EX-10.2






Exhibit 10.2




EXECUTION VERSION




 

 








EQUITY COMMITMENT AGREEMENT




dated as of August 15, 2008




between




ALLEGHENY ENERGY, INC.,

as Sponsor




and




UNION BANK OF CALIFORNIA, N.A.,

as Collateral Agent




 

 






 









 












TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE I. DEFINITIONS 	 	 	 	 
	 
	 	 	 	 	 	 
	Section 1.01

	 	Defined Terms
	 	 	2	 
	Section 1.02

	 	Rules of Interpretation
	 	 	6	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE II. OBLIGATIONS OF SPONSOR 	 	 	 	 
	 
	 	 	 	 	 	 
	Section 2.01

	 	Equity Contributions
	 	 	6	 
	Section 2.02

	 	Late Payments
	 	 	9	 
	Section 2.03

	 	Waiver of Defenses; Obligations Unconditional
	 	 	10	 
	Section 2.04

	 	Incremental Facility
	 	 	12	 
	Section 2.05

	 	Subrogation
	 	 	12	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE III. SPECIFIC PROVISIONS 	 	 	 	 
	 
	 	 	 	 	 	 
	Section 3.01

	 	Reinstatement
	 	 	12	 
	Section 3.02

	 	Specific Performance
	 	 	13	 
	Section 3.03

	 	Commencement of Bankruptcy Proceedings
	 	 	13	 
	Section 3.04

	 	Set-Off
	 	 	13	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE IV. PURCHASE OF PARTICIPATING INTEREST	 	 	 	 
	 
	 	 	 	 	 	 
	Section 4.01

	 	Required Purchase of Participating Interest
	 	 	13	 
	Section 4.02

	 	Effect of Purchase of Participating Interest
	 	 	14	 
	Section 4.03

	 	Subordinate Nature of Participating Interest
	 	 	14	 
	Section 4.04

	 	Rights of Agents and the Secured Parties
	 	 	14	 
	Section 4.05

	 	No Voting Rights
	 	 	15	 
	Section 4.06

	 	Outright Purchase; Obligations Unconditional
	 	 	15	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE V. REPRESENTATIONS AND WARRANTIES	 	 	 	 
	 
	 	 	 	 	 	 
	Section 5.01

	 	Corporate Existence and Business
	 	 	15	 
	Section 5.02

	 	Organization; Power and Authority
	 	 	15	 
	Section 5.03

	 	Disclosures
	 	 	15	 
	Section 5.04

	 	Financial Statements
	 	 	16	 
	Section 5.05

	 	No Conflict
	 	 	16	 
	Section 5.06

	 	Authorization; Enforceable Obligations
	 	 	16	 
	Section 5.07

	 	Execution and Delivery
	 	 	16	 
	Section 5.08

	 	Ownership Interests
	 	 	16	 
	Section 5.09

	 	No Litigation or Proceeding
	 	 	16	 
	Section 5.10

	 	Investment Company Act
	 	 	17	 
	Section 5.11

	 	Use of Proceeds
	 	 	17	 
	Section 5.12

	 	ERISA
	 	 	17	 
	Section 5.13

	 	Environmental Laws; Hazardous Materials
	 	 	17	 
	Section 5.14

	 	Taxes
	 	 	18	 
	Section 5.15

	 	Existing Liens
	 	 	18	 
	Section 5.16

	 	Adequate Information
	 	 	19	 






i









 






	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE VI. COVENANTS 	 	 	 	 
	 
	 	 	 	 	 	 
	Section 6.01

	 	Affirmative Covenants
	 	 	19	 
	Section 6.02

	 	Negative Covenants
	 	 	21	 
	Section 6.03

	 	Reporting Covenants
	 	 	22	 
	Section 6.04

	 	Revisions to Sponsor Financing Documents
	 	 	24	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE VII. EVENTS OF DEFAULT	 	 	 	 
	 
	 	 	 	 	 	 
	Section 7.01

	 	Events of Default
	 	 	25	 
	Section 7.02

	 	Revisions to Sponsor Financing Documents
	 	 	27	 
	 
	 	 	 	 	 	 
	 

	 	ARTICLE VIII. MISCELLANEOUS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 8.01

	 	Successions or Assignments
	 	 	28	 
	Section 8.02

	 	Collateral Agent Indemnification
	 	 	28	 
	Section 8.03

	 	Waivers
	 	 	28	 
	Section 8.04

	 	Interpretation
	 	 	29	 
	Section 8.05

	 	Remedies Cumulative
	 	 	29	 
	Section 8.06

	 	Severability
	 	 	29	 
	Section 8.07

	 	Amendments
	 	 	29	 
	Section 8.08

	 	Jurisdiction
	 	 	29	 
	Section 8.09

	 	Governing Law
	 	 	30	 
	Section 8.10

	 	Integration of Terms
	 	 	30	 
	Section 8.11

	 	Notices
	 	 	30	 
	Section 8.12

	 	Counterparts
	 	 	30	 
	Section 8.13

	 	Further Assurances
	 	 	31	 
	Section 8.14

	 	Termination of Agreement
	 	 	31	 
	Section 8.15

	 	No Third Party Beneficiaries
	 	 	31	 
	Section 8.16

	 	Consequential Damages
	 	 	31	 






ii









 






	 	 	 	 	 
	 	 	 	 	Page
	Exhibits and Schedules	 	 
	 
	Exhibit A

	 	Form of Commitment Increase Amendment	 	 
	Exhibit B

	 	Form of Commitment Decrease Amendment	 	 
	 
	 	 	 	 
	Schedule 5.09

	 	Disclosed Litigation	 	 
	Schedule 5.13

	 	Environmental Matters	 	 
	Schedule 5.15

	 	Liens	 	 







iii









 








EQUITY COMMITMENT AGREEMENT




     This EQUITY COMMITMENT AGREEMENT, dated as of August 15, 2008 (this “Agreement”), by
and between ALLEGHENY ENERGY, INC., a corporation organized and existing under the laws of the
State of Maryland (the “Sponsor”), and UNION BANK OF CALIFORNIA, N.A., as collateral agent
(in such capacity, together with its successors and assigns, the “Collateral Agent”) for
the Secured Parties under and as defined in the TrAILCo Credit Agreement, as defined below.



RECITALS




     WHEREAS, Trans-Allegheny Interstate Line Company, a corporation existing under the laws of the
State of Maryland and the Commonwealth of Virginia (the “Borrower”), desires to (i)
develop, construct, acquire, maintain, own and operate an approximately 185 mile 500-kV
transmission line (excluding an approximately one-mile portion to be built and owned by Virginia
Electric and Power Company (“Dominion”) on an existing right-of-way over the Appalachian
National Scenic Trail) from a new substation in western Pennsylvania to a point of interconnection
with Dominion in Virginia (including transformers, substations, radial lines, and other equipment
and facilities), (ii) own a 50% interest in an approximately 30 mile 500-kV transmission line that
runs from the southeastern boundary of the Appalachian National Scenic Trail to a point of
interconnection with Dominion (collectively with the transmission line referred to in clause (i),
the “TrAIL Transmission Line”), (iii) develop, construct, acquire, maintain, own and
operate certain other electric transmission projects, as more fully defined in the TrAILCo Credit
Agreement referred to below, and (iv) develop, construct, own and/or lease to other parties a
facility in West Virginia where certain managerial, professional, technical and administrative
services will be performed (the assets described in the foregoing clauses (i) through (iv),
collectively, the “Project”);



     WHEREAS, in order to finance, in part, the development, construction, acquisition,
maintenance, ownership and operation of its interests in the Project, the Borrower has entered into
that certain Amended and Restated Credit Agreement, dated as of the date hereof (the “TrAILCo
Credit Agreement”), among the Borrower, Citibank N.A., as administrative agent (in such
capacity, the “Administrative Agent”), the Collateral Agent, The Bank of Nova Scotia, as
issuing bank, the lenders party thereto from time to time (the “Lenders”), Citigroup Global
Markets Inc. and BNP Paribas Securities Corp., as joint lead arrangers and as joint book managers,
and the other parties thereto from time to time;



     WHEREAS, as of the date hereof, the Sponsor is the direct owner of 100% of the outstanding
economic and beneficial ownership interests in Allegheny Energy Transmission, LLC (“AET”),
and AET is the direct owner of 100% of the outstanding economic and beneficial ownership interests
in the Borrower;



     WHEREAS, the Sponsor has agreed to make Equity Contributions (as defined below) to the
Borrower in accordance with this Agreement in order to finance a portion of the cost of developing,
constructing, acquiring, maintaining, owning and operating the Project and to finance all of the
cost of developing, constructing, acquiring, maintaining, owning and operating the Separately
Financed Facilities (such costs, “SFF Costs”); and



 









 





     WHEREAS, the execution and delivery of this Agreement is a condition precedent to the Secured
Parties’ obligation to make Loans, issue Letters of Credit, and otherwise extend credit to the
Borrower under the TrAILCo Credit Agreement.



AGREEMENT




     NOW, THEREFORE, in consideration of the promises contained herein, and in order to induce the
Lenders to enter into the TrAILCo Credit Agreement and the other Financing Documents and to make
the advances of credit contemplated thereby, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:



ARTICLE I.

DEFINITIONS




     Section 1.01 Defined Terms. Each capitalized term used and not otherwise defined
herein (including the preamble and recitals) shall have the meaning assigned to such term, whether
directly or by reference to another agreement or document, in (i) the Sponsor Credit Agreement, in
the case of each capitalized term used in Article V (other than the introductory paragraph thereof
and Sections 5.01 through 5.05), Article VI and Article VII, and (ii) the TrAILCo Credit Agreement,
in the case of each capitalized term used herein other than in the Articles and Sections specified
in the foregoing clause (i). In addition, the following terms shall have the following respective
meanings:



     “Administrative Agent” has the meaning given in the recitals, except that any section
or provision of the Sponsor Credit Agreement that is deemed incorporated herein by reference and
that uses the capitalized term “Administrative Agent” shall be deemed to use that term as defined
in the Sponsor Credit Agreement.



     “AET” has the meaning given in the recitals.



     “Agreement” has the meaning given in the preamble.



     “Borrower” has the meaning given in the recitals.



     “Collateral Agent” has the meaning given in the preamble.



     “Commitment Decrease Amendment” means an amendment to this Agreement, substantially in
the form of Exhibit B or as otherwise reasonably acceptable to the Administrative Agent,
pursuant to which the Project Equity Commitment or the SFF Equity Commitment is decreased.



     “Commitment Increase Amendment” means an amendment to this Agreement, substantially in
the form of Exhibit A or as otherwise reasonably acceptable to the Administrative Agent,
pursuant to which the Project Equity Commitment or the SFF Equity Commitment is increased.



