-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T0LvXCXL+gPoh28LCza+x3MGAhE17b8ry8MwV5n2E+iy08y3d8wxy5r9bI/E4uVQ aUSK2ZTD0wq8CjUpVMceeA== 0001021408-02-008800.txt : 20020626 0001021408-02-008800.hdr.sgml : 20020626 20020626081626 ACCESSION NUMBER: 0001021408-02-008800 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020626 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020626 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PG&E CORP CENTRAL INDEX KEY: 0001004980 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 943234914 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12609 FILM NUMBER: 02687024 BUSINESS ADDRESS: STREET 1: ONE MARKET SPEAR TOWER STREET 2: SUITE 2400 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4152677000 MAIL ADDRESS: STREET 1: ONE MARKET SPEAR TOWER STREET 2: SUITE 2400 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 FORMER COMPANY: FORMER CONFORMED NAME: PG&E PARENT CO INC DATE OF NAME CHANGE: 19951214 8-K 1 d8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: June 26 2002 PG&E Corporation ----------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) California 1-12609 94-3234914 -------------------------------------------------------------------------- (State or other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) PG&E Corporation One Market, Spear Tower, Suite 2400 San Francisco, California 94105 -------------------------------------------------- (Address of principal executive offices) (Zip Code) (415) 267-7000 --------------------------------------------------- (Registrant's telephone number, including area code) Item 5. Other Events As previously disclosed, in November 2001 and March 2002, PG&E Corporation amended its March 1, 2001 Credit Agreement (as amended, the "Old Credit Agreement") with General Electric Capital Corporation ("GECC") and Lehman Commercial Paper Inc. ("LCPI") and their assignees (collectively, the "Existing Lenders"). The amendments provided PG&E Corporation the option to extend the original $1 billion aggregate term loan credit facility for two one-year periods so that the maturity date could be extended until as late as March 2, 2006, contingent upon PG&E Corporation making a principal repayment of $308 million by June 3, 2002. On June 3, 2002, PG&E Corporation made the principal repayment of $308 million, utilizing current working capital and reducing the principal balance outstanding under the Old Credit Agreement to $692 million. On June 25, 2002, PG&E Corporation entered into an Amended and Restated Credit Agreement (the "New Credit Agreement") with GECC (the "Tranche A Lender") and LCPI, and the lenders party thereto (collectively, the "Tranche B Lenders") which amended and restated the Old Credit Agreement. The New Credit Agreement provides for loans in two tranches. The Tranche A has a principal amount of $600 million (the "Tranche A Loan"), representing the $692 million outstanding under the Old Credit Agreement less $92 million that has been converted to a Tranche B Loan. The Tranche B consists of the $92 million converted loan plus $328 million of new borrowings, for a total of $400 million (the "Tranche B Loan"). The Tranche A Loan will continue to have the same maturity date and extension provisions as the Old Credit Agreement. The Tranche B loan will mature on the earlier of (1) September 2, 2006, or (2) the date of any spin-off of the shares of PG&E National Energy Group, Inc. ("NEG, Inc."), by its indirect parent, PG&E Corporation. The Tranche A Loan and the Tranche B Loan are collectively referred to as the "Loans." The Tranche A Loan continues to be secured by a first priority lien on (1) PG&E Corporation's equity interest in PG&E National Energy Group, LLC, a Delaware limited liability company ("NEG LLC"and together with its direct and indirect subsidiaries, the "NEG Group"), (2) NEG LLC's equity interest in NEG, Inc., and (3) certain cash interest reserves. The Tranche B Loan is secured by a second priority lien on the equity interests in NEG LLC and NEG, Inc. and by a first priority lien on certain other cash interest reserves. In addition, the Tranche B Loan is subordinated to the Tranche A Loan. PG&E Corporation issued to the lenders warrants to purchase approximately 2.4 million shares of common stock of PG&E Corporation at an exercise price of $0.01 per share ("Warrants"). As previously disclosed, in connection with the Old Credit Agreement, affiliates of the Existing Lenders received an option to purchase 3 percent of the shares of NEG, Inc., determined on a fully diluted basis, at an exercise price of $1.00. The option may be exercised at any time until 45 days after the full repayment of the Tranche A Loan. In addition, under the Old Credit Agreement, PG&E Corporation's exercise of each of its one-year extensions of the loan was conditioned upon NEG LLC granting affiliates of the Existing Lenders an additional option to purchase one percent of the common stock of NEG, Inc., determined on a fully-diluted basis, at an exercise price of $1.00 per share. As a result of the New Credit Agreement, the one percent has been reduced to approximately .87 percent of the common stock of NEG, Inc. (reflecting the reduction in the principal amount of the Tranche A Loan to $600 from the $692 million in loans outstanding under the Old Credit Agreement). The option may be exercised at any time from the relevant extension date until 45 days after full repayment or maturity of the Tranche A Loan. NEG LLC has the right to call the option after repayment of the Tranche A Loan in full at a cash purchase price equal to the fair market value of the underlying shares, or, at the election of NEG LLC if an initial public offering of the shares of NEG, Inc. ("IPO") has occurred, by delivering the underlying shares. If an IPO has not occurred prior to repayment of the Tranche A Loan in full, the holders of the option have the right to require NEG LLC or PG&E Corporation to repurchase the option at a purchase price equal to the fair market value of the underlying shares (the "Put Price"), which right is exercisable at any time after the earlier of full repayment of the Tranche A Loan or 45 days before expiration of the option. In addition to the grant of the additional option, PG&E Corporation must pay a fee of 3 percent of the then-outstanding balance of the Tranche A Loan as a condition for PG&E Corporation's exercise of each of the one-year extensions. The New Credit Agreement contains certain limitations on the ability of PG&E Corporation and certain of its subsidiaries to grant liens, consolidate, merge, purchase or sell assets, declare or pay dividends, incur indebtedness or make advances, loans and investments. However, the New Credit Agreement does not limit (1) PG&E Corporation's ability to spin-off its subsidiary, Pacific Gas and Electric Company (the "Utility"), substantially in accordance with the Utility's plan of reorganization proposed in the Utility's bankruptcy case pending in the U.S. Bankruptcy Court for the Northern District of California, (2) the ability of the members of the NEG Group to grant liens, purchase or sell assets, make investments and incur indebtedness in accordance with NEG, Inc.'s business plan, or (3) PG&E Corporation's ability to make investments in the Utility to the extent required by law or regulatory requirements. The New Credit Agreement also generally requires mandatory prepayments of the Loans with the net cash proceeds from incurrence of indebtedness, issuance or sale of equity and sales of assets, the receipt of condemnation or insurance proceeds, and distributions or dividends paid to PG&E Corporation; provided however, that (1) PG&E Corporation may make investments in the Utility with cash proceeds from equity sales or issuances to the extent required by law or regulatory requirements, (2) the NEG Group may use such proceeds, or hold such proceeds in cash, to purchase assets or make investments in accordance with NEG Inc.'s business plan, except that proceeds of an IPO must be used to the extent required to repay the Tranche A Loan. Any mandatory prepayments of the Loans will be applied first to the principal amount of the Tranche A Loan, and after the Tranche A Loan is paid in full, to the principal amount of the Tranche B Loan. The New Credit Agreement also requires PG&E Corporation to maintain an interest reserve account for each of the Tranche A Loan and the Tranche B Loans in an amount equal to one year's interest. A breach of any covenants would entitle the lenders to declare the Loans to be due and payable. The covenants include requirements that (1) NEG, Inc.'s unsecured long term debt have a credit rating of at least BBB - by Standard & Poor's or Baa3 by Moody's Investors Service, Inc., (2) the ratio of fair market value of NEG, Inc. to the aggregate amount of principal then outstanding under the Loans be not less than 2 to 1, and (3) PG&E Corporation maintain cash or cash equivalents (including amounts held in the interest reserves) of either 15 percent or 10 percent (depending upon when applicable) of the total principal amount of the Loans outstanding plus the principal amount of the Notes (as described below). Concurrent with the refinancing described above, on June 25, 2002, PG&E Corporation issued $280 million aggregate principal amount of 7.50% Convertible Subordinated Notes due June 30, 2007 ("Notes"), in a private offering. The Notes are unsecured and are subordinate to the Loans. PG&E Corporation will pay interest on the Notes semi-annually at a rate of 7.50 percent per year. PG&E Corporation has the right, subject to certain limitations, to pay interest by issuing additional Notes in lieu of paying cash. The New Credit Agreement prohibits PG&E Corporation from paying interest on the Notes (1) for 240 days after receipt by the Note trustee of notice delivered by the administrative agent or the Tranche A Lender stating that a default that would permit acceleration has occurred under the New Credit Agreement or (2) if, after such interest payment, PG&E Corporation's cash and cash equivalents are less than 20 percent of the total principal amount of the Loans outstanding plus the principal amount of the Notes, or 15 percent of such amount upon any extension of the Loans. In addition to interest, if PG&E Corporation pays cash dividends to holders of its common stock, Note holders are entitled to receive cash equal to the dividends that would have been paid with respect to the number of shares that the holder would be entitled to receive if the Notes had been converted on the dividend record date. The Notes may be converted by the holders into shares of PG&E Corporation's common stock at a conversion price equal to 119 percent of the volume-weighted average price of the common stock of PG&E Corporation over a 43-day period beginning three days after the closing of the transaction. The conversion price is subject to adjustment under certain circumstances, including upon consummation of any spin off transaction of the Utility as proposed in its plan of reorganization or a spin off of the shares of NEG, Inc. Following a Change of Control of PG&E Corporation, as such term is defined in the Note indenture, a Note holder has the right to require PG&E Corporation to repurchase the Note holder's Notes for cash at a price equal to 100 percent of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest. PG&E Corporation has agreed to provide, following consummation of a plan of reorganization of the Utility, registration rights in connection with the shares issuable upon conversion of the Notes and exercise of the Warrants. The net proceeds of the Loans and the Note issuance will be used to fund corporate working capital, repay certain indebtedness, and fund two interest reserve accounts. Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits Exhibit No. Description of Exhibit 99.1 Indenture, dated as of June 25, 2002, between PG&E Corporation and U.S. Bank, N.A., as Trustee. 99.2 Purchase Agreement, dated as of June 25, 2002, between PG&E Corporation and Lehman Brothers Inc., Jackson Investment Fund Ltd., Citadel Credit Trading Ltd. and Citadel Equity Fund Ltd., as the Purchasers. 99.3 Equity Registration Rights Agreement, dated as of June 25, 2002, between PG&E Corporation, as Issuer, and LB I Group Inc. and each other entity named as the signature pages thereto, as Initial Holders. 99.4 Amended and Restated Credit Agreement, dated as of June 25, 2002, among PG&E Corporation, as Borrower, the Lenders party thereto, Lehman Commercial Paper Inc., as Administrative Agent and Lehman Brothers Inc., as Lead Arranger and Book Manager. 99.5 Amended and Restated LLC Pledge Agreement, dated as of June 25, 2002, by and among PG&E Corporation, as Pledgor, PG&E National Energy Group, LLC, as Issuer, Lehman Commercial Paper Inc., as Administrative Agent and Deutsche Bank Trust Company Americas, as Collateral Agent for the benefit of the Lenders as Pledgee. 99.6 Amended and Restated Stock Pledge Agreement, dated as of June 25, 2002 by and among PG&E National Energy Group, LLC, as Pledgor, PG&E National Energy Group, Inc., as Issuer and Lehman Commercial Paper Inc., as Administrative Agent and Deutsche Bank Trust Company Americas, as Collateral Agent for the benefit of the Lenders as Pledgee. 99.7 Amended and Restated Option Agreement, dated as of June 25, 2002, by and among PG&E National Energy Group, Inc., PG&E Corporation, as Borrower, PG&E National Energy Group LLC and GPSF-F Inc. and LB I Group Inc., as the Initial Holders and each entity named on the signature pages thereto as the Subsequent Holders. 99.8 Intercreditor and Subordination Agreement, dated as of June 25, 2002. 99.9 Warrant Agreement, dated as of June 25, 2002, by and among PG&E Corporation, LB I Group Inc. and each other entity named on the signature pages thereto. 99.10 Resale Registration Rights Agreement, dated as of June 25, 2002, between PG&E Corporation as Issuer and the Purchasers identified on the signature pages thereto. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. PG&E CORPORATION By: /s/ LINDA CHENG __________________________ LINDA Y.H. CHENG Corporate Secretary Dated: June 26, 2002 EXHIBIT INDEX Exhibit No. Description of Exhibit 99.1 Indenture, dated as of June 25, 2002, between PG&E Corporation and U.S. Bank, N.A., as Trustee. 99.2 Purchase Agreement, dated as of June 25, 2002, between PG&E Corporation and Lehman Brothers Inc., Jackson Investment Fund Ltd., Citadel Credit Trading Ltd. and Citadel Equity Fund Ltd., as the Purchasers. 99.3 Equity Registration Rights Agreement, dated as of June 25, 2002, between PG&E Corporation, as Issuer, and LB I Group Inc. and each other entity named as the signature pages thereto, as Initial Holders. 99.4 Amended and Restated Credit Agreement, dated as of June 25, 2002, among PG&E Corporation, as Borrower, the Lenders party thereto, Lehman Commercial Paper Inc., as Administrative Agent and Lehman Brothers Inc., as Lead Arranger and Book Manager. 99.5 Amended and Restated LLC Pledge Agreement, dated as of June 25, 2002, by and among PG&E Corporation, as Pledgor, PG&E National Energy Group, LLC, as Issuer, Lehman Commercial Paper Inc., as Administrative Agent and Deutsche Bank Trust Company Americas, as Collateral Agent for the benefit of the Lenders as Pledgee. 99.6 Amended and Restated Stock Pledge Agreement, dated as of June 25, 2002 by and among PG&E National Energy Group, LLC, as Pledgor, PG&E National Energy Group, Inc., as Issuer and Lehman Commercial Paper Inc., as Administrative Agent and Deutsche Bank Trust Company Americas, as Collateral Agent for the benefit of the Lenders as Pledgee. 99.7 Amended and Restated Option Agreement, dated as of June 25, 2002, by and among PG&E National Energy Group, Inc., PG&E Corporation, as Borrower, PG&E National Energy Group LLC and GPSF-F Inc. and LB I Group Inc., as the Initial Holders and each entity named on the signature pages thereto as the Subsequent Holders. 99.8 Intercreditor and Subordination Agreement, dated as of June 25, 2002. 99.9 Warrant Agreement, dated as of June 25, 2002, by and among PG&E Corporation, LB I Group Inc. and each other entity named on the signature pages thereto. 99.10 Resale Registration Rights Agreement, dated as of June 25, 2002, between PG&E Corporation as Issuer and the Purchasers identified on the signature pages thereto. EX-99.1 3 dex991.txt INDENTURE DATED JUNE 25, 2002 PG&E CORPORATION 7.50% Convertible Subordinated Notes due 2007 ---------------------------------------------------------- INDENTURE Dated as of June 25, 2002 ---------------------------------------------------------- U.S. BANK, N.A. TRUSTEE ---------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1 Definitions .......................................................... 1 Section 1.2 Other Definitions .................................................... 12 Section 1.3 Incorporation by Reference of Trust Indenture Act .................... 13 Section 1.4 Rules of Construction ................................................ 14 Section 1.5 Acts of Holders ...................................................... 14 ARTICLE II THE SECURITIES Section 2.1 Form and Dating ...................................................... 15 Section 2.2 Execution and Authentication ......................................... 16 Section 2.3 Registrar, Paying Agent and Conversion Agent ......................... 17 Section 2.4 Paying Agent to Hold Money and Securities in Trust ................... 17 Section 2.5 Securityholder Lists ................................................. 17 Section 2.6 Transfer and Exchange ................................................ 18 Section 2.7 Replacement Securities ............................................... 19 Section 2.8 Outstanding Securities; Determination of Holder's Action ............. 20 Section 2.9 Temporary Securities ................................................. 20 Section 2.10 Cancellation ........................................................ 21 Section 2.11 Persons Deemed Owners ............................................... 21 Section 2.12 Special Transfer Provisions ......................................... 21 Section 2.13 CUSIP Numbers ....................................................... 26 Section 2.14 PIK Securities ...................................................... 26 ARTICLE III REPURCHASE UPON CHANGE OF CONTROL Section 3.1 Purchase of Securities at Option of the Holder upon Change of Control ............................................................ 26 Section 3.2 Effect of Change of Control Purchase Notice; Withdrawal .............. 31 Section 3.3 Deposit of Change of Control Purchase Price .......................... 32 Section 3.4 Securities Purchased in Part ......................................... 32 Section 3.5 Covenant to Comply With Securities Laws Upon Purchase of Securities ......................................................... 32 Section 3.6 Repayment to the Company ............................................. 33 ARTICLE IV COVENANTS Section 4.1 Payment of Securities ................................................ 33 Section 4.2 SEC and Other Reports ................................................ 33 Section 4.3 Compliance Certificate ............................................... 33 Section 4.4 Further Instruments and Acts ......................................... 34 Section 4.5 Maintenance of Office or Agency ...................................... 34 Section 4.6 Delivery of Certain Information ...................................... 34
2 Section 4.7 Restriction on Incurrence of Indebtedness ............................ 34 Section 4.8 Restriction on Spin-Offs ............................................. 36 Section 4.9 Pass-Through Dividends ............................................... 36 Section 4.10 144A Securities Determination ....................................... 36 ARTICLE V SUBORDINATION Section 5.1 Agreement of Subordination ........................................... 37 Section 5.2 Payments To Holders .................................................. 37 Section 5.3 Subrogation Of Securities ............................................ 40 Section 5.4 Authorization To Effect Subordination ................................ 41 Section 5.5 Notice To Trustee .................................................... 41 Section 5.6 Trustee's Relation To Senior Debt .................................... 42 Section 5.7 No Impairment Of Subordination ....................................... 42 Section 5.8 Certain Conversions Deemed Payment ................................... 42 Section 5.9 Article Applicable To Paying Agents .................................. 43 Section 5.10 Senior Debt Entitled To Rely ........................................ 43 Section 5.11 Continuing Offer .................................................... 43 Section 5.12 Authorization of the Initial Tranche A Lender to File Claims, etc. .. 43 Section 5.13 Section 5.13 Limitation on Remedies. ................................ 44 ARTICLE VI SUCCESSOR CORPORATION Section 6.1 When Company May Merge or Transfer Assets ............................ 44 ARTICLE VII DEFAULTS AND REMEDIES Section 7.1 Events of Default .................................................... 45 Section 7.2 Acceleration ......................................................... 47 Section 7.3 Other Remedies ....................................................... 48 Section 7.4 Waiver of Past Defaults .............................................. 48 Section 7.5 Control by Majority .................................................. 48 Section 7.6 Limitation on Suits .................................................. 48 Section 7.7 Rights of Holders to Receive Payment ................................. 49 Section 7.8 Collection Suit by Trustee ........................................... 49 Section 7.9 Trustee May File Proofs of Claim ..................................... 49 Section 7.10 Priorities .......................................................... 50 Section 7.11 Undertaking for Costs ............................................... 50 Section 7.12 Waiver of Stay, Extension or Usury Laws ............................. 50 ARTICLE VIII TRUSTEE Section 8.1 Duties of Trustee .................................................... 51 Section 8.2 Rights of Trustee .................................................... 52 Section 8.3 Individual Rights of Trustee ......................................... 53 Section 8.4 Trustee's Disclaimer ................................................. 53 Section 8.5 Notice of Defaults ................................................... 53 Section 8.6 Reports by Trustee to Holders ........................................ 54
3 Section 8.7 Compensation and Indemnity ........................................... 54 Section 8.8 Replacement of Trustee ............................................... 55 Section 8.9 Successor Trustee by Merger .......................................... 55 Section 8.10 Eligibility; Disqualification ....................................... 55 Section 8.11 Preferential Collection of Claims Against Company ................... 56 ARTICLE IX DISCHARGE OF INDENTURE Section 9.1 Discharge of Liability on Securities ................................. 56 Section 9.2 Repayment to the Company ............................................. 56 ARTICLE X AMENDMENTS Section 10.1 Without Consent of Holders .......................................... 56 Section 10.2 With Consent of Holders ............................................. 57 Section 10.3 Compliance with Trust Indenture Act ................................. 58 Section 10.4 Revocation and Effect of Consents, Waivers and Actions .............. 58 Section 10.5 Notation on or Exchange of Securities ............................... 58 Section 10.6 Trustee to Sign Supplemental Indentures ............................. 58 Section 10.7 Effect of Supplemental Indentures ................................... 58 ARTICLE XI CONVERSIONS Section 11.1 Conversion Privilege ................................................ 59 Section 11.2 Conversion Procedure; Conversion Price; Fractional Shares ........... 60 Section 11.3 Adjustment of Conversion Price ...................................... 61 Section 11.4 Consolidation or Merger of the Company .............................. 70 Section 11.5 Notice of Adjustment ................................................ 71 Section 11.6 Notice in Certain Events ............................................ 72 Section 11.7 Company To Reserve Stock: Registration; Listing ..................... 72 Section 11.8 Taxes on Conversion ................................................. 73 Section 11.9 Conversion After Record Date ........................................ 73 Section 11.10 Conversion Price ................................................... 74 Section 11.11 Company Determination Final ........................................ 74 Section 11.12 Responsibility of Trustee for Conversion Provisions ................ 74 Section 11.13 Unconditional Right of Holders to Convert .......................... 75 Section 11.14 Failure to Deliver Shares .......................................... 75 Section 11.15 Common Stock Restricted Securities Legends ......................... 75 ARTICLE XII MISCELLANEOUS Section 12.1 Trust Indenture Act Controls ........................................ 76 Section 12.2 Notices ............................................................. 76 Section 12.3 Communication by Holders with Other Holders ......................... 77 Section 12.4 Certificate and Opinion as to Conditions Precedent .................. 77 Section 12.5 Statements Required in Certificate or Opinion ....................... 77 Section 12.6 Separability Clause ................................................. 78 Section 12.7 Rules by Trustee, Paying Agent, Conversion Agent and Registrar ...... 78
4 Section 12.8 GOVERNING LAW ....................................... 78 Section 12.9 No Recourse Against Others .......................... 78 Section 12.10 Successors ......................................... 78 Section 12.11 Multiple Originals ................................. 78
EXHIBIT A Form of Global Security EXHIBIT B Form of 144A Global Security EXHIBIT C Form of Certificated Security EXHIBIT D Transfer Certificate EXHIBIT E Institutional Accredited Investor Letter EXHIBIT F Exchange Certificate EXHIBIT G Common Stock Restricted Securities Legend INDENTURE, dated as of June 25, 2002, between PG&E CORPORATION, a California corporation ("Company"), and U.S. BANK, N.A., a national banking association, as trustee ("Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as defined below) of the Company's 7.50% Convertible Subordinated Notes due 2007: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1 Definitions. "144A Global Security" means a permanent Global Security in the form of the Security attached hereto as Exhibit B, and that is deposited with and registered in the name of the Depositary, representing Securities that may be sold in reliance on Rule 144A. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Security, in each case to the extent applicable to such transaction and as in effect from time to time. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now or hereafter in effect, or any successor thereto. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of such board. "Board Resolution" means a resolution of the Board of Directors. "Business Day" means a 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. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. 2 "Capital Stock" means, with respect to any Person, any and all shares, interests, membership interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) the equity of such Person, whether now outstanding or issued after the date hereof, including without limitation, all common stock and preferred stock. "Cash Dividends" means any and all cash dividends and distributions, whether periodic, special, extraordinary, non-recurring or other, on the Common Stock, as declared by the Company's Board of Directors from time to time. "Certificated Securities" means Securities that are in the form of the Securities attached hereto as Exhibit C. "Closing Date" shall mean the date hereof. "Closing Price" means, for any security as of any date, the last closing trade price for such security on the principal United States securities market on which such security is traded (which is currently the New York Stock Exchange with respect to the Common Stock) as reported by Bloomberg Financial Markets (or any successor thereto, "Bloomberg"), or, if such exchange begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if such exchange is not the principal securities exchange or trading market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the highest bid prices and the lowest ask prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Price of such security on such date shall be the fair market value as mutually determined by the Company and the Majority Holders. "Common Stock" shall mean the Common Stock, no par value, of the Company existing on the date of this Indenture or any other shares of Capital Stock of the Company into which such Common Stock shall be reclassified or changed. "Company" means the party named as the "Company" in the first Section of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by any two Officers. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an asset sale or disposition of securities other than in the ordinary course of 3 business consistent with past practices (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income, plus (iii) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, the net of the effect of all payments made or received (if any) pursuant to Hedging Obligations) and any other Fixed Charge, to the extent that any such expense or other Fixed Charge was deducted in computing such Consolidated Net Income, plus (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period (other than items that were accrued in the ordinary course of business), in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute Consolidated Cash Flow of the Company only to the extent (i.e. in the same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "Consolidated Lease Obligation" means, with respect to any Person, for any period, the aggregate rental obligations of such Person and its consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP payable in respect of such period under leases of real and personal property (net of sublease income). "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries (for such period, on a consolidated basis, determined in accordance with GAAP); provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends, or distributions paid in cash to the specified Person or a Subsidiary of that Person, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions, or the making of loans or other advances, by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. 4 "Conversion Date" means, with respect to any Holder, the date on which such Holder has satisfied all the requirements to convert its Securities pursuant to Section 11.2. "Conversion Price" means that price initially determined by the Company pursuant to Section 11.10, as set forth in a notice in writing to the Trustee delivered pursuant to Section 11.1(b), as adjusted from time to time in accordance with the terms of Section 11.3 hereto. "Convertible Securities" shall mean evidences of indebtedness, shares of capital stock or other securities which are or may be at any time convertible into or exchangeable or exercisable for shares of Common Stock, other than the Securities. The term "Convertible Security" shall mean one of the Convertible Securities. "Corporate Trust Office" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at One California Street, Suite 2550, San Francisco, California, 94111 Attention: Corporate Trust Services, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as a successor Trustee may designate from time to time by notice to the Holders and the Company). "Credit Agreement" means the Amended and Restated Credit Agreement, dated as of the date hereof, among the Company, the Lenders party thereto, Lehman Commercial Paper Inc., as Administrative Agent, and Lehman Brothers Inc., as Lead Arranger and Book Manager, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means an event which is, or after notice or lapse of time or both would be, an Event of Default. "Designated Asset Amount" means properties and assets having a fair market value which is greater than 55% of the fair market value of the total assets of the Company and its Subsidiaries taken as a whole (as determined by a Qualified Appraiser). "Designated Senior Debt" means (i) any Obligations under the Financing Documents (as each term is defined in the Credit Agreement) and (ii) the Company's Senior Debt which, at the date of determination, has an aggregate amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend (including through the provision of letters of credit) up to, at least $150 million and is designated by the Company as "Designated Senior Debt" for purposes of this Indenture. 5 "Dividend" shall mean any dividend (including Cash Dividend) or other distribution on the Capital Stock of any Person whether in the form of cash, evidences of Indebtedness, or any other assets, properties or securities (other than shares of such Capital Stock) or any options, warrants or other rights to subscribe for or purchase any of the foregoing. "Ex-Dividend Time" means, with respect to any issuance or distribution on shares of Common Stock, the first date on which the shares of Common Stock trade regular way on the principal securities market on which the shares of Common Stock are then traded without the right to receive such issuance or distribution. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means Indebtedness of the Company in existence on the Issue Date excluding Indebtedness incurred under the Credit Agreement, but including, without limitation, the Option Debt. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than revolving credit borrowings under any Credit Facility) subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the specified Person or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations reflected on a balance sheet, as determined in accordance with GAAP, of the referent Person or any of its Subsidiaries following the Calculation Date. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of 6 letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon), in each case, on a consolidated basis and in accordance with GAAP, (iv) the interest component of Consolidated Lease Obligations, as determined in accordance with the rules of the Securities and Exchange Commission applicable to the computation of the ratio of earnings to fixed charges, and (v) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Subsidiaries, other than dividend payments on equity interests payable solely in equity interests of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. Notwithstanding the foregoing, to the extent that the Net Income of any Subsidiary is excluded from any calculation of "Consolidated Net Income" pursuant to clause (ii) of such definition, then the interest expenses of such Subsidiary shall be similarly excluded from any calculation of amounts in clauses (i), (ii), (iii) (but only to the extent that any interest expense covered by such clause (iii) is guaranteed by such Subsidiary), (iv) and (v) of this definition of "Fixed Charges". "GAAP" means generally accepted accounting principles in the United States of America in effect from time to time. "Global Securities" means Securities that are registered in the register of Securities in the name of a Depositary or a nominee thereof that either (a) are required to bear the Legend required by Section 2.6, which Securities will be in the form of a 144A Global Security or (b) are not required to bear the Legend required by Section 2.6, which Securities will be in the form of the Securities attached hereto as Exhibit A. "Hedging Obligations" means, with respect to any Person, the net payment obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements in the ordinary course of business and pursuant to past practices designed to protect such Person against fluctuations in commodity prices, interest rates or currency exchange rates. "Holder" or "Securityholder" means a person in whose name a Security is registered on the Registrar's books. "Indebtedness" of any Person means any indebtedness, whether or not contingent, (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) letters of credit (or reimbursement agreements in respect thereof), (iv) banker's acceptances, (v) representing Capital Lease Obligations, (vi) the balance deferred and unpaid of the purchase price of any property except any such balance that constitutes an accrued expense or trade payable, (vii) representing any Hedging Obligation, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is 7 assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. The amount of any indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Intercreditor Agreement" means the Intercreditor and Subordination Agreement, dated as of the date hereof, among Lehman Commercial Paper Inc., as Administrative Agent, the Tranche A Lenders party to the Credit Agreement from time to time, the Tranche B Lenders party to the Credit Agreement from time to time, the Holders party to the Warrant Agreement (as defined in the Credit Agreement) from time to time and Deutsche Bank Trust Company Americas, a Collateral Agent. "Interest Payment Dates" shall mean each June 30 and December 31, commencing on December 31, 2002. "Investment Grade" shall mean with respect to the Reference Debt of any Person, a credit rating of "BBB-" or better from Standard & Poor's Ratings Services (or any successor thereto) or "Baa3" from Moody's Investor Service, Inc. (or any successor thereto). "Issue Date" of any Security means the date on which the Security was originally issued or deemed issued as set forth on the face of the Security. "Liquidated Damages" shall mean, collectively, the Registration Default Liquidated Damages and the Share Liquidated Damages. "Majority Holders" shall mean the Holders of more than a 50% of the principal amount of the Securities at the time outstanding. "Net Assets" shall mean the difference between assets and liabilities determined in the manner contemplated elsewhere in the Indenture. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any asset sale other than in the ordinary course of business consistent with past practices (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries, in each case, other than in the ordinary course of business consistent with past practices and (ii) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss. "NYSE" means The New York Stock Exchange, Inc. 8 "Officer" means the Chairman of the Board, the Vice Chairman, the Chief Executive Officer, the President, any Executive Vice President, any Senior Vice President, any Vice President, the Treasurer, the Controller, or the Secretary or any Assistant Treasurer or Assistant Secretary of the Company. "Officers' Certificate" means a written certificate containing the information specified in Sections 12.4 and 12.5, signed in the name of the Company by any two Officers (other than Vice Presidents that are not Senior Vice Presidents or Executive Vice Presidents), and delivered to the Trustee. An Officers' Certificate given pursuant to Section 4.3 shall be signed by the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer or Controller of the Company but need not contain the information specified in Sections 12.4 and 12.5. "Opinion of Counsel" means a written opinion containing the information specified in Sections 12.4 and 12.5, from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of, or counsel to, the Company or the Trustee. "Option Agreement" means the Amended and Restated Option Agreement, dated as of the date hereof, by and among the Company, PG&E National Energy Group, Inc., PG&E National Energy Group, LLC, and the Holders party thereto, as amended from time to time. "Option Debt" means any present or future obligations of the Company under the Option Agreement pursuant to the terms and conditions of the Option Agreement as of the date hereof. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries (other than intercompany Indebtedness); provided that (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued and unpaid interest on, any Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable fees, commissions and other expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Securities, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Securities on terms at least as favorable to the Holders of Securities as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "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. 9 "PG&E" means Pacific Gas and Electric Company, a California corporation. "PIK Securities" shall have the meaning specified in Section 1 of the Security. "POR Spin-Co" means the business or businesses which are distributed in a Spin-Off to the shareholders of the Company in connection with a confirmed plan of reorganization of PG&E under Chapter 11 of the Bankruptcy Code; provided that the fair market value of the total Net Assets of POR Spin-Co is not more than 65% of the fair market value of the Company's total consolidated Net Assets at the time of the Spin-Off of POR Spin-Co (in each case, as determined by a Qualified Appraiser within 120 days prior to the date of such Spin-Off). "Pricing Period" means a fixed 43 Trading Day period beginning on and including the third Trading Day after the Closing Date, subject to adjustment as set forth herein. "Purchase Agreement" means the Purchase Agreement, dated as of the date hereof, among Lehman Brothers Inc., Jackson Investment Fund Ltd., Citadel Credit Trading Ltd. and Citadel Equity Fund Ltd. "QIB" means a Qualified Institutional Buyer as defined in Rule 144A of the Securities Act. "Qualified Appraiser" means an investment banking or other appraisal firm of national standing as reasonably selected by the Company. For any selection of a Qualified Appraiser under this Indenture, the Company shall propose three Persons meeting the criteria set forth in the preceding sentence (the "candidates") and shall provide the Holders written notice setting forth the identity of the candidates. Upon receipt of such notice, the Majority Holders shall have 30 days to select the Qualified Appraiser from among the candidates by providing written notice of such selection to the Company. If the Company has not received such written notice within such 30-day period, the Company shall select the Qualified Appraiser from among the candidates. "Reference Debt" shall mean with respect to any Person, the long-term unsecured Indebtedness of such Person not benefiting from any guarantee, support agreement or other credit enhancement. "Registration Default Liquidated Damages" shall have the meaning ascribed to such term in the Registration Rights Agreement. "Registration Rights Agreement" means the Resale Registration Rights Agreement, dated as of the date hereof, between the Company, Jackson Investment Fund Ltd., Citadel Credit Trading Ltd. and Citadel Equity Fund Ltd., as amended from time to time. "Representative" shall mean, with respect to any Designated Senior Debt, a trustee or other authorized representative under any agreement or other instrument pursuant to which such Designated Senior Debt was issued. For the purposes of this definition, "Representative" shall also include the Initial Tranche A Lender (as such term is defined in the Credit Agreement). 10 "Responsible Officer" shall mean any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Restricted Security" means a Security required to bear the restrictive legend set forth in the form of Security set forth in Exhibits A and B of this Indenture. "Rule 144" means Rule 144 under the Securities Act (or any successor provision), as it may be amended from time to time. "Rule 144A" means Rule 144A under the Securities Act (or any successor provision), as it may be amended from time to time. "SEC" means the Securities and Exchange Commission. "Securities" means any of the Company's 7.50% Convertible Subordinated Notes due 2007, as amended or supplemented from time to time, issued under this Indenture. The term "Securities" shall include any PIK Securities issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Securityholder" or "Holder" means a person in whose name a Security is registered on the Registrar's books. "Senior Debt" means: (i) the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding), and rent payable on or termination payments with respect to or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness of the Company, whether outstanding on the date of this Indenture or subsequently created, incurred, assumed, guaranteed or in effect guaranteed by the Company; and (ii) all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing; unless in the case of any particular Indebtedness, the instrument creating or evidencing such Indebtedness or the assumption or guarantee thereof expressly provides that the Indebtedness shall not be senior in right of payment to the Securities or expressly provides that such Indebtedness is equal with or junior to the Securities. "Senior Debt" shall also include any claims of the holders of Senior Debt with respect to any judgment ordered by a court in any action brought at law or in equity (such as an action brought for recession, restitution, or unjust enrichment) against the Company or any Credit Party (as defined in the Credit Agreement) in 11 lieu, in whole or in part, of an action to enforce the obligations of the Company or any Credit Party under the Financing Documents (as defined in the Credit Agreement). For the avoidance of doubt, the Option Debt shall be deemed to be Senior Debt. However, the term "Senior Debt" will not include: (i) the Indebtedness owed by the Company to any Subsidiary, (ii) any liability for federal, state, local or other taxes owed or owing by the Company, (iii) any trade payables; (iv) any Indebtedness that is convertible into or exchangeable for Common Stock; (v) any Indebtedness that is not permitted pursuant to Section 4.7 of this Agreement and (vi) the Securities. "Significant Subsidiary" shall have the meaning ascribed to such term in Rule 405 of the Securities Act. "Stated Maturity", when used with respect to any Security, means June 30, 2007. "Subsidiary" means any Person of which at least a majority of the outstanding Voting Stock shall at the time directly or indirectly be owned or controlled by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. "TIA" means the Trust Indenture Act of 1939 as in effect on the date of this Indenture, provided, however, that in the event the TIA is amended after such date, TIA means, to the extent required by any such amendment, the TIA as so amended. "Trading Day" means a day during which trading in securities generally occurs on the NYSE or, if the Common Stock is not listed on the NYSE, on the principal other national or regional securities exchange on which the Common Stock then is listed or, if the Common Stock is not listed on a national or regional securities exchange, on the National Association of Securities Dealers Automated Quotation System or, if the Common Stock is not quoted on the National Association of Securities Dealers Automated Quotation System, on the principal other market on which the Common Stock is then traded; provided, however, that, for the purposes of Section 11.10 only, "Trading Day" shall not include any day (an "excluded day") during which trading in the Common Stock is suspended for more than three hours between 9:30 am. (New York time) and 4:00 p.m. (New York time), provided, further, however, that, after the 75th calendar day following the Closing Date, the Majority Holders may waive the application of the preceding proviso and designate any excluded day as a "Trading Day" (and such excluded day shall thereafter be deemed a Trading Day) by providing written notice of such waiver to the Company within three Business Days of any such excluded day. "Trustee" means the party named as the "Trustee" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors. "Voting Stock" of a Person means Capital Stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). 12 "VWAP" means, 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 and ignoring any block trade (which for purposes of this definition means any transfer of more than 100,000 shares (subject to adjustment to reflect stock dividends, stock splits, stock combinations or other similar transactions after the date of this Indenture) of such security pursuant to an individual transaction), 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 and ignoring any block trade (which for purposes of this definition means any transfer of more than 100,000 shares (subject to adjustment to reflect stock dividends, stock splits, stock combinations or other similar transactions after the date of this Indenture) of such security pursuant to an individual transaction), 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 then outstanding. Section 1.2 Other Definitions
Term Section: Defined in: "Agent Members"............................................ 2.12(e) "beneficial owner"......................................... 3.1(a) "Change of Control"........................................ 3.1(a) "Change of Control Notice"................................. 3.1(b) "Change of Control Purchase Date".......................... 3.1(a) "Change of Control Purchase Notice"........................ 3.1(c) "Change of Control Purchase Price"......................... 3.1(a) "Common Stock Record Date"................................. 11.3(f) "Common Stock Restricted Securities Legend"................ 11.14 "Continuing Director"...................................... 3.1(a) "Conversion Agent"......................................... 2.3 "Conversion Limitations"................................... 11.1(c) "Current Market Value"..................................... 11.3(f) "Depositary"............................................... 2.1(b) "Designated Senior Debt"................................... 5.2 "Event of Default"......................................... 7.1
13
Term Section Defined in: "Excess Amount"........................ 11.3(e) "Excess Shares"........................ 11.1(d) "Exchange Act"......................... 2.12(e) "Expiration Time"...................... 11.3(e) "Fair Market Value".................... 11.3(f) "4.9% Limitation"...................... 11.1(c) "Legal Holiday"........................ 12.8 "Legend"............................... 2.6(f) "Non-Electing Share"................... 11.4 "Notice of Default".................... 7.1 "Pass-Through Dividend"................ 4.9 "Paying Agent"......................... 2.3 "Payment Blockage Notice".............. 5.2 "Permitted Indebtedness"............... 4.7 "Pricing Period"....................... 1.1 "Reference Period"..................... 11.3(d) "Registrar"............................ 2.3 "Rule 144A Information"................ 4.6 "Share Delivery Default"............... 11.15 "Share Liquidated Damages"............. 11.15 "Shareholder Limitation"............... 11.1(c) "Spin-Co".............................. 3.11 "Spin-Off"............................. 11.3(d) "Spun-Off Value"....................... 3.1(a)(1)(iv) "Standstill Period".................... 5.13(a) "Third Parties"........................ 11.1(d) "Trigger Event"........................ 11.3(d)
Section 1.3 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company. 14 All other TIA terms used in this Indenture that are not defined herein and that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. Section 1.4 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (3) "or" is not exclusive; (4) "including" means including, without limitation; and (5) words in the singular include the plural, and words in the plural include the singular. Section 1.5 Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company, as described in Section 12.2. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to such officer the execution thereof. Where such execution is by a signer acting in a capacity other than such signer's individual capacity, such certificate or affidavit shall also constitute sufficient proof of such signer's authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The principal amount and serial number of any Security and the ownership of Securities shall be proved by the Registrar. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the 15 Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. ARTICLE II THE SECURITIES Section 2.1 Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibits A, B and C, which are a part of this Indenture. The Securities may have such other notations, legends or endorsements required by law, stock exchange rule or usage (provided that any such notation, legend or endorsement required by usage is in a form acceptable to the Company). The Company shall provide any such other notations, legends or endorsements to the Trustee in writing. Each Security shall be dated the date of its authentication. (a) Certificated Securities. The Securities shall initially be issued as Certificated Securities. (b) 144A Global Securities. If, (i) pursuant to the terms of the Securities, the Conversion Price shall equal an amount such that the Securities meet the requirements of Rule 144A(d)(3)(i), and (ii) the Securities have been accepted for clearance and settlement through the facilities of DTC, Holders shall have the right, subject to Section 2.12(a)(iv), to exchange their Certificated Securities for interests in a 144A Global Security, which shall be deposited with the Trustee at its Corporate Trust Office, as custodian for the Depositary (as defined below) and registered in the name of DTC or the nominee thereof (DTC, or any successor thereto, and any such nominee being hereinafter referred to as the "Depositary"), duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the 144A Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, the Registrar and the Depositary as hereinafter provided. (c) Global Securities in General. Each Global Security shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall 16 represent the aggregate amount of outstanding Securities from time to time endorsed thereon and that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, repurchases and conversions. Any adjustment of the aggregate principal amount of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee in accordance with instructions given by the Holder thereof as required by Section 2.12 hereof and shall be made on the records of the Trustee, the Registrar and the Depositary. (d) Book-Entry Provisions. This Section 2.1(d) shall apply only to Global Securities deposited with or on behalf of the Depositary. If the Securities are accepted for clearance and settlement through the facilities of DTC, the Company shall execute and the Trustee shall, in accordance with this Section 2.1(d), authenticate and deliver one or more Global Securities that (a) shall be registered in the name of the Depositary, (b) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instructions and (c) shall be substantially in the form of Exhibit A or Exhibit B attached hereto. Section 2.2 Execution and Authentication. The Securities shall be executed on behalf of the Company by any Officer. The signature of the Officer on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at the time of the execution of the Securities Officers shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of authentication of such Securities. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. The Trustee shall authenticate and deliver the Securities for original issue in an aggregate principal amount of up to $280,000,000 upon one or more Company Orders without any further action by the Company (other than as contemplated in Section 12.4 and Section 12.5 hereof). Notwithstanding the foregoing, the aggregate principal amount of the Securities due at the Stated Maturity thereof permitted to be outstanding at any time may exceed the amount set forth in the foregoing sentence only by an amount sufficient to permit payments of interest or Liquidated Damages in PIK Securities as provided for in the Securities. The Securities shall be issued only in registered form without coupons and only in denominations of $1,000 of principal amount and any integral multiple of $1,000; provided, however that PIK Securities may be in denominations of $1.00 of principal amount and any integral multiple of $1.00. 17 Section 2.3 Registrar, Paying Agent and Conversion Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for purchase or payment ("Paying Agent") and an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars, one or more additional paying agents and one or more additional conversion agents. The term Paying Agent includes any additional paying agent, including any named pursuant to Section 4.5. The term Conversion Agent includes any additional conversion agent, including any named pursuant to Section 4.5. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent, Conversion Agent or co-registrar (in each case, if such Registrar, agent or co-registrar is a Person other than the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 8.7. The Company or any Subsidiary or an Affiliate of either of them may not act as Paying Agent, Registrar, Conversion Agent or co-registrar under this Indenture. The Company initially appoints the Trustee as Registrar, Conversion Agent and Paying Agent in connection with the Securities. Section 2.4 Paying Agent to Hold Money and Securities in Trust. Except as otherwise provided herein, on or prior to each due date of payments in respect of any Security, the Company shall deposit with the Paying Agent a sum of money (in immediately available funds if deposited on the due date) sufficient to make such payments when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the making of payments in respect of the Securities and shall notify the Trustee of any default by the Company in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the written request of the Trustee, forthwith pay to the Trustee all money so held in trust. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds and Common Stock disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money. Section 2.5 Securityholder Lists. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee at least semi-annually on January 1 and July 1 all information in the possession or control of the Company as to the names and addresses of the Securityholders dated within 15 days of the date on which the list is furnished and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. The Trustee shall preserve in as current a form as is reasonably practicable all information received from the Company as to the names and addresses of Securityholders. 18 Section 2.6 Transfer and Exchange. (a) Subject to Section 2.12 hereof, upon surrender for registration of transfer of any Security, together with a written instrument of transfer satisfactory to the Registrar duly executed by the Securityholder or such Securityholder's attorney duly authorized in writing, at the office or agency of the Company designated as Registrar or co-registrar pursuant to Section 2.3, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations, of a like aggregate principal amount. The Company shall not charge a service charge for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the transfer or exchange of the Securities from the Securityholder requesting such transfer or exchange. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate principal amount upon surrender of the Securities to be exchanged, together with a written instrument of exchange satisfactory to the Registrar duly executed by the Securityholder or such Securityholder's attorney duly authorized in writing, at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of any Securities in respect of which a Change of Control Purchase Notice has been given and not withdrawn by the Holder thereof in accordance with the terms of this Indenture. (b) Notwithstanding any provision to the contrary herein, so long as a Global Security remains outstanding and is held by or on behalf of the Depositary, transfers of a Global Security, in whole or in part, shall be made only in accordance with Section 2.12 and this Section 2.6(b). Transfers of a Global Security shall be limited to transfers of such Global Security in whole or in part, to the Depositary, to nominees of the Depositary or to a successor of the Depositary or such successor's nominee. (c) Successive registrations and registrations of transfers and exchanges as aforesaid may be made from time to time as desired, and each such registration shall be noted on the register for the Securities. (d) Any Registrar appointed pursuant to Section 2.3 hereof shall provide to the Trustee such information as the Trustee may reasonably require in connection with the delivery by such Registrar of Securities upon transfer or exchange of Securities. (e) No Registrar shall be required to make registrations of transfer or exchange of Securities during any periods designated in the text of the Securities or in this Indenture as periods during which such registration of transfers and exchanges need not be made. (f) If Securities are issued upon the transfer, exchange or replacement of Securities subject to restrictions on transfer and bearing the legends set forth on the forms of 19 Security attached hereto as Exhibits B and C setting forth such restrictions (collectively, the "Legend"), or if a request is made to remove the Legend on a Security, the Securities so issued shall bear the Legend, or the Legend shall not be removed, as the case may be, unless there is delivered to the Company and the Registrar the evidence required pursuant to the Legend and pursuant to Section 2.12. Upon (i) provision of such satisfactory evidence or (ii) notification by the Company to the Trustee and Registrar of the sale of such Security pursuant to a registration statement that is effective at the time of such sale, the Trustee, at the written direction of the Company, shall authenticate and deliver a Security that does not bear the Legend. If the Legend is removed from the face of a Security and the Security is subsequently held by the Company or an Affiliate of the Company, the Legend shall be reinstated. (g) Notwithstanding the provisions of Section 2.6(f) above or Sections 2.12(b) and (c) below, a pledge or other hypothecation of any Security to a bank or other financial institution that is either an accredited investor or a QIB, in connection with any bona fide margin agreement or other loan or financing arrangement shall not be deemed to constitute a "transfer" for purposes of this Indenture. Any foreclosure or other disposition of any Securities so pledged or otherwise hypothecated by such bank or other financial institution shall constitute a "transfer" for all purposes hereunder and shall be made only in accordance with the applicable provisions hereof. Section 2.7 Replacement Securities. If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a certificate number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be purchased by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of issuing a new Security, pay or purchase such Security, as the case may be. Upon the issuance of any new Securities under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 2.7 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. 20 The provisions of this Section 2.7 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 2.8 Outstanding Securities; Determination of Holder's Action. Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those paid pursuant to Section 2.7, those delivered to it for cancellation and those described in this Section 2.8 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate thereof holds the Security; provided, however, that in determining whether the Holders of the requisite principal amount of Securities have given or concurred in any request, demand, authorization, direction, notice, consent, waiver, or other Act hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other Act, only Securities which a Responsible Officer knows are so owned shall be so disregarded. Subject to the foregoing, only Securities outstanding at the time of such determination shall be considered in any such determination (including, without limitation, determinations pursuant to Articles 7 and 10). If a Security is replaced pursuant to Section 2.7, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the Paying Agent holds, in accordance with this Indenture, on the Business Day following a Change of Control Purchase Date, or on Stated Maturity, money sufficient to pay Securities payable on that date, then immediately after such Change of Control Purchase Date or Stated Maturity, as the case may be, such Securities shall cease to be outstanding and interest, including Liquidated Damages and Pass-Through Dividends, if any, on such Securities shall cease to accrue. If a Security is converted in accordance with Article 11, then from and after the time of conversion on the date of conversion, such Security shall cease to be outstanding and interest, including Liquidated Damages and Pass-Through Dividends, if any, shall cease to accrue on such Security. Section 2.9 Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the 21 temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 2.3, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Section 2.10 Cancellation. All Securities surrendered for payment, purchased by the Company pursuant to Article 3, conversion or registration of transfer or exchange shall, if surrendered to any person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. The Company may not issue new Securities to replace Securities it has repurchased, paid for or delivered to the Trustee for cancellation, or that any Holder has converted pursuant to Article 11. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with the Trustee's customary procedure. Section 2.11 Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of the Security or the payment of any Change of Control Purchase Price in respect thereof, and interest thereon, for the purpose of conversion and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 2.12 Special Transfer Provisions. (a) Notwithstanding any other provisions of this Indenture or the Securities, (A) transfers of a Global Security, in whole or in part, shall be made only in accordance with Section 2.6 and Section 2.12(a)(i), (B) transfers of a beneficial interest in a Global Security for a Certificated Security shall comply with Section 2.6, Section 2.12(a)(ii) below and Section 2.12(e)(1) below, and (C) transfers of a Certificated Security shall comply with Section 2.6 and Sections 2.12(a)(iii) and (iv) below. (i) Transfer of Global Security. A Global Security may not be transferred, in whole or in part, to any person other than the Depositary or a nominee or any successor thereof, and no such transfer to any such other person may be registered; provided that this clause (i) shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security to any person shall be effective under this Indenture or the Securities unless and until such Security has been registered in the name of such person. Nothing in this Section 2.12(a)(i) shall prohibit or render ineffective any transfer of a beneficial interest in a Global Security effected in accordance with the other provisions of this Section 2.12(a). 22 (ii) Restrictions on Transfer of a Beneficial Interest in a Global Security for a Certificated Security. A beneficial interest in a Global Security may not be exchanged for a Certificated Security except upon satisfaction of the requirements set forth below and in Section 2.12(e)(1) below. Upon receipt by the Trustee of a transfer of a beneficial interest in a Global Security in accordance with Applicable Procedures for a Certificated Security in the form satisfactory to the Trustee, together with: (A) so long as the Securities are Restricted Securities, certification in the form set forth in Exhibit D; (B) written instructions to the Trustee to make, or direct the Registrar to make, an adjustment on its books and records with respect to such Global Security to reflect a decrease in the aggregate principal amount of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such decrease; and (C) if the Company so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the Legend, then the Trustee shall cause, or direct the Registrar to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Registrar, the aggregate principal amount of the Securities represented by the Global Security to be decreased by the aggregate principal amount of the Certificated Security to be issued, shall issue such Certificated Security and shall debit or cause to be debited to the account of the person specified in such instructions a beneficial interest in the Global Security equal to the principal amount of the Certificated Security so issued. (iii) Transfer and Exchange of Certificated Securities. When Certificated Securities are presented to the Registrar with a request: (y) to register the transfer of such Certificated Securities; or (z) to exchange such Certificated Securities for an equal principal amount of Certificated Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Certificated Securities surrendered for transfer or exchange: (1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (2) so long as such Securities are Restricted Securities, such Securities are being transferred or exchanged pursuant to an effective registration 23 statement under the Securities Act or pursuant to clause (A), (B) or (C) below, and are accompanied by the following additional information and documents, as applicable: (A) if such Certificated Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect; or (B) if such Certificated Securities are being transferred to the Company, a certification to that effect; or (C) if such Certificated Securities are being transferred pursuant to an exemption from registration, (i) a certification to that effect (in the form set forth in Exhibit D, if applicable) and (ii) if the Company so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the Legend. (iv) Restrictions on Transfer of a Certificated Security for a Beneficial Interest in a Global Security. A Certificated Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Certificated Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (I) so long as the Securities are Restricted Securities, certification, in the form set forth in Exhibit F, that either (x) the Holder of such Certificated Security is a QIB and is exchanging its Certificated Security for an interest in the Global Security pursuant to Section 2.1(b) or (y) the Securities represented by such Certificated Security are being transferred in compliance with Rule 144A; and (II) written instructions directing the Trustee to make, or to direct the Registrar to make, an adjustment on its books and records with respect to such Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Certificated Security and cause, or direct the Registrar to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Registrar, the aggregate principal amount of Securities represented by the Global Security to be increased by the aggregate principal amount of the Certificated Security to be exchanged, and shall credit or cause to be credited to the account of the person 24 specified in such instructions a beneficial interest in the Global Security equal to the principal amount of the Certificated Security so cancelled. If no Global Securities are then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Security in the appropriate principal amount. (b) Subject to the succeeding Section (c), every Security shall be subject to the restrictions on transfer provided in the Legend including the delivery of an opinion of counsel, if so provided. Whenever any Restricted Security is presented or surrendered for registration of transfer or for exchange for a Security registered in a name other than that of the Holder, such Security must be accompanied by a certificate in substantially the form set forth in Exhibit D, dated the date of such surrender and signed by the Holder of such Security, as to compliance with such restrictions on transfer. The Registrar shall not be required to accept for such registration of transfer or exchange any Security not so accompanied by a properly completed certificate. (c) The restrictions imposed by the Legend upon the transferability of any Security shall cease and terminate when such Security has been sold pursuant to an effective registration statement under the Securities Act or transferred in compliance with Rule 144 or, if earlier, upon the expiration of the holding period applicable to sales thereof under Rule 144(k). Any Security as to which such restrictions on transfer shall have expired in accordance with their terms or shall have terminated may, upon a surrender of such Security for exchange to the Registrar in accordance with the provisions of this Section 2.12 (accompanied, in the event that such restrictions on transfer have terminated by reason of a transfer in compliance with Rule 144, by an opinion of counsel having substantial experience in practice under the Securities Act and otherwise reasonably acceptable to the Company, addressed to the Company and in form acceptable to the Company, to the effect that the transfer of such Security has been made in compliance with Rule 144), be exchanged for a new Security, of like tenor and aggregate principal amount, which shall not bear the restrictive Legend. The Company shall inform the Trustee of the effective date of any registration statement registering the Securities under the Securities Act. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned opinion of counsel or registration statement. (d) As used in the preceding two paragraphs of this Section 2.12, the term "transfer" encompasses any sale, transfer, loan or other disposition of any Security; but subject to the provisions of Section 2.6(g) above. (e) The provisions of clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Notwithstanding any other provisions of this Indenture or the Securities, a Global Security shall not be exchanged in whole or in part for a Security registered in the name of any person other than the Depositary or one or more nominees thereof, provided that a Global Security may be exchanged for Securities registered in the names of any person designated by the 25 Depositary in the event that (i) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or such Depositary has ceased to be a "clearing agency" registered under the Exchange Act, and a successor Depositary is not appointed by the Company within 90 days or (ii) an Event of Default has occurred and is continuing with respect to the Securities. Any Global Security exchanged pursuant to clause (i) above shall be so exchanged in whole and not in part, and any Global Security exchanged pursuant to clause (ii) above may be exchanged in whole or from time to time in part as directed by the Depositary. Any Security issued in exchange for a Global Security or any portion thereof shall be a Global Security; provided that any such Security so issued that is registered in the name of a person other than the Depositary or a nominee thereof shall not be a Global Security. (2) Securities issued in exchange for a Global Security or any portion thereof shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear the applicable legends provided for herein. Any Global Security to be exchanged in whole shall be surrendered by the Depositary to the Trustee, as Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof. (3) Subject to the provisions of clause (5) below, the registered Holder may grant proxies and otherwise authorize any person, including Agent Members (as defined below) and persons that may hold interests through Agent Members, to take any action which a holder is entitled to take under this Indenture or the Securities. (4) In the event of the occurrence of any of the events specified in clause (1) above, the Company will promptly make available to the Trustee a reasonable supply of Certificated Securities in definitive, fully registered form, without interest coupons. (5) Neither any members of, or participants in, the Depositary (collectively, the "Agent Members") nor any other persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect 26 to any Global Security registered in the name of the Depositary or any nominee thereof, or under any such Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any Security. Section 2.13 CUSIP Numbers. The Company may issue the Securities with one or more "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. Section 2.14 PIK Securities. Pursuant to the terms of the Securities, the Company may pay interest or Liquidated Damages in the form of PIK Securities. If the Conversion Price is of an amount such that the Securities initially issued under this Indenture meet the requirements of Rule 144A(d)(3)(i), but if the Company does not receive satisfactory evidence that any PIK Securities issued under this Indenture in respect of any interest or Liquidated Damages payment will meet the requirements of Rule 144A(d)(3)(i) and as a result of the failure of such PIK Securities to meet such requirements, such PIK Securities would not be transferable under Rule 144A, the Company shall issue such PIK Securities in a new series under this Indenture, with terms and provisions identical in all respects to all other Securities issued under this Indenture, provided that such series of PIK Securities shall have a separate CUSIP number. ARTICLE III REPURCHASE UPON CHANGE OF CONTROL Section 3.1 Purchase of Securities at Option of the Holder upon Change of Control. (a) (1) In the event that a Change of Control shall occur, each Holder shall have the right, at the Holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Securities, or any portion of the principal amount thereof that is equal to any integral multiple of $1,000 (or any integral multiple of $1.00 in the case of a PIK Security) (provided that no single Security may be repurchased in part unless the portion of the principal amount of such Security to be outstanding after such repurchase is equal to an integral multiple of $1,000 (or any integral multiple of $1.00 in the case of a PIK Security)), on the date specified in the Change of Control Notice given pursuant to 27 Section 3.1(b) in connection with such Change of Control (the "Change of Control Purchase Date") that is no earlier than 30 days nor later than 60 days after the date of such notice at a purchase price specified in Section 5 of the Securities, (the "Change of Control Purchase Price") subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 3.1(c). In the event that the Company fails to deliver a Change of Control Notice on or prior to the 30th day after the occurrence of a Change of Control, then the Company shall be deemed to have delivered a Change of Control Notice on such 30th day and shall be deemed to have specified a Change of Control Date of the 60th day after the occurrence of such Change of Control. A "Change of Control" will be deemed to have occurred at such time after the Securities are originally issued when any of the following events shall occur: (i) the acquisition by any person, including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions, of shares of the Capital Stock of the Company entitling that person to exercise 50% or more of the total voting power of all shares of the Capital Stock of the Company entitled to vote generally in elections of directors, other than any acquisition by the Company, any of its Subsidiaries or any of its employee benefit plans (except that any of those persons shall be deemed to have beneficial ownership of all securities it has the right to acquire, whether the right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); (ii) the first day on which a majority of the members of the board of directors of the Company does not consist of Continuing Directors; provided that any such change in board membership occurring in connection with a Spin-Off of the POR Spin-Co, shall not be deemed to constitute a Change of Control hereunder; (iii) if the Company engages in one or more Spin-Offs, which together with all other Spin-Offs engaged in by the Company since the date of this Indenture involves the distribution to the Company's shareholders, in the aggregate, of one or more Subsidiaries subject to a Spin-Off (a "Spin-Co") having total Net Assets with a fair market value of more than 55% of the fair market value of the Company's total consolidated Net Assets at the time of the first Spin-Off occurring after the date of this Indenture (in each case, as determined by a Qualified Appraiser within 120 days prior to the date of any such Spin-Off); provided, however, that no such event shall be deemed to constitute a Change of Control hereunder if it occurs prior to the time that the Obligations (as defined in the Credit Agreement) (unless pursuant to the terms of the Credit Agreement, the Company is permitted to repurchase any Securities tendered following the occurrence of any Change of Control in accordance with the provisions of Article III hereof, including a Spin-Off described in this clause (iii)), have been repaid in full; and provided, further that in no event shall a Spin-Off of the POR Spin-Co, in and of itself, be deemed to constitute a Change of Control hereunder if such Spin-Off is the first Spin-Off occurring after the date of this Indenture; 28 (iv) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of assets of the Company and its Subsidiaries which, together with the aggregate fair market value of all Capital Stock distributed in all prior Spin-Offs engaged in by the Company since the date of this Indenture other than the POR Spin-Off ("Spun-Off Value"), have an aggregate fair market value which is greater than 50% of the sum of the fair market value of the total assets of the Company and its Subsidiaries taken as a whole (as determined by a Qualified Appraiser) at the time of such disposition, plus the Spun-Off Value, to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act); or (v) the Company consolidates or merges with or into any other person or any merger of another person into the Company, other than: (A) any transaction: (1) that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of the Company's Capital Stock and (2) pursuant to which the holders of 50% or more of the total voting power of the Company's Capital Stock entitled to vote generally in elections of directors immediately prior to the transaction, taken as a whole, have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of Capital Stock entitled to vote generally in elections of directors of the continuing or surviving Person immediately after giving effect to such issuance; or (B) any merger primarily for the purpose of changing the Company's jurisdiction of incorporation and resulting in a reclassification, conversion or exchange of outstanding shares of Common Stock, if at all, solely into shares of common stock of the surviving entity. A "Continuing Director" shall mean, as of any date of determination, any member of the Board of Directors who: (i) was a member of the Board of Directors of the Company on the date of this Indenture; or (ii) was nominated for election or elected to the Board of Directors with the approval of a majority of the Continuing Directors who were members of the Board of Directors at the time of the new director's nomination or election. (2) Notwithstanding the provisions of Section 3.1(a)(1), the Company shall not be required to purchase the Securities of the Holders upon a Change of Control pursuant to this Section 3.1 if: (i) the arithmetic average of the VWAP per share of Common Stock for any five Trading Days within (1) the period of 10 consecutive Trading Days ending immediately after the later of the Change of Control or the public announcement of the Change of Control, in the case of a Change of Control under clause (i) or (ii) of the definition of "Change of Control" above, or (2) the period of 10 consecutive Trading Days ending immediately before the Change of Control, in the case of a Change of Control under clause (iii), (iv) or (v) of the definition of "Change of Control" above, equals or exceeds 110% of the Conversion Price of the 29 Securities in effect on each of those five trading days (provided that the shares of Common Stock issuable upon conversion of all outstanding Securities are available for resale under Rule 144 or pursuant to an effective and available resale registration statement under the Securities Act); or (ii) at least 90% of the consideration in the transaction or transactions (other than cash payments for fractional shares and cash payments made in respect of dissenters' appraisal rights) constituting a Change of Control under clause (iv) or (v) of the definition of "Change of Control" consists of shares of common stock traded or to be traded immediately following a Change of Control on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market, and, as a result of the transaction or transactions, the Securities become convertible into that common stock (and any rights attached thereto). For the purposes of this Section 3.1, (x) whether a person is a "beneficial owner" shall be determined in accordance with Rule 13d-3 under the Exchange Act and (y) the term "person" includes any syndicate or group that would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act. (b) Not earlier than the date the Company provides to the Lenders (as such term is defined in the Credit Agreement) the Change of Control Offer to Repay Notice (as such term is defined in the Credit Agreement) pursuant to Section 3.8 of the Credit Agreement, but in no event later than 30 days after the occurrence of a Change of Control, the Company shall mail a written notice (a "Change of Control Notice") of the Change of Control by first class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The Change of Control Notice shall include a form of Change of Control Purchase Notice to be completed by the Holder and shall state: (1) briefly, the events causing a Change of Control and the date of such Change of Control; (2) the date by which the Change of Control Purchase Notice pursuant to this Section 3.1 must be delivered to the Paying Agent in order for a Holder to exercise the repurchase rights; (3) the Change of Control Purchase Date; (4) the Change of Control Purchase Price; (5) the name and address of the Paying Agent and the Conversion Agent; (6) the Conversion Price and any adjustments thereto; (7) that the Securities as to which a Change of Control Purchase Notice has been given may be converted if they are otherwise convertible pursuant to 30 Article 11 hereof only if the Change of Control Purchase Notice has been withdrawn in accordance with the terms of this Indenture; (8) that the Securities must be surrendered to the Paying Agent to collect payment; (9) that the Change of Control Purchase Price for any Security as to which a Change of Control Purchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Change of Control Purchase Date and the time of surrender of such Security as described in (8); (10) briefly, the procedures the Holder must follow to exercise rights under this Section 3.1; (11) briefly, the conversion rights of the Securities; (12) the procedures for withdrawing a Change of Control Purchase Notice; (13) that, unless the Company defaults in making payment of such Change of Control Purchase Price, interest, if any, on Securities surrendered for purchase by the Company will cease to accrue on and after the Change of Control Purchase Date; and (14) the CUSIP number(s) of the Securities. (c) A Holder may exercise its rights specified in Section 3.1(a) upon delivery of a written notice of purchase (a "Change of Control Purchase Notice") to the Paying Agent at any time on or prior to the close of business on the second Business Day preceding the Change of Control Purchase Date (unless the Company shall specify a later date), specifying: (1) the certificate number of the Security which the Holder will deliver to be purchased or the appropriate depositary procedures if Certificated Securities have not been issued; (2) the portion of the principal amount of the Security which the Holder will deliver to be purchased, which portion must be $1,000 or an integral multiple of $1,000 (or in the case of any PIK Security, which portion must be $1.00 or an integral multiple of $1.00); and (3) that such Security shall be purchased pursuant to the terms and conditions specified in Section 5 of the Securities and in this Indenture. The delivery of such Security to the Paying Agent with the Change of Control Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Change of Control Purchase Price therefor; provided, however, that such Change of Control Purchase Price shall be so paid pursuant to this Section 3.1 and Section 3.2 only if the Security so delivered to the Paying Agent 31 shall conform in all material respects to the description thereof set forth in the related Change of Control Purchase Notice. The Company shall purchase from the Holder thereof, pursuant to this Section 3.1 and Section 3.2, a portion of a Security if the principal amount of such portion is $1,000 or an integral multiple of $1,000 (or in the case of any PIK Security, which portion must be $1.00 or an integral multiple of $1.00). Provisions of this Indenture that apply to the purchase of all of a Security also apply to the purchase of such portion of such Security. Any purchase by the Company contemplated pursuant to the provisions of this Section 3.1 and Section 3.2 shall be consummated by the delivery of the consideration to be received by the Holder on the Change of Control Purchase Date. Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Change of Control Purchase Notice contemplated by this Section 3.1(c) shall have the right to withdraw such Change of Control Purchase Notice at any time prior to the close of business on the last Business Day immediately preceding the Change of Control Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.2. The Paying Agent shall promptly notify the Company of the receipt by it of any Change of Control Purchase Notice or written withdrawal thereof. (d) The Trustee and the Paying Agent shall be under no obligation to ascertain the occurrence of a Change of Control or to give notice with respect thereto. The Trustee and the Paying Agent may conclusively assume, in the absence of written notice to the contrary from the Company or an order from a court of competent jurisdiction, that no Change of Control has occurred. Section 3.2 Effect of Change of Control Purchase Notice; Withdrawal. Upon receipt by the Paying Agent of the Change of Control Purchase Notice specified in Section 3.1(c), the Holder of the Security in respect of which such Change of Control Purchase Notice was given shall (unless such Change of Control Purchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Change of Control Purchase Price with respect to such Security. Such Change of Control Purchase Price shall be paid to such Holder, subject to the receipt of funds by the Paying Agent, promptly following the later of (x) the Change of Control Purchase Date with respect to such Security (provided the conditions in Section 3.1(c) have been satisfied) and (y) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 3.1(c). Securities in respect of which a Change of Control Purchase Notice has been given by the Holder thereof may not be converted pursuant to Article 11 hereof on or after the date of the delivery of such Change of Control Purchase Notice unless such Change of Control Purchase Notice has first been validly withdrawn as specified in the following two paragraphs. A Change of Control Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Change 32 of Control Purchase Notice, at any time prior to the close of business on the close of business on the Business Day immediately preceding the Change of Control Purchase Date, specifying: (1) the certificate number, if any, of the Security in respect of which such notice of withdrawal is being submitted, (2) the principal amount of the Security with respect to which such notice of withdrawal is being submitted, and (3) the principal amount, if any, of such Security which remains subject to the original Change of Control Purchase Notice, and which has been or will be delivered for purchase by the Company. There shall be no purchase of any Securities pursuant to Section 3.1 if there has occurred (prior to, on or after, as the case may be, the giving, by the Holders of such Securities, of the required Change of Control Purchase Notice) and is continuing an Event of Default (other than a default in the payment of the Change of Control Purchase Price with respect to such Securities), unless waived by all of the Holders. The Paying Agent will promptly return to the respective Holders thereof any Securities (x) with respect to which a Change of Control Purchase Notice has been withdrawn in compliance with this Indenture, or (y) held by it during the continuance of an Event of Default (other than a default in the payment of the Change of Control Purchase Price with respect to such Securities) in which case, upon such return, the Change of Control Purchase Notice with respect thereto shall be deemed to have been withdrawn. Section 3.3 Deposit of Change of Control Purchase Price. Prior to 12:00 Noon. (local time in The City of New York) on the Business Day immediately preceding the Change of Control Purchase Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.4) an amount of cash (in immediately available funds if deposited on such Business Day) sufficient to pay the aggregate Change of Control Purchase Price of all the Securities or portions thereof which are to be purchased as of the Change of Control Purchase Date. Section 3.4 Securities Purchased in Part. Any Certificated Security which is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered which is not purchased. Section 3.5 Covenant to Comply With Securities Laws Upon Purchase of Securities. When complying with the provisions of Section 3.1 hereof (provided that such offer or purchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such 33 offer or purchase), and subject to any exemptions available under applicable law, the Company shall (i) comply with Rule 13e-4 and Rule 14e-1 (or any successor provision) under the Exchange Act, (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 3.1 to be exercised in the time and in the manner specified in Section 3.1. Section 3.6 Repayment to the Company. The Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed as provided in Section 12 of the Securities, together with interest or dividends, if any, thereon (subject to the provisions of Section 8.1(f)), held by them for the payment of the Change of Control Purchase Price; provided, however, that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 3.3 exceeds the aggregate Change of Control Purchase Price of the Securities or portions thereof which the Company is obligated to purchase as of the Change of Control Purchase Date, then, unless otherwise agreed in writing with the Company, promptly after the Business Day following the Change of Control Purchase Date, the Trustee shall return any such excess to the Company together with interest thereon (subject to the provisions of Section 8.1(f)). ARTICLE IV COVENANTS Section 4.1 Payment of Securities. The Company shall promptly make all payments in respect of the Securities on the dates and in the manner provided in the Securities or pursuant to this Indenture. Any amounts of cash to be given to the Trustee or Paying Agent shall be deposited with the Trustee or Paying Agent by Noon, New York City time, by the Company. Principal amount plus accrued interest, if any, including the Change of Control Purchase Price, Liquidated Damages, Pass-Through Dividends and cash interest, if any, shall be considered paid on the applicable date due if on such date the Trustee or the Paying Agent holds, in accordance with this Indenture, cash sufficient to pay all such amounts then due. Section 4.2 SEC and Other Reports. The Company shall file with the Trustee, within 15 days after it files such annual and quarterly reports, information, documents and other reports with the SEC, copies of its 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. The Company also shall comply with the other provisions of TIA Section 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely conclusively on Officers' Certificates). Section 4.3 Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company (beginning with the fiscal year ending on December 31, 2002) an Officers' Certificate which complies with the requirements of the TIA, stating whether or not to the knowledge of the signers thereof, the Company is in 34 default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. Section 4.4 Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. Section 4.5 Maintenance of Office or Agency. The Company will maintain an office or agency of the Trustee, Registrar, Paying Agent and Conversion Agent where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer, exchange, purchase or conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The office of U.S. Bank, N.A., One California Street, Suite 2550, San Francisco, CA 94111 (Attention: Corporate Trust Services), shall initially be such office or agency for all of the aforesaid purposes. The Company shall give prompt written notice to the Trustee of the location, and of any change in the location, of any such office or agency (other than a change in the location of the office of the Trustee). If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 12.2. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. Section 4.6 Delivery of Certain Information. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder or any beneficial owner of Securities or holder or beneficial owner of shares of Common Stock issued upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) and any reports required to be filed by it under the Exchange Act or the Securities Act or otherwise pursuant to Section 7 of the Registration Rights Agreement, to such Holder or any beneficial owner of Securities or holder or beneficial owner of shares of Common Stock, or to a prospective purchaser of any such security designated by any such holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the Securities Act in connection with the resale of any such security. "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act. Whether a person is a beneficial owner shall be determined by the Company to the Company's reasonable satisfaction. Section 4.7 Restriction on Incurrence of Indebtedness. The Company will not, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness; provided, however, that the Company may incur Indebtedness if the Company's Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which financial statements are required to be furnished pursuant to Section 4.6 immediately 35 preceding the date on which such additional Indebtedness is incurred would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such four-quarter period; provided, further, that, if following the date of this Indenture, the Company's Reference Debt is rated Investment Grade, then beginning on the date of such rating, the covenant set forth in this Section 4.7 shall cease and be of no further effect. The provisions of the first paragraph of this covenant shall not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt") so long as no Default has occurred and is continuing or would be caused thereby: (i) the incurrence by the Company of additional Indebtedness under one or more Credit Facilities in an amount not to exceed $1.2 billion outstanding at any time (plus the amount of any pay-in-kind payments with respect thereto and any such Indebtedness required to finance Option Debt); (ii) the incurrence by the Company of the Existing Indebtedness; (iii) the incurrence by the Company of Indebtedness represented by the Securities (and any PIK Securities); (iv) the incurrence by the Company of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace Indebtedness incurred pursuant to this clause (iv), not to exceed $35 million at any time outstanding; (v) the incurrence by the Company of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was incurred under the first paragraph of this covenant or clauses (i), (ii) or (iv) of this paragraph; (vi) the incurrence by the Company of intercompany Indebtedness between the Company and any of its Subsidiaries; provided that such Indebtedness shall be expressly subordinated to, and subject in right of payment to the prior payment in full in cash of, all amounts under the Securities to the same extent as the Securities are subordinated in right of payment to Senior Debt hereunder; (vii) the incurrence by the Company of Hedging Obligations that are incurred in the normal course of business and consistent with past business practices for the purpose of fixing or hedging currency, commodity or interest rate risk (including with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding in connection with the conduct of their respective businesses); (viii) the incurrence of Indebtedness solely in respect of bankers' acceptances, letters of credit, surety or performance bonds, all in the ordinary course of business; and 36 (ix) the incurrence by the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (ix), not to exceed $35 million. For purposes of determining compliance with this covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (ix) above as of the date of incurrence thereof or is entitled to be incurred pursuant to the first paragraph of this covenant as of the date of incurrence thereof, the Company shall, in its sole discretion, classify (or later reclassify in whole or in part, in its sole discretion) such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. For the avoidance of doubt, this Section 4.7 shall not apply to the incurrence of any Indebtedness by any Subsidiary of the Company. Section 4.8 Restriction on Spin-Offs. Prior to the repayment in full of all Obligations (as defined in the Credit Agreement) and other Senior Debt (unless pursuant to the terms of the Credit Agreement, if applicable, and the instruments governing any such other Senior Debt, the Company is permitted to repurchase any Securities tendered following the occurrence of a Change of Control in accordance with the provisions of Article III hereof, the Company shall not effect one or more Spin-Offs in which it disposes, in the aggregate, of one or more Spin-Cos having total Net Assets with a fair market value of more than 55% of the fair market value of Company's total consolidated Net Assets at the time of the first Spin-Off occurring after the date of this Indenture (in each case as determined by a Qualified Appraiser within 120 days prior to any such Spin-Off); provided, however, that in no event shall a Spin-Off of the POR Spin-Co, in and of itself, be deemed to be a violation of the provisions of this Section 4.8 if such Spin-Off is the first Spin-Off occurring after the date of this Indenture. Section 4.9 Pass-Through Dividends. Subject to the record date provisions described below, the Company shall pay to each Holder, an amount per Security, in cash, equal to the Cash Dividends, if any, paid by the Company per share of Common Stock multiplied by the principal amount of such Security divided by the Conversion Price in effect on the record date for such payment (a "Pass-Through Dividend"). Pass-Through Dividends, if any, will be payable on the payment date of each such Pass-Through Dividend to Holders as of the record date for determination of the stockholders entitled to receive each such Pass-Through Dividend. Section 4.10 144A Securities Determination. Within five Business Days following the Pricing Period, the Company shall provide to the Trustee and the Securityholders a determination of whether the Securities meet the requirements of Rule 144A(d)(3)(i) and (ii) of Rule 144A. Within five Business Days following the issuance of each PIK Security, the Company shall provide to the Trustee and the Securityholders a determination of whether such PIK Security meets the requirements of Rule 144A(d)(3)(i) and (ii) of Rule 144A. The Trustee and the Securityholders shall be entitled to rely on any and all such determinations for purposes of transfer or sale of the securities. 37 ARTICLE V SUBORDINATION Section 5.1 Agreement of Subordination. The Company covenants and agrees, and each Holder of Securities issued hereunder by its acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article 5; and each Person holding any Security, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. The payment of the principal of and interest (including the payment of the Change of Control Purchase Price and Liquidated Damages, if any, but excluding Pass-Through Dividends, if any) on all Securities issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full in cash or payment satisfactory to the holders of Senior Debt of all Senior Debt, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article 5 shall prevent the occurrence of any Default or Event of Default hereunder. Section 5.2 Payments To Holders. No payment shall be made with respect to the principal of or interest (including the payment of the Change of Control Purchase Price and Liquidated Damages, if any, but excluding Pass-Through Dividends, if any) on the Securities, except payments and distributions made by the Trustee as permitted by Section 5.5, if: (i) a default in the payment of principal, premium, interest, rent or other payment obligations due on any Senior Debt (including any failure by the Company to pay any amounts required to be paid under Section 3.8 of the Credit Agreement) occurs and is continuing (or, in the case of Senior Debt for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Debt), unless and until such default shall have been cured or waived or shall have ceased to exist; or (ii) a default, other than a payment default, on any Designated Senior Debt occurs and is continuing that permits holders of such Designated Senior Debt to accelerate its maturity (or, in the case of a lease constituting Designated Senior Debt, that permits the landlord under such lease either to terminate the lease or to require the Company to make an irrevocable offer to terminate the lease following an event of default thereunder) and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Representative or holder of Designated Senior Debt or the Company. Subject to the provisions of Section 5.5, if the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (a) at least 420 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice; and (b) all scheduled payments on the Securities that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment 38 Blockage Notice to the Trustee (unless such default was waived, cured or otherwise ceased to exist and thereafter subsequently reoccurred) shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Securities upon the earlier of: (a) in the case of a default referred to in clause (i) above, the date upon which the default is cured or waived or ceases to exist, or (b) in the case of a default referred to in clause (ii) above, the earlier of (A) the date on which such default is cured or waived or ceases to exist or (B) 240 days after the date on which the applicable Payment Blockage Notice is received by the Trustee, if the maturity of such Designated Senior Debt has not been accelerated, unless this Article 5 otherwise prohibits the payment or distribution at the time of such payment or distribution; provided, that if such Designated Senior Debt has been accelerated (or, in the case of a Capital Lease Obligation constituting Designated Senior Debt, if as a result of such default the landlord under such Capital Lease Obligation has given the Company notice of its intention to terminate such Capital Lease Obligation or to require the Company to make an irrevocable offer to terminate the Capital Lease Obligation following an event of default thereunder), the Company shall make no payments on or distributions in respect of the Securities until such Designated Senior Debt has been paid in full in cash or other payment satisfactory to the holders of that Designated Senior Debt or such acceleration (or terminated, in the case of a lease constituting Designated Senior Debt) has been cured or waived. Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company (whether voluntary or involuntary) or in bankruptcy, insolvency, receivership or similar proceedings, all amounts due or to become due upon all Senior Debt shall first be paid in full in cash, or other payments satisfactory to the holders of Senior Debt, before any payment is made on account of the principal of or interest (including the payment of the Change of Control Purchase Price and Liquidated Damages, if any, but excluding Pass-Through Dividends, if any) on the Securities (except payments made pursuant to Article 9 from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding-up, liquidation or reorganization, so long as such payments are not prohibited by Section 547 of the Bankruptcy Code); and upon any such dissolution or winding-up or liquidation or reorganization of the Company or bankruptcy, insolvency, receivership or other proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Securities or the Trustee would be entitled, except for the provision of this Article 5, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders of the Securities or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders, or as otherwise required by law or a court order) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Debt may have been 39 issued, as their respective interests may appear, to the extent necessary to pay all Senior Debt in full in cash, or other payment satisfactory to the holders of Senior Debt, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt, before any payment or distribution is made to the Holders of the Securities or to the Trustee. For purposes of this Article 5, the words, "cash, property or securities" shall not be deemed to include shares of Capital Stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the terms of which are not substantially better for the holders thereof than the terms of the Securities and the payment of which is subordinated, at least to the extent provided in this Article 5 with respect to the Securities, to the payment of all Senior Debt which may at the time be outstanding; provided that (i) the Senior Debt is (A) assumed without modification and without alteration of the legal, equitable and contractual rights of holders of the Senior Debt by the new corporation, if any, resulting from any reorganization or readjustment, or (B) the legal, equitable and contractual rights of the holders of the Senior Debt are reinstated in accordance with Section 1124 of the Bankruptcy Code, or (ii) the legal, equitable and contractual rights of the holders of the Senior Debt under this Article V are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article 6 shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 5.2 if such other corporation shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions stated in Article 6. In the event of the acceleration of the Securities because of an Event of Default, no payment or distribution shall be made to the Trustee or any Holder of Securities in respect of the principal of or interest (including the payment of the Change of Control Purchase Price and Liquidated Damages, if any, but excluding Pass-Through Dividends, if any) on the Securities by the Company, except payments and distributions made by the Trustee as permitted by Section 5.5, until all Senior Debt has been paid in full in cash or other payment satisfactory to the holders of Senior Debt or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Securities is accelerated because of an Event of Default, the Company shall notify, within one Business Day, the holders of Senior Debt of such acceleration. In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing, shall be received by the Trustee or the Holders of the Securities before all Senior Debt is paid in full, in cash or other payment satisfactory to the holders of Senior Debt, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of Senior Debt, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Debt or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Debt may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt in full, in cash or other payment 40 satisfactory to the holders of Senior Debt, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt. Nothing in this Section 5.2 shall apply to claims of, or payments to, the Trustee under or pursuant to Article 8. This Section 5.2 shall be subject to the further provisions of Section 5.5. Section 5.3 Subrogation Of Securities Subject to the payment in full, in cash or other payment satisfactory to the holders of Senior Debt of all Senior Debt, the rights of the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Debt pursuant to the provisions of this Article 5 (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to other indebtedness of the Company to substantially the same extent as the Securities are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Debt until the principal of and interest (including additional amounts, if any) on the Senior Debt shall be paid in full in cash or other payment satisfactory to the holders of the Securities; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article 5, and no payment over pursuant to the provisions of this Article 5, to or for the benefit of the holders of Senior Debt by Holders of the Securities or the Trustee, shall, as between the Company, its creditors other than holders of Senior Debt, and the Holders of the Securities, be deemed to be a payment by the Company to or on account of the Senior Debt; and no payments or distributions of cash, property or securities to or for the benefit of the Holders of the Securities pursuant to the subrogation provisions of this Article 5, which would otherwise have been paid to the holders of Senior Debt shall be deemed to be a payment by the Company to or for the account of the Securities. It is understood that the provisions of this Article 5 are and are intended solely for the purposes of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of the Senior Debt, on the other hand. Nothing contained in this Article 5 or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Debt, and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of and interest (including the payment of the Change of Control Purchase Price, Liquidated Damages and Pass-Through Dividends, if any) on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 5 of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article 5, the Trustee, subject to the provisions of Article 8, and the Holders of the Securities 41 shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon and all other facts pertinent thereto or to this Article 5. Section 5.4 Authorization To Effect Subordination. Each Holder of a Security by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 5 and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. Section 5.5 Notice To Trustee. The Company shall give prompt written notice in the form of an Officers' Certificate to a Responsible Officer and to any Paying Agent of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee or any Paying Agent in respect of the Securities pursuant to the provisions of this Article 5. Notwithstanding the provisions of this Article 5 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article 5, unless and until a Responsible Officer shall have received written notice thereof at the Corporate Trust Office from the Company (in the form of an Officers' Certificate) or a Representative or a holder or holders of Senior Debt or from any trustee thereof; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article 8, shall be entitled in all respects to assume that no such facts exist; provided that if on a date not less than one Business Day prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest on any Security) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section 5.5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Notwithstanding anything in this Article 5 to the contrary, nothing shall prevent any payment by the Trustee to the Holders of monies deposited with it pursuant to Article 8, and any such payment shall not be subject to the provisions of Article 5. The Trustee, subject to the provisions of Article 8, shall be entitled to rely on the delivery to it of a written notice by a Representative or a person representing himself to be a holder of Senior Debt (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior Debt or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article 5, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or 42 distribution and any other facts pertinent to the rights of such Person under this Article 5, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 5.6 Trustee's Relation To Senior Debt. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 5 in respect of any Senior Debt at any time held by it, to the same extent as any other holder of Senior Debt, and nothing in Article 8 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 5, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and, subject to the provisions of Article 8, the Trustee shall not be liable to any holder of Senior Debt if it shall pay over or deliver to Holders of Securities, the Company or any other person money or assets to which any holder of Senior Debt shall be entitled by virtue of this Article 5 or otherwise. Section 5.7 No Impairment Of Subordination. (a) No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. (b) Without the limiting the generality of subsection (a) of this Section 5.7, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article V or the obligations hereunder of the Holders of the Securities to the holders of Senior Debt, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (3) release any person liable in any manner for the collection or payment of Senior Debt; and (4) exercise or refrain from exercising any rights against the Company and any other person; provided that in no event shall any such actions limit the right of the Holders of the Securities to take any action to accelerate the maturity of the Securities pursuant to Article VII hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of the Indenture. Section 5.8 Certain Conversions Deemed Payment. For the purposes of this Article 5 only, (1) neither the issuance and delivery of junior securities upon conversion of Securities in accordance with Article 11, the payment of interest in the form of PIK Securities 43 nor the payment of Pass-Through Dividends shall be deemed to constitute a payment or distribution on account of the principal of or interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 11.2), property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section 5.8, the term "junior securities" means (a) shares of any stock of any class of the Company, or (b) securities of the Company which are subordinated in right of payment to all Senior Debt which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article 5 or elsewhere in this Indenture or in the Securities is intended to or shall impair the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article 11. Section 5.9 Article Applicable To Paying Agents. If at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee. Section 5.10 Senior Debt Entitled To Rely. The holders of Senior Debt (including, without limitation, Designated Senior Debt) shall have the right to rely upon this Article 5, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto. Section 5.11 Continuing Offer. This Article V shall constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold Senior Debt; and such provisions are made for the benefit of the holders of Senior Debt; and such holders are made obligees hereunder and they or each of them individually or through their representative may enforce such provisions. Section 5.12 Authorization of the Initial Tranche A Lender to File Claims, etc. In the event that (i) a bankruptcy proceeding shall be commenced by or against the Company and (ii) on or before the date which is ten Business Days before the last date upon which the Trustee is required to file a proof of claim in such bankruptcy proceeding the Trustee (if the claims of the Holders have not been scheduled by the Company in its filing as undisputed) has not filed a proof of claim in respect of the Securities, then, in such event, each Holder hereby irrevocably authorizes and empowers (without imposing any obligation on) the Initial Tranche A Lender (as defined in the Intercreditor Agreement) under the circumstances set forth in Section 2.2 of the Intercreditor Agreement to file such proof of claim in respect of the Securities owing to the Holders. The proceeds of all such claims shall be applied as required by the provisions of the Indenture. Each Holder hereby authorizes the Trustee to irrevocably appoint the Initial Tranche A Lender as its attorney-in-fact and to execute and deliver to the Initial Tranche A Lender all such further instruments confirming the foregoing appointment and authorization, and all such proofs of claim and other instruments, and to take all such other action as may be reasonably requested by the Initial Tranche A Lender in order to enable the Initial Tranche A Lender to, 44 enforce all claims upon or in respect of the Securities owing to the Holders. Any such Lender shall deliver copies of claims or instruments to the Trustee with instructions for the Trustee to deliver the same to each Holder. In the event that the Tranche A Loans and the other Senior Obligations (each as defined in the Intercreditor Agreement) then due and payable have been repaid in full, the Administrative Agent (as defined in the Credit Agreement) shall have the rights of the Initial Tranche A Lender hereunder. Section 5.13 Section 5.13 Limitation on Remedies. (a) During any Standstill Period, except as expressly permitted by and subject to the terms of this Indenture, the Holders shall have no right to (i) take any action or institute any proceedings to collect or enforce the payment of any of the principal of or interest (including the payment of the Change of Control Purchase Price and Liquidated Damages, if any, but excluding Pass-Through Dividends, if any) or other payment obligation of the Company in respect of the Securities under the Indenture or the Purchase Agreement, (ii) commence, prosecute or participate in any administrative, legal or equitable action against the Company relating to the Securities (it being understood that the Holders of the Securities may participate in any such action in which any Lender (as defined in the Credit Agreement) or its representative is participating (and not commenced by the Holders of the Securities in such capacity) to the extent necessary to maintain their claims to, and to preserve their rights in respect of, the Securities), (iii) commence or join in the commencement of a proceeding under any bankruptcy, insolvency, liquidation, reorganization or other similar law in their capacity as Holders of Securities (it being understood that the Holders of the Securities may participate in any such proceeding not commenced by the Holders of the Securities in such capacity to the extent necessary to maintain their claims to, and to preserve their rights in respect of, the Securities), or (iv) direct the Trustee to do any of the foregoing. As used herein, "Standstill Period" shall mean any period during which payment of principal of or interest (including the payment of the Change of Control Purchase Price and Liquidated Damages, if any, but excluding Pass-Through Dividends, if any) on the Securities is not permitted pursuant to the first paragraph of Section 5.2 as a result of a default under the Credit Agreement, provided, however, that in no event shall such period exceed 240 days. (b) If any Holder, in violation of the provisions herein set forth, shall commence, prosecute or participate in any suit, action, case or proceeding against the Company, any Lender may, at the expense of the Holders, intervene and interpose as a defense or plea the provisions set forth herein, and such Lender shall, in any event, be entitled to restrain the enforcement of the payment provisions of the Securities in its own name in the same suit, action, case or proceeding or in any independent suit, action, case or proceeding. ARTICLE VI SUCCESSOR CORPORATION Section 6.1 When Company May Merge or Transfer Assets. The Company shall not consolidate with or merge with or into any other Person or convey, transfer, sell, lease or otherwise dispose of the Designated Asset Amount of its properties and assets to any Person, unless: 45 (a) either (1) the Company shall be the continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the Designated Asset Amount of the properties and assets of the Company (i) shall be organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (ii) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture; (b) immediately after giving effect to such transaction, no Event of Default, and no event that, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing; and (c) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article 6 and that all conditions precedent herein provided for relating to such transaction have been satisfied. (d) The successor Person formed by such consolidation or into which the Company is merged or the successor Person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein; and thereafter, except in the case of a lease and obligations the Company may have under a supplemental indenture, the Company shall be discharged from all obligations and covenants under this Indenture and the Securities. Subject to Section 10.6, the Company, the Trustee and the successor Person shall enter into a supplemental indenture to evidence the succession and substitution of such successor Person and such discharge and release of the Company. ARTICLE VII DEFAULTS AND REMEDIES Section 7.1 Events of Default. So long as any Securities are outstanding, each of the following shall be an "Event of Default": (1) the Company defaults in the payment of the principal amount on any Security when the same becomes due and payable at its Stated Maturity, whether or not prohibited by the provisions of Article 5; (2) the Company defaults in its obligation to repurchase any Security, or any portion thereof, upon the exercise by the Holder of such Holder's right to require the Company to purchase such Securities pursuant to and in accordance with Section 3.1 hereof, whether or not prohibited by the provisions of Article 5; (3) the Company defaults in the payment of any accrued and unpaid interest, including the payment of any Liquidated Damages or Pass-Through Dividends on any Security, 46 or any other amount due on any Securities, in each case when due and payable, and continuance of such default for a period of 30 days, whether or not prohibited by the provisions of Article 5; (4) the Company fails to comply with any of its agreements or covenants in the Securities or this Indenture (other than those referred to in clause (1) through (3) above) and such failure continues for a period of 60 consecutive days after receipt by the Company of a Notice of Default; (5) a default under any indebtedness for money borrowed by the Company or any Significant Subsidiary in an aggregate outstanding principal amount of $150 million or more, for a period of 30 days after written notice of default is given to the Company by the Trustee or to the Company and the Trustee by Holders of not less than 25% in aggregate principal amount of the Securities then outstanding, which default results in the acceleration of such indebtedness, unless such acceleration is waived, cured, rescinded or annulled or unless such indebtedness is discharged; it being understood, however, for the avoidance of doubt that to the extent that any Indebtedness of PG&E has been accelerated and is subject to the Pacific Gas and Electric Company Bankruptcy, Case No. 01 30923 DM, such acceleration shall not be deemed to constitute a default or event of default hereunder; (6) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any of its Subsidiaries that is a Significant Subsidiary, in an involuntary case or proceeding under the Bankruptcy Code or any other applicable bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company or any of its Subsidiaries that is a Significant Subsidiary, as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any of its Subsidiaries that is a Significant Subsidiary, under the Bankruptcy Code or any other applicable law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; it being understood, however, for the avoidance of doubt that the Pacific Gas and Electric Company Bankruptcy, Case No. 01 30923 DM, shall not be deemed to constitute a default or event of default hereunder; or (7) the commencement by the Company or any of its Subsidiaries that is a Significant Subsidiary, of a voluntary case or proceeding under the Bankruptcy Code or any other applicable bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or any of its Subsidiaries that is a Significant Subsidiary, to the entry of a decree or order for relief in respect of the Company or any of its Subsidiaries that is a Significant Subsidiary, in an involuntary case or proceeding under the Bankruptcy Code or any other applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, or the filing by the Company or any of its Subsidiaries that is a Significant Subsidiary, of a petition or answer or consent seeking reorganization or relief under any applicable law, or the consent by the Company to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or 47 the making by the Company or any of its Subsidiaries that is a Significant Subsidiary, of an assignment for the benefit of creditors, or the admission by the Company or any of its Subsidiaries that is a Significant Subsidiary, in writing of its inability to pay its debts generally as they become due; it being understood, however, for the avoidance of doubt that the Pacific Gas and Electric Company Bankruptcy, Case No. 01 30923 DM, shall not be deemed to constitute a default or event of default hereunder. A Default under clause (4) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding notify the Company and the Trustee, of the Default and the Company does not cure such Default (and such Default is not waived) within the time specified in clause (4) above after receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." The Trustee shall, within 90 days of the occurrence of a Default, give to the Holders of the Securities notice of all uncured Defaults known to it and written notice of any event which with the giving of notice or the lapse of time, or both, would become an Event of Default, its status and what action the Company is taking or proposes to take with respect thereto; provided, however, the Trustee shall be protected in withholding such notice if it, in good faith, determines that the withholding of such notice is in the best interest of such Holders, except in the case of a Default under clauses (1), (2), (3) or (4) above. Section 7.2 Acceleration. If an Event of Default (other than an Event of Default specified in Section 7.1(6) or (7) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding by notice to the Company and the Trustee, may declare the principal amount plus accrued and unpaid interest, including any Liquidated Damages or Pass-Through Dividends, if any, on all the Securities to be immediately due and payable. The Trustee shall deliver a copy of any such notice to the Administrative Agent (as defined in the Credit Agreement) under the Credit Agreement and to the Initial Tranche A Lender (as defined in the Intercreditor Agreement), but the Trustee's failure to deliver a copy of any such notice to the Administrative Agent or the Initial Tranche A Lender shall not impair or affect the validity of such notice and the Trustee will have no liability to the Administrative Agent or the Initial Tranche A Lender with respect thereto. Upon such a declaration, such accelerated amount shall be due and payable immediately. If an Event of Default specified in Section 7.1(6) or (7) occurs (with respect to the Company) and is continuing, the principal amount plus accrued and unpaid interest, including any Liquidated Damages or Pass-Through Dividends, if any, on all the Securities shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder) may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of the principal amount plus accrued and unpaid interest, including any Liquidated Damages or Pass-Through Dividends, if any, that have become due solely as a result of acceleration and if all amounts due to the Trustee under Section 8.7 have been paid. No such rescission shall affect any subsequent Default or impair any right consequent thereto. 48 Section 7.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of the principal amount plus accrued and unpaid interest, including Change of Control Purchase Price, Liquidated Damages or Pass-Through Dividends, if any, on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if the Trustee does not possess any of the Securities or does not produce any of the Securities in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of, or acquiescence in, the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 7.4 Waiver of Past Defaults. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder), may waive an existing Default and its consequences except (i) an Event of Default described in Section 7.1(1), 7.1(2) or 7.1(3), (ii) a Default in respect of a provision that under Section 10.2 cannot be amended without the consent of each Securityholder affected or (iii) a Default which constitutes a failure to convert any Security in accordance with the terms of Article 11. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. This Section 7.4 shall be in lieu of Section 316(a)(1)(B) of the TIA and such Section 316(a)(1)(B) is hereby expressly excluded from this Indenture, as permitted by the TIA. Section 7.5 Control by Majority. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability unless the Trustee is offered indemnity satisfactory to it. This Section 7.5 shall be in lieu of Section 316(a)(1)(A) of the TIA and such Section 316(a)(1)(A) is hereby expressly excluded from this Indenture, as permitted by the TIA. Section 7.6 Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding make a written request to the Trustee to pursue the remedy; (3) the Trustee does not comply with the request within 60 days after receipt of such notice, request and offer of security or indemnity; and 49 (4) the Holders of a majority in aggregate principal amount of the Securities at the time outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of any other Securityholder or to obtain a preference or priority over any other Securityholder. Section 7.7 Rights of Holders to Receive Payment. The right of any Holder to receive payment of the principal amount, the Change of Control Purchase Price, Pass-Through Dividends, Liquidated Damages or interest in respect of the Securities held by such Holder, on or after the respective due dates expressed in the Securities, and to convert the Securities in accordance with Article 11, or, except as provided in Section 5.13, to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, shall not be impaired or affected adversely without the consent of such Holder. Section 7.8 Collection Suit by Trustee. If an Event of Default described in Section 7.1(1), (2), (3) or (4) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount owing with respect to the Securities and the amounts provided for in Section 8.7. Section 7.9 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal amount, Change of Control Purchase Price, Pass-Through Dividends, Liquidated Damages or interest in respect of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any such amount) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of the principal amount, Change of Control Purchase Price, Pass-Through Dividends, Liquidated Damages or interest and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel or any other amounts due the Trustee under Section 8.7) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 8.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, 50 adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 7.10 Priorities. If the Trustee collects any money pursuant to this Article 7, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 8.7; SECOND: to Securityholders for amounts due and unpaid on the Securities for the principal amount, Change of Control Purchase Price, Pass-Through Dividends, Liquidated Damages or interest, or any other amount due and owing on the Securities or to the Holders from the Company, as the case may be, ratably, without preference or priority of any kind, according to such amounts due and payable on the Securities; and THIRD: the balance, if any, to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 7.10. At least 15 days before such record date, the Trustee shall mail to each Securityholder and the Company a notice that states the record date, the payment date and the amount to be paid. Section 7.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 7.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 8.7 or a suit by Holders of more than 10% in aggregate principal amount of the Securities at the time outstanding. This Section 7.11 shall be in lieu of Section 315(e) of the TIA and such Section 315(e) is hereby expressly excluded from this Indenture, as permitted by the TIA. Section 7.12 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company from paying all or any portion of the principal amount or Change of Control Purchase Price in respect of Securities, Pass-Through Dividends, Liquidated Damages or any interest on such amounts, as contemplated herein, or which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 51 ARTICLE VIII TRUSTEE Section 8.1 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee conforming to the requirements of this Indenture, but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture, but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein. This Section 8.1(b) shall be in lieu of Section 315(a) of the TIA and such Section 315(a) is hereby expressly excluded from this Indenture, as permitted by the TIA. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this Section (c) does not limit the effect of Section (b) of this Section 8.1; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 7.5. Subparagraphs (c)(1), (2) and (3) shall be in lieu of Sections 315(d)(1), 315(d)(2) and 315(d)(3) of the TIA and such Sections 315(d)(1), 315(d)(2) and 315(d)(3) are hereby expressly excluded from this Indenture, as permitted by the TIA. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c), (e) and (f) of this Section 8.1. 52 (e) Subject to Section 8.1(c), the Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee (acting in any capacity hereunder) shall be under no liability for interest on any money received by it hereunder unless otherwise agreed in writing with the Company. Section 8.2 Rights of Trustee. Subject to its duties and responsibilities under the TIA, (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate; (c) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (d) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith which it believes to be authorized or within its rights or powers conferred under this Indenture; (e) subject to Section 8.1(c), the Trustee may consult with counsel selected by it and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (f) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; (g) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any Board Resolution; (h) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, 53 request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (i) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture; (j) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other person employed to act hereunder; and (k) the Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. Section 8.