CREDIT AGREEMENT

Exhibit 10.2

EXECUTION COPY

 

CREDIT AGREEMENT

Dated as of February 6, 2009

among

PUGET SOUND ENERGY, INC.

as Borrower,

BARCLAYS BANK PLC

as Facility Agent,

THE LENDERS PARTY HERETO

and

THE ISSUING BANKS REFERRED TO HEREIN

as Issuing Banks

 

DRESDNER BANK AG NEW YORK BRANCH

as Syndication Agent

and

BAYERISCHE LANDESBANK, NEW YORK BRANCH

CAIXA GERAL DE DEPOSITOS, NEW YORK BRANCH

EXPORT DEVELOPMENT CANADA

as Co-Documentation Agents

 

BARCLAYS CAPITAL, the investment banking division of Barclays Bank PLC and

DRESDNER BANK AG NEW YORK BRANCH

as Joint Mandated Lead Arrangers and Joint Bookrunners

 

Puget Opco Credit Agreement

TABLE OF CONTENTS

 

 

 

 

SCHEDULES

 

EXHIBITS

 

 

 

CREDIT AGREEMENT

This CREDIT AGREEMENT (“ Agreement ”) is entered into as of February 6, 2009, among PUGET SOUND ENERGY, INC., a Washington corporation (the “ Borrower ”), BARCLAYS BANK PLC, as Facility Agent, each Person from time to time party hereto as Issuing Banks and each lender from time to time party hereto (collectively, the “ Lenders ” and individually, a “ Lender ”).

RECITALS

The Borrower has requested that the Lenders extend credit to the Borrower in the form of (i) revolving loans in an aggregate amount of up to $400,000,000 to fund ongoing Utility Capital Expenditures (as further described herein, the “ Capital Expenditure Facility ”), (ii) revolving loans in an aggregate amount of up to $350,000,000 to support energy purchases and hedging activities and for the issuance of letters of credit in respect thereof (as further described herein, the “ Energy Hedging Facility ”), and (iii) revolving loans in an aggregate amount of up to $400,000,000 to refinance certain existing indebtedness of the Borrower, for general corporate purposes and for the issuance of letters of credit (as further described herein, the “ Liquidity Facility ,” and together with the Capital Expenditure Facility and the Energy Hedging Facility, the “ Facilities ”) and the Lenders have indicated their willingness to extend credit to the Borrower on the terms and subject to the conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Defined Terms . As used in this Agreement, the following terms shall have the meanings set forth below:

“ Additional Lender ” has the meaning specified in Section 2.11(b) .

“ Affiliate ” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“ Affiliate Service Agreements ” means any contract or agreement between the Borrower or any Subsidiary and an Affiliate thereof providing for accounting, tax, treasury, advisory or other professional services to the Borrower or any Subsidiary.

“ AFUDC ” means the cost of both the debt and equity funds used to finance utility plant additions during the construction period for such additions, determined in accordance with GAAP.

“ Agent ” means the Facility Agent.

 

“ Agent-Related Persons ” means the Agents, together with their respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates.

“ Agreement ” means this Credit Agreement.

“ Alternate Base Rate ” means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day, and (b) the Federal Funds Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively.

“ Alternate Base Rate Loan ” means any Loan which bears interest at the Alternate Base Rate.

“ Anti-Terrorism Order ” has the meaning specified in Section 5.17(c) .

“ Applicable Margin ” means a percentage per annum determined as follows based upon the lower of the ratings for the Facilities from Moody’s and S&P listed for the applicable agency in the table below; provided , however , to the extent the then applicable ratings (x) from both Moody’s and S&P are Investment Grade or higher, the Applicable Margin will be based on the higher of such ratings or (y) from either Moody’s or S&P are lower than Investment Grade, the Applicable Margin will be based on the lower of such ratings; provided , further , if the then applicable ratings from Moody’s and S&P are two or more levels apart, the higher of such ratings shall be deemed to be one level above the lower of the two ratings (for example only, if the ratings for the Facilities are BB from S&P and Baa3 from Moody’s, the Baa3 rating from Moody’s shall be deemed to be Ba1 from Moody’s):

 

“ Approved Bank ” has the meaning specified in clause (c) of the definition of “ Cash Equivalents ”.

 

“ Approved Fund ” means any Fund that is administered, advised or managed by a Lender or an Affiliate of a Lender.

“ Assignees ” has the meaning specified in Section 10.07(b) .

“ Assignment and Assumption ” means an Assignment and Assumption substantially in the form of Exhibit C .

“ Attorney Costs ” means and includes, as the context requires, all reasonable and documented fees, expenses and disbursements of any external legal counsel.

“ Attributable Indebtedness ” means, on any date, in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP.

“ Authorized Officer ” means the chief executive officer, president, chief financial officer, chief accounting officer, treasurer or assistant treasurer or other similar officer of the Borrower or any Subsidiary and, as to any document delivered on the Financial Closing Date, any secretary or assistant secretary of the Borrower or any Subsidiary.

“ Available Amount ” of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing).

“ Blackout Period ” has the meaning specified in Section 10.07(b ).

“ Borrower ” has the meaning specified in the recitals to this Agreement.

“ Borrower Affiliate ” means any Affiliate of the Borrower other than Macquarie Affiliates.

“ Borrower Hybrid Debt ” means the $250,000,000 Series A Enhanced Junior Subordinated Notes of the Borrower due June 2067.

“ Borrowing ” means a Capital Expenditure Loan Borrowing, an Energy Hedging Loan Borrowing or a Liquidity Loan Borrowing, as the context may require.

“ Borrowing Request ” means each loan request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit A-1 hereto, delivered to the Facility Agent.

 

“ Business Day ” means any day:

(a) which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York or Bellevue, Washington; and

(b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, on which dealings in Dollars are carried on in the London interbank market.

“ Business Plan ” has the meaning specified in Section 6.01(d) .

“ Capital Expenditure Availability Period ” means the period from and including the Financial Closing Date until the earlier of (a) the date of termination of the Capital Expenditure Commitments in accordance with this Agreement and (b) the Final Maturity Date.

“ Capital Expenditure Commitment ” means, as to any Capital Expenditure Lender, its obligation to make Capital Expenditure Loans to the Borrower in an aggregate principal amount not to exceed the amount set forth opposite such Capital Expenditure Lender’s name on Schedule 2.01 hereto under the caption “Capital Expenditure Commitment” or in the Assignment and Assumption pursuant to which such Capital Expenditure Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. The aggregate amount of the Capital Expenditure Commitments of all Capital Expenditure Lenders as of the Effective Date is $400,000,000.

“ Capital Expenditure Facility ” has the meaning specified in the recitals hereto.

“ Capital Expenditure Lender ” means, at any time, any Lender that has a Capital Expenditure Commitment or that holds a Capital Expenditure Loan at such time.

“ Capital Expenditure Loan ” means a Loan made pursuant to Section 2.01(a ).

“ Capital Expenditure Loan Borrowing ” means a borrowing consisting of Capital Expenditure Loans of the same Type and, in the case of LIBO Rate Loans, having the same Interest Period made by each of the Capital Expenditure Lenders pursuant to Section 2.01(a) .

“ Capital Expenditure Note ” means a promissory note of the Borrower payable to any Capital Expenditure Lender, in substantially the form of Exhibit B-1 hereto, evidencing the aggregate Indebtedness of the Borrower to such Capital Expenditure Lender resulting from the Capital Expenditure Loans made by such Capital Expenditure Lender.

“ Capital Expenditures ” means, with respect to any Person, the aggregate of (a) all expenditures (whether paid in cash or accrued as liabilities) by such Person that, in conformity with GAAP, are required to be included as additions during such period to Property, plant or equipment reflected in the balance sheet of such Person and (b) the value of all assets under Capitalized Leases incurred by such Person.

“ Capitalized Leases ” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases; provided that for all purposes hereunder the amount of

 

obligations under any Capitalized Lease shall be the amount thereof accounted for as a liability in accordance with GAAP.

“ Cash Collateralize ” means to pledge and deposit with or deliver to the Facility Agent, for the benefit of the Issuing Banks and the Lenders, as collateral for the LC Exposure, cash or deposit account balances pursuant to documentation in form and substance reasonably satisfactory to the Facility Agent and the Issuing Banks (which documents are hereby consented to by the Lenders).

“ Cash Equivalents ” means any of the following types of Investments, to the extent owned by the Borrower or any Operating Company Subsidiary:

(a) Dollars held by it from time to time in the ordinary course of business;

(b) readily marketable obligations issued or directly and fully guaranteed or insured by the government or any agency or instrumentality of the United States or having maximum maturities of not more than one (1) year from the date of acquisition thereof;

(c) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) is a Lender or (ii) (A) (x) is organized under the Laws of the United States or any state thereof, and is a member of the Federal Reserve System and (y) has combined capital and surplus of at least $1,000,000,000 and has outstanding unguaranteed and unsecured long-term indebtedness that is rated A-/A3 or better by S&P and/or Moody’s, or (B) is one of the twenty-five largest banks in the United States ranked by deposits and having a short-term deposit rating of A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s (any such bank in the foregoing clause (i) or (ii)  being an “ Approved Bank ”), in each case with maximum maturities of not more than one (1) year from the date of acquisition thereof;

(d) commercial paper and variable or fixed rate notes issued by an Approved Bank or commercial paper and variable or fixed rate notes issued by, or guaranteed by, a corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s, in each case with maximum maturities of not more than two hundred seventy (270) days from the date of acquisition thereof; provided that no more than $50,000,000 in the aggregate of such commercial paper per issuer shall be outstanding at any time;

(e) repurchase agreements fully secured by obligations described in clause (b) above with any Approved Bank; and

(f) Investments with maximum maturities of twelve (12) months or less from the date of acquisition in (i) money market funds rated AAA (or the equivalent thereof) or better by S&P or Aaa (or the equivalent thereof) or better by Moody’s that are registered under the Investment Company Act of 1940, as amended, and which are administered by an Approved Bank, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in the foregoing clauses (b) ,

 

(c) , (d)  and (e)  or (ii) the Federal Municipal Obligations Fund (or its successors) so long as such fund is rated AA (or the equivalent thereof) or better by S&P or Fitch Ratings Ltd. at the time of such Investment.

“ Cash Interest Expense ” means, for any period, with respect to the Operating Company Group determined on a consolidated basis without duplication in accordance with GAAP, the total interest expense (which for the avoidance of doubt, shall not include the benefit of AFUDC) of the Operating Company Group for such period, less the sum of (a) interest on any debt that is not payable in cash during such period, including any capitalized interest, (b) amortization of debt issuance costs, debt discount or premium and other financing fees and expenses incurred by any member of the Operating Company Group during such period and (c) all other non-cash items included in such calculation of interest expense during such period.

“ Cash Management Obligations ” means obligations owed by any Operating Company Group Member to any Lender or any Affiliate of a Lender in respect of any overdraft and related liabilities arising from treasury, depository and cash management services or any automated clearing house transfers of funds.

“ Casualty Event ” means any event or any series or related events that gives rise to the receipt by any Operating Company Group Member of any insurance proceeds or condemnation awards in respect of any equipment, fixed assets or real property (including any improvements thereon) to replace or repair such equipment, fixed assets or real property.

“ CFO ” means the chief financial officer of the Borrower or person holding a similar position.

“ Change in Law ” means (a) the adoption of any law, rule or regulation, (b) any change in law, rule or regulation or in the interpretation or application thereof by any Governmental Authority, or (c) the adoption or making of any interpretation, request, guideline or directive applying to any Lender or Issuing Bank (or, for purposes of Section 3.04 of this Agreement, to any Lending Office of such Lender or Issuing Bank or to such Lender’s or Issuing Bank’s holding company, if any) (whether or not having the force of law) by any Governmental Authority made or issued after the Effective Date in each of clause (a) , (b) , or (c)  first made effective and applicable to a Lender or Issuing Bank after the Effective Date (or in the case of a Lender or Issuing Bank that becomes a party to this Agreement after the Effective Date, after the date such Lender or Issuing Bank becomes a party hereto).