2









 





     “Completion Date” means the date Completion is achieved under the TrAILCo Credit
Agreement.



     “Completion Date Funding Contribution” has the meaning given in Section 2.01(a)(iii).



     “Default Funding Contribution” has the meaning given in Section 2.01(a)(iv).



     “Defaulted Payment” has the meaning given in Section 4.01.



     “Discharge Date” means the date on which the earlier of the following occurs: (a) the
Sponsor has satisfied all of its payment obligations under Section 2.01 and Article IV in full in
cash; or (b) (i) all of the Obligations (other than any indemnity and similar obligations which
expressly survive termination of this Agreement, the TrAILCo 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 collateralized
in accordance with Section 2.04(j) of the TrAILCo Credit Agreement.



     “Disclosed Litigation” has the meaning given in Section 5.09.



     “Disclosed Matters” has the meaning given in the Sponsor Credit Agreement, except that
the term “Administrative Agent” as used in the definition of such term in the Sponsor Credit
Agreement shall be deemed to mean the Administrative Agent hereunder.



     “Equity Commitment” means, at any time, the sum of (a) the Project Equity Commitment
at such time plus (b) the SFF Equity Commitment at such time. The initial Equity Commitment of the
Sponsor, which may be increased or decreased pursuant to the terms hereof, as of the Closing Date
is $670,000,000.



     “Equity Contribution” means (a) any cash capital contribution provided by the Sponsor
to the Borrower either directly or indirectly through one or more subsidiaries of the Sponsor, in
each case pursuant to the terms of this Agreement and (b) with respect to the Sponsor’s obligation
to satisfy the Project Equity Commitment and the Remaining Equity Commitment, Project Receipt
Payments retained by the Borrower and available to be applied or applied to the payment of Project
Costs.



     “Event of Default” has the meaning given in Section 7.01.



     “Funding Contribution” means each Project Cost Funding Contribution, each SFF Funding
Contribution, each Default Funding Contribution and the Completion Date Funding Contribution.



     “Governmental Approvals” means authorizations, approvals, actions, notices and filings
with any Governmental Authority.



     “Interim Equity Contribution” has the meaning given in Section 2.01(d).



3









 





     “Lenders” has the meaning given in the recitals.



     “Material Adverse Effect” means a material adverse effect upon (a) the business,
financial condition, operations or properties of (i) the Sponsor or (ii) the Sponsor and its
Subsidiaries, taken as a whole, (b) the ability of the “Borrower” (as defined in the Sponsor Credit
Agreement) to perform its “Obligations” (as defined in the Sponsor Credit Agreement) under any of
the “Loan Documents” (as defined in the Sponsor Credit Agreement) to which it is a party, (c) the
ability of the Sponsor to perform its obligations under this Agreement or (d) the material rights
or remedies of any of the “Lender Parties” (as defined in the Sponsor Credit Agreement) under any
of the “Loan Documents” (as defined in the Sponsor Credit Agreement). For the avoidance of doubt,
any section or provision of the Sponsor Credit Agreement or any other Sponsor Financing Document
that is deemed incorporated herein by reference and that uses the capitalized term “Material
Adverse Effect” shall be deemed to use that term as defined herein.



     “MPC” means Monongahela Power Company, an Ohio corporation.



     “PEC” means The Potomac Edison Company, a Maryland and Virginia corporation.



     “Project” has the meaning given in the recitals.



     “Project Cost Funding Contribution” has the meaning given in Section 2.01(a)(i).



     “Project Equity Commitment” means $670,000,000 as such amount may be (i) increased
from time to time by a Commitment Increase Amendment delivered by the Sponsor to the Collateral
Agent and the Administrative Agent in accordance with Section 2.01(c)(ii) or (ii) decreased from
time to time by a Commitment Decrease Amendment delivered by the Sponsor to the Collateral Agent
and the Administrative Agent in accordance with Section 2.01(c)(iv) and reasonably acceptable to
the Administrative Agent; provided that in no event shall the Project Equity Commitment at
any time be less than (x) the Reserve Equity Amount (except after payment in full of the Remaining
Equity Commitment in connection with a Default Funding Contribution) at such time less (y) the
Project Receipt Payments held at such time by the Borrower in cash or cash equivalents net of all
accounts payable in respect of Project Costs during the next 45-day period (for the avoidance of
doubt, the amount calculated pursuant to this clause (y) shall not be less than zero);
provided further that, to the extent applicable, at all times (i) after the
Borrower incurs Project Costs in respect of the Additional Facilities in excess of $152,000,000 but
equal to or less than $200,000,000, the Project Equity Commitment shall increase by an amount equal
to 50% of the Project Costs incurred by the Borrower in respect of the Additional Facilities in the
amount of such excess and (ii) prior to Completion, after the Borrower incurs Project Costs in
respect of the Additional Facilities in excess of $200,000,000 up to $220,000,000, the Project
Equity Commitment shall increase by an amount equal to 1/3 of the Project Costs incurred by the
Borrower in respect of the Additional Facilities in the amount of such excess; provided
further that equity contributed to the Borrower prior to the Closing Date in the amount of
$129,940,628 shall count as Equity Contributions provided by the Sponsor and be credited against
the Project Equity Commitment (provided that if any such contributed amounts are returned
to the Sponsor or any Affiliate thereof at any time, such returned amounts shall be debited to the
Project Equity Commitment).



4









 





     “Receipt Payment Refund” has the meaning given in Section 2.01(c)(iii).



     “Remaining Equity Commitment” means, at any time, the Equity Commitment minus the
aggregate amount of Equity Contributions made on or prior to such time and applied or available to
be applied to the payment of Project Costs or SFF Costs; provided that in no event shall
the Remaining Equity Commitment be less than (i) the Reserve Equity Amount (except after payment in
full of the Remaining Equity Commitment in connection with a Default Funding Contribution) less
(ii) the Project Receipt Payments held at such time by the Borrower in cash or cash equivalents and
available to be applied to the payment of Project Costs.



     “Reserve Equity Amount” means, at any time, an amount equal to (a) the aggregate
amount of the Approved Limit for each Segment which has not, as of such time, obtained Siting
Approval (other than any Segment which has been designated as an Excluded Portion) plus (b) the
Excluded Portion Loan Amount for any Excluded Portion.



     “Retained Interest” has the meaning given in Section 4.03.



     “SEC” means the Securities and Exchange Commission.



     “SFF Costs” has the meaning given in the recitals.



     “SFF Equity Commitment” means $0, which amount shall automatically increase, each time
TrAILCo commits to incur SFF Costs, by an amount equal to such SFF Costs, as such amount may be (i)
increased from time to time by a Commitment Increase Amendment delivered by the Sponsor to the
Collateral Agent and the Administrative Agent in accordance with Section 2.01(c)(ii) or (ii)
decreased from time to time by a Commitment Decrease Amendment delivered by the Sponsor to the
Collateral Agent and the Administrative Agent in accordance with Section 2.01(c)(v) and reasonably
acceptable to the Administrative Agent.



     “SFF Funding Contribution” has the meaning given in Section 2.01(a)(ii).



     “Sponsor” has the meaning given in the preamble.



     “Sponsor Credit Agreement” means the Credit Agreement, dated as of May 22, 2006, among
Sponsor and SupplyCo as borrowers; the lenders and issuing banks party thereto from time to time;
Citicorp North America, Inc., as administrative agent; Citigroup Global Markets Inc., as a joint
lead arranger and joint book runner; and Credit Suisse, Cayman Islands Branch as joint lead
arranger, joint book runner and syndication agent, as amended on September 11, 2007 and as such
agreement may be further amended, supplemented or otherwise modified from time to time.



     “Sponsor Financing Document” means the Sponsor Credit Agreement or any agreement,
contract or other instrument pursuant to which (a) any debt for borrowed money of the Sponsor under
the Sponsor Credit Agreement (or any other Sponsor Financing Document) has been extended, renewed,
refinanced, refunded or repaid, or (b) any other debt for borrowed money of the Sponsor has been
issued in exchange or replacement for, or to refinance the debt for borrowed money of the Sponsor
under the Sponsor Credit Agreement (or any other Sponsor



5









 




Financing Document), in each case in whole or in part, whether with the same or different
lenders, arrangers or agents and whether with a larger or smaller aggregate principal amount and/or
a longer or shorter maturity; provided that if the Sponsor Credit Agreement (or any other
Sponsor Financing Document) is terminated and not replaced by a new Sponsor Financing Document,
then the term “Sponsor Financing Document” shall be deemed to refer to the Sponsor Credit Agreement
(or such other Sponsor Financing Document) as in effect immediately prior to such termination and
without giving effect to any amendment made thereto in connection with or in anticipation of such
termination.




     “Subsidiary” means MPC, PEC, WPPC or SupplyCo. For the avoidance of doubt, any
section or provision of the Sponsor Credit Agreement that is deemed incorporated herein by
reference and that uses the capitalized term “Subsidiary” shall be deemed to use that term as
defined herein.



     “SupplyCo” means Allegheny Energy Supply Company, LLC, a Delaware limited liability
company.



     “TrAIL Transmission Line” has the meaning given in the recitals.



     “TrAILCo Credit Agreement” has the meaning given in the recitals.



     “WPPC” means West Penn Power Company, a Pennsylvania corporation.



          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 (a) Section 1.02(a) through (f) of the TrAILCo Credit Agreement and (b) Section
1.02(c) of the Sponsor Credit Agreement, as in effect as of the date hereof, are hereby
incorporated by reference, mutatis mutandis, as if fully set forth herein.




ARTICLE II.

OBLIGATIONS OF SPONSOR




          Section 2.01 Equity Contributions.




          (a) Contributions by Sponsor . Notwithstanding any provision to the contrary
contained herein, the Sponsor hereby agrees, for the benefit of the Collateral Agent on behalf of
the Secured Parties, as follows:





          (i) The Sponsor shall make, or cause to be made through one or more of its direct or
indirect subsidiaries, Equity Contributions to the Borrower (A) as necessary to maintain the
Maximum Debt to Equity Ratio at all times and (B) from and after the date on which the
proceeds of the Loans have been fully utilized, as necessary to pay all Project Costs as
they are incurred (each such Equity Contribution, in the case of clause (A) or (B), a
“Project Cost Funding Contribution”), until an amount equal to the Project Equity
Commitment less the Reserve Equity Amount has been fully funded. Each such Project Cost
Funding Contribution shall be made not fewer than two Business Days prior to the date on
which such Project Costs are reasonably expected to become



6









 







due and payable. As of the Closing Date, the Sponsor has made Equity Contributions
equal to $129,940,628, which shall reduce the Project Equity Commitment and the Remaining
Equity Commitment.




