Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - Lincoln Gold Corporation - Exhibit 4.2

LINCOLN GOLD CORPORATION
Suite
350, 885 Dunsmuir Street 
Vancouver, British Columbia V6C 1N5 
A NEVADA
CORPORATION
(the “Company”)

SERIES B
COMMON STOCK PURCHASE WARRANT
CERTIFICATE

[DATE OF ISSUE] 
(the “Date of Issue”)

[Certificate Number]

	Name of Holder: 	 
    
	Address of Holder: 	 
    
	Number of Shares: 	[NUMBER OF WARRANTS] Shares 
	Exercise Price: 	$1.20 per share. 
	Expiry Date: 	The
      date that is four years from the Date of Issue, as set forth above
  

THIS WARRANT CERTIFIES THAT, for value received, the
above named holder or its registered assigns (the “Holder”), shall have the
right to purchase from the Company the above referenced number of fully paid and
non-assessable shares (the “Shares”) of the Company’s common stock (the “Common
Stock”) at an exercise price equal to the exercise price set forth above (the
"Exercise Price"), subject to further adjustment as set forth in this
Certificate, at any time from the date hereof until 5:00 P.M., Eastern time, on
the expiry date set forth above (the “Expiry Date”), subject to the accelerated
exercise provisions set forth herein. This Warrant is issued pursuant to the
Subscription Agreement between the Company and Holder (the “Subscription
Agreement”) pursuant to which the Holder purchased units consisting of one share
of Common Stock and one a warrant to purchase one additional share of Common
Stock. The exercise of this Warrant shall be subject to the provisions,
limitations and restrictions contained herein. 

1.             Exercise.

               
1.1          
Procedure for Exercise of Warrant if Registration Statement is
Effective. In the event that a registration statement filed by the
Company pursuant to the Securities Act of 1933 (the “1933 Act”) registering the
Shares issuable upon exercise of the Warrants is in effect at the date of
exercise, the Holder may exercise this Warrant by delivering the following to
the principal office of the Company in accordance with Section 5.1 hereof: (a) a
duly executed Notice of Exercise in substantially the form attached as Schedule
A, (b) payment of the Exercise Price then in effect for each of the Shares being
purchased, as designated in the Notice of Exercise, and (c) this Warrant.
Payment of the Exercise Price may be in cash, certified or official bank check
payable to the order of the Company, or wire transfer of funds to the Company’s
account (or any combination of any of the foregoing) in the amount of the
Exercise Price for each share being purchased. 

- 2 -

                1.2           
Procedure for Exercise of Warrant if Registration Statement is Not
Effective. In the event that a registration statement filed by the
Company pursuant to the 1933 Act registering the Shares issuable upon exercise
of the Warrants is in not effect at the date of exercise, this Warrant may not
be exercised unless there is an available exemption for the issuance of the
Shares to the Holder under the 1933 Act or the issuance of the Shares to the
holder is not otherwise subject to the registration requirements of the 1933
Act. In this event, the Holder may exercise this Warrant by delivering the
following to the principal office of the Company in accordance with Section 5.1
hereof: (a) a duly executed Notice of Exercise in substantially the form
attached as Schedule C, if the Holder is a U.S. Person, as defined in Regulation
S of the 1933 Act, or is exercising the Warrants in the United States, or in
form attached as Schedule D, if the Holder is not a U.S. Person and is
exercising the Warrants outside of the United States, (b) payment of the
Exercise Price then in effect for each of the Shares being purchased, as
designated in the Notice of Exercise, and (c) this Warrant. Payment of the
Exercise Price may be in cash, certified or official bank check payable to the
order of the Company, or wire transfer of funds to the Company’s account (or any
combination of any of the foregoing) in the amount of the Exercise Price for
each share being purchased. In each case, the Shares issuable upon the exercise
of this Warrant in the absence of an effective registration statement will be
“restricted securities” within the meaning of the 1933 Act and will be endorsed
with the legend included in the Notice of Exercise. If the Holder is unable to
make the certifications in either Schedule C or Schedule D, the Holder may
alternatively deliver a legal opinion of counsel satisfactory to the Company
stating that the issuance of the Shares upon exercise of the Warrants by the
Holder will not be subject to the registration requirements of the 1933 Act.

                1.3           
Delivery of Certificate and New Warrant. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the Holder hereof, or as the Holder (upon payment by
the Holder of any applicable transfer taxes) may direct in compliance with
applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock to which
the Holder shall be entitled on such exercise, together with any other stock or
other securities and property (including cash, where applicable) to which the
Holder is entitled upon such exercise; and, unless this Warrant has expired, a
new Warrant representing the number of Shares (except a remaining fractional
share), if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Holder hereof within such time. 

                1.4           
Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying to Holder an amount computed
by multiplying the fractional interest by the current market price of a full
Share. 

                1.5          
Accelerated Exercise Period. Notwithstanding the date of the
Expiry Date set forth above, if the closing price of the Company’s common stock
is above $1.50 per share for twenty consecutive trading days at any time during
the term of this Warrant, then the Expiry Date will be accelerated to the date
that is thirty calendar days from the date that is the twentieth consecutive
trading day above the price threshold (the “Accelerated Exercise Period”). In
the event that the Holder does not exercise this Warrant within the Accelerated
Exercise Period, then this Warrant will expire at 5:00 pm, Eastern Time, on the
last date of the Accelerated Exercise Period. 

2.             Covenants
of the Company.

              
 2.1          
Authorized Shares. The Company covenants and agrees that the Company will at
all times have authorized and reserved, free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise in full
of the rights represented by this Warrant.

- 3 -

               
2.2           Issuance of
Shares. The Company covenants and agrees that all shares of Common Stock
that may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be validly issued, fully paid and non-assessable, and free
from all transfer taxes, liens and charges with respect to the issue thereof.

3.             Transfer
and Replacement. 

               
(a)           Subject to
compliance with any applicable securities laws and the conditions set forth
herein, this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the Company,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned, may be exercised by a new holder for the purchase
of Shares without having a new Warrant issued. 

               
(b)           The Company
agrees to maintain, at its aforesaid office, books for the registration and the
registration of transfer of the Warrants.

               
(c)           If, at the time
of the surrender of this Warrant in connection with any transfer of this
Warrant, the transfer of this Warrant shall not be registered pursuant to an
effective registration statement under the Securities Act and under applicable
state securities or blue sky laws, the Company may require, as a condition of
allowing such transfer (i) that the Holder or transferee of this Warrant, as the
case may be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws, (ii) that the holder or transferee execute and deliver to the
Company a Transfer Form, in the form attached hereto as Schedule B, and any
other investment letter in form and substance reasonably acceptable to the
Company in order to establish that the transfer is exempt from the registration
requirements of the Securities Act, and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act.

               
(d)           The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Shares, and in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it (which, in the case of
the Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of such Warrant or stock certificate.

4.            
Adjustments of Exercise Price and/or Number of Shares.

               
4.1          
Subdivision or Combination of Shares. The number and kind of
securities purchasable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time upon the happening of any of
the following. In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Shares purchasable upon exercise of this Warrant immediately prior thereto
shall be adjusted so that the Holder shall be entitled to receive the kind and
number of Shares or other securities of the Company which it would have owned or
have been entitled to receive had such Warrant been exercised in advance
thereof. Upon each such adjustment of the kind and number of Shares or other
securities of the Company which are purchasable hereunder, the Holder shall
thereafter be entitled to purchase the number of 

- 4 -

Shares or other securities resulting from such adjustment at an
Exercise Price per Warrant Share or other security obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Shares or other securities of the Company resulting
from such adjustment. An adjustment made pursuant to this paragraph shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.

               
4.2         
 Reorganization, Reclassification, Consolidation, Merger or
Sale. If any recapitalization, reclassification or reorganization
of the share capital of the Company, or any consolidation or merger of the
Company with another Company, or the sale of all or substantially all of its
shares and/or assets or other transaction (including, without limitation, a sale
of substantially all of its assets followed by a liquidation) shall be effected
in such a way that holders of Common Stock shall be entitled to receive shares,
securities or other assets or property, then, as a condition of such
recapitalizations, reclassifications, reorganizations, consolidations, mergers
or sales, lawful and adequate provisions shall be made by the Company whereby
the Holder hereof shall thereafter have the right to purchase and receive (in
lieu of the Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby) such shares,
securities or other assets or property as may be issued or payable with respect
to or in exchange for the number of outstanding Common Stock which such Holder
would have been entitled to receive had such Holder exercised this Warrant
immediately prior to the consummation of such recapitalizations,
reclassifications, reorganizations, consolidations, mergers or sales. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to give effect to the
adjustments provided for in this Section 4 including, without limitation,
adjustments to the Exercise Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 4.2
shall similarly apply to successive recapitalizations, reclassifications,
reorganizations, consolidations, mergers or sales. 

               
4.3           Notice
of Adjustment. Whenever the number of Shares or number or kind of
securities or other property purchasable upon the exercise of this Warrant or
the Exercise Price is adjusted, as herein provided, the Company shall give
notice thereof to the Holder, which notice shall state the number of Shares (and
other securities or property) purchasable upon the exercise of this Warrant and
the Exercise Price of such Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made.

5.            
Miscellaneous Provisions. 

               
5.1           Notices.
Any notice or other document required or permitted to be given or delivered to
the Holder shall be delivered or forwarded to the Holder at the address for
Holder provide on the first page of this Warrant or to such other address or
number as shall have been furnished to the Company in writing by the Holder. Any
notice or other document required or permitted to be given or delivered to the
Company shall be delivered or forwarded to the Company at Suite 306, 1140 Homer
Street, Vancouver, British Columbia Attention: Paul Saxton, or to such other
address or number as shall have been furnished to Holder in writing by the
Company. All notices, requests and approvals required by this Warrant shall be
in writing and shall be conclusively deemed to be given (a) when hand-delivered
to the other party, (b) when received if sent by facsimile at the address and
number set forth above; provided that notices given by facsimile shall not be
effective, unless either (i) a duplicate copy of such facsimile notice is
promptly given by depositing the same in the mail, postage prepaid and addressed
to the party as set forth below or (ii) the receiving party delivers a written
confirmation of receipt for such notice by any other method permitted under this
paragraph; and further provided that any notice given by facsimile received
after 5:00 p.m. (recipient’s time) or on a non-business day shall be deemed
received on the next business day; (c) five (5) business days after deposit in
the United States mail, certified, return receipt requested, postage prepaid,
and addressed to the party as set forth below; or (d) the next business day
after deposit with an international overnight delivery service, postage prepaid,
addressed to the party as set forth below with 

- 5 -

next business day delivery guaranteed; provided that the
sending party receives confirmation of delivery from the delivery service
provider. 

               
5.2         
 Limitation of Liability. No provision hereof, in the
absence of affirmative action by the Holder to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of the Holder for the Exercise Price hereunder or as
a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company. 

               
5.3           No
Rights as Stockholder. This Warrant shall not entitle the Holder to any
of the rights of a stockholder of the Company except upon exercise in accordance
with the terms hereof.

               
5.4          
Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of Nevada as applied to agreements
among Nevada residents made and to be performed entirely within the State of
Nevada, without giving effect to the conflict of law principles thereof. 

               
5.5           Waiver,
Amendments and Headings. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by both parties (either generally or in a particular instance and either
retroactively or prospectively). The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof. 

IN WITNESS WHEREOF, the Company has caused this Warrant
to be signed by its duly authorized officer effective as of the ______ day of
______________, 200__. 

	LINCOLN GOLD CORPORATION 	 
	 	 
	 	 
	Signature of Authorized Signatory: 	 
	 	 
	Name of Authorized Signatory: 	 
	 	 
	Position of Authorized Signatory: 	 
	 	 
	 	 

SCHEDULE A

NOTICE OF EXERCISE 

(TO BE COMPLETED ONLY IF A REGISTRATION 
STATEMENT IS NOT
EFFECTIVE)

TO:      LINCOLN GOLD
CORPORATION

The undersigned hereby irrevocably exercises the right to
purchase the number of shares of common stock of Lincoln Gold Corporation (the
"Company") set forth below (the "Shares") pursuant to the Series B Warrant to
Purchase Common Stock issued by the Company delivered concurrently with this
Notice of Exercise. In accordance with the provisions of the Warrant, the
undersigned hereby tenders the following concurrently with the delivery of this
Notice of Exercise (i) payment of the Exercise Price payable by the undersigned
for the Shares (the “Purchase Price”) in effect for each of the Shares being
purchased, and (ii) the original Warrant. The undersigned hereby directs that
the Shares be issued in the name of the undersigned and delivered to the address
of the undersigned as indicated below:

	Number of Shares Purchased: 	Shares 
	 	 
	Exercise Price: 	$
      1.20 per Share 
	 	 
	Aggregate Purchase Price: 	$ 
	  	  
	 	 
	Date of Execution: 	 
    
	 	 
	Signature of Purchaser or Authorized 	  
	Signatory of Purchaser (if the Purchaser is 	  
	not an individual): 	 
    
	 	 
	Name of Authorized Signatory of 	  
	Purchaser(if the Purchaser is not an 	  
	individual): 	 
    
	 	 
	Title of Authorized Signatory of 	  
	Purchaser(if the Purchaser is not an 	  
	individual): 	 
    
	 	 
	Name of Purchaser: 	 
    
	 	 
	Address of Purchaser: 	 
    
	 	 
	 	 
	 	 
	 	 

- 2 -

SCHEDULE B

TRANSFER FORM

TO:      LINCOLN GOLD CORPORATION

            
(the “Company”)

FOR VALUE RECEIVED, subject to receipt of prior written
approval of the Company, the undersigned transferor (the “Transferor”) hereby
sells, assigns and transfers unto the undersigned transferee (the “Transferee”)
the number of Series B Warrants of the Company registered in the name of the
Transferor as set forth below (the “Warrants”) and represented by the
certificate attached hereto. The Transferee irrevocably appoints the Company as
the attorney of the undersigned to transfer the said securities on the register
of transfers for the said Warrants, with full power of substitution.