“ Change of Control ” means the earliest to occur of (a) Macquarie shall fail to own and control, directly or indirectly, in the aggregate at least 33.33% of the issued and outstanding common Equity Interests in the Parent or the Holding Company, (b) the Holding Company ceases to hold 100% of the issued and outstanding Equity Interests in the Borrower except for the Operating Company Preferred Shares outstanding as of May 16, 2008, or (c) in the event that Macquarie shall fail to own and control, directly or indirectly, in the aggregate more than 50.1% of the issued and outstanding common Equity Interests in the Parent or the Holding Company, the Board of Directors (or comparable governing body) of the Parent or the Holding Company, as the case may be, have not entered into arrangements, after such failure by Macquarie to provide in all material respects that with respect to the Parent and the Holding Company

 

(i) amendments to the constitutive documents, (ii) mergers, (iii) acquisition, disposition or encumbrance of material assets or assets with value in excess of $75,000,000 (as adjusted annually for inflation), (iv) reductions or replenishments of capital with a value in excess of $75,000,000 (as adjusted annually for inflation), (v) liquidation, dissolution or bankruptcy, and (vi) change in business lines, will require the approval of the members of the Board of Directors (or comparable governing body) representing holders of, or holders of common Equity Interests representing more than, 66.67% of the issued and outstanding common Equity Interests in the Parent or the Holding Company, as the case may be.

“ Claim ” has the meaning specified in Section 10.05(b) .

“ Class ”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are Capital Expenditure Loans, Energy Hedging Loans or Liquidity Loans and, when used in reference to any Commitment, refers to whether such Commitment is a Capital Expenditure Commitment, an Energy Hedging Commitment or a Liquidity Commitment.

“ Code ” means the U.S. Internal Revenue Code of 1986, as amended from time to time, and rules and regulations related thereto.

“ Co-Documentation Agents ” means, collectively, Bayerische Landesbank New York Branch, Caixa Geral De Depositos, New York Branch and Export Development Canada, each in its capacity as a documentation agent hereunder.

“ Commitment ” means, with respect to any Lender, the sum of the Capital Expenditure Commitments, the Energy Hedging Commitments and the Liquidity Commitments of such Lender.

“ Commitment Fee ” has the meaning specified in Section 2.06(a) .

“ Company Representations ” has the meaning specified in Section 4.03(c)(i ).

“ Compensation Period ” has the meaning specified in Section 2.09(b)(ii) .

“ Completion Date ” means the date of consummation of the Merger.

“ Conservation Amortization ” means at any date, all amounts that would, in conformity with GAAP, be set forth opposite the caption “conservation amortization” (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date.

“ Conservation Expenditures ” means at any date, all amounts that would, in conformity with GAAP, be set forth opposite the caption “energy efficiency expenditures” (or any like caption) on a consolidated statement of cash flows of the Borrower and its Subsidiaries at such date.

“ Consolidated Current Assets ” means, at any date, all amounts (without duplication) that would, in conformity with GAAP, be set forth opposite the caption “total current assets” (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date

 

(other than (i) cash and Cash Equivalents, (ii) purchased gas adjustment receivables, (iii) unrealized gains on derivative instruments, (iv) prepaid taxes and (v) any current portion of deferred income taxes).

“ Consolidated Current Liabilities ” means, at any date, all amounts (without duplication) that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date (other than (i) the current portion of any funded Indebtedness, (ii) without duplication of clause (i) above, all Indebtedness consisting of revolving loans to the extent otherwise included therein, (iii) unrealized losses on derivative instruments, (iv) any current portion of deferred taxes, (v) accrued expenses related to taxes and interest, (vi) purchased gas adjustment payables and (vii) all amounts set forth opposite the caption “other current liabilities” on the consolidated balance sheet of the Borrower and its Subsidiaries for the relevant period).

“ Consolidated Tangible Net Assets ” means at any date, the total of all assets of the Operating Company Group (including revaluations thereof as a result of commercial appraisals, price level restatement or otherwise) as set forth on the balance sheet most recently delivered to the Lenders pursuant to Section 6.01 net of applicable reserves and deductions but excluding goodwill, trade names, trademarks, unamortized debt discount and all other like intangible assets (which term shall not be construed to include such revaluations) less the aggregate of the consolidated current liabilities of the Operating Company Group appearing on such balance sheet.

“ Consolidated Working Capital ” means, at any date, the difference of (a) Consolidated Current Assets on such date less (b) Consolidated Current Liabilities on such date. Consolidated Working Capital at any date may be a positive or negative number. Consolidated Working Capital increases when it becomes more positive or less negative and decreases when it becomes less positive or more negative.

“ Contractual Obligation ” means, as to any Person, any provision of any security issued by such Person, or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controls”, “Controlling” and “Controlled” have meanings correlative thereto.

“ Credit Exposure ” means (a) with respect to any Liquidity Lender at any time, the sum of the outstanding principal amount of such Liquidity Lender’s Liquidity Loans and its Liquidity LC Exposure at such time, and (b) with respect to any Energy Hedging Lender at any time, the sum of the outstanding principal amount of such Energy Hedging Lender’s Energy Hedging Loans and its Energy Hedging LC Exposure at such time.

“ Cure Amount ” has the meaning specified in Section 8.04(a) .

“ Cure Right ” has the meaning specified in Section 8.04(a) .

 

“ Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“ Default ” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“ Default Rate ” means (a) in the case of past due principal of any Loan, the interest rate otherwise applicable to such Loan hereunder plus 2.0%  per annum or (b) in the case of any other past due amount, the Alternate Base Rate plus the Applicable Margin plus 2.0%  per annum .

“ Defaulting Lender ” means any Lender that (a) has failed to fund any portion of the Capital Expenditure Loans, the Energy Hedging Loans or the Liquidity Loans required to be funded by it hereunder on the date required to be funded by it hereunder, unless the subject of a good faith dispute or subsequently cured, (b) has otherwise failed to pay over to the Facility Agent or any other Lender any other amount required to be paid by it hereunder on the date when due, unless the subject of a good faith dispute or subsequently cured, or (c) has been deemed insolvent or becomes the subject of a bankruptcy or insolvency proceeding.

“ Disposition ” or “ Dispose ” means the sale, assignment, transfer or other disposition (including any sale and leaseback transaction and any termination of business lines) of any Property by the Borrower or any of its Subsidiaries to any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

“ Dividend Prohibition ” means, with respect to any Subsidiary, contractual restrictions permitted pursuant to Section 7.12 or existing under applicable Law that prohibit such Subsidiary from using the Net Cash Proceeds from any Casualty Event to make a distribution, dividend or other return of capital to the Borrower (directly or indirectly).

“ Dollar ” and “ $ ” mean lawful money of the United States.

“ EBITDA ” means, for any period, with respect to the Operating Company Group, as determined on a consolidated basis without duplication in accordance with GAAP, net income (or loss) of the Operating Company Group for such period,

(a) plus, without duplication, and to the extent deducted in determining such net income (or loss), the sum of (i) total interest for such period, (ii) consolidated income tax expense for such period in respect of the operation of the Operating Company Group, (iii) all amounts attributable to depreciation and amortization (including Conservation Amortization) for such period and (iv) any extraordinary charges or non-cash charges for such period ( provided that any cash payment made with respect to any such non-cash charge shall be subtracted in computing EBITDA during the period in which such cash payment is made), and

 

(b) minus, without duplication, and to the extent included in determining such net income, (i) any non-cash gains or extraordinary gains for such period, (ii) AFUDC, (iii) cash interest income, (iv) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person’s assets are acquired by the Borrower or any of its Subsidiaries and (v) the income of any Subsidiary of the Borrower acquired or created after the date hereof to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary.

“ Effective Date ” means the date that this Agreement is executed and all the conditions precedent in Section 4.01 are satisfied or waived in accordance with the terms of this Agreement.

“ Energy Hedging Availability Period ” means the period from and including the Financial Closing Date until the earlier of (a) the date of termination of the Energy Hedging Commitments in accordance with this Agreement and (b) the Final Maturity Date.

“ Energy Hedging Commitment ” means, as to any Energy Hedging Lender, its obligation to make Energy Hedging Loans to the Borrower in an aggregate principal amount not to exceed the amount set forth opposite such Energy Hedging Lender’s name on Schedule 2.01 hereto under the caption “Energy Hedging Commitment” or in the Assignment and Assumption pursuant to which such Energy Hedging Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. The aggregate amount of the Energy Hedging Commitments of all Energy Hedging Lenders as of the Effective Date is $350,000,000, a portion of which, referred to herein as the Energy Hedging Letter of Credit Sublimit shall be available for the participation in Energy Hedging Letters of Credit.

“ Energy Hedging Facility ” has the meaning specified in the recitals hereto.

“ Energy Hedging Incremental Loans ” has the meaning specified in Section 2.11(a) .

“ Energy Hedging Issuing Bank ” means (a) each Energy Hedging Lender identified as a “Energy Hedging Issuing Bank” on Schedule 1.01C , in its capacity as the issuer of Energy Hedging Letters of Credit hereunder, and its successors and assigns in such capacity as provided in Section 2.13 and (b) (i) each other Energy Hedging Lender designated by the Borrower as an “Energy Hedging Issuing Bank” hereunder that has agreed to such designation (and is reasonably acceptable to the Facility Agent) and that specifies its maximum Energy Hedging Issuing Bank Fronting Amount or (ii) any other Energy Hedging Lender (acting directly or through an Affiliate) that has agreed in form and substance satisfactory to the Borrower and the Facility Agent that such other Energy Hedging Lender (or its Affiliate) will act as “Energy Hedging Issuing Bank” hereunder and that specifies its maximum Energy Hedging Issuing Bank Fronting Amount. Any Energy Hedging Issuing Bank may, in its discretion, arrange for one or more Energy Hedging Letters of Credit to be issued by Affiliates of such Energy Hedging Issuing Bank, in which case the term “Energy Hedging Issuing Bank” shall include any such Affiliate with respect to Energy Hedging Letters of Credit issued by such Affiliate. Each reference to

 

“Energy Hedging Issuing Bank” herein shall be a reference to each and any Energy Hedging Issuing Bank.

“ Energy Hedging Issuing Bank Fronting Amount ” means the dollar amount set forth on Schedule 1.01C opposite the name of each Energy Hedging Issuing Bank, as such amount may be increased or decreased pursuant to the written agreement of the Borrower, the applicable Energy Hedging Issuing Banks and the Facility Agent and reflected in the Register maintained by the Facility Agent; provided that, the Energy Hedging Issuing Bank Fronting Amount of an Energy Hedging Issuing Bank shall be increased at the written request of the Borrower by the unutilized portion of such Energy Hedging Issuing Bank’s Liquidity Issuing Bank Fronting Amount to an amount not to exceed, together with the Energy Hedging Issuing Bank Fronting Amounts of all other Energy Hedging Issuing Banks, the aggregate amount of the Energy Hedging Commitments.

“ Energy Hedging LC Disbursement ” means a payment made by any Energy Hedging Issuing Bank pursuant to an Energy Hedging Letter of Credit.

“ Energy Hedging LC Exposure ” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Energy Hedging Letters of Credit at such time plus (b) the aggregate amount of all Energy Hedging LC Disbursements that have not yet been reimbursed or financed by or on behalf of the Borrower at such time. The Energy Hedging LC Exposure of any Energy Hedging Lender at any time shall be its pro rata share of the total Energy Hedging LC Exposure at such time, based upon the respective Energy Hedging Commitments of the Energy Hedging Lenders.

“ Energy Hedging Lender ” means, at any time, any Lender that has an Energy Hedging Commitment or that holds an Energy Hedging Loan at such time.

“ Energy Hedging Letter of Credit ” has the meaning specified in Section 2.01(c) hereof.

“ Energy Hedging Letter of Credit Sublimit ” means, on any date of determination, the sum of the Energy Hedging Issuing Bank Fronting Amount for each Energy Hedging Issuing Bank; provided that the aggregate amount thereof shall at no time exceed the then aggregate amount of the Energy Hedging Commitments.

