EXECUTION COPY
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WARRANT AGREEMENT
By and Among
PG&E CORPORATION
and
LB I GROUP INC.
and
EACH OTHER ENTITY NAMED
ON THE SIGNATURE PAGES HEREOF
__________________________
Dated as of June 25, 2002
__________________________
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TABLE OF CONTENTS
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ARTICLE I Definitions ...................................................................................... 1
SECTION 1.01. Definitions .......................................................................... 1
ARTICLE II Warrant Certificates ............................................................................ 5
SECTION 2.01. Form of Warrant Certificates. ........................................................ 5
SECTION 2.02. Execution and Delivery of Warrant Certificates. ...................................... 6
SECTION 2.03. Loss or Mutilation .................................................................. 6
ARTICLE III Representations, Warranties and Covenants ...................................................... 7
SECTION 3.01. Representations Warranties and Covenants of the Company .............................. 7
SECTION 3.02. Representations Warranties and Covenants of the Initial Holders ...................... 9
SECTION 3.03. Payments of Cash Dividends ........................................................... 10
ARTICLE IV Exercise Terms .................................................................................. 11
SECTION 4.01. Terms of Warrants; Exercise of Warrants .............................................. 11
SECTION 4.02. Adjustment of Exercise Price and Number of Warrant Shares Issuable. .................. 12
SECTION 4.03. Manner of Exercise. .................................................................. 19
SECTION 4.04. Transfer of Warrants and Warrant Shares .............................................. 19
SECTION 4.05. Fractional Warrant Shares ............................................................ 20
SECTION 4.06. Reservation of Warrant Shares ........................................................ 20
SECTION 4.07. Compliance with Law .................................................................. 20
SECTION 4.08. Payment of Taxes ..................................................................... 20
SECTION 4.09. Failure to Deliver Shares ............................................................ 20
ARTICLE V Transfer Restrictions ............................................................................ 21
SECTION 5.01. Restrictions on Transfers of the Warrants and the Warrant Shares ..................... 21
SECTION 5.02. Notation; Removal of Legend .......................................................... 22
SECTION 5.03. Surrender of Warrant Certificates. ................................................... 22
ARTICLE VI Miscellaneous ................................................................................... 22
SECTION 6.01. SEC Reports and other Financial Information .......................................... 22
SECTION 6.02. Persons Benefiting ................................................................... 23
SECTION 6.03. Amendments and Waivers ............................................................... 23
SECTION 6.04. Notices ............................................................................. 23
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SECTION 6.05. Governing Law; Waiver of Jury Trial; Submission of Jurisdiction ........................ 24
SECTION 6.06. Successors and Assigns ................................................................. 25
SECTION 6.07. Severability ........................................................................... 25
SECTION 6.08. Entire Agreement ....................................................................... 25
SECTION 6.09. Counterparts ........................................................................... 26
SECTION 6.10. Headings ............................................................................... 26
SECTION 6.11. Remedies ............................................................................... 26
SECTION 6.12. Waiver ................................................................................. 26
SECTION 6.13. Register ............................................................................... 26
Exhibit A Form of Warrant Certificate
Exhibit B Form of Transfer Restriction Legend
Exhibit C Form of Accredited Investor Certificate
Transferee Letter of Representation
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WARRANT AGREEMENT, dated as of June 25, 2002, by and among PG&E
Corporation, a California corporation (the "Company"), LB I Group Inc., a
Delaware corporation, and each other entity named on the signature pages hereof
(each, an "Initial Holder" and collectively, the "Initial Holders").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the Company and the Initial Lender (as defined below) are
parties to the Credit Agreement (as defined below);
WHEREAS, as a condition to the effectiveness of the Credit Agreement,
the Company desires to issue to each Initial Holder the warrants reflected on
the schedules attached hereto for each such Initial Holder (each, a "Warrant",
which term shall include warrants issued upon transfer, division, combination
of, or in substitution for, any Warrant) which will, subject to adjustment as
provided herein, entitle the Holders thereof to purchase shares of common stock,
no par value (the "Common Stock"), of the Company on the terms described herein
(the Common Stock issuable upon exercise of the Warrants being referred to
herein as the "Warrant Shares");
WHEREAS, in order to induce the Initial Lender to enter into the
Credit Agreement, the Company has agreed to provide to the Initial Holders,
among other things, the Warrants and the registration rights for the Warrant
Shares as set forth in the Equity Registration Rights Agreement, dated as of the
date hereof (the "Registration Rights Agreement"), among the Company and the
Initial Holders;
NOW, THEREFORE, intending to be legally bound, each party hereto
agrees as follows for the benefit of the other parties and for the equal and
ratable benefit of the Holders of the Warrants:
ARTICLE I
Definitions
SECTION 1.01. Definitions. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement and the principles of construction set forth in Appendix A to the
Credit Agreement shall apply to this Agreement.
"Agreement" shall mean this Warrant Agreement, as the same may be
amended, modified or supplemented from time to time.
"Assignee" shall have the meaning set forth in Section 5.01(b)
hereof.
"Board" shall mean the board of directors of the Company or any
committee thereof duly authorized to act on behalf of such board of directors.
"Business Day" shall mean any day other than a Saturday or Sunday or
any day on which banking institutions in the City of New York or the City of San
Francisco are authorized or obligated by law or regulation to close.
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"Cash Dividends" means periodic, special, extraordinary or
non-recurring cash dividends on the Company's Common Stock as declared by the
Company's Board of Directors.
"Cashless Exercise" shall have the meaning set forth in Section 4.01
hereof.
"Common Stock" shall have the meaning set forth in the second recital
hereof.
"Company" shall have the meaning set forth in the first paragraph
hereof, and its successors and assigns.
"Credit Agreement" shall mean the Amended and Restated Credit
Agreement, dated as of the date hereof, among the Company, the Initial Lender
and the other Lenders party thereto, Xxxxxx Commercial Paper Inc., as
Administrative Agent and Xxxxxx Brothers Inc., as Lead Arranger and Book
Manager, as such agreement may be subsequently amended from time to time
pursuant to the provisions thereof.
"Current Market Price" of a Warrant Share as of any date shall mean,
except as hereinafter provided, the average of the daily market prices for the
Common Stock of the Company for the 20 consecutive trading days preceding such
date. The market price for each such day shall be the last sale price on such
day as reported on the New York Stock Exchange consolidated tape, or, if such
Common Stock of the Company is not listed on the New York Stock Exchange, or
reported on such consolidated tape, then the last sale price on such day on the
principal domestic stock exchange on which such Common Stock of the Company is
then listed or admitted to trading, or, if no sale takes place on such day on
such exchange, the average of the closing bid and asked prices on such day as
officially quoted on such exchange, or, if such Common Stock of the Company is
not then listed or admitted to trading on any domestic stock exchange but is
quoted on the Nasdaq Stock Market's National Market, then the Current Market
Price for each such trading day shall be the last sale price on such day as
quoted on the Nasdaq Stock Market's National Market, or, if no sale takes place
on such day or if such Common Stock of the Company is neither listed or admitted
to trading on any domestic stock exchange nor quoted on such day on the Nasdaq
Stock Market's National Market, then the Current Market Price for each such
trading day shall be the average of the reported closing bid and asked price
quotations on such day in the over-the-counter market, as reported by the Nasdaq
Stock Market, or, if not so reported, as furnished by the National Quotation
Bureau, Inc., or, if such firm at the time is not engaged in the business of
reporting such prices, as furnished by any similar firm then engaged in such
business as selected by the Company, or, if there is no such firm, as furnished
by any member of the National Association of Securities Dealers, Inc. selected
by the Company with the written approval of a Majority in Interest of Evaluating
Holders.
If at any time the Common Stock of the Company is not listed on any
domestic exchange or quoted in the domestic over-the-counter market or not
registered under the Exchange Act, the Current Market Price of a Warrant Share
shall be the fair market value per share of the Common Stock of the Company as
determined by a panel of independent appraisers (the "Appraisers") who shall be
investment banks experienced in the evaluation of the value of securities of a
corporation of a type similar to the Company. Initially, such panel shall be
comprised of two Appraisers, one selected by the Company and one selected by the
relevant Holder or a Majority in Interest of Evaluating Holders, as applicable.
In making such
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determination, the Appraisers shall not take into account any discount
attributable to the minority status of the Warrants and/or Warrant Shares, or
any other minority interest, or the illiquidity of the Warrants and/or Warrant
Shares.
In the event the Appraisers are unable to agree upon the Current
Market Price within 10 days of their selection, then the two Appraisers shall
select a third independent Appraiser who shall be an investment bank experienced
in the evaluation of the value of securities of a corporation of a type similar
to the Company to determine the Current Market Price within 15 days of its
selection. A determination by such third Appraiser of the Current Market Price
shall be final and binding upon the Company and the Holders.
The Company shall pay the fees and expenses of the Appraiser it
appoints. The relevant Holder or Evaluating Holders, as applicable, shall pay
the fees and expenses of the Appraiser it, or they, appoint; provided that, when
applicable, such fees and expenses shall be divided pro rata among the
Evaluating Holders in proportion to their respective ownership interests in the
securities being evaluated.
Should a third Appraiser be appointed, each of the Company and the
relevant Holder (or Evaluating Holders, where applicable) shall pay 50% of the
expense associated with such appointment. Where applicable, the portion of the
fees and expenses payable by the Evaluating Holders shall be divided pro rata
among such Evaluating Holders in proportion to their respective ownership
interests in the securities being evaluated.
