occurrence and during the continuance of an First Priority Agreement Default, the Controlling Collateral Trustees release their Lien in any part or all of the Collateral in connection with (i) the sale, transfer or other disposition thereof or (ii) the collection, or otherwise for the application, of the proceeds thereof to the First Priority Secured Obligations, in each case with respect to clauses (i) and (ii) in accordance with the First Priority Collateral Documents, then, simultaneously with such release, the Lien and security interest created pursuant to the Second Priority Collateral Documents in such Collateral shall be automatically released, and upon any such release the Second Priority Collateral Trustees shall, with respect to the Second Priority Collateral Documents, execute or cause to be executed such release documents and instruments and shall take such further actions as the Controlling Collateral Trustees shall request. The Second Priority Collateral Trustees, for themselves and on behalf of the Second Priority Representatives and the Second Priority Secured Holder, hereby irrevocably constitute and appoint the First Priority Collateral Trustees and any officer or agent of the First Priority Collateral Trustees, with full power of substitution, as their true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Second Priority Collateral Trustees, for themselves and on behalf of the Second Priority Representatives and the Second Priority Secured Holders, and in the name of the Second Priority Collateral Trustees, for themselves and on behalf of the Second Priority Representatives and the Second Priority Secured Holders, or in the First Priority Collateral Trustees’ own name, from time to time in the First Priority Collateral Trustees’ discretion, for the purpose of carrying out the terms of this paragraph, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this paragraph, including, without limitation, any financing statements, endorsements, assignments or other instruments of transfer or release.  Any action taken in accordance with the first sentence of this Section 9.02(d) shall be effective notwithstanding the cessation of any First Priority Agreement Default.  Notwithstanding any such release by the Second Priority Collateral Trustees as contemplated in this Section 9.02(d), it is understood that the Lien of the Second Priority Collateral Trustees in any proceeds realized from such sale, transfer or other disposition shall, subject to the terms of this Agreement and the other Second Priority Collateral Documents, continue (unless such proceeds are applied to the payment of First Priority Secured Obligations)

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and, following Payment in Full of the First Priority Secured Obligations, any proceeds remaining from any such sale, transfer, other disposition or collection shall, unless otherwise required by applicable Law, be made available (and the Grantors hereby agree to take any and all actions requested by the Required Second Priority Representative(s) necessary to make such proceeds available) to the Second Priority Collateral Trustees for application against the Second Priority Secured Obligations pursuant to the terms of this Agreement.

SECTION 9.03.  Obligations Unconditional.  The Second Priority Collateral Trustees acknowledge and agree on behalf of the Second Priority Representatives and the Second Priority Secured Holders to the relative priority as to the Collateral and the application of the proceeds therefrom as provided herein and acknowledge and agree that such priorities and the application of the proceeds from the Collateral shall not be affected or impaired in any manner whatsoever including, without limitation, on account of:

(a)           any lack of validity or enforceability of any First Priority Secured Agreement or any Second Priority Secured Agreement;

(b)           any change in the time, manner or place of payment of, or in any other term of, all or any of the First Priority Secured Obligations, the Second Priority Secured Obligations, or any amendment or waiver or other modification, whether by course of conduct or otherwise, of the terms of any First Priority Secured Agreement, the Senior Note Indenture, or any other Second Priority Secured Agreement;

(c)           any exchange, release or nonperfection of any security interest in any Collateral, or any release, amendment, waiver or other modification, whether in writing or by course of conduct or otherwise, of all or any of the First Priority Secured Obligations, Second Priority Secured Obligations or any guarantee thereof;

(d)           the actual date and time of execution delivery, recording, filing or perfection of any security interests created in the Collateral;

(e)           the commencement of any bankruptcy or similar proceeding in respect of any Grantor; or

(f)            any other circumstances (except payment or discharge in full) which otherwise might constitute a defense available to, or a discharge of, any Grantor in respect of the First Priority Secured Obligations, the Second Priority Secured Obligations or of the Second Priority Collateral Trustees in respect of this Agreement.

SECTION 9.04.  Waiver of Claims.  To the maximum extent permitted by law, the Second Priority Collateral Trustees, for themselves and each Second Priority Representative and each Second Priority Secured Holder, waive any claim they might have against the First Priority Collateral Trustees, the First Priority Representatives or the First Priority Secured Holders with respect to, or arising out of, any action or failure to act or any error of judgment or negligence on the part of the First Priority Collateral Trustees, the First Priority Representatives, the First Priority Secured Holders or their respective directors, officers, employees or agents with respect to any exercise of rights or remedies under the First Priority Collateral Documents or any transaction relating to the Collateral. Neither the First Priority Collateral Trustees, any First

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Priority Representative, any First Priority Secured Holder nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so, except to the extent arising out of the gross negligence or willful misconduct of the First Priority Collateral Trustees, any First Priority Representative, any First Priority Secured Holders or such other Person, or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor, the Second Priority Collateral Trustees, any Second Priority Representative, any Second Priority Secured Holder or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof.

SECTION 9.05.  Agreement by the Grantors.  (a)   Each Grantor hereby agrees that it will not, and will not permit any of its Subsidiaries to take any action in contravention of the provisions of this Agreement.

(b)           So long as the Second Priority Secured Obligations are still outstanding and the Second Priority Collateral Documents are still in effect, if at any time the Collateral has been sold or otherwise disposed of (whether pursuant to the exercise of remedies by the First Priority Collateral Trustees or otherwise) and the First Priority Collateral Trustees hold cash proceeds remaining after application as set forth in clause THIRD of Section 5.01(a) of the First Priority Collateral Trust Agreement, each Grantor by its signature to this Agreement irrevocably instructs the First Priority Collateral Trustees to turn over any such remaining proceeds to the Second Priority Collateral Trustees for application as set forth in the Second Priority Collateral Trust Agreement upon the sale or disposition of the Collateral as set forth in this Section 9.05(b).

(c)           At any time that there are no First Priority Secured Obligations secured by a Lien under the First Priority Collateral Documents, if at such time the First Priority Collateral Trustees continue to hold any certificates representing shares of stock or instruments of indebtedness included in the Collateral or any other item of Collateral, each Grantor shall, as of the date of this Agreement, instruct the First Priority Collateral Trustees to turn over such certificates, instruments and other items of Collateral directly to Second Priority Collateral Trustees to be held by them under the Second Priority Collateral Documents upon the occurrence of the events and circumstances set forth in this Section 9.05.  In no event shall the Second Priority Collateral Trustees have any liability for the First Priority Collateral Trustees’ failure to follow the instructions or directions of the Grantors pursuant to this Section 9.05(c).

SECTION 9.06.  No Warranties, Etc.  (a)   The Second Priority Collateral Trustees acknowledge and agree that (i) none of the First Priority Collateral Trustees, the First Priority Representatives or the First Priority Secured Holders have made any representation or warranty herein or in the other Second Priority Collateral Documents with respect to the validity, legality, completeness, collectibility or enforceability of the First Priority Secured Agreements and (ii) the First Priority Collateral Trustees may manage the Liens of the First Priority Secured Holders in the Collateral without regard to any rights or interests that the Second Priority Collateral Trustees, the Second Priority Representatives or the other Second Priority Secured Holders may have in the Collateral.

(b)           Waiver of Marshalling and Similar Rights.  The Second Priority Collateral Trustees for themselves and on behalf of the Second Priority Representatives and Second

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Priority Secured Holders agree not to assert and hereby waive, to the fullest extent permitted by applicable Law, any right to demand, request, plead or otherwise assert, or otherwise claim the benefit of, any marshalling, appraisement, valuation or other similar rights a junior secured creditor may have under applicable Law.

(c)           Waiver of Requirements.  The Second Priority Collateral Trustees hereby waive promptness, diligence, notice of acceptance and any other notice with respect to this Agreement and any requirement that the First Priority Collateral Trustees, the First Priority Representatives or the First Priority Secured Holders protect, secure, perfect or insure (i) any Lien under the First Priority Collateral Documents or otherwise, (ii) any Collateral or (iii) any other property subject thereto or exhaust any right or take any action against the Grantors, or any of their Subsidiaries or any other Person or any Collateral or any other collateral.

(d)   No Liability of First Priority Collateral Trustees.  This Agreement shall not create any agency relationship between the First Priority Collateral Trustees and the Second Priority Collateral Trustees, the Second Priority Representatives and/or the Second Priority Secured Holders.  The First Priority Collateral Trustees, their officers, directors, employees and agents shall not be responsible, directly or indirectly, to the Second Priority Collateral Trustees, the Second Priority Representatives and/or the Second Priority Secured Holders for any action taken or omitted by the First Priority Collateral Trustees hereunder, or under the First Priority Secured Agreements or otherwise, nor shall they be liable or responsible for any loss, cost or expense suffered or incurred by the Second Priority Collateral Trustees, the Second Priority Representatives and/or the Second Priority Secured Holders, other than any such loss, cost or expense found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the First Priority Collateral Trustees, their officers, directors, employees or agents.  Without limiting the generality of the foregoing, the First Priority Collateral Trustees, their officers, directors, employees and agents make no representation or warranty herein and shall not be deemed to have made any representation and warranty herein:  (i) as to the accuracy, validity, legality or enforceability of the First Priority Secured Agreements, the Second Priority Secured Agreements or any report, certificate, instrument or agreement delivered pursuant hereto or thereto or (ii) as to the validity, sufficiency, perfection or value of the Collateral.

SECTION 9.07.  Reinstatement of First Priority Secured Obligations.  The First Priority Secured Obligations owed to each First Priority Secured Holder under the First Priority Collateral Documents shall continue to be effective, or to be reinstated, as the case may be, as to any payment in respect of any First Priority Secured Obligation that is rescinded or must otherwise be returned by an First Priority Secured Holder upon the occurrence or as a result of applicable provisions of the Bankruptcy Code, all as though such payment has not been made.

SECTION 9.08.  Sharing Arrangements.  (a)  The Second Priority Collateral Trustees for themselves and on behalf of the Second Priority Representatives and Second Priority Secured Holders hereby agree that the provisions of the First Priority Collateral Documents with respect to allocations and distributions of proceeds of the Collateral shall prevail notwithstanding any event or circumstance, including, without limitation, in the event that, through the operation of any bankruptcy, reorganization, insolvency or other laws or otherwise, any of the Liens of the First Priority Secured Holders in the Collateral is avoided in

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whole or in part for any reason or is enforced with respect to some, but not all, of the First Priority Secured Obligations then outstanding.

(b)           The Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders agree that they shall not be entitled to benefit from any avoidance action affecting or otherwise relating to any distribution or allocation made in accordance with the First Priority Collateral Documents, whether by preference or otherwise, it being understood and agreed that the benefit of any such avoidance action otherwise allocable to them shall instead be allocated and turned over for application in accordance with the priorities set forth in the First Priority Collateral Documents.

(c)           In the event that any payment or distribution shall be received by the Second Priority Collateral Trustees in a manner that is inconsistent with the provisions of Article V of the First Priority Collateral Trust Agreement, such payment or distribution shall be held by the Second Priority Collateral Trustees for the benefit of, and shall be paid over or delivered to, the First Priority Collateral Trustees for application in accordance with the First Priority Collateral Trust Agreement.

(d)           If the Second Priority Collateral Trustees shall acquire by indemnification, subrogation or otherwise (including pursuant to the Second Priority Collateral Documents), any lien, estate, right or other interest in, or possession or control of, any of the assets of any Grantor that would otherwise constitute Collateral, that lien, estate, right or other interest shall be subject to the relative priorities set forth herein.

SECTION 9.09.  First Priority Collateral Trustees as Bailee.  Subject to Section 9.06(c) hereof and Section 6.06 of the First Priority Collateral Trust Agreement, the First Priority Collateral Trustees acknowledge that, to the extent that the Collateral under the First Priority Collateral Documents includes items (such as stock certificates, instruments, cash or security entitlement) which are held in the possession of (or in the case of cash or a security entitlement under the control of) the First Priority Collateral Trustees, or a third party on their behalf, pursuant to the First Priority Collateral Documents, the First Priority Collateral Trustees are also holding such items in their possession (or under their control) as bailee of the Second Priority Collateral Trustees solely for purposes of perfecting the security interest of the Second Priority Collateral Trustees in such items; provided that nothing in this Section 9.09 shall require the First Priority Collateral Trustees to deliver any Collateral to the Second Priority Collateral Trustees so long as the First Priority Secured Obligations are still outstanding.  Pursuant to Section 9.05(c), after Payment in Full of the First Priority Secured Obligations, the Grantors shall instruct the First Priority Collateral Trustees to deliver to the Second Priority Collateral Trustees all of the aforesaid items in the possession of the First Priority Collateral Trustees at such time.

ARTICLE X

MISCELLANEOUS

SECTION 10.01. Amendments, Supplements and Waivers.  (a)  With the written consent of the Required Second Priority Representative(s) and the Second Priority Corporate Trustee, the Grantors may, from time to time, enter into written agreements supplemental hereto

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for the purpose of adding to or waiving any provision of this Agreement or any other Second Priority Collateral Document or changing in any manner the rights of the Second Priority Collateral Trustees, the Second Priority Representatives, the Second Priority Secured Holders and the Grantors hereunder or thereunder; provided that

(i)            no such amendment, waiver or consent shall, unless the approval of all the Second Priority Representatives existing at such time shall have been obtained, amend, waive or otherwise modify any provision of Sections 5.01, 8.01, 8.02 and 9.01 or amend or otherwise modify the definitions of “Required Second Priority Representative(s)”, “Second Priority Secured Agreements”, “Second Priority Secured Holders”, “Second Priority Secured Obligations” or “Second Priority Collateral Trust Agreement Default” set forth in Section 1.01,

(ii)           no such amendment, waiver or consent shall amend, waive or otherwise modify this Agreement or any other Second Priority Collateral Document unless such amendment, waiver or consent complies with the amendment provisions (or other similar provisions) of the then outstanding Applicable Agreements,

(iii)          no such amendment, waiver or consent shall, unless in writing and signed by the Second Priority Individual Trustee, amend, waive or otherwise modify any provision of Section 7.10,

(iv)          any such supplemental agreement shall be binding upon the Grantors, the Second Priority Representatives, the Second Priority Secured Holders and the Second Priority Collateral Trustees and their respective successors,

(v)           the Second Priority Collateral Trustees shall not enter into any such supplemental agreement unless they shall have received a certificate of an Authorized Officer of each Grantor to the effect that such supplemental agreement will not result in a breach of any provision or covenant contained in the Applicable Agreement, and

(vi)          the Second Priority Collateral Trustees shall not enter into any such supplemental agreement unless they shall have received a certificate of the Required Second Priority Representative(s) to the effect that, upon receipt of the Second Priority Corporate Trustee’s written consent, this Section 9.01(a) has been complied with and an instruction letter requesting the Second Priority Corporate Trustee and Second Priority Individual Trustee to execute such supplemental agreement.

(b)           Notwithstanding the provisions of paragraph (a), (x) the Second Priority Collateral Trustees and the Grantors may, at any time and from time to time, without the consent of any Second Priority Representative or any Second Priority Secured Holder enter into additional Second Priority Collateral Documents or one or more agreements supplemental hereto or to any Second Priority Collateral Document, in form satisfactory to the Second Priority Collateral Trustees,

(i)            to add to the covenants of the Grantors for the benefit of the Second Priority Representatives or any Second Priority Secured Holder, or to surrender any right or power herein conferred upon the Grantors; or

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(ii)           to mortgage, pledge or grant a security interest in favor of the Second Priority Collateral Trustees as additional security for the Second Priority Secured Obligations any property or assets which are required to be mortgaged or pledged, or in which a security interest is required to be granted, to the Second Priority Collateral Trustees pursuant to any Second Priority Collateral Document or otherwise;

(y)           the First Priority Collateral Trustees and the Grantors may, at any time and from time to time, without the consent of any Second Priority Representative or any Second Priority Secured Holder enter into amendments or other written agreements supplemental to any First Priority Collateral Document for the purpose of adding to, or deleting from, or waiving or consenting to any departures from any provisions of, any First Priority Collateral Document or changing in any manner the rights of the Agent, the holders of the First Priority Secured Obligations or the Grantors thereunder.  Any amendment or waiver of, or any consent under, any provision of any First Priority Collateral Document (except to the extent that such amendment, waiver or consent, would have the effect of releasing all or substantially all of the Collateral from the Second Priority Collateral Estate) shall apply automatically to the comparable provision of the comparable Second Priority Collateral Document without the consent of or notice to any Second Priority Representative or any Second Priority Secured Holder and without any action by any Grantor or the Second Priority Collateral Trustees; provided that the Borrower has delivered to the Second Priority Collateral Trustees a certificate from an Authorized Officer stating that such amendment, waiver or consent does not have the effect of releasing all or substantially all of the Collateral from the Second Priority Collateral Estate. The Borrower shall promptly notify the Second Priority Collateral Trustees of any amendment or waiver of, or any consent under, any provision of any First Priority Collateral Document that applies automatically to the comparable provision of the comparable Second Priority Collateral Document, which notice shall include a copy of such amendment, waiver or consent, as applicable, provided that the failure to give such notice shall not affect the validity of such amendment or waiver of, or consent under, either the First Priority Collateral Documents or the First Priority Collateral Documents; and

(z)            the First Priority Collateral Trustees and the Grantors may, at any time and from time to time, without the consent of any Second Priority Representative or any Second Priority Secured Holder, enter into amendments or other written agreements supplemental to any First Priority Collateral Document for the purpose of granting to the First Priority Collateral Trustees a first priority security interest in additional assets of the Grantors to secure the First Priority Secured Obligations. Any such amendment or written agreements supplemental to any First Priority Collateral Document shall apply automatically to the comparable Second Priority Collateral Document without the consent of or notice to any Second Priority Representative or any Second Priority Secured Holder and without any action by any Grantor or the Second Priority Collateral Trustees, and the Second Priority Collateral Trustee shall automatically be granted a second priority security interest in such additional assets of the Grantors to secure the Second Priority Secured Obligations.

SECTION 10.02. Additional Actions of Second Priority Representatives.  Whether or not there shall be a Second Priority Collateral Trust Agreement Default, the Second Priority Collateral Trustees shall comply and shall be fully protected in complying with any reasonable request of (a) the Required Second Priority Representative(s), to take or refrain from

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taking certain actions with respect to the Collateral or the Second Priority Representatives, and (b) more than 50% of the Second Priority Secured Holders represented by any Second Priority Representative which has requested that an account be opened pursuant to Section 5.02, to take or refrain from taking certain actions with respect to such account, provided, in each case, that the Second Priority Collateral Trustees shall not take or refrain from taking such actions if to do so would violate applicable law or the terms of this Agreement, the other Second Priority Collateral Documents or the Applicable Agreements or if the Second Priority Collateral Trustees shall not be indemnified as provided in Section 6.06(b).

SECTION 10.03. Notices.  All notices, requests, demands and other communications provided for or permitted hereunder shall, unless otherwise stated herein, be in writing (including telex and telecopy communications) and shall be sent by mail (by registered or certified mail, return receipt requested), overnight prepaid courier, telex, telecopier or hand delivery:

(a)           If to the Grantors, to their addresses specified on the signature pages hereto or in any other Second Priority Collateral Document;

(b)           If to the Second Priority Corporate Trustee, at Sixth Street and Marquette Avenue, MAC N9303-120, Minneapolis, MN 55479, Attention: Jeffery T. Rose, or at such other address as shall be designated by it in a written notice to the Grantors and each Second Priority Representative, with a copy to the Second Priority Individual Trustee, at Sixth Street and Marquette Avenue, MAC N9303-120, Minneapolis, MN 55479, or at such other address as shall be designated by him in a written notice to the Grantors and each Second Priority Representative; provided that failure to send a copy of any notice to the Second Priority Individual Trustee shall not render any notice to the Second Priority Collateral Trustees ineffective; and

(c)           If to any Second Priority Representative, to it at the address specified from time to time in the list provided by the Grantors to the Second Priority Collateral Trustees pursuant to Section 6.02 with copies to whomever (other than the Grantors) is specified by the Grantors pursuant to Section 6.02 as a Person to whom notice must be sent under the Second Priority Secured Agreements, provided that in the case that no address is known for a Second Priority Representative, notice shall be given to it in the manner specified by the related Second Priority Secured Agreement, and, in the absence of any such specified means of giving notice, by such notice in the national edition of The Wall Street Journal or as the Second Priority Collateral Trustees shall determine to be reasonable.  For purposes of notice by publication, one notice is sufficient and shall be deemed made on the date of its publication.

All such notices, requests, demands and communications shall be deemed to have been duly given or made, (i) when delivered by hand, (ii) five Business Days after being deposited in the mail, postage prepaid, (iii) the next Business Day if delivered by an overnight prepaid courier, (iv) when telexed with answerback received, (v) when telecopied or (vi) when published in The Wall Street Journal or such other publication; provided, however, that any notice, request, demand or other communication to (1) the Second Priority Collateral Trustees or (2) any Second Priority Representative under Article V or Article VIII shall not be effective until received by the

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Corporate Trustee or such Second Priority Representative, as the case may be, and, provided further that any notice to the Second Priority Collateral Trustees from any Grantor shall be signed by an Authorized Officer, unless otherwise specifically set forth herein.

SECTION 10.04. Headings.  Section, subsection and other headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

SECTION 10.05. Severability.  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate 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 10.06. Treatment of Payee or Indorsee by Trustees.  (a)  The Second Priority Collateral Trustees may treat the registered Second Priority Secured Holder of any registered note, and the payee or indorsee of any note or debenture which is not registered, as the absolute owner thereof for all purposes hereunder and shall not be affected by any notice to the contrary, whether such promissory note or debenture shall be past due or not.

(b)           Any person, firm, corporation or other entity which shall be designated as the duly authorized representative of one or more Second Priority Representatives to act as such in connection with any matters pertaining to this Agreement or any other Second Priority Collateral Document or the Collateral shall present to the Second Priority Collateral Trustees such documents, including, without limitation, opinions of counsel, as the Second Priority Collateral Trustees may reasonably require, in order to demonstrate to the Second Priority Collateral Trustees the authority of such person, firm, corporation or other entity to act as the representative of such Second Priority Representatives.

SECTION 10.07. Dealings with the Grantors.  Upon any application or demand by the Grantors to the Second Priority Collateral Trustees to take or permit any action under any of the provisions of this Agreement, each Grantor shall (unless otherwise waived by the Second Priority Collateral Trustees in writing) furnish to the Second Priority Collateral Trustees a certificate signed by an Authorized Officer stating that all conditions precedent, if any, provided for in this Agreement relating to the proposed action have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Agreement relating to such particular application or demand, no additional certificate need be furnished.

SECTION 10.08. Claims.  This Agreement is made for the benefit of the Second Priority Representatives on behalf of the Second Priority Secured Holders, and the Second Priority Representatives may from time to time enforce their rights as explicit beneficiaries hereunder pursuant to the terms and conditions of this Agreement and the other Second Priority Collateral Documents.

SECTION 10.09. Binding Effect.  This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and shall inure to the benefit of the Second Priority Representatives on behalf of the Second Priority Secured Holders and their respective successors and assigns and nothing herein or in any other Second Priority Collateral Document is

46

intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Agreement, any other Second Priority Collateral Document, the Collateral, the Second Priority Collateral Account or the Second Priority Collateral Trust Estate or any part thereof.

SECTION 10.10. Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except as otherwise required by mandatory provisions of law.

SECTION 10.11. Effectiveness.  This Agreement shall become effective on the execution and delivery hereof and shall remain in effect so long as the Second Priority Collateral Trustees shall have any obligations hereunder.

SECTION 10.12. Reexecution of Agreement.  This Agreement shall be reexecuted at any time and from time to time, at the request of the Required Second Priority Representative(s), with such changes in the form hereof (including, without limitation, changes on the cover page and adding supplemental signatures and notary statements) as may be necessary to comply with the filing or recording requirements of any jurisdiction where this Agreement is to be filed.

SECTION 10.13. Effect on Senior Note Indenture.  Nothing in this Agreement shall operate or be deemed to prevent any amendment, modification or waiver of the Senior Note Indenture or other Senior Note Indenture Agreement by the parties thereto in accordance with the terms thereof.

SECTION 10.14. Third-Party Beneficiaries.  The First Priority Collateral Trustees, the First Priority Representatives and the other First Priority Secured Holders are third-party beneficiaries to this Agreement and the other Second Priority Collateral Documents and may from time to time enforce their rights as explicit beneficiaries hereunder pursuant to the terms and conditions of this Agreement and the other Second Priority Collateral Documents.

SECTION 10.15. Counterparts.  This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

Second Priority Corporate Trustee:	WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Second Priority Corporate Trustee
	By:
		Title:

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Second Priority Individual Trustee:
	Jeffery T. Rose, not in his individual capacity, but solely as Second Priority Individual Trustee

49

Grantors:	THE AES CORPORATION,
	a Delaware corporation
	By:
		Title:
	Address:
	1001 North 19th Street
	Arlington, VA 22209
	AES INTERNATIONAL HOLDINGS II, LTD.,
	a British Virgin Islands company
	By:
		Title:
	Address:
	Citco Building, Wickhams Cay,
	P.O. Box 662, Road Town,
	Tortola,
	British Virgin Islands

50

ACKNOWLEDGED AND AGREED ON THE DATE HEREOF:
WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
By:
	Title:
WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Existing Corporate Trustee
By:
	Title:
BRUCE L. BISSON, not in his individual capacity, but solely as Existing Individual Trustee
By:
	Title:

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Schedule I

to the Second Priority

Collateral Trust Agreement

FEE SCHEDULE

Attached.

