Exhibit 10.3
EXECUTION VERSION
 
 
PLEDGE AGREEMENT
dated as of August 15, 2008
between
ALLEGHENY ENERGY TRANSMISSION, LLC,
as Pledgor,
and
UNION BANK OF CALIFORNIA, N.A.,
as Collateral Agent
 
 

 

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TABLE OF CONTENTS

              PAGE    
ARTICLE I DEFINITIONS
    1  
 
       
Section 1.01.   Defined Terms
    1  
Section 1.02.   Rules of Interpretation
    2  
 
       
ARTICLE II COLLATERAL
    2  
 
       
Section 2.01.   Grant of Security Interest
    2  
Section 2.02.   Delivery of Certificates and Instruments
    3  
Section 2.03.   Registration in Nominee Name; Denominations
    3  
Section 2.04.   Irrevocable Proxy; Voting Rights
    3  
Section 2.05.   Collateral Agent Appointed Attorney-in-Fact
    5  
Section 2.06.   Certain Rights of Pledgor
    5  
Section 2.07.   Certain Provisions Regarding the Collateral Agent
    6  
Section 2.08.   Effective as a Financing Statement
    7  
 
       
ARTICLE III REPRESENTATIONS AND WARRANTIES; COVENANTS
    7  
 
       
Section 3.01.   Organization; Power and Authority
    7  
Section 3.02.   Authorization; No Conflict
    7  
Section 3.03.   Valid Security Interest
    8  
Section 3.04.   Title
    8  
Section 3.05.   Consents
    8  
Section 3.06.   Enforceable Lien
    8  
Section 3.07.   Certain Payments on Pledged Securities
    9  
Section 3.08.   Litigation
    9  
Section 3.09.   Other Financing Statements
    9  
Section 3.10.   Chief Executive Office. Etc.
    9  
Section 3.11.   Investment Company Act
    10  
Section 3.12.   Maintenance of Existence
    10  
Section 3.13.   Records; Statements and Schedules
    10  
Section 3.14.   Taxes
    10  
Section 3.15.   Notices
    10  
Section 3.16.   Further Assurances
    11  
 
       
ARTICLE IV REMEDIES
    11  
 
       
Section 4.01.   Remedies upon Default
    11  
Section 4.02.   Application of Proceeds of Sale
    12  
 
       
ARTICLE V MISCELLANEOUS
    13  
 
       
Section 5.01.   No Waiver
    13  
Section 5.02.   Security Interest Absolute
    13  
Section 5.03.   Collateral Agent
    14  
Section 5.04.   Collateral Agent’s Fees and Expenses; Indemnification
    14  
Section 5.05.   Binding Agreement; Assignments
    15  

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              PAGE    
Section 5.06.   Governing Law
    15  
Section 5.07.   Jurisdiction and Venue
    15  
Section 5.08.   WAIVER OF JURY TRIAL
    15  
Section 5.09.   Notices
    16  
Section 5.10.   Severability
    16  
Section 5.11.   Section Headings
    16  
Section 5.12.   Counterparts
    16  
Section 5.13.   Termination
    16  
Section 5.14.   Subrogation
    17  
 
       
Schedule 1.01 —  Knowledge
       
Schedule 2.02 —  Initial Pledged Stock and Any Other Pledged Securities
       
Schedule 3.08 —  Litigation
       

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PLEDGE AGREEMENT
     This PLEDGE AGREEMENT (as amended, supplemented or otherwise modified from
time to time, this “Agreement”), dated as of August 15, 2008 is made and entered
into by Allegheny Energy Transmission, LLC, a Delaware limited liability company
(the “Pledgor”), in favor of UNION BANK OF CALIFORNIA, N.A., as collateral agent
(in such capacity, together with its successors and assigns in such capacity,
the “Collateral Agent”) for the Secured Parties under the Credit Agreement, as
defined below.
WITNESSETH:
     WHEREAS, the Pledgor legally and beneficially owns 100% of the issued and
outstanding capital stock of Trans-Allegheny Interstate Line Company, a Maryland
and Virginia corporation (the “Borrower”), as set forth on Schedule 2.02 hereto
(the “Initial Pledged Stock”);
     WHEREAS, pursuant to that certain Amended and Restated Credit Agreement
dated as of the date hereof (as amended, supplemented or otherwise modified from
time to time, the “Credit Agreement”), among the Borrower, Citibank N.A., as
administrative agent, the Collateral Agent, BNP Paribas, as issuing bank, the
lenders party thereto from time to time (the “Lenders”), and Citigroup Global
Markets Inc. and BNP Paribas Securities Corp., as joint lead arrangers and joint
book managers, the Lenders and issuing banks will make loans to, issue letters
of credit for the account of, and otherwise extend credit to, the Borrower on
the terms and conditions set forth therein;
     WHEREAS, it is a condition precedent to the obligations of the Lenders and
the other Secured Parties to extend credit under the Credit Agreement that the
Pledgor execute and deliver this Agreement;
     WHEREAS, the Pledgor will derive substantial benefit from the transactions
contemplated by the Credit Agreement; and
     WHEREAS, in consideration of the extensions of credit as set forth in the
Credit Agreement, the Pledgor has agreed to enter into this Agreement to secure
all Obligations under the Credit Agreement.
     NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, and to induce the Secured Parties to
enter into the Credit Agreement and the other Financing Documents, the Pledgor
hereby agrees with the Collateral Agent as follows:
ARTICLE I
DEFINITIONS
     Section 1.01. Defined Terms. Unless otherwise defined herein, capitalized
terms used but not defined herein have the meanings assigned to such terms in
the Credit Agreement. Terms defined in the Uniform Commercial Code, as in effect
in the State of New York from time to time (the “UCC”), which are not otherwise
defined in this Agreement or in the Credit Agreement are used in this Agreement
as defined in the UCC. As used herein, the following

