
                         THE AES CORPORATION, as Issuer
            and THE BANK OF NEW YORK, as Trustee ____________________
                                    INDENTURE
           Dated as of July 17, 1997 ____________________ $325,000,000
                    8 3/8% Senior Subordinated Notes due 2007




<PAGE>

                              CROSS-REFERENCE TABLE
  TIA                                                               Indenture
Section                                                              Section
-------                                                             ---------
Section 310(a)(1)..............................................       7.10
           (a)(2)..............................................       7.10
           (a)(3)..............................................       N.A.
           (a)(4)..............................................       N.A.
           (a)(5)..............................................       7.10
           (b).................................................       7.8; 7.10;
                                                                      10.2
           (c).................................................       N.A.
Section 311(a).................................................       7.11
           (b).................................................       7.11
           (c).................................................       N.A.
Section 312(a).................................................       2.5
           (b).................................................       10.3
           (c).................................................       10.3
Section 313(a).................................................       7.6
           (b)(1)..............................................       7.6
           (b)(2)..............................................       7.6
           (c).................................................       7.6; 10.2
           (d).................................................       7.6
Section 314(a) ................................................       4.6; 4.7;
                                                                      10.2
           (b).................................................       N.A.
           (c)(1)..............................................       10.4
           (c)(2)..............................................       10.4
           (c)(3)..............................................       10.4
           (d).................................................       N.A.
           (e).................................................       10.5
           (f).................................................       N.A.
Section 315(a).................................................       7.1(b)
           (b).................................................       7.5; 10.2
           (c).................................................       7.1(a)
           (d).................................................       7.1(c)
           (e).................................................       6.11
Section 316(a) (last sentence).................................       2.9
           (a)(1)(A)...........................................       6.5
           (a)(1)(B) ..........................................       6.4
           (a)(2)..............................................       N.A.
           (b).................................................       6.6, 6.7
           (c).................................................       9.4
Section 317(a)(1)..............................................       6.8
           (a)(2)..............................................       6.9
           (b).................................................       2.4


         ---------------
         N.A. means Not Applicable.

NOTE:    This Cross-Reference  Table shall not, for any purpose, be deemed to be
         a part of this Indenture.



<PAGE>

Section 318(a).................................................       10.1
           (c).................................................       10.1













         ---------------
         N.A. means Not Applicable.

NOTE:    This Cross-Reference  Table shall not, for any purpose, be deemed to be
         a part of this Indenture.


<PAGE>





                                TABLE OF CONTENTS
                                ------------------
                                                                      Page
                                                                      ----

ARTICLE I
                   DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1         Definitions....................................     1
SECTION 1.2         Incorporation by Reference of Trust
                      Indenture Act................................    24
SECTION 1.3         Rules of Construction..........................    25

ARTICLE II
                                 THE SECURITIES

SECTION 2.1         Form and Dating................................    25
SECTION 2.2         Execution and Authentication...................    27
SECTION 2.3         Registrar and Paying Agent.....................    28
SECTION 2.4         Paying Agent To Hold Money in Trust............    29
SECTION 2.5         Securityholder Lists...........................    29
SECTION 2.6         Transfer and Exchange..........................    29
SECTION 2.7         Replacement Securities.........................    39
SECTION 2.8         Temporary Securities...........................    40
SECTION 2.9         Cancellation...................................    41
SECTION 2.10        Defaulted Interest.............................    41
SECTION 2.11        CUSIP or CINS Number...........................    42
SECTION 2.12        Payments of Interest...........................    42
SECTION 2.13        Outstanding Securities.........................    43
SECTION 2.14        Treasury Securities............................    44

ARTICLE III
                            REDEMPTION OF SECURITIES

SECTION 3.1         Right of Redemption............................    44
SECTION 3.2         Applicability of Article.......................    44
SECTION 3.3         Election To Redeem; Notice to Trustee..........    44


                                      -i-
<PAGE>
                                                                      Page
                                                                      ----

SECTION 3.4         Selection by Trustee of Securities
                      To Be Redeemed...............................    45
SECTION 3.5         Notice of Redemption...........................    45
SECTION 3.6         Deposit of Redemption Price....................    46
SECTION 3.7         Securities Payable on Redemption
                      Date.........................................    46
SECTION 3.8         Securities Redeemed in Part....................    46

ARTICLE IV
                                   COVENANTS

SECTION 4.1          Payment of Securities.........................    47
SECTION 4.2          Maintenance of Office or Agency...............    47
SECTION 4.3          Corporate Existence...........................    48
SECTION 4.4          Limitation on Business........................    48
SECTION 4.5          Limitation on Restricted Subsidiary
                       Investments and Mergers.....................    48
SECTION 4.6          Compliance Certificates.......................    49
SECTION 4.7          Reports.......................................    49
SECTION 4.8          Limitation on Debt............................    50
SECTION 4.9          Limitation on Restricted Subsidiary
                       Debt........................................    52
SECTION 4.10         Limitation on Additional Tiers of
                       Senior Subordinated Debt....................    55
SECTION 4.11         Change of Control.............................    55
SECTION 4.12         Limitation on Transactions with
                       Affiliates..................................    57
SECTION 4.13         Limitation on Restricted Payments.............    58
SECTION 4.14         Limitation on Dividend and other
                       Payment Restrictions Affecting
                       Subsidiaries................................    61
SECTION 4.15         Limitation on Asset Dispositions..............    63

ARTICLE V
                             SUCCESSOR CORPORATION

SECTION 5.1          Merger, Consolidation, Etc....................    68
SECTION 5.2          Successor Entity Substituted..................    69

ARTICLE VI
                              DEFAULT AND REMEDIES

SECTION 6.1          Events of Default.............................    69


                                      -ii-
<PAGE>
                                                                      Page
                                                                      ----

SECTION 6.2          Acceleration..................................    72
SECTION 6.3          Other Remedies................................    72
SECTION 6.4          Waiver of Past Default........................    73
SECTION 6.5          Control by Majority...........................    73
SECTION 6.6          Limitation on Suits...........................    73
SECTION 6.7          Rights of Holders To Receive
                       Payment.....................................    74
SECTION 6.8          Collection Suit by Trustee....................    74
SECTION 6.9          Trustee May File Proofs of Claim..............    75
SECTION 6.10         Priorities....................................    75
SECTION 6.11         Undertaking for Costs.........................    76
SECTION 6.12         Rights and Remedies Cumulative................    76
SECTION 6.13         Delay or Omission Not Waiver..................    76
SECTION 6.14         Restoration of Rights and Remedies............    76

                               ARTICLE VII TRUSTEE

SECTION 7.1          Duties of Trustee.............................    77
SECTION 7.2          Rights of Trustee.............................    78
SECTION 7.3          Individual Rights of Trustee..................    79
SECTION 7.4          Trustee's Disclaimer..........................    80
SECTION 7.5          Notice of Defaults............................    80
SECTION 7.6          Reports by Trustee to Holders.................    80
SECTION 7.7          Compensation and Indemnity....................    80
SECTION 7.8          Replacement of Trustee........................    82
SECTION 7.9          Successor Trustee by Merger, Etc..............    83
SECTION 7.10         Eligibility; Disqualification.................    83
SECTION 7.11         Preferential Collection of Claims
                       Against Company.............................    83
ARTICLE VIII

           SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS

SECTION 8.1          Satisfaction and Discharge of
                       Indenture...................................    84
SECTION 8.2          Application by Trustee of Funds
                       Deposited for Payment of
                       Securities..................................    85
SECTION 8.3          Repayment of Moneys Held by Paying
                       Agent.......................................    85


                                     -iii-
<PAGE>
                                                                      Page
                                                                      ----

SECTION 8.4          Return of Moneys Held by Trustee
                       and Paying Agent Unclaimed for
                       Two Years...................................    86
SECTION 8.5          Defeasance and Discharge o
                       Indenture...................................    86
SECTION 8.6          Defeasance of Certain Obligation..............    88
SECTION 8.7          Reinstatement.................................    89

ARTICLE IX

                      AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 9.1          Without Consent of Holders....................    90
SECTION 9.2          With Consent of Holders.......................    91
SECTION 9.3          Compliance with Trust Indenture
                       Act.........................................    92
SECTION 9.4          Revocation and Effect of Consents.............    92
SECTION 9.5          Notation on or Exchange of
                       Securities..................................    93
SECTION 9.6          Trustee to Sign Amendments, Etc...............    93
ARTICLE X
                                 MISCELLANEOUS

SECTION 10.1         Trust Indenture Act Controls..................    93
SECTION 10.2         Notices.......................................    94
SECTION 10.3         Communications by Holders with
                       Other Holders...............................    95
SECTION 10.4         Certificate and Opinion of Counsel
                       as to Conditions Precedent..................    95
SECTION 10.5         Statements Required in Certificate
                       and Opinion of Counsel......................    96
SECTION 10.6         Rules by Trustee, Paying Agent,
                       Registrar...................................    96
SECTION 10.7         Legal Holidays................................    96
SECTION 10.8         GOVERNING LAW.................................    96
SECTION 10.9         No Recourse Against Others....................    97
SECTION 10.10        Successors....................................    97
SECTION 10.11        Counterparts..................................    97
SECTION 10.12        Severability..................................    97
SECTION 10.13        Table of Contents, Headings, Etc..............    97
SECTION 10.14        No Adverse Interpretation of Other
                       Agreements..................................    97
SECTION 10.15        Benefits of Indenture.........................    98
SECTION 10.16        Independence of Covenants.....................    98


                                      -iv-
<PAGE>

ARTICLE XI
                          SUBORDINATION OF SECURITIES

SECTION 11.1         Agreement to Subordinate......................    98
SECTION 11.2         Payments to Securityholders...................    98
SECTION 11.3         Subrogation of Securities.....................   101
SECTION 11.4         Authorization by Securityholders..............   102
SECTION 11.5         Notice to Trustee.............................   102
SECTION 11.6         Trustee's Relation to Senior Debt.............   103
SECTION 11.7         No Impairment of Subordination................   104

SIGNATURES                                                            S-1

EXHIBIT A - Form of Security
EXHIBIT B - Form of Certificate of Transfer
EXHIBIT C - Form of Certificate of Exchange







                                      -v-
<PAGE>

                                      -1-


         INDENTURE  dated as of July 17, 1997,  between THE AES  CORPORATION,  a
Delaware corporation, as Issuer (the "Company"), and THE BANK OF NEW YORK, a New
York  banking  corporation,  as Trustee  (the  "Trustee").

         The Company has duly  authorized  the  execution  and  delivery of this
Indenture  to provide for the issuance of the 8 3/8% Senior  Subordinated  Notes
due 2007 of the Company (the  "Securities") to be issued as provided for in this
Indenture.  All things  necessary to make the  Securities,  when duly issued and
executed by the Company and  authenticated  and delivered  hereunder,  the valid
obligations  of the  Company,  and to  make  this  Indenture  a  valid,  binding
agreement of the Company,  in accordance with their respective  terms, have been
done.

         The parties  hereto  agree as follows for the benefit of each other and
for the equal and ratable  benefit of the  Holders:

ARTICLE I_______________________________________________________________________
________________________________________________________________________________

                   DEFINITIONS AND INCORPORATION BY REFERENCE

         SECTION 1.1  Definitions.

         "Acquisition  Debt" means Debt of any Person  existing at the time such
Person  became a Restricted  Subsidiary of the Company (or such Person is merged
into the Company or one of its Restricted Subsidiaries) or assumed in connection
with the  acquisition of assets from any such Person (other than assets acquired
in the ordinary course of business), including Debt Incurred in connection with,
or in  contemplation  of, such Person  becoming a Restricted  Subsidiary  of the
Company (but  excluding  Debt of such Person which is  extinguished,  retired or
repaid in connection  with such Person  becoming a Restricted  Subsidiary of the
Company).

         "Additional   Interest"  shall  have  the  meaning  set  forth  in  the
Registration Rights Agreement.

         "Adjusted  Consolidated  Net Income"  means,  for any  period,  for any
Person the  aggregate  Net Income (or loss) of such Person and its  Consolidated
Subsidiaries  for such period  determined in  conformity  with GAAP plus the Net
Income of any  Restricted  Subsidiary  of such  Person for prior  periods to the
extent  such Net Income is  actually  paid in cash to such  Person  during  such
period plus the Net Income of any Person (other than a Restricted Subsidiary) in
which such Person has a joint  interest  with a third party for prior periods to
the extent such Net Income is actually paid in cash to such Person during

<PAGE>

                                      -2-


such period;  provided that the  following  items shall be excluded in computing
Adjusted Consolidated Net Income (without  duplication):  (i) the Net Income (or
loss) of any Person  (other than a Restricted  Subsidiary)  in which such Person
has a joint interest with a third party, except to the extent such Net Income is
actually  paid in cash to such Person  during such  period;  (ii) solely for the
purposes  of  calculating  the amount of  Restricted  Payments  that may be made
pursuant to clauses  (c)(1) or (c)(2) of Section 4.13 (and in such case,  except
to the  extent  includible  pursuant  to clause (i)  above),  the Net Income (if
positive)  of such  Person  accrued  prior to the date it  becomes a  Restricted
Subsidiary of any other Person or is merged into or consolidated with such other
Person or any of its Restricted  Subsidiaries or all or substantially all of the
property  and assets of such Person are  acquired by such other Person or any of
its  Restricted  Subsidiaries;  (iii) the Net Income (or loss) of any Restricted
Subsidiary of such Person, except to the extent such Net Income (if positive) is
actually  paid in cash to such  Person  during  such  period;  (iv) any gains or
losses (on an after-tax  basis)  attributable to Asset Sales; (v) the cumulative
effect of a change in accounting principle; and (vi) any amounts paid or accrued
as  dividends  on  Preferred  Stock of such  Person  or  Preferred  Stock of any
Restricted Subsidiary of such Person.

         "AES  Hawaii"  means  AES  Hawaii  Management  Co.,  Inc.,  a  Delaware
corporation and a Subsidiary of the Company, and its successors.

         "AES  Oklahoma"  means AES Oklahoma  Management  Co.,  Inc., a Delaware
corporation  and a Subsidiary of the Company,  and its  successors.  "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.

         "Applicable Procedures" means, with respect to any transfer or exchange
of interests in a Global Security, the rules and procedures of DTC, Euroclear or
Cedel that apply to such transfer or exchange.


<PAGE>

                                      -3-


         "Asset  Acquisition"  means (i) an  investment by the Company or any of
its Restricted  Subsidiaries  in any other Person  pursuant to which such Person
shall become a  Restricted  Subsidiary  of the Company or any of its  Restricted
Subsidiaries or shall be merged into or consolidated  with the Company or any of
its Restricted  Subsidiaries or (ii) an acquisition by the Company or any of its
Restricted  Subsidiaries of the Property of any Person other than the Company or
any of its Restricted  Subsidiaries  that  constitutes  substantially  all of an
operating unit or business of such Person.

         "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  Restricted
Subsidiaries  to any  Person  (other  than  to  such  Person  or a  Consolidated
Subsidiary of such Person 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 Restricted Subsidiaries or (ii) any shares of Capital Stock of such Person's
Restricted  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 Section 5.1. The
term  "Asset  Disposition"  also  shall  not  include  (i) any sale of shares of
Preferred  Stock  of a  Restricted  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
Restricted  Subsidiary  of  such  Person,  (iii)  a  sale-leaseback  transaction
involving  substantially  all of the assets of a Power Supply  Business  where a
Restricted 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 Restricted  Subsidiary  leases the Power Supply Business
from such Person,  (iv) dispositions of 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 or (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.

         "Asset Sale" means the sale or other  disposition by the Company or any
of its Restricted  Subsidiaries (other than to the Company or another Restricted
Subsidiary of the Company) of (i) all or substantially  all of the Capital Stock
of any Restricted Subsidiary of the Company or (ii) all or

<PAGE>

                                      -4-


substantially all of the Property that constitutes an operating unit or business
of the Company or any of its Restricted Subsidiaries.

         "Average Life" means, at any date of determination  with respect to any
debt security,  the quotient  obtained by dividing (i) the sum of the product of
(A) the  number of years  from such date of  determination  to the dates of each
successive  scheduled  principal payment of such debt security multiplied by (B)
the  amount  of such  principal  payment  by (ii) the sum of all such  principal
payments.

         "Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal
or state law for the relief,  reorganization,  adjustment  or  recomposition  of
debtors.

         "Bank Agent" means Morgan  Guaranty Trust Company of New York, as agent
for the Banks  pursuant  to the Bank  Credit  Agreement,  and any  successor  or
successors thereto in such capacity.

         "Bank Credit  Agreement"  means the Credit Agreement dated as of August
2, 1996 among the Company,  the Banks named on the  signature  pages thereof and
the  Bank  Agent,  as such  agreement  has been  and may be  amended,  restated,
supplemented or otherwise modified from time to time, and includes any agreement
extending the maturity of, or restructuring (including,  but not limited to, the
inclusion of additional borrowers thereunder that are Restricted Subsidiaries of
the Company and whose obligations are guaranteed by the Company  thereunder) all
or any portion of, the Debt under such agreement or any successor agreements and
includes  any  agreement  with one or more banks or other  lending  institutions
refinancing all or any portion of the Debt under such agreement or any successor
agreements.

         "Banks" means the lenders who are from time to time parties to the Bank
Credit Agreement.

         "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

<PAGE>

                                      -5-


banking institutions are authorized or required by law or regulation to close in
The City of New York.

         "Capital Stock" means, with respect to any Person,  any and all shares,
interests,  participations 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  Closing  Date,
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.

         "Cedel" means Cedel Bank, societe anonyme.

         "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  to any  Person or group (as that term is used in
Section 13(d)(3) of the Exchange Act) of Persons,  (ii) a Person or group (as so
defined) of Persons  (other than  management  of the Company on the date of this
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.

         "Change of Control Offer" has the meaning provided in Section 4.11.

         "Closing  Date" means the date on which the  Securities  are originally
issued under this Indenture.

         "Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after the
execution of this  instrument such Commission is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties at
such time.

<PAGE>

                                      -6-


         "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 this 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 V of this Indenture
and thereafter means the successor.

         "Consolidated  EBITDA" of any Person for any period  means the Adjusted
Consolidated  Net Income of such Person,  plus (without  duplication) (i) income
taxes (other than income taxes (x) (either positive or negative) attributable to
extraordinary and non-recurring  gains or losses or Asset Sales and (y) actually
payable with respect to such period) determined on a consolidated basis for such
Person and its  Consolidated  Subsidiaries in accordance with GAAP to the extent
payable by such Person, (ii) Consolidated Fixed Charges,  (iii) depreciation and
amortization  expense for such period and prior  periods,  all  determined  on a
consolidated  basis  for  such  Person  and  its  Consolidated  Subsidiaries  in
accordance  with  GAAP,  but only to the  extent  that the  positive  cash  flow
associated with such depreciation and amortization  expense is actually received
in cash by such  Person  during such  period and (iv) all other  non-cash  items
reducing  Net Income for such  period and prior  periods,  all  determined  on a
consolidated  basis  for  such  Person  and  its  Consolidated  Subsidiaries  in
accordance  with  GAAP,  but only to the  extent  that the  positive  cash  flow
associated with such non-cash items is actually  received in cash by such Person
during such  period,  and less  (without  duplication)  (i) all  non-cash  items
increasing Net Income of such Person during such period and prior  periods,  but
only to the extent that positive cash flow  associated  with such non-cash items
in not actually received in cash by such Person during such period, and (ii) the
aggregate amount of any capitalized  expenses (including  capitalized  interest)
paid by such Person during such period which have the effect of  increasing  Net
Income for such period.

         "Consolidated  Fixed Charges" of any Person means, 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 Restricted  Subsidiary that is Non-Recourse to such Person
and (iii) cash and  non-cash  dividends  due  (whether or not  declared)  on any
Redeemable Stock of such Person.

<PAGE>

                                      -7-


         "Consolidated  Interest  Expense" of any Person means,  for any period,
the aggregate  interest  expense in respect of Debt  (including  amortization of
original  issue  discount  and non-cash  interest  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 financing
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
Restricted  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 Debt of a Restricted  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 Bank  Credit
Agreement 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 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,  other than an  Unrestricted
Subsidiary.

         "Consolidated  Total Assets"  means,  with respect to any Person at any
time, the total assets of such Person and its Consolidated  Subsidiaries at such
time determined in conformity with GAAP.

         "Corporate  Trust  Office" means the office of the Trustee at which the
corporate  trust  business of the Trustee  shall,  at any  particular  time,  be
administered,  which  office is, at the date of this  Indenture,  located at 101
Barclay Street, Floor 21 West, New York, New York 10286.

         "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   Restricted
Subsidiaries against

<PAGE>

                                      -8-


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

         "Debt" means,  with respect to any Person at any date of  determination
(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 6.1 and any
event that is, or after  notice or passage of time or both would be, an Event of
Default.

         "Defaulted Interest" has the meaning specified in Section 2.10.

         "Designated Senior Debt" means (i) Debt under the Bank Credit Agreement
and (ii) Debt constituting  Senior Debt which, at the time of its determination,
(A) has an  aggregate  principal  amount  of at  least  $30  million  and (B) is
specifically  designated  in the  instrument  evidencing  such  Senior  Debt  as
"Designated Senior Debt" by the Company.

         "DTC" means The Depository Trust Company or its successors.

         "Euroclear"  means Morgan  Guaranty Trust Company of New York (Brussels
Office) as operator of the Euroclear system.

         "Event of Default" has the meaning provided in Section 6.1.

<PAGE>

                                      -9-


         "Excess  Cash Flow" of any Person  for any  period  means  Consolidated
EBITDA less  Consolidated  Fixed Charges less any income taxes  actually paid by
such Person during such period.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Exchange  Registration  Statement" shall have the meaning set forth in
the Registration Rights Agreement.

         "Finance  Subsidiary"  means a  Wholly-Owned  Subsidiary of the Company
that does not engage in any  activity  other than (i) the holding of Debt of the
Company that both (x) is  subordinated to the Securities and (y) provides for no
payments of principal by way of sinking fund,  mandatory redemption or otherwise
prior to the maturity of the Securities,  (ii) the issuance of Capital Stock and
(iii) any activity necessary, incidental or related to the foregoing.

         "Fixed Charge Ratio" means the ratio,  on a pro forma basis, of (i) the
aggregate  amount of Consolidated  EBITDA of any Person for the Reference Period
immediately  prior to the  date of the  transaction  giving  rise to the need to
calculate the Fixed Charge Ratio (the "Transaction  Date") to (ii) the aggregate
Consolidated Fixed Charges of such Person during such Reference Period; provided
that for purposes of such computation,  in calculating  Consolidated  EBITDA and
Consolidated  Fixed  Charges,  (1) the Incurrence of the Debt giving rise to the
need to calculate  the Fixed Charge  Ratio and the  application  of the proceeds
therefrom  shall be assumed to have  occurred on the first day of the  Reference
Period,  (2) Asset Sales and Asset Acquisitions which occur during the Reference
Period or subsequent to the Reference  Period and prior to the Transaction  Date
(but including any Asset  Acquisition to be made with the Debt Incurred pursuant
to clause (1) above)  shall be assumed to have  occurred on the first day of the
Reference Period,  (3) the Incurrence of any Debt during the Reference Period or
subsequent to the  Reference  Period and prior to the  Transaction  Date and the
application of the proceeds  therefrom  shall be assumed to have occurred on the
first  day  of  such  Reference  Period,   (4)  Consolidated   Interest  Expense
attributable to any Debt (whether existing or being Incurred)  computed on a pro
forma  basis and  bearing a floating  interest  rate shall be computed as if the
rate in effect on the date of computation  had been the applicable  rate for the
entire  period  unless such Person or any of its  Restricted  Subsidiaries  is a
party to an Interest Rate Agreement (which shall remain in effect for the twelve
month  period  after the  Transaction  Date)  which has the effect of fixing the
interest  rate on the date of  computation,  in which  case such  rate  (whether
higher or lower) shall be used and (5) there shall be excluded from Consolidated
Fixed Charges any Consolidated Fixed Charges related to any

<PAGE>

                                      -10-


amount of Debt which was  outstanding  during and  subsequent  to the  Reference
Period but is not outstanding on the Transaction  Date,  except for Consolidated
Fixed  Charges  actually  incurred  with  respect to Debt  borrowed (as adjusted
pursuant to clause (4)) (x) under a revolving  credit or similar  arrangement to
the extent the commitment  thereunder  remains in effect on the Transaction Date
or (y) pursuant to clause (iv) of Section 4.8(b). For the purpose of making this
computation,  Asset  Sales and Asset  Acquisitions  which  have been made by any
Person  which has become a Restricted  Subsidiary  of the Company or been merged
with or into the Company or any Restricted  Subsidiary of the Company during the
Reference  Period  or  subsequent  to the  Reference  Period  and  prior  to the
Transaction  Date shall be calculated on a pro forma basis (including all of the
calculations  referred to in clauses (1) through (5) above  assuming  such Asset
Sales or Asset Acquisitions occurred on the first day of the Reference Period).

         "Foreign Asset  Disposition"  means any Asset Disposition in respect of
the Capital  Stock and/or  Property of any  Restricted  Subsidiary of any Person
where such Restricted Subsidiary is organized under the laws of any jurisdiction
other than the U.S. or any state  thereof or any  Restricted  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.

         "GAAP" means generally accepted accounting principles in the U.S. as in
effect as of the date of this Indenture  applied on a basis  consistent with the
principles, methods, procedures and practices employed in the preparation of the
Company's 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   Security"  means  the  global   security,   without  coupons,
representing   all  or  a  portion  of  the   Securities   deposited  with  DTC,
substantially in the form of Exhibit A attached hereto.

         "Guarantee"  means any  obligation,  contingent  or  otherwise,  of any
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

<PAGE>

                                      -11-


or  payment  of) such Debt or other  obligation  of such other  Person  (whether
arising by virtue of partnership  arrangements,  or by agreement to keepwell, 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",  "holder of Securities",  "Securityholder"  and other similar
terms mean the registered holder of any Security.

         "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.