	Number of Warrants Transferred: 	Warrants 
	 	 
	Warrant Certificate Number: 	 
    
	 	 
	Name of Transferor: 	 
    
	 	 
	Name of Transferee: 	 
    
	 	 
	Address of Transferee: 	 
    
	 	 
	 	 
	 	 
	  	  
	  	  
	Date of Execution: 	 
    
	 	 
	Signature of Transferor or Authorized 	 
    
	Signatory of Transferor (if the Transferor is 	 
    
	not an individual): 	 
    
	 	 
	Name of Authorized Signatory of 	 
    
	Transferor (if the Transferor is not an 	 
    
	individual): 	 
    
	 	 
	Title of Authorized Signatory of 	 
    
	Transferor (if the Transferor is not an 	 
    
	individual): 	 
    
	 	 
	Name of Transferor: 	 
    
	 	 
	Address of Transferor: 	 
    
	 	 
	 	 

- 3 -

SCHEDULE C

NOTICE OF EXERCISE 

(TO BE COMPLETED BY A U.S. INVESTOR ONLY IF A REGISTRATION

STATEMENT IS NOT EFFECTIVE)

TO:      LINCOLN GOLD
CORPORATION

The undersigned hereby exercises the right to purchase the
number of shares of common stock of Lincoln Gold Corporation (the "Company") set
forth below (the "Shares") pursuant to the Series B Warrant to Purchase Common
Stock issued by the Company delivered concurrently with this Notice of Exercise.
In accordance with the provisions of the Warrant, the undersigned hereby tenders
the following concurrently with the delivery of this Notice of Exercise (i)
payment of the Exercise Price payable by the undersigned for the Shares (the
“Purchase Price”) in effect for each of the Shares being purchased, and (ii) the
original Warrant.

	Number of
      Shares Purchased: 	Shares 
	 	 
	Exercise
      Price: 	$
      1.20 per Share 
	 	 
	Aggregate
      Purchase Price: 	$ 

The undersigned represents and warrants to the Company
that:

	1. 	
      It has such knowledge and experience in financial and
      business matters as to be capable of evaluating the merits and risks of an
      investment in the Shares and it is able to bear the economic risk of loss
      of its entire investment. 

	 	
       

	2. 	
      The Company has provided to it the opportunity to ask
      questions and receive answers concerning the terms and conditions of the
      offering and it has had access to such information concerning the Company
      as it has considered necessary or appropriate in connection with its
      investment decision to acquire the Shares. 

	 	
       

	3. 	
      It is acquiring the Shares for its own account, for
      investment purposes only and not with a view to any resale, distribution
      or other disposition of the Shares in violation of the United States
      securities laws. 

	 	
       

	4. 	
      It understands the Shares have not been registered under
      the United States Securities Act of 1933, as amended (the "1933 Act") or
      the securities laws of any state of the United States and that the sale
      contemplated hereby is being made in reliance on an exemption from such
      registration requirements. 

	 	
       

	5. 	
      The undersigned is an “accredited investor” as defined in
      Rule 501(a) of Regulation D promulgated under the 1933 Act. 

	 	
       

	7. 	
      It has not exercised the Warrants as a result of any form
      of general solicitation or general advertising, including advertisements,
      articles, notices or other communications published in any newspaper,
      magazine or similar media or broadcast over radio, television or other
      form of telecommunications, or any seminar or meeting whose attendees have
      been invited by general solicitation or general advertising.
  

- 4 -

	8. 	It understands that the Shares are "restricted securities" under
      applicable federal securities laws and that the 1933 Act and the rules of
      the SEC provide in substance that the undersigned may dispose of the
      Shares only pursuant to an effective registration statement under the 1933
      Act or an exemption therefrom. 
	 	 
	9. 	The certificates representing the Shares (and any certificates issued
      in exchange or substitution for the Securities) will bear the following
      legend in accordance with Regulation D in order to denote the Shares as
      “Restricted Securities”: 

  “THE SECURITIES REPRESENTED BY THIS CERTIFICATE
    HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND
    HAVE BEEN OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION
    REQUIREMENTS OF THE ACT. SUCH SECURITIES MAY NOT BE REOFFERED FOR SALE OR
    RESOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THE APPLICABLE
    PROVISIONS OF THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
    REQUIREMENTS OF THE ACT.” 

	Date of Execution:
    	 
	 	 
	Signature of
      Purchaser or Authorized Signatory 	 
	of Purchaser (if
      the Purchaser is not an 	 
	individual): 	 
	 	 
	Name of Authorized
      Signatory of 	 
	Purchaser(if the
      Purchaser is not an individual): 	 
	 	 
	Title of
      Authorized Signatory of 	 
	Purchaser(if the
      Purchaser is not an individual): 	 
	 	 
	Name of Purchaser:
    	 
	 	 
	Address of
      Purchaser: 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 

SCHEDULE D

FORM OF NOTICE OF EXERCISE 
(TO BE COMPLETED BY A
NON- INVESTOR ONLY IF A REGISTRATION 
STATEMENT IS NOT EFFECTIVE)

TO:      LINCOLN GOLD
CORPORATION

The undersigned hereby exercises the right to purchase the
number of shares of common stock of Lincoln Gold Corporation (the "Company") set
forth below (the "Shares") pursuant to the Series B Warrant to Purchase Common
Stock issued by the Company and delivered concurrently with this Notice of
Exercise. In accordance with the provisions of the Warrant, the undersigned
hereby tenders the following concurrently with the delivery of this Notice of
Exercise (i) payment of the Exercise Price payable by the undersigned for 

	Number of
      Shares Purchased: 	Shares 
	 	 
	Exercise
      Price: 	$
      1.20 per Share 
	 	 
	Aggregate
      Purchase Price: 	$ 

The undersigned represents and warrants to and agrees with the
Company that:

	1.	
      It has such knowledge
        and experience in financial and business matters as to be capable of evaluating
        the merits and risks of an investment in the Shares and it is able to
        bear the economic risk of loss of its entire investment. 

	  	 	
       

	2.	
      The Company has provided
        to it the opportunity to ask questions and receive answers concerning
        the terms and conditions of the offering and it has had access to such
        information concerning the Company as it has considered necessary or appropriate
        in connection with its investment decision to acquire the Shares. 

	  	 	
       

	3.	
      It is acquiring the
        Shares for its own account, for investment purposes only and not with
        a view to any resale, distribution or other disposition of the Shares
        in violation of the United States   

	  	 	
       

	4.	
      It understands the
        Shares have not been and will not be registered under the United States
        Securities Act of 1933, as amended (the "1933 Act") or the securities
        laws of any state of the United States and that the sale contemplated
        hereby is being made in reliance on a safe-harbour from such registration
        requirements. 

	  	 	
       

	5.	
      The undersigned is
        not a “U.S. Person” as defined by Regulation S of the Securities
        Act and is not acquiring the Shares for the account or benefit of a U.S.
        Person. 

	  	 	
       

	  	 A “U.S. Person”
        is defined by Regulation S of the Act to be any person who is:  

	  	 	
	 	(a) 	
      any natural person resident
        in the United States; 

	  	 	
       

	 	(b)	
      any partnership or corporation
        organized or incorporated under the laws of the United States;
      

	  	 	
       

	 	(c)	
      any estate of which any executor
        or administrator is a U.S. person; 

- 2 -

	 	(d) 	
      any trust of which any trustee is a U.S. person;
      

	 	 	
       
	
       

	 	(e) 	
      any agency or branch of a foreign entity located in
      the United States; 

	 	 	
       
	
       

	 	(f) 	
      any non-discretionary account or similar account
      (other than an estate or trust) held by a dealer or other fiduciary
      organized, incorporate, or (if an individual) resident in the United
      States; and 

	 	 	
       
	
       

	 	(g) 	
      any partnership or corporation if: 

	 	 	
       
	
       

	 		
      (i) 
	
      organized or incorporated under the laws of any
      foreign jurisdiction; and 

	 	 	
       
	
       

	 		
      (ii) 
	
      formed by a U.S. person principally for the purpose of
      investing in securities not registered under the Act, unless it is
      organized or incorporated, and owned, by accredited Subscribers [as
      defined in Section 230.501(a) of the Act] who are not natural persons,
      estates or trusts. 

	6. 	
      The undersigned was not in the United States at the time
      the offer to purchase the Shares was received and the Subscriber was not
      in the United States at the time these Warrants were exercised. 

	 	
       

	7. 	
      The undersigned acknowledges that the Shares are
      “restricted securities” within the meaning of the Securities Act and will
      be issued to the Subscriber in accordance with Regulation S of the
      Securities Act without registration under the Securities Act. 

	 	
       

	8. 	
      The undersigned agrees to resell the Shares only in
      accordance with the provisions of Regulation S of the Securities Act,
      pursuant to registration under the Securities Act, or pursuant to an
      available exemption from registration pursuant to the Securities Act.
    

	 	
       

	9. 	
      The undersigned agrees not to engage in hedging
      transactions with regard to the Shares unless in compliance with the
      Securities Act. 

	 	
       

	10. 	
      The Subscriber acknowledges and agrees that all
      certificates representing the Shares will be endorsed with the following
      legend in accordance with Regulation S of the Securities Act: 

	 	
       

		
      “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
      NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND HAVE
      BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
      REQUIREMENTS OF THE ACT PROVIDED BY REGULATION S PROMULGATED UNDER THE
      ACT. SUCH SECURITIES MAY NOT BE REOFFERED FOR SALE OR RESOLD OR OTHERWISE
      TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S,
      PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT, OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT. HEDGING TRANSACTIONS
      INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
      THE ACT”. 

- 3 -

	11. 	
      The Subscriber and the Company agree that the Company
      will refuse to register any transfer of the Shares not made in accordance
      with the provisions of Regulation S of the Securities Act, pursuant to
      registration under the Securities Act, pursuant to an available exemption
      from registration, or pursuant to this Agreement.

	Date of Execution:
    	 
	 	 
	Signature of
      Purchaser or Authorized Signatory 	 
	of Purchaser (if
      the Purchaser is not an 	 
	individual): 	 
	 	 
	Name of Authorized
      Signatory of 	 
	Purchaser(if the
      Purchaser is not an individual): 	 
	 	 
	Title of
      Authorized Signatory of 	 
	Purchaser(if the
      Purchaser is not an individual): 	 
	 	 
	Name of Purchaser:
    	 
	 	 
	Address of
      Purchaser:Receivables Sale Agreement

     

     

    Exhibit
      10.1

     

    EXECUTION
      COPY

    

    

    

    

    

    

    ______________________________________________________________________________

    

    

    

    

    

    

    RECEIVABLES
      SALE AGREEMENT

    

    

    dated
      as
      of

    

    December
      20, 2005

    

    between

    

    

    PUGET
      SOUND ENERGY, INC.,

    as
      Originator

    

    AND

    

    PSE
      FUNDING, INC.,

    as
      Buyer

    

    

    

    

    

    

    

    

    
      

______________________________________________________________________________

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    RECEIVABLES
      SALE AGREEMENT

    

    

    THIS
      RECEIVABLES SALE AGREEMENT, dated as of December 20, 2005, is by and between
      PUGET SOUND ENERGY, INC., a Washington corporation (“Originator”), and PSE
      FUNDING, INC., a Washington corporation (“Buyer). Unless defined elsewhere
      herein, capitalized terms used in this Agreement shall have the meanings
      assigned to such terms in Exhibit
      I
      hereto
      (or, if not defined in Exhibit
      I
      hereto,
      the meaning assigned to such term in the Loan Agreement).

    

    PRELIMINARY
      STATEMENTS

     

    WHEREAS,
      Originator now owns, and from time to time hereafter will own, Receivables.
      Originator wishes to contribute and sell and assign to Buyer, and Buyer wishes
      to accept as a contribution and purchase from Originator, all of Originator's
      right, title and interest in and to such Receivables, together with the Related
      Security and Collections with respect thereto.

    

    WHEREAS,
      Originator and Buyer intend the transactions contemplated hereby to be true
      sales of the Receivables from Originator to Buyer, providing Buyer with the
      full
      benefits of ownership of the Receivables, and Originator and Buyer do not intend
      these transactions to be, or for any purpose to be characterized as, loans
      from
      Buyer to Originator.

    

    WHEREAS,
      in order to finance its purchases of such Receivables, Related Security and
      Collections from the Originator, Buyer has entered into that certain Loan and
      Servicing Agreement dated as of the date hereof (as the same may from time
      to
      time hereafter be amended, supplemented, restated or otherwise modified, the
      “Loan Agreement”) by and among Buyer, as Borrower, Originator, as Servicer, the
      commercial paper conduits from time to time party thereto as Conduit Lenders,
      the entities from time to time party thereto as Committed Lenders, the financial
      institutions from time to time party thereto as Managing Agents and JPMorgan
      Chase Bank, N.A., as Program Agent.

    

    NOW,
      THEREFORE, in consideration of the foregoing premises and the mutual agreements
      herein contained and other good and valuable consideration, the receipt and
      adequacy of which are hereby acknowledged, the parties hereto agree as
      follows:

    

    ARTICLE
      I  

    AMOUNTS
      AND TERMS OF THE PURCHASES

     

    Section
      1.1  Purchases
      of Receivables.

     

    (a)  Effective
      on the date hereof, in consideration for the Purchase Price, in the case of
      purchases hereunder, and upon the terms and subject to the conditions set forth
      herein, Originator does hereby contribute, sell, assign, transfer, set-over
      and
      otherwise convey to Buyer, without recourse (except to the extent expressly
      provided herein), and Buyer does hereby accept as a contribution or purchase,
      as
      applicable, from Originator, all of Originator's right, title and interest
      in
      and to all Receivables existing as of the close of business on the Business
      Day
      immediately prior to the date hereof and all Receivables thereafter arising
      through and including the Termination Date, together, in each case, with all
      Related Security relating thereto and all Collections thereof. In accordance
      with the preceding sentence, on the date hereof Originator shall contribute
      to
      Buyer, and Buyer shall acquire all of Originator's right, title and interest
      in
      and to all Receivables existing as of the close of business on the Business
      Day
      immediately prior to the date hereof together with all Related Security and
      Collections related thereto. On each Business Day after the date hereof,
      Originator shall sell and Buyer shall acquire all of Originator’s right, title
      and interest in and to all Receivables arising on the date hereof and thereafter
      arising through and including the Termination Date, together with all Related
      Security relating thereto and all Collections thereof. Buyer shall be obligated
      to pay the Purchase Price for the Receivables purchased hereunder in accordance
      with Section
      1.2.
      In
      connection with the payment of the Purchase Price for any Receivables purchased
      hereunder, Buyer may request that Originator deliver, and Originator shall
      deliver, such approvals, opinions, information, reports or documents as Buyer
      may reasonably request.