 

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terms shall have the following respective meanings (such meanings being equally
applicable to both the singular and plural forms of the terms defined):
          “Agreement” has the meaning set forth in the preamble.
          “Borrower” has the meaning set forth in the recitals.
          “Collateral” has the meaning set forth in Section 2.01.
          “Collateral Agent” has the meaning set forth in the preamble.
          “Credit Agreement” has the meaning set forth in the recitals.
          “Financing Statements” shall mean all financing statements,
continuation statements, recordings, filings or other instruments of
registration necessary or appropriate to perfect a Lien by filing in any
appropriate filing or recording office in accordance with the UCC or any other
relevant applicable law.
          “Initial Pledged Stock” has the meaning set forth in the recitals.
          “Knowledge” means the actual knowledge of the officers of the Pledgor
listed on Schedule 1.01 or any of their successors.
          “Lenders” has the meaning set forth in the recitals.
          “Pledged Securities” has the meaning set forth in Section 2.02.
          “Pledged Stock” has the meaning set forth in Section 2.01.
          “Pledgor” has the meaning set forth in the preamble.
          “Pledgor Permitted Liens” means the types of Liens described in
clauses (a) through (e) of the definition of “Permitted Liens” set forth in the
Credit Agreement.
          “Secured Obligations” means “Obligations” as such term is defined in
the Credit Agreement including all obligations of the Borrower under the Credit
Agreement and all obligations of the Pledgor hereunder.
     Section 1.02. Rules of Interpretation. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
the rules of interpretation set forth in Section 1.02 of the Credit Agreement
are hereby incorporated by reference, mutatis mutandis, as if fully set forth
herein.
ARTICLE II
COLLATERAL
     Section 2.01. Grant of Security Interest. As collateral security for the
payment and performance, as the case may be, in full of the Secured Obligations,
the Pledgor hereby pledges, assigns, hypothecates, transfers, sets over and
delivers unto the Collateral Agent for the benefit

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of the Secured Parties, and grants to the Collateral Agent for the benefit of
the Secured Parties a security interest in all of the Pledgor’s right, title and
interest in, to and under (a) the Initial Pledged Stock, (b) all other Equity
Interests of the Borrower now or hereafter owned by the Pledgor (together with
the Initial Pledged Stock, the “Pledged Stock”), (c) all cash and non-cash
dividends, distributions, securities, instruments and other property and assets
from time to time received, receivable or otherwise distributed in respect of,
in exchange for, or upon the conversion of, the Pledged Stock and other property
referred to in clauses (a) and (b) above, (d) all rights and privileges of the
Pledgor with respect to the securities and other property referred to in clauses
(a) through (c), and (e) all proceeds of any of the foregoing (the items
referred to in clauses (a) through (e) being collectively called (the
“Collateral”).
     Section 2.02. Delivery of Certificates and Instruments. Upon delivery
thereof to the Collateral Agent, any stock certificates or other securities
shall be accompanied by stock powers or instruments of transfer or assignment,
each duly executed in blank, all in form and substance reasonably satisfactory
to the Collateral Agent and by such other instruments and documents as the
Collateral Agent may reasonably request in order to perfect its Lien on the
Collateral. Each delivery of Pledged Stock or other securities (including the
Initial Pledged Stock) included in the Collateral (collectively, the “Pledged
Securities”) shall be accompanied by a schedule describing the securities
theretofore and then being pledged hereunder, which schedule shall be attached
hereto as Schedule 2.02 and made a part hereof. Each schedule so delivered,
after approval by the Collateral Agent, shall supersede any prior schedules so
delivered. The Pledgor agrees promptly to deliver or cause to be delivered to
the Collateral Agent any and all Pledged Securities, and any and all
certificates or other instruments or documents representing the Collateral,
including all such items (whether now owned or hereafter acquired) which are
required to be pledged to the Collateral Agent at any time hereafter under this
Agreement or pursuant to the Credit Agreement.
     Section 2.03. Registration in Nominee Name; Denominations. The Collateral
Agent shall have the right (in its sole and absolute discretion) to register the
Pledged Securities in its own name as pledgee, or the name of its nominee (as
pledgee) or the name of the Pledgor, endorsed or assigned in blank or in favor
of the Collateral Agent. The Collateral Agent shall at all times have the right
to exchange the certificates or instruments representing the Pledged Securities
for certificates or instruments of smaller or larger denominations for any
purposes consistent with this Agreement.
     Section 2.04. Irrevocable Proxy; Voting Rights.
          (a) For so long as this Agreement and the pledge and security interest
created hereby remain in effect, and whether or not the Collateral or any of the
Pledged Securities has been transferred into the name of the Collateral Agent or
its nominee, the Pledgor hereby grants to the Collateral Agent a present,
irrevocable proxy, coupled with an interest, and hereby constitutes and appoints
the Collateral Agent as the Pledgor’s proxy with full power, in the same manner,
to the same extent and with the same effect as if the Pledgor were to do the
same, to exercise all voting, consenting, corporate and other rights accruing to
the Pledgor as owner of the Collateral or any part thereof, or arising out of or
otherwise pertaining to the Collateral, and whether at any meeting of
shareholders of the Borrower or in the absence of any such meeting or otherwise,
and any and all rights of conversion, exchange and subscription and any other
rights,