         "Indenture"  means this Indenture as originally  executed and delivered
or as it may be amended or supplemented  from time to time pursuant to the terms
hereof.

         "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.

         "Initial Global  Securities"  means the Regulation S Global  Securities
and the 144A Global Securities, each of which contains a Securities Act Legend.

         "Initial  Securities" means the Securities  containing a Securities Act
Legend.

         "Interest Payment Date," when used with respect to any Security,  means
the stated maturity of an installment of interest specified in such Security.

         "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

<PAGE>

                                      -12-


collar  agreement,  interest rate hedge agreement or other similar  agreement or
arrangement   designed  to  protect  such  Person  or  any  of  its   Restricted
Subsidiaries  against  fluctuations  in  interest  rates to or under  which such
Person or any of its Restricted  Subsidiaries is a party or a beneficiary on the
date of the Indenture or becomes a party or a beneficiary thereafter.

         "Intermediate  Holding Company" means any Restricted  Subsidiary of the
Company that serves as a holding  company for the  Company's  direct or indirect
interests in Power Supply Businesses and Unrelated Businesses.

         "Investment"  in a Person means any  investment in, loan or advance to,
Guarantee on behalf of,  directly or indirectly,  or other transfer of assets to
such Person.  For purposes of the definition of  "Unrestricted  Subsidiary"  and
Section 4.13, "Investment" shall include (i) the fair market value of the assets
(net  of  liabilities)  of any  Restricted  Subsidiary  at the  time  that  such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the fair market  value of the assets (net of  liabilities)  of any  Unrestricted
Subsidiary  at the time  that  such  Unrestricted  Subsidiary  is  designated  a
Restricted  Subsidiary  and (ii) any property  transferred to or from any Person
shall be valued at its fair market value at the time of such  transfer,  in each
case as determined by the Board of Directors in good faith.

         "Investment  Grade" means,  with respect to any  security,  a rating of
Baa3 or higher of such security by Moody's  Investors Service Inc. together with
a rating of BBB- or higher of such security by Standard & Poor's Corporation.

         "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.

         "Legal Holiday" means any day other than a Business Day.

         "Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge,  security  interest  or  encumbrance  of any  kind  in  respect  of such
Property.  For purposes of this  Indenture,  the Company  shall be deemed to own
subject to a Lien any  Property  which it has  acquired or holds  subject to the
interest of a vendor or lessor under any  conditional  sale  agreement,  capital
lease or other title retention agreement relating to such Property.


<PAGE>

                                      -13-


         "Material AES Entity" means (i) any Subsidiary  Guarantor,  (ii) any of
AES Connecticut  Management Co., Inc., AES Thames, Inc., AES Barbers Point, Inc.
and AES Shady Point,  Inc. and (iii) any other Person in which the Company has a
direct  or  indirect  equity   Investment  if  such  Person's   contribution  to
Consolidated  EBITDA of the Company for the four most recently  completed fiscal
quarters of the Company  constitutes 15% or more of the  Consolidated  EBITDA of
the  Company  for  such  period,  in  each  case,  other  than  an  Unrestricted
Subsidiary.

         "Material Subsidiary" of a Person means, as of any date, any Restricted
Subsidiary that would constitute a "significant  subsidiary"  within the meaning
of Article 1 of Regulation S-X.

         "Maturity Date," when used with respect to any Security, means the date
specified in such Security as the fixed date on which the final  installment  of
principal  of  such  Security  is  due  and  payable  (in  the  absence  of  any
acceleration  thereof  pursuant  to Section  6.2 or any Change of Control  Offer
pursuant to Section 4.11).

         "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 Restricted
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  Securities),  and net of all
payments made on any Debt which is secured by such Property, in


<PAGE>

                                      -14-


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 Restricted  Subsidiaries  or Joint  Ventures as a
result of such Asset Disposition.

         "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.

         "Net  Worth" of any Person  means,  as of any date,  the  aggregate  of
capital,  surplus and retained  earnings  (including any cumulative  translation
adjustment) of such Person and its  Consolidated  Subsidiaries as would be shown
on a consolidated balance sheet of such Person and its Consolidated Subsidiaries
prepared as of such date in accordance with GAAP.

         "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.

         "Offering Memorandum" means the offering memorandum dated July 14, 1997
relating to the Securities.

         "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 10.5 and delivered to the Trustee.  Each such
certificate  shall  comply with  Section  314 of the TIA and include  (except as
otherwise  expressly  provided in this  Indenture)  the  statements  provided in
Section 10.5.

         "Opinion  of  Counsel"  means an  opinion  in  writing  signed by legal
counsel  who may be an employee of or counsel to the Company or who may be other
counsel.  Each such opinion shall comply with Section 314 of the TIA and include
the


<PAGE>

                                      -15-


statements provided in Section 10.5, if and to the extent required thereby.

         "original  issue date" of any Security (or portion  thereof)  means the
earlier of (a) the date of  authentication  of such  Security or (b) the date of
any Security (or portion  thereof) for which such Security was issued  (directly
or indirectly) on registration of transfer, exchange or substitution.

         "Original Issue Discount Security" means any Security that provides for
an amount less than the  principal  amount  thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 6.1.

         "Participant"  means, with respect to DTC, Euroclear or Cedel, a Person
who has an account with DTC, Euroclear or Cedel, respectively (and, with respect
to DTC, it shall include Euroclear or Cedel).

         "Paying  Agent" means any Person  authorized  by the Company to pay the
principal of (and  premium,  if any) or interest on any  Securities on behalf of
the Company.

         "Payment  Blockage  Period" shall have the meaning set forth in Section
11.2.

         "Permitted  Investment"  means any  Investment of the type specified in
clauses  (iv) or (vi) of the  definition  of  Restricted  Payment  which is made
directly or indirectly by the Company and its Restricted Subsidiaries;  provided
that (i) at the time such  Investment is made,  the Company could Incur at least
$1 of Debt under Section  4.8(a);  (ii) at the time such  Investment is made, 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;
(iii) after giving effect to the Investment,  the aggregate  Investments made by
the Company and its Restricted  Subsidiaries in the applicable Person and in any
other  Persons that have a direct or indirect  interest in the same Power Supply
Business  or  Unrelated  Business  does not  exceed  40% of the Net Worth of the
Company as of the end of its most recently ended fiscal quarter; (iv) the Person
in which the Investment is made is engaged only in the  businesses  described in
Section 4.4; and (v) the Company directly or through its Restricted Subsidiaries
either (x) controls,  under an operating and management  agreement or otherwise,
the  day to day  management  and  operation  of any  Power  Supply  Business  or
Unrelated  Business  of the  Person in which the  Investment  is made or (y) has
significant influence over the management and operation of any such Power Supply
Business or Unrelated  Business in connection with such management or operation.
To the extent that an Investment is


<PAGE>

                                      -16-


not a Permitted Investment only because the aggregate  investment  limitation in
clause  (iii)  above is not  satisfied,  such  Investment  shall be treated as a
Permitted  Investment to the extent of the limitation and any excess  Investment
shall be subject to the other restrictions of Section 4.13.

         "Permitted  Payments"  means with  respect to the Company or any of its
Restricted  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  Capital Stock) in respect of the exercise of any right to convert or
exchange any instrument (whether Debt or equity and including Redeemable Stock);
(ii) any  dividend  or other  distribution  payable to the Company by any of its
Restricted  Subsidiaries  or by a Restricted  Subsidiary  to another  Restricted
Subsidiary; (iii) the repurchase or other acquisition or retirement for value of
any shares of the Company's Capital Stock, or any option, warrant or other right
to purchase shares of the Company's  Capital Stock with additional shares of, or
out of the proceeds of a  substantially  contemporaneous  issuance  of,  Capital
Stock other than  Redeemable  Stock  (unless the  redemption  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); (iv) any defeasance,  redemption, repurchase or other acquisition for
value of any Debt which by its terms ranks pari passu with,  or  subordinate  in
right of payment to the  Securities  with the proceeds  from the issuance of (x)
Debt  which  is also  pari  passu  with the  Securities  or  subordinate  to the
Securities  at least to the extent and in the manner as the Debt to be defeased,
redeemed,  repurchased or otherwise  acquired is subordinate in right of payment
to,  the  Securities;  provided  that such new pari passu or  subordinated  Debt
provides  for  no  payments  of  principal  by way of  sinking  fund,  mandatory
redemption  or  otherwise  (including  defeasance)  by the  Company  (including,
without  limitation,  at the option of the holder  thereof  other than an option
given to a holder  pursuant  to a "change of control"  or  "limitation  on asset
sale"  covenant  which is no more favorable to the holders of such Debt than the
provisions  contained in the Debt being replaced or, if none,  Sections 4.11 and
4.15) prior to the maturity of Debt being  replaced and the proceeds of such new
pari passu or subordinated  Debt are utilized for such purpose within 45 days of
issuance or (y) Capital Stock (other than Redeemable  Stock);  (v) in respect of
any actual  payment on account of an Investment  which is not fixed in amount at
the time when made,  the amount  determined  by the Board of  Directors  to be a
Restricted  Payment on the date such  Investment was  originally  deemed to have
been made (the "Original Restricted Payment Charge") plus an amount equal to


<PAGE>

                                      -17-


the interest on a  hypothetical  investment  in a principal  amount equal to the
Original Restricted Payment Charge assuming interest at the rate of 7% per annum
compounded  annually  for a period  beginning  on the date  the  Investment  was
originally  deemed to have been made and ending  with  respect to any portion of
the  Original  Restricted  Payment  Charge  actually  paid on the date of actual
payment, less any actual payments previously made on account of such Investment;
provided  that the  Permitted  Payment  under this  clause (v) shall in no event
exceed the payment  actually made; (vi) 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; or (vii) a
Permitted Investment.

         "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.

         "Physical Securities" means those Securities issued pursuant to Section
2.6(a).

         "Power  Supply  Business"  means an  electric  power or thermal  energy
generation or  cogeneration  facility or related  facilities,  or electric power
transmission,  distribution,  fuel supply or fuel transportation  facilities, or
any combination thereof, all subject to related security interests 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 of this Indenture.

         "Principal"  of a Security means the principal  amount of, and,  unless
the context indicates otherwise, includes any premium payable on, the Security.

         "Private  Exchange  Securities" shall have the meaning set forth in the
Registration Rights Agreement.

         "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.


<PAGE>

                                      -18-


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

         "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

         "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  Securities,  (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 Securities 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  Securities;  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 Securities  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  4.11 and  4.15,  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 Securities
required to be repurchased by the Company under Sections 4.11 and 4.15.


         "Redemption  Date",  when  used  with  respect  to any  Security  to be
redeemed,  means  the date  fixed for such  redemption  by or  pursuant  to this
Indenture and such Security.

         "Redemption  Price",  when  used with  respect  to any  Security  to be
redeemed,  means  the  price  at  which it is to be  redeemed  pursuant  to this
Indenture and such Security.

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

         "Registrar" has the meaning provided in Section 2.3.

         "Registration Rights Agreement" means the Registration Rights Agreement
dated the date  hereof  among the  Company,  the J.P.  Morgan  Securities  Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc.

         "Regular Record Date" for the interest  payable on any Interest Payment
Date means the      or


<PAGE>

                                      -19-


(whether  or not a  Business  Day),  as the case  may be,  next  preceding  such
Interest Payment Date.

         "Regulation S" means Regulation S promulgated  under the Securities Act
(including any successor registration thereto) as it may be amended from time to
time.

         "Repurchase Date" shall have the meaning provided in Section 4.11.

         "Responsible  Officer"  when used with respect to the Trustee means any
officer of the Trustee assigned by the Trustee to administer its corporate trust
matters.

         "Restricted  Payment"  means,  with  respect  to any  Person,  (i)  any
dividend or other  distribution  on any shares of such Person's  Capital  Stock;
(ii)  any  payment  on  account  of  the  purchase,  redemption,  retirement  or
acquisition  for value of such Person's  Capital  Stock;  (iii) any  defeasance,
redemption,  repurchase or other  acquisition  or retirement  for value prior to
scheduled  maturity  of  any  Debt  subordinated  in  right  of  payment  to the
Securities and having a maturity date after the maturity of the Securities; (iv)
any  Investment in a Restricted  Subsidiary  after the occurrence of an event of
default,  as defined in any  indenture or  instrument  evidencing or under which
such Restricted Subsidiary has at the date of this Indenture or shall thereafter
have outstanding any Debt, shall happen and be continuing; (v) any Investment in
an Unrestricted Subsidiary; (vi) any Investment made in an Affiliate (other than
a Person that  constitutes an Affiliate  solely  because of the Company's,  or a
Restricted  Subsidiary of the  Company's,  control of such Person) and (vii) the
conversion  of such  Person's  Capital  Stock  into  Debt of such  Person or its
Restricted  Subsidiaries.  Notwithstanding the foregoing,  "Restricted  Payment"
shall not include any Permitted Payment.

         "Restricted  Physical Security" means a Physical Security  containing a
Securities Act Legend.

         "Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.

         "Rule 144" shall have the meaning set forth in the Registration  Rights
Agreement.

         "Rule 144A" shall have the meaning set forth in the Registration Rights
Agreement.

         "SEC" means the Securities and Exchange Commission.

<PAGE>

                                      -20-


         "Security" or  "Securities"  means any Security or  Securities,  as the
case may be, authenticated and delivered under this Indenture.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Senior Debt" means the principal of (and premium, if any) and interest
on all Debt of the Company whether  created,  incurred or assumed before,  on or
after the date of the  issuance  of the  Securities;  provided  that Senior Debt
shall not include (i) the  Company's 9 3/4% Senior  Subordinated  Notes due 2000
and 10 1/4%  Senior  Subordinated  Notes due 2006  which  rank pari passu to the
Securities,  (ii) Debt of the Company to any  Affiliate,  (iii) Debt that,  when
incurred and without  respect to any election under Section 1111(b) of Title 11,
United States Code, was without recourse to the Company,  (iv) any other Debt of
the Company which by the terms of the instrument creating or evidencing the same
are  specifically  designated  as not being  senior in right of  payment  to the
Securities and (v) Redeemable Stock of the Company.

         "Shelf Registration  Statement" shall have the meaning set forth in the
Registration Rights Agreement.

         "Significant  Subsidiary"  of a  Person  means,  as of  any  date,  any
Restricted Subsidiary which has two or more of the following attributes:  (i) it
contributes  20% or more of such Person's Excess Cash Flow for its most recently
completed fiscal quarter or (ii) it contributes 15% or more of Net Income before
tax of such Person and its  Consolidated  Subsidiaries  for such  Person's  most
recently  completed  fiscal  quarter  or  (iii)  it  constitutes  20% or more of
Consolidated  Total  Assets  of such  Person  at the end of such  Person's  most
recently completed fiscal quarter.

         "Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.10.

         "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.

         "Subsidiary"  means,  with respect to any Person,  any  corporation  or
other  entity  of which a  majority  of the  Capital  Stock  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.

<PAGE>

                                      -21-


         "Subsidiary  Guarantors"  means (i) prior to the first day,  if any, on
which the Company's  long-term debt is rated BBB- or higher by Standard & Poor's
Corporation and Baa3 or higher by Moody's Investors Services, Inc., AES Oklahoma
and AES Hawaii, and (ii) on and after such first day, if any, AES Hawaii.

         "TIA"  means  the  Trust  Indenture  Act of 1939 (15 U.S.  Code  (0)(0)
77aaa-77bbbb) as in effect on the date of this Indenture,  except as provided in
Section 9.3.

         "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 VII and thereafter means such successor.

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

         "Unrestricted  Global  Securities"  means one or more Global Securities
that do not and are not required to bear the Securities Act Legend.

         "Unrestricted   Physical   Securities"   means  one  or  more  Physical
Securities that do not and are not required to bear the Securities Act Legend.

         "Unrestricted  Securities" means the Securities that do not and are not
required to bear the Securities Act Legend.

         "Unrestricted  Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination  shall be designated an Unrestricted  Subsidiary by
the Board of Directors in the manner  provided  below and (ii) any Subsidiary of
an Unrestricted Subsidiary.  The Board of Directors may designate any Restricted
Subsidiary  (including  any newly  acquired or newly  formed  Subsidiary  of the
Company)  to be an  Unrestricted  Subsidiary  unless  such  Subsidiary  owns any
Capital  Stock of, or owns or holds any Lien on any  property of, the Company or
any  Restricted  Subsidiary  that is not a Subsidiary of the Subsidiary to be so
designated,  provided  that (A) any  Guarantee by the Company or any  Restricted
Subsidiary of any Debt of the Subsidiary  being so designated shall be deemed an
"Incurrence" of such Debt and an "Investment" by the Company or such


<PAGE>

                                      -22-


Restricted  Subsidiary (or both, if applicable) at the time of such designation;
(B) either (I) the  Subsidiary to be so designated has total assets of $1,000 or
less or (II) if such Subsidiary has assets greater than $1,000, such designation
would be permitted  under Section 4.13 and (C) if applicable,  the Incurrence of
Debt and the  Investment  referred  to in clause  (A) of this  proviso  would be
permitted  under Sections 4.9 and 4.13. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately
after  giving  effect  to  such  designation  (x)  all  Liens  and  Debt of such
Unrestricted Subsidiary outstanding immediately after such designation would, if
Incurred at such time,  have been  permitted  to be incurred for all purposes of
this Indenture and (y) no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly  filing with the Trustee a copy of the Board  Resolution
giving effect to such designation and an Officers'  Certificate  certifying that
such designation complied with the foregoing provisions.

         "U.S.  Government  Obligations"  means  securities which are (i) direct
obligations  of the U.S.  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  U.S.  the  payment  of  which  is
unconditionally  guaranteed  as a full faith and credit  obligation by the U.S.,
which,  in either  case,  are not  callable 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  Obligations
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 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.

         "Wholly-Owned  Subsidiary"  means,  with  respect  to any  Person,  any
Restricted Subsidiary of such Person if all the Capital Stock or other ownership
interests in such  Restricted  Subsidiary  having ordinary voting power to elect
the  entire  board of  directors  or entire  group of other  persons  performing
similar functions (other than any director's qualifying shares


<PAGE>

                                      -23-


or  Investments  by  foreign  nationals  mandated  by  applicable  law) is owned
directly or indirectly by such Person.

         SECTION 1.2 Incorporation by Reference
                     of Trust Indenture Act.

         Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The following
terms used in this  Indenture  that are  defined  in the TIA have the  following
meanings:

         (a) "Commission" means the SEC;

         (b) "indenture securities" means the Securities;

         (c) "indenture security holder" means a Securityholder;

         (d) "indenture to be qualified" means this Indenture;

         (e) "indenture  trustee" or "institutional  trustee" means the Trustee;
and

         (f)  "obligor"  on the  indenture  securities  means the Company or any
other obligor on the Securities.

         All other TIA terms used in this Indenture that are defined by the TIA,
defined by reference in the TIA to another  statute or defined by the Securities
Act or the Exchange Act and not  otherwise  defined  herein have the meanings so
assigned to them therein.

         SECTION 1.3 Rules of Construction.

         Unless the context otherwise requires:

         (a) a term has the meaning assigned to it;

         (b) "or" is not exclusive;

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

         (d) provisions apply to successive events and transactions;

         (e) "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; and


<PAGE>

                                      -24-


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

ARTICLE II

                                 THE SECURITIES

         SECTION 2.1 Form and Dating.

         (a) Global Securities.  Securities offered and sold to QIBs in reliance
on Rule 144A shall be issued  initially  substantially  in the form of Exhibit A
hereto in the name of Cede & Co. as nominee of DTC, duly executed by the Company
and  authenticated  by the Trustee as  hereinafter  provided.  Any such Security
shall be referred to herein as the "144A Global  Security."  Securities  offered
and sold in reliance on Regulation S shall be issued initially  substantially in
the form of Exhibit A hereto in the name of Cede & Co. as  nominee of DTC,  duly
executed  by the  Company  and  authenticated  by  the  Trustee  as  hereinafter
provided.  Any such  Security  shall be referred to herein as the  "Regulation S
Global  Security."  Unrestricted  Global Securities shall be issued initially in
accordance with Sections 2.6(b)(iv), 2.6(c)(ii) and 2.6(e) in the name of Cede &
Co. as nominee of DTC,  duly  executed by the Company and  authenticated  by the
Trustee as hereinafter  provided.  The aggregate principal amount of each Global
Security may from time to time be increased or decreased by adjustments  made on
the records of the Trustee as hereinafter provided.

         Each Global Security shall represent such of the outstanding Securities
as shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding  Securities from time to time endorsed
thereon  and that the  aggregate  principal  amount  of  outstanding  Securities
represented  thereby  may  from  time  to  time  be  reduced  or  increased,  as
appropriate,  to reflect  exchanges,  redemptions  and  transfers  of  interests
therein  in  accordance  with the  terms of this  Indenture.  Any  change in the
aggregate  principal  amount of a Global  Security  to reflect the amount of any
increase  or  decrease  in  the  principal  amount  of  outstanding   Securities
represented  thereby shall be made by the Trustee in accordance  with reasonable
instructions  given by the Holder  thereof as required by Section 2.6 hereof and
shall be conclusively reflected on the books and records of the Trustee.

         Upon the issuance of the Global  Security to DTC, DTC shall credit,  on
its internal  book-entry  registration  and transfer system,  its  Participant's
accounts with the respective interests owned by such Participants.  Interests in
the Global


<PAGE>

                                      -25-


Securities shall be limited to Participants,  including Euroclear and Cedel, and
indirect Participants.

         The Participants  shall not have any rights either under this Indenture
or under any Global  Security with respect to such Global Security held on their
behalf by DTC, and DTC may be treated by the Company,  the Trustee and any agent
of the Company or the Trustee as the absolute owner of such Global  Security for
the  purpose of  receiving  payment of or on  account of the  principal  of and,
subject to the provisions of this Indenture,  interest and Additional  Interest,
if any, on the Global Securities and for all other purposes. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the  Trustee  from  giving  effect to any written  certification,
proxy or other authorization  furnished by DTC or impair, as between DTC and its
Participants, the operation of customary practices of DTC governing the exercise
of the rights of an owner of a beneficial interest in any Global Security.

         The  provisions of the "Operating  Procedures of the Euroclear  System"
and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions  of Cedel Bank" and "Customer  Handbook" of Cedel,  as in effect from
time to time,  shall be  applicable  to  interests  in the  Regulation  S Global
Security that are held by the Participants through Euroclear or Cedel.

         (b) Physical Securities. All Securities will initially be issued in the
form of Global Securities pursuant to Section 2.1(a). If Physical Securities are
issued in  accordance  with Section  2.6(a),  the Physical  Securities  shall be
issued initially  substantially in the form of Exhibit A hereto, in certificated
form and issued in the names of the then  beneficial  holders  thereof (or their
nominees),  duly  executed by the Company  and  authenticated  by the Trustee as
hereinafter provided.

         (c) Securities.  The provisions of the form of Securities  contained in
Exhibit A hereto are  incorporated  herein by reference.  The Securities and the
Trustee's  Certificates of Authentication  shall be substantially in the form of
Exhibit A hereto.  The Securities may have  notations,  legends or  endorsements
required by law,  stock  exchange  rule or usage and  provided to the Trustee in
writing by the Company. The Company shall approve the form of the Securities and
any notation,  legend or  endorsement  on them. If required,  the Securities may
bear the appropriate legend regarding original issue discount for federal income
tax purposes.  Each Security shall be dated the date of its authentication.  The
terms and  provisions  contained in the  Securities  shall  constitute,  and are
hereby expressly made, a part of this Indenture.


<PAGE>

                                      -26-


         SECTION 2.2 Execution and Authentication.

         Two Officers of the Company shall sign the  Securities  for the Company
by manual or facsimile signature.

         If an Officer  whose  signature  is on a Security no longer  holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.

         A Security  shall not be valid  until an  authorized  signatory  of the
Trustee manually signs the certificate of  authentication  on the Security.  The
signature shall be conclusive  evidence that the Security has been authenticated
under this Indenture.

         The Trustee shall  authenticate (i) Initial Securities for issue on the
Issue Date in the  aggregate  principal  amount of  $325,000,000,  (ii)  Private
Exchange  Securities  from time to time only in  exchange  for a like  principal
amount of Initial Securities and (iii) Unrestricted Securities from time to time
only in exchange for a like principal amount of Initial Securities, in each case
upon a written  order  signed by an Officer of the  Company.  The order shall be
based upon a Board  Resolution  of the Company  and shall  specify the amount of
Securities  to be  authenticated  and the date on which  the  original  issue of
Securities  is to be  authenticated.  The order shall also provide  instructions
concerning  registration,  legends, if any, pursuant to Section 2.6(f),  amounts
for each Holder and  delivery.  The  aggregate  principal  amount of  Securities
outstanding  at any time may not  exceed  $325,000,000  except  as  provided  in
Section 2.7. The  Securities  shall be issued only in registered  form,  without
coupons and only in denominations of $1,000 and any integral multiple thereof.

         SECTION 2.3 Registrar and Paying Agent.

         The Company shall maintain an office or agency where  Securities may be
presented  for  registration  of transfer or for exchange  ("Registrar")  and an
office or agency where Securities may be presented for payment ("Paying Agent").
The Company may have one or more  additional  paying  agents.  The term  "Paying
Agent" includes any additional paying agent.

         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 and shall,  if required,
incorporate  the  provisions of the TIA. The Company shall notify the Trustee of
the name and  address of any such  Agent.  If the  Company  fails to  maintain a
Registrar or Paying  Agent,  the Trustee shall act as such and shall be entitled
to appropriate compensation in accordance with the provisions of Section 7.7.


<PAGE>

                                      -27-


         The Company  initially  appoints  the Trustee as  Registrar  and Paying
Agent.  The Company  shall give written  notice to the Trustee in the event that
the Company decides to act as Registrar.

         SECTION 2.4 Paying Agent To Hold Money in Trust.