     

    (b)  It
      is the
      intention of the parties hereto that each Purchase of Receivables made hereunder
      shall constitute a sale or contribution, as applicable, which sale or
      contribution is absolute and irrevocable and provides Buyer with the full
      benefits of ownership of the Receivables. Except for the Purchase Price Credits
      owed pursuant to Section
      1.3,
      the
      sales and contributions of Receivables hereunder are made without recourse
      to
      Originator; provided,
      however,
      that (i)
      Originator shall be liable to Buyer for all representations, warranties,
      covenants and indemnities made by Originator pursuant to the terms of the
      Facility Documents to which Originator is a party, and (ii) such sale or
      contribution does not constitute and is not intended to result in an assumption
      by Buyer or any assignee thereof of any obligation of Originator or any other
      Person arising in connection with the Receivables, the related Contracts and/or
      other Related Security or any other obligations of Originator. In view of the
      intention of the parties hereto that the Purchases of Receivables made hereunder
      shall constitute sales or contributions of such Receivables rather than loans
      secured thereby, Originator agrees that it will, on or prior to the date hereof
      and in accordance with Section
      4.1(e)(ii),
      mark
      its master data processing records relating to the Receivables with a legend
      acceptable to Buyer and to the Program Agent (as Buyer's assignee), evidencing
      that Buyer has purchased such Receivables as provided in this Agreement and
      to
      note in its financial statements that its Receivables have been sold to Buyer.
      Upon the request of Buyer or the Program Agent (as Buyer's assignee), Originator
      will execute and/or file such financing or continuation statements, or
      amendments thereto or assignments thereof, and such other instruments or
      notices, as may be necessary or appropriate to perfect and maintain the
      perfection of Buyer's ownership interest in the Receivables and the Related
      Security and Collections with respect thereto, or as Buyer or the Program Agent
      (as Buyer's assignee) may reasonably request.

     

    Section
      1.2  Payment
      for the Purchases.

     

    (a)  The
      Receivables in existence on the close of business on the Business Day
      immediately preceding the date hereof (the “Initial Cutoff Date”) are hereby
      contributed to Buyer by Originator on the date hereof.

     

    Each
      Receivable coming into existence after the Initial Cutoff Date, shall be sold
      to
      the Buyer on the Business Day occurring immediately after the day such
      Receivable is originated and the Purchase Price for such Receivable shall be
      due
      and owing in full by Buyer to Originator or its designee on such Business Day
      (except that Buyer may, with respect to any such Purchase Price, offset against
      such Purchase Price any amounts owed by Originator to Buyer hereunder and which
      have become due but remain unpaid) and shall be paid to Originator in the manner
      provided in the following paragraphs (b), (c) and (d).

    

    (b)  With
      respect to any Receivables sold hereunder after the date hereof, on the first
      Business Day after such Receivable is originated, such Receivable shall be
      sold
      to Buyer and on such date of Purchase, Buyer shall pay the Purchase Price
      therefor in accordance with Section
      1.2(d)
      and in
      the following manner:

     

    (i)  first,
      by
      delivery of immediately available funds, to the extent of funds available to
      Buyer from Borrowings under the Loan Agreement or other cash on hand;
      and

     

    (ii)  second,
      unless
      Originator has declared the Termination Date to have occurred pursuant to
Section
      5.2,
      by
      accepting a contribution to its capital in an amount equal to the remaining
      unpaid balance of such Purchase Price.

     

    (c)  From
      and
      after the Termination Date, Originator shall not be obligated to (but may,
      at
      its option) sell Receivables to Buyer unless Originator reasonably determines
      that the Purchase Price therefor will be satisfied with funds available to
      Buyer
      from Borrowings under the Loan Agreement, Collections, other cash on hand or
      otherwise.

     

    (d)  Although
      the Purchase Price for each Receivable coming into existence after the Initial
      Cutoff Date shall be paid in full by Buyer to Originator on the date such
      Receivable is purchased, a precise reconciliation of the Purchase Price between
      Buyer and Originator shall be effected on a monthly basis no later than each
      Settlement Date with respect to all Receivables sold during the same Calculation
      Period most recently ended prior to such Settlement Date and based on the
      information contained in the Monthly Report delivered by the Servicer pursuant
      to Article
      VI
      of the
      Loan Agreement for such Calculation Period. Although such reconciliation shall
      be effected no later than each Settlement Date, any contribution of capital
      by
      Originator to Buyer made pursuant to Section
      1.2(b)
      shall be
      deemed to have occurred and shall be effective on the date that the Purchase
      Price is paid.

     

    (e)  Each
      contribution of a Receivable by Originator to Buyer shall be deemed to be a
      Purchase of such Receivable by Buyer for all purposes of this Agreement. Buyer
      hereby acknowledges that Originator shall have no obligations to make further
      capital contributions to Buyer, in respect of Originator’s equity interest in
      Buyer or otherwise, in order to provide funds to pay the Purchase Price to
      Originator under this Agreement or for any other reason.

     

    Section
      1.3  Purchase
      Price Credit Adjustments.

     

    (a)  If
      on any
      day the Outstanding Balance of a Receivable is:

     

    (i)  reduced
      as a result of any defective or rejected or returned goods or services, any
      discount or any adjustment or otherwise by Originator (other than cash
      Collections on account of the Receivables),

     

    (ii)  reduced
      or canceled as a result of a setoff in respect of any claim by any Person
      (whether such claim arises out of the same or a related transaction or an
      unrelated transaction), or

     

    (b)  if
      any of
      the representations and warranties set forth in Article
      II
      are not
      true with respect to any Receivable on the date of its Purchase
      hereunder,

     

    then,
      in
      such event, Buyer shall be entitled to a credit (each, a “Purchase
      Price Credit”)
      against the Purchase Price otherwise payable hereunder in an amount equal to
      the
      amount of such reduction or cancellation in the case of clause (a) or the
      Outstanding Balance of such Receivable in the case of clause (b). If such
      Purchase Price Credit exceeds the Purchase Price for the Receivables sold on
      such day, then Originator shall pay the remaining amount of such Purchase Price
      Credit in cash within five (5) Business Days thereafter.

    

    Section
      1.4  Payments
      and Computations, Etc.  
      All
      amounts to be paid or deposited by Buyer hereunder shall be paid or deposited
      in
      accordance with the terms hereof on the day when due in immediately available
      funds to the account of Originator designated from time to time by Originator
      or
      as otherwise directed by Originator. In the event that any payment owed by
      any
      Person hereunder becomes due on a day that is not a Business Day, then such
      payment shall be made on the next succeeding Business Day. If any Person fails
      to pay any amount hereunder when due, such Person agrees to pay, on demand,
      the
      Default Fee in respect thereof until paid in full; provided,
      however,
      that
      such Default Fee shall not at any time exceed the maximum rate permitted by
      applicable law. All computations of interest payable hereunder shall be made
      on
      the basis of a year of 360 days for the actual number of days (including the
      first but excluding the last day) elapsed.

     

    Section
      1.5  Transfer
      of Records.

     

    (a)  In
      connection with the Purchases of Receivables hereunder, Originator hereby sells,
      transfers, assigns and otherwise conveys to Buyer all of Originator's right
      and
      title to and interest in the Records relating to all Receivables sold hereunder,
      without the need for any further documentation in connection with the Purchases.
      In connection with such transfer, Originator hereby grants to each of Buyer,
      the
      Program Agent and the Servicer an irrevocable, non-exclusive license to use,
      without royalty or payment of any kind, all software used by Originator to
      account for the Receivables, to the extent necessary to administer the
      Receivables, whether such software is owned by Originator or is owned by others
      and used by Originator under license agreements with respect thereto,
provided
      that
      should the consent of any licensor of such software be required for the grant
      of
      the license described herein, to be effective, Originator hereby agrees that
      upon the request of Buyer (or Buyer's assignee), Originator will use its
      reasonable efforts to obtain the consent of such third-party licensor. The
      license granted hereby shall be irrevocable until the indefeasible payment
      in
      full of the Borrower Obligations, and shall terminate on the date this Agreement
      terminates in accordance with its terms.

     

    (b)  Originator
      (i) shall take such action requested by Buyer and/or the Program Agent (as
      Buyer's assignee), from time to time hereafter, that may be necessary or
      appropriate to ensure that Buyer and its assigns under the Loan Agreement have
      an enforceable ownership interest in the Records relating to the Receivables
      purchased from Originator hereunder, and (ii) shall use its reasonable efforts
      to ensure that Buyer, the Program Agent and the Servicer each has an enforceable
      right (whether by license or sublicense or otherwise) to use all of the computer
      software used to account for the Receivables and/or to recreate such
      Records.

     

    Section
      1.6  Characterization.  
      If, notwithstanding the intention of the parties expressed in Section
      1.1(b),
      the
      sale or contribution by Originator to Buyer of Receivables hereunder shall
      be
      characterized as a secured loan and not a sale or such sale shall for any reason
      be ineffective or unenforceable, then this Agreement shall be deemed to
      constitute a security agreement under the UCC and other applicable law. For
      this
      purpose and without being in derogation of the parties' intention that the
      sale
      of Receivables hereunder shall constitute a true sale thereof, Originator hereby
      grants to Buyer a duly perfected security interest in all of Originator's right,
      title and interest in, to and under all Receivables now existing and hereafter
      arising, all Collections and Related Security with respect thereto, each
      Lock-Box and Deposit Account, all other rights and payments relating to the
      Receivables and all proceeds of the foregoing to secure the prompt and complete
      payment of a loan deemed to have been made in an amount equal to the Purchase
      Price of the Receivables together with all other obligations of Originator
      hereunder, which security interest shall be prior to all other Adverse Claims
      thereto. Buyer and its assigns shall have, in addition to the rights and
      remedies which they may have under this Agreement, all other rights and remedies
      provided to a secured creditor under the UCC and other applicable law, which
      rights and remedies shall be cumulative.

     

    Section
      1.7  Additional
      Grant of Security Interest.
      As
      security for the obligations of the Originator under this Agreement (including,
      without limitation, those described in Section
      1.3
      herein),
      the Originator hereby grants to the Buyer, a duly perfected first priority
      security interest in all of the Originator’s right, title and interest in, to
      and under all Receivables, Related Security with respect to such Receivables,
      the Deposit Accounts, the Lock-Boxes and all proceeds
      of the foregoing, including without limitation, all Collections of such
      Receivables, that arise after the Termination Date.

     

    

    ARTICLE
      II  

    REPRESENTATIONS
      AND WARRANTIES

     

    Section
      2.1  Representations
      and Warranties of Originator

     

    .
      Originator hereby represents and warrants to Buyer on the date hereof, and
      on
      the date of each Purchase hereunder that:

     

    (a)  Corporate
      Existence and Power.
      Originator is (a) a corporation duly organized, validly existing and in good
      standing under the laws of the jurisdiction of its incorporation; (b) has all
      requisite corporate power, and has all material governmental licenses,
      authorizations, consents and approvals necessary to own its property and carry
      on its business as now being conducted; and (c) is qualified to do business
      in
      all jurisdictions in which the nature of the business conducted by it makes
      such
      qualification necessary and where failure so to qualify could reasonably be
      expected to have a Material Adverse Effect.

     

    (b)  Power
      and Authority; Due Authorization, Execution and Delivery.
      Originator has all necessary corporate power and authority to execute and
      deliver this Agreement and each other Facility Document to which it is a party,
      and to perform its obligations hereunder and thereunder and to use the proceeds
      of the Purchases made hereunder. The execution and delivery by Originator of
      this Agreement and each other Facility Document to which it is a party, and
      the
      performance of its obligations hereunder and thereunder and use of the proceeds
      of the Purchases made hereunder have been duly authorized by all necessary
      corporate action on its part. This Agreement and each other Facility Document
      to
      which Originator is a party has been duly and validly executed and delivered
      by
      Originator.

     

    (c)  No
      Conflict.
      None of
      the execution and delivery by Originator of this Agreement and each other
      Facility Document to which it is a party, nor the performance of its obligations
      hereunder and thereunder will conflict with or result in a breach of, or a
      default under, or require any consent under, (i) its certificate or articles
      of
      incorporation or by-laws, (ii) any law, rule or regulation applicable to it,
      (iii) any agreement or instrument to which it is a party or by which it or
      any
      of its property is bound or subject, or (iv) any order, writ, judgment,
      injunction or decree of any court or governmental authority or agency binding
      on
      or affecting it or its property, and will not result in or require the creation
      or imposition of any Adverse Claim upon any of the revenues or on assets of
      Originator or its Subsidiaries (except as created hereunder); and no transaction
      contemplated hereby requires compliance with any bulk sales act or similar
      law.

     

    (d)  Governmental
      Authorization.
      Other
      than the filing of the financing statements required hereunder and the notice
      to
      the Washington Utilities and Transportation Commission (which Originator has
      filed), no authorizations, approvals or consents of, and no notices to, or
      filings or registrations with, any governmental authority or regulatory
      authority or agency (other than informational filings) are necessary for the
      execution and delivery by Originator of this Agreement and each other Facility
      Document to which it is a party and the performance of its obligations hereunder
      and thereunder or for the validity or enforceability hereof or
      thereof.

     

    (e)  Actions,
      Suits.
      There
      are not, in any court or before any arbitrator of any kind or before or by
      any
      governmental body, any actions, suits or proceedings pending or, to Originator's
      knowledge, threatened against or affecting Originator or any of its businesses
      or properties (i) except for actions, suits or proceedings (A) that exist as
      of
      the date of this Agreement and are disclosed in PSE’s Annual Report on Form 10-K
      for the year ended December 31, 2004, PSE’s Quarterly Reports on Form 10-Q for
      the quarters ended March 31, 2005, June 30, 2005 or September 30, 2005 or (B)
      which, singly or in the aggregate, could not reasonably be expected to have
      a
      Material Adverse Effect or (ii) which affect in any adverse manner the binding
      nature, validity or enforceability of any Facility Document. Originator is
      not
      in default with respect to any order of any court, arbitrator or governmental
      body, which default could reasonably be expected to have a Material Adverse
      Effect.

     

    (f)  Binding
      Effect.
      This
      Agreement and each other Facility Document to which Originator is a party
      constitute the legal, valid and binding obligations of Originator enforceable
      against Originator in accordance with their respective terms, except as such
      enforcement may be limited by applicable bankruptcy, insolvency, reorganization
      or other similar laws relating to or limiting creditors' rights generally and
      by
      general principles of equity (regardless of whether enforcement is sought in
      a
      proceeding in equity or at law).

     

    (g)  Accuracy
      of Information.
      No
      information, exhibit or report furnished by Originator or any of its Affiliates
      to Buyer (or its assigns) in connection with the negotiation of, or compliance
      with, this Agreement (including any Monthly Report, Weekly Report or Daily
      Report) or any of the other Facility Documents contained any material
      misstatement of fact or omitted to state a material fact or any fact necessary
      to make the statements contained therein not misleading.