“ Energy Hedging Loan ” means revolving loans (and including, for greater certainty, any Energy Hedging Incremental Loans) incurred by the Borrower for the purpose of supporting energy purchases and hedging activities of the Borrower and made by each of the Energy Hedging Lenders and Energy Hedging Incremental Lender pursuant to Sections 2.01(b) , Section 2.11 or Section 2.13 .

“ Energy Hedging Note ” means a promissory note of the Borrower payable to any Energy Hedging Lender, in substantially the form of Exhibit B-2 hereto, evidencing the aggregate Indebtedness of the Borrower to such Energy Hedging Lender resulting from the Energy Hedging Loans made by such Energy Hedging Lender.

“ Environmental Laws ” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, initiatives, decrees, permits, concessions,

 

grants, franchises, licenses, agreements or governmental restrictions relating to pollution, the protection of the environment, natural resources, or, to the extent relating to exposure to Hazardous Materials, human health or safety or to the release of any Hazardous Materials into the environment, including air emissions and discharges to waste or public systems.

“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any of its Subsidiaries resulting from (a) the actual or alleged violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release, or presence of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ Environmental Permit ” means any permit, approval, identification number, license or other authorization required from any Governmental Authority under any Environmental Law.

“ Equity Interests ” means, with respect to any Person, all of the shares, membership interests, rights, participations or other equivalents (however designated) of capital stock of (or other ownership or profit interests or units in) such Person and all of the warrants, options or other rights for the purchase, acquisition or exchange from such Person of any of the foregoing (including through convertible securities).

“ Equity Investors ” means, on any date, each Person that owns on such date any issued and outstanding Equity Interests of Puget Holdings.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and rules and regulations related thereto.

“ ERISA Affiliate ” means any trade or business (whether or not incorporated) that together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

“ ERISA Event ” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal, within the meaning of Section 4203 or 4205 of ERISA, respectively (and for purposes of clarification, not including a transaction described in Section 4204 of ERISA), by the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiemployer Plan; (d) the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination, in either case under Section 4041(c) of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan under Section 4042 of ERISA; (e) the conditions for imposition of a lien under Section 303(k) of ERISA shall have been met with respect to any Pension Plan; (f) a determination that any Pension Plan is in “at risk” status

 

(within the meaning of Section 303 of ERISA); or (g) the imposition of any material liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

“ Event of Default ” has the meaning specified in Section 8.01 .

“ Excluded Taxes ” means, with respect to any Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any Obligation of the Borrower, (a) income, franchise or similar taxes imposed on (or measured in whole or in part by reference to) its net or overall gross income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender or any Issuing Bank, in which its applicable Lending Office is located, or a jurisdiction in which such Agent, Lender, Issuing Bank or other recipient is engaged in business, other than a business deemed to arise solely from such recipient having entered into, received a payment under or enforced any Financing Document and activities incidental thereto, (b) any taxes attributable to a Lender’s or an Issuing Bank’s failure to comply with Section 3.01(f) of this Agreement, (c) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the applicable Lender or Issuing Bank or recipient is located, (d) in the case of a Foreign Lender (other than an Assignee pursuant to a request by the Borrower under Section 3.06(b) of this Agreement), any tax that is imposed on amounts payable to such Foreign Lender that is attributable to such Foreign Lender’s failure to comply with Section 3.01(e) of this Agreement and, (e) in the case of any Agent, Lender, Issuing Bank or other recipient, any United States withholding tax imposed on amounts payable to such recipient at the time such recipient becomes a party to this Agreement except to the extent that such recipient (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such tax pursuant to Section 3.01(a) of this Agreement. For purposes of this paragraph, the term “taxes” means all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities (including additions to tax, penalties and interest) with respect thereto.

“ Existing Indebtedness ” means (a) Indebtedness of the Borrower or any Subsidiary that is outstanding on the Effective Date and listed on Schedule 7.03(b) and (b) any Permitted Refinancing Indebtedness thereof.

“ Existing Letters of Credit ” means the letters of credit outstanding under the Existing Revolving Credit Agreement on the Financial Closing Date; provided that the aggregate amount of all outstanding Existing Letters of Credit shall not exceed the aggregate amount, with respect to (x) Energy Hedging Facility, the Energy Hedging Letter of Credit Sublimit and (y) the Liquidity Facility, the Liquidity Letter of Credit Sublimit.

“ Existing Revolving Credit Agreement ” means the $500,000,000 Amended and Restated Credit Agreement, dated as of March 29, 2007 by and among Puget Sound Energy, Inc., as Borrower, the Lenders party thereto, Wachovia Bank, National Association, as Administrative Agent, Citibank, National Association, as Syndication Agent, and Wachovia Capital Markets, LLC and Citigroup Global Markets Inc., as Co-Lead Arrangers and Joint Bookrunners.

 

“ Extraordinary Taxes ” means taxes paid in connection with Dispositions and other non-recurring events.

“ Facility ” means any of the facilities provided in Article II for the making of the Capital Expenditure Loans, the Energy Hedging Loans and the Liquidity Loans, and “ Facilities ” means all of such facilities in the aggregate.

“ Facility Agent ” means Barclays Bank PLC, acting in its capacity as Facility Agent for the Lenders hereunder, or any successor Facility Agent.

“ Facility Agent’s Office ” means the Facility Agent’s address as set forth on Schedule 10.02 or such other address as the Facility Agent may from time to time notify the Borrower and the Lenders.

“ Federal Funds Rate ” means, for any day, the rate per annum (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the immediately preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to the Facility Agent on such day on such transactions as determined by the Facility Agent.

“ Fee Letters ” means (i) the Fee Letter dated as of October 26, 2007 between Puget Holdings and Barclays Bank PLC, and (ii) the Fee Letter dated as of October 26, 2007 between Puget Holdings and Dresdner Bank AG New York Branch.

“ Final Maturity Date ” means the fifth (5 ^th ) anniversary of the Financial Closing Date.

“ Financial Closing Date ” means the first date to occur on or prior to the Termination Date on which all the conditions precedent in Section 4.02 are satisfied or waived in accordance with the terms of this Agreement and the Merger is consummated.

“ Financial Model ” means the “Model” referred to in the letter dated February 15, 2008 with reference number MACQMSU-08PaduaReport0215 from KPMG to James Wilson, Division Director, Macquarie Securities (USA) Inc.

“ Financing Documents ” means, collectively, (i) this Agreement, (ii) the Fee Letters, and (iii) the Notes.

“ First Mortgage Bond Documents ” means, collectively, (i) the First and Refunding Mortgage dated as of June 2, 1924 issued by the Borrower (as successor to Puget Sound Power & Light Company) in favor of U.S. Bank National Association (as successor to State Street Bank and Trust Company, as successor to Old Colony Trust Company), as trustee, and (ii) the Indenture of First Mortgage dated as of April 1, 1957 issued by the Borrower (as successor to Puget Sound Power & Light Company) in favor of BNY Midwest Trust Company (as successor

 

to Harris Trust and Savings Bank), as trustee and any supplemental indenture issued pursuant thereto.

“ Foreign Lender ” means any Lender or Issuing Bank that is organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia.

“ FRB ” means the Board of Governors of the Federal Reserve System of the United States.

“ Fund ” means any Person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business.

“ GAAP ” means generally accepted accounting principles in the United States of America, as in effect from time to time, consistently applied.

“ Good Utility Practice ” means any of the practices, methods, and acts engaged in or approved by a significant portion of the electric or gas utility industry in the State of Washington during the relevant time period, or any of the practices, method and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety, economy, and expedition and in a manner consistent with applicable Laws. Good Utility Practices is not intended to be limited to the optimum practice, methods, or act to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the region.

“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Guarantee ” means, as to any Person, without duplication, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation payable or performable by another Person (the “ Primary Obligor ”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other monetary obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other monetary obligation of the payment or performance of such Indebtedness or other monetary obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the Primary Obligor so as to enable the Primary Obligor to pay such Indebtedness or other monetary obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other monetary obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other monetary obligation of any other Person,

 

whether or not such Indebtedness or other monetary obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien); provided that the term “Guarantee” shall not include endorsement for a collection or deposit in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “ Guarantee ” as a verb has a corresponding meaning.

“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, toxic mold, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other such substances or wastes defined in or otherwise regulated as “hazardous” or “toxic” wastes or substances under applicable Environmental Law.

“ Holding Company ” means, prior to the effective time of the Merger, Merger Sub and after the effective time of the Merger, Puget Energy, Inc., a Washington corporation.

“ Hybrid Debt Securities ” means (i) any securities, trust preferred securities, or deferrable interest subordinated debt, which, in each such case, provides for the optional or mandatory deferral of interest or distributions, issued by any Operating Company Group Member, or (ii) any business trusts, limited liability companies, limited partnerships or similar entities (a) substantially all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more Subsidiaries) at all times by any Operating Company Group Member, (b) that have been formed for the purpose of issuing securities, trust preferred securities or deferrable interest subordinated debt of the type described in clause (i ) above, and (c) substantially all the assets of which consist of (i) subordinated debt issued by any Operating Company Group Member, and (ii) payments made from time to time on such subordinated debt.

“ Immaterial Subsidiary ” means any Subsidiary designated on the Effective Date on Schedule 5.13A or designated as such by the Borrower after the Effective Date in a notice delivered to the Facility Agent; provided that at no time shall all Immaterial Subsidiaries so designated have in the aggregate (x) total assets (excluding intercompany receivables) at the relevant time of determination having a gross asset value in excess of 1% of the consolidated total assets of the Borrower Group or (y) total consolidated revenues for the twelve (12) months ending at the relevant time of determination in excess of 1% of the consolidated total revenues of the Borrower Group; provided , further , that (1) in the event that a Subsidiary no longer qualifies as an Immaterial Subsidiary pursuant to clauses (x)  and (y)  above, the Borrower shall advise the Facility Agent thereof in a notice delivered to the Facility Agent and (2) in the event that the Subsidiaries designated as Immaterial Subsidiaries at the relevant time of determination in the aggregate do not comply with the first proviso, the Borrower shall designate one of more of such Subsidiaries as an Operating Company Subsidiary and not an Immaterial Subsidiary in a notice delivered to the Facility Agent.

“ Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

 

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments, including, without limitation, Hybrid Debt Securities (including the Borrower Hybrid Debt);

(b) letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties and similar instruments issued or created by or for the account of such Person;

(c) net obligations of such Person under any Interest Hedging Agreement (the amount of any such net obligation to be the amount that is or would be payable upon settlement, liquidation, termination or acceleration thereof at the time of calculation);

(d) all obligations of such Person to pay the deferred purchase price of property or services (other than (i) trade accounts payable in the ordinary course of business, (ii) accrued expenses in the ordinary course of business, (iii) any earn-out obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and (iv) obligations with respect to commodity purchase contracts);

(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements and mortgage, industrial revenue bond, industrial development bond and similar financings), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) all Attributable Indebtedness; and

(g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Redeemable Equity Interests in such Person (including, without limitation, Operating Company Preferred Shares) or any other Person or any warrants, rights or options to acquire such Equity Interests, valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

(h) all Guarantees of such Person in respect of Indebtedness referred to in any of the foregoing clauses (a) through (g) .

“ Indemnified Liabilities ” has the meaning specified in Section 10.05(a) .

“ Indemnified Parties ” has the meaning specified in Section 10.05(a) .

“ Information ” has the meaning specified in Section 10.08 .

“ Information Memorandum ” means the information memorandum dated as of January 2008 used by the Joint Mandated Lead Arrangers in connection with the syndication of the Commitments.

 

“ Initial Lenders ” means Barclays Bank PLC and Dresdner Bank AG New York Branch.

“ Initial Material Adverse Effect ” means a “Company Material Adverse Effect”, as such term is defined in the Merger Agreement, which definition for convenience is set forth in Schedule 1.01A .