52

Schedule II

to the Second Priority

Collateral Trust Agreement

THE AES CORPORATION NON-PLEDGED SUBSIDIARIES

Non-Pledged Subsidiary	Jurisdiction of Incorporation
AES (India) Private Limited	India
AES Americas, Inc.	Delaware
AES Andes Energy, Inc.	Delaware
AES Andes, Inc.	Delaware
AES Angel Falls, L.L.C.	Delaware
AES Appalachia, L.L.C.	Delaware
AES Aquila, Inc.	Delaware
AES Argener I, LLC	Delaware
AES Argener II, LLC	Delaware
AES Atlantic, Inc.	Delaware
AES Aurora, Inc.	Delaware
AES Baja Norte I, Inc.	Delaware
AES Baja Norte II, Inc.	Delaware
AES Big Sky, L.L.C.	Delaware
AES Bolivar, L.L.C.	Delaware
AES Brasil Energia, Inc.	Delaware
AES Brazil, Inc.	Delaware
AES BVI Holdings I, Inc.	Delaware
AES BVI Holdings II, Inc.	Delaware
AES Calgary, Inc.	Delaware
AES Canada, Inc.	Delaware
AES Caribbean Services, Inc.	Delaware
AES Cartagena Holdings BV	Netherlands
AES Central America Power Ventures, Ltd.	Cayman
AES Chesapeake, Inc.	Delaware

53

Non-Pledged Subsidiary	Jurisdiction of Incorporation
AES Colombia I, Inc.	Delaware
AES Communications Latin America, Inc.	Delaware
AES Constructors, Inc.	Delaware
AES Coral, Inc.	Delaware
AES Desert Power, L.L.C.	Delaware
AES Development de Argentina S.A.	Argentina
AES Direct, Inc.	Delaware
AES Dominican Holdings, Inc.	Delaware
AES Drax Financing II, Inc.	Delaware
AES Drax Financing, Inc.	Delaware
AES Drax IBC Limited	Guernsey
AES Edelap Funding Corporation, L.L.C.	Delaware
AES El Dorado, Inc.	Delaware
AES Emma, L.L.C.	Delaware
AES Endeavor, Inc.	Delaware
AES Energy Mexico, Inc.	Delaware
AES Enterprise, Inc.	Delaware
AES Finance and Development, Inc.	Delaware
AES Generation Holdings, LLC	Delaware
AES Georgia Gas GP, L.L.C.	Delaware
AES Global Insurance Company	Vermont
AES Global Power Finance, Inc.	Delaware
AES GPH Holdings, Inc.	Delaware
AES Great Plains, Inc.	Delaware
AES Greystone Holdings, L.L.C.	Delaware
AES Hoytdale, L.L.C.	Delaware
AES Huntington Beach Development, Inc.	Delaware
AES India, L.L.C.	Delaware
AES Indiana Holdings, L.L.C.	Delaware
AES International Holdings II, Ltd.	British Virgin Islands

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Non-Pledged Subsidiary	Jurisdiction of Incorporation
AES Intrepid, L.L.C.	Delaware
AES Intricity, Inc.	New Jersey
AES Japan, Inc.	Delaware
AES Korea, Inc.	Delaware
AES Lake Worth Holdings, L.L.C.	Delaware
AES Long Island Holdings, L.L.C.	Delaware
AES Los Mina Finance Company	Cayman
AES Medina Valley Cogen (No. 4), L.L.C.	Illinois
AES Mexico Development, S. de R.L. de C.V.	Mexico
AES Mohave Holdings, L.L.C.	Delaware
AES Mongol Services, Inc.	Delaware
AES Native Hollow, L.L.C.	Delaware
AES New Hampshire Biomass, Inc.	New Hampshire
AES Oasis Energy, Inc.	Delaware
AES Oasis Finco, Inc.	Delaware
AES Oasis Holdco, Inc.	Delaware
AES Oasis Private Ltd.	Singapore
AES Oman Holdings, Ltd	Cayman
AES Orient, Inc.	Delaware
AES Orissa Distribution Private Limited	India
AES Pacific Procurement Company, L.L.C.	Delaware
AES Pacific, Inc.	Delaware
AES Pakistan (Pvt) Ltd.	Pakistan
AES Pakistan Operations, Ltd.	Delaware
AES Parana Generation Holdings, Ltd.	Cayman
AES Parana II Limited Partnership	Cayman
AES Pecan Grove II, L.L.C.	Delaware
AES Pecan Grove, L.L.C.	Delaware
AES Petty’s Island, L.L.C.	Delaware
AES Phoenix Ltd.	Hungary

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Non-Pledged Subsidiary	Jurisdiction of Incorporation
AES PJM, Inc.	Delaware
AES Power, Inc.	Delaware
AES Puerto Rico Services, Inc.	Delaware
AES Pumped Storage Arkansas, L.L.C.	Delaware
AES Redfish, Inc.	Delaware
AES Sao Paulo, Inc.	Delaware
AES Services, Inc.	Delaware
AES Silk Road Cayman Ltd	Cayman
AES Silk Road, Inc.	Delaware
AES Songas Holdings, Ltd	Cayman
AES South City, L.L.C.	Delaware
AES Southington Holdings, Inc.	Delaware
AES Taiwan, Inc.	Delaware
AES Telecom Americas, Inc.	Delaware
AES Telecom Development, L.L.C.	Delaware
AES Terneuzen Engineering BV	The Netherlands
AES Tiete Holdings, Ltd.	Cayman
AES Transgas, LLC	Delaware
AES Transpower Australia Pty Ltd.	Australia
AES Transpower Private Ltd.	Singapore
AES Transpower, Inc.	Delaware
AES UK Power Holdings Limited	United Kingdom
AES UK Power, L.L.C.	Delaware
AES Whitefield, Inc.	New Hampshire
AES-Zemplen Ltd.	Hungary
Cilcorp, Inc.	Illinois
Dominican Power Metering, Ltd.	Cayman
GeoUtilities, Inc.	Delaware
La Plata II, Inc.	Delaware
La Plata III, Inc.	Delaware

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Non-Pledged Subsidiary	Jurisdiction of Incorporation
LW Generation Corporation	Delaware
SFS Corporation	New Hampshire
Star Natural Gas Company	Delaware
Thermo Ecotek International Holdings Inc.	Cayman
Thermo Fuels Company, Inc.	California
ThinkAES, Inc.	Delaware
Totem Gas Storage Company, LLC	Colorado
Totem Power, LLC	Colorado
Transmission Management Services, L.L.C.	Delaware
West County Generation, LLC	Delaware

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AES INTERNATIONAL HOLDINGS II, LTD. NON-PLEDGED SUBSIDIARIES

Non-Pledged Subsidiary	Jurisdiction of Incorporation
AES Argentina Operations, Ltd.	Cayman
AES Bandeirante, Ltd.	Cayman
AES Caracoles I	Cayman
AES Caracoles II	Cayman
AES Cayman Guaiba, Ltd.	Cayman
AES Cayman Pampas, Ltd.	Cayman
AES Cholita, Ltd.	Cayman
AES Communications, Ltd.	Cayman
AES Condor, Ltd.	Cayman
AES Costa Rica Hydroelectrica, Ltd.	Cayman
AES Infoenergy Ltda	Brazil
AES Intercon II, Ltd.	Cayman
AES Intercon, Ltd.	Cayman
AES Interenergy, Ltd.	Cayman
AES Inti Raymi, Ltd.	Cayman
AES Merida Management Services S. de R.L. de C.V.	Mexico
AES Network	Cayman
AES Pak Gen Holdings, Inc.	Mauritius
AES Pak Holdings, Ltd.	British Virgin Islands
AES Pakistan Holdings	Mauritius
AES Parana IHC, Ltd.	Cayman
AES Peru S.R.L.	Peru
AES Santa Ana, Ltd.	Cayman
AES Santa Branca, Ltd.	Cayman
AES Servicios Electricos Limitada de Capital Variable	El Salvador
AES South Point, Ltd.	Cayman
AES Telecomunicaciones Salvadorenas Ltda de CV	El Salvador
AES Transpower, Inc.	Mauritius
AES Yucatan S.R.L. de C.V.	Mexico
CCS Telecarrier	Cayman
Delta Capex Investments	Cayman
Wildwood Funding, Ltd.	Cayman

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EX-4.3

Exhibit 4.3

EXECUTION COPY

SECOND PRIORITY SECURITY AGREEMENT

Dated May 8, 2003

From

The Grantors referred to herein

as Grantors

to

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

as Second Priority Corporate Trustee

and

Jeffery T. Rose

as Second Priority Individual Trustee

TABLE OF CONTENTS

Section
Section 1.	Grant of Security
Section 2.	Security for Obligations
Section 3.	Grantors Remain Liable
Section 4.	Delivery and Control of Security Collateral
Section 5.	Maintaining the Account Collateral
Section 6.	Maintaining Letter-of-Credit Rights
Section 7.	Representations and Warranties
Section 8.	Further Assurances
Section 9.	Post-Closing Changes; Collections on Assigned Agreements, Receivables and Related Contracts
Section 10.	Voting Rights; Dividends; Etc.
Section 11.	As to the Assigned Agreements
Section 12.	Payments Under the Assigned Agreements; Letters of Credit
Section 13.	Transfers and Other Liens; Additional Shares
Section 14.	Second Priority Collateral Trustees May Perform
Section 15.	Remedies
Section 16.	Indemnity and Expenses
Section 17.	Amendments; Waivers; Additional Grantors; Etc.
Section 18.	Notices, Etc.
Section 19.	Continuing Security Interest; Assignments under the Senior Note Indenture
Section 20.	Release; Termination
Section 21.	Security Interest Absolute
Section 22.	Additional Secured Obligations
Section 23.	Execution in Counterparts
Section 24.	Limitation of Liability

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Section 25.	Governing Law
Section 26.	Submission to Jurisdiction and Waiver
Schedules
Schedule I		-	Location, Chief Executive Office, Place Where Agreements Are Maintained, Type Of Organization, Jurisdiction Of Organization And Organizational Identification Number
Schedule II		-	Pledged Equity and Pledged Debt
Schedule III		-	Assigned Agreements
Schedule IV		-	Changes in Name, Location, Etc.
Schedule V		-	Account Collateral
Schedule VI		-	Securities Accounts
Schedule VII		-	Excluded Receivables
Exhibits
Exhibit A		-	Form of Security Agreement Supplement
Exhibit B		-	Form of Account Control Agreement (Deposit Account/Securities Account)
Exhibit C		-	Form of Consent and Agreement
Exhibit D		-	Form of Securities Account Control Agreement

ii

SECOND PRIORITY SECURITY AGREEMENT

SECOND PRIORITY SECURITY AGREEMENT dated May 8, 2003 (said agreement, as amended, amended and restated, supplemented or otherwise modified, from time to time, being this “Agreement”), made by The AES Corporation, a Delaware corporation (the “Borrower”), the other Persons listed on the signature pages hereof and the Additional Grantors (as defined in Section 17) (the Borrower, the Persons so listed and the Additional Grantors being, collectively, the “Grantors”), to Wells Fargo Bank Minnesota, National Association, a national banking corporation, not in its individual capacity but solely as corporate trustee (together with any successor corporate trustee appointed pursuant to Article VII of the Second Priority Collateral Trust Agreement (as hereinafter defined), the “Second Priority Corporate Trustee”), and Jeffery T. Rose, an individual residing in the State of Minnesota, not in his individual capacity but solely as individual trustee (together with any successor individual trustee appointed pursuant to Article VII of the Second Priority Collateral Trust Agreement, the “Second Priority Individual Trustee”; and, together with the Second Priority Corporate Trustee, the “Second Priority Collateral Trustees”), as trustees under the Second Priority Collateral Trust Agreement dated May 8, 2003 (said agreement, as amended, supplemented or otherwise modified hereafter from time to time, being the “Second Priority Collateral Trust Agreement”) among the Grantors and the Second Priority Collateral Trustees.

PRELIMINARY STATEMENTS.

(1)The Borrower entered into an Amended and Restated Credit, Reimbursement and Exchange Agreement dated as of December 12, 2002 (said agreement, as amended, amended and restated, supplemented, extended, renewed, replaced, refinanced or otherwise modified from time to time, being the “Credit Agreement”) with the subsidiary guarantors party thereto, the financial institutions party thereto (the “Credit Agreement Parties”) and Citicorp USA, Inc., as administrative agent (in such capacity, the “Agent”) and as collateral agent (in such capacity, the “Credit Agreement Collateral Agent”; and together with the Agent, the “Agents”).

(2)In order to induce the Credit Agreement Parties and the Agents to enter into the Credit Agreement, (a) the Grantors granted, pursuant to the terms of a Security Agreement dated as of December 12, 2002 (said agreement (including, without limitation, the schedules thereto), as amended, amended and restated, supplemented or otherwise modified from time to time, being the “First Priority Security Agreement”) made by the Grantors to Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as corporate trustee (together with any successor corporate trustee appointed pursuant to Article VII of the First Priority Collateral Trust Agreement (as hereinafter defined), the “Existing Corporate Trustee”), and Bruce L. Bisson, an individual residing in the State of Delaware, not in his individual capacity but solely as individual trustee (together with any successor individual trustee appointed pursuant to Article VII of the First Priority Collateral Trust Agreement, the “Existing Individual Trustee”; and, together with the Existing Corporate Trustee, the “Existing Collateral Trustees”), as trustees under the Collateral Trust Agreement dated as of December 12, 2002 (said agreement, as amended, amended and restated, supplemented or otherwise modified from time to time, being the “First Priority Collateral

Trust Agreement”) and (b) the Chargor (as hereinafter defined) granted, pursuant to the terms of a Charge and Assignment Over Shares dated as of December 12, 2002 (said agreement (including, without limitation, the schedules thereto), as amended, amended and restated, supplemented or otherwise modified from time to time, being the “First Priority Charge”) made by AES International Holdings II, Ltd. (the “Chargor”) to the Existing Collateral Trustees, as trustees under the First Priority Collateral Trust Agreement, a continuing first priority security interest in and to the Collateral (as hereinafter defined) to the Existing Collateral Trustees for the ratable benefit of the Lender Parties (as defined in the First Priority Collateral Trust Agreement) to secure the obligations of the Borrower and the other Obligors (as defined in the Credit Agreement) under the Credit Agreement and the Notes (as defined in the Credit Agreement) issued pursuant thereto.

(3)The Borrower entered into an Indenture dated as of December 13, 2002 (said agreement, as amended, amended and restated, supplemented or otherwise modified from time to time, being the “Exchange Note Indenture”) with Wells Fargo Bank Minnesota, National Association (the “Exchange Note Trustee”) to exchange the Borrower’s (i) 8.75% Senior Notes due 2002 and (ii) 7.375% Remarketable or Redeemable Securities due 2013 for the 10% Senior Secured Exchange Notes due 2005 issued on December 13, 2002 (the “Exchange Notes”, and together with the Exchange Note Indenture (only to the extent relating to the Exchange Notes), the “Exchange Note Agreements”).

(4)In order to induce the Exchange Note Trustee to enter into the Exchange Note Indenture, the Grantors and the Chargor agreed pursuant to the First Priority Security Agreement and the First Priority Charge, as the case may be, to grant a continuing security interest in and to the Collateral to the Existing Collateral Trustees for the ratable benefit of the holders of the Exchange Notes to secure the obligations of the Borrower under the Exchange Note Agreements.

(5)In order to satisfy certain other obligations of the Borrower, the Grantors and the Chargor agreed pursuant to the First Priority Security Agreement and the First Priority Charge, as the case may be, to grant a continuing security interest in and to the Collateral to the Existing Collateral Trustees for the ratable benefit of the other First Priority Secured Holders to secure the obligations of the Borrower under the other First Priority Secured Agreements.

(6)The Borrower entered into an Indenture dated as of May 8, 2003 (said agreement, as amended, amended and restated, supplemented or otherwise modified from time to time, being the “Senior Note Indenture”) with Wells Fargo Bank Minnesota, National Association, as indenture trustee  (the “Senior Note Trustee”) in connection with the Borrower’s issuance on May 8, 2003 of (i) 8.75% Second Priority Senior Secured Notes due 2013 and (ii) 9.00% Second Priority Senior Secured Notes due 2015 (the “Senior Notes”, and together with the Senior Note Indenture, the “Senior Note Indenture Agreements”).

(7)In order to induce the Senior Note Trustee to enter into the Senior Note Indenture, the Grantors and the Chargor have agreed to grant, pursuant to the terms of this Agreement and the Second Priority Charge, as the case may be, a continuing security interest in and to the Collateral to the Second Priority Collateral Trustees for the ratable benefit of the

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holders of the Senior Notes (the “Senior Note Holders”) to secure the obligations of the Borrower under the Senior Note Indenture.

(8)It is a condition precedent to the entry into the Senior Note Indenture by the Senior Note Trustee that the Grantors shall have granted to the Second Priority Collateral Trustees the assignment and security interest and made the pledge and assignment contemplated by this Agreement.

(9)The Second Priority Collateral Trustees have agreed, pursuant to the terms of the Second Priority Collateral Trust Agreement, to accept the pledge and assignment, and the grant of a security interest, under this Agreement as security for the Second Priority Secured Obligations (as defined in the Second Priority Collateral Trust Agreement).

(10)Each Grantor will derive substantial direct and indirect benefit from the transactions contemplated by the Second Priority Secured Agreements (as defined in the Second Priority Collateral Trust Agreement).

(11)The Borrower has the security entitlements (the “Pledged Security Entitlements”) with respect to all the financial assets (the “Pledged Financial Assets”) credited from time to time to the Borrower’s securities accounts (the “Securities Accounts”) set forth and as otherwise described in Schedule VI hereto with the Persons named therein (each a “Securities Intermediary”).

(12)Each Grantor is the owner of the shares of stock or other Equity Interests (the “Initial Pledged Equity”) set forth opposite such Grantor’s name on and as otherwise described in Part I of Schedule II hereto and issued by the Persons named therein and the Borrower is the owner of the indebtedness (the “Initial Pledged Debt”) set forth opposite the Borrower’s name on and as otherwise described in Part II of Schedule II hereto and issued by the obligors named therein.

(13)The Borrower has opened a Second Priority Collateral Account (as defined in the Second Priority Collateral Trust Agreement) under the control of the Second Priority Corporate Trustee and subject to the terms of this Agreement and the other Second Priority Collateral Documents (as defined in the Second Priority Collateral Trust Agreement).

(14)The Borrower maintains deposit accounts (the “Deposit Accounts”) with banks, in the name of the Borrower and subject to the terms of this Agreement, as described in Schedule V hereto.

(15)Terms defined in the Senior Note Indenture or the Second Priority Collateral Trust Agreement and not otherwise defined in this Agreement are used in this Agreement as defined in the Senior Note Indenture or the Second Priority Collateral Trust Agreement.  Further, unless otherwise defined in this Agreement, the Senior Note Indenture or the Second Priority Collateral Trust Agreement, terms defined in Article 8 or 9 of the UCC (as defined below) and/or in the Federal Book Entry Regulations (as defined below) are used in this Agreement as such terms are defined in such Article 8 or 9 and/or the Federal Book Entry Regulations.  “UCC” means the Uniform Commercial Code as in effect, from time to time, in the State of New York; provided that, if perfection or the effect of perfection or non-perfection

3

or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.  The term “Federal Book Entry Regulations” means (a) the federal regulations contained in Subpart B (“Treasury/Reserve Automated Debt Entry System (TRADES)”) governing book-entry securities consisting of U.S. Treasury bonds, notes and bills and Subpart D (“Additional Provisions”) of 31 C.F.R. Part 357, 31 C.F.R. § 357.2, § 357.10 through § 357.14 and § 357.41 through § 357.44 and (b) to the extent substantially identical to the federal regulations referred to in clause (a) above (as in effect from time to time), the federal regulations governing other book-entry securities.

NOW, THEREFORE, in consideration of the premises and in order to induce the Senior Note Trustee to enter into the Senior Note Indenture, each Grantor hereby agrees with the Second Priority Collateral Trustees for their benefit and in trust for the ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders as follows:

Section 1.Grant of Security.  Each Grantor, in order to secure the Second Priority Secured Obligations, hereby assigns and pledges to the Second Priority Collateral Trustees for their benefit and in trust for the equitable and ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders, and hereby grants to the Second Priority Collateral Trustees for their benefit and in trust for the equitable and ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders, a lien on and security interest in, such Grantor’s right, title and interest in and to the following, in each case, as to each type of property described below, whether now owned or hereafter acquired by such Grantor, wherever located, and whether now or hereafter existing or arising (collectively, the “Collateral”):

(a)in the case of the Borrower, all accounts, chattel paper (including, without limitation, tangible chattel paper and electronic chattel paper), instruments (including, without limitation, promissory notes), general intangibles (including, without limitation, payment intangibles) and other obligations of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and whether or not earned by performance, and all rights now or hereafter existing in and to all supporting obligations and in and to all security agreements, mortgages, Liens, leases, letters of credit and other contracts securing or otherwise relating to the foregoing property, in each case only to the extent such accounts, chattel paper, instruments, general intangibles and other obligations are owed to the Borrower from a Subsidiary of the Borrower (other than the Subsidiaries listed on Schedule VII hereto) (any and all of such accounts, chattel paper, instruments, general intangibles and other obligations, to the extent not referred to in clause (b), (c) or (d) below, being the “Receivables”, and any and all such supporting obligations, security agreements, mortgages, Liens, leases, letters of credit and other contracts being the “Related Contracts”);

(b)the following (the “Security Collateral”):

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(i)the Initial Pledged Equity and the certificates, if any, representing the Initial Pledged Equity, and all dividends, distributions, return of capital, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Initial Pledged Equity and all subscription warrants, rights or options issued thereon or with respect thereto;

(ii)in the case of the Borrower, the Initial Pledged Debt and the instruments, if any, evidencing the Initial Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Initial Pledged Debt;

(iii)all additional shares of stock and other Equity Interests of or in any issuer of the Initial Pledged Equity or any successor entity from time to time acquired by such Grantor in any manner  and all additional shares of stock or Equity Interests of or in any new direct Subsidiary (other than a Non-Pledged Subsidiary) of such Grantor formed or acquired by such Grantor in any manner after the date of this Agreement (such shares and other Equity Interests, together with the Initial Pledged Equity, being the “Pledged Equity”), and the certificates, if any, representing such additional shares or other Equity Interests, and all dividends, distributions, return of capital, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares or other Equity Interests and all subscription warrants, rights or options issued thereon or with respect thereto;

(iv)all additional indebtedness from time to time owed to the Borrower by any obligor of the Initial Pledged Debt or any successor entity (such indebtedness, together with the Initial Pledged Debt, being the “Pledged Debt”) and the instruments, if any, evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness;

(v)in the case of the Borrower, the Securities Accounts, all Pledged Security Entitlements with respect to all Pledged Financial Assets from time to time credited to the Securities Accounts, and all Pledged Financial Assets, and all dividends, distributions, return of capital, interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Security Entitlements or such Pledged Financial Assets and all subscription warrants, rights or options issued thereon or with respect thereto; and

(vi)all other investment property (including, without limitation, all (A) securities, whether certificated or uncertificated, (B) security entitlements and (C) securities accounts) in which the Borrower has now, or acquires from time to time hereafter, any right, title or interest in any manner, and the certificates or

5

instruments, if any, representing or evidencing such investment property, and all dividends, distributions, return of capital, interest, distributions, value, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such investment property and all subscription warrants, rights or options issued thereon or with respect thereto;

provided, however, that if any time after the date of this Agreement the Borrower obtains the appropriate consents and regulatory approvals with respect to AES Oasis Finco Inc. and AES Oasis Holdco Inc., the Equity Interests in AES Oasis Finco, Inc. and AES Oasis Holdco, Inc. shall be pledged to the extent permissible at such time;

(c)in the case of the Borrower each of the agreements listed on Schedule III hereto (collectively, the “Assigned Agreements”), including, without limitation, (i) all rights of the Borrower to receive moneys due and to become due under or pursuant to the Assigned Agreements, (ii) all rights of the Borrower to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii) claims of the Borrower for damages arising out of or for breach of or default under the Assigned Agreements and (iv) the right of the Borrower to terminate the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder (all such Collateral being the “Agreement Collateral”);

(d)the following (collectively, the “Account Collateral”):

(i)in the case of the Borrower, the Deposit Accounts and all funds and financial assets from time to time credited thereto (including, without limitation, all Cash Equivalents, all interest, dividends, distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such funds and financial assets, and all certificates and instruments, if any, from time to time representing or evidencing the Deposit Accounts);

(ii)all promissory notes, certificates of deposit, deposit accounts, checks and other instruments from time to time delivered to or otherwise possessed by the Controlling Collateral Trustees for or on behalf of the Borrower, including, without limitation, those delivered or possessed in substitution for or in addition to any or all of the then existing Account Collateral; and

(iii)all interest, dividends, distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Account Collateral; and

(e)all proceeds of, collateral for, income, and other payments now or hereafter due and payable with respect to, and supporting obligations relating to, any and all of the Collateral (including, without limitation, proceeds, collateral and supporting obligations that constitute property of the types described in clauses (a) through (d) of this Section 1 and this clause (e)) and, to the extent not otherwise included, all

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(A) payments under insurance (whether or not the Second Priority Collateral Trustees are the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral, (B) tort claims, including, without limitation, all commercial tort claims and (C) cash.

Notwithstanding the foregoing provisions of this Section 1 or of any other Second Priority Secured Agreement, the grant of a security interest as provided herein shall not extend to, and the term “Collateral” shall not include, as to each Grantor, more than 65% of the outstanding voting stock of any CFC (the “Excluded Assets”).

Section 2.Security for Obligations.  (a)  This Agreement secures the payment of all of the Second Priority Secured Obligations of the Borrower.  Without limiting the generality of the foregoing, this Agreement secures, as to each Grantor, the payment of all amounts that constitute part of the Second Priority Secured Obligations and would be owed by such Grantor to any Second Priority Secured Holder but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Grantor.

(b)The Lien created by this Agreement and the other Second Priority Collateral Documents shall be subordinate in all respects (including the exercise of remedies with respect to such Collateral) to the prior Lien of the First Priority Collateral Documents in existence from time to time, in accordance with Article IX of the Second Priority Collateral Trust Agreement.

Section 3.Grantors Remain Liable.  Anything herein to the contrary notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included in such Grantor’s Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Controlling Collateral Trustees of any of the rights hereunder or under the Second Priority Security Agreement, as the case may be shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) none of the Second Priority Collateral Trustees, any Second Priority Representative or any Second Priority Secured Holder shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement or any other Second Priority Secured Agreement, nor shall any of the Second Priority Collateral Trustees, any Second Priority Representative or any Second Priority Secured Holder be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder or thereunder.

Section 4.Delivery and Control of Security Collateral.  (a)  All certificates or instruments representing or evidencing Security Collateral shall be delivered to and held by or on behalf of the Controlling Collateral Trustees pursuant to this Agreement and the Second Priority Collateral Trust Agreement and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Controlling Collateral Trustees.  Subject to the Second Priority Collateral Trust Agreement, the Second Priority Collateral Trustees shall have the right, at any time after the occurrence and during the continuance of a Second Priority Collateral Trust

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Agreement Default, in their discretion and without notice to any Grantor, to transfer to or to register in the name of the Second Priority Collateral Trustees or any of their nominees any or all of the Security Collateral, subject only to the revocable rights specified in Section 10, and subject to the Remedies Limitations (as defined in Section 7(i)).  In addition, subject to the Second Priority Collateral Trust Agreement, the Second Priority Collateral Trustees shall have the right at any time, after the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, to exchange certificates or instruments representing or evidencing Security Collateral for certificates or instruments of smaller or larger denominations.  Also, subject to the Second Priority Collateral Trust Agreement, the Second Priority Collateral Trustees shall have the right at any time, after the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, to convert Security Collateral consisting of financial assets credited to the Securities Accounts to Security Collateral consisting of financial assets held directly by the Second Priority Collateral Trustees.