          (ii) The Sponsor shall make, or cause to be made through one or more of its direct or
indirect subsidiaries, Equity Contributions to the Borrower in an amount equal to SFF Costs
as they are incurred (each such Equity Contribution, an “SFF Funding Contribution”)
until the SFF Equity Commitment is funded up to the maximum amount of $250,000,000. Each
such SFF Funding Contribution shall be made not fewer than two Business Days prior to the
date on which such SFF Costs are reasonably expected to become due and payable.




          (iii) The Sponsor shall make, or cause to be made through one or more of its direct or
indirect subsidiaries, on or before the Completion Date, an Equity Contribution to the
Borrower in an amount equal to the lesser of (A) an amount sufficient to cause the Debt to
Equity Ratio to equal, as of the Completion Date, 1:1 and (B) the then-current unfunded
Project Equity Commitment (such Equity Contribution, the “Completion Date Funding
Contribution”).




          (iv) Upon the occurrence of an Event of Default, the Sponsor shall (subject to the
following sentence) make, or cause to be made through one or more of its direct or indirect
subsidiaries, an Equity Contribution to the Borrower in an amount equal to the Remaining
Equity Commitment (such Equity Contribution, a “Default Funding Contribution”).
Such Default Funding Contribution shall be made not more than two Business Days after
receipt by the Sponsor of notice from the Administrative Agent that an Event of Default has
occurred and is continuing and demanding that the Sponsor make, or cause to be made, the
Default Funding Contribution; provided, however, that if an Event of Default
under Section 7.01(h) of the TrAILCo Credit Agreement occurs, then such amount shall be due
and payable immediately, without notice of any kind.



          (b) Treatment of Proceeds. Equity Contributions made pursuant to Section 2.01(a)
shall be deposited or transferred by the Sponsor as follows:





          (i) The proceeds of each Project Cost Funding Contribution and each SFF Funding
Contribution shall be transferred directly to the TrAILCo Operating Account.




          (ii) The proceeds of any Completion Date Funding Contribution and any Default Funding
Contribution shall be transferred directly to the TrAILCo Operating Account,
provided that, if for any reason (including due to any Legal Requirement), such
amount cannot be transferred to such account, the Sponsor shall cause such amount to be
transferred to the Administrative Agent to be applied in accordance with Section 2.09(b) of
the TrAILCo Credit Agreement.


Notwithstanding that the Equity Contributions of the Sponsor may be transferred directly to the
Administrative Agent, any and all Equity Contributions made by the Sponsor in accordance with the
terms hereof shall be deemed to be Equity Contributions by the Sponsor (or its direct or



7









 






indirect subsidiary) to the Borrower. Within 15 days following the end of each calendar month, the
Sponsor shall provide the Administrative Agent written notice of any Equity Contributions made
during such calendar month, including the amounts of such Equity Contributions. Except as provided
herein, all Equity Contributions shall be made without set-off or counterclaim.




          (c) Maximum Contribution Amount; Increases and Decreases in Equity Commitment.





          (i) Subject to Section 3.01, in no event shall the Equity Contributions required to be
made by the Sponsor pursuant to this Agreement, when taken together with all purchases of
undivided participating interests under Section 4.01, exceed the then-current Remaining
Equity Commitment.




          (ii) The Equity Commitment may be increased, at any time, by the Sponsor delivering to
the Collateral Agent and the Administrative Agent a Commitment Increase Amendment.




          (iii) If, at any time, FERC or any other Governmental Authority requires the Borrower
to refund all or any portion of any Project Receipt Payment (any such required refund a
“Receipt Payment Refund”) previously applied to reduce the amount of the Project
Equity Commitment and/or the Remaining Equity Commitment, then the Project Equity Commitment
and/or the Remaining Equity Commitment shall automatically increase by the amount of such
Receipt Payment Refund made by the Borrower (without duplication of Receipt Payment Refunds
that limit the reduction of the Project Equity Commitment pursuant to Section 2.01(c)(iv)).




          (iv) If the Borrower (A) has designated all or any portion of the Prexy Segment, the
Virginia Segment or the Jointly Owned Segment as an Excluded Portion (and such portion
qualifies as an “Excluded Portion” pursuant to the terms of the TrAILCo Credit Agreement),
(B) has reduced the Lenders’ Construction Loan commitments by an amount equal to (1) the
Allocated Loan Amount for such Segment minus (2) the Excluded Portion Loan Amount for such
Segment, provided that if less than all of such Segment is designated as an Excluded
Portion, then such reduction shall be made in proportion to the amount budgeted for such
Excluded Portion relative to the Allocated Loan Amount for such Segment (as certified by the
Borrower and confirmed by the Independent Engineer), (C) has certified that it shall not
spend any further funds on such Excluded Portion (provided that, the Borrower may,
at a later date, determine to make additional expenditures in respect of such Excluded
Portion with the proceeds of equity contributions if such Excluded Portion meets the
criteria for a Separately Financed Facility) and (D) cannot reasonably be expected to be
required by FERC or any other Governmental Authority to continue construction or to
decommission (or otherwise perform any other remediation), in each case with respect to such
Excluded Portion, then the Project Equity Commitment may be reduced by (X) the portion of
the total Project Equity Commitment (including any contingency associated therewith)
allocable to such Excluded Portion, such portion to be determined based on the amount
budgeted for such Excluded Portion (including any contingency associated therewith) in the
Project Budget relative to the total Project Budget less (Y) the sum of (1) the Excluded
Portion Loan



8









 







Amount for such Excluded Portion plus (2) the amount of any Receipt Payment Refund made
by the Borrower and not previously used in calculating an adjustment to the Project Equity
Commitment with respect to another Excluded Portion pursuant to this Section 2.01(c)(iv)
plus (3) the amount of Equity Contributions already contributed or deemed contributed in
connection with such Excluded Portion. For the avoidance of doubt, if less than all of a
Segment is designated as an Excluded Portion, then such reduction shall be made in
proportion to the total Project Equity Commitment (including any contingency associated
therewith) allocable to such portion of the Segment, such portion to be determined based on
the amount budgeted for such portion of such Segment (including any contingency associated
therewith) relative to the total Project Equity Commitment (including any contingency
associated therewith) allocable to such Segment (as certified by the Borrower and confirmed
by the Independent Engineer). Such reduction of the Project Equity Commitment shall be made
by the Sponsor delivering to the Collateral Agent and the Administrative Agent a Commitment
Decrease Amendment.




          (v) For any Separately Financed Facility for which the Sponsor is obligated to make
equity contributions to the Borrower, if the Borrower has (A) certified that it shall not
spend any further funds on such Separately Financed Facility and (B) cannot reasonably be
expected to be required by FERC or any other Governmental Authority to continue construction
or to decommission (or otherwise perform any other remediation), in each case with respect
to such Separately Financed Facility, then the SFF Equity Commitment may be reduced by the
equity amount allocated to such Separately Financed Facility, less the amount already spent
on such Separately Financed Facility. Such reduction of the SFF Equity Commitment shall be
made by the Sponsor delivering to the Collateral Agent and the Administrative Agent a
Commitment Decrease Amendment.



          (d) Interim Equity Contributions. If the Sponsor makes Equity Contributions during
any period when Loans are not available to the Borrower for use to pay Project Costs for any
Segment because the Borrower has not obtained Siting Approval for such Segment and has drawn up to
the Approved Limit for such Segment, and such Equity Contributions are applied to pay Project Costs
for such Segment, then such Equity Contributions shall be deemed to be “Interim Equity
Contributions” and shall not reduce the Remaining Equity Commitment (nor shall they be credited
to reduce the Sponsor’s Project Equity Commitment or SFF Equity Commitment); provided,
however, that if the Borrower subsequently obtains Siting Approval for such Segment, then
the Sponsor shall be credited with having made Equity Contributions that reduce the Remaining
Equity Commitment (and that shall be credited toward the Sponsor’s Project Equity Commitment) in an
amount equal to such Interim Equity Contributions less any amounts distributed to the Sponsor or
any of its Affiliates with the proceeds of Loans made to reimburse the Sponsor for a portion of
such Interim Equity Contributions in accordance with the terms of the TrAILCo Credit Agreement
(including the requirement that the Borrower maintain the Maximum Debt to Equity Ratio).




          Section 2.02 Late Payments. In the event that any Equity Contribution is not made on the date
such Equity Contribution is required to be made hereunder, the amount of such delinquent Equity
Contribution shall bear interest at a per annum rate equal to 2% plus the



9









 






interest rate then applicable to Base Rate Loans as provided in Section 2.12(a) of the TrAILCo
Credit Agreement until such time as such Equity Contribution is deposited in the TrAILCo Operating
Account or transferred to the Administrative Agent in accordance with Section 2.01.




          Section 2.03 Waiver of Defenses; Obligations Unconditional.




          (a) Waiver of Defenses. To the extent permitted by applicable Legal Requirements, the
Sponsor hereby unconditionally and irrevocably waives and relinquishes all rights and remedies
accorded by applicable Legal Requirements to sureties or guarantors and agrees not to assert or
take advantage of any such rights or remedies, including (i) any right to require the Collateral
Agent or any Secured Party to proceed against the Borrower or any other person or to proceed
against or exhaust any security held by the Collateral Agent or any other Secured Party at any time
or to pursue any other remedy in the Collateral Agent’s or any Secured Party’s power before
proceeding against the Sponsor, (ii) any defense that may arise by reason of the incapacity, lack
of power or authority, death, dissolution, merger, termination or disability of the Borrower or any
other person or the failure of the Collateral Agent or any other Secured Party to file or enforce a
claim against the estate (in administration, bankruptcy or any other proceeding) of the Borrower or
any other person, (iii) demand, presentment, protest and notice of any kind (other than any notice
required pursuant to the express provisions of this Agreement), including notice of the existence,
creation or incurring of any new or additional Indebtedness or obligation or of any action or
non-action on the part of the Borrower, the Collateral Agent, the Secured Parties, any endorser or
creditor of the foregoing or on the part of any other person under this or any other instrument in
connection with any obligation or evidence of Indebtedness held by the Collateral Agent or any
Secured Party as collateral or in connection with any of the Obligations, (iv) any defense based
upon an election of remedies by the Collateral Agent or the Secured Parties, including an election
to proceed by non-judicial rather than judicial foreclosure, which destroys or otherwise impairs
the subrogation rights of the Sponsor, the right of the Sponsor to proceed against the Borrower or
another person for reimbursement, or both, (v) any defense based on any offset against any amounts
which may be owed by any person to the Sponsor or the Borrower for any reason whatsoever, (vi) any
defense based on any act, failure to act, delay or omission whatsoever on the part of the Borrower
or the failure by the Borrower to do any act or thing or to observe or perform any covenant,
condition or agreement to be observed or performed by the Borrower under the Construction Contract,
the TrAILCo Credit Agreement or any other Transaction Document, (vii) any defense based upon any
statute or rule of law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal, (viii) any defense, setoff
or counterclaim which may at any time be available to or asserted by the Borrower against the
Collateral Agent, the Secured Parties or any other person under the Construction Contract, the
TrAILCo Credit Agreement or the other Transaction Document, (ix) any duty on the part of the
Collateral Agent or any Secured Party to disclose to the Sponsor any facts the Collateral Agent or
any Secured Party may now or hereafter know about the Borrower, regardless of whether the
Collateral Agent or any Secured Party has reason to believe that any such facts materially increase
the risk beyond that which the Sponsor intends to assume, or have reason to believe that such facts
are unknown to the Sponsor, or have a reasonable opportunity to communicate such facts to the
Sponsor, since the Sponsor acknowledges that the Sponsor is fully responsible for being and keeping
informed of the financial condition of the Borrower, (x) any defense based on any change in the
time,