“ Intercompany Loans ” means loans, advances or other extensions of credit by the Holding Company to any member of the Operating Company Group or by any member of the Operating Company Group to any other member of the Operating Company Group.

“ Interest Hedging Agreements ” means any rate swap, cap or collar agreement or similar arrangement between the Borrower and one or more interest rate hedge providers designed to protect such Person against fluctuations in interest rates. For purposes of this Agreement and the other Financing Documents, the Indebtedness at any time of the Borrower under an Interest Hedging Agreement shall be determined at such time in accordance with the methodology set forth in such Interest Hedging Agreement.

“ Interest Payment Date ” means, (a) as to any Loan other than an Alternate Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Final Maturity Date; provided that if any Interest Period exceeds three (3) months, the respective dates that fall every three (3) months after the beginning of such Interest Period shall also be Interest Payment Dates, and (b) as to any Alternate Base Rate Loan, each Quarter End Date and the Final Maturity Date.

“ Interest Period ” means, the period beginning on (and including) the date on which a Loan is made, converted or continued and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter or such other periods as may be agreed by the Facility Agent and the Borrower if available to all Lenders (or, if such month has no numerically corresponding day, on the last Business Day of such month), in either case as the Borrower may select in its relevant notice pursuant to Section 2.02(a) or Section 2.05(d) ; provided , however , that (a) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls on the next succeeding calendar month, on the next preceding Business Day) and (b) no Interest Period may end later than the Final Maturity Date.

“ Interest Rate ” means, for any Interest Period, (i) the LIBO Rate for such Interest Period plus the Applicable Margin or (ii) in the event that (a) the LIBO Rate is unavailable as a result of the occurrence of the events described in Section 3.02 and Section 3.03 , (b) in the case of a Capital Expenditure Loan, an Energy Hedging Loan or a Liquidity Loan, the Borrower elects in the related Borrowing Request that such Capital Expenditure Loan, Energy Hedging Loan or Liquidity Loan, as applicable, be made as an Alternate Base Rate Loan or (c) such Interest Period would have a duration of less than one month, the Alternate Base Rate plus the Applicable Margin, as the context may require.

“ Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests or Indebtedness of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of Indebtedness of, or purchase or other acquisition of any other debt or Equity

 

Interest in, another Person, including any partnership or joint venture interest in such other Person or (c) the purchase or other acquisition (in one transaction or a series of transactions) of all or substantially all of the property and assets or business of another Person or assets constituting a business unit, line of business or division of such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“ Investment Grade ” shall mean with respect to the Moody’s corporate credit rating system a rating of at least Baa3 and with respect to the S&P corporate credit rating system a rating of at least BBB-.

“ Issuance ” means any issuance or sale after the Financial Closing Date by any member of the Operating Company Group of any of its Preferred Interests, common Equity Interests or Indebtedness; provided that Issuance shall not include (i) any capital contribution from, any Equity Investor or any equity issued to such Equity Investors in respect of such capital contribution, in each case to pay for Utility Capital Expenditures or which are applied in the exercise of a Cure Right, (ii) any common Equity Interests sold or issued to management or employees of an Operating Company Subsidiary from the exercise of options and warrants held by them, (iii) any issuance of Equity Interests pursuant to “anti-dilution” provisions applicable to Equity Interests outstanding at the time of such issuance or (iv) any issuance, sale or incurrence of Indebtedness permitted under Section 7.03 .

“ Issuing Bank ” means a Liquidity Issuing Bank or an Energy Hedging Issuing Bank, as applicable. As used herein, the term “ Issuing Bank ” shall refer to each Issuing Bank.

“ Joint Mandated Lead Arrangers ” means Barclays Capital, the investment banking division of Barclays Bank PLC, and Dresdner Bank AG New York Branch, each in its capacity as a Mandated Lead Arranger.

“ Laws ” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“ LC Disbursement ” means a payment made by any Issuing Bank pursuant to a Letter of Credit.

“ LC Exposure ” means, at any time, as applicable, (a) the Energy Hedging LC Exposure, or (b) the Liquidity LC Exposure.

“ Lender ” means, at any time, any Person that has a Commitment or a Loan at such time.

“ Lending Office ” means, as to any Lender or Issuing Bank, the office or offices of such Lender or Issuing Bank (or of an Affiliate of such Lender or Issuing Bank) designated for such

 

Lender’s Loans, or such Issuing Bank’s Letters of Credit or such other office or offices as a Lender or Issuing Bank may from time to time notify the Borrower and the Facility Agent.

“ Letter of Credit ” means any standby letter of credit issued pursuant to this Agreement and any standby Existing Letter of Credit.

“ LIBO Rate ” shall mean, with respect to any Loan for any Interest Period, the rate appearing on Moneyline Telerate Markets Page 3750 (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Facility Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, on the day that is two (2) Business Days prior to the commencement of such Interest Period, as the rate for the offering of Dollar deposits with a maturity comparable to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the Facility Agent will request the Reference Banks to provide the Facility Agent with their offer quotations for deposits in Dollars for such Interest Period to prime banks in the London interbank market at approximately 11:00 a.m. (London time) on such second Business Day in a representative amount and for a period approximately equal to such Interest Period and the Facility Agent shall calculate LIBOR using the average of such quotations. Each determination of the LIBO Rate by the Facility Agent pursuant to this definition shall be conclusive absent manifest error.

“ LIBO Rate Loan ” means any Loan which bears interest at a rate determined by reference to the LIBO Rate.

“ Lien ” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement, of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any Capitalized Lease having substantially the same economic effect as any of the foregoing).

“ Liquidity Availability Period ” means the period from and including the Financial Closing Date until the earlier of (a) the date of termination of the Liquidity Commitments in accordance with this Agreement and (b) the Final Maturity Date.

“ Liquidity Commitment ” means, as to any Liquidity Lender, its obligation to make Liquidity Loans to the Borrower in an aggregate principal amount not to exceed the amount set forth opposite such Liquidity Lender’s name on Schedule 2.01 hereto under the caption “Liquidity Commitment” or in the Assignment and Assumption pursuant to which such Liquidity Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. The aggregate amount of the Liquidity Commitments of all Liquidity Lenders as of the Effective Date is $400,000,000, a portion of which, referred to herein as the Liquidity Letter of Credit Sublimit, shall be available for the participation in Liquidity Letters of Credit.

 

“ Liquidity Facility ” has the meaning specified in the recitals hereto.

“ Liquidity Issuing Bank ” means (a) each Liquidity Lender identified as a “Liquidity Issuing Bank” on Schedule 1.01C , in its capacity as the issuer of Liquidity Letters of Credit hereunder, and its successors and assigns in such capacity as provided in Section 2.12 and (b) (i) each other Liquidity Lender designated by the Borrower as a “Liquidity Issuing Bank” hereunder that has agreed to such designation (and is reasonably acceptable to the Facility Agent) and that specifies its maximum Liquidity Issuing Bank Fronting Amount or (ii) any other Liquidity Lender (acting directly or through an Affiliate) that has agreed in form and substance satisfactory to the Borrower and the Facility Agent that such other Liquidity Lender (or its Affiliate) will act as “Liquidity Issuing Bank” hereunder and that specifies its maximum Liquidity Issuing Bank Fronting Amount. Any Liquidity Issuing Bank may, in its discretion, arrange for one or more Liquidity Letters of Credit to be issued by Affiliates of such Liquidity Issuing Bank, in which case the term “Liquidity Issuing Bank” shall include any such Affiliate with respect to Liquidity Letters of Credit issued by such Affiliate. Each reference to “Liquidity Issuing Bank” herein shall be a reference to each and any Liquidity Issuing Bank.

“ Liquidity Issuing Bank Fronting Amount ” means the dollar amount set forth on Schedule 1.01C opposite the name of each Liquidity Issuing Bank, as such amount may be increased or decreased pursuant to the written agreement of the Borrower, the applicable Liquidity Issuing Banks and the Facility Agent and reflected in the Register maintained by the Facility Agent; provided that, the Liquidity Issuing Bank Fronting Amount of a Liquidity Issuing Bank shall be increased at the written request of the Borrower by the unutilized portion of such Liquidity Issuing Bank’s Energy Hedging Issuing Bank Fronting Amount to an amount not to exceed, together with the Liquidity Issuing Bank Fronting Amounts of all other Liquidity Issuing Banks, the aggregate amount of the Liquidity Commitments.

“ Liquidity LC Disbursement ” means a payment made by any Liquidity Issuing Bank pursuant to a Liquidity Letter of Credit.

“ Liquidity LC Exposure ” means, at any time, the sum of (a) the aggregate undrawn amount of all Liquidity Letters of Credit at such time plus (b) the aggregate amount of all Liquidity LC Disbursements that have not yet been reimbursed or financed by or on behalf of the Borrower at such time. The Liquidity LC Exposure of any Liquidity Lender at any time shall be its pro rata share of the total Liquidity LC Exposure at such time, based upon the respective Liquidity Commitments of the Liquidity Lenders.

“ Liquidity Lender ” means, at any time, any Lender that has a Liquidity Commitment or that holds a Liquidity Loan at such time.

“ Liquidity Letter of Credit ” has the meaning specified in Section 2.01(e) hereof.

“ Liquidity Letter of Credit Sublimit ” means, on any date of determination, the sum of the Liquidity Issuing Bank Fronting Amount for each Liquidity Issuing Bank; provided that the aggregate amount thereof shall at no time exceed the then aggregate amount of the Liquidity Commitments.

“ Liquidity Loan ” means a Loan made pursuant to Section 2.01(d) or Section 2.12 .

 

“ Liquidity Note ” means a promissory note of the Borrower payable to any Liquidity Lender, in substantially the form of Exhibit B-3 hereto, evidencing the aggregate Indebtedness of the Borrower to such Liquidity Lender resulting from the Liquidity Loans made by such Liquidity Lender.

“ Loan ” means a Capital Expenditure Loan, an Energy Hedging Loan or a Liquidity Loan as the context requires.

“ Macquarie ” means The Macquarie Capital Group, which includes Macquarie Capital Group Limited, its direct or indirect subsidiaries, and the funds (or similar vehicles) they manage.

“ Macquarie Affiliates ” means Macquarie Finance Americas Inc. and Affiliates of Macquarie that are offshore banking units.

“ Majority Lenders ” means, as of any date of determination (a) Lenders having more than 50% of the sum of the Total Outstandings, (b) aggregate unused Commitments and (c) LC Exposure at such time; provided that for the purposes of determining Majority Lenders, such calculation shall at all times be made by excluding the Total Outstandings and the unused Commitments of all Lenders that are Borrower Affiliates or Macquarie Affiliates.

“ Management Fees ” means, for any period, the aggregate amount of all payments (including all fees, salaries and other compensation, but excluding amounts payable under Affiliate Service Agreements) paid or incurred by the Borrower and its Subsidiaries during such period to any of their Affiliates (including Macquarie) and not otherwise a Restricted Payment; provided that Management Fees shall not include amounts payable to an Affiliate (i) in its capacity as a Lender pursuant to this Agreement or any Financing Document, (ii) in its capacity as an interest rate hedge provider pursuant to an Interest Hedging Agreement to the extent such Interest Hedging Agreement complies with Section 7.09(a)(i) or (iii) in its capacity as a lender pursuant to other Indebtedness permitted under Section 7.03 to the extent such arrangements comply with Section 7.09(a)(i) and such Affiliate is not an arranger, agent or underwriter of such Indebtedness.

“ Material Adverse Effect ” means a material adverse effect on (i) the business, operations, property, assets or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole, (ii) the ability of the Borrower and its Subsidiaries, taken as a whole, to perform its obligations under any of the Financing Documents, or (iii) the validity or enforceability of any of the Financing Documents or the material rights and remedies of any Lender or Agent-Related Person under any of the Financing Documents.

“ Material Communications ” means, any communication by the Borrower or any of its Subsidiaries with any Governmental Authority regarding an event or circumstance that could reasonably be expected to result in a Material Adverse Effect.