"Dividend" shall mean any dividend (including Cash Dividends) or
other distribution on the Common Stock whether in the form of cash, evidences of
the Company's indebtedness, or any other assets, properties or securities (other
than shares of Common Stock) or any options, warrants or other rights to
subscribe for or to purchase any of the foregoing.
"Evaluating Holders" shall mean, at any time and from time to time,
the Holders of the securities whose Current Market Price is being ascertained at
such time.
"Excess Shares" shall have the meaning set forth in Section 4.01
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated pursuant
thereunder.
"Exercise Limitations" shall have the meaning set forth in Section
4.01 hereof.
"Exercise Price" shall have the meaning set forth in Section 4.01
hereof.
"Expiration Date" shall have the meaning set forth in Section 4.01
hereof.
"4.9% Limitation" shall have the meaning set forth in Section 4.01
hereof.
"Governmental Authority" shall mean any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of or within the United
States of America or foreign.
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"Holder" shall mean the Initial Holders and any Assignee, designee or
transferee of the Warrants or any portion thereof or any Warrant Shares.
"Initial Holders" shall have the meaning set forth in the first
paragraph hereof.
"Initial Lender" shall mean Xxxxxx Commercial Paper Inc.
"Majority in Interest of Evaluating Holders" shall mean, at any time
and from time to time, the Holders of more than a 50% interest in the Warrant
Shares whose Current Market Price is being ascertained at such time.
"Material Adverse Change" shall mean, with respect to any Person, a
material adverse change in the condition (financial or otherwise), results of
operations, business, Properties or liabilities of such Person.
"Material Adverse Effect" shall mean any event, circumstance or
condition which is reasonably likely to (A) have a material adverse effect on
the condition (financial or otherwise), results of operations, business,
Properties, or liabilities of the Company, as the case may be, (B) materially
and adversely affect the ability of the Company, as the case may be, to perform
its obligations under this Agreement or (C) materially and adversely affect the
rights and remedies of the Holders under this Agreement.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof
"Preferred Stock" shall mean, with respect to any Person, any capital
stock issued by such Person which has a preference over such Person's Common
Stock.
"Proceeding" shall mean an action, claim, suit or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Registration Rights Agreement" shall have the meaning set forth in
the third recital hereof, as the same may be amended, modified or supplemented
from time to time.
"Register" shall have the meaning set forth in Section 6.13 hereof.
"Required Holders" shall mean the Holders of at least a 40% interest
in the Warrants or the Warrant Shares.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Share Delivery Default" shall have the meaning set forth in Section
4.09 hereof.
"Shareholder Limitation" shall have the meaning set forth in Section
4.01 hereof.
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"13D Person" shall mean any "person" as such term is defined in
Section 13(d)(3) of the Exchange Act.
"Transfer Agent" shall have the meaning set forth in Section 4.04
hereof.
"VWAP" shall mean, for any security as of any date, the
dollar-weighted average price for such security on the principal United States
securities exchange on which such security is traded (which is currently the New
York Stock Exchange with respect to the Common Stock) during the period
beginning at 9:30 a.m. (New York time) (or such other time as such exchange
publicly announces is the official open of trading), and ending at 4:00 p.m.
(New York time) (or such other time as such exchange publicly announces is the
official close of trading) as reported by Bloomberg Financial Markets (or any
successor thereto, "Bloomberg") through its "Volume at Price" functions, or, if
the foregoing does not apply, the dollar weighted average price of such security
in the over-the counter-market on the electronic bulletin board for such
security during the period beginning at 9:30 a.m. (New York time) (or such other
time as such exchange publicly announces is the official open of trading), and
ending at 4:00 p.m. (New York time) (or such other time as such exchange
publicly announces is the official close of trading) as reported by Bloomberg,
or if no dollar weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and
lowest closing ask price of any of the market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the VWAP
cannot be calculated for such security on such date on any of the foregoing
bases, the VWAP of such security on such date shall be the fair market value as
mutually determined by the Company and the Holders of the Securities
representing a majority of the aggregate principal amount of the Securities
outstanding. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during
such period.
"Warrants" shall have the meaning set forth in the second recital
hereof.
"Warrant Agreement" shall mean this Agreement.
"Warrant Certificates" shall have the meaning set forth in Section
2.01 hereof.
"Warrant Number" shall have the meaning set forth in Section 4.02
hereof.
"Warrant Shares" shall have the meaning set forth in the second
recital hereof.
ARTICLE II
Warrant Certificates
SECTION 2.01. Form of Warrant Certificates. Certificates representing
the Warrants (the "Warrant Certificates") shall be in registered form only and
substantially in the form attached hereto as Exhibit A. The Warrant Certificates
shall be dated the date of their issuance and signed by the Company and shall
have such insertions as are appropriate or required or permitted by this
Agreement and may have such letters, numbers or other marks of identification
and such legends and endorsements typed, stamped, printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the
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provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation pursuant thereto, or to conform to usage.
The terms and provisions contained in the form of Warrant Certificate
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Agreement.
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods, all as
determined by the officers of the Company executing such Warrant Certificates,
as evidenced by such officers' execution of such Warrant Certificates.
Pending the preparation of definitive Warrant Certificates, temporary
Warrant Certificates may be issued, which may be printed, lithographed,
typewritten, mimeographed or otherwise produced, and which will be substantially
of the tenor of the definitive Warrant Certificates in lieu of which they are
issued.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay. After
the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates to the Company, without charge
to the Holder. Until so exchanged the temporary Warrant Certificates shall in
all respects be entitled to the same benefits under this Agreement as definitive
Warrant Certificates.
SECTION 2.02. Execution and Delivery of Warrant Certificates. Warrant
Certificates each evidencing the number of Warrants reflected on the schedules
attached hereto to be issued to each Initial Holder shall be executed on the
date hereof by the Company and delivered to each Initial Holder. In respect of
the Tranche B Loans, the Company shall issue an aggregate number of Warrants
equal to 10% of the commitment amount of such Tranche B Loans, divided by the
average of the VWAP of the Common Stock on the New York Stock Exchange for each
of the five trading days prior to the Closing Date
The Warrant Certificates shall be executed manually on behalf of the
Company by its Chief Executive Officer, President, any Senior Vice President or
any Vice President. In case any officer of the Company whose signature shall
have been placed upon any of the Warrant Certificates shall cease to be such
officer of the Company before the issuance and delivery thereof, such Warrant
Certificates may, nevertheless, be issued and delivered with the same force and
effect as though such person had not ceased to be such officer of the Company.
SECTION 2.03. Loss or Mutilation. In case any of the Warrant
Certificates shall be mutilated, lost, stolen or destroyed, the Company, at its
expense, shall issue, execute and deliver to the Holder of the lost, stolen,
destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof,
a new Warrant Certificate of the same tenor and for a like aggregate number of
Warrants, but only upon receipt of evidence satisfactory to the Company of such
loss, theft, mutilation or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to the Company; provided,
however, that if the owner of the same is the Initial Holders or any affiliate
thereof or an institutional lender or investor, its own agreement of
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indemnity shall be deemed to be satisfactory. Every new Warrant Certificate
executed and delivered pursuant to this Section 2.03 in lieu of any lost,
stolen, mutilated or destroyed Warrant Certificate shall constitute a
contractual obligation of the Company, whether or not the allegedly lost, stolen
or destroyed Warrant Certificates shall be at any time enforceable by anyone,
and shall be entitled to the benefits of this Agreement equally and
proportionately with any and all other Warrant Certificates duly executed and
delivered hereunder. The provisions of this Section 2.03 are exclusive and shall
preclude (to the extent lawful) all other rights or remedies with respect to the
replacement of mutilated, lost, stolen, or destroyed Warrant Certificates.
ARTICLE III
Representations, Warranties and Covenants
SECTION 3.01. Representations Warranties and Covenants of the
Company. The Company represents and warrants to, and agrees with, the Holders as
follows:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the state of California.
(b) The Company has the corporate power and authority (i) to execute,
deliver and perform its obligations under this Agreement and the Registration
Rights Agreement, (ii) to issue and deliver the Warrants, (iii) to issue and
deliver the Warrant Shares upon the due exercise of any Warrant, and (iv) to
cause the Transfer Agent to record the issuance of the Warrant Shares issuable
upon due exercise of any Warrant.
(c) This Agreement and the Registration Rights Agreement have been
duly executed and delivered by the Company and, assuming the due authorization,
execution and delivery by the Initial Holders, each of this Agreement and the
Registration Rights Agreement constitutes a legally valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing, and except with respect to any rights of indemnification and
contribution hereunder, where enforcement hereof may be limited by federal or
state securities laws, the policies underlying such laws and public policy
considerations.
(d) The Warrants have been duly authorized and issued by the Company
and constitute legally valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing, and except with respect
to any rights of indemnification and contribution hereunder, where enforcement
hereof may be limited by federal or state securities laws, the policies
underlying such laws and public policy considerations.