10









 






manner or place of any payment under, or in any other term of, the Construction Contract, the
TrAILCo Credit Agreement or any other Transaction Document or any other amendment, renewal,
extension, acceleration, compromise or waiver of or any consent or departure from the terms of the
Construction Contract, the TrAILCo Credit Agreement or any other Transaction Document, (xi) any
defense arising because of the Collateral Agent’s or any Secured Party’s election, in any
proceeding instituted under the U.S. Bankruptcy Code, of the application of Section 1111(b)(2) of
the U.S. Bankruptcy Code, (xii) any defense based upon any borrowing or grant of a security
interest under Section 364 of the U.S. Bankruptcy Code and (xiii) any other circumstance (including
any statute of limitations) or any existence of or reliance on any representation by the Collateral
Agent or any Secured Party that might otherwise constitute a defense available to, or discharge of,
any guarantor or surety (in each of the foregoing cases other than, subject to Section 3.01,
defense of payment of the applicable amounts).




          (b) Obligations Unconditional. All rights of the Collateral Agent and the Secured
Parties and all obligations of the Sponsor hereunder shall be absolute and unconditional
irrespective of:





          (i) any lack of validity, legality or enforceability of the TrAILCo Credit Agreement,
this Agreement or any other Financing Document;




          (ii) the failure of any Secured Party (i) to assert any claim or demand or to enforce
any right or remedy against the Borrower, the Sponsor or any other Person (including any
guarantor) under the provisions of the Construction Contract, the TrAILCo Credit Agreement,
any other Financing Document or otherwise, or (ii) to exercise any right or remedy against
any other guarantor of, or collateral securing, any of the Obligations;




          (iii) any change in the time, manner or place of payment of, or in any other term of,
all of the Obligations, or any other extension or renewal of any Obligation of the Borrower,
the Sponsor or otherwise;




          (iv) any reduction, limitation, impairment or termination of any of the Obligations for
any reason other than the written agreement of the Secured Parties to terminate the
Obligations in full, including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to, and the Sponsor hereby waives any right to or claim
of, any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of
the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of,
or any other event or occurrence affecting, any Obligation of the Borrower, the Sponsor or
otherwise;




          (v) any amendment to, rescission, waiver, or other modification of, or any consent to
departure from, any of the terms of the Construction Contract, the TrAILCo Credit Agreement,
this Agreement (other than to the extent such amendment, rescission, waiver, modification or
consent to departure from the terms of this Agreement is made in accordance with the terms
hereof and expressly modifies the rights of the Collateral Agent and the Secured Parties or
the obligations of the Sponsor hereunder) or any other Transaction Document;



11









 






          (vi) any addition, exchange, release, surrender or non-perfection of any Collateral, or
any amendment to or waiver or release or addition of, or consent to departure from, any
other security interest held by the Collateral Agent or any Secured Party; or




          (vii) any other circumstance which might otherwise constitute a defense available to,
or a legal or equitable discharge of the Borrower, the Sponsor, any surety or any guarantor
(in each of the foregoing cases other than the defense, subject to Section 3.01, of payment
of the applicable amounts).



          Section 2.04 Incremental Facility. Each time any New Construction Commitment is established
pursuant to Section 2.19 of the Credit Agreement, the Sponsor shall, concurrently therewith, make
an Equity Contribution to the Borrower in an amount equal to (x) such New Construction Commitment
minus (y) the amount of Project Receipt Payments not previously applied to reduce Equity
Contributions hereunder net of all accounts payable in respect of Project Costs during the next
45-day period (for the avoidance of doubt, the amount calculated pursuant to this clause (y) shall
not be less than zero).




          Section 2.05 Subrogation. So long as any of the Obligations remain outstanding (other than
those contingent Obligations that are intended to survive the termination of, as applicable, the
TrAILCo Credit Agreement, the other Financing Documents or any other applicable documents), (a) the
Sponsor shall not have any right of subrogation and the Sponsor waives all rights to enforce any
remedy which the Collateral Agent or the other Secured Parties now have or may hereafter have
against the Borrower or AET that arises hereunder or from the performance by the Sponsor hereunder,
and waives the benefit of, and all rights to participate in, any security now or hereafter held by
the Collateral Agent (for the benefit of the Secured Parties) from the Borrower or AET, and (b) the
Sponsor waives any claim, right or remedy which the Sponsor may now have or hereafter acquire
against the Borrower or AET that arises hereunder or from the performance by the Sponsor hereunder,
including any claim, remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right or remedy of the Collateral Agent or the
other Secured Parties against Borrower or AET or any security or collateral which the Collateral
Agent or the other Secured Parties now have or hereafter acquire, whether or not such claim, right
or remedy arises in equity, under contract, by statute, under common law or otherwise. Any amount
paid to the Sponsor on account of any such subrogation rights prior to the payment in full in cash
of the Obligations and the termination of all Commitments and other obligations of the Collateral
Agent and the other Secured Parties (other than those contingent Obligations that are intended to
survive the termination of, as applicable, the TrAILCo Credit Agreement, the other Financing
Documents or any other applicable documents) shall be held in trust for the benefit of the
Collateral Agent and shall immediately thereafter be paid to the Collateral Agent for application
in accordance with this Agreement and the TrAILCo Credit Agreement.




ARTICLE III.

SPECIFIC PROVISIONS




          Section 3.01 Reinstatement. This Agreement and the Obligations of the Sponsor hereunder
shall automatically be reinstated if and to the extent that for any reason any payment



12









 






made pursuant to this Agreement is rescinded or otherwise restored to the Sponsor, whether as
a result of any proceedings in bankruptcy or reorganization or otherwise with respect to Borrower
or any other person or as a result of any settlement or compromise with any person (including the
Sponsor) in respect of such payment, and the Sponsor shall pay the Collateral Agent on demand all
of its reasonable and documented out-of-pocket costs and expenses (including reasonable and
documented fees of outside counsel) incurred by the Collateral Agent in connection with such
rescission or restoration.




          Section 3.02 Specific Performance. The Sponsor hereby irrevocably waives, to the extent the
Sponsor may do so under applicable Legal Requirements, any defense based on the adequacy of a
remedy at law that may be asserted as a bar to the remedy of specific performance in any action
brought against the Sponsor for specific performance of this Agreement by the Collateral Agent or
any successor or assign thereof or for its benefit by a receiver, custodian or trustee appointed
for the Borrower or in respect of all or a substantial part of its assets, under the bankruptcy or
insolvency laws of any jurisdiction to which the Borrower or its assets are subject.




          Section 3.03 Commencement of Bankruptcy Proceedings. None of the obligations of the Sponsor
under this Agreement shall be altered, limited or affected by any proceeding, voluntary or
involuntary, involving the bankruptcy, reorganization, insolvency, receivership, liquidation or
arrangement of the Borrower or the Sponsor, or by any defense which the Borrower or the Sponsor may
have by reason of any order, decree or decision of any court or administrative body resulting from
any such proceeding.




          Section 3.04 Set-Off. In addition to any rights now or hereafter granted under applicable
Legal Requirements or otherwise, and not by way of limitation of any such rights, upon the failure
of the Sponsor to make any Equity Contribution as and when required hereunder, the Collateral Agent
is hereby authorized at any time or from time to time, without presentment, demand, protest or
other notice of any kind to the Sponsor or to any other person, any such notice being hereby
expressly waived, to set-off and to appropriate and apply any and all deposits (general or special)
at any time held by the Collateral Agent or any Secured Party (including by branches and agencies
of the Collateral Agent and each Secured Party wherever located) to or for the credit or the
account of the Sponsor, against and on account of the obligations of the Sponsor under this
Agreement, irrespective of whether or not the Collateral Agent or any Secured Party shall have made
any demand hereunder.




ARTICLE IV.

PURCHASE OF PARTICIPATING INTEREST




          Section 4.01 Required Purchase of Participating Interest. If by reason of any act of a
Governmental Authority or as a result of the Borrower or any of its Affiliates being Insolvent, (a)
any Equity Contribution due hereunder has not been deposited in the TrAILCo Operating Account or
paid to the Administrative Agent, as applicable, within five Business Days after the date on which
such amount is payable hereunder, or (b) any Equity Contribution theretofore deposited pursuant to
Article II is rescinded or otherwise restored to the Sponsor or any of its Affiliates and five
Business Days have elapsed after the date that such Equity Contribution was rescinded or otherwise
restored (such Equity Contribution, whether required but not made as provided in clause (a) or made
and returned as provided in clause (b), being




13









 







herein called the “Defaulted Payment”), the Sponsor shall, upon notice or demand by the Collateral Agent
or any Secured Party, purchase an undivided participating interest in each of the Loans which shall
then be outstanding, as provided in the following sentence, in an aggregate principal amount equal
to the amount of the Defaulted Payment. The Sponsor’s purchase of an undivided participating
interest in such Loans shall be made pro rata among such Loans based on the respective outstanding
amounts thereof. The Sponsor shall effect its purchase of undivided participating interests in
such Loans pursuant to this Section 4.01 by paying to the Administrative Agent, for the account of
the holders of such Loans, in immediately available funds in Dollars, the amount of the Defaulted
Payment and by entering into the documentation required for participations in or assignments of the
Loans, as set forth in the TrAILCo Credit Agreement.




          Section 4.02 Effect of Purchase of Participating Interest. The Sponsor’s purchase of an
undivided participating interest in the Loans in the full amount (if any) required pursuant to
Section 4.01 following a Defaulted Payment in respect of Equity Contributions, shall satisfy the
Sponsor’s obligation pursuant to Section 2.01 to make Equity Contributions to the extent of the
amount of such Loans so purchased by the Sponsor.