(b)With respect to any Security Collateral in which any Grantor has any right, title or interest and that constitutes an uncertificated security, subject to the Remedies Limitations, such Grantor will cause the issuer thereof either (i) to register the Controlling Collateral Trustees as the registered owners of such security or (ii) to agree in an authenticated record with such Grantor and the Controlling Collateral Trustees that such issuer will comply with instructions with respect to such security originated by the Controlling Collateral Trustees without further consent of such Grantor, such authenticated record to be in form and substance satisfactory to the Controlling Collateral Trustees.  With respect to any Security Collateral in which any Grantor has any right, title or interest and that is not an uncertificated security, upon the request of the Controlling Collateral Trustees, such Grantor will notify each such issuer of Pledged Equity that such Pledged Equity is subject to the security interest granted hereunder and the Borrower will notify each such issuer of Pledged Debt that such Pledged Debt is subject to the security interest granted hereunder.

(c)Subject to the Second Priority Collateral Trust Agreement, with respect to any Security Collateral in which the Borrower has any right, title or interest and that constitutes a security entitlement in which the Second Priority Collateral Trustees are not the entitlement holders, the Borrower will cause the securities intermediary with respect to such security entitlement either (i) to identify in its records the Second Priority Collateral Trustees as the entitlement holders of such security entitlement against such securities intermediary or (ii) to agree in an authenticated record with the Borrower and the Second Priority Collateral Trustees that such securities intermediary will comply with entitlement orders (that is, notifications communicated to such securities intermediary directing transfer or redemption of the financial asset to which such Grantor has a security entitlement) originated by the Second Priority Collateral Trustees upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, without further consent of such Grantor, such authenticated record to be in substantially the form of Exhibit D hereto or otherwise in form and substance satisfactory to the Second Priority Collateral Trustees (such agreement being a “Securities Account Control Agreement”).

(d)The Borrower agrees that it will not add any securities intermediary that maintains a securities account for the Borrower or open any new securities account with any then existing Securities Intermediary unless (i) the Second Priority Collateral Trustees and the

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Required Second Priority Representatives shall have received at least 10 days’ prior written notice of such additional securities intermediary or such new securities account and (ii) the Second Priority Collateral Trustees shall have received, in the case of a Securities Account that is maintained by a Securities Intermediary that is not the Second Priority Corporate Trustee, a Securities Account Control Agreement authenticated by such new securities intermediary and the Borrower, or a supplement to an existing Securities Account Control Agreement with such then existing Securities Intermediary, covering such new securities account (and, upon the receipt by the Second Priority Collateral Trustees of such Securities Account Control Agreement or supplement, Schedule VI hereto shall be automatically amended to include such new Securities Account).  The Borrower agrees that it will not terminate any Securities Account, except that the Borrower may terminate a Securities Account, if it gives the Second Priority Collateral Trustees and the Required Second Priority Representatives at least 10 days’ prior written notice of such termination (and, upon such termination, Schedule VI hereto shall be automatically amended to delete such Securities Intermediary and Securities Account).  The Borrower will not change or add any securities intermediary that maintains any securities account in which any of the Collateral is credited or carried, or change or add any such securities account, in each case without first complying with the provisions of this Section 4 in order to continuously perfect the security interest granted hereunder in such Collateral.

(e)Upon any termination by the Borrower of any Securities Account by the Borrower, or any Securities Intermediary with respect thereto, the Borrower will immediately transfer all funds and property held in such terminated Securities Account to another Securities Account listed in Schedule VI hereto.

(f)Subject to the Second Priority Collateral Trust Agreement and upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, the Second Priority Collateral Trustees shall have the right to originate a Notice of Exclusive Control (as such term is defined in the applicable Securities Account Control Agreement) with respect to any Securities Account and thereafter shall have the sole and exclusive right to direct the disposition of the funds and assets with respect to any such Securities Account; provided, however that (i) the Securities Intermediary shall have received, prior to the receipt of the Notice of Exclusive Control from the Second Priority Collateral Trustees, a notice from the First Priority Collateral Trustees that the First Priority Security Interest (as defined in the applicable Securities Account Control Agreement) has been terminated or (ii) the First Priority Collateral Trustees shall have consented in writing to the origination of the Notice of Exclusive Control by the Second Priority Collateral Trustees.

Section 5.Maintaining the Account Collateral.  So long as any of the Second Priority Secured Obligations remain outstanding:

(a)The Borrower will maintain all Account Collateral only with the Second Priority Corporate Trustee or with banks (the “Pledged Account Banks”) that have agreed, in a record authenticated by the Borrower, the Second Priority Collateral Trustees and the Pledged Account Banks, to, subject to the Second Priority Collateral Trust Agreement, (i) comply with instructions originated by the Second Priority Collateral Trustees directing the disposition of funds in the Account Collateral without the further consent of the Borrower upon the receipt by the applicable Pledge Account Bank of a

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Notice of Exclusive Control (as defined in the applicable Account Control Agreement referred to below) and (ii) waive or subordinate in favor of the Second Priority Collateral Trustees all claims of the Pledged Account Banks (including, without limitation, claims by way of a security interest, lien or right of setoff or right of recoupment but subject to such exceptions as may be agreed) to the Account Collateral, which authenticated record shall be substantially in the form of Exhibit B hereto, or shall otherwise be in form and substance satisfactory to the Second Priority Collateral Trustees (the “Account Control Agreement”).

(b)The Borrower will cause each Person obligated at any time to make any payment to the Borrower for any reason (an “Obligor”) to make such payment to a Deposit Account.

(c)The Borrower agrees that it will not add any bank that maintains a deposit account for the Borrower or open any new deposit account with any then existing Pledged Account Bank unless (i) the Second Priority Collateral Trustees and the Required Second Priority Representatives shall have received at least 10 days’ prior written notice of such additional bank or such new deposit account and (ii) the Second Priority Collateral Trustees shall have received, in the case of a bank or Pledged Account Bank that is not the Second Priority Corporate Trustee, an Account Control Agreement authenticated by such new bank and the Borrower, or a supplement to an existing Account Control Agreement with such then existing Pledged Account Bank, covering such new deposit account (and, upon the receipt by the Second Priority Collateral Trustees of such Account Control Agreement or supplement, Schedule V hereto shall be automatically amended to include such new Deposit Account).  The Borrower agrees that it will not terminate any bank as a Pledged Account Bank or terminate any Account Collateral, except that the Borrower may terminate a Deposit Account, and terminate a bank as a Pledged Account Bank with respect to a Deposit Account, if it gives the Second Priority Collateral Trustees and the Required Second Priority Representatives at least 10 days’ prior written notice of such termination (and, upon such termination, Schedule V hereto shall be automatically amended to delete such Pledged Account Bank and Deposit Account).  The Borrower will not change or add any bank that maintains any deposit account in which any of the Account Collateral is credited or carried, or change or add any such deposit account, in each case without first complying with the provisions of this Section 5 in order to continuously perfect the security interest granted hereunder in such Account Collateral.

(d)Upon any termination by the Borrower of any Deposit Account by the Borrower, or any Pledged Account Bank with respect thereto, the Borrower will immediately (i) transfer all funds and property held in such terminated Deposit Account to another Deposit Account listed in Schedule V hereto and (ii) notify all Obligors that were making payments to such Deposit Account to make all future payments to another Deposit Account listed in Schedule V hereto, in each case so that the Second Priority Collateral Trustees shall have a continuously perfected security interest in such Account Collateral, funds and property.

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(e)Subject to the Second Priority Collateral Trust Agreement and upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, the Second Priority Collateral Trustees shall have the right to originate a Notice of Exclusive Control (as such term is defined in the applicable Account Control Agreement) with respect to any Deposit Account and thereafter shall have the sole and exclusive right at such time to direct the disposition of funds with respect to the applicable Deposit Accounts; provided, however that (i) the Pledged Account Bank shall have received, prior to the receipt of the Notice of Exclusive Control from the Second Priority Collateral Trustees, a notice from the First Priority Collateral Trustees that the First Priority Security Interest (as defined in the applicable Securities Account Control Agreement) has been terminated or (ii) the First Priority Collateral Trustees shall have consented in writing to the origination of the Notice of Exclusive Control by the Second Priority Collateral Trustees.

Section 6.Maintaining Letter-of-Credit Rights.  Subject to the Second Priority Collateral Trust Agreement and so long as any of the Second Priority Secured Obligations remain outstanding, each Grantor will maintain all letter-of-credit rights assigned to the Second Priority Collateral Trustees so that the Second Priority Collateral Trustees have control of the letter-of-credit rights in the manner specified in Section 9-107 of the UCC.

Section 7.Representations and Warranties.  Each Grantor represents and warrants as follows:

(a)Such Grantor’s exact legal name, as defined in Section 9-503(a) of the UCC, is correctly set forth in Schedule I hereto.  Such Grantor is located (within the meaning of Section 9-307 of the UCC) in the state or jurisdiction set forth on Schedule I hereto.  In the case of the Borrower, the Borrower has its chief executive office and the office in which it maintains the original copies of each Assigned Agreement and Related Contract to which the Borrower is a party and all originals of all chattel paper that evidence Receivables of the Borrower, in the state or jurisdiction set forth in Schedule I hereto.  The information set forth in Schedule I hereto with respect to such Grantor is true and accurate in all respects.  Such Grantor has not previously changed its name, location, chief executive office, place where it maintains its agreements, type of organization, jurisdiction of organization or organizational identification number from those set forth in Schedule I hereto except as disclosed in Schedule IV hereto.

(b)Such Grantor is the legal and beneficial owner of the Collateral of such Grantor free and clear of any Lien, claim, option or right of others, except for the security interest (A) created under (i) this Agreement (ii) the First Priority Collateral Documents and (iii) the other Second Priority Collateral Documents or (B) permitted under (i) the Senior Note Indenture and (ii) the other Applicable Agreements.  No effective financing statement or other instrument similar in effect covering all or any part of such Collateral or listing such Grantor or any trade name of such Grantor as debtor is on file in any recording office, except such as may have been filed in favor of the First Priority Collateral Trustees relating to the First Priority Secured Agreements or the Second Priority Collateral Trustees relating to the Second Priority Secured Agreements.

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(c)The Pledged Equity pledged by such Grantor hereunder has been duly authorized and validly issued and is fully paid and non-assessable.  With respect to the Pledged Equity that is an uncertificated security, subject to the Remedies Limitations, such Grantor has caused the issuer thereof either (i) to register the Controlling Collateral Trustees as the registered owners of such security or (ii) to agree in an authenticated record with such Grantor and the Controlling Collateral Trustees that such issuer will comply with instructions with respect to such security originated by the Controlling Collateral Trustees without further consent of such Grantor.  If such Grantor is an issuer of Pledged Equity, such Grantor confirms that it has received notice of such security interest.  In the case of the Borrower, the Pledged Debt pledged by the Borrower hereunder has been duly authorized, authenticated or issued and delivered, is the legal, valid and binding obligation of the issuers thereof, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law, is evidenced by one or more promissory notes (which notes have been delivered to the Controlling Collateral Trustees) and as of the date hereof is not in default.  All Security Collateral consisting of certificated securities and instruments have been delivered to the Controlling Collateral Trustees.

(d)The Initial Pledged Equity pledged by such Grantor constitutes the percentage of the issued and outstanding Equity Interests of the issuers thereof indicated on Schedule II hereto.  In the case of the Borrower, the Initial Pledged Debt constitutes all of the outstanding indebtedness owed to the Borrower by the issuers thereof and is outstanding in the principal amount indicated on Schedule II hereto.

(e)In the case of the Borrower, the Assigned Agreements to which the Borrower is a party, true and complete copies of which have been furnished to the Second Priority Collateral Trustees, have been duly authorized, executed and delivered by all parties thereto, have not been amended, amended and restated, supplemented or otherwise modified, are in full force and effect and are binding upon and enforceable against the Borrower, and to the Borrower’s knowledge, all parties thereto in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.  There exists no default as of the date hereof under any Assigned Agreement to which the Borrower is a party by any party thereto.  Other than the Borrower, each party to the Assigned Agreements listed on Schedule III hereto which requires such parties’ consent for assignment and to which the Borrower is a party has executed and delivered to the Borrower a consent, in substantially the form of Exhibit C hereto or otherwise in form and substance satisfactory to the Second Priority Collateral Trustees, to the assignment of the Agreement Collateral to the Second Priority Collateral Trustees pursuant to this Agreement.

(f)In the case of the Borrower, the Borrower has no deposit accounts, other than the Account Collateral listed on Schedule V hereto, as such Schedule V may be amended from time to time pursuant to Section 5(d), and legal, binding and enforceable Account Control Agreements are in effect for each deposit account that constitutes

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Account Collateral (other than Account Collateral consisting of Deposit Accounts maintained with the Second Priority Corporate Trustees), except to the extent such Account Control Agreements are not required by Section 5(a).  The Borrower has instructed all existing Obligors to make all payments to a Deposit Account.

(g)In the case of the Borrower, the Borrower has no deposit accounts which are not the subject of a legal, binding and enforceable Account Control Agreement.

(h)In the case of the Borrower, the Borrower has no securities accounts, other than the Securities Accounts listed on Schedule VI hereto, as such Schedule VI may be amended from time to time pursuant to Section 4(d), and legal, binding and enforceable Securities Account Control Agreements are in effect for each securities account that constitutes Security Collateral (other than Security Collateral maintained with the Second Priority Corporate Trustee in the Second Priority Collateral Account), except to the extent such Securities Account Control Agreements are not required by Section 4(c).

(i)In the case of the Borrower, the Borrower has no securities accounts which are not the subject of a legal, binding and enforceable Securities Account Control Agreement.

(j)All filings and other actions (including, without limitation, actions necessary to obtain control of Collateral as provided in Sections 9-104, 9-105, 9-106 and 9-107 of the UCC) necessary to perfect the security interest in the Collateral of such Grantor created under this Agreement have been duly made or taken and are in full force and effect, and this Agreement creates in favor of the Second Priority Collateral Trustees for the benefit of the Second Priority Representatives and the Second Priority Secured Holders a valid and, together with such filings and other actions, perfected security interest in the Collateral of such Grantor, securing the payment of the Second Priority Secured Obligations.

(k)(i) The execution, delivery, recordation, filing or performance by such Grantor of this Agreement, (ii) the grant by such Grantor of the Liens granted by it pursuant to this Agreement, (iii) the perfection or maintenance of the Liens created under this Agreement (including the second priority nature thereof), (iv) the exercise by the Second Priority Collateral Trustees of their voting or other rights provided for in this Agreement and (v) the exercise by the Second Priority Collateral Trustees of their remedies in respect of the Collateral pursuant to this Agreement and the other Second Priority Collateral Documents, will not require any consent, approval, authorization or other order of, or any notice to or filing with, any court, regulatory body, administrative agency or other governmental body (other than (w) the consent of the Credit Agreement Parties, which consent has been obtained, (x) such filings required in order to perfect any security interest granted by this Agreement, (y) the actions described in Section 4 with respect to the Security Collateral, which actions have been taken and are in full force and effect and (z) any other consent, approval, authorization, order, notice or filing, the failure of which to make or obtain could not reasonably be expected to have a Material Adverse Effect), and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Borrower or any of the

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Pledged Subsidiaries or any agreement, indenture or other instrument to which the Borrower or any of the Pledged Subsidiaries is a party or by which the Borrower or any of the Pledged Subsidiaries or any of the Borrower’s or any of the Pledged Subsidiaries’ respective property is bound, or violate or conflict with any laws, administrative regulations or rulings or court decrees applicable to the Borrower, any of the Pledged Subsidiaries or the Borrower’s or any of the Pledged Subsidiaries’ respective property, except for any violation, breach, conflict or default that could not reasonably be expected to have a Material Adverse Effect and except that in each of the foregoing cases, (A) any foreclosure or other exercise of remedies by the Second Priority Collateral Trustees pursuant to this Agreement and the other Second Priority Collateral Documents will require additional approvals and consents that have not been obtained from foreign and domestic regulators and from lenders to, and suppliers, customers or other contractual counterparties of one or more Subsidiaries, and the failure to obtain such approval or consent could result in a default under, or breach of, agreements or other legal obligations of such Subsidiary and (B) disposition of any of the Security Collateral may be subject to the receipt of regulatory approvals and to laws affecting the offering and sale of securities generally (the exceptions described in the foregoing clauses (A) and (B) are referred to as “Remedies Limitations”).

Section 8.Further Assurances.  (a)  Subject to the Remedies Limitations, each Grantor agrees that from time to time, at the expense of such Grantor, such Grantor will promptly execute and deliver, or otherwise authenticate, all further instruments and documents, and take all further action that may be necessary or desirable, or that the Second Priority Collateral Trustees may request and that is within the power of such Grantor, consistent with its currently existing contractual and other legal obligations, in order to perfect any pledge, assignment or security interest granted or purported to be granted by such Grantor hereunder or to enable the Second Priority Collateral Trustees to exercise and enforce their rights and remedies hereunder and under the other Second Priority Collateral Documents with respect to any Collateral of such Grantor.  Without limiting the generality of the foregoing, each Grantor will promptly with respect to Collateral of such Grantor:  (i) mark conspicuously each chattel paper included in Receivables, each Related Contract and, at the request of the Second Priority Collateral Trustees, each of its records pertaining to such Collateral with a legend, in form and substance satisfactory to the Second Priority Collateral Trustees, indicating that such chattel paper, Related Contract, Assigned Agreement or Collateral is subject to the security interest granted hereby; provided, however, that no such legend shall be required if such Collateral is delivered to the Controlling Collateral Trustees pursuant to clause (ii) below, (ii) if any such Collateral shall be evidenced by a promissory note or other instrument or chattel paper, deliver and pledge to the Controlling Collateral Trustees such note or instrument or chattel paper duly indorsed or accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Controlling Collateral Trustees, (iii) execute or authenticate and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Second Priority Collateral Trustees may request, in order to perfect the security interest granted or purported to be granted by such Grantor hereunder, (iv) deliver to the Controlling Collateral Trustees and pledge to the Second Priority Collateral Trustees for the ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders certificates representing Security Collateral that constitutes certificated securities, accompanied by undated stock or bond powers executed in blank, (v) take

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all action necessary to ensure that the Controlling Collateral Trustees have control of Collateral consisting of deposit accounts, investment property, letter-of-credit rights and transferable records as provided in Sections 9-104, 9-105, 9-106 and 9-107 of the UCC, and (vi) deliver to the Second Priority Collateral Trustees evidence that all other action that the Second Priority Collateral Trustees may deem reasonably necessary or desirable in order to perfect the security interest created by such Grantor under this Agreement and the other Second Priority Collateral Documents has been taken.

(b)(i) Each Grantor hereby authorizes the Second Priority Collateral Trustees to file one or more financing or continuation statements relating to all or any part of the Collateral of such Grantor, and amendments thereto to correct the name and address of the Grantor or the Second Priority Collateral Trustees or to correct the description of the Collateral contained therein to be consistent with the description of the Collateral contained in this Agreement, in each case without the signature of such Grantor where permitted by law and which shall be filed by the Second Priority Collateral Trustees upon the receipt of an instruction letter from the Required Second Priority Representatives requesting the taking of such action and attaching the form of financing statement.  A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

(ii)Each Grantor ratifies its authorization for the Second Priority Collateral Trustees to have filed such financing statements, continuation statements or amendments, to the extent such amendments are permitted pursuant to clause (i) above, filed prior to the date hereof.

(c)Each Grantor will furnish to the Second Priority Collateral Trustees (with copies to the First Priority Collateral Trustees or the applicable agent under the Eligible Debt Agreements) from time to time statements and schedules further identifying and describing the Collateral of such Grantor and such other reports in connection with such Collateral as the Second Priority Collateral Trustees may reasonably request, all in reasonable detail.

Section 9.Post-Closing Changes; Collections on Assigned Agreements, Receivables and Related Contracts.  (a)  No Grantor will change its name, type of organization, jurisdiction of organization, organizational identification number or location from those set forth in Section 7(a) of this Agreement without first giving at least 30 days’ prior written notice to the Second Priority Collateral Trustees and taking all action required by the Second Priority Collateral Trustees for the purpose of perfecting or protecting the security interest granted by this Agreement.  The Borrower will not change the location of the place where it keeps the originals of the Assigned Agreements and Related Contracts to which the Borrower is a party and all originals of all chattel paper that evidence Receivables of the Borrower from the locations therefor specified in Section 7(a) without first giving the Second Priority Collateral Trustees 30 days’ prior written notice of such change.  No Grantor will become bound by a security agreement authenticated by another Person (determined as provided in Section 9-203(d) of the UCC) without giving the Second Priority Collateral Trustees 30 days’ prior written notice thereof and taking all action required by the Second Priority Collateral Trustees to ensure that the perfection of the Second Priority Collateral Trustees’ security interest in the Collateral will be maintained.  Each Grantor will hold and preserve its records relating to the Collateral, including, without limitation, the Assigned Agreements and Related Contracts, and will permit

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representatives of the Second Priority Collateral Trustees at any time during normal business hours to inspect and make abstracts from such records and other documents.  If the Grantor does not have an organizational identification number and later obtains one, it will forthwith notify the Collateral Trustees of such organizational identification number.

(b)Except as otherwise provided in this subsection (b), each Grantor will continue to collect, at its own expense, all amounts due or to become due such Grantor under the Assigned Agreements, Receivables and Related Contracts.  In connection with such collections, such Grantor may take (and, at the Controlling Collateral Trustees’ direction, will take) such action as such Grantor may deem necessary or advisable to enforce collection of the Assigned Agreements, Receivables and Related Contracts; provided, however, that, subject to the Second Priority Collateral Trust Agreement, the Second Priority Collateral Trustees shall have the right at any time, upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default and uponwritten notice to such Grantor of its intention to do so, to notify the Obligors under any Assigned Agreements, Receivables and Related Contracts of the assignment of such Assigned Agreements, Receivables and Related Contracts to the Second Priority Collateral Trustees and to direct such Obligorsto make payment of all amounts due or to become due to such Grantor thereunder directly to the Second Priority Collateral Trustees and, upon such notification and at the expense of such Grantor, to enforce collection of any such Assigned Agreements, Receivables and Related Contracts, to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done, and to otherwise exercise all rights with respect to such Assigned Agreements, Receivables and Related Contracts, including, without limitation, those set forth set forth in Section 9-607 of the UCC.  After receipt by any Grantor of the notice from the Second Priority Collateral Trustees referred to in the proviso to the preceding sentence, (i) all amounts and proceeds (including, without limitation, instruments) received by such Grantor in respect of the Assigned Agreements, Receivables and Related Contracts of such Grantor shall be received in trust for the benefit of the Second Priority Collateral Trustees hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Second Priority Collateral Trustees in the same form as so received (with any necessary indorsement) to be held as cash collateral in the Second Priority Collateral Account and either (A) released to such Grantor so long as no Second Priority Collateral Trust Agreement Default shall have occurred and be continuing or (B) upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, the Second Priority Collateral Trustees shall, upon receipt of a written notice from the Required Second Priority Representatives, apply such cash collateral as provided in the Second Priority Collateral Trust Agreement and (ii) such Grantor will not adjust, settle or compromise the amount or payment of any Receivable or amount due on any Assigned Agreement or Related Contract, release wholly or partly any Obligor thereof, or allow any credit or discount thereon.  No Grantor will permit or consent to the subordination of its right to payment under any of the Assigned Agreements, Receivables and Related Contracts to any other indebtedness or obligations of the Obligor thereof.

Section 10.Voting Rights; Dividends; Etc.  (a)  So long as no Second Priority Collateral Trust Agreement Default shall have occurred and be continuing:

(i)Each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Security Collateral of such Grantor or any part thereof

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for any purpose; provided, however, that such Grantor will not exercise or refrain from exercising any such right if such action would have a material adverse effect on the value of the Security Collateral or any part thereof.

(ii)Each Grantor shall be entitled to receive and retain any and all dividends, interest and other distributions paid in respect of the Security Collateral of such Grantor if and to the extent that the payment thereof is not otherwise prohibited by the terms of the Applicable Agreements; provided, however, that any and all dividends, interest and other distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Security Collateral, shall be, and shall be forthwith delivered to the Controlling Collateral Trustees to hold as Security Collateral and shall, if received by such Grantor, be received in trust for the benefit of the Controlling Collateral Trustees, be segregated from the other property or funds of such Grantor and be forthwith delivered to the Controlling Collateral Trustees as Security Collateral in the same form as so received (with any necessary indorsement).

(iii)The Controlling Collateral Trustees will execute and deliver (or cause to be executed and delivered) to each Grantor all such proxies and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments that it is authorized to receive and retain pursuant to paragraph (ii) above.

(b)Subject to the Second Priority Collateral Trust Agreement and upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default:

(i)All rights of each Grantor (x) to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 10(a)(i) shall, upon notice to such Grantor by the Second Priority Collateral Trustees, cease and (y) to receive the dividends, interest and other distributions that it would otherwise be authorized to receive and retain pursuant to Section 10(a)(ii) shall automatically cease, and, subject to the Remedies Limitations, all such rights shall thereupon become vested in the Second Priority Collateral Trustees, who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Collateral such dividends, interest and other distributions and shall deposit the same into the Second Priority Collateral Account; and

(ii)All dividends, interest and other distributions that are received by any Grantor contrary to the provisions of paragraph (i) of this Section 10(b) shall be received in trust for the benefit of the Second Priority Collateral Trustees, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Second Priority Collateral Trustees to be deposited into the Second Priority Collateral Account.

Section 11.As to the Assigned Agreements.  (a)  The Borrower will at its expense:

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(i)perform and observe all terms and provisions of the Assigned Agreements to be performed or observed by it, maintain the Assigned Agreements to which it is a party in full force and effect, enforce the Assigned Agreements to which it is a party in accordance with the terms thereof and take all such action to such end as may be requested from time to time by the Second Priority Collateral Trustees; and

(ii)furnish to the Second Priority Collateral Trustees promptly upon receipt thereof copies of all notices, requests and other documents received by the Borrower under or pursuant to the Assigned Agreements to which it is a party, and from time to time (A) furnish to the Second Priority Collateral Trustees such information and reports regarding the Assigned Agreements and such other Collateral of the Borrower as the Second Priority Collateral Trustees may reasonably request and (B) upon request of the Second Priority Collateral Trustees make to each other party to any Assigned Agreement to which it is a party such demands and requests for information and reports or for action as the Borrower is entitled to make thereunder.