         The Company shall require each Paying Agent to agree in writing to hold
in trust for the benefit of Securityholders or the Trustee all money held by the
Paying  Agent for the payment of  principal  of or  interest  on the  Securities
(whether  such money has been paid to it by the Company or any other  obligor on
the  Securities),  and the  Company  and the Paying  Agent shall each notify the
Trustee of any default by the Company (or any other  obligor on the  Securities)
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
making such  payment the Paying  Agent shall have no further  liability  for the
money delivered to the Trustee.

         SECTION 2.5 Securityholder Lists.

         The  Trustee  shall  preserve  in as  current  a form as is  reasonably
practicable  the most recent list  available to it of the names and addresses of
Securityholders.  If the Trustee is not the Registrar, the Company shall furnish
to the Trustee at least five Business Days before each Interest Payment Date and
at such other  times as the  Trustee  may request in writing a list in such form
and as of such  date as the  Trustee  may  reasonably  require  of the names and
addresses of Securityholders.

         SECTION 2.6 Transfer and Exchange.

         (a) Transfer and Exchange of Global Securities.  Transfer of the Global
Securities shall be by delivery.  Global Securities may not be transferred as or
exchanged for Physical Securities except (i) if DTC notifies the Company that it
is  unwilling  or unable to continue to act as  depositary  with  respect to the
Global  Securities  or  ceases  to be a  clearing  agency  registered  under the
Exchange  Act and,  in either  case,  a  successor  depositary  registered  as a
clearing  agency under the Exchange Act is not  appointed by the Company  within
120 days, (ii) at any time if the Company in its sole discretion determines that
the  Global  Securities  (in whole  but not in part)  should  be  exchanged  for
Physical  Securities  or  (iii)  if the  owner  of an  interest  in  the  Global
Securities requests such


<PAGE>

                                      -28-


Physical  Securities,  following an Event of Default under this Indenture,  in a
writing delivered through DTC to the Trustee.

         Upon the  occurrence  of any of the events  specified  in the  previous
paragraph,  Physical  Securities  shall be  issued  in such  names as DTC  shall
instruct the Trustee and the Trustee shall cause the aggregate  principal amount
of the applicable  Global  Security to be reduced  accordingly and direct DTC to
make a  corresponding  reduction in its  book-entry  system.  The Company  shall
execute and the Trustee  shall  authenticate  and cause to be  delivered  to the
Person  designated in such  instructions a Physical  Security in the appropriate
principal  amount.  The Trustee shall  deliver such  Physical  Securities to the
Persons in whose names such  Securities are so registered.  Physical  Securities
issued in exchange  for an Initial  Global  Security  pursuant  to this  Section
2.6(a)  shall  bear the  Securities  Act  Legend  and  shall be  subject  to all
restrictions  on  transfer  contained  therein.  Global  Securities  may also be
exchanged or replaced, in whole or in part, as provided in Sections 2.7 and 2.8.
Every  Security  authenticated  and  delivered in exchange for, or in lieu of, a
Global Security or any portion thereof, pursuant to Section 2.7 or 2.8, shall be
authenticated  and delivered in the form of, and shall be, a Global Security.  A
Global Security may not be exchanged for another Security other than as provided
in this Section 2.6(a).

         (b)  Transfer  and  Exchange of  Interests  in Global  Securities.  The
transfer  and  exchange  of  interests  in Global  Securities  shall be effected
through  DTC,  in  accordance  with this  Indenture  and the  procedures  of DTC
therefor.   Interests  in  Initial  Global   Securities   shall  be  subject  to
restrictions  on  transfer  comparable  to those set forth  herein to the extent
required  by the  Securities  Act.  The  Trustee  shall  have no  obligation  to
ascertain DTC's compliance with any such restrictions on transfer.  Transfers of
interests in Global  Securities shall also require  compliance with subparagraph
(i)  below,  as  well as one or more of the  other  following  subparagraphs  as
applicable:

         (i) All Transfers and Exchanges of Interests in Global  Securities.  In
    connection   with  all  transfers  and  exchanges  of  interests  in  Global
    Securities  (other  than  transfers  of  interests  in a Global  Security to
    Persons  who take  delivery  thereof in the form of an  interest in the same
    Global  Security),  the  transferor  of such  interest  must  deliver to the
    Registrar  (1)   instructions   given  in  accordance  with  the  Applicable
    Procedures  from a Participant or an indirect  Participant  directing DTC to
    credit or cause to be credited an interest in the specified  Global Security
    in an amount equal to the interest to be  transferred  or  exchanged,  (2) a
    written order given in accordance with the Applicable Procedures


<PAGE>

                                      -29-


containing  information  regarding the  Participant  account to be credited with
such increase and (3) instructions given by the Holder of the Global Security to
effect the transfer referred to in (1) and (2) above.


         (ii)  Transfer  of  Interests  in the  Same  Initial  Global  Security.
    Interests in any Initial  Global  Security may be transferred to Persons who
    take delivery  thereof in the form of an interest in the same Initial Global
    Security in accordance with the transfer  restrictions  set forth in Section
    2.6(f) hereof.

         (iii)  Transfer  of  Interests  to  Another  Initial  Global  Security.
    Interests in any Initial  Global  Security may be transferred to Persons who
    take delivery  thereof in the form of an interest in another  Initial Global
    Security if the Registrar receives the following:

              (A) if the  transferee  will  take  delivery  in  the  form  of an
         interest in the 144A Global Security,  then the transferor must deliver
         a  certificate  in  the  form  of  Exhibit  B  hereto,   including  the
         certifications in item 1 thereof; or

              (B) if the  transferee  will  take  delivery  in  the  form  of an
         interest in the Regulation S Global Security,  then the transferor must
         deliver a  certificate  in the form of Exhibit B hereto,  including the
         certifications in item 2 thereof.

         (iv) Transfer and Exchange of Interests in Initial Global  Security for
    Interests  in an  Unrestricted  Global  Security.  Interests  in any Initial
    Global  Security may be  exchanged by the holder  thereof for an interest in
    the  Unrestricted  Global  Security  or  transferred  to a Person  who takes
    delivery  thereof  in the form of an  interest  in the  Unrestricted  Global
    Security if:

              (A) such exchange or transfer is effected pursuant to the Exchange
         Registration  Statement  in  accordance  with the  Registration  Rights
         Agreement;

              (B)  any  such   transfer  is  effected   pursuant  to  the  Shelf
         Registration  Statement  in  accordance  with the  Registration  Rights
         Agreement; or

              (C) the Registrar receives the following:

                   (1) if the holder of such an  interest  in an Initial  Global
              Security   proposes   to  exchange  it  for  an  interest  in  the
              Unrestricted Global Security, a certificate from such Holder


<PAGE>

                                      -30-


              in the form of  Exhibit C hereto,  including the certifications in
              item 1(a) thereof;

                   (2) if the holder of such an  interest  in an Initial  Global
              Security  proposes  to  transfer  it to a Person  who  shall  take
              delivery  thereof in the form of an  interest  in an  Unrestricted
              Global  Security,  a certificate  in the form of Exhibit B hereto,
              including the certification in item 4 thereof; and

                   (3) in each  such case set forth in this  paragraph  (C),  an
              Opinion of Counsel in form  reasonably  acceptable  to the Company
              and the Trustee,  to the effect that such  exchange or transfer is
              in compliance  with the Securities Act and, that the  restrictions
              on transfer  contained herein and in Section 2.6(f) hereof are not
              required in order to maintain compliance with the Securities Act.

If any such transfer is effected  pursuant to paragraph (B) above at a time when
an Unrestricted Global Security has not yet been issued, the Company shall issue
and, upon receipt of an authentication order in accordance with Section 2.2, the
Trustee shall  authenticate  one or more  Unrestricted  Global  Securities in an
aggregate  principal  amount equal to the  principal  amount of interests in the
Initial Global Security  transferred  pursuant to paragraph (B) above,  provided
the Company has made appropriate arrangements with DTC prior to delivery of such
an authentication order to the Trustee.

         (v)  Notation  by the Trustee of Transfer  of  Interests  Among  Global
    Securities.  Upon satisfaction of the requirements for transfer of interests
    in Global  Securities  pursuant to clauses (iii) or (iv) above,  the Trustee
    shall reduce or cause to be reduced the  aggregate  principal  amount of the
    relevant Global Security from which the interests are being transferred, and
    increase or cause to be  increased  the  aggregate  principal  amount of the
    Global Security to which the interests are being transferred,  in each case,
    by the  principal  amount  so  transferred  and  shall  direct  DTC to  make
    corresponding adjustments in its book-entry system. No transfer of interests
    of a Global  Security shall be effected until,  and any transferee  pursuant
    thereto shall succeed to the rights of a holder of such interests only when,
    the Registrar has made  appropriate  adjustments  to the  applicable  Global
    Security in accordance with this paragraph.


<PAGE>

                                      -31-


         (c)  Transfer or Exchange of Physical  Securities  for  Interests  in a
Global Security.

         (i) If any  Holder of  Physical  Securities  required  to  contain  the
    Securities Act Legend  proposes to exchange such  Securities for an interest
    in a Global  Security,  then, upon receipt by the Registrar of a certificate
    from  such  Holder  in  the  form  of  Exhibit  C  hereto,   including   the
    certifications in item 2 thereof which may be submitted by facsimile;

    the Trustee shall cancel the Physical  Securities,  increase or cause to be
    increased the aggregate  principal  amount of, the 144A Global  Security or
    the  Regulation  S Global  Security,  as the case may be, and direct DTC to
    make a corresponding increase in its book-entry system.

         (ii) A Holder of Physical Securities required to contain the Securities
    Act Legend may exchange such Securities for an interest in the  Unrestricted
    Global Security only:

              (A) if such  exchange  or  transfer  is  effected  pursuant to the
         Exchange  Registration  Statement in accordance  with the  Registration
         Rights Agreement;

              (B)  any  such   transfer  is  effected   pursuant  to  the  Shelf
         Registration  Statement  in  accordance  with the  Registration  Rights
         Agreement;

              (C) upon receipt by the Registrar of the  following  documentation
         (all of which may be submitted by facsimile):

                   (1) if the Holder of such  Physical  Securities  proposes  to
              exchange  such  Securities  for an  interest  in the  Unrestricted
              Global  Security,  a  certificate  from such Holder in the form of
              Exhibit  C  hereto,  including  the  certifications  in item  1(b)
              thereof;

                   (2) an Opinion of Counsel in form  reasonably  acceptable  to
              the  Company,  to the effect that such  exchange or transfer is in
              compliance  with the Securities Act and that the  restrictions  on
              transfer  contained  herein and in Section  2.6(f)  hereof are not
              required in order to maintain compliance with the Securities Act.

If any such transfer is effected  pursuant to paragraph (B) above at a time when
an Unrestricted Global Security has not yet been issued, the Company shall issue
and, upon


<PAGE>

                                      -32-


receipt of an  authentication  order in accordance with Section 2.2, the Trustee
shall  authenticate  (i)  one  or  more  Unrestricted  Global  Securities  in an
aggregate  principal amount equal to the principal amount of Physical Securities
transferred pursuant to paragraph (B) above.

<PAGE>

                                      -33-


         (d) Transfer and Exchange of Physical Securities.

         (i)  Transfer  of a Physical  Security  to Another  Physical  Security.
    Following the  occurrence of one or more of the events  specified in Section
    2.6(a), a Physical  Security may be transferred to Persons who take delivery
    thereof in the form of another Physical  Security if the Registrar  receives
    the following:

              (A)  if  the  transfer  is  being  effected  pursuant  to  and  in
         accordance   with  Rule  144A,  then  the  transferor  must  deliver  a
         certificate   in  the  form  of   Exhibit  B  hereto,   including   the
         certifications in item 3(a) thereof; or

              (B)  if  the  transfer  is  being  effected  pursuant  to  and  in
         accordance  with  Regulation  S,  then the  transferor  must  deliver a
         certificate   in  the  form  of   Exhibit  B  hereto,   including   the
         certifications in item 3(b) thereof.

         (ii) Transfer and Exchange of Restricted Physical Security for Physical
    Security  Which  Does Not Bear the  Securities  Act  Legend.  Following  the
    occurrence of one or more of the events  specified in Section 2.6(a) and the
    receipt by the Trustee of an OfficersAE Certificate stating that such events
    have occurred, a Restricted Physical Security may be exchanged by the Holder
    thereof  for a  Physical  Security  or  transferred  to a Person  who  takes
    delivery thereof in the form of a Physical  Security which does not bear the
    Securities Act Legend if:

              (A) such exchange or transfer is effected pursuant to the Exchange
         Registration  Statement  in  accordance  with the  Registration  Rights
         Agreement;

              (B)  any  such   transfer  is  effected   pursuant  to  the  Shelf
         Registration  Statement  in  accordance  with the  Registration  Rights
         Agreement; or

              (C) the Registrar  receives a certificate  from such Holder in the
         form of Exhibit C hereto,  including  the  certifications  in item 1(c)
         thereof and an Opinion of Counsel in form reasonably  acceptable to the
         Company,  to the effect that such exchange or transfer is in compliance
         with  the  Securities  Act  and,  that  the  restrictions  on  transfer
         contained herein and in Section 2.6(f) hereof are not required in order
         to maintain compliance with the Securities Act.

         (iii) Exchange of Physical Securities.  Whey Physical


<PAGE>

                                      -34-


    Securities  are  presented by a Holder to the  Registrar  with a request to
    register the exchange of such Physical  Securities  for an equal  principal
    amount  of  Physical  Securities  of other  authorized  denominations,  the
    Registrar  shall  make  the  exchange  as  requested  only if the  Physical
    Securities are endorsed or accompanied by a written  instrument of transfer
    in form  satisfactory  to the Registrar  duly executed by such Holder or by
    his  attorney  duly  authorized  in writing and shall be issued only in the
    name of such  Holder or its  nominee.  The  Physical  Securities  issued in
    exchange for Physical  Securities  shall bear the Securities Act Legend and
    shall be subject to all  restrictions on transfer  contained herein in each
    case to the same extent as the Physical Securities so exchanged.

         (iv) Return of Physical Securities. In the event of a transfer pursuant
    to  clauses  (i)  or  (ii)  above  and  the  Holder  thereof  has  delivered
    certificates  representing  an aggregate  principal  amount of Securities in
    excess of that to be transferred,  the Company shall execute and the Trustee
    shall  authenticate  and make  available  for delivery to the Holder of such
    Security  without service charge,  a new Physical  Security or Securities of
    any  authorized  denomination  requested  by  the  Holder,  in an  aggregate
    principal amount equal to the portion of the Security not so transferred.

         (e) Exchange  Offer.  Upon the  occurrence  of the  Exchange  Offer (as
defined  in  the   Registration   Rights   Agreement)  in  accordance  with  the
Registration  Rights Agreement,  the Company shall issue and, upon receipt of an
Officers'  Certificate  stating that the  Exchange  Registration  Statement  has
become effective and that the Exchange Offer has occurred and an  authentication
order in accordance with Section 2.2, the Trustee shall authenticate one or more
Unrestricted  Global  Securities in an aggregate  principal  amount equal to the
principal amount of the interests in the Initial Global Securities. Concurrently
with the  issuance of such  Securities,  the Trustee  shall cause the  aggregate
principal  amount of the  applicable  Initial  Global  Securities  to be reduced
accordingly and direct DTC to make a  corresponding  reduction in its book-entry
system.

         In the case that one or more of the events  specified in Section 2.6(a)
have  occurred,  upon the occurrence of such Exchange  Offer,  the Company shall
issue and, upon receipt of an  authentication  order in accordance  with Section
2.2, the Trustee  shall  authenticate  Unrestricted  Physical  Securities  in an
aggregate  principal  amount  equal to the  principal  amount of the  Restricted
Physical Securities tendered for acceptance by persons participating therein.


<PAGE>

                                      -35-


         (f) Legends.

         Each  Initial  Global  Security  and, if  applicable,  each  Restricted
Physical  Security  shall bear the  legend  (the  "Securities  Act  Legend")  in
substantially the following form:

     THIS  SECURITY HAS NOT BEEN  REGISTERED  UNDER THE U.S.  SECURITIES  ACT OF
     1933,  AS AMENDED (THE  "SECURITIES  ACT"),  AND,  ACCORDINGLY,  MAY NOT BE
     OFFERED  OR SOLD  WITHIN  THE  UNITED  STATES OR TO, OR FOR THE  ACCOUNT OR
     BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.  BY
     ITS  ACQUISITION  HEREOF,  THE  HOLDER  (1)  REPRESENTS  THAT  (A)  IT IS A
     "QUALIFIED  INSTITUTIONAL  BUYER"  (AS  DEFINED  IN  RULE  144A  UNDER  THE
     SECURITIES  ACT),  OR (B) IT IS NOT A U.S.  PERSON  AND IS  ACQUIRING  THIS
     SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO
     YEARS AFTER THE  ORIGINAL  ISSUANCE OF THIS  SECURITY  RESELL OR  OTHERWISE
     TRANSFER THIS SECURITY  EXCEPT (A) TO AES OR ANY  SUBSIDIARY  THEREOF,  (B)
     INSIDE THE UNITED STATES TO A QUALIFIED  INSTITUTIONAL  BUYER IN COMPLIANCE
     WITH RULE 144A UNDER THE  SECURITIES  ACT, (C) OUTSIDE THE UNITED STATES IN
     AN OFFSHORE  TRANSACTION  IN COMPLIANCE  WITH RULE 904 UNDER THE SECURITIES
     ACT, (D) PURSUANT TO THE EXEMPTION FROM  REGISTRATION  PROVIDED BY RULE 144
     UNDER THE  SECURITIES  ACT (IF  AVAILABLE)  OR (E) PURSUANT TO AN EFFECTIVE
     REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
     DELIVER  TO EACH  PERSON  TO WHOM THIS  SECURITY  IS  TRANSFERRED  A NOTICE
     SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER
     OF THIS  SECURITY  WITHIN  TWO YEARS  AFTER THE  ORIGINAL  ISSUANCE  OF THE
     SECURITY,  THE  HOLDER  MUST  SUBMIT A  CERTIFICATE  WITH  RESPECT  TO SUCH
     TRANSFER TO THE TRUSTEE (A FORM OF WHICH MAY BE OBTAINED FROM THE TRUSTEE);
     AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
     PERSON"  HAVE  THE  MEANINGS  GIVEN  TO THEM  BY  REGULATION  S  UNDER  THE
     SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
     REFUSE TO REGISTER  ANY  TRANSFER  OF THIS  SECURITY  IN  VIOLATION  OF THE
     FOREGOING RESTRICTIONS.

         (g) Global Security Legend. Each Global Security shall bear a legend in
substantially the following form:

         "UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
    DEFINITIVE  FORM, THIS SECURITY MAY NOT BE TRANSFERRED  EXCEPT AS A WHOLE BY
    THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO A NOMINEE OF
    DTC, OR BY ANY SUCH NOMINEE


<PAGE>

                                      -36-


     OF DTC, OR BY DTC TO A SUCCESSOR  DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
     DEPOSITORY.   UNLESS  THIS   CERTIFICATE  IS  PRESENTED  BY  AN  AUTHORIZED
     REPRESENTATIVE  OF 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 SUCH OTHER NAME AS IS REQUESTED BY AN  AUTHORIZED
     REPRESENTATIVE  OF DTC (AND ANY PAYMENT  HEREON IS MADE TO CEDE & CO. OR TO
     SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED  REPRESENTATIVE OF DTC).
     ANY  TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE OR  OTHERWISE BY OR TO
     ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
     HAS AN INTEREST HEREIN.

     TRANSFERS OF THIS GLOBAL  SECURITY  SHALL BE 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 SECURITY
     SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE  RESTRICTIONS SET
     FORTH IN SECTION 2..6 OF THE INDENTURE."


         (h) Cancellation  and/or Adjustment of Global Securities.  At such time
as all  interests  in the Global  Securities  have been  exchanged  for Physical
Securities,  all  Global  Securities  shall  be  returned  to  or  retained  and
canceledcancelled  by the Trustee in accordance with Section 2.9 hereof.  At any
time  prior  to such  cancellation,  if any  interest  in a Global  Security  is
exchanged for an interest in another Global Security or for Physical Securities,
the principal amount of Securities  represented by such Global Security shall be
reduced  accordingly  and all such  changes  to such  Global  Security  shall be
reflected  on the books and  records of the  Trustee,  by the Trustee to reflect
such reduction.

         (i) General Provisions Relating to All Transfers and Exchanges.

         (i) To permit  registrations  of transfers and  exchanges,  the Company
    shall  execute and the Trustee shall  authenticate  Global  Securities  and,
    following the  occurrence of one or more of the events  specified in Section
    2.6(a), Physical Securities upon a written order signed by an Officer of the
    Company or at the Registrar's request.

         (ii) No service  charge shall be made to a Holder for any  registration
    of transfer  or  exchange,  but the  Company  may  require  payment of a sum
    sufficient to cover any stamp or transfer tax or similar governmental charge
    payable in


<PAGE>

                                      -37-


     connection  therewith  (other  than any such  stamp  or  transfer  taxes or
     similar  governmental  charge payable upon exchange or transfer pursuant to
     Sections 2.8, 3.8, 4.11 and 4.15 hereof).

         (iii) All Global  Securities  and Physical  Securities  issued upon any
    registration  of  transfer  or  exchange  of Global  Securities  or Physical
    Securities  shall be the valid  obligations  of the Company,  evidencing the
    same debt,  and entitled to the same benefits under this  Indenture,  as the
    Global Securities or Physical Securities  surrendered upon such registration
    of transfer or exchange.

         (iv) The Company  shall not be required  (A) to issue,  to register the
    transfer  of or to  exchange  Securities  during a period  beginning  at the
    opening of  business  15 days before the day of the mailing of the notice of
    redemption of  Securities  and ending at the close of business such mailing,
    (B) to register  the transfer of or to exchange any Security so selected for
    redemption  in  whole or in  part,  except  the  unredeemed  portion  of any
    Security  being  redeemed in part or (C) to register  the  transfer of or to
    exchange a Security  between a record date and the next succeeding  Interest
    Payment Date.

         (v) Prior to due presentment for the  registration of a transfer of any
    Security,  the  Trustee,  any Agent and the  Company  may deem and treat the
    Person in whose name any Security is  registered  as the  absolute  owner of
    such  Security  for the purpose of  receiving  payment of  principal  of and
    interest  on such  Securities  and for all other  purposes,  and none of the
    Trustee,  any  Agent or the  Company  shall be  affected  by  notice  to the
    contrary.

         (vi) The Trustee shall have no obligation or duty to monitor, determine
    or inquire as to compliance with any  restrictions on transfer imposed under
    this  Indenture or under  applicable law with respect to any transfer of any
    interest  in  any  Security   (including  any  transfers  between  or  among
    Participants or beneficial owners of interests in any Global Security) other
    than to require  delivery of such  certificates  and other  documentation or
    evidence as are  expressly  required by, and to do so if and when  expressly
    required  by the  terms  of,  this  Indenture,  and to  examine  the same to
    determine  substantial  compliance as to form with the express  requirements
    hereof.

         SECTION 2.7 Replacement Securities.

         If any mutilated  Security is surrendered  to the Trustee,  the Company
shall execute and the Trustee shall


<PAGE>

                                      -38-


authenticate  and deliver in exchange  therefor a new Security of like tenor and
principal amount and bearing a number not contemporaneously outstanding.

         If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be reasonably required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such  Security has been  acquired by a bona fide
purchaser,  the Company  shall  execute  and upon its request the Trustee  shall
authenticate  and  deliver,  in  lieu of any  such  destroyed,  lost  or  stolen
Security,  a new Security of like tenor and principal  amount,  having  endorsed
thereon and bearing a number not contemporaneously outstanding.

         Upon the issuance of any new Security  under this Section,  the Company
may  require  the  payment  of a sum  sufficient  to  cover  any  tax  or  other
governmental  charge  that may be  imposed  in  relation  thereto  and any other
expenses (including the fees and expenses of the Trustee) connected therewith.


         Every new  Security  issued  pursuant  to this  Section  in lieu of any
destroyed,  lost or stolen  Security  shall  constitute  an original  additional
contractual  obligation  of the Company  whether or not the  destroyed,  lost or
stolen  Security  shall be at any  time  enforceable  by  anyone,  and  shall be
entitled to all the benefits of this Indenture equally and proportionately  with
any and all other Securities duly issued hereunder.

         The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the  replacement or
payment of mutilated, destroyed, lost or stolen Securities.

         SECTION 2.8 Temporary Securities.

         Pending  the  preparation  of  definitive  Securities,  the Company may
execute and, upon Company  Order,  the Trustee shall  authenticate  and deliver,
temporary Securities which are printed,  lithographed typewritten,  mimeographed
or otherwise  produced,  in any authorized  denomination,  substantially  of the
tenor of the  definitive  Securities in lieu of which they are issued,  and with
such appropriate  insertions,  omissions,  substitutions and other variations as
the officers  executing such  Securities  may  determine,  as evidenced by their
execution of such Securities.

         If temporary  Securities are issued,  the Company will cause definitive
Securities to be prepared without unreasonable


<PAGE>

                                      -39-


delay. After the preparation of definitive Securities,  the temporary Securities
shall be exchangeable for definitive  Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to Section
10.2,  without charge to the Holder.  Upon surrender for cancellation of any one
or more  temporary  Securities  the Company  shall execute and the Trustee shall
authenticate  and make  available  for  delivery  in  exchange  therefor  a like
principal amount of definitive  Securities of authorized  denominations and like
tenor.  Until so exchanged  the  temporary  Securities  shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities.

         SECTION 2.9 Cancellation.

         All Securities  surrendered for payment,  redemption or registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly  canceledcancelled  by it. The
Company may at any time deliver to the Trustee for  cancellation  any Securities
previously  authenticated  and  delivered  hereunder  which the Company may have
acquired in any manner  whatsoever,  and all  Securities  so delivered  shall be
promptly  canceledcancelled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any  Securities  canceledcancelled  as provided in
this   Section,   except  as  expressly   permitted  by  this   Indenture.   All
canceledcancelled  Securities  held by the  Trustee  shall  be  returned  to the
Company.

         SECTION 2.10 Defaulted Interest.