     

    (h)  Use
      of
      Proceeds.
      Originator is not engaged principally, or as one of its important activities,
      in
      the business of extending credit for the purpose, whether immediate, incidental
      or ultimate, of buying or carrying margin stock, as defined in Regulation U
      promulgated by the Board of Governors of the Federal Reserve System from time
      to
      time, and no part of the proceeds of any purchase hereunder will be used to
      buy
      or carry any margin stock.

     

    (i)  Good
      Title.
      Immediately prior to each Purchase hereunder, Originator (i) is the legal and
      beneficial owner of the Receivables and (ii) is the legal and beneficial owner
      of the Related Security with respect thereto, in each case free and clear of
      any
      Adverse Claim, except as created by the Facility Documents. There have been
      duly
      filed all financing statements or other similar instruments or documents
      necessary under the UCC (or any comparable law) of all appropriate jurisdictions
      to perfect Originator’s ownership interest in each Receivable, its Collections
      and the Related Security.

     

    (j)  Perfection.
      This
      Agreement, together with the filing of the financing statements contemplated
      hereby, is effective to, and shall, upon each purchase hereunder, transfer
      to
      Buyer (and Buyer shall acquire from Originator) (i) legal and equitable title
      to, with the right to sell and encumber each Receivable existing and hereafter
      arising, together with the Collections with respect thereto, and (ii) all of
      Originator's right, title and interest in the Related Security and Collections
      associated with each Receivable, in each case, free and clear of any Adverse
      Claim, except as created by the Facility Documents. There have been duly filed
      all financing statements or other similar instruments or documents necessary
      under the UCC (or any comparable law) of all appropriate jurisdictions to
      perfect Buyer's ownership interest in the Receivables, the Related Security
      and
      the Collections.

     

    (k)  Jurisdiction
      of Organization; Places of Business, and Location of Records.
      The
      jurisdiction of organization, principal places of business and chief executive
      office of Originator and the offices where it keeps all of its Records are
      located at the address(es) listed on Exhibit
      II
      or such
      other locations of which Buyer has been notified in accordance with Section
      4.2(a)
      in
      jurisdictions where all action required by Section
      4.1(g)
      and/or
Section
      7.3(a)
      has been
      taken and completed. Originator's organizational number assigned to it by its
      jurisdiction of organization and its Federal Employer’s Identification Number
      are correctly set forth on Exhibit
      II.
      Originator has not, within a period of one year prior to the date hereof, (i)
      changed the location of its principal place of business or chief executive
      office or its organizational structure, (ii) changed its legal name, (iii)
      changed its “location” (within the meaning of Section 9-307 of the UCC as in
      effect in all applicable jurisdictions), or (iv) become a “new debtor” (as
      defined in Section 9-102(a)(56) of the UCC as in effect in all applicable
      jurisdictions) with respect to a currently effective security agreement
      previously entered into by any other Person. Originator has not changed its
      jurisdiction of organization. Originator is a Washington corporation and is
      a
“registered organization” (within the meaning of Section 9-102 of the UCC as in
      effect in the State of Washington).

     

    (l)  Collections.
      The
      conditions and requirements set forth in Section
      4.1(i)
      have at
      all times been satisfied and duly performed. The names and addresses of all
      Deposit Account Banks, together with the account numbers of the Deposit Accounts
      at each Deposit Account Bank and the post office box number of each Lock-Box,
      are listed on Exhibit
      III.
      Originator has not granted any Person, other than Buyer (and its assigns)
      dominion and control or "control" (within the meaning of Section 9-104 of the
      UCC of all applicable jurisdictions) of any Lock-Box or Deposit Account, or
      the
      right to take dominion and control or “control” (within the meaning of Section
      9-104 of the UCC of all applicable jurisdictions) of any such Lock-Box or
      Deposit Account at a future time or upon the occurrence of a future event.
      On
      and after the date which is 60 days after the date hereof, Originator has taken
      all steps necessary to ensure that Buyer has “control” (within the meaning of
      Section 9-104 of the UCC of all applicable jurisdictions) over all Deposit
      Accounts. Originator has the ability to identify, within one (1) Business Day
      of
      receipt or deposit, all amounts that are received in any Lock-Box or deposited
      to any Deposit Account as constituting Collections or non-Collections. Except
      for proceeds of Excluded Receivables (which shall be electronically swept or
      otherwise transferred out of such Deposit Account within one (1) Business Day
      of
      being deposited therein in accordance with Section 4.1(i)), no funds other
      than
      the proceeds of Receivables are deposited to any Deposit Account. All Alternate
      Payment Locations are listed on Exhibit III.

     

    (m)  Material
      Adverse Effect.
      As of
      the date of this Agreement, since December 31, 2004, no event has occurred
      that
      would have a material adverse effect on the financial condition or operations
      of
      Originator and its Subsidiaries. Since December 31, 2004, no event has occurred
      that would have a material adverse effect on (x) the ability of Originator
      to
      perform its obligations under this Agreement or any other Facility Document
      to
      which it is a party, or (y) the collectibility of the Receivables generally
      or
      any material portion of the Receivables.

     

    (n)  Names.
      In the
      past five (5) years, Originator has not used any corporate or other names,
      trade
      names or assumed names other than the name in which it has executed this
      Agreement.

     

    (o)  Ownership
      of Buyer.
      Originator owns, directly or indirectly, 100% of the issued and outstanding
      capital stock of Buyer, free and clear of any Adverse Claim. Such capital stock
      is validly issued, fully paid and nonassessable, and there are no options,
      warrants or other rights to acquire securities of Buyer.

     

    (p)  PUHCA
      Investment Company Act.
      Puget
      Energy, Inc., a public utility holding company under the Public Utility Holding
      Company Act of 1935, as amended (“PUHCA”), which is exempt from regulation under
      PUHCA and the Securities and Exchange Commission’s (“SEC”) rules thereunder
      (except for regulation under Section 9(a)(2) of PUHCA) pursuant to Section
      3(a)(1) and SEC Rule 2 under PUHCA, owns all of the issued and outstanding
      common stock of Originator. Originator is not, and after giving effect to the
      transactions contemplated hereby, will not be required to register as, an
“investment company” within the meaning of the Investment Company Act of 1940,
      as amended, or any successor statute.

     

    (q)  Compliance
      with Law.
      Originator has complied in all material respects with all applicable statutes,
      rules, regulations, orders and restrictions of any domestic or foreign
      government or any instrumentality or agency thereof having jurisdiction over
      the
      conduct of its businesses or the ownership of its property, except for any
      failure to comply with any of the foregoing that could not reasonably be
      expected to have a Material Adverse Effect. Each Receivable, together with
      the
      Contract related thereto, does not contravene any laws, rules or regulations
      applicable thereto (including,
      without limitation, laws,
      rules and regulations relating to truth in lending, fair credit billing, fair
      credit reporting, equal credit opportunity, fair debt collection practices
      or
      privacy), and no part of such Contract is in violation of any such law, rule
      or
      regulation.

     

    (r)  Compliance
      with Credit and Collection Policy.
      Originator has complied in all material respects with the Credit and Collection
      Policy with regard to each Receivable and the related Contract, and has not
      made
      any change to such Credit and Collection Policy, except as permitted under
      Section
      4.2(c)
      and as
      to which Buyer (or its assigns) has been notified, and if applicable, as to
      which Buyer (or its assigns) has consented, in each case, in accordance with
      Section
      4.1(a)(vii).

     

    (s)  Payments
      to Originator.
      With
      respect to each Receivable transferred to Buyer hereunder, the Purchase Price
      received by Originator constitutes reasonably equivalent value in consideration
      therefor and such transfer was not made for or on account of an antecedent
      debt.
      No transfer by Originator of any Receivable hereunder is or may be voidable
      under any section of the Federal Bankruptcy Code.

     

    (t)  Enforceability
      of Contracts.
      Each
      Contract with respect to each Receivable is effective to create, and has
      created, a legal, valid and binding obligation of the related Obligor to pay
      the
      Outstanding Balance of the Receivable created thereunder and any accrued
      interest thereon, enforceable against the Obligor in accordance with its terms,
      except as such enforcement may be limited by applicable bankruptcy, insolvency,
      reorganization or other similar laws relating to or limiting creditors' rights
      generally and by general principles of equity (regardless of whether enforcement
      is sought in a proceeding in equity or at law).

     

    (u)  Eligible
      Receivables.
      Each
      Receivable included in the Net Receivables Pool Balance as an Eligible
      Receivable on the date of Purchase hereunder was an Eligible Receivable on
      such
      date. 

     

    (v)  Accounting.
      The
      manner in which Originator accounts for the transactions contemplated by this
      Agreement does not jeopardize the characterization of the transactions
      contemplated herein as being true sales.

     

    (w)  Identification
      of Receivables.
      Originator identifies the receivables sold (or purported to be sold) to Buyer
      hereunder and which are included in the Net Receivables Pool Balance on its
      books and records (including any accounting system) with the account code “FERC
      142 Account Receivable.”

     

    (x)  Nature
      of Receivables.
      No
      Receivables arises from the sale of minerals or the like, including oil and
      gas,
      at the wellhead or the minehead.

     

    (y)  ERISA.
      PSE and
      any other Person which is under common control (within the meaning of Section
      414(b) or (c) of the IRC) with PSE have fulfilled their obligations (if any)
      under the minimum funding standards of ERISA and the IRC for each ERISA Plan
      in
      compliance in all material respects with the currently applicable provisions
      of
      ERISA and the IRC and have not incurred any liability to the PBGC or an ERISA
      Plan under Title IV of ERISA (other than liability for premiums due in the
      ordinary course). Assuming that the credit extended hereby does not involve
      the
      assets of any employee benefit plan subject to ERISA or any plan subject to
      Section 4975 of the IRC, neither the execution of this Agreement nor the
      consummation of the transactions contemplated hereby will involve a Prohibited
      Transaction.

     

    (z)  Springing
      Lien Indentures.
      No
“default” or other event which, with the giving of notice or the passage of time
      or both, would constitute a “default” has occurred under any Springing Lien
      Indenture. No Adverse Claim has been created, and no event has occurred which,
      with the giving of notice or the passage of time or both, would result in,
      or
      with the further action by a third party would result in, the creation of any
      Adverse Claim, on the Receivables, Related Security or the Collections pursuant
      to any Springing Lien Indenture or any other indenture, agreement, instrument
      or
      filing other than as contemplated by the Facility Documents.

     

    ARTICLE
      III  

    CONDITIONS
      OF PURCHASE

     

    Section
      3.1  Conditions
      Precedent to Initial Purchase.  
      The initial Purchase under this Agreement is subject to the conditions precedent
      that (a) Buyer shall have received on or before the date of such purchase those
      documents listed on Schedule
      A,
      (b) all
      of the conditions to the Initial Borrowing under the Loan Agreement shall have
      been satisfied or waived in accordance with the terms thereof and (c) Originator
      shall have marked its books and records with a legend satisfactory to Buyer
      (and
      its assigns) identifying Buyer's ownership interest in the Receivables, Related
      Security and Collections.

     

    Section
      3.2  Conditions
      Precedent to Subsequent Purchases.  
      Buyer's obligation to pay for Receivables coming into existence after the
      Initial Cutoff Date shall be subject to the further conditions precedent that
      (a) the Facility Termination Date shall not have occurred; (b) Buyer (or its
      assigns) shall have received such other approvals, opinions or documents as
      it
      may reasonably request; and (c) on the date such Receivable came into existence,
      the following statements shall be true (and acceptance of the proceeds of any
      payment for such Receivable shall be deemed a representation and warranty by
      Originator that such statements are then true):

     

    (a)  the
      representations and warranties set forth in Article
      II
      are true
      and correct on and as of the date such Receivable came into existence as though
      made on and as of such date unless such representations and warranties by their
      terms refer to an earlier date, in which case they shall be correct on and
      as of
      such earlier date; and

     

    (b)  no
      event
      has occurred and is continuing that will constitute a Termination Event or
      a
      Potential Termination Event.

     

    Notwithstanding
      the foregoing conditions precedent, upon payment of the Purchase Price for
      any
      Receivable (whether by payment of cash, by offset of amounts owed to Buyer
      and/or by capital contributions), title to such Receivable and the Related
      Security and Collections with respect thereto shall vest in Buyer, whether
      or
      not the conditions precedent to Buyer's obligation to pay for such Receivable
      were in fact satisfied. The failure of Originator to satisfy any of the
      foregoing conditions precedent, however, shall give rise to a right of Buyer
      to
      rescind the related Purchase and direct Originator to pay to Buyer an amount
      equal to the Purchase Price payment that shall have been made with respect
      to
      any Receivables related thereto.

    

    ARTICLE
      IV 

    COVENANTS

     

    Section
      4.1  Affirmative
      Covenants of Originator. 
      Until the date on which this Agreement terminates in accordance with its terms,
      Originator hereby covenants as set forth below:

     

    (a)  Financial
      Reporting.
      Originator will maintain, for itself and each of its Subsidiaries, a system
      of
      accounting established and administered in accordance with GAAP, and furnish
      to
      Buyer (or its assigns):

     

    (i)  Annual
      Reporting.
      As
      soon as available and in any event within 120 days after the end of each fiscal
      year of Originator, a copy of the Annual Report on Form 10-K (or any successor
      form) for Originator for such year, together with a copy of the accompanying
      report of Originator's independent certified public accounting
      firm.

     

    (ii)  Quarterly
      Reporting.
      As soon
      as available and in any event within 60 days after the close of each of the
      first three quarterly accounting periods in each fiscal year of Originator,
      a
      copy of the Quarterly Report on Form 10-Q (or any successor form) for Originator
      for such quarter.

     

    (iii)  Compliance
      Certificate.
      Together with the financial statements required hereunder, a compliance
      certificate in substantially the form of Exhibit
      IV
      signed
      by Originator's Authorized Officer and dated the date of such annual financial
      statement or such quarterly financial statement, as the case may
      be.

     

    (iv)  [Reserved.]

     

    (v)  S.E.C.
      Filings.
      Promptly upon the filing thereof, copies of all annual, quarterly, monthly
      or
      other regular reports, and promptly upon the request of Buyer (or its assigns),
      copies of all registration statements, in each case, which Originator or any
      of
      its Subsidiaries files with the Securities and Exchange Commission.

     

    (vi)  Copies
      of Notices.
      Promptly upon its receipt of any notice, request for consent, financial
      statements, certification, report or other communication under or in connection
      with any Facility Document from any Person other than Buyer, the Program Agent,
      any Managing Agent or any Lender, copies of the same.