(b)The Borrower agrees that it will not, except to the extent otherwise permitted under the Applicable Agreements:

(i)cancel or terminate any Assigned Agreement to which it is a party or consent to or accept any cancellation or termination thereof;

(ii)amend, amend and restate, supplement or otherwise modify any such Assigned Agreement or give any consent, waiver or approval thereunder;

(iii)waive any default under or breach of any such Assigned Agreement; or

(iv)take any other action in connection with any such Assigned Agreement that would impair the value of the interests or rights of the Borrower thereunder or that would impair the interests or rights of any Second Priority Secured Holder.

Section 12.Payments Under the Assigned Agreements; Letters of Credit.  (a) The Borrower agrees, and has effectively so instructed each other party to each Assigned Agreement to which it is a party, that all payments due or to become due under or in connection with such Assigned Agreement will be made directly to a Deposit Account.

(b)Subject to the Second Priority Collateral Trust Agreement and upon the occurrence of a Second Priority Collateral Trust Agreement Default, each Grantor will, promptly upon request by the Second Priority Collateral Trustees, (i) notify (and such Grantor hereby authorizes the Second Priority Collateral Trustees to notify) the issuer and each nominated person with respect to each of the Related Contracts consisting of letters of credit that the proceeds thereof have been assigned to the Second Priority Collateral Trustees hereunder and any payments due or to become due in respect thereof are to be made directly to the Second Priority Collateral Trustees or their designee and (ii) arrange for the Second Priority Collateral Trustees to become the transferee beneficiaries of letters of credit.

Section 13.Transfers and Other Liens; Additional Shares.  (a)  Each Grantor agrees that it will not (i) sell, assign or otherwise dispose of, or grant any option with respect to,

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any of the Collateral, other than sales, assignments and other dispositions of Collateral, and options relating to Collateral, permitted under the terms of the Applicable Agreements or (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral of such Grantor except for the pledge, assignment and security interest (A) created under (x) this Agreement, (y) the First Priority Collateral Documents (z) the other Second Priority Collateral Documents and (B) permitted under (x) the Senior Note Indenture or (y) any other Applicable Agreements.

(b)Each Grantor agrees that it will (i) cause each issuer of the Pledged Equity pledged by such Grantor not to issue any Equity Interests or other securities in substitution for the Pledged Equity issued by such issuer, except to such Grantor and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional Equity Interests or other securities of each issuer of the Pledged Equity issued to such Grantor.

Section 14.Second Priority Collateral Trustees May Perform.  Subject to the Second Priority Collateral Trust Agreement, if any Grantor fails to perform any agreement contained herein, the Second Priority Collateral Trustees may, but without any obligation to do so and without notice, themselves perform, or cause performance of, such agreement, and the expenses of the Second Priority Collateral Trustees incurred in connection therewith shall be payable by such Grantor under Section 16.

Section 15.Remedies.  Subject to the terms of the Second Priority Collateral Trust Agreement, if a Second Priority Collateral Trust Agreement Default shall have occurred and be continuing:

(a)Subject to the Remedies Limitations, the Second Priority Collateral Trustees may with the consent of the Required Second Priority Representatives, and shall at the request of the Required Second Priority Representatives, exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Collateral) and also may:  (i) require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of the Second Priority Collateral Trustees forthwith, assemble all or part of the Collateral as directed by the Second Priority Collateral Trustees and make it available to the Second Priority Collateral Trustees at a place and time to be designated by the Second Priority Collateral Trustees that is reasonably convenient to all parties, (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Second Priority Collateral Trustees’ offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Second Priority Collateral Trustees may deem commercially reasonable, and (iii) exercise any and all rights and remedies of any of the Grantors under or in connection with the Collateral, or otherwise in respect of the Collateral, including, without limitation, (A) any and all rights of such Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, the Assigned Agreements, the Receivables, the Related Contracts and the other Collateral, (B) withdraw, or cause or direct the withdrawal, of all funds with respect to the Account Collateral and (C) exercise all other rights and remedies with respect to the Assigned Agreements, the Receivables, the Related Contracts and the other Collateral, including, without limitation, those set forth in Section 9-607

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of the UCC.  Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification.  The Second Priority Collateral Trustees shall not be obligated to make any sale of Collateral regardless of notice of sale having been given.  The Second Priority Collateral Trustees may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(b)Any cash held by or on behalf of the Second Priority Collateral Trustees and all cash proceeds received by or on behalf of the Second Priority Collateral Trustees in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Second Priority Collateral Trustees, be held by the Second Priority Collateral Trustees as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Second Priority Collateral Trustees pursuant to Section 16) in whole or in part by the Second Priority Collateral Trustees for the ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders against, all or any part of the Second Priority Secured Obligations, in accordance with the terms of the Second Priority Collateral Trust Agreement.

(c)All payments received by the Borrower under or in connection with any Assigned Agreement or otherwise in respect of the Collateral shall be received in trust for the benefit of the Second Priority Collateral Trustees, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Second Priority Collateral Trustees in the same form as so received (with any necessary indorsement).

(d)The Second Priority Collateral Trustees may, without notice to the Borrower except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Second Priority Secured Obligations against any funds held in the Second Priority Collateral Account or in any other deposit account of the Borrower in accordance with clause (b) above.

(e)If the Second Priority Collateral Trustees shall determine to exercise their right to sell all or any of the Security Collateral of any Grantor pursuant to this Section 15, each Grantor agrees that, upon request of the Second Priority Collateral Trustees and subject to the Remedies Limitations, such Grantor will, at its own expense:

(i)execute and deliver, and cause each issuer of such Security Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Second Priority Collateral Trustees, advisable to register such Security Collateral under the provisions of the Securities Act of 1933 (as amended from time to time, the “Securities Act”), to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus that, in the opinion of the Second Priority

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Collateral Trustees, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto;

(ii)use its best efforts to qualify the Security Collateral under the state securities or “Blue Sky” laws and to obtain all necessary governmental approvals for the sale of such Security Collateral, as requested by the Second Priority Collateral Trustees;

(iii)cause each such issuer of such Security Collateral to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act;

(iv)provide the Second Priority Collateral Trustees with such other information and projections as may be necessary or, in the opinion of the Second Priority Collateral Trustees, advisable to enable the Second Priority Collateral Trustees to effect the sale of such Security Collateral; and

(v)do or cause to be done all such other acts and things as may be necessary to make such sale of such Security Collateral or any part thereof valid and binding and in compliance with applicable law.

(f)The Second Priority Collateral Trustees are authorized, in connection with any sale of the Security Collateral pursuant to this Section 16, to deliver or otherwise disclose to any prospective purchaser of the Security Collateral:  (i) any registration statement or prospectus, and all supplements and amendments thereto, prepared pursuant to subsection (e)(i) above, (ii) any information and projections provided to it pursuant to subsection (e)(iv) above and (iii) any other information in its possession relating to such Security Collateral.

(g)Each Grantor acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Second Priority Secured Holders by reason of the failure by such Grantor to perform any of the covenants contained in subsection (e) above and, consequently, agrees that, if such Grantor shall fail to perform any of such covenants, it will pay, as liquidated damages and not as a penalty, an amount equal to the value of the Security Collateral on the date the Second Priority Collateral Trustees shall demand compliance with subsection (e) above.

Section 16.Indemnity and Expenses.  (a)  Each Grantor agrees to indemnify, defend and save and hold harmless the Second Priority Collateral Trustees, each Second Priority Representative and each Second Priority Secured Holder and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or resulting from this Agreement (including, without limitation, enforcement of this Agreement) or any other Second Priority Collateral Document except to the extent such

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claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct.

(b)Each Grantor will upon demand pay to the Second Priority Collateral Trustees the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of their counsel and of any experts and agents, that the Second Priority Collateral Trustees may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral of such Grantor, (iii) the exercise or enforcement of any of the rights of the Second Priority Collateral Trustees, the Second Priority Representatives or the other Second Priority Secured Holders hereunder or (iv) the failure by such Grantor to perform or observe any of the provisions hereof.

Section 17.Amendments; Waivers; Additional Grantors; Etc.  (a)  No amendment or waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall (i) be in writing and signed by the Second Priority Collateral Trustees and (ii) otherwise comply with Section 10.01 of the Second Priority Collateral Trust Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  Notwithstanding the foregoing, amendments, waivers and consents effected in respect of the First Priority Security Agreement (or, in the case of any Eligible Debt Agreement, the applicable security agreement related to such Eligible Debt Agreement) shall upon their effectiveness apply with equal force to the comparable provisions of this Agreement and become effective with respect thereto without the consent of or any other action on the part of any Person; provided, however, that any such amendment, waiver or consent effected in respect of the First Priority Security Agreement (or, in the case of any Eligible Debt Agreement, the applicable security agreement relating to such Eligible Debt Agreement) which has the effect of releasing all or substantially all of the Collateral shall not automatically apply to this Agreement.  No failure on the part of the Second Priority Collateral Trustees, the Second Priority Representatives or any other Second Priority Secured Holders 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 such right preclude any other or further exercise thereof or the exercise of any other right.

(b)Upon the execution and delivery, or authentication, by any Person of a security agreement supplement in substantially the form of Exhibit A hereto (each a “Second Priority Security Agreement Supplement”), (i) such Person shall be referred to as an “Additional Grantor” and shall be and become a Grantor hereunder, and each reference in this Agreement and the other Second Priority Secured Agreements to “Grantor” shall also mean and be a reference to such Additional Grantor, and each reference in this Agreement and the other Second Priority Secured Agreements to “Collateral” shall also mean and be a reference to the Supplemental Collateral  (as defined in the Second Priority Security Agreement Supplement) of such Additional Grantor and (ii) the supplemental schedules I, II and IV attached to each Second Priority Security Agreement Supplement shall be incorporated into and become a part of and supplement Schedules I, II and IV, respectively, hereto, and the Second Priority Collateral Trustees may attach such supplemental schedules to such Schedules; and each reference to such

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Schedules shall mean and be a reference to such Schedules as supplemented pursuant to each Second Priority Security Agreement Supplement.

Section 18.Notices, Etc.  All notices, demands, requests, and other communications provided for hereunder shall be in writing (including telegraphic, telecopier or telex communication) and mailed, telegraphed, telecopied, telexed or delivered to, in the case of any Second Priority Representative, or the Second Priority Collateral Trustees, addressed to each at their respective address specified in the Second Priority Collateral Trust Agreement, in the case of the Borrower, addressed to it at its address specified in the Senior Note Indenture and, in the case of each Grantor other than the Borrower, addressed to it at its address set forth opposite such Grantor’s name on the signature pages hereto or on the signature page to the Second Priority Security Agreement Supplement pursuant to which it became a party hereto; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties.  All such notices and other communications shall, when mailed, telegraphed, telecopied or telexed, be effective when deposited in the mails, delivered to the telegraph company, telecopied or confirmed by telex answerback, respectively, addressed as aforesaid; except that notices and other communications to the Second Priority Collateral Trustees shall not be effective until received by the Second Priority Collateral Trustees.  Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Second Priority Security Agreement Supplement or Schedule hereto shall be effective as delivery of an original executed counterpart thereof.

Section 19.Continuing Security Interest; Assignments under the Senior Note Indenture.  This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until all of the Collateral is released, and this Agreement is terminated, in accordance with Section 8.02 of the Second Priority Collateral Trust Agreement, (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Second Priority Collateral Trustees hereunder, to the benefit of the Second Priority Collateral Trustees, the Second Priority Representatives on behalf of themselves and on behalf of the Second Priority Secured Holders and their respective successors, transferees and assigns.  Without limiting the generality of the foregoing clause (c), any Senior Note Holder may transfer all or any portion of its rights and obligations under the Senior Note Indenture (including, without limitation, all or any portion of Senior Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Senior Note Holder in the Second Priority Collateral Documents or otherwise, in each case as provided in the Senior Note Indenture.

Section 20.Release; Termination.  The Second Priority Collateral Trustees shall release all or any portion of the Collateral solely on terms and subject to the conditions set forth in Article VIII of the Second Priority Collateral Trust Agreement.

Section 21.Security Interest Absolute.  The obligations of each Grantor under this Agreement are independent of the Second Priority Secured Obligations or any other obligations of any other Person under or in respect of the Second Priority Secured Agreements and the Second Priority Collateral Documents, and a separate action or actions may be brought and prosecuted against each Grantor to enforce this Agreement, irrespective of whether any action is brought against such Grantor or any other Person or whether such Grantor or any other

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Person is joined in any such action or actions.  All rights of the Second Priority Collateral Trustees, the Second Priority Representatives and the other Second Priority Secured Holders and the pledge, assignment and security interest hereunder and under the other Second Priority Collateral Documents, and all obligations of each Grantor hereunder, shall be irrevocable, absolute and unconditional irrespective of, and each Grantor hereby irrevocably waives (to the maximum extent permitted by applicable law) any defenses it may now have or may hereafter acquire in any way relating to, any or all of the following:

(a)any lack of validity or enforceability of any Second Priority Secured Agreement or any other agreement or instrument relating thereto;

(b)any change in the time, manner or place of payment of, or in any other term of, all or any of the Second Priority Secured Obligations or any other Obligations of any other Person under or in respect of the Second Priority Secured Agreements or any other amendment or waiver of or any consent to any departure from any Second Priority Secured Agreement, including, without limitation, any increase in the Second Priority Secured Obligations resulting from the issuance of additional Senior Notes by the Borrower or otherwise;

(c)any taking, exchange, release or non-perfection of any Collateral or any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Second Priority Secured Obligations;

(d)any manner of application of any Collateral or any other collateral, or proceeds thereof, to all or any of the Second Priority Secured Obligations, or any manner of sale or other disposition of any Collateral or any other collateral for all or any of the Second Priority Secured Obligations or any other Obligations of any other Grantor under or in respect of the Second Priority Secured Agreements or any other assets of any Grantor or any of its Subsidiaries;

(e)any change, restructuring or termination of the corporate structure or existence of any Grantor or any of its Subsidiaries;

(f)any failure of any Second Priority Secured Holder to disclose to any Grantor any information relating to the business, condition (financial or otherwise), operations, performance, assets, nature of assets, liabilities or prospects of any other Grantor now or hereafter known to such Second Priority Secured Holder (each Grantor waiving any duty on the part of the Second Priority Secured Holders to disclose such information);

(g)the failure of any other Person to execute this Agreement or any other Second Priority Collateral Document, guaranty or agreement or the release (other than as provided in Section 20) or reduction of liability of any Grantor or other grantor or surety with respect to the Second Priority Secured Obligations; or

(h)any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by any Second Priority

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Secured Holder that might otherwise constitute a defense available to, or a discharge of, such Grantor or any other Grantor or a third party grantor of a security interest.

This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Second Priority Secured Obligations is rescinded or must otherwise be returned by the Second Priority Collateral Trustees, any Second Priority Representative or any Second Priority Secured Holder upon the insolvency, bankruptcy or reorganization of any Grantor or otherwise, all as though such payment had not been made.

Section 22.Additional Secured Obligations.  Each of the Grantors, the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders acknowledges and agrees that the Collateral hereunder may secure additional Obligations of the Borrower in respect of the incurrence of new Debt (as defined in the Senior Note Indenture) by the Borrower or the refinancing, extension, or renewal of certain Debt of the Borrower, in each case, only as permitted by the terms and conditions of the Senior Note Indenture.  Upon the execution and delivery to the Second Priority Collateral Trustees of an acknowledgement by the Persons to whom the obligations referred to in the immediately preceding sentence are owed, in form and substance satisfactory to the Second Priority Collateral Trustees, that (i) such Persons acknowledge the terms and conditions of this Agreement and agree to be bound thereby and (ii) such Persons agree to pay their ratable share of the fees and expenses of the Second Priority Collateral Trustees and to ratably indemnify the Second Priority Collateral Trustees, in each case, on terms and conditions similar to those contained in the Senior Note Indenture and the Second Priority Collateral Trust Agreement, such Persons shall become “Second Priority Secured Holders” hereunder and shall be entitled to share ratably in the Collateral for all purposes hereunder.

Section 23.Execution in Counterparts.  This Agreement may be executed in any number of 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.  Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.

Section 24.Limitation of Liability.  Each Grantor, and by its acceptance of this Agreement, the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders, hereby confirms that it is the intention of all such Persons that this Agreement and the Obligations of the Grantors hereunder not constitute a fraudulent conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Agreement and the Obligations of the Grantors hereunder.  To effectuate the foregoing intention, the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders and the Grantors hereby irrevocably agree that the Obligations of the Grantors under this Agreement at any time shall be limited to the maximum amount as will result in the Obligations of the Grantors under this Agreement not constituting a fraudulent transfer or conveyance.

Section 25.Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

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Section 26.Submission to Jurisdiction and Waiver.  (a)  Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement and the other Second Priority Secured Agreements to which it is or is to be a party, or for recognition or enforcement of any judgment, and each Guarantor hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court.  Each Grantor 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 provided by law.  Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement in the courts of any jurisdiction.

(b)Each Grantor irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement to which it is or is to be a party in any New York State or federal court.  Each Grantor hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court.

(c)EACH GRANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SENIOR NOTE INDENTURE OR THE OTHER SECOND PRIORITY SECURED AGREEMENTS.

[SIGNATURE PAGES IMMEDIATELY FOLLOW]

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IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

THE AES CORPORATION
By:
	Title:

Acknowledged on the date hereof by:

WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION,

as Second Priority Corporate Trustee

By:
	Title:

JEFFERY T. ROSE,

as Second Priority Individual Trustee

By:
	Title:

WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Senior Note Trustee

By:
	Title:

WILMINGTON TRUST COMPANY,

as Existing Corporate Trustee

By:
	Title:

BRUCE L. BISSON,

as Existing Individual Trustee

By:
	Title:

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Schedule I to the Second
Priority Security Agreement

LOCATION, CHIEF EXECUTIVE OFFICE, PLACE WHERE AGREEMENTS ARE
MAINTAINED, TYPE OF ORGANIZATION, JURISDICTION OF ORGANIZATION
AND ORGANIZATIONAL IDENTIFICATION NUMBER

Grantor	Location	Chief Executive Office	Place Where Agreements are Maintained	Type of Organization	Jurisdiction of Organization	Organizational I.D. No.
The AES Corporation	Corporation Service Company 2711 Centerville Road New Castle, Delaware 19808	1001 North 19th Street Suite 2000 Arlington, VA  22209	1001 North 19th Street Suite 2000 Arlington, VA  22209	Corporation	Delaware	Federal ID #:54-1163725

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Schedule II to the Second
Priority Security Agreement

PLEDGED EQUITY AND PLEDGED DEBT

Part I

PLEDGOR: AES CORP.

Legal Name	Jurisdiction of Incorporation	Types of Shares	Authorized Shares	Par Value		Outstanding Shares	Percentage Owned by AES	Certificate No.	% Pledged
AES Alamitos Development, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES Argentina, Inc.	Delaware	Common	10	$	1.00	10	100	3	100
AES Atlantis, Inc.	Delaware	Common	10	$	1.00	10	100	2	100
AES Barka Services, Inc.	Delaware	Common	200	$	0.001	10	100	2	100
AES CAESS Distribution, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES California Management Co., Inc.	Delaware	Common	10	$	1.00	10	100	3	100
AES Canal Power Services, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES Capital Funding, LLC	Delaware	Units	N/A	N/A		10	100	2	65
AES Cemig Holdings, Inc.	Delaware	Common	10	$	1.00	10	100	2	100
AES Central American Management Services, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES Central Valley, L.L.C.	Delaware	Units	1,000	N/A		10	100	1	100
AES Chaparron I, Ltd.	Cayman	Ordinary	50,000	$	1.00	1,000	100	2, 3	65
AES Columbia Power, LLC	Delaware	Units	1,000	N/A		10	100	1	100
AES Connecticut Management, LLC	Delaware	Units	1,000	N/A		10	100	1	100
AES Distribution East, L.L.C.	Delaware	Units	N/A	N/A		10	100	2	65
AES Ecotek Holdings, L.L.C.	Delaware	Units	1,000	N/A		10	100	1	100
AES EDC Funding II, L.L.C.	Delaware	Units	1,000	N/A		10	100	2	100

Legal Name	Jurisdiction of Incorporation	Types of Shares	Authorized Shares	Par Value		Outstanding Shares	Percentage Owned by AES	Certificate No.	% Pledged
AES EEO Distribution, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES El Faro Generation, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES Engineering, Ltd.	Cayman	Ordinary	50,000	$	1.00	1,000	100	4,5	65
AES Georgia Gas, L.L.C.	Delaware	Units	1,000	N/A		10	100	1	65
AES GPH Holdings, L.L.C.	Delaware	Units	N/A	N/A		10	100	2	65
AES GPH, L.L.C.	Delaware	Units	N/A	N/A		10	100	1	65
AES Granbury, L.L.C.	Delaware	Units	N/A	N/A		10	100	2	100
AES Hawaii Management Company, Inc.	Delaware	Common	10	$	1.00	10	100	4	100
AES Honduras Generation, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES International Holdings, Ltd.	British Virgin Islands	Common	50,000	$	1.00	50,000	100	2, 3	65
AES Ironwood, Inc.	Delaware	Common	10	$	1.00	10	100	3	100
AES Kalaeloa Venture, L.L.C.	Delaware	Units	1,000	N/A		10	100	1	100
AES Keystone, L.L.C.	Delaware	Units	N/A	N/A		100	100	1	100
AES King Harbor, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES Londonderry Holdings, L.L.C.	Delaware	Units	N/A	N/A		10	100	1	100
AES New York Funding, L.L.C.	Delaware	Units	N/A	N/A		10	100	1	100
AES Odyssey, L.L.C.	Delaware	Units	1,000	N/A		10	100	1	100
AES Oklahoma Holdings, L.L.C.	Delaware	Units	1,000	N/A		10	100	1	100
AES Red Oak, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES Rio Diamante, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES Southland Funding, L.L.C.	Delaware	Units	N/A	N/A		10	100	1	100
AES Stonehaven Holding, Inc.	Delaware	Common	10	$	1.00	10	100	3	100

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Legal Name	Jurisdiction of Incorporation	Types of Shares	Authorized Shares	Par Value		Outstanding Shares	Percentage Owned by AES	Certificate No.	% Pledged
AES Teal Holding, Inc.	Delaware	Common	10	$	1.00	10	100	1	100
AES Texas Funding III, L.L.C.	Delaware	Units	1,000	N/A		10	100	3	100
AES Warrior Run Funding, L.L.C.	Delaware	Units	N/A	N/A		10	100	1	100
Cavanal Minerals, Inc.	Delaware	Common	10	$	1.00	10	100	2	100
IPALCO Enterprises, Inc.	Indiana	Common	290,000,000	N/A		89,685,177	100	AES-1	100
Mountainview Holding Company, LLC	Delaware	Units	1,000	N/A		10	100	1	100
Mountainview Power Development Company LLC	Delaware	Units	1,000	N/A		10	100	5	100
Riverside Canal Power Company	California	Common	1,000	No		100	100	4	100

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Part II

Grantor	Debt Issuer	Description of Debt	Debt Certificate No(s).	Final Maturity	Outstanding Principal Amount
The AES Corporation	AES Shady Point, LLC	Term loan, 21% interest	N/A	July 19, 2014	$	40,000,000
The AES Corporation	AES Electric Ltd.	Demand	N/A	N/A	$	609,699
The AES Corporation	Global Power Holdings C.V.	Revolving facility, Applicable Federal Rate interest	N/A	December 31, 2011	$	7,966,227 (up to a maximum principal amount of $200,000,000.00	)
The AES Corporation	AES International Holdings Ltd.	Revolving facility, Applicable Federal Rate interest	N/A	December 31, 2011	$	109,989,406 (up to a maximum principal amount of $200,000,000.00	)
The AES Corporation	AES Yucatan, S. de R.L. de C.V.	LIBOR + 7%	N/A	March 31, 2005	$	3,734,178.25
The AES Corporation	AES Distribucion Dominicana Ltd.	Demand note, LIBOR interest	N/A	August 4, 2012	$	59,304,687
The AES Corporation	AES Distribucion Dominicana Ltd.	Demand note, 18% interest	N/A	July 25, 2010	$	9,712,654.50
The AES Corporation	AES Distribucion Dominicana Ltd.	Demand note, 18% interest	N/A	September 20, 2010	$	11,000,000
The AES Corporation	AES Distribucion Dominicana Ltd.	Demand note, 18% interest	N/A	October 26, 2010	$	9,118,534.32

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Grantor	Debt Issuer		Description of Debt	Debt Certificate No(s).	Final Maturity	Outstanding Principal Amount
The AES Corporation	AES Distribucion Dominicana Ltd.		Demand note, 12% interest	N/A	February 8, 2011	$	20,000,000
The AES Corporation	AES Distribucion Dominicana Ltd.		Demand note, 12% interest	N/A	March 12, 2011	$	18,500,000
The AES Corporation	AES Distribucion Dominicana Ltd.		Demand note, 12% interest	N/A	April 25, 2011	$	6,500,000
The AES Corporation	AES Distribucion Dominicana Ltd.		Demand note, 18% interest	N/A	May 30, 2011	$	5,000,000
The AES Corporation	AES Raccoon Creek, L.L.C. (now AES BV Operations, L.L.C.	)	Demand note, 6.29% interest	N/A	November 30, 2009	$	11,512,000
The AES Corporation	Lake Worth Generation, L.L.C.		Applicable Federal Rate Interest	N/A	January 10, 2008	$	2,796,000

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Schedule III to the Second
Priority Security Agreement

ASSIGNED AGREEMENTS

Grantor	Assigned Agreement
The AES Corporation	Tax Sharing Agreement dated as of June 23, 1987 (as amended, supplemented or modified through the date hereof) among The AES Corporation (formerly known as Applied Energy Services, Inc.), AES Oklahoma Management Co., Inc., AES Shady Point, Inc., Combustion Engineering, Inc., and Union Bank of California N.A. (formerly known as Union Bank), as successor in interest to Security Pacific National Bank, as agent.
The AES Corporation	Tax Sharing Agreement dated as of March 20, 1990 (as amended, supplemented or modified through the date hereof) among The AES Corporation (formerly known as Applied Energy Services, Inc.), AES Hawaii Management Company, Inc., AES Hawaii, Inc. (formerly known as AES Barbers Point, Inc.), and Union Bank of California N.A. (formerly known as Union Bank), as successor in interest to Security Pacific National Bank, as agent.
The AES Corporation	Tax Sharing Agreement dated as of March 28, 2001 among The AES Corporation, IPALCO Enterprises, Inc., and each corporation or other entity listed therein.