         Any interest on any Security  which is payable,  but is not  punctually
paid  or  duly  provided  for,  on any  Interest  Payment  Date  (herein  called
"Defaulted  Interest")  shall forthwith cease to be payable to the Holder on the
relevant  Regular  Record  Date by virtue of having been such  Holder,  and such
Defaulted Interest may be paid by the Company,  at its election in each case, as
provided in clause (1) or (2) below:

         (1) The Company may elect to make payment of any Defaulted  Interest to
    the Persons in whose names the Securities (or their  respective  Predecessor
    Securities) are registered at the close of business on a Special Record Date
    for the  payment of such  Defaulted  Interest,  which  shall be fixed in the
    following  manner.  The Company  shall  notify the Trustee in writing of the
    amount of Defaulted  Interest  proposed to be paid on each  Security and the
    date of the proposed payment, and at the same time the Company shall deposit
    with the Trustee an amount of money equal to the aggregate  amount  proposed
    to be paid in respect of such Defaulted Interest or shall make

<PAGE>

                                      -40-


    arrangements satisfactory to the Trustee for such deposit prior to the date
    of the proposed payment,  such money when deposited to be held in trust for
    the benefit of the Persons  entitled to such Defaulted  Interest as in this
    clause provided.  Thereupon the Company shall fix a Special Record Date for
    the payment of such Defaulted Interest which shall be not more than 15 days
    prior to the date of the  proposed  payment.  The  Company  shall  promptly
    notify the Trustee of such Special  Record Date and, in the name and at the
    expense of the  Company,  the Trustee  shall cause  notice of the  proposed
    payment of such Defaulted  Interest and the Special Record Date therefor to
    be mailed, first-class postage prepaid, to each Holder at his address as it
    appears in the Security Register, not less than five Business Days prior to
    such Special Record Date.  Notice of the proposed payment of such Defaulted
    Interest and the Special Record Date therefor  having been so mailed,  such
    Defaulted  Interest  shall be paid not later than the  fifteenth  day after
    such Special  Record Date to the Persons in whose names the  Securities (or
    their  respective  Predecessor  Securities)  are registered at the close of
    business on such Special Record Date.

         (2) The Company may make payment of any Defaulted Interest in any other
    lawful  manner not  inconsistent  with the  requirements  of any  securities
    exchange on which the Securities may be listed,  and upon such notice as may
    be required by such  exchange,  if, after notice given by the Company to the
    Trustee of the  proposed  payment  pursuant to this  clause,  such manner of
    payments shall be deemed practicable by the Trustee.

         SECTION 2.11 CUSIP or CINS Number.

         The  Company  in  issuing  the  Securities  may use a "CUSIP" or "CINS"
number,  and if so,  such CUSIP or CINS  number  shall be included in notices of
redemption  or exchange as a  convenience  to  Holders;  provided  that any such
notice  may  state  that no  representation  is made  as to the  correctness  or
accuracy of the CUSIP or CINS number printed in the notice or on the Securities,
and that reliance may be placed only on the other identification numbers printed
on the Securities. The Company will promptly notify the Trustee of any change in
the CUSIP or CINS number.

         SECTION  2.12  Payments  of  Interest.

         (a) The Holder of a Physical  Security  at the close of business on the
Regular Record Date with respect to any Interest  Payment Date shall be entitled
to receive the interest and Additional Interest, if any, payable on


<PAGE>

                                      -41-


such  Interest  Payment  Date  notwithstanding  any transfer or exchange of such
Physical  Security  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 or Additional  Interest due on such Interest Payment
Date, in which case such  Defaulted  Interest and Additional  Interest,  if any,
shall be paid in accordance with Section 2.10; provided that, in the event of an
exchange of a Physical Security for a beneficial interest in any Global Security
subsequent to a Regular  Record Date or any Special  Record Date and prior to or
on the related  Interest  Payment Date or other payment date under Section 2.10,
any payment of the interest and Additional Interest payable on such payment date
with respect to any such Physical  Security shall be made to the Person in whose
name such  Physical  Security was  registered  on such record date.  Payments of
interest  on the  Global  Securities  will be made to the  Holder of the  Global
Security  on each  Interest  Payment  Date;  provided  that,  in the event of an
exchange  of all  or a  portion  of a  Global  Security  for  Physical  Security
subsequent to the Regular Record Date or any Special Record Date and prior to or
on the related  Interest  Payment Date or other  payment date under Section 2.10
any payment of interest or Additional  Interest payable on such Interest Payment
Date or other payment date with respect to the Physical  Security  shall be made
to the Holder of the Global Security.

         (b) The Trustee shall pay interest and Additional Interest,  if any, to
DTC, with respect to any Global Security held by DTC, on the applicable Interest
Payment Date in accordance with instructions  received from the Company at least
five  Business Days before the  applicable  Interest  Payment Date.  The Company
shall deliver such instructions in the form of an Officers'  Certificate setting
forth  Additional  Interest in the aggregate and per $1,000  principal amount of
Securities to be paid on such Interest Payment Date.

         SECTION 2.13 Outstanding Securities.

         Securities  outstanding at any time are all  Securities  that have been
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation  and those described in this Section as not  outstanding.  A
Security  does not cease to be  outstanding  because  the  Company or one of its
Affiliates holds the Security.

         If a Security  is  replaced  pursuant  to Section  2.7, it ceases to be
outstanding unless the Trustee


<PAGE>

                                      -42-


receives proof  satisfactory to it that the replaced  Security is held by a bona
fide purchaser.

         If the Paying Agent holds on a redemption  date or Maturity  Date money
sufficient to pay the  principal of, and interest on Securities  payable on that
date,  then on and after that date such  Securities  cease to be outstanding and
interest on them ceases to accrue.

         SECTION 2.14 Treasury Securities.

         In determining  whether the Holders of the required principal amount of
Securities have concurred in any direction,  waiver or consent, Securities owned
by the Company,  any Subsidiary or any of their  respective  Affiliates shall be
disregarded,  except that for the  purposes of  determining  whether the Trustee
shall be protected  in relying on any such  direction,  waiver or consent,  only
Securities that a Responsible Officer of the Trustee actually knows are so owned
shall be so disregarded.

         The Trustee may require an  Officers'  Certificate  listing  securities
owned by the Company, any Subsidiary or any of their respective Affiliates.

ARTICLE III

                            REDEMPTION OF SECURITIES

         SECTION 3.1 Right of Redemption.

         The  Securities  may be  redeemed  at the  election  of the  Company as
provided  by the  terms of the  Securities,  as a whole or from  time to time in
part,  at the  times  and at the  Redemption  Prices  specified  in the  form of
Security set forth in Exhibit A together with any applicable accrued interest to
the Redemption Date.

         SECTION 3.2 Applicability of Article.

         Redemption of  Securities at the election of the Company,  as permitted
by the  Securities  or any  provision  of  this  Indenture,  shall  be  made  in
accordance with such provision and this Article.

         SECTION 3.3 Election To Redeem; Notice to Trustee.


<PAGE>

                                      -43-


         The  election  of the  Company to redeem  any  Securities  pursuant  to
Section 3.1 shall be evidenced by a Board Resolution of the Company delivered to
the Trustee.  The Company shall,  at least 30 days prior to the Redemption  Date
fixed by the  Company  (unless a shorter  notice  shall be  satisfactory  to the
Trustee) notify the Trustee of such Redemption Date and of the principal  amount
of Securities to be redeemed.

         SECTION 3.4 Selection by Trustee of
                     Securities To Be Redeemed.

         If less than all the  Securities  are to be  redeemed,  the  particular
Securities to be redeemed shall be selected by the Trustee, from all outstanding
Securities not previously  called for redemption,  by such method as the Trustee
shall deem fair and  appropriate  and which may  provide for the  selection  for
redemption of portions (equal to $1,000 or any integral multiple thereof) of the
principal amount of Securities of a denomination larger than $1,000.

         The Trustee  shall  promptly  notify the Company and the  Registrar  in
writing  of the  Securities  selected  for  redemption  and,  in the case of any
Securities selected for partial  redemption,  the principal amount thereof to be
redeemed.

         For all  purposes of this  Indenture,  all  provisions  relating to the
redemption of Securities shall relate, in the case of any Securities redeemed or
to be  redeemed  only in part,  to the portion of the  principal  amount of such
Securities which has been or is to be redeemed.

         SECTION 3.5 Notice of Redemption.

         Notice  of  redemption  shall  be given by  first-class  mail,  postage
prepaid,  mailed not less than 30 nor more than 60 days prior to the  Redemption
Date, to each Holder of Securities to be redeemed,  at his address  appearing in
the Security Register.

         All notices of redemption shall state:

         (1) the Redemption Date,

         (2)  the Redemption Price,

         (3) if less than all the outstanding Securities are to be redeemed, the
identification including CUSIP


<PAGE>

                                      -44-


numbers, (and, in the case of partial redemption,  the principal amounts) of the
particular Securities to be redeemed,

         (4) that on the Redemption  Date the  Redemption  Price will become due
and payable upon each such Security to be redeemed and that,  unless the Company
shall default in the payment of the Redemption Price and any applicable  accrued
interest, interest thereon will cease to accrue on and after said date, and

         (5) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.

         Notice of  redemption  of  Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's  request,  by the
Trustee in the name and at the expense of the Company.

         SECTION 3.6 Deposit of Redemption Price.

         On or prior to 10:00 a.m.  New York City time on any  Redemption  Date,
the Company  shall  deposit with the Trustee or with a Paying Agent an amount of
money  sufficient to pay the Redemption Price of and accrued interest on all the
Securities which are to be redeemed on that date.

         SECTION 3.7 Securities Payable on Redemption Date.

         Notice of redemption having been given as aforesaid,  the Securities so
to be redeemed  shall,  on the  Redemption  Date,  become due and payable at the
Redemption  Price  therein  specified,  and from and after such date (unless the
Company shall default in the payment of the Redemption  Price and any applicable
accrued  interest) such Securities shall cease to bear interest.  Upon surrender
of any such  Security  for  redemption  in  accordance  with said  notice,  such
Security  shall be paid by the Paying Agent at the  Redemption  Price,  together
with any applicable accrued interest to the Redemption Date.

         If any  Security  called  for  redemption  shall  not be so  paid  upon
surrender  thereof for  redemption,  the  principal  (and  premium,  if any) and
accrued interest on such unpaid principal shall,  until paid, bear interest from
the Redemption Date at the rate provided by the Security.


<PAGE>

                                      -45-


         SECTION 3.8 Securities Redeemed in Part.

         Upon  surrender  of a Security  that is redeemed in part (with,  if the
Company or the Trustee so requires,  due endorsement by, or a written instrument
of transfer in form  satisfactory  to the Company and the Trustee duly  executed
by, the Holder thereof or his attorney duly authorized in writing),  the Company
shall  execute and the Trustee shall  authenticate  and deliver to the Holder of
such Security  without  service  charge,  a new Security or  Securities,  of any
authorized  denomination  as requested by such  Holder,  in aggregate  principal
amount equal to and in exchange for the  unredeemed  portion of the principal of
the Security so surrendered.

ARTICLE IV

                                    COVENANTS

         SECTION 4.1 Payment of Securities.

         The Company shall pay the  principal of and interest on the  Securities
on the dates and in the manner provided in the Securities and this Indenture.

         An installment of principal or interest shall be considered paid on the
date  due if the  Trustee  or  Paying  Agent  (other  than  the  Company  or any
Subsidiary of the Company or any Affiliate of any thereof) holds on such date by
10:00 a.m., New York City time,  immediately  available funds designated for and
sufficient to pay such installment.

         The  Company  shall pay  interest on overdue  principal  and on overdue
installments  of interest,  in each case at the rate per annum  specified in the
Securities, to the extent lawful.

         SECTION 4.2 Maintenance of Office or Agency.

         The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency,  where Securities 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  Securities  and this Indenture
may be served. 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


<PAGE>

                                      -46-


and  demands  may be made or served at the  address of the  Trustee set forth in
Section 10.2.

         The  Company  may also from time to time  designate  one or more  other
offices or agencies where the Securities 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.

         The Company hereby  initially  designates the offices of the Trustee as
set forth in Section 10.2 as an agency of the Company in accordance with Section
2.3.

         SECTION 4.3 Corporate Existence.

         Subject to Article V hereof,  the Company shall do or cause to be done,
at its own cost and expense,  all things  necessary to preserve and keep in full
force and effect the  corporate  existence and rights  (charter and  statutory),
licenses and/or  franchises of the Company,  provided that the Company shall not
be  required  to  preserve  any such  right,  license  or  franchise,  if in the
reasonable  and good faith judgment of the Board of Directors of the Company (i)
such  preservation  or existence is not  desirable in the conduct of business of
the Company and (ii) the loss of such right, license or franchise is not adverse
in any  material  respect to the Holders or to the Company or the ability of the
Company to satisfy its obligations hereunder.


         SECTION 4.4 Limitation on Business.

         The  Company (a) shall  continue,  and shall  cause each  Material  AES
Entity to  continue,  to  engage in  business  of the same  general  type as now
conducted by the Company and its Restricted Subsidiaries and (b) shall continue,
and shall cause each  Material AES Entity to continue,  to operate its and their
respective businesses on a basis substantially  consistent with the policies and
standards of the Company or such Material AES Entity as in effect on the Closing
Date.

SECTION 4.5  Limitation  on  Restricted  Subsidiary
             Investments and Mergers.

         The Company shall not permit any Restricted  Subsidiary with any direct
or indirect interest in a Power


<PAGE>

                                      -47-


Supply  Business to make any Investment in, or to consolidate or merge with, any
other  Person  with a direct or  indirect  interest  in any other  Power  Supply
Business or any Unrelated Business. In addition, the Company will not permit any
Restricted  Subsidiary  with any direct or indirect  interest  in any  Unrelated
Business to make any  Investment  in, or to consolidate or merge with, any other
Person with a direct or indirect  interest in any Power  Supply  Business or any
other Unrelated Business.  The Company's obligation to comply with this covenant
shall terminate if and when the Securities become Investment Grade.

         The foregoing  restrictions shall not apply to any Intermediate Holding
Company;  provided that (i) each such Intermediate  Holding Company's direct and
indirect  interest in any Power Supply  Business or Unrelated  Business shall be
limited to the ownership of Capital Stock or Debt obligations of a Person with a
direct or indirect interest in such Power Supply Business or Unrelated Business;
(ii) no Intermediate  Holding Company shall incur,  assume,  create or suffer to
exist any Debt  (including any Guarantee of Debt) other than Debt to the Company
or Debt permitted under clauses (iii),  (viii) and (xi) of Section  4.9(b);  and
(iii) no Lien shall exist upon any assets of such  Intermediate  Holding Company
whether now or hereafter acquired,  except for Liens upon the Capital Stock of a
Restricted  Subsidiary of an Intermediate  Holding Company securing Debt of such
Restricted  Subsidiary and Liens securing Debt permitted under clauses (iii) and
(xi) of Section 4.9(b).

         SECTION 4.6 Compliance Certificates.

         The Company shall 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 10.4) from its principal executive,  financial or
accounting  officer as 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)  which   certificate  shall  comply  with  the
requirements of the TIA.

         SECTION 4.7 Reports.

         So long as any Security is outstanding, the Company shall file with the
SEC the annual reports,  quarterly  reports and the  information,  documents and
other  reports  required  to be filed by the  Company  with the SEC  pursuant to
Sections 13 and 15(d) of the Exchange Act,  whether or not the Company has or is
required to have a class of securities registered under the Exchange Act, at the
time it is or would be required to file


<PAGE>

                                      -48-


the same with the SEC and  within 15 days  after it is or would be  required  to
file  such  reports,  information  or  documents  with the SEC  shall  mail such
reports,  information  and documents to the Holders at their addresses set forth
in the Register of Securities  maintained by the Registrar and the Trustee.  The
Company also shall comply with the other provisions of TIA (0) 314(a).  Delivery
of such reports,  information and documents to the Trustee is for  informational
purposes  only  and  the  Trustee's   receipt  of  such  shall  not   constitute
constructive  notice of any information  contained  therein or determinable from
information  contained therein,  including the Company's  compliance with any of
its covenants hereunder (as to which the Trustee is entitled to rely exclusively
on Officers' Certificates).

         SECTION 4.8 Limitation on Debt.

         (a) The Company shall not Incur any Debt,  including  Acquisition Debt,
unless after giving  effect to the  Incurrence  of such Debt and the receipt and
application  of the  proceeds  therefrom,  the Fixed Charge Ratio of the Company
would be  greater  than 2 to 1. The  Company's  obligation  to comply  with this
covenant will terminate if and when the Notes become Investment Grade.

         (b) Notwithstanding  the foregoing,  the Company may Incur each and all
of the following:

         (i)  Debt  under  or in  respect  of the Bank  Credit  Agreement  in an
    aggregate  principal  amount at any one time  outstanding not to exceed $600
    million;

         (ii) Debt issued in exchange  for, or the proceeds of which are used to
    refinance,  outstanding Securities or other Debt of the Company in an amount
    (or, if such new Debt provides for an amount less than the principal  amount
    thereof to be due and payable upon a declaration  of  acceleration  thereof,
    with an  original  issue  price) not to exceed the  amount so  exchanged  or
    refinanced (plus accrued  interest,  premium,  if any, and fees and expenses
    related to such exchange or refinancing);  provided that (A) the date of any
    scheduled payment of principal by way of sinking fund,  mandatory redemption
    or otherwise  (including  defeasance) on any Debt so refinanced or exchanged
    otherwise  due after the final  scheduled  Maturity  Date of the  Securities
    shall not occur prior to such  Maturity Date as a result of such exchange or
    refinancing  and (B) new Debt the  proceeds of which are used to exchange or
    refinance the  Securities or other Debt of the Company that is  subordinated
    in right of payment to the  Securities  shall only be  permitted  under this
    clause (ii) if (x) in case the  Securities  are  exchanged or  refinanced in
    part,


<PAGE>

                                      -49-


     such new Debt,  by its terms or by the terms of any agreement or instrument
     pursuant to which such Debt is issued,  is expressly  made pari passu with,
     or  subordinate  in right of payment to, the remaining  Securities,  (y) in
     case the Debt to be exchanged or  refinanced  is  subordinated  in right of
     payment to the  Securities,  such new Debt, by its terms or by the terms of
     any  agreement  or  instrument  pursuant  to which such Debt is issued,  is
     expressly made subordinate in right of payment to the Securities,  at least
     to the extent that the Debt to be exchanged or refinanced  is  subordinated
     in right of payment to the  Securities  and (z) in case the  Securities are
     exchanged or  refinanced  in part or the Debt to be exchanged or refinanced
     is subordinated  in right of payment to the Securities,  as of the date the
     new Debt is Incurred, the Average Life of the new Debt shall be equal to or
     greater than the Average Life of the  Securities or Debt to be exchanged or
     refinanced;

         (iii)  Debt of the  Company  to any of its  Consolidated  Subsidiaries,
    except that any transfer of such Debt by a  Consolidated  Subsidiary  (other
    than to another Consolidated  Subsidiary) will be deemed to be an Incurrence
    of Debt;  provided  that such  Debt is  expressly  subordinated  in right of
    payment to the Securities; and

         (iv) Debt in an aggregate principal amount not to exceed $50 million at
    any one time outstanding.

         (c) For purposes of  determining  any  particular  amount of Debt under
this  Section  4.8,  Guarantees  of, or  obligations  with respect to letters of
credit  supporting,  Debt  otherwise  included  in  the  determination  of  such
particular amount shall not be included.  For purposes of determining compliance
with this  Section 4.8, (A) in the event that an item of Debt meets the criteria
of more  than one of the  types of Debt  described  in the  above  clauses,  the
Company,  in its sole  discretion,  shall classify such item of Debt and only be
required to include the amount and type of such Debt in one of such  clauses and
(B) the amount of Debt issued at a price that is less than the principal  amount
thereof  shall  be equal to the  amount  of the  liability  in  respect  thereof
determined in conformity with GAAP.


SECTION 4.9 Limitation on Restricted  ____________________
            Subsidiary Debt.

         (a) The Company  shall not permit any  Restricted  Subsidiary to Incur,
directly or  indirectly,  any Debt,  including  Acquisition  Debt. The Company's
obligation  to  comply  with  this  covenant  will  terminate  if and  when  the
Securities become Investment Grade.


<PAGE>

                                      -50-


         (b) Notwithstanding  the foregoing,  each and all of the following Debt
may be Incurred by a Restricted Subsidiary:

         (i) Debt outstanding as of the Closing Date;

         (ii) Debt Incurred for any purpose  (including  without  limitation the
    purposes  set  forth in clause  (iii)  below)  to the  extent of the  amount
    thereof that is also Debt of the Company and is permitted under Section 4.8;

         (iii)  Debt   Incurred   to  finance  the   development,   acquisition,
    construction,  maintenance,  working  capital  requirements  in the ordinary
    course of business  consistent  with past  practice or  operation of a Power
    Supply Business or Unrelated Business in which the Company or any Restricted
    Subsidiary  has a direct or indirect  interest;  provided that (a) such Debt
    shall be permitted  under this clause (iii) only to the extent of the amount
    thereof which (x) is  Non-Recourse to the Company and (y) is Non-Recourse to
    any  other  Restricted  Subsidiary  of the  Company  other  than  Restricted
    Subsidiaries  which represented less than 33% of the Consolidated  EBITDA of
    the Company  for the  Reference  Period,  and (b) upon the  commencement  of
    commercial  operations  of such Power Supply  Business or, in the case of an
    acquisition of such Power Supply  Business or Unrelated  Business,  upon the
    date of such  acquisition,  the Company  directly or through its  Restricted
    Subsidiaries  either  (x)  controls,   under  an  operating  and  management
    agreement or otherwise, the day to day management and operation of the Power
    Supply  Business or  Unrelated  Business so financed or (y) has  significant
    influence over the management and operation of such Power Supply Business or
    Unrelated Business;

         (iv) Debt issued in exchange  for, or the proceeds of which are used to
    refinance,   outstanding  Debt  of  such  Restricted   Subsidiary  otherwise
    permitted  under the  Indenture in an amount (or, if such new Debt  provides
    for an amount less than the principal  amount  thereof to be due and payable
    upon a declaration of  acceleration  thereof,  with an original issue price)
    not to exceed the amount so exchanged or refinanced (plus accrued  interest,
    premium,  if  any,  and  fees  and  expenses  related  to such  exchange  or
    refinancing plus any principal amounts previously repaid); provided that (a)
    the new Debt shall be  Non-Recourse to the Company to the same extent as the
    Debt to be exchanged or refinanced,  (b) if such Restricted Subsidiary has a
    direct or  indirect  interest  in any Power  Supply  Business  or  Unrelated
    Business,  the new  Debt  shall  be  Non-Recourse  to any  other  Restricted
    Subsidiary  of  the  Company  other  than  Restricted   Subsidiaries   which
    represented less than 33% of the Consolidated EBITDA of the Company for the


<PAGE>

                                      -51-


     Reference Period, (c) the date of any scheduled payment of principal by way
     of sinking fund, mandatory  redemption or otherwise (including  defeasance)
     on any Debt so  refinanced  or  exchanged  otherwise  due  after  the final
     scheduled  Maturity  Date of the  Securities  shall not occur prior to such
     Maturity  Date as a result of such exchange or  refinancing  and (d) if the
     new Debt refinances  principal amounts previously repaid, (x) such new Debt
     shall be  permitted  only if on the date  such  new Debt is  Incurred,  the
     Company  could incur at least $1 of Debt under  Section  4.8(a) and (y) the
     proceeds  from  such new  Debt  are not to be used to make  any  Restricted
     Payments;

         (v) Guarantees of Debt of the Company under the Bank Credit Agreement;

         (vi)  Debt  Incurred  to  support  the  performance  obligations  of  a
    Restricted  Subsidiary  engaged  in  providing  construction  management  or
    operating  services to a Power Supply Business;  provided that (a) such Debt
    shall be  permitted  under this clause (vi) only to the extent of the amount
    thereof  which is  Non-Recourse  to the Company and is  Non-Recourse  to any
    other   Restricted   Subsidiary  of  the  Company   other  than   Restricted
    Subsidiaries  which represented less than 33% of the Consolidated  EBITDA of
    the Company  for the  Reference  Period,  and (b) upon the  commencement  of
    commercial  operation  of such Power  Supply  Business  or in the case of an
    acquisition  of  such  Power  Supply   Business,   upon  the  date  of  such
    acquisition,  the Company  directly or through its  Restricted  Subsidiaries
    either  (x)  controls,  under  an  operating  and  management  agreement  or
    otherwise,  the day to day  management  and  operation  of such Power Supply
    Business or (y) has significant  influence over the management and operation
    of such Power Supply Business;

         (vii) Debt in an aggregate  amount for all Restricted  Subsidiaries  at
    any one time  outstanding  of not more than $50 million  Incurred to finance
    the on-going  operation,  but not any expansion or  improvement,  of a Power
    Supply Business or Unrelated  Business in which such  Restricted  Subsidiary
    has a  direct  or  indirect  interest;  provided  that  such  Debt  shall be
    permitted  under this clause (vii) only to the extent it is  Non-Recourse to
    the Company and to any other Restricted Subsidiary of the Company other than
    Restricted  Subsidiaries which represented less than 33% of the Consolidated
    EBITDA of the Company for the Reference Period;

         (viii) Debt of any Restricted Subsidiary of the Company owed to (A) the
    Company or (B) any Restricted Subsidiary of the Company;


<PAGE>

                                      -52-


         (ix)  Debt  in  respect  of  Currency   Agreements   or  Interest  Rate
    Agreements;

         (x) Debt that is  Non-Recourse  to the Company and  Non-Recourse to any
    other   Restricted   Subsidiary  of  the  Company   other  than   Restricted
    Subsidiaries  which represented less than 33% of the Consolidated  EBITDA of
    the Company for the Reference  Period,  only to the extent that the proceeds
    of such Debt are received by the Company or an Intermediate  Holding Company
    as  a  result  of  such  proceeds  being  used  to  pay  dividends  or  make
    distributions  on the Capital Stock of such  Restricted  Subsidiary  and any
    other Restricted Subsidiary in the chain of ownership between the Company or
    such Intermediate Holding Company and such Restricted Subsidiary;

         (xi) Acquisition Debt and Debt incurred to finance the acquisition of a
    Power Supply Business; provided that such Acquisition Debt and other Debt is
    Non-Recourse  to the Company or any Person that was a Restricted  Subsidiary
    of the Company  immediately  prior to such Incurrence;  and provided further
    that where any Debt is incurred to finance the  acquisition of more than one
    Power Supply Business,  all such acquisitions shall have occurred within 180
    days of each other; and


         (xii)  Debt of the type  described  in clause  (iii) of the  definition
    thereof the Incurrence of which causes a corresponding reduction in any debt
    service  or  other  similar  cash  reserve  required  to  be  maintained  in
    connection with any Debt of such Restricted  Subsidiary  permitted by clause
    (iii) above and (to the extent that the same  constitutes a  refinancing  of
    Debt permitted  under such clause (iii)),  clause (iv) above,  in each case,
    only to the  extent  that the  proceeds  from  such  reserve  reduction  are
    received by the Company or an  Intermediate  Holding  Company as a result of
    such  proceeds  being used to pay  dividends  or make  distributions  on the
    Capital  Stock  of  such  Restricted  Subsidiary  and any  other  Restricted
    Subsidiary   in  the  chain  of  ownership   between  the  Company  or  such
    Intermediate Holding Company and such Restricted Subsidiary.