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(e) Each of (i) the execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company, (ii) the
offering, issuance and delivery of the Warrants and the Warrant Shares issuable
upon the exercise of any Warrant, and (iii) the fulfillment of and compliance
with the terms and provisions of this Agreement (A) have been duly authorized by
all requisite corporate and, if necessary, stockholder action of the Company and
(B) will not (1) conflict with, violate or constitute a default under (x) any
provision of the articles of incorporation, by-laws or other constitutive
documents of the Company, (y) any law, statute, rule or regulation or any order
of any Governmental Authority applicable to the Company or any of its
subsidiaries or properties or (z) any provision of any indenture or other
material agreement or other material instrument to which the Company or any of
its subsidiaries are a party or by which they or any of their respective
properties are or may be bound, (2) be in conflict with, result in a breach of
or constitute (alone or with notice or lapse of time or both) a default under,
or give rise to any right to accelerate or to require the prepayment, repurchase
or redemption of any obligation under, any such indenture, agreement or other
instrument or (3) result in the creation or imposition of any Lien upon or with
respect to any property or assets now owned or hereafter acquired by the Company
or any of its subsidiaries, except, in each case, where any such conflict,
creation or imposition would not result in a Material Adverse Effect.
(f) No action, consent, waiver, authorization or approval of,
registration or filing with or any other action by any Governmental Authority or
any nongovernmental Person (including, without limitation, any creditor, partner
or shareholder of the Company) is or will be required in connection with (i) the
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by the Company, other than with respect to any filings required
to be made pursuant to the Registration Rights Agreement, (ii) the issuance and
delivery of the Warrants and the Warrant Shares issuable upon the exercise of
any Warrant in accordance with this Agreement, other than with respect to any
filings under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 that may
be required upon the exercise by any Holder of any Warrants, and (iii) the
performance by the Company of its obligations under this Agreement and the
Registration Rights Agreement, other than with respect to any filings required
to be made pursuant to the Registration Rights Agreement, or as a condition to
the legality, validity or enforceability of this Agreement or the Registration
Rights Agreement or the consummation of the transactions contemplated hereby,
other than such authorizations and approvals as have already been obtained and
are in full force and effect.
(g) Except as set forth on Schedule 5.6 to the Credit Agreement,
there are no legal or arbitral proceedings or investigations, or any proceedings
by or before any Governmental Authority or any Person, pending or threatened
against the transactions contemplated by this Agreement or the Registration
Rights Agreement which could reasonably be expected to have a Material Adverse
Effect, and there are no other legal or arbitral proceedings or investigations,
or any proceedings by or before any Governmental Authority or any Person pending
against the Company, LLC, NEG, Inc. or the Significant Subsidiaries which could
reasonably be expected to result in a Material Adverse Change to the Company, or
a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries,
taken as a whole. There are no legal or arbitral proceedings or investigations,
or any proceedings by or before any Governmental Authority or any Person,
pending or threatened which could reasonably be
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expected to have a Material Adverse Effect (other than under clauses (i) and
(ii) of the definition thereof).
(h) Subject to the accuracy of the Initial Holders' representations
set forth in Section 3.02 and, in the case of a transfer of a Warrant or Warrant
Shares, compliance with Article V, the issuance of the Warrants and the
offering, sale and delivery of the Warrants and the Warrant Shares under the
circumstances contemplated by this Agreement constitute exempt transactions
under the registration provisions of the Securities Act, and do not require the
registration of the Warrants or the Warrant Shares under the Securities Act.
(i) The Warrant Shares, when issued and delivered against payment of
the Exercise Price therefor, will be duly authorized, validly issued, fully paid
and nonassessable, and subject to no Liens, taxes, security interests or adverse
claims created by the Company, and such Warrant Shares will not be subject to
the preemptive or similar rights of any securityholder of the Company.
(j) The Company will not amend its Charter Document or enter into any
agreement inconsistent with this Agreement or that would make the Company unable
to comply with the terms of this Agreement.
(k) As of the date hereof, the Company's authorized capital stock
consists of 800,000,000 shares of Common Stock and 85,000,000 shares of
preferred stock including 5,000,000 shares designated as Series A Preferred
Stock. As of 8:00 a.m. (Eastern Standard Time) on the date hereof, 390,696,920
shares of Common Stock were validly issued and outstanding and no shares of
preferred stock were issued and outstanding. Such 390,696,920 shares of Common
Stock have been validly issued, fully paid and non-assessable.
(l) The Company will take no action to increase the par value of the
Common Stock.
SECTION 3.02. Representations Warranties and Covenants of the Initial
Holders. Each Initial Holder represents and warrants to, and agrees with, the
Company, severally and not jointly, as follows:
(a) Such Initial Holder is a knowledgeable, sophisticated and
experienced in business and financial matters and qualifies as an "accredited
investor" as defined in Rule 501(a) of Regulation D and as a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act.
(b) Such Initial Holder is knowledgeable regarding the Company and
has been afforded access to information about the Company and the financial
condition, results of operations, business, property, management and prospects
of the Company sufficient to enable it to evaluate its investment in the
Warrants and the Warrant Shares. Such Initial Holder and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Such Initial
Holder has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Warrants and the Warrant Shares.
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(c) Such Initial Holder understands that its investment in the
Warrants and the Warrant Shares involves a high degree of risk. Such Initial
Holder is able to bear the economic risk of its investment in the Warrants and
the Warrant Shares and is presently able to afford the complete loss of such
investment.
(d) Such Initial Holder is acquiring the Warrants and the Warrant
Shares solely for its own account and not as a nominee or agent for any other
person and not with a view to any distribution thereof in a transaction that
would violate the Securities Act or the securities laws of any State of the
United States or any applicable jurisdiction.
(e) Such Initial Holder has not and will not offer or sell the
Warrants and the Warrant Shares by means of any form of general solicitation or
general advertising within the meaning of Rule 502(c) of Regulation D, including
(i) any advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising in the United States.
(f) Such Initial Holder is a resident of that jurisdiction specified
in its address for notices set forth in the schedules to this Agreement, or, if
different from such address, such other jurisdiction specified in the schedules
to this Agreement.
(g) Such Holder is not acquiring the Warrants with assets of any
"employee benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) that is subject to
Title I of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended.
(h) Assuming the capitalization of the Company set forth in its most
recent report filed under the Exchange Act, such Initial Holder, together with
its "affiliates" (as defined in Rule 144 promulgated under the Securities Act),
is the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange
Act) of not more than 4.9% of the outstanding shares of Common Stock immediately
after the purchase of the Warrants.
The Company and, for purposes of the opinions to be delivered
pursuant to the Credit Agreement, counsel to the Company, General Counsel to the
Company and counsel to the Initial Holders, will rely upon the accuracy and
truth of the foregoing representations and agreements and the Initial Holders
hereby consent to such reliance.
SECTION 3.03. Payments of Cash Dividends. Subject to the record date
provisions described below, the Company shall pay to each holder of Warrants an
amount per Warrant equal to the amount of all Cash Dividends, if any, which
would have been paid by the Company with respect to each share of Common Stock
then issuable upon the exercise of such Warrant if it had been exercised on the
record date for the payment of the cash dividend. Cash Dividends, if any, will
be payable on the payment date of each such Cash Dividend to Holders as of the
record date for determination of the stockholders entitled to receive such Cash
Dividend.
11
ARTICLE IV
Exercise Terms
SECTION 4.01. Terms of Warrants; Exercise of Warrants. The initial
exercise price per share at which Warrant Shares shall be issuable upon the
exercise of a Warrant (the "Exercise Price") shall be equal to $0.01 per share
of Common Stock. Each Warrant shall entitle the Holder thereof, subject to and
upon compliance with the provisions of this Agreement, to purchase from the
Company one share of Common Stock, subject to adjustment pursuant to the terms
of this Agreement.
Subject to the terms of this Agreement, each Holder shall have the
right, which may be exercised commencing on the date hereof and shall continue
until 5:00 p.m., New York City time on the later of (i) September 2, 2006 and
(ii) to the extent that any Transfer Restricted Securities (as defined in the
Registration Rights Agreement) remain outstanding on September 6, 2006, ten
Business Days after the effective date of a registration statement under the
Securities Act with respect to the Warrant Shares issuable upon the exercise of
the Warrants, but no later than September 2, 2007 (the "Expiration Date"), to
receive from the Company the number of fully paid and nonassessable Warrant
Shares which the Holder may at the time be entitled to receive on exercise of
the Warrants and payment of the Exercise Price then in effect for such Warrant
Shares. In the alternative, each Holder may exercise its right to receive
Warrant Shares on a net basis (a "Cashless Exercise"), such that, without the
exchange of any funds, the holder receives that number of Warrant Shares
otherwise issuable (or payable) upon exercise of the Warrants less that number
of Warrant Shares having an aggregate Current Market Price at the time of
exercise equal to the aggregate Exercise Price that would otherwise have been
paid by the Holder of the Warrant Shares. If the Warrants are not exercised
prior to 5:00 p.m., New York City time, on the Expiration Date, they shall
become void and all rights thereunder and all rights in respect thereof under
this Agreement shall cease as of such time. No adjustments as to Dividends will
be made upon exercise of the Warrants.
The Holders will only be able to exercise their Warrants (i) by means
of a cashless exercise or (ii) if any registration statement under the
Securities Act relating to the Warrant Shares is effective or the exercise of
such Warrants is exempt from the registration requirements of the Securities Act
and such securities are qualified for sale or exempt from qualification under
the applicable securities laws of the states or other jurisdictions in which
such Holders reside.