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privileges or options pertaining to such Collateral as if it were the absolute
owner thereof (including the right to exchange at its discretion any and all of
the Pledged Securities upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of the
Borrower, or upon the exercise by the Pledgor or the Collateral Agent of any
right, privilege or option pertaining to such Pledged Securities, and in
connection therewith, the right to deposit and deliver any and all of the
Pledged Securities with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as the Collateral Agent
may determine), all without liability except to account for property actually
received by it, but the Collateral Agent shall have no duty to the Pledgor to
exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing. As further assurance of the proxy
granted hereby, the Pledgor shall from time to time execute and deliver to the
Collateral Agent, all such additional written proxies and other instruments as
the Collateral Agent shall reasonably request for the purpose of enabling the
Collateral Agent to exercise the voting and other rights which it is entitled to
exercise hereunder. The Pledgor hereby revokes any proxy or proxies heretofore
given by the Pledgor to any person or persons whatsoever and agrees not to give
any other proxies in derogation hereof (except in connection with a Permitted
Refinancing) until this Agreement is no longer in full force and effect as
hereinafter provided. Notwithstanding the preceding present grant of an
irrevocable proxy, the Collateral Agent may not exercise such proxy or any other
proxy or instrument related thereto (and any such exercise in violation of this
sentence shall be null and void) until the occurrence, and during the
continuance, of an Event of Default.
          (b) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Pledgor to dividends, interest and principal which
the Pledgor is authorized to receive pursuant to Section 2.06(c) shall cease,
and all such rights shall thereupon become vested in the Collateral Agent, who
shall have the sole and exclusive right and authority to receive and retain such
dividend, interest and principal payments. All dividends, interest and principal
payments which are received by the Pledgor contrary to the provisions of this
Section 2.04 shall be held in trust for the benefit of the Collateral Agent,
shall be segregated from other property or funds of the Pledgor and shall be
immediately delivered to the Collateral Agent in the same form as so received
(with any necessary endorsement). Any and all money and other property paid over
to or received by the Collateral Agent pursuant to the provisions of this
Section 2.04 shall be deposited by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other property
and such money or other property and interest thereon shall be applied in
accordance with the provisions of Section 4.01 hereof.
          (c) Upon the occurrence and during the continuance of an Event of
Default, and whether or not the Collateral shall have been registered in the
name of the Collateral Agent or a nominee or shall remain registered in the name
of the Pledgor, all rights of the Pledgor to exercise the voting and consensual
rights and powers it is entitled to exercise pursuant to Section 2.06(a) shall
cease, and the Collateral Agent may, during such time, fully exercise, to the
exclusion of the Pledgor, the proxy granted to it in Section 2.04(a).
          (d) The Pledgor hereby authorizes and instructs the Borrower, without
any other or further instruction from the Pledgor, to comply with any written
instruction received by it from the Collateral Agent that (i) states that an
Event of Default has occurred and is continuing and (ii) is otherwise in
accordance with the terms and provisions of this Agreement, including

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any such instruction directing payment of any dividends or other payments with
respect to the Pledged Securities directly to the Collateral Agent. The Pledgor
hereby agrees and confirms that the Borrower shall be fully protected in
compliance with this Section 2.04(d).
     Section 2.05. Collateral Agent Appointed Attorney-in-Fact.
          (a) The Pledgor hereby appoints the Collateral Agent the
attorney-in-fact of the Pledgor for the purposes of carrying out the provisions
of this Agreement or taking any action or executing any instrument which the
Collateral Agent may reasonably deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest;
provided, however, that the Collateral Agent shall not exercise any of the
aforementioned (or hereafter mentioned in this paragraph) rights unless an Event
of Default shall have occurred and is continuing, and any such exercise by the
Collateral Agent in violation of this proviso shall be null and void. Without
limiting the generality of the foregoing, the Collateral Agent shall have the
right, upon the occurrence and during the continuance of an Event of Default,
with full power of substitution either in the Collateral Agent’s name or in the
name of the Pledgor, to ask for, demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due under or by virtue of
any Collateral, to endorse checks, drafts, orders and other instruments for the
payment of money payable to the Pledgor constituting Collateral or any part
thereof or on account thereof and to give full discharge for the same, to
settle, compromise, prosecute or defend any action, claim or proceeding with
respect thereto, and to sell, assign, endorse, pledge, transfer and make any
agreement respecting, or otherwise deal with, the same; provided, however, that
nothing herein contained shall be construed as requiring or obligating the
Collateral Agent to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to the Collateral
or any part thereof or the monies due or to become due in respect thereof or any
property covered thereby, and no action taken by the Collateral Agent or omitted
to be taken with respect to the Collateral or any part thereof shall give rise
to any defense, counterclaim or offset in favor of the Pledgor or to any claim
or action against the Collateral Agent.
          (b) If the Pledgor fails to perform any agreement contained herein,
the Collateral Agent may (but shall not be required to) itself perform, or cause
performance of, such agreement and the reasonable expenses of the Collateral
Agent incurred in connection therewith shall be payable by the Pledgor under
Section 5.04.
          (c) The Pledgor hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue hereof. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are irrevocable
until this Agreement is terminated and the security interests created hereby are
released.
     Section 2.06. Certain Rights of Pledgor. Subject to Sections 2.04 and 2.05,
and so long as no Event of Default has occurred and is continuing, the following
provisions shall be applicable:

