LOAN AGREEMENT IN CONNECTION WITH ENVIRONMENTAL FACILITIES

Exhibit 4.2

COUNTY OF CARROLL, KENTUCKY

AND

KENTUCKY UTILITIES COMPANY

A Kentucky and Virginia Corporation

*   *  *  *  *

LOAN AGREEMENT IN CONNECTION
WITH ENVIRONMENTAL FACILITIES

*   *   *   *   *

Dated as October 1, 2006

*   *   *   *   *

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

       

       

TABLE OF CONTENTS

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LOAN AGREEMENT IN CONNECTION
WITH ENVIRONMENTAL FACILITIES

This LOAN AGREEMENT , dated as of October 1, 2006, by and between the COUNTY OF CARROLL, KENTUCKY , a public body corporate and politic duly created and existing as a County and political subdivision under the Constitution and laws of the Commonwealth of Kentucky, and KENTUCKY UTILITIES COMPANY , a corporation organized and existing under the laws of Kentucky and Virginia;

W I T N E S S E T H :

WHEREAS , the County of Carroll, Kentucky is a public body corporate and politic duly created and existing as a county and political subdivision under the Constitution and laws of the Commonwealth of Kentucky ("Issuer"), and pursuant to the provisions of Sections 103.200 to 103.285, inclusive, of the Kentucky Revised Statutes ("Act"), Issuer has the power to enter into the transactions contemplated by this Loan Agreement and to carry out its obligations hereunder; and

WHEREAS , Issuer is authorized pursuant to the Act to issue negotiable bonds and lend the proceeds from the sale of such bonds to a utility company to finance and refinance the acquisition of solid waste disposal facilities, one of the categories of "pollution control facilities," as defined by the Act for the collection, storage, treatment, processing and final disposal of solid wastes; and

WHEREAS , Issuer is further authorized pursuant to the Act to enter into a loan agreement, which may include such provisions as Issuer shall deem appropriate to effect the securing of a financing or refinancing undertaken in respect of solid waste disposal facilities, including the pledge of direct securities of a utility company; and

WHEREAS , the Act further provides that title to solid waste disposal facilities shall not be acquired by Issuer in the case of a loan transaction; and

WHEREAS , Kentucky Utilities Company, a Kentucky and Virginia corporation ("Company"), is desirous of financing the qualified costs of acquisition, construction, installation and equipping of certain solid waste disposal facilities to serve the Ghent Generating Station of Company, which facilities constitute the Project, as defined in the Indenture and as described in Exhibit A hereto (the "Project"), which Project is located within the corporate boundaries of Issuer and consists of certain solid waste disposal facilities and which Project qualifies for financing within the meaning of the Act; and

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

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WHEREAS , pursuant to and in accordance with the provisions of the Act, a Memorandum of Agreement between the Issuer and Company dated February 22, 2005 and an Ordinance duly adopted by the Fiscal Court of Issuer on October 24, 2006, and in furtherance of the purposes of the Act, Issuer proposes to issue, sell and deliver a series of its bonds in fully registered form which will be designated "County of Carroll, Kentucky, Environmental Facilities Revenue Bonds, 2006 Series C (Kentucky Utilities Company Project)" (the "2006 Series C Bonds"), the proceeds of which will be lent to Company to finance the acquisition, construction, installation and equipping of the Project; and

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

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

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

NOW, THEREFORE FOR AND IN CONSIDERATION OF THE PREMISES AND THE MUTUAL COVENANTS AND AGREEMENTS HEREINAFTER CONTAINED, THE PARTIES HERETO AGREE EACH WITH THE OTHER, AS FOLLOWS :

ARTICLE I

DEFINITIONS

Section 1.1.          Use of Defined Terms .  In addition to the words and terms defined elsewhere in this Agreement or in the Indenture or by reference to another document, the words and terms set forth in Section 1.2 and Section 1.3 shall have the meanings set forth therein unless the context or use clearly indicates another meaning or intent.  Such definitions shall be equally applicable to both the singular and plural forms of any of the words and terms defined therein.