No Holder may exercise any Warrant to the extent that, immediately
following such exercise and upon receipt of any Warrant Shares issuable upon
such exercise, such Holder would either (i) become or be included in any 13D
Person that is the single largest holder of voting power represented by the
Company's capital stock (or otherwise become the single largest holder of the
Common Stock) (the "Shareholder Limitation"), or (ii) beneficially own (as such
term is defined in Section 13(d)(3) of the Exchange Act) or be included in any
13D Person that beneficially owns in excess of 4.9% of the voting power
represented by the Company's capital stock (or otherwise beneficially own in
excess of 4.9% of the outstanding Common Stock) (the "4.9% Limitation") after,
in either case, giving effect to such exercise (the Shareholder Limitation and
the 4.9% Limitation are collectively referred to herein as the "Exercise
12
Limitations"). The determinations of the number of shares that (i) constitute
4.9% of the outstanding Common Stock or voting power and (ii) are held by the
largest holder will be made in reliance upon the information contained in
publicly available filings made with the SEC unless the Company is aware that
such information is incorrect and has made the correct information public, to
the extent material, and disclosed such information to the Holders at the time
of any such proposed exercise. In order to facilitate compliance with the
foregoing, each Holder will be required to make a representation that it and its
affiliates will comply with the Exercise Limitations immediately after the
exercise of any Warrant and receipt of any shares of Common Stock issuable upon
such exercise.
Notwithstanding the Exercise Limitation, however, a Holder may
exercise any Warrant that would otherwise cause such Holder to hold Warrant
Shares in excess of the Exercise Limitations if, as to such excess number of
Warrant Shares (the "Excess Shares"), such Holder (i) irrevocably covenants to
the Company to sell such Excess Shares within 10 days after the date of exercise
and (ii) confirms that it has, on or prior to such exercise date, entered into a
binding arrangement to sell the Excess Shares within 10 days after such exercise
date either (a) in a regular way transaction on a national securities exchange
(or the principal market where shares of Common Stock are then traded) or (b) to
one or more persons that are not "affiliates" (used herein as defined in Rule
144 promulgated under the Securities Act) of such Holder ("Third Parties"), each
of whom represents for the benefit of the Company that, upon purchase of the
applicable Excess Shares, such Third Party, together with its affiliates, will
not be the beneficial owner of a number of shares of Common Stock in excess of
the Exercise Limitations. In addition, such Holder shall agree to vote the
applicable Excess Shares only in accordance with the recommendations of the
Board of Directors of the Company or any Third Party that has agreed to purchase
such shares, if any record date for a vote of the Common Stock is established
for any day between the exercise date and the consummation of the sale of the
applicable Excess Shares. The Exercise Limitations will cease to have any force
and effect upon consummation of the Utility Spin-Off, if, on the date that is 14
days after delivery to the Company of a request by the Required Holders to such
effect (which request may be given no more than once during any 180-day period),
the Company shall not have delivered a certificate to the Holders stating that
the removal of the Exercise Limitations would, in the good faith judgment of the
Company, not be consistent with applicable regulatory or other legal
requirements.
SECTION 4.02. Adjustment of Exercise Price and Number of Warrant
Shares Issuable. The number of Warrant Shares issuable upon the exercise of each
Warrant (the "Warrant Number") is subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 4.02; provided that no
adjustment shall be made pursuant to this Section 4.02 which shall have the
effect of decreasing the Warrant Number (except pursuant to Section 4.02(a)(3))
or increasing the Exercise Price (except pursuant to Section 4.02(a)(3)). For
purposes of this Section 4.02, "Common Stock" means shares now or hereafter
authorized of any class of common stock of the Company and any other stock of
the Company, however designated, that has the right (subject to any prior rights
of any class or series of preferred stock) to participate in any distribution of
the assets or earnings of the Company without limit as to per share amount.
(a) Adjustment for Change in Capital Stock.
13
If the Company:
(1) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares of
its capital stock,
then Warrant Number immediately prior to such action shall be proportionately
adjusted so that the Holder of any Warrant thereafter exercised shall receive
the aggregate number and kind of shares of capital stock of the Company which
such Holder would have owned immediately following such action if such Warrant
had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder upon exercise of a Warrant may
receive shares of two or more classes of capital stock of the Company, the
Company shall reasonably determine the allocation of the adjusted Exercise Price
between the classes of capital stock. After such allocation, the exercise
privilege and the number of shares of each such class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 4.02.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) Adjustment for Rights Issue. If the Company distributes any
rights, warrants or options to all holders of its Common Stock entitling them
for a period expiring within 60 days after the record date mentioned below to
purchase shares of Common Stock at a price per share less than the Current
Market Price per share on that record date, the Warrant Number shall be adjusted
in accordance with the formula:
O + A
-----
N' = N x O + A x P
-------
M
where:
14
N' = the adjusted Warrant Number.
N = the current Warrant Number.
O = the number of shares of Common Stock outstanding on the
record date.
A = the number of additional shares of Common Stock offered.
P = the purchase price per share of the additional shares.
M = the Current Market Price per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such
rights, warrants or options are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, warrants or options. If at the end of the period during which such
rights, warrants or options are exercisable, not all rights, warrants or options
shall have been exercised, the Warrant Number shall be immediately readjusted to
what it would have been if "A" in the above formula had been the number of
shares actually issued.
(c) Adjustment for Other Distributions. Except with respect to
any distribution provided for in Section 4.02(d), if the Company distributes to
all holders of its Common Stock any of its assets (other than Cash Dividends) or
debt securities or any rights, options or warrants to purchase debt securities,
assets (other than Cash Dividends) or other securities of the Company, the
Warrant Number shall be adjusted in accordance with the formula:
M
N' = N x ---------
M - F
where:
N' = the adjusted Warrant Number.
N = the current Warrant Number.
M = the Current Market Price per share of Common Stock on the
record date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants distributable to one share
of Common Stock. The Board of the Company shall reasonably
and in good faith determine the fair market value.3
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
15
This subsection (c) does not apply to rights, warrants or options
referred to in subsection (b) of this Section 4.02 or any assets distributed
pursuant to subsection (d) of this Section 4.02. If any adjustment is made
pursuant to this subsection (c) as a result of the issuance of rights, warrants
or options and at the end of the period during which any such rights, warrants
or options are exercisable, not all such rights, warrants or options shall have
been exercised, the Warrants shall be immediately readjusted as if "F" in the
above formula was the fair market value on the record date of the indebtedness
or assets actually distributed upon exercise of such rights, warrants or options
divided by the number of shares of Common Stock outstanding on the record date.
Notwithstanding anything to the contrary contained in this subsection (c), if "M
- F" in the above formula is less than $1.00 (or is a negative number) then in
lieu of the adjustment otherwise required by this subsection (c), the Company
shall distribute to each Holder of a Warrant, the evidences of indebtedness,
assets, rights, warrants or options (or the proceeds thereof) which would have
been distributed to such Holder had such Warrant been exercised immediately
prior to the record date for such distribution.
(d) Adjustments for Spin-Offs. Upon consummation of any distribution
consisting of shares of Capital Stock of, or similar equity interests in, one or
more of the Company's Subsidiaries (a "Spin-Off"), including, without
limitation, the consummation of the Utility Spin-Off or a Spin-Off of NEG, Inc.,
the Warrant Number shall be adjusted in accordance with the following formula:
P + U
N' = N x -------
P
Where:
N' = the adjusted Warrant Number.
N = the then current Warrant Number.
P = the arithmetic average of the VWAP of the Common Stock of
the reorganized Company over the Trading Period.
U = the arithmetic average of the VWAP of the Common Stock of
the Subsidiary which was subject to the Spin-Off over the
Trading Period.
Trading Period = the 20 consecutive trading days commencing on
and including the 20th day of trading of the Common Stock
after the effectiveness of such Spin-Off.
(1) The adjustment shall be made successively whenever any
such Spin-Off is made and shall become effective immediately after such
Spin-Off.
(e) Other Adjustments. The Warrant Shares are subject to further
adjustment in the manner set forth in Section 4.09 and Section 3 of the
Registration Rights Agreement.
(f) When De Minimis Adjustment May Be Deferred. No adjustment in the
Warrant Number need be made unless the adjustment would require an increase or
decrease of at
16
least 1% in the Warrant Number. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 4.02 shall be made to the
nearest 1/1000/th/ cent or to the nearest 1/10 millionth of a share, as the case
may be.
(g) When No Adjustment Required. No adjustment need be made for
a transaction referred to in subsections (b), (c) or (d) of this Section 4.02 if
the Holders are to participate, without requiring the Warrants to be exercised,
in the transaction on a basis and with notice that the Board of the Company
reasonably determine to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction.
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the amount of cash into which the
Warrants are exercisable. Interest will not accrue on the cash.
(h) Notices to Holders. Upon any adjustment of the Warrant
Number pursuant to this Section 4.02, the Company shall promptly thereafter, and
in any event within ten days, (i) provide a certificate executed by the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, Controller or any
Assistant Controller of the Company setting forth the Warrant Number and the
Exercise Price after such adjustment and setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based and
(ii) cause to be given to each of the Holders at its address appearing on the
Register written notice of such adjustments by first-class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included as
a part of the notice required to be mailed under the other provisions of this
Section 4.02(h). The Holders shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of such adjustment unless and until it shall have received such
certificate.