“ Material Notices ” means, with respect to any material Contractual Obligation, any notice sent or received by the Borrower or any of its Subsidiaries regarding a material event or circumstance, including the occurrence of any default under such Contractual Obligation or

 

termination of such Contractual Obligation or any other development that could reasonably be expected to result in a Material Adverse Effect.

“ Maximum Energy Hedging Incremental Facility Amount ” means, on any date, $525,000,000.

“ Merger ” means the merger by which the separate existence of the Merger Sub shall cease and the Merger Sub shall be merged with and into Puget Energy, Inc. pursuant to the terms of the Merger Agreement.

“ Merger Agreement ” means the Agreement and Plan of Merger dated as of October 25, 2007, by and among Puget Energy, Inc., Puget Intermediate Holdings Inc., Puget Holdings, the Merger Sub and the other parties thereto.

“ Merger Sub ” means Puget Merger Sub Inc., a Washington corporation.

“ Moody’s ” means Moody’s Investors Service, Inc. and any successor thereto.

“ Multiemployer Plan ” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA) of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding three (3) plan years, has made or been obligated to make contributions.

“ Net Cash Proceeds ” means with respect to any Casualty Event, the gross proceeds of all cash actually received by such Operating Company Group Member in connection with such Casualty Event; provided that (i) Net Cash Proceeds shall be net of (a) the amount of any legal, advisory, title, transfer and recording tax expenses, commissions and other fees and expenses paid by the Borrower or the applicable Subsidiary in connection with such Casualty Event and (b) any Federal, state and local income or other taxes estimated to be payable by Puget Holdings, the Borrower or the applicable Subsidiary as a result of such Casualty Event (but only to the extent that such estimated taxes are in fact paid to the relevant Federal, state or local Governmental Authority when due; provided that at the time such taxes are paid, an amount equal to the amount, if any, by which such estimated taxes exceed the amount of taxes actually paid shall constitute “Net Cash Proceeds” for all purposes hereunder), (ii) with respect to any Casualty Event, Net Cash Proceeds shall be net of any repayments by the Borrower or the applicable Subsidiary of Indebtedness to the extent that (x) such Indebtedness is secured by a Lien permitted by Section 7.01 on the Property that is the subject of such Casualty Event and (y) the transferee of (or holder of a Lien on) such Property requires that such Indebtedness be repaid, (iii) “Net Cash Proceeds” shall be net of any cash or Cash Equivalents received upon the disposition of any non-cash consideration by any Operating Company Group Member as a result of any Casualty Event and (iv) if the applicable cash payments are in the first instance received by a Subsidiary that is not a wholly-owned Subsidiary, the related Net Cash Proceeds shall be net of the proportionate share of the common Equity Interests of such Subsidiary (and of any intermediate Subsidiary) owned by Persons that are not wholly-owned Subsidiaries of the Borrower.

“ Newco ” has the meaning specified in the definition of Permitted Acquisition.

 

“ Note ” means a Capital Expenditure Note, Energy Hedging Note or Liquidity Note, as the context requires, issued by the Borrower to the Lenders under this Agreement.

“ Obligations ” means all (a) advances to, and debts, liabilities, obligations, covenants and duties of, the Borrower arising under any Financing Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against the Borrower, of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding, and (b) Cash Management Obligations. Without limiting the generality of the foregoing, the Obligations of the Borrower under the Financing Documents include (x) the obligation to pay principal, interest, reimbursement obligations, charges, expenses, fees, Attorney Costs, indemnities and other amounts payable by the Borrower under any Financing Document and (y) the obligation of the Borrower to reimburse any amount in respect of any of the foregoing that any Lender, in its sole discretion, may elect to pay or advance on behalf of the Borrower.

“ OECD ” means the Organisation for Economic Co-Operation and Development.

“ OECD Member Bank ” means a bank that (a) is organized under the laws of a country that is a member of the OECD and (b) has outstanding unguaranteed and unsecured long-term indebtedness that is rated A- or better by S&P and A3 or better by Moody’s.

“ Operating Company Cash Interest Expense ” means, for any period, with respect to the Borrower determined in accordance with GAAP exclusive of any consolidated subsidiaries of the Borrower, the total interest expense (which for the avoidance of doubt, shall not include the benefit of AFUDC) of the Borrower for such period, less the sum of (in each case, to the extent included in determining total interest expense) (a) interest on any debt of the Borrower that is not payable in cash during such period, including any capitalized interest, (b) amortization of debt issuance costs, debt discount or premium and other financing fees and expenses incurred by the Borrower during such period and (c) all other non-cash items included in such calculation of interest expense during such period.

“ Operating Company FFO ” means, for any period, the consolidated EBITDA of the Operating Company Group for such period plus without duplication and in each case to the extent deducted in the calculation of such EBITDA (if such item was included in the calculation of EBITDA) (a) decreases in the Consolidated Working Capital of the Operating Company Group for such period, (b) cash interest income, and minus and in each case to the extent included in the calculation of such EBITDA (if such item was included in the calculation of EBITDA) (c) consolidated cash income tax paid by the Operating Company Group for such period or by the Parent, Parent Holdco (to the extent such Person is not Puget Holdings) or Puget Holdings in respect of the operations of the Operating Company Group for such period (excluding any Extraordinary Taxes), (d) Conservation Expenditures for such period and (e) increases in the Consolidated Working Capital of the Operating Company Group for such period, in each case determined on a consolidated basis in accordance with GAAP.

 

“ Operating Company FFO Coverage Ratio ” means, for any Test Period, the ratio of (a) Operating Company FFO for such Test Period minus Scheduled Base CapEx for such Test Period, to (b) Operating Company Interest for such Test Period.

“ Operating Company FFO Leverage Ratio ” means, for any Test Period, the ratio of (a) Operating Company FFO for such Test Period minus Operating Company Interest for such Test Period, to (b) Operating Company Net Debt outstanding as of the Quarter End Date on which such Test Period ends.

“ Operating Company Group ” means the Borrower and each other Subsidiary of the Borrower other than any Immaterial Subsidiary and, for the avoidance of doubt, the term Operating Company Group shall include Puget Western, Inc.; “ Operating Company Group Member ” means any member of the Operating Company Group.

“ Operating Company Interest ” means, for any period, the aggregate Cash Interest Expense of the Operating Company Group for such period, including the portion of any payments made in respect of Capitalized Lease liabilities allocable to interest expense, plus the aggregate scheduled recurring fees in respect of Indebtedness of the Operating Company Group for such period, plus the net amount payable (or minus the net amount receivable) by the Operating Company Group under Interest Hedging Agreements relating to interest during such period (other than any such amount payable or receivable by the Operating Company Group as a result of the termination or reduction of the notional amount of any Interest Hedging Agreements to the extent such amount payable or receivable is not already included in Cash Interest Expense), in each case calculated on a consolidated basis in accordance with GAAP. For the avoidance of doubt, Operating Company Interest shall exclude make whole payments.

“ Operating Company Net Debt ” means consolidated Indebtedness of the Operating Company Group minus the amount of cash and Cash Equivalents of the Borrower or any Operating Company Subsidiary (other than any segregated cash and Cash Equivalents the use of which is restricted by Contractual Obligation or Law to any specified purpose and which is specifically identified on the consolidated balance sheet of the Operating Company Group).

“ Operating Company Preferred Shares ” means the second series 4.70% preferred shares ($100 par value) and the third series 4.84% preferred shares ($100 par value) of the Borrower.

“ Operating Company Subsidiary ” means a Subsidiary or Subsidiaries of the Borrower (other than any Immaterial Subsidiary).

“ Organizational Documents ” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement or limited liability company agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the

 

jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

“ Other Hedging Agreements ” means any swap, cap or collar agreement or similar arrangement between any Operating Company Group Member designed to protect any Operating Company Group Member against fluctuations in currency exchange rates or commodity prices.

“ Other Taxes ” has the meaning specified in Section 3.01(b) .

“ Outstanding Amount ” means with respect to Capital Expenditure Loans, the Energy Hedging Loans and the Liquidity Loans, on any date, the aggregate outstanding unpaid principal amount thereof after giving effect to any Borrowings (including, without limitation, issuances of Letters of Credit) and prepayments or repayments of Capital Expenditure Loans, Energy Hedging Loans and Liquidity Loans, as the case may be, on such date.

“ Overnight Rate ” means, for any day, the Federal Funds Rate.

“ Parent ” means the Person that is the direct owner of 100% of the Equity Interests of the Holding Company, which as of the Effective Date, is Puget Intermediate Holdings, Inc., a Washington corporation; provided that the Parent shall be a direct or indirect wholly-owned Subsidiary of Puget Holdings.

“ Parent Holdco ” means the Person that is the direct owner of 100% of the Equity Interests of the Parent.

“ Participant ” has the meaning specified in Section 10.07(e) .

“ PBGC ” means the Pension Benefit Guaranty Corporation (or any successor).

“ Pension Plan ” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding three (3) plan years.

“ Permitted Acquisition ” means an acquisition consummated by or through Borrower (including any newly formed wholly-owned Subsidiary of Borrower that is an Operating Company Subsidiary (a “ Newco ”)), of all or substantially all of the assets of, or shares or other Equity Interests in, a Person, or division or line of business of a Person (other than inventory, leases, materials and equipment in the ordinary course of business), in each case that is engaged in substantially the same general line of business or businesses as those in which Borrower (not including any of its Subsidiaries for this purpose) is engaged or businesses reasonably related thereto; provided that:

(i) such acquisition shall be consensual and shall have been approved by the board of directors (or similar governing body) of the Person whose Equity Interests or assets are proposed to be acquired and shall not have been preceded by an unsolicited

 

tender offer for such Equity Interests by, or proxy contest initiated by, Borrower or any of its Subsidiaries;

(ii) the aggregate purchase price paid by the Operating Company Group for any such acquisition shall not exceed $600,000,000;

(iii) an Authorized Officer of the Borrower shall have delivered a certificate substantially in the form of Exhibit E , attesting to the Solvency of the Borrower and its Subsidiaries (taken as a whole, including the acquired Person or assets, after giving effect to such acquisition);

(iv) any Liens or Indebtedness assumed in connection with such acquisition are otherwise permitted under Section 7.01 or Section 7.03 , respectively;

(v) any expenditures in connection with such acquisition are Utility Capital Expenditures;

(vi) such acquisition would either be made pursuant to a competitive solicitation process or would be expected to promote the Borrower’s ability to meet current and future needs for electric or gas service at a reasonable cost; and

(vii) no Default or Event of Default shall exist immediately prior to such acquisition or, after giving effect to such acquisition, shall have occurred and be continuing, or would result from the consummation of the proposed acquisition.

“ Permitted Refinancing Indebtedness ” means any Indebtedness of any Operating Company Group Member, as applicable, issued in exchange for, or the Net Cash Proceeds of which are used to refund, refinance, replace, defease or discharge Existing Indebtedness or Indebtedness referred to under Section 7.03(a) ; provided , that for the avoidance of doubt, Permitted Refinancing Indebtedness shall not include Indebtedness incurred to repay revolving loans or similar Indebtedness without a corresponding permanent reduction in commitments for such loans or similar Indebtedness; provided , further , that:

(i) The principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accredited value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all refinancing expenses incurred in connection therewith including, without limitation, closing fees, agency fees, premiums, make-whole amounts or original issue discount);

(ii) Such Permitted Refinancing Indebtedness has weighted average life to maturity equal to or greater than the weighted average life to maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;

(iii) If the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Facilities, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Facilities on terms, taken as whole, at least as favorable to the Lenders as the subordination terms contained

 

in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that a certificate of an Authorized Officer of the Borrower is delivered to the Facility Agent at least five (5) Business Days (or such shorter period as the Facility Agent may reasonably agree) prior to the incurrence of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such subordination terms or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence that such terms and conditions satisfy the foregoing requirement unless the Facility Agent notifies the Borrower within such period that it disagrees with such determination (including a reasonable description of the basis upon which it disagrees);

(iv) Such Indebtedness is incurred by the Person who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;

(v) (A) If the maturity of the Indebtedness being refinanced, renewed, replaced, defeased or refunded is earlier than the Final Maturity Date, the Permitted Refinancing Indebtedness has a maturity no earlier than the maturity of the Indebtedness being refinanced, renewed, replaced, defeased or refunded or (B) if the maturity of the Indebtedness being refinanced, renewed, replaced, defeased or refunded is equal to or later than the Final Maturity Date, the Permitted Refinancing Indebtedness has a maturity at least 365 days later than the Final Maturity Date;

(vi) The Permitted Refinancing Indebtedness is not secured by any collateral not granted to the holders of the Indebtedness being financed, renewed, replaced, defeased or refunded; and

(vii) Such Permitted Refinancing Indebtedness shall have terms which shall be no more restrictive, and shall not, taken as a whole, be materially less favorable, in any respect on the Borrower or the Operating Company Subsidiaries than the provisions of the Indebtedness being refinanced, renewed, replaced, defeased or refunded; provided , however , that a certificate of an Authorized Officer of the Borrower is delivered to the Facility Agent at least five (5) Business Days (or such shorter period as the Facility Agent may reasonably agree) prior to the incurrence of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence that such terms and conditions satisfy the foregoing requirement unless the Facility Agent notifies the Borrower within such period that it disagrees with such determination (including a reasonable description of the basis upon which it disagrees); provided , further , the pricing terms may be less favorable where such Indebtedness has matured or is scheduled to mature within six (6) months and is being refinanced at then-prevailing market price.