Section 1.2.          Incorporation of Certain Terms by Reference .  When and if used in this Agreement, the following terms shall have the meaning set forth in ARTICLE I of the Indenture:

• • "Act"
    "Agreement"
    "Authorized Denomination"
    "Bond Counsel"
    "Bond Insurer"
    "Bond Fund"
    "Bond Year"
    "Business Day"
    "Code"
    "Company"
    "Company Bonds"

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• • "Company Representative"
    "Construction Fund"
    "Cost of Construction"
    "Cumulative Excess Earnings"
    "Excess Earnings"
    "First Mortgage Bonds"
    "First Mortgage Indenture"
    "First Mortgage Trustee"
    "Governmental Obligations"
    "Indenture"
    "Initial Broker-Dealer"
    "Interest Payment Date"
    "Issuer"
    "Issuer Representative"
    "Loan"
    "Net Proceeds"
    "No Auction Rate"
    "Paying Agent"
    "Permitted Investments"
    "Plans and Specifications"
    "Pollution Control Facilities"
    "Prevailing Rating"
    "Project"
    "Project Site"
    "Purchase Date"
    "Purchase Fund"
    "Rating Service"
    "Rebate Fund"
    "Redemption Date"
    "Redemption Demand"
    "Release Date"
    "2006 Series C Bonds"
    "Solid Waste Disposal Facilities"
    "Supplemental Indenture"
    "Tender Agent"
     "Trustee"

Section 1.3.          Additional Definitions .  In addition to the terms whose definitions are incorporated by reference herein pursuant to Section 1.2 , the following terms shall have the meanings set forth in this Section unless the use or context clearly indicates otherwise:

" Capitalization " means the total of all the following items appearing on, or included in, the balance sheet of the Company:

• • (1)        liabilities for indebtedness, including short-term debt, long-term debt and current maturities of long-term debt; and

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• • (2)        common stock, preferred stock, capital surplus, premium on capital stock, capital in excess of par value and retained earnings (however the foregoing may be designated), less to the extent not otherwise deducted, the cost of shares of capital stock of the Company held in its treasury.

Capitalization shall be determined in accordance with generally accepted accounting principles and practices applicable to the type of business in which the Company is engaged and that are approved by the independent accountants regularly retained by the Company, and shall be determined as of the date that is the end of the most recent fiscal quarter prior to the happening of an event for which such determination is being made.

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

" Debt " shall mean any outstanding debt for money borrowed.

" Determination of Taxability " shall have the meaning ascribed to such term in Section 10.3 of this Agreement.

" Net Tangible Assets " means the amount shown as total assets on the balance sheet of the Company, less the following:

• • (1)        intangible assets including, but without limitation, such items as goodwill, trademarks, trade names, patents and unamortized debt discount and expense carried as an asset on said balance sheet; and

    (2)        appropriate adjustments, if any, on account of minority interests.

Net Tangible Assets shall be determined in accordance with generally accepted accounting principles and practices applicable to the type of business in which the Company is engaged and that are approved by the independent accountants regularly retained by the Company, and shall be determined as of the date that is the end of the most recent fiscal quarter prior to the happening of an event for which such determination is being made.

" Operating Property " means (i) any interest in real property owned by the Company and (ii) any asset owned by the Company that is depreciable in accordance with generally accepted accounting principles.

In addition to the definitions herein, terms used in this agreement and not defined herein shall have the meanings ascribed to such terms in the Indenture.

The words "hereof", "herein", "hereto", "hereby" and "hereunder" refer to this entire Agreement.  Unless otherwise noted, all Section and Article references are to sections and articles in this Agreement.

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ARTICLE II

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 2.1.          Representations, Warranties and Covenants by Issuer .  Issuer represents, warrants and covenants that:

(a)      Issuer is a public body corporate and politic duly created and existing as a county and de jure political subdivision under the Constitution and laws of the Commonwealth of Kentucky and, pursuant to the Act, Issuer has the power and duty to issue the 2006 Series C Bonds, to enter into this Agreement and the Indenture and the transactions contemplated hereby and to carry out its obligations hereunder and thereunder.  Issuer is not in default under or in violation of the Constitution or any of the laws of the Commonwealth of Kentucky relevant to the issuance of the 2006 Series C Bonds or the consummation of the transactions contemplated hereby or in connection with such issuance, and has been duly authorized to issue the 2006 Series C Bonds and to execute and deliver this Agreement and the Indenture.  Issuer agrees that it will do or cause to be done in timely manner all things necessary to preserve and keep in full force and effect its existence, and to carry out the terms of this Agreement.

(b)      Issuer agrees to loan funds derived from the sale of the 2006 Series C Bonds to Company to provide for the financing of the construction, acquisition, installation and equipping of the Project, which Project shall provide for solid wastes to be collected, stored, treated, processed and disposed of at the Project Site.

(c)      To accomplish the foregoing, Issuer agrees to issue $16,693,620 aggregate principal amount of its 2006 Series C Bonds following the execution of this Agreement on such terms and conditions as are set forth in the Indenture.  The proceeds from the sale of the 2006 Series C Bonds shall be applied to finance the Cost of Construction of the Project.