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, Conversion Agent or co-registrar may do the same with like rights. However, the Trustee must comply with Sections 8.10 and 8.11. Section 8.4 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use or application of the proceeds from the Securities, it shall not be responsible for any statement in the registration statement for the Securities under the Securities Act or in any offering document for the Securities, the Indenture or the Securities (other than its certificate of authentication), or the determination as to which beneficial owners are entitled to receive any notices hereunder. Section 8.5 Notice of Defaults. If a Default occurs and if it is known to the Trustee, the Trustee shall give to each Securityholder notice of the Default within 90 days after it occurs or, if later, within 15 days after it is known to the Trustee, unless such Default shall have been cured or waived before the giving of such notice. Notwithstanding the preceding sentence, except in the case of a Default described in Section 7.1(1), (2), (3) or (4), the Trustee may withhold the notice if and so long as a committee of Responsible Officers in good faith determines that withholding the notice is in the interest of the Securityholders. The preceding sentence shall be in lieu of the proviso to Section 315(b) of the TIA and such proviso is hereby expressly excluded from this Indenture, as permitted by the TIA. The Trustee shall not be 54 deemed to have knowledge of a Default unless a Responsible Officer has received written notice of such Default, which notice specifically references this Indenture and the Securities. Section 8.6 Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail to each Securityholder and such others in compliance with TIA Section 313(a) a brief report dated as of such May 15 that complies with TIA Section 313(a), if required by such Section 313(a). The Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each securities exchange, if any, on which the Securities are listed. The Company agrees to notify the Trustee promptly whenever the Securities become listed on any securities exchange and of any delisting thereof. Section 8.7 Compensation and Indemnity. The Company agrees: (a) to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited (to the extent permitted by law) by any provision of law in regard to the compensation of a trustee of an express trust); (b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, advances and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee or any predecessor Trustee and their agents for, and to hold them harmless against, any loss, damage, claim, liability, cost or expense (including attorney's fees and expenses, and taxes (other than taxes based upon, measured by or determined by the income of the Trustee)) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim (whether asserted by the Company or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder. To secure the Company's payment obligations in this Section 8.7, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except amounts held in trust to pay the principal amount, Change of Control Purchase Price, Liquidated Damages, Pass-Through Dividends or interest, as the case may be, on particular Securities. The Company's payment obligations pursuant to this Section 8.7 shall survive the discharge of this Indenture and the resignation or removal of the Trustee. When the Trustee incurs expenses after the occurrence of a Default specified in Section 7.1(6) or (7), the expenses including the reasonable charges and expenses of its counsel, are intended to constitute expenses of administration under any bankruptcy law. 55 Section 8.8 Replacement of Trustee. The Trustee may resign by so notifying the Company; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 8.8. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding may remove the Trustee by so notifying the Trustee and the Company. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 8.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint, by resolution of its Board of Directors, a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company satisfactory in form and substance to the retiring Trustee and the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 8.7. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the Securities at the time outstanding may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee. If the Trustee fails to comply with Section 8.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Section 8.9 Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. Section 8.10 Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Sections 310(a)(1) and (5) and 310(b). The Trustee (or its parent holding company) shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. Nothing herein contained shall prevent the Trustee from filing with the Commission the application referred to in the penultimate paragraph of TIA Section 310(b). 56 Section 8.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE IX DISCHARGE OF INDENTURE Section 9.1 Discharge of Liability on Securities. If, after all Obligations (as defined in the Credit Agreement) under the Credit Agreement have been fully repaid, (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced or repaid pursuant to Section 2.7) for cancellation or (ii) all outstanding Securities shall become due and payable within one year, and, in each case, the Company deposits with the Trustee cash sufficient to pay all amounts due and owing on all outstanding Securities (other than Securities replaced pursuant to Section 2.7), and if in each case the Company pays all other sums payable hereunder by the Company or otherwise payable to the Holders in relation thereto, then this Indenture shall, subject to Section 8.7, cease to be of further effect. The Trustee shall join in the execution of a document prepared by the Company acknowledging satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and Opinion of Counsel and at the cost and expense of the Company. Section 9.2 Repayment to the Company. The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, subject to applicable unclaimed property law. After return to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person and the Trustee and the Paying Agent shall have no further liability to the Securityholders with respect to such money or securities for that period commencing after the return thereof. ARTICLE X AMENDMENTS Section 10.1 Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without the consent of any Securityholder to: (a) add to the covenants of the Company for the benefit of the Holders of Securities; (b) surrender any right or power herein conferred upon the Company; (c) provide for conversion rights of Holders of Securities if any reclassification or change of the Common Stock or any consolidation, merger or sale of all or substantially all of the Company's assets occurs; 57 (d) provide for the assumption of the Company's obligations to the Holders of Securities in the case of a merger, consolidation, conveyance, transfer or lease pursuant to Article 6 hereof; (e) reduce the Conversion Price; provided, however, that such reduction in the Conversion Price shall not adversely affect the interests of the Holders of Securities (after taking into account tax and other consequences of such reduction); (f) comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (g) cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective; provided, however, that such action pursuant to this clause (g) does not, in the good faith opinion of the Board of Directors of the Company (as evidenced by a Board Resolution), adversely affect the interests of the Holders of Securities in any material respect; and (h) add or modify any other provisions herein with respect to matters or questions arising hereunder which the Company and the Trustee may deem necessary or desirable and that will not, in the good faith opinion of the Board of Directors of the Company (as evidenced by a Board Resolution), adversely affect the interests of the Holders of Securities. Section 10.2 With Consent of Holders. Except as provided below in this Section 10.2, this Indenture or the Securities may be amended, modified or supplemented, and noncompliance in any particular instance with any provision of this Indenture or the Securities may be waived, in each case with the written consent of the Holders of at least a majority of the principal amount of the Securities at the time outstanding. Without the written consent or the affirmative vote of each Holder of Securities affected thereby, an amendment or waiver under this Section 10.2 may not: (a) change the maturity of the principal amount of, or the date any installment of interest, including the payment of Liquidated Damages, is due on, any Security; (b) reduce the principal amount of, or interest, including the payment of Liquidated Damages payable on, or the Change of Control Purchase Price of, any Security; (c) change the currency of any amount owed or owing under the Security or any interest thereon from U.S. Dollars; (d) impair the right of any Holder to institute suit for the enforcement of any payment or with respect to, or conversion of, any Security; (e) adversely affect, following the occurrence of a Change of Control, the repurchase right of the Holders of the Securities as provided in Article III or the right of the Holders of the Securities to convert any Security as provided in Article XI; 58 (f) modify any of the provisions of this Section 10.2, or reduce the principal amount of outstanding Securities required to waive a default, except to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby; or (g) reduce the percentage of the principal amount of the outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver provided for in this Indenture. It shall not be necessary for the consent of the Holders under this Section 10.2 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section 10.2 becomes effective, the Company shall mail to each Holder a notice briefly describing the amendment. Section 10.3 Compliance with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall comply with the TIA. Section 10.4 Revocation and Effect of Consents, Waivers and Actions. Until an amendment, waiver or other action by Holders becomes effective, a consent thereto by a Holder of a Security hereunder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same obligation as the consenting Holder's Security, even if notation of the consent, waiver or action is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment, waiver or action becomes effective. After an amendment, waiver or action becomes effective, it shall bind every Securityholder. Section 10.5 Notation on or Exchange of Securities. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Securities. Section 10.6 Trustee to Sign Supplemental Indentures. The Trustee shall sign any supplemental indenture authorized pursuant to this Article 10 if the amendment contained therein does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign such supplemental indenture. In signing such supplemental indenture the Trustee shall receive, and (subject to the provisions of Section 8.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. Section 10.7 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; 59 and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. ARTICLE XI CONVERSIONS Section 11.1 Conversion Privilege. (a) Subject to and upon compliance with the provisions of this Article 11, a Holder of a Security shall have the right, at such Holder's option, to convert all or any portion (if the portion to be converted is $1,000 or an integral multiple of $1,000, provided that, in the case of any PIK Securities, the portion to be converted may be $1.00 or an integral multiple of $1.00) of such Security into shares of Common Stock at the Conversion Price in effect on the date of conversion, at any time prior to the close of business on the Business Day prior to the Stated Maturity of the Securities. (b) The Company shall, one Business Day following the Pricing Period, provide to the Trustee the computation of the Conversion Price, which determination shall be made in accordance with Section 11.10 and Section 11.11. Upon receipt of the Company's calculation of the Conversion Price, the Trustee, in the name and at the expense of the Company, shall notify the Holders of such Conversion Price. (c) No Holder may convert any Security to the extent that, immediately following any such conversion and upon receipt of any shares of Common Stock issuable upon such conversion, such Holder would either (i) become or be included in any person, including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act, 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 or be included in any "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 conversion (the Shareholder Limitation and the 4.9% Limitation are collectively referred to herein as the "Conversion 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 made the correct information public and disclosed such information to the Holders at the time of any such proposed conversion. 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 Conversion Limitations immediately after converting any Security and receipt of any shares of Common Stock issuable upon such conversion. (d) Notwithstanding the Shareholder Limitation, however, a Holder may convert Securities that would otherwise cause such Holder to hold shares of Common Stock in excess of the Shareholder Limitation if, as to such excess number of shares of Common Stock (the "Excess Shares"), such Holder (i) irrevocably covenants to the Company to sell such Excess Shares within 10 days after the date of conversion and (ii) confirms that it has, on or prior to such 60 conversion date, entered into a binding arrangement to sell the Excess Shares within 10 days after such conversion date either (a) in a regular way transaction on a national securities exchange (or the principal market where the 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 Shareholder Limitation. In addition, such Holder, by converting its Securities, shall be deemed to 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 conversion date and the consummation of the sale of the applicable Excess Shares. The Shareholder Limitation will cease to have any force and effect upon consummation of the Spin-Off of POR Spin-Co, if, on the date that is 14 days after delivery to the Company of a request by the Majority 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 Shareholder Limitation would, in the good faith judgment of the Company, not be consistent with the applicable regulatory or other legal requirements. For the purposes of Section 11.1(c) and (d), (x) whether a person is a "beneficial owner" shall be determined in accordance with Rule 13d-3 under the Exchange Act and (y) the term "person" includes any syndicate or group that would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act. Section 11.2 Conversion Procedure; Conversion Price; Fractional Shares. (a) Each Security shall be convertible at the office of the Conversion Agent into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Common Stock on the Conversion Date. The Security will be converted into shares of Common Stock at the Conversion Price therefor. No payment or adjustment shall be made in respect of dividends on the Common Stock or accrued interest on a converted Security, except as described in Section 11.9 hereof. The Company shall not issue any fraction of a share of Common Stock in connection with any conversion of Securities, but instead shall, subject to Section 11.3(h) hereof, make a cash payment (calculated to the nearest cent) equal to such fraction multiplied by the Closing Price of the Common Stock on the last Trading Day prior to the date of conversion. Notwithstanding the foregoing, a Security in respect of which a Holder has delivered a Change of Control Purchase Notice exercising such Holder's option to require the Company to repurchase such Security may be converted only if such notice of exercise is withdrawn in accordance with the Section 3.8 hereof. (b) Before any Holder of a Security shall be entitled to convert the same into Common Stock, such Holder shall, in the case of Global Securities, comply with the procedures of the Depositary in effect at that time, and in the case of Certificated Securities, surrender such Securities, duly endorsed to the Company or in blank, at the office of the Conversion Agent, and shall give written notice to the Company at said office or place that such Holder elects to convert the same and shall state in writing therein the principal amount of Securities to be converted and 61 the name or names (with addresses) in which such Holder wishes the certificate or certificates for Common Stock to be issued. Before any such conversion, a Holder also shall pay all funds required, if any, relating to interest on the Securities, as provided in Section 11.9, and all taxes or duties, if any, as provided in Section 11.8. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted thereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue and deliver at said office or place to such Holder of a Security, or to such Holder's nominee or nominees, certificates for the number of full shares of Common Stock to which such Holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share to which such Holder would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Common Stock while the stock transfer books for such stock or the security register are duly closed for any purpose, but certificates for shares of Common Stock shall be issued and delivered as soon as practicable after the opening of such books or security register. (c) A Security shall be deemed to have been converted as of the close of business on the date of the surrender of such Securities for conversion as provided above, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such Common Stock as of the close of business on such date. (d) In case any Security shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Security so surrendered, without charge to such Holder (subject to the provisions of Section 11.8 hereof), a new Security or Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Securities. Section 11.3 Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time as follows: (a) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, pay a dividend or make a distribution in shares of Common Stock to all holders of its outstanding shares of Common Stock, then the Conversion Price in effect at the opening of business on the date following the Common Stock Record Date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the Common Stock Record Date fixed for such determination; and (2) the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution. 62 Such reduction shall become effective immediately after the opening of business on the day following the Common Stock Record Date fixed for such determination. If any dividend or distribution of the type described in this Section 11.3(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, then the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case the Company shall, at any time or from time to time while any of the Securities are outstanding, combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased. Such reduction or increase, as the case may be, shall become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (c) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, issue rights or warrants (other than any rights or warrants referred to in Section 11.3(d)) to all holders of its shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into shares of Common Stock) at a price per share (or having a conversion price per share) less than the Current Market Value of the Common Stock on the Business Day immediately preceding the date of the announcement of such issuance (treating the conversion price per share of the securities convertible into Common Stock as equal to (x) the sum of (i) the price for a unit of the security convertible into Common Stock and (ii) any additional consideration initially payable upon the conversion of such security into Common Stock divided by (y) the number of shares of Common Stock initially underlying such convertible security), then the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such date of announcement by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding on the close of business on the date of announcement, plus the number of shares or securities which the aggregate offering price of the total number of shares or securities so offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) would purchase at such Current Market Value of the Common Stock; and (2) the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date of announcement, plus the total number of additional shares of Common Stock so offered for subscription or purchase (or into which the convertible securities so offered are convertible). 63 Such adjustment shall become effective immediately after the opening of business on the day following the date of announcement of such issuance. To the extent that shares of Common Stock (or securities convertible into shares of Common Stock) are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock (or securities convertible into shares of Common Stock) actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if the date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Value of the Common Stock, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration if other than cash, to be determined in good faith by the Board of Directors. (d) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, by dividend or otherwise, distribute to all holders of its shares of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation and the Common Stock is not changed or exchanged), cash, shares of its capital stock (other than any dividends or distributions to which Section 11.3(a) applies), evidences of its Indebtedness or other assets, including securities, but excluding (i) any rights or warrants referred to in Section 11.3(c), (ii) dividends or distributions of stock, securities or other property or assets (including cash) in connection with a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 11.4 applies, (iii) Cash Dividends and other distributions paid exclusively in cash and (iv) any Spin-Off as contemplated below (such capital stock, evidence of its indebtedness, cash, other assets or securities being distributed hereinafter in this Section 11.3(d) called the "distributed assets"), then, in each such case, subject to the third and fourth succeeding paragraphs and the last Section of this Section 11.3(d), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Common Stock Record Date with respect to such distribution by a fraction: (1) the numerator of which shall be the Current Market Value of the Common Stock, less the Fair Market Value on such date of the portion of the distributed assets so distributed applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the record date) (determined as provided in Section 11.3(g)) on such date; and (2) the denominator of which shall be such Current Market Value. Such reduction shall become effective immediately prior to the opening of business on the day following the Common Stock Record Date for such distribution. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the 64 Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the Fair Market Value of any distribution for purposes of this Section 11.3(d) by reference to the actual or when issued trading market for any distributed assets comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period (the "Reference Period") used in computing the Current Market Value pursuant to Section 11.3(g) to the extent possible, unless the Board of Directors determines in good faith that determining the Fair Market Value during the Reference Period would not be in the best interest of the Holders. In the event any such distribution consists of shares of Capital Stock of, or similar equity interests in, one or more of the Company's Subsidiaries (a "Spin-Off"), the Conversion Price shall be adjusted in accordance with the following formula: P C' = C x ----- P + U Where: C' = the adjusted Conversion Price. C = the then current Conversion Price. P = the arithmetic average of the VWAP of the Common Stock of the Company over the Trading Period. U = the arithmetic average of the VWAP of the Common Stock of the applicable Spin-Co over the Trading Period. Trading Period = the 20 consecutive Trading Days commencing on and including the tenth Trading Day of the Common Stock after the effectiveness of such Spin-Off. The adjustment shall be made successively whenever any such Spin-Off is made and shall become effective immediately after such Spin-Off. Rights or warrants distributed by the Company to all holders of its shares of Common Stock entitling them to subscribe for or purchase shares of the Company's Capital Stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"), (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of shares of Common Stock shall be deemed not to have been distributed for purposes of this Section 11.3(d) (and no adjustment to the Conversion Price under this Section 11.3(d) will be required) until the occurrence of the earliest Trigger Event. If such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different distributed assets, evidences of indebtedness or other assets, or entitle the holder to purchase a different number or amount of the foregoing or to purchase any 65 of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and record date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Price under this Section 11.3(d): (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of shares of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of shares of Common Stock as of the date of such redemption or repurchase; and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise, the Conversion Price shall be readjusted as if such rights and warrants had never been issued. For purposes of this Section 11.3(d) and Sections 11.3(a), 11.3(b) and 11.3(c), any dividend or distribution to which this Section 11.3(d) is applicable that also includes (i) shares of Common Stock, (ii) a subdivision or combination of shares of Common Stock to which Section 11.3(b) applies or (iii) rights or warrants to subscribe for or purchase shares of Common Stock to which Section 11.3(c) applies (or any combination thereof), shall be deemed instead to be: (1) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants, other than such shares of Common Stock, such subdivision or combination or such rights or warrants to which Sections 11.3(a), 11.3(b) and 11.3(c) apply, respectively (and any Conversion Price reduction required by this Section 11.3(d) with respect to such dividend or distribution shall then be made), immediately followed by (2) a dividend or distribution of such shares of Common Stock, such subdivision or combination or such rights or warrants (and any further Conversion Price reduction required by Sections 11.3(a), 11.3(b) and 11.3(c) with respect to such dividend or distribution shall then be made), except: (A) the Common Stock Record Date of such dividend or distribution shall be substituted as (i) "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution," "Common Stock Record Date fixed for such determinations" and "Common Stock Record Date" within the meaning of Section 11.3(a), (ii) "the day upon which such subdivision becomes effective" and "the day upon which such combination becomes effective" within the meaning of Section 11.3(b), and (iii) as "the date fixed for the determination of stockholders entitled to receive such rights or warrants," "the Common Stock 66 Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants" and such "Common Stock Record Date" within the meaning of Section 11.3(c); and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 11.3(a) and any reduction or increase in the number of shares of Common Stock resulting from such subdivision or combination shall be disregarded in connection with such dividend or distribution. In the event of any distribution referred to in this Section 11.3(d) in which (1) the Fair Market Value of such distribution applicable to one share of Common Stock (determined as provided above) equals or exceeds the average of the Closing Prices of the Common Stock over the ten consecutive Trading Day period ending on the Common Stock Record Date for such distribution or (2) the average of the Closing Prices of the Common Stock over the ten consecutive Trading Day period ending on the Common Stock Record Date for such distribution exceeds the Fair Market Value of such distribution by less than $1.00, then, in each such case, in lieu of an adjustment to the Conversion Price, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security, in addition to shares of Common Stock, the kind and amount of such distribution such Holder would have received had such Holder converted such Security immediately prior to the Common Stock Record Date for determining the shareholders entitled to receive the distribution. In the event of any distribution referred to in Section 11.3(c) or 11.3(d), where, in the case of a distribution described in Section 11.3(d), the Fair Market Value of such distribution per share of Common Stock exceeds 10% of the Closing Price of a share of Common Stock on the Business Day immediately preceding the declaration date for such distribution, then, if such distribution would also trigger a conversion right under Section 11.1(b) or the Securities are otherwise convertible pursuant to this Article 11, the Company will be required to give notice to the Holders of Securities at least 20 days prior to the Ex-Dividend Time for the distribution and, upon the giving of notice, the Securities may be surrendered for conversion at any time on and after the date that the Company gives notice to the Holders of such conversion right, until the close of business on the Business Day prior to the Ex-Dividend Time or the Company announces that such distribution will not take place. No adjustment to the Conversion Price or the ability of a Holder of a Security to convert will be made if the Holder will otherwise participate in such distribution without conversion. (e) In case a tender or exchange offer made by the Company or any of its Subsidiaries for all or any portion of the shares of Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of shares tendered) of an aggregate consideration having a Fair Market Value that, combined together with the aggregate amount of the cash, plus the Fair Market Value, as of the expiration of such tender or exchange offer, of consideration payable in respect of any other tender offers, by the Company or any of its Subsidiaries for all or any portion of the shares of Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of 67 which no adjustment pursuant to this Section 11.3(e) has been made, exceeds 10% of the product of the Current Market Value of the Common Stock as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender or exchange offer (as it may be amended), times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time (such excess, the "Excess Amount"), then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date of the Expiration Time by a fraction: (1) the numerator of which shall be (x) the product of (i) the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time and (ii) the Current Market Value of the Common Stock at the Expiration Time, less (y) the Excess Amount; and (2) the denominator shall be the product of the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time and the Current Market Value of the Common Stock at the Expiration Time. Such reduction (if any) shall become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all or a portion of such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such (or such portion of the) tender offer had not been made. If the application of this Section 11.3(e) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 11.3(e). Pursuant to rights issued under the Company's preferred share purchase rights plan, if holders of the Securities exercising the right of conversion attaching after the date the rights separate from the underlying Common Stock are not entitled to receive the rights that would otherwise be attributable to the shares of Common Stock received upon conversion, the Conversion Price will be adjusted as though the rights were being distributed to holders of Common Stock on the date of such separation. If such an adjustment is made and the rights are later redeemed, invalidated or terminated, then a corresponding reversing adjustment will be made to the conversion price on an equitable basis. (f) For purposes of this Article 11, the following terms shall have the meanings indicated: "Common Stock Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of shares of Common Stock have the right to receive any cash, securities or other property or in which the shares of Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). 68 "Current Market Value" on any date means the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to such date; provided, however, that if: (1) the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 11.3(a), (b), (c), (d) or (e) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is required to be multiplied as a result of such other event; (2) the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 11.3(a), (b), (c), (d) or (e) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is required to be multiplied as a result of such other event; and (3) the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the Fair Market Value of the evidences of Indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 11.3(e), if the "ex" date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 11.3(a), (b), (c), (d) or (e) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by dividing such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, when used: (1) with respect to any issuance or distribution, means the first date on which the shares of Common Stock trade regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution; (2) with respect to any subdivision or combination of shares of Common Stock, means the first date on which the shares of Common Stock trade regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective; and 69 (3) with respect to any tender or exchange offer, means the first date on which the shares of Common Stock trade regular way on such exchange or in such market after the Expiration Time of such offer. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 11.3, such adjustments shall be made to the Current Market Value as may be necessary or appropriate to effectuate the intent of this Section 11.3 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors. "Fair Market Value" shall mean the amount that a willing buyer would pay a willing seller in an arm's length transaction (as determined in good faith by the Board of Directors, whose determination shall be conclusive absent manifest error). (g) The Company shall be entitled to make such additional reductions in the Conversion Price, in addition to those required by Sections 11.3(a), (b), (c), (d) and (e), as shall be necessary in order that any dividend or distribution of Common Stock, any subdivision, reclassification or combination of shares of Common Stock or any issuance of rights or warrants referred to above shall not be taxable to the holders of Common Stock for United States Federal income tax purposes. (h) To the extent permitted by applicable law, the Company may, from time to time, reduce the Conversion Price by any amount for any period of time, if such period is at least 20 days and the reduction is irrevocable during the period. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the Trustee and each Holder at the address of such Holder as it appears in the register of the Securities maintained by the Registrar, at least 15 days prior to the date the reduced Conversion Price takes effect, a notice of the reduction stating the reduced Conversion Price and the period during which it will be in effect. (i) In any case in which this Section 11.3 shall require that any adjustment be made effective as of or retroactively immediately following a Common Stock Record Date, the Company may elect to defer (but only for five Trading Days following the filing of the statement referred to in Section 11.5) issuing to the Holder of any Securities converted after such Common Stock Record Date the shares of Common Stock issuable upon such conversion over and above the shares of Common Stock issuable upon such conversion on the basis of the Conversion Price prior to adjustment; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (j) All calculations under this Section 11.3 shall be made to the nearest cent or one-hundredth of a share, with one-half cent and 0.005 of a share, respectively, being rounded upward. Notwithstanding any other provision of this Section 11.3, the Company shall not be required to make any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of such price. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an 70 increase or decrease of at least 1% in such price. Any adjustments under this Section 11.3 shall be made successively whenever an event requiring such an adjustment occurs. (k) In the event that at any time, as a result of an adjustment made pursuant to this Section 11.3, the Holder of any Securities thereafter surrendered for conversion shall become entitled to receive any shares of stock of the Company other than shares of Common Stock into which the Securities originally were convertible, the Conversion Price of such other shares so receivable upon conversion of any such Security shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in subparagraphs (a) through (k) of this Section 11.3, and the provision of Sections 11.1, 11.2 and 11.4 through 11.9 with respect to the Common Stock shall apply on like or similar terms to any such other shares and the determination of the Board of Directors as to any such adjustment shall be conclusive. (l) No adjustment shall be made pursuant to this Section 11.3(i) if the effect thereof would be to reduce the Conversion Price below the par value (if any) of the Common Stock or (ii) if the Holders of the Securities otherwise participate in the transaction that would otherwise give rise to an adjustment pursuant to this Section 11.3; provided that such participation is on terms that include the effect of such adjustment. The Company will take no action to increase the par value of the Common Stock. Section 11.4 Consolidation or Merger of the Company. If any of the following events occurs, namely: (1) any reclassification or change of the outstanding Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); (2) any merger, consolidation, statutory share exchange or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock; or (3) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock; the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture, if such supplemental indenture is then required to so comply) providing that such Securities shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) which such Holder would have been entitled to receive upon such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance had such Securities been converted into Common Stock immediately prior to such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance assuming such holder 71 of Common Stock did not exercise its rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance (provided, that if the kind or amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("Non-Electing Share"), then for the purposes of this Section 11.4, the kind and amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance for each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 11. If, in the case of any such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including to the extent practicable the provisions providing for the conversion rights set forth in this Article 11. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder, at the address of such Holder as it appears on the register of the Securities maintained by the Registrar, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section 11.4 shall similarly apply to successive reclassifications, mergers, consolidations, statutory share exchanges, combinations, sales and conveyances. If this Section 11.4 applies to any event or occurrence, Section 11.3 shall not apply. Section 11.5 Notice of Adjustment. Whenever an adjustment in the Conversion Price with respect to the Securities is required: (1) the Company shall forthwith place on file with the Trustee and any Conversion Agent for such securities a certificate of the Treasurer of the Company, stating the adjusted Conversion Price determined as provided herein and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment; and (2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company, to 72 each Holder in the manner provided in Section 12.2. Any notice so given shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. Section 11.6 Notice in Certain Events. In case: (1) of a consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or conveyance to another Person or entity or group of Persons or entities acting in concert as a partnership, limited partnership, syndicate or other group (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of all or substantially all of the property and assets of the Company; or (2) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (3) of any action triggering an adjustment of the Conversion Price referred to in clauses (x) or (y) below; then, in each case, the Company shall cause to be filed with the Trustee and the Conversion Agent, and shall cause to be given, to the Holders of the Securities in the manner provided in Section 12.2, at least 15 days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of any distribution or grant of rights or warrants triggering an adjustment to the Conversion Price pursuant to this Article 11, or, if a record is not to be taken, the date as of which the holders of record of Common Stock entitled to such distribution, rights or warrants are to be determined, or (y) the date on which any reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up triggering an adjustment to the Conversion Price pursuant to this Article 11 is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger sale, conveyance, dissolution, liquidation or winding up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in clause (1), (2) or (3) of this Section 11.6. Section 11.7 Company To Reserve Stock: Registration; Listing. (a) The Company shall, in accordance with the laws of the State of California, at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Securities, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all Securities then outstanding into such Common Stock at any time (assuming that, at the time of the computation of such number of shares or securities, all such Securities would be held by a single Holder); provided, however, that nothing contained herein shall preclude the Company from satisfying its obligations in respect of the conversion of 73 the Securities by delivery of purchased shares of Common Stock which are then held in the treasury of the Company. The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issue be fully paid and nonassessable and free from all liens and charges and, except as provided in Section 11.8, taxes with respect to the issue thereof. (b) If any shares of Common Stock which would be issuable upon conversion of Securities hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will in good faith and as expeditiously as possible endeavor to cause such shares or securities to be duly registered or approved, as the case may be. The Company further covenants that so long as the Common Stock shall be listed on the New York Stock Exchange, the Company will, if permitted by the rules of such exchange, list and keep listed all Common Stock issuable upon conversion of the Securities, and the Company will endeavor to list the shares of Common Stock required to be delivered upon conversion of the Securities prior to such delivery upon any other national securities exchange upon which the outstanding Common Stock is listed at the time of such delivery. Section 11.8 Taxes on Conversion. The issue of stock certificates on conversion of Securities shall be made without charge to the converting Holder for any documentary, stamp or similar issue or transfer taxes in respect of the issue thereof, and the Company shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or the portion, if any, of the Securities which are not so converted in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid. Section 11.9 Conversion After Record Date. Except as provided below and in the proviso to this paragraph, if any Securities are surrendered for conversion on any day other than an Interest Payment Date, the Holder of such Securities shall not be entitled to receive any interest that has accrued on such Securities since the prior Interest Payment Date; provided, however that if any Securities are surrendered for conversion within five Business Days prior to the Stated Maturity of the Securities, then the Holder thereof shall be entitled to receive any interest that has accrued on such Securities since the prior Interest Payment Date until the date of Stated Maturity. By delivery to the Holder of the number of shares of Common Stock or other consideration issuable upon conversion in accordance with this Article 11, any accrued and unpaid interest on such Securities will be deemed to have been paid in full. Except as otherwise set forth in the proviso to the preceding paragraph of this Section 11.9, if any Securities are surrendered for conversion subsequent to the record date 74 preceding an Interest Payment Date but on or prior to such Interest Payment Date, the Holder of such Securities at the close of business on such record date shall receive the interest payable on such Securities on such Interest Payment Date notwithstanding the conversion thereof. Securities surrendered for conversion during the period from the close of business on any record date preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall be accompanied by payment by Holders, for the account of the Company, in New York Clearing House funds or other funds of an amount equal to the interest payable on such Interest Payment Date on the Securities being surrendered for conversion. Except as provided in this Section 11.9, no adjustments in respect of payments of interest on Securities surrendered for conversion or any dividends or distributions or interest on the Common Stock issued upon conversion shall be made upon the conversion of any Securities. Section 11.10 Conversion Price. The initial Conversion Price shall be computed by the Company and equal that amount (rounded to four decimal places) arrived at by multiplying 119% by the arithmetic average of the VWAP per share of Common Stock for each Trading Day during the Pricing Period. In addition, should any event(s) occur during the Pricing Period that would have resulted in an adjustment to the Conversion Price pursuant to the provisions of Section 11 had the Conversion Price been calculated as of such date, then the Company shall adjust the initial Conversion Price calculated in accordance with the foregoing sentence to fairly reflect any and all such adjustments as would be required by Section 11 (assuming for such purposes that the Conversion Price on any day during the Pricing Period is equal to 119% of the arithmetic average of the VWAP per share of Common Stock for each Trading Day during the Pricing Period immediately preceding such date). The Company shall maintain the listing of the Common Stock on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market such that there will be at least 43 Trading Days during the first 75 calendar days following the Closing Date. Section 11.11 Company Determination Final. Any determination that the Company or the Board of Directors must make pursuant to this Article 11 shall be conclusive if made in good faith and in accordance with the provisions of this Article, absent manifest error, and set forth in a Board Resolution. Section 11.12 Responsibility of Trustee for Conversion Provisions. The Trustee has no duty to determine when an adjustment under this Article XI should be made, how it should be made or what it should be. The Trustee has no duty to determine whether a supplemental indenture under Section 11.4 need be entered into or whether any provisions of any supplemental indenture are correct. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for any failure of the Company to comply with this Article 11. Each Conversion Agent other than the Company shall have the same protection under this Section 11.12 as the Trustee. 75 The rights, privileges, protections, immunities and benefits given to the Trustee under the Indenture including, without limitation, its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each Paying Agent or Conversion Agent acting hereunder. Section 11.13 Unconditional Right of Holders to Convert. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to convert its Security in accordance with this Article 11 and to bring an action for the enforcement of any such right to convert, and such rights shall not be impaired or affected without the consent of such Holder. Section 11.14 Failure to Deliver Shares. If, for any reason whatsoever, the Company shall fail to, or is otherwise unable to, deliver any shares of Common Stock to any Holder upon the proper conversion of such Holder's Securities in accordance with the terms of this Indenture (a "Share Delivery Default"), the Company shall pay liquidated damages (the "Share Liquidated Damages") on all Securities, in amount equal to 0.50% per annum of the principal amount outstanding on the Securities from the date following such Share Delivery Default. All accrued Liquidated Damages shall be paid either (i) in cash, by wire transfer of immediately available funds or by federal funds check or (ii) in PIK Securities, in each case on the next interest payment date or, if earlier, the Maturity Date. Following the cure of each such Share Delivery Default with respect to each such Holder's Securities, the accrual of Liquidated Damages with respect to the Securities will cease. Section 11.15 Common Stock Restricted Securities Legends. Unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act or is eligible for resale pursuant to Rule 144(k), each stock certificate representing Common Stock issued upon conversion of the Securities will bear the legend set forth on Exhibit G hereto (the "Common Stock Restricted Securities Legend"). The Common Stock Restricted Securities Legend may be removed from any stock certificate representing shares of the Common Stock issued upon conversion of any Security if there is delivered to the Company such evidence required by the Common Stock Restricted Securities Legend. Upon provision of such satisfactory evidence, at the written direction of the Company, the transfer agent for the Common Stock shall authenticate and deliver in exchange for the stock certificate or stock certificates representing such shares of Common Stock bearing such legend, one or more new stock certificates representing a like aggregate number of shares of Common Stock that do not bear such legend. If the Common Stock Restricted Securities Legend has been removed from a stock certificate representing shares of the Common Stock issued upon conversion of any Security as provided above, no other stock certificates representing shares of the Common Stock issued upon conversion of such Security shall bear such legend, unless the Company has reasonable cause to believe that such shares of Common Stock are "restricted securities" within the meaning of Rule 144. 76 ARTICLE XII MISCELLANEOUS Section 12.1 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. Section 12.2 Notices. Any request, demand, authorization, notice, waiver, consent or communication shall be in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows or transmitted by facsimile transmission (confirmed by guaranteed overnight courier) to the following facsimile numbers: if to the Company: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Assistant Treasurer Facsimile: (415) 267-7625 Telephone: (415) 267-7052 with a copy to: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Chief Counsel, Corporate Law Department Facsimile: (415) 817-8225 Telephone: (415) 817-8200 if to the Trustee: U.S. Bank, N.A. One California Street, Suite 2550 Attention: Corporate Trust Services Facsimile: (415) 273-4591 Telephone: (415) 273-4514 The Company or the Trustee by notice given to the other in the manner provided above may designate additional or different addresses for subsequent notices or communications. Any notice or communication given to a Securityholder shall be mailed to the Securityholder, by first-class mail, postage prepaid, at the Securityholder's address as it appears 77 on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressee. If the Company mails a notice or communication to the Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent, Conversion Agent or co-registrar. Section 12.3 Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Trustee shall comply with TIA Section 312(b) relating to Securityholder communications. The Company, the Trustee, the Registrar, the Paying Agent, the Conversion Agent and anyone else shall have the protection of TIA Section 312(c). Section 12.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; or (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 12.5 Statements Required in Certificate or Opinion. Each Officers' Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that each person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (3) a statement that, in the opinion of each such person, he has made such examination or investigation as is reasonably necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement that, in the opinion of such person, such covenant or condition has been complied with. 78 Section 12.6 Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.7 Rules by Trustee, Paying Agent, Conversion Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar, the Conversion Agent and the Paying Agent may make reasonable rules for their functions. Section 12.8 GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 12.9 No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. Section 12.10 Successors. All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 12.11 Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. [Signature Pages Follow] 79 IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written. PG&E CORPORATION By: _________________________________ Name: Title: U.S. BANK, N.A.. as Trustee By:__________________________________ Name: Title: EXHIBIT A [FORM OF FACE OF GLOBAL SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF THE DEPOSITORY TRUST COMPANY, OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. PG&E CORPORATION 7.50% Convertible Subordinated Notes due 2007 No. CUSIP: Issue Date: ______, 200_ Principal Amount: $______________ PG&E CORPORATION, a California corporation, promises to pay to Cede & Co. or registered assigns, the principal amount of _____________________ dollars ($__________) on June 30, 2007. Interest Payment Dates: June 30 and December 31, commencing December 31, 2002. Record Dates: June 15 and December 15. Reference is hereby made to the further provisions of this Security set forth on the reverse side of this Security, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: _____, 200_ PG&E CORPORATION By:__________________________________ Title:_______________________________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION U.S. BANK, N.A., as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By__________________________________ Authorized Signatory Dated: _______ __, 200_ A-2 [FORM OF REVERSE OF GLOBAL SECURITY] 7.50% Convertible Subordinated Notes due 2007 This Security is one of a duly authorized issue of 7.50% Convertible Subordinated Notes due 2007 (the "Securities") of PG&E Corporation, a California corporation (including any successor corporation under the Indenture hereinafter referred to, the "Company"), issued under an Indenture, dated as of June 25, 2002 (together with any supplemental indenture thereto, the "Indenture"), between the Company and U.S. Bank, N.A., as trustee (the "Trustee"). The terms of the Security include those stated in the Indenture, those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended ("TIA"), and those set forth in this Security. This Security is subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Security and the terms of the Indenture, the terms of the Indenture shall control. Capitalized terms used but not defined herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest The Company promises to pay interest on the principal amount of the Securities at the interest rate of 7.50% (the "Interest Rate") from the date of issuance until repayment in full at June 30, 2007, or until an earlier repurchase. The Company will pay Interest on this Security semi-annually in arrears on June 30 and December 31 of each year (each, an "Interest Payment Date"), commencing December 31, 2002. The Securities shall bear interest from June 25, 2002 until the principal amount thereof is paid or made available for payment, or until such date on which the Securities are converted or purchased as provided herein at a rate of 7.50% per annum. Interest on the Securities shall be computed (i) for any full semi-annual period for which a particular Interest Rate is applicable, on the basis of a 360-day year of twelve 30-day months and (ii) for any period for which a particular Interest Rate is applicable for less than a full semiannual period for which Interest is calculated, on the basis of a 30-day month and, for such periods of less than a month, the actual number of days elapsed over a 30-day month. The Company shall have the right, at any time and from time to time, during the term of the Securities, to make payments of interest on any Interest Payment Date prior to the Maturity Date or to make payments on any accrued Liquidated Damages by issuing additional 7.50% Convertible Preferred Notes due 2007 (the "PIK Securities"), on not less than 30 days (and not more than 45 days) notice to the Trustee and notice to the Holders (the "PIK Notice") prior to each such Interest Payment Date; provided that on the Maturity Date the Company shall be required to pay all accrued and unpaid interest on the Securities, and any outstanding Liquidated Damages, in cash, and no PIK Notice shall be given with respect to such last interest payment date. The PIK Securities shall be issued under the Indenture and, except to the extent set forth in Section 2.14 of the Indenture, shall in all respects be identical to the originally issued Securities. A-3 No PIK Securities may be issued in denominations of less than $1.00 of principal amount (and such PIK Securities must be issued in integral multiples of $1.00) and no fractional PIK Securities may be issued in lieu of cash interest pursuant to the fourth paragraph of this Section 1 and the Company shall, instead, pay a cash adjustment in the same manner as provided in the Indenture with respect to the conversion of Securities in shares of Common Stock. If this Security is repurchased by the Company on a date that is after the record date and prior to the corresponding Interest Payment Date, interest and additional amounts, if any, accrued and unpaid hereon to but not including the applicable Change of Control Purchase Date, as the case may be, will be paid to the same Holder to whom the Company pays the principal of this Security. A Holder of any Security at the close of business on a record date will be entitled to receive interest (including Liquidated Damages, if any) on such Security on the corresponding Interest Payment Date. Interest on Securities converted after a record date but prior to the corresponding Interest Payment Date (other than any Security whose maturity is prior to such Interest Payment Date) will be paid to the Holder of the Securities on the record date but, upon conversion, the Holder must pay the Company the interest, Liquidated Damages and Pass-Through Dividends, if any, which have accrued and will be paid on such Interest Payment Date upon receipt of such amounts from the Company. If the principal amount hereof or any portion of such principal amount or any interest, including the payment of Liquidated Damages and Pass-Through Dividends, if any, on any Security is not paid when due (whether upon acceleration pursuant to Section 7.2 of the Indenture, upon the date set for payment of the Change of Control Purchase Price pursuant to Section 5 hereof or upon the Stated Maturity of this Security), then in each such case the overdue amount shall, to the extent permitted by law, bear interest at 1% over the then currently applicable rate, compounded semi-annually, which interest shall accrue from the date on which such overdue amount was originally due to the date of payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand. Subject to the record date provisions described in the Indenture, the Company shall pay to each Holder an amount per Security equal to the Cash Dividends, if any, paid by the Company per share of Common Stock multiplied by the principal amount of such Security divided by the Conversion Price in effect on the record date for such payment. Pass-Through Dividends, if any, will be payable on the payment date of each such Pass-Through Dividend to Holders as of the record date for determination of the stockholders entitled to receive each such Pass-Through Dividend. 2. Method of Payment. Except as provided below, interest and Liquidated Damages will be paid (i) on the Global Securities to DTC in immediately available funds, (ii) to the person in whose name Securities are registered at the close of business on the record date, (a) on any Certificated Securities having an aggregate principal amount of $5,000,000 or less, by check mailed to the Holders of such Securities; (b) on any Securities having an aggregate principal amount of more than $5,000,000, A-4 by wire transfer in immediately available funds at the election of the Holders of those Securities; and (c) in the case of interest or Liquidated Damages payable in kind, by deposit or delivery of PIK Securities. At Stated Maturity the Company will pay principal and interest in cash on Securities at the Company's office for payment, which initially will be the Corporate Trust Office of the Trustee. Subject to the terms and conditions of the Indenture, the Company will make payments in cash in respect of the Change of Control Purchase Price and amounts payable at Stated Maturity to Holders who surrender Securities to the Paying Agent to collect such payments in respect of the Securities. The Company will pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may make such cash payments by check payable in such money. 3. Paying Agent, Conversion Agent and Registrar. Initially, U.S. Bank, N.A. (the "Trustee") will act as Paying Agent, Conversion Agent and Registrar. The Company may appoint and change any of the Paying Agent, Conversion Agent or Registrar without notice, other than notice to the Trustee. Neither the Company nor any of its Subsidiaries nor any of their Affiliates may act as Paying Agent, Conversion Agent or Registrar. 4. Indenture. This Security is one of a duly authorized issue of Securities of the Company designated as its 7.50% Convertible Subordinated Notes due 2007, issued under the Indenture. The terms of this Security include those stated in the Indenture and those required by or made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. This Security is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Act for a statement of them. The Securities are general unsecured subordinated obligations of the Company limited to $280,000,000. Notwithstanding the foregoing, the aggregate principal amount of the Securities aggregate principal amount permitted to be outstanding at any time may exceed the amount set forth in the foregoing sentence only by an amount sufficient to permit payments of interest or Liquidated Damages in PIK Securities as provided for in the Indenture. 5. Purchase By the Company at the Option of the Holder. At the option of the Holder by provision of a Change of Control Purchase Notice and subject to the terms and conditions of the Indenture, the Company shall become obligated to offer to purchase the Securities held by such Holder (or any portion of the principal amount hereof that is at least an integral multiple of $1,000 (or in the case of any PIK Security, at least an integral multiple of $1), provided that the portion of the principal amount of the Security to be outstanding after such purchase is at least equal to $1,000 (or, in the case of a PIK Security, at least $1) within 30 days after the occurrence of a Change of Control of the Company for a Change of Control Purchase Price equal to the principal amount plus accrued and unpaid interest, A-5 including any Liquidated Damages and Pass-Through Dividends, if any, payable with respect to such Security on the Change of Control Purchase Date. The Change of Control Purchase Date shall be no earlier than 30 days nor later than 60 days after the delivery of the notice described in the preceding sentence. The Change of Control Purchase Price shall be paid in cash. Holders have the right to withdraw any Change of Control Purchase Notice, as the case may be, by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture. If cash sufficient to pay the Change of Control Purchase Price of all Securities or portions thereof to be purchased as of the Change of Control Purchase Date is deposited with the Paying Agent, on the Business Day following the Change of Control Purchase Date, interest will cease to accrue on such Securities (or portions thereof) (including Liquidated Damages and Pass-Through Dividends, if any) immediately after such Change of Control Purchase Date, and the Holder thereof shall have no other rights as such other than the right to receive the Change of Control Purchase Price upon surrender of such Security. 6. Conversion. (a) Subject to and in compliance with the provisions of the Indenture, a Holder shall have the right, at such Holder's option, to convert all or any portion, if the portion to be converted is $1,000 or an integral multiple $1,000 (or, in the case of a PIK Security, the portion to be converted may be $1.00 or an integral multiple of $1.00), of such security into fully paid and nonassessable shares of Common Stock at the Conversion Price in effect on the Conversion Date. (b) No Holder may convert any Security to the extent that, immediately following any such conversion and upon receipt of any shares of Common Stock issuable upon such conversion, such Holder would either (i) become or be included in any person, including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act, 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 or be included in any "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 conversion (the Shareholder Limitation and the 4.9% Limitation are collectively referred to herein as the "Conversion 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 and disclosed such information to the Holders at the time of any such proposed conversion. 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 Conversion Limitations immediately after converting any Security and receipt of any shares of Common Stock issuable upon such conversion. A-6 (c) Notwithstanding the Shareholder Limitation, however, a Holder may convert Securities that would otherwise cause such Holder to hold shares of Common Stock in excess of the Shareholder Limitation if, as to such excess number of shares of Common Stock, (the "Excess Shares"), such Holder (i) irrevocably covenants to the Company to sell such Excess Shares within 10 days after the date of conversion and (ii) confirms that it has, on or prior to such conversion date, entered into a binding arrangement to sell the Excess Shares within 10 days after such conversion date either (a) in a regular way transaction on a national securities exchange (or the principal market where the 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 Shareholder Limitation. In addition, such Holder, by converting its securities, shall be deemed to 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 conversion date and the consummation of the sale of the applicable Excess Shares. The Shareholder Limitation will cease to have any force and effect upon consummation of a Spin-Off of POR Spin-Co, if, on the date that is 14 days after delivery to the Company of a request by the Majority 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 Shareholder Limitation would, in the good faith judgment of the Company, not be consistent with the applicable regulatory or other legal requirements. A Security in respect of which a Holder has delivered a Change of Control Purchase Notice, exercising the option of such Holder to require the Company to purchase such Security, may be converted only if such Change of Control Purchase Notice is withdrawn in accordance with the terms of the Indenture. The initial Conversion Price shall be computed by the Company and equal that amount (rounded to four decimal places) arrived at by multiplying 119% by the arithmetic average of the Volume Weighted Average Price or "VWAP" (as defined in the Indenture) per share of Common Stock for a fixed 43 Trading Day period beginning on and including the third Trading Day after the Closing Date, subject to adjustment in certain events described in the Indenture. To surrender a Security for conversion, a Holder must (1) complete and manually sign the conversion notice below (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent, (2) surrender the Security to the Conversion Agent, (3) furnish appropriate endorsements and transfer documents and (4) pay any transfer or similar tax, if required. No fractional shares of Common Stock shall be issued upon conversion of any Security. Instead of any fractional share of Common Stock that would otherwise be issued upon conversion of such Security, the Company shall pay a cash adjustment as provided in the Indenture. A-7 If the Company (i) is a party to a consolidation, merger or binding share exchange, (ii) reclassifies the Common Stock or (iii) conveys, transfers or leases its properties and assets substantially as an entirety to any Person, the right to convert a Security into shares of Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or such other Person, in each case in accordance with the Indenture. 7. Subordination of Securities. The indebtedness evidenced by the Securities is, to the extent and in the manner provided in Article 5 of the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Debt of the Company, as defined in the Indenture, whether outstanding at the date of the Indenture or thereafter incurred, and this Security is issued subject to the provisions of the Indenture with respect to such subordination. Each Holder of this Security, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his or her attorney-in-fact for such purpose. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest (including the Change of Control Purchase Price, Liquidated Damages or Pass-Through Dividends, if any) on this Security at the place, at the respective times, at the rate and in the coin or currency herein prescribed. 8. Denominations; Transfer; Exchange. The Securities are in fully registered form, without coupons, in denominations of $1,000 of principal amount and integral multiples of $1,000 (or in the case of PIK Securities, denominations of $1.00 of principal amount and integral multiples of $1.00). A Holder may register, transfer or exchange of Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements, legal opinions and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Securities in respect of which a Change of Control Purchase Notice has been given and not withdrawn. 9. Persons Deemed Owners. The registered Holder of this Security shall be treated as the owner of this Security for all purposes. 10. Unclaimed Money or Securities. The Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years after the date upon which such payment shall have been due. After payment to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person after the date upon which such payment shall have become due. A-8 11. Amendment; Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities and (ii) certain Defaults may be waived with the written consent of the Holders of a majority in aggregate principal amount of the outstanding Securities. The Indenture and the Securities may also be amended by the Company and the Trustee, without the consent of any Holder, in certain circumstances set forth in the Indenture; provided, that certain provisions of the Indenture and the Securities may not be amended without the consent of each affected Holder. 12. Defaults and Remedies. If any Event of Default with respect to the Securities shall occur and be continuing, the principal of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. 13. Trustee Dealings with the Company. Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 14. No Recourse Against Others. A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 15. Authentication. This Security shall not be valid until an authorized signatory of the Trustee manually signs the Trustee's Certificate of Authentication on the other side of this Security. 16. Abbreviations. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). A-9 17. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS SECURITY. 18. Requests for Copies. The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture and, if requested, a copy of this Security in larger type. Requests may be made to: PG&E CORPORATION One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Assistant Treasurer Facsimile: (415) 267-7625 Telephone: (415) 267-7052 with a copy to: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Chief Counsel--Corporate Facsimile: (415) 817-8225 Telephone: (415) 817-8200 19. Registration Rights. The Holders of the Securities are entitled to the benefits of the Resale Registration Rights Agreement, dated as of June 25, 2002, between the Company and the purchasers identified on the signature pages thereto, including the receipt of Shelf Liquidated Damages upon a Registration Default (as defined in such agreement). A-10