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          (a) The Pledgor shall be entitled to exercise any and all voting
rights and other consensual rights accruing to it as the owner of Pledged
Securities for any purpose consistent with the terms of this Agreement and the
other Financing Documents.
          (b) The Collateral Agent shall execute and deliver to the Pledgor, or
cause to be executed and delivered to the Pledgor, all such proxies, powers of
attorney, and other instruments as the Pledgor may reasonably request for the
purpose of enabling the Pledgor to exercise the voting and/or consensual rights
and powers which it is entitled to exercise pursuant to subparagraph (a) above
and to receive the cash payments it is entitled to receive pursuant to clause
(c) below.
          (c) The Pledgor shall be entitled to receive and retain any and all
cash dividends, interest and principal paid on the Pledged Securities to the
extent and only to the extent that such cash dividends, interest and principal
are permitted by, and otherwise paid in accordance with, the terms and
conditions of this Agreement and the Credit Agreement. All payments, dividends
and distributions made on or in respect of the Pledged Securities in violation
of the preceding sentence, whether paid or payable in cash, securities or other
property, and whether (x) resulting from a subdivision, combination or
reclassification of the outstanding Equity Interests of the Borrower, (y) in
connection with a partial or total liquidation or dissolution of the Borrower or
(z) received in exchange for or in redemption of the Pledged Securities or any
part thereof, or as a result of any merger, consolidation, acquisition or other
exchange of assets to which the Borrower may be a party or otherwise, shall be
and become part of the Collateral and, if received by the Pledgor, shall not be
commingled by the Pledgor with any of its other funds or property but shall be
held separate and apart therefrom, shall be held in trust for the benefit of the
Collateral Agent and shall be delivered to the Collateral Agent in the same form
as so received (with any necessary endorsement).
     Section 2.07. Certain Provisions Regarding the Collateral Agent.
          (a) The Collateral Agent’s sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
the UCC or otherwise, shall be to deal with it in the same manner as the
Collateral Agent deals with similar property for similar types of transactions.
Neither the Collateral Agent nor any of its officers, directors, employees or
agents shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Pledgor or any
other person or to take any other action whatsoever with regard to the
Collateral or any part thereof. The powers conferred on the Collateral Agent
hereunder are solely to protect the Collateral Agent’s interests in the
Collateral and shall not impose any duty upon the Collateral Agent to exercise
any such powers. The Collateral Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers. The Collateral
Agent may employ agents and experts to advise it in connection with the
performance of its duties under this Agreement. Neither the Collateral Agent nor
any of its officers, directors, employees or agents and experts employed by it
shall be responsible to the Pledgor for any act or failure to act hereunder,
except for its own gross negligence or willful misconduct as determined by the
final non-appealable judgment of a court of competent jurisdiction.

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     Section 2.08. Effective as a Financing Statement. This Agreement shall also
be effective as a Financing Statement covering any Collateral and may be filed
in any appropriate filing or recording office. A photographic, facsimile or
other reproduction of this Agreement or of any Financing Statement relating to
this Agreement shall be sufficient as a Financing Statement for any of the
purposes referred to in the preceding sentence. Without limiting the foregoing,
the Pledgor authorizes the Collateral Agent to file (but the Collateral Agent
shall not be so obligated to file) such Financing Statements in such offices as
are or shall be necessary or as the Collateral Agent may determine to be
appropriate to create, perfect and establish the priority of the Liens granted
by this Agreement in any and all of the Collateral, to preserve the validity,
perfection or priority of the Liens granted by this Agreement in any and all of
the Collateral or to enable the Collateral Agent to exercise its remedies,
rights, powers and privileges under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; COVENANTS
          The Pledgor hereby represents, warrants and covenants to and with the
Collateral Agent that:
     Section 3.01. Organization; Power and Authority. The Pledgor is duly
organized, validly existing and in good standing under the laws of Delaware. The
Pledgor is duly qualified to do business and in good standing in each
jurisdiction in which such qualification is required by law, except where the
failure to so qualify could not reasonably be expected to have a Material
Adverse Effect. The Pledgor has the limited liability company power and
authority to own or lease its properties and conduct its business. The Pledgor
has the requisite limited liability company power and authority to execute and
deliver the Transaction Documents to which it is a party and to perform the
provisions thereof.
     Section 3.02. Authorization; No Conflict.
          (a) The execution, delivery and performance of the Transaction
Documents to which the Pledgor is a party have been duly authorized by all
necessary limited liability company action on the part of the Pledgor, and each
such Transaction Document constitutes a legal, valid and binding obligation of
the Pledgor, enforceable against the Pledgor in accordance with its terms,
except as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors’ rights generally and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
          (b) The execution, delivery and performance by the Pledgor of each of
the Transaction Documents to which it is a party will not (i) except as could
not reasonably be expected to result in a Material Adverse Effect, contravene,
result in any breach of, or constitute a default under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other agreement or instrument to which the Pledgor is bound or
by which the Pledgor or any of its properties may be bound or affected,
(ii) result in the creation of any Lien in respect of any property of the
Pledgor (other than Pledgor Permitted Liens), (iii) conflict with or result in a
breach of any of the terms, conditions or provisions of any