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

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

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

(g)      Each of  Resolution No. 2005-0222 of the Fiscal Court of the Issuer adopted February 22, 2005 in respect of approval of the Project and its financing, the Memorandum of Agreement between Issuer and Company, dated February 22, 2005, Resolution No. 2006-0124 of the Fiscal Court of the Issuer adopted on January 24, 2006, in respect of amending Resolution No. 2005-0222 and the Memorandum of Agreement, and Ordinance No. 2006-1025 of the Fiscal Court of the Issuer adopted on second reading on October 24, 2006 has been in continuous effect since the respective dates of adoption thereof.

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Section 2.2.          Representations, Warranties and Covenants by Company .  Company represents, warrants and covenants that:

(a)      Company (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealths of Kentucky and Virginia, (ii) is duly qualified, authorized and licensed to transact business in each jurisdiction wherein failure to qualify would have a material adverse effect on the conduct of its business and (iii) is not in violation of any provision of its Articles of Incorporation, its By-Laws or any laws of the Commonwealths of Kentucky and Virginia relevant to the transactions contemplated hereby or in connection with the issuance of the 2006 Series C Bonds.

(b)      Company has full and complete legal power and authority to execute and deliver this Agreement, the Supplemental Indenture and the First Mortgage Bonds to be issued pursuant thereto, and has by proper corporate action duly authorized the execution and delivery of this Agreement, the Supplemental Indenture and the First Mortgage Bonds.

(c)      The Project financed by application of the proceeds of the 2006 Series C Bonds has been designed and will be constructed to collect, store, treat, process and dispose of solid wastes at the Project Site.  The Project was and is necessary for the public health and welfare, and has been designed and will be constructed solely for the purposes of solid waste collection, storage, treatment, processing and final disposal of solid wastes, consisting of contaminated scrubber sludge solid wastes created by operation of desulphurization facilities at the Project Site.  The Project constitutes solid waste disposal facilities and facilities functionally related and subordinate to such facilities under Section 142(a)(6) of the Code and the Act.

(d)      Not less than substantially all of the net proceeds of the 2006 Series C Bonds (i.e., at least 95% of the net proceeds thereof, including investment earnings thereon) will be applied and used to finance the Cost of Construction of the Project, and all of such Solid Waste Disposal Facilities consist either of land or of property of a character subject to the allowance for depreciation provided in Section 167 of the Code.

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

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

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(g)      No event of default, and no event of the type described in clauses (a) through (e) of Section 9.1 hereof,  has occurred and is continuing and no condition exists which, with the giving of notice or the lapse of time, or both, would constitute an event of default or a default under any agreement or instrument to which the Company is a party or by which the Company is or may be bound or to which any of the property or assets of the Company is or may be subject which would impair in any material respect its ability to carry out its obligations under this Agreement, the Supplemental Indenture, the First Mortgage Bonds or the transactions contemplated hereby or thereby.  Neither the execution and delivery of this Agreement, the Supplemental Indenture, the First Mortgage Bonds, the consummation of the transactions contemplated hereby or by the Indenture, nor the fulfillment of or compliance with the terms and conditions hereof or thereof conflicts with or results in a breach of the terms, conditions or provisions of any corporate restriction or any agreement or instrument to which Company is now a party or by which it is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any prohibited lien, charge or encumbrance whatsoever upon any of the property or assets of Company under the terms of any instrument or agreement.

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

(i)       No portion of the proceeds of 2006 Series C Bonds will be invested at a yield in excess of the yield on the 2006 Series C Bonds except (i) during any permitted temporary period provided by the Code, (ii) proceeds of a reasonably required reserve or replacement fund and (iii) as part of a minor portion of the proceeds of the 2006 Series C Bonds, not in excess of the lesser of 5% of the proceeds of the 2006 Series C Bonds or $100,000.  As used herein, "yield" shall have the meaning assigned to it for purposes of Section 148 of  the Code and applicable tax regulations.

(j)       No part or component of the Project to be financed with proceeds of the 2006 Series C Bonds was acquired, constructed or installed by Company prior to the date which is 60 days prior to February 22, 2005; and no part of the proceeds of the 2006 Series C Bonds will be used by Company, directly or indirectly, as working capital or to finance inventory.

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

(l)       Company will cause no investment of 2006 Series C Bond proceeds to be made and will make no other use of or omit to take any action with respect to the proceeds of the 2006 Series C Bonds or any funds reasonably expected to be used to pay the 2006 Series C Bonds which will cause the 2006 Series C Bonds or any of them to be arbitrage bonds within the meaning of Section 148 of the Code or would otherwise result in the loss or impairment of the exclusion of the interest on such 2006 Series C Bonds from gross income for federal income tax purposes.