Schedule IV to the Second
Priority Security Agreement

CHANGES IN NAME, LOCATION, ETC.

Changes in the Grantor’s Name (including new grantor with a new name and names associated with all predecessors in interest of the Grantor)

The Borrower changed its name from “Applied Energy Services, Inc.” to “The AES Corporation” on May 1, 1991.

Changes in the Grantor’s Location

There has been no change in the Borrower’s location.

Changes in the Grantor’s Chief Executive Office

The Borrower moved its chief executive office from 1925 N. Lynn Street, Arlington, VA 22209 to 1001 N. 19th Street, Arlington, VA 22209 in June of 1989. 

Changes in the Place Where Agreements are Maintained

See change in location of chief executive office as noted above.

Changes in the Type of Organization

There has been no change in the type of organization.

Changes in the Jurisdiction of Organization

There has been no change in the jurisdiction of the organization.

Changes in the Organizational Identification Number

No changes.

Schedule V to the Second
Priority Security Agreement

ACCOUNT COLLATERAL

Grantor	Name and Address of Pledged Account Bank	Mailing Address of Pledged Account	Account Number
The AES Corporation	Riggs Bank, N.A. 808 17th Street, N.W. Washington, D.C. 20006-3944 Attn:  Douglas H. Klamforth	Riggs Bank, N.A. 808 17th Street, N.W. Washington, DC 20006-3944	37000223
The AES Corporation	Citibank, N.A. 388 Greenwich Street, 21st Floor New York, N.Y.  10013 Attn: Stuart J. Glen	Citibank, N.A. 388 Greenwich Street, 21st Floor New York, NY  10013	30530758 38668719

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Schedule VI to the Second
Priority Security Agreement

SECURITIES ACCOUNTS

Description of Financial Asset	Name and Address of Securities Intermediary	Mailing Address of Securities Account	Account Number
Investment	BlackRock Provident  Institutional Funds 100 Bellevue Parkway Wilmington, DE 19809	PFPC, Inc. P.O. Box 8950 Wilmington, DE 19885-9628	19011
Investment	Calvert Cash Reserves 4550 Montgomery Avenue Suite 1000N Bethesda, MD 20814	Calvert Investments 4550 Montgomery Avenue, Suite 1000N Bethesda, MD 20814	707/6082607
Investment  (Money Market)	FAM Distributors, Inc. One Financial Center, 23rd Floor Boston, MA 02111	Merrill Lynch 100 Jericho Quadrangle P.O. Box 797 Jericho, NY 11753	318-3249844-4
Investment  (Securities)	Merrill Lynch Pierce Smith & Fenner Incorporated 100 Jericho Quadrangle 2ND 242 Jericho, NY 11753	Merrill Lynch 100 Jericho Quadrangle P.O. Box 787 Jericho, NY 11753	550-07718
Investment	Citigroup Asset  Management 100 Stamford Place, 6th Floor Stamford, CT 06902 Attn:  Frank T. Dunn, Jr.	Citi Institutional Funds 100 Stamford Place Stamford, CT  06902-6740	18782

Schedule VII to the Second
Priority Security Agreement

EXCLUDED RECEIVABLES

AES Barry Limited

AESEBA, S.A.

AES Haripur (Private) Limited

AES Lal Pir (Private) Limited

AES Lal Pir (UK) Limited

AES Nile Power Operations Ltd.

AES Pak Gen Holdings, Inc.

AES Pak Gen (Private) Company

AES Pak Gen (UK) Limited

AES Pakistan Holdings

AES Ocean Springs, Ltd.

AES Transpower, Inc.

Indianapolis Power & Light Company and its Subsidiaries

La Plata II, Inc.

La Plata III, Inc.

La Plata Holdings, Inc.

Medway Power Limited

Exhibit A to the Second
Priority Security Agreement

FORM OF SECOND PRIORITY SECURITY AGREEMENT SUPPLEMENT

[Date of Second Priority Security Agreement Supplement]

Wells Fargo Bank Minnesota, National Association,

as Second Priority Corporate Trustee and

Jeffery T. Rose, as Second Priority Individual Trustee
for the Second Priority Representatives and the
Second Priority Secured Holders referred to in the
Second Priority Security Agreement referred to below
                                                
                                                
Attn:                                        

The AES Corporation

Ladies and Gentlemen:

Reference is made to (i) the Second Priority Security Agreement dated May 8, 2003 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Second Priority Security Agreement”) made by the Grantors from time to time party thereto in favor of Wells Fargo Bank Minnesota, National Association, not in its individual capacity but solely as corporate trustee (the “Second Priority Corporate Trustee”) and Jeffery T. Rose, not in his individual capacity but solely as individual trustee (the “Second Priority Individual Trustee”; and, together with the Second Priority Corporate Trustee, the “Second Priority Collateral Trustees”) and (ii) the Second Priority Collateral Trust Agreement dated May 8, 2003 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Second Priority Collateral Trust Agreement”) made by the Grantors time to time party thereto in favor of the Second Priority Collateral Trustees, for the Second Priority Representatives and the Second Priority Secured Holders.  Terms defined in the Senior Note Indenture, the Second Priority Security Agreement or the Second Priority Collateral Trust Agreement and not otherwise defined herein are used herein as defined in the Senior Note Indenture, the Second Priority Security Agreement or the Second Priority Collateral Trust Agreement.

SECTION 1.  Grant of Security.  The undersigned hereby grants to the Second Priority Collateral Trustees, for the ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders, a security interest in, all of its right, title and interest in and to all of the Supplemental Collateral (as defined herein) of the undersigned, whether now owned or

hereafter acquired by the undersigned, wherever located and whether now or hereafter existing or arising, including, without limitation, the property and assets of the undersigned set forth on the attached supplemental schedule I to Schedule I to the Second Priority Security Agreement.  For purposes of this Second Priority Security Agreement Supplement, “Supplemental Collateral” shall consist of:

(a)the following:

(i)all of its right, title and interest in and to all of the shares of stock or other Equity Interests (the “Additional Initial Pledged Equity”) set forth opposite the undersigned’s name on and as otherwise described in the attached supplemental schedule I to Schedule I to the Second Priority Security Agreement;

(ii)the certificates, if any, representing the Additional Initial Pledged Equity, and all dividends, distributions, return of capital, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Additional Initial Pledged Equity and all subscription warrants, rights or options issued thereon or with respect thereto;

(iii)all additional shares of stock and other Equity Interests of or in any issuer of the Additional Initial Pledged Equity or any successor entity from time to time acquired by the undersigned in any manner  and all additional shares of stock or Equity Interests of or in any new direct Subsidiary of the undersigned formed or acquired by the undersigned in any manner after the date of this Second Priority Security Agreement Supplement (such shares and other Equity Interests, together with the Additional Initial Pledged Equity, being the “Additional Pledged Equity”), and the certificates, if any, representing such additional shares or other Equity Interests, and all dividends, distributions, return of capital, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares or other Equity Interests and all subscription warrants, rights or options issued thereon or with respect thereto; and

(b)all proceeds of, collateral for, income, and other payments now or hereafter due and payable with respect to, and supporting obligations relating to, any and all of the Supplemental Collateral (including, without limitation, proceeds, collateral and supporting obligations that constitute property of the types described in clause (a) of this Section 1 and this clause (b)) and, to the extent not otherwise included, all (A) payments under insurance (whether or not the Second Priority Collateral Trustees are the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Supplemental Collateral, (B) tort claims, including, without limitation, all commercial tort claims and (C) cash.

Notwithstanding the foregoing provisions of this Section 1 or of any other Second Priority Secured Agreement, the grant of a security interest as provided herein shall not extend

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to, and the term “Supplemental Collateral” shall not include, as to the undersigned, more than 65% of the outstanding voting stock of any CFC.

SECTION 2.  Security for Obligations.  The grant of a security interest in the Supplemental Collateral by the undersigned under this Second Priority Security Agreement Supplement and the Second Priority Security Agreement secures the payment of all Obligations of the undersigned now or hereafter existing under or in respect of the Second Priority Secured Agreements whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise.  Without limiting the generality of the foregoing, this Second Priority Security Agreement Supplement and the Second Priority Security Agreement secures the payment of all amounts that constitute part of the Second Priority Secured Obligations and that would be owed by the undersigned to the Second Priority Representatives or any Second Priority Secured Holder under the Second Priority Secured Agreements but for the fact that such Second Priority Secured Obligations are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower.

The undersigned, and by its acceptance of this Second Priority Security Agreement Supplement, the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders, hereby confirm that it is the intention of all such Persons that this Second Priority Security Agreement Supplement, the Second Priority Security Agreement and the Obligations of the undersigned hereunder and thereunder not constitute a fraudulent conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Second Priority Security Agreement Supplement, the Second Priority Security Agreement and the Obligations of the undersigned hereunder and thereunder.  To effectuate the foregoing intention, the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders and the undersigned hereby irrevocably agree that the Obligations of the undersigned under this Second Priority Security Agreement Supplement and the Second Priority Security Agreement at any time shall be limited to the maximum amount as will result in the Obligations of the undersigned under the Second Priority Security Agreement Supplement and the Second Priority Security Agreement not constituting a fraudulent transfer or conveyance.

SECTION 3.  Supplements to Second Priority Security Agreement Schedules.  The undersigned has attached hereto supplemental Schedules I, II and IV to Schedules I, II and IV, respectively, to the Second Priority Security Agreement, and the undersigned hereby certifies, as of the date first above written, that such supplemental schedules have been prepared by the undersigned in substantially the form of the equivalent Schedules to the Second Priority Security Agreement and are complete and correct.

SECTION 4.  Representations and Warranties.  The undersigned hereby makes each representation and warranty set forth in Section 7 of the Second Priority Security Agreement (as supplemented by the attached supplemental schedules) to the same extent as each other Grantor.

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SECTION 5.  Obligations Under the Second Priority Security Agreement.  The undersigned hereby agrees, as of the date first above written, to be bound as a Grantor by all of the terms and provisions of the Second Priority Security Agreement to the same extent as each of the other Grantors.  The undersigned further agrees, as of the date first above written, that each reference in the Second Priority Security Agreement to an “Additional Grantor” or a “Grantor” shall also mean and be a reference to the undersigned.

SECTION 6.  Governing Law.  This Second Priority Security Agreement Supplement shall be governed by, and construed in accordance with, the laws of the State of New York.

SECTION 7.  Submission to Jurisdiction and Waiver.  (a)  Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Second Priority Security Agreement Supplement, or for recognition or enforcement of any judgment, and party hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court.  Each party hereto 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 provided by law.  Nothing in this Second Priority Security Agreement Supplement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Second Priority Security Agreement Supplement in the courts of any jurisdiction.

(b)Each party hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Second Priority Security Agreement Supplement to which it is or is to be a party in any New York State or federal court.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court.

EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS SECOND PRIORITY SECURITY AGREEMENT SUPPLEMENT OR THE ACTIONS OF ANY OTHER PARTY HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

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Very truly yours,
[NAME OF ADDITIONAL GRANTOR]
By:
	Title:
		Address for notices:

5

Exhibit B to the Second
Priority Security Agreement

FORM OF ACCOUNT CONTROL AGREEMENT
(Deposit Account/Securities Account)

ACCOUNT CONTROL AGREEMENT (this “Agreement”) dated as of              ,        , among The AES Corporation, a Delaware corporation (the “Grantor”), Wells Fargo Bank Minnesota, National Association, not in its individual capacity but solely as corporate trustee (the “Second Priority Corporate Trustee”) and Jeffery T. Rose, not in his individual capacity but solely as individual trustee (the “Second Priority Individual Trustee”; and, together with the Second Priority Corporate Trustee, the “Secured Party”), and               , a                         (“                           ”), as securities intermediary and/or depository bank (the “Account Holder”).

PRELIMINARY STATEMENTS:

(1)The Grantor has granted the Secured Party a security interest (the “Security Interest”) in the following accounts maintained by the Account Holder for the Grantor (each, an “Account” and collectively, the “Accounts”):

[Insert account numbers and other identifying information.]

(2)The Grantor has also granted to Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as corporate trustee (the “First Priority Corporate Trustee”), and Bruce L. Bisson, an individual residing in the State of Delaware, not in his individual capacity but solely as individual trustee (the “First Priority Individual Trustee”; and, together with the First Priority Corporate Trustee, the “First Priority Secured Party”) a first priority security interest (the “First Priority Security Interest”) in the Accounts.

(3)Terms defined in Article 8 or 9 of the Uniform Commercial Code in effect in the State of New York (“N.Y. Uniform Commercial Code”) are used in this Agreement as such terms are defined in such Article 8 or 9.

NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto hereby agree as follows:

SECTION 1.  The Accounts.  The Grantor and Account Holder represent and warrant to, and agrees with, the Secured Party that:

(a)The Account Holder maintains each Account for the Grantor, and all property (including, without limitation, all funds and financial assets) held by the Account Holder for the account of the Grantor are, and will continue to be, credited to an Account in accordance with instructions given by the Grantor (unless otherwise provided herein).

(b)To the extent that funds are credited to any Account, such Account is a deposit account; and to the extent that financial assets are credited to any Account, such Account

is a securities account.  The Account Holder is (i) the bank with which each Account that is a deposit account is maintained and (ii) the securities intermediary with respect to financial assets held in any Account that is a securities account.  The Grantor is (x) the Account Holder’s customer with respect to the Accounts and (y) the entitlement holder with respect to financial assets credited from time to time to any Account.

(c)Notwithstanding any other agreement to the contrary, the Account Holder’s jurisdiction with respect to each Account for purposes of the N.Y. Uniform Commercial Code is, and will continue to be for so long as the Security Interest shall be in effect, the State of New York.

(d)The Grantor and Account Holder do not know of any claim to or interest in any Account or any property (including, without limitation, funds and financial assets) credited to any Account, except for claims and interests of the parties referred to in this Agreement.

SECTION 2.  Control by Secured Party.  Subject to Section 3(c) below, the Account Holder will comply with (i) all instructions directing disposition of the funds in any and all of the Accounts, (ii) all notifications and entitlement orders that the Account Holder receives directing it to transfer or redeem any financial asset in any and all of the Accounts, and (iii) all other directions concerning any and all of the Accounts, including, without limitation, directions to distribute to the Secured Party proceeds of any such transfer or redemption or interest or dividends on property in any and all of the Accounts (any such instruction, notification or direction referred to in clause (i), (ii) or (iii) above being an “Account Direction”), in each case of clauses (i), (ii) and (iii) above originated by the Secured Party without further consent by the Grantor or any other Person.

SECTION 3.  Grantor’s Rights in Accounts.  (a)  Except as otherwise provided in this Section 3, the Account Holder will comply with Account Directions concerning each Account originated by the Grantor without further consent by the Secured Party.

(b)Until the Account Holder receives a notice from the Secured Party that the Secured Party will exercise exclusive control over any Account (a “Notice of ExclusiveControl” with respect to such Account), the Account Holder may distribute to the Grantor all interest and regular cash dividends on property (including, without limitation, funds and financial assets) in such Account.

(c)If the Account Holder receives from the Secured Party a Notice of Exclusive Control with respect to any Account, the Account Holder will comply only with Account Directions originated by the Secured Party and will cease:

(i)complying with Account Directions concerning such Account originated by the Grantor and

(ii)distributing to the Grantor interest and dividends on property (including, without limitation, funds and financial assets) in such Account unless such distribution is in accordance with Account Directions originated by the Secured Party;

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provided that (i) the First Priority Secured Party shall have consented in writing to the delivery of such Notice of Exclusive Control by the Secured Party or  (ii) prior to the delivery of the Notice of Exclusive Control by the Secured Party, the First Priority Secured Party shall have delivered written notice to the Account Holder that the First Priority Security Interest has terminated.

SECTION 4.  Priority of Secured Party’s Security Interest.  (a)  The Account Holder (i) subordinates to the Security Interest and in favor of the Secured Party any security interest, lien, or right of recoupment or setoff that the Account Holder may have, now or in the future, against any Account or property (including, without limitation, any funds and financial assets) credited to any Account, and (ii) agrees that it will not exercise any right in respect of any such security interest or lien or any such right of recoupment or setoff until the Security Interest is terminated, except that the Account Holder (A) will retain its prior security interest and lien on property credited to any Account, (B) may exercise any right in respect of such security interest or lien, and (C) may exercise any right of recoupment or setoff against any Account, in the case of clauses (A), (B) and (C) above,  to secure or to satisfy, and only to secure or to satisfy, payment (x) for such property, (y) for its customary fees and expenses for the routine maintenance and operation of such Account, and (z) if such Account is a deposit account, for the face amount of any items that have been credited to such Account but are subsequently returned unpaid because of uncollected or insufficient funds.

(b)The Account Holder will not enter into any other agreement with any Person, other than the First Priority Secured Party, relating to Account Directions or other directions with respect to any Account.

SECTION 5.  Statements, Confirmations, and Notices of Adverse Claims.  (a)  The Account Holder will send copies of all statements and confirmations for each Account simultaneously to the Secured Party and the Grantor.

(b)When the Account Holder knows of any claim or interest in any Account or any property (including, without limitation, funds and financial assets) credited to any Account other than the claims and interests of the parties referred to in this Agreement, the Account Holder will promptly notify the Secured Party and the Grantor of such claim or interest.

SECTION 6.  The Account Holder’s Responsibility.  (a)  Except for permitting a withdrawal, delivery, or payment in violation of Section 3, the Account Holder will not be liable to the Secured Party for complying with Account Directions or other directions concerning any Account from the Grantor that are received by the Account Holder before the Account Holder receives and has a reasonable opportunity to act on a Notice of Exclusive Control.

(b)The Account Holder will not be liable to the Grantor or the Secured Party for complying with a Notice of Exclusive Control or with an Account Direction or other direction concerning any Account originated by the Secured Party, even if the Grantor notifies the Account Holder that the Secured Party is not legally entitled to issue the Notice of Exclusive Control or Account Direction or such other direction unless the Account Holder takes the action after it is served with an injunction, restraining order, or other legal process enjoining it from doing so, issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order or other legal process.

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(c)This Agreement does not create any obligation of the Account Holder except for those expressly set forth in this Agreement and, in the case of any Account that is a securities account, in Part 5 of Article 8 of the N.Y. Uniform Commercial Code and, in the case of any Account that is a deposit account, in Article 4 of the N.Y. Uniform Commercial Code.  In particular, the Account Holder need not investigate whether the Secured Party is entitled under the Secured Party’s agreements with the Grantor to give an Account Direction or other direction concerning any Account or a Notice of Exclusive Control.  The Account Holder may rely on notices and communications it believes given by the appropriate party.

SECTION 7.  Indemnity.  The Grantor will indemnify the Account Holder, its officers, directors, employees and agents against claims, liabilities and expenses arising out of this Agreement (including, without limitation, reasonable attorney’s fees and disbursements), except to the extent the claims, liabilities or expenses are caused by the Account Holder’s gross negligence or willful misconduct as found by a court of competent jurisdiction in a final, non-appealable judgment.

SECTION 8.  Termination; Survival.  (a)  The Secured Party may terminate this Agreement by notice to the Account Holder and the Grantor.  If the Secured Party notifies the Account Holder that the Security Interest has terminated, this Agreement will immediately terminate.

(b)The Account Holder may terminate this Agreement on 60 days’ prior notice to the Secured Party and the Grantor, provided that before such termination the Account Holder and the Grantor shall make arrangements to transfer the property (including, without limitation, all funds and financial assets) credited to each Account to another Account Holder that shall have executed, together with the Grantor, a control agreement in favor of  the Secured Party in respect of such property in substantially the form of this Agreement or otherwise in form and substance satisfactory to the Secured Party.

(c)Sections 6 and 7 will survive termination of this Agreement.

SECTION 9.  Governing Law.  This Agreement and each Account will be governed by the law of the State of New York.  The Account Holder and the Grantor may not change the law governing any Account without the Secured Party’s express prior written agreement.

SECTION 10.  Entire Agreement.  This Agreement is the entire agreement, and supersedes any prior agreements, and contemporaneous oral agreements, of the parties concerning its subject matter.

SECTION 11.  Amendments.  No amendment of, or waiver of a right under, this Agreement will be binding unless it is in writing and signed by the party to be charged.

SECTION 12.  Financial Assets.  The Account Holder agrees with the Secured Party and the Grantor that, to the fullest extent permitted by applicable law, all property (other than funds) credited from time to time to any Account will be treated as financial assets under Article 8 of the N.Y. Uniform Commercial Code.

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SECTION 13.  Notices.  A notice or other communication to a party under this Agreement will be in writing (except that Account Directions may be given orally), will be sent to the party’s address set forth under its name below or to such other address as the party may notify the other parties and will be effective on receipt.

SECTION 14.  Binding Effect.  This Agreement shall become effective when it shall have been executed by the Grantor, the Secured Party and the Account Holder, and thereafter shall be binding upon and inure to the benefit of the Grantor, the Secured Party and the Account Holder and their respective successors and assigns.

SECTION 15.  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.  Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

THE AES CORPORATION
By:
	Name:
	Title:
Address:
1001 North 19th Street
Arlington, VA 22209
WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
as Second Priority Corporate Trustee
By:
	Name:
	Title:
JEFFERY T. ROSE,
as Second Priority Individual Trustee
By:
	Name:

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	Title:
Address:
[NAME OF ACCOUNT HOLDER]
By:
	Name:
	Title:
Address:

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Exhibit C to the Second

Priority Security Agreement

FORM OF CONSENT AND AGREEMENT

The undersigned hereby (a) acknowledges notice of, and consents to the terms and provisions of, (i) the Second Priority Security Agreement dated May 8, 2003 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Second Priority Security Agreement”), and (ii) the Second Priority Collateral Trust Agreement dated May 8, 2003 (as amended, amended and restated, supplement or otherwise modified from time to time, the “Second Priority Collateral Trust Agreement”) (the terms defined in the Second Priority Security Agreement and Second Priority Collateral Trust Agreement being used herein as used therein), in each case from The AES Corporation (the “Grantor”) and certain other grantors from time to time party thereto to Wells Fargo Bank Minnesota, National Association, not in its individual capacity but solely as corporate trustee (the “Second Priority Corporate Trustee”) and Jeffery T. Rose, not in his individual capacity but solely as individual trustee (the “Second Priority Individual Trustee”; and, together with the Second Priority Corporate Trustee, the “Second Priority Collateral Trustees”), the foregoing trustees being trustees for the Second Priority Representatives and the Second Priority Secured Holders referred to in the Second Priority Collateral Trust Agreement, (b) consents in all respects to the pledge and assignment to the Collateral Trustees of all of the Grantor’s right, title and interest in, to and under the [IDENTIFY SPECIFIC ASSIGNED AGREEMENT] (the “Assigned Agreement”) pursuant to the Second Priority Security Agreement, (c) acknowledges that the Grantor has provided it with notice of the right of the Senior Collateral Trustees in the exercise of its rights and remedies under the Second Priority Security Agreement and the other Second Priority Collateral Documents to make all demands, give all notices, take all actions and exercise all rights of the Grantor under the Assigned Agreement, and (d) agrees with the Senior Collateral Trustees that:

(1)The undersigned will make all payments to be made by it under or in connection with the Assigned Agreement directly to a Deposit Account or otherwise in accordance with the instructions of the Second Priority Collateral Trustees after the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default.

(2)All payments made with respect to paragraph 1 above shall be made by the undersigned irrespective of, and without deduction for, any counterclaim, defense, recoupment or set-off and shall be final, and the undersigned will not seek to recover from the Second Priority Collateral Trustees, any Second Priority Representative or any Second Priority Secured Holder for any reason any such payment once made.

(3)The Second Priority Collateral Trustees or their designee shall be entitled to exercise any and all rights and remedies of the Grantor under the Assigned Agreement in accordance with the terms of the Second Priority Security Agreement, and the undersigned shall comply in all respects with such exercise.

(4)Except as specifically provided in this Consent and Agreement, none of the Second Priority Collateral Trustees, the Second Priority Representatives nor any Second Priority Secured Holder shall have any liability or obligation under the Assigned

Agreement as a result of this Consent and Agreement, the Second Priority Security Agreement or otherwise.

(5)Upon the enforcement of the Second Priority Security Agreement by the Second Priority Collateral Trustees and the transfer of the Assigned Agreement to a transferee, the undersigned will not unreasonably withhold its consent to the recognition of the transferee as the counterparty to the Assigned Agreement in the place and stead of the Grantor.

This Consent and Agreement shall be binding upon the undersigned and its successors and assigns, and shall inure, together with the rights and remedies of the Second Priority Collateral Trustees hereunder, to the benefit of the Second Priority Collateral Trustees, the Second Priority Representatives, on behalf of themselves and on behalf of the Second Priority Secured Holders and their successors, transferees and assigns.  This Consent and Agreement shall be governed by and construed in accordance with the laws of the State of New York.

IN WITNESS WHEREOF, the undersigned has duly executed this Consent and Agreement as of the date set opposite its name below.

Dated:                           ,	[NAME OF OBLIGOR]
	By:
		Title:

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Exhibit D to the Second
Priority Security Agreement

FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT

CONTROL AGREEMENT dated as of [                 ], [          ], among The AES Corporation, a Delaware corporation (the “Grantor”), Wells Fargo Bank Minnesota, National Association, not in its individual capacity but solely as corporate trustee (the “Second Priority Corporate Trustee”) and Jeffery T. Rose, not in his individual capacity but solely as individual trustee (the “Second Priority Individual Trustee”; and, together with the Second Priority Corporate Trustee, the “Secured Party”), [                   ], and [                   ], a [                   ] (“                    ”), as securities intermediary (the “Securities Intermediary”).

PRELIMINARY STATEMENTS:

(1)The Grantor has granted the Secured Party a security interest (the “Security Interest”) in account no. [                           ] maintained by the Securities Intermediary for the Grantor (the “Account”).

(2)The Grantor has also granted to Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as corporate trustee (the “First Priority Corporate Trustee”), and Bruce L. Bisson, an individual residing in the State of Delaware, not in his individual capacity but solely as individual trustee (the “First Priority Individual Trustee”; and, together with the First Priority Corporate Trustee, the “First Priority Secured Party”) a first priority security interest (the “First Priority Security Interest”) in the Account.