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order, judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to the Pledgor, (iv) except as could not reasonably be
expected to result in a Material Adverse Effect, violate any provision of any
Legal Requirement applicable to the Pledgor.
     Section 3.03. Valid Security Interest. The Pledgor has acquired the Pledged
Stock pledged by it hereunder for value and without notice of any adverse claim
to the Pledged Stock; the Pledged Stock includes that percentage as set forth on
Schedule 2.02 of the issued and outstanding shares of each class of the equity
interests of the Borrower. All the shares of the Pledged Stock have been duly
authorized and validly issued and are fully paid and non-assessable.
     Section 3.04. Title.
          (a) The Pledgor (i) is and will at all times continue to be the direct
owner, beneficially and of record, of the Pledged Securities indicated on
Schedule 2.02, (ii) holds and will so hold the same free and clear of all Liens
and of all other rights or options in favor of, or claims of, any other person
(other than Pledgor Permitted Liens), (iii) will make no assignment, pledge,
hypothecation or transfer of, or create or permit to exist any security interest
in or Lien on, or grant any option with respect to, the Collateral or enter into
any agreement or undertaking restricting the right of the Pledgor or the
Collateral Agent to sell, assign or transfer any of the Collateral, other than
pursuant hereto, (iv) will cause all securities included within the Collateral
to be certificated securities, and (v) will cause any and all certificates,
instruments or other documents representing or evidencing Collateral to be
forthwith deposited with the Collateral Agent and pledged or assigned hereunder.
          (b) The Pledgor (i) has the limited liability company power and
authority to pledge the Collateral in the manner hereby done or contemplated and
(ii) will defend its title or interest thereto or therein against any and all
Liens (other than the Pledgor Permitted Liens) and claims, however arising, of
any Person.
     Section 3.05. Consents. No consent, approval or authorization of, or
registration, filing or declaration with, any Governmental Authority is required
in connection with the execution, delivery or performance by the Pledgor of the
Transaction Documents to which it is a party, or is necessary to the validity of
the pledge effected hereby or the consummation of the transactions contemplated
by such Transaction Documents, other than the filing of UCC financing statements
in the appropriate jurisdictions.
     Section 3.06. Enforceable Lien. The provisions of this Agreement, when the
Pledged Securities, certificates or other documents representing or evidencing
the Collateral are delivered to the Collateral Agent in accordance with this
Agreement, are effective to create, in favor of the Collateral Agent for the
benefit of the Secured Parties, a legal, valid, and enforceable Lien on and
security interest in all of the Collateral purported to be covered hereby, and
all necessary and appropriate recordings and filings have been made in all
necessary and appropriate public offices, and all other necessary and
appropriate action has been taken, so that this Agreement creates a perfected
first priority Lien (subject to Pledgor Permitted Liens) on and security
interest in all right, title, estate and interest of the applicable obligor in
the Collateral secured hereby, as

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security for the payment and performance of the Secured Obligations, free and
clear of prior and superior to, all other Liens or other adverse claims (subject
to Pledgor Permitted Liens).
     Section 3.07. Certain Payments on Pledged Securities. Any sums paid upon or
in respect of the Pledged Securities upon the liquidation or dissolution of the
Borrower shall be paid over to the Collateral Agent to be held by it hereunder
as additional collateral security for the Secured Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged Securities
or any property shall be distributed upon or with respect to the Pledged
Securities pursuant to the recapitalization or reclassification of the capital
of the Borrower or pursuant to the reorganization thereof, the property so
distributed shall, unless otherwise subject to a perfected security interest in
favor of the Collateral Agent, be delivered to the Collateral Agent to be held
by it hereunder as additional collateral security for the Secured Obligations.
If any sums of money or property so paid or distributed in respect of the
Pledged Securities shall be received by the Pledgor, the Pledgor shall, until
such money or property is paid or delivered to the Collateral Agent, hold such
money or property in trust for the Collateral Agent, segregated from other funds
of the Pledgor, as additional collateral security for the Secured Obligations.
     Section 3.08. Litigation. Except as set forth on Schedule 3.08, there are
no actions, suits or proceedings pending, or to the Knowledge of the Pledgor,
threatened in writing against the Pledgor or the Collateral in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or a material adverse effect on the Pledgor’s ability to
grant the Liens on the Collateral intended to be granted hereby or otherwise
perform its material obligations hereunder.
     Section 3.09. Other Financing Statements. There is no Financing Statement
(or similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover any interest of any kind in the
Collateral, except Financing Statements filed or to be filed in respect of and
covering the Liens granted hereby by the Pledgor.
     Section 3.10. Chief Executive Office. Etc.
          (a) The chief executive office of the Pledgor and the office where the
Pledgor keeps its records concerning the Collateral is located at:
Allegheny Energy, Inc.
800 Cabin Hill Drive
Greensburg, PA 15601-1689
Attn: Barry E. Pakenham
Tel: 724-838-6366
Fax: 724-830-5080
          (b) The Pledgor has not, within the period of twelve months prior to
the date hereof, (i) changed its location (as defined in Section 9-307(a) of the
UCC), (ii) changed its name or (iii) become a “new debtor” (as defined in
Section 9-102(a)(56) of the UCC).
          (c) The Pledgor’s organizational identification number is FEIN
20-5763884.

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          (d) The Pledgor shall promptly notify the Collateral Agent of any new
location for its chief executive office. The Pledgor shall describe such new
location and shall take all action necessary in connection therewith to maintain
the Liens of the Collateral Agent in the Pledge Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.
          (e) The Pledgor shall not change its name until (i) it has given to
the Collateral Agent not less than 10 days’ prior written notice of its
intention to do so, specifying such new name, and (ii) with respect to such new
name, it shall have taken all action reasonably necessary to maintain the Liens
of the Collateral Agent in the Collateral intended to be granted hereby at all
times fully perfected and in full force and effect.
     Section 3.11. Investment Company Act. The Pledgor is not an “investment
company” as defined in, or subject to regulation as an “investment company”
under, the Investment Company Act of 1940, as amended.
     Section 3.12. Maintenance of Existence. The Pledgor shall at all times
preserve and keep in full force and effect its corporate existence, and the
Pledgor shall at all times preserve and keep in full force and effect all rights
and franchises (if any) of the Pledgor unless, in the good faith judgment of the
Pledgor, the termination or failure to preserve and keep in full force and
effect such right or franchise could not, individually or in the aggregate,
impair the validity, perfection or priority of the Collateral Agent’s security
interest in the Collateral.
     Section 3.13. Records; Statements and Schedules. The Pledgor shall keep and
maintain, at its own cost and expense, records of the Collateral owned by it,
including records of all payments received with respect thereto, and it shall
make the same available to the Collateral Agent for inspection at the Pledgor’s
chief executive office, at its own cost and expense upon reasonable notice, at
any time during normal business hours. The Pledgor shall furnish to the
Collateral Agent from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as the Collateral Agent may reasonably request in writing, all in
reasonable detail.
     Section 3.14. Taxes. The Pledgor shall pay, or cause to be paid, as and
when due and prior to delinquency, all Taxes that may at any time be lawfully
assessed or levied against or with respect to the Pledgor; provided, however,
that (a) the Pledgor need not pay, or cause to be paid, any such Tax if the
amount, applicability or validity thereof is contested by the Pledgor on a
timely basis in good faith and in appropriate proceedings, and the Pledgor or
any of its Affiliates have established adequate reserves therefor in accordance
with GAAP on the books of the Pledgor and (b) the Pledgor’s failure to pay, or
cause to be paid, any such Tax shall not constitute an Event of Default if the
failure to make payment of such Taxes in the aggregate could not reasonably be
expected to have a Material Adverse Effect. Any Tax determined to be due
pursuant to such proceedings, together with any interest or penalties thereon,
shall be paid promptly by the Pledgor after resolution of such contest.
     Section 3.15. Notices. The Pledgor shall promptly, upon obtaining Knowledge
of (a) any action, suit or proceeding at law or in equity by or before any
Governmental Authority, arbitral tribunal or other body pending or threatened
against the Pledgor which could reasonably