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(m)     The average maturity of the 2006 Series C Bonds does not exceed one hundred twenty percent (120%) of the average reasonably expected remaining economic life (as of the date of issuance of the 2006 Series C Bonds) of the Solid Waste Disposal Facilities.

(n)      Company will provide all information requested by the Issuer necessary to evidence compliance with the requirements of the Code, including the information in United States Internal Revenue Service Form 8038 filed by Issuer with respect to the 2006 Series C Bonds and the Solid Waste Disposal Facilities constituting the Project, and such information will be true and correct in all material respects.

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

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

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

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

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

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

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

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

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

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

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

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

(z)       The Company will cause the Issuer to comply in all respects with the requirements of Section 148 of the Code in respect of the rebate of Excess Earnings with respect to the 2006 Series C Bonds to the United States of America.

(aa)    Upon the date of issuance of the 2006 Series C Bonds, the Company will have caused the Issuer to comply with the public approval requirements of Section 147 of the Code and at or following the issuance of the 2006 Series C Bonds the Company will cause the Issuer to comply with the information reporting requirements of Section 149 of the Code by the filing of Internal Revenue Service Form 8038 with the United States Internal Revenue Service.

(bb)    All of the documents, instruments and written information furnished by Company on behalf of Company to Issuer or Trustee in connection with the issuance of the Bonds are true and correct in all material respects as of the date of delivery thereof and did not, as of the date of delivery thereof, omit or fail to state any material facts necessary to be stated therein to make the information provided not misleading.

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

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Company will be disposed of by placing such SO2 scrubber sludge into solid waste landfills, as required by law.

(dd)    It is not anticipated, as of the date hereof, that there will be created any "replacement proceeds", within the meaning of Section 1.148-1(c) of the Treasury Regulations, with respect to the 2006 Series C Bonds; however, in the event that any such replacement proceeds are deemed to have been created, such amounts will be invested in compliance with Section 148 of the Code.

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

Company need not comply with the covenants or representations in this Section if and to the extent that Issuer and Company receive a written opinion of Bond Counsel that such failure to comply will not affect adversely the exclusion of interest on any of the 2006  Series C Bonds from gross income for federal income tax purposes under Section 103(a) of the Code.

ARTICLE III

COMPLETION AND OWNERSHIP OF PROJECT

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

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

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

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

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

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

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

Section 3.3.          Agreement as to Ownership of  Project . Issuer and Company agree that title to and ownership of the Project shall remain in and be the sole property of Company in which Issuer shall have no interest.  The Project is acknowledged to be subject to the lien of the First Mortgage Indenture.  Notwithstanding any other provision hereof, the Company shall be permitted to sell or otherwise dispose of all or any portion of the Project, provided that the Company first receives the opinion of Bond Counsel that such sale or disposition shall not adversely affect the exclusion of the interest on the 2006 Series C Bonds from gross income for federal income tax purposes and provided further that in the event of any assignment, in whole or in part, of this Agreement, such assignment shall be in accordance with Section 8.1 hereof.

Section 3.4.          Use of Project .  Issuer does hereby covenant and agree that it will not take any action during the term of this Agreement, other than pursuant to ARTICLE IX of this Agreement or ARTICLE IX of the Indenture, to interfere with Company’s ownership of the Project or to prevent Company from having possession, custody, use and enjoyment of the Project.

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

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ARTICLE IV

ISSUANCE OF 2006 SERIES C BONDS; APPLICATION OF PROCEEDS;
COMPANY TO ISSUE FIRST MORTGAGE BONDS

Section 4.1.          Agreement to Issue 2006 Series C Bonds; Application of 2006 Series C Bond Proceeds .  In order to provide funds to make the Loan, Issuer will issue, sell and deliver the 2006 Series C Bonds to the initial purchasers thereof and deposit the proceeds thereof with Trustee, as follows:

(a)      Into the Bond Fund, a sum equal to the accrued interest, if any, to be paid by the initial purchasers of the 2006 Series C Bonds.

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

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

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

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

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

Section 4.5.          Investment of Construction Fund, Bond Fund and Rebate Fund Moneys .  Subject to the provisions of Section 148 of the Code, any moneys held as a part of the Construction Fund, Bond Fund or the Rebate Fund, shall be invested or reinvested by Trustee, at the written request of and as specifically directed by Company, in one or more of the Permitted Investments.  The Trustee may make any and all such investments through its own investment department.