(3)Terms defined in Article 8 or 9 of the Uniform Commercial Code in effect in the State of New York (“N.Y. Uniform Commercial Code”) are used in this Agreement as such terms are defined in such Article 8 or 9.

NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto hereby agree as follows:

SECTION 1.  The Account.  The Grantor and Securities Intermediary represent and warrant to, and agree with, the Grantor and the Secured Party that:

(a)The Securities Intermediary maintains the Account for the Grantor, and all property held by the Securities Intermediary for the account of the Grantor is, and will continue to be, credited to the Account.

(b)The Account is a securities account.  The Securities Intermediary is the securities intermediary with respect to the property credited from time to time to the Account.  The Grantor is the entitlement holder with respect to the property credited from time to time to the Account.

(c)The State of New York is, and will continue to be, the Securities Intermediary’s jurisdiction of organization for purposes of Section 8-110(e) of the UCC so long as the Security Interest shall remain in effect.

(d)The Grantor and Securities Intermediary do not know of any claim to or interest in the Account or any property credited to the Account, except for claims and interests of the parties referred to in this Agreement.

SECTION 2.  Control by Secured Party.  Subject to Section 3(c), below, the Securities Intermediary will comply with all notifications it receives directing it to transfer or redeem any property in the Account (each an “Entitlement Order”) or other directions concerning the Account (including, without limitation, directions to distribute to the Secured Party proceeds of any such transfer or redemption or interest or dividends on property in the Account) originated by the Secured Party without further consent by the Grantor or any other person.

SECTION 3.  Grantor’s Rights in Account.  (a)  Except as otherwise provided in this Section 3, the Securities Intermediary will comply with Entitlement Orders originated by the Grantor without further consent by the Secured Party.

(b)Until the Securities Intermediary receives a notice from the Secured Party that the Secured Party will exercise exclusive control over the Account (a “Notice of Exclusive Control”), the Securities Intermediary may distribute to the Grantor all interest and regular cash dividends on property in the Account.

(c)If the Securities Intermediary receives from the Secured Party a Notice of Exclusive Control, the Securities Intermediary will cease:

(i)complying with Entitlement Orders concerning the Account originated by the Grantor and

(ii)distributing to the Grantor interest and dividends on property in the Account unless such distribution is in accordance with Account Directions originated by the Secured Party;

provided that (i) the First Priority Secured Party shall have consented in writing to the delivery of such Notice of Exclusive Control by the Secured Party or (ii) prior to the delivery of the Notice of Exclusive Control by the Secured Party, the First Priority Secured Party shall have delivered written notice to the Securities Intermediary that the First Priority Security Interest has terminated.

SECTION 4.  Priority of Secured Party’s Security Interest.  (a)  The Securities Intermediary subordinates in favor of the Secured Party any security interest, lien, or right of setoff it may have, now or in the future, against the Account or property in the Account, except that the Securities Intermediary will retain its prior lien on property in the Account to secure payment for property purchased for the Account and normal commissions and fees for the Account.

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(b)The Securities Intermediary will not agree with any Person not party to this Agreement, other than the First Priority Secured Party, that the Securities Intermediary will comply with Entitlement Orders originated by such Person.

SECTION 5.  Statements, Confirmations, and Notices of Adverse Claims.  (a)  The Securities Intermediary will send copies of all statements and confirmations for the Account simultaneously to the Grantor and the Secured Party.

(b)When the Securities Intermediary knows of any claim or interest in the Account or any property credited to the Account other than the claims and interests of the parties referred to in this Agreement, the Securities Intermediary will promptly notify the Secured Party and the Grantor of such claim or interest.

SECTION 6.  The Securities Intermediary’s Responsibility.  (a)  Except for permitting a withdrawal, delivery, or payment in violation of Section 3, the Securities Intermediary will not be liable to the Secured Party for complying with Entitlement Orders or other directions concerning the Account from the Grantor that are received by the Securities Intermediary before the Securities Intermediary receives and has a reasonable opportunity to act on a Notice of Exclusive Control.

(b)The Securities Intermediary will not be liable to the Grantor or the Secured Party for complying with a Notice of Exclusive Control or with an Entitlement Order or other direction concerning the Account originated by the Secured Party, even if the Grantor notifies the Securities Intermediary that the Secured Party is not legally entitled to issue the Notice of Exclusive Control or Entitlement Order or such other direction unless the Securities Intermediary takes the action after it is served with an injunction, restraining order, or other legal process enjoining it from doing so, issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order or other legal process.

(c)This Agreement does not create any obligation of the Securities Intermediary except for those expressly set forth in this Agreement and in Part 5 of Article 8 of the N.Y. Uniform Commercial Code.  In particular, the Securities Intermediary need not investigate whether the Secured Party is entitled under the Secured Party’s agreements with the Grantor to give an Entitlement Order or other direction concerning the Account or a Notice of Exclusive Control.  The Securities Intermediary may rely on notices and communications it believes given by the appropriate party.

SECTION 7.  Indemnity.  The Grantor will indemnify the Securities Intermediary, its officers, directors, employees and agents against claims, liabilities and expenses arising out of this Agreement (including, without limitation, reasonable attorney’s fees and disbursements), except to the extent the claims, liabilities or expenses are caused by the Securities Intermediary’s gross negligence or willful misconduct as found by a court of competent jurisdiction in a final, non-appealable judgment.

SECTION 8.  Termination; Survival.  (a)  The Secured Party may terminate this Agreement by notice to the Securities Intermediary and the Grantor.  If the Secured Party notifies

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the Securities Intermediary that the Security Interest has terminated, this Agreement will immediately terminate.

(b)The Securities Intermediary may terminate this Agreement on 60 days’ prior notice to the Secured Party and the Grantor, provided that before such termination the Securities Intermediary and the Grantor shall make arrangements to transfer the property in the Account to another securities intermediary that shall have executed, together with the Grantor, a control agreement in favor of the Secured Party in respect of such property in substantially the form of this Agreement or otherwise in form and substance satisfactory to the Secured Party.

(c)Sections 6 and 7 will survive termination of this Agreement.

SECTION 9.  Governing Law.  This Agreement and the Account will be governed by the law of the State of New York.  The Securities Intermediary and the Grantor may not change the law governing the Account without the Secured Party’s express prior written agreement.

SECTION 10.  Entire Agreement.  This Agreement is the entire agreement, and supersedes any prior agreements, and contemporaneous oral agreements, of the parties concerning its subject matter.

SECTION 11.  Amendments.  No amendment of, or waiver of a right under, this Agreement will be binding unless it is in writing and signed by the party to be charged.

SECTION 12.  Financial Assets.  The Securities Intermediary agrees with the Secured Party and the Grantor that, to the fullest extent permitted by applicable law, all property credited from time to time to the Account will be treated as financial assets under Article 8 of the N.Y. Uniform Commercial Code.

SECTION 13.  Notices.  A notice or other communication to a party under this Agreement will be in writing (except that Entitlement Orders may be given orally), will be sent to the party’s address set forth under its name below or to such other address as the party may notify the other parties and will be effective on receipt.

SECTION 14.  Binding Effect.  This Agreement shall become effective when it shall have been executed by the Grantor, the Secured Party and the Securities Intermediary, and thereafter shall be binding upon and inure to the benefit of the Grantor, the Secured Party and the Securities Intermediary and their respective successors and assigns.

SECTION 15.  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.  Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

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THE AES CORPORATION
By:
	Title:
Address:
1001 North 19th Street Arlington, VA  22209
WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
as Second Priority Corporate Trustee
By:
	Name:
	Title:
JEFFERY T. ROSE,
as Second Priority Individual Trustee
By:
	Name:
	Title:
Address:
[NAME OF SECURITIES INTERMEDIARY]
By:
	Title:
Address:

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EX-4.4

Exhibit 4.4

EXECUTION COPY

8 May 2003

AES International Holdings II, Ltd.

(as Chargor)

and

Wells Fargo Bank Minnesota, National Association
(as Second Priority Corporate Trustee)

and

Jeffery T. Rose
(as Second Priority Individual Trustee)

SECOND PRIORITY CHARGE AND ASSIGNMENT OVER SHARES
in
AES El Salvador Ltd.
and
AES South American Holdings Ltd.

SECOND PRIORITY CHARGE AND ASSIGNMENT OVER SHARES

THIS SECOND PRIORITY CHARGE AND ASSIGNMENT OVER SHARES (the “Second Priority Charge”) is made on the 8th day of May 2003

BETWEEN:

AES International Holdings II, Ltd., a company incorporated in the British Virgin Islands, the registered office of which is at the offices of Citco Building, Wickhams Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands (the “Chargor”); and

Wells Fargo Bank Minnesota, National Association, a national banking corporation, of Sixth Street and Marquette Avenue, MAC N9303-120, Minneapolis, MN 55479 (the “Second Priority Corporate Trustee”) and Jeffery T. Rose, an individual residing in the State of Minnesota (the “Second Priority Individual Trustee”; and together with the Second Priority Corporate Trustee, the “Second Priority Collateral Trustees”), as trustees under the Second Priority Collateral Trust Agreement dated 8 May 2003 (as such agreement may be amended, amended and restated, supplemented or otherwise modified hereafter from time to time, being the “Second Priority Collateral Trust Agreement”) among the Grantors (as hereinafter defined), the Chargor and the Second Priority Collateral Trustees.

WHEREAS:

(1)           The AES Corporation (the “Borrower”) entered into an Amended and Restated Credit, Reimbursement and Exchange Agreement dated as of 12 December 2002 (as such agreement may be amended, amended and restated, supplemented extended, renewed, replaced, refinanced or otherwise modified from time to time, being the “Credit Agreement”) with the subsidiary guarantors party thereto, the financial institutions party thereto (the “Credit Agreement Parties”) and Citicorp USA, Inc., as administrative agent (in such capacity, the “Agent”) and as collateral agent (in such capacity, the “Credit Agreement Collateral Agent”; and together with the Agent, the “Agents”).

(2)           In order to induce the Credit Agreement Parties and the Agents to enter into the Credit Agreement, (a) the Chargor granted, pursuant to the terms of a Charge and Assignment Over Shares dated as of 12 December 2002 (as such agreement (including, without limitation, the schedules thereto), may be amended, amended and restated, supplemented or otherwise modified from time to time, being the “First Priority Charge”) made by the Chargor to Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as corporate trustee (together with any successor corporate trustee appointed pursuant to Article VII of the First Priority Collateral Trust Agreement (as hereinafter defined), the “Existing Corporate Trustee”), and Bruce L. Bisson, an individual residing in the State of Delaware, not in his individual capacity but solely as individual trustee (together with any successor individual trustee appointed pursuant to Article VII of the First Priority Collateral Trust Agreement, the “Existing Individual Trustee”; and, together with the Existing Corporate Trustee, the “Existing Collateral Trustees”), as trustees under the Collateral Trust Agreement dated as of 12 December 2002 (as such agreement may be amended, amended and restated, supplemented or otherwise modified from time to time, being the “First Priority Collateral

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Trust Agreement”), and (b) the Grantors granted, pursuant to the terms of a Security Agreement dated as of 12 December 2002 (as such agreement (including, without limitation, the schedule thereto) may be amended, unended and restated, supplemented or otherwise modified from time to time, being the “First Priority Security Agreement”) made by the Grantors to the Existing Collateral Trustees, as trustees under the First Priority Collateral Trust Agreement, a continuing first priority security interest in and to the Collateral (as hereinafter defined) to the Existing Collateral Trustees for the ratable benefit of the Lender Parties (as defined in the First Priority Collateral Trust Agreement) to secure the obligations of the Borrower and the other Obligors (as defined in the Credit Agreement) under the Credit Agreement and the Notes (as defined in the Credit Agreement) issued pursuant thereto.

(3)           The Borrower entered into an Indenture dated as of 13 December 2002 (said agreement, as amended, amended and restated, supplemented or otherwise modified from time to time, being the “Exchange Note Indenture”) with Wells Fargo Bank Minnesota, National Association (the “Exchange Note Trustee”) to exchange the Borrower’s (i) 8.75% Senior Notes due 2002 and (ii) 7.375% Remarketable or Redeemable Securities due 2013 for the 10% Senior Secured Exchange Notes due 2005 issued on 13 December 2002 (the “Exchange Notes”, and together with the Exchange Note Indenture (only to the extent relating to the Exchange Notes), the “Exchange Note Agreements”).

(4)           In order to induce the Exchange Note Trustee to enter into the Exchange Note Indenture, the Grantors and the Chargor agreed pursuant to the First Priority Security Agreement and the First Priority Charge, respectively, to grant a continuing security interest in and to the Collateral to the Existing Collateral Trustees for the ratable benefit of the holders of the Exchange Notes to secure the obligations of the Borrower under the Exchange Note Agreements.

(5)           In order to satisfy certain other obligations of the Borrower, the Grantors and the Chargor agreed pursuant to the First Priority Security Agreement and the First Priority Charge, respectively, to grant a continuing security interest in and to the Collateral to the Existing Collateral Trustees for the ratable benefit of the other First Priority Secured Holders to secure the obligations of the Borrower under the other First Priority Secured Agreements.

(6)           The Borrower entered into an Indenture dated as of 8 May 2003 (as such agreement may be amended, amended and restated, modified, extended, renewed, replaced, or supplemented from time to time pursuant to the terms thereof, being the “Senior Note Indenture”) with Wells Fargo Bank Minnesota, National Association, as indenture trustee  (the “Senior Note Trustee”) in connection with the Borrower’s issuance on 8 May 2003 of (i) 8.75% Second Priority Senior Secured Notes due 2013 and (ii) 9.00% Second Priority Senior Secured Notes due 2015 (the “Senior Notes”, and together with the Senior Note Indenture, the “Senior Note Indenture Agreements”).

(7)           In order to induce the Senior Note Trustee to enter into the Senior Note Indenture, the Chargor has agreed pursuant to this Second Priority Charge to grant a continuing security interest in and to the Collateral to the Second Priority Collateral Trustees for the ratable benefit of the holders of the Senior Notes (the “Senior Note Holders”) to secure the obligations of the Borrower under the Senior Note Indenture.

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(8)           The Borrower and certain other Persons party thereto (the “Grantors”) have entered into a Security Agreement dated 8 May 2003 in favor of the Second Priority Collateral Trustees (as such agreement (including, without limitation, the schedules thereto) may be amended, amended and restated, supplemented or otherwise modified from time to time, being the “Second Priority Security Agreement”) pursuant to which the Grantors have granted to the Second Priority Collateral Trustees, for their benefit and in trust for the equitable and ratable benefit of the Second Priority Representatives (as defined in the Second Priority Collateral Trust Agreement) and the Second Priority Secured Holders (as defined in the second Priority Collateral Trust Agreement), a lien and security interest in certain collateral of the Grantors.

(9)           It is a condition precedent to (a) the entry into the Senior Note Indenture by the Senior Note Trustee, (b) the acknowledgement of the Second Priority Security Agreement by the Second Priority Collateral Trustees and (c) the entry into the Second Priority Collateral Trust Agreement by the Second Priority Collateral Trustees, that the Chargor shall have granted the assignment and security interest and made the pledge and assignment contemplated by this Second Priority Charge.

IT IS AGREED as follows:

1DEFINITIONS AND INTERPRETATION

1.1Terms defined in the Senior Note Indenture, the Second Priority Security Agreement or the Second Priority Collateral Trust Agreement and not otherwise defined in this Second Priority Charge or in this Section 1.1, are used in this Second Priority Charge as defined in the Senior Note Indenture, the Second Priority Security Agreement or the Second Priority Collateral Trust Agreement.  The following words and expressions shall have the following meanings, and

“Collateral”	has the meaning given to it in Clause 3.
“Companies”	means AES El Salvador Ltd. and AES South American Holdings Ltd., each a company incorporated in the Cayman Islands, and any new direct Subsidiary of the Chargor formed or acquired by the Chargor in any manner after the date of this Second Priority Charge to the extent such new Subsidiary is a company incorporated in the Cayman Islands or in any other jurisdiction.
“Second Priority Charged Shares”	means the shares to be charged as set out in Schedule 1 hereto and any other shares of the Companies now or at any time in the future beneficially owned by the Chargor or in which the Chargor has any interest and all additional shares of or in any new direct Subsidiary of the Chargor formed or acquired by the Chargor in any manner after the date of this Second Priority Charge to the extent such new Subsidiary is a company incorporated in the Cayman

3

	Islands; provided that the term “Second Priority Charged Shares” shall not include, as to the Chargor, more than 65% of the outstanding voting shares of any of the Companies.
“Second Priority Receiver”	has the meaning given to it in Clause 8.
“Security Interest”	means the security interest in the Collateral granted hereunder securing the Second Priority Secured Obligations.

1.2In this Second Priority Charge:

1.2.1any reference to a Recital, Clause or Schedule is to the relevant Recital, Clause or Schedule of or to this Second Priority Charge and any reference to a sub-clause or paragraph is to the relevant sub-clause or paragraph of the Clause or Schedule in which it appears;

1.2.2the clause headings are included for convenience only and shall not affect the interpretation of this Second Priority Charge;

1.2.3use of the singular includes the plural and vice versa;

1.2.4use of any gender includes the other genders;

1.2.5any phrase introduced by the terms “including”, “include”, “in particular” or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms; and

1.2.6references to any document or agreement are to be construed as references to such document or agreement as is in force for the time being and as amended, varied supplemented, substituted or novated from time to time.

1.3The Recitals and Schedules form part of this Second Priority Charge and shall have effect as if set out in full in the body of this Second Priority Charge and any reference to this Second Priority Charge includes the Recitals and Schedules.

2CHARGED SHARES

The Chargor represents and warrants as follows as of the date of this Second Priority Charge and on any date on which additional or new shares of the Companies become the subject of this Second Priority Charge.

2.1The Chargor owns all of the Second Priority Charged Shares, free and clear of any Liens other than the Security Interest (A) created by (i) this Second Priority Charge, (ii) the First Priority Collateral Documents and (iii) the other Second Priority Collateral Documents or (B) permitted under (i) the Senior Note Indenture and (ii) the other Applicable Agreements.  All of the Second Priority Charged Shares have been duly

4

authorised and validly issued, and are fully paid and non-assessable, and are subject to no rights or options to purchase of any Person.  The Chargor is not and will not become a party to or otherwise bound by any agreement, other than this Second Priority Charge, which restricts in any manner the rights of any present or future holder of any of the Second Priority Charged Shares with respect thereto.

2.2This Second Priority Charge constitutes its legal, valid, binding and enforceable obligation and is a second priority security interest over the Second Priority Charged Shares effective in accordance with its terms.

2.3(a) The execution, delivery, recordation, filing or performance by the Chargor of this Second Priority Charge, (b) the grant by the Chargor of the Liens granted by it pursuant to this Second Priority Charge, (c) the perfection or maintenance of the Liens created under this Second Priority Charge (including the second priority nature thereof), (d) the exercise by the Second Priority Collateral Trustees of their voting or other rights provided for in this Second Priority Charge and (e) the exercise by the Second Priority Collateral Trustees of their remedies in respect of the Collateral pursuant to this Second Priority Charge and the other Second Priority Collateral Documents, will not require any consent, approval, authorization or other order of, or any notice to or filing with, any court, regulatory body, administrative agency or other governmental body (other than (x) the consent of the Credit Agreement Parties, which consent has been obtained and (y) any consent, approval, authorization, order, notice or filing, the failure of which to make or obtain could not reasonably be expected to have a Material Adverse Effect), and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter, by-laws or memorandum and articles of association of the Borrower, the Chargor or the other Pledged Subsidiaries or any agreement, indenture or other instrument to which the Borrower, the Chargor or any other Pledged Subsidiary is a party or by which the Borrower, the Chargor and the other Pledged Subsidiaries, or any of the Borrower’s, the Chargor’s or the other Pledged Subsidiaries’ respective property is bound, or violate or conflict with any laws, administrative regulations or rulings or court decrees applicable to the Borrower, the Chargor or any of the other Pledged Subsidiaries or the Borrower’s, the Chargor’s or the other Pledged Subsidiaries’ respective property, except for any violation, breach, conflict or default that could not reasonably be expected to have a Material Adverse Effect and except that in the foregoing cases, (A) any foreclosure or other exercise of remedies by the Second Priority Collateral Trustees pursuant to this Second Priority Charge and the other Second Priority Collateral Documents will require additional approvals and consents that have not been obtained from foreign and domestic regulators and from lenders to, and suppliers, customers or other contractual counterparties of one or more Subsidiaries, and the failure to obtain such approval or consent could result in a default under, or breach of, agreements or other legal obligations of such Subsidiary and (B) disposition of any of the Collateral may be subject to the receipt of regulatory approvals and to laws affecting the offering and sale of securities generally (the exceptions described in the foregoing clauses (A) and (B) are referred to herein as “Remedies Limitations”).

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2.4As of this date, there is no action or proceeding pending or, to its knowledge, threatened against the Chargor or the Companies, before any court or governmental authority or arbitrator, which could affect the legality, validity or enforceability of this Second Priority Charge.

3CHARGE

3.1The Chargor, in order to secure the Second Priority Secured Obligations, hereby charges by way of second fixed charge as a continuing security for the payment and discharge of the Second Priority Secured Obligations, all its right, title, interest and benefit present and future in, to and under the Second Priority Charged Shares and all proceeds, income and profits thereon, and all interest, dividends and other payments and distributions with respect thereto (the “Collateral”) subject to the provisions for release of this Second Priority Charge set out below.

3.2This Second Priority Charge secures the payment of all Second Priority Secured Obligations of the Borrower and the Chargor.  Without limiting the generality of the foregoing, this Second Priority Charge secures, as to the Chargor, the payment of all amounts that constitute part of the Second Priority Secured Obligations and that would be owed by the Chargor but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Chargor.

3.3The Lien created by this Second Priority Charge and the other Second Priority Collateral Documents shall be subordinate in all respects (including the exercise of remedies with respect to such Collateral) to the prior Lien of the First Priority Collateral Documents in existence from time to time, in accordance with Article IX of the Second Priority Collateral Trust Agreement.

3.4The Security Interest is granted as security only and shall not subject the Second Priority Collateral Trustees and Second Priority Representatives or any other Second Priority Secured Holder to, or transfer or in any way affect or modify, any obligation or liability of the Chargor with respect to any of the Collateral or any transaction in connection therewith.

4COVENANTS BY THE CHARGOR

So long as any of the Second Priority Secured Obligations remain outstanding, the Chargor covenants that:

4.1it shall forthwith and from time to time deposit with the Controlling Collateral Trustees all certificates and other documents of title relating to the Second Priority Charged Shares;

4.2it shall deliver to the Second Priority Collateral Trustees, to the extent that the equivalent document has not already been delivered to and held by the First Priority

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Collateral Trustees in respect of the First Priority Charge, as security in accordance with the terms of this Second Priority Charge the following (on the date hereof and on any date on which additional or new shares of the Companies become the subject of this Second Priority Charge):

4.2.1original share certificate in respect of the Second Priority Charged Shares;

4.2.2blank, signed and undated share transfer certificates in respect of the Second Priority Charged Shares in the forms set out in Schedule 2 to this Second Priority Charge;

4.2.3a shareholder proxy in favour of the Controlling Collateral Trustees in the forms set out in Schedule 3 to this Second Priority Charge in respect of Second Priority Charged Shares;

4.2.4executed but undated letters of resignation and release together with letters of authority to date the same from each of the directors, alternate directors and officers of the Companies appointed by the Chargor in the forms set out in Parts I and II of Schedule 4 to this Second Priority Charge; and

4.2.5an undertaking from the Company to register transfers of the Second Priority Charged Shares to the Chargee or its nominee in the form set out in Schedule 5 to this Second Priority Charge;

provided that on the date that all First Priority Secured Obligations are Paid in Full, the Chargor shall instruct the First Priority Collateral Trustees to deliver (i) to the Chargor, all documentation referred to in Sections 4.2.2, 4.2.3, 4.2.4 and 4.2.5 above then held by the First Priority Collateral Trustees and the Chargor shall deliver to the Second Priority Collateral Trustees newly executed documentation pursuant to this Section 4.2 and (ii) to the Second Priority Collateral Trustees, all documentation referred to in Section 4.2.1 above then held by the First Priority Collateral Trustees; provided, further that if at any time the Existing Collateral Trustees or the Second Priority Collateral Trustees shall cease to be collateral trustees under the First Priority Collateral Documents or the Second Priority Collateral Documents, respectively, the Chargor shall deliver to the then acting collateral trustees newly executed documentation pursuant to this Section 4.2.

4.3upon the issue of additional Second Priority Charged Shares which become the subject of this Second Priority Charge it shall provide the Second Priority Collateral Trustees, for the benefit of the Second Priority Representatives and the Second Priority Secured Holders, with an opinion of the General Counsel of AES that such additional Second Priority Charged Shares are duly authorised and validly issued, fully paid and non-assessable (or the equivalent thereof) and are subject to no rights or options to purchase of any Person.

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5FILING; FURTHER ASSURANCES

Subject to the Remedies Limitations, the Chargor agrees that it will, at its expense and in such manner and form as the Second Priority Collateral Trustees may reasonably require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or that the Second Priority Collateral Trustees may reasonably request and that is within the power of the Chargor, consistent with its currently existing contractual and other legal obligations, in order to create, preserve, perfect or validate the Security Interest or to enable the Second Priority Collateral Trustees to exercise and enforce their rights hereunder with respect to any of the Collateral; and notwithstanding the generality of such provisions, the Chargor covenants that immediately following execution of this Second Priority Charge it shall deliver to the Second Priority Collateral Trustees a copy of the Chargor’s complete register of mortgages, charges and other encumbrances as maintained at its registered office, certified as a true copy by the registered agent of the Chargor in the British Virgin Islands containing particulars of the security created hereunder and shall procure that a further copy of the same is submitted for registration with the Registrar of Companies in the British Virgin Islands.

Subject to the Second Priority Collateral Trust Agreement, the Second Priority Collateral Trustees may, after the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default, in their sole discretion, cause any or all of the Second Priority Charged Shares to be transferred of record into the name of the Second Priority Collateral Trustees or their nominee.  The Chargor will promptly give to the Second Priority Collateral Trustees copies of any notices or other communications received by it with respect to the Second Priority Charged Shares registered in the name of the Chargor and the Second Priority Collateral Trustees will promptly give the Chargor copies of any notices and communications received by the Second Priority Collateral Trustees with respect to the Chargor registered in the name of the Second Priority Collateral Trustees or their nominee.