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be expected to result in a Material Adverse Effect or a material adverse effect
on the Pledgor’s ability to grant the Liens on the Collateral intended to be
granted hereby or otherwise perform its material obligations hereunder, (b) the
occurrence of any other circumstance, act or condition (including the adoption,
amendment or repeal of any Governmental Rule or notice (whether formal or
informal, written or oral) of the failure to comply with the terms and
conditions of any Governmental Rule) relating to the Pledgor which could
reasonably be expected to result in a Material Adverse Effect, a material
adverse effect on the security interest of the Collateral Agent in the
Collateral or a material adverse effect on the Pledgor’s ability to grant the
Liens on the Collateral intended to be granted hereby or otherwise perform its
obligations hereunder, or (c) the occurrence of any Event of Default relating
solely to the Pledgor, in each case furnish to the Collateral Agent a notice of
such event describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a written description of the action
that the Pledgor has taken or proposes to take with respect thereto.
     Section 3.16. Further Assurances. The Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement, with respect to the Collateral or any part thereof or in order better
to assure and confirm unto the Collateral Agent its rights and remedies
hereunder.
ARTICLE IV
REMEDIES
     Section 4.01. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, whether or not all of the Secured
Obligations shall have become due and payable, in addition to its rights under
the Financing Documents:
          (a) The Collateral Agent shall have all of the rights and remedies
with respect to the Collateral of a secured party under the UCC and such
additional rights and remedies to which a secured party is entitled at law or in
equity in any jurisdiction where any rights and remedies hereunder may be
asserted, including the right, to the maximum extent permitted by applicable
law, to exercise all voting, consensual and other powers of ownership pertaining
to the Collateral as if the Collateral Agent were the sole and absolute owner
thereof (and the Pledgor agrees to take all such action as may be appropriate to
give effect to such right).
          (b) The Collateral Agent in its sole and absolute discretion may, in
its name or in the name of the Pledgor or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for any of the Collateral, but shall be under no obligation to do
so.
          (c) The Collateral Agent may sell, lease, assign, grant options with
respect to or otherwise dispose of all or part of the Collateral, at such place
or places as the Collateral Agent deems best, and for cash or for credit or for
future delivery (without thereby assuming any credit risk), at public or private
sale, without demand of performance or notice of intention to effect any such
disposition or of the time or place thereof (except such notice as is required
above or by applicable statute and cannot be waived), and the Collateral Agent
or anyone else

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may be the purchaser, lessee, assignee or recipient of any or all of the
Collateral so disposed of at any public sale (or, to the extent permitted by
law, at any private sale) and thereafter hold the same absolutely, free from any
claim or right of whatsoever kind, including any right or equity of redemption
(statutory or otherwise) of the Pledgor, any such demand, notice and right or
equity being hereby expressly waived and released. The Collateral Agent shall
provide the Pledgor with at least ten days’ prior notice of the time and place
of any public or private sale; provided, however, the Collateral Agent shall not
be obligated to make a sale of the Collateral regardless of notice of sale
having been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the sale may be so adjourned. In case
any sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Collateral Agent until
the sale price is paid in full by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold and, in case
of any such failure, such Collateral may be sold again upon like notice.
          (d) At any public (or, to the extent permitted by applicable law,
private) sale made pursuant to this Section 5, the Collateral Agent may bid for
or purchase, free from any right of redemption, stay or appraisal on the part of
the Pledgor (all said rights being also hereby waived and released), the
Collateral or any part thereof offered for sale and may make payment on account
thereof by using any claim then due and payable to it from the Pledgor as a
credit against the purchase price, and it may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to the Pledgor thereof.
          (e) The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Collateral Agent may be compelled, with respect to any sale
of all or any part of the Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges that any such private sales may be at prices and on terms
less favorable to the Collateral Agent than those obtainable through a public
sale without such restrictions, and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Collateral Agent shall have no obligation to
engage in public sales and no obligation to delay the sale of any Collateral for
the period of time necessary to permit registration of such Collateral for
public sale.
          (f) The Pledgor shall bear all costs and expenses of carrying out its
obligations hereunder with respect to the foregoing. The Pledgor acknowledges
that there is no adequate remedy at law for its failure to comply with the
foregoing provisions and that such failure would not be adequately compensable
in damages, and therefore agrees that its agreements with respect to the
foregoing may be specifically enforced.
     Section 4.02. Application of Proceeds of Sale.
          (a) The proceeds of any sale of Pledged Stock, and property and assets
received or otherwise distributed in respect of, in exchange for or upon the
conversion thereof