In case:
(1) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
or
(2) the Company shall authorize the distribution to all holders
of shares of Common Stock of evidences of its indebtedness or assets (other than
Cash Dividends or Dividends payable in shares of Common Stock or distributions
referred to in subsection (a) of this Section 4.02); or
(3) of any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than as a result of a
subdivision or combination), or a tender offer or exchange offer for shares of
Common Stock; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
17
(5) the Company proposes to take any action (other than actions
of the character described in Section 4.02(a) hereof) which would require an
adjustment of the Warrant Number pursuant to this Section 4.02,
then the Company shall cause to be given to each Holder at its address appearing
on the Register, at least 20 calendar days (or 10 calendar days in any case
specified in clauses (1) or (2) above) prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first-class mail, postage prepaid, a written notice stating (i)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such rights, options, warrants or distribution are to be
determined, or (ii) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 4.02(h) or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any action.
(i) Voluntary Increase. The Company from time to time may
increase the Warrant Number by any amount for any period of time (including,
without limitation, permanently) if such period is at least 20 days.
Whenever the Warrant Number is increased, the Company shall mail
to the Holders a notice of the increase. The Company shall mail the notice at
least 15 days before the date the reduced Warrant Number takes effect. The
notice shall state the increased Warrant Number and the period it will be in
effect.
An increase of the Warrant Number does not change or adjust the
Warrant Number otherwise in effect for purposes of subsections (a), (b), (c) and
(d) of this Section 4.02.
(j) Notice of Certain Transactions.
If:
(1) the Company takes any action that would require an
adjustment in the Warrant Number pursuant to subsections (a), (b),
(c) and (d) of this Section 4.02 and if the Company does not arrange
for the Holders to participate pursuant to subsection (g) of this
Section 4.02;
(2) the Company takes any action that would require a
supplemental Warrant Agreement pursuant to subsection (k) of this
Section 4.02; or
(3) there is a liquidation or dissolution of the Company,
the Company shall, if not already provided pursuant to Section 4.02(h) above,
mail to the Holders a notice stating the proposed record date for a dividend or
distribution or the proposed effective date of a subdivision, combination,
reclassification, consolidation, merger, transfer,
18
lease, liquidation or dissolution. The Company shall mail the notice at least 15
days before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(k) Reorganization of Company. If the Company consolidates or
merges with or into any person, upon consummation of such transaction, the
Warrants shall automatically become exercisable for the kind and amount of
securities, cash or other assets which the Holder would have owned immediately
after such consolidation or merger if such Holder had exercised the Warrant
immediately before the effective date of the transaction. Concurrently with the
consummation of any such transaction, the corporation formed by or surviving any
such consolidation or merger if other than the Company shall enter into a
supplemental Agreement so providing and further providing for adjustments which
shall be as nearly equivalent as may be practical to the adjustments provided
for in this Section. The successor Company shall mail to Holders a notice
describing the supplemental Agreement.
If the issuer of securities deliverable upon exercise of the
Warrants under the supplemental Agreement is an affiliate of the formed or
surviving, corporation, that issuer shall join in the supplemental Agreement.
If this subsection (k) applies, subsections (a), (b), (c) and
(d) of this Section 4.02 do not apply.
(l) When Issuance or Payment May Be Deferred. In any case in
which this Section 4.02 shall require that an adjustment in the Warrant Number
be made effective as of a record date for a specified event, the Company may
elect to defer until the occurrence of such event (i) issuing to the Holder of
any Warrant that is exercised after such record date the Warrant Shares and
other capital stock of the Company, if any, issuable upon such exercise over and
above the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise on the basis of the Warrant Number prior to any
adjustment and (ii) paying to such holder any amount in cash in lieu of a
fractional share pursuant to Section 4.05 hereof, provided, however, that the
Company shall deliver to such holder a due xxxx or other appropriate instrument
evidencing such Holder's right to receive such additional Warrant Shares, other
capital stock and cash upon the occurrence of the event requiring such
adjustment.
(m) Adjustment in Exercise Price. Upon each event that provides
for an adjustment of the Warrant Number pursuant to this Section 4.02, Section
4.09 and Section 3 of the Registration Rights Agreement, each Warrant
outstanding prior to making the adjustment shall thereafter evidence the right
to receive that number of shares of Common Stock (calculated to the nearest ten
millionth) equal to the adjusted Warrant Number at an Exercise Price per share
of Common Stock obtained from the following formula:
N
E' = E x ---
N'
where:
N' = the adjusted Warrant Number.
19
N = the Warrant Number prior to adjustment.
E' = the adjusted Exercise Price per share of Common Stock.
E = the Exercise Price per share of Common Stock. prior to
adjustment.
(n) Form of Warrants. (i) Irrespective of any adjustments in the
Warrant Number or the number or kind of shares issuable upon the exercise of the
Warrants, the Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
(ii) The form of Warrant Certificate need not be changed
because of any adjustment made pursuant to this Section 4.02,
and Warrant Certificates issued after such adjustment may state
the same Warrant Number and the same number of shares of Common
Stock issuable upon exercise of the Warrants as are stated in
the Warrant Certificates initially issued pursuant to this
Agreement. The Company, however, may at any time in its sole
discretion make any change in the form of Warrant Certificate
that they may deem appropriate to give effect to such
adjustments and that does not affect the substance of the
Warrant Certificate, and any Warrant Certificate thereafter
issued, whether in exchange or substitution for an outstanding
Warrant Certificate or otherwise, may be in the form as so
changed.
SECTION 4.03. Manner of Exercise. (1) The Warrants may be
exercised upon (i) surrender to the Company of the related Warrant Certificate,
together with the form of election attached thereto to purchase Common Stock on
the reverse thereof duly filled in and signed by the Holder thereof and (ii)
payment to the Company of the Exercise Price for the Warrant Shares being
purchased upon such exercise.
(a) Payment of the aggregate Exercise Price shall be made (i) in
cash or by certified or official bank check payable to the order of the Company
in New York Clearing House Funds, (ii) in the manner provided in the second
paragraph of Section 4.01.
(b) Subject to the limitations set forth in the third paragraph
of Section 4.01, the Warrants shall be exercisable at the election of such
Holder either in full or in part at any time or from time to time, but in no
event later than the Expiration Date.
SECTION 4.04. Transfer of Warrants and Warrant Shares. Upon the
surrender of the Warrant Certificates and the payment of the Exercise Price, the
Company shall issue, and shall cause its transfer agent for the Common Stock,
which may be the Company (the "Transfer Agent"), to deliver with all reasonable
dispatch to or upon the written order of the respective Holder and in such name
or names as such Holder may designate, a certificate or certificates for the
number of full Warrant Shares so purchased upon the exercise of such Warrants
together with cash as provided in Section 4.05. Such certificate or certificates
shall be deemed to have been issued and any Person so designated to be named
therein shall be deemed to have become a Holder of record of such Warrant Shares
as of the date of the payment of the Exercise Price. To the extent required by
Section 5.02(b), the Company shall, and shall cause the Transfer Agent to,
comply with the requirements of such Section.
20
The Company shall keep copies of this Agreement and any
notices given or received hereunder available for inspection by the Holders
during normal business hours at their respective offices at the addresses set
forth in Section 7.04 hereof.
SECTION 4.05. Fractional Warrant Shares. The Company shall not
be required to issue fractional Warrant Shares on the exercise of the Warrants.
If more than one Warrant shall be presented for exercise in full at the same
time by the same Holder, the number of full Warrant Shares which shall be issued
upon the exercise thereof shall be computed on the basis of the aggregate number
of Warrant Shares issuable upon exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section
4.05, be issuable on the exercise of any Warrant (or specified portion thereof),
the Company shall pay an amount in cash equal to the Current Market Price per
Warrant Share on the day immediately preceding the date the Warrant is presented
for exercise, multiplied by such fraction, computed to the nearest whole cent.
SECTION 4.06. Reservation of Warrant Shares. The Company will
at all times reserve and keep available, free from preemptive or similar rights,
out of the aggregate of its authorized but unissued Common Stock or its
authorized and issued Common Stock held in its treasury, for the purpose of
enabling it to satisfy any obligation to transfer Warrant Shares upon exercise
of each Warrant, the maximum number of shares of Common Stock which may then be
deliverable upon the exercise of all outstanding Warrants. The Holders shall
have no duty to verify availability of such shares set aside by the Company.
The Company will keep a copy of this Agreement on file with
the Transfer Agent and with every subsequent transfer agent for any shares of
the Company's Common Stock issuable upon the exercise of the Warrants. The
Company will supply such Transfer Agent with duly executed stock certificates
required to honor the Warrants upon exercise thereof in accordance with the
terms of this Agreement and the Company will provide or otherwise make available
any cash which may be payable as provided in Section 4.05 hereof. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto.
SECTION 4.07. Compliance with Law. If any shares of Common
Stock required to be reserved for purposes of exercise of the Warrants require,
under any Federal or state law or applicable governing rule or regulation of any
national securities exchange, registration with or approval of any Governmental
Authority or listing on any such national securities exchange before such shares
may be purchased upon exercise, the Company will in good faith and as
expeditiously as possible endeavor also to cause such shares to be duly
registered, approved or listed on the relevant national securities exchange, as
the case may be.
SECTION 4.08. Payment of Taxes. Except as set forth in Section
6.13, the Company will pay all documentary stamp taxes attributable to the
issuance of Warrant Shares upon the exercise of any Warrant.
SECTION 4.09. Failure to Deliver Shares. If, for any reason
whatsoever, the Company shall fail to, or is otherwise unable to, deliver any
Warrant Shares to any Holder upon the exercise of such Holder's Warrants (a
"Share Delivery Default"), the Company hereby agrees to pay liquidated damages
to the Holders on a monthly basis in an amount such that, each
21
Warrant outstanding shall evidence the right to receive upon payment of the
Exercise Price that number of shares of Common Stock (calculated to the nearest
ten millionth) obtained from the following formula:
N' = N x 1.005
Where:
N' = the adjusted number of Warrant Shares issuable upon the
exercise of a Warrant by payment of the Exercise Price.