- -------------------------------------------------------------------------------------------------- ASSIGNMENT FORM CONVERSION NOTICE - -------------------------------------------------------------------------------------------------- To assign this Security, fill in the form below: To convert this Security into Common Stock of the Company, check the box [ ]. - -------------------------------------------------------------------------------------------------- I or we assign and transfer this Security to To convert only part of this Security, ______________________________ state the principal amount to be converted ______________________________ (which must be $1,000 or an integral (Insert assignee's soc. sec. or tax ID no.) multiple of $1,000 or in the case of any ______________________________ PIK Security $1.00 or an integral multiple ______________________________ of $1.00): ______________________________ (Print or type assignee's name, address and zip If you want the stock certificate made out code) in another person's name fill in the form below: and irrevocably appoint ________________________________ ________________________________ ____________________ agent to transfer this Security on the books of the Company. The (Insert the other person's soc. sec. tax agent may substitute another to act for him. ID no.) ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ (Print or type other person's name, address and zip code) The undersigned, on behalf of itself and its affiliates, hereby represents to the Company that upon and immediately after the conversion of Securities into shares of Common Stock, it and its affiliates are and will be in compliance with the Conversion Limitations applicable to such Securities pursuant to paragraph 6 of this Security. - --------------------------------------------------------------------------------------------------
Date: __________ Your Signature: _________________________________________ ____________________________________________________________________________ (Sign exactly as your name appears on the other side of this Security) A-11 Signature Guaranteed ______________________________________ Participant in a Recognized Signature Guarantee Medallion Program By:___________________________________ Authorized Signatory A-12 SCHEDULE OF INCREASES AND DECREASES OF GLOBAL SECURITY Initial Principal Amount of Global Security: ____________($___________). ________________________________________________________________________________ Date Amount of Amount of Principal Notation by Increase in Decrease in Amount of Registrar or Principal Principal Global Security Security Amount of Amount of After Increase or Custodian Global Security Global Security Decrease ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ A-13 EXHIBIT B [FORM OF FACE OF 144A GLOBAL SECURITY] THE SECURITY EVIDENCED BY THIS CERTIFICATE AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (A "QIB"); OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"); (2) AGREES THAT IT WILL NOT, (I) WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (II) AFTER THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS SECURITY, PROVIDE A REPRESENTATION TO THE COMPANY THAT IT HAS HELD THE SECURITY EVIDENCED BY THIS CERTIFICATE FOR A PERIOD OF TWO YEARS AND IS NOT AN AFFILIATE (AS SUCH TERM IS DEFINED IN RULE 144 UNDER THE SECURITIES ACT); (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; (4) AGREES THAT IT WILL, IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO IN CLAUSE 2(I) OF THIS LEGEND, COMPLETE AND DELIVER A TRANSFER CERTIFICATE, THE FORM OF WHICH IS AVAILABLE FROM THE TRUSTEE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS. The foregoing legend may be removed from this Security on satisfaction of the conditions specified in the Indenture. A-2 PG&E CORPORATION 7.50% Convertible Subordinated Notes due 2007 No. CUSIP: Issue Date: , 200 Principal Amount: $ PG&E CORPORATION, a California corporation, promises to pay to CEDE & CO. or registered assigns, the principal amount of _________________ dollars ($ ) on June 30, 2007. Interest Payment Dates: June 30 and December 31, commencing December 31, 2002. Record Dates: June 15 and December 15. Reference is hereby made to the further provisions of this Security set forth on the reverse side of this Security, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: ___________, 200___ PG&E CORPORATION By: _______________________ Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION U.S. BANK, N.A., as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By ________________________ Authorized Signatory Dated: , 200 A-3 [FORM OF REVERSE OF 144A GLOBAL SECURITY IS IDENTICAL TO EXHIBIT A] EXHIBIT C [FORM OF FACE OF CERTIFICATED SECURITY] THE SECURITY EVIDENCED BY THIS CERTIFICATE AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (A "QIB"); OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"); (2) AGREES THAT IT WILL NOT, (I) WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (II) AFTER THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS SECURITY, PROVIDE A REPRESENTATION TO THE COMPANY THAT IT HAS HELD THE SECURITY EVIDENCED BY THIS CERTIFICATE FOR A PERIOD OF TWO YEARS AND IS NOT AN AFFILIATE (AS SUCH TERM IS DEFINED IN RULE 144 UNDER THE SECURITIES ACT); (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; (4) AGREES THAT IT WILL, IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO IN CLAUSE 2(I) OF THIS LEGEND, COMPLETE AND DELIVER A TRANSFER CERTIFICATE, THE FORM OF WHICH IS AVAILABLE FROM THE TRUSTEE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS. The foregoing legend may be removed from this Security on satisfaction of the conditions specified in the Indenture. B-2 PG&E CORPORATION 7.50% Convertible Subordinated Notes due 2007 No. [CUSIP:] Issue Date: , 200 Principal Amount: $ PG&E CORPORATION, a California corporation, promises to pay to ___________________ or registered assigns, the principal amount of _________________ dollars ($ ) on June 30, 2007. Interest Payment Dates: June 30 and December 31, commencing December 31, 2002. Record Dates: June 15 and December 15. Reference is hereby made to the further provisions of this Security set forth on the reverse side of this Security, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: ___________, 200___ PG&E CORPORATION By: _____________________ Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION U.S. BANK, N.A., as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By __________________________________ Authorized Signatory Dated: , 200 B-3 [FORM OF REVERSE OF CERTIFICATED SECURITY IS IDENTICAL TO EXHIBIT A] EXHIBIT D PG&E Corporation 7.50% Convertible Subordinated Notes due 2007 Transfer Certificate In connection with any transfer of any of the Securities within the period prior to the expiration of the holding period applicable to the sales thereof under Rule 144(k) under the Securities Act of 1933, as amended (the "Securities Act") (or any successor provision), the undersigned registered owner of this Security hereby certifies with respect to $____________ principal amount of the above-captioned Securities presented or surrendered on the date hereof (the "Surrendered Securities") for registration of transfer, or for exchange or conversion where the securities issuable upon such exchange or conversion are to be registered in a name other than that of the undersigned registered owner (each such transaction being a "transfer"), that such transfer complies with the restrictive legend set forth on the face of the Surrendered Securities for the reason checked below: [_] A transfer of the Surrendered Securities is made to PG&E Corporation (the "Company") or any of its subsidiaries; [_] The transfer of the Surrendered Securities complies with Rule 144A under the Securities Act; [_] The transfer of the Surrendered Securities is pursuant to an effective registration statement under the Securities Act; [_] The transfer of the Surrendered Securities is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Security under the Indenture and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the transferee in the form of Exhibit E to the Indenture and (2) an opinion of counsel provided by the transferor or the transferee (a copy of which the transferor has attached to this certification), to the effect that such transfer is in compliance with the Securities Act; or [_] The transfer of the Surrendered Securities is pursuant to another available exemption from the registration requirement of the Securities Act; and unless the box below is checked, the undersigned confirms that, to the undersigned's knowledge, such Securities are not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act (an "Affiliate"). Capitalized terms used but not defined herein have the meanings set forth in the Indenture. [_] The transferee is an Affiliate of the Company. DATE: __________________________________ Signature(s) (If the registered owner is a corporation, partnership or fiduciary, the title of the person signing on behalf of such registered owner must be stated.) Signature Guaranteed _______________________________________ Participant in a Recognized Signature C-2 EXHIBIT E FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attn: _________________ [Registrar address block] Re: 7.50% Convertible Subordinated Notes due 2007 Reference is hereby made to the Indenture, dated as of June __, 2002 (the "Indenture"), between PG&E Corporation, as issuer (the "Company"), and U.S. Bank, N.A., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [_] a beneficial interest in a Global Security, or (b) [_] a Certificated Security, we confirm that: 1. We understand that any subsequent transfer of the Securities or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell or otherwise transfer the Securities or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Securities have not been registered under the Securities Act, and that the Securities and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Securities or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an opinion of legal counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Certificated Security or beneficial interest in a Global Security from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Securities or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Securities purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and 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 Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Securities or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. _________________________________________ [Insert Name of Accredited Investor] By:______________________________________ Name: Title: Dated:__________________________ D-2 EXHIBIT F PG&E Corporation 7.50% Convertible Subordinate Notes due 2007 Exchange Certificate In connection with the exchange of a Certificated Security for an interest in a Global Security pursuant to Section 2.12(a)(iv) of the Indenture representing $____________ principal amount of the above-captioned Securities presented or surrendered on the date hereof (the "Surrendered Securities"), the undersigned registered owner of this Security hereby certifies that either: [_] the undersigned is a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"); or [_] The Surrendered Securities are being transferred and such transfer complies with Rule 144A under the Securities Act and unless the box below is checked, the undersigned confirms that, to the undersigned's knowledge, such Securities are not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act (an "Affiliate"). [_] The transferee is an Affiliate of the Company. DATE: __________________________________ Signature(s) (If the registered owner is a corporation, partnership or fiduciary, the title of the person signing on behalf of such registered owner must be stated.) Signature Guaranteed ____________________________________________ Participant in a Recognized Signature E-2 EXHIBIT G COMMON STOCK RESTRICTED SECURITIES LEGEND THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER: (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY EXCEPT: (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a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dex992.txt PURCHASE AGREEMENT DATED JUNE 25, 2002 EXHIBIT 99.2 EXECUTION COPY $280,000,000 Aggregate Principal Amount PG&E CORPORATION 7.50% CONVERTIBLE SUBORDINATED NOTES DUE 2007 PURCHASE AGREEMENT June 25, 2002 Lehman Brothers Inc. 745 Seventh Avenue New York, NY 10019 Jackson Investment Fund Ltd. c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Citadel Credit Trading Ltd. c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Citadel Equity Fund Ltd. c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Ladies and Gentlemen: PG&E Corporation, a California corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell $280,000,000 aggregate principal amount of its 7.50% Convertible Subordinated Notes, in the respective principal amounts set forth in Schedule 1 hereto (together with any PIK Securities (as defined in the Indenture) that may be issued thereon, the "Securities"), to Lehman Brothers Inc., Jackson Investment Fund Ltd., Citadel Credit Trading Ltd. and Citadel Equity Fund Ltd. (each individually, a "Purchaser" and collectively, the "Purchasers"). This is to confirm the agreement between the Company and the Purchasers concerning the offer, issue and sale of the Securities. The Securities will be offered and sold to the Purchasers without being registered under the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder (collectively, the "Securities Act"), in reliance upon an exemption therefrom. It is understood by the parties hereto that if the conversion price of the Securities meets the requirements of Rule 144A(d)(3)(i) promulgated under the Securities Act, the Securities will be eligible to be resold pursuant to Rule 144A. The Securities will be issued pursuant to an indenture (the "Indenture"), the form of which is contained in Annex A hereof, dated as of the date hereof (the "Closing Date"), between the Company and U.S. Bank, N.A., as Trustee (the "Trustee"). The Securities will be convertible into shares of common stock, no par value (the "Common Stock"), of the Company (such shares, the "Conversion Shares") on the terms, and subject to the conditions, set forth in the Indenture. Holders of the Securities (including the Purchasers and their respective transferees) will be entitled to the benefits of a Resale Registration Rights Agreement, dated as of the Closing Date, between the Company and the Purchasers (the "Registration Rights Agreement"), the form of which is contained in Annex B hereof, pursuant to which the Company will agree, among other things, to use its best efforts to file with the Commission a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Registration Statement") covering the resale of the Conversion Shares, and to use its best efforts to cause the Registration Statement to be declared effective within the time periods specified therein. This Agreement, the Indenture, the Securities and the Registration Rights Agreement are referred to herein collectively as the "Transaction Documents". 1. Representations, Warranties and Agreements of the Company. The Company represents, warrants to and agrees with, each of the Purchasers acquiring Securities hereunder that, as of the date hereof: (a) The documents filed by the Company with the Commission since December 31, 2001 under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act"), when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and none of such documents (collectively, the "Exchange Act Documents") contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The Company and each of PG&E National Energy Group, LLC, a Delaware limited liability company, PG&E National Energy Group, Inc., a Delaware corporation, PG&E Gas Transmission, Northwest Corporation, a California corporation, PG&E Energy Trading Holdings Corporation, a California corporation, PG&E Generating Company, LLC, a Delaware limited liability company, USGen New England, Inc., a Delaware corporation, GTN Holdings LLC, a Delaware limited liability company and PG&E Energy Trading Holdings, LLC, a Delaware limited liability company (each a "Subsidiary" and, collectively, the "Subsidiaries"), have been duly organized and are validly existing as corporations or limited liability companies, as the case may be, in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing as foreign corporations or limited liability companies, as the case may be, in each jurisdiction in which their respective 2 ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own, lease or hold their respective properties and to conduct the businesses in which they are engaged, except, in each case, where the failure to be so qualified or in good standing would not result in a material adverse effect on the business, financial condition or results of operations of the Company and its subsidiaries taken as a whole or on the authority or the ability of the Company to perform its obligations under the Transaction Documents (a "Material Adverse Effect"). (c) Immediately prior to the transactions contemplated hereby and by the Amended and Restated Credit Agreement, dated as of the date hereof (the "Credit Agreement"), among the Company, Lehman Commercial Paper Inc. ("LCPI") and the other lenders party thereto and the Warrant Agreement, dated as of the date hereof, by and between the Company, LB I Group Inc. and each other entity signatory thereto (the "Warrant Agreement"), the authorized, issued and outstanding capital stock of the Company is as set forth in the Exchange Act Documents (except with respect to (i) changes occurring in the ordinary course of business and (ii) changes in outstanding Common Stock resulting from transactions relating to employee benefit plans or dividend reinvestment, stock option, stock award and stock purchase plans), and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable; and all of the issued shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and non-assessable and (except for directors' qualifying shares and as disclosed in the Exchange Act Documents) are owned directly or indirectly by the Company, free and clear of all material liens, encumbrances, equities, claims or adverse interests (collectively, "Liens") of any nature. (d) Except as set forth in the Exchange Act Documents, there are no legal or governmental proceedings pending to which the Company or any of the Subsidiaries is a party or of which any property or assets of the Company or any of the Subsidiaries is subject which, if determined adversely to the Company or any of the Subsidiaries, might have a Material Adverse Effect and, to the best of the Company's knowledge, no such proceedings are threatened by any governmental authority or other entity. (e) Except as set forth in the Exchange Act Documents and except with respect to the rights contained in the Registration Rights Agreement and the Equity Registration Rights Agreement, dated as of June 25, 2002, among the Company, LB I Group Inc. and each other entity signatory thereto (the "Equity Registration Rights Agreement"), there are no contracts, agreements or other documents between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned, directly or indirectly, by such person. (f) Except as set forth in the Exchange Act Documents, neither the Company nor any of the Subsidiaries (i) is in violation of its charter or by-laws, (ii) is in default, and no event has occurred which, with notice or lapse of time or both, would 3 constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject, or (iii) is in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has failed to obtain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business, except, in the case of clauses (ii) and (iii) for any such defaults, violations or failures which would not result in a Material Adverse Effect. (g) Except as set forth in the Exchange Act Documents, neither the Company nor any of the Subsidiaries has sustained, since the date of the latest audited financial statements included in the Exchange Act Documents, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, except for any such loss or interference which would not result in a Material Adverse Effect. (h) Except as set forth in the Exchange Act Documents, since the date of the latest audited financial statements included in the Exchange Act Documents, there has not been any material adverse change in or affecting the general affairs, management, consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries taken as a whole. (i) (A) the financial statements (including the related notes and supporting schedules) included in the Exchange Act Documents present fairly the financial condition, results of operations and changes in financial position of the Company and its subsidiaries on the basis stated therein at the respective dates or for the respective periods to which they apply, (B) such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, (C) the supporting schedules, if any, included in the Exchange Act Documents present fairly in accordance with generally accepted accounting principles the information required to be stated therein, and (D) the other financial information and data set forth in the Exchange Act Documents are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements (including the related notes and supporting schedules) and the books and records of the Company. (j) Except as set forth in the Exchange Act Documents, each of the Company and the Subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "Authorization") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any ordinance, rule, regulation, order, judgment, decree or permit, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not have a Material Adverse Effect (each such Authorization, a 4 "Material Authorization"); each Material Authorization is valid and in full force and effect and each of the Company and the Subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Material Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Material Authorization. (k) Except as set forth in the Exchange Act Documents, the Company and each of the Subsidiaries has filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes (including withholding taxes, penalties and interest, assessments, fees and other charges) due thereon, other than those being contested in good faith and for which adequate reserves have been taken or which if not filed would not result in a Material Adverse Effect; and no tax deficiency has been determined adversely to the Company or any of the Subsidiaries which has had (nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, might have) a Material Adverse Effect or for which adequate reserves have not been provided. (l) Except as set forth in the Exchange Act Documents, the Company and the Subsidiaries are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants, except where failure to so comply would not have, individually or in the aggregate, a Material Adverse Effect. (m) The Company has all necessary power and authority to execute and deliver this Agreement and perform its obligations hereunder; and this Agreement and the transactions contemplated hereby have been duly authorized by the Company; assuming due authorization, execution and delivery by the Purchasers, this 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. (n) The Company has all necessary power and authority to execute and deliver the Indenture and perform its obligations thereunder; the Indenture has been duly authorized by the Company and, upon the effectiveness of the Registration Statement, will be qualified under the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Trust Indenture Act"); and, assuming due authorization, execution and delivery of the Indenture by the Trustee, it will constitute a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to the effects of bankruptcy, 5 insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally. (o) The Company has all necessary power and authority to execute, issue and deliver the Securities and perform its obligations thereunder; the Securities have been duly authorized by the Company and, assuming due authentication of the Securities by the Trustee, such Securities will constitute legally valid and binding obligations of the Company entitled to the benefits of the Indenture, 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. (p) The Company has all necessary power and authority to issue and deliver the Conversion Shares; the Conversion Shares have been duly and validly authorized and reserved for issuance upon conversion of the Securities and are free of preemptive rights; and all Conversion Shares, when issued and delivered upon such conversion in accordance with the terms of the Indenture, will be duly and validly authorized and issued, fully paid and nonassessable and will be free and clear of any liens, encumbrances, equities, claims or adverse interests. (q) The Company has all necessary power and authority to execute and deliver the Registration Rights Agreement and perform its obligations thereunder; the Registration Rights Agreement and the transactions contemplated thereby have been duly authorized by the Company and, assuming due authorization, execution and delivery by the Purchasers, it will be a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally. (r) The execution, delivery and performance by the Company of the Transaction Documents (other than the Securities), the issuance of the Securities and the Conversion Shares, if at all, the compliance by the Company with all the provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby (assuming, in each case, the compliance by the other parties thereto) will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under (or with notice or the lapse of time or both, would constitute a default under), any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound or to which any of the property or assets of the Company or any of the Subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws of the Company or any of the Subsidiaries, (iii) result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their properties or assets, (iv) result in the imposition or creation of (or the obligation to create or impose) a Lien under any agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the 6 Subsidiaries or their respective properties or assets is bound, or (v) result in the suspension, termination or revocation of any Material Authorization of the Company or any of the Subsidiaries or any other impairment of the rights of the holder of any such Material Authorization. (s) Except (i) with respect to the transactions contemplated by the Registration Rights Agreement as may be required under the Securities Act, (ii) the qualification of the Indenture under the Trust Indenture Act, (iii) as required by the state securities or "blue sky" laws, (iv) for such consents, approvals, authorizations, orders, filings or registrations which have been obtained or made and (v) with respect to the matters covered by clause (v) of this Section 1, no consent, approval, authorization or order of, or filing or registration with, any court or governmental agency or governmental body is required for the execution, delivery and performance of the Transaction Documents (other than the Securities) by the Company, the issuance of the Securities and the Conversion Shares, if at all, and the consummation of the transactions contemplated hereby and thereby. (t) Neither the Company nor any subsidiary is or, as of the Closing Date, after giving effect to the issuance of the Securities and the application of the net proceeds therefrom, will be an "investment company" as defined, and subject to regulation, under the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Investment Company Act"). (u) Except as disclosed in the Exchange Act Documents and, subject to the terms and conditions of the transactions contemplated by the Transaction Documents and, with respect to clauses (i) and (ii) only, the Credit Agreement, the Warrant Agreement and the Equity Registration Rights Agreement, (i) there are no outstanding securities convertible into or exchangeable for, or warrants, options or rights issued by the Company to purchase, any shares of the capital stock of the Company, (ii) there are no statutory, contractual, preemptive or other rights to subscribe for or to purchase any Common Stock and (iii) there are no restrictions upon transfer of the Common Stock pursuant to the Company's articles of incorporation or bylaws. (v) Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 6 and their compliance with the agreements set forth therein, it is not necessary to register the Securities or the Conversion Shares under the Securities Act or to qualify the Indenture under the Trust Indenture Act in connection with the issuance and sale of the Securities to the Purchasers on the date hereof and the conversion of the Securities into Conversion Shares in the manner contemplated by the Indenture. (w) Provided that the Conversion Price (as defined in the Indenture) of the Securities meets the requirements set forth in Rule 144A(d)(3)(i) as of the date of the issuance of such Securities, no securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Securities are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted on an automated inter-dealer quotation system. 7 (x) None of the Securities have been registered under Section 12 of the Exchange Act. (y) None of the Company or any of its Affiliates (as defined in Rule 501(b) of Regulation D of, the Securities Act ("Regulation D"), an "Affiliate"), has, directly or through an agent, engaged in any form of general solicitation or general advertising in connection with the offering of the Securities or the Conversion Shares (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; and the Company has not entered into any contractual arrangement with respect to the distribution of the Securities or the Conversion Shares, except for this Agreement, the Registration Rights Agreement and the Company will not enter into any such arrangement. The Company has retained Lehman Brothers Inc. and no other party with respect to the placement of the Securities and the Conversion Shares. (z) None of the Company or any of its affiliates has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any "security" (as defined in the Securities Act) which is or will be integrated with the sale of the Securities or the Conversion Shares in a manner that would require the registration under the Securities Act of the Securities or the Conversion Shares. (aa) The Company has not sold or issued any shares of Common Stock, any security convertible into shares of Common Stock, or any security of the same class as the Securities during the six-month period preceding the date of the Exchange Act Documents, including any sales pursuant to Rule 144A under, or Regulation D or Regulation S of the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to outstanding options, rights or warrants. (bb) Neither the Company, nor to its knowledge, any of its affiliates, has taken, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Securities or Common Stock to facilitate the sale or resale of such the Securities. (cc) As of the date hereof, the Existing Indebtedness (as defined in the Indenture) of the Company consists of approximately $98 million of Indebtedness (as defined in the Indenture) represented by inter-company notes and the Option Debt (as defined in the Indenture). Each certificate signed by any officer of the Company and delivered to a Purchaser or counsel to such Purchaser shall be deemed to be a representation and warranty by the Company to such Purchaser as to the matters covered thereby. 8 2. Purchase, Sale and Delivery of Securities. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Purchaser, severally and not jointly, and each Purchaser agrees to purchase from the Company, severally and not jointly, at a purchase price of 100% of the principal amount thereof (the "Purchase Price"), the aggregate principal amount of Securities set forth in Schedule I opposite the name of each such Purchaser. The closing shall occur at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, at 10:00 a.m., New York City time, on the Closing Date. Delivery of the Securities by the Company shall be made to each Purchaser against payment of the Purchase Price by the applicable Purchaser; and payment for the Securities by each Purchaser shall be made against delivery to the applicable Purchaser of the Securities as set forth below and effected either by wire transfer of immediately available funds to an account with a bank in The City of New York, the account number and the ABA number for such bank to be provided by the Company to each Purchaser in advance of the Closing Date, or by such other manner of payment as may be agreed by the Company and the Purchasers. 3. Further Agreements of the Company. The Company agrees: (a) Promptly from time to time, to take such action as any Purchaser may reasonably request, to qualify the Securities and the Conversion Shares for offering and sale under the securities laws of such jurisdictions as any Purchaser may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the resale of the Securities; provided that, in connection therewith, the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (b) To use its best efforts to have the Conversion Shares approved by the New York Stock Exchange Inc. ("NYSE"), and each other exchange on which the Common Stock is listed, if any, for listing prior to the earlier of (i) one year after the Closing Date and (ii) the effectiveness of the Registration Statement; (c) If either (i) the Conversion Price (as defined in the Indenture) of the Securities meets the requirements of Rule 144A(d)(3)(i) or (ii) the Securities have been registered under the Registration Statement, to use its best efforts to cause the Securities to be accepted for clearance and settlement through the facilities of DTC; (d) If the Conversion Price of the Securities is an amount such that the Securities comply with Rule 144A(d)(3)(i), for so long as any of the Securities are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, to provide to any holder of the Securities or to any prospective purchaser of the Securities designated by any holder, upon request of such holder or prospective purchaser, information required to be provided by Rule 144A(d)(4) of the Securities Act if, at the time of such request, the Company is not subject to the reporting requirements under Section 13 or 15(d) of the Exchange Act; (e) To ensure that each of the Securities and the Conversion Shares will bear, to the extent applicable, the legend required by the Indenture; 9 (f) Not to, and will cause its respective affiliates not to, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Securities Act) in a transaction that could be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the Securities; (g) No later than 8:15 a.m. New York time on the first business day after the Closing, to file a Current Report on Form 8-K (the "8-K Filing") with the Commission reporting the closing of the sale of the Securities hereunder and the transactions contemplated by the Credit Agreement (the "Reported Transactions"). The disclosure contained in the 8-K Filing will be as, and to the extent, deemed by the Company to be required by applicable law, but will include all terms of the Reported Transactions that the Company deems to be material information to purchasers and sellers of the publicly traded Common Stock under the federal securities laws. Such Current Report on Form 8-K shall include this Agreement, the Indenture and the Registration Rights Agreement and the Credit Agreement, the Warrant Agreement, the Equity Registration Rights Agreement, the Option Agreement (as defined in the Credit Agreement), the LLC Pledge Agreement (as defined in the Credit Agreement) and the Stock Pledge Agreement (as defined in the Credit Agreement). (h) The Company will use the proceeds from the sale of the Securities and the loans under the Credit Agreement for working capital, conversion of $92 million from Tranche A Loans to Tranche B Loans under, and as defined in, the Credit Agreement, repayment of indebtedness and transaction expenses; (i) The Company will take all actions and cause its Subsidiaries to take all actions reasonably required to comply in all material respects with applicable Utility Regulations and each order issued pursuant thereto; provided that, the foregoing shall not prevent the Company or a Subsidiary from challenging the validity or effect of any Utility Regulation or order in any proceeding provided the manner of such challenge could not reasonably be expected to cause a Material Adverse Effect. For purposes of this Section 3(i), "Utility Regulation" means any law, regulation or rule of the Federal government, any state, or any agency or political subdivision of the foregoing which is applicable to an entity by virtue of (i) such entity's ownership or operation of assets used for the generation, transmission, distribution or sale of electric energy, (ii) such entity's transportation of natural or manufactured gas, gasoline, oil, or similar fuels, steam, chilled water or other products resulting in regulation similar to that imposed on the foregoing, (iii) such entity's engaging in the sale or provision of electric energy, natural gas or similar fuels, steam, water, chilled water, or telephone or other public utility services; provided that, such term shall not include laws, regulations or rules of general applicability with respect to protection of the environment, hazardous waste, or public health or safety; and (j) The Company will not register the Securities pursuant to Section 12 of the Exchange Act, unless it is required pursuant to the requirements of the Exchange Act to do so as a result of the number of holders of the Securities. 10 4. Expenses. The Company agrees to pay the following expenses, whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated: (a) the costs incident to the authorization, issuance, sale and delivery of the Securities and the Conversion Shares, if applicable, and any taxes payable in that connection; (b) the costs of producing and distributing the Transaction Documents; (c) any applicable listing or other fees and expenses in connection with the application for inclusion of the Conversion Shares on the NYSE and any other exchange on which the Common Stock is listed, if any; (d) the fees and expenses of qualifying the Securities and the Conversion Shares under the securities laws of any jurisdiction as provided in Section 3(a) and, if requested, of preparing, printing and distributing a U.S. Blue Sky memorandum; (e) the fees and expenses (including fees and disbursements of counsel, if applicable) of Company, its accountants, the Trustee and the costs and charges of any registrar, transfer agent, paying agent or conversion agent under the Indenture; and (f) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement. Except as provided in this Section 4 and in Section 7, the Purchasers shall pay their own costs and expenses, and any transfer taxes on the Securities that they may sell. 5. Conditions of each Purchaser's Obligations. The obligations of each Purchaser acquiring Securities hereunder are subject to the accuracy, of the representations and warranties of the Company contained herein, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) Latham & Watkins, counsel to the Company, shall have furnished to each Purchaser who is acquiring Securities hereunder one or more written opinions addressed to each such Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to each such Purchaser addressing such matters as are agreed upon with such counsel. (b) Weil Gotshal & Manges, special counsel to the Company, shall have furnished to each Purchaser who is acquiring Securities hereunder one or more written opinions addressed to each such Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to each such Purchaser addressing such matters as are agreed upon with such counsel. (c) Orrick Herrington & Sutcliffe, special counsel to the Company, shall have furnished to each Purchaser who is acquiring Securities hereunder one or more 11 written opinions and memoranda addressed to each such Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to each such Purchaser addressing such matters as are agreed upon with such counsel. (d) Bruce R. Worthington, Esq., Senior Vice President and General Counsel of the Company shall have furnished to each Purchaser who is acquiring Securities hereunder his written opinion addressed to each such Purchaser and dated the Closing Date, in form and substance reasonably satisfactory to each such Purchaser. (e) The Company shall have furnished to each Purchaser who is acquiring Securities hereunder a certificate, dated the Closing Date, of an authorized officer of the Company, in form and substance reasonably satisfactory to each such Purchaser, stating that the representations, warranties and agreements of the Company in Section 1 of this Agreement are true and correct as of the date hereof and as of the Closing Date; and the Company has complied in all respects with all its agreements contained herein to be performed prior to or on the Closing Date. (f) The Indenture (in form and substance reasonably satisfactory to each Purchaser who is acquiring Securities hereunder) shall have been duly executed and delivered by the Company and the Trustee (and a copy thereof shall have been delivered to each Purchaser who is acquiring Securities hereunder), and the Securities shall have been duly executed and delivered by the Company and duly authenticated by the Trustee. (g) The Company shall have executed and delivered to each Purchaser who is acquiring Securities hereunder the Registration Rights Agreement (in form and substance satisfactory to each such Purchaser), and the Registration Rights Agreement shall be in full force and effect. (h) The transactions contemplated by the Credit Agreement shall have closed and evidence thereof shall have been delivered to each Purchaser who is acquiring Securities hereunder. (i) The Company shall have delivered to each Purchaser who is acquiring Securities hereunder a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within ten days of the Closing Date. (j) The Company shall have delivered to each Purchaser who is acquiring Securities hereunder a certified copy of the Company's Articles of Incorporation as certified by the Secretary of State of the State of California within ten days of the Closing Date. (k) The Company shall have delivered to each Purchaser who is acquiring Securities hereunder a certificate, executed by the Secretary of the Company, dated as of the Closing Date, as to (i) the resolutions authorizing the transactions 12 contemplated hereby adopted by the Company's board of directors, (ii) the Company's Articles of Incorporation and (iii) the Company's Bylaws, each as in effect at the Closing. The Company shall have furnished to each Purchaser who is acquiring Securities hereunder such further information, certificates and documents as each such Purchaser or its Counsel may reasonably request to evidence compliance with the conditions set forth in this Section 5. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel to each Purchaser who is acquiring Securities hereunder. 6. Representations, Warranties and Agreements of the Purchasers. Each Purchaser, represents and warrants to, and agrees with, the Company, severally and not jointly and with respect to only itself (except with respect to the representation and warranty set forth in Section 6(f) which shall only be made by Lehman Brothers Inc.), as follows: (a) Such Purchaser is 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 Purchaser 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 Securities. Such Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Such Purchaser 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 Securities. Neither such access or questions nor any other due diligence investigations conduction by such Purchaser or its advisors, if any, or representatives shall modify, amend or affect such Purchaser's right to rely on the Company's representations, warranties and agreements contained in this Agreement, the Indenture, the Registration Rights Agreement and the Securities. (c) Such Purchaser understands that its investment in the Securities involves a high degree of risk. Such Purchaser is able to bear the economic risk of its investment in the Securities and is presently able to afford the complete loss of such investment. (d) Such Purchaser is acquiring the Securities 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 that violates the Securities Act or the securities laws of any State of the United States or any applicable jurisdiction; provided, however, that by making the representations herein, such Purchaser does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. 13 (e) Lehman Brothers Inc. has not offered or sold the Securities 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 Purchaser has all necessary power and authority to execute and deliver this Agreement and perform its obligations hereunder; and this Agreement and the transactions contemplated hereby have been duly authorized by such Purchaser; assuming due authorization, execution and delivery by the Company, this Agreement constitutes a legally valid and binding agreement of such Purchaser, enforceable against such Purchaser 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. (g) Such Purchaser is a resident of that jurisdiction specified in its address for notices set forth below the signature of such Purchaser where it appears on the signature page(s) of this Agreement. (h) Such Purchaser is not acquiring the Securities 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. (i) Assuming the capitalization of the Company set forth in its most recent report filed under the Exchange Act, such Purchaser, 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 Securities hereunder. The Company and, for purposes of the opinions to be delivered to you pursuant to Section 5 hereof, counsel to the Company, General Counsel to the Company and counsel to the Purchasers, will rely upon the accuracy and truth of the foregoing representations as to factual matters and agreements and each Purchaser hereby consents to such reliance. 14 7. Conditions of the Company's Obligations. The obligations of the Company to each of the Purchasers hereunder are subject to the accuracy, of the representations and warranties of such Purchaser contained herein, to the performance by such Purchaser of its obligations hereunder, the delivery by such Purchaser of the Purchase Price in consideration of the Securities being purchased by such Purchaser and to the closing with respect to such Purchaser of the transactions contemplated by the Credit Agreement. 8. Indemnification. (a) The Company shall indemnify and hold harmless each Purchaser who is acquiring Securities hereunder, its officers and employees and each person, if any, who controls such Purchaser within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of the Securities) ("Liabilities"), to which such Purchaser, officer, employee or controlling person may become subject, insofar as such Liability arises out of, or is based upon, any breach of any representation or warranty made by it in this Agreement, and shall reimburse such Purchaser and each such officer, employee or controlling person promptly upon demand for any legal or other expenses reasonably incurred by such Purchaser, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such Liability as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to such Purchaser or to any officer, employee or controlling person of such Purchaser. (b) Promptly after receipt by a Purchaser who is acquiring Securities hereunder under this Section 8 of notice of any claim or the commencement of any action, such Purchaser shall, if a claim in respect thereof is to be made against the Company under this Section 8, notify the Company in writing of the claim or the commencement of that action; provided, however, that the failure to notify the Company shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided, further, that the failure to notify the Company shall not relieve it from any liability which it may have to such Purchaser otherwise than under this Section 8. If any such claim or action shall be brought against such Purchaser, and it shall notify the Company thereof, the Company shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to such Purchaser. After notice from the Company to such Purchaser of its election to assume the defense of such claim or action, the Company shall not be liable to such Purchaser under this Section 8 for any legal or other expenses subsequently incurred by such Purchaser in connection with the defense thereof other than reasonable costs of investigation; provided, however, that such Purchaser shall have the right to employ separate counsel to represent jointly such Purchaser and its respective officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by such Purchaser against the Company under this Section 8 if, in the reasonable judgment of such Purchaser it is advisable for such Purchaser and such officers, employees and controlling persons to be jointly represented 15 by separate counsel, and in that event the fees and expenses of such separate counsel shall be paid by the Company. No indemnifying party shall, (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the Company agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (c) To the extent that the undertaking in this Section 8 by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of the Purchasers who are acquiring Securities hereunder which is permissible under applicable law. 9. Notices, Etc. All statements, requests, notices and agreements hereunder shall be in writing, , shall be delivered or sent by mail, telex or facsimile transmission: (a) if to the Company to PG&E Corporation, One Market, Spear Tower, Suite 2400, San Francisco, California 94105, Attention: Assistant Treasurer (Fax: 415-267-7265, Telephone: 415-267-7052), with copies to PG&E Corporation, One Market, Spear Tower, Suite 2400, San Francisco, California 94105, Attention: Chief Counsel - Corporate (Fax: 415-817-8225, Telephone 415-817-8200) and Latham & Watkins, 633 West 5/th/ Street, Los Angeles, California 90071, Attention: Tom Sadler, Esq. (Fax: 213-891-8763, Telephone: 213-891-8116); and (b) if to a Purchaser, to the address for such Purchaser set forth below such Purchaser's signature on the signature page(s) hereof. 16 10. Persons Entitled to Benefit of Agreement. This Agreement will inure to the benefit of and be binding upon the Purchasers, the Company and their respective successors and, with respect to the Purchasers, their Permitted Assigns. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that the representations, warranties, indemnities and agreements of the Company contained in this Agreement will also be deemed to be for the benefit of the officers and employees of each Purchaser and the person or persons, if any, who control such Purchaser within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 10, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. For the purposes of this Section 10, a "Permitted Assign" means: (i) a Purchaser, (ii) an "affiliate" of a Purchaser that is a holder of Securities, (iii) any entity which has the same investment advisor or manager or trading advisor or manager as any of the Persons described in the immediately preceding clauses and (iv) a pledgee (or a transferee of such pledgee) in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities. For the purposes of this Section 10, the term "affiliate" means, with respect to any Person, another Person, directly or indirectly, with (A) controls that Person, (B) is controlled by that Person or (C) is under common control with that Person. "Control" or "controls" for the purposes of this Section 10 means that Person has the power, directly or indirectly, to conduct or govern the policies of another Person. 11. Survival. The respective indemnities, representations, warranties and agreements of the Company and the Purchasers contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, will survive the delivery of and payment for the Securities; provided, however, that the representations and warranties contained in Section 1 paragraphs (d), (g), (h), (j), (k) and (l) shall expire on the second anniversary of the date of this Agreement and will remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any of them or any person controlling any of them. 12. Definition of the Term "Business Day". For purposes of this Agreement, "business day" means any day other than a Saturday or a Sunday or any other 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. 13. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 14. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. 15. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 17 16. Amendment and Waiver. This Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof, may not be given, without the written agreement of (i) the Company and (ii) the Purchasers and their respective successors and Permitted Assigns holding a majority of the then outstanding Securities held by the Purchasers or their respective successors and Permitted Assigns or, in the event that no such persons hold any Securities, then all of the Purchasers or their respective successors and Permitted Assigns. [Signature pages follow] 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. Very truly yours, PG&E CORPORATION By: _______________________________ Name: Title: S-1 Accepted and agreed by: Lehman Brothers Inc. By:_______________________ Name: Title: Address for notices: 745 Seventh Avenue New York, NY 10019 Attention: Joseph Savage, Managing Director Facsimile: (646) 758-4058 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Andrew R. Keller, Esq. Facsimile: 212-455-2502 S-2 Jackson Investment Fund Ltd. By: _______________________ Name: Title: Address for notices: c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Bradford Couri and Kenneth A. Simpler Facsimile: (312) 368-1348 with a copy to: Katten Muchin Zavis Rosenman 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Attention: Robert Brantman, Esq. Facsimile: 312-902-1061 Telephone: 312-902-5200 S-3 Citadel Credit Trading Ltd. By: _______________________ Name: Title: Address for notices: c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Bradford Couri and Kenneth A. Simpler Facsimile: (312) 368-1348 with a copy to: Katten Muchin Zavis Rosenman 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Attention: Robert Brantman, Esq. Facsimile: 312-902-1061 Telephone: 312-902-5200 S-4 Citadel Equity Fund Ltd. By: _______________________ Name: Title: Address for notices: c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Bradford Couri and Kenneth A. Simpler Facsimile: (312) 368-1348 with a copy to: Katten Muchin Zavis Rosenman 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Attention: Robert Brantman, Esq. Facsimile: 312-902-1061 Telephone: 312-902-5200 S-5 SCHEDULE I - -------------------------------------------------------------------------------- Name of Purchaser Principal Amount of 7.50% Convertible Subordinated Notes - -------------------------------------------------------------------------------- Lehman Brothers Inc. $ 0.00 - -------------------------------------------------------------------------------- Jackson Investment Fund Ltd. $ 29,000,000 - -------------------------------------------------------------------------------- Citadel Credit Trading Ltd. $ 15,000,000 - -------------------------------------------------------------------------------- Citadel Equity Fund Ltd. $236,000,000 - -------------------------------------------------------------------------------- Total $280,000,000 - -------------------------------------------------------------------------------- ANNEX A [FORM OF INDENTURE] A-1 ANNEX B [FORM OF REGISTRATION RIGHTS AGREEMENT] A-1 EX-99.3 5 dex993.txt EQUITY REGISTRATION RIGHTS AGREEMENT JUNE 25, 2002 EXHIBIT 99.3 EXECUTION COPY Equity Registration Rights Agreement between PG&E Corporation and LB I Group Inc. and Each Other Entity Named On the Signature Pages Hereof Dated as of June 25, 2002 TABLE OF CONTENTS
Page ---- 1. Definitions ..................................................... 1 2. Shelf Registration .............................................. 4 3. Liquidated Damages. ............................................. 5 4. Piggy-Back Registration Rights .................................. 6 5. Underwriting Procedures ......................................... 7 6. Registration Procedures. ........................................ 8 7. Registration Expenses. .......................................... 15 8. Indemnification and Contribution ................................ 15 9. Rule 144 ........................................................ 19 10. Participation in Underwritten Registrations. .................... 19 11. Purchase By Issuer. ............................................. 19 12. Miscellaneous. .................................................. 19
Equity Registration Rights Agreement, dated as of June 25, 2002, between PG&E Corporation, a California corporation (together with any successor entity, herein referred to as the "Issuer"), and LB I Group Inc. and each other entity named on the signature pages hereof (the "Initial Holders"). Pursuant to the Warrant Agreement, dated the date hereof (the "Warrant Agreement"), between the Issuer and the Initial Holders and, in order to induce the Initial Lender (as defined in the Warrant Agreement) to enter into the Amended and Restated Credit Agreement, dated as of the date hereof (the "Credit Agreement"), between the Issuer, the Initial Lender and the other lenders party thereto, Lehman Commercial Paper Inc., as Administrative Agent and Lehman Brothers Inc., as Lead Arranger and Book Manager as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time, the Issuer has agreed to the registration rights set forth in this Agreement. The execution of this Agreement is a condition to Closing (as defined in the Credit Agreement) under the Credit Agreement. The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: Agreement: This Equity Registration Rights Agreement, as amended, modified or otherwise supplemented from time to time in accordance with the terms hereof. Bankruptcy Code: Title 11 of the United States Code entitled "Bankruptcy", as now or hereafter in effect, or any successor thereto. Blue Sky Application: As defined in Section 8(a) hereof. broker-dealer: Any broker or dealer registered under the Exchange Act. Business Day: A 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. Closing Date: The date of this Agreement. Commission: Securities and Exchange Commission. Common Stock: The common stock, no par value, of the Issuer. Common Stock Equivalent: Any Convertible Security or warrant, option or other right to subscribe for or purchase any shares of Common Stock or any Convertible Security, other than a Warrant. Convertible Securities: Evidences of indebtedness, shares of capital stock or other securities which are or may be at any time convertible into or exchangeable for shares of Common Stock. 2 Credit Agreement: As defined in the recitals hereto. Effectiveness Period: As defined in Section 2(a)(iii) hereof. Effectiveness Target Date: As defined in Section 2(a)(ii) hereof. Exchange Act: Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. Holder: A Person who owns, beneficially or otherwise, Transfer Restricted Securities. Indemnified Holder: As defined in Section 8(a) hereof. Initial Holders: As defined in the preamble hereto. Issuer: As defined in the preamble hereto. Liquidated Damages: As defined in Section 3(a) hereof. Other Holders: As defined in Section 5(a) hereof. NASD: National Association of Securities Dealers, Inc. Person: 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. PG&E: Pacific Gas and Electric Company, a California corporation. Piggy-Back Registration: As defined in Section 4(a) hereof. Piggy-Back Registration Offer: As defined in Section 4(a) hereof. Prospectus: The prospectus included in a Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Questionnaire: As defined in Section 2(b) hereof. Questionnaire Deadline: As defined in Section 2(b) hereof. Registration Default: As defined in Section 3(a) hereof. Registration Trigger Date: As defined in Section 2(a)(i) hereof. Required Holders: Holders holding at least a 40% interest in the Warrants or the Warrant Shares. 3 Securities Act: Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. Shelf Registration Statement: As defined in Section 2(a)(i) hereof. Suspension Notice: As defined in Section 6(c) hereof. Suspension Period: As defined in Section 6(b)(i) hereof. Transfer Restricted Securities: Each (i) Warrant Share (whether or not the Warrants have been exercised) and (ii) any other securities issued or issuable with respect to any Warrant Share by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, until the earlier of: (i) the date on which such Warrant Share or other security has been registered under the Securities Act on a registration statement which has been declared effective by the Commission and disposed of in accordance with such registration statement; (ii) the date on which such Warrant Share or other security (A) has been transferred in compliance with Rule 144 under the Securities Act or (B) may be sold or transferred by a person who is not an affiliate of the Issuer pursuant to Rule 144(k) under the Securities Act (or any other similar provision then in force) without regard to any volume or manner of sale restrictions thereunder; or (iii) the date on which such Warrant Share or other security ceases to be outstanding (whether as a result of repurchase and cancellation, conversion or otherwise). Underwritten Registration or Underwritten Offering: A registration in which securities of the Issuer are sold to an underwriter for reoffering to the public. VWAP: means, 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 4 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. Warrant Agreement: As defined in the recitals hereto. Warrants: Warrants to purchase Common Stock of the Company issued in accordance with the Warrant Agreement. Warrant Shares: The shares of Common Stock issuable to the Holders of Warrants upon the exercise of any Warrant, together with any other securities that may in the future become issuable upon exercising the Warrants. 2. Shelf Registration. (a) The Issuer shall use its best efforts to: (i) not later than the date that is 90 days after the date (the "Registration Trigger Date") of the consummation of a "plan of reorganization" under the Bankruptcy Code with respect to PG&E, cause to be filed a registration statement pursuant to Rule 415 under the Securities Act (together with any amendments thereto, the "Shelf Registration Statement"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities held by Holders that have provided the information required pursuant to the terms of Section 2(b) hereof; (ii) cause the Shelf Registration Statement to be declared effective by the Commission not later than 180 days after the Registration Trigger Date (the "Effectiveness Target Date"); and (iii) keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(b) hereof to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities entitled to the benefit of this Agreement and (B) conforms with the requirements of this Agreement and the Securities Act for a period (the "Effectiveness Period") of: (1) two years following the date of original issuance of the Warrants; or (2) such shorter period that will terminate when (x) all of the Holders of Transfer Restricted Securities are able to sell all Transfer Restricted Securities immediately without restriction pursuant to Rule 144(k) under the Securities Act or any successor rule thereto, (y) all Transfer Restricted Securities have ceased to be outstanding (whether as a 5 result of repurchase and cancellation, conversion or otherwise) or (z) all Transfer Restricted Securities have been registered under the Shelf Registration Statement and have been sold in accordance therewith. (b) No Holder of Transfer Restricted Securities shall be permitted to include any of its Transfer Restricted Securities in the Shelf Registration Statement pursuant to this Agreement unless such Holder completes a Selling Securityholder Notice and Questionnaire, substantially in the form attached hereto as Exhibit A (with such amendments or modifications as the Issuer may deem necessary to reflect the circumstances of the proposed registration) (the "Questionnaire"), and delivers it to the Issuer prior to or on the 15th Business Day after such Holder's receipt of the Questionnaire by the Issuer in writing (such deadline, the "Questionnaire Deadline"). Prior to such time, each Holder may complete the Questionnaire and deliver it to the Issuer prior to such request and, as a result, shall be entitled to have its Transfer Restricted Securities included in the initial Shelf Registration Statement filed with the Commission. In addition, upon receipt of one or more written requests for additional information from the Issuer, each Holder who intends to be named as a selling securityholder in the Shelf Registration Statement shall furnish to the Issuer in writing, within 15 Business Days after such Holder's receipt of such request, such additional information regarding such Holder and the proposed distribution by such Holder of its Transfer Restricted Securities, in connection with the Shelf Registration Statement or Prospectus or Preliminary Prospectus included therein and in any application to be filed with or under state securities law, as the Issuer may reasonably request. No Holder of Transfer Restricted Securities shall be entitled to Liquidated Damages pursuant to Section 3 hereof unless such Holder shall have provided all such reasonably requested information prior to or on the Questionnaire Deadline. Each Holder whose Transfer Restricted Securities are being registered pursuant to the Shelf Registration Statement agrees to furnish promptly to the Issuer all information required to be disclosed in order to make information previously furnished to the Issuer by such Holder not materially misleading. 3. Liquidated Damages. (a) If: (i) the Shelf Registration Statement has not been declared effective by the Commission on or prior to the Effectiveness Target Date; or (ii) except as provided in Section 6(b)(i) hereof, the Shelf Registration Statement is filed and declared effective but, during the Effectiveness Period, shall thereafter cease to be effective or fail to be usable for its intended purpose without there being filed with the Commission within ten Business Days a post-effective amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such failure and, in the case of a post-effective amendment, is itself immediately declared effective; (each such event referred to in foregoing clauses (i) and (ii), a "Registration Default"), the Issuer hereby agrees, subject to Section 2(b), to pay liquidated damages ("Liquidated Dmages") with respect to the Transfer Restricted Securities on a monthly basis in 6 an amount such that, each Warrant 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 (as defined in the Warrant Agreement). N = the number of Warrant Shares previously issuable upon the exercise of a Warrant by payment of the Exercise Price prior to adjustment. To the extent that any Warrants have been previously exercised and Warrant Shares (to the extent that such Warrant Shares are Transfer Restricted Securities) have been issued to a Holder upon such exercise, the Holder of such Warrant Shares shall be entitled to receive additional Warrants Shares in an amount equal to the product of (i) the number of Warrant Shares held by such Holder at the beginning of each month upon which liquidated damages shall be payable and (ii) 0.005. The adjustments made pursuant to this Section shall be made on a monthly basis beginning on and including the day following the Registration Default to but excluding the day on which the Registration Default has been cured. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Security, the accrual of Liquidated Damages with respect to such Transfer Restricted Security will cease; provided, however, that, in any event, Liquidated Damages shall cease to accrue on the last day of the Effectiveness Period. Except as provided in 8, no Holder of Transfer Restricted Securities shall be entitled to any damages for a Registration Default beyond the Liquidated Damages provided for herein. The Liquidated Damages set forth above shall be the exclusive monetary remedy available to the Holders of Transfer Restricted Securities for such Registration Default. 