Any such investments shall be held by or under the control of Trustee.  All moneys invested shall be deemed at all times a part of the fund for which such investments were made.  The interest accruing thereon and any profit realized from such investments shall be credited pro rata to such fund, and any loss resulting from such investments shall be charged pro rata to such fund.  Trustee shall sell and reduce to cash a sufficient amount of applicable investments whenever the cash balance in the Construction Fund or Bond Fund is insufficient to pay the principal of, premium, if any, and interest on the 2006 Series C Bonds or any other amount payable from the Bond Fund when due or upon any required disbursement from the Rebate Fund, respectively.  The Trustee will not be liable for any investment loss (including any loss upon a sale of any investment) or any fee, tax or other charge in respect of any investments, reinvestments or any liquidation of investments made pursuant to this Agreement or the Indenture.  The Rebate Fund shall never be commingled with any other fund or account.

Section 4.6.          Special Arbitrage Certifications .

(a)      Company covenants and agrees that it will not take or authorize or permit any action to be taken and has not taken or authorized or permitted any action to be taken which results or would result in interest paid on any of the 2006 Series C Bonds being included in gross income of any owner thereof for purposes of federal income taxation (other than an owner who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code) or adversely affects the validity of the 2006 Series C Bonds.

(b)      Company warrants, represents and certifies to Issuer that the proceeds of the 2006 Series C Bonds will not be used in any manner that would cause the 2006 Series C Bonds to be "arbitrage bonds" under Sections 103(b)(2) and 148 and other applicable sections of the Code.  To the best knowledge and belief of Company, there are no facts, estimates or circumstances that would materially change the foregoing conclusion.

(c)      Company hereby covenants that it will at all times comply and cause Issuer to comply with the provisions of Section 148 and other applicable sections of the Code and will restrict the use of the proceeds of the 2006 Series C Bonds, in such manner and to such extent, if any, as may be necessary, and remit Excess Earnings with respect to all of the 2006 Series C

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Bonds, if any, to the United States of America pursuant to Section 148(f)(2) of the Code and carry out such actions so that the 2006 Series C Bonds will not constitute "arbitrage bonds" under Sections 103(b)(2) and 148 of the Code.  An officer or officers of Issuer having responsibility with respect to the issuance of the 2006 Series C Bonds is or are hereby authorized and directed to give an appropriate certificate of Issuer, for inclusion in the transcript of proceedings for the 2006 Series C Bonds, setting forth the reasonable expectations of Issuer regarding the amount and use of the proceeds of the 2006 Series C Bonds and the facts, estimates and circumstances on which they are based and related matters, all as of the date of delivery of and payment for the 2006 Series C Bonds pursuant to said Section 148 of the Code.  Company shall provide the Issuer, and Issuer’s certificate may be expressly based on, a certificate of Company setting forth the facts, estimates and circumstances and reasonable expectations of Company on the date of delivery of and payment for the 2006 Series C Bonds regarding the amount and use of the proceeds of the 2006 Series C Bonds and related matters.  In the event any such representation of Company relied upon by the Issuer is untrue or inaccurate and Issuer thereby suffers costs or damages, Company shall indemnify Issuer for any such costs or damages.

(d)      Consistent with the foregoing, Company covenants and certifies to the Issuer and to and for the benefit of the purchasers of the 2006 Series C Bonds, that no use will be made of the proceeds of the sale of the 2006 Series C Bonds which would cause the 2006 Series C Bonds to be classified as "arbitrage bonds" within the meaning of Sections 103(b)(2) and 148 of the Code and that Company and Issuer will, after issuance of the 2006 Series C Bonds, comply with the provisions of the Code at all times, including after the 2006 Series C Bonds are discharged, to the extent Excess Earnings with respect to the 2006 Series C Bonds are required to be rebated to the United States of America pursuant to Section 148(f)(2) of the Code.  Pursuant to such covenant, Issuer and Company obligate themselves throughout the term of this Agreement and thereafter not to violate the requirements of Section 148 of the Code.

(e)      Company warrants, represents and certifies to Issuer that the proceeds of the 2006 Series C Bonds will be applied and invested in compliance with the current requirements of Section 149(g) of the Code and that consequently the 2006 Series C Bonds will not be "hedge bonds" under such Section 149(g) of the Code.

(f)       Company hereby covenants and agrees that it will at all times comply with the provisions of Section 148, including Section 148(f) of the Code and with Section 6.07 of the Indenture.  Specifically, Company shall carry out, do and perform all acts stipulated to be performed by Company pursuant to such Section 6.07 of the Indenture.  Company shall further undertake to assure and cause rebate payments to be calculated and made to the United States of America in accordance with Section 148(f)(2) of the Code from moneys on de