“ Permitted Replacement Lender ” means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an Issuing Bank, (iv) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $250,000,000, (v) a savings and loan association or

 

savings bank organized under the laws of the United States, or any State thereof, and having deposits in excess of $250,000,000, (vi) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to borrow or a political subdivision of any such country, and having total assets in excess of $250,000,000, (vii) the central bank of any country that is a member of the OECD, (viii) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $250,000,000, and (ix) any other Person approved by the Facility Agent; provided that neither the Borrower nor any Affiliate of the Borrower shall qualify as a Permitted Replacement Lender; provided , further that any Permitted Replacement Lender in respect of the Energy Hedging Facility and Liquidity Facility shall require the prior approval of the relevant Issuing Bank for such approval.

“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“ Plan ” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Borrower or any of its Subsidiaries or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate, and with respect to which the Borrower or any of its Subsidiaries is reasonably expected to have any material liabilities.

“ Planned Indebtedness ” means Indebtedness incurred by the Borrower between the date of the Merger Agreement and the Financial Closing Date in an amount not to exceed $250,000,000; provided , however , that (i) such Indebtedness has scheduled payment terms which are consistent with the Financial Model provided pursuant to Section 4.02(o)(i) ; and (ii) such Indebtedness shall have terms which shall be no more restrictive, and shall not, taken as a whole, be materially less favorable, in any respect on the Borrower or the Operating Company Subsidiaries than the provisions of any Existing Indebtedness in each case of clauses (i)  and (ii)  as certified by the CFO to the Facility Agent as of the Financial Closing Date; provided further that pricing terms may be at then-prevailing market price.

“ Preferred Interests ” means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person’s property and assets, whether by dividend or upon liquidation.

“ Primary Obligor ” has the meaning specified in the definition of Guarantee.

“ Prime Rate ” means the rate of interest per annum publicly announced from time to time by Barclays Bank PLC as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

“ Projections ” has the meaning specified in Section 6.01(c) .

 

“ Property ” means any right or interest in or to property of any kind whatsoever, whether real or personal, or mixed and whether tangible or intangible, and including, for the avoidance of doubt, revenues and contractual rights.

“ Public Service Property ” means property that, pursuant to applicable Laws, is used and useful or intended to be used and useful for the Borrower’s provision of gas or electric service to its customers and the capital invested in such property is reasonably expected to be found to be prudently incurred (if applicable) and recoverable in all material respects through the Borrower’s rates at the first opportunity for regulatory approval, including a power cost only rate case to the extent that such an accelerated approval process is available and appropriate for such property.

“ Puget Holdings ” means Puget Holdings LLC, a Delaware limited liability company.

“ Quarter End Date ” means March 31, June 30, September 30 and December 31 of each year.

“ Redeemable ” means, with respect to any Equity Interest, any such Equity Interest that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder.

“ Reference Banks ” means, collectively, Barclays Bank PLC and Dresdner Bank AG New York Branch.

“ Register ” has the meaning specified in Section 10.07(d) .

“ Regulatory Approval ” means (a) any authorization, consent, approval, license, ruling, permit, tariff, certification, waiver, exemption, filing required by chapter 80.08 or 80.12 RCW, variance, order, judgment or decree of, by, or by any Operating Company Group Member, the Parent, Parent Holdco (to the extent such Person is not Puget Holdings), the Holding Company or Puget Holdings with, (b) any required notice by any Operating Company Group Member, (c) any declaration containing material obligations of any Operating Company Group Member made or filed with, or (d) any Operating Company Group Member registration by or with, any Governmental Authority.

“ Reportable Event ” means any of the events specified in Section 4043(c) of ERISA or the regulations issued thereunder, other than events for which the thirty (30) day notice period has been waived.

“ Restricted Payment ” means any dividend or other distribution (whether in cash, securities or other property, other than common Equity Interests in the Borrower) on account of any Equity Interest of any Operating Company Group Member, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such Equity Interest, or on account of any return of capital to the Borrower’s stockholders, partners or members (or the equivalent Persons thereof); provided that dividend payments on Operating Company Preferred Shares and payments made to Affiliates pursuant to transactions permitted by Section 7.09(a) shall not constitute Restricted Payments.

 

“ S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

“ Scheduled Base CapEx ” means the amount for Capital Expenditures for the applicable periods set forth on Schedule 1.01B .

“ Shareholder Funding ” means equity investments and/or other funding sources contributed or made to Puget Holdings, Parent Holdco (to the extent such Person is not Puget Holdings) or the Parent by the Equity Investors in an aggregate amount of not less than 40% of the Total Capitalization of the Holding Company immediately after giving effect to the Merger; provided that (a) such investments and fundings shall not be secured by any assets of the Parent, the Holding Company or any Operating Company Group Member or be recourse to the Holding Company or any Operating Company Group Member, and (b) any such investments and fundings made as loans or indebtedness to the Parent shall be on terms and conditions set forth in the Shareholder Loan Subordination Agreement.

“ Shareholder Loan Subordination Agreement ” means a subordination agreement among the Parent, the Facility Agent and any Person providing Shareholder Funding in the form of loans or indebtedness in a form reasonably satisfactory to Barclays Bank, PLC, in its capacity as Collateral Agent.

“ Signing Date ” means, (a) October 26, 2007 and (b) for purposes of Section 2.06 , with respect to the Initial Lenders, October 26, 2007, and, with respect to each other Lender (i) on or prior to the Effective Date, the earlier of (x) the date such Lender agrees to purchase a portion of an Initial Lender’s Commitment hereunder (in a manner satisfactory to such Initial Lender) and (y) the date such Lender become party hereto and (ii) thereafter, the date such Lender becomes a party hereto.

“ Solvent ” and “ Solvency ” means, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“ Specified Representations ” has the meaning specified in Section 4.03(c)(i ).

“ Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are

 

at the time beneficially owned or controlled by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

“ Syndication Agent ” means Dresdner Bank AG New York Branch, in its capacity as a syndication agent hereunder.

“ Tax-Free Debt ” means Indebtedness of the Borrower to a state, territory or possession of the United States or any political subdivision thereof issued in a transaction in which such state, territory, possession or political subdivision issued obligations the interest on which is excludable from gross income pursuant to the provisions of Section 103 of the Code (or similar provisions), as in effect at the time of issuance of such obligations, and debt to a bank issuing a Letter of Credit with respect to the principal of or interest on such obligations.

“ Taxes ” has the meaning specified in Section 3.01(a) .

“ Termination Date ” means the earlier of (i) April 30, 2009 and (ii) the date of termination of the Merger Agreement.

“ Termination Payment ” means any amount payable to or by the Borrower or any of its Subsidiaries in connection with a termination (whether as a result of the occurrence of an event of default or other termination event) of any Interest Hedging Agreement; provided that for the avoidance of doubt, “Termination Payment” shall not include regularly scheduled payments due under any Interest Hedging Agreement.

“ Test Period ” means the period commencing twelve (12) months prior to and including each Quarter End Date; provided , (i) the first Test Period shall be the period commencing twelve (12) months prior to the first Quarter End Date that is at least six (6) months after the Financial Closing Date and (ii) the second Test Period shall be the period commencing twelve (12) months prior to the first Quarter End Date that is at least nine (9) months after the Financial Closing Date. Any financial ratio or compliance with any covenant in respect of any Test Period shall be determined, as of the Quarter End Date on which such Test Period ends, on the date on which the financial statements pursuant to Section 6.01(a) or Section 6.01(b) have been, or should have been, delivered for the applicable fiscal period ending on such Quarter End Date.

“ Total Capitalization ” means, at any time, the sum of (a) Total Shareholders’ Equity at such time and (b) Total Indebtedness at such time.

“ Total Indebtedness ” means, at any time, consolidated Indebtedness of the Operating Company Group (excluding Intercompany Loans), in each case, excluding make-whole payments.

“ Total Outstandings ” means the aggregate Outstanding Amount of all Loans.

“ Total Shareholders’ Equity ” means, at any time, the amount of total shareholders’ equity of the Operating Company Group (determined on a consolidated basis without duplication in accordance with GAAP).

 

“ Transaction Costs ” means finance fees, commissions, costs and expenses, in each case incurred by or on behalf of the Borrower in connection with the Merger.

“ Transaction Documents ” means (a) the Merger Agreement and all other material documents, instruments and certificates delivered in connection with the Merger Agreement, and (b) the Financing Documents.

“ Type ” when used in respect of any Loan, shall refer to its nature as an Alternate Base Rate Loan or LIBO Rate Loan.

“ United States ” and “ U.S. ” mean the United States of America.

“ Unreimbursed Letter of Credit Amounts ” means the aggregate amount of all Letter of Credit drawings for which the applicable Issuing Bank has not yet been reimbursed.

“ Unused Capital Expenditure Revolving Credit Commitment ” means, with respect to any Capital Expenditure Lender at any time, (a) such Capital Expenditure Lender’s Commitment at such time minus (b) such Capital Expenditure Loans at such time.

“ Unused Energy Hedging Revolving Credit Commitment ” means, with respect to any Energy Hedging Lenders at any time, (a) such Energy Hedging Lender’s Commitment at such time minus (b) such Energy Hedging Lender’s Credit Exposure at such time.

“ Unused Liquidity Revolving Credit Commitment ” means, with respect to any Liquidity Lenders at any time, (a) such Liquidity Lender’s Commitment at such time minus (b) such Liquidity Lender’s Credit Exposure at such time.

“ USA PATRIOT Act ” has the meaning specified in Section 5.17(c) .

“ Utility Capital Expenditures ” means (i) Capital Expenditures of the Borrower and (ii) other expenditures of the Borrower, in each case of clauses (i)  and (ii) , which Capital Expenditures and other expenditures are incurred in the acquisition, renewal or replacement of Public Service Property, in accordance with Good Utility Practice; provided , however , clause (ii)  of the foregoing shall not include operating expenditures or expenditures for working capital or general corporate purposes, in each case that arise in the ordinary course of business.

“ wholly-owned ” means, with respect to a Subsidiary of a Person, a Subsidiary of such Person all of the outstanding Equity Interests of which (other than (a) director’s qualifying shares and (b) shares issued to foreign nationals to the extent required by applicable Law) are owned by such Person and/or by one or more wholly-owned Subsidiaries of such Person.

SECTION 1.02. Other Interpretive Provisions . With reference to this Agreement and each other Financing Document, unless otherwise specified herein or in such other Financing Document:

(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

 

(b) The words “ herein ”, “ hereto ”, “ hereof ” and “ hereunder ” and words of similar import when used in any Financing Document shall refer to such Financing Document as a whole and not to any particular provision thereof.