4. Piggy-Back Registration Rights (a) If the Issuer at any time proposes to file a registration statement under the Securities Act with respect to any Underwritten Offering by the Issuer for its own account or for the account of holders of any Common Stock, Convertible Securities or Common Stock Equivalent to be offered for cash (other than on Form S-4 or S-8) ("Other Holders") then the Issuer shall in each case give written notice (a "Piggy-Back Registration Offer") of such proposed filing to the Holders at least 20 days before the anticipated filing date, and such notice shall offer such Holders the opportunity to include Transfer Restricted Securities held by them in such registration statement (a "Piggy-Back Registration") pursuant to the provisions set forth below. In such event the right of any Holder to registration pursuant to this Section 4(a), may be conditioned upon such Holder's participation in such underwriting and of the inclusion of such Holder's Transfer Restricted Securities in the underwriting to the extent provided herein. If any such Holder desires to have Transfer Restricted Securities registered and included in such Underwritten Offering under this Section 4(a) such Holder shall so notify the Issuer in writing 7 within ten days after the receipt by such Holder of the written notice provided for in the preceding sentence (which notification shall set forth the amount of Transfer Restricted Securities for which registration is requested), and the Issuer will use its best efforts to cause all such Transfer Restricted Securities to be registered under the Securities Act to the extent required to permit the disposition in such Underwritten Offering; provided, however, that if the managing underwriter or underwriters of such offering, as selected by the Issuer, shall advise the Issuer in writing that in its or their opinion the total amount or kind of securities that the Holders, the Issuer and any other Persons or entities intend to include in such offering exceeds the amount that can be sold in such offering without an adverse effect on the price, timing or distribution of the securities offered by the Issuer, the Issuer shall be required to include in such registration only the amount of Transfer Restricted Securities and securities of other persons or entities, if any, that the managing underwriter or underwriters determine, in its or their sole discretion, can be sold without an adverse effect on the price, timing or distribution of the securities offered. In such event, (x) in cases initially involving the registration for sale of securities for the Issuer's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities which the Issuer proposes to register and (ii) second, the securities which may have been requested to be included in such registration pursuant to this Agreement and the securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Issuer (pro rata based on the amount of securities sought to be registered by such Persons) (y) in cases initially involving the registration for sale of securities for the account of any Other Holders, securities shall be registered in such offering in the following order of priority: (i) first, the securities which such Other Holders propose to register, (ii) second, the securities which may have been requested to be included in such registration pursuant to this Agreement and the securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Issuer (pro rata based on the amount of securities sought to be registered by such Persons) and (iii) third, the securities which Issuer proposes to register. (b) At any time prior to the date of printing preliminary prospectuses in connection with an Underwritten Offering under Section 4(a), a Holder that previously requested Piggy-Back Registration thereof may withdraw all or part of its Transfer Restricted Securities from such offering by providing notice to such effect to the Issuer. 5. Underwriting Procedures (a) If the Required Holders so request in writing (a "Registration Request"), the Issuer shall effect pursuant to the Shelf Registration Statement an Underwritten Offering by giving written notice (an "Underwritten Offering Notice") of the proposed Underwritten Offering to all Holders within 15 calendar days after receipt of a valid Registration Request. Such notice shall offer the Holders the opportunity to include in such Underwritten Offering such amount of Transfer Restricted Securities as each Holder may request. The Issuer shall include in such Underwritten Offering all Transfer Restricted Securities for which the Issuer has received written requests for inclusion within 15 calendar days after delivery of the Underwritten Offering Notice, subject to Section 5(b). (b) The Issuer shall cause the managing underwriter or underwriters of a proposed Underwritten Offering to permit the Holders that have requested Transfer Restricted 8 Securities to be included in an Underwritten Offering undertaken pursuant to Section 5(a) above to include all such Transfer Restricted Securities on the same terms and conditions as all other Transfer Restricted Securities to be included. Notwithstanding the foregoing, if the managing underwriter or underwriters of such Underwritten Offering advises the Issuer and the selling Holders that the total amount of Transfer Restricted Securities that such Holders propose to include in such Underwritten Offering is such as to materially and adversely affect the success of such Underwritten Offering, then the Issuer shall include in such Underwritten Offering up to the full amount of Transfer Restricted Securities requested to be included in such Underwritten Offering by the Holders (allocated pro rata among the Holders on the basis of the amount of Transfer Restricted Securities initially requested to be included therein by each such Holder) so that the total amount of Transfer Restricted Securities to be included in such Underwritten Offering is the full amount that, in the written opinion of such managing underwriter or underwriters, can be sold without materially and adversely affecting the success of such Underwritten Offering. (c) Any Transfer Restricted Securities may be withdrawn from a proposed Underwritten Offering at any time before the execution and delivery by such Holder of the underwriting agreement relating to such Underwritten Offering. (d) The managing underwriter or underwriters of the Underwritten Offering relating thereto shall be selected by the Required Holders whose Transfer Restricted Securities are included in such offering, subject to the approval of the Issuer. 6. Registration Procedures. (a) In connection with the Shelf Registration Statement, the Issuer shall comply with all the provisions of Section 6(b) hereof and shall use its best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and pursuant thereto, shall as expeditiously as possible prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Securities Act. (b) In connection with the Shelf Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities, the Issuer shall: (ii) subject to any notice by the Issuer in accordance with this Section 6(b) of the existence of any fact or event of the kind described in Section 6(b)(iii)(D), use its best efforts to keep the Shelf Registration Statement continuously effective during the Effectiveness Period; upon the occurrence of any event that would cause the Shelf Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not be effective and usable for resale of Transfer Restricted Securities during the Effectiveness Period, the Issuer shall file promptly an appropriate amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case of clause (A), correcting any such misstatement or 9 omission, and, in the case of either clause (A) or (B), use its best efforts to cause such amendment to be declared effective and the Shelf Registration Statement and the related Prospectus to become usable for their intended purposes as soon as practicable thereafter. Notwithstanding the foregoing, the Issuer may suspend the effectiveness of the Shelf Registration Statement by written notice to the Holders for a period (each such period, a "Suspension Period"); provided that the Company shall promptly notify the Holders in writing of the date the Suspension Period will begin and the expected duration of such period; and provided further, that no Suspension Period shall exceed 45 consecutive days and all such Suspension Periods shall not exceed an aggregate of 90 days within any consecutive twelve-month period if: (x) an event occurs and is continuing as a result of which the Shelf Registration Statement would, in the Issuer's reasonable judgment, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (y) the Issuer reasonably determines that the disclosure of such event at such time would have a material adverse effect on the business of the Issuer (and its subsidiaries, if any, taken as a whole); Notwithstanding the foregoing, in the event that any Holder has, prior to the receipt of notice of the commencement of a Suspension Period, entered into a binding contract to sell any Warrant Shares pursuant to the Shelf Registration Statement, and in accordance with the plan of distribution therein, the Issuer agrees not to prevent its transfer agent from delivering such Warrant to the purchaser thereof in accordance with the applicable requirements of the Warrant Agreement. The Issuer shall use its commercially reasonable efforts to provide any information reasonably requested by the transfer agent in connection with any such sale. (ii) Prepare and file with the Commission such amendments (including post-effective amendments) and supplements to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement continuously effective during the Effectiveness Period; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by the Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in the Shelf Registration Statement as so amended or in such Prospectus as so supplemented. 10 (iii) Advise the underwriter(s), if any, and selling Holders promptly (but in any event within five Business Days) and, if requested by such Persons, to confirm such advice in writing: (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement under the Securities Act or any notification with respect to the suspension by any state securities commission of the qualification or exemption from qualification of any of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation or threatening of any proceeding for any of the preceding purposes, or (D) of the existence of any fact or the happening of any event (the nature of which need not be disclosed), during the Effectiveness Period, that makes any statement of a material fact made in the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Shelf Registration Statement or the Prospectus in order to make the statements therein not misleading, and that in the case of a Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each Holder of Warrants, by accepting the same, agrees to hold any communication from the Company pursuant to this Section 6(b)(iii) in confidence. If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Issuer shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time and will provide to the Purchasers and each Holder who is named in the Shelf Registration Statement prompt notice of the withdrawal of any such order. 11 (iv) Furnish to each of the selling Holders and each of the underwriter(s), if any, before filing with the Commission, one copy of the Shelf Registration Statement and copies of any Prospectus included therein or any amendments or supplements to the Shelf Registration Statement or Prospectus (other than documents incorporated by reference after the initial filing of the Shelf Registration Statement), which documents will be subject to the review of such Holders and underwriter(s), if any, for a period of at least ten Business Days (in the case of the Shelf Registration Statement and the initial Prospectus contained therein) and two Business Days (in the case of any amendment or supplement thereto), and the Issuer will not file the Shelf Registration Statement or initial Prospectus or any amendment or supplement to the Shelf Registration Statement or Prospectus (other than documents incorporated by reference) to which a selling Holder of Transfer Restricted Securities covered by the Shelf Registration Statement or the underwriter(s), if any, shall reasonably object within ten Business Days prior to the filing of the Shelf Registration Statement and Prospectus and within two Business Days prior to the filing of any amendment or supplement thereto. A selling Holder or underwriter, if any, shall be deemed to have reasonably objected to such filing only if the Shelf Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission with respect to the information concerning such Holder or its intended plan of distribution with respect to the Transfer Restricted Securities. (v) Make available at reasonable times for inspection by one or more representatives of the selling Holders, designated in writing by the Required Holders whose Transfer Restricted Securities are included in the Shelf Registration Statement, any underwriter participating in any distribution pursuant to the Shelf Registration Statement, and any attorney or accountant retained by such selling Holders or any of the underwriter(s), all financial and other records, pertinent corporate documents and properties of the Issuer as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the Issuer's officers, directors, managers and employees to supply all information reasonably requested by any such representative or representatives of the selling Holders, underwriter, attorney or accountant in connection with the Shelf Registration Statement after the filing thereof and before its effectiveness, provided, however, that any information designated by the Issuer as confidential at the time of delivery of such information shall be kept confidential by the recipient thereof. (vi) If reasonably requested by any selling Holders or the underwriter(s), if any, promptly incorporate in the Shelf Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation: (1) information relating to the "Plan of Distribution" of the Transfer Restricted Securities, (2) information with respect the number of Transfer Restricted Securities being sold to such underwriter(s), (3) the purchase price being paid 12 therefor and (4) any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; provided, however, that with respect to any information requested for inclusion by a selling Holder, this clause (vi) shall apply only to such information that relates to the Transfer Restricted Securities to be sold by such selling Holder; and make all required filings of such Prospectus supplement or post-effective amendment as soon as reasonably practicable after the Issuer is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment. (vii) Deliver to each selling Holder and each of the underwriter(s), if any, without charge, upon the effectiveness of the Shelf Registration Statement, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; subject to any notice by the Issuer in accordance with this Section 6(b) of the existence of any fact or event of the kind described in Section 6(b)(iii) (D), the Issuer hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto. (viii) The Issuer shall: (A) upon request, furnish to each selling Holder and each underwriter in the case of an underwritten registration where an underwriting agreement is entered into, if any, in such substance and scope as they may reasonably request and as are customarily made by issuers to underwriters in primary underwritten offerings for selling security holders, upon the date of closing of any sale of Transfer Restricted Securities in an Underwritten Registration: (1) opinions, each dated the date of such closing, of counsel to the Issuer covering such of the matters as are customarily covered in legal opinions to underwriters in connection with underwritten offerings of securities; and (2) customary comfort letters, dated the date of such closing, from the Issuer's independent accountants (and from any other accountants whose report is contained or incorporated by reference in the Shelf Registration Statement) in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings of securities; (B) set forth in full in the underwriting agreement, if any, indemnification provisions and procedures which provide rights no less protective than those set forth in Section 6 hereof with respect to all parties to be indemnified by the Issuer; and 13 (C) deliver such other documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the selling Holders pursuant to this clause (ix). (ix) Before any public offering of Transfer Restricted Securities, cooperate with the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions in the United States as the selling Holders or underwriter(s), if any, may reasonably request, use best efforts to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that the Issuer shall not be required (A) to register or qualify as a foreign corporation or a dealer of securities where it is not now so qualified or to take any action that would subject it to the service of process in any jurisdiction where it is not now so subject or (B) to subject itself to taxation in any such jurisdiction if it is not now so subject. (x) Cooperate with the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends (unless required by applicable securities laws); and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, may request at least two Business Days before any sale of Transfer Restricted Securities made by such selling Holders or underwriter(s). (xi) Use its best efforts to cause the Transfer Restricted Securities covered by the Shelf Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities as may be necessary to enable the selling Holders or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities pursuant to the Shelf Registration Statement. (xii) Subject to Section 6(b)(i) hereof, if any fact or event contemplated by Section 6(b)(iii)(D) hereof shall exist or have occurred, use its best efforts to prepare a supplement or post-effective amendment to the Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to any purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. 14 (xiii) Provide CUSIP numbers for all Transfer Restricted Securities not later than the effective date of the Shelf Registration Statement and provide the transfer agent with printed certificates for the Transfer Restricted Securities that are in a form eligible for deposit with The Depository Trust Company. (xiv) Cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter that is required to be retained in accordance with the rules and regulations of the NASD. (xv) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and all reporting requirements under the Exchange Act. (xvi) Cause all Transfer Restricted Securities covered by the Shelf Registration Statement to be listed or quoted, as the case may be, on each securities exchange or automated quotation system on which similar securities issued by the Issuer are then listed or quoted and if not so listed, to be listed on the NASD automated quotation system. (xvii) Provide to each Holder upon written request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act after the effective date of the Shelf Registration Statement. (xviii) If reasonably requested by the underwriters, make appropriate officers of the Issuer available to the underwriters for meetings with prospective purchasers of the Transfer Restricted Securities and prepare and present to potential investors customary "road show" or marketing materials in a manner consistent with other new issuances of other securities similar to the Transfer Restricted Securities; but in no event more than once in any 12 month period. (c) Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice (a "Suspension Notice") from the Issuer of the existence of any fact of the kind described in Section 6(b)(iii)(D) hereof, such Holder will, and will use its reasonable best efforts to cause any underwriter(s) in an Underwritten Offering to, forthwith discontinue disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement until: (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(b)(xii) hereof; or (ii) such Holder is advised in writing by the Issuer that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Issuer, each Holder will deliver to the Issuer (at the Issuer's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice of suspension. 15 7. Registration Expenses. All expenses incident to the Issuer's performance of or compliance with this Agreement shall be borne by the Issuer regardless of whether a Shelf Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees and expenses (including filings made by the Purchasers or Holders with the NASD); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing of Prospectuses and certificates for the Warrant Shares) and the Issuer's expenses for messenger and delivery services and telephone; (iv) all fees and disbursements of counsel to the Issuer and, subject to Section 5(b) below, the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing (or authorizing for quotation) the Common Stock on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Issuer (including the expenses of any special audit and comfort letters required by or incident to such performance). The Issuer shall bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal, accounting or other duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Issuer. (b) In connection with the Shelf Registration Statement required by this Agreement, including any amendment or supplement thereto, and any other documents delivered to any Holders, the Issuer shall reimburse the Purchasers and the Holders of Transfer Restricted Securities being registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements not to exceed $50,000, of not more than one counsel, which shall be such counsel as may be chosen by a Majority of Holders for whose benefit the Shelf Registration Statement is being prepared. 8. Indemnification and Contribution. The Issuer shall indemnify and hold harmless each Holder, such Holder's officers, directors and employees and each person, if any, who controls such Holder within the meaning of the Securities Act (each, an "Indemnified Holder"), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to resales of the Transfer Restricted Securities) ("Liabilities"), to which such Indemnified Holder may become subject, insofar as any such loss, claim, damage, liability or action arises out of, or is based upon: 16 (i) any untrue statement or alleged untrue statement of a material fact contained in (A) the Shelf Registration Statement or Prospectus or any amendment or supplement thereto or (B) any blue sky application or other document or any amendment or supplement thereto prepared or executed by the Issuer (or based upon written information furnished by or on behalf of the Issuer expressly for use in such blue sky application or other document or amendment on supplement) filed in any jurisdiction specifically for the purpose of qualifying any or all of the Transfer Restricted Securities under the securities law of any state or other jurisdiction (such application or document being hereinafter called a "Blue Sky Application"); or (ii) the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Indemnified Holder promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Holder in connection with investigating or defending or preparing to defend against any such Liability as such expenses are incurred; provided, however, that the Issuer shall not be liable to a Holder in any such case to the extent that any such Liability arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in the Shelf Registration Statement or Prospectus or amendment or supplement thereto or Blue Sky Application in reliance upon and in conformity with written information furnished to the Issuer by such Holder specifically for use therein; and provided, further, however, that the Issuer shall not be liable to the underwriter for any Holder or, in the case of any non-underwritten offering, to any Holder or its related Indemnified Holder to the extent that (A) such Liability arises out of or is based upon an untrue statement or omission made in any preliminary prospectus if (i) such underwriter or Holder, as applicable, failed to send or deliver a copy of the final prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the Person asserting the claim from which such Liabilities arise, to the extent such underwriter or Holder, as applicable, was required to send and deliver such final prospectus, and (ii) the final prospectus would have corrected such untrue statement or such omission; or (B) such Liability arises out of or is based upon an untrue statement or omission in any such prospectus if (x) such untrue statement or omission is corrected in an amendment or supplement to such prospectus, and (y) having previously been furnished by or on behalf of the Issuer with copies of such prospectus as so amended or supplemented, such underwriter or Holder, as applicable, thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of a Security to the Person asserting the claim from which such Liability arises. The foregoing indemnity agreement is in addition to any liability which the Issuer may otherwise have to any Indemnified Holder. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holder and shall survive the transfer of the Transfer Restricted Securities by such Holder. (b) Each Holder, severally and not jointly, shall indemnify and hold harmless the Issuer, its officers, directors and employees and each person, if any, who controls the Issuer within the meaning of the Securities Act, from and against any Liability, in respect thereof, to which the Issuer or any such officer, director, employee or controlling person may become 17 subject, insofar as any such loss, claim, damage or liability or action arises out of, or is based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in the Shelf Registration Statement or Prospectus or any amendment or supplement thereto or any Blue Sky Application; or (ii) the omission or the alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Issuer by or on behalf of such Holder (or its related Indemnified Holder) specifically for use therein, and shall reimburse the Issuer and any such director, officer, employee or controlling person promptly upon demand for any legal or other expenses reasonably incurred by the Issuer or any such director, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such Liability as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any Holder may otherwise have to the Issuer or any of its directors, officers, employees or controlling persons and any such director, officer, employee or controlling person. Notwithstanding anything to the contrary contained herein, no Holder shall be liable under this Section 8(b) for any amount in excess of the net proceeds to such Holder as a result of the sale of Transfer Restricted Securities pursuant to the Shelf Registration Statement or Prospectus. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that a Majority of Holders shall have the right to employ a single counsel to represent jointly a Majority of Holders and their respective officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by a Majority of Holders against the Issuer or any of its directors, officers, employees or controlling persons under this Section 8; and, provided, further, that if a Majority of Holders shall have reasonably concluded that there may be one or more legal defenses available to them 18 and their respective officers, employees and controlling persons that are different from or additional to those available to the Issuer and its officers, directors, employees and controlling persons, the fees and expenses of a single separate counsel shall be paid by the Issuer. No indemnifying party shall: (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld) settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b) in respect of any Liability referred to therein, then the indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such Liability in such proportion as is appropriate to reflect fault of such Person and the indemnifying party, as well as other relevant equitable concerns. The relative fault of the parties shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer on the one hand or the Holders on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuer and each Holder agree that it would not be just and equitable if the amount of contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). The amount paid or payable by an indemnified party as a result of the Liability referred to above in this Section 8 shall be deemed to include, for purposes of this Section 8, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 8, no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Transfer Restricted Securities purchased by it were resold exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute as provided in this Section 8(d) are several and not joint. 19 9. Rule 144. The Issuer shall file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Issuer is not required to file such reports, it will, upon written request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144. The Issuer covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell such Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144. The Issuer will provide a copy of this Agreement to prospective purchasers of Transfer Restricted Securities identified to the Issuer by any purchasers upon request by any Purchaser. Upon the request of any Holder of Transfer Restricted Securities, the Issuer shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 9 shall be deemed to require the Issuer to register any of its securities pursuant to the Exchange Act. 10. Participation in Underwritten Registrations. No Holder may participate in any Underwritten Registration hereunder unless such Holder: (i) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements; and (ii) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. 11. Purchase By Issuer. Neither the Issuer nor any of its affiliates (as defined in Rule 144) shall resell any Warrants purchased by such Person to any other Person other than to the Issuer or any of its affiliates. 12. Miscellaneous. (a) Remedies. The Issuer acknowledges and agrees that any failure by the Issuer to comply with its obligations under Section 2 hereof may result in material irreparable injury to the Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Issuer's obligations under Section 2 hereof. The Issuer further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) Adjustments Affecting Transfer Restricted Securities. The Issuer shall not, directly or indirectly, take any action with respect to the Transfer Restricted Securities as a class that would adversely affect the ability of the Holders of Transfer Restricted Securities to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement. (c) No Inconsistent Agreements. The Issuer will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with 20 the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. In addition, the Issuer shall not grant to any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) the right to include any of its securities in the Shelf Registration Statement provided for in this Agreement other than the Transfer Restricted Securities. The Issuer has not previously entered into any agreement (which has not expired or been terminated) granting any registration rights with respect to its securities to any Person which rights conflict with the provisions hereof. Notwithstanding the provisions of this Section 12(c), the Holders agree that the Resale Registration Rights Agreement between the Issuer and the purchasers identified on the signature pages thereto, dated as of the date hereof, is not inconsistent with or otherwise in conflict with the provisions hereof and that the provisions of Section 4 hereof shall not apply to any registrations undertaken pursuant to the provisions thereof. (d) Amendments and Waivers. This Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless the Issuer has obtained the written consent of a Majority of Holders. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, facsimile transmission, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the last address provided by such Holder to the Company (in the case of Holders of Warrants) or the transfer agent of the Common Stock (in the case of Holders of Warrant Shares) and (ii) if to the Issuer: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Assistant Treasurer Facsimile: (415) 267-7265 Telephone: (415) 267-7052 With copies to: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Chief Counsel - Corporate Facsimile: (415) 817-8225 Telephone: (415) 817-8200 21 and Latham & Watkins 633 West Fifth Street Suite 4000 Los Angeles, California 90071 Attention: Tom Sadler Facsimile: (213) 891-8763 Telephone: (213) 485-1234 All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if transmitted by facsimile; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that (i) this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder in compliance with any restrictions on transfer applicable thereto and (ii) nothing contained herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms of the Warrant Agreement. If any transferee of any Holder shall acquire Transfer Restricted Securities, in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. The Issuer hereby agrees to extend the benefits of this Agreement to subsequent Holders of Transfer Restricted Securities who execute a counterpart signature page hereto. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. (h) Securities Held by the Issuer or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Issuer or its "affiliates" (as such term is defined in Rule 405 under the Securities Act) (other than the Purchasers or subsequent Holder of Transfer Restricted Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Transfer Restricted Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 22 (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (j) Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. (k) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired or invalidated thereby. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Issuer with respect to the Transfer Restricted Securities. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Issuer with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. [signature pages follow] In Witness Whereof, the parties have executed this Agreement as of the date first written above. PG&E CORPORATION By______________________________ Name: Title: LB I GROUP INC. By______________________________ Name: Title: OAK HILL SECURITIES FUND, L.P. By______________________________ Name: Title: DK ACQUISITION PARTNERS, L.P. By______________________________ Title: Name: HBK MASTER FUND L.P. By______________________________ Name: Title: TINICUM PARTNERS, L.P. 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: EXHIBIT A PG&E CORPORATION FORM OF SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE Beneficial owners that do not complete this Questionnaire within 20 Business Days of receipt hereof and deliver it to the Issuer as provided below will not be named as selling securityholders in the prospectus and therefor will not be permitted to sell any Transfer Restricted Securities pursuant to the Shelf Registration Statement. The undersigned beneficial holder of warrants (the "Warrants") issued by of PG&E Corporation, a California corporation (the "Issuer") pursuant to that certain Warrant Agreement, dated as of June 25, 2002, between the Company and Initial Holders (as defined therein), or shares of common stock, no par value per share, issuable upon exercise of any Warrant (the "Warrant Shares" and together with any other securities issued or issuable with respect to any Warrant Share by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, the "Transfer Restricted Securities") of the Issuer understands that the Issuer has filed, or intends to file, with the Securities and Exchange Commission (the "Commission") a registration statement (the "Shelf Registration Statement"), for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Transfer Restricted Securities in accordance with the terms of the Equity Registration Rights Agreement, dated as of June 25, 2002 (the "Registration Rights Agreement") between the Issuer and the other Initial Holders identified on the signature pages thereto. A copy of the Registration Rights Agreement is available from the Issuer upon request at the address set forth below. All capitalized terms not otherwise defined herein have the meaning ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Transfer Restricted Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Transfer Restricted Securities pursuant to the Shelf Registration Statement, a beneficial owner of Transfer Restricted Securities generally will be required to be named as a selling securityholder in the related Prospectus, deliver a Prospectus to purchasers of Transfer Restricted Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below). Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related Prospectus. Accordingly, holders and beneficial owners of Transfer Restricted Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and the related Prospectus. NOTICE The undersigned beneficial owner (the "Selling Securityholder") of Transfer Restricted Securities hereby gives notice to the Issuer of its intention to sell or otherwise dispose of A-1 Transfer Restricted Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by signing and returning this Questionnaire, understands that it will be bound by the terms and conditions of this Questionnaire and the Registration Rights Agreement. Pursuant to the Registration Rights Agreement and subject to the terms thereof, the undersigned has agreed to indemnify and hold harmless the Issuer, the Issuer's directors, the Issuer's officers who sign the Shelf Registration Statement and each person, if any, who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against certain losses set forth therein arising in connection with statements concerning the undersigned made in the Shelf Registration Statement or the related Prospectus in reliance upon the information provided in this Questionnaire. The undersigned hereby provides the following information to the Issuer and represents and warrants that such information is accurate and complete: QUESTIONNAIRE 2. Information Regarding Selling Securityholder (a) Full legal name of Selling Securityholder: ______________________ (b) Full legal name of registered holder (if not the same as (a) above) through which Transfer Restricted Securities listed in Item (3) below are held: _________________________________________________________________ (c) Full legal name of DTC participant (if applicable and if not the same as (b) above) through which Transfer Restricted Securities listed in Item (3) are held: ____________________________________ 3. Address for Notices to Selling Securityholders Telephone: ____________________________ Fax: __________________________________ Contact Person: _______________________ 4. Beneficial Ownership of Transfer Restricted Securities (a) Type of Transfer Restricted Securities beneficially owned, and number of Warrant Shares beneficially owned: ____________________ (b) CUSIP No(s). of such Transfer Restricted Securities beneficially owned: _________________________________________________________ A-2 5. Beneficial Ownership of the Issuer's Securities Owned by the Selling Securityholder Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Issuer other than the Transfer Restricted Securities listed above in Item (3) ("Other Securities"). (a) Type and amount of Other Securities beneficially owned by the Selling Securityholder: (b) CUSIP No(s). of such Other Securities beneficially owned: ________________________________________________________________ 6. Relationship with the Issuer Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Issuer (or its predecessors or affiliates) during the past three years. State any exceptions here: ____________________________________________ 7. Plan of Distribution Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Transfer Restricted Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows (if at all). Such Transfer Restricted Securities may be sold from time to time directly by the undersigned or, alternatively, through underwriters, broker-dealers or agents. If the Transfer Restricted Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Transfer Restricted Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions): (i) on any national securities exchange or quotation service on which the Transfer Restricted Securities may be listed or quoted at the time of sale; (ii) in the over-the-counter market; (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market; or (iv) through the writing of options, whether such options are listed on an options exchange or otherwise; (v) ordinary brokers' transactions; A-3 (vi) purchases by brokers, dealers or underwriters as principal and resale by these purchasers for their own accounts pursuant to this prospectus; (vii) "at the market," to or through market makers, or into an existing market for our common stock; (viii) in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents; (ix) through transactions in swaps or other derivatives (whether exchange-listed or otherwise); or (x) to cover short sales. In connection with sales of the Transfer Restricted Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Transfer Restricted Securities and deliver Transfer Restricted Securities to close out such short positions, or loan or pledge Transfer Restricted Securities to broker-dealers that in turn may sell such securities. State any exceptions here: ____________________________________________ _______________________________________________________________________ Note: In no event will such method(s) of distribution take the form of an underwritten offering of the Transfer Restricted Securities without the prior agreement of the Issuer. 8. Instructions for Delivery of Questionnaire Please return the completed and executed Questionnaire to PG&E Corporation at: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Assistant Treasurer 9. Acknowledgments The undersigned acknowledges that it understands its obligation to comply with the provisions of the Exchange Act and the rules and regulations promulgated thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Transfer Restricted Securities pursuant to the Shelf Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein. Pursuant A-4 to the Registration Rights Agreement, the Issuer has agreed under certain circumstances to indemnify the Selling Securityholders against certain liabilities. In accordance with the undersigned's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Issuer of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth above. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (7) above and the inclusion of such information in the Shelf Registration Statement and the related Prospectus. The undersigned understands that such information will be relied upon by the Issuer in connection with the preparation or amendment of the Shelf Registration Statement and the related Prospectus. IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Questionnaire to be executed and delivered either in person or by its duly authorized agent. Beneficial Owner By:________________________________ Name: Title: Date: A-5 EX-99.4 6 dex994.txt AMENDED AND RESTATED CREDIT AGREEMENT EXECUTION COPY ================================================================================ $1,020,000,000 AMENDED AND RESTATED CREDIT AGREEMENT among PG&E CORPORATION as Borrower, the LENDERS party hereto, LEHMAN COMMERCIAL PAPER INC. as Administrative Agent and LEHMAN BROTHERS INC. as Lead Arranger and Book Manager _______________________________________ Dated as of June 25, 2002 _______________________________________ ================================================================================ TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION ........................................ 1 1.1 Defined Terms .................................................................... 1 1.2 Rules of Interpretation .......................................................... 1 1.3 Accounting Principles ............................................................ 1 SECTION 2. AMOUNTS AND TERMS OF CREDIT FACILITY ........................................... 2 2.1 Existing Loans; the New Tranche B Commitment ..................................... 2 2.2 Notice of Borrowing .............................................................. 2 2.3 Disbursement of Funds ............................................................ 3 2.4 Notes ............................................................................ 3 2.5 Interest ......................................................................... 3 2.6 Interest Periods ................................................................. 5 2.7 Increased Costs, Illegality, etc. ................................................ 5 2.8 Compensation ..................................................................... 7 2.9 Extension of Maturity Date ....................................................... 7 2.10 Conversion of Put Option Purchase Price to Tranche A Loan ........................ 8 SECTION 3. PREPAYMENTS; PAYMENTS; TAXES ................................................... 9 3.1 Voluntary Prepayments ............................................................ 9 3.2 Mandatory Repayments ............................................................. 9 3.3 Method and Place of Payment ...................................................... 13 3.4 Net Payments ..................................................................... 13 3.5 Allocation ....................................................................... 15 3.6 [OMITTED] ........................................................................ 15 3.7 Application of Payments; Sharing ................................................. 15 3.8 Change of Control ................................................................ 16 SECTION 4. CONDITIONS PRECEDENT ........................................................... 16 4.1 Conditions to Closing ............................................................ 16 SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS ..................................... 21 5.1 Standing ......................................................................... 21 5.2 Requisite Authority; Etc ........................................................ 22 5.3 No Conflict ...................................................................... 22 5.4 Consents ......................................................................... 22 5.5 Compliance with Law .............................................................. 23 5.6 Litigation Claims ................................................................ 23 5.7 Contracts and Commitments ........................................................ 23 5.8 Liens ............................................................................ 24
(i) 5.9 Insurance ........................................................................... 24 5.10 Capitalization and Ownership ........................................................ 24 5.11 Financial Statements; Absence of Certain Changes .................................... 25 5.12 Taxes ............................................................................... 26 5.13 Disclosure .......................................................................... 26 5.14 Environmental Matters ............................................................... 27 5.15 Brokers' or Finders' Fees ........................................................... 27 5.16 Certain Regulatory Matters ......................................................... 27 5.17 Transactions With Affiliates ........................................................ 29 5.18 Use of Proceeds ..................................................................... 29 5.19 Compliance with ERISA ............................................................... 29 5.20 Investment Company Act .............................................................. 30 5.21 Regulation .......................................................................... 30 5.22 Security Documents .................................................................. 30 5.23 Certain Scheduled Projects .......................................................... 31 5.24 Environmental Matters ............................................................... 31 5.25 Intellectual Property ............................................................... 32 5.26 No Default .......................................................................... 32 5.27 Single-Purpose Entity ............................................................... 32 5.28 Trust Indenture Act ................................................................. 32 5.29 Existing Indebtedness ............................................................... 32 5.30 Ratings Letter ...................................................................... 32 SECTION 6. AFFIRMATIVE COVENANTS ............................................................ 32 6.1 Information Covenants .............................................................. 33 6.2 Books, Records and Inspections ..................................................... 36 6.3 Maintenance of Property; Insurance ................................................. 36 6.4 Corporate Franchises ............................................................... 36 6.5 Compliance with Statutes, etc. ..................................................... 36 6.6 Compliance with Environmental Laws ................................................. 36 6.7 ERISA .............................................................................. 37 6.8 End of Fiscal Years; Fiscal Quarters ............................................... 39 6.9 Payment of Taxes ................................................................... 39 6.10 [OMITTED]. ......................................................................... 39 6.11 Performance of Obligations ......................................................... 39 6.12 Use of Proceeds .................................................................... 39 6.13 Regulatory Compliance .............................................................. 39 6.14 Financial Covenant ................................................................. 39 6.15 Charter Documents .................................................................. 40 6.16 Further Assurances; etc. ........................................................... 40 6.17 Delisting .......................................................................... 40 SECTION 7. TRANCHE A NEGATIVE COVENANTS ..................................................... 40 7.1 Liens .............................................................................. 40 7.2 Consolidation, Merger, Purchase or Sale of Assets, etc. ............................ 42
(ii) 7.3 Dividends ................................................................................. 43 7.4 Indebtedness .............................................................................. 43 7.5 Advances, Investments and Loans ........................................................... 44 7.6 Transactions with Affiliates .............................................................. 46 7.7 Capital Expenditures ...................................................................... 46 7.8 Limitations on Liens on Collateral; Modifications of Certain Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements, etc. ........................................................................ 46 7.9 Limitation on Issuance of Capital Stock ................................................... 47 7.10 Business .................................................................................. 47 7.11 Regulatory Compliance ..................................................................... 48 7.12 [OMITTED] ................................................................................. 48 7.13 Limitation on Optional Payments and Modifications of Convertible Notes .................... 48 7.14 Cash Reserve; Interest Reserve Amounts .................................................... 48 7.15 Plan of Reorganization .................................................................... 49 7.16 FMV Ratio ................................................................................. 49 SECTION 7A. TRANCHE B NEGATIVE COVENANTS ............................................................ 49 7A.1. Liens ..................................................................................... 49 7A.2. Consolidation, Merger, Purchase or Sale of Assets, etc. ................................... 51 7A.3. Dividends ................................................................................. 52 7A.4. Indebtedness .............................................................................. 53 7A.5. Advances, Investments and Loans ........................................................... 54 7A.6. Transactions with Affiliates .............................................................. 55 7A.7. Capital Expenditures ...................................................................... 55 7A.8. Limitations on Liens on Collateral; Modifications of Certain Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements, etc. ...................................................... 56 7A.9. Limitation on Issuance of Capital Stock ................................................... 56 7A.10.Business .................................................................................. 57 7A.11.Regulatory Compliance ..................................................................... 57 7A.12.[OMITTED] ................................................................................. 57 7A.13.Limitation on Optional Payments and Modifications of Convertible Notes .................... 57 7A.14.Interest Reserve Account .................................................................. 57 7A.15.Plan of Reorganization .................................................................... 58 7A.16.FMV Ratio ................................................................................. 58 SECTION 8. TRANCHE A EVENTS OF DEFAULT AND REMEDIES ................................................ 58 8.1 Events of Default ......................................................................... 58 8.2 Acceleration .............................................................................. 61 8.3 Other Remedies ............................................................................ 61 SECTION 8A. TRANCHE B EVENTS OF DEFAULT AND REMEDIES ................................................ 62 8A.1. Events of Default ......................................................................... 62
(iii) 8A.2. Acceleration ......................................................................... 65 8A.3. Other Remedies ....................................................................... 65 SECTION 9. MISCELLANEOUS ....................................................................... 65 9.1 Costs and Expenses ................................................................... 65 9.2 Indemnity ............................................................................ 66 9.3 Notices .............................................................................. 68 9.4 Benefit of Agreement ................................................................. 68 9.5 No Waiver; Remedies Cumulative ....................................................... 68 9.6 No Third Party Beneficiaries ......................................................... 69 9.7 Reinstatement ........................................................................ 69 9.8 No Immunity .......................................................................... 69 9.9 Counterparts ......................................................................... 69 9.10 Amendment or Waiver .................................................................. 69 9.11 Assignments, Participations, etc. .................................................... 71 9.12 Survival ............................................................................. 72 9.13 WAIVER OF JURY TRIAL ................................................................. 73 9.14 Right of Set-off ..................................................................... 73 9.15 Severability ......................................................................... 73 9.16 Governing Law; Submission to Jurisdiction ............................................ 73 9.17 Waiver by Borrower ................................................................... 74 9.18 Recourse ............................................................................. 74 9.19 Complete Agreement ................................................................... 75 9.20 Publicity ............................................................................ 75 9.21 Effectiveness ........................................................................ 75 9.22 Certain Representations and Warranties ............................................... 75 9.23 Confidentiality ...................................................................... 75 9.24 Release of Liens for NEG Equity Sale ................................................. 76 9.25 Delivery of Lender Addendum .......................................................... 76 9.26 Determination of Fair Market Value ................................................... 76 9.27 Intercreditor Agreement .............................................................. 76 9.28 Special Exculpation .................................................................. 76 SECTION 10. THE ADMINISTRATIVE AGENT; THE LEAD ARRANGER AND THE BOOK MANAGER ................... 77 10.1 Appointment .......................................................................... 77 10.2 Nature of Duties ..................................................................... 77 10.3 Lack of Reliance on the Administrative Agent ......................................... 77 10.4 Certain Rights of the Administrative Agent ........................................... 78 10.5 Reliance ............................................................................. 78 10.6 Indemnification ...................................................................... 78 10.7 The Administrative Agent in its Individual Capacity .................................. 78 10.8 Holders .............................................................................. 79 10.9 Resignation or Replacement of the Administrative Agent ............................... 79 10.10 The Lead Arranger and Book Manager .................................................. 79
(iv) 10.11 Direction to Administrative Agent and Collateral Agent ............................... 80
(v)
APPENDICES: Appendix A Defined Terms and Rules of Interpretation EXHIBITS: Exhibit A Form of Notice of Borrowing Exhibit B Form of Note Exhibit C Form of Section 3.4(b)(ii) Certificate Exhibit D Form of Process Agent Letter Exhibit E-1 Form of Change of Control Offer to Repay Notice Exhibit E-2 Form of Response to Change of Control Offer to Repay Notice SCHEDULES: Schedule A Form of Lender Addendum Schedule B SEC Filings Schedule 3.5 Allocation - Investment Unit Schedule 5.6 Litigation Schedule 5.7 Covered Contracts Schedule 5.8 Liens Schedule 5.9 Insurance Schedule 5.10(e) Warrants, etc. Schedule 5.10(f) Ownership Schedule 5.14 Environmental Matters Schedule 5.15 Brokers' or Finders' Fees Schedule 5.16(e) Regulated Entities Schedule 5.17 Transactions with Affiliates Schedule 5.19 ERISA Plans Schedule 5.23 Scheduled Projects Schedule 7.1 Certain Liens Schedule 9.3 Notices ANNEXES Annex A Section 13 of the LLC Agreement Annex B Description of Utility Spin-Off
(vi) AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement"), dated as of June 25, 2002, among PG&E Corporation, a California corporation, as the Borrower, the Lenders party hereto, Lehman Commercial Paper Inc., a New York corporation, as Administrative Agent, and Lehman Brothers Inc., a Delaware corporation, as Lead Arranger and Book Manager. W I T N E S S E T H: WHEREAS, the Borrower is a party to the Credit Agreement, dated as of March 1, 2001 (as amended, supplemented or otherwise modified from time to time, the "Existing Credit Agreement"), with the lenders party thereto, Lehman Commercial Paper Inc., as Administrative Agent, and others, pursuant to which such lenders made the Tranche A Loan (as defined in the Existing Credit Agreement, the "Existing Tranche A Loan") and the Tranche B Loan (as defined in the Existing Credit Agreement, the "Existing Tranche B Loan"); WHEREAS, the parties hereto wish to amend and restate the Existing Credit Agreement in its entirety to modify certain of the terms applicable to the Existing Tranche A Loan, to reflect the repayment of the Existing Tranche B Loan and to provide for the making of an additional Tranche B Loan to the Borrower; and WHEREAS, (i) the Existing Credit Agreement is being amended and restated pursuant to this Agreement, (ii) certain indebtedness under the Existing Credit Agreement, as amended and restated in connection with this Agreement, will be continued under this Agreement and (iii) all obligations of the Covered Parties under the Financing Documents (as such terms are defined herein) and all liens and security interests created under the Financing Documents will be continued, amended and restated as provided herein and therein and will not be cancelled or discharged; NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter contained, the parties hereto agree that, upon the Closing Date, the Existing Credit Agreement shall be amended and restated in its entirety as follows: SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION. 1.1 Defined Terms. Except as otherwise expressly provided herein, capitalized terms used in this Agreement and its Schedules and Exhibits shall have the respective meanings assigned to such terms in Appendix A hereto. 1.2 Rules of Interpretation. Except as otherwise expressly provided herein, the rules of interpretation set forth in Appendix A hereto shall apply to this Agreement. 1.3 Accounting Principles. Except as otherwise provided in this Agreement, all computations and determinations as to financial matters, and all financial statements to be delivered under this Agreement shall be made or prepared in accordance with U.S. GAAP (including principles of consolidation where appropriate) applied on a consistent basis (except to the extent approved or required by the independent public accountants certifying such statements and disclosed therein). 2 SECTION 2. AMOUNTS AND TERMS OF CREDIT FACILITY. 2.1 Existing Loans; the New Tranche B Commitment. (a) Subject to and upon the terms and conditions set forth herein, on the Closing Date, (i) the $600,000,000 portion of the Existing Tranche A Loan held by GECC shall be continued hereunder as the Tranche A Loan, which shall mature on the earlier of (x) the date of a Spin-Off of NEG, Inc. and (y) the Date Certain, (ii) the remaining $92,000,000 portion of the Existing Tranche A Loan not held by GECC shall be automatically converted into, and become a part of, the Tranche B Loan with the identical terms of the Tranche B Loan made pursuant to clause (iii) below, and (iii) each New Tranche B Lender shall make a term loan to the Borrower, and/or continue to hold or acquire a portion of the $92,000,000 amount of the Tranche A Loan converted to a Tranche B Loan pursuant to the foregoing clause (ii), in an aggregate amount not to exceed the amount of the New Tranche B Commitment of such Lender, which term loans made pursuant to this clause (iii) (A) shall be incurred pursuant to a single drawing on the Closing Date, (B) shall be denominated in Dollars, (C) shall be incurred and maintained as Eurodollar Loans, except as otherwise specifically provided in Section 2.7(b), (D) shall be made on the Closing Date in an aggregate principal amount which equals the aggregate New Tranche B Commitments, and (E) shall mature on the earlier of (x) the date of a Spin-Off of NEG, Inc. and (y) the Tranche B Maturity Date. For the avoidance of doubt, after giving effect to the continuation and the conversion described above and the making of the Tranche B Loan on the Closing Date, the aggregate principal amount of the Tranche A Loan and the Tranche B Loan outstanding on the Closing Date shall be $600,000,000 and $420,000,000, respectively. (b) If the Closing Date has not occurred on or prior to June 26, 2002, then, in such event, (i) except as set forth in clause (ii) below, the Lenders shall have no further obligations or liabilities under any of the Financing Documents and the Financing Documents shall have no further force or effect with respect to the Lenders, but the Borrower's obligation to pay the costs, fees and expenses as provided herein and to indemnify the other parties to the Financing Documents shall not be terminated, modified or diminished in any respect, and (ii) the Existing Credit Agreement and the other Existing Financing Documents shall remain in full force and effect, and no modification thereof shall have been made pursuant hereto. (c) The Loans are available only on the terms and conditions specified hereunder, and once repaid, in whole or in part, at maturity or by prepayment, may not be reborrowed in whole or in part. 2.2 Notice of Borrowing. The Borrower shall give the Administrative Agent prior notice of the Tranche B Loan to be incurred hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 1:00 P.M. (New York time) on such day. Such notice (the "Notice of Borrowing") shall be irrevocable and shall be in writing, or by telephone promptly confirmed in writing, in the form of Exhibit A, appropriately completed to specify: (i) the aggregate principal amount of the Tranche B Loan to be incurred, and the date selected to be the Closing Date (which shall be a Business Day), (ii) the Interest Period applicable thereto, and (iii) the account information for disbursement of the Loans. The Administrative Agent shall promptly advise the Tranche B Lenders of the contents of such Notice of Borrowing. 3 2.3 Disbursement of Funds. No later than 1:00 P.M. (New York time) on the Closing Date, each New Tranche B Lender will make available such Lender's pro rata share of the amount of Borrowing requested to be made on such date. All such amounts will be made available in Dollars and in immediately available funds and disbursed to the Borrower as directed by the Borrower. 2.4 Notes. (a) The Borrower's obligation to pay the principal of, and interest on, any Loan made by a Lender shall be evidenced by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B, with blanks appropriately completed in conformity herewith (each, a "Note"). On the Closing Date, to the extent requested by any Lender, the existing promissory note held by such Lender shall be exchanged for a new Note. (b) The Note issued to a Lender shall (i) be executed by the Borrower, (ii) be payable to such Lender or its Assignee and be dated the Closing Date (or, if issued after the Closing Date, be dated the date of issuance thereof), (iii) be in a stated principal amount equal to the Loan made or continued by, or assigned to, such Lender, as the case may be, and be payable in the outstanding principal amount of the Loan evidenced thereby, (iv) mature, in the case of the Tranche A Loan, on the earlier of (A) the date of a Spin-Off of NEG, Inc. and (B) the Date Certain and, in the case of the Tranche B Loan, on the earlier of (A) the date of a Spin-Off of NEG, Inc. and (B) the Tranche B Maturity Date, (v) bear interest as provided in the appropriate clause of Section 2.5 in respect of a Base Rate Loan (if converted pursuant to Section 2.7(b)) or a Eurodollar Loan, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 3.1, and mandatory repayment as provided in Section 3.2, and (vii) be entitled to the benefits of this Agreement and the other Financing Documents. (c) Each Lender will note on its internal records the amount of the Loan made by it and each payment in respect thereof and will prior to any transfer of its Note endorse on the reverse side thereof the outstanding principal amount of the Loan evidenced thereby. Failure to make any such notation or any error in such notation shall not affect the Borrower's obligations in respect of such Loan. 2.5 Interest. (a) The Borrower agrees to pay interest in respect of the unpaid principal amount of any Base Rate Loan from the date of conversion thereof pursuant to Section 2.7(b) until the maturity thereof (whether by acceleration or otherwise) at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate each as in effect from time to time. (b) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date of Borrowing or conversion thereof until the earlier of (i) the maturity thereof (whether by acceleration or otherwise) and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 2.7(b) at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin as in effect from time to time during such Interest Period plus the Eurodollar Rate for such Interest Period. 4 (c) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable by the Borrower shall, in each case, bear interest at a rate per annum equal to the rate which is 2% in excess of the rate then borne by such Loan. Interest which accrues under this Section 2.5(c) shall be payable on demand. (d) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Base Rate Loan, (x) quarterly in arrears on each Quarterly Date, (y) on the date of any repayment or prepayment of the outstanding principal amount of such Base Rate Loan, and (z) at maturity (whether by acceleration or otherwise) and, after such maturity, on demand, and (ii) in respect of each Eurodollar Loan, (x) on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period, and (y) on the date of any repayment or prepayment (on the amount repaid or prepaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand (each such date upon which interest shall be payable, an "Interest Payment Date"). (e) Upon each Interest Determination Date with respect to any Eurodollar Loan, the Administrative Agent shall determine the Eurodollar Rate for the relevant Interest Period applicable to such Eurodollar Loan and shall promptly notify the Borrower thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. (f) (i) Upon each Interest Payment Date in respect of the Tranche A Loan, if the Borrower does not on such Interest Payment Date pay the amount of interest payable on such Interest Payment Date in respect of the Tranche A Loan, the amount of such interest shall be withdrawn from the Tranche A Interest Reserve Account and applied to pay such interest. The Tranche A Lenders hereby authorize and direct the Collateral Agent to request such withdrawal under the Tranche A Interest Reserve Account Control Agreement and to pay such interest. (ii) Upon each Interest Payment Date in respect of the Tranche B Loan, if the Borrower does not on such Interest Payment Date pay the amount of interest payable on such Interest Payment Date in respect of the Tranche B Loan, the amount of such interest shall be withdrawn from the Tranche B Interest Reserve Account and applied to pay such interest. The Tranche B Lenders hereby authorize and direct the Collateral Agent to request such withdrawal under the Tranche B Interest Reserve Account Control Agreement and to pay such interest. (g) Upon each Interest Payment Date in respect of any portion of the Tranche B Loan, in addition to the interest payable in cash as described above, the principal amount of such portion will be increased by a pay-in-kind interest amount calculated on the principal amount of such portion at the rate per annum of 4.00% for the period from the immediately preceding Interest Payment Date with respect to such portion (or from the Closing Date in the case of the first such calculation) to the current Interest Payment Date, and such increased principal amount of the Tranche B Loan shall thereafter bear interest (both cash-pay and pay-in-kind) at the same rates as the original principal amount of the Tranche B Loan. 5 (h) For the avoidance of doubt, no interest payment may be made in respect of the Tranche B Loan (other than the pay-in-kind interest provided for in clause (g) above) unless and until any interest then due and payable in respect of the Tranche A Loan shall have been paid in full, and in any event any such payment of interest in respect of the Tranche B Loan shall be subject to the terms of the Intercreditor Agreement. 