6RIGHT TO RECEIVE DISTRIBUTIONS AND RIGHT TO VOTE CHARGED SHARES

6.1So long as no Second Priority Collateral Trust Agreement Default shall have occurred and be continuing:

6.1.1The Chargor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose; provided, however, that the Chargor will not exercise or refrain from exercising any such right if such action would have a material adverse effect on the value of the Collateral or any part thereof.

6.1.2The Chargor shall be entitled to receive and retain any and all dividends, interest and other distributions paid in respect of the Collateral if and to the extent that the payment thereof is not otherwise prohibited by the terms of the Applicable Agreements; provided, however, that any and all dividends, interest and other distributions paid or payable other than in cash in respect of, and

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instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Collateral shall be, and shall be forthwith delivered to the Controlling Collateral Trustees to hold as Collateral, and shall, if received by the Chargor, be received in trust for the benefit of the Controlling Collateral Trustees, be segregated from the other property or funds of the Chargor and be forthwith delivered to the Controlling Collateral Trustees as Collateral in the same form as so received (with any necessary indorsement).

6.1.3The Controlling Collateral Trustees will execute and deliver (or cause to be executed and delivered) to the Chargor all such proxies and other instruments as the Chargor may reasonably request for the purpose of enabling the Chargor to exercise the voting and other rights that it is entitled to exercise pursuant to Section 6.1.1 above and to receive the dividends or interest payments that it is authorized to receive and retain pursuant to Section 6.1.2 above.

6.2Subject to the Second Priority Collateral Trust Agreement and upon the occurrence and during the continuance of a Second Priority Collateral Trust Agreement Default:

6.2.1All rights of the Chargor (x) to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 6.1.1 shall, upon notice to the Chargor by the Second Priority Collateral Trustees, cease and (y) to receive the dividends, interest and other distributions that it would otherwise be authorized to receive and retain pursuant to Section 6.1.2 shall automatically cease, and, subject to the Remedies Limitations, all such rights shall thereupon become vested in the Second Priority Collateral Trustees, who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Collateral such dividends, interest and other distributions and shall deposit the same into the Second Priority Collateral Account; and

6.2.2All dividends, interest and other distributions that are received by the Chargor contrary to the provisions of Section 6.2.1 shall be received in trust for the benefit of the Second Priority Collateral Trustees, shall be segregated from other funds of the Chargor and shall be forthwith paid over to the Second Priority Collateral Trustees to be deposited into the Second Priority Collateral Account.  Upon receipt of notice from the Required Second Priority Representative(s) that all Second Priority Collateral Trust Agreement Defaults have been cured, the Second Priority Collateral Trustees’ right to retain dividends under this Section 6 shall cease and the Second Priority Collateral Trustees shall pay over to the Chargor any such Collateral retained by them during the continuance of a Second Priority Collateral Trust Agreement Default.

7GENERAL AUTHORITY

The Chargor hereby irrevocably appoints the Second Priority Collateral Trustees its true and lawful attorney, with full power of substitution, in the name of the Chargor, the Second

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Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders or otherwise, for the sole use and benefit of the Second Priority Collateral Trustees on behalf of the Second Priority Representatives and the Second Priority Secured Holders, but at the expense of the Chargor, to the extent permitted by law to exercise and subject to the provisions of Article IX of the Second Priority Collateral Trust Agreement, and at any time and from time to time while a Second Priority Collateral Trust Agreement Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral:

(a)to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof,

(b)to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto,

(c)to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Second Priority Collateral Trustees were the absolute owner thereof, and

(d)to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto;

provided that the Second Priority Collateral Trustees shall give the Chargor not less than ten days’ prior notice of the time and place of any sale or other intended disposition of any of the Collateral except any Collateral which threatens to decline speedily in value or is of a type customarily sold on a recognized market.

8SECOND PRIORITY RECEIVER

Subject to the Second Priority Collateral Trust Agreement, if a Second Priority Collateral Trust Agreement Default shall have occurred and be continuing, the Second Priority Collateral Trustees may by writing without notice to the Chargor appoint one or more person or persons as the Second Priority Collateral Trustees think fit to be a receiver (the “Second Priority Receiver”) in relation to the Collateral.  Where the Second Priority Collateral Trustees appoint two or more persons as Second Priority Receiver, the Second Priority Receivers may act jointly or independently.

8.1The Second Priority Receiver may take such action in relation to the enforcement of this Second Priority Charge including, without limitation, to sell, charge or otherwise dispose of the Collateral, to exercise any powers, discretion, voting or other rights or entitlements in relation to the Collateral and generally to carry out any other action which he may in his sole discretion deems necessary in relation to the enforcement of this Second Priority Charge.

8.2The Second Priority Receiver shall have, in addition to the other powers set-out in this Clause, the following powers:

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8.2.1power to take possession of, collect and get in the Collateral and, for that purpose, to take such proceedings as may seem to him to be expedient;

8.2.2power to raise or borrow money and grant security therefor over the Collateral;

8.2.3power to appoint an attorney or accountant or other professionally qualified person to assist him in the performance of his functions;

8.2.4power to bring or defend any action or other legal proceedings in the name of and on behalf of the Chargor in respect of the Collateral;

8.2.5power to do all acts and execute in the name and on behalf of the Chargor any document or deed in respect of the Collateral;

8.2.6power to make any payment which is necessary or incidental to the performance of his functions;

8.2.7power to make any arrangement or compromise on behalf of the Chargor in respect of the Collateral;

8.2.8power to rank and claim in the insolvency or liquidation of the Companies and to receive dividends and to accede to agreements for the creditors of the Companies;

8.2.9power to present or defend a petition for the winding up of the Companies; and

8.2.10power to do all other things incidental to the exercise of the foregoing powers.

8.3The Second Priority Receiver shall be the agent of the Chargor and the Chargor alone shall be responsible for his acts and defaults and liable on any contracts made, entered into or adopted by the Second Priority Receiver.  The Second Priority Collateral Trustees shall not be liable for the Second Priority Receiver’s acts, omissions, negligence or default, nor be liable on contracts entered into or adopted by the Second Priority Receiver.

9INDEMNIFICATION AND EXPENSES

9.1The Chargor agrees to indemnify, defend and save and hold harmless the Second Priority Collateral Trustees, each Second Priority Representative and each Second Priority Secured Holder and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or resulting from this Second Priority Charge (including, without limitation, enforcement of this Second Priority Charge) or any other Second Priority Collateral Document except to the extent such claim, damage, loss,

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liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct.

9.2The Chargor will upon demand pay to the Second Priority Collateral Trustees the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of their counsel and of any experts and agents, that the Second Priority Collateral Trustees may incur in connection with (a) the administration of this Second Priority Charge (b) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral, (c) the exercise or enforcement of any of the rights of the Second Priority Collateral Trustees, the Second Priority Representatives or the other Second Priority Secured Holders hereunder or (d) the failure by the Chargor to perform or observe any of the provisions hereof.

Any such amount not paid on demand shall bear interest at a per annum rate of 2% plus the Base Rate.

10LIMITATION ON DUTY OF THE COLLATERAL AGENT IN RESPECT OF CHARGED SHARES

Beyond the exercise of reasonable care in the custody thereof, the Second Priority Collateral Trustees shall have no duty as to any Collateral in their possession or control.  The Second Priority Collateral Trustees shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in their possession if the Collateral is accorded treatment substantially equal to that which it accords its own property and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of any act or omission of any agent or bailee selected by the Second Priority Collateral Trustees in good faith, other than any act or omission caused by the gross negligence or willful misconduct of such bailee or any act or omission made in breach of this Second Priority Charge.  Any direction of the Required Second Priority Representative(s) to the Second Priority Collateral Trustees to take any action hereunder shall be subject to section 7.05(d) of the Second Priority Collateral Trust Agreement.

11REMEDIES AND APPLICATIONS OF PROCEEDS

Subject to the terms of the Second Priority Collateral Trust Agreement, if a Second Priority Collateral Trust Agreement Default shall have occurred and be continuing:

11.1Any cash held by or on behalf of the Second Priority Collateral Trustees and all cash proceeds received by or on behalf of the Second Priority Collateral Trustees in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Second Priority Collateral Trustees, be held by the Second Priority Collateral Trustees as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Second Priority Collateral Trustees pursuant to Section 9 of this Second Priority Charge) in whole or in

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part by the Second Priority Collateral Trustees for the ratable benefit of the Second Priority Representatives and the Second Priority Secured Holders against, all or any part of the Second Priority Secured Obligations, in accordance with the terms of the Second Priority Collateral Trust Agreement.

11.2All payments received by the Chargor in respect of the Collateral shall be received in trust for the benefit of the Second Priority Collateral Trustees, shall be segregated from other funds of the Chargor and shall be forthwith paid over to the Second Priority Collateral Trustees to be deposited into the Second Priority Collateral Account.

11.3The Second Priority Collateral Trustees may, without notice to the Chargor except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Second Priority Secured Obligations against any funds held in the Second Priority Collateral Account or in any other deposit account of the Borrower in accordance with Section 11.1 above.

11.4If the Second Priority Collateral Trustees shall determine to exercise their right to sell all or any of the Collateral pursuant to this Section 11, the Chargor agrees that, upon request of the Second Priority Collateral Trustees and subject to the Remedies Limitations, the Chargor will, at its own expense:

11.4.1execute and deliver, and cause each issuer of such Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Second Priority Collateral Trustees, advisable to register such Collateral under the provisions of the Securities Act of 1933 of the United States of America (as amended from time to time, the “Securities Act”), to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus that, in the opinion of the Second Priority Collateral Trustees, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto;

11.4.2use its best efforts to qualify the Collateral under the state securities or “Blue Sky” laws of the United States of America and to obtain all necessary governmental approvals for the sale of such Collateral, as requested by the Second Priority Collateral Trustees;

11.4.3cause each such issuer of such Collateral to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act;

11.4.4provide the Second Priority Collateral Trustees with such other information and projections as may be necessary or, in the opinion of the Second Priority

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Collateral Trustees, advisable to enable the Second Priority Collateral Trustees to effect the sale of such Collateral; and

11.4.5do or cause to be done all such other acts and things as may be necessary to make such sale of such Collateral or any part thereof valid and binding and in compliance with applicable law.

11.5The Second Priority Collateral Trustees are authorized, in connection with any sale of the Collateral pursuant to this Section 11 to deliver or otherwise disclose to any prospective purchaser of the Collateral:

11.5.1any registration statement or prospectus, and all supplements and amendments thereto, prepared pursuant to Section 11.4.1 above;

11.5.2any information and projections provided to it pursuant to Section 11.4.4 above; and

11.5.3any other information in its possession relating to such Collateral.

11.6The Chargor acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Second Priority Secured Holders by reason of the failure by the Chargor to perform any of the covenants contained in Section 11.4 above and, consequently, agrees that, if the Chargor shall fail to perform any of such covenants, it will pay, as liquidated damages and not as a penalty, an amount equal to the value of the Collateral on the date the Second Priority Collateral Trustees shall demand compliance with Section 11.4 above.

12TERMINATION OF SECURITY INTEREST; RELEASE OF SECOND PRIORITY CHARGED SHARES

Upon termination of the Security Interest, the Second Priority Collateral Trustees shall at their sole expense return to the Chargor all documentation delivered by the Chargor to the Second Priority Collateral Trustees pursuant to Section 4.2 hereof.  The Second Priority Collateral Trustees shall release all or any portion of the Collateral solely on terms and subject to the conditions set forth in Article 8 of the Second Priority Collateral Trust Agreement.

13NOTICES

All notices, communications and distributions hereunder shall be given in accordance with Section 10.03 of the Second Priority Collateral Trust Agreement.

14WAIVERS; NON-EXCLUSIVE REMEDIES

No failure on the part of the Second Priority Collateral Trustees, the Second Priority Representatives or any other Second Priority Secured Holder to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Second Priority Charge shall operate as a waiver thereof; nor shall any single or partial exercise of any right

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under the Second Priority Secured Agreements or this Second Priority Charge preclude any other or further exercise thereof or the exercise of any other right.  The rights in the Second Priority Secured Agreements and this Second Priority Charge are cumulative and are not exclusive of any other remedies provided by law.

15ADDITIONAL SECURED OBLIGATIONS

Each of the Chargor, the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders acknowledges and agrees that the Collateral hereunder may secure additional Obligations of the Borrower in respect of the incurrence of new Debt (as defined in the Senior Note Indenture) by the Borrower or the refinancing, extension, or renewal of certain Debt of the Borrower, in each case, only as permitted by the terms and conditions of the Senior Note Indenture.  Upon the execution and delivery to the Second Priority Collateral Trustees of an acknowledgment by the Persons to whom the Obligations referred to in the immediately preceding sentence are owed, in form and substance satisfactory to the Second Priority Collateral Trustees, that (i) such Persons acknowledge the terms and conditions of this Second Priority Charge and the other Second Priority Collateral Documents and agree to be bound thereby and (ii) such Persons agree to pay their ratable share of the fees and expenses of the Second Priority Collateral Trustees and to ratably indemnify the Second Priority Collateral Trustees, in such case, on terms and conditions similar to those contained in the Senior Note Indenture and the Second Priority Collateral Trust Agreement, such Persons shall become a “Second Priority Secured Holder” for all purposes under the Second Priority Collateral Documents and shall be entitled to share ratably in the Collateral for all purposes hereunder.

16SUCCESSORS AND ASSIGNS; CONTINUING SECURITY INTEREST

This Second Priority Charge shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until all of the Collateral is released, and this Second Priority Charge is terminated, in accordance with Section 8.02 of the Second Priority Collateral Trust Agreement, (b) be binding upon the Chargor, its successors and assigns and (c) inure, together with the rights and remedies of the Second Priority Collateral Trustees hereunder, to the benefit of the Second Priority Collateral Trustees, the Second Priority Representatives on behalf of themselves and on behalf of the Second Priority Secured Holders and their respective successors, transferees and assigns.  Without limiting the generality of the foregoing clause (c), any Senior Note Holder may transfer all or any portion of its rights and obligations under the Senior Note Indenture (including, without limitation, all or a portion of the Senior Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Senior Note Holder in the Second Priority Collateral Documents or otherwise, in each case as provided in the Senior Note Indenture.

17CHANGES IN WRITING

No amendment or waiver of any provision of this Second Priority Charge, and no consent to any departure by the Chargor herefrom, shall in any event be effective unless the same shall (a) be in writing and signed by the Second Priority Collateral Trustees and (b) otherwise comply with Section 9.01 of the Second Priority Collateral Trust Agreement, and then such waiver or consent

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shall be effective only in the specific instance and for the specific purpose for which given.  Notwithstanding the foregoing, amendments, waivers and consents effected in respect of the First Priority Charge (or, in the case of any Eligible Debt Agreement, the applicable security agreement related to such Eligible Debt Agreement) shall upon their effectiveness apply with equal force to the comparable provisions of this Second Priority Charge and become effective with respect thereto without the consent of or any other action on the part of any Person; provided, however, that any such amendment, waiver, or consent effected in respect of the First Priority Charge (or, in the case of any Eligible Debt Agreement, the applicable security agreement related to such Eligible Debt Agreement) which has the effect of releasing all or substantially all of the Collateral shall not automatically apply to this Second Priority Charge.

18PROTECTION OF PURCHASERS

No purchaser or other person dealing with the Second Priority Collateral Trustees or their delegate shall be bound to see or inquire whether the right of the Second Priority Collateral Trustees to exercise any of their powers has arisen or become exercisable or be concerned with notice to the contrary, or be concerned to see whether the delegation by the Second Priority Collateral Trustees pursuant to the terms of this Second Priority Charge shall have lapsed for any reason or been revoked.

19LAW AND JURISDICTION

19.1This Second Priority Charge is governed by, and shall be construed in accordance with, the law of the Cayman Islands.

19.2The Chargor irrevocably agrees for the exclusive benefit of the Second Priority Collateral Trustees, the Second Priority Representatives and the Second Priority Secured Holders that the courts of the Cayman Islands shall have jurisdiction to hear and determine any suit, action or proceeding and to settle any dispute which may arise out of or in connection with this Second Priority Charge and for such purposes irrevocably submits to the jurisdiction of such courts.

20COUNTERPARTS

This Second Priority Charge may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument.

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IN WITNESS WHEREOF this Second Priority Charge has been executed and delivered as a Deed the day and year first above written.

EXECUTED UNDER THE COMMON SEAL OF	)
AES INTERNATIONAL HOLDINGS II, LTD.	)
	)	Name:
	)	Title:

In the presence of:

                                                Witness

EXECUTED AS A DEED by	)
WELLS FARGO BANK MINNESOTA,	)
NATIONAL ASSOCIATION,	)
as Second Priority Corporate Trustee	)
	)	Name:
	)	Title:

In the presence of:

                                                Witness

EXECUTED AS A DEED by	)
Jeffery T. Rose,	)
as Second Priority Individual Trustee	)
	)	Name:
	)	Title:

In the presence of:

                                                Witness

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ACKNOWLEDGED by	)
Wells Fargo Bank Minnesota,	)
National Association, as Senior Note Trustee	)
	)	Name:
	)	Title:

In the presence of:

                                                Witness

ACKNOWLEDGED by	)
Wilmington Trust Company,	)
as Existing Corporate Trustee	)
	)	Name:
	)	Title:

In the presence of:

                                                Witness

ACKNOWLEDGED by	)
Bruce L. Bisson,	)
as Existing Individual Trustee	)
	)	Name:
	)	Title:

In the presence of:

                                                Witness

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SCHEDULE 1

Legal Name	Jurisdiction of Incorporation	Types of Shares	Authorized Shares	Par Value		Outstanding Shares	Percentage Owned by AES	Certificate No.	% Pledged
AES El Salvador, Ltd.	Cayman	Ordinary	50,000	$	1.00	1,000	100	3, 4	65
AES South American Holdings, Ltd.	Cayman	Nominal	50,000	$	1.00	5,030	100	3, 4	65

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SCHEDULE 2

[NAME OF COMPANY]

SHARE TRANSFER CERTIFICATE

We, AES International Holdings II, Ltd. (the “Transferor”), for good and valuable consideration received by us through Wells Fargo Bank Minnesota, National Association, as corporate trustee and Jeffery T. Rose, as individual trustee(together, the “Transferee”), do hereby:

(1)transfer to the Transferee [Number of Shares Transferred] Shares (the “Shares”) standing in our name in the register of the Company to hold unto the Transferee, its executors, administrators and assigns, subject to the several conditions on which we held the same at the time of execution of this Share Transfer Certificate; and

(2)consent that our name remains on the register of the Company until such time as the Company enters the Transferee’s name in the register of the Company.

And we, the Transferee, do hereby agree to take the Shares subject to the same conditions.

As Witness Our Hands

Signed by the Transferor on

the               day of

in the presence of:

Witness	Transferor
Signed by	Signed by
Wells Fargo Bank Minnesota, National Association, as Second Priority Corporate Trustee	Jeffery T. Rose, as Second Priority Individual Trustee
the            day of	the            day of
in the presence of:	in the presence of:
Witness	Witness

20

SCHEDULE 3

Part I

[NAME OF COMPANY]

IRREVOCABLE APPOINTMENT OF PROXY

We, AES International Holdings II, Ltd. hereby irrevocably appoint [Name of Proxy] as our proxy to vote at meetings of the Shareholders of [Name of Company] (the “Company”) in respect of any existing or further shares in the Company which may have been or may from time to time be issued and/or registered in our name.  This proxy is irrevocable by reason of being coupled with the interest of [Name of Proxy] as chargee of the aforesaid shares.

For and on behalf of AES International Holdings II, Ltd.

Dated:

Part II

[NAME OF COMPANY]

IRREVOCABLE APPOINTMENT OF PROXY

We, AES International Holdings II, Ltd. hereby irrevocably appoint [appointee] as our duly authorised representative to sign resolutions in writing of [Name of Company] (the “Company”) in respect of any existing or further shares in the Company which may have been or may from time to time be issued and/or registered in our name.

For and on behalf of AES International Holdings II, Ltd.

Dated:

[NOTE THE ARTICLES OF THE COMPANIES NEED TO SPECIFICALLY PROVIDE FOR IRREVOCABLE PROXIES]

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SCHEDULE 4

Part I

LETTER OF RESIGNATION

Date:

The Board of Directors
[NAME OF COMPANY]
[ADDRESS]

Dear Sirs,

RESIGNATION OF DIRECTOR

I hereby tender my resignation as a Director of the Company with effect from the date my resignation is accepted by resolution of the Directors of [NAME OF COMPANY].

Yours faithfully,

[Director]

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Part II

LETTER OF AUTHORISATION

Date:

Wells Fargo Bank Minnesota,

National Association,

  as Second Priority Corporate Trustee
Sixth Street and Marquette Avenue

MAC N9303-120

Minneapolis, MN 55479

and

Jeffery T. Rose,

  as Second Priority Individual Trustee
c/o Wells Fargo Bank Minnesota,

National Association

Sixth Street and Marquette Avenue

MAC N9303-120

Minneapolis, MN 55479

Dear Sirs,

SECOND PRIORITY CHARGE AND ASSIGNMENT OVER SHARES BETWEEN AES INTERNATIONAL HOLDINGS II, LTD., WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION (AS SECOND PRIORITY CORPORATE TRUSTEE) AND JEFFERY T. ROSE (AS SECOND PRIORITY INDIVIDUAL TRUSTEE) DATED 8 MAY 2003 (THE “SECOND PRIORITY CHARGE”)

I refer to my executed but undated letter of resignation as director of [NAME OF COMPANY] provided in accordance with the Second Priority Charge and I hereby authorise you to date the letter in the event of a Second Priority Collateral Trust Agreement Default (as defined in the Second Priority Charge).

Yours faithfully,

[Director]

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SCHEDULE 5

[NAME OF COMPANY]

Wells Fargo Bank Minnesota,

National Association,

  as Second Priority Corporate Trustee
Sixth Street and Marquette Avenue

MAC N9303-120

Minneapolis, MN 55479

and

Jeffery T. Rose,

  as Second Priority Individual Trustee
c/o Wells Fargo Bank Minnesota,

National Association

Sixth Street and Marquette Avenue

MAC N9303-120

Minneapolis, MN 55479

Dear Sirs

[NAME OF COMPANY]

We refer to the Second Priority Charge and Assignment Over Shares (the “Second Priority Charge”) dated 8 May 2003 between AES International Holdings II, Ltd. (“Chargor”) and Wells Fargo Bank Minnesota, National Association, as corporate trustee and Jeffery T. Rose, as individual trustee (together, the “Second Priority Collateral Trustees”) whereby, inter alia, Chargor granted a charge over the Second Priority Charged Shares in favour of the Second Priority Collateral Trustees.

Capitalised words and expressions used in this letter which are not expressly defined herein have the meanings ascribed to them in the Second Priority Charge.

This letter of undertaking is given pursuant to clause 4.2.5 of the Second Priority Charge.

It is hereby acknowledged, that the Company hereby irrevocably and unconditionally undertakes to register in the Company’s register of members any and all share transfers to the Second Priority Collateral Trustees or its nominee in respect of the Second Priority Charged Shares submitted to the Company by the Second Priority Collateral Trustees.

Yours faithfully,

Director

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EX-10.1

Exhibit 10.1

EXECUTION COPY

AMENDMENT NO. 1 TO THE AMENDED AND RESTATED CREDIT,
REIMBURSEMENT AND EXCHANGE AGREEMENT

AMENDMENT NO. 1 TO THE AMENDED AND RESTATED CREDIT, REIMBURSEMENT AND EXCHANGE AGREEMENT, dated as of April 14, 2003 (this “Amendment”) among The AES Corporation, a Delaware corporation (the “Borrower”), AES International Holdings II, Ltd., a corporation organized under the laws of the British Virgin Islands (“AES BVI II”), the Subsidiary Guarantors party to the Credit Agreement referred to below (the “Subsidiary Guarantors”), the banks, financial institutions and other institutional lenders party to the Credit Agreement referred to below (collective, the “Banks”), the Revolving Fronting Banks and the Drax LOC Fronting Bank party to the Credit Agreement referred to below, Citicorp USA, Inc., as administrative agent (in such capacity, the “Agent”) and as collateral agent (in such capacity, the “Collateral Agent”).

PRELIMINARY STATEMENTS

(1)The Borrower, the Subsidiary Guarantors, the Revolving Fronting Banks and the Drax LOC Fronting Bank, the Banks, the Agent and the Collateral Agent have entered into an Amended and Restated Credit, Reimbursement and Exchange Agreement dated as of December 12, 2002 (the “Credit Agreement”).  Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement.

(2)The Borrower has requested that the Banks amend certain provisions of the Credit Agreement to permit the issuance from time to time and in one or more tranches by the Borrower of new second-priority senior secured notes in an aggregate principal amount of up to $2,000,000,000 and to permit certain other activities by the Borrower.

(3)The Banks party hereto, constituting not less than the Required Banks are, on the terms and conditions stated below, willing to grant the request of the Borrower as hereinafter set forth.

NOW, THEREFORE, for good and valuable consideration the sufficiency of which is hereby acknowledged, and subject to the terms and conditions of this Amendment, the parties agree as follows:

SECTION 1.  Amendments to the Credit Agreement.  Subject to the satisfaction of the conditions precedent set forth in Section 3, the Credit Agreement is, effective as of the date hereof, hereby amended as follows:

(a)The following definitions are hereby added to Section 1.01 of the Credit Agreement in the correct alphabetical order:

““Amendment No. 1” means Amendment No. 1 to this Agreement dated as of April 14, 2003 among the Borrower, the Subsidiary Guarantors, AES BVI

II, the Revolving Fronting Banks and the Drax LOC Fronting Bank party thereto, the Lenders party thereto, the Agent and the Collateral Agent.”

““Amendment No. 1 Effective Date” has the meaning set forth in Section 3 of Amendment No. 1.”

““Asset Sale Proceeds Basket” means at any time of determination, (x) the sum of (1) $100,000,000 and (2) aggregate amount of Net Cash Proceeds received by the Borrower after the Amendment No. 1 Effective Date and prior to such time of determination from Covered Asset Sales that are not required to prepay the Facilities as set forth in Section 2.11, less (y) the amounts referred to in clause (x) above that were applied to the repayment of any Debt prior to such time in accordance with the provisions of Section 5.17(viii) (other than any Debt repayed with an amount from the Equity Basket at such time).”

““Second-Priority Senior Secured Notes” means the Senior Secured Notes issued from time to time and in one or more tranches by the Borrower in accordance with the provisions of Section 5.07(a)(xv).”