(i) Article, Section, Exhibit and Schedule references are to the Financing Document in which such reference appears.

(ii) The term “including” is by way of example and not limitation.

(iii) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

(c) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including”.

(d) Section headings herein and in the other Financing Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Financing Document.

SECTION 1.03. Accounting Terms and Principles .

(a) Except as set forth below, all accounting terms not specifically or completely defined herein shall be construed in conformity with GAAP and all accounting determinations required to be made pursuant hereto (including for purpose of measuring compliance with Section 7.14 ) shall, unless expressly otherwise provided herein, be made in conformity with GAAP.

(b) If any change in the accounting principles used in the preparation of the financial statements referred to in Section 6.01 is hereafter required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or any successors thereto) and such change is adopted by the Borrower with the agreement of the Borrower’s accountants and results in a change in any of the calculations required by Article VII (including Section 7.14 ) that would not have resulted had such accounting change not occurred, the Facility Agent and the Borrower agree (upon the request of the Facility Agent or the Borrower) to enter into negotiations in order to amend such provisions so as to equitably reflect such change such that the criteria for evaluating compliance with such covenants by the Borrower shall be the same after such change as if such change had not been made; provided , however , that no change in GAAP that would affect a calculation that measures compliance with any covenant contained in Article VII (including Section 7.14 ) shall be given effect until such provisions are amended with the consent of the Majority Lenders to reflect such changes in GAAP. Calculations with respect to any fiscal quarter or any fiscal year of any Person shall reference the respective fiscal quarters or fiscal years of such Person.

SECTION 1.04. Rounding . Any financial ratios required to be maintained by the Borrower pursuant to this Agreement (or required to be satisfied in order for a specific action to be permitted under this Agreement) shall be calculated by dividing the

 

appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

SECTION 1.05. References to Agreements, Laws, Etc . Unless otherwise expressly provided herein, (a) references to Organizational Documents, agreements (including the Financing Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Financing Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.

SECTION 1.06. Times of Day . Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

SECTION 1.07. Timing of Payment of Performance . When the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day which is not a Business Day, the date of such payment (other than as described in the definition of Interest Period) or performance shall extend to the immediately succeeding Business Day.

SECTION 1.08. Authorized Officers . Any document delivered hereunder that is signed by an Authorized Officer of any Operating Company Group Member shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Operating Company Group Member and such Authorized Officer shall be conclusively presumed to have acted on behalf of such Operating Company Group Member.

ARTICLE II

THE COMMITMENTS AND CREDIT EXTENSIONS AND CONTINUATIONS

SECTION 2.01. The Loans .

(a) The Capital Expenditure Facility . Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances to the Borrower from time to time on any Business Day during the Capital Expenditure Availability Period in an amount for each such Borrowing not to exceed such Lender’s Unused Capital Expenditure Revolving Credit Commitment at such time. Within the limits of each Lender’s Unused Capital Expenditure Revolving Credit Commitment, amounts borrowed under this Section 2.01(a ) and repaid or prepaid may be reborrowed.

(b) The Energy Hedging Facility . Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances to the Borrower from time to time on any Business Day during the Energy Hedging Availability Period in an amount for each such

 

Borrowing not to exceed such Lender’s Unused Energy Hedging Revolving Credit Commitment at such time. Within the limits of each Lender’s Unused Energy Hedging Revolving Credit Commitment, amounts borrowed under this Section 2.01(b ) and repaid or prepaid may be reborrowed.

(c) The Energy Hedging Facility Letters of Credit . Each Energy Hedging Issuing Bank agrees, on terms and conditions hereinafter set forth, to issue (or cause its Affiliate that is a commercial bank to issue on its behalf) Letters of Credit (each, an “ Energy Hedging Letter of Credit ”) in U.S. Dollars for the account of the Borrower from time to time on any Business Day during the Energy Hedging Availability Period in an aggregate Available Amount (i) for all Energy Hedging Letters of Credit issued by such Energy Hedging Issuing Bank not to exceed at any time its Energy Hedging Issuing Bank Fronting Amount at such time and (ii) for each such Energy Hedging Letter of Credit not to exceed an amount equal to the aggregate Unused Energy Hedging Revolving Credit Commitments of the Energy Hedging Lenders at such time.

(d) The Liquidity Facility . Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances to the Borrower from time to time on any Business Day during the Liquidity Availability Period in an amount for each such Borrowing not to exceed such Lender’s Unused Liquidity Revolving Credit Commitment at such time. Within the limits of each Lender’s Unused Liquidity Revolving Credit Commitment, amounts borrowed under this Section 2.01(d ) and repaid or prepaid may be reborrowed.

(e) The Liquidity Facility Letters of Credit . Each Liquidity Issuing Bank agrees, on terms and conditions hereinafter set forth, to issue (or cause its Affiliate that is a commercial bank to issue on its behalf) Letters of Credit (each a “ Liquidity Letter of Credit ”) in U.S. Dollars for the account of the Borrower from time to time on any Business Day during the Liquidity Availability Period in an aggregate Available Amount (i) for all Liquidity Letters of Credit issued by such Liquidity Issuing Bank not to exceed at any time its Liquidity Issuing Bank Fronting Amount at such time and (ii) for each such Liquidity Letter of Credit not to exceed an amount equal to the aggregate Unused Liquidity Revolving Credit Commitments of the Liquidity Lenders at such time.

SECTION 2.02. Borrowings .

(a) Each of the Capital Expenditure Loan Borrowings, Energy Hedging Loan Borrowings and Liquidity Loan Borrowings shall be made upon the delivery by the Borrower of an irrevocable Borrowing Request (or telephonic or email notice promptly confirmed by delivery of an irrevocable Borrowing Request) to the Facility Agent (which shall give to each Lender prompt notice thereof by facsimile transmission), given no later than 1:00 p.m., New York City time, at least four (4) Business Days prior to the requested date of any Capital Expenditure Loan Borrowing, Energy Hedging Loan Borrowing or Liquidity Loan Borrowing; provided that if such Loan is to be made as an Alternate Base Rate Loan, such notice shall be so delivered no later than 1:00 p.m., New York City time, at least one (1) Business Day prior to the requested date of any Capital Expenditure Loan Borrowing, Energy Hedging Loan Borrowing or Liquidity Loan Borrowing. Each such Borrowing Request shall specify (i) whether the Borrower is requesting a Capital Expenditure Loan Borrowing, Energy Hedging Loan Borrowing or Liquidity Loan Borrowing, (ii) the requested date of such Borrowing (which shall be a Business

 

Day), (iii) in the case of a Capital Expenditure Loan Borrowing, Energy Hedging Loan Borrowing or Liquidity Loan Borrowing, whether the related Capital Expenditure Loan, Energy Hedging Loan or Liquidity Loan is to be made as an Alternate Base Rate Loan or a LIBO Rate Loan, (iv) if the related Loan is to be made as a LIBO Rate Loan, the initial Interest Period applicable to such Borrowing, and (v) the aggregate principal amount of Loans to be borrowed (and, subject to the terms and conditions set forth herein, the principal amount to be borrowed from each Lender shall be its ratable share of such aggregate principal amount, based upon the respective Commitments of each of the Lenders at such time).

(b) Borrowings of any Capital Expenditure Loans, Energy Hedging Loans and Liquidity Loans shall be in minimum amounts of $1,000,000 and increments of $500,000 in excess thereof; provided that with respect to each Facility, (i) there shall be no more than sixty (60) Borrowings, and (ii) there shall be no more than five (5) different Interest Periods at any one time for each such Facility.

(c) In the case of each Borrowing, each Lender shall make the amount of the Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds not later than 11:00 a.m., New York City time, to the account of the Facility Agent most recently designated by it for such purpose by notice to the Lenders. Upon satisfaction of the applicable conditions set forth in Section 4.02 and Section 4.03 , the Facility Agent shall make all funds so received available not later than 1:00 p.m., New York City time, by wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Facility Agent by the Borrower.

(d) The failure of any Lender to make the Loan to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the date of any Borrowing.

SECTION 2.03. Prepayments; Reduction and Termination of Commitments .

(a) Optional . The Borrower may, upon notice to the Facility Agent, at any time or from time to time voluntarily prepay the Loans and/or terminate the Commitments in whole or in part ( provided , however , prior to the Financial Closing Date, the Borrower shall be permitted to reduce the Commitments in part but not in whole) without premium or penalty subject however to (x) any breakage costs due in accordance with Section 2.07 and (y) the payment of any accrued Commitment Fees and the fees set forth in the Fee Letters; provided that (i) in the case of LIBO Rate Loans, such notice must be received by the Facility Agent not later than 11:00 a.m., New York City time, three (3) Business Days prior to any date of prepayment or termination, (ii) in the case of Alternate Base Rate Loans, such notice must be received by the Facility Agent not later than 11:00 a.m., New York City time, one (1) Business Day prior to any date of prepayment or three (3) Business Days prior to any date of termination and (iii) any partial prepayment of the Loans shall be in an aggregate minimum amount of $500,000 and in integral multiples of $500,000 in excess thereof, or if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment or termination and the Type(s) of Loans to be prepaid and/or Commitments to be terminated. The

 

Facility Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s ratable share of such prepayment or termination. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Each prepayment of the Loans pursuant to this Section 2.03(a) shall be paid to the Lenders in accordance with their respective ratable share.

(b) Mandatory . (i) The Borrower shall be required to prepay all or a portion of the Loans and/or reduce the Commitments, in each case as provided in clause (ii) below:

(A) unless otherwise agreed by the Majority Lenders, the Borrower shall prepay the Loans in full and terminate the Commitments upon the occurrence of a Change of Control after the Financial Closing Date;

(B) unless otherwise agreed by the Lenders, within three (3) Business Days after any date on which any Operating Company Group Member receives Net Cash Proceeds of any Casualty Event occurring after the Financial Closing Date to the extent that such Net Cash Proceeds exceed $5,000,000 individually or in the aggregate in any fiscal year; provided that the foregoing shall not apply (1) to proceeds under business interruption insurance, (2) to the Net Cash Proceeds of any Casualty Event required to be applied otherwise under the terms and conditions of Existing Indebtedness, the Operating Company Facilities or Permitted Refinancing Indebtedness or, in the case of any such Net Cash Proceeds received by the Borrower or its Subsidiaries, applicable Law, (3) to the extent that (I) the Borrower advises the Facility Agent at the time of the receipt of the relevant Net Cash Proceeds that it intends to use such Net Cash Proceeds to repair or replace the Property subject to such Casualty Event or to reinvest in Utility Capital Expenditures, (II) such Net Cash Proceeds are held by the Borrower or the applicable Operating Company Subsidiary in a segregated investment or other account until so used to repair or replace such Property or invest in such Utility Capital Expenditures and (III) such Net Cash Proceeds are committed to be applied to repair or replace such Property (or invest in Utility Capital Expenditures) within one hundred and eighty (180) days of the receipt of such Net Cash Proceeds (it being understood that, in the event Net Cash Proceeds from more than one Casualty Event are held by the Borrower or the applicable Operating Company Subsidiary such Net Cash Proceeds shall be deemed to be utilized in the same order in which such Net Cash Proceeds were so received and, accordingly, any such Net Cash Proceeds not so committed to be applied within one hundred and eighty (180) days of receipt or not so applied within twelve (12) months of receipt shall be forthwith applied to the prepayment of Loans as provided above), (4) with respect to Net Cash Proceeds which the CFO certifies are being paid to the Borrower or the applicable Operating Company Group Member to reimburse the Borrower or Operating Company Group Member (as applicable) for expenditures previously incurred to repair or replace the Property which was the subject of such Casualty Event, (5) to the extent that a Dividend Prohibition applies with respect to the applicable Operating Company Subsidiary, except that if and to the extent that such Dividend Prohibition subsequently ceases to apply the prepayment otherwise required by this clause (B) shall be reinstated, or (6) to the extent that such prepayment would reasonably be likely to have an adverse impact on (I) any of the Borrower’s regulatory

 

approvals (or any applications for or renewals thereof), (II) the Borrower’s standing with any applicable regulatory agency, (III) the ability of the Borrower to achieve debt to equity ratios consistent with those of similarly situated companies in the conduct of the Borrower’s business, or (IV) the rating of any of the Borrower’s indebtedness or the ability of the Borrower to obtain credit in the ordinary course of its business.