2.6 Interest Periods. At the time the Borrower gives the Notice of Borrowing, or prior to 1:00 P.M. (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Eurodollar Loan (in the case of any subsequent Interest Period), the Borrower shall have the right to elect the interest period (each an "Interest Period") applicable to such Eurodollar Loan, which Interest Period shall, at the option of the Borrower, be a one, two, three or six-month period; provided that (in each case): (i) the initial Interest Period for any Eurodollar Loan shall commence on the date of Borrowing or conversion of such Eurodollar Loan and each Interest Period occurring thereafter in respect of such Eurodollar Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires; (ii) if any Interest Period for a Eurodollar Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period for such Eurodollar Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) no Interest Period may be selected at any time when a Default or an Event of Default is then in existence; and (v) no Interest Period in respect of any Borrowing of any Eurodollar Loan shall be selected which extends beyond the Date Certain, in the case of the Tranche A Loan, or the Tranche B Maturity Date, in the case of the Tranche B Loan. If upon the expiration of any Interest Period applicable to any Eurodollar Loan, the Borrower has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Eurodollar Loan as provided above, the Borrower shall be deemed to have elected a one-month Interest Period effective as of the expiration date of such current Interest Period. 2.7 Increased Costs, Illegality, etc. (a) In the event that a Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any Interest Determination Date that, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and 6 fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loan of such Lender because of (x) any change since the Closing Date in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to such Lender of the principal of or interest on such Lender's Loan or Note or any other amounts payable to such Lender hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which it is doing business, organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein) or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate and/or (y) other circumstances (other than with respect to taxes) arising since the Closing Date affecting such Lender (or its Source), the interbank Eurodollar market or the position of such Lender in such market; or (iii) at any time, that the making or continuance of any Eurodollar Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by such Lender in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the Closing Date which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Lender shall promptly give notice (by telephone promptly confirmed in writing) to the Borrower of such determination. Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as such Lender notifies the Borrower that the circumstances giving rise to such notice by the Lender no longer exist, (y) in the case of clause (ii) above, the Borrower agrees to pay to such Lender, upon such Lender's written request therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding on all the parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 2.7(b) as promptly as possible and, in any event, within the time period required by Law. Each Lender, at the sole cost and expense of the Borrower (including, but not limited to, such Lender's internal costs for use of its personnel and resources), will use its reasonable efforts to minimize taxes indemnifiable by the Borrower under this Section 2.7(a), including by complying with reasonable requests by the Borrower to do or to refrain from doing any act (including the execution of any certificates or similar documents required to establish an 7 exemption or relief from any tax), if such efforts or any such compliance is, in the good faith discretion of such Lender, of a purely ministerial nature and has no adverse impact on such Lender or any Affiliate or on the business or operations of the foregoing (unless such adverse impact is one of a nature and quality such that it is subject to indemnification and the Borrower has indemnified such Lender against such adverse impact in a manner satisfactory to such Lender determined in its sole discretion). The Borrower shall indemnify such Lender for any taxes that may be imposed on it as a consequence of such compliance. (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 2.7(a)(i) or (ii), the Borrower may, and in the case of a Eurodollar Loan affected by the circumstances described in Section 2.7(a)(iii), the Borrower shall, upon at least three Business Days' written notice to such Lender, require the affected Lender to convert such Eurodollar Loan into a Base Rate Loan. (c) If a Lender determines that after the Closing Date the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by the NAIC or any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Lender (or its Source) or any corporation controlling such Lender based on the existence of such Lender's obligations hereunder, then the Borrower agrees to pay to such Lender, upon its written demand therefor, such additional amounts as shall be required to compensate such Lender or such other corporation for the increased cost to such Lender or such other corporation or the reduction in the rate of return to such Lender or such other corporation as a result of such increase of capital. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Lender's determination of compensation owing under this Section 2.7(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Such Lender, upon determining that any additional amounts will be payable pursuant to this Section 2.7(c), will give prompt written notice thereof to the Borrower, which notice shall show in reasonable detail the basis for calculation of such additional amounts. 2.8 Compensation. The Borrower agrees to compensate each Lender, upon its written request (which request shall set forth in reasonable detail the basis for requesting such compensation), for all losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loan but excluding loss of anticipated profits) which such Lender may sustain: (i) if any prepayment or repayment (including any prepayment or repayment made pursuant to Section 3.1, Section 3.2, Section 3.8 or as a result of an acceleration of the Loans pursuant to Section 8.2) or conversion of any Eurodollar Loan is made on a date other than the last day of the Interest Period applicable thereto; or (ii) as a consequence of (x) any other default by the Borrower to repay such Eurodollar Loan when required by the terms of this Agreement or any Note held by such Lender or (y) any election made pursuant to Section 2.7(b). 2.9 Extension of Maturity Date. (a) The Borrower may by notice to the Administrative Agent and the Tranche A Lender not later than thirty (30) days prior to March 2, 8 2003 or September 2, 2003 (if the maturity date of the Tranche A Loan was extended to September 2, 2003), and upon payment of the Extension Fees relating to such extension, extend the maturity date of the Tranche A Loan to the earlier of (i) the date of a Spin-Off of NEG, Inc. and (ii) September 2, 2003 or March 2, 2004, as set forth in the Borrower's notice, but in no event shall the Date Certain with respect to the Tranche A Loan be beyond March 2, 2004, unless further extended pursuant to Section 2.9(b) below; provided, that there shall be no extension of the maturity date of the Tranche A Loan pursuant to this Section 2.9(a) if on the date of such extension, a Default or an Event of Default shall be continuing. (b) The Borrower may by notice to the Administrative Agent and the Tranche A Lender not later than thirty (30) days prior to March 2, 2004 and March 2, 2005 (if the maturity date of the Tranche A Loan was extended to March 2, 2005), and upon payment of the Extension Fees relating to such extension, extend the maturity date of the Tranche A Loan to the earlier of (i) the date of a Spin-Off of NEG, Inc. and (ii) March 2, 2005 or March 2, 2006, respectively, but in no event shall the Date Certain with respect to the Tranche A Loan be beyond March 2, 2006; provided, that there shall be no extension of the maturity date of the Tranche A Loan pursuant to this paragraph (b) if (i) on the date of such extension, a Default or an Event of Default shall be continuing or (ii) on the date of such extension (x) the amount of cash or Cash Equivalents owned by the Borrower in its own name, free and clear of all Liens, plus the aggregate amount on deposit in the Interest Reserve Accounts, is less than 15% of the total principal amount of Loans then outstanding, and (y) the Borrower has not prepaid the Extension Interest Prepayment Amount. (c) Any extension of the maturity date of the Tranche A Loan made pursuant to this Section 2.9 shall become effective on the maturity date in effect immediately prior to giving effect to such extension. 2.10 Conversion of Put Option Purchase Price to Tranche A Loan. (a) In the event that, pursuant to Article VI of the Option Agreement, any Holder exercises its right to put any Option of such Holder to a Purchasing Party on any Put Repurchase Date (as defined in the Option Agreement) prior to the Additional Extended Date Certain, the Put Option Purchase Price (as defined in the Option Agreement) with respect to such put shall be determined in accordance with the Option Agreement, and, as provided in Section 6.04 of the Option Agreement, the amount of such Put Option Purchase Price shall be paid in immediately available funds or, at the Borrower's option, shall be deemed to constitute a Tranche A Loan made by such Holder, or its Affiliate Lender, on such Put Repurchase Date in a principal amount equal to the amount of such Put Option Purchase Price. (b) In the event that, pursuant to Section 2.01(b) of the Option Agreement, the Holders may be entitled to receive an Additional Option (as defined in the Option Agreement) to purchase from LLC in excess of one percent (1.0%) of the total common equity of NEG, Inc. computed on a Fully Diluted Basis (as defined in the Option Agreement) (such excess only, the "Excess Additional Option Percentage"), at Borrower's option, (i) LLC may grant such Additional Option with respect to the Excess Additional Option Percentage in accordance with the terms of Section 2.01(b) of the Option Agreement, or (ii) the amount of the Put Option Purchase Price (as defined in the Option Agreement) with respect to such Excess Additional Option Percentage shall be determined in accordance with Section 2.01(b) of the Option 9 Agreement, and, as provided therein, the amount of such Put Option Purchase Price with respect to such Excess Additional Option Percentage (x) shall be paid in immediately available funds or, at Borrower's option, (y) shall be deemed to constitute a Tranche A Loan made by such Lender on such Put Repurchase Date in a principal amount equal to the amount of such Put Option Purchase Price with respect to such Excess Additional Option Percentage. (c) Any Tranche A Loan arising pursuant to Section 2.10(a) or (b) shall be subject to the terms and conditions of this Agreement applicable to the Tranche A Loan and shall be evidenced by a Note in a principal amount equal to the applicable Put Option Purchase Price, which Note the Borrower shall duly execute and deliver to such Lender on the applicable Put Repurchase Date. SECTION 3. PREPAYMENTS; PAYMENTS; TAXES. 3.1 Voluntary Prepayments. The Borrower shall have the right to prepay the Tranche A Loan and the Tranche B Loan, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: the Borrower shall give each affected Lender prior to 12:00 Noon (New York time) (x) at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay a Base Rate Loan and (y) at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay a Eurodollar Loan, which notice (in each case) shall specify the amount of such prepayment which shall be in an aggregate principal amount of at least $10,000,000, and minimum increments of $1,000,000 in excess thereof; provided that, the Tranche B Loan may not be prepaid until after payment in full of the Tranche A Loan, all other amounts payable to the Tranche A Lender under the Credit Agreement and all amounts payable to each Holder under the Option Agreement in respect of any Put Notice (as defined in the Option Agreement) theretofore delivered by such Holder. Each prepayment of the Tranche B Loan made pursuant to this Section 3.1 on or prior to the second anniversary of the Closing Date shall be accompanied by payment of a prepayment fee equal to (i) if such prepayment is made on or prior to the first anniversary of the Closing Date, 2% of the principal amount prepaid and (ii) if such prepayment is made after the first anniversary of the Closing Date and on or prior to the second anniversary of the Closing Date, 1% of the principal amount prepaid. 3.2 Mandatory Repayments. (a) The principal amount of each Loan, to the extent then outstanding, shall be repaid at its maturity (whether by acceleration or otherwise). (b) In addition to any other mandatory repayments pursuant to this Section 3.2, on each date on or after the Closing Date upon which the Borrower, LLC, NEG, Inc. or any NEG Subsidiary receives any cash proceeds from any incurrence by the Borrower, LLC, NEG, Inc. or any NEG Subsidiary of Indebtedness for borrowed money, an amount equal to 100% of the Net Debt Proceeds of such incurrence shall be applied on such date in accordance with the requirements of Section 3.2(h); provided that (A) up to $5,000,000 of such Net Debt Proceeds from any incurrence by the Borrower of Indebtedness under Section 7.4(ix) or Section 7A.4(ix) need not be so applied; (B) such Net Debt Proceeds from any incurrence by LLC, NEG, Inc. or any NEG Subsidiary of Indebtedness for borrowed money incurred while no Default or Event of Default has occurred and is continuing shall not be required to be so applied to the extent such 10 Net Debt Proceeds are (i) retained as cash or Cash Equivalents by LLC, NEG, Inc. or any NEG Subsidiary or (ii) applied to repay Indebtedness for borrowed money of NEG, Inc. or any NEG Subsidiary or (iii) reinvested in the business of NEG, Inc. or any NEG Subsidiary within the scope of business as described by the Business Plan; provided, further, that if a Default or Event of Default shall have occurred and be continuing, such reinvestment may only be made to the extent specified in Part II of the Business Plan; and (C) the Net Debt Proceeds from the incurrence of the Convertible Notes need not be so applied. (c) In addition to any other mandatory repayments pursuant to this Section 3.2, on each date on or after the Closing Date upon which the Borrower, LLC, NEG, Inc. or any NEG Subsidiary receives any cash proceeds from any sale or issuance of its equity, including any preferred stock and any instrument that has both equity-like and debt-like components (other than cash proceeds received as part of an IPO which shall be applied pursuant to clause (d) below) an amount equal to 100% of the Net Equity Proceeds of such sale or issuance of equity shall be applied on such date in accordance with the requirements of Section 3.2(h); provided, that (A) any such Net Equity Proceeds received from the sale or issuance of equity of the Borrower shall not be required to be applied to repay the Loans (i) to the extent that such Net Equity Proceeds are invested by the Borrower in PGE Utility or the Reorganization Subsidiaries to the extent permitted by clauses (v) and (vi) of Sections 7.5 and 7A.5 or as otherwise permitted by this Agreement, (ii) to the extent that such Net Equity Proceeds are held by the Borrower as cash or Cash Equivalents and thereafter used solely to prepay the Loans in accordance with the requirements of Section 3.2(h) or to make investments in PGE Utility to the extent permitted by clauses (v) and (vi) of Sections 7.5 and 7A.5 or as otherwise permitted by this Agreement, or (iii) to the extent that the Net Equity Proceeds arose in conjunction with the sale by the Borrower (directly or through any of its Subsidiaries) of the Borrower's common stock to the trustee for the PG&E Corporation Retirement Savings Plan, stock option and other equity based incentives under the PG&E Corporation Long Term Incentive Program and the Dividend Reinvestment Plan or the trustee of the PGE Utility Savings Fund Plan and (B) any such Net Equity Proceeds received from the sale or issuance of equity of LLC, NEG, Inc. or any NEG Subsidiary shall not be required to be applied to repay the Loans to the extent that such Net Equity Proceeds (i) are retained as cash or Cash Equivalents by LLC, NEG, Inc. or the NEG Subsidiaries, (ii) applied to repay Indebtedness for borrowed money of NEG, Inc. or any NEG Subsidiary, or (iii) reinvested in the business of NEG, Inc. or any NEG Subsidiary within the scope of business as described by the Business Plan; provided that if a Default or Event of Default shall have occurred and be continuing, such reinvestment may only be made to the extent specified in Part II of the Business Plan. (d) In addition to any other mandatory repayments required pursuant to this Section 3.2, on the date of an IPO upon which the Borrower, LLC or NEG, Inc. receives any Net Equity Proceeds from such IPO, such Net Equity Proceeds shall be applied on such date, in accordance with the requirements of Section 3.2(h), to prepay the Loans to the extent required to cause the aggregate outstanding principal amount of the Loans not to exceed the lesser of (i) $400,000,000 and (ii) an amount equal to 50% of the Market Value of the common stock of NEG, Inc. held by the Collateral Agent as Collateral, after giving effect to such IPO and such repayment of the Loans. For purposes of this paragraph, the "Market Value" of the common stock of NEG, Inc. held by the Collateral Agent as Collateral shall be deemed to be equal to the product of (x) the percentage of the common stock of NEG, Inc. held by the Collateral Agent as 11 Collateral after giving effect to the IPO, multiplied by (y) a fraction, the numerator of which is the aggregate gross cash proceeds of such IPO, and the denominator of which is the percentage (expressed as a decimal) of the shares of common stock of NEG, Inc. sold to the public in such IPO. (e) In addition to any other mandatory repayments pursuant to this Section 3.2, (A) on each date on or after the Closing Date upon which the Borrower, LLC, NEG, Inc. or any NEG Subsidiary receives any cash proceeds from any Asset Sale by the Borrower, LLC, NEG, Inc. or any NEG Subsidiary, an amount equal to 100% of the Net Sale Proceeds therefrom shall be applied in accordance with the requirements of Section 3.2(h); provided that Net Sale Proceeds from any Asset Sale consummated, at any time when no Default or Event of Default has occurred and is continuing, by LLC, NEG, Inc. or any NEG Subsidiary shall not be required to be so applied to the extent such Net Sale Proceeds are (i) retained as cash or Cash Equivalents by LLC, NEG, Inc. or the NEG Subsidiaries or (ii) applied to repay Indebtedness for borrowed money of NEG, Inc. or any NEG Subsidiary or (iii) reinvested in the business of NEG, Inc. or any NEG Subsidiary within the scope of business as described by the Business Plan; provided, further, that if a Default or Event of Default shall have occurred and be continuing, such reinvestment may only be made to the extent specified in Part II of the Business Plan; and (B) on each date after the date of the Utility Spin-Off on which the Borrower or any Reorganization Subsidiary receives any cash proceeds from any Asset Sale by the Borrower or any Reorganization Subsidiary, an amount equal to 100% of the Net Sale Proceeds therefrom shall be applied in accordance with the requirements of Section 3.2(h). (f) In addition to any other mandatory repayments pursuant to this Section 3.2, on each date on or after the Closing Date upon which the Borrower, LLC, NEG, Inc. or any NEG Subsidiary receives any cash proceeds from any Recovery Event, an amount equal to 100% of the Net Insurance Proceeds from such Recovery Event shall be applied in accordance with the requirements of Section 3.2(h); provided that such Net Insurance Proceeds shall not be required to be so applied to the extent such Net Insurance Proceeds are (i) applied to repay Indebtedness for borrowed money of NEG, Inc. or any NEG Subsidiary; (ii) reinvested in the business of NEG, Inc. or any NEG Subsidiary within the scope of business as described by the Business Plan within eighteen (18) months of the Recovery Event; provided, further, that if a Default or Event of Default shall have occurred and be continuing, such reinvestment may only be made to the extent specified in Part II of the Business Plan; (iii) in respect of Recovery Events for one or more Subsidiaries of the Borrower and arise from insurance programs maintained by the Borrower for such Subsidiaries to the extent that such Net Insurance Proceeds are made available to such Subsidiaries; or (iv) utilized to repair the damages which resulted in such Net Insurance Proceeds or are reinvested in assets similar to the assets with respect to which such Net Insurance Proceeds were received. (g) In addition to any other mandatory repayments pursuant to this Section 3.2, on each date on or after the Closing Date upon which the Borrower receives any principal repayment in respect of borrowed money owing to the Borrower by any member of the NEG Group or a distribution or Dividend of any sort from LLC, PGE Utility or any Reorganization Subsidiary (other than (x) the proceeds of an IPO which shall be applied pursuant to clause (d) above, (y) issuance of the note from NEG, Inc. to LLC or the Borrower or from LLC to the Borrower, solely in connection with the IPO (but not payments thereunder) and (z) distribution 12 to the Borrower of shares of Reorganization Subsidiaries or the shares or related preferred stock purchase rights of PGE Utility in connection with the Utility Spin-Off), an amount equal to 100% of such proceeds (net of any amount thereof used to reimburse the Borrower for (i) any expense related to any income or franchise Taxes of NEG, Inc. or any NEG Subsidiary (computed as if NEG, Inc. and each of its Subsidiaries filed a consolidated federal income Tax return and state consolidated or combined income or franchise Tax returns, where applicable, separate from the Borrower, PGE Utility and Subsidiaries of PGE Utility, for all taxable periods), (ii) any expenses then due and payable under the Expense Sharing Agreement or (iii) any amount then due and payable under the note from NEG, Inc. and payable to LLC or the Borrower solely in connection with the IPO) shall be applied in accordance with the requirements of Section 3.2(h). (h) Each amount required to be applied pursuant to this Section 3.2(h) shall be, first, paid to each Tranche A Lender ratably according to the respective outstanding principal amounts of the Tranche A Loan held by such Tranche A Lender and shall be applied by each such Tranche A Lender to payment of any amount owing to such Tranche A Lender under Section 2.8, then to payment of any interest then due and payable to such Tranche A Lender on account of the Tranche A Loan, then to reduce the remaining principal balance of the Tranche A Loan of such Tranche A Lender, then to repayment of all other amounts payable to such Tranche A Lender under the Credit Agreement, and then to repayment of all amounts payable to each Holder under the Option Agreement in respect of any Put Notice (as defined in the Option Agreement) theretofore delivered by such Holder, and, second, paid to each Tranche B Lender ratably according to the respective outstanding principal amounts of the Tranche B Loan held by such Tranche B Lender and shall be applied by each such Tranche B Lender to payment of any amount owing to such Tranche B Lender under Section 2.8, then to payment of any interest then due and payable to such Tranche B Lender on account of the Tranche B Loan, and then to reduce the remaining principal balance of the Tranche B Loan of such Tranche B Lender. (i) Each prepayment of the Tranche B Loan made pursuant to Sections 3.2(b) through (g) above on or prior to the second anniversary of the Closing Date shall be accompanied by payment of a prepayment fee equal to (i) if such prepayment is made on or prior to the first anniversary of the Closing Date, 2% of the principal amount prepaid and (ii) if such prepayment is made after the first anniversary of the Closing Date and on or prior to the second anniversary of the Closing Date, 1% of the principal amount prepaid. (j) In addition to any other mandatory repayments pursuant to this Section 3.2, (i) all of the then outstanding Tranche A Loan shall be repaid in full on the earlier of (x) the date of a Spin-Off of NEG, Inc. and (y) the Date Certain, and (ii) all of the then outstanding Tranche B Loan shall be repaid in full on the earlier of (x) the date of a Spin-Off of NEG, Inc. and (y) the Tranche B Maturity Date. (k) The application of any proceeds received by LLC to be applied for mandatory repayment under Sections 3.2(b), (c), (e) and (f) shall be subject to Compliance by LLC with the requirements for Distribution under Section 13 of the LLC Agreement. 13 (l) Nothing in this Section 3.2 shall limit any other rights or remedies a Lender may have under Sections 8 and 8A of this Agreement or under applicable law in connection with any Event of Default. 3.3 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement and under any Note shall be made to the Administrative Agent for the account of the Lenders entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office or pursuant to such other instruction as the Administrative Agent shall designate to the Borrower in writing. Except as otherwise provided herein, whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. 3.4 Net Payments. (a) All payments made by the Borrower to the Administrative Agent or any Lender hereunder and under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 3.4(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Lender pursuant to the laws of the jurisdiction in which it is doing business, organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lender, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which such Lender is doing business, organized or in which the principal office or applicable lending office of such Lender is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which such Lender is doing business, organized or in which the principal office or applicable lending office of such Lender is located and for any withholding of taxes as such Lender shall reasonably determine are payable by, or withheld from, such Lender, in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. The Borrower will furnish to such Lender within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by such Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. 14 (b) Any Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes agrees to deliver to the Administrative Agent and the Borrower on or prior to the Closing Date or, in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 9.11(a) (unless such Assignee was already a Lender hereunder immediately prior to such assignment in which case such assignee shall reaffirm its ability to deliver the forms set forth below in clause (i) or (ii), as applicable), on the date of the assignment to such Assignee, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor forms) certifying to such Lender's entitlement as of such date to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if any such Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or any successor forms) pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit C (any such certificate, a "Section 3.4(b)(ii) Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio interest exemption) (or successor form) certifying to such Lender's entitlement as of such date to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each such Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, such Lender will deliver to the Administrative Agent and the Borrower two new accurate and complete original signed copies of Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits of any income tax treaty), or Form W-8BEN (with respect to the portfolio interest exemption) and a Section 3.4(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or such Lender shall immediately notify the Administrative Agent and the Borrower of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 3.4(b). Notwithstanding anything to the contrary contained in Section 3.4(a) but subject to the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Administrative Agent and the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 3.4(a) to gross-up payments to be made to a Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Administrative Agent and the Borrower the Internal Revenue Service Forms required to be provided to the Administrative Agent and the Borrower pursuant to this Section 3.4(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained 15 in the preceding sentence or elsewhere in this Section 3.4, the Borrower agrees to pay any additional amounts and to indemnify each Lender in the manner set forth in Section 3.4(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes that are effective after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. The sole consequence of any Lender failing to comply with the requirement to deliver the Internal Revenue Service Forms or the Section 3.4(b)(ii) Certificate shall be that the Borrower shall not be obligated pursuant to Section 3.4(a) to gross-up payments to be made to such Lender in respect of any resulting U.S. income or similar taxes. (c) Any Lender that is (i) an Assignee pursuant to Section 9.11(a) and (ii) not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes will certify to the Borrower on or prior to the date of the assignment to such Lender that payments to such Lender hereunder and under any Note are, as of the date of such assignment, not subject to any withholding tax imposed by any taxing jurisdiction located outside of the United States. (d) Each Lender, at the sole cost and expense of the Borrower (including, but not limited to, the Lender's internal costs for use of its personnel and resources), will use its reasonable efforts to minimize taxes indemnifiable by the Borrower under this Section 3.4, including by complying with reasonable requests by the Borrower to do or to refrain from doing any act (including the execution of any certificates or similar documents required to establish an exemption or relief from any tax), if such efforts or any such compliance is, in the good faith discretion of such Lender, of a purely ministerial nature and has no adverse impact on such Lender or any Affiliate or on the business or operations of the foregoing (unless such adverse impact is one of a nature and quality such that it is subject to indemnification and the Borrower has indemnified such Lender against such adverse impact in a manner satisfactory to such Lender determined in its sole discretion). The Borrower shall indemnify such Lender for any taxes that may be imposed on it as a consequence of such compliance. No Lender shall be required to disclose any tax return or filing or any related information it deems confidential and all positions taken by each Lender in any tax return, filing or proceeding shall be within the sole control of such Lender. 3.5 Allocation. The parties agree that the Notes issued by the Borrower under this Agreement and the Options and the Warrants, as applicable, issued by the Borrower under the Option Agreement and the Warrant Agreement, as applicable, will for federal tax purposes, be treated as an "investment unit" as such term is defined under Section 1273(c)(2) of the Code and the parties agree that the consideration paid by each Lender for its Note and Options and Warrants, as applicable, shall be allocated as set forth on Schedule 3.5. 3.6 [OMITTED]. 3.7 Application of Payments; Sharing. (a) Subject to the provisions of the Intercreditor Agreement and this Section 3.7, the Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations 16 of the Borrower hereunder, it shall promptly distribute such payment to the Lenders pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Lenders agrees that, except to the extent that this Agreement provides for payments to be allocated to particular Lenders or to Lenders holding a particular Loan, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Financing Documents, or otherwise), which, in any such case, is in excess of its ratable share of payments on account of the Obligations obtained by all Lenders, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the Borrower to such Lenders in such amount as shall result in a proportional participation by all the Lenders in such amount; provided, however, that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 3.8 Change of Control. Upon a Change of Control, the Borrower shall prepare and provide to each Lender a notice (each, a "Change of Control Offer to Repay Notice"), which shall be in the form of Exhibit E-1, and shall include an offer (the "Change of Control Offer to Repay") to prepay on the date (each, a "Change of Control Offer Settlement Date") that is ten (10) Business Days after the date of the Change of Control Offer to Repay Notice, such Lender's Loan, together with a prepayment fee (the "Change of Control Prepayment Fee") for the Tranche B Lender equal to 1% of the aggregate principal amount of such Tranche B Lender's Tranche B Loan, and each Lender wishing to accept the Change of Control Offer to Repay shall reply, in the form of Exhibit E-2 and indicating whether such offer is accepted or rejected in whole or in part (and if so, to what extent) by the close of business on the Business Day preceding the Change of Control Offer Settlement Date, failing which such offer will be considered to have been accepted in whole by such Lender and such repayment will be made by the Borrower to such Lender in respect of such Change of Control. On the Change of Control Offer Settlement Date, the Borrower shall pay to those Lenders who have accepted the Change of Control Offer to Repay the aggregate amount necessary to prepay that portion of the outstanding Loans, together with (for the Tranche B Lenders) the Change of Control Prepayment Fee, in respect of which such Lenders have accepted the Change of Control Offer to Repay in accordance with this Section 3.8. Notwithstanding the foregoing, no payment shall be made to the Tranche B Lenders on the Change of Control Offer Settlement Date pursuant to this Section 3.8 unless and until the Tranche A Loan of, and the other Senior Obligations that are then due and payable owing to, those Tranche A Lenders that shall have accepted the Change of Control Offer to Repay have been paid in full. SECTION 4. CONDITIONS PRECEDENT. 4.1 Conditions to Closing. The obligation of any Lender to make or continue its Loan, and the occurrence of the Closing Date, shall be subject to the conditions precedent that such Lender shall have received, or shall have waived receipt of, the following (in the case of documents described below to be delivered to such Lender), each of which shall be in form and 17 substance satisfactory to such Lender, and that the other conditions set forth below shall have been satisfied or waived in accordance with this Agreement: (a) Financing Documents. Each of the Financing Documents (including the LLC Pledge Agreement, the Stock Pledge Agreement, the Option Agreement, the Warrant Agreement, the Reserve Account Control Agreements and the Intercreditor Agreement) shall have been duly authorized, executed and delivered by each party thereto. Such Lender shall have received an original of each Financing Document executed by all parties thereto. (b) Notes. The Borrower shall have duly authorized, executed and delivered a Note for the account of such Lender. Each Note shall be appropriately completed with the name of the payee, the maximum principal amount thereof and the date of issuance (which shall be the Closing Date) inserted therein. (c) Charter Documents. Such Lender shall have received the following documents, each certified as indicated below: (i) a copy of the Charter Documents of the Borrower, LLC, NEG, Inc., the Significant Subsidiaries and the Specified Subsidiaries, as in effect on the Closing Date, certified by the Secretary of State of the State of such Person's organization, as applicable, and a certificate, where available, as to the good standing of and payment of franchise taxes by the Borrower, LLC, NEG, Inc., the Significant Subsidiaries and the Specified Subsidiaries from the Secretary of State of the State of such Person's organization, dated as of a date no earlier than five (5) days prior to the Closing Date; (ii) a certificate of an Authorized Officer of each of the Borrower, LLC and NEG, Inc., dated the Closing Date, certifying (A) that attached thereto is a true and complete copy of the Charter Documents of such Person, as in effect at all times from the date on which the resolutions referred to in clause (B) below were adopted to and including the date of such certificate, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors (or other equivalent body) or evidence of all corporate, partnership or limited liability company action, as the case may be, of such Person, authorizing the execution, delivery and performance of the Financing Documents to which such Person is or is intended to be a party, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, and (C) as to the name, incumbency and specimen signature of each officer of such Person executing the Financing Documents to which such Person is intended to be a party and each other document to be delivered by such Person from time to time in connection therewith; and (iii) a certificate of another Authorized Officer of each of the Borrower, LLC and NEG, Inc., as to the name, incumbency and specimen signature of the Authorized Officer of such Person that signed the certificate referred to in clause (ii) above. (d) Filings, Registrations, Recordings; Other Perfection Actions. (i) On or prior to the Closing Date, such Lender shall have received certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, each of a recent date listing all effective 18 financing statements that name the Borrower, LLC or NEG, Inc., as debtor, together with copies of such financing statements. (i) Any document required to be filed, registered, notarized or recorded in order to create and perfect the security interest of the Collateral Agent under the Security Documents as a first priority Lien shall have been properly filed, registered, notarized or recorded in each office in each jurisdiction in which such filings, registrations, notarizations and recordations are required, and any other action required in the judgment of any Lender to perfect such security interest as such first priority Lien shall have been effected, and such Lender shall have received acknowledgment copies or other evidence satisfactory to it that all necessary filing, notarization, recording and other fees and all taxes and expenses related to such filings, notarizations, registrations and recordings have been paid in full. (ii) The Collateral Agent shall have received the stock certificates representing 100% of the capital stock of NEG, Inc., together with related appropriate stock powers, duly executed in blank. (iii) The Collateral Agent shall have received the certificates representing 100% of the Pledged Interest of the Borrower being pledged pursuant to the LLC Pledge Agreement, together with related powers, duly executed in blank. (e) Borrower's Certificate. Such Lender shall have received an original counterpart of a certificate of an Authorized Officer of the Borrower, dated the Closing Date, to the effect that: (i) the representations and warranties of the Borrower contained in Section 5 hereof and the representations and warranties of the Borrower contained in each of the other Financing Documents to which the Borrower is a party are true and correct in all material respects (or in the event any such representation or warranty shall be qualified by a "Material Adverse Effect" or a materiality threshold, in all respects) on and as of the Closing Date (or, if stated to have been made solely as of an earlier date, were true and correct as of such earlier date), (ii) all covenants required to be performed by the Borrower contained in any Financing Document to which it is a party prior to the Closing Date have been performed in all material respects, (iii) all Financing Documents are in full force and effect under the terms and conditions set forth in such Financing Documents, and (iv) no Default or Event of Default (after giving effect to the transactions contemplated hereby) has occurred and is continuing. (f) Other Officer Certificates. (i) Such Lender shall have received a certificate signed by an Authorized Officer of LLC, dated the Closing Date, to the effect that (i) the representations and warranties of LLC set forth in each of the Financing Documents to which it is a party are true and correct in all material respects (or in the event any such representation or warranty shall be qualified by a "Material Adverse Effect" or a materiality threshold, in all respects) on and as of such date as if made on and as of the Closing Date (or, if stated to have been made solely as of an earlier date, were true and correct as of such earlier date) and (ii) all covenants required to be performed by LLC contained in any Financing Document to which it is a party prior to the Closing Date have been performed in all material respects. 19 (ii) Such Lender shall have received a certificate signed by an Authorized Officer of NEG, Inc., dated the Closing Date, to the effect that (i) the representations and warranties of NEG, Inc. set forth in each of the Financing Documents to which it is a party are true and correct in all material respects (or in the event any such representation or warranty shall be qualified by a "Material Adverse Effect" or a materiality threshold, in all respects) on and as of such date as if made on and as of such date (or, if stated to have been made solely as of an earlier date, were true and correct as of such earlier date) and on and as of the Closing Date, and (ii) all covenants required to be performed by NEG, Inc. contained in any Financing Document to which it is a party prior to the Closing Date have been performed in all material respects. (g) Financial Information, etc. (i) Such Lender shall have received copies of the most recent audited and unaudited (x) consolidated financial statements from each of the Borrower and NEG, Inc. and (y) financial statements or information from each of the FI Subsidiaries, in each case, in form and substance satisfactory to such Lender together with a certificate from the Chief Financial Officer, Chief Accounting Officer, Treasurer or other Authorized Officer of such Person, dated the Closing Date, to the effect that, to the best of such officer's knowledge, (A) such financial statements or information are true, complete and correct in all material respects and (B) there has been no material adverse change in the condition (financial or otherwise), results of operations, business, Properties, liabilities, management or prospects of such Person since the date of the most recent financial statements or information of such Person. (ii) Such Lender shall have received such other financial, business and other information regarding any other Subsidiary of the Borrower as such Lender shall have reasonably requested. (iii) Such Lender shall have received the Business Plan. (h) Process Agent. Such Lender shall have received a copy of a letter from Corporation Service Company accepting its appointment as process agent in New York for the Borrower, LLC and NEG, Inc., in substantially the form of Exhibit D hereto. (i) Legal Opinions. Such Lender shall have received original counterparts of the legal opinions of counsel to the Borrower, LLC and NEG, Inc., which legal opinions shall be dated the Closing Date, addressed to such Lender, and in form, scope and substance satisfactory to such Lender; such legal opinions shall cover substantially the same matters as were covered by the legal opinions delivered on behalf of the Borrower on the Initial Closing Date, and, in addition, shall cover matters relating to the Warrant Agreement, the Warrants issued thereunder and the Interest Reserve Account Control Agreements. (j) Material Adverse Change. Since December 31, 2001, and except as disclosed in the SEC Filings by the Borrower or NEG, Inc. since December 31, 2001 but prior to the Closing Date, there shall not have occurred and be continuing any Material Adverse Change of the Borrower or of LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole. (K) Fees; Expenses. Lehman Commercial Paper Inc. shall have received the fees payable to it pursuant to the Lehman Fee Letter, GECC shall have received the fees payable to it 20 pursuant to the GECC Fee Letter, and all other fees, costs and charges due and owing to any Person under the Financing Documents on or prior to the Closing Date shall have been received by such Person. The Collateral Agent shall have received the CA Fee for payment of its services as Collateral Agent under the Financing Documents. GECC and the Administrative Agent shall have received payment of all out-of-pocket expenses payable by the Borrower to such Person (including, in its capacity as a Lender as well as an agent) pursuant to Section 9.1 (including reasonable fees and expenses and disbursements of legal counsel). (l) Interest. (i) The Borrower shall have deposited in the Tranche A Interest Reserve Account an amount estimated to be sufficient to pay interest on the Tranche A Loan for the one-year period after the Closing Date and (ii) the Borrower shall have deposited in the Tranche B Interest Reserve Account an amount estimated to be sufficient to pay interest on the Tranche B Loan for the one-year period after the Closing Date. In each case, interest payable on each Loan for the one-year period following the Closing Date shall be estimated using the twelve-month Eurodollar Rate in effect on the date which is two Business Days prior to the Closing Date, plus 4.00%. (m) Warrants. The Borrower shall have issued the Warrants as required by the Lehman Fee Letter. (n) Notice of Borrowing. The Administrative Agent shall have received a Notice of Borrowing pursuant to and in compliance with Section 2.2. (o) Governmental Approvals, etc. (i) All Governmental Approvals and consents or approvals from any third party which under applicable Law or any agreement, contract or document are required to be obtained by the Borrower or its Subsidiaries with respect to the transactions contemplated by the Financing Documents prior to the Closing Date shall have been duly obtained and shall be final, non-appealable and in full force and effect; (ii) there shall have been no change in any applicable Law, and no issuance of any order, writ, injunction or decree of any Governmental Authority or arbitral tribunal, which, in either such case, could reasonably be expected to have a Material Adverse Effect; and (iii) there shall have been no proposed change in or modification of any applicable Law which could reasonably be expected to be enacted and which if enacted could reasonably be expected to have a Material Adverse Effect. (p) Material Adverse Effect. There shall exist no circumstance, event or condition which has had or could reasonably be expected to have a Material Adverse Effect. (p) Litigation. Except as set forth on Schedule 5.6, no legal or arbitral proceedings or investigations, or any proceedings by or before any Governmental Authority or any Person, shall be pending or threatened against the transactions contemplated by the Financing Documents or any document executed in connection therewith which, if adversely determined, could reasonably be expected to have a Material Adverse Effect, and no other legal or arbitral proceedings or investigations, or any proceedings by or before any Governmental Authority or any Person, shall be pending in respect of the Borrower, LLC, NEG, Inc. or the Significant Subsidiaries which, if adversely determined, could reasonably be expected to result in a Material Adverse Change to the Borrower, or a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole. Notwithstanding the foregoing, there shall 21 exist no legal or arbitral proceedings or investigations, or any proceedings by or before any Governmental Authority or any Person, pending or threatened, which, if adversely determined, could reasonably be expected to have a material adverse effect on (i) the legality, validity or enforceability of any material provision of any Financing Document, (ii) the rights and remedies of the Collateral Agent, the Administrative Agent, any Holder or any Lender under any of the Financing Documents or (iii) the security interests provided under the Security Documents. (r) Solvency Certificate. On or before the Closing Date, the Borrower shall cause to be delivered to such Lender a solvency certificate from the Chief Financial Officer or Treasurer of the Borrower in form, scope and substance satisfactory to such Lender, dated the Closing Date, setting forth the conclusion that, after giving effect to the transaction contemplated by the Financing Documents and the incurrence of all the financings contemplated herein, the Borrower (on a stand-alone basis), the Borrower and its Subsidiaries (on a consolidated basis) and LLC (on a stand-alone basis), in each case, are not insolvent and will not be rendered insolvent by the indebtedness incurred in connection therewith, and will not be left with unreasonably small capital with which to engage in its or their businesses and will not have incurred debts beyond its or their ability to pay debts as they mature and become due. (s) No Breach. Immediately prior to and after giving effect to the transactions contemplated by the Financing Documents, except as disclosed in Part E of the Disclosure Letter, there shall exist no default or event of default under any material agreement or contract to which the Borrower, LLC, NEG, Inc. or any Significant Subsidiary is a party which would result in a Material Adverse Change to the Borrower, or a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole. (t) Disclosure Letter. Such Lender shall have received the Disclosure Letter. (u) Proceedings. All corporate and other proceedings, and all Charter Documents, other documents, instruments and other legal matters in connection with the transactions contemplated hereby and the other Financing Documents shall be satisfactory in form and substance to such Lender and such Lender shall have received such other documents, certificates and instruments relating to the Financing Documents or the transactions contemplated thereby as it shall have reasonably requested, in each case, in form and substance satisfactory to it. SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order to induce the Administrative Agent and each Lender to enter into this Agreement, and to induce each Lender to make or continue its Loan, the Borrower makes the following representations, warranties and agreements as of the date hereof, all of which shall survive the execution and delivery of this Agreement and the Notes and the making and continuance of the Loans: 5.1 Standing. (a) Each of the Borrower, LLC, NEG, Inc. and each Significant Subsidiary (collectively, the "Covered Parties") is a corporation, limited partnership or limited liability company duly formed, validly existing and in good standing under the laws of its 22 jurisdiction of organization and has the requisite power and authority to own, lease and operate its Properties and to carry on its business as now being conducted. (b) Each Covered Party is duly qualified or licensed to do business as a foreign entity and is in good standing in each jurisdiction in which the use and ownership of its Property or the conduct of its business requires such license or qualification, except where the failure to be so qualified or licensed would not have a Material Adverse Effect. 5.2 Requisite Authority; Etc. Each Covered Party has all requisite power and authority to enter into the Financing Documents to which it is a party. All necessary action on the part of each Covered Party has been taken to authorize the execution and delivery of the Financing Documents to which it is a party, the performance of its obligations under such Financing Documents and the consummation of the transactions contemplated hereby and thereby. Each of the Financing Documents has been duly and validly executed and delivered by each Covered Party that is a party thereto, and constitutes valid and binding agreements of each such Covered Party, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general application relating to or affecting creditors' rights generally and to general principles of equity (regardless of whether such enforceability is considered in an proceeding in equity or at law). 5.3 No Conflict. Neither the execution and delivery of the Financing Documents nor the consummation of the transactions contemplated by such Financing Documents nor compliance by any Covered Party with any of the provisions of such Financing Documents to which it is a party will (i) violate or conflict with any provision of the charter, certificate of formation, by-laws or limited liability company agreement or other governing documents of such Covered Party, or any Law, judgment, order, writ, decree or injunction applicable to such Covered Party, or (ii) except as set forth in Part F of the Disclosure Letter, violate, or conflict with, or result in a breach of any provision of, or constitute a default (or any event which, with or without due notice or lapse of time, or both, would constitute a default) under, or result in the termination of, accelerate the performance required by, or, except for the Liens created by the Financing Documents, result in the creation of any Lien upon any of the Properties or assets of such Covered Party, under any contract, note, bond, mortgage, indenture, deed of trust, license, lease, agreement, permit or other instrument or obligation of which such Covered Party is a party or by which it or any of its assets are bound. 5.4 Consents. (a) No permit, application, notice, transfer, consent, approval, order, qualification, waiver from or authorization of, or declaration, filing or registration with, any Governmental Authority or any third party is currently required to be made or obtained by any Covered Party or any of its Subsidiaries in connection with (i) the execution, delivery and performance of the Financing Documents or the consummation of the transactions contemplated by such Financing Documents, (ii) the grant by the Borrower or LLC, or the perfection and maintenance, of the Liens contemplated by the Financing Documents (including the first priority nature thereof) or (iii) the exercise by any party to the Financing Documents of any of its rights under any such Financing Document or any remedies pursuant to the Financing Documents, other than with respect to the exercise by any Holder of its right to convert the Option to Option Shares under the Option Agreement or the exercise of Warrants by any holder thereof which , in 23 each case, may require filing under the HSR Act or with FERC or the exercise of the foreclosure rights with respect to the stock of NEG, Inc. or the LLC Interests which may require filing with FERC and certain state regulatory agencies. (b) No right of first refusal, preemptive right, right of first offer or other similar rights to acquire (each a "Preferential Right") are required to be complied with by any Covered Party or any of its Subsidiaries in connection with the execution, delivery or performance of the Financing Documents or the consummation of the transactions contemplated by the Financing Documents. 5.5 Compliance with Law. Each of the Borrower and each member of the NEG Group and each Scheduled Project has been and on the Closing Date is in compliance in all material respects with all Laws, Governmental Approvals, orders, writs, injunctions or decrees or its Charter Documents applicable to or otherwise concerning such Person and such Scheduled Project. 5.6 Litigation Claims. Except as set forth on Schedule 5.6, 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 the Financing Documents or any document executed in connection therewith which, if adversely determined, 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 Borrower, LLC, NEG, Inc. or the Significant Subsidiaries which, if adversely determined, could reasonably be expected to result in a Material Adverse Change to the Borrower, or a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole. Notwithstanding the foregoing, 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, if adversely determined, could reasonably be expected to have a material adverse effect on (i) the legality, validity or enforceability of any material provision of any Financing Document, (ii) the rights and remedies of the Collateral Agent, the Administrative Agent, any Holder or any Lender under any of the Financing Documents or (iii) the security interests provided under the Security Documents. 5.7 Contracts and Commitments. (a) Schedule 5.7 reflects a complete and accurate list of all material contracts, agreements or letters of intent or written understandings (including all amendments and supplements thereto) entered into by any Covered Party (collectively, the "Covered Contracts") (it being understood that any contract, agreement or letter of intent or written understanding (i) entered in the ordinary course of business of the Covered Parties, or (ii) with respect to Indebtedness of any such Covered Party that is non-recourse to such Covered Party, or (iii) requiring aggregate payments of less than $10,000,000 or (iv) with a fixed term of less than three hundred and sixty-four (364) days shall not be deemed to be a "material" contract, agreement or letter of intent or written understanding). (b) Except as otherwise set forth on Part E of the Disclosure Letter, (i) each of the Covered Contracts is a valid and binding obligation of the Covered Party which is a party thereto and enforceable by the Covered Parties (as applicable) in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws 24 or equitable principles relating to creditors' rights generally; (ii) none of the Covered Parties party to any Covered Contract is in default or alleged to be in default under any Covered Contract, and no other asserted or, to the best knowledge of the Borrower, LLC and NEG, Inc., unasserted claim or dispute under any Covered Contract exists; and (iv) to the best knowledge of the Borrower, there exists no event, condition or occurrence that, after notice or lapse of time, or both, would constitute such a default, claim or dispute by the Covered Parties or, to the best knowledge of the Borrower, any other party to any such Covered Contract. 5.8 Liens. Except as set forth on Schedule 5.8, none of the Properties of the Borrower, LLC or NEG, Inc. are subject to any Lien, other than the Liens created by this Agreement and the Security Documents. 5.9 Insurance. All insurance policies and fidelity bonds relating to the Covered Parties and their Properties, including summary descriptions and the termination dates thereof, in force as of the date of this Agreement are set forth on Schedule 5.9. The insurance coverage provided by such policies will not terminate or lapse as a result of the transactions contemplated by this Agreement or the other Financing Documents. Except as set forth on Schedule 5.9, all such insurance policies and fidelity bonds are in the name of the Borrower, LLC, NEG, Inc. or a NEG Subsidiary (as indicated on Schedule 5.9). None of the Covered Parties or, to the best knowledge of the Borrower, any other party to any such policy or bond is in breach, violation or default (including with respect to the payment of premiums or the giving of notices), and, to the best knowledge of the Borrower, no event has occurred that, with notice or the lapse of time or both, could constitute such a breach, violation or default by the Covered Parties or any other party, or permit termination, modification or acceleration, under such policy or bond, except where any such breach, violation, default, termination, modification or acceleration could not reasonably be expected to have a Material Adverse Effect. 5.10 Capitalization and Ownership. (a) As of the Closing Date, the Borrower and Energy NEG Corp. are the sole members of LLC, with the Borrower owning all of the Class A membership interests of the LLC, which entitle the Borrower to 100% of the economic interest in LLC, and Energy NEG Corp. owning all of the Class B membership interests of LLC, which entitle Energy NEG Corp. to vote solely on certain bankruptcy matters of LLC as provided for in the LLC Agreement. The Borrower is (and at all times prior to the Closing Date from and after January 12, 2001, was) the owner of 100% of the Class A membership interests in LLC and is (and at all times prior to the Closing Date from and after January 12, 2001, was) the indirect owner (through the Limited Liability Company Interests) of 100% of NEG, Inc. and the NEG Subsidiaries. (b) LLC is (and at all times prior to the Closing Date from and after January 12, 2001, was) the sole direct owner of all of the outstanding Capital Stock of NEG, Inc., free and clear of all Liens and adverse claims, other than the Liens in favor of the Collateral Agent created by the Security Documents. (c) NEG, Inc. is (and at all times prior to the Closing Date from and after January 1, 1999, was) the ultimate sole parent other than companies owning NEG, Inc. directly or indirectly, of all Significant Subsidiaries and other NEG Subsidiaries. 25 (d) (i) All of the Limited Liability Company Interests have been duly authorized and, at the Closing Date, are and will be validly issued, free and clear of all Liens and adverse claims, other than the Liens in favor of the Collateral Agent created by the Security Documents. (ii) All shares of the Capital Stock of NEG, Inc. have been duly authorized and, at the Closing Date, are and will be validly issued and fully paid and nonassessable and are owned by LLC, free and clear of all Liens and adverse claims, other than the Liens in favor of the Collateral Agent created by the Security Documents. (e) Except as set forth in Schedule 5.10(e) and as provided under the Option Agreement and the Warrant Agreement, no Person other than a member of the NEG Group owns (i) any outstanding option, warrant, purchase right, subscription right, conversion right, exchange right or other contract, commitment, arrangement or understanding relating to the issuance by or purchase from the Borrower of its LLC Interests, LLC, NEG, Inc. or any Significant Subsidiary of its Equity Interests (as defined below), or (ii) any outstanding stock appreciation, phantom stock, profit participation or similar rights with respect to LLC, NEG, Inc. or any Significant Subsidiary, and there are no voting trusts, proxies or other agreements or understandings with respect to the voting of LLC Interests or Equity Interests to which the Borrower, LLC, NEG, Inc. or any Significant Subsidiary is party. (f) Schedule 5.10(f) sets forth for each of the Borrower, LLC, NEG, Inc. and the NEG Subsidiaries a complete and accurate listing of (i) its name and jurisdiction of organization, (ii) its form of organization and (iii) the percentage (and, where applicable, the amount) of capital stock, partnership interests (general and limited), membership interests or other equity interests ("Equity Interests") held directly or indirectly by the Borrower. 5.11 Financial Statements; Absence of Certain Changes. (a) Prior to the execution of this Agreement, the Borrower has delivered to the Administrative Agent and each Lender the following financial statements, each of which has been certified by the Chief Financial Officer, Chief Accounting Officer or Treasurer of the relevant Person specified below: (i) (x) the audited consolidated financial statements of the Borrower as at December 31, 2001 and (y) the unaudited consolidated financial statements of the Borrower as at March 31, 2002; (ii) (x) the audited financial statements of each of the FI Subsidiaries as at December 31, 2001 and (y) the unaudited financial statements of each of the FI Subsidiaries as at March 31, 2002; and (iii) (x) the unaudited consolidated balance sheet and income statements of NEG, Inc. as at December 31, 2001 and (y) the unaudited consolidated financial statements of NEG, Inc. as at March 31, 2002. Any audited financial statements (the "Audited Financial Statements") described in this Section 5.11(a) (complete with any appropriate footnote disclosures) present fairly the financial position of the relevant Person as at December 31, 2001, and were prepared in accordance with U.S. GAAP, consistently applied. Any unaudited financial statements (the "Unaudited Financial 26 Statements") described in this Section 5.11(a) present fairly the financial position of the relevant Person as at such dates and were prepared on a management basis without accompanying notes. Such Audited Financial Statements and Unaudited Financial Statements have been prepared from the books of account and financial records of the relevant Person. (b) Since December 31, 2001 and except as disclosed in the SEC Filings by the Borrower or NEG, Inc. since December 31, 2001 but prior to the Closing Date, the Borrower and all members of the NEG Group have conducted their business only in the ordinary course of business, and there has not been (i) any event or development that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or (ii) any damage, destruction or loss, whether or not covered by insurance, that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth in the Audited Financial Statements or otherwise disclosed in writing to each Lender in the Disclosure Letter or incurred in the ordinary course of business, none of the Covered Parties or any other NEG Subsidiary has any outstanding claims, liabilities or indebtedness, contingent or otherwise. 5.12 Taxes. (a) Each of the Covered Parties and its Subsidiaries has filed or caused to be filed with the appropriate taxing authorities all material federal, state and local tax returns ("Returns") which are required to be filed by or with respect to each such Covered Party, its Subsidiaries, or any assets thereof. The Returns accurately reflect (or will accurately reflect) all liabilities for Taxes of each such Covered Party or Subsidiary for the periods covered thereby in all material respects. All material Taxes due by or with respect to each such Covered Party or Subsidiary, or any assets thereof, whether or not shown on any Return, have been or will be timely paid in full on or prior to the Closing Date or accrued and provided for on the books and records of each such Person, as applicable, in accordance with U.S. GAAP. There is no dispute or claim concerning any liability for Taxes of each of the Covered Parties, its Subsidiaries, or any assets thereof that has been claimed or raised by any Governmental Authority, except for disputes or claims for Taxes that have been provided for on the books and records of each such Person, as applicable, in accordance with U.S. GAAP. No Return of any of the Covered Parties, their Subsidiaries, or the affiliated group of the Borrower is currently, or has been, the subject of an audit by any taxing authority and no notice of such an audit has been received, except for audits with respect to Taxes that have been provided for on the books and records of each such Covered Party and its Subsidiaries, as applicable, in accordance with U.S. GAAP. None of the Covered Parties or any of their Subsidiaries have waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, except with respect to Taxes that have been provided for on the books and records of each such Covered Party and its Subsidiaries, as applicable, in accordance with U.S. GAAP. (b) All material Taxes which a Covered Party or any of its Subsidiaries is (or was) required by Law to withhold or collect with respect to any payments made in connection with its Property have been duly withheld or collected, and have been timely paid over to the appropriate authorities to the extent due and payable. 5.13 Disclosure. All documents, reports or other written information pertaining to the Covered Parties or its Affiliates that have been furnished to the Lenders by or on behalf of the Covered Parties, taken as a whole, are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary to 27 make the statements contained therein not misleading. There is no fact, event or circumstance that has not been disclosed to the Lenders in writing, the existence of which could reasonably be expected to have a Material Adverse Effect or a Material Adverse Change of NEG, Inc. and the NEG Subsidiaries, taken as a whole. 