(b)The definition of “Net Cash Proceeds” in Section 1.01 of the Credit Agreement is amended by amending and restating clause (B) thereof in its entirety to read as follows:

“(B)with respect to any Asset Sale, means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received (including any cash received upon sale or disposition of such note or receivable), excluding any other consideration received in the form of assumption by the acquiring Person of Debt or other obligations relating to the property disposed of in such Asset Sale or received in any other noncash form) therefrom, in each case, net of all legal, title and recording tax expenses, commissions and other customary fees and expenses incurred (including, without limitation, consent and waiver fees and any applicable premiums, earn-out or working interest payments or payments in lieu or in termination thereof), and all federal, state, provincial, foreign and local taxes payable to the relevant tax authority (i) as a direct consequence of such Asset Sale, (ii) as a result of the required repayment of any Debt in any jurisdiction other than the jurisdiction where the property disposed of was located or (iii) as a result of any repatriation to the U.S. of any proceeds of such Asset Sale, and in each case net of a reasonable reserve (which reserve (1) if required by the applicable sale agreement, shall be deposited into a third party escrow account with an escrow agent and (2) otherwise, shall be deposited into a Deposit Account or a Securities Account (as each term is defined in the Security Agreement) and shall be maintained in such account until such time as the applicable indemnification obligation expires or the amounts on deposit are required to make indemnification payments) for any indemnification payments (fixed and contingent) attributable to seller’s indemnities to the purchaser undertaken by the Borrower or any of its Subsidiaries in connection

2

with such Asset Sale (but excluding any payments, which by the terms of the indemnities will not, under any circumstances, be made prior to the Termination Date) provided that any amounts in such reserve to the extent not paid to the purchaser as an indemnification payment after the expiration of any applicable time period set forth in the agreements in respect of such Asset Sale shall be treated as “Net Cash Proceeds” for all purposes of the Agreement, and net of all payments made on any Debt which must by its terms or by applicable law be repaid out of the proceeds from such Asset Sale, and net of all required distributions and other required payments made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale;”

(c)Section 1.01 of the Credit Agreement is amended by deleting the definition of “Permitted Investment Basket”.

(d)Section 2.11(b)(iv) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“The Borrower shall, reasonably promptly following the date of receipt of Net Cash Proceeds from the issuance of Debt by the Borrower permitted by Section 5.07(a)(xi) or 5.07(a)(xv) (provided that Net Cash Proceeds subject to this Section 2.11(b)(iv) shall be limited to the first $475,000,000 of such Net Cash Proceeds from the initial issuance of the Debt issued pursuant to Section 5.07(a)(xv)) but in no event later than three Business Days after receipt thereof, prepay an aggregate principal amount of the Term Loans and prepay or cash collateralize the Drax LOC Liabilities in an aggregate amount equal to the Banks’ Ratable Share of such Net Cash Proceeds.  Each such prepayment shall be applied ratably to each of the Term Loan Facilities and the Drax Letter of Credit Facility as set forth in clause (c) below (it being understood that for purposes of calculating such ratable share prior to the Tranche A Term Loan Facility being paid in full, the aggregate amount of the Revolving Credit Commitments shall be deemed to be part of the Tranche A Term Loan Facility).”

(e)Section 5.01 of the Credit Agreement is hereby amended by adding the following phrase “other than with respect to clause (c) below which information shall only be delivered to the Bank Party requesting such information” after the phrase “it being understood that” in the first parenthetical therein.

(f)Section 5.01(c) of the Credit Agreement is hereby amended by adding the phrase “upon request by any such Bank Party made at least 30 days prior to the date that the relevant financial statements are required to be delivered pursuant to clause (a) or (b) above,” immediately prior to the phrase “(1) as soon as available”.

(g)Section 5.07(a) of the Credit Agreement is hereby amended by (a) deleting the “and” at the end of clause (xiii) thereof, (b) deleting the “.” at the end of clause (xiv) thereof and replacing it with a “;” and (c) adding at the end thereof the following new clause (xv) to read as follows:

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“(xv) the issuance by the Borrower of Second-Priority Senior Secured Notes, provided that (w) the aggregate principal amount of such Debt shall not be greater than $2,000,000,000, (x) the final maturity of such Debt shall in no event be prior to April 15, 2008, (y) (1) the first $475,000,000 in Net Cash Proceeds from the initial issuance of such Debt shall be applied as set forth in Section 2.11(b)(iv) and (2) the remaining Net Cash Proceeds from the initial issuance and any subsequent issuances of such Debt shall be used to repay, purchase or defease any of the Debt of the Borrower (other than any of the surety bonds, guarantees, and letters of credit set forth on Schedule VI to the Credit Agreement) that is permitted by Section 5.07(a)(ii)(the “Eligible Debt”) (provided that (A) up to $250,000,000 of such remaining Net Cash Proceeds may be retained by the Borrower for general corporate purposes (including, without limitation, to repay Eligible Debt) and (B) to the extent that any such remaining Net Cash Proceeds (other than the $250,000,000 referred to in the immediately preceding clause (A) in this proviso) are not used to immediately repay, purchase or defease the Eligible Debt, such remaining Net Cash Proceeds shall be deposited into and held either in a Deposit Account or a Securities Account (as each term is defined in the Security Agreement) or a third party escrow account with an escrow agent on terms and conditions reasonably satisfactory to the Agent until such time as such Net Cash Proceeds are used to either repay, purchase, redeem or defease such Eligible Debt (whether through open market repurchases, redemptions or otherwise) or to redeem or repurchase such Second Priority Senior Secured Notes and pending such use the Agent shall not exercise any right or remedy under the Shared Collateral Documents that would prevent the Borrower from using such Net Cash Proceeds for such purposes) and (z) the terms and conditions of such Debt in the opinion of the Agent are consistent with customary market terms for a financing of its nature and do not adversely affect the ability of the Borrower to meet its payment Obligations under the Financing Documents.”

(h)Section 5.07(b)(ii) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(ii) Debt incurred by a Subsidiary:

(x)(1) to finance the acquisition, development, construction, operation, maintenance (including modifications and upgrades to comply with applicable laws and regulations) or working capital requirements (including letters of credit or guarantees to fund debt service reserve accounts or similar accounts or for the benefit of power purchase agreements or commodity hedging counterparties) of a Power Supply Business or other business owned, operated or managed (including on a joint basis with others), directly or indirectly, by the Borrower (an “AES Business”) or (2) to finance the acquisition of “greenfields” and the construction, operation, maintenance or working capital requirements (including modifications and upgrades to comply with applicable laws and regulations) or working capital requirements (including letters of credit or guarantees to fund debt service reserve accounts or similar accounts or for

4

the benefit of power purchase agreements or commodity hedging counterparties) necessary to develop and construct such “greenfields” and to operate them as an AES Business; and

(y)that is not also the Debt of any other Subsidiary with an interest in any other AES Business (except for Debt incurred or assumed by Intermediate Holding Companies which, at the time such Debt was incurred or assumed, in the aggregate, contributed less than 50% of the Parent Operating Cash Flow for the immediately preceding four fiscal quarters);”

(i)Section 5.07(b) of the Credit Agreement is hereby amended by adding at the end thereof the following new clauses (xi) and (xii):

“(xi) Debt incurred by a Subsidiary for the purpose of restructuring commercial contracts of such Subsidiary, to the extent that such restructuring results in a net present value saving to the Subsidiary incurring such Debt; provided that (w) the aggregate principal amount of such Debt shall not be greater than the amounts necessary to restructure such commercial contracts, (x) the Payment Restrictions in such Debt (1) shall be no more restrictive than the Payment Restrictions contained in the Debt of such Subsidiary currently outstanding as of the Closing Date or (2) in the opinion of the Borrower, are consistent with customary market terms for a financing of its nature and do not adversely affect the ability of the Borrower to meet its payment Obligations under the Financing Documents and (y) prior to the incurrence of such Debt, the Agent shall have received a certificate from the chief executive officer, president, chief financial officer or chief accounting officer of the Borrower setting forth in reasonable details the calculations required to establish the net present value savings to the Subsidiary from the restructuring of the applicable commercial contracts and the incurrence of the proposed Debt.”

“(xii) Guarantees by Excluded Subsidiaries of Debt and other obligations of other Excluded Subsidiaries.”

(j)Section 5.10 of the Credit Agreement is hereby amended by (a) amending and restating clause (p) thereof in its entirety to read as follows:

“(p) Liens on the Creditor Group Collateral securing the Debt of the Borrower permitted by Section 5.07(a)(iii), (ix), (x), (xi), (xiv) and (xv); provided that the Liens on the Creditor Group Collateral securing the Debt of the Borrower permitted by Section 5.07(a)(xv) shall be (1) junior and subordinate in all respects to the Liens created under the Financing Documents and the other Liens permitted by this clause (p) and (2) granted on terms and conditions that are reasonably satisfactory to the Agent;”

and (b) deleting “.” at the end of clause (q) and replacing it with a “;” and (c) by adding at the end thereof the following new clauses (r), (s) and (t):

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“(r)Liens on the Borrower’s direct and indirect interest in the Power Supply Business in Brazil known as “Tiete” (the “Tiete Investment”) to secure the obligations of Excluded Subsidiaries the assets of which consist only of other Power Supply Businesses located in Brazil and direct or indirect interests therein;

(s)Liens on the assets of, or Investments in, Excluded Subsidiaries securing Debt of such Excluded Subsidiaries permitted by Section 5.07(b)(xii); and

(t)Liens on cash set aside at the time of the issuance of Second Priority Senior Secured Notes or Temporary Cash Investments purchased with such cash, in either case to the extent that such cash or Temporary Cash Investments pre-fund the repayment or redemption of such Second-Priority Senior Secured Notes and are held in the escrow account referred to in Section 5.07(a)(xv) to be applied for such purpose.”

(k)Section 5.16(xii) of the Credit Agreement is hereby amended by deleting the phrase “in an aggregate amount not to exceed the Permitted Investment Basket” therein.

(l)Section 5.17 of the Credit Agreement is hereby amended by amending and restating clause (viii) thereof in its entirety to read as follows:

“(viii) any repayment of Debt with the Equity Basket or the Asset Sale Proceeds Basket at such time;”

SECTION 2.  Authorization.  The Required Banks hereby authorize the Agent, as the Required Representative (as defined in the Collateral Trust Agreement), to direct the Collateral Trustee to execute an intercreditor agreement and any other related agreements and documents necessary to effectuate the issuance by the Borrower of the Second-Priority Senior Secured Notes.

SECTION 3.  Conditions to Effectiveness.  This Amendment shall be effective on the date on which all of the following conditions precedent have been satisfied (the “Amendment No. 1 Effective Date”):

(a)The Agent shall have received counterparts of this Amendment executed by the Borrower, the Subsidiary Guarantors, AES BVI II, the Collateral Agent and the Required Banks or, as to any of the Banks, advice satisfactory to the Agent that such Bank has executed this Amendment.

(b)All of the accrued fees and expenses of the Agent and the Bank Parties (including the accrued fees and expenses of counsel for the Agent) shall have been paid in full.

(c)Simultaneously with the occurrence of the Amendment No. 1 Effective Date, the Borrower shall prepay the Loans in an amount equal to the Banks’ Ratable Share of $475,000,000 of the Net Cash Proceeds (the “Paydown”) received by

6

the Borrower from the initial issuance of Second-Priority Senior Secured Notes pursuant to Section 2.11(b) of the Credit Agreement (as if this Amendment had already become effective).

SECTION 4.  Bank Fee.  Upon the occurrence of the Amendment No. 1 Effective Date, the Borrower shall pay to the Agent, for the benefit of the applicable Banks, a fee equal to 0.10% of (1) the aggregate amount of the Revolving Credit Loan Commitment of each Bank as of the date hereof, (2) the amount of the Drax LOC Commitment of the Drax LOC Fronting Bank as of the date hereof less the aggregate amount in the Drax LOC Cash Collateral Account (after giving pro forma effect to the Paydown) and (3) the aggregate outstanding principal amount of Tranche A Term Loans, Tranche B Term Loan and Tranche C Term Loans owed to each Bank as of the date hereof (in each case, after giving pro forma effect to the Paydown) that has executed and delivered this Amendment on or before April 14, 2003.

This Amendment is subject to the provisions of Section 10.05 of the Credit Agreement.

SECTION 5.  Representations and Warranties.  The Borrower represents and warrants as follows:

(a)On the date hereof, after giving effect to this Amendment, (i) no event has occurred and is continuing, or would result from the effectiveness of this Amendment, that constitutes a Default and (ii) all representations and warranties set forth in the Financing Documents shall be true and correct in all material respects.

(b)No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery or performance by the Borrower, AES BVI II and the Subsidiary Guarantors of this Amendment or the other transactions contemplated hereby.

(c)This Amendment has been duly executed and delivered by the Borrower, AES BVI II and the Subsidiary Guarantors.  This Amendment and each of the other Financing Documents, as amended hereby, to which each Borrower, each Subsidiary Guarantor and each other Loan Party is a party are legal, valid and binding obligations of such Borrower, such Subsidiary Guarantor and such other Loan Party, as applicable, enforceable against such Borrower, such Subsidiary Guarantor and such Loan Party, as applicable, in accordance with their respective terms.

SECTION 6.  Reference to and Effect on the Credit Agreement and Collateral Documents.

(a)On and after the Amendment No. 1 Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the Notes to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended and otherwise modified hereby.

7

(b)The Credit Agreement and each of the other Financing Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.  Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Obligors under the Financing Documents, in each case as amended by this Amendment.

(c)The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Bank Party, the Collateral Agent or the Agent under the Credit Agreement or the other Financing Documents, nor constitute a waiver of any provision of the Credit Agreement or the other Financing Documents.

SECTION 7.  Affirmation of Credit Agreement and Collateral Documents.  Each Loan Party hereby consents to the modification of the Credit Agreement effected hereby and hereby acknowledges and agrees that the obligations of such Loan Party contained in the Credit Agreement and the other Financing Documents as modified hereby are, and shall remain, in full force and effect.

SECTION 8.  GOVERNING LAW.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 9.  WAIVER OF JURY TRIAL.  EACH OF THE LOAN PARTIES, THE COLLATERAL AGENT, THE AGENT AND THE BANK PARTIES IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE ACTIONS OF THE AGENT, THE COLLATERAL AGENT OR ANY BANK PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

SECTION 10.  Execution in Counterparts.  This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

SECTION 11.  Costs and Expenses.  The Borrower hereby agrees to pay all reasonable costs and expenses associated with the preparation, execution, delivery, administration, and enforcement of this Amendment, including, without limitation, the fees and expenses of the Agent’s counsel and other out-of-pocket expenses related hereto.  Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.

[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]

8

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.

THE AES CORPORATION,

as Borrower

By
	Title:
	Address:	1001 North 19th Street
		Arlington, VA 22209
	Fax:	(703) 528-4510

9

SUBSIDIARY GUARANTORS:

AES EDC FUNDING II, L.L.C.,

as Subsidiary Guarantor

By
	Title:
	Address:
	Fax:

AES HAWAII MANAGEMENT COMPANY, INC.,

as Subsidiary Guarantor

By
	Title:
	Address:
	Fax:

AES OKLAHOMA HOLDINGS, L.L.C.,

as Subsidiary Guarantor

By
	Title:
	Address:
	Fax:

AES SOUTHLAND FUNDING, L.L.C.,

as Subsidiary Guarantor

By
	Title:
	Address:
	Fax:

AES WARRIOR RUN FUNDING, L.L.C.,

as Subsidiary Guarantor

By
	Title:
	Address:
	Fax:

10

OTHER OBLIGOR:

AES INTERNATIONAL HOLDINGS II, LTD.

By
	Title:

11

BANKS:

[Please Type or Print Name of Bank]

By
	Title:

12

AGENT:

CITICORP USA, INC.,

as Agent and as Collateral Agent

By
	Title:
	Address:	388 Greenwich Street, 21st Floor
		New York, NY 10013
	Fax:	(212) 816-8098
	Attention:	Stuart Glen

13

EX-10.2

Exhibit 10.2.

[AES CORPORATION LETTERHEAD]

	May 1,2002
Mark Fitzpatrick
999 Paseo La Cresta
Palos Verdes Estates, Ca 90274

Re: Key Terms of Employment and Compensation for Brazil Assignment

The AES Corporation (“AES”) is pleased to offer you the position of Chief Executive Officer of AES Eletropaulo.  Upon your acceptance of the position, this letter shall constitute your contract of employment in this role.  The commencement date of your employment in this role will be 1^st May 2002 and will continue for an initial period of two years.

The major terms of employment shall be as follows:

1.Mr. Fitzpatrick agrees to accept the position of CEO of AES Eletropaulo located in Sao Paulo, Brazil, for an initial period of two years.  During this period, Mr. Fitzpatrick will relocate to Brazil and will commit to spend approximately 75% of his time in Sao Paulo.  For example, on average Mr. Fitzpatrick would be expected to spend an equivalent of three full work weeks (5 working days) and two weekends out of each month in Sao Paulo (to be scheduled in Mr.  Fitzpatrick’s discretion), subject to work related travel and the normal holiday schedule.

2.As compensation for Mr.  Fitzpatrick’s services, AES agrees to provide a package to include the following major components (Note, all cash figures are expressed as 1 January, 2002 figures and will be adjusted by an amount equal to US inflation up to the time the amounts are actually paid.):

(a)Base salary of $260,000 per annum.

(b)An annual bonus (“Bonus”) will be awarded in accordance to an evaluation of performance to the relevant date, such performance to be based on the following factors:

1.Development of the AES culture at Eletropaulo

2.Improvement of organization and staffing

3.Solvency of Eletropaulo

4.Improvement of operating and financial performance (excluding non-controllable factors, i.e., tariffs, demand growth and exchange rates).

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(c)AES and Mr Fitzpatrick acknowledge that the primary point of contact for Mr Fitzpatrick in AES is Mr Paul Hanrahan.  Mr Hanrahan will, from the date of this letter, administer the terms of Mr Fitzpatrick’s engagement as CEO of AES Eletropaulo.  In the event that there is a change of control in AES (which shall include the acquisition of a controlling interest in the share capital of AES, or the composition of the Board of Directors being substantially different as at the date of this letter) or Mr Hanrahan ceases to be the administrator for Mr Fitzpatrick pursuant to this letter, the terms of this paragraph (c) shall apply to the determination of the Bonus.  For such time as there is no such change of control or change of administrator paragraph (d) below shall replace this paragraph (c).

Performance will be evaluated, and the Bonus awarded and payable as follows:

(1)Save where AES has terminated the employment of Mr Fitzpatrick, a minimum sum of US$500,000, and a maximum of US$1,000,000, will be accrued and due not later than 1^st May, 2003 and shall be payable on 1st May, 2004 for service provided between 1st May, 2002 through 30^th April, 2003;

(2)An advance payment of $200,000, as part of the sum determined in (c)(1), above for service between 1^st May, 2002 and 30^th April, 2003 shall be payable on 1^st May, 2003;

(3)A further amount of between US$750,000 and US$1,000,000 will be payable on 1^st May 2004.

(d)In the circumstances noted in paragraph 2(c) above, performance will be evaluated, and the Bonus awarded and payable as follows:

(1)Save where AES has terminated the employment of Mr Fitzpatrick, a minimum sum of US$300,000, and a maximum of US$1,000,000 will be accrued and due not later than 1^st May, 2003 and shall be payable on 1^st May 2004 for service provided between 1^st May, 2002 through 30^th April, 2003;

(2)An advance payment of $200,000, as part of the sum determined in (d)(1) above for service between 1^st May, 2002 and 30^th April 2003 shall be payable on 1^st May, 2003;

(3)Any further bonus amount, for service provided between 1^st May 2003 and 30^th April 2004, in the range of US$300,000 to US$1,000,000 will be payable on 1^st May 2004.

(e)In the event that the employment of Mr Fitzpatrick is severed for any reason other than in Mr Fitzpatrick’s sole election the following

2

proportion of the Bonus shall become immediately payable in addition to any further sum due pursuant to paragraph 2(f) below:-

(i)For a termination taking place anytime between 1^st May 2002 through 30^th April, 2003, US$83,333 per month commencing 1^st May, 2002 through to the date of termination (with any part of a month being pro rated accordingly).

(ii)For the termination taking place anytime between 1^st May 2002 through 30^th April, 2004, US$83,333 per month commencing 1^st May, 2003 through to the date of termination (with any part of a month being pro rated accordingly) plus any amounts awarded but not yet paid pursuant to paragraph 2(c) or paragraph 2(d).

(f)In the event that the employment of Mr Fitzpatrick is severed for any reason other than in Mr Fitzpatrick’s sole election, $2,000,000 shall become immediately payable in addition to any further sums due pursuant to paragraphs 2(a), 2(c), 2(d) or 2(e) above.  The award of any Bonus less than the amount noted in paragraphs 2(c)(1) or 2(d)(1) (as applicable) or the delay in payment of any other sums due pursuant to this letter shall immediately constitute the severance by AES of this contract of employment.

(g)If, during the term of Mr Fitzpatrick’s employment, the salary structure for AES officers is adjusted upward (significantly beyond the normal inflation adjustments), Mr. Fitzpatrick’s salary and performance bonus amounts will be adjusted subject to mutual agreement of both parties.

(h)Severance package to be paid if Mr. Fitzpatrick chooses, at his sole discretion, to terminate this position:

(i)Mr. Fitzpatrick will receive no severance payment if he terminates his employment prior to 30^th April 2003.

(ii)Mr. Fitzpatrick will receive a payment of $2.0 million (January 2002 dollars) if he terminates his employment on or after 30^th April 2004.

(iii)If Mr. Fitzpatrick terminates his employment between 1^st May 2003 and 30^th April 2004, he will receive $166,666 for each month of employment after 1^st May 2003 (with any part of a month being pro rated accordingly).

(iv)If Mr. Fitzpatrick elects to remain with AES after 1^st May 2004 and agrees to an extension to this contract of employment, or an alternative contract with AES, all sums described, previously

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awarded, and / or due and payable in paragraphs 2(c)(1) and 2(c)(2) or paragraphs 2(d)(1) and 2(d)(2) (as applicable) shall be multiplied by a factor of 1.5 and the required balancing payment shall immediately be made to Mr Fitzpatrick; provided, however, the $2,000,000 payable pursuant to paragraph 2(f) shall no longer apply and a new severance amount, if any, shall be mutually agreed upon by AES and Mr Fitzpatrick at the time of the extension to this contract of employment.

3. If during the term of Mr Fitzpatrick’s employment pursuant to the terms of this contract it is mutually agreed by Mr Fitzpatrick and AES that a suitable replacement candidate for the position of Chief Executive Officer of AES Eletropaulo has been identified and is willing to take over that position on terms suitable to AES this contract shall terminate and the provisions of paragraph 2(f) shall apply.

4.It is agreed by AES that all of Mr. Fitzpatrick’s outstanding options of AES common stock will be extended to their respective full 10-year terms.

5.Relocation package to include (at a minimum):

(a)Apartment allowance (including maid service and furniture)

(b)Car and driver allowance

(c)Cost of living adjustment at 50% of the applicable rate

(d)Travel expenses

(e)Language lessons

(f)Roundtrip Business Class airline expenses for home visitation for Mr. Fitzpatrick once each month.

(g)Miscellaneous relocation expenses (not to exceed $25,000)

(h)Tax equalization and tax preparation with an internationally recognized accounting firm

(i)Other normal relocation items including any security desired.

(j)In circumstances where Mr Fitzpatrick chooses to relocate some or all of his immediate family for part of his term of employment, then any or all of the above relocation specifics shall be modified (subject to the overall cost to AES not being significantly increased).

6. All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, sent by overnight courier or mailed first class, postage prepaid, by registered or certified mail (notices mailed shall be deemed to have been given on the date mailed), as follows:

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If to the AES, to:

AES Corporation

1001 North 19^th Street

Arlington, Virginia

22209

Attn: Paul Hanrahan

If to Mr Fitzpatrick, to:

Mr Mark Fitzpatrick

999 Paseo La Cresta

Palos Verdes Estates, California

90274

or to such other respective addresses as the parties hereto shall designate to the other by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

7.The parties agree that in the event of any dispute or controversy arising under or in connection with this contract, or in connection with any aspect of Mr Fitzpatrick’s employment by AES, the parties’ exclusive remedy shall be to submit the dispute or claim to a confidential and binding arbitration in New York City, New York, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Each party shall bear its own attorneys’ fees and other costs of the arbitration subject always to the arbitrator not authorising the award of attorneys’ fees or other costs of the arbitration to the prevailing party.

8.The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this contract, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this contract.

9.This contract shall be governed by, construed and enforced in accordance with the laws of the State of New York, without giving effect to the choice of law principles thereof.

10.This contract sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes any and all prior agreements, arrangements or understandings, whether written or oral, relating to

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the subject matter hereof.  No representation, promise or inducement has been made by either party that is not embodied in this contract, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth.

11.This contract may be amended or modified only by a written instrument executed by Mr. Fitzpatrick and AES.

12.If any provision of the contract, or the application of any provision to any person or circumstance, shall be held to be inconsistent with any present or future law, ruling, rule or regulation of any court or governmental or regulatory authority having jurisdiction over the subject matter hereof, such provision shall be deemed to be rescinded or modified in accordance with such law, ruling, rule or regulation, and the remainder of this contract, or the application of such provision to persons or circumstances other than those as to which it shall be held inconsistent, shall not be affected thereby.

Executed and agreed on May 1, 2002.
	/s/ Paul Hanrahan
	Paul Hanrahan
	Executive Vice President
	The AES Corporation

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If the above terms are acceptable to you, please sign below.

/s/ Mark Fitzpatrick

Mark Fitzpatrick

Executive Vice President

The AES Corporation

999 Paseo La Cresta

Palos Verdes Estates, Ca 90274

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EX-99.1

Exhibit 99.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

May 15, 2003

U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Ladies and Gentlemen:

The certification set forth below is being submitted to the Securities and Exchange Commission solely for the purpose of complying with Section 1350 of Chapter 63 of Title 18 of the United States Code. This certification is not to be deemed to be filed pursuant to the Securities Exchange Act of 1934 and does not constitute a part of the Quarterly Report on Form 10-Q (the “Report”) accompanying this letter.

Paul T. Hanrahan, the Chief Executive Officer and Barry J. Sharp, the Chief Financial Officer of The AES Corporation, each certifies that, to the best of his knowledge:

1. such Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of The AES Corporation.

/s/  PAUL T. HANRAHAN

Name: Paul T. Hanrahan

Chief Executive Officer

/s/  BARRY J. SHARP 

Name: Barry J. Sharp

Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to The AES Corporation and will be retained by The AES Corporation and furnished to the Securities and Exchange Commission or its staff upon request.