(C) (I) The Liquidity Letter of Credit Sublimit shall be permanently reduced from time to time on the date of each reduction in the Liquidity Facility by the amount, if any, by which the amount of the Liquidity Letter of Credit Sublimit exceeds the Liquidity Facility after giving effect to such reduction of the Liquidity Facility; and (II) The Energy Hedging Letter of Credit Sublimit shall be permanently reduced from time to time on the date of each reduction in the Energy Hedging Facility by the amount, if any, by which the amount of the Energy Hedging Letter of Credit Sublimit exceeds the Energy Hedging Facility after giving effect to such reduction of the Energy Hedging Facility.

(ii) (A) In the case of any required prepayment or reduction of the Facilities pursuant to Section 2.03(b)(i) on or after the Financial Closing Date the applicable amount determined pursuant to Section 2.03(b)(i) shall be applied on the date of receipt with respect to Net Cash Proceeds, the applicable Quarter End Date or such other date specified in Section 2.03(b)(i) and shall be applied first , ratably to the Unreimbursed Letter of Credit Amounts, second , ratably to prepay the outstanding Loans and reduce the Commitments in a corresponding amount, and, third , to Cash Collateralize the remaining LC Exposure. Upon the drawing of any Letter of Credit that has been Cash Collateralized, the funds held as Cash Collateral shall be applied (without any further action by or notice to or from the Borrower) to reimburse the relevant Issuing Bank or the Lenders, as applicable; and

(D) The Borrower shall notify the Facility Agent in writing of any mandatory prepayment of the Facilities required to be made pursuant to this Section 2.03(b) at least three (3) Business Days prior to the date of such prepayment. Each such notice shall specify the date of such prepayment and provide a reasonably detailed calculation of the amount of such prepayment. The Facility Agent will promptly notify each Lender of the contents of the Borrower’s prepayment notice and of such Lender’s ratable share of the prepayment.

(c) Accrued Interest; Funding Losses, Etc . All prepayments under this Section 2.03 shall be made together with all accrued and unpaid interest on the amount to be prepaid and, in the event that any such prepayment is made on a date other than the last day of an Interest Period therefor, any amounts owing in respect of such Loan pursuant to Section 2.07(b) .

SECTION 2.04. Repayment of Loans . The Borrower shall repay to the Facility Agent for the ratable account of the Lenders on the Final Maturity Date, the aggregate principal amount of the Loans outstanding on such date.

 

SECTION 2.05. Interest .

(a) Subject to the provisions of Section 2.05(b) the Borrower hereby agrees to pay to the Facility Agent for the account of each Lender interest on the unpaid principal amount of each Loan made by such Lender for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full at the rate equal to the Interest Rate.

(b) Notwithstanding the provisions of Section 2.05(a) to the contrary, the Borrower hereby agrees that all past due amounts hereunder shall bear interest at a rate per annum equal to the Default Rate for the period from and including the date such past due amount was due to but excluding the date such amount is paid in full. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

(d) Notices by the Borrower to the Facility Agent of a change in the duration of Interest Periods or of the conversion of an Alternate Base Rate Loan to a LIBO Rate Loan or of a LIBO Rate Loan to an Alternate Base Rate Loan, shall be irrevocable and shall be effective only if received by the Facility Agent not later than 1:00 p.m., New York City time, three (3) Business Days prior to the first day of each subsequent Interest Period. Each such notice shall specify the Loans to which such Interest Period is to relate. The Facility Agent shall promptly notify the Lenders of the contents of each such notice.

SECTION 2.06. Fees .

(a) Commitment Fee . The Borrower shall pay to the Facility Agent for the ratable account of each Lender a commitment fee (the “ Commitment Fee ”) on the daily average unutilized amount of such Lender’s aggregate Commitments (as such Commitments may be reduced from time to time under Section 2.03 ) at a rate per annum equal to the Commitment Fee rate set forth in the definition of “Applicable Margin” at such time, for the period from and including the Signing Date to but excluding the Final Maturity Date; provided that any Commitment Fee accrued with respect to any of the Commitments of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender except to the extent that such Commitment Fee shall otherwise have been due and payable by the Borrower prior to such time and; provided , further , that no Commitment Fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. The Commitment Fee shall accrue at all times from and including the Signing Date to but excluding the Final Maturity Date. The accrued Commitment Fee shall become due and payable upon the Completion Date (whether or not the Merger is financed by proceeds from the Facilities), and thereafter shall become payable in arrears on each Quarter End Date commencing on the first Quarter End Date following the Financial Closing Date until the earlier of the date all remaining Commitments are terminated or the Final Maturity Date. If the Merger Agreement is

 

terminated, any Commitment Fee accrued from and including the Signing Date to but excluding such termination date shall become due and payable solely to the extent of any break up, topping or similar fee or the payment of any other form of consideration (including reimbursement of expenses) received by Puget Holdings , Parent Holdco (to the extent such Person is not Puget Holdings), the Parent, the Holding Company or the Borrower prior to the application of such fee or other consideration for any other uses; provided, however, if the amount of such fee or other consideration is insufficient to pay the Commitment Fee accrued until the date of payment pursuant to this Section 2.06 and any commitment fees owed to the lenders committed to the facilities of the Holding Company, then a portion of such fee or other consideration shall be applied to the payment of the Commitment Fee under this Section 2.06 and a portion to the payment of commitment fees owed to the lenders committed to the facilities of the Holding Company, on a pro rata basis . Notwithstanding the foregoing, prior to the Facility Agent’s receipt of evidence of the ratings referred to in Section 4.02(g) , the Commitment Fee shall be 0.30%  per annum .

(b) The Borrower agrees to pay (i) to the Facility Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the Applicable Margin for LIBO Rate Loans on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Financial Closing Date to but excluding the later of the date on which such Lender’s Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to any Issuing Bank of any such Letter of Credit a fronting fee, which shall accrue at the rate of 0.125%  per annum on the average daily amount of the LC Exposure with respect to such Letter of Credit (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Financial Closing Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure with respect to such Letter of Credit, as well as such Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of such Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Financial Closing Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to any Issuing Bank pursuant to this paragraph shall be payable within ten (10) days after written demand.

(c) Other Fees . The Borrower shall pay such fees as shall have been separately agreed upon in writing including, without limitation, pursuant to the Fee Letters, in the amounts and at the times so specified.

SECTION 2.07. Computation of Interest and Fees .

(a) All computations of interest and fees shall be made on the basis of a three-hundred-and-sixty (360) day year and actual days elapsed, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in

 

each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid; provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.09(a) , bear interest for one (1) day. Each determination by the Facility Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

(b) In the event of (i) the payment of any principal of any Loan other than on the last day of the Interest Period for that Loan (including under Section 2.03 or as a result of an Event of Default or otherwise), (ii) the failure to borrow on the date specified in any Borrowing Request or failure to repay or prepay any Loan on any scheduled repayment or prepayment date or (iii) the assignment of any Loan other than on the last day of its Interest Period as a result of a request by the Borrower pursuant to Section 3.06 , then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to any such event. Such loss, cost or expense to any Lender shall be deemed to include an amount reasonably determined by such Lender to be the excess, if any, of (x) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred for the period from the date of such event to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, for the period that would have been the Interest Period for such Loan) over (y) the amount of interest that would accrue on such principal amount for that period at the interest rate that such Lender would bid were it to bid, at the commencement of that period, for Dollar deposits of a comparable amount and period from other banks in the eurodollar market; provided , however , that such amount shall exclude any anticipated profit of such Lender. The Borrower shall, upon demand of any Lender (with a copy to the Facility Agent) which demand shall be accompanied by a calculation, in reasonable detail, of the amounts so demanded, promptly pay such Lender the amounts due and payable hereunder.

SECTION 2.08. Evidence of Indebtedness .

(a) The Borrowings provided by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and evidenced by one or more entries in the Register maintained by the Facility Agent, in each case in the ordinary course of business. The accounts or records maintained by the Facility Agent and each Lender shall be prima facie evidence absent manifest error of the amount of the Borrowings provided by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. Each Issuing Bank’s Energy Hedging Issuing Bank Fronting Amount or Liquidity Issuing Bank Fronting Amount (and any assignment thereof), as applicable, shall be evidenced by one or more accounts or records maintained by such Issuing Bank and evidenced by one or more entries in the Register maintained by the Facility Agent. The accounts or records maintained by the Facility Agent of an Issuing Bank’s Energy Hedging Issuing Bank Fronting Amount or Liquidity Issuing Bank Fronting Amount, as applicable, shall be prima facie evidence absent manifest error of such amount. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Facility Agent in respect of the foregoing matters, the accounts and records of the Facility Agent shall control in the absence of manifest error. Upon the request of any Lender

 

made through the Facility Agent, the Borrower shall execute and deliver to such Lender (through the Facility Agent) a Note, payable to such Lender, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.

(b) Entries made in good faith by the Facility Agent in the Register pursuant to Section 2.08(a) , and by each Lender in its account or accounts pursuant to Section 2.08(a) , shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement and the other Financing Documents, absent manifest error; provided that the failure of the Facility Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the Obligations of the Borrower under this Agreement and the other Financing Documents.

SECTION 2.09. Payments Generally .

(a) All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. All payments by the Borrower hereunder shall be made by wire transfer in immediately available funds to the Facility Agent (or to the relevant Issuing Bank, in the case of fees payable to it), for the account of the respective Lenders to which such payment is owed, not later than 2:00 p.m., New York City time, on the date specified herein. The Facility Agent will promptly distribute to each Lender its ratable share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Facility Agent after 2:00 p.m., New York City time, shall in each case be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.

(b) Unless the Borrower or any Lender has notified the Facility Agent, prior to the date any payment is required to be made by it to the Facility Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Facility Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If, and to the extent that, such payment was not in fact made to the Facility Agent in immediately available funds, then:

(i) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Facility Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Facility Agent to such Lender to the date such amount is repaid to the Facility Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and

(ii) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Facility Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made

 

available by the Facility Agent to the Borrower to the date such amount is recovered by the Facility Agent (the “ Compensation Period ”) at a rate per annum equal to the Federal Funds Rate from time to time in effect. When such Lender makes payment to the Facility Agent (together with all accrued interest thereon), then such payment amount (excluding the amount of any interest which may have accrued and been paid in respect of such late payment) shall constitute such Lender’s Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Facility Agent’s demand therefor, the Facility Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Facility Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Facility Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder.

A notice of the Facility Agent to any Lender or the Borrower with respect to any amount owing under this Section 2.09(b) shall be conclusive, absent manifest error.

(c) If any Lender makes available to the Facility Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II , and such funds are not made available to the Borrower by the Facility Agent because the conditions to the applicable Borrowing set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Facility Agent shall promptly return such funds to such Lender, without interest.

(d) The obligations of the Lenders hereunder to make Loans and purchase participations in Letters of Credit are several and not joint. The failure of any Lender to make any Loan or to fund any such participation on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan or purchase its participation.

(e) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

(f) Whenever any payment received by the Facility Agent under this Agreement or any of the other Financing Documents is insufficient to pay in full all amounts due and payable to the Facility Agent and the Lenders under or in respect of this Agreement and the other Financing Documents on any date, such payment shall be distributed by the Facility Agent and applied by the Facility Agent and the Lenders in the order of priority set forth in Section 8.03 . If the Facility Agent receives funds for application to the Obligations of the Borrower under or in respect of the Financing Documents under circumstances for which the Financing Documents do not specify the manner in which such funds are to be applied, the Facility Agent may, but at the direction of Majority Lenders shall, elect to distribute such funds to each of the Lenders in accordance with such Lender’s ratable share of the sum of the Outstanding Amount of all Loans and other Obligations outstanding at such time in repayment or prepayment of such of the outstanding Loans or other Obligations then owing to such Lender.