          Section 4.03 Subordinate Nature of Participating Interest. The Sponsor hereby agrees that
its participating interest in the Loans purchased by the Sponsor pursuant to Section 4.01 shall be
subordinate in all respects to the interest in such Loans retained by the holders (other than the
Sponsor) thereof (the “Retained Interest”), so that all payments received or collected on
account of such Loans and applied to the payment or termination thereof, whether received or
collected through repayment of such Loans by the Borrower or through right of set-off with respect
thereto or realization upon any collateral security therefor or otherwise, shall first be applied
to the payment of the principal, interest, fees and other amounts then due (whether at its stated
maturity, by acceleration or otherwise) on the Retained Interest until such principal, interest,
fees and other amounts are paid in full, before any such payments are applied on account of the
Sponsor’s participating interest (if any) in such Loans.




          Section 4.04 Rights of Agents and the Secured Parties. Notwithstanding the purchase and
ownership by the Sponsor of participating interests in the Loans, and notwithstanding the rights of
participants under the TrAILCo Credit Agreement, the Collateral Agent and, to the extent permitted,
each Secured Party shall have the right, in their sole discretion in each instance and without any
notice to the Sponsor, (a) to agree to the modification or waiver of any of the terms of any of the
Financing Documents or any other agreement or instrument relating thereto (but not to reduce any
amount payable in respect of the portion of the Loans subject to participations purchased pursuant
to Section 4.01), (b) to consent to any action or failure to act by the Borrower, the Sponsor or
any other person party to a Financing Document and (c) to exercise or refrain from exercising any
rights or remedies which the Collateral Agent or any Secured Party may have under the Financing
Documents or any other agreement or instrument relating thereto, including the right at any time to
declare, or refrain from declaring, the Obligations due and payable upon the occurrence of any
Event of Default thereunder, and to rescind and annul any such declaration, and to foreclose and
sell or exercise any other remedy, or refrain from foreclosing and selling or exercising any other
remedy, with respect to any Collateral securing the Obligations. Neither the Collateral Agent nor
any Secured Party shall be



14









 






liable to the Sponsor for any error in judgment or for any action taken
or omitted to be taken by the Sponsor while the Sponsor holds a participating interest in the Loans, except to the
extent found in a final and non-appealable judgment of a court of competent jurisdiction to have
resulted primarily from the gross negligence or willful misconduct of such person. Neither the
Collateral Agent nor any Secured Party shall have any duty or responsibility to provide the Sponsor
with any credit or other information concerning the affairs, financial condition or business of the
Borrower or any other party to a Financing Document or which may come into their possession or the
possession of any of their respective Affiliates, or to notify the Sponsor of any default by the
Borrower or any other person under any of the Financing Documents.




          Section 4.05 No Voting Rights. Without limiting the generality of the provisions of Section
4.04, in determining whether the required consent of the Lenders (or any portion thereof) has been
obtained for all purposes under the Financing Documents the participating interests in the Loans
purchased by the Sponsor pursuant to Section 4.01 shall not be deemed to be outstanding.




          Section 4.06 Outright Purchase; Obligations Unconditional. The obligations of the Sponsor
under this Article IV to purchase participating interests in the Loans is absolute and
unconditional and shall not be affected by the occurrence of any Default or Event of Default or any
other circumstance, including any circumstance of the nature described in Section 2.03.




ARTICLE V.

REPRESENTATIONS AND WARRANTIES




     The Sponsor hereby represents and warrants as of the Closing Date and, for each of the
representations and warranties set forth in Sections 5.03(b), 5.06, 5.08, 5.09 and 5.13 as of each
Credit Event Date, to and in favor of the Collateral Agent and the Secured Parties that:



          Section 5.01 Corporate Existence and Business. The Sponsor (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization and (b) has
the requisite corporate power and authority to execute and deliver this Agreement and to perform
its obligations hereunder.




          Section 5.02 Organization; Power and Authority. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary corporate action on the part of the
Sponsor, and this Agreement constitutes a legal, valid and binding obligation of the Sponsor,
enforceable against the Sponsor in accordance with its terms, except as such enforceability may be
limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors’ rights generally and (b) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in equity or at law).




          Section 5.03 Disclosures.




          (a) The Information Memorandum fairly describes, in all material respects, the general nature
of the business of the Sponsor. The documents, certificates or other writings delivered to the
Lenders by or on behalf of the Sponsor regarding the Sponsor, including



15









 






information regarding the Sponsor set forth in the Information Memorandum, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein (taken as a whole) not materially misleading in light of
the circumstances under which they were made. There is no fact known to the Sponsor that could
reasonably be expected to have a “Material Adverse Effect” (as defined in the TrAILCo Credit
Agreement) that has not been set forth in the Information Memorandum, the Financing Documents or in
the other documents, certificates and other writings delivered by or on behalf of the Sponsor or
the Borrower.




          (b) Since December 31, 2007, there has been no change in the financial condition, operations,
business or properties of the Sponsor except changes that individually or in the aggregate could
not reasonably be expected to have a Material Adverse Effect.




          Section 5.04 Financial Statements. The financial statements of the Sponsor (including the
related schedules and notes) delivered to the Lenders pursuant to Section 4.01(i) of the TrAILCo
Credit Agreement fairly present in all material respects the financial position of the Sponsor, as
of their respective dates and the results of its operations and cash flows for the respective
periods then ended and have been prepared in accordance with GAAP consistently applied throughout
the periods involved except as set forth in the notes thereto (subject, in the case of any interim
financial statements, to normal year-end adjustments and the absence of footnotes).




          Section 5.05 No Conflict. The execution, delivery and performance by the Sponsor of this
Agreement will not (a) result in the creation of any Lien (other than any Permitted Lien) in
respect of any property of the Sponsor or (b) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator
or Governmental Authority applicable to the Sponsor.




          Section 5.06 Authorization; Enforceable Obligations. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority or any other third party is
required in connection with the due execution, delivery, recordation, filing or performance by the
Sponsor, or the validity or enforceability as to the Sponsor, of this Agreement, except for
authorizations, approvals, actions, notices and filings which have been duly obtained, taken, given
or made, are in full force and effect, are held in its name, and are free from any conditions or
requirements that have not been satisfied, and are required to be satisfied, on or prior to the
dates as of which this representation and warranty is made or reaffirmed.




          Section 5.07 Execution and Delivery. This Agreement has been duly executed and delivered by
the Sponsor.




          Section 5.08 Ownership Interests. The Sponsor indirectly owns 100% of the ownership interests
in the Borrower.




          Section 5.09 No Litigation or Proceeding.




          (a) Subject to Section 5.09(b), there is no action, suit, investigation, litigation or
proceeding, including any Environmental Action, which has commenced against the Sponsor



16









 






or any of its Subsidiaries or any of their respective properties to the knowledge of the Sponsor or
to its knowledge, pending (but not yet commenced) against or threatened against, the Sponsor
or any of its Subsidiaries or any of their respective properties before any Governmental Authority
that (i) except for Disclosed Matters, if adversely determined, could reasonably be expected to
have a Material Adverse Effect (other than matters described on Schedule 5.09 (the “Disclosed
Litigation”)) or (ii) affects or could reasonably be expected to affect the legality, validity or
enforceability of this Agreement or the performance by the Sponsor of its obligations hereunder.




          (b) To the extent that the representation and warranty in Section 5.09(a) conforms to the
representation and warranty in Section 4.01(e) of the Sponsor Credit Agreement or any other
provision of any Sponsor Financing Document, if such corresponding representation and warranty in
such Sponsor Financing Document is amended, supplemented, restated, waived or otherwise modified
(whether in connection with an amendment, supplement, restatement, waiver or other modification of,
or a replacement of, such Sponsor Financing Document, including as a result of a refinancing
transaction), then Section 5.09(a) shall be deemed to be amended, supplemented, restated, waived,
modified or replaced such that it conforms to the corresponding representation and warranty in such
Sponsor Financing Document (after giving effect to such amendment, supplement, restatement, waiver,
modification or replacement). For the avoidance of doubt, if, as a result of this provision, the
representation and warranty contained in Section 5.09(a) as of the date of this Agreement is deemed
to have been deleted and a subsequent amendment of, supplement to, other modification of or
replacement of any Sponsor Financing Document contains a representation and warranty that clearly
corresponds to such deleted representation and warranty, then such deleted representation and
warranty shall be deemed to be reinstated (such that it conforms to the corresponding
representation and warranty as in effect in the then current Sponsor Financing Document).




          Section 5.10 Investment Company Act. Neither the Sponsor nor any of its Subsidiaries is an
“investment company,” as such term is defined in the Investment Company Act of 1940, as amended.




          Section 5.11 Use of Proceeds. The Sponsor is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of purchasing or carrying
Margin Stock.




          Section 5.12 ERISA. No ERISA Event has occurred with respect to any Plan that has resulted
in a material liability which could be reasonably likely to have a Material Adverse Effect.
Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each
Plan, filed with the Internal Revenue Service is complete and accurate, and since the date of such
Schedule B there has been no material adverse change which could reasonably be expected to have a
Material Adverse Effect on such funding status. Except as could not reasonably be expected to have
a Material Adverse Effect, neither the Sponsor nor any ERISA Affiliate (i) has incurred any
Withdrawal Liability to any Multiemployer Plan, or (ii) has been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within
the meaning of Title IV of ERISA.




          Section 5.13 Environmental Laws; Hazardous Materials.




17









 








          (a) Except as disclosed on Schedule 5.13 or in the Sponsor’s filings with the SEC or as could
not reasonably be expected to have a Material Adverse Effect, (i) the Sponsor’s operations and
properties, and the operations and properties of each of its Subsidiaries, comply in all respects
with all applicable Environmental Laws and Environmental Permits, and (ii) no circumstances exist
that could reasonably be expected to (A) form the basis of an Environmental Action against the
Sponsor or any of its Subsidiaries or any of their properties or (B) cause any such property to be
subject to any restrictions on ownership, occupancy, use or transferability under any Environmental
Law.




          (b) Except as disclosed on Schedule 5.13 or in the Sponsor’s filings with the SEC or as could
not reasonably be expected to have a Material Adverse Effect, (i) none of the properties currently
or formerly owned or operated by the Sponsor or any of its Subsidiaries is listed or proposed for
listing on the NPL or on the CERCLIS or any analogous foreign, state or local list, and (ii)
Hazardous Materials have not been released, discharged or disposed of on any property currently or
formerly owned or operated by the Sponsor or any of its Subsidiaries except in a manner not
reasonably expected to result in material liability to the Sponsor or any of its Subsidiaries.




          (c) Except as disclosed on Schedule 5.13 or in the Sponsor’s filings with the SEC or as could
not reasonably be expected to have a Material Adverse Effect, neither the Sponsor nor any of its
Subsidiaries is undertaking, and has not completed, either individually or together with other
potentially responsible parties, any investigation or assessment or remedial or response action
relating to any actual or threatened release, discharge or disposal of Hazardous Materials.