N = the number of Warrant Shares previously issuable upon
the exercise of a Warrant by payment of the Exercise
Price prior to adjustment.
The adjustment made pursuant to this Section shall be made on a monthly basis
beginning on and including the day following the Share Delivery Default to but
excluding the day on which the Share Delivery Default has been cured. Following
the cure of each such Share Delivery Default with respect to such Warrants and
Warrant Shares, the accrual of liquidated damages with respect to such Warrants
and Warrant Shares will cease.
ARTICLE V
Transfer Restrictions
SECTION 5.01. Restrictions on Transfers of the Warrants and
the Warrant Shares. The following restrictions on transfer shall apply to the
Warrants and Warrant Shares:
(a) No Holder or transferee thereof shall sell, transfer or
convey in any manner whatsoever any Warrant or Warrant Shares except in
accordance with the terms and provisions of this Agreement.
(b) Each Holder may, without the consent of the Company, sell
or assign any Warrants or Warrant Shares and the other rights and
obligations of such Holder to any Person or any assignee thereof (an
"Assignee"). The Assignee shall agree to be bound by the terms of this
Agreement and such Warrants and shall provide:
(i) if such Warrants or Warrant Shares are being
transferred pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or
Regulation S under the Securities Act or, in the case of the
Warrant Shares, pursuant to an effective registration
statement under the Securities Act, a certification to that
effect (in the form set forth on the reverse of the Warrant
Certificate) and, in the case of a transfer pursuant to Rule
144, an opinion of counsel reasonably acceptable to the
Company to the effect that such transfer does not require
registration under the Securities Act or any other evidence
reasonably satisfactory to the Company as to the compliance
with the legend set forth in Exhibit B; or
22
(ii) if such Warrants or Warrant Shares are being
transferred in reliance on another exemption from the
registration requirements of the Securities Act, a
certification to that effect (in the form set forth on the
reverse of the Warrant Certificate), an opinion of counsel
reasonably acceptable to the Company to the effect that such
transfer does not require registration under the Securities
Act and a representation letter from the transferee in the
form of Exhibit C hereto,
and effective immediately upon such transfer or assignment, the Assignee shall
be deemed a Holder and shall have the rights and obligation of a Holder pursuant
to this Agreement.
(c) Notwithstanding any other provision contained in this
Agreement to the contrary, any Holder may assign all or any portion of
the Warrants or Warrant Shares held by it as collateral security.
SECTION 5.02. Notation; Removal of Legend. (a) A notation will
be made in the appropriate transfer records of the Company with respect to any
such transfer of the Warrants and Warrant Shares referred to in this Agreement.
(b) If any Warrant or Warrant Shares are being transferred
pursuant to an exemption from registration in accordance with Rule 144 under the
Securities Act, the Company shall, or shall cause the Transfer Agent to, remove
from any Warrant Certificate or other certificate representing the Warrant
Shares, the transfer restriction legend set forth in Exhibit B hereto or any
other legend or markings which in any way purport to restrict the
transferability of the Warrants or the Warrant Shares.
SECTION 5.03. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to the Company, be
promptly canceled by the Company and shall not be reissued by the Company and,
except as provided in this Article V or in Article III hereof in case of the
exercise of less than all the Warrants represented thereby or in case of a
mutilated Warrant Certificate or in the case of a transfer, no Warrant
Certificate shall be issued hereunder in lieu thereof. The Company shall dispose
of such canceled Warrant Certificates in any manner as the Company may so
desire.
ARTICLE VI
Miscellaneous
SECTION 6.01. SEC Reports and other Financial Information. The
Company shall provide the Holders, within 15 days after the Company files the
same with the SEC, copies of the Company's annual report and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act,
provided that if any such information, documents or reports are filed with the
SEC and available to Holders through XXXXX, then no such information, documents
or other reports need be provided. Notwithstanding that the Company may not be
required to remain subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, until such time
23
as there are no Warrants or Warrant Shares which constitute Transfer Restricted
Securities (as defined in the Registration Rights Agreement), the Company shall
continue to file such annual reports and information, documents and other
reports with the SEC, if such continue to be accepted by the SEC, and the
Company shall provide the Holders with such annual reports and such information,
documents and other reports as the Company provides to the holders of its Common
Stock or other securities.
SECTION 6.02. Persons Benefiting. Nothing in this Agreement is
intended or shall be construed to confer upon any Person other than the Company
and the Holders any right, remedy or claim under or by reason of this Agreement
or any part hereof.
SECTION 6.03. Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be granted except by the written agreement of the
Company and the holders of a majority of the Warrants then outstanding.
SECTION 6.04. Notices. All notices, requests and other
communications provided for hereunder shall be in writing (including, unless the
context expressly otherwise provides, by facsimile transmission, provided that
any matter transmitted by the Company by facsimile (i) shall be immediately
confirmed by a telephone call to the recipient at the number specified on the
applicable signature page hereof, and (ii) shall be followed promptly by a hard
copy original thereof by express courier) and faxed or delivered, to the address
or facsimile number specified for notices on the applicable signature page
hereof or to such other address as shall be designated by such party in a
written notice to the other parties hereto.
(a) All such notices, requests and communications (i) sent by
express courier will be effective upon delivery to or refusal to accept delivery
by the addressee, and (ii) transmitted by facsimile will be effective when sent
and facsimile confirmation received; except that all notices and other
communications to any Holder shall not be effective until actually received.
(b) The Company acknowledges and agrees that any agreement of
any Holder to receive certain notices by telephone and facsimile is solely for
the convenience and at the request of the Company. The Holder shall be entitled
to rely on the authority of any Person purporting to be a Person authorized by
the Company to give such notice and the Holder shall not have any liability to
the Company or other Person on account of any action taken or not taken by the
Holder in reliance upon such telephonic or facsimile notice.
(c) If the notice or communication shall be in writing, then
such notice or communication shall be delivered (i) to the Company at the
address set forth below in this Section 6.04(c) (or to such other address or
addresses as the Company may notify the Holders in accordance with this Section
6.04), (ii) to any Initial Holder at the address or addresses set forth on the
schedules attached hereto (or to such other address or addresses as such Initial
Holder may notify the Company in accordance with this Section 6.04) and (iii) to
any other Holders at the address or addresses provided by such Holder to the
Company in accordance with this Section 6.04 upon becoming a Holder (or to such
other address or addresses as such Initial Holder may notify the Company in
accordance with this Section 6.04):
24
The Company:
PG&E Corporation
Xxx Xxxxxx, Xxxxx Xxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Assistant Treasurer
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
with copies to:
PG&E Corporation
One Market, Xxxxx Xxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Counsel - Corporate
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
and
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
Each party hereto by notice to the other parties may designate
additional or different addresses for subsequent notices or communications.
(d) Failure to mail a notice or communication to a Holder or
any defect in it shall not affect its sufficiency with respect to any other
Holders. If a notice or communication is mailed in the manner provided above, it
is duty given, whether or not the addressee receives it.
SECTION 6.05. Governing Law; Waiver of Jury Trial; Submission
of Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(a) EACH OF THE COMPANY AND THE HOLDERS CONSENTS AND AGREES TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW
YORK, STATE OF NEW YORK, AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON
CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN, AND AGREES THAT,
EXCEPT WITH THE WRITTEN CONSENT OF THE HOLDERS, ANY DISPUTE CONCERNING THE
25
CONDUCT OF ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE SHALL BE
HEARD ONLY IN THE COURTS DESCRIBED ABOVE.
(b) EACH OF THE COMPANY AND THE HOLDERS HEREBY WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY HAND DELIVERY TO EACH SUCH PERSON AT ITS ADDRESS SET
FORTH ABOVE OR, AT THE OPTION OF A HOLDER, BY SERVICE UPON CT CORPORATION
SYSTEM, WHICH THE COMPANY IRREVOCABLY APPOINTS AS SUCH PERSON'S AGENT FOR THE
PURPOSE OF ACCEPTING SERVICE OF PROCESS WITHIN THE STATE OF NEW YORK. THE
COMPANY HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID.
(c) NOTHING IN THIS SECTION 6.05 SHALL AFFECT THE RIGHT OF THE
HOLDERS TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF THE HOLDERS TO BRING ANY ACTION OR PROCEEDING AGAINST THE COMPANY
OR THEIR PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
(d) EACH THE COMPANY AND THE HOLDERS HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING
UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN RESPECT TO
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO, IN EACH
CASE, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE. EACH OF THE COMPANY AND THE HOLDERS HEREBY AGREE
AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SECTION 6.06. Successors and Assigns. All agreements of each
of the parties hereto in this Agreement shall inure to the benefit and be
binding upon their respective successors and permitted assigns. The Company may
not assign its rights or obligations hereunder without the prior written consent
of each of the Holders.
SECTION 6.07. Severability. Any provision hereof which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and without affecting the validity
or enforceability of any provision in any other jurisdiction.
SECTION 6.08. Entire Agreement. This Agreement represents the
final and complete agreement of the parties hereto, and all prior negotiations,
representations,
26
understandings, writings and statements of any nature are hereby superseded in
their entirety by the terms of this Agreement. There are no restrictions,
agreements, warranties or undertakings other than those set forth or referred to
herein, including with respect to the registration rights granted by the Company
with respect to the Warrant Shares.