     

    (vii)  Change
      in Credit and Collection Policy.
      At
      least thirty (30) days prior to the effectiveness of any material change in
      or
      material amendment to the Credit and Collection Policy, a copy of the Credit
      and
      Collection Policy then in effect and a notice (A) indicating such change or
      amendment, and (B) if such proposed change or amendment would be reasonably
      likely to adversely affect the collectibility of the Receivables or decrease
      the
      credit quality of any newly created Receivables, requesting Buyer's consent
      thereto.

     

    (viii)  Other
      Information.
      Promptly, from time to time, such other information, documents, records or
      reports relating to the Receivables or the condition or operations, financial
      or
      otherwise, of Originator as Buyer (or its assigns) may from time to time
      reasonably request in order to protect the interests of Buyer (and its assigns)
      under or as contemplated by this Agreement.

     

    (b)  Notices.
      Originator will notify the Buyer and the Program Agent in writing of any of
      the
      following promptly upon learning of the occurrence thereof, describing the
      same
      and, if applicable, the steps being taken with respect thereto:

     

    (i)  Termination
      Events or Potential Termination Events.
      The
      occurrence of each Termination Event and each Potential Termination Event,
      by a
      statement of an Authorized Officer of Originator.

     

    (ii)  Judgment
      and Proceedings.
      (A) The
      entry of any judgment or decree against Originator or any of its Subsidiaries
      if
      the aggregate amount of all judgments and decrees then outstanding against
      Originator and its Subsidiaries exceeds $25,000,000, (B) the institution of
      any
      litigation, arbitration proceeding, investigation or governmental proceeding
      against Originator which, individually or in the aggregate, could reasonably
      be
      expected to have a Material Adverse Effect and (C) any material development
      in
      any previously disclosed litigation, arbitration proceeding, investigation
      or
      governmental proceeding.

     

    (iii)  Material
      Adverse Effect.
      The
      occurrence of any event or condition that has had, or could reasonably be
      expected to have, a Material Adverse Effect.

     

    (iv)  Defaults
      Under Other Agreements.
      The
      occurrence of (A) any “default” or other event which, with the giving of notice
      or the passage of time or both, would constitute a “default” under any Springing
      Lien Indenture or any other material financing arrangement pursuant to which
      the
      Originator is a debtor or an obligor, (B) the creation of any Adverse Claim
      on,
      or the occurrence of any event which, with the giving of notice or passage
      of
      time or both, would result in, or with further action by any third party would
      result in, the creation of any Adverse Claim on the Receivables, the Related
      Security or the Collections pursuant to any Springing Lien Indenture or any
      other indenture, agreement, instrument or filing, or (C) a default or an event
      of default under any other financing arrangement in excess of $25,000,000,
      pursuant to which Originator is a debtor or an obligor.

     

    (v)  Downgrade
      of the Originator.
      Any
      downgrade in the rating of any Indebtedness of Originator by S&P or by
      Moody's, setting forth the Indebtedness affected and the nature of such
      change.

     

    (vi)  Modification
      of Springing Lien Indentures.
      Any
      amendment, restatement, supplement or modification, or any proposed amendment,
      restatement, supplement or modification, of any provision of any Springing
      Lien
      Indenture which (A) is related to the accounts receivable exception to the
      lien
      or security interest granted thereunder or the circumstances under which such
      exceptions will cease to exist or the events which could cause such exceptions
      to cease to exist or (B) in any way could impair the Program Agent’s security
      interest in the Receivables, Related Security and Collections or its rights
      under the Facility Documents.

     

    (c) 
Compliance
      with Laws and Preservation of Corporate Existence.

     

    (i)  Originator
      will comply with the requirements of all applicable laws, rules, regulations
      and
      governmental approvals, and all orders, writs, injunctions and decrees of any
      court or governmental authority or agency, if failure to comply with such
      requirements could reasonably be expected to have a Material Adverse
      Effect.

     

    (ii)  Originator
      will (A) preserve and maintain its corporate existence, rights, franchises
      and
      privileges in the jurisdiction of its incorporation and (B) qualify and remain
      qualified in good standing as a foreign corporation in each jurisdiction where
      its business is conducted, except where the failure to so qualify could not
      reasonably be expected to have a Material Adverse Effect.

     

    (d)  Audits.
      Originator will furnish to Buyer (or its assigns) from time to time such
      information with respect to it and the Receivables as Buyer (or its assigns)
      may
      reasonably request. Originator will, from time to time during regular business
      hours as requested by Buyer (or its assigns), upon reasonable notice and at
      the
      sole cost of Originator, permit Buyer (or its assigns) or their respective
      agents or representatives, (i) to examine and make copies of and abstracts
      from
      all Records in the possession or under the control of Originator relating to
      the
      Receivables and the Related Security, including,
      without limitation,
      the
      related Contracts, and (ii) to visit the offices and properties of Originator
      for the purpose of examining such materials described in clause (i) above,
      and
      to discuss matters relating to Originator's financial condition or the
      Receivables and the Related Security or Originator's performance under any
      of
      the Facility Documents or Originator's performance under the Contracts and,
      in
      each case, with any of the Authorized Officers of Originator having knowledge
      of
      such matters (the activities referred to in the preceding clauses (i) and (ii),
      collectively, an “Audit”). Notwithstanding the foregoing, (i) unless an Event of
      Termination shall have occurred and be continuing or a Daily Reporting Period
      shall be in effect, Originator shall not be responsible for the costs of more
      than (A) during a Level 1 Ratings Period, one Audit performed during any
      consecutive 12-month period and (B) during any other Ratings Period, two Audits
      performed during any consecutive 12-month period and (ii) the Originator agrees
      that it will cooperate with the Program Agent in connection with the performance
      of an Audit to be completed within sixty (60) days after the date
      hereof.

     

    (e)  Keeping
      and Marking of Records and Books.

     

    (i)  Originator
      will maintain and implement administrative and operating procedures
      (including,
      without limitation,
      an
      ability to recreate records evidencing Receivables in the event of the
      destruction of the originals thereof), and keep and maintain all documents,
      books, records and other information reasonably necessary or advisable for
      the
      collection of all Receivables (including,
      without limitation,
      records
      adequate to permit the immediate identification of each new Receivable and
      all
      Collections of and adjustments to each existing Receivable). Originator will
      give Buyer (or its assigns) notice of any material change in the administrative
      and operating procedures referred to in the previous sentence.

     

    (ii)  Originator
      will (A) on or prior to the date hereof, mark its master data processing records
      and other books and records relating to the Receivables with a legend,
      acceptable to Buyer (or its assigns), describing Buyer's ownership interests
      in
      the Receivables and further describing the interests of the Program Agent (on
      behalf of the Secured Parties) under the Loan Agreement and (B) upon the request
      of Buyer (or its assigns), (x) mark each Contract with a legend describing
      Buyer's ownership interests in the Receivables and further describing the
      interests of the Program Agent (on behalf of the Secured Parties) and (y)
      deliver to Buyer (or its assigns) all Contracts (including,
      without limitation,
      all
      multiple originals of any such Contract) relating to the
      Receivables.

     

    (f)  Compliance
      with Contracts and Credit and Collection Policy.
      Originator will timely (i) fully perform and comply with all provisions,
      covenants and other promises required to be observed by it under the Contracts
      related to the Receivables, and (ii) comply in all material respects with the
      Credit and Collection Policy in regard to each Receivable and the related
      Contract.

     

    (g)  Ownership.
      Originator will take all necessary action to establish and maintain, irrevocably
      in Buyer, (A) legal and equitable title to the Receivables, the Related Security
      and the Collections and (B) all of Originator’s right, title and interest in the
      Related Security associated with the Receivables, in each case free and clear
      of
      any Adverse Claims other than Adverse Claims in favor of Buyer (and its assigns)
      (including,
      without limitation,
      the
      filing of all financing statements or other similar instruments or documents
      necessary under the UCC (or any comparable law) of all appropriate jurisdictions
      to perfect Buyer's interest in such Receivables, Related Security and
      Collections and such other action to perfect, protect or more fully evidence
      the
      interest of Buyer as Buyer (or its assigns) may reasonably
      request).

     

    (h)  Lenders'
      Reliance.
      Originator acknowledges that the Program Agent and the Lenders are entering
      into
      the transactions contemplated by the Loan Agreement in reliance upon Buyer's
      identity as a legal entity that is separate from Originator and any Affiliates
      thereof. Therefore, from and after the date of execution and delivery of this
      Agreement, Originator will take all reasonable steps including,
      without limitation,
      all
      steps that Buyer or any assignee of Buyer may from time to time reasonably
      request to maintain Buyer's identity as a separate legal entity and to make
      it
      manifest to third parties that Buyer is an entity with assets and liabilities
      distinct from those of each Related Entity and not just a division of any
      Related Entity. Without limiting the generality of the foregoing and in addition
      to the other covenants set forth herein, Originator will:

     

    (i)  not
      hold
      itself out to third parties as liable for the debts of Buyer nor purport to
      own
      the Receivables and other assets acquired by Buyer, 

     

    (ii)  take
      all
      other actions necessary on its part to ensure that Buyer is at all times in
      compliance with the covenants set forth in Section
      5.01(i)
      of the
      Loan Agreement, and 

     

    (iii)  cause
      all
      tax liabilities arising in connection with the transactions contemplated herein
      or otherwise to be allocated between Originator and Buyer on an arm's-length
      basis and in a manner consistent with the procedures set forth in U.S. Treasury
      Regulations §§1.1502-33(d) and 1.1552-1.

     

    (i)  Collections.
      Originator will instruct all Obligors to remit all Collections directly to
      a
      Lock-Box, an Alternate Payment Location or Deposit Account. Originator will
      cause (1) all items from all Lock-Boxes and all items received from all
      Alternate Payment Locations to be processed and deposited into a Deposit Account
      within one (1) Business Day after such receipt or to be directly deposited
      by a
      Deposit Account Bank into a Deposit Account, (2) all non-Collection amounts
      deposited to any Deposit Account to be electronically swept or otherwise
      transferred out of such Deposit Account within one (1) Business Day of being
      deposited therein and (3) each Lock-Box and Deposit Account to be subject at
      all
      times on and after the date which is 60 days after the date hereof to a Blocked
      Account Agreement that is in full force and effect. In the event any payments
      relating to Receivables are remitted directly to Originator or any Affiliate
      of
      Originator, Originator will remit (or will cause all such payments to be
      remitted) directly to a Deposit Account Bank and deposited into a Deposit
      Account within two (2) Business Days following receipt thereof, and, at all
      times prior to such remittance, Originator will itself hold or, if applicable,
      will cause such payments to be held in trust for the exclusive benefit of Buyer
      and its assigns. Originator will transfer exclusive ownership, dominion and
      control and "control" (within the meaning of Section 9-104 of the UCC of all
      applicable jurisdictions), subject to this Agreement, of each Lock-Box and
      Deposit Account to Buyer and, will not grant the right to take dominion and
      control or "control" (within the meaning of Section 9-104 of the UCC of all
      applicable jurisdictions) of any Lock-Box or Deposit Account at a future time
      or
      upon the occurrence of a future event to any Person, except to Buyer (or its
      assigns) as contemplated by this Agreement and the Loan Agreement. With respect
      to each Deposit Account, Originator shall take all steps necessary to ensure
      that Buyer (and its assigns) has “control” (within the meaning of Section 9-104
      of the UCC of all applicable jurisdictions) over each such Deposit Account
      on
      and after the date which is 60 days after the date hereof.

     

    (j)  Taxes.
      Originator will file all tax returns and reports required by law to be filed
      by
      it and will promptly pay and discharge, before the same shall become delinquent,
      all taxes, assessments and governmental charges or levies imposed upon it or
      upon its property, except any such taxes, assessments, charges or levies (i)
      that are being diligently contested in good faith by appropriate proceedings
      or
      (ii) subject to the last sentence of this subsection (k), the non-payment of
      which could not reasonably be expected to have a Material Adverse Effect.
      Originator will pay when due any taxes payable in connection with the
      Receivables, exclusive of taxes on or measured by income or gross receipts
      of
      Buyer or its assigns.

     

    (k)  Insurance.
      Originator will maintain with responsible insurance companies or through its
      program of self-insurance, insurance against at least such risks and in at
      least
      such amounts as is customarily maintained by similar businesses, or as may
      be
      required by any applicable law, rule or regulation, any governmental approval,
      or any order, writ, injunction or decree of any court or governmental authority
      or agency.

     

    (l)  Identification
      of Receivables.
      Originator shall at all times identify receivables sold (or purported to be
      sold) to Buyer hereunder on its books and records (including its accounting
      system) with the account code “FERC 142 Account Receivable.”

     

    (m)  Frequency
      of Billing.
      Originator will prepare and mail invoices with respect to all Receivables no
      less frequently than monthly.

     

    Section
      4.2  Negative
      Covenants of Originator.  
      Until the date on which this Agreement terminates in accordance with its terms,
      Originator hereby covenants that:

     

    (a)  Name
      and Jurisdiction Change, Offices and Records.
      Originator will not change its name, jurisdiction of organization, identity
      or
      corporate structure (within the meaning of Sections 9-503 and/or 9-507 of the
      UCC of all applicable jurisdictions), become a “new debtor” (as defined in
      Section 9-102(a)(56) of the UCC of all applicable jurisdictions) with respect
      to
      a currently effective security agreement previously entered into by any other
      Person, change its “location” (within the meaning of Section 9-307 of the UCC of
      all applicable jurisdictions) or relocate its chief executive office, principal
      place of business or any office where Records are kept unless it shall have:
      (i)
      given Buyer (or its assigns) at least forty-five (45) days' prior written notice
      thereof and (ii) delivered to Buyer (or its assigns) all financing statements,
      instruments and other documents requested by Buyer (or its assigns) in
      connection with such change, event or relocation.

     

    (b)  Change
      in Payment Instructions to Obligors.
      Originator will not add or terminate any bank as a Deposit Account Bank, or
      make
      any change in the instructions to Obligors regarding payments to be made to
      any
      Lock-Box or Deposit Account, unless Buyer (or its assigns) shall have received,
      at least ten (10) days before the proposed effective date therefor, (i) written
      notice of such addition, termination or change and (ii) with respect to the
      addition of a Deposit Account Bank or a Deposit Account or Lock-Box, an executed
      Blocked Account Agreement and Lock-Box Transfer Notice, as applicable with
      respect to the new Deposit Account or Lock-Box; provided,
      however,
      that
      Originator may make changes in instructions to Obligors regarding payments
      if
      such new instructions require such Obligor to make payments to another existing
      Deposit Account or Lock-Box.