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and any proceeds thereof pursuant to this Agreement, shall be applied by the
Collateral Agent first, to the payment of the costs and expenses of any such
sale, including reasonable and documented out-of-pocket fees and disbursements
of the Collateral Agent’s agents and counsel, and of any judicial proceeding
wherein the same may be made, and of all expenses, liabilities and advances (to
the extent such advances are made for the protection of such Collateral or the
enforcement of the Collateral Agent’s security interest in such Collateral) made
or incurred by the Collateral Agent, second, to meet amounts due and payable
under the Credit Agreement and the other Financing Documents (as calculated by
the Administrative Agent) as and when the same become payable, in each case,
together with interest thereon (as well after as before judgment and payable on
demand) at the rate determined in accordance with the Credit Agreement from the
date the same become due and payable until the date the same are paid and
discharged in full (provided that like interest payable under any of the
Financing Documents should not be double counted), third, to whomsoever may be
lawfully entitled to receive any surplus.
          (b) The Collateral Agent shall have absolute discretion as to the time
of application of the proceeds, money or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
ARTICLE V
MISCELLANEOUS
     Section 5.01. No Waiver. No failure on the part of the Collateral Agent to
exercise, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy by the Collateral Agent preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law. The Collateral Agent shall not be deemed to have
waived any rights hereunder or under any other agreement or instrument unless
such waiver shall be in writing and signed by such parties.
     Section 5.02. Security Interest Absolute. The obligations of the Pledgor
under this Agreement are independent of the obligations under any of the other
Financing Documents, and a separate action or actions may be brought and
prosecuted against the Pledgor to enforce this Agreement. All rights of the
Collateral Agent hereunder, the grant of a security interest in the Collateral
and all obligations of the Pledgor hereunder shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of any Financing
Document, any agreement with respect to any of the Secured Obligations or any
other agreement or instrument relating to any of the foregoing, (b) any change
in the time, manner or place of payment of, or in any other term of, all or any
of the Secured Obligations, or any other amendment or waiver of or any consent
to any departure from any Financing Document or any other agreement or
instrument, (c) any exchange, release, amendment or waiver of, or consent to or
departure from,

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any guaranty for all or any of the Secured Obligations, (d) any change,
restructuring or termination of the corporate structure or existence of the
Pledgor or the Borrower or (e) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Pledgor in respect of
the Secured Obligations or in respect of this Agreement.
     Section 5.03. Collateral Agent. Notwithstanding any other provision
contained in this Agreement, the Collateral Agent shall be afforded all of the
rights, powers, immunities and indemnities of the Collateral Agent set forth in
the Credit Agreement, as if such rights, powers, immunities and indemnities were
specifically set forth herein. The Pledgor hereby acknowledges the appointment
of the Collateral Agent pursuant to the Credit Agreement. The rights,
privileges, protections and benefits given to the Collateral Agent, including
its right to be indemnified, are extended to, and shall be enforceable by, the
Collateral Agent in its capacity hereunder, and to each agent, custodian and
other Person employed by the Collateral Agent in accordance herewith to act
hereunder.
     Section 5.04. Collateral Agent’s Fees and Expenses; Indemnification.
          (a) The Pledgor shall pay any applicable filing fees and related
expenses in connection with any filing made by the Collateral Agent in
accordance with Section 2.08.
          (b) The Pledgor agrees to pay within 30 days after demand therefor to
the Collateral Agent the amount of any and all reasonable and documented
out-of-pocket expenses, including the reasonable and documented out-of-pocket
fees and expenses of its counsel and of any experts, which the Collateral Agent
may incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Collateral Agent hereunder, or (iv) the failure by the
Pledgor to perform or observe any of the provisions hereof.
          (c) Without limiting the foregoing, the Pledgor agrees to pay, and to
save the Collateral Agent and its directors, trustees, officers, employees,
investment advisors and agents (collectively the “Collateral Agent Indemnitees”)
harmless from, and to indemnify them against, (i) any and all liabilities with
respect to, or resulting from any delay in paying, any and all stamp, excise,
sales or other taxes which may be payable or determined to be payable with
respect to any of the Collateral or in connection with any of the transactions
contemplated by this Agreement and (ii) any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, reasonable and documented
out-of-pocket costs, expenses or disbursements of any kind or nature whatsoever
with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, or arising out of or relating to any
Collateral Agent Indemnitees’ relationship with the Pledgor hereunder or under
any other Financing Document; provided that such indemnity shall not, as to any
Collateral Agent Indemnitee, be available to the extent that such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, reasonable
and documented out-of-pocket costs, expenses or disbursements result primarily
from the gross negligence or willful misconduct of such Collateral Agent
Indemnitee, as determined by the final non-appealable judgment of a court of
competent jurisdiction. Any such amounts payable as provided hereunder shall be
additional Secured Obligations secured by this Agreement and the other Financing
Documents to which the Pledgor is party.