SECTION 6.09. Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
SECTION 6.10. Headings. The headings of the Articles and
Sections of this Agreement have been inserted for convenience of reference only,
are not intended to be considered a part hereof and shall not modify or restrict
any of the terms or provisions hereof.
SECTION 6.11. Remedies. In the event of a breach by the
Company or a Holder of any of their obligations under this Agreement, each
Holder or the Company, as the case may be, in addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
SECTION 6.12. Waiver. The Company waives any claim it may have
against any Holder for any consequential, exemplary or punitive damage now or
hereafter under or in connection with or relating to this Agreement or any other
Financing Document.
SECTION 6.13. Register. The Company hereby agrees to maintain
a register (the "Register") on which it will record the number of Warrants held
by each Holder from time to time. With respect to any Holder, the transfer,
exchange or exercise of any Warrants of such Holder and the rights pursuant to
such Warrant shall not be effective until such transfer, exchange or exercise is
recorded on the Register maintained by the Company with respect to ownership of
such Warrants and any Warrant Certificate representing such Warrants is
surrendered to the Company for recordation of such transfer, exchange or
exercise and prior to such recordation all rights of the transferor with respect
to such Warrants shall remain the transferor's. The registration of assignment
or transfer of all or part of any Holder's Warrants shall be recorded promptly
by the Company only upon the receipt by the Company of a properly executed and
delivered assignment and assumption agreement pursuant to, and all other
documents and instruments required under, Section 5.01(b). Upon the request of
any Holder, the Company shall at any time and from time to time provide the
requesting Holder, at no cost, a list of all of the Holders of the Warrants. To
permit registrations of transfers and exchanges, the Company shall make
available a sufficient number of executed Warrant Certificates to effect such
registrations of transfers and exchanges. No service charge shall be made to the
Holder for any registration of transfer or exchange of Warrants, but the Company
may require from the transferring or exchanging Holder payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable upon
exchanges pursuant to Section 2.03 and exchanges in
27
respect of portions of Warrants not exercised and the Company may deduct such
taxes from any payment of money to be made and such transfer or exchange shall
not be consummated (if such taxes are not deducted in full) unless or until the
Holder shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
[signature pages follow]
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
PG&E CORPORATION
By:_______________________________
Name:
Title:
LB I GROUP INC.
By:__________________________
Name:
Title:
FARALLON CAPITAL PARTNERS, L.P.
By:____________________________
Name:
Title:
FARALLON CAPITAL INSTITUTIONAL
PARTNERS, L.P.
By:____________________________
Name:
Title:
FARALLON CAPITAL INSTITUTIONAL
PARTNERS II, L.P.
By:____________________________
Name:
Title:
FARALLON CAPITAL INSTITUTIONAL
PARTNERS III, L.P.
By:____________________________
Name:
Title:
TINICUM PARTNERS, L.P.
By: __________________________
Name:
Title:
DK ACQUISITION PARTNERS, L.P.
By:____________________________
Name:
Title:
HBK MASTER FUND, L.P.
By: ___________________________
Name:
Title:
OAK HILL SECURITIES FUND, L.P.
By:____________________________
Name:
Title:
EXHIBIT A TO
WARRANT AGREEMENT
No. [ ] Certificate for [ ] Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
PG&E CORPORATION
THIS WARRANT IS SUBJECT TO THE SUBORDINATION AND OTHER PROVISIONS SET FORTH IN
THE INTERCREDITOR AND SUBORDINATION AGREEMENT DATED AS OF JUNE 25, 2002 AMONG
THE ADMINISTRATIVE AGENT, THE TRANCHE A LENDERS PARTY THERETO, THE TRANCHE B
LENDERS PARTY THERETO, THE HOLDERS PARTY THERETO, AND THE COLLATERAL AGENT, AND
THE HOLDER OF THIS INSTRUMENT, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE
TERMS OF SUCH INTERCREDITOR AND SUBORDINATION AGREEMENT, AS THE SAME MAY BE
AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME. A COPY OF THE
INTERCREDITOR AND SUBORDINATION AGREEMENT REFERENCED IN THIS LEGEND IS ON FILE
WITH THE COLLATERAL AGENT AND IS AVAILABLE FOR INSPECTION AT THE COLLATERAL
AGENT'S OFFICES AT DEUTSCHE BANK TRUST COMPANY AMERICAS, 000 XXXXX XXX, XX:
0603, XXXXXX XXXX, XX 00000.
THIS CERTIFIES THAT [ ], or its registered assigns, is
the registered holder of the number of Warrants set forth above (the
"Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its
option and subject to the provisions contained herein and in the Warrant
Agreement referred to below, to purchase from PG&E CORPORATION, a California
corporation ("the Company"), one share of Common Stock, no par value (the
"Common Stock"), of the Company, at the per share Exercise Price of $0.01 (the
"Exercise Price"). Each Warrant shall terminate and become void as of 5:00 p.m.,
New York City time, on the later of (i) September 2, 2006 and (ii) to the extent
that any Transfer Restricted Securities (as defined in the Equity Registration
Rights Agreement, dated as of June 25, 2002, among the Company, LB I Group Inc.
and each other entity named on the signature pages thereof (the "Registration
Rights Agreement"), remain outstanding on September 6, 2006 and ten Business
Days after the effective date of a registration statement under the Securities
Act with respect to the Warrant Shares issuable upon the exercise of the
Warrants, but no later than September 2, 2007 (the "Expiration Date"). The
number of Warrant Shares issuable upon exercise of each Warrant (the "Warrant
Number") and the Exercise Price per share shall be subject to adjustment from
time to time upon the occurrence of certain events enumerated in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance
with the Warrant Agreement, dated as of June 25, 2002 (the "Warrant Agreement"),
by and among the Company and each entity named on the signature pages thereof
(each, an "Initial Holder" and collectively, the "Initial Holders"), and is
subject to the terms and provisions contained in the Warrant Agreement, to all
of which terms and provisions the Holder of the Warrants evidenced by this
Warrant Certificate consents by acceptance hereof. The Warrant Agreement is
hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the Warrant Agreement for a full statement of the respective rights,
limitations of rights, duties and obligations of the Company and the Holders of
the Warrants. Capitalized terms used but not defined herein shall have the
meanings ascribed thereto in the Warrant Agreement.
The Warrants will initially be delivered by the Company to the
Initial Holder on June 25, 2002.
Subject to the terms of the Warrant Agreement, the Warrants
may be exercised in whole or in part by presentation and surrender of this
Warrant Certificate with the Election to Purchase attached hereto duly executed
and with the simultaneous payment of the Exercise Price in cash or check to the
Company (for its account) at the office of the Company designated for such
purpose. Notwithstanding the foregoing, Warrants may also be exercised without
exchange of funds pursuant to the net exercise ("Cashless Exercise") provisions
of Section 4.01 of the Warrant Agreement.
As provided in the Warrant Agreement and subject to the terms
and conditions therein set forth, the Warrants shall be exercisable at any time
and from time to time on any Business Day on or after June 25, 2002 but no later
than 5:00 p.m., New York City time on the Expiration Date; provided, however,
that Holders of Warrants will only be able to exercise their Warrants (i) by
means of a Cashless Exercise or (ii) if any Registration Statement under the
Securities Act relating to the Warrant Shares is effective or the exercise of
such Warrants is exempt from the registration requirements of the Securities Act
of 1933 and such securities are qualified for sale or exempt from qualification
under the applicable securities laws of the states or other jurisdictions in
which such Holders reside; provided, further, however, that no Warrant shall be
exercisable after the Expiration Date.
No Holder may exercise any Warrant to the extent that,
immediately following such exercise and upon receipt of any Warrant Shares
issuable upon such exercise, such Holder would either (i) become or be included
in any 13D Person that is the single largest holder of voting power represented
by the Company's capital stock (or otherwise become the single largest holder of
the Common Stock) (the "Shareholder Limitation"), or (ii) beneficially own (as
such term is defined in Section 13(d)(3) of the Exchange Act) or be included in
any 13D Person that beneficially owns in excess of 4.9% of the voting power
represented by the Company's capital stock (or otherwise beneficially own in
excess of 4.9% of the outstanding Common Stock) (the "4.9% Limitation") after,
in either case, giving effect to such exercise (the Shareholder Limitation and
the 4.9% Limitation are collectively referred to herein as the "Exercise
Limitations"). The determinations of the number of shares that (i) constitute
4.9% of the outstanding Common Stock or voting power and (ii) are held by the
largest holder will be made in reliance upon the information contained in
publicly available filings made with the SEC unless the Company is aware that
such information is incorrect and has made the correct information public, to
the extent material, and disclosed such information to the Holders at the time
of any such proposed exercise. In order to facilitate compliance with the
foregoing, each Holder will be required to make a representation that it and its
affiliates will comply with the Exercise Limitations immediately after the
exercise of any Warrant and receipt of any shares of Common Stock issuable upon
such exercise.