     

    (c)  Modifications
      to Contracts and Credit and Collection Policy.
      Originator will not make any change to the Credit and Collection Policy that
      could adversely affect the collectibility of the Receivables or decrease the
      credit quality of any newly created Receivables. Except as otherwise permitted
      in its capacity as Servicer pursuant to Section
      6.02(d)
      of the
      Loan Agreement, Originator will not extend, amend or otherwise modify the terms
      of any Receivable or any Contract related thereto other than in accordance
      with
      the Credit and Collection Policy.

     

    (d)  Sales,
      Liens.
      Originator will not sell, assign (by operation of law or otherwise) or otherwise
      dispose of, or grant any option with respect to, or create or suffer to exist
      any Adverse Claim upon (including,
      without limitation,
      the
      filing of any financing statement) or with respect to, any Receivable, Related
      Security or Collections, or upon or with respect to any Contract under which
      any
      Receivable arises, or any Lock-Box or Deposit Account, or assign any right
      to
      receive income with respect thereto (other than, in each case, the creation
      of
      the interests therein in favor of Buyer provided for herein), and Originator
      will defend the right, title and interest of Buyer in, to and under any of
      the
      foregoing property, against all claims of third parties claiming through or
      under Originator. Originator shall not create or suffer to exist any mortgage,
      pledge, security interest, encumbrance, lien, charge or other similar
      arrangement on any of its inventory, the sale of which results in a “FERC 142
      Account Receivable”.

     

    (e)  Accounting
      for Purchase.
      Originator will not, and will not permit any Affiliate to, account for or treat
      (whether in financial statements or otherwise) the transactions contemplated
      hereby in any manner other than the sale of the Receivables and the Related
      Security by Originator to Buyer or in any other respect account for or treat
      the
      transactions contemplated hereby in any manner other than as a sale of the
      Receivables and the Related Security by Originator to Buyer except to the extent
      that such transactions are not recognized on account of consolidated financial
      reporting in accordance with generally accepted accounting
      principles.

     

    (f)  Collections.
      Except
      for proceeds of Excluded Receivables (which shall be electronically swept or
      otherwise transferred out of such Deposit Account within one (1) Business Day
      of
      being deposited therein in accordance with Section
      4.1(i)),
      Originator will not deposit or otherwise credit, or cause or permit to be so
      deposited or credited, to any Deposit Account cash or cash proceeds other than
      Collections. Except as may be required by the Program Agent pursuant to the
      last
      sentence of Section 6.02(b) of the Loan Agreement, Originator will not deposit
      or otherwise credit, or cause or permit to be so deposited or credited, any
      Collections or proceeds thereof to any lock-box account or to any other account
      not covered by a Blocked Account Agreement.

     

    ARTICLE
      V  

    TERMINATION
      EVENTS

     

    Section
      5.1  Termination
      Events.  
      The occurrence of any one or more of the following events shall constitute
      a
“Termination Event”:

     

    (a)  Originator
      shall fail:

     

    (i)  to
      make
      any payment or deposit required hereunder when due and such failure continues
      for two (2) Business Days, or to perform or observe any term, covenant or
      agreement set forth in Section
      4.1(c)(ii)(A),
      (i)
      or
      (l)
      or
Section
      4.2,

     

    (ii)  to
      perform or observe any term, covenant or agreement set forth in Section
      4.1(d),
      (g)
      or
      (h)
      and
      such failure shall continue for five (5) consecutive Business Days after the
      earlier of (A) Originator obtaining knowledge thereof or (B) Buyer (or its
      assigns) delivers written notice thereof, or

     

    (iii)  to
      perform or observe any term, covenant or agreement hereunder (other than as
      referred to in clauses (i) and (ii) of this subsection (a)) or any other
      Facility Document to which it is a party and such failure shall continue for
      thirty (30) consecutive days after the earlier of (A) Originator obtaining
      knowledge thereof or (B) Buyer (or its assigns) delivers written notice
      thereof.

     

    (b)  Any
      representation, warranty, certification or statement made by Originator in
      this
      Agreement, any other Facility Document or in any other document delivered
      pursuant hereto or thereto shall prove to have been materially false on the
      date
      as of which made or deemed made.

     

    (c)  Failure
      of Originator to pay any Indebtedness when due in excess of $25,000,000 in
      the
      aggregate; or the default by Originator in the performance of any term,
      provision or condition contained in any agreement under which any such
      Indebtedness was created or is governed, the effect of which is to cause, or
      to
      permit the holder or holders of such Indebtedness to cause, such Indebtedness
      to
      become due prior to its stated maturity; or any such Indebtedness of Originator
      shall be declared to be due and payable or required to be prepaid (other than
      by
      a regularly scheduled payment) prior to the date of maturity
      thereof.

     

    (d)  (i)
      Originator or any of its Significant Subsidiaries shall generally not pay its
      debts as such debts become due or shall admit in writing its inability to pay
      its debts generally or shall make a general assignment for the benefit of
      creditors; or (ii) any proceeding shall be instituted by Originator or any
      of
      its Significant Subsidiaries seeking to adjudicate it bankrupt or insolvent,
      or
      seeking liquidation, winding up, reorganization, arrangement, adjustment,
      protection, relief or composition of it or its debts under any law relating
      to
      bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
      entry of an order for relief or the appointment of a receiver, trustee or other
      similar official for it or any substantial part of its property; (iii) any
      proceeding shall be instituted against Originator or any of its Significant
      Subsidiaries seeking to adjudicate it bankrupt or insolvent, or seeking
      liquidation, winding up, reorganization, arrangement, adjustment, protection,
      relief or composition of it or its debts under any law relating to bankruptcy,
      insolvency or reorganization or relief of debtors, or seeking the entry of
      an
      order for relief or the appointment of a receiver, trustee or other similar
      official for it or any substantial part of its property and such proceeding
      continues undismissed or unstayed for a period of 60 consecutive days; or (iv)
      Originator or any of its Significant Subsidiaries shall take any corporate
      action to authorize any of the actions set forth in the foregoing clauses (i),
      (ii) or (iii) of this subsection (d).

     

    (e)  A
      Change
      of Control shall occur.

     

    (f)  One
      or
      more final judgments for the payment of money in an amount in excess of
      $25,000,000, individually or in the aggregate, shall be entered against
      Originator on claims not covered by insurance or as to which the insurance
      carrier has denied its responsibility, and such judgment shall continue
      unsatisfied and in effect for sixty (60) days without a stay of execution or
      otherwise being appropriately contested in good faith.

     

    (g)  Any
      event
      which constitutes a “default” (after the expiration of any applicable cure
      period) under any Springing Lien Indenture, shall have occurred.

     

    Section
      5.2  Remedies.  
      Upon the occurrence and during the continuation of a Termination Event, Buyer
      may take any of the following actions: (i) declare the Termination Date to
      have
      occurred, whereupon the Termination Date shall forthwith occur, without demand,
      protest or further notice of any kind, all of which are hereby expressly waived
      by Originator; provided,
      however,
      that
      upon the occurrence of a Termination Event described in Section
      5.1(d),
      or of
      an actual or deemed entry of an order for relief with respect to Originator
      under the Federal Bankruptcy Code or under any other applicable bankruptcy,
      insolvency, arrangement, moratorium or similar laws of any other jurisdiction
      (foreign or domestic), the Termination Date shall automatically occur, without
      demand, protest or any notice of any kind, all of which are hereby expressly
      waived by Originator and (ii) to the fullest extent permitted by applicable
      law,
      declare that the Default Fee shall accrue with respect to any amounts then
      due
      and owing by Originator to Buyer. The aforementioned rights and remedies shall
      be without limitation and shall be in addition to all other rights and remedies
      of Buyer and its assigns otherwise available under any other provision of this
      Agreement or any other Facility Document, by operation of law, at equity or
      otherwise, all of which are hereby expressly preserved, including, without
      limitation, all rights and remedies provided under the UCC in effect in any
      jurisdiction, all of which rights shall be cumulative.

     

    ARTICLE
      VI  

    INDEMNIFICATION

     

    Section
      6.1  Indemnities
      by Originator.  
      Without limiting any other rights that Buyer may have hereunder or under
      applicable law, Originator hereby agrees to indemnify (and pay upon demand
      to)
      Buyer and its assigns, successors officers, directors, agents, employees and
      Affiliates (each an “Indemnified Party”) from and against any and all damages,
      losses, claims, taxes, liabilities, costs, expenses and for all other amounts
      payable, including reasonable attorneys' fees (which attorneys may be employees
      of Buyer or any such assign) and disbursements (all of the foregoing being
      collectively referred to as “Indemnified Amounts”) awarded against or incurred
      by any of them arising out of or as a result of this Agreement or the
      acquisition, either directly or indirectly, by Buyer of an interest in the
      Receivables, Contracts or Related Security, excluding,
      however:

     

    (a)  Indemnified
      Amounts to the extent a final judgment of a court of competent jurisdiction
      holds that such Indemnified Amounts resulted from gross negligence or willful
      misconduct on the part of the Indemnified Party seeking
      indemnification;

     

    (b)  Indemnified
      Amounts to the extent the same includes losses in respect of Receivables that
      are uncollectible on account of the insolvency, bankruptcy or lack of
      creditworthiness of the related Obligor; or

     

    (c)  taxes
      imposed by the United States federal government or the jurisdiction in which
      such Indemnified Party's principal executive office is located, on or measured
      by the overall net or gross income of such Indemnified Party;

     

    provided,
      however,
      that
      nothing contained in this sentence shall limit the liability of Originator
      or
      limit the recourse of the Indemnified Parties to Originator for amounts
      otherwise specifically provided to be paid by Originator under the terms of
      this
      Agreement or any other Facility Document. Without limiting the generality of
      the
      foregoing indemnification, Originator shall indemnify each Indemnified Party
      for
      Indemnified Amounts (including,
      without limitation, losses
      in
      respect of uncollectible receivables, regardless of whether reimbursement
      therefor would constitute recourse to Originator) relating to or resulting
      from:

    

    (i)  any
      representation or warranty made by Originator (or any officers of Originator)
      under or in connection with this Agreement, any other Facility Document or
      any
      other information or report delivered by Originator pursuant hereto or thereto
      that shall have been false or incorrect when made or deemed made;

     

    (ii)  the
      failure by Originator, to comply with any applicable law, rule or regulation
      with respect to any Receivable or Contract related thereto, or the nonconformity
      of any Receivable or Contract included therein with any such applicable law,
      rule or regulation or any failure of Originator to keep or perform any of its
      obligations, express or implied, with respect to any Contract;

     

    (iii)  any
      failure of Originator to perform its duties, covenants or other obligations
      in
      accordance with the provisions of this Agreement or any other Facility
      Document;

     

    (iv)  any
      products liability, personal injury or damage suit, or other similar claim
      arising out of or in connection with merchandise, insurance or services that
      are
      the subject of any Contract or any Receivable;

     

    (v)  any
      dispute, claim, offset or defense (other than discharge in bankruptcy of the
      Obligor) of the Obligor to the payment of any Receivable (including,
      without limitation,
      a
      defense based on such Receivable or the related Contract not being a legal,
      valid and binding obligation of such Obligor enforceable against it in
      accordance with its terms), or any other claim resulting from the sale of the
      merchandise or service related to such Receivable or the furnishing or failure
      to furnish such merchandise or services;

     

    (vi)  the
      commingling of Collections of Receivables at any time with other
      funds;

     

    (vii)  any
      investigation, litigation or proceeding related to or arising from this
      Agreement or any other Facility Document, the transactions contemplated hereby
      or thereby, the use of the proceeds of any Purchase Price payment, the ownership
      of the Receivables, any lien on accounts receivable under any Springing Lien
      Indenture or any other investigation, litigation or proceeding relating to
      Originator in which any Indemnified Party becomes involved as a result of any
      of
      the transactions contemplated hereby or by any other Facility
      Document;

     

    (viii)  any
      inability to litigate any claim against any Obligor in respect of any Receivable
      as a result of such Obligor being immune from civil and commercial law and
      suit
      on the grounds of sovereignty or otherwise from any legal action, suit or
      proceeding;

     

    (ix)  any
      Termination Event or Potential Termination Event described in Section
      5.1(d);

     

    

    (x)  any
      failure to vest and maintain vested in Buyer, or to transfer to Buyer, legal
      and
      equitable title to, and ownership of, the Receivables and the Collections,
      and
      all of Originator's right, title and interest in the Related Security associated
      with the Receivables, in each case, free and clear of any Adverse Claim (except
      as created by the Facility Documents);

     

    (xi)  the
      failure to have filed, or any delay in filing, financing statements or other
      similar instruments or documents under the UCC of any applicable jurisdiction
      or
      other applicable laws with respect to any Receivable, the Related Security
      and
      Collections with respect thereto, and the proceeds of any thereof, whether
      at
      the time of the Purchase or at any subsequent time;

     

    (xii)  any
      action or omission by Originator which reduces or impairs the rights of Buyer
      with respect to any Receivable or the value of any such Receivable;

     

    (xiii)  any
      attempt by any Person to void any Purchase hereunder under statutory provisions
      or common law or equitable action; and

     

    (xiv)  the
      failure of any Receivable included in the calculation of the Net Receivables
      Pool Balance as an Eligible Receivable to be an Eligible Receivable at the
      time
      so included.

     

    (xv)  the
      failure of (i) any Deposit Account Bank to remit any amounts or items of payment
      held in a Deposit Account or in a Lock-Box pursuant to the instructions of
      the
      Program Agent given in accordance with this Agreement, the applicable Blocked
      Account Agreement or the other Facility Documents, whether by reason of the
      exercise of setoff rights or otherwise, (ii) any sub-servicer or any other
      third
      party with a contractual relationship with the Originator for the acceptance
      or
      processing of Collections, to remit any Collections received by it to a Lock-Box
      or a Deposit Account.

     

    Section
      6.2  Other
      Costs and Expenses.  
      Originator shall reimburse Buyer on demand for all reasonable costs and
      out-of-pocket expenses in connection with the preparation, negotiation,
      arrangement, execution, delivery and administration of this Agreement, the
      transactions contemplated hereby and the other documents to be delivered
      hereunder. Originator shall reimburse Buyer on demand for any and all costs
      and
      expenses of Buyer, if any, including reasonable counsel fees and expenses in
      connection with the enforcement of this Agreement and the other documents
      delivered hereunder and in connection with any restructuring or workout of
      this
      Agreement or such documents, or the administration of this Agreement following
      a
      Termination Event.

     

    ARTICLE
      VII 

    MISCELLANEOUS

     

    Section
      7.1  Waivers
      and Amendments.