5.14 Environmental Matters. Except as set forth in Schedule 5.14, (a) each of the Borrower and the members of the NEG Group is in compliance in all material respects with all applicable Environmental Laws, (b) there is no Environmental Claim outstanding or pending against the Borrower or any member of the NEG Group or, to the best knowledge of the Borrower, threatened against the Borrower or any member of the NEG Group, which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or to result in a Material Adverse Change to NEG, Inc. and the NEG Subsidiaries, taken as a whole, and (c) to the best knowledge of the Borrower, LLC and NEG, Inc., none of the Covered Parties or other NEG Subsidiary has made any past or present releases, emissions, discharges or disposals of any Hazardous Material in violation of any Environmental Laws or that would give rise to any liability which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or a Material Adverse Change to NEG, Inc. and the NEG Subsidiaries, taken as a whole. 5.15 Brokers' or Finders' Fees. Except as set forth in Schedule 5.15 (as to which the Borrower is solely responsible for the payment of any such investment banker's, brokers' or finders' fee or other commission or similar fee), no agent, broker, investment banker, Person or firm acting on behalf of the Covered Parties or any of their Affiliates or under the authority of the Borrower or any of its Affiliates is or will be entitled to any brokers' or finders' fee or any other commission or similar fee directly or indirectly from any of the parties hereto in connection with any of the transactions contemplated hereby. 5.16 Certain Regulatory Matters. (a) Neither Borrower nor any Subsidiary of Borrower is a "registered holding company" or a "subsidiary company" or an "affiliate" of a "registered holding company" or a company which is required to be registered as a "holding company" as such terms are defined under PUHCA. (b) Each member of the NEG Group that owns assets subject to the jurisdiction of FERC pursuant to the FPA or sells power at wholesale in the United States is and at all relevant times has been either: (i) a QF; (ii) certified by FERC as an EWG, has been granted by FERC the waivers from regulation under the FPA typically granted to EWGs with market rate authority, and has been granted by FERC market rate authority without qualifications, conditions or restrictions other than those typically imposed on utility affiliates; or (iii) a power marketer which owns no physical assets used for the generation, transmission or distribution of electric energy as such terms are used in PUHCA, has been granted by FERC the waivers from regulation under the FPA typically granted to power marketers, and has been granted by FERC market rate authority without qualifications, conditions or restrictions other than those typically imposed on utility affiliates. The applications and additional information submitted in connection with the certifications for QF status, applications for EWG certification, applications for power marketer status, and applications for market rate authority were accurate and complete in all material respects when made and, as amended or supplemented from time-to-time, remained at all relevant times and currently remain accurate and complete in all respects 28 affecting the eligibility for QF status, EWG status, power marketer status, or market rate authority as applicable, and each such FERC authorization or certification is in full force and effect. (c) Each member of the NEG Group (other than a QF during the period during which it was a QF) that owns assets subject to the jurisdiction of FERC pursuant to the FPA or sells power at wholesale in the United States has charged rates or provided services only pursuant to either: (i) one or more rate schedules on file with FERC; or (ii) market rate contracts in compliance with such entity's market rate authority from FERC, in each case, except such noncompliances with ongoing ministerial FERC filing requirements previously disclosed in writing to Lenders and other noncompliances which, in each case, could not reasonably be expected to affect the status of any member(s) of the NEG Group as an EWG or power marketer or have a Material Adverse Effect or result in a Material Adverse Change to NEG, Inc. or any of the NEG Subsidiaries. Each QF during the period it was a QF has sold power only in a manner consistent with its status as a QF. (d) Each member of the NEG Group which owns natural gas assets, sells natural gas or provides services subject to the jurisdiction of FERC pursuant to the Natural Gas Act, as amended, or the Natural Gas Policy Act of 1978, as amended, (i) has a rate schedule on file with FERC; (ii) has charged rates and provided services only pursuant to such filed rates; and (iii) has complied and complies in all material respects with the requirements of FERC orders applicable to such member of the NEG Group. (e) No member of the NEG Group is subject to Utility Regulation other than as set forth in Schedule 5.16(e). (f) Neither the Borrower nor LLC directly owns any assets subject to the jurisdiction of FERC pursuant to the FPA. (g) Except with respect to material licenses issued for the Brayton Point and Salem Harbor Stations for monitoring equipment used to measure coal supply, no member of the NEG Group is subject to regulation under the Atomic Energy Act of 1954. (h) The Borrower and each of its Subsidiaries is in material compliance with all orders of the CPUC applicable to it, including without limitation, the conditions set forth in the orders setting forth the conditions for the creation of the Borrower and any subsequent CPUC proceedings, Pacific Gas and Electric Company, 69 CPUC2nd 167 (Nov. 6, 1996), Pacific Gas and Electric Company, 194 PUR4th 1 (April 22, 1999), and all other CPUC orders purporting to apply to the Borrower or its Subsidiaries regardless of whether the CPUC had jurisdiction. (i) The Borrower and each of its Subsidiaries subject to Utility Regulations is in material compliance with the requirements of Utility Regulation applicable to it. (j) None of the Borrower or any member of the NEG Group is subject to any statute or regulation which would prohibit or require approval of the transactions contemplated under this Agreement and the other Financing Documents, including any Utility Regulation. 29 5.17 Transactions With Affiliates. Except as set forth on Schedule 5.17, neither the Borrower nor any of its Subsidiaries is a party to any material contract (i) with PGE Utility on the one hand and Borrower or any member of the NEG Group on the other, or (ii) with the Borrower on the one hand and any member of the NEG Group on the other. 5.18 Use of Proceeds. The proceeds of the Existing Tranche A Loan and the Existing Tranche B Loan were used for the purposes set forth in the Existing Credit Agreement. The proceeds of the Tranche B Loan to be made on the Closing Date by the New Tranche B Lenders will be used to fund the Tranche A Interest Reserve Account and the Tranche B Interest Reserve Account and for general corporate purposes of the Borrower and its Subsidiaries. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock and no part of the proceeds of the Loans will be used to purchase or carry any Margin Stock. Neither the making of the Loans nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulation U or Regulation X. 5.19 Compliance with ERISA. (a) Schedule 5.19 sets forth each Plan; each Plan (and each related trust, insurance contract or fund) is in substantial compliance with its terms and with all applicable laws, including without limitation ERISA and the Code; each Plan (and each related trust, if any) which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable Event (other than the commencement of the bankruptcy proceeding in 2001 by PGE Utility) has occurred; no Plan which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; all contributions required to be made with respect to a Plan have been timely made; neither the Borrower nor any Subsidiary of the Borrower nor any ERISA Affiliate has incurred any material liability (including any indirect, contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any such liability under any of the foregoing sections with respect to any Plan; no condition exists which presents a material risk to the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan which is subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, expected or threatened; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and its Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of the most recent Credit Event, would not exceed $100,000; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered 30 employees or former employees of the Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate has at all times been operated in compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets of the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate exists or is likely to arise on account of any Plan; and the Borrower and its Subsidiaries may cease contributions to or terminate any employee benefit plan maintained by any of them without incurring any material liability. (b) Each Foreign Pension Plan has been maintained in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities. All contributions required to be made with respect to a Foreign Pension Plan have been timely made. Neither the Borrower nor any of its Subsidiaries has incurred any obligation in connection with the termination of, or withdrawal from, any Foreign Pension Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of the Borrower's most recently ended fiscal year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities. 5.20 Investment Company Act. The Borrower is not an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Loan, nor the application of the proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated hereby will violate any provisions of such Act or any rule, regulation or order of the SEC thereunder. 5.21 Regulation. Solely by virtue of the execution, delivery and performance of, or the consummation of the transactions contemplated by the Financing Documents (including, without limitation, the assignment of or transfer into any trust, or any realization or foreclosure upon, any of the LLC Interests pledged under the LLC Pledge Agreement or any of the collateral pledged under the Stock Pledge Agreement, or the exercise of any right under the Option Agreement), neither any Holder nor any Lender shall be or become subject to regulation (i) as a "holding company," or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, (ii) under the Federal Power Act of 1920, or (iii) as a "public utility" or "public service corporation" or the equivalent under the applicable Law of any Governmental Authority, except with respect to the exercise of the foreclosure rights with respect to the stock of NEG, Inc. or the LLC Interests which may require filing with FERC and certain state regulatory agencies. 5.22 Security Documents. The provisions of the Security Documents are effective to create, in favor of the Collateral Agent, for the benefit of the Lenders, legal, valid and enforceable Liens on or in all of the collateral intended to be covered thereby, and all necessary recordings and filings have been made in all necessary public offices and all other necessary and appropriate action has been taken so that the Liens created by each Security Document constitute perfected Liens on or in the collateral intended to be covered thereby, prior and superior to all other Liens, and all necessary consents to the creation, effectiveness, priority and perfection of each such Lien have been obtained. No mortgage or financing statement or 31 other instrument or recordation covering all or any part of the collateral is on file in any recording office, except such as may have been filed in favor of the Collateral Agent, for the benefit of the Lenders. 5.23 Certain Scheduled Projects. Schedule 5.23 sets forth a complete list of all projects owned directly or indirectly by the Borrower, LLC, NEG, Inc. and the NEG Subsidiaries ("Scheduled Projects") and a summary of material information with respect thereto, including the name, location, capacity and classification of each Scheduled Project as a QF, EWG or otherwise, and the equity structure, with respect to each Scheduled Project and such other information requested by the Lenders. 5.24 Environmental Matters. (a) The Borrower, LLC, NEG, Inc. and the NEG Subsidiaries have complied and are now complying in all material respects with (i) all Environmental Laws applicable to the Scheduled Projects and (ii) the requirements of any Governmental Approvals issued under such Environmental Laws with respect to the Scheduled Projects. (b) Except as set forth in Schedule 5.14, there are no facts, circumstances, conditions or occurrences regarding any of the Scheduled Projects that (i) to the best knowledge of the Borrower, could reasonably be anticipated to form the basis of an Environmental Claim against such Scheduled Project, the Borrower, LLC, NEG, Inc. or any NEG Subsidiary or, to the best knowledge of the Borrower, or any other Person occupying or conducting operations on or about such Scheduled Project which if adversely determined could reasonably be expected to have a Material Adverse Effect or a Material Adverse Change to NEG, Inc. and the NEG Subsidiaries, taken as a whole, (ii) could reasonably be anticipated to cause such Scheduled Project to be subject to any material restrictions on its ownership, occupancy, use or transferability under any Environmental Law or (iii) could be reasonably anticipated to require the filing or recording of any material notice, registration, permit or disclosure document under any Environmental Law. (c) Except as set forth in Schedule 5.14, there are no past, pending, or, to the best knowledge of the Borrower, threatened, Environmental Claims against the Borrower, LLC, NEG, Inc., or any of the Scheduled Projects, which if adversely determined could reasonably be expected to have a Material Adverse Effect or a Material Adverse Change to NEG, Inc. and the NEG Subsidiaries, taken as a whole. (d) Hazardous Materials have not at any time been generated, used, treated, recycled, stored on, or transported to or from, or Released, deposited or disposed of on all or any portion of any Scheduled Project other than in compliance at all times with all applicable Environmental Laws, except to the extent such non-compliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect or a Material Adverse Change to NEG, Inc., and the NEG Subsidiaries, taken as a whole. (e) There are not now and, to the best knowledge of the Borrower, never have been any underground storage tanks located on the Scheduled Projects and there is no asbestos contained in, forming part of, or contaminating, any part of the Scheduled Projects, and no polychlorinated biphenyls (PCBs) are used, stored, located at or contaminate any part of the 32 Scheduled Projects, the existence of which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or a Material Adverse Change to NEG, Inc. and the NEG Subsidiaries, taken as a whole. 5.25 Intellectual Property. Each of the Covered Parties owns or has the right to use all patents, trademarks, permits, service marks, trade names, copyrights, franchises, formulas, licenses and other rights with respect thereto, and has obtained assignment of all licenses and other rights of whatsoever nature necessary for the operation of its business as currently contemplated without any conflict with the rights of others. To the best knowledge of the Borrower, no product, process, method, substance, part or other material sold or employed or presently contemplated to be sold by or employed by any of the Covered Parties in connection with its business infringes or will infringe any patent, trademark, permit, service mark, trade name, copyright, franchise, formula, license or other intellectual property right. 5.26 No Default. No Default or Event of Default has occurred and is continuing. 5.27 Single-Purpose Entity. LLC has not engaged in any business other than the ownership of 100% of the capital stock of NEG, Inc. LLC has established offices at 7500 Old Georgetown Road, Bethesda, MD 20814-6161, and does not have a place of business at any other location. LLC has no Indebtedness and no significant assets other than the common stock of NEG, Inc. 5.28 Trust Indenture Act. The offering, issuance, sale and delivery of the Notes under the circumstances contemplated by this Agreement and the other Financing Documents will not require this Agreement to be qualified under the Trust Indenture Act of 1939, as amended. 5.29 Existing Indebtedness. Part A of the Disclosure Letter sets forth a true and complete list of all agreements with respect to the Indebtedness of the Borrower and the amount thereof existing on the Closing Date which, subject to Section 7.4, is to remain outstanding after the Closing Date (the "Existing Indebtedness Agreements"). Except as set forth in Part A of the Disclosure Letter, none of the obligations of the Borrower under the Existing Indebtedness Agreements are due and payable as of the Closing Date, and there has been no demand on the Borrower, and the Borrower is not currently liable, for any payment under such Existing Indebtedness Agreements. 5.30 Ratings Letter. Since January 19, 2001, none of NEG, Inc. or any Significant Subsidiary has knowledge of or received any notice of a downgrade of the credit rating of its long-term senior unsecured indebtedness or its being placed on "credit watch (with negative implications)" by Moody's or Standard & Poor's. SECTION 6. AFFIRMATIVE COVENANTS. The Borrower hereby covenants and agrees that in the case of the covenants described below on and after the Closing Date and until the Loans and the Notes together with interest, fees and all other Obligations incurred hereunder and thereunder are paid in full (other than any indemnity, not then due and payable, which by its terms shall survive such termination and payment): 33 6.1 Information Covenants. The Borrower will, or will cause the Covered Parties to, furnish to each Lender: (a) Quarterly Financial Statements. Within 60 days after the close of the first three quarterly accounting periods in each fiscal year of the relevant Person specified below, (i) the consolidated balance sheets of each of (x) the Borrower and its consolidated subsidiaries and (y) NEG, Inc. and its consolidated subsidiaries, and (ii) the condensed consolidated balance sheets of the Significant Subsidiaries and their consolidated subsidiaries, as at the end of such quarterly accounting period and the related consolidated statements of income and cash flows, in each case for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly accounting period, and in each case, setting forth comparative figures for the related periods in the prior fiscal year, all of which shall be certified by the Chief Financial Officer, Chief Accounting Officer or Treasurer of the relevant Person, subject to normal year-end audit adjustments. (b) Annual Financial Statements. Within 120 days after the close of each fiscal year of the relevant Person specified below, (i) the consolidated balance sheets of each of (x) the Borrower and its consolidated subsidiaries and (y) NEG, Inc. and its consolidated subsidiaries, and (ii) the balance sheets of each of the FI Subsidiaries as at the end of such fiscal year and in each case, the related statements of income and retained earnings and of cash flows for such fiscal year, consolidated or otherwise, as applicable, setting forth comparative figures for the preceding fiscal year and in the case of all such balance sheets certified by Deloitte & Touche LLP, or such other independent certified public accountants of recognized national standing reasonably acceptable to the Lenders, together with a report of such accounting firm stating that in the course of its regular audit of the financial statements of any of (A) the Borrower and its consolidated subsidiaries, or (B) NEG, Inc. or any of its consolidated subsidiaries or (C) any of the FI Subsidiaries, as the case may be, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof, and (iii) management's discussion and analysis of the Borrower of the important operational and financial developments during such fiscal year. (c) Management Letters. Promptly after the receipt thereof by the Borrower or any of its Subsidiaries, a copy of any "management letter" received by any such Person from its certified public accountants and the management's responses thereto. (d) Officer's Certificates. At the time of the delivery of the financial statements provided for in Sections 6.1(a) and (b), a certificate of the Chairman of the Board, the President or Chief Financial Officer or Treasurer of the Borrower to the effect that, to the best of such officer's knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof. (e) [OMITTED]. 34 (f) Notice of Default or Litigation, etc. Promptly, and in any event within three (3) Business Days after an officer of the Borrower or any other Covered Party obtains knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or Event of Default or a "Default" or "Event of Default" under the Convertible Notes Indenture, (ii) any litigation or governmental investigation or proceeding pending or threatened (x) against the Borrower or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole, (y) with respect to any Indebtedness in excess of $10,000,000 of the Borrower or any of its Subsidiaries or (z) with respect to any Financing Document, (iii) demand for satisfaction of any guaranty or other Contingent Obligations of the Borrower or any other Covered Party, and (iv) any downgrade of the credit rating of the long-term senior unsecured indebtedness of the Borrower or any other Covered Party or "credit watch (with negative implications)" by Moody's or Standard & Poor's. (g) Other Reports and Filings. Promptly, copies of all financial information, proxy materials and other information and reports, if any, which the Borrower or any of its Subsidiaries shall receive from FERC, CPUC or SEC or file with FERC, CPUC or SEC, which could reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole, or deliver to holders of its material Indebtedness pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor) and holders of their capital stock in their capacity as such. (h) Environmental Matters. Promptly upon, and in any event within thirty (30) days after, an officer of the Borrower or any other Covered Party obtains knowledge thereof, notice of one or more of the following environmental matters which occurs after the Closing Date, unless such environmental matters would not, individually or when aggregated with all other such environmental matters, be reasonably expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole: (i) any Environmental Claim pending or threatened in writing against the Borrower or any of its Subsidiaries or any Real Estate owned or operated or occupied by the Borrower or any of its Subsidiaries; (ii) any condition or occurrence on or arising from any Real Estate owned or operated or occupied by the Borrower or any of its Subsidiaries that (a) results in noncompliance by the Borrower or any of its Subsidiaries with any applicable Environmental Law or (b) would reasonably be expected to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries or any such Real Estate; (iii) any condition or occurrence on any Real Estate owned or operated or occupied by the Borrower or any of its Subsidiaries that would reasonably be expected to cause such Real Estate to be subject to any restrictions on the ownership, occupancy, use or transferability by the Borrower or any of its Subsidiaries of such Real Estate under any Environmental Law; and 35 (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Estate owned or operated or occupied by the Borrower or any of its Subsidiaries as required by any Environmental Law or any governmental or other administrative agency; provided that in any event the Borrower shall deliver to each Lender all material notices received by it or any of its Subsidiaries from any government or governmental agency under, or pursuant to, CERCLA. All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and the Borrower's or such Subsidiary's response thereto. In addition, the Borrower will provide each Lender, from time to time, with copies of periodic environmental audit and associated final closeout reports audited by the environmental management system of any member of the NEG Group and annual environmental compliance report prepared by any member of the NEG Group, and copies of all material communications with any government or governmental agency and all material communications with any Person relating to any Environmental Claim as to which notice is required to be given pursuant to this Section 6.1(h), and such detailed reports of any such Environmental Claim as to which notice is required, as may reasonably be requested by any Lender. (i) [OMITTED]. (j) Intercompany Transaction. From time to time, such information or document with respect to any commitment, memorandum of understanding or agreement, whether in writing or not, with respect to material transactions between (i) any of the Borrower and any member of the NEG Group or (ii) between or among any of the Borrower and any member of the NEG Group, on one hand and PGE Utility and any of its Subsidiaries, on the other hand. (k) Certain Other Information. Concurrently therewith, any financial information provided by NEG, Inc. to its lenders, noteholders or bondholders pursuant to the terms of the credit agreement, loan agreement or other equivalent instrument. (l) Quarterly Meetings with Lender. At the request of the Administrative Agent, within 50 days after the close of each fiscal quarter the Borrower shall hold a meeting at a reasonable time and place selected by the Borrower and acceptable to each Lender at which meeting shall be reviewed the financial results of the previous fiscal quarter and the financial condition of the Borrower and its Subsidiaries and the budgets presented for the current fiscal quarter of the Borrower and its Subsidiaries. (m) Cash Reserve Certificate. At the time of delivery of the quarterly financial statements pursuant to clause (a) above, a certificate of an officer of the Borrower certifying that it is in compliance with Section 7.14(a) and setting forth in reasonable detail the calculation and the amount of cash and Cash Equivalents held by the Borrower with respect to such compliance at such time. (n) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to the Borrower or its Subsidiaries as the Administrative Agent or any Lender may reasonably request in writing. 36 6.2 Books, Records and Inspections. The Borrower will, and will cause all members of the NEG Group to, keep proper books of record and account in which are made full, true and correct entries in conformity with generally accepted accounting principles and all requirements of law. The Borrower will, and will cause the other Covered Parties to, permit officers and designated representatives of any Lender to visit and inspect, during regular business hours and under guidance of officers of the Borrower, any of the properties of the Borrower and the other Covered Parties in whomsoever's possession, and to examine the books of account of the Borrower and the other Covered Parties and discuss the affairs (including environmental matters), finances and accounts of the Borrower and the other Covered Parties with, and be advised as to the same by, its and their officers and independent accountants, all upon reasonable advance notice and at such reasonable times and intervals and to such reasonable extent as such Lender may request, provided, that so long as no Default or Event of Default has occurred and is continuing, the Borrower shall have the right to participate in any discussions of the Lender with any independent accountants of the Borrower. 6.3 Maintenance of Property; Insurance. The Borrower will, and will cause all members of the NEG Group to, (a) keep all material properties and equipment used in its business in good working order and condition (ordinary wear and tear and loss or damage by casualty or condemnation excepted), (b) maintain in full force and effect insurance with reputable and solvent insurance carriers on all its property in at least such amounts, against at least such risks and with such deductibles or self-insured retentions as is consistent and in accordance with industry practice and (c) furnish to each Lender, upon written request, full information as to the insurance carried. In addition to the requirements to the immediately preceding sentence, the Borrower will at all time cause insurance of the types described in Schedule 5.9 to be maintained with no less scope of coverage or greater deductibles as are described in Schedule 5.9 unless Borrower can show that such insurance is no longer available to the Borrower at a commercially reasonable cost. Such insurance shall include physical damage insurance on all real and personal property (whether now or hereafter acquired) on an all risk basis and business interruption insurance. 6.4 Corporate Franchises. The Borrower will, and will cause all members of the NEG Group, to do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents used in its business. 6.5 Compliance with Statutes, etc. The Borrower will, and will cause all members of the NEG Group to, comply with all applicable Law, in respect of the conduct of its business and the ownership of its Property, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole. 6.6 Compliance with Environmental Laws. (a) The Borrower will comply, and will cause all members of the NEG Group to comply, in all material respects with all Environmental Laws applicable to the operation of its business or to the ownership or use of Real Estate now or hereafter owned or operated by the Borrower and the other Covered Parties, will within a reasonable time period pay or cause to be paid all costs and expenses incurred in connection with such compliance (except to the extent being contested in good faith), and will 37 undertake all reasonable efforts to keep or cause to be kept all such Real Estate free and clear of any Liens imposed pursuant to such Environmental Laws, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or a Material Adverse Change of LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole. The Borrower will not and will cause the other Covered Parties not to generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of Hazardous Materials on any Real Estate now or hereafter owned or operated or occupied by the Borrower or any of the other Covered Parties, or transport or permit the transportation of Hazardous Materials to or from any such Real Estate except in compliance with all applicable Environmental Laws (except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole) and reasonably required in connection with the operation, use and maintenance of any such Real Estate or otherwise in connection with their businesses. (b) At the written request of any Lender upon a reasonable belief by such Lender that the Borrower or any of its Subsidiaries has breached any representation or covenant contained herein relating to environmental matters, which request shall specify in reasonable detail the basis therefor, the Borrower will provide, at the Borrower's sole cost and expense, an environmental audit, reasonable in scope, concerning the subject matter of such representation or covenant and any Real Estate now or hereafter owned, operated or occupied by the Borrower or any of its Subsidiaries, prepared by an environmental consulting firm reasonably acceptable to such Lender, indicating (if relevant to such breach) the presence or absence of Hazardous Materials and the potential cost of any removal or remedial action in connection with any Hazardous Materials on such Real Estate; provided, that such request may be made only if (i) there has occurred and is continuing a Default, (ii) such Lender reasonably believes that the Borrower or any such Real Estate is not in compliance with Environmental Law and such circumstances would reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the Significant Subsidiaries, taken as a whole, or (iii) circumstances exist that reasonably could be expected to form the basis of a material Environmental Claim against the Borrower or any of its Subsidiaries or any such Real Estate. If the Borrower fails to provide the same within a reasonable period, not to exceed 90 days, after such request was made, a Lender may order the same, and the Borrower shall grant and hereby grants to such Lender and its agents access to such Real Estate and specifically grants such Lender an irrevocable non-exclusive license, subject to the rights of tenants, to undertake such an assessment, all at the Borrower's expense. 6.7 ERISA. As soon as possible and, in any event, within ten (10) days after the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, the Borrower will deliver to each Lender a certificate of the Chief Financial Officer or Treasurer of the Borrower setting forth the full details as to such occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given or filed by such Borrower, such Subsidiary, the Plan administrator or such ERISA Affiliate to or with the PBGC or any other government agency, or a Plan participant and any notices received by such Borrower, such Subsidiary or ERISA Affiliate from the PBGC or any other government agency, or a Plan participant with respect thereto: that a Reportable Event has occurred (except to the 38 extent that the Borrower has previously delivered to each Lender a certificate and notices (if any) concerning such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66, ...67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that any contribution required to be made with respect to a Plan or Foreign Pension Plan has not been timely made; that a Plan has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability; that proceedings may be or have been instituted to terminate or appoint a trustee to administer a Plan which is subject to Title IV of ERISA; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate will or may incur any liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409, 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that the Borrower or any Subsidiary of the Borrower may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan or any Foreign Pension Plan. The Borrower will deliver to each Lender copies of any records, documents or other information that must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. Upon the reasonable request of the Required Waiver Lenders, the Borrower will also deliver to each Lender a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to each Lender pursuant to the first sentence hereof, copies of annual reports and any records, documents or other information required to be furnished to the PBGC or any other government agency, and any material notices received by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate with respect to any Plan or Foreign Pension Plan shall be delivered to each Lender no later than ten (10) days after the date such annual report has been filed with the Internal Revenue Service or such records, documents and/or information has been furnished to the PBGC or any other government agency or such notice has been received by the Borrower, the Subsidiary or the ERISA Affiliate, as applicable. The Borrower and each of its applicable Subsidiaries shall ensure that all Foreign Pension Plans administered by it or into which it makes payments obtains or retains (as applicable) registered status under and as required by applicable law and is administered in a timely manner in all respects in compliance with all applicable laws except where the failure to do any of the foregoing would not be reasonably likely to result in a material adverse effect upon the business, 39 operations, condition (financial or otherwise) or prospects of the Borrower or any Subsidiary of the Borrower. 6.8 End of Fiscal Years; Fiscal Quarters. The Borrower shall cause (i) each of its, and each of the other Covered Party's, fiscal years to end on December 31 and (ii) its fiscal quarters to end on March 31, June 30, September 30 and December 31. 6.9 Payment of Taxes. The Borrower (a) will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all material federal and state income and franchise taxes imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims for sums related thereto that have become due and payable which, if unpaid, might become a Lien not otherwise permitted hereunder, and (b) will pay and discharge, and will cause each Subsidiary to pay and discharge, all other material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims for sums that have become due and payable which, if unpaid, might become a Lien not otherwise permitted hereunder, provided that neither the Borrower nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with U.S. GAAP, and provided, further, that this Section 6.9 shall not apply with respect to any taxes of PGE Utility or any Subsidiary of PGE Utility for which Borrower has no liability under applicable law. 6.10 [OMITTED]. 6.11 Performance of Obligations. The Borrower will, and will cause each member of the NEG Group to, perform all of its obligations under the terms of each mortgage, indenture, security agreement, loan agreement or credit agreement and each other material agreement, contract or instrument by which it is bound, except such non-performances as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the NEG Subsidiaries taken as a whole. 6.12 Use of Proceeds. The Borrower will use the proceeds of the Loans only as provided in Section 5.18. 6.13 Regulatory Compliance. Borrower will take all actions and cause its Subsidiaries to take all actions reasonably required to comply in all material respects with applicable Utility Regulations and each order issued pursuant thereto; provided that, the foregoing shall not prevent Borrower or a Subsidiary from challenging the validity or effect of any Utility Regulation or order in any proceeding provided the manner of such challenge could not reasonably be expected to cause a Material Adverse Effect. 6.14 Financial Covenant. The long-term unsecured debt obligations of NEG, Inc. shall be rated at least BBB- by Standard & Poor's or Baa3 by Moody's. 40 6.15 Charter Documents. The Borrower will, and will cause LLC and the other Specified Subsidiaries to, comply with their respective Charter Documents in all material respects. 6.16 Further Assurances; etc. The Borrower will, and will cause the other Covered Parties, at the expense of the Borrower, make, execute, endorse, acknowledge, file and/or deliver to each Lender from time to time such confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports, and other assurances or instruments and take such further steps as are necessary or desirable in order to carry out the intent, purpose, provisions of this Agreement and the other Financing Document, including any assignment or syndication by any Lender of its Loan. Furthermore, the Borrower will deliver to each Lender such opinions of counsel and other related documents as may be reasonably requested by any Lender to assure itself that this Section 6.16 has been complied with. 6.17 Delisting. The Borrower will maintain the listing of its common stock on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market such that there will be at least 43 Trading Days during the first 75 calendar days following the Closing Date. SECTION 7. TRANCHE A NEGATIVE COVENANTS. The Borrower covenants and agrees that on and after the Closing Date and until the Loans and the Notes, together with interest, fees and all other obligations incurred hereunder and thereunder, are paid in full (other than any indemnity, not then due and payable, which by its terms shall survive such termination and payment): 7.1 Liens. The Borrower will not, and will not permit any of the other Covered Parties to, create, incur, assume or suffer to exist any Lien upon or with respect to any Property or assets (real or personal, tangible or intangible) of the Borrower or any of the other Covered Parties, whether now owned or hereafter acquired, or sell any such Property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such Property or assets (including sales of accounts receivable with recourse to the Borrower or any of the other Covered Parties), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 7.1 shall not prevent the creation, incurrence, assumption or existence of the following (Liens described below are herein referred to as "Permitted Liens"): (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due and payable or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles in the United States; (ii) Liens in respect of Property or assets of the Covered Parties imposed by law, which arise or were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', workmen's, repairmen's, 41 warehousemen's, materialmen's and mechanics' liens, collecting bank's liens, charge back rights of depository banks for uncollected items and other similar Liens arising or incurred in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the property or assets of the Borrower or the other Covered Parties and do not materially impair the use thereof in the operation of the business of the Borrower or the other Covered Parties or (y) which are being contested in good faith by appropriate proceedings, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) subject to Section 7.4(ii), Liens in existence on the Initial Closing Date which are listed, and the Property subject thereto described, in Schedule 7.1; (iv) Liens created pursuant to this Agreement and the Security Documents; (v) licenses, leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Borrower and the other Covered Parties, taken as a whole; (vi) easements, rights-of-way, restrictions (including zoning restrictions), covenants, encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies, in each case whether now or hereafter in existence, not securing Indebtedness and not materially interfering with the conduct of the business of the Borrower and the other Covered Parties, taken as a whole; (vii) statutory, contractual and common law landlords' liens under leases or subleases permitted by this Agreement; (viii) Liens (other than any Lien imposed by ERISA) (x) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, (y) to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (z) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers, provided that the aggregate amount of deposits at any time pursuant to sub-clauses (y) and (z) and other Indebtedness permitted under Section 7.4(ix) shall not exceed $25,000,000 in the aggregate; (ix) any interest or title of a lessor, sublessor, licensee or licensor under any lease or license agreement permitted by this Agreement; (x) attachment or judgment Liens in an aggregate amount outstanding at any one time not in excess of the amount of $1,000,000; (xi) attachment or judgment Liens paid or fully covered by insurance which are not outstanding for more than sixty (60) days; 42 (xii) Liens arising from precautionary Uniform Commercial Code financing statement filings with respect to operating leases or consignment arrangements entered into by the Borrower or any of the other Covered Parties in the ordinary course of business; (xiii) other than by LLC, any Lien attendant to transactions described in Part I of the Business Plan; and (xiv) Liens on assets of the Borrower to secure Hedging Agreements entered into in the ordinary course of business by the Borrower hedging the interest rate fluctuations in respect of interest payable on the Loan. The Borrower will not create, incur, assume or suffer to exist any Lien upon the Capital Stock of PGE Utility or any Reorganization Subsidiary. 7.2 Consolidation, Merger, Purchase or Sale of Assets, etc. The Borrower will not, and will not permit any member of the NEG Group to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease, spin-off or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of its Property or assets (including, without limitation, the Capital Stock of, or any substantial part of the assets of, any Reorganization Subsidiary or any member of the NEG Group), or enter into any sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the Property or assets (other than purchases or other acquisitions of inventory in the ordinary course of business) of any Person (or agree to do any of the foregoing at any future time), except to the extent attendant to transactions described by the Business Plan and except that: (i) any NEG Subsidiary may in the ordinary course of business, sell, lease or otherwise dispose of any assets which, in the reasonable judgment of such Person, are obsolete, worn out or otherwise no longer useful in the conduct of such Person's business; (ii) each of the Borrower and any member of the NEG Group may lease (as lessee) real or personal property in the ordinary course of business (so long as any such lease does not create a Capital Lease Obligation (other than Capital Lease Obligations permitted under Section 7.4)); (iii) any NEG Subsidiary may make sales or transfers of inventory, energy and related products in the ordinary course of business and consistent with past practices; (iv) any NEG Subsidiary may sell or discount, in each case without recourse and in the ordinary course of business, overdue accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (y) each of the Borrower and any member of the NEG Group may license or sublicense software, trademarks and other intellectual property in the ordinary course of 43 business which do not materially interfere with the business of the Borrower, LLC, NEG, Inc. and the NEG Subsidiaries, taken as a whole; (vi) each of the Borrower, LLC, NEG, Inc. or any NEG Subsidiary may transfer assets or lease to or acquire or lease assets from the Borrower, LLC, NEG, Inc. or any other NEG Subsidiary and LLC, NEG, Inc. or any NEG Subsidiary may be merged into LLC, NEG, Inc. or any other NEG Subsidiary; (vii) any NEG Subsidiary may sell or otherwise dispose of additional assets, provided that (x) each such sale or disposition shall be for an amount at least equal to the fair market value thereof (as determined in good faith by the senior management of such Person), (y) each such sale (other than any like-kind exchange) results in consideration at least 75% of which shall be in the form of cash (for such purpose, taking into account the amount of cash, the principal amount of any promissory notes and the fair market value, as determined in good faith by the senior management of the Borrower, of any other consideration), and (z) the Net Sale Proceeds therefrom shall be applied pursuant to Section 3.2; (viii) subject to Section 3.2(f), each of the Borrower and any member of the NEG Group may make transfers of any proceeds of insurance resulting from any casualty or condemnation of property or assets; and (ix) the Borrower may sell or otherwise dispose of any assets other than (A) assets owned by, or the Capital Stock of, any member of the NEG Group and (B) the Capital Stock of PGE Utility or the Capital Stock of, or any substantial part of the assets of, any Reorganization Subsidiary. For avoidance of doubt, nothing in this Section shall prohibit the Borrower from consummating the Utility Spin-Off, the NEG Equity Transactions or any plan of reorganization permitted by Section 7.15. 7.3 Dividends. The Borrower will not, and will not permit any of the other Covered Parties to, authorize, declare or pay any Dividends, except that (i) any Subsidiary of the Borrower may pay cash Dividends to the Borrower or to LLC, NEG, Inc. or any NEG Subsidiary, (ii) NEG, Inc. may distribute a note to LLC or the Borrower, and LLC may distribute any such note to the Borrower, solely in connection with the IPO and (iii) NEG, Inc. may pay cash Dividends to any New Investor to the extent that Dividends are paid pro rata to the Borrower and such New Investor in accordance with their respective equity interests in NEG, Inc. The Borrower will not, directly or indirectly, spin-off or transfer to its shareholders, or to the shareholders of any parent of the Borrower, the Capital Stock of, or any substantial part of the assets of, any Reorganization Subsidiary or any member of the NEG Group. Nothing in this Section shall prohibit (i) the Borrower or LLC from performing in full its obligations under Article VI of the Option Agreement or (ii) the Borrower from consummating the Utility Spin-Off or the NEG Equity Transactions. 7.4 Indebtedness. The Borrower will not, and will not permit any member of the NEG Group to, contract, create, incur, assume or suffer to exist any Indebtedness, except: 44 (i) Indebtedness incurred pursuant to this Agreement and the other Financing Documents; (ii) existing Indebtedness outstanding on the Initial Closing Date and listed, with respect to the Borrower, on Part A of the Disclosure Letter and, with respect to the Covered Parties (other than the Borrower), Part B of the Disclosure Letter (as reduced by any repayments of principal thereof), without giving effect to any subsequent extension, renewal or refinancing thereof; (iii) Indebtedness resulting from the endorsement of negotiable instruments in the ordinary course of business; (iv) Indebtedness among Borrower or any member of the NEG Group (other than LLC) and any other NEG Subsidiary from intercompany transfers of assets made in the ordinary course of business or to the extent permitted under Sections 7.2 and 7.5; (v) Indebtedness of a Covered Party (other than LLC) secured by Liens permitted under Sections 7.1(i), (ii), (vii) and (viii); (vi) in the case of the Borrower, Specified Rated Indebtedness; provided that, after giving effect to the incurrence of such Indebtedness, the Tranche A Loan, and the other Senior Obligations that are then due and payable, shall have been paid in full; (vii) in the case of any member of the NEG Group (other than LLC), to the extent described by the Business Plan; (viii) Hedging Agreements entered into in the ordinary course of business by the Borrower hedging the interest rate fluctuations in respect of interest payable on the Loan; (ix) other Indebtedness, provided that the aggregate amount of such other Indebtedness together with deposits permitted under sub-clauses (y) and (z) of Section 7.1(viii) shall not exceed the amount set forth in Section 7.1(viii); and (x) Indebtedness of the Borrower in respect of the Convertible Notes in an aggregate principal amount not to exceed $280,000,000. 7.5 Advances, Investments and Loans. The Borrower will not, and will not permit any member of the NEG Group to, directly or indirectly, lend money or credit or make advances to any other Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents (each of the foregoing an "Investment" and, collectively, "Investments"), except that the following shall be permitted; provided that, other than in the case of clauses (v) and (vi) below, no Default or Event of Default shall have occurred and be continuing or would result therefrom: 45 (i) the Borrower and the other Covered Parties may acquire and hold accounts receivables owing to any of them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms of the Borrower or such other Covered Parties; (ii) the Borrower and the other Covered Parties may acquire and hold cash and Cash Equivalents; (iii) the Borrower and the other Covered Parties may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in good faith settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iv) any Investment by a Covered Party (other than LLC) to the extent described by the Business Plan; (v) any Investment by the Borrower in PGE Utility if the Borrower reasonably determines that such Investment is required by applicable Law; (vi) any Investment by the Borrower in PGE Utility if the Borrower reasonably determines that such Investment is required by the Holding Company Conditions; (vii) loans and advances by the Covered Parties (other than LLC) to their respective directors, officers and employees in a principal amount not exceeding the amount of $100,000, on an individual basis, and $1,000,000, on an aggregate basis, at any one time outstanding; (viii) any NEG Subsidiary and NEG, Inc. may distribute a note to LLC or the Borrower, and LLC may distribute any such note to the Borrower, solely in connection with the IPO; (ix) any Investment made by any of LLC, NEG, Inc. or any NEG Subsidiary pursuant to Section 3.2(b)(iii), 3.2(c)(B)(iii), 3.2(e)(A)(iii) or 3.2(f)(ii); (x) any Investment made by the Borrower or any member of the NEG Group in a wholly-owned Subsidiary; (xi) in addition to the Investments permitted by clauses (i)-(x) above, the Borrower may make other Investments for operations of the Borrower or its Subsidiaries not otherwise related to PGE Utility or any of its Subsidiaries in an amount not to exceed $10,000,000 in the aggregate for any fiscal year; and (xii) any Investment in a Hedging Agreement entered into by the Borrower hedging the interest rate fluctuations in respect of interest payable on the Loan. Notwithstanding anything provided herein or in the Business Plan to the contrary, (A) no investment may be made by the Borrower or any member of the NEG Group in the nuclear 46 generation business and (B) the Borrower may consummate the Utility Spin-Off and the NEG Equity Transactions. 7.6 Transactions with Affiliates. Except as disclosed on Schedule 5.17, the Borrower will not, and will not permit any member of the NEG Group and any other NEG Subsidiaries to, enter into any transaction or series of related transactions with any Affiliate of the Borrower or any of its Subsidiaries, other than (a) in the ordinary course of business and on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would reasonably be obtained by the Borrower or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except for provision of cash, credit or other financial assistance or support by the Borrower or any member of the NEG Group to PGE Utility or any of its Subsidiaries (unless such assistance or support is made to the extent provided in the Business Plan), (b) as reasonably determined by the Borrower that such transaction is required by applicable Law or the Holding Company Conditions, (c) among the Borrower and the other Covered Parties and any other NEG Subsidiaries and among the NEG Group, (d) any other transactions with Affiliates provided at cost where the difference between the arms-length price and cost is less than $5,000,000 in the aggregate, (e) the payment of reasonable and customary fees and reimbursements of expenses payable to directors of any member of the NEG Group, (f) the employment arrangements with respect to the procurement of services of directors, officers and employees of any member of the NEG Group in the ordinary course of business and payment of reasonable and customary fees in connection therewith, (g) the consummation of the Utility Spin-Off and the NEG Equity Transactions, or (h) transactions expressly permitted under Section 7.3 or Section 7.5. 7.7 Capital Expenditures. The Borrower will not, and will not permit any member of the NEG Group to, make any Capital Expenditures, except to the extent (a) the Borrower reasonably determines that such Capital Expenditures by the Borrower in PGE Utility is required by applicable Law, (b) the Borrower reasonably determines that such Capital Expenditures by the Borrower in PGE Utility is required by the Holding Company Conditions, (c) that such Capital Expenditures are made by a Covered Party (other than LLC) attendant to transactions described by the Business Plan, (d) related to Investment made by any of LLC, NEG, Inc. or any NEG Subsidiary pursuant to Section 3.2(b)(iii), 3.2(c)(B)(iii), 3.2(e)(A)(iii) or 3.2(f)(ii) or (e) provided in the cash-flow forecast of the Borrower attached to the solvency certificate of the Borrower delivered on the Closing Date. 7.8 Limitations on Liens on Collateral; Modifications of Certain Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements, etc. The Borrower will not, and will not permit any of the Covered Parties and the Specified Subsidiaries to: (i) create or suffer to exist any Lien on any of the Collateral; (ii) amend or modify, or permit the amendment or modification of, any provision of any Existing Indebtedness Agreements which could reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the NEG Subsidiaries, taken as a whole; 47 (iii) except as provided in the Business Plan with respect to the IPO or the Spin-Off of NEG, Inc., (w) except to the extent it would not cause an adverse effect on any Lender, amend, modify or change any material provision of its certificate or articles of incorporation (including, without limitation, by the filing or modification of any certificate or articles of designation), certificate of formation, limited liability company agreement or by-laws (or the equivalent organizational documents), as applicable, or (x) amend, modify or change any agreement entered into by it with respect to its capital stock or other equity interests (including any shareholders' agreement), or (y) enter into any new agreement with respect to its capital stock or other equity interests or (z) amend the Business Plan; (iv) terminate, cancel or suspend any license, contract or material franchise agreements which would result in a Material Adverse Effect or a Material Adverse Change to LLC, NEG, Inc. and the NEG Subsidiaries, taken as a whole; or (v) except as a part of the NEG Equity Transactions, create any Subsidiary of the Borrower which will be a direct or indirect parent of LLC or create any Subsidiary of LLC which will be a direct or indirect parent of NEG, Inc. or create any Subsidiary of NEG, Inc. which would own, directly or indirectly, all or substantially all of the assets or shares of the NEG Subsidiaries. 7.9 Limitation on Issuance of Capital Stock. (a) Except as otherwise permitted by Sections 7.3 and 7.5, or to the extent attendant to transactions described by the Business Plan, the Borrower will not permit any of the Covered Parties (other than the Borrower) to issue (i) any participating preferred stock or other participating preferred equity interests or preferred stock or other preferred equity interests convertible to common stock or common equity interest or (ii) any redeemable common stock or other redeemable common equity interest other than common stock or other redeemable common equity interest that is redeemable at the sole option of the Borrower or such Covered Party, as the case may be. (b) Except as otherwise permitted by Sections 7.3 and 7.5, and except as a part of the NEG Equity Transactions, the Borrower will not permit any of the Covered Parties (other than the Borrower) to issue any capital stock or other equity interests (including by way of sales of treasury stock) or any options (other than the Option) or warrants to purchase, or securities convertible into, capital stock or other equity interests, except (other than LLC) (i) for transfers and replacements of then outstanding shares of capital stock or other equity interests, (ii) for stock splits, stock dividends and issuances which do not decrease the percentage ownership of any of the Covered Parties in any class of the capital stock or other equity interests of such other Covered Parties, (iii) pursuant to employee stock option plans, (iv) to the extent the Borrower reasonably determines that such issuance is required by applicable Law, or (v) to the extent attendant to transactions described by the Business Plan. 7.10 Business. The Borrower will not, and will not permit any of the other Covered Parties to, engage in any business other than the current businesses engaged in by the Borrower and the other Covered Parties as of the date hereof or to the extent within the scope of business described by the Business Plan. 48 7.11 Regulatory Compliance. The Borrower will not take any actions or allow any of its Subsidiaries to take any action which would materially violate any applicable Utility Regulations or order issued pursuant thereto; provided that, the foregoing shall not prevent the Borrower or a Subsidiary from challenging the validity or effect of any Utility Regulation or order in any proceeding provided the manner of such challenge could not reasonably be expected to cause a Material Adverse Effect. The Borrower will not take any actions or allow any of its Subsidiaries to take any actions that would prevent Borrower from reaffirming the representations of Sections 5.16(b), (c), (d), (e) and (g) as of any date prior to repayment of the Loans in full. 7.12 [OMITTED]. 7.13 Limitation on Optional Payments and Modifications of Convertible Notes. The Borrower will not (a) make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of, or otherwise voluntarily or optionally defease, the Convertible Notes, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, (b) amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Convertible Notes or the Convertible Notes Indenture (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof, reduce the rate or extend the date for payment of interest thereon or relax any covenant or other restriction applicable to the Borrower or any of its Subsidiaries and (ii) does not involve the payment of a consent fee), (c) designate any Indebtedness (other than the Obligations) as "Designated Senior Debt" for the purposes of the Convertible Notes Indenture or (d) make any cash payment in respect of interest on the Convertible Notes (i) during any Convertible Notes Blockage Period or (ii) at any time when, after giving effect to such interest payment, the aggregate amount of cash and Cash Equivalents held by the Borrower in its own name (including, without limitation, any cash and Cash Equivalents held in any Interest Reserve Account) would be less than an amount that is 5 percentage points greater than the amount required from time to time under Section 7.14(a). 7.14 Cash Reserve; Interest Reserve Amounts. (a) The Borrower will not (i) at any time commencing on March 2, 2002 and until and including the earlier of (x) repayment in full of the Loans and (y) (A) March 2, 2003 or (B) if the Date Certain to occur on March 2, 2003 is extended, March 2, 2004, permit the aggregate amount of cash and Cash Equivalents held by it in its own name (including, without limitation, any cash and Cash Equivalents held in any Interest Reserve Account) to be an amount less than 15% of the then-outstanding aggregate principal amount of the Loans and the Convertible Notes and (ii) at any time after the extension of the Date Certain pursuant to Section 2.9(b) and until the Loans are repaid in full, permit the aggregate amount of cash and Cash Equivalents held by it in its own name (including, without limitation, any cash and Cash Equivalents held in any Interest Reserve Account) to be an amount less than 10% of the then-outstanding aggregate principal amount of the Loans and the Convertible Notes. (b) The Borrower will not permit the aggregate amount of cash and Cash Equivalents held in (i) the Tranche A Interest Reserve Account on any Interest Payment Date in respect of the Tranche A Loan, or any Interest Payment Date in respect of the Tranche B Loan 49 that occurs more than 30 days after the immediately preceding Interest Payment Date in respect of the Tranche A Loan, to be less than the amount of interest payable on the Tranche A Loan during the one-year period following such Interest Payment Date or (ii) the Tranche B Interest Reserve Account on any Interest Payment Date to be less than the amount of interest payable on the Tranche B Loan during the one-year period following such Interest Payment Date (such interest amount, in each case, to be estimated using a rate per annum equal to the twelve-month Eurodollar Rate in effect two Business Days prior to such Interest Payment Date, plus 4.00%). 7.15 Plan of Reorganization. The Borrower will not propose or consent to a plan of reorganization in respect of PGE Utility that provides for a spin-off or any distribution, transfer or disposal of assets other than one which is substantially consistent with Annex B; provided, that this Section 7.15 shall not prohibit the Borrower from proposing or consenting to any plan of reorganization in respect of PGE Utility that does not involve a spin-off by, or any distribution, transfer or disposal of assets of, the Borrower or any of its Subsidiaries (other than any spin-off or distribution, transfer or disposal of assets by any Person that receives fair value for the assets so disposed); and provided, further, that, immediately prior to, and upon consummation of, any transaction pursuant to any such plan of reorganization, no Default or Event of Default shall have occurred or be continuing. For avoidance of doubt, any transaction or series of transactions involving the disposition of any Reorganization Subsidiary or any assets that would constitute a Reorganization Subsidiary and the subsequent spin-off of PGE Utility along with the proceeds of such disposition would not be substantially consistent with Annex B and would be prohibited by this Section. 7.16 FMV Ratio. The Borrower will not permit the ratio of the Fair Market Value of NEG, Inc. to the aggregate amount of principal then outstanding under the Loans (the "Required FMV Ratio") to be less than 2.00:1. The Required FMV Ratio may be determined in accordance with the procedure set forth in Section 9.26 at any time at the request of the Majority Tranche A Lenders (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, the Majority Tranche B Lenders) (at the expense of each such requesting Lender, ratably based upon the amount of the Loans held by such Lender) by delivering a notice to the Borrower no more frequently than once per fiscal quarter of the Borrower. SECTION 7A. TRANCHE B NEGATIVE COVENANTS. The Borrower covenants and agrees that on and after the Closing Date and until the Tranche A Loan and the related Notes, together with interest, fees and all other obligations incurred hereunder and thereunder owing to the Tranche A Lender, are paid in full (other than any indemnity, not then due and payable, which by its terms shall survive such termination and payment): 7A.1. Liens. The Borrower will not, and will not permit any of the other Covered Parties to, create, incur, assume or suffer to exist any Lien upon or with respect to any Property or assets (real or personal, tangible or intangible) of the Borrower or any of the other Covered Parties, whether now owned or hereafter acquired, or sell any such Property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such Property or assets (including sales of accounts receivable with recourse to the Borrower or any of the other 50 Covered Parties), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 7A.1 shall not prevent the creation, incurrence, assumption or existence of the following (Liens described below are herein referred to as "Permitted Liens"): (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due and payable or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles in the United States; (ii) Liens in respect of Property or assets of the Covered Parties imposed by law, which arise or were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', workmen's, repairmen's, warehousemen's, materialmen's and mechanics' liens, collecting bank's liens, charge back rights of depository banks for uncollected items and other similar Liens arising or incurred in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the property or assets of the Borrower or the other Covered Parties and do not materially impair the use thereof in the operation of the business of the Borrower or the other Covered Parties or (y) which are being contested in good faith by appropriate proceedings, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) subject to Section 7A.4(ii), Liens in existence on the Initial Closing Date which are listed, and the Property subject thereto described, in Schedule 7.1; (iv) Liens created pursuant to this Agreement and the Security Documents; (v) licenses, leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Borrower and the other Covered Parties, taken as a whole; (vi) easements, rights-of-way, restrictions (including zoning restrictions), covenants, encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies, in each case whether now or hereafter in existence, not securing Indebtedness and not materially interfering with the conduct of the business of the Borrower and the other Covered Parties, taken as a whole; (vii) statutory, contractual and common law landlords' liens under leases or subleases permitted by this Agreement; (viii) Liens (other than any Lien imposed by ERISA) (x) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, (y) to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, 51 performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (z) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers, provided that the aggregate amount of deposits at any time pursuant to sub-clauses (y) and (z) and other Indebtedness permitted under Section 7A.4(ix) shall not exceed $25,000,000 in the aggregate; (ix) any interest or title of a lessor, sublessor, licensee or licensor under any lease or license agreement permitted by this Agreement; (x) attachment or judgment Liens in an aggregate amount outstanding at any one time not in excess of the amount of $1,000,000; (xi) attachment or judgment Liens paid or fully covered by insurance which are not outstanding for more than sixty (60) days; (xii) Liens arising from precautionary Uniform Commercial Code financing statement filings with respect to operating leases or consignment arrangements entered into by the Borrower or any of the other Covered Parties in the ordinary course of business; (xiii) other than by LLC, any Lien attendant to transactions described in Part I of the Business Plan; and (xiv) Liens on assets of the Borrower to secure Hedging Agreements entered into in the ordinary course of business by the Borrower hedging the interest rate fluctuations in respect of interest payable on the Loan. The Borrower will not create, incur, assume or suffer to exist any Lien upon the Capital Stock of PGE Utility or any Reorganization Subsidiary. 