         (c) For purposes of determining  compliance  with this Section 4.9, (A)
in the event  that an item of Debt  meets the  criteria  of more than one of the
types  of  Debt  described  in the  above  clauses,  the  Company,  in its  sole
discretion, shall classify such item of Debt and only be required to include the
amount and type of such Debt in one of such  clauses  and (B) the amount of Debt
issued at a price that is less than the principal  amount thereof shall be equal
to the amount of the


<PAGE>

                                      -53-


liability in respect thereof determined in conformity with GAAP.

         SECTION 4.10 Limitation on Additional Tiers of
                      Senior Subordinated Debt.

         The  Company  shall not Incur or suffer to exist any Debt,  other  than
Debt evidenced by the Securities, that is subordinate in right of payment to any
Senior  Debt  unless  such  Debt,  by its terms or the  terms of the  instrument
creating  or  evidencing  it, is pari passu  with,  or  subordinate  in right of
payment to, the Securities;  provided that any Debt of the Company or any of its
Restricted  Subsidiaries  which is  outstanding  on the  Closing  Date  shall be
excluded from the operation of this covenant.

         SECTION 4.11 Change of Control.

         (a) Upon a Change of Control, each Holder of the Securities shall have,
subject to Article  XI, the right to require  that the Company  repurchase  such
Holder's Securities 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 in accordance with Section 4.11(b) hereof.

         (b) Within 30 days  following any Change of Control,  the Company shall
mail a  notice  to each  Holder  of the  Securities  at  their  last  registered
addresses with a copy to the Trustee stating:

         (1) that a Change of Control has  occurred and that such Holder has the
    right to require the Company to  repurchase  such  Holder's  Securities 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");

         (2) 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);

         (3) 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");

         (4) that any Security not tendered will continue to accrue interest;


<PAGE>

                                      -54-


         (5) that any Security  accepted  for payment  pursuant to the Change of
    Control Offer shall cease to accrue interest after the Repurchase Date;

         (6) that Holders  electing to have a Security  purchased  pursuant to a
    Change of Control Offer will be required to surrender the Security, with the
    form  entitled  "Option of Holder to Elect  Purchase"  on the reverse of the
    Security  completed,  to the Paying  Agent at the address  specified  in the
    notice prior to the close of business on the Repurchase Date;

         (7) 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 facsimile  transmission  or letter setting
    forth the name of the Holder,  the principal amount of Securities the Holder
    delivered for purchase,  and a statement that such Holder is withdrawing his
    election to have such Securities purchased; and

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

         (c) On the Repurchase Date, the Company shall:

              (i) accept for payment  Securities  or portions  thereof  tendered
         pursuant to the Change of Control Offer;

              (ii) deposit by 10:00 a.m.,  New York City time,  with the Trustee
         money  sufficient  to pay  the  purchase  price  of all  Securities  or
         portions thereof so tendered; and

              (iii)  deliver or cause to be delivered to the Trustee  Securities
         so accepted  together  with an Officers'  Certificate  identifying  the
         Securities or portions thereof tendered to the Company.

         The Trustee  shall  promptly  mail to the Holders of the  Securities so
accepted  payment  in an  amount  equal  to the  purchase  price,  and  promptly
authenticate and make available for delivery to such Holders a new Security in a
principal amount equal to any unpurchased  portion of the Security  surrendered.
The Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Repurchase Date.


<PAGE>

                                      -55-


         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 4.12 Limitation on Transactions
                      with Affiliates.

         The  Company  shall not,  and shall not  permit  any of its  Restricted
Subsidiaries to, directly or indirectly  enter into any transaction  (including,
without  limitation,  the sale, purchase or lease of any assets or properties or
the 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 a Subsidiary of the Company's control of such
Person except for any  Unrestricted  Subsidiary)  or holder of 5% or more of any
class of  Capital  Stock of the  Company  except  for  transactions  (including,
subject to Section 4.13,  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  Restricted  Subsidiary,  as the case
may be, and are at least as  favorable  as the terms  which could be obtained by
the Company or such Restricted  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 any such transaction shall be conclusively deemed to
be on  terms  which  are  fair  and  reasonable  to  the  Company  or any of its
Restricted  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  directors   (including  a  majority  of  the  Company's   independent
directors);  and  provided  further,  that  with  respect  to  the  purchase  or
disposition  of  assets of the  Company  or any of its  Restricted  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 Restricted Subsidiary, as the case may be, from a financial point
of view; and provided further 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. This Section 4.12 shall not apply to (a)
transactions  between the Company or any of its Restricted  Subsidiaries and any
employee of the Company or any of its Restricted  Subsidiaries that are approved
by the Board of Directors or any committee of the Board of Directors  consisting
of the  Company's  independent  directors,  (b) the  payment of  reasonable  and
customary  regular fees to directors of the Company or a Restricted  Subsidiary,
(c) any transaction

<PAGE>

                                      -56-


between the Company and any of its  Consolidated  Subsidiaries or between any of
its  Consolidated  Subsidiaries,  (d) any Permitted  Payment and any  Restricted
Payment not otherwise prohibited by Section 4.13 or (e) 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.

         SECTION 4.13 Limitation on Restricted Payments.

         The Company shall not, and shall not permit any  Restricted  Subsidiary
to, directly or indirectly,  make any Restricted  Payment if after giving effect
to such Restricted Payment:

         (a) 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;

         (b) the  Company  could  not  Incur at least $1 of Debt  under  Section
    4.8(a); or

         (c) the  aggregate  amount  expended by the Company and its  Restricted
    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 April
    1, 1997 shall exceed the sum of:

              (1) 50% of the Net  Income  of the  Company  and its  Consolidated
         Subsidiaries for the period (taken as one accounting  period) beginning
         on April 1, 1997 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

              (2) 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 (A)
         the  Company  from and after April 1, 1997 from the  issuance  and sale
         (other than to a Restricted Subsidiary) of its Capital Stock (excluding
         Redeemable  Stock,  but including  Capital Stock other than  Redeemable
         Stock issued upon
<PAGE>
                                      -57-


          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 or (B) a
          Finance  Subsidiary  of the Company  from and after April 1, 1997 from
          the  issuance  and sale  (other  than to the  Company or a  Restricted
          Subsidiary) of its Qualified Capital Stock; plus

              (3) to the  extent  not  included  in clause  (1)  above,  the net
         reduction in  Investments of the type specified in clauses (iv) through
         (vi) of the definition of Restricted Payment resulting from payments of
         interest on Debt, dividends,  repayments of loans or advances, or other
         transfers  of  assets  to the  Company  or other  Person  that made the
         original  Investment  from the Person in which such Investment was made
         or resulting  from the sale or  disposition  of the Investment or other
         return of the amount of the Investment or from the redesignation of any
         Unrestricted Subsidiary as a Restricted Subsidiary;  provided that such
         payment,  for purposes of the  calculation  to be made pursuant to this
         clause  (3),  shall not exceed the amount of the  original  Investment;
         plus

              (4) any amount  previously  included  as a  Restricted  Payment on
         account of an obligation by the Company or any Restricted Subsidiary to
         make a  Restricted  Payment  which  has not  actually  been made by the
         Company or any Restricted Subsidiary and which is no longer required to
         be paid by the Company or any Restricted Subsidiary; plus

              (5) $502 million;

provided  that the  foregoing  clause (c) 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 Section 4.13.

         For  purposes  of clause  (c)(2)  above,  the  aggregate  net  proceeds
received  by the Company  (x) 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

<PAGE>

                                      -58-

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 (y) 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 (c)(2)
above plus any additional sums payable upon conversion or exchange.

         The Company's  obligation to comply with this covenant shall  terminate
if and when the Securities become Investment Grade.

         If an  Investment  which the Company or any  Restricted  Subsidiary  is
obligated  to make either in part from time to time or in whole in the future is
fixed in amount by the agreement setting forth such obligation,  for purposes of
determining whether such Investment is a Restricted Payment permitted under this
Section 4.13 or is a Permitted  Payment,  the Investment shall be deemed to have
been made only once, in the amount so fixed,  at the time the  obligation  first
arises  (and not when  payments  in  respect  thereof  are  later  made).  If an
Investment  which the Company or any Restricted  Subsidiary is obligated to make
either  in part  from  time to time or in whole in the  future  is not  fixed in
amount  by  the  agreement  setting  forth  such  obligation,  for  purposes  of
determining whether such Investment is a Restricted Payment permitted under this
Section 4.13 or is a Permitted  Payment,  the Investment shall be deemed to have
been made at the time the obligation  first arises in an amount to be determined
in good faith by the Board of Directors, as evidenced by a Board Resolution, and
any  actual  payments  in  respect  of such  Investment  shall be  deemed  to be
Investments made on the date of payment thereof.  Subject to the terms of clause
(v) of the  definition  of Permitted  Payments,  such later  Investments  may be
Permitted Payments.

         SECTION  4.14  Limitation on Dividend and other
                        Payment Restrictions Affecting
                        Subsidiaries.

         The Company shall not, and shall not permit any  Restricted  Subsidiary
to,  create  or  otherwise  cause or suffer  to exist or  become  effective  any
consensual  encumbrance  or  restriction  of  any  kind  on the  ability  of any
Restricted  Subsidiary  to (i) pay  dividends  or make any  other  distributions
permitted by applicable law on any Capital Stock of such  Restricted  Subsidiary
owned by the Company or any other Restricted  Subsidiary,  (ii) make payments in
respect  of any Debt owed to the  Company  or any other  Restricted  Subsidiary,
(iii) make loans or advances to the Company or any other  Restricted  Subsidiary
or (iv) transfer any of its Property to


<PAGE>

                                      -59-


the Company or any other  Restricted  Subsidiary.  The  Company's  obligation to
comply with this  covenant  will  terminate  if and when the  Securities  become
Investment Grade.

         This Section 4.14 shall not  restrict or prohibit any  encumbrances  or
restrictions  existing:  (i) in  connection  with  the  Incurrence  of any  Debt
permitted  under clauses (iii),  (vi),  (vii),  (x) or (xi) of Section 4.9(b) or
with  respect  to any  portion  thereof  that is also  Debt of the  Company  and
permitted under Section 4.8; provided that such encumbrances or restrictions are
required  in  order  to  effect  such  financing  and  are not  materially  more
restrictive,  taken as a whole,  on the  ability  of the  applicable  Restricted
Subsidiary to make the  payments,  distributions,  loans,  advances or transfers
referred  to in  clauses  (i)  through  (iv)  of the  preceding  paragraph  than
encumbrances and restrictions,  taken as a whole,  customarily  accepted (or, in
the absence of any industry  custom,  reasonably  acceptable)  in  substantially
non-recourse  project  financing,  (ii) in  connection  with the  execution  and
delivery of an electric power or thermal energy purchase  contract to which such
Restricted  Subsidiary is the supplying party or other contracts with customers,
suppliers and  contractors  to which such  Restricted  Subsidiary is a party and
where such Restricted  Subsidiary is engaged in the  development,  construction,
acquisition  or  operation  of a  Power  Supply  Business;  provided  that  such
encumbrances or restrictions  are required in order to effect such contracts and
are not materially  more  restrictive,  taken as a whole,  on the ability of the
applicable  Restricted  Subsidiary to make the payments,  distributions,  loans,
advances or transfers  referred to in clauses (i) through (iv) in the  preceding
paragraph than  encumbrances  and  restrictions,  taken as a whole,  customarily
accepted (or, in the absence of any industry custom,  reasonably  acceptable) in
substantially  non-recourse  project  financing,  (iii) in  connection  with the
Incurrence of any Debt permitted under clause (iv) of Section  4.9(b),  provided
that such encumbrances or restrictions  taken as a whole are not materially more
restrictive on the ability of the applicable  Restricted  Subsidiary to make the
payments, distributions, loans, advances or transfers referred to in clauses (i)
through  (iv) in the  preceding  paragraph  than  those that are then in effect,
taken as a whole, in connection  with the Debt so exchanged or refinanced,  (iv)
in connection with the Bank Credit Agreement and the project financing, electric
power  and  thermal  energy  purchase  arrangements  and  other  contracts  with
customers,  suppliers and  contractors in effect on the Closing Date,  including
extensions,  refinancings,  renewals or  replacements  thereof,  (v) pursuant to
customary  non-assignment  provisions in leases,  (vi) pursuant to  restrictions
imposed pursuant to any stock purchase or asset purchase  agreement  pending the
consummation of the transactions  contemplated thereby, (vii) in connection with
any Acquisition Debt, provided that such encumbrance or restriction was not


<PAGE>

                                      -60-


incurred in contemplation of the obligor becoming a Restricted Subsidiary of the
Company,  which  encumbrance or restriction is not applicable to any Person,  or
the Property or assets of any Person,  other than the Person, or the Property or
assets, acquired, (viii) customary restrictions on transfers of Property subject
to a Lien which could not materially  adversely affect the Company's  ability to
satisfy  its  obligations  under  the  Indenture  and  the  Securities  or  (ix)
provisions  contained  in  agreements  or  instruments  relating  to Debt  which
prohibit the transfer of all or  substantially  all of the assets of the obligor
thereunder  unless the  transferee  shall assume the  obligations of the obligor
under such agreement or instrument,  in each case; provided that, in the case of
clause (iv) above, such encumbrances and restrictions,  taken as a whole, in any
such extensions,  refinancings, renewals or replacements are not materially more
restrictive on the ability of the applicable  Restricted  Subsidiary to make the
payments, distributions, loans, advances or transfers referred to in clauses (i)
through (iv) in the preceding  paragraph than those encumbrances or restrictions
taken as a whole in  effect  immediately  before  such  extension,  refinancing,
renewal or  replacement.  This  Section  4.14 shall not prevent the Company from
granting any Liens not expressly prohibited hereby.

         SECTION 4.15 Limitation on Asset Dispositions.

         (a) The  Company  shall not  make,  and  shall  not  permit  any of its
Restricted  Subsidiaries to make, any Asset  Disposition  unless the Company (or
the Restricted  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)  and  either  (i) not less  than  75% of the  consideration
received by the Company (or such Restricted  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  Restricted  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  Restricted  Subsidiary's  most recent  balance  sheet) of the
Company or any Restricted  Subsidiary  that are assumed by the transferee of any
such assets shall be deemed to be cash for purposes of this clause (i), and (ii)
first,  the Net Cash Proceeds of such Asset  Disposition  are applied  within 90
days from the later of the date of such Asset  Disposition or the receipt of Net
Cash Proceeds related  thereto,  to the payment of the principal of, premium and
interest  on any Senior  Debt of the Company  (including  to cash  collateralize
letters of credit) and, in


<PAGE>

                                      -61-


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  and  second,  to the  extent  such Net Cash  Proceeds  are not
required  by the  lenders,  or the terms,  of the  Senior  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
Restricted   Subsidiaries  consistent  with  Section  4.4;  provided  that  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 or (y)
applied  to the  payment  of any  Senior  Debt  of the  Company  or  Debt of any
Restricted  Subsidiary or any Consolidated  Subsidiary  (other than Debt owed to
the Company or another Restricted Subsidiary),  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 such Net Cash  Proceeds are so applied  within three months after
the  expiration  of the  365-day  period  referred to in clause (x) above or (z)
applied to make a tender offer (the  "Offer") to purchase  Securities  and other
Debt of the  Company  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 Securities 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).  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
Restricted  Subsidiary,  as the case may be) shall not be  required to apply the
portion of such Net Cash  Proceeds so affected  in  accordance  with clause (ii)
above (other than to repay Debt of the Restricted  Subsidiary  making such Asset
Disposition or Debt of a Consolidated Subsidiary of the Company, in each case as
contemplated  by clause (ii) above and to the extent the prohibition or delay on
repatriation  is not  applicable to such  repayment and such repayment is not in
violation of the terms of any Senior Debt) (the Company hereby agreeing to cause
the applicable  Restricted  Subsidiary to promptly take all actions  required by
the applicable local law to permit such  repatriation);  provided that 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

<PAGE>

                                      -62-


Section 4.15. 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 Restricted Subsidiary for so long as such adverse tax
liability would continue to be incurred.

         Notwithstanding  anything in this covenant to the contrary, the Company
and any Restricted Subsidiary may make the following Asset Dispositions:

         (i) a disposition resulting from the bona fide exercise by governmental
    authority of its claimed or actual power of eminent domain;

         (ii) a realization upon a security interest;

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

         (iv) any sale, transfer,  conveyance, lease or other disposition of the
    Capital Stock or Property of a Restricted  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  Restricted  Subsidiary  is  the
    supplying  party;  provided that to the extent the Company or any Restricted
    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 clause (ii) of this Section 4.15.

         (b) If the  aggregate  purchase  price of  Securities  and  other  Debt
tendered  pursuant to an Offer made pursuant to clause  (ii)(z) clause (a) above
is less than the Net Cash  Proceeds  allotted to the purchase of the  Securities
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 (ii) in the first paragraph of this Section 4.15 if the Net
Cash Proceeds from one or more Asset Dispositions occurring on or after the date
of the  Indenture  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.

         (c) (i)  Promptly,  and in any  event  within  30 days  from the  Asset
Disposition  and the  receipt of the Net Cash  Proceeds  as to which the Company
must make an Offer, the


<PAGE>

                                      -63-


Company  shall be obligated to deliver to the Trustee and send,  by  first-class
mail to each Holder of Securities, a written notice stating that:

     (A) an Asset  Disposition has occurred and that such Holders may tender all
     or any  portion  of their  Securities  pursuant  to the  Offer in  integral
     multiples of $1,000 principal amount, at the applicable purchase price;

     (B) any Security  not  tendered or accepted  for payment  will  continue to
     accrue interest;

     (C) any Security  accepted for payment pursuant to the Offer shall cease to
     accrue interest after the Purchase Date (as defined below); and

     (D) holders of Securities  will be entitled to withdraw  their  election in
     the manner described in clause (iii) of this Section 4.15(c).


The notice shall  specify a purchase date not less than 30 days nor more than 60
days after the date of such  notice (the  "Purchase  Date"),  shall  include all
instructions  and  materials  necessary to enable each holders of  Securities to
tender Securities pursuant to the Offer and shall contain information concerning
the business of the Company which the Company in good faith believes will enable
such holder to make an informed  decision  (which at a minimum  will include (1)
the  most  recently  filed  Annual  Report  on  Form  10-K  (including   audited
consolidated  financial statements) of the Company, the most recent subsequently
filed  Quarterly  Report on Form 10-Q and any Current  Report on Form 8-K of the
Company filed  subsequent to such Quarterly  Report,  other than Current Reports
describing  other  asset  dispositions   otherwise  described  in  the  offering
materials (or corresponding  successor reports or reports otherwise  required to
be delivered to holder of Securities if the Company is no longer filing  reports
pursuant to the Securities  Exchange Act of 1934), (2) a description of material
developments in the Company's  business  subsequent to the date of the latest of
such Reports, and (3) if material, appropriate pro forma financial information).


         (ii) Not later than the date upon which  written  notice of an Offer is
delivered to the Trustee as provided  above,  the Company  shall  deliver to the
Trustee an Officers'  Certificate  as to (A) the amount of the Offer (the "Offer
Amount"),  (B) the  allocation of the Net Cash  Proceeds  pursuant to which such
Offer  is  being  made  and  (C) the  compliance  of such  allocation  with  the
provisions  of this Section  4.15.  Not later than one Business Day prior to the
Purchase  Date, the Company shall also  irrevocably  deposit with the Trustee or
with the Paying Agent (or, if the Company is acting as its own


<PAGE>

                                      -64-


Paying Agent,  segregate and hold in trust) in  immediately  available  funds an
amount equal to the Offer Amount to be held for payment in  accordance  with the
provisions of this Section 4.15. Upon the expiration of the period for which the
Offer  remains  open (the  "Offer  Period"),  the Company  shall  deliver to the
Trustee the Securities or portions thereof which have been properly  tendered to
and are to be accepted by the Company. The Trustee or the Paying Agent (if any),
or the Company if acting as its own Paying Agent,  shall,  on the Purchase Date,
mail or deliver  payment to each tendering  Holder in the amount of the purchase
price.  In the  event  that  the  aggregate  purchase  price  of the  Securities
delivered  by the Company to the Trustee or the Paying  Agent (if the Company is
not acting as its own Paying Agent) is less than the Offer  Amount,  the Trustee
or the Paying Agent, as the case may be, shall deliver the excess to the Company
immediately after the expiration of the Offer Period.

         (iii)  Any  holder  of  Securities  electing  to  have  his  Securities
purchased  will be required to surrender  such  Securities,  with an appropriate
form duly  completed,  to the Trustee at the address  specified in the notice by
the close of  business at least one  Business  Day prior to the  Purchase  Date.
Holders of Securities will be entitled to withdraw their election if the Trustee
or Paying  Agent (if any)  receives  not later than the close of business on the
Business  Day prior to the  Purchase  Date a  facsimile  transmission  or letter
setting  forth  the name of the  Holder  and a  statement  that  such  Holder is
withdrawing  his election to have all or a portion of his Securities  purchased.
If at the  expiration  of the Offer  Period the  aggregate  principal  amount of
Securities  surrendered by holders of Securities  exceeds the Offer Amount,  the
Company  shall select the  Securities  to be purchased on a pro rata basis (with
such  adjustments  as may be  deemed  appropriate  by the  Company  so that only
Securities in denominations of $1,000 or integral  multiples  thereof,  shall be
purchased).  Holders whose  Securities are purchased only in part will be issued
new  Securities  equal in  principal  amount to the  unpurchased  portion of the
Securities surrendered.

         (iv) At the time the Company  delivers  Securities to the Trustee which
are to be accepted  for  purchase,  the Company  will also  deliver an Officers'
Certificate  stating  that such  Securities  are to be  accepted  by the Company
pursuant to and in  accordance  with the terms of this Section  4.15. A Security
shall be deemed to have been  accepted  for  purchase  at the time the  Trustee,
directly or through an agent,  or the Company if acting as its own Paying Agent,
mails or makes  available  for  delivery  payment  therefor to the  surrendering
Holder.

         (d) In the event the  Company  is unable to  purchase  Securities  from
Holders thereof in an Offer because such


<PAGE>

                                      -65-


purchase is prohibited by any provision of applicable  law, the Company need not
make an Offer. The Company shall then be obligated to use such Net Cash Proceeds
in accordance with clause (i)(B)(x) or (y) of this Section 4.15(c).

         (e) Whenever Net Cash  Proceeds are received by the Company,  and prior
to the allocation of such Net Cash Proceeds  pursuant to this Section 4.15, such
Net Cash  Proceeds  shall be set  aside by the  Company  in a  separate  account
pending allocation.

         The  Company  will  comply  with all  applicable  tender  offer  rules,
including  without  limitation  Rule 14e-1 under the Exchange Act, in connection
with an Offer under the provisions of this covenant.

ARTICLE V

                              SUCCESSOR CORPORATION

         SECTION 5.1 Merger, Consolidation, Etc.

         The Company shall not consolidate with, merge with or into, or transfer
all or  substantially  all of its assets (as an  entirety  or  substantially  an
entirety in one transaction or a series of related transactions),  to any Person
unless:  (i) the Company shall be the continuing Person, or 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 existing under the laws of the United States
or any State thereof or the District of Columbia and shall  expressly  assume in
writing  all the  obligations  of the  Company  under  the  Securities  and this
Indenture;  (ii) immediately after giving effect to such transaction no Event of
Default or event or  condition  which  through  the giving of notice of lapse of
time or both  would  become  an Event of  Default  shall  have  occurred  and be
continuing;  (iii)  immediately after giving effect to such transaction on a pro
forma basis, the Company or the surviving entity would be able to incur at least
$1 of Debt under  Section  4.8(a) and (iv) the Company or such Person shall have
delivered  to the Trustee an  Officers'  Certificate  and an Opinion of Counsel,
each stating that such consolidation,  merger or transfer and, if a supplemental
indenture is required in connection  with such  transaction,  such  supplemental
indenture,  comply with this provision of this Indenture and that all conditions
precedent in this Indenture  relating to such  transaction  have been satisfied.
Notwithstanding the foregoing,  clause (iii) of the preceding sentence shall not
prohibit a transaction, the principal purpose of which is (as


<PAGE>

                                      -66-


determined  in good  faith by the Board of  Directors  as  evidenced  by a Board
Resolution)  to  change  the state of  incorporation  of the  Company,  and such
transaction  does not have as one of its purposes the evasion of the limitations
imposed by this covenant.

         SECTION 5.2 Successor Entity Substituted.