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          (d) The agreements in this Section 5.04 shall survive repayment of the
Secured Obligations and all other amounts payable under the Credit Agreement and
the other Financing Documents.
     Section 5.05. Binding Agreement; Assignments. This Agreement, and the
terms, covenants and conditions hereof, shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Pledgor shall not be permitted to assign this Agreement or any
interest herein or in the Collateral or any part thereof, or otherwise pledge,
encumber or grant any option with respect to the Collateral or any part thereof,
or any cash or property held by the Collateral Agent as Collateral under this
Agreement, except as contemplated by this Agreement or the other Financing
Documents.
     Section 5.06. Governing Law. This Agreement, including any claim or
controversy arising out of the subject matter hereof, shall be governed by and
construed in accordance with the laws of the State of New York.
     Section 5.07. Jurisdiction and Venue.
          (a) Each of the parties hereto hereby (i) irrevocably and
unconditionally submits, for itself and its property, jurisdiction of any state
or federal court sitting in New York County, New York in any legal suit, action
or proceeding arising out of or relating to this Agreement, or for recognition
or enforcement of any judgment, and (ii) irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such court. Each of the parties hereto further irrevocably
consents to the service of process in any action or proceeding in such courts by
the mailing thereof by any parties thereto by registered or certified mail,
postage prepaid, to the Pledgor at the address specified in Section 5.09 below.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by applicable law. Nothing
in this Agreement shall affect any right that either party may otherwise have to
bring any action or proceeding relating to this Agreement against the other
party or its properties in the courts of any jurisdiction.
          (b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State or
federal court located in New York County. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
     Section 5.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. PLEDGOR ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, BENEFITS
DERIVED

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BY IT AS A RESULT OF THE EXTENSIONS OF CREDIT MADE TO THE BORROWER UNDER THE
CREDIT AGREEMENT.
          Section 5.09. Notices. All notices, approvals, requests, demands and
other communications hereunder shall be delivered and be deemed to have been
given or made in accordance with the Credit Agreement, and if to the Pledgor, at
the following address:
Allegheny Energy Transmission, LLC
800 Cabin Hill Drive
Greensburg, PA 15601-1689
Attn: Barry E. Pakenham
Tel: 724-838-6366
Fax: 724-830-5080
with a copy to:
Amanda J. Skov
Tel: 724-838-6166
Fax: 724-838-6177
     Section 5.10. Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, no party hereto shall be required to comply with such provision for so
long as such provision is held to be invalid, illegal or unenforceable and the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions, the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
     Section 5.11. Section Headings. The section and other headings used herein
are for convenience only and are not to affect the construction of, or to be
taken into consideration in interpreting, this Agreement.
     Section 5.12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Agreement.
     Section 5.13. Termination.
          (a) At such time as the Collateral Agent receives written notice from
the Administrative Agent that (i) all of the Secured Obligations (other than any
indemnity and similar obligations which expressly survive termination of this
Agreement, the Credit Agreement or any other Financing Document and that are not
then due and payable) have been paid in full, (ii) all Commitments and other
obligations of the Secured Parties under the Financing Documents have terminated
and (iii) all Letters of Credit have been cancelled, terminated or cash

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collateralized in accordance with Section 2.04(j) of the Credit Agreement, this
Agreement and all obligations (other than those expressly stated to survive such
termination) of the Collateral Agent and the Pledgor shall terminate, and the
Collateral shall be released from the pledge and security interests created
hereby, all without delivery of any instrument or performance of any act by any
party, and all rights to the Collateral shall revert to the Pledgor. At the
request and sole expense of the Pledgor following any such termination, the
Collateral Agent shall deliver to the Pledgor any Collateral then held by the
Collateral Agent hereunder and shall execute and deliver to the Pledgor, but
without recourse to or warranty by the Collateral Agent, such UCC termination
statements and similar documents prepared by the Pledgor which the Pledgor shall
reasonably request to evidence the release of the Collateral from the security
constituted hereby. Notwithstanding any provision contained in this Agreement,
following any such termination, the Pledgor shall be entitled to file such UCC
termination statements and similar documents prepared by the Pledgor as the
Pledgor shall reasonably deem necessary or desirable to evidence the release of
the Collateral from the security constituted hereby without any further consent
of the Collateral Agent or any other Secured Party.
          (b) Notwithstanding anything to the contrary contained in this
Agreement, this Agreement shall remain in full force and effect and continue to
be effective should any petition be filed by or against the Pledgor for
liquidation or reorganization, should the Pledgor become insolvent or make an
assignment for any benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Pledgor’s assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Secured Obligations, whether as a
“voidable preference,” “fraudulent conveyance” or otherwise, all as though such
payment, or any part thereof, had not been made.
     Section 5.14. Subrogation. Notwithstanding any payment or payments made by
the Pledgor or the exercise by the Collateral Agent of any of the remedies
provided under this Agreement, the Pledgor shall not have any claim (as defined
in 11 U.S.C. § 101(5)) of subrogation to any of the rights of the Collateral
Agent against the Borrower, the Collateral or any guaranty held by the
Collateral Agent for the satisfaction of any of the Secured Obligations, nor
shall the Pledgor have any claims (as defined in 11 U.S.C. § 101(5)) for
reimbursement, indemnity, exoneration or contribution from the Borrower in
respect of payments made by the Pledgor hereunder. Notwithstanding the
foregoing, if any amount shall be paid to the Pledgor on account of such
subrogation, reimbursement, indemnity, exoneration or contribution rights at any
time, such amount shall be held by the Pledgor in trust for the Collateral Agent
segregated from other funds of the Pledgor, and shall be turned over to the
Collateral Agent in the exact form received by the Pledgor (duly endorsed by the
Pledgor to the Collateral Agent if required) to be applied against the Secured
Obligations in such amounts and in such order as the Collateral Agent may elect.
[Signature pages follow.]

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     IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed by their respective authorized officers as of the date first
above written.

            ALLEGHENY ENERGY TRANSMISSION, LLC,
as Pledgor
      By:   /s/ Barry E. Pakenham        Name:   Barry E. Pakenham       
Title:   Treasurer        UNION BANK OF CALIFORNIA, N.A.,
as Collateral Agent
      By:   /s/ Luis Perez        Name:   Luis Perez        Title:   Vice
President   

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