          Section 5.14 Taxes.




          (a) Neither the Sponsor nor any of its Subsidiaries is party to any tax sharing agreement
other than the Tax Allocation Agreement. Insofar as then required thereunder, all amounts due and
payable by the Sponsor or any of its Subsidiaries under the Tax Allocation Agreement have been
paid, and all amounts due and payable to the Sponsor or any of its Subsidiaries under any tax
sharing agreement have been received (including amounts by way of compensation for the use of tax
benefits), except as could not reasonably be expected to have a Material Adverse Effect.




          (b) The Sponsor has, and each of its Subsidiaries has, filed, has caused to be filed or been
included in all tax returns (federal, state, local and foreign) required to be filed and has paid
all Taxes shown thereon to be due, together with applicable interest and penalties, except (A) to
the extent that the aggregate amount of any unpaid taxes due, together with applicable interest and
penalties, does not exceed $25,000,000 or (B) to the extent such unpaid Taxes are subject to
Contest.




          Section 5.15 Existing Liens. The property of the Sponsor is subject to no Liens other than
(a) Liens set forth on Schedule 5.15, (b) Permitted Liens and (c) Liens existing as of the Closing
Date but not set forth on Schedule 5.15 which secure, individually, an amount of Obligations not to
exceed $5,000,000 or which secure, in the aggregate, an amount of Obligations not to exceed
$25,000,000.




18









 








          Section 5.16 Adequate Information. The Sponsor is fully informed of the financial condition
and prospects of the Borrower. The Sponsor has access to information necessary to determine the
date on which any Equity Contribution will be required under Section 2.01(a).




ARTICLE VI.

COVENANTS




     The Sponsor hereby covenants and agrees for the benefit of the Borrower, the Collateral Agent
and the “Secured Parties” (as defined in the TrAILCo Credit Agreement) that from and after the date
hereof until the Discharge Date:



          Section 6.01 Affirmative Covenants. Subject to Section 6.04, the Sponsor covenants and
agrees that on and after the date hereof and until the Discharge Date, the Sponsor shall abide by
the following affirmative covenants.




          (a) Compliance with Laws. The Sponsor shall comply, and cause each of its
Subsidiaries to comply with all Applicable Laws except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.




          (b) Compliance with Environmental Laws. Except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect, the Sponsor shall (i) comply, and cause
each of its Subsidiaries and all lessees and other Persons operating or occupying its properties to
comply with all applicable Environmental Laws and Environmental Permits, (ii) obtain and renew, and
cause each of its Subsidiaries to obtain and renew, all Environmental Permits necessary for its
operations and properties and (iii) conduct, and cause each of its Subsidiaries to conduct, any
required investigation, study, sampling and testing, and undertake any cleanup, removal, remedial
or other action necessary to remove and clean up all Hazardous Materials from any of its properties
required under any Environmental Law.




          (c) Governmental Approvals. The Sponsor shall obtain and maintain, and cause each of
its Subsidiaries to obtain and maintain, all Governmental Approvals that are required of the
Sponsor for the validity or enforceability of this Agreement, the ongoing operations of the
Sponsor’s and each of its Subsidiaries’ respective businesses and to issue, declare or pay
dividends or distributions, except to the extent prohibited under the TrAILCo Credit Agreement and
except where the failure to do so could not reasonably be expected to have a Material Adverse
Effect.




          (d) Payment of Taxes, Etc. Except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect, the Sponsor shall pay and discharge, and cause each of
its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges or levies imposed upon the Sponsor or upon its property and
(ii) all lawful claims that, if unpaid, will by law become a Lien upon its property not permitted
by the Sponsor Financing Documents; provided that neither the Sponsor nor any of its
Subsidiaries shall be required to pay or discharge any such tax, assessment, charge, levy or claim
that is the subject of a Contest.




19









 








          (e) Insurance. The Sponsor shall maintain, and cause each of its Subsidiaries to
maintain, insurance with responsible and reputable insurance companies or associations in such
amounts and covering such risks as is usually carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which the Sponsor or such Subsidiary
operates.




          (f) Preservation of Corporate Existence, Etc. Except as could not reasonably be
expected to have a Material Adverse Effect, the Sponsor shall preserve and maintain, and cause each
of its Subsidiaries to preserve and maintain, its existence, legal structure, rights (charter or
statutory), permits, licenses, approvals, franchises, and privileges in the jurisdiction of its
formation and in each other jurisdiction in which the conduct of its business requires the Sponsor
to so qualify; provided, however, that the Sponsor and its Subsidiaries may
consummate any merger or consolidation not prohibited hereunder.




          (g) Keeping of Books. The Sponsor shall keep, and cause each of its Subsidiaries to
keep, proper books of record and account in accordance with GAAP in effect from time to time.




          (h) Maintenance of Properties, Etc. Except as could not reasonably be expected to
have a Material Adverse Effect and other than as mandatorily required by Applicable Law, the
Sponsor shall operate, maintain and preserve, and cause each of its Subsidiaries to operate,
maintain and preserve, all of its properties (other than any such properties as are immaterial or
non-essential to the conduct of business by the Sponsor and its Subsidiaries, taken as a whole)
that are used or useful in the conduct of its business in good working order and condition
(ordinary wear and tear excepted) in accordance with prudent practices then being utilized in the
electric utility industry and in accordance with Applicable Law (including Environmental Laws).




          (i) Transactions with Affiliates. Other than as may be required by the Federal Power
Act, as amended, or any rule or regulation issued by FERC, the Sponsor shall conduct, and cause
each of its Subsidiaries to conduct, (i) all transactions with any of the Sponsor’s Affiliates on
terms that are fair and reasonable and no less favorable to the Sponsor or such Affiliate than the
Sponsor would obtain in a comparable arm’s-length transaction with a Person not an Affiliate of the
Sponsor and (ii) all transactions with a Person other than an Affiliate of the Sponsor on terms
that are without regard to any benefit or detriment to any Affiliate of the Sponsor (other than any
of the Sponsor’s Subsidiaries); provided that this Section 6.01(i) shall not be deemed to
permit any transaction otherwise prohibited by the terms of the Sponsor Credit Agreement. Without
prejudice to the foregoing, transactions deemed to be in compliance with the first sentence of this
Section 6.01(i) pursuant to the Sponsor Credit Agreement as in effect as of the date hereof shall
be deemed to be in compliance with this Section 6.01(i).




          (j) Maintenance of Ownership of Subsidiaries.





          (i) Except as not prohibited by or as permitted under Section 5.01(f), Section 5.02(d)
or Section 5.02(e) of the Sponsor Credit Agreement, the Sponsor shall maintain ownership and
control of all Equity Interests that the Sponsor holds in all of its



20









 







Subsidiaries, free and clear of all Liens except as not prohibited by or as permitted
by the Sponsor Financing Documents.




          (ii) The Sponsor shall maintain 100% ownership (direct or indirect) and control of the
Borrower.



          Section 6.02 Negative Covenants. Subject to Section 6.04, the Sponsor covenants and agrees
that on and after the date hereof and until the Discharge Date the Sponsor shall not violate any of
the following negative covenants.




          (a) Debt. Section 5.02(b) of the Sponsor Credit Agreement, including all capitalized
terms used therein and not otherwise defined herein, is deemed to be incorporated herein by
reference as in effect on the date hereof.




          (b) Change in Nature of Business. Section 5.02(c) of the Sponsor Credit Agreement,
including all capitalized terms used therein and not otherwise defined herein, is deemed to be
incorporated herein by reference as in effect on the date hereof.




          (c) Mergers, Etc. Section 5.02(d) of the Sponsor Credit Agreement, including all
capitalized terms used therein and not otherwise defined herein, is deemed to be incorporated
herein by reference as in effect on the date hereof.




          (d) Sales, Etc., of Assets. Section 5.02(e) of the Sponsor Credit Agreement,
including all capitalized terms used therein and not otherwise defined herein, is deemed to be
incorporated herein by reference as in effect on the date hereof.




          (e) Investments in Other Persons. Section 5.02(f) of the Sponsor Credit Agreement,
including all capitalized terms used therein and not otherwise defined herein, is deemed to be
incorporated herein by reference as in effect on the date hereof.




          (f) Restricted Payments. Section 5.02(g) of the Sponsor Credit Agreement, including
all capitalized terms used therein and not otherwise defined herein, is deemed to be incorporated
herein by reference as in effect on the date hereof.




          (g) Payment Restrictions Affecting the Sponsor and its Subsidiaries. Section 5.02(h)
of the Sponsor Credit Agreement, including all capitalized terms used therein and not otherwise
defined herein, is deemed to be incorporated herein by reference as in effect on the date hereof.




          (h) Prepayments, Etc., of Debt. Section 5.02(k) of the Sponsor Credit Agreement,
including all capitalized terms used therein and not otherwise defined herein, is deemed to be
incorporated herein by reference as in effect on the date hereof.




          (i) Speculative Transactions. Section 5.02(l) of the Sponsor Credit Agreement,
including all capitalized terms used therein and not otherwise defined herein, is deemed to be
incorporated herein by reference as in effect on the date hereof.




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          (j) Compliance with ERISA. Section 5.02(m) of the Sponsor Credit Agreement, including
all capitalized terms used therein and not otherwise defined herein, is deemed to be incorporated
herein by reference as in effect on the date hereof.




          (k) Financial Covenants. Section 5.04 of the Sponsor Credit Agreement, including all
capitalized terms used therein and not otherwise defined herein, is deemed to be incorporated
herein by reference as in effect on the date hereof.




          Section 6.03 Reporting Covenants . Subject to Section 6.04, the Sponsor shall, on and after
the date hereof and until the Discharge Date, furnish the following reports and notices to the
Administrative Agent:




          (a) Default Notices. As soon as possible and in any event within five Business Days
after any Responsible Officer of the Sponsor becomes aware of the occurrence of (i) any Default or
(ii) any event, development or occurrence reasonably likely to have a Material Adverse Effect, in
the case of clause (i) or (ii), continuing on the date of such statement, the Sponsor shall furnish
a statement of a Responsible Officer of the Sponsor setting forth the details of such Default or
event, development or occurrence (as applicable) and, in each case, the actions, if any, which the
Sponsor has taken and proposes to take with respect thereto.