         Upon any consolidation or merger, or any conveyance,  lease or transfer
of all or  substantially  all of the assets of the  Company in  accordance  with
Section 5.1, the successor Person formed by such consolidation or into which the
Company is merged or to which such  conveyance,  lease or transfer 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;  and thereafter (except in the case
of a sale,  assignment,  transfer,  conveyance,  lease or other disposition) the
Company  shall be  discharged  from all  obligations  and  covenants  under this
Indenture and the Securities.

ARTICLE VI

                              DEFAULT AND REMEDIES

         SECTION 6.1 Events of Default.

         An Event of Default,  wherever used herein, shall occur with respect to
the Securities if:

         (a)  the  Company  defaults  in the  payment  of all  or  any  part  of
principal,  the Change of Control  purchase  price or  premium,  if any,  on any
Security when the same becomes due and payable at maturity,  upon  acceleration,
redemption, mandatory repurchase, or otherwise;

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

         (c) an event of  default,  as defined in any  indenture  or  instrument
evidencing or under which the Company or any  Significant  Subsidiary has at the
date of this  Indenture or shall  hereafter  have  outstanding  any Debt,  shall
happen and be continuing and either


         (i) such default  results from the failure to pay the principal of such
    Debt in excess of $50 million at final maturity of such Debt or


<PAGE>

                                      -67-


         (ii) as a result of such default,  the maturity of such Debt 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 Debt, together with the principal amount of any
    other Debt of the Company or any Significant  Subsidiary in default,  or the
    maturity  of which has been  accelerated,  aggregates  $50  million or more;
    provided  that such default shall not be an Event of Default if such Debt is
    Debt of a Significant Subsidiary,  is Non-Recourse to the Company in respect
    of the amounts not paid or due upon  acceleration  and the Company could, at
    the time of default,  incur at least $1 of Debt under  Section  4.8(a);  and
    provided,  further,  however that, subject to the provisions of Sections 7.1
    and 7.2, 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 Debt,  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 Securities at the time outstanding;

         (d) the Company  defaults in the  performance  of or breaches any other
covenant or  agreement  of the  Company in this  Indenture  with  respect to the
Securities or under the  Securities  and such default or breach  continues for a
period of 60 consecutive days after written notice,  specifying such failure and
demanding that the Company remedy the same,  shall have been given by registered
mail,  return-receipt  requested to the Company by the Trustee or by the Holders
of 25% or more in aggregate principal amount of the Securities;

         (e) one or more judgments or orders shall be entered by a court against
the Company or any Significant  Subsidiary for the payment of money in an amount
which,  individually  or in the  aggregate  exceeds $50 million  (excluding  the
amount  thereof  covered by insurance or by a bond written by third  parties but
treating any  deductibles,  self  insurance or  retentions  as not so covered by
insurance) and which judgments or orders shall not be discharged or waived,  and
shall remain  outstanding  and there shall be any period of 60 consecutive  days
following  entry of such  judgment  or order in  excess  of $50  million  or the
judgment or order which causes the aggregate amount to exceed $50 million during
which a stay of  enforcement  of such judgment or order,  by reason of a pending
appeal or otherwise,  shall not be in effect;  provided, that such a judgment or
order  shall not be an Event of Default if such  judgment  or order is against a
Significant Subsidiary and does not require any payment by the


<PAGE>

                                      -68-


Company  and the Company  could,  at the  expiration  of the  applicable  60 day
period, incur at least $1 of Debt under Section 4.8;

         (f) a court  having  jurisdiction  in the  premises  enters 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 6.2 Acceleration.

         (a) If an Event of Default (other than an Event of Default specified in
clauses  (f) or (g) of Section  6.1 that  occurs  with  respect to the  Company)
occurs with respect to the  Securities and is continuing  under this  Indenture,
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 Securities then outstanding
by written  notice to the Company (and to the Trustee if such notice is given by
the Holders (the "Acceleration Notice")), may, and the Trustee at the request of
such Holders  shall,  declare the  principal  of,  premium,  if any, and accrued
interest on the Securities to be immediately due and payable. Upon a declaration
of  acceleration,  such principal of, and accrued  interest shall be immediately
due and payable.

         (b) If an Event of Default  specified  in clauses (f) or (g) of Section
6.1 occurs with respect to the Company,  the principal of, and accrued  interest
on the Securities  then  outstanding  shall ipso facto become and be immediately
due and payable, subject to the prior payment in full of all Senior


<PAGE>

                                      -69-


Debt,  without  any  declaration  or other act on the part of the Trustee or any
Holder.  The  Holders  of at  least  a  majority  in  principal  amount  of  the
outstanding Securities may, by written notice to the Company and to the Trustee,
waive all past defaults with respect to the  Securities  and rescind and annul a
declaration of acceleration  with respect to the Securities and its consequences
if (i) all existing Events of Default  applicable to the Securities,  other than
the nonpayment of the principal of, Change in Control purchase price or premium,
if any,  and  interest  on the  Securities  that have  become due solely by such
declaration of  acceleration,  have been cured or waived and (ii) the rescission
would  not  conflict  with  any  judgment  or  decree  of a court  of  competent
jurisdiction.

         SECTION 6.3 Other Remedies.

         If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Securities or to enforce the  performance of any
provision of the Securities or this Indenture.

         The Trustee may maintain a  proceeding  even if it does not possess any
of the  Securities  or does not produce any of them in the  proceeding,  and any
such  proceeding  instituted  by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the  reasonable  compensation,  expenses,  disbursements  and
advances of the Trustee,  its agents and counsel,  be for the ratable benefit of
the  Holders  of the  Securities  in respect  of which  such  judgment  has been
recovered.

         SECTION 6.4 Waiver of Past Default.

         Subject to Sections 6.2, 6.7 and 9.2, the Holders of, in the aggregate,
at least a majority in principal  amount of the then  outstanding  Securities by
notice to the Trustee may waive an existing  Default or Event of Default and its
consequences,  except a Default or Event of Default  specified in Section 6.1(a)
or (b) or a Default or Event of Default in respect of any provision hereof which
cannot be  modified  or amended  without  the  consent of the Holder so affected
pursuant  to Section  9.2.  When a Default or Event of Default is so waived,  it
shall be deemed cured and cease to exist; but no such waiver shall extend to any
subsequent or other  Default or Event of Default or impair any right  consequent
thereto.

         SECTION 6.5 Control by Majority.

         The Holders of at least a majority in aggregate principal amount of the
outstanding the Securities may direct


<PAGE>

                                      -70-


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.  However, 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 of the  Securities not joining in the giving of such direction
and may take any other action it deems proper that is not inconsistent  with any
such direction received from Holders of the Securities.

         SECTION 6.6 Limitation on Suits.

         A Holder may not pursue any remedy with  respect to this  Indenture  or
the Securities unless:

         (a) the Holder has previously  given to the Trustee written notice of a
continuing Event of Default;

         (b) the Holders of at least 25% in  aggregate  principal  amount of the
then  outstanding  Securities  make a written request to the Trustee to pursue a
remedy;

         (c) such  Holder or Holders  offer and,  if  requested,  provide to the
Trustee  indemnity  reasonably  satisfactory  to the Trustee  against any costs,
liability or expense;

         (d) the Trustee  does not comply with the request  within 60 days after
receipt of the request and offer of indemnity; and

         (e) during  such  60-day  period the  Holders of at least a majority in
aggregate  principal amount of the then  outstanding  Securities do not give the
Trustee a direction which is inconsistent with the request.

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

         SECTION 6.7 Rights of Holders To Receive Payment.

         Notwithstanding any other provision of this Indenture, the right of any
Holder to receive  payment of  principal  of and  interest on a Security,  on or
after the respective due dates  expressed in the Security,  or to bring suit for
the  enforcement  of any such  payment on or after  such  respective  dates,  is
absolute  and  unconditional  and shall not be impaired or affected  without the
consent of such Holder.


<PAGE>

                                      -71-


         SECTION 6.8 Collection Suit by Trustee.

         If an Event of Default specified in Section 6.1(a) or (b) occurs and is
continuing,  the Trustee may recover  judgment in its own name and as trustee of
an express trust against the Company or any other obligor on the  Securities for
the whole amount of principal and accrued interest  remaining  unpaid,  together
with  interest  overdue on  principal  and, to the extent  that  payment of such
interest is lawful,  interest on overdue installments of interest,  in each case
at the Interest Rate and such further amount as shall be sufficient to cover the
costs  and  expenses  of  collection,  including  the  reasonable  compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.

         SECTION 6.9 Trustee May File Proofs of Claim.

         The Trustee  shall be  entitled  and  empowered  to file such proofs of
claim and other papers or documents as may be necessary or advisable in order to
have  the  claims  of the  Trustee  (including  any  claim  for  the  reasonable
compensation,  expenses,  disbursements and advances of the Trustee,  its agents
and counsel) and the Holders allowed in any judicial proceedings relative to the
Company or any of its  Subsidiaries  (or any other obligor upon the Securities),
its creditors or its property and shall be entitled and empowered to collect and
receive any monies or other  property  payable or deliverable on any such claims
and to distribute the same,  and any Custodian in any such judicial  proceedings
is hereby authorized by each Securityholder 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 for the
reasonable  compensation,  expenses,  disbursements and advances of the Trustee,
its agent and counsel,  and any other amounts due the Trustee under Section 7.7.
Nothing herein  contained  shall be deemed to authorize the Trustee to authorize
or  consent  to or accept or adopt on behalf of any  Securityholder  any plan of
reorganization,  arrangement, adjustment or composition affecting the Securities
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.

         SECTION 6.10 Priorities.

         If the  Trustee  collects  any money  pursuant  to this  Article VI, it
shall, subject to the provisions of Article XI hereof, pay out such money in the
following order:

         First: to the Trustee for amounts due under Section 7.7;

         Second:   subject to Article XI, to Holders for interest accrued on the
         Securities, ratably, without preference or


<PAGE>

                                      -72-


         priority of any  kind,  according to the amounts due and payable on the
         Securities for interest; and

         Third:  subject to Article XI, to Holders for  principal  amounts owing
         under the Securities,  ratably,  without  preference or priority of any
         kind,  according to the amounts due and payable on the  Securities  for
         principal.

         The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.

         SECTION 6.11 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,  a court in its  discretion  may require the filing by any party
litigant  in the suit of an  undertaking  to pay the costs of the suit,  and the
court in its  discretion  may  assess  reasonable  costs,  including  reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses  made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder  pursuant to Section  6.7, or a suit by any Holder,  or group of Holders,
holding in the aggregate  more than 10% in principal  amount of the  outstanding
Securities.

         SECTION 6.12 Rights and Remedies Cumulative.

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

         SECTION 6.13 Delay or Omission Not Waiver.

         No delay or omission of the Trustee or of any Holder of any Security 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.


<PAGE>

                                      -73-


         SECTION 6.14 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  case,  subject  to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored  severally and respectively to their former positions  hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.

ARTICLE VII

                                     TRUSTEE

         SECTION 7.1 Duties of Trustee.

         (a) If an Event of Default  actually known to a Responsible  Officer of
the Trustee has occurred and is  continuing,  the Trustee shall exercise such of
the rights and powers vested in it by this  Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise or use under
the circumstances in the conduct of his own affairs.

         (b) Except during the continuance of an Event of Default:

         (i) The Trustee need perform only those duties as are  specifically set
    forth in this Indenture or the TIA and no others and no implied covenants or
    obligations shall be read into this Indenture against the Trustee.

         (ii)  In the  absence  of  bad  faith  on its  part,  the  Trustee  may
    conclusively  rely, as to the truth of the statements and the correctness of
    the opinions expressed  therein,  upon certificates or opinions furnished to
    the Trustee and conforming to the  requirements of this Indenture.  However,
    in the case of any  such  certificate  or  opinions  which by any  provision
    hereof are specifically required to be furnished to the Trustee, the Trustee
    shall  examine such  certificates  and opinions to determine  whether or not
    they conform to the requirements of this Indenture.

         (c)  Notwithstanding  anything to the contrary  herein  contained,  the
Trustee may not be relieved from liability for


<PAGE>

                                      -74-


its own negligent  action,  its own negligent failure to act, or its own willful
misconduct, except that:

         (i) This  paragraph  does not limit the effect of paragraph (b) of this
    Section 7.1.

         (ii) The Trustee  shall not be liable for any error of judgment made in
    good faith by a  Responsible  Officer,  unless it is proved that the Trustee
    was negligent in ascertaining the pertinent facts.

         (iii) The  Trustee  shall not be liable  with  respect to any action it
    takes or omits to take in good faith in accordance with a direction received
    by it pursuant to Sections 6.2, 6.4 and 6.5.

         (d) No provision of this Indenture  shall require the Trustee to expend
or risk  its own  funds  or  otherwise  incur  any  financial  liability  in the
performance  of any of its duties  hereunder  or in the  exercise  of any of its
rights  or  powers  if it shall  have  reasonable  grounds  for  believing  that
repayment of such funds or adequate  indemnity against such risk or liability is
not reasonably assured to it.

         (e) Every  provision of this  Indenture  that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1.

         (f) 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.

         SECTION 7.2 Rights of Trustee.

         Subject to Section 7.1:

         (a) The Trustee may rely and shall be protected in acting or refraining
from acting  upon any  document  reasonably  believed by it to be genuine and to
have been signed or presented  by the proper  Person.  The Trustee  shall not be
bound to make  any  investigation  into  the  facts  or  matters  stated  in any
resolution,   certificate,   statement,  instrument,  opinion,  report,  notice,
request,  direction,  consent,  order, bond, debenture,  note, other evidence of
indebtedness or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation  into such facts or matters as it may
see fit,  and, if the Trustee  shall  determine to make such further  inquiry or
investigation,  it shall be  entitled  during  normal  business  hours  and upon
reasonable


<PAGE>

                                      -75-


advance notice to the Company to examine the books,  records and premises of the
Company, personally or by agent or attorney.

         (b) Before the Trustee acts or refrains from acting with respect to any
matter contemplated by this Indenture,  it may require an Officers'  Certificate
or an Opinion of Counsel, which shall conform to the provisions of Section 10.5.
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.

         (c) The Trustee may act through its  attorneys and agents and shall not
be  responsible  for the  misconduct  or negligence of any agent (other than the
negligence or willful  misconduct of an agent who is an employee of the Trustee)
appointed with due care.

         (d) The Trustee shall not be liable for any action it takes or omits to
take in good faith and without  negligence  which it  reasonably  believes to be
authorized or within its rights or powers conferred upon it by this Indenture or
the TIA.

         (e) The Trustee  may  consult  with  counsel of its  selection  and the
advice  or  opinion  of such  counsel  as to  matters  of law  shall be full and
complete  authorization  and protection  from liability in respect of any action
taken,  omitted or suffered by it hereunder in good faith and in accordance with
the advice or opinion of such counsel.

         (f) The  Trustee  shall not be deemed to have  notice of any Default or
Event  of  Default  unless a  Responsible  Officer  of the  Trustee  has  actual
knowledge  thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Securities and this Indenture.

         SECTION 7.3 Individual Rights of Trustee.

         The Trustee in its individual capacity or any other capacity may become
the owner or pledgee of Securities and may otherwise  deal with the Company,  or
its  Subsidiaries  and Affiliates  with the same rights it would have if it were
not Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 7.10 and 7.11.


<PAGE>

                                      -76-


         SECTION 7.4 Trustee's Disclaimer.

         The Trustee makes no  representation  as to the validity or adequacy of
this  Indenture  or the  Securities,  and it shall  not be  accountable  for the
Company's  use of  the  proceeds  from  the  Securities,  and  it  shall  not be
responsible for any statement of the Company in this Indenture, or any statement
in the Securities other than the Trustee's certificate of authentication.

         SECTION 7.5 Notice of Defaults.

         If a Default or an Event of  Default  with  respect  to the  Securities
occurs and is  continuing  and a  Responsible  Officer of the  Trustee  receives
written  notice of such Default or Event of Default,  the Trustee  shall mail to
each  Securityholder  notice of the  Default or Event of Default  within 90 days
after the occurrence  thereof in accordance  with TIA (0) 313(c).  Except in the
case of a Default or an Event of Default in payment of  principal of or interest
on any Security, including on acceleration, and the failure to make payment when
required  by Section  4.11,  and except in the case of a failure to comply  with
Article V hereof, the Trustee may withhold the notice to the Securityholders for
a  period  not to  exceed  60 days if and so long as a  committee  of its  Trust
Officers in good faith determines that withholding the notice is in the interest
of Securityholders.

         SECTION 7.6 Reports by Trustee to Holders.

         To the extent  required by TIA (0) 313(a),  within 60 days after July 1
of each  year  commencing  with  1998  and for as long as there  are  Securities
outstanding hereunder, the Trustee shall mail to each Holder the Company's brief
report dated as of such date that complies with TIA (0) 313(a). The Trustee also
shall  comply  with TIA (0)  313(b)  and TIA (0)  313(c) and (d). A copy of such
report at the time of its  mailing  to  Securityholders  shall be filed with the
SEC, if required,  and each stock exchange,  if any, on which the Securities are
listed.

         The Company shall promptly notify the Trustee if the Securities  become
listed on any stock exchange and the Trustee shall comply with TIA (0) 313(d).

         SECTION 7.7 Compensation and Indemnity.

         The  Company  shall  pay to the  Trustee,  the  Paying  Agent  and  the
Registrar from time to time such compensation as shall be agreed in writing with
the Company from time to time for their respective  services rendered hereunder.
The Trustee's,  the Paying Agent's and the Registrar's compensation shall not be
limited  by any law in regard to the  compensation  of a trustee  of an  express
trust. The Company shall reimburse


<PAGE>

                                      -77-


the Trustee,  the Paying Agent and the Registrar upon request for all reasonable
out-of-pocket  disbursements,  expenses and advances (including  reasonable fees
and  expenses of counsel)  incurred or made by each of them in  connection  with
entering  into this  Indenture  and the  performance  of its  duties  under this
Indenture,  in addition to the compensation for their respective  services under
this  Indenture.  Such  expenses  shall  include  the  reasonable  compensation,
out-of-pocket  disbursements  and expenses of the Trustee's,  the Paying Agent's
and the Registrar's agents and counsel.

         The Company  shall  indemnify  the  Trustee,  the Paying  Agent and the
Registrar  for,  and hold each of them  harmless  against,  any and all  claims,
demands,  expenses  (including but not limited to attorneys' fees and expenses),
loss or liability  incurred by each of them arising out of or in connection with
the acceptance or  administration  of this Indenture and their respective duties
hereunder.  Each of the Trustee, the Paying Agent and the Registrar shall notify
the  Company  promptly  of any claim  asserted  against it for which it may seek
indemnity. However, failure by the Trustee, the Paying Agent or the Registrar to
so  notify  the  Company  shall  not  relieve  the  Company  of its  obligations
hereunder.  The Company need not reimburse any expense or indemnify  against any
loss or  liability  incurred by the Trustee,  the Paying Agent or the  Registrar
through the Trustee's,  the Paying Agent's or the  Registrar's,  as the case may
be, own willful misconduct, negligence or bad faith.

         To secure the Company's  payment  obligations in this Section 7.7, each
of the Trustee,  the Paying Agent and the  Registrar  shall have a lien prior to
the Securities on all money or property held or collected by it, in its capacity
as Trustee,  Paying  Agent or  Registrar,  as the case may be,  except  money or
property held in trust to pay principal of or interest on particular Securities.

         When any of the  Trustee,  the Paying  Agent and the  Registrar  incurs
expenses  or renders  services  after an Event of Default  specified  in Section
6.1(f) or (g) occurs,  the  expenses and the  compensation  for the services are
intended to constitute expenses of administration  under any Bankruptcy Law. The
provisions of the Section shall survive the termination of this Indenture.

         SECTION 7.8 Replacement of Trustee.

         The  Trustee  may  resign at any time by so  notifying  the  Company in
writing,  such  resignation to be effective upon the  appointment of a successor
Trustee.  The  Holders  of a majority  in  principal  amount of the  outstanding
Securities may remove the Trustee by so notifying the Trustee in writing and


<PAGE>

                                      -78-


may appoint a successor  Trustee with the Company's  consent which consent shall
not be unreasonably withheld. The Company may remove the Trustee if:

         (a) the Trustee fails to comply with Section 7.10;

         (b) the Trustee is adjudged a bankrupt or an insolvent;

         (c) a receiver or other public  officer  takes charge of the Trustee or
its property; or

         (d) the Trustee becomes incapable of acting.

         If the  Trustee  resigns or is  removed  or if a vacancy  exists in the
office of Trustee  for any reason (the  Trustee in such event being  referred to
herein as the retiring Trustee),  the Company shall promptly appoint a successor
Trustee.  Within one year after the successor Trustee takes office,  the Holders
of a majority  in  principal  amount of the  Securities  may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.

         A  successor  Trustee  shall  deliver  a  written   acceptance  of  its
appointment to the retiring Trustee and to the Company.  Immediately after that,
the retiring  Trustee  shall  transfer all property held by it as Trustee to the
successor Trustee (subject to the lien provided in Section 7.7), the resignation
or removal of the retiring  Trustee  shall become  effective,  and the successor
Trustee  shall have all the rights,  powers and duties of the Trustee under this
Indenture.  A  successor  Trustee  shall mail notice of its  succession  to each
Securityholder.

         If a successor  Trustee  does not take office  within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 25% in principal amount of then  outstanding  Securities may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee.

         If the Trustee  fails to comply with Section 7.10,  any  Securityholder
may petition any court of competent  jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.

         Notwithstanding  replacement  of the Trustee  pursuant to this  Section
7.8, the Company's  obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.


<PAGE>

                                      -79-


         SECTION 7.9 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,  provided such corporation or national  banking  association
shall be otherwise qualified and eligible under this Article VII.

         SECTION 7.10 Eligibility; Disqualification.

         This   Indenture   shall  always  have  a  Trustee  who  satisfies  the
requirements of TIA (0) 310(a)(1) and (2). There shall at all times be a Trustee
hereunder which shall be a Person that is eligible pursuant to the TIA to act as
such and has  combined  capital  and surplus of at least  $150,000,000.  If such
Person publishes  reports of condition at least annually,  pursuant to law or to
the  requirements  of any  supervising  or  examining  authority,  then  for the
purposes of this Section,  the combined capital and surplus of such person shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published.  The Trustee shall comply with TIA (0) 310(b),
provided  that there shall be excluded  from the  operation of TIA (0) 310(b)(1)
any indenture or indentures  under which other  securities,  or  certificates of
interest or participation in other securities, of the Company are outstanding if
the  requirements for such exclusion set forth in TIA (0) 310(b)(1) are met. The
provisions  of TIA (0)  310  shall  apply  to the  Company,  as  obligor  of the
Securities.

         SECTION 7.11 Preferential Collection of
                      Claims Against Company.

         The Trustee  shall comply with TIA (0) 311(a),  excluding  any creditor
relationship  listed in TIA (0)  311(b).  A  Trustee  who has  resigned  or been
removed shall be subject to TIA (0) 311(a) to the extent indicated therein.  The
provisions  of TIA  (0)  311  shall  apply  to the  Company  as  obligor  on the
Securities.

ARTICLE  VIII

           SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS

         SECTION 8.1. 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  Securities  outstanding  hereunder  (other
than Securities which


<PAGE>

                                      -80-


have been  destroyed,  lost or stolen  and which have been  replaced  or paid as
provided in Section 2.7) as and when the same shall have become due and payable,
or (b) the Company  shall have  delivered  to the Trustee for  cancellation  all
securities theretofore authenticated (other than any Securities which shall have
been  destroyed,  lost or stolen and which  shall have been  replaced or paid as
provided in Section 2.7) or (c) (i) all the securities 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 8.4) 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 Securities  (other than those  Securities  which shall have been  destroyed,
lost or stolen and which shall have been replaced or paid as provided in Section
2.7) 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
Securities, then this Indenture shall cease to be of further effect with respect
to Securities  (except as to (i) rights of registration of transfer and exchange
of  Securities,  and the Company's  right of optional  redemption,  if any, (ii)
substitution of mutilated,  defaced, destroyed, lost or stolen Securities, (iii)
rights of holders to receive payments of principal thereof 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  Securityholders  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  with respect to Securities;  provided,  that the rights of Holders of
the Securities to receive amounts in respect of principal of and interest on the
Securities   held  by  them  shall  not  be  delayed  longer  than  required  by
then-applicable  mandatory  rules or policies of any  securities  exchange  upon
which the Securities are listed. The Company agrees to reimburse the Trustee for
any  costs or  expenses  thereafter  reasonably  and  properly  incurred  and to
compensate the Trustee for any services


<PAGE>

                                      -81-


thereafter  reasonably and properly  rendered by the Trustee in connection  with
this Indenture or the Securities.


         SECTION 8.2.  Application by Trustee of Funds
                       Deposited for Payment of Securities.

         Subject to Section 8.4 and to the  subordination  provisions of Article
XI hereof,  all moneys  deposited with the Trustee pursuant to Section 8.1 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  Securities  of  such  series  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 8.3. Repayment of Moneys Held by Paying Agent.