     

    (a)  No
      failure or delay on the part of Buyer (or its assigns) in exercising any power,
      right or remedy under this Agreement shall operate as a waiver thereof, nor
      shall any single or partial exercise of any such power, right or remedy preclude
      any other further exercise thereof or the exercise of any other power, right
      or
      remedy. The rights and remedies herein provided shall be cumulative and
      nonexclusive of any rights or remedies provided by law. Any waiver of this
      Agreement shall be effective only in the specific instance and for the specific
      purpose for which given.

     

    (b)  No
      provision of this Agreement may be amended, supplemented, modified or waived
      except in writing signed by Originator and Buyer and, to the extent required
      under the Loan Agreement and the Managing Agents.

     

    Section
      7.2  Notices

     

    .
      All
      communications and notices provided for hereunder shall be in writing (including
      bank wire, telecopy or electronic facsimile transmission or similar writing)
      and
      shall be given to the other parties hereto at their respective addresses or
      telecopy numbers set forth on the signature pages hereof or at such other
      address or telecopy number as such Person may hereafter specify for the purpose
      of notice to each of the other parties hereto. Each such notice or other
      communication shall be effective (i) if given by telecopy, upon the receipt
      thereof, (ii) if given by mail, three (3) Business Days after the time such
      communication is deposited in the mail with first class postage prepaid or
      (iii)
      if given by any other means, when received at the address specified in this
      Section
      7.2.

     

    Section
      7.3  Protection
      of Ownership Interests of Buyer.

     

    (a)  Originator
      agrees that from time to time, at its expense, it will promptly execute and
      deliver all instruments and documents, and take all actions, that may be
      necessary or desirable, or that Buyer (or its assigns) may reasonably request,
      to perfect, protect or more fully evidence the interest of Buyer hereunder
      and
      the interests of the Secured Parties, or to enable Buyer (or its assigns) to
      exercise and enforce their rights and remedies hereunder. Without limiting
      the
      foregoing, Originator will, upon the request of Buyer (or its assigns), file
      such financing or continuation statements, or amendments thereto or assignments
      thereof, and execute and file such other instruments and documents, that may
      be
      necessary or desirable, or that Buyer (or its assigns) may reasonably request,
      to perfect, protect or evidence such interests. At any time after the occurrence
      and during the continuation of an Event of Termination, Buyer (or its assigns)
      may, at Originator's sole cost and expense, direct Originator to notify the
      Obligors of Receivables of the ownership interests of Buyer under this Agreement
      and may also direct that payments of all amounts due or that become due under
      any or all Receivables be made directly to Buyer or its designee.

     

    (b)  If
      Originator fails to perform any of its obligations hereunder, Buyer (or its
      assigns) may (but shall not be required to) perform, or cause performance of,
      such obligations, and Buyer's (or such assigns') costs and expenses incurred
      in
      connection therewith shall be payable by Originator as provided in Section
      6.2.
      Originator irrevocably authorizes Buyer (and its assigns) at any time and from
      time to time in the sole and absolute discretion of Buyer (or its assigns),
      and
      appoints Buyer (and its assigns) as its attorney(ies)-in-fact, to act on behalf
      of Originator (i) to authorize and/or execute on behalf of Originator as debtor
      and to file financing or continuation statements (and amendments thereto and
      assignments thereof) necessary or desirable in Buyer's (or its assigns') sole
      and absolute discretion to perfect and to maintain the perfection and priority
      of the interest of Buyer in the Receivables and (ii) to file a carbon,
      photographic or other reproduction of this Agreement or any financing statement
      with respect to the Receivables, the Related Security and the Collections as
      a
      financing statement in such jurisdictions and in such offices as Buyer (or
      its
      assigns) in their sole and absolute discretion deem necessary or desirable
      to
      perfect and to maintain the perfection and priority of Buyer's interests in
      the
      Receivables, the Related Security and the Collections. This appointment is
      coupled with an interest and is irrevocable. The authorization by Originator
      set
      forth in the second sentence of this Section 7.3(b)
      is
      intended to meet all requirements for authorization by a debtor under Article
      9
      of any applicable enactment of the UCC, including,
      without limitation,
      Section
      9-509 thereof.

     

    Section
      7.4  Reserved.

     

    Section
      7.5  Bankruptcy
      Petition.

     

    (a)  Originator
      and Buyer each hereby covenants and agrees that, prior to the date that is
      one
      year and one day after the payment in full of all outstanding senior
      indebtedness of any Conduit Lender, it will not institute against, or join
      any
      other Person in instituting against, any Conduit Lender any bankruptcy,
      reorganization, arrangement, insolvency or liquidation proceedings or other
      similar proceeding under the laws of the United States or any state of the
      United States.

     

    (b)  Originator
      covenants and agrees that, prior to the date that is one year and one day after
      the payment in full of all outstanding obligations of Buyer under the Loan
      Agreement, it will not institute against, or join any other Person in
      instituting against, Buyer any bankruptcy, reorganization, arrangement,
      insolvency or liquidation proceedings or other similar proceeding under the
      laws
      of the United States or any state of the United States.

     

    Section
      7.6  Limitation
      of Liability.  
      Except with respect to any claim arising out of the willful misconduct or gross
      negligence of any Lender, the Program Agent or any Managing Agent, no claim
      may
      be made by Originator or any other Person against any Lender, the Program Agent
      or any Managing Agent or their respective Affiliates, directors, officers,
      employees, attorneys or agents for any special, indirect, consequential or
      punitive damages in respect of any claim for breach of contract or any other
      theory of liability arising out of or related to the transactions contemplated
      by this Agreement, or any act, omission or event occurring in connection
      therewith; and Originator hereby waives, releases, and agrees not to sue upon
      any claim for any such damages, whether or not accrued and whether or not known
      or suspected to exist in its favor.

     

    Section
      7.7  CHOICE
      OF LAW.  
      THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
      WITH, THE LAWS OF THE STATE OF NEW YORK.

     

    Section
      7.8  CONSENT
      TO JURISDICTION.  
      Originator hereby irrevocably submits to the non-exclusive jurisdiction of
      any
      New York State or Federal court sitting in New York City in any action or
      proceeding arising out of or relating to this Agreement, and each party hereto
      hereby irrevocably agrees that all claims in respect of such action or
      proceeding may be heard and determined in such New York State court or, to
      the
      extent permitted by law, in such Federal court. The parties hereto hereby
      irrevocably waive, to the fullest extent they may effectively do so, the defense
      of an inconvenient forum to the maintenance of such action or proceeding. The
      parties hereto agree that a final judgment in any such action or proceeding
      shall be conclusive and may be enforced in other jurisdictions by suit on the
      judgment or in any other manner provided by law. Originator consents to the
      service of any and all process in any such action or proceeding by the mailing
      of copies of such process to it at its address specified in Section
      7.2.
      Nothing
      in this Section
      7.8
      shall
      affect the right of Buyer or its assigns to serve legal process in any other
      manner permitted by law.

     

    Section
      7.9  WAIVER
      OF JURY TRIAL.  
      EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
      INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
      CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
      WITH
      THIS AGREEMENT, ANY DOCUMENT EXECUTED BY ORIGINATOR PURSUANT TO THIS AGREEMENT
      OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.

     

    Section
      7.10  Integration;
      Binding Effect; Survival of Terms.

     

    (a)  This
      Agreement and each other Facility Document contain the final and complete
      integration of all prior expressions by the parties hereto with respect to
      the
      subject matter hereof and shall constitute the entire agreement among the
      parties hereto with respect to the subject matter hereof superseding all prior
      oral or written understandings.

     

    (b)  This
      Agreement shall be binding upon and inure to the benefit of Originator, Buyer
      and their respective successors and permitted assigns (including any trustee
      in
      bankruptcy). Originator may not assign any of its rights and obligations
      hereunder or any interest herein without the prior written consent of Buyer.
      Buyer may assign at any time its rights and obligations hereunder and interests
      herein to any other Person without the consent of Originator. Without limiting
      the foregoing, Originator acknowledges that Buyer, pursuant to the Loan
      Agreement, may assign to the Program Agent, for the benefit of the Lenders,
      its
      rights, remedies, powers and privileges here-under and that the Program Agent
      may further assign such rights, remedies, powers and privileges to the extent
      permitted in the Loan Agreement. Originator agrees that the Program Agent,
      as
      the assignee of Buyer, shall, subject to the terms of the Loan Agreement, have
      the right to enforce this Agreement and to exercise directly all of Buyer's
      rights and remedies under this Agreement (including,
      without limitation,
      the
      right to give or withhold any consents or approvals of Buyer to be given or
      withheld hereunder) and Originator agrees to cooperate fully with the Program
      Agent in the exercise of such rights and remedies. This Agreement shall create
      and constitute the continuing obligations of the parties hereto in accordance
      with its terms and shall remain in full force and effect until terminated in
      accordance with its terms; provided,
      however,
      that the
      rights and remedies with respect to (i) any breach of any representation and
      warranty made by Originator pursuant to Article
      II;
      (ii)
      the indemnification and payment provisions of Article VI;
      and
      (iii) Section
      7.5
      shall be
      continuing and shall survive any termination of this Agreement.

     

    Section
      7.11  Counterparts;
      Severability; Section References.
       This Agreement may be executed in any number of counterparts and by
      different parties hereto in separate counterparts, each of which when so
      executed shall be deemed to be an original and all of which when taken together
      shall constitute one and the same Agreement. Any provisions of this Agreement
      which are 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. Unless otherwise
      expressly indicated, all references herein to "Article," "Section," "Schedule"
      or "Exhibit" shall mean articles and sections of, and schedules and exhibits
      to,
      this Agreement.

     

    Section
      7.12  Subordination. 
      Originator shall have the right to receive, and Buyer shall make, any and all
      payments relating to any indebtedness, obligation or claim, Originator may
      from
      time to time hold or otherwise have against Buyer or any assets or properties
      of
      Buyer, whether arising hereunder or otherwise existing, provided
      that,
      after giving effect to any such payment, the aggregate Outstanding Balance
      of
      Receivables owned by Buyer at such time exceeds the sum of the Borrower
      Obligations under the Loan Agreement. Originator hereby agrees that at any
      time
      during which the condition set forth in the proviso of the immediately preceding
      sentence shall not be satisfied, Originator shall be subordinate in right of
      payment to the prior payment of any indebtedness or obligation of Buyer owing
      to
      the Program Agent, any Managing Agent or any Lender under the Loan
      Agreement.

     

    

    [SIGNATURE
      PAGE FOLLOWS]

    

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      and delivered by their duly authorized officers as of the date
      hereof.

    

    

    PUGET
      SOUND ENERGY, INC.

    

    

    By:
      /s/ Donald E. Gaines

    Name:
      Donald E. Gaines

    Title:
      Vice President Finance & Treasurer

    

    Address:
      

    

    10885
      NE
      4th
      Street,
      PSE-08N

    Bellevue,
      WA 98004-5591

    

    Mailing
      Address for Notices:

    

    P.O.
      Box
      97034

    Bellevue,
      WA 98009-9734

    Attention:
      Lisa Rice, Assistant Treasurer

    Telephone:
      (425) 462-3752

    Facsimile:
      (425) 462-3490

    

    

    PSE
      FUNDING, INC.

    

    

    By:
      /s/ Donald E. Gaines

    Name:
      Donald E. Gaines

    Title:
      President and Treasurer

    

    Address:
      

    

    10885
      NE
      4th
      Street

    Bellevue,
      WA 98004-5591

    

    Mailing
      Address for Notices:

    

    P.O.
      Box
      97034

    Bellevue,
      WA 98009-9734

    Attention:
      Lisa Rice, Assistant Treasurer

    Telephone:
      (425) 462-3752

    Facsimile:
      (425) 462-3490

    

    

    
       

      
        
        

        
          

        

      

       

    

    Exhibit
      I

    

    Definitions

    

    As
      used
      in this Agreement and the Exhibits, Schedules and Annexes thereto, capitalized
      terms have the meanings set forth in this Exhibit I (such meanings to be equally
      applicable to the singular and plural forms thereof). If a capitalized term
      is
      used in this Agreement, or any Exhibit, Schedule or Annex thereto, and not
      otherwise defined therein or in this Exhibit I, such term shall have the meaning
      assigned thereto in the Loan Agreement.

    

    “Agreement”
means
      this Receivables Sale Agreement, dated as of December 20, 2005, between
      Originator and Buyer, as the same may be amended, restated, supplemented or
      otherwise modified from time to time.

    

    “Buyer”
has
      the
      meaning set forth in the preamble to this Agreement.

    

    “Calculation
      Period”
means
      each calendar month or portion thereof which elapses during the term of this
      Agreement. The first Calculation Period shall commence on the date of the
      initial Purchase of Receivables hereunder and the final Calculation Period
      shall
      terminate on the Termination Date.

    

    “Change
      of Control”
means
      the acquisition by any Person, or two or more Persons acting in concert, of
      beneficial ownership (within the meaning of Rule 13d-3 of the Securities
      and Exchange Commission under the Securities Exchange Act of 1934) of 20% or
      more (by number of votes) of the outstanding shares of voting stock of
      Originator.

    

    “Credit
      and Collection Policy”
means
      Originator's credit and collection policies and practices relating to Contracts
      and Receivables existing on the date hereof and summarized in Exhibit
      V,
      as
      modified from time to time in accordance with this Agreement.

    

    “Default
      Fee”
means
      a
      per annum rate of interest equal to the sum of (i) the Prime Rate, plus
      (ii) 2%
      per annum.

    

    “Dilutions”
means,
      at any time, the aggregate amount of reductions or cancellations described
      in
Section
      1.3(a)
      of this
      Agreement.

    

    “Discount
      Factor”
means
      a
      percentage calculated to provide Buyer with a reasonable return on its
      investment in the Receivables after taking account of (i) the time value of
      money based upon the anticipated dates of collection of the Receivables and
      the
      cost to Buyer of financing its investment in the Receivables during such period
      and (ii) the risk of nonpayment by the Obligors. Originator and Buyer may agree
      from time to time to change the Discount Factor based on changes in one or
      more
      of the items affecting the calculation thereof, provided
      that any
      change to the Discount Factor shall take effect as of the commencement of a
      Calculation Period, shall apply only prospectively and shall not affect the
      Purchase Price payment made prior to the Calculation Period during which
      Originator and Buyer agree to make such change.

    

    “Facility
      Documents”
means,
      collectively, this Agreement, each Blocked Account Agreement and all other
      instruments, documents and agreements executed and delivered in connection
      herewith.

    

    “Facility
      Termination Date”
means
      the “Termination Date” as defined in the Loan Agreement.

    

    “Initial
      Cutoff Date”
has
      the
      meaning set forth in Section
      1.2(a)
      of this
      Agreement.