          (b) Annual Financials. As soon as available and in any event within 15 days after
they are required to be filed with the SEC, a copy of the annual audit report for such year for the
Sponsor and its Subsidiaries (for purposes of this Section 6.03(b), as such term is defined in the
Sponsor Credit Agreement) including therein a Consolidated balance sheet of the Sponsor and its
Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a
Consolidated statement of cash flows of the Sponsor and its Subsidiaries for such Fiscal Year, in
each case accompanied by a report that is unqualified or is otherwise reasonably acceptable to the
auditors (such auditors to be independent public accountants of recognized standing), as filed with
the SEC, together with, for each Fiscal Year, (i) a certificate of such accounting firm stating
that in the course of the regular audit of the business of the Sponsor and its Subsidiaries, which
audit was conducted by such accounting firm in accordance with generally accepted auditing
standards, nothing has come to such accounting firm’s attention that would cause the Sponsor to
believe that the Sponsor has failed to comply with the covenants set forth in Section 6.02(k), (ii)
a schedule in form satisfactory to the “Administrative Agent” (as defined in the Sponsor Credit
Agreement) of the computations prepared by the Sponsor and used by such accounting firm in
determining, as to the fourth quarter of such Fiscal Year, compliance with the covenants contained
in Section 6.02(k), provided that in the event of any change in GAAP used in the
preparation of such financial statements, the Sponsor shall also provide, if necessary for the
determination of compliance with Section 6.02(k), a statement of reconciliation conforming such
financial statements to GAAP as in effect as of the Closing Date and (iii) a certificate of a
Responsible Officer of the Sponsor stating that no Default has occurred and is continuing or, if a
Default has occurred and is continuing, a statement as to the nature thereof and the action that
the Sponsor has taken and proposes to take with respect thereto.




          (c) Quarterly Financials. As soon as available and in any event within 60 days after
the end of each of the first three quarters of each Fiscal Year, a Consolidated balance sheet of
the Sponsor and its Subsidiaries (for purposes of this Section 6.03(c), as such term is



22









 






defined in the Sponsor Credit Agreement) as of the end of such quarter and a Consolidated
statement of income and a Consolidated statement of cash flows of the Sponsor and its Subsidiaries
for the period commencing at the end of the previous fiscal quarter and ending with the end of such
fiscal quarter, as filed with the SEC, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in
reasonable detail and duly certified (subject to normal year-end audit adjustments) by a
Responsible Officer of the Sponsor as having been prepared in accordance with GAAP, together with
(i) a certificate of said officer stating that no Default has occurred and is continuing or, if a
Default has occurred and is continuing, a statement as to the nature thereof and the action that
the Sponsor has taken and proposes to take with respect thereto and (ii) a schedule in form
satisfactory to the “Administrative Agent” (as defined in the Sponsor Credit Agreement) of the
computations used by the Sponsor in determining compliance with the covenants contained in Section
6.02(k), provided that in the event of any change in GAAP used in the preparation of such
financial statements, the Sponsor shall also provide, if necessary for the determination of
compliance with Section 6.02(k), a statement of reconciliation conforming such financial statements
to GAAP as in effect as of the Closing Date.




          (d) Litigation. Promptly after the commencement thereof, the Sponsor shall furnish
notice of all actions, suits, investigations, litigation and proceedings before any Governmental
Authority, domestic or foreign, affecting the Sponsor or any of its Subsidiaries of the type
described in Section 5.09, and promptly after the occurrence thereof, notice of any change in
respect of the Disclosed Litigation described on Schedule 5.09 which could reasonably be expected
to have a Material Adverse Effect.




          (e) Environmental Conditions. Promptly after the assertion or occurrence thereof, the
Sponsor shall furnish notice of any Environmental Action against or of any noncompliance by the
Sponsor or any of its Subsidiaries with any Environmental Law or Environmental Permit that could
(i) reasonably be expected to have a Material Adverse Effect or (ii) cause any property to be
subject to any restrictions on ownership, occupancy, use or transferability under any Environmental
Law, except where the failure to do so could not reasonably be expected to have a Material Adverse
Effect.




          (f) Sponsor Financing Documents. As soon as available and in any event within 5
Business Days after execution thereof, the Sponsor shall (i) furnish a true and correct copy of any
new Sponsor Financing Document, or any amendment to, supplement to, restatement of, or other
modification of any Sponsor Financing Document and (ii) provide notice of any cancelled or
terminated Sponsor Financing Documents.




          (g) Other Information. The Sponsor shall furnish such other information respecting
the business or properties, or the condition or operations, financial or otherwise, of the Sponsor
or any of its Subsidiaries as the Administrative Agent or any “Lender” (as defined in the TrAILCo
Credit Agreement) acting through the Administrative Agent may from time to time reasonably request,
and shall furnish to the Administrative Agent copies of any such information and any notices or
other documentation that the Sponsor furnishes to the “Administrative Agent” under and as defined
in the Sponsor Credit Agreement.




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          Section 6.04 Revisions to Sponsor Financing Documents.




          (a) Existing Covenants. To the extent that any covenant set forth in Section 6.01,
6.02 or 6.03 conforms to a corresponding covenant in the Sponsor Credit Agreement or any other
Sponsor Financing Document, if such corresponding covenant in such Sponsor Financing Document is
amended, supplemented, restated, waived or otherwise modified (whether in connection with an
amendment, supplement, restatement, waiver or other modification of, or a replacement of, such
Sponsor Financing Document, including as a result of a refinancing transaction), then the relevant
covenant in this Agreement shall be deemed to be amended, supplemented, restated, waived, modified
or replaced such that it conforms to the corresponding covenant in such Sponsor Financing Document
(after giving effect to such amendment, supplement, restatement, waiver, modification or
replacement); provided, however, that none of the covenants set forth in Sections
6.01(c), 6.01(j)(ii), 6.03(b), 6.03(c) or 6.03(f), shall be deemed amended, supplemented, restated,
waived, modified or replaced at any time as a result of anything set forth in this Section 6.04;
provided further that the covenants set forth in Sections 6.03(b) and 6.03(c) shall
remain in effect notwithstanding any deletion or expiration of the corresponding covenants in the
Sponsor Credit Agreement or the termination or expiration of the Sponsor Credit Agreement. For the
avoidance of doubt, if, as a result of this provision, any covenant contained in this Agreement as
of the date of this Agreement is deemed to have been deleted and a subsequent amendment of,
supplement to, other modification of or replacement of any Sponsor Financing Document contains a
covenant that clearly corresponds to such deleted covenant, then such deleted covenant shall be
deemed to be reinstated (such that it conforms to the corresponding covenant as in effect in the
then current Sponsor Financing Document).




          (b) For the avoidance of doubt, Sections 6.02(a), 6.02(b), 6.02(c), 6.02(d), 6.02(e), 6.02(f),
6.02(g), 6.02(h), 6.02(i), 6.02(j) and 6.02(k), respectively, shall be interpreted and construed to
be amended, supplemented, restated, waived or otherwise modified in connection with any amendment,
supplement, restatement, waiver or other modification of Sections 5.02(b), 5.02(c), 5.02(d),
5.02(e), 5.02(f), 5.02(g), 5.02(h), 5.02(k), 5.02(l), 5.02(m) and 5.04 of the Sponsor Credit
Agreement, respectively, as applicable, or any other applicable covenant that corresponds to such
covenant in any successor Sponsor Financing Document.




          (c) New Covenants. To the extent that any covenant is added as a covenant in the
Sponsor Credit Agreement or any other Sponsor Financing Document after the date hereof, then this
Agreement shall be deemed amended and such covenant shall be deemed to be incorporated as a new
covenant hereunder. Any Event of Default resulting from the breach of any such new covenant by the
Sponsor shall be subject to the same cure period as would be applicable under the relevant
provision in the applicable Sponsor Financing Document.



24









 







ARTICLE VII.

EVENTS OF DEFAULT




          Section 7.01 Events of Default. Subject to Section 7.02, the existence of any of the
following events, conditions or occurrences shall constitute an event of default hereunder (each,
an “Event of Default”):




          (a) an “Event of Default” under and as defined in the TrAILCo Credit Agreement has occurred
and is continuing; or




          (b) the Sponsor shall fail to make any Equity Contribution when the same shall become due and
payable; or




          (c) any representation, warranty, certification or statement of fact made or deemed made by or
on behalf of the Sponsor herein shall be incorrect or misleading in any material respect when made
or deemed made; or




          (d) the Sponsor or any of its Subsidiaries shall fail to perform or observe any term, covenant
or agreement contained in Section 6.01(f) (Preservation of Corporate Existence, Etc.), Section 6.02
(Negative Covenants) (excluding Section 6.02(i) (Speculative Transactions)) or Section 6.03(a)
(Default Notices); or




          (e) the Sponsor or any of its Subsidiaries shall fail to perform or observe any term, covenant
or agreement contained in Section 6.01(i) (Transactions with Affiliates), Section 6.02(i)
(Speculative Transactions) or Section 6.03 (Reporting Covenants) (excluding Section 6.03(a)
(Default Notices) and Section 6.03(d) (Litigation)) and such failure shall remain unremedied for 30
days after the date on which a Responsible Officer of the Sponsor becomes aware of such failure; or




          (f) the Sponsor or any of its Subsidiaries shall fail to perform or observe any other covenant
or agreement (not specified in Sections 7.01(a), 7.01(b), 7.01(d) or 7.01(e) above) contained in
this Agreement on its part to be performed or observed and such failure shall remain unremedied for
60 days after the date on which a Responsible Officer of the Sponsor becomes aware of such failure;
or




          (g) (i) the Sponsor or any of its Subsidiaries (A) fails to make any payment when due (whether
by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any
Indebtedness (other than Indebtedness under the Financing Documents or Indebtedness which is
subject to Contest) having (1) an aggregate principal amount (including undrawn committed or
available amounts and including amounts owing to all creditors under any combined or syndicated
credit arrangement) of more than $25,000,000 or (2) with respect to any Hedge Agreement, an
Agreement Value of more than $25,000,000 either individually or in the aggregate or (B) fails to
observe or perform any other agreement or condition relating to any such Indebtedness or contained
in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs,
the effect of which Default or other event is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the




25









 







giving of notice if required, (1) such Indebtedness to be
demanded, become due, repurchased, prepaid, defeased or redeemed (automatically or otherwise), (2)
an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated
maturity, or (3) cash collateral in respect thereof to be demanded; or (ii) there occurs under any
Hedge Agreement an Early Termination Date (as defined in such Hedge Agreement) resulting from (A)
any Event of Default under such Hedge Agreement as to which the Sponsor or any Subsidiary is the
Defaulting Party (as defined in such Hedge Agreement) or (B) any Termination Event (as so defined) under such Hedge Agreement as to which the Sponsor or any Subsidiary is an Affected
Party (as defined in such Hedge Agreement) and, in either event, the termination value owed by the
Sponsor or such Subsidiary as a result thereof is greater than the $40,000,000 either individually
or in the aggregate; or




          (h) Any Insolvency Proceeding shall occur with respect to the Sponsor or any Subsidiary; or