         In connection  with the  satisfaction  and discharge of this  Indenture
with respect to the  Securities,  all moneys then held by any paying agent under
the  provisions of this Indenture  with respect to the  Securities  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 8.4. 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 Security 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 for such Securities or such paying agent,  and the Holder
of the Security  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 8.5. 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

<PAGE>
                                      -82-


Securities  of any  series,  on the 123rd day after the  deposit  referred to in
clause (A) hereof has been made, and the  provisions of this Indenture  shall no
longer be in effect with  respect to the  Securities  (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 Securities, (c) rights of holders
to receive payments of principal thereof and interest thereon, upon the original
stated  due  dates  therefor  (but  not  upon  acceleration),  (d)  the  rights,
obligations  and  immunities of the Trustee  hereunder and (e) the rights of the
Securityholders  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:

              (A) 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 Sections 7.8 and 7.10) as trust funds in
         trust,  specifically  pledged as security for, and dedicated solely to,
         the benefit of the Holders of the  Securities,  (i) money in an amount,
         or (ii) 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 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 Securities on the due dates thereof or earlier redemption;

              (B) the  Company  has  delivered  to the Trustee (i) either (x) an
         Opinion of Counsel to the effect  that  Holders of  Securities  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  8.5 and will be  subject  to  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  federal
         income tax law or related treasury  regulations  after the date of this
         Indenture or (y) a


<PAGE>

                                      -83-


         ruling  directed to the Trustee  received  from the  Internal  Revenue
         Service to the same  effect as the  aforementioned  Opinion of Counsel
         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;

              (D) the Company is not prohibited  from making payments in respect
         of the Securities by Article XI hereof; and

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

              SECTION 8.6 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 V or Sections  4.5 through 4.15 and clauses (c) and (e)
of Section 6.1 shall not be deemed to be an Event of Default, if

              (A) with  reference to this Section 8.6, the Company has deposited
         or caused to be  irrevocably  deposited  with the  Trustee  (or another
         trustee  satisfying the  requirements of Section 7.8) as trust funds in
         trust,  specifically  pledged as security for, and dedicated solely to,
         the benefit of the Holders of the  Securities  and this  Indenture with
         respect  to the  Securities,  (i)  money  in an  amount  or  (ii)  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 dates  thereof or earlier
         redemption  (irrevocably provided for under agreements  satisfactory to
         the Trustee), as the case may be, of any payment referred


<PAGE>

                                      -84-


         to in 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 Securities
         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  Securities  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 8.6 and will be
         subject to 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;

              (D) the Company is not prohibited  from making payments in respect
         of the Securities by Article XI hereof; and

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


<PAGE>

                                      -85-


         SECTION 8.7 Reinstatement.

         If the  Trustee  or paying  agent is unable to apply any monies or U.S.
Government  Obligations  in  accordance  with  Article  8 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 the Securities 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 this Article VIII;  provided,
however, that if the Company has made any payment of principal of or interest on
any Securities  because of the  reinstatement  of its  obligations,  the Company
shall be subrogated  to the rights of the Holders of such  Securities to receive
such payment from the monies or U.S. Government  Obligations held by the Trustee
or paying agent.

ARTICLE IX

                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

         SECTION 9.1 Without Consent of Holders.

         Without the consent of any Holders,  the Company,  when  authorized  by
resolutions of its Board of Directors (copies of which shall be delivered to the
Trustee) and the Trustee may amend,  waive or supplement  this  Indenture or the
Securities  without  notice to or consent of any Holder for any of the following
purposes:

         (a) to cure any ambiguity,  defect or  inconsistency  in the Indenture,
provided  that such  amendments  or  supplements  do not  adversely  affect  the
interests of the Holders in any material respect;

         (b) to provide for uncertificated Securities in addition to or in place
of certificated Securities;

         (c) to comply with any  requirements  of the SEC under the TIA;

         (d) to evidence the  succession in accordance  with Article V hereof of
another  Person to the Company and the  assumption by any such  successor of the
covenants of the Company herein and in the Securities;

         (e) to evidence and provide for the acceptance of appointment hereunder
by a separate or successor Trustee with respect to the Securities; or


<PAGE>

                                      -86-


         (f) to make any other  change that does not  materially  and  adversely
affect the rights of any Holder;

provided,  however,  that in making  such  change,  the Trustee may rely upon an
Opinion of Counsel stating that such change does not adversely affect the rights
of any Holder.


         SECTION 9.2 With Consent of Holders.

         Subject to Section 6.7 and the  provisions  of this  Section  9.2,  the
Company,  when  authorized by  resolution  of its Board of Directors  (copies of
which shall be delivered to the Trustee) and the Trustee may amend or supplement
this  Indenture,  the Securities  with the written  consent of the Holders of at
least a majority in principal amount of the Securities then outstanding. Subject
to Section 6.7 and the  provisions  of this  Section 9.2, the Holders of, in the
aggregate,  at least a  majority  in  principal  amount of the then  outstanding
Securities  affected may waive  compliance  by the Company with any provision of
this  Indenture,  the  Securities  without  notice to any other  Securityholder.
However,  without the consent of each  Securityholder  affected,  an  amendment,
supplement or waiver, including a waiver pursuant to Section 6.4, may not:

         (a) reduce the principal amount of Securities the Holders of which must
consent  to an  amendment,  supplement  or  waiver of any  provision  of or with
respect to this Indenture or the Securities; or

         (b) reduce the principal  amount of, premium,  if any, or interest,  on
any Security; or

         (c) change the Stated  Maturity of or any  installment  of interest on,
any Security; or

         (d) make the  principal  of, or interest  on, any  Security  payable in
money other than as provided herein, or

         (e) make any change in provisions relating to waivers of defaults,  the
ability of  Holders  to enforce  their  rights  under this  Indenture  or in the
matters discussed in clauses (a) through (h); or

         (f) adversely affect the ranking of the Securities this Indenture.

         It shall not be  necessary  for the consent of the  Holders  under this
Section 9.2 to approve the particular form


<PAGE>

                                      -87-


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 9.2 becomes
effective,  the  Company  shall mail to the  Holders  affected  thereby a notice
briefly  describing  the  amendment,  supplement  or waiver.  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.
Notwithstanding  the foregoing,  no amendment shall modify any provision of this
Indenture  so as to  affect  adversely  the  rights  of  any  holder  of  Senior
Indebtedness of the Company or Guarantor Senior  Indebtedness to the benefits of
the  subordination  provisions under this Indenture  without the consent of such
holder.

         SECTION 9.3 Compliance with Trust Indenture Act.

         Every  amendment to or supplement of this  Indenture or the  Securities
shall be set forth in a  supplemental  indenture  that  complies with the TIA as
then in effect.


         SECTION 9.4 Revocation and Effect of Consents.

         Until an amendment,  supplement or waiver becomes effective,  a consent
to it by a Holder is a  continuing  consent by the  Holder and every  subsequent
Holder of that Security or portion of that Security that evidences the same debt
as the consenting Holder's Security, even if notation of the consent is not made
on any Security.  However,  any such Holder or subsequent  Holder may revoke the
consent as to his Security or portion of a Security.  Such  revocation  shall be
effective only if the Trustee receives the notice of revocation  before the date
the  amendment,  supplement or waiver  becomes  effective.  Notwithstanding  the
above,  nothing in this paragraph  shall impair the right of any  Securityholder
under (0) 316(b) of the TIA.

         The Company may,  but shall not be obligated  to, fix a record date for
the purpose of  determining  the Holders  entitled to consent to any  amendment,
supplement  or waiver  which  record date shall be at least 10 days prior to the
first   solicitation  of  such  consent.   If  a  record  date  is  fixed,  then
notwithstanding  the second and third  sentences  of the  immediately  preceding
paragraph,  those  Persons  who were  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 Holders after such record date. Such
consent  shall be  effective  only for actions  taken  within 90 days after such
record date.


<PAGE>

                                      -88-

         After an amendment,  supplement or waiver becomes  effective,  it shall
bind every  Securityholder  unless it makes a change described in any of clauses
(a) through (h) of Section 9.2. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it.

         SECTION 9.5 Notation on or Exchange of Securities.

         If an amendment,  supplement or waiver changes the terms of a Security,
the Trustee  shall (in  accordance  with the specific  written  direction of the
Company)  request the Holder of the Security to deliver it to the  Trustee.  The
Trustee shall (in accordance  with the specific  direction of the Company) place
an appropriate notation on the Security about the changed terms and return it to
the Holder.  Alternatively,  if the Company or the  Trustee so  determines,  the
Company  in  exchange  for  the  Security  shall  issue  and the  Trustee  shall
authenticate a new Security that reflects the changed terms. Failure to make the
appropriate  notation or issue a new Security  shall not affect the validity and
effect of such amendment, supplement or waiver.

         SECTION 9.6 Trustee to Sign Amendments, Etc.

         The Trustee shall sign any amendment,  supplement or waiver  authorized
pursuant  to this  Article IX if the  amendment,  supplement  or waiver does not
adversely  affect the rights,  duties or immunities of the Trustee.  If it does,
the Trustee may, but need not, sign it. In signing any amendment,  supplement or
waiver,  the Trustee shall be entitled to receive,  if  requested,  an indemnity
reasonably  satisfactory  to it and to receive,  and shall be fully protected in
relying upon, an Officers'  Certificate  and an Opinion of Counsel  stating that
the execution of any amendment, supplement or waiver authorized pursuant to this
Article IX is authorized or permitted by this  Indenture and that it constitutes
the legal,  valid and  binding  obligation  of the  Company  and  subject to the
customary  exceptions. 

ARTICLE X

                                  MISCELLANEOUS

         SECTION 10.1 Trust Indenture Act Controls.

         The  provisions of TIA (0)(0) 310 through 317 that impose duties on any
person (including the provisions  automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture,  whether or
not physically contained herein.


<PAGE>

                                      -89-


         If any provision of this Indenture limits,  qualifies or conflicts with
the duties imposed by the above paragraph, the imposed duties shall control.

         SECTION 10.2 Notices.

         Any notice or communication  shall be sufficiently  given if in writing
and delivered in person or mailed by first-class mail or by telecopier, followed
by first-class mail, or by overnight  service  guaranteeing  next-day  delivery,
addressed as follows:

         (a) if to the Company:

             The AES  Corporation
             1001 North  19th  Street
             Suite 2000
             Arlington, Virginia 22209
             Attention: General Counsel
             Telecopier Number: (703) 528-4510

             with a copy to:

             Davis Polk & Wardwell
             450 Lexington  Avenue
             New York,  New York 10017
             Attention: Richard D. Truesdell, Jr.
             Telecopier Number: (212) 450-4800 

         (b) if to the Trustee:
             The Bank of New York
             101 Barclay  Street,  Floor 21W
             New York, New York 10286 
             Attention:  Corporate Trust Trustee Administration
             Telecopier Number:  (212) 815-5915

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

         Any notice or communication  mailed to a Securityholder,  including any
notice  delivered in  connection  with TIA (0) 310(b),  TIA (0) 313(c),  TIA (0)
314(a) and TIA (0) 315(b),  shall be mailed to such Holder,  first-class postage
prepaid, at his address as it appears on the registration books of the Registrar
and shall be  sufficiently  given to such  Holder if so mailed  within  the time
prescribed.

         Failure to mail a notice or communication  to a  Securityholder  or any
defect in it shall not affect its
<PAGE>
                                      -90-



sufficiency  with respect to other  Securityholders.  Except for a notice to the
Trustee, which is deemed given only when received by an officer in the corporate
trust  department of the Trustee,  if a notice or communication is mailed in the
manner provided above, it is duly given,  whether or not the addressee  receives
it. In case by reason of the  suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall  constitute
a sufficient notification for every purpose hereunder.

         SECTION 10.3 Communications by Holders with
                      Other  Holders.

         Securityholders  may communicate  pursuant to TIA (0) 312(b) with other
Securityholders  with  respect  to their  rights  under  this  Indenture  or the
Securities.  The Company,  the Trustee, the Registrar and any other Person shall
have the protection of TIA (0) 312(c).

         SECTION 10.4 Certificate and Opinion of Counsel
                      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 at the
request  of the  Trustee  (a) an  Officers'  Certificate  in form and  substance
reasonably  satisfactory  to the  Trustee  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 (which officer  signing
such certificate may rely, as to matters of law, on an Opinion of Counsel),  (b)
an  Opinion  of Counsel in form and  substance  reasonably  satisfactory  to the
Trustee  stating that, in the opinion of counsel,  all such conditions have been
complied with (which counsel,  as to factual  matters,  may rely on an Officers'
Certificate)  and  (c)  where  applicable,   a  certificate  or  opinion  by  an
independent  certified  public  accountant  satisfactory  to  the  Trustee  that
complies with TIA (0) 314(c).

         SECTION 10.5 Statements Required in Certificate
                      and Opinion of Counsel.

         Each certificate and Opinion of Counsel with respect to compliance with
a condition or covenant provided for in this Indenture shall include:

         (a) a statement  that the Person making such  certificate  or rendering
such Opinion of Counsel has read such covenant or condition;


<PAGE>

                                      -91-


         (b) a brief  statement as to the nature and scope of the examination or
investigation   upon  which  the  statements  or  opinions   contained  in  such
certificate or Opinion of Counsel are based;

         (c) a statement  that, in the opinion of 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 such  Person,
such condition or covenant has been complied with.

         SECTION 10.6 Rules by Trustee, Paying Agent,
                      Registrar.

         The Trustee may make reasonable  rules in accordance with the Trustee's
customary practices for action by or at a meeting of Securityholders. The Paying
Agent or Registrar may make reasonable rules for its functions.

         SECTION 10.7 Legal Holidays.

         If a payment date is a Legal Holiday at a place of payment, payment may
be made at that place on the next  succeeding  day that is not a Legal  Holiday,
and no interest shall accrue for the intervening period.

         SECTION 10.8 Governing Law.

         THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS  INDENTURE  AND THE
SECURITIES  WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. THE COMPANY AGREES
TO  SUBMIT  TO THE  JURISDICTION  OF THE  COURTS OF THE STATE OF NEW YORK IN ANY
ACTION OR  PROCEEDING  ARISING  OUT OF OR  RELATING  TO THIS  INDENTURE  AND THE
SECURITIES.

         SECTION 10.9 No Recourse Against Others.

         A trustee, director, officer, employee,  stockholder or beneficiary, as
such, of the Company shall not have any  liability  for any  obligations  of the
Company  under the  Securities  or this  Indenture or for any claim based on, in
respect of or by reason of such  obligations  or their  creation.  Each Security
holder by accepting a Security waives and releases all such liability.


<PAGE>

                                      -92-


         SECTION 10.10 Successors.

         All  agreements  of the Company in this  Indenture  and the  Securities
shall bind its successor.  All agreements of the Trustee in this Indenture shall
bind its successor.

         SECTION 10.11 Counterparts.

         The parties may sign any number of counterparts of this Indenture. Each
such counterpart  shall be an original,  but all of them together  represent the
same agreement.

         SECTION 10.12 Severability.

         In case any  provision  in this  Indenture or the  Securities  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,
and a Holder shall have no claim therefor against any party hereto.

         SECTION 10.13 Table of Contents, Headings, Etc.

         The  table of  contents,  cross-reference  sheet  and  headings  of the
Articles and Sections of this  Indenture  have been inserted for  convenience of
reference only, and are not to be considered a part hereof,  and shall in no way
modify or restrict any of the terms or provisions hereof.

         SECTION 10.14 No Adverse Interpretation
                       of Other Agreements.

         This Indenture may not be used to interpret another indenture,  loan or
debt agreement of the Company or any of its  Subsidiaries.  Any such  indenture,
loan or debt agreement may not be used to interpret this Indenture.

         SECTION 10.15 Benefits of Indenture.

         Nothing in this  Indenture  or in the  Securities,  express or implied,
shall give to any  person,  other than the parties  hereto and their  successors
hereunder and the Holders,  any benefit or any legal or equitable right,  remedy
or claim under this Indenture or the Securities.

         SECTION 10.16 Independence of Covenants.

         All covenants and agreements in this Indenture and the Securities shall
be given independent effect so that if any particular action or condition is not
permitted  by any of such  covenants,  the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant


<PAGE>

                                      -93-


shall not avoid the  occurrence  of a  Default  or an Event of  Default  if such
action is taken or condition exists.

ARTICLE XI

                           SUBORDINATION OF SECURITIES

         SECTION 11.1 Agreement to Subordinate.

         The Company covenants and agrees,  and each Holder of Securities issued
hereunder by his  acceptance  thereof  likewise  covenants and agrees,  that all
Securities  shall be issued subject to the provisions of this Article;  and each
person  holding any  Security,  whether upon  original  issue or upon  transfer,
assignment  or exchange  thereof  accepts and agrees that the  Principal  of and
interest on all  Securities  issued  hereunder  shall,  to the extent and in the
manner  herein  set forth,  be  subordinated  and  subject in right to the prior
payment in full of all Senior Debt.

         SECTION 11.2 Payments to Securityholders.

         No  payments on account of  Principal  of,  Change of Control  purchase
price,  or  interest  on the  Securities  shall  be made if at the  time of such
payment or  immediately  after giving effect thereto there shall exist a default
in any payment with respect to any Senior Debt,  and such event of default shall
not have been cured or waived or shall not have  ceased to exist.  In  addition,
during  the  continuance  of any other  event of default  (other  than a payment
default) with respect to  Designated  Senior Debt pursuant to which the maturity
thereof may be accelerated, from and after the date of receipt by the Trustee of
written notice from the holders of such Designated  Senior Debt or from an agent
of such holders, no payments on account of Principal, Change of Control purchase
price, or interest in respect of the Securities may be made by the Company for a
period ("Payment  Blockage  Period")  commencing on the date of delivery of such
notice and ending 179 days thereafter (unless such Payment Blockage Period shall
be  terminated  by  written  notice  to the  Trustee  from the  holders  of such
Designated  Senior  Debt or from an  agent  of such  holders,  or such  event of
default  has been  cured or waived or has  ceased to  exist).  Only one  Payment
Blockage  Period may be  commenced  with  respect to the  Securities  during any
period  of 360  consecutive  days.  No event of  default  which  existed  or was
continuing on the date of the  commencement of any Payment  Blockage Period with
respect to the Designated  Senior Debt initiating  such Payment  Blockage Period
shall be or be made the basis for the  commencement  of any  subsequent  Payment
Blockage Period by the holders of such Designated Senior Debt, unless


<PAGE>

                                      -94-


such event of  default  shall have been cured or waived for a period of not less
than 90 consecutive days.

         Upon any payment or  distribution  of assets of the Company of any kind
or character,  whether in cash,  property or  securities,  to creditors upon any
liquidation, dissolution, winding up, receivership,  reorganization,  assignment
for the  benefit of  creditors,  marshalling  of assets and  liabilities  or any
bankruptcy, insolvency or similar proceedings of the Company, all amounts due or
to become due upon all Senior Debt shall first be paid in full,  in cash or cash
equivalents,  or payment  thereof  provided  for in  accordance  with its terms,
before any  payment is made on account of the  Principal  of,  Change of Control
purchase price, or interest on the indebtedness evidenced by the Securities, and
upon   any   such   liquidation,    dissolution,   winding   up,   receivership,
reorganization,   assignment,   marshalling  or   proceeding,   any  payment  or
distribution of assets of the Company of any kind or character, whether in cash,
property or  securities,  to which the Holders of the  Securities or the Trustee
under this Indenture would be entitled,  except for the provisions hereof, shall
be paid by the Company or by any receiver,  trustee in  bankruptcy,  liquidating
trustee,  agent or other Person making such payment or  distribution,  or by the
Holders of the  Securities or by the Trustee under this Indenture if received by
them or it,  directly to the holders of Senior Debt (pro rata to such holders on
the basis of the  respective  amounts of Senior  Debt held by such  holders)  or
their  respective  representatives,  or to the  trustee  or  trustees  under any
indenture  pursuant to which any instruments  evidencing any of such Senior Debt
may have been issued,  as their respective  interests may appear,  to the extent
necessary to pay all Senior Debt in full (including,  without limitation, except
to the extent, if any, prohibited by mandatory provisions of law,  post-petition
interest,  in any such  proceedings),  after  giving  effect  to any  concurrent
payment or distribution to or for the holders of Senior Debt, before any payment
or  distribution  is made to the holders of the  indebtedness  evidenced  by the
Securities or to the Trustee under this Indenture.

         In the event  that,  notwithstanding  the  foregoing,  any  payment  or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities,  prohibited by the  foregoing,  shall be received by the
Trustee under this Indenture or the holders of the Securities  before all Senior
Debt is paid in full or provision is made for such  payment in  accordance  with
its terms,  such payment or distribution  shall be held in trust for the benefit
of and shall be paid over or  delivered  to the  holders of such  Senior Debt or
their  respective  representatives,  or to the  trustee  or  trustees  under any
indenture  pursuant to which any instruments  evidencing any of such Senior Debt
may have been issued, as their respective


<PAGE>

                                      -95-


interests  may  appear,  for  application  to the  payment  of all  Senior  Debt
remaining  unpaid  until all such  Senior  Debt  shall have been paid in full in
accordance  with its terms,  after giving  effect to any  concurrent  payment or
distribution to or for the holders of such Senior Debt.

         For purposes of this Article, the words, "cash, property or securities"
shall not be deemed to include  shares of stock of the Company as reorganized or
readjusted,  or securities of the Company or any other corporation  provided for
by a plan of arrangement,  reorganization or readjustment,  the payment of which
is subordinated (at least to the extent provided in this Article with respect to
the  Securities)  to the  payment  of all  Senior  Debt which may at the time be
outstanding;  provided,  that  (i)  the  Senior  Debt  is  assumed  by  the  new
corporation,  if any,  resulting from any such  arrangement,  reorganization  or
readjustment,  and (ii) the rights of the  holders  of the Senior  Debt are not,
without the consent of such holders, altered by such arrangement, reorganization
or  readjustment.  The  consolidation  of the Company with, or the merger of the
Company into,  another  corporation  or the  liquidation  or  dissolution of the
Company following the conveyance or transfer of its property as an entirety,  or
substantially  as an  entirety,  to  another  corporation  upon  the  terms  and
conditions provided in Article V shall not be deemed a dissolution,  winding-up,
liquidation  or  reorganization  for the  purposes of this Section if such other
corporation  shall,  as a part  of such  consolidation,  merger,  conveyance  or
transfer,  comply  with the  conditions  stated in  Article  V.  Nothing in this
Section  shall apply to claims of, or payments to, the Trustee under or pursuant
to Article VII, except as provided therein. This Section shall be subject to the
further provisions of Section 11.5.

         SECTION 11.3 Subrogation of Securities.

         Subject to the payment in full of all Senior  Debt,  the holders of the
Securities  shall be  subrogated  to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of the Company
applicable  to the  Senior  Debt  until the  principal  of and  interest  on the
Securities shall be paid in full; and, for the purposes of such subrogation,  no
payments  or  distributions  to the  holders  of the  Senior  Debt of any  cash,
property or securities to which the holders of the  Securities or the Trustee on
their behalf would be entitled except for the provisions of this Article, and no
payment over pursuant to the provisions of this Article to the holders of Senior
Debt by holders of the  Securities  or the  Trustee on their  behalf  shall,  as
between the  Company,  its  creditors  other than holders of Senior Debt and the
holders of the  Securities,  be deemed to be a payment  by the  Company to or on
account of the Senior Debt;


<PAGE>

                                      -96-


and no payments or distributions  of cash,  property or securities to or for the
benefit of the  Securityholders  pursuant to the  subrogation  provision of this
Article,  which  would  otherwise  have been paid to the  holders of Senior Debt
shall be deemed to be a payment  by the  Company  to or for the  account  of the
Securities.  It is  understood  that the  provisions of this Article are and are
intended  solely for the purpose of defining the relative  rights of the holders
of the  Securities,  on the one hand, and the holders of the Senior Debt, on the
other hand.

         Nothing  contained in this Article or elsewhere in this Indenture or in
the  Securities  is intended to or shall  impair,  as between the  Company,  its
creditors  other  than the  holders  of  Senior  Debt,  and the  holders  of the
Securities,  the obligation of the Company, which is absolute and unconditional,
to pay to the holders of the  Securities  the  principal  of and interest on the
Securities as and when the same shall become due and payable in accordance  with
their  terms,  or is  intended  to or shall  affect the  relative  rights of the
holders of the Securities and creditors of the Company other than the holders of
the Senior Debt, nor shall anything  herein or therein prevent the holder of any
Security or the Trustee on his behalf from  exercising  all  remedies  otherwise
permitted by applicable  law upon default under this  Indenture,  subject to the
rights,  if any,  under this Article of the holders of Senior Debt in respect of
cash,  property or securities  of the Company  received upon the exercise of any
such remedy.

         Upon any payment or distribution  of assets of the Company  referred to
in this Article, the Trustee, subject to the provisions of Sections 7.1 and 7.2,
and the  holders of the  Securities  shall be entitled to rely upon any order or
decree made by any court of competent  jurisdiction  in which such  liquidation,
dissolution, winding up, receivership, reorganization, assignment or marshalling
proceedings  are  pending,  or  a  certificate  of  the  receiver,   trustee  in
bankruptcy,  liquidating  trustee,  agent or other person making such payment or
distribution,  delivered to the Trustee or to the holders of the Securities, for
the  purpose  of  ascertaining  the  persons  entitled  to  participate  in such
distribution,  the  holders of the  Senior  Debt and other  indebtedness  of the
Company,  the amount thereof or payable  thereon,  the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.

         SECTION 11.4 Authorization by Securityholders.

         Each  holder of a Security by his  acceptance  thereof  authorizes  the
Trustee in his behalf to take such action as may be necessary or  appropriate to
effectuate the subordination


<PAGE>

                                      -97-


provided in this Article and appoints the Trustee his  attorney-in-fact  for any
and all such purposes.

         SECTION 11.5 Notice to Trustee.

         The Company shall give prompt  written notice to the Trustee and to any
paying agent of any fact known to the Company which would prohibit the making of
any payment of moneys to or by the Trustee or any paying agent in respect of the
Securities pursuant to the provisions of this Article. Regardless of anything to
the contrary  contained in this  Article or  elsewhere  in this  Indenture,  the
Trustee shall not be charged with  knowledge of the existence of any Senior Debt
or of any default or event of default  with respect to any Senior Debt or of any
other facts which  would  prohibit  the making of any payment of moneys to or by
the Trustee,  unless and until the Trustee shall have received notice in writing
at its principal  Corporate  Trust Office to that effect signed by an officer of
the  Company,  or by a holder or agent of a holder of Senior Debt who shall have
been  certified  by the  Company  or  otherwise  established  to the  reasonable
satisfaction  of the Trustee to be such holder or agent, or by the trustee under
any indenture pursuant to which Senior Debt shall be outstanding,  and, prior to
the receipt of any such written notice,  the Trustee shall,  subject to Sections
7.1 and 7.2, be entitled to assume that no such facts exist; provided that if on
a date at least  three  Business  Days prior to the date upon which by the terms
hereof any such moneys shall become payable for any purpose (including,  without
limitation,  the payment of the  principal  of, or interest on any Security) the
Trustee shall not have received with respect to such moneys the notice  provided
for in this Section,  then,  regardless of anything herein to the contrary,  the
Trustee  shall have full power and authority to receive such moneys and to apply
the same to the purpose for which they were received,  and shall not be affected
by any notice to the contrary which may be received by it on or after such prior
date.