2
Notwithstanding the Exercise Limitation, however, a Holder may
exercise any Warrant that would otherwise cause such Holder to hold Warrant
Shares in excess of the Exercise Limitations if, as to such excess number of
Warrant Shares (the "Excess Shares"), such Holder (i) irrevocably covenants to
the Company to sell such Excess Shares within 10 days after the date of exercise
and (ii) confirms that it has, on or prior to such exercise date, entered into a
binding arrangement to sell the Excess Shares within 10 days after such exercise
date either (a) in a regular way transaction on a national securities exchange
(or the principal market where shares of Common Stock are then traded) or (b) to
one or more persons that are not "affiliates" (used herein as defined in Rule
144 promulgated under the Securities Act) of such Holder ("Third Parties"), each
of whom represents for the benefit of the Company that, upon purchase of the
applicable Excess Shares, such Third Party, together with its affiliates, will
not be the beneficial owner of a number of shares of Common Stock in excess of
the Exercise Limitations. In addition, such Holder shall agree to vote the
applicable Excess Shares only in accordance with the recommendations of the
Board of Directors of the Company or any Third Party that has agreed to purchase
such shares, if any record date for a vote of the Common Stock is established
for any day between the exercise date and the consummation of the sale of the
applicable Excess Shares. The Exercise Limitations will cease to have any force
and effect upon consummation of the Utility Spin-Off, if, on the date that is 14
days after delivery to the Company of a request by the Required Holders to such
effect (which request may be given no more than once during any 180-day period),
the Company shall not have delivered a certificate to the Holders stating that
the removal of the Exercise Limitations would, in the good faith judgment of the
Company, not be consistent with applicable regulatory or other legal
requirements.
The Holders are entitled to certain registration rights with
respect to the Warrant Shares. Said registration rights are set forth in full in
the Registration Rights Agreement.
The Warrant Agreement provides that the number of Warrant
Shares and the Exercise Price may, subject to certain conditions, be adjusted.
No fractional Warrant Shares will be issued upon the exercise of the Warrants,
but the Company shall pay an amount in cash equal to the Current Market Value
per Warrant Share on the day immediately preceding the date the Warrant is
presented for exercise, multiplied by the fraction of a Warrant Share that would
be issuable on the exercise of any Warrant.
The Company may require from the transferring or exchanging
Holder payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable upon exchanges pursuant to Section 2.03 of the
Warrant Agreement and exchanges in respect of portions of Warrants not exercised
and the Company may deduct such taxes from any payment of money to be made and
such transfer or exchange shall not be consummated (if such taxes are not
deducted in full) unless or until the Holder shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
Upon any exercise of the Warrants for less than all of the
Warrants represented by this Warrant Certificate, there shall be issued to the
Holder hereof a new Warrant Certificate representing those Warrants which were
not exercised. This Warrant Certificate may be exchanged at the office of the
Company by presenting this Warrant Certificate properly endorsed with a request
to exchange this Warrant Certificate for other Warrant Certificates evidencing
an
3
equal number of Warrants. All shares of Common Stock issuable by the Holders
upon the exercise of the Warrants shall be duly and validly issued and fully
paid and non-assessable.
The holder in whose name this Warrant Certificate is
registered may be deemed and treated by the Company as the absolute owner of the
Warrants evidenced by this Warrant Certificate for all purposes whatsoever and
the Company shall not be affected by notice to the contrary.
The Warrants do not entitle any Holder hereof to any of the
rights of a stockholder of the Company.
THE TERMS AND CONDITIONS OF THIS WARRANT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
[Signature page follows]
4
This Warrant Certificate shall not be valid or obligatory for
any purpose until it shall have been signed by the Company.
PG&E CORPORATION
By: ________________________________
Name:
Title:
5
FORM OF ELECTION TO PURCHASE WARRANT SHARES
(to be executed only upon exercise of Warrants)
PG&E CORPORATION
The undersigned hereby irrevocably elects to exercise
______________ Warrants to acquire from PG&E Corporation (the "Company") shares
of Common Stock, no par value (the "Common Stock"), of the Company, at an
Exercise Price per share of Common Stock of $0.01 and otherwise on the terms and
conditions specified in the within Warrant Certificate and the Warrant Agreement
therein referred to, surrenders this Warrant Certificate and all right, title
and interest therein to PG&E Corporation and directs that the shares of Common
Stock deliverable upon the exercise of such Warrants be registered or placed in
the name and at the address specified below and delivered thereto.
Notwithstanding the foregoing, the undersigned may elect to exercise the
Warrants without the exchange of funds pursuant to the net exercise provisions
of Section 4.01 of the Warrant Agreement if the box set forth below opposite
"Cashless Exercise" is checked. If such election is not made, payment of the
Exercise Price by check must accompany this election.
Cashless Exercise:[_]
Date:
____________________________________________________________________________/1/
(Signature of Owner)
(Street Address)
(City) (State) (Zip Code)
Signature Guaranteed by:
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
____________________________
/1/ The signature must correspond with the name as written
upon the face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatever, and must be guaranteed by a
national bank or trust company or by a member firm of any national securities
exchange.
City, State and Zip Code:
A new Warrant Certificate evidencing any unexercised Warrants
evidenced by the within Warrant Certificate is to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
In connection with any transfer of any of the Warrants
evidenced by this certificate occurring prior to the expiration of the period
referred to in Rule 144(k) under the Securities Act after the later of June 25,
2002 and the last date, if any, on which such Warrants were owned by the Company
or any Affiliate of the Company, the undersigned certifies that such Warrants
are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [_] to the Company; or
(2) [_] pursuant to an effective registration statement under
the Securities Act of 1933; or
(3) [_] pursuant to Rule 144 under the Securities Act of 1933;
or
(4) [_] outside the United States in accordance with Rule 904
of Regulation S under the Securities Act of 1933; or
(5) [_] pursuant to another available exemption from
registration provided under the Securities Act of
1933.
Unless one of the boxes is checked, the Company will refuse to
register any of the Warrants evidenced by this certificate in the name of any
person other than the registered holder thereof; provided, however, that if box
(3) or (5) is checked, the Company may require, prior to registering any such
transfer of the Warrants, such legal opinions, additional certifications and
other information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, such as
the exemption provided by Rule 144 under such Act.
The undersigned, on behalf of itself and its affiliates,
hereby represents to the Company that upon and after the exercise of the
Warrants pursuant to this certificate into shares of Common Stock, it and its
affiliates are and will be in compliance with the Exercise Limitations
applicable to such Warrants pursuant to paragraphs 6 and 7 of the warrant
certificate.
____________________________
Signature
Signature Guarantee:
______________________________ ____________________________
Signature must be guaranteed Signature
____________________________________________________________________________
EXHIBIT B
TO THE WARRANT AGREEMENT
FORM OF TRANSFER RESTRICTION LEGEND
THIS SECURITY (OR ITS PREDECESSOR) AND THE WARRANT SHARES TO BE ISSUED UPON ITS
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS
SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (1) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" OR NOT A "U.S. PERSON" (AS DEFINED IN
RULE 902 OF THE SECURITIES ACT) AND (2) AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE COMPANY OR ANY OF THEIR SUBSIDIARIES, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT OR (D) PURSUANT TO RULE 144 OR ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
EXHIBIT C TO
WARRANT AGREEMENT
FORM OF ACCREDITED INVESTOR CERTIFICATE
TRANSFEREE LETTER OF REPRESENTATION
PG&E Corporation
One Market, Xxxxx Xxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Assistant Treasurer
Ladies and Gentlemen:
In connection with our proposed purchase of [ ] Warrants
(the "Warrants") entitling the holders thereof to purchase shares of common
stock, no par value, of PG&E Corporation, a California corporation (the
"Company"), we confirm that:
1. We are (a) an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act")), purchasing for our own account
or for the account of such an institutional "accredited investor" as to which we
exercise sole investment discretion, and we have such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Warrants, and we and any account for which we are
acting are each able to bear the economic risk of our or its investment or (b) a
non "U.S. person" (as defined in Rule 902 of the Securities Act).
2. We understand and acknowledge that the Warrants have not
been registered under the Securities Act or any other applicable securities law,
and that the Warrants may not be offered or sold except as permitted in the
following sentence. We agree, on our own behalf and on behalf of any account for
which we are acting, that if we should sell any Warrants within the time period
referred to in Rule 144(k) of the Securities Act, we will do so only (A) to the
Company or any subsidiary thereof, (B) to an institutional "accredited investor"
(as defined above) that, prior to such transfer, furnishes to the Company under
the Warrant Agreement, dated as of June 25, 2002, governing the Warrants a
signed letter containing certain representations and agreements relating to the
restrictions on transfer of the Warrants (the form of which letter can be
obtained from either the Company) and an opinion of counsel acceptable to the
Company that such transfer is in compliance with the Securities Act, (C) outside
the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (D) pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if available) or (E) pursuant to an effective
registration statement under the Securities Act, and we further agree to provide
to any person purchasing any of the Warrants from us a notice advising such
purchaser that resales of the Warrants are restricted as stated herein.
3. We understand that, on any proposed resale of any Warrants,
we will be required to furnish to the Company such certifications, legal
opinions and other information as
the Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Warrants
purchased by us will bear a legend to the foregoing effect.
4. We are acquiring the Warrants for investment purposes and
not with a view to distribution thereof or with any present intention of
offering or selling any Warrants, except as permitted above; provided that the
disposition of our property and property of any accounts for which we are acting
as fiduciary will remain at all times within our control.
You and the Company are entitled to rely upon this letter and
you are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By: _____________________________
Name:
Title:
Date: ___________________________
Upon transfer, the Warrants would be registered in the name of
the new beneficial owner as follows:
By: ______________________________
Date: _____________________________
Taxpayer ID number: _______________
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