          (i) there is entered against the Sponsor or any of its Subsidiaries (i) any final judgment or
order for the payment of money in an amount exceeding $40,000,000 either individually or in the
aggregate (to the extent not covered by independent third-party insurance by an insurer that is
rated at least “A” by A.M. Best Company and such coverage is not the subject of a bona fide
dispute), or (ii) one or more non-monetary final judgments that have, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect and, in the case of
(i) or (ii), (A) enforcement proceedings are commenced by any creditor upon such judgment or order
and such proceedings are not stayed within 10 Business Days, or (B) there is a period of 30
consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal
or otherwise, is not in effect; or




          (j) any material provision of this Agreement shall be canceled, terminated, declared to be
null and void or shall otherwise cease to be valid and binding on the Sponsor, in each case, as
determined in a final, non-appealable judgment of a court of competent jurisdiction, or the Sponsor
shall deny in writing any further liability or obligation under any provision of this Agreement;
provided, however, that the foregoing provisions of this clause (j) shall not apply
to this Agreement to the extent that it is canceled, terminated, declared to be null and void or
ceases to be valid or binding on the Sponsor in accordance with its terms or by agreement of the
parties hereto; or




          (k) a Change of Control shall occur; or




          (l) as a result of, or in connection with, an ERISA Event that shall have occurred with
respect to a Plan, the Sponsor or any Subsidiary (as defined in the Sponsor Credit Agreement) or
any ERISA Affiliate has incurred or is reasonably expected to incur liability in an amount
exceeding, in the aggregate with any amounts applicable under clauses (m) and (n) of this Section
7.01, $25,000,000; or




          (m) the Sponsor, any of its Subsidiaries (as defined in the Sponsor Credit Agreement) or any
ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that the Sponsor
has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated
with all other amounts required to be paid to Multiemployer Plans



26









 






by the Sponsor, any such
Subsidiaries and the ERISA Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds, in the aggregate with any amounts applicable under clauses (l) and (n) of
this Section 7.01, $25,000,000 or requires payments exceeding $25,000,000 per annum; or




          (n) the Sponsor or any of its Subsidiaries (as defined in the Sponsor Credit Agreement) or any
ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate
annual contributions of the Sponsor, such Subsidiaries and the ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan years of such
Multiemployer Plans immediately preceding the plan year in which such reorganization or termination
occurs by an amount exceeding, in the aggregate with any amounts applicable under clauses (l) and
(m) of this Section 7.01, $25,000,000.




     Notwithstanding anything to the contrary set forth in this Agreement, in the case of an Event
of Default resulting from the corresponding default or event of default (if applicable) under the
Sponsor Financing Documents, no such Event of Default shall be deemed to exist if such
corresponding default or event of default has been waived by the “Required Lenders” or “Lenders”
(each as defined in the Sponsor Financing Documents) pursuant to the Sponsor Financing Documents.



     The Collateral Agent shall have no duty or obligation to ascertain or inquire into the
existence or non-existence of any default or event of default under the Sponsor Credit Agreement.
The Collateral Agent shall be entitled to rely exclusively on any written notice delivered by the
Administrative Agent stating that any default or event of default under the Sponsor Credit
Agreement exists or does not exist.



          Section 7.02 Revisions to Sponsor Financing Documents. In the case of the Events of Default
set forth in Sections 7.01(g), 7.01(h), 7.01(i), 7.01(k), 7.01(l), 7.01(m) and 7.01(n),
respectively, if the corresponding event of default provision in the Sponsor Credit Agreement
(Sections 6.01(f), 6.01(g), 6.01(h), 6.01(j), 6.01(k), 6.01(l) and 6.01(m), respectively, of the
Sponsor Credit Agreement), or any other applicable event of default provision in any successor
Sponsor Financing Document that corresponds to such Event of Default, is amended, supplemented,
restated, waived or otherwise modified (whether in connection with an amendment, supplement,
restatement, waiver or other modification of, or a replacement of, such Sponsor Financing Document,
including as a result of a refinancing transaction), then the relevant Event of Default in Section
7.01 of this Agreement shall be deemed to be amended, supplemented, restated, waived, modified or
replaced such that it conforms to the corresponding event of default provision in such Sponsor
Financing Document (after giving effect to such amendment, supplement, restatement, waiver,
modification or replacement). For the avoidance of doubt, if, as a result of this provision, any
Event of Default in Section 7.01 of this Agreement as of the date of this Agreement is deemed to
have been deleted and a subsequent amendment of, supplement to, other modification of or
replacement of any Sponsor Financing Document contains an event of default provision that clearly
corresponds to such deleted Event of Default,



27









 






then such deleted Event of Default shall be deemed to
be reinstated (such that it conforms to the corresponding event of default provision as in effect
in the then current Sponsor Financing Document).




ARTICLE VIII.

MISCELLANEOUS




          Section 8.01 Successions or Assignments.




          (a) This Agreement shall inure to the benefit of the Collateral Agent, the Secured Parties and
their respective successors and permitted assigns.




          (b) This Agreement is binding upon the Sponsor and its successors and permitted assigns. The
Sponsor may not assign any of its respective rights and obligations hereunder without the prior
written consent of the Required Lenders (and any purported assignment in violation of this Section
shall be void).




          Section 8.02 Collateral Agent Indemnification.




          (a) Without limiting the foregoing, the Sponsor 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 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 Sponsor 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 Obligations.




          (b) The agreements in this Section 8.02 shall survive repayment of the Obligations.




          Section 8.03 Waivers.




          (a) No delay or omission on the part of the Collateral Agent or any Secured Party in
exercising any of their rights (including those hereunder) and no partial or single exercise
thereof and no action or non-action by the Collateral Agent or any Secured Party, with or without
notice to the Sponsor or anyone else, shall constitute a waiver of any rights or shall affect or
impair this Agreement.




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          (b) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COLLATERAL AGENT AND THE SPONSOR
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF THE COLLATERAL AGENT, THE OTHER SECURED PARTIES, OR THE SPONSOR. EACH PARTY HERETO
ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO AND THE
SECURED PARTIES TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE.




          Section 8.04 Interpretation. The section headings in this Agreement are for the convenience
of reference only and shall not affect the meaning or construction of any provision hereof.




          Section 8.05 Remedies Cumulative. Each and every right and remedy of the Collateral Agent
and the Secured Parties hereunder shall be cumulative and shall be in addition to any other right
or remedy given hereunder or under the TrAILCo Credit Agreement or any other Financing Document, or
now or hereafter existing at law or in equity.




          Section 8.06 Severability. Any provision of this Agreement that may be determined by
competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.




          Section 8.07 Amendments. This Agreement may be amended, waived or otherwise modified only
with the written consent of the parties hereto and otherwise in accordance with the TrAILCo Credit
Agreement.




          Section 8.08 Jurisdiction. The Collateral Agent and the Sponsor agree that any legal action
or proceeding by or against the Sponsor or with respect to or arising out of this Agreement may be
brought in or removed to the courts of the State of New York, in and for the County of New York, or
of the United States of America for the Southern District of New York. By execution and delivery
of this Agreement, the Collateral Agent and the Sponsor accept, for themselves and in respect of
their property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid
courts. The Collateral Agent and the Sponsor irrevocably consent to the service of process out of
any of the aforementioned courts in any manner permitted by Legal Requirements. Any such process
or summons in connection with any such action or proceeding may also be served by mailing a copy
thereof by certified or registered mail, or any substantially similar form of mail, addressed to
the Sponsor or the Collateral Agent as provided for notices hereunder. Nothing herein shall affect
the right of the Collateral Agent or the Sponsor to bring legal action or proceedings in any other
competent jurisdiction. To the fullest extent permitted by applicable law, the Collateral Agent
and the Sponsor hereby waive any right to stay or dismiss any action or proceeding under or in
connection with this Agreement brought before the foregoing courts on the basis of improper venue
or forum non-conveniens. The Sponsor hereby



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irrevocably appoints CT Corporation System, with an
office on the date hereof at 111 Eighth Avenue, New York, New York 10011, as its agent for service
of process in relation to any proceedings before any courts located in the State of New York in
connection with this Agreement.




          Section 8.09 Governing Law. This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and construed in accordance with, the laws of the State of New
York.




          Section 8.10 Integration of Terms. This Agreement, together with other agreements attached
hereto or referred to herein, contains the entire agreement among the parties hereto relating to
the subject matter hereof and supersedes all oral statements and prior writings with respect
hereto.




          Section 8.11 Notices. All notices required or permitted under the terms and provisions
hereof shall be in writing and any such notice shall be effective if given or made in accordance
with the provisions of Section 9.01 of the TrAILCo Credit Agreement. Notices to the Sponsor shall
be sent to the following addresses:



Allegheny Energy, Inc.

800 Cabin Hill Drive

Greensburg, PA 15601-1689

Attn: Barry E. Pakenham, Vice President and Treasurer

Tel: 724-838-6366

Fax: 724-830-5080



with copies to:



Amanda J. Skov, Assistant General Counsel

Tel: 724-838-6166

Fax: 724-838-6177



and



Vinson & Elkins LLP

1455 Pennsylvania Avenue, NW

Suite 600

Washington, DC 20004

Attn: Mark Spivak

Tel: 202-639-6664

Fax: 202-879-8864




          Section 8.12 Counterparts. This Agreement may be executed in counterparts, and when executed
and delivered by all of the parties listed below shall constitute a single binding agreement.
Delivery of a facsimile counterpart signature shall be effective as delivery of a manually executed
counterpart signature.





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          Section 8.13 Further Assurances. The parties hereto hereby agree to execute and deliver all
such instruments and take all such action as may be necessary to effectuate fully the purposes of
this Agreement.




          Section 8.14 Termination of Agreement. Notwithstanding anything contained herein to the
contrary (but subject to Section 3.01), this Agreement and the obligations of the Sponsor hereunder
shall terminate on the Discharge Date.




          Section 8.15 No Third Party Beneficiaries. Subject to Section 8.01, there shall be no third
party beneficiaries to this Agreement or any provision hereof.




          Section 8.16 Consequential Damages. Anything in this Agreement to the contrary
notwithstanding, in no event shall any party be liable under or in connection with this Agreement
for indirect, special, incidental, punitive or consequential losses or damages of any kind
whatsoever, including but not limited to lost profits, whether or not foreseeable, even if such
party has been advised of the possibility thereof and regardless of the form and action in which
such damages are sought.




[Signature pages follow.]




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     IN WITNESS WHEREOF, the parties hereto, by their officers duly authorized, intending to be
legally bound, have caused this Equity Commitment Agreement to be duly executed as of the date
first above written.



	 	 	 	 	 
	 	ALLEGHENY ENERGY, INC.,

as Sponsor

 	 
	 	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	 
	 



Equity Commitment Agreement