         Regardless  of anything to the contrary  herein,  nothing shall prevent
(a) any payment by the Company or the Trustee to the  Securityholders of amounts
in connection  with a redemption of Securities if (i) notice of such  redemption
has been given  pursuant  to Article  III prior to the receipt by the Trustee of
written  notice as  aforesaid,  and (ii) such notice of  redemption is given not
earlier  than 60 days  before the  redemption  date,  or (b) any  payment by the
Trustee to the  Securityholders of amounts deposited with it pursuant to Section
8.1.

         The  Trustee  shall  be  entitled  to rely on the  delivery  to it of a
written  notice by a person  representing  himself to be a holder of Senior Debt
(or a trustee on behalf of such


<PAGE>

                                      -98-


holder) to establish  that such notice has been given by a holder of Senior Debt
or a trustee  on  behalf  of any such  holder.  In the  event  that the  Trustee
determines  in good faith that further  evidence is required with respect to the
right of any person as a holder of Senior Debt to  participate in any payment or
distribution  pursuant to this  Article,  the Trustee may request such person to
furnish evidence to the reasonable  satisfaction of the Trustee as to the amount
of Senior Debt held by such person,  the extent to which such person is entitled
to participate in such payment or distribution  and any other facts pertinent to
the  rights of such  person  under this  Article,  and if such  evidence  is not
furnished  the Trustee may defer any  payment to such  person  pending  judicial
determination as to the right of such person to receive such payment.

         SECTION 11.6 Trustee's Relation to Senior Debt.

         The  Trustee  and any  agent of the  Company  or the  Trustee  shall be
entitled to all the rights set forth in this  Article with respect to any Senior
Debt which may at any time be held by it in its individual or any other capacity
to the same  extent as any  other  holder of  Senior  Debt and  nothing  in this
Indenture  shall deprive the Trustee or any such agent,  of any of its rights as
such holder.  Nothing in this Article  shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 7.7.

         With respect to the holders of Senior Debt,  the Trustee  undertakes to
perform  or to  observe  only  such  of its  covenants  and  obligations  as are
specifically set forth in this Article,  and no implied covenants or obligations
with  respect to the  holders of Senior  Debt shall be read into this  Indenture
against the Trustee.  The Trustee shall not be deemed to owe any fiduciary  duty
to the holders of Senior Debt and, subject to the provisions of Sections 7.1 and
7.2,  the  Trustee  shall not be liable to any holder of Senior Debt if it shall
pay over or deliver to holders of  Securities,  the Company or any other  person
moneys or assets to which any holder of Senior  Debt shall be entitled by virtue
of this Article or otherwise.

         SECTION 11.7 No Impairment of Subordination.

         No right of any present or future  holder of any Senior Debt to enforce
subordination  as herein  provided shall at any time in any way be prejudiced or
impaired  by any act or failure to act on the part of the  Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the  Company  with  the  terms,  provisions  and  covenants  of this  Indenture,
regardless of any knowledge  thereof which any such holder may have or otherwise
be charged with.








<PAGE>



                                       S-1



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

                                          THE AES CORPORATION,
                                            as Issuer
                                          By:
                                               ---------------------------------
                                          Name:


                                          Title:
                                          THE BANK OF NEW YORK,
                                           as Trustee



                                          By:  ---------------------------------
                                          Name:
                                          Title:





<PAGE>


                                                                       EXHIBIT A
                           (FORM OF FACE OF SECURITY)

No. [ ]                              $                 CUSIP NO.:
                    8 3/8% SENIOR SUBORDINATED NOTE DUE 2007

                    THE AES CORPORATION promises to pay
                    to [ ] or registered assigns the
                    principal sum of[ ] Dollars on
                    August 15, 2007.

Interest Payment Dates:  February 15, August 15 and at maturity

Record  Dates:  February 1 or August 1 as the case may be, next  preceding  such
Interest Payment Date

                                          By:
                                               ---------------------------------
                                                    Authorized Signature
                                          By:
                                               ---------------------------------
                                                    Authorized Signature
Dated:  July 17, 1997

Certificate of Authentication

         This is one of the 8 3/8% Senior  Subordinated  Notes due 2007 referred
to in  the  within-mentioned  indenture.

                                          The  Bank  of  New  York,  as  Trustee


                                          By:  ---------------------------------
                                                    Authorized Signatory



                                       A-1




<PAGE>






THE AES CORPORATION

                    8 3/8% SENIOR SUBORDINATED NOTE DUE 2007


         1.  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,  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 8 3/8% per annum.  Interest on
the  Securities  will  accrue from and  including  the most recent date to which
interest  has been paid or, if no  interest  has been paid,  from July 17,  1997
through but  excluding  the date on which  interest is paid.  Interest  shall be
payable in arrears on February 15, August 15 and at the stated maturity (each an
"Interest  Payment  Date"),  commencing  February  15,  1998.  Interest  will be
computed on the basis of a 360 day year of twelve 30 day months.

         2. Method of Payment.  The Company will pay interest on the  Securities
(except  defaulted  interest)  to the  Persons  who are  registered  Holders  of
Securities  at the close of business  on February 1 and August 1 next  preceding
the Interest Payment Date.  Holders must surrender  Securities to a Paying Agent
to collect principal payments. The Company will pay principal,  premium, if any,
and interest in money of the United  States that at the time of payment is legal
tender  for  payment of public  and  private  debts.  At the  Company's  option,
interest may be paid by check mailed to the registered  address of the Holder of
this Security.

         3. Paying  Agent and  Registrar.  Initially,  The Bank of New York (the
"Trustee")  will act as Paying Agent and  Registrar.  The Company may change any
Paying Agent,  Registrar or co-Registrar without notice. Neither the Company nor
any of its Subsidiaries may act as Paying Agent, Registrar or co-Registrar.

         4.  Indenture.  The Company  issued the  Securities  under an Indenture
dated as of July 17, 1997 (the "Indenture") between the Company and the Trustee.
This Security is one of an issue of  Securities of the Company  issued under the
Indenture. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code (0)(0)  77aaa-77bbbb) as amended from time to time. The Securities
are subject to all such terms, and Securityholders are referred to the Indenture
and such Act for a statement of them.


                                      A-2

<PAGE>

Capitalized  terms used herein and not  otherwise  defined have the meanings set
forth in the Indenture.  The Securities are general unsecured obligations of the
Company  subordinated  in right of payment to all  Senior  Debt of the  Company,
limited in aggregate  principal  amount to $325,000,000.  The Indenture  limits,
among other things,  the ability of the Company and its Restricted  Subsidiaries
to incur certain Debt; pay dividends and make other distributions;  make certain
investments;  engage in unrelated businesses;  dispose of certain Assets; engage
in transactions with certain Affiliates;  and merge with or into another entity.
The  limitations  are  subject  to a  number  of  important  qualifications  and
exceptions.  The Company  must report to the Trustee  annually  whether it is in
compliance with the limitations contained in the Indenture.

         5. Optional Redemption.

         The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail, at any time on or after August 15  ______________,
2002,  as a whole or in part,  at the election of the Company,  at the following
Redemption  Prices  (expressed  as  percentages  of the  principal  amount):  If
redeemed during the 12-month period  beginning on or after August  15___________
of the years set forth below, 

                                                            Redemption
Year                                                          Price
----                                                        ----------
2002                                                          104.188_______
                                                              ___%
2003                                                          102.094_______
                                                              ___%


and after August 15, 2004 at a Redemption  Price equal to 100% of the  principal
amount, together in the case of any such redemption with accrued interest to the
Redemption Date.

         In  addition  prior to August 15,  2000,  in the event that the Company
consummates  one or more offerings of its Qualified  Capital Stock,  the Company
may at its option,  use all or a portion of the proceeds  therefrom to redeem up
to 33% of the original aggregate  principal amount at maturity of the Securities
at a cash  redemption  price equal to 108.375% of the principal  amount thereof,
plus  accrued  and  unpaid  interest  thereon  through  the date of  repurchase;
provided that at least $100 million of the original  aggregate  principal amount
of the Securities remains outstanding thereafter.

         6. Offers to Purchase.  Section 4.11 of the Indenture provides upon the
occurrence of a Change of Control and subject to further  limitations  contained
therein, the


                                      A-3

<PAGE>

Company shall make an offer to purchase the  Securities  in accordance  with the
procedures set forth in the Indenture.

         7. Denominations,  Transfer, Exchange. The Securities are in registered
form  without  coupons in  denominations  of $1,000 and  integral  multiples  of
$1,000.  A Holder may transfer or exchange  Securities  in  accordance  with the
Indenture.  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  Security  or  portion of a  Security  selected  for
redemption,  or  transfer  or exchange  any  Securities  for a period of 15 days
before the mailing of a notice of redemption of Securities to be redeemed.

         8. Persons  Deemed Owners.  The registered  holder of a Security 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  Securities,  amend, waive
or supplement the Indenture,  the  Securities  for certain  specified  purposes,
including,  among other things, curing ambiguities,  defects or inconsistencies,
maintaining the  qualification of the Indenture under the Trust Indenture Act of
1939 or making any other change that does not adversely affect the rights of any
Holder.  Other  amendments and  modifications of the Indenture or the Securities
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
Securities,  subject to certain exceptions  requiring the consent of the Holders
of the particular Securities to be affected.

         11. Successor Corporation. When a successor corporation assumes all the
obligations  of its  predecessor  under the Securities and the Indenture and the
transaction  complies  with  the  terms  of  Article  V 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  6.1(f) or (g) of
the Indenture


                                      A-4

<PAGE>

with respect to the Company)  occurs and is continuing,  then the holders of not
less than 25% in aggregate  principal amount of the outstanding  Securities may,
or the Trustee may,  declare the  principal  of,  premium,  if any, 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,  premium,  if any,  and  accrued
interest on all of the Securities shall ipso facto become and be immediately due
and  payable  subject to the prior  payment in full of Senior  Debt  without any
declaration   or  other  act  on  the  part  of  the   Trustee  or  any  Holder.
Securityholders  may not  enforce  the  Indenture  or the  Securities  except as
provided  in  the  Indenture.  The  Trustee  may  require  indemnity  reasonably
satisfactory to it before it enforces the Indenture or the  Securities.  Subject
to certain  limitations,  Holders of a majority in principal  amount of the then
outstanding  Securities  may direct the Trustee in its  exercise of any trust or
power.  The Trustee may withhold from  Securityholders  notice of any continuing
default  (except a default in payment of  principal  or interest or a failure to
comply with Article V of the Indenture) if it determines that withholding notice
is in their interests. The Company must furnish an annual compliance certificate
to the Trustee.

         13. Trustee  Dealings 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.

         14.  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 Securities or the Indenture or for
any claim  based on, in respect of or by reason of,  such  obligations  or their
creation.  Each  Securityholder  by accepting a Security waives and releases all
such  liability.  The waiver and release are part of the  consideration  for the
issue of the Securities.

         15.  Defeasance.  The Indenture  contains  provisions (which provisions
apply  to  this  Security)  for  defeasance  at  any  time  of  (a)  the  entire
indebtedness  of the  Company  or  this  Security  and (b)  certain  restrictive
covenants  and  related  Defaults  and  Events  of  Default,  in each  case upon
compliance by the Company with certain conditions set forth therein.

         16. Authentication.  This Security shall not be valid until the Trustee
signs the certificate of authentication on the other side of this Security.

         17. Abbreviations. Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as:


                                      A-5
<PAGE>

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).

         18.  Subordination.  The Company's payment of principal of, premium, if
any, and interest on the Securities is subordinated in right of payment,  to the
extent and in the manner  provided in Article XI of the Indenture,  to the prior
payment  in  full  of  the  Senior  Debt  of the  Company.  Each  Holder  of the
Securities,  by his acceptance hereof, covenants and agrees that all payments of
the principal of, premium, if any, and interest on the Securities by the Company
shall be  subordinated  in accordance  with the  provisions of Article XI of the
Indenture, and each Holder accepts and agrees to be bound by such provisions.

         19. GOVERNING LAW. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY
AND  CONSTRUED  IN  ACCORDANCE  WITH THE LAWS OF THE  STATE OF NEW YORK  WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

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

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


                                       A-6




<PAGE>






                                ASSIGNMENT FORM

If you the holder want to assign this Security,  fill in the form below and have
your  signature  guaranteed:

  I or we  assign  and  transfer  this  Security  to
_______________________________________________________________________________ 
 (Insert assignee's social security or tax ID number)___________________________

________________________________________________________________________________

________________________________________________________________________________

_____________________________                                                  
(Print or type assignee's  name,  address and zip code) and irrevocably  appoint
agent to  transfer  this  Security  on the books of the  Company.  The agent may
substitute another to act for him.

_____________________________                                                  

_____________________________                                                  

Date: _______________________ 

Your signature:

_____________________________


                                                           (Sign exactly as your
                                                           name appears on the
                                                           other side of this
                                                           Security)

Signature Guarantee:____________________________________________________________

<PAGE>
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements  of  the  Registrar,   which  requirements  include  membership  or
participation in the Security Transfer Agent 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.








<PAGE>






                       OPTION OF HOLDER TO ELECT PURCHASE

         If you wish to have this Security  purchased by the Company pursuant to
Section 4.11 or 4.15 of the Indenture, check the Box: [ ]
     
         If you wish to have a portion of this Security purchased by the Company
pursuant to Section 4.11 or 4.15 of the Indenture, state the amount:  $

Date:________________________

Your signature:

_____________________________ 

(Sign exactly as your name appears on the other side of this Security)

         Signature Guarantee:___________________________________________________

         Signatures  must be guaranteed by an "eligible  guarantor  institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security  Transfer Agent 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.







<PAGE>






                                                                       EXHIBIT B
                         FORM OF CERTIFICATE OF TRANSFER
The AES Corporation
1001 North 19th Street, Suite 2000
Arlington, Virginia  22209

Attention:  General Counsel
[Name and Address of Registrar]

                  Re: 8 3/8% Senior Subordinated Notes due 2007

         Reference  is hereby made to the  Indenture,  dated as of July 17, 1997
(the  "Indenture"),  between The AES Corporation  (the "Issuer") and The Bank of
New York, as trustee.  Capitalized  terms used but not defined herein shall have
the meanings given to them in the Indenture.

         ________________,  (the "Transferor") owns and proposes to transfer the
Security[s]  specified in Annex A hereto in the principal amount of $___ in such
Security[s]  (the  "Transfer"),  to  ________  (the  "Transferee"),  as  further
specified  in Annex A  hereto.  In the  event  that  Transferor  holds  Physical
Securities,  this  Certificate  is  accompanied  by  one  or  more  certificates
aggregating at least the principal


                                      B-1

<PAGE>

amount  of  Securities  proposed  to be  Transferred.  In  connection  with  the
Transfer, the Transferor hereby certifies that:

1. [ ] CHECK IF  TRANSFEREE  WILL TAKE AN INTEREST IN THE 144A GLOBAL  SECURITY.
The  Transfer is being  effected  pursuant to and in  accordance  with Rule 144A
under the United  States  Securities  Act of 1933,  as amended (the  "Securities
Act"),  and,  accordingly,  the  Transferor  hereby  further  certifies that the
Securities  are being  transferred  to a Person that the  Transferor  reasonably
believes is purchasing the  Securities  for its own account,  or for one or more
accounts with respect to which such Person exercises sole investment discretion,
and such  Person and each such  account  is a  "qualified  institutional  buyer"
within the meaning of Rule 144A in a  transaction  meeting the  requirements  of
Rule  144A and such  Transfer  is in  compliance  with any  applicable  blue sky
securities  laws of any state of the United  States.  Upon  consummation  of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
Security  will be subject to the  restrictions  on  transfer  enumerated  in the
Securities Act Legend and in the Indenture and the Securities Act.

2. [ ] CHECK IF  TRANSFEREE  WILL TAKE AN  INTEREST IN THE  REGULATION  S GLOBAL
SECURITY  PURSUANT TO REGULATION S. The Transfer is being  effected  pursuant to
and in accordance with Rule 904 under the Securities Act and,  accordingly,  the
Transferor hereby further certifies that (i) the Transfer is


                                      B-2

<PAGE>

not being  made to a person  in the  United  States  and (x) at the time the buy
order was  originated,  the  Transferee  was outside  the United  States or such
Transferor and any Person acting on its behalf reasonably  believed and believes
that the  Transferee  was outside the United States or (y) the  transaction  was
executed in, on or through the  facilities of a designated  offshore  securities
market and neither  such  Transferor  nor any Person  acting on its behalf knows
that the transaction was prearranged with a buyer in the United States,  (ii) no
directed  selling efforts have been made in contravention of the requirements of
Rule 904(b) of Regulation S under the Securities  Act and (iii) the  transaction
is not part of a plan or scheme to evade the  registration  requirements  of the
Securities Act. Upon  consummation  of the proposed  transfer in accordance with
the terms of the Indenture,  the Security will be subject to the restrictions on
Transfer  enumerated in the  Securities  Act Legend  printed on the Regulation S
Global Security and in the Indenture and the Securities Act.

3. [ ] CHECK AND  COMPLETE IF  TRANSFEREE  WILL TAKE  DELIVERY  OF A  RESTRICTED
PHYSICAL  SECURITY  PURSUANT  TO RULE 144A OR  REGULATION  S. One or more of the
events  specified  in Section  2.6(a) of the  Indenture  have  occurred  and the
Transfer  is  being  effected  in  compliance  with  the  transfer  restrictions
applicable to Securities  bearing the  Securities Act Legend and pursuant to and
in accordance with the Securities Act, and


                                      B-3

<PAGE>

accordingly the Transferor hereby further certifies that (check one):

         (a) [ ] such Transfer is being  effected  pursuant to and in accordance
with Rule 144A under the  Securities  Act and the  Transferor  certifies  to the
effect set forth in paragraph 1 above; or

         (b) [ ] such Transfer is being  effected  pursuant to and in accordance
with Rule 904 under  the  Securities  Act and the  Transferor  certifies  to the
effect set forth in paragraph 2 above.


4. [ ] CHECK IF  TRANSFEREE  WILL TAKE AN  INTEREST IN THE  UNRESTRICTED  GLOBAL
SECURITY The Transfer is being effected  pursuant to and in accordance with Rule
144 under the  Securities Act and in compliance  with the transfer  restrictions
contained in the Indenture,  and the  restrictions on transfer  contained in the
Indenture  and the  Securities  Act Legend are not required in order to maintain
compliance with the Securities Act. Upon  consummation of the proposed  Transfer
in accordance with the terms of the Indenture,  the transfer  Securities will no
longer be subject to the  restrictions on transfer  enumerated in the Securities
Act Legend and in the Indenture and the Securities Act.

                                      B-4
<PAGE>

5. [ ] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE PHYSICAL GLOBAL SECURITY
THAT DOES NOT BEAR THE SECURITIES ACT LEGEND One or more of the events specified
in Section  2.6(a) of the  Indenture  have  occurred  and the  Transfer is being
effected  pursuant to and in accordance  with Rule 144 under the  Securities Act
and in compliance with the transfer restrictions contained in the Indenture, and
the  restrictions on transfer  contained in the Indenture and the Securities Act
Legend are not required in order to maintain compliance with the Securities Act.
Upon  consummation of the proposed  Transfer in accordance with the terms of the
Indenture,  the  transferred  Securities  will  no  longer  be  subject  to  the
restrictions  on transfer  enumerated  in the  Securities  Act Legend and in the
Indenture and the Securities Act.

         This certificate and the statements  contained herein are made for your
benefit and the benefit of the Company and the Guarantors.


                                              ----------------------------------
                                              [Insert   Name   of   Transferor]
                                        By:
                                              ----------------------------------
                                        Name:
                                        Title:
Dated:_________________



   

                                      B-5
<PAGE>






                         FORM OF ANNEX A TO CERTIFICATE
                                   OF TRANSFER

1. The Transferor owns and proposes to transfer the following:


                            [CHECK ONE OF (a) OR (b)]

         (a) [ ] Interests in the

         (i) [ ] 144A Global Security (CUSIP _____), or

         (ii) [ ] Regulation S Global Security (CINS _____).

         (b) oPhysical Security.

2. That the Transferee will hold:

                     [CHECK ONE]

         (a) [ ] Interests in the:

         (i) o144A Global Security (CUSIP _____), or

         (ii) oRegulation S Global Security (CINS _____), or

         (iii) oUnrestricted Global Security (CUSIP _____); or

         (b) [ ] Physical Securities that bear the Securities Act Legend;

         (c) [ ]Physical Securities that do not bear the Securities Act Legend;


                                       B-6
<PAGE>

in accordance with the terms of the Indenture.








                                       B-7
<PAGE>







                                                                       EXHIBIT C
                         FORM OF CERTIFICATE OF EXCHANGE

The AES Corporation
1001 North 19th Street, Suite 2000
Arlington, Virginia  22209
Attention:  General Counsel

[Name and Address of Registrar]

                  Re: 8 3/8% Senior Subordinated Notes due 2007

                             (CUSIP _______________)

         Reference  is hereby made to the  Indenture,  dated as of July 17, 1997
(the  "Indenture"),  between The AES Corporation  (the "Issuer") and The Bank of
New York, as trustee.  Capitalized  terms used but not defined herein shall have
the meanings given to them in the Indenture.

         __________,   (the   "Holder")   owns  and  proposes  to  exchange  the
Security[s]   specified  herein,  in  the  principal  amount  of  $___  in  such
Security[s]  (the  "Exchange").  In the event Holder holds Physical  Securities,
this Certificate is accompanied by one or more certificates aggregating at least
the principal amount of Securities proposed to be Exchanged.


                                      C-1
<PAGE>

         In connection with the Exchange, the Holder hereby certifies that:

1. EXCHANGE OF RESTRICTED PHYSICAL SECURITIES OR INTERESTS IN THE INITIAL GLOBAL
SECURITY FOR PHYSICAL  SECURITIES  THAT DO NOT BEAR THE SECURITIES ACT LEGEND OR
UNRESTRICTED GLOBAL SECURITIES

         (a [ ] CHECK IF  EXCHANGE  IS FROM  INITIAL  GLOBAL  SECURITIES  TO THE
UNRESTRICTED  GLOBAL  SECURITY.  In connection with the Exchange of the Holder's
Initial  Global  Security  to  the  Unrestricted  Global  Security  in an  equal
principal  amount,  the Holder  hereby  certifies  (i) the  Unrestricted  Global
Securities  are being  acquired for the Holder's own account  without  transfer,
(ii)  such  Exchange  has  been   effected  in  compliance   with  the  transfer
restrictions  applicable to the Initial Global Securities and pursuant to and in
accordance  with the Securities Act of 1933, as amended (the  "Securities  Act")
and (iii) the  restrictions  on  transfer  contained  in the  Indenture  and the
Securities Act Legend are not required in order to maintain  compliance with the
Securities Act.

         (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED  PHYSICAL SECURITIES TO AN
INTEREST IN THE UNRESTRICTED  GLOBAL  SECURITY.  In connection with the Holder's
Exchange of  Restricted  Physical  Securities  for Interest in the  Unrestricted
Global Security,  (i) the Interest in the Unrestricted Global Security are being
acquired for the Holder's own account without transfer,


                                      C-2

<PAGE>

(ii)  such  Exchange  has  been   effected  in  compliance   with  the  transfer
restrictions applicable to Restricted Physical Securities and pursuant to and in
accordance  with the  Securities  Act and (iii)  the  restrictions  on  transfer
contained in the  Indenture  and the  Securities  Act Legend are not required in
order to maintain compliance with the Securities Act.

         (C) [ ] CHECK IF EXCHANGE IS FROM  RESTRICTED  PHYSICAL  SECURITIES  TO
PHYSICAL  SECURITIES  THAT DO NOT BEAR THE SECURITIES ACT LEGEND.  In connection
with the  Holder's  Exchange of a  Restricted  Physical  Security  for  Physical
Securities  that do not  bear the  Securities  Act  Legend,  the  Holder  hereby
certifies (i) the Physical Securities that do not bear the Securities Act Legend
are being  acquired  for the Holder's own account  without  transfer,  (ii) such
Exchange  has  been  effected  in  compliance  with  the  transfer  restrictions
applicable to Restricted  Physical  Securities and pursuant to and in accordance
with the Securities  Act, (iii) the  restrictions  on transfer  contained in the
Indenture  and the  Securities  Act Legend are not required in order to maintain
compliance with the Securities Act and (iv) one or more of the events  specified
in Section 2.6(a) of the Indenture have occurred.

2. [ ] CHECK IF EXCHANGE IS FROM RESTRICTED  PHYSICAL SECURITIES TO INTERESTS IN
AN INITIAL  GLOBAL  SECURITY.  In  connection  with the Exchange of the Holder's
Restricted

Physical  Security for  interests in the Initial  Global  Security in the [CHECK
ONE] [ ] 144A Global Security,  [ ] Regulation S Global Security,  with an equal
principal  amount,  (i) the interests in the Initial  Global  Security are being
acquired for the Holder's own account  without  transfer and (ii) such  Exchange
has been effected in compliance with the transfer restrictions applicable to the
Restricted  Physical  Security  and  pursuant  to and  in  accordance  with  the
Securities Act. Upon  consummation  of the proposed  Exchange in accordance with
the terms of the Indenture,  the Initial Global  Security issued will be subject
to the restrictions on transfer  enumerated in the Securities Act Legend printed
on the Initial Global Securities and in the Indenture and the Securities Act.






                                      C-4
<PAGE>



         This certificate and the statements  contained herein are made for your
benefit and the benefit of the Company.


                                               ---------------------------------
                                                   [Insert Name of Holder]
                                        By:
                                               ---------------------------------
                                        Name:
                                        Title:
Dated:_________________



                                      C-5