    

    “Loan
      Agreement”
shall
      have the meaning set forth in the Preliminary Statements hereto. 

    

    “Material
      Adverse Effect”
means
      a
      material adverse effect on (i) the financial condition, operations or prospects
      of Originator and its Subsidiaries, (ii) the ability of Originator to perform
      its obligations under this Agreement or any other Facility Document, (iii)
      the
      legality, validity or enforceability of this Agreement or any other Facility
      Document, (iv) Originator's, Buyer's, the Program Agent's or any Secured Party's
      interest in the Receivables generally or in any significant portion of the
      Receivables, the Related Security or Collections with respect thereto, or (v)
      the collectibility of the Receivables generally or of any material portion
      of
      the Receivables.

    

    “Net
      Value”
means,
      as of any date of determination, an amount equal to the sum of (i) the aggregate
      Outstanding Balance of the Receivables at such time, minus
      (ii) the
      sum of (A) the Aggregate Principal Balance outstanding at such time,
plus
      (B) the
      Required Reserves at such time.

    

    “Net
      Worth”
means
      as of the last Business Day of each Calculation Period preceding any date of
      determination, the excess, if any, of (a) the aggregate Outstanding Balance
      of
      the Receivables at such time, over
      (b) the
      Aggregate Principal Balance outstanding at such time.

    

    “Original
      Balance”
means,
      with respect to any Receivable coming into existence after the Initial Cutoff
      Date, the Outstanding Balance of such Receivable on the date it was
      created.

    

    “Originator”
has
      the
      meaning set forth in the preamble hereto.

    

    “Potential
      Termination Event”
means
      an event which, with the passage of time or the giving of notice, or both,
      would
      constitute a Termination Event.

    

    “Program
      Agent”
has
      the
      meaning set forth in the Preliminary Statements hereto.

    

    “Purchase”
means
      each purchase or contribution pursuant to Section
      1.1
      of this
      Agreement by Buyer from Originator of the Receivables and the Related Security
      and Collections related thereto, together with all related rights in connection
      therewith.

    

    “Purchase
      Price”
means,
      with respect to each Purchase, the aggregate price to be paid by Buyer to
      Originator for such Purchase in accordance with Section
      1.2
      of this
      Agreement for the Receivables, Collections and Related Security being sold
      to
      Buyer, which price shall equal on any date (i) the product of (x) the
      Outstanding Balance of such Receivables on such date, multiplied by
      (y) one
      minus the Discount Factor in effect on such date, minus (ii) any Purchase Price
      Credits to be credited against the Purchase Price otherwise payable in
      accordance with Section
      1.3
      of this
      Agreement.

    

    “Purchase
      Price Credit”
has
      the
      meaning set forth in Section
      1.3
      of this
      Agreement.

    

    “Receivable”
means
      all indebtedness and other obligations arising in connection with the sale
      of
      goods or the rendering of services by Originator and owed to Originator (at
      the
      times it arises, and before giving effect to any transfer or conveyance under
      this Agreement) or Buyer (after giving effect to the transfers under this
      Agreement) or in which Originator or Buyer has a security interest or other
      interest, including,
      without limitation,
      any
      indebtedness, obligation or interest constituting an account, chattel paper,
      instrument or general intangible, and which are identified on the books and
      records of Originator or Buyer (including its accounting system) with the
      account code “FERC 142 Account Receivable,” interest, finance charges, sales
      taxes and other taxes with respect thereto and including with respect to
      Unbilled Receivables existing on the Termination Date, 100% of the amount
      thereafter invoiced to any related Obligor after the Termination Date, and
      further includes, without limitation, the obligation to pay any Finance Charges
      with respect thereto. Indebtedness and other rights and obligations arising
      from
      any one transaction, including,
      without limitation,
      indebtedness and other rights and obligations represented by an individual
      invoice, shall constitute a Receivable separate from a Receivable consisting
      of
      the indebtedness and other rights and obligations arising from any other
      transaction; provided,
      that any
      indebtedness, rights or obligations referred to in the immediately preceding
      sentence shall be a Receivable regardless or whether the account debtor or
      Originator treats such indebtedness, rights or obligations as a separate payment
      obligation.

    

    “Related
      Security”
means,
      with respect to any Receivable:

    

    (i)  all
      of
      Originator's interest in the inventory and goods (including returned or
      repossessed inventory or goods), if any, the sale, licensing, financing or
      lease
      of which by Originator gave rise to such Receivable, and all insurance contracts
      with respect thereto,

     

    (ii)  all
      other
      security interests or liens and property subject thereto from time to time,
      if
      any, purporting to secure payment of such Receivable, whether pursuant to the
      Contract related to such Receivable or otherwise, together with all financing
      statements and security agreements describing any collateral securing such
      Receivable,

     

    (iii)  all
      guaranties, letters of credit, insurance, “supporting obligations” (within the
      meaning of Section 9-102(a) of the UCC of all applicable jurisdictions) and
      other agreements or arrangements of whatever character from time to time
      supporting or securing payment of such Receivable whether pursuant to the
      Contract related to such Receivable or otherwise,

     

    (iv)  all
      service contracts and other contracts and agreements associated with such
      Receivable,

     

    (v)  all
      Records related to such Receivable,

     

    (vi)  all
      of
      Originator's right, title and interest in and to each Lock-Box and each Deposit
      Account and any and all agreements related thereto, and

     

    (vii)  all
      proceeds of any of the foregoing.

     

    “Required
      Capital Amount”
means,
      as of any date of determination, an amount equal to the product of (i) 10%
      multiplied by (ii) the aggregate Outstanding Balance of all Receivables at
      such
      time.

    

    “Settlement
      Date”
means,
      with respect to each Calculation Period, the date that two (2) Business Days
      after a Monthly Report is due.

    

    “Termination
      Date”
means
      the earliest to occur of (i) the Facility Termination Date, (ii) the Business
      Day immediately prior to the occurrence of a Termination Event set forth in
      Section
      5.1(d),
      (iii)
      the Business Day specified in a written notice from Buyer to Originator
      following the occurrence of any other Termination Event, and (iv) the date
      which
      is 5 Business Days after Buyer's receipt of written notice from Originator
      that
      it wishes to terminate the facility evidenced by this Agreement.

    

    “Termination
      Event”
has
      the
      meaning set forth in Section
      5.1
      of this
      Agreement.

    

    All
      accounting terms not specifically defined herein shall be construed in
      accordance with GAAP. All terms used in Article 9 of the UCC in the State of
      Illinois, and not specifically defined herein, are used herein as defined in
      such Article 9.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      II

    

    Principal
      Place of Business; Location(s) of Records; Federal Employer Identification
      Number; Other Names; List of Alternate Payment Locations

    

    

    
      	
              Jurisdiction
                of Organization

            	
              ·  WA

               

            
	
              Chief
                Executive Office/Principal Place of Business

            	
              ·  10885
                NE 4th
                Street, Bellevue, WA 98004

               

            
	
              Location(s)
                of Records

            	
              ·  10885
                NE 4th
                Street, Bellevue, WA 98004

              ·  19900
                North Creek Parkway Bothell, WA 98012

               

            
	
              Organizational
                Number

            	
              ·  179
                010 055

               

            
	
              Federal
                Employer's Identification Number

            	
              ·  91-0374630

               

            
	
              Other
                Names

            	
              ·  Puget
                Sound Power & Light Company, Washington Energy Company,

              Washington
                Natural Gas Company, Puget Energy,
                Inc.

            

    

    

    

    

    

    
      
        
          

        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      III

    

    Lock-boxes;
      Deposit Accounts; Deposit Account Banks

    

    

    

    
      	
              Lock-Box

            	
              Related
                Deposit Account

            
	
              P.O.
                Box No. 91269 at the U.S. Post Office branch located at 103rd
                Avenue NE, Bellevue, WA 98004

            	
              Union
                Bank of California Account no. 4430000808 for receipts from Payment
                Processing

            
	
              N/A

            	
              Union
                Bank of California Account no. 4430000816 for receipts from Bill
                Payment
                Consolidator

            
	
              N/A

            	
              Key
                Bank Account no. 479681024614 for Government Electronic Receipts,
                APS
                Receipts and Business Office Deposits

            
	
              N/A

            	
              Key
                Bank Account no. 479681024655 for receipts from Customer Internet
                Payments

            
	
              N/A

            	
              Key
                Bank Account no. 479681052383 for receipts from
                Checkfree

            
	
              N/A

            	
              Key
                Bank Account no. 479681024663 for receipts from Customer Credit Card
                Payments

            
	
              N/A

            	
              Citibank
                Account no. 30599544 for receipts from Customer Direct
                Debits

            
	
              N/A

            	
              U.S.
                Bank Account no. 153501775586 for receipts from Port Townsend Business
                Office

            

    

    

    

    List
      of Alternate Payment Locations

    

    
      	
              1.
                Internet via PSE’s customer website found at: http://www.pse.com/account/paying/ebill.html

            
	
              2.
                PSE Pay Station locations listed on PSE’s customer website found at:
                http://www.pse.com/account/paystations/paystations.html.

            
	
              3.
                Automatic Funds Transfer via a debit by PSE’s collection bank of the
                Customer’s bank account and a credit to the Collection
                Account

            
	
              4.
                Credit card Payments via
                Payment-by-Phone

            

    

    

    
      
        
          

        

        
        

      

      
        
          

        

      

       

    

    Exhibit
      IV

    

    Form
      of Compliance Certificate

    

    

    This
      Compliance Certificate is furnished pursuant to that certain Amended and
      Restated Receivables Sale Agreement dated as of December 20, 2005, between
      Puget
      Sound Energy, Inc. (“Originator”) and PSE Funding, Inc. (as amended, restated,
      supplemented or otherwise modified from time to time, the “Agreement”).
      Capitalized terms used and not otherwise defined herein are used with the
      meanings attributed thereto in this Agreement.

    

    THE
      UNDERSIGNED HEREBY CERTIFIES THAT:

    

    1.
      I am
      the duly elected ______________ of Originator.

    

    2.
      I have
      reviewed the terms of the Agreement and I have made, or have caused to be made
      under my supervision, a detailed review of the transactions and conditions
      of
      Originator and its Subsidiaries during the accounting period covered by the
      attached financial statements.

    

    3.
      The
      examinations described in paragraph 2 above did not disclose, and I have no
      knowledge of, the existence of any condition or event which constitutes a
      Termination Event or a Potential Termination Event during or at the end of
      the
      accounting period covered by the attached financial statements or as of the
      date
      of this Certificate, except as set forth below.

    

    4.
      Described below are the exceptions, if any, to paragraph 3 above by listing,
      in
      detail, the nature of the condition or event, the period during which it has
      existed and the action which Originator has taken, is taking, or proposes to
      take with respect to each such condition or event:

    

    ______________________________________________________

    

    ______________________________________________________

    

    ______________________________________________________

    

    5.
      As of
      the date hereof, the jurisdiction of organization of Originator is [insert
      state] and Originator is a "registered organization" (within the meaning of
      Section 9-102 of the UCC in effect in such applicable jurisdiction) and
      Originator has not changed its jurisdiction of organization since the date
      of
      the Agreement.

    

    The
      foregoing certifications and the financial statements delivered with this
      Certificate in support hereof, are made and delivered this day of ,
      20__.

    

    ______________________________

    [Name]

    

    

     

    
      
        
          

        

      

      
        
        

        
          

        

      

       

    

    Exhibit
      V

    

    Credit
      and Collection Policy

    

    

    Attached

    

    

    

    

    

    
      
        
          

        

      

      
        
        

        
          

        

      

       

    

    Schedule
      A

    

    

    DOCUMENTS
      TO BE DELIVERED TO BUYER

    ON
      OR
      PRIOR TO THE PURCHASE

    

    SEE
      EXHIBIT G TO THE LOAN AGREEMENT.

    
      
        
          

        

      

      
        
        

        
          

        

      

       

    

    TABLE
      OF
      CONTENTS

    

    

    ARTICLE
      I
      AMOUNTS
      AND TERMS OF THE PURCHASES

     

    Section
      1.1     Purchases
      of Receivables.

     

    Section
      1.2     Payment
      for the Purchases.

     

    Section
      1.3     Purchase
      Price Credit Adjustments

     

    Section
      1.4     Payments
      and Computations, Etc.

     

    Section
      1.5     Transfer
      of Records.

     

    Section
      1.6     Characterization

     

    Section
      1.7     Additional
      Grant of Security Interest.

                    ARTICLE
      II
      REPRESENTATIONS AND WARRANTIES

     

    Section
      2.1     Representations
      and Warranties of Originator

        ARTICLE
      III
      CONDITIONS OF PURCHASE

     

    Section
      3.1     Conditions
      Precedent to Initial Purchase

     

    Section
      3.2     Conditions
      Precedent to Subsequent Purchases

                    ARTICLE
      IV
      COVENANTS

     

    Section
      4.1     Affirmative
      Covenants of Originator

     

    Section
      4.2     Negative
      Covenants of Originator

                    ARTICLE
      V
      TERMINATION EVENTS

     

    Section
      5.1     Termination
      Events

     

    Section
      5.2     Remedies

                    ARTICLE
      VI
      INDEMNIFICATION

     

    Section
      6.1     Indemnities
      by Originator

     

    Section
      6.2     Other
      Costs and Expenses

                ARTICLE
      VII
      MISCELLANEOUS

     

    Section
      7.1     Waivers
      and Amendments.

     

    Section
      7.2     Notices

     

    Section
      7.3     Protection
      of Ownership Interests of Buyer.

     

    Section
      7.4     Reserved.

     

    Section
      7.5     Bankruptcy
      Petition.

     

    Section
      7.6     Limitation
      of Liability

     

    Section
      7.7     CHOICE
      OF LAW

     

    Section
      7.8     CONSENT
      TO JURISDICTION

     

    Section
      7.9     WAIVER
      OF JURY TRIAL

     

    Section
      7.10     Integration;
      Binding Effect; Survival of Terms.

     

    Section
      7.11     Counterparts;
      Severability; Section References

     

    Section
      7.12     Subordination

     

    

    Exhibits
      and Schedules

    

    Exhibit
      I     -     Definitions

    

    Exhibit
      II     -     Principal
      Place of Business; Location(s) of Records; Federal Employer Identification
      Number; Other Names

    

    Exhibit
      III    -     Lock-Boxes;
      Deposit Accounts; Deposit Account Banks; List of Alternate Payment
      Locations

    

    Exhibit
      IV    -    Form
      of
      Compliance Certificate

    

    Exhibit
      V    -      Credit
      and Collection Policy

    

    Schedule
      A    List
      of
      Documents to Be Delivered to Buyer Prior to the Purchase

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