7A.2. Consolidation, Merger, Purchase or Sale of Assets, etc. The Borrower will not, and will not permit any member of the NEG Group to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease, spin-off or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of its Property or assets (including, without limitation, the Capital Stock, or any substantial part of the assets of, any Reorganization Subsidiary or any member of the NEG Group), or enter into any sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the Property or assets (other than purchases or other acquisitions of inventory in the ordinary course of business) of any Person (or agree to do any of the foregoing at any future time), except to the extent attendant to transactions described by the Business Plan and except that: (i) any NEG Subsidiary may in the ordinary course of business, sell, lease or otherwise dispose of any assets which, in the reasonable judgment of such Person, are obsolete, worn out or otherwise no longer useful in the conduct of such Person's business; 52 (ii) each of the Borrower and any member of the NEG Group may lease (as lessee) real or personal property in the ordinary course of business (so long as any such lease does not create a Capital Lease Obligation (other than Capital Lease Obligations permitted under Section 7A.4)); (iii) any NEG Subsidiary may make sales or transfers of inventory, energy and related products in the ordinary course of business and consistent with past practices; (iv) any NEG Subsidiary may sell or discount, in each case without recourse and in the ordinary course of business, overdue accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (v) each of the Borrower and any member of the NEG Group may license or sublicense software, trademarks and other intellectual property in the ordinary course of business which do not materially interfere with the business of the Borrower, LLC, NEG, Inc. and the NEG Subsidiaries, taken as a whole; (vi) each of the Borrower, LLC, NEG, Inc. or any NEG Subsidiary may transfer assets or lease to or acquire or lease assets from the Borrower, LLC, NEG, Inc. or any other NEG Subsidiary and LLC, NEG, Inc. or any NEG Subsidiary may be merged into LLC, NEG, Inc. or any other NEG Subsidiary; (vii) any NEG Subsidiary may sell or otherwise dispose of additional assets, provided that (x) each such sale or disposition shall be for an amount at least equal to the fair market value thereof (as determined in good faith by the senior management of such Person), (y) each such sale (other than any like-kind exchange) results in consideration at least 75% of which shall be in the form of cash (for such purpose, taking into account the amount of cash, the principal amount of any promissory notes and the fair market value, as determined in good faith by the senior management of the Borrower, of any other consideration), and (z) the Net Sale Proceeds therefrom shall be applied pursuant to Section 3.2; (viii) subject to Section 3.2(f), each of the Borrower and any member of the NEG Group may make transfers of any proceeds of insurance resulting from any casualty or condemnation of property or assets; and (ix) the Borrower may sell or otherwise dispose of any assets other than (A) assets owned by, or the Capital Stock of, any member of the NEG Group and (B) the Capital Stock of PGE Utility or the Capital Stock of, or any substantial part of the assets of, any Reorganization Subsidiary. For avoidance of doubt, nothing in this Section shall prohibit the Borrower from consummating the Utility Spin-Off, the NEG Equity Transactions or any plan of reorganization permitted by Section 7A.15. 7A.3. Dividends. The Borrower will not, and will not permit any of the other Covered Parties to, authorize, declare or pay any Dividends, except that (i) any Subsidiary of the 53 Borrower may pay cash Dividends to the Borrower or to LLC, NEG, Inc. or any NEG Subsidiary, (ii) NEG, Inc. may distribute a note to LLC or the Borrower, and LLC may distribute any such note to the Borrower, solely in connection with the IPO and (iii) NEG, Inc. may pay cash Dividends to any New Investor to the extent that Dividends are paid pro rata to the Borrower and such New Investor in accordance with their respective equity interests in NEG, Inc. The Borrower will not, directly or indirectly, spin-off or transfer to its shareholders, or to the shareholders of any parent of the Borrower, the Capital Stock of, or any substantial part of the assets of, any Reorganization Subsidiary or any member of the NEG Group. Nothing in this Section shall prohibit (i) the Borrower or LLC from performing in full its obligations under Article VI of the Option Agreement or (ii) the Borrower from consummating the Utility Spin-Off or the NEG Equity Transactions. 7A.4. Indebtedness. The Borrower will not, and will not permit any member of the NEG Group to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness incurred pursuant to this Agreement and the other Financing Documents; (ii) existing Indebtedness outstanding on the Initial Closing Date and listed, with respect to the Borrower, on Part A of the Disclosure Letter and, with respect to the Covered Parties (other than the Borrower), Part B of the Disclosure Letter (as reduced by any repayments of principal thereof), without giving effect to any subsequent extension, renewal or refinancing thereof; (iii) Indebtedness resulting from the endorsement of negotiable instruments in the ordinary course of business; (iv) Indebtedness among Borrower or any member of the NEG Group (other than LLC) and any other NEG Subsidiary from intercompany transfers of assets made in the ordinary course of business or to the extent permitted under Sections 7A.2 and 7A.5; (v) Indebtedness of a Covered Party (other than LLC) secured by Liens permitted under Sections 7A.1(i), (ii), (vii) and (viii); (vi) in the case of the Borrower, Specified Rated Indebtedness; provided that, after giving effect to the incurrence of such Indebtedness, the Tranche A Loan, and the other Senior Obligations that are then due and payable, shall have been paid in full; (vii) in the case of any member of the NEG Group (other than LLC), to the extent described by the Business Plan; (viii) Hedging Agreements entered into in the ordinary course of business by the Borrower hedging the interest rate fluctuations in respect of interest payable on the Loan; (ix) other Indebtedness, provided that the aggregate amount of such other Indebtedness together with deposits permitted under sub-clauses (y) and (z) of Section 7A.1(viii) shall not exceed the amount set forth in Section 7A.1(viii); and 54 (x) Indebtedness of the Borrower in respect of the Convertible Notes in an aggregate principal amount not to exceed $280,000,000. 7A.5. Advances, Investments and Loans. The Borrower will not, and will not permit any member of the NEG Group to, directly or indirectly, lend money or credit or make advances to any other Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents (each of the foregoing an "Investment" and, collectively, "Investments"), except that the following shall be permitted; provided that, other than in the case of clauses (v) and (vi) below, no Default or Event of Default shall have occurred and be continuing or would result therefrom: (i) the Borrower and the other Covered Parties may acquire and hold accounts receivables owing to any of them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms of the Borrower or such other Covered Parties; (ii) the Borrower and the other Covered Parties may acquire and hold cash and Cash Equivalents; (iii) Borrower and the other Covered Parties may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in good faith settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iv) any Investment by a Covered Party (other than LLC) to the extent described by the Business Plan; (v) any Investment by the Borrower in PGE Utility if the Borrower reasonably determines that such Investment is required by applicable Law; (vi) any Investment by the Borrower in PGE Utility if the Borrower reasonably determines that such Investment is required by the Holding Company Conditions; (vii) loans and advances by the Covered Parties (other than LLC) to their respective directors, officers and employees in a principal amount not exceeding the amount of $100,000, on an individual basis, and $1,000,000, on an aggregate basis, at any one time outstanding; (viii) any NEG Subsidiary and NEG, Inc. may distribute a note to LLC or the Borrower, and LLC may distribute any such note to the Borrower, solely in connection with the IPO; (ix) any Investment made by any of LLC, NEG, Inc. or any NEG Subsidiary pursuant to Section 3.2(b)(iii), 3.2(c)(B)(iii), 3.2(e)(A)(iii) or 3.2(f)(ii); 55 (x) any Investment made by the Borrower or any member of the NEG Group in a wholly-owned Subsidiary; (xi) in addition to the Investments permitted by clauses (i)-(x) above, the Borrower may make other Investments for operations of the Borrower or its Subsidiaries not otherwise related to PGE Utility or any of its Subsidiaries in an amount not to exceed $10,000,000 in the aggregate for any fiscal year; and (xii) any Investment in a Hedging Agreement entered into by the Borrower hedging the interest rate fluctuations in respect of interest payable on the Loan. Notwithstanding anything provided herein or in the Business Plan to the contrary, (A) no investment may be made by the Borrower or any member of the NEG Group in the nuclear generation business and (B) the Borrower may consummate the Utility Spin-Off and the NEG Equity Transactions. 7A.6. Transactions with Affiliates. Except as disclosed on Schedule 5.17, the Borrower will not, and will not permit any member of the NEG Group and any other NEG Subsidiaries to, enter into any transaction or series of related transactions with any Affiliate of the Borrower or any of its Subsidiaries, other than (a) in the ordinary course of business and on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would reasonably be obtained by the Borrower or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except for provision of cash, credit or other financial assistance or support by the Borrower or any member of the NEG Group to PGE Utility or any of its Subsidiaries (unless such assistance or support is made to the extent provided in the Business Plan), (b) as reasonably determined by the Borrower that such transaction is required by applicable Law or the Holding Company Conditions, (c) among the Borrower and the other Covered Parties and any other NEG Subsidiaries and among the NEG Group, (d) any other transactions with Affiliates provided at cost where the difference between the arms-length price and cost is less than $5,000,000 in the aggregate, (e) the payment of reasonable and customary fees and reimbursements of expenses payable to directors of any member of the NEG Group, (f) the employment arrangements with respect to the procurement of services of directors, officers and employees of any member of the NEG Group in the ordinary course of business and payment of reasonable and customary fees in connection therewith, (g) the consummation of the Utility Spin-Off and the NEG Equity Transactions, or (h) transactions expressly permitted under Section 7A.3 or Section 7A.5. 7A.7. Capital Expenditures. The Borrower will not, and will not permit any member of the NEG Group to, make any Capital Expenditures, except to the extent (a) the Borrower reasonably determines that such Capital Expenditures by the Borrower in PGE Utility is required by applicable Law, (b) the Borrower reasonably determines that such Capital Expenditures by the Borrower in PGE Utility is required by the Holding Company Conditions, (c) that such Capital Expenditures are made by a Covered Party (other than LLC) attendant to transactions described by the Business Plan, (d) related to Investment made by any of LLC, NEG, Inc. or any NEG Subsidiary pursuant to Section 3.2(b)(iii), 3.2(c)(B)(iii), 3.2(e)(A)(iii) or 3.2(f)(ii) or (e) provided in the cash-flow forecast of the Borrower attached to the solvency certificate of the Borrower delivered on the Closing Date. 56 7A.8. Limitations on Liens on Collateral; Modifications of Certain Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements, etc. The Borrower will not, and will not permit any of the Covered Parties and the Specified Subsidiaries to: (i) create or suffer to exist any Lien on any of the Collateral; (ii) amend or modify, or permit the amendment or modification of, any provision of any Existing Indebtedness Agreements which could reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to LLC, NEG, Inc. and the NEG Subsidiaries, taken as a whole; (iii) except as provided in the Business Plan with respect to the IPO or the Spin-Off of NEG, Inc., (w) except to the extent it would not cause an adverse effect on any Lender, amend, modify or change any material provision of its certificate or articles of incorporation (including, without limitation, by the filing or modification of any certificate or articles of designation), certificate of formation, limited liability company agreement or by-laws (or the equivalent organizational documents), as applicable, or (x) amend, modify or change any agreement entered into by it with respect to its capital stock or other equity interests (including any shareholders' agreement), or (y) enter into any new agreement with respect to its capital stock or other equity interests or (z) amend the Business Plan; (iv) terminate, cancel or suspend any license, contract or material franchise agreements which would result in a Material Adverse Effect or a Material Adverse Change to LLC, NEG, Inc. and the NEG Subsidiaries, taken as a whole; or (v) except as a part of the NEG Equity Transactions, create any Subsidiary of the Borrower which will be a direct or indirect parent of LLC or create any Subsidiary of LLC which will be a direct or indirect parent of NEG, Inc. or create any Subsidiary of NEG, Inc. which would own, directly or indirectly, all or substantially all of the assets or shares of the NEG Subsidiaries. 7A.9. Limitation on Issuance of Capital Stock. (a) Except as otherwise permitted by Sections 7.3 and 7.5 or to the extent attendant to transactions described by the Business Plan, the Borrower will not permit any of the Covered Parties (other than the Borrower) to issue (i) any participating preferred stock or other participating preferred equity interests or preferred stock or other preferred equity interests convertible to common stock or common equity interest or (ii) any redeemable common stock or other redeemable common equity interest other than common stock or other redeemable common equity interest that is redeemable at the sole option of the Borrower or such Covered Party, as the case may be. (b) Except as otherwise permitted by Sections 7.3 and 7.5, and except as a part of the NEG Equity Transactions, the Borrower will not permit any of the Covered Parties (other than the Borrower) to issue any capital stock or other equity interests (including by way of sales of treasury stock) or any options (other than the Option) or warrants to purchase, or securities convertible into, capital stock or other equity interests, except (other than LLC) (i) for transfers 57 and replacements of then outstanding shares of capital stock or other equity interests, (ii) for stock splits, stock dividends and issuances which do not decrease the percentage ownership of any of the Covered Parties in any class of the capital stock or other equity interests of such other Covered Parties, (iii) pursuant to employee stock option plans, (iv) to the extent the Borrower reasonably determines that such issuance is required by applicable Law, or (v) to the extent attendant to transactions described by the Business Plan. 7A.10. Business. The Borrower will not, and will not permit any of the other Covered Parties to, engage in any business other than the current businesses engaged in by the Borrower and the other Covered Parties as of the date hereof or to the extent within the scope of business described by the Business Plan. 7A.11. Regulatory Compliance. The Borrower will not take any actions or allow any of its Subsidiaries to take any action which would materially violate any applicable Utility Regulations or order issued pursuant thereto; provided that, the foregoing shall not prevent the Borrower or a Subsidiary from challenging the validity or effect of any Utility Regulation or order in any proceeding provided the manner of such challenge could not reasonably be expected to cause a Material Adverse Effect. The Borrower will not take any actions or allow any of its Subsidiaries to take any actions that would prevent Borrower from reaffirming the representations of Sections 5.16(b), (c), (d), (e) and (g) as of any date prior to repayment of the Loans in full. 7A.12. [OMITTED]. 7A.13. Limitation on Optional Payments and Modifications of Convertible Notes. The Borrower will not (a) make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of, or otherwise voluntarily or optionally defease, the Convertible Notes, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, (b) amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Convertible Notes or the Convertible Notes Indenture (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof, reduce the rate or extend the date for payment of interest thereon or relax any covenant or other restriction applicable to the Borrower or any of its Subsidiaries and (ii) does not involve the payment of a consent fee), (c) designate any Indebtedness (other than the Obligations) as "Designated Senior Debt" for the purposes of the Convertible Notes Indenture or (d) make any cash payment in respect of interest on the Convertible Notes (i) during any Convertible Notes Blockage Period or (ii) at any time when, after giving effect to such interest payment, the aggregate amount of cash and Cash Equivalents held by the Borrower in its own name (including, without limitation, any cash and Cash Equivalents held in any Interest Reserve Account) would be less than an amount that is 5 percentage points greater than the amount required from time to time under Section 7.14(a). 7A.14. Interest Reserve Account. The Borrower will not permit the aggregate amount of cash and Cash Equivalents held in the Tranche B Interest Reserve Account on any Interest Payment Date to be less than the amount of interest on the Tranche B Loan during the one-year period following such Interest Payment Date (such interest amount to be estimated 58 using a rate per annum equal to the twelve-month Eurodollar Rate in effect two Business Days prior to such Interest Payment Date, plus 4.00%). 7A.15. Plan of Reorganization. The Borrower will not propose or consent to a plan of reorganization in respect of PGE Utility that provides for a spin-off or any distribution, transfer or disposal of assets other than one which is substantially consistent with Annex B; provided, that this Section 7A.15 shall not prohibit the Borrower from proposing or consenting to any plan of reorganization in respect of PGE Utility that does not involve a spin-off by, or any distribution, transfer or disposal of assets of, the Borrower or any of its Subsidiaries (other than any spin-off or distribution, transfer or disposal of assets by any Person that receives fair value for the assets so disposed); and provided, further, that, immediately prior to, and upon consummation of, any transaction pursuant to any such plan of reorganization, no Default or Event of Default shall have occurred or be continuing. For avoidance of doubt, any transaction or series of transactions involving the disposition of any Reorganization Subsidiary or any assets that would constitute a Reorganization Subsidiary and the subsequent spin-off of PGE Utility along with the proceeds of such disposition would not be substantially consistent with Annex B and would be prohibited by this Section. 7A.16 FMV Ratio. The Borrower will not permit the Required FMV Ratio to be less than 1.75:1. The Required FMV Ratio may be determined in accordance with the procedure set forth in Section 9.26 at any time at the request of the Majority Tranche B Lenders (at the expense of each such requesting Tranche B Lender, ratably based upon the amount of the Tranche B Loan held by such Tranche B Lender) by delivering a notice to the Borrower no more frequently than once per fiscal quarter of the Borrower. SECTION 8. TRANCHE A EVENTS OF DEFAULT AND REMEDIES. 8.1 Events of Default. The occurrence of any of the following events or circumstances shall constitute a "Tranche A Event of Default" (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, a "Tranche B Event of Default") hereunder: (a) The Borrower shall (i) default in the payment when due of any principal of any Tranche A Loan (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, any Tranche B Loan) or any related Note or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any interest on any Loan or Note or any fees or any other amounts owing hereunder or under any other Financing Document; or (b) Any representation, warranty or statement made or deemed made by the Borrower or any other Covered Party herein or in any other Financing Document or in the Disclosure Letter or in any certificate delivered to the Administrative Agent or any Lender pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or (c) The Borrower or any of the other Covered Parties shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 6 59 (other than Sections 6.1 and 6.2) or Section 7; provided, however that a Default under Section 7.16 shall not constitute an Event of Default hereunder unless such Default shall continue unremedied for sixty (60) days and the Appraiser, at the Majority Tranche A Lenders' (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, the Majority Tranche B Lenders') request, again reaffirms that the Required FMV Ratio is below 2.00:1 after such sixty (60) day period or (ii) except as set forth in clause (iii) and Section 8.1(g), default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement or in any other Financing Document (other than those set forth in clauses (a) and (b) of this Section 8.1) and such default shall continue unremedied for a period of 30 days after written notice thereof to the defaulting party by any Lender or (iii) default in the due performance or observance by it of any term, covenant or agreement contained in the Option Agreement; or (d) (i) Any of the Covered Parties shall default in any payment of any Indebtedness when due, or (ii) any of the Covered Parties shall default in the observance or performance of any agreement or condition relating to any Indebtedness or any other event or condition shall occur or exist, the effect of which event or condition is to cause, or permit the holder or holders of such Indebtedness to cause any such Indebtedness to become due prior to its stated maturity, or (iii) any Indebtedness of any of the Covered Parties shall be declared to be (or shall become) due and payable, or required to be prepaid other than by regularly scheduled prepayment, prior to the stated maturity thereof, provided it shall not be a Default or an Event of Default under this clause (d) unless the aggregate principal amount of all Indebtedness as described in preceding subclauses (i), (ii) and (iii) is at least $100,000,000; or (e) The Borrower or any of the other Covered Parties shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrower or any of the other Covered Parties, and the petition is not controverted within 10 days, or is not dismissed within 45 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of the other Covered Parties; or the Borrower or any of the other Covered Parties commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of the other Covered Parties; or there is commenced against the Borrower or any of the other Covered Parties any such proceeding which remains undismissed for a period of 60 days; or the Borrower or any of the other Covered Parties is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of the other Covered Parties suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 45 days; or the Borrower or any of the other Covered Parties makes a general assignment for the benefit of creditors; or any corporate, limited liability company or similar action is taken by the Borrower or any of the other Covered Parties for the purpose of effecting any of the foregoing; or (f) (i) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver 60 of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, ...65, .66, .67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan which is subject to Title IV of ERISA shall have had or is likely to have a trustee appointed to administer such Plan, any Plan which is subject to Title IV of ERISA is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made with respect to a Plan or a Foreign Pension Plan has not been timely made, the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate has incurred or is likely to incur any liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or the Borrower or any Subsidiary of the Borrower has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or Plans or Foreign Pension Plans, a "default" within the meaning of Section 4219(c)(5) of ERISA shall occur with respect to any Plan, any applicable law, rule or regulation is adopted, changed or interpreted, or the interpretation or administration thereof is changed, in each case after the date hereof, by any governmental authority or agency or by any court (a "Change in Law"), or, as a result of a Change in Law, an event occurs following a Change in Law, with respect to or otherwise affecting any Plan; (ii) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (iii) such lien, security interest or liability, either individually and/or in the aggregate, has had, or could reasonably be expected to have, a Material Adverse Effect; or (g) Any of the Security Documents shall cease to be in full force and effect, or shall cease to give the Collateral Agent and each Lender, the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collateral, in favor of the Collateral Agent and each Lender, superior to and prior to the rights of all third Persons and subject to no other Liens), or any Covered Party shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any Security Document and such default shall continue beyond the period of grace, if any, specifically applicable thereto pursuant to the terms of such Security Document; or (h) One or more judgments or decrees shall be entered against the Borrower or any other Covered Party involving in the aggregate for the Borrower and the other Covered Parties a liability (not paid or fully covered by a reputable and solvent insurance company) of $100,000,000 or more and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 60 consecutive days; or 61 (i) Any final and non-appealable order shall be issued by FERC, CPUC or other Governmental Authority that could reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to the Borrower, LLC, or NEG, Inc. and the Significant Subsidiaries, taken as a whole; or (j) The Required FMV Ratio is below 1.25:1 on any date; or (k) The Option Agreement shall cease to be in full force and effect or shall cease to give the Holders the rights, powers and privileges purported to be created thereby; or (l) The Convertible Notes shall cease, for any reason, to be validly subordinated to the Obligations as provided in the Convertible Notes Indenture, or the Borrower, any of its Subsidiaries, the trustee under the Convertible Notes Indenture or any holder of $70,000,000 or more of the Convertible Notes shall so assert in writing and such assertion shall not have been withdrawn, rescinded or otherwise retracted in writing within 15 days thereof; or (m) The Tranche B Loan shall cease, for any reason, to be validly subordinated to the Senior Obligations as provided in the Intercreditor Agreement, or the Borrower, any of its Subsidiaries or any holder of $105,000,000 or more of the Tranche B Loan shall so assert in writing and such assertion shall not have been withdrawn, rescinded or otherwise retracted in writing within 15 days thereof. 8.2 Acceleration. (a) If an Event of Default specified in Section 8.1(e) with respect to the Borrower shall occur, automatically the Tranche A Loan (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, the Tranche B Loan) (with accrued interest thereon) and all other amounts owing under the Financing Documents shall immediately become due and payable. (b) If any Event of Default (other than an Event of Default referred to in Section 8.1(e) with respect to the Borrower) shall occur, then the Administrative Agent (acting upon the instructions of the Majority Tranche A Lenders (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, the Majority Tranche B Lenders)) may by notice to the Borrower declare the Tranche A Loan (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, the Tranche B Loan), all accrued and unpaid interest thereon and all other amounts owing to the Tranche A Lender (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, the Tranche B Lender) under the Financing Documents to be due and payable, whereupon the same shall become immediately due and payable. (c) Except as expressly provided above in this Section 8.2, presentment, demand, protest and all other notices and other formalities of any kind are hereby expressly waived by the Borrower. 8.3 Other Remedies. Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent (acting upon the instructions of the Majority Tranche A Lenders (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, the Majority Tranche B Lenders)) may exercise any 62 or all rights and remedies at law or in equity (in any combination or order that the Administrative Agent (acting upon the instructions of the Majority Tranche A Lenders (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, the Majority Tranche B Lenders)) may elect), including without limitation or prejudice to any Tranche A Lender's (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, any Tranche B Lender's) other rights and remedies, any and all rights and remedies available under any of the Financing Documents; provided that any Tranche A Lender (or, at any time after the Tranche A Loan, and the other Senior Obligations that are then due and payable, have been paid in full, any Tranche B Lender) may exercise any or all rights and remedies at law or in equity as provided hereunder upon the occurrence and during the continuation of an Event of Default described in Section 8.1(a) or 8.1(e) above. SECTION 8A. TRANCHE B EVENTS OF DEFAULT AND REMEDIES. 8A.1. Events of Default. The occurrence of any of the following events or circumstances at any time prior to the repayment in full of the Tranche A Loan shall constitute a "Tranche B Event of Default" hereunder: (a) The Borrower shall (i) default in the payment when due of any principal of any Tranche B Loan or any related Note or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any interest on any Loan or Note or any fees or any other amounts owing hereunder or under any other Financing Document; or (b) Any representation, warranty or statement made or deemed made by the Borrower or any other Covered Party herein or in any other Financing Document or in the Disclosure Letter or in any certificate delivered to the Administrative Agent or any Lender pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or (c) The Borrower or any of the other Covered Parties shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 6 (other than Sections 6.1 and 6.2) or Section 7A (other than Section 7A.14); provided, however that a Default under Section 7A.16 shall not constitute an Event of Default hereunder unless such Default shall continue unremedied for sixty (60) days and the Appraiser, at the request of the Majority Tranche A Lenders or the Majority Tranche B Lenders, again reaffirms that the Required FMV Ratio is below 1.75:1 after such sixty (60) day period or (ii) except as set forth in clauses (iii) and (iv) and Section 8A.1(g), default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement or in any other Financing Document (other than those set forth in clauses (a) and (b) of this Section 8A.1) and such default shall continue unremedied for a period of 40 days after written notice thereof to the defaulting party by any Lender or (iii) default in the due performance or observance by it of any term, covenant or agreement contained in the Option Agreement or the Warrant Agreement or (iv) fail to make the required deposits in the Tranche B Interest Reserve Account after the Closing Date in accordance with Section 7A.14 and the amount on deposit in the Tranche B Interest Reserve 63 Account is equal to or less than the amount of interest estimated, in the manner described in Section 7A.14, to be payable on the Tranche B Loan for the next nine-month period; or (d) (i) Any of the Covered Parties shall default in any payment of any Indebtedness when due, or (ii) any of the Covered Parties shall default in the observance or performance of any agreement or condition relating to any Indebtedness or any other event or condition shall occur or exist, the effect of which event or condition is to cause, or permit the holder or holders of such Indebtedness to cause any such Indebtedness to become due prior to its stated maturity, or (iii) any Indebtedness of any of the Covered Parties shall be declared to be (or shall become) due and payable, or required to be prepaid other than by regularly scheduled prepayment, prior to the stated maturity thereof, provided it shall not be a Default or an Event of Default under this clause (d) unless the aggregate principal amount of all Indebtedness as described in preceding subclauses (i), (ii) and (iii) is at least $100,000,000; or (e) The Borrower or any of the other Covered Parties shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrower or any of the other Covered Parties, and the petition is not controverted within 10 days, or is not dismissed within 45 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of the other Covered Parties; or the Borrower or any of the other Covered Parties commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of the other Covered Parties; or there is commenced against the Borrower or any of the other Covered Parties any such proceeding which remains undismissed for a period of 60 days; or the Borrower or any of the other Covered Parties is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of the other Covered Parties suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 45 days; or the Borrower or any of the other Covered Parties makes a general assignment for the benefit of creditors; or any corporate, limited liability company or similar action is taken by the Borrower or any of the other Covered Parties for the purpose of effecting any of the foregoing; or (f) (i) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66, ...67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan which is subject to Title IV of ERISA shall have had or is likely to have a trustee appointed to administer such Plan, any Plan which is subject to Title IV of ERISA is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded 64 Current Liability, a contribution required to be made with respect to a Plan or a Foreign Pension Plan has not been timely made, the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate has incurred or is likely to incur any liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or the Borrower or any Subsidiary of the Borrower has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or Plans or Foreign Pension Plans, a "default" within the meaning of Section 4219(c)(5) of ERISA shall occur with respect to any Plan, any applicable law, rule or regulation is adopted, changed or interpreted, or the interpretation or administration thereof is changed, in each case after the date hereof, by any governmental authority or agency or by any court (a "Change in Law"), or, as a result of a Change in Law, an event occurs following a Change in Law, with respect to or otherwise affecting any Plan; (ii) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (iii) such lien, security interest or liability, either individually and/or in the aggregate, has had, or could reasonably be expected to have, a Material Adverse Effect; or (g) Any of the Security Documents shall cease to be in full force and effect, or shall cease to give the Collateral Agent and each Lender the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collateral, in favor of the Collateral Agent and each Lender, superior to and prior to the rights of all third Persons and subject to no other Liens), or any Covered Party shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any Security Document and such default shall continue beyond the period of grace, if any, specifically applicable thereto pursuant to the terms of such Security Document; or (h) One or more judgments or decrees shall be entered against the Borrower or any other Covered Party involving in the aggregate for the Borrower and the other Covered Parties a liability (not paid or fully covered by a reputable and solvent insurance company) of $100,000,000 or more and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 60 consecutive days; or (i) Any final and non-appealable order shall be issued by FERC, CPUC or other Governmental Authority that could reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to the Borrower, LLC, or NEG, Inc. and the Significant Subsidiaries, taken as a whole; or (j) The Required FMV Ratio is below 1.25:1 on any date; or (k) The Option Agreement or the Warrant Agreement shall cease to be in full force and effect or shall cease to give the Holders or the holders of Warrants, as the case may be, the rights, powers and privileges purported to be created thereby; or 65 (l) The Convertible Notes shall cease, for any reason, to be validly subordinated to the Obligations as provided in the Convertible Notes Indenture, or the Borrower, any of its Subsidiaries, the trustee under the Convertible Notes Indenture or any holder of $70,000,000 or more of the Convertible Notes shall so assert in writing and such assertion shall not have been withdrawn, rescinded or otherwise retracted in writing within 15 days thereof. 8A.2. Acceleration. (a) If an Event of Default specified in Section 8A.1(e) with respect to the Borrower shall occur, automatically the Tranche B Loan (with accrued interest thereon) and all other amounts owing under the Financing Documents shall immediately become due and payable. (b) If any Event of Default (other than an Event of Default referred to in Section 8A.1(e) with respect to the Borrower) shall occur, then the Administrative Agent (acting upon the instructions of the Majority Tranche B Lenders) may by notice to the Borrower declare the Tranche B Loan, all accrued and unpaid interest thereon and all other amounts owing to the Tranche B Lender under the Financing Documents to be due and payable, whereupon the same shall become immediately due and payable. Upon the delivery of any such notice to the Borrower, the Administrative Agent shall contemporaneously notify the Tranche A Lenders thereof, provided that the failure to give such notice shall not affect the rights and remedies of the Administrative Agent or the Tranche B Lenders against the Borrower or any of its Subsidiaries. (c) Except as expressly provided above in this Section 8A.2, presentment, demand, protest and all other notices and other formalities of any kind are hereby expressly waived by the Borrower. 8A.3. Other Remedies. Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent (acting upon the instructions of the Majority Tranche B Lenders) may exercise any or all rights and remedies at law or in equity (in any combination or order that the Administrative Agent (acting upon the instructions of the Majority Tranche B Lenders) may elect), including without limitation or prejudice to any Tranche B Lender's other rights and remedies, any and all rights and remedies available under any of the Financing Documents; provided that any Tranche B Lender may exercise any or all rights and remedies at law or in equity as provided hereunder upon the occurrence and during the continuation of an Event of Default described in Section 8A.1(a) or 8A.1(e) above. SECTION 9. MISCELLANEOUS. 9.1 Costs and Expenses. The Borrower shall, whether or not the transactions contemplated hereby are consummated and whether or not any of the following are incurred before or after the Closing Date, pay, within five (5) Business Days after demand, all reasonable costs and expenses (including reasonable fees and expenses of counsel and consultants) of the Administrative Agent (in its capacity as such and in its capacity as a Lender), the Lead Arranger, the Book Manager, each Lender (in the case of clause (b) below only), the Collateral Agent and each Holder in connection with the preparation, issuance, delivery, filing, recording and administration of this Agreement, the other Financing Documents, and any other documents which may be delivered in connection herewith or therewith, including, without limitation, (a) 66 any and all amounts which the Administrative Agent, each Lender (in the case of clause (b) below only), the Collateral Agent and each Holder has paid relative to curing any Event of Default resulting from the acts or omissions of the Borrower under this Agreement or any other Financing Document, (b) the exercise, enforcement or attempted exercise, enforcement of, or the investigation or preservation of any rights or remedies under, this Agreement or any other Financing Document, or (c) any amendment, waiver or consent with respect to any provision contained in this Agreement or any other Financing Document. In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or any other Financing Document, or any other document which may be delivered in connection with this Agreement, and agrees to save the Administrative Agent, the Lead Arranger, the Book Manager, each Lender, the Collateral Agent and each Holder harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. 9.2 Indemnity. Whether or not the transactions contemplated hereby are consummated: (a) The Borrower shall pay, indemnify, and hold each of the Administrative Agent, the Lead Arranger, the Book Manager, each Lender, the Collateral Agent and each Holder and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact and Affiliates (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, charges, expenses or disbursements (including reasonable legal fees and expenses and reasonable fees and expenses of consultants) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loan or the termination, resignation or replacement of any Administrative Agent, Lead Arranger, Book Manager, Lender, Collateral Agent or Holder) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any other Financing Document, including the Security Documents and any other document or instrument contemplated by or referred to herein or therein, or the transactions contemplated hereby and thereby (including, without limitation, any losses incurred by any Lender as a result of any misrepresentation by the Borrower or any of its Subsidiaries hereunder or under any other Financing Document or any failure by any Covered Party to perform any of its obligations hereunder or under any other Financing Document), or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to the exercise by the Administrative Agent, the Lead Arranger, the Book Manager, any Lender, the Collateral Agent and any Holder of any of its respective rights or remedies under any of the Financing Documents, and any investigation, litigation or proceeding (including any bankruptcy, insolvency, reorganization or other similar proceeding or appellate proceeding) related to this Agreement or any other Financing Document or the Loan, or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. (b) Environmental Indemnity. (i) Without in any way limiting the generality of the other provisions contained in this Section 9.2, the Borrower agrees to defend, protect, 67 indemnify, save and hold harmless each Indemnified Person, whether as beneficiary of any of the Security Documents, as a mortgagee in possession, or as successor-in-interest to the Borrower by foreclosure deed or deed in lieu of foreclosure, or otherwise, from and against any and all liabilities, obligations, losses, damages (including foreseeable and unforeseeable consequential damages and punitive claims), penalties, fees, claims, actions, judgments, suits, costs, disbursements (including, without limitation, reasonable legal fees and expenses and consultants' fees and disbursements) and expenses (collectively, "Losses") of any kind or nature whatsoever that may at any time be incurred by, imposed on, asserted or awarded against any such Indemnified Person directly or indirectly based on, or arising out of or resulting from, (A) the actual or alleged presence of Hazardous Materials on, in, under or affecting all or any portion of any Property of the Borrower or any member of the NEG Group whether or not the same originates or emanates from any such Property or any property adjoining or adjacent to any such Property or from properties at which any Hazardous Materials generated, stored or handled by the Borrower were Released or disposed of, (B) any Environmental Claim relating to any such Property or (C) the exercise of any Secured Party's rights under any of the provisions of the Security Documents (the "Indemnified Matters"), whether any of the Indemnified Matters arise before or after foreclosure of any of the security interests or other taking of title to all or any portion of the Collateral by the Collateral Agent or any Lender, including, without limitation, (x) the costs of removal of any and all Hazardous Materials from all or any portion of any such Property or any property adjoining or adjacent to any such Property, (y) additional costs required to take reasonable precautions to protect against the Release of Hazardous Materials on, in, under or affecting any such Property into the air, any body of water, any other public domain or any surrounding areas, and (z) costs incurred to comply, in connection with all or any portion of any such Property or any surrounding areas, with all applicable Environmental Laws with respect to Hazardous Materials, except to the extent that any such Indemnified Matter arises from the gross negligence or willful misconduct of such Indemnified Person. (i) In no event shall any site visit, observation, or testing by any Indemnified Person (or any representative of any such Person) be deemed to be a representation or warranty that Hazardous Materials are or are not present in, on, or under, any Property of the Borrower or any member of the NEG Group, or that there has been or shall be compliance with any Environmental Law. Neither the Borrower nor any other Person is entitled to rely on any site visit, observation, or testing by any Indemnified Person. No Indemnified Person owes any duty of care to protect the Borrower or any other Person against, or to inform the Borrower or any other Person of, any Hazardous Materials or any other adverse condition affecting any such Property. No Indemnified Person shall be obligated to disclose to the Borrower or any other Person any report or findings made as a result of, or in connection with, any site visit, observation, or testing by any Indemnified Person. (c) Survival; Defense. The obligations in this Section 9.2 shall survive payment of the Loans and all other obligations hereunder. At the election of any Indemnified Person, the Borrower's indemnification obligations under this Section 9.2 shall include the obligation to defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person, at the sole cost and expense of the Borrower. All amounts owing under this Section 9.2 shall be paid within 30 days after demand. 68 (d) Contribution. To the extent that any undertaking in the preceding paragraphs of this Section 9.2 may be unenforceable because it is violative of any law or public policy, the Borrower will contribute the maximum portion that it is permitted to pay and satisfy under applicable Law to the payment and satisfaction of such undertaking. (e) Settlement. So long as the Borrower is in compliance with its obligations under this Section 9.2, the Borrower shall not be liable to any Indemnified Person under this Section 9.2 for any settlement made by such Indemnified Person without the Borrower's consent. (f) No Indemnity for Intercreditor Agreement Disputes. Notwithstanding anything to the contrary in this Agreement, the Borrower shall not be required under any circumstances to indemnify any Lender or agent, or otherwise be required to reimburse any Lender or agent, for any Losses resulting solely from disputes between or among Lenders with respect to the Intercreditor Agreement. 9.3 Notices. (a) 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 Borrower by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 9.3, 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 Schedule 9.3 or to such other address as shall be designated by such party in a written notice to the other parties hereto. (b) 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 the Administrative Agent or any Lender shall not be effective until actually received. (c) The Borrower acknowledges and agrees that any agreement of the Administrative Agent or any Lender to receive certain notices by telephone and facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent and each Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent and each Lender shall not have any liability to the Borrower or other Person on account of any action taken or not taken by any of the Administrative Agent or such Lender in reliance upon such telephonic or facsimile notice. 9.4 Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties hereto. The Borrower may not assign or otherwise transfer any of its rights under this Agreement or any of the other Financing Documents. 9.5 No Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent or any Lender or the holder of any Note in exercising any right, power or privilege hereunder or under any other Financing Document and no course of dealing between 69 the Borrower and the Administrative Agent or any Lender or the holder of any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Financing Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or any Lender or the holder of any Note to take any other or further action in any circumstances without notice or demand. All remedies, either under this Agreement or any other Financing Document or pursuant to any applicable Law or otherwise afforded to the Administrative Agent or any Lender shall be cumulative and not alternative. 9.6 No Third Party Beneficiaries. The agreement of any Lender to make extensions of credit to the Borrower on the terms and conditions set forth in this Agreement and the other Financing Documents is solely for the benefit of the Borrower, and no other Person shall have any rights hereunder against such Lender with respect to the Loans, the proceeds thereof or otherwise. 9.7 Reinstatement. To the extent that the Administrative Agent or any Lender receives any payment by or on behalf of the Borrower, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to the Borrower or to its estate, trustee, receiver, custodian or any other party under any Bankruptcy Law or otherwise, then to the extent of the amount so required to be repaid, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the Obligations as of the date such initial payment, reduction or satisfaction occurred. 9.8 No Immunity. To the extent that the Borrower may be entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement or any other Financing Document, to claim for itself or its revenues, assets or Properties any immunity from suit, the jurisdiction of any court, attachment prior to judgment, attachment in aid of execution of judgment, set-off, execution of a judgment or any other legal process, and to the extent that in any such jurisdiction there may be attributed to such Person such an immunity (whether or not claimed), the Borrower hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the Law of the applicable jurisdiction. 9.9 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 by facsimile or otherwise shall be an original, but all of which shall together constitute one and the same instrument. 9.10 Amendment or Waiver. (a) Except as provided in paragraph (b) of this Section, no provision of this Agreement or any other Financing Document may be amended, supplemented, modified or waived, except by a written instrument signed by each of the Majority Tranche A Lenders and the Majority Tranche B Lenders and the Borrower and each Covered Party that is a party thereto, and, to the extent that its rights or obligations may be affected thereby, the Administrative Agent. Notwithstanding the foregoing provisions, no such 70 waiver and no such amendment, supplement or modification shall (i) increase or extend the New Tranche B Commitment of any Lender (it being understood that waivers or modifications after the Closing Date of covenants, Defaults or Events of Default shall not constitute an increase or extension of any New Tranche B Commitment of any Lender), without the prior written consent of such Lender, (ii) postpone or delay any date fixed by this Agreement or any other Financing Document for any payment of principal, interest, fees or other amounts due to any Lender hereunder or under any other Financing Document (it being understood that waivers or modifications after the Closing Date of covenants, Defaults or Events of Default shall not constitute a postponement or delay in any date fixed by this Agreement or any other Financing Document for any payment of principal, interest, fees or other amounts due to any Lender hereunder or under any other Financing Document), without the prior written consent of such Lender, (iii) reduce the principal of, or the rate of interest specified in any Financing Document on, any Loan of any Lender, without the prior written consent of such Lender, (iv) release all or substantially all of the Collateral except as shall be otherwise provided in any Security Document or other Financing Document or consent to the assignment or transfer by the Borrower of any of its respective obligations under this Agreement or any other Financing Document, without the prior written consent of each Lender, (v) amend, modify or waive any provision of this Section 9.10 or Section 9.1 or 9.2, without the prior written consent of each Lender, (vi) reduce the percentage specified in or otherwise amend the definition of Required Waiver Lenders or Majority Tranche A Lenders or Majority Tranche B Lenders, without the prior written consent of each Lender, (vii) change, amend or modify the principal amount of, or rate of interest on, or the maturity of, any Tranche A Loan, without the prior written consent of the Majority Tranche B Lenders, (viii) change, amend or modify the principal amount of, or rate of interest on, or the maturity of, any Tranche B Loan, without the prior written consent of the Majority Tranche A Lenders, or (ix) amend, modify or waive any provision of Section 10, without the prior written consent of the Administrative Agent. (b) Notwithstanding anything to the contrary above, (i) at any time prior to the repayment in full of the Tranche A Loan, Sections 7 (other than Section 7.14) and 8 (but not Section 7A or 8A) may be amended, supplemented, modified or waived with the consent of the Majority Tranche A Lenders, without the consent of any Tranche B Lender (provided that (x) unless consented to by the Majority Tranche B Lenders, no such amendment, supplement, modification or waiver shall add additional covenants or events of default or make existing covenants or events of default more restrictive on the Borrower and its Subsidiaries and (y) at the time of repayment in full of the Tranche A Loan and of the other Senior Obligations then due and payable, all such amendments, supplements, modifications and waivers effected after the Closing Date shall automatically cease to be in effect unless consented to by the Majority Tranche B Lenders), and (ii) Sections 7A (other than Section 7A.14) and 8A (but not Section 7 or 8) may be amended, supplemented, modified or waived with the consent of the Majority Tranche B Lenders, without the consent of any Tranche A Lender (provided that, unless consented to by the Majority Tranche A Lenders, no such amendment, supplement, modification or waiver shall add additional covenants or events of default or make existing covenants or events of default more restrictive on the Borrower and its Subsidiaries). (c) Any waiver and any amendment, supplement or modification made or entered into in accordance with Section 9.10(a) or (b) shall be binding upon the Borrower, the Administrative Agent, the Lenders and their successors and assigns. 71 9.11 Assignments, Participations, etc. (a) Each Lender may, without the consent of the Borrower, but with prior notice to the Administrative Agent, sell or assign any part of the Loan of such Lender and the other rights and obligations of such Lender to any Person or any assignee thereof (an "Assignee") unless the sale or assignment of the Loan and such other rights and obligations of such Lender would reasonably put the business of the Borrower at a competitive disadvantage, then such sale or assignment shall require the consent of the Borrower. The assigning Lender and the Assignee shall enter into an assignment agreement, in form and substance satisfactory to the Administrative Agent (an "Assignment and Acceptance"), with respect to the sale or assignment of the Loan to be assigned and, subject to paragraphs (e) and (f) of this Section 9.11, upon execution and delivery of such Assignment and Acceptance, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender hereunder and under the other Financing Documents, and this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to effect the addition of the Assignee, and any reference to the assigning Lender hereunder or under the other Financing Documents shall thereafter refer to such Lender and to the Assignee to the extent of their respective interests, and (ii) the assigning Lender shall, to the extent that rights and obligations hereunder and under the other Financing Documents have been assigned by it pursuant to such assignment agreement, relinquish its rights and be released from its obligations under the Financing Documents. (b) Each Lender may sell participations to one or more banks or other entities (other than the Borrower or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement and such Lender's Note; provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Note, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Note or any fees or other amounts payable hereunder, or release of all or substantially all of the Collateral, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. (c) A Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.11, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided, that prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender. 72 (d) Notwithstanding any other provision contained in this Agreement or any other Financing Document to the contrary, any Lender may assign all or any portion of the Loan held by it as collateral security, provided that any payment in respect of such assigned Loan or Note made by the Borrower to or for the account of the assigning or pledging Lender in accordance with the terms of this Agreement shall satisfy the Borrower's obligations hereunder in respect to such assigned Loan or Note to the extent of such payment. No such assignment shall release the assigning Lender from its obligations hereunder. (e) The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this Section 9.11, to maintain a register (the "Register") on which it will record the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation shall not affect the Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of the rights to the principal of, and interest on, any Loan shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Loans and prior to such recordation all amounts owing to the transferor with respect to such Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Acceptance pursuant to Section 9.11(a). The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 9.11(e). (f) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in any case where the consent of the Borrower is required by this Section, by the Borrower) together with payment to the Administrative Agent of a registration and processing fee of $3,500, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Borrower. On or prior to such effective date, the Borrower, at its own expense, upon request, shall execute and deliver to the Administrative Agent (in exchange for the Note of the assigning Lender) a new Note to the order of such Assignee in an amount equal to the Loan acquired by it pursuant to such Assignment and Acceptance and, if such assigning Lender has retained a Loan, a new Note to the order of such assigning Lender in an amount equal to the Loan retained by it hereunder. 9.12 Survival. (a) All indemnities set forth herein, including, without limitation, Section 9.2, shall survive the execution and delivery of this Agreement and the Notes and the making and repayment of the Loans. In addition, each representation and warranty made or deemed to be made pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any extension of credit, any Default or Event of Default which may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. 73 (b) Notwithstanding the execution and delivery of this Agreement, all representations and warranties of the Borrower under the Existing Credit Agreement and the other Financing Documents (as defined in the Existing Credit Agreement) and all obligations of the Borrower under Sections 9.1 and 9.2 of the Existing Credit Agreement and other payment obligations of the Borrower under Sections 2.5, 2.7, 2.8, 3.2(a) and 3.4 of the Existing Credit Agreement and other liabilities of the Borrower for breach of representations and warranties or covenants under the Existing Credit Agreement and the other Financing Documents (as defined in the Existing Credit Agreement) accrued as of the Closing Date shall not terminate and shall survive the execution and delivery of this Agreement and the other Financing Documents (as defined herein). 9.13 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE NOTES OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO OR THERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS TO ENTER INTO THIS AGREEMENT. 9.14 Right of Set-off. In addition to any rights now or hereafter granted under applicable Law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender (including without limitation by branches and agencies of such Lender wherever located), to or for the credit or the account of the Borrower against and on account of the Obligations or liabilities of the Borrower to such Lender under this Agreement or any of the other Financing Documents, including all claims of any nature or description arising out of or connected with this Agreement or any other Financing Document, irrespective of whether such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 9.15 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. 9.16 Governing Law; Submission to Jurisdiction. (a) THIS AGREEMENT AND EACH OF THE OTHER FINANCING DOCUMENTS (UNLESS SUCH DOCUMENT EXPRESSLY STATES OTHERWISE THEREIN) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). 74 (b) The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement, any other Financing Document or the transactions contemplated hereby or thereby. The Borrower hereby irrevocably waives, to the fullest extent permitted by applicable Law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Borrower hereby irrevocably appoints Corporation Service Company (the "Process Agent"), with an office on the date hereof at 1177 Avenue of the Americas, 17/th/ Floor, New York, New York 10036-2721, as its agent to receive on its behalf and on behalf of its Property, service of copies of the summons and complaint and any other process that may be served in any such action or proceeding. Service upon the Process Agent shall be deemed to be personal service on the Borrower and shall be legal and binding upon the Borrower for all purposes notwithstanding any failure to mail copies of such legal process to the Borrower, or any failure on the part of the Borrower to receive the same. Nothing herein shall affect the right to serve process in any other manner permitted by applicable Law or any right to bring legal action or proceedings in any other competent jurisdiction, including judicial or non-judicial foreclosure of real property interests which are part of the Collateral. The Borrower further agrees that the aforesaid courts of the State of New York and of the United States of America for the Southern District of New York shall have exclusive jurisdiction with respect to any claim or counterclaim of the Borrower based upon the assertion that the rate of interest charged by or under this Agreement or under the other Financing Documents is usurious. To the extent permitted by applicable Law, the Borrower further irrevocably agrees to the service of process of any of the aforementioned courts in any suit, action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, return receipt requested, to the Borrower at the address referenced in Section 9.3, such service to be effective upon the date indicated on the postal receipt returned from the Borrower. (c) The Borrower agrees that it will at all times continuously maintain an agent to receive service of process in the State of New York on behalf of itself and its Properties, and, in the event that for any reason the agent mentioned above shall not serve as agent for the Borrower to receive service of process in the State of New York on its behalf, the Borrower shall promptly appoint a successor satisfactory to the Administrative Agent so to serve, advise the Administrative Agent thereof, and deliver to the Administrative Agent evidence in writing of the successor agent's acceptance of such appointment. The foregoing provisions constitute, among other things, a special arrangement for service among the parties to this Agreement for the purposes of 28 U.S.C. (S) 1608. 9.17 Waiver by Borrower. The Borrower waives any claim it may now or hereafter have against the Administrative Agent, the Collateral Agent, any Lender and any Holder for any consequential, exemplary or punitive damage under or in connection with or relating to this Agreement or any of the Financing Documents. 9.18 Recourse. This Agreement is made with full recourse to the Borrower and pursuant to and upon all the representations, warranties, covenants and agreements on the part of the Borrower contained herein and in the other Financing Documents to which the Borrower is a party and otherwise in writing in connection herewith and therewith. 9.19 Complete Agreement. THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS REPRESENT THE FINAL AND COMPLETE AGREEMENT OF THE PARTIES HERETO AND THERETO WITH RESPECT TO THE LOANS, AND ALL PRIOR NEGOTIATIONS, REPRESENTATIONS, UNDERSTANDINGS, WRITINGS AND STATEMENTS OF ANY NATURE WITH RESPECT TO THE LOANS ARE HEREBY SUPERSEDED IN THEIR ENTIRETY BY THE TERMS OF THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS. 9.20 Publicity. Except as otherwise required by law, none of the parties hereto shall issue any press release relating to, connected with or arising out of this Agreement and the other Financing Documents or the matters contained herein or therein, without obtaining the prior approval of each other party hereto to the contents and the manner of presentation and publication thereof. No references to any party hereto shall be made by any party hereto in any public statement without its consent except as otherwise required by Law. 9.21 Effectiveness. This Agreement and the other Financing Documents shall be effective as of the Effective Date. 9.22 Certain Representations and Warranties. Each of the Tranche A Lender and the Tranche B Lender by reason of its business or financial experience, has the capacity to protect its own interests (within the meaning of Section 25102(f)(2) of the California Corporations Code) in connection with the transactions contemplated by the Financing Documents. 9.23 Confidentiality. Each Lender agrees to keep confidential in accordance with such Lender's customary practices (and in any event in compliance with applicable law respecting material non-public information) all information obtained by it pursuant hereto and the other Financing Documents identified as confidential in writing at the time of delivery and agrees that it will only use such information in connection with the transactions contemplated by this Agreement and the other Financing Documents and not disclose any of such information other than (a) to such Lender's employees, representatives, directors, attorneys, auditors, agents, professional advisors, trustees or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provision of this Section 9.23 or is bound by a confidentiality agreement containing substantially equivalent provisions), (b) to the extent such information presently is or hereafter becomes available to such Lender on a non-confidential basis from any source or such information that is in the public domain at the time of disclosure, (c) to the extent disclosure is required by law (including applicable securities laws), regulations, subpoena or judicial order or process (provided that notice of such requirement or order shall be promptly furnished to the Borrower unless such notice is legally prohibited) or requested or required by bank, securities, insurance or investment company regulations or auditors or any administrative body or commission (including the Securities Valuation Office of the National Association of Insurance Commissioners) to whose jurisdiction such Lender may be subject, (d) to any rating agency to the extent required in connection with any rating to be assigned to such Lender, (e) to Assignees or prospective Assignees or participants or prospective participants who agree to be bound by the provisions of this Section 9.23 or who are subject to confidentiality agreements containing substantially 76 equivalent provisions, (f) to the extent required in connection with any litigation between any party hereto or thereto and any Lender with respect to the Loans or this Agreement and the other Financing Documents or (g) with the Borrower's prior written consent. The agreements in this Section 9.23 shall survive repayment of the Loans and all other amounts payable hereunder. 9.24 Release of Liens for NEG Equity Sale. Concurrently with the consummation of the NEG Equity Sale, the Lenders agree to cause the Collateral Agent (at the expense of the Borrower) to release the security interest held by the Collateral Agent, pursuant to the Stock Pledge Agreement, in the shares of common stock of NEG, Inc. being sold in the NEG Equity Sale. 9.25 Delivery of Lender Addendum. Each Tranche B Lender becoming a party hereto on the Closing Date shall become a party hereto by delivery to the Administrative Agent a Lender Addendum duly executed by such Tranche B Lender, the Borrower and the Administrative Agent. 9.26 Determination of Fair Market Value. For purposes hereof, the "Fair Market Value" of NEG, Inc. shall mean the price at which a willing buyer would buy and a willing seller would sell the Pledged Interests having full knowledge of the facts, and assuming each party acts on an arm's-length basis with the expectation of concluding the purchase or sale within a reasonable time, which determination shall be made by an Approved Appraiser selected by (i) the Majority Tranche A Lenders in consultation with the Administrative Agent (in the case of a determination made at the request of the Majority Tranche A Lenders pursuant to Section 7.16) or (ii) the Majority Tranche B Lenders in consultation with the Tranche A Lenders (in the case of a determination made at the request of the Majority Tranche B Lenders pursuant to Section 7A.16) (the "Appraiser"). The Borrower will cooperate and deliver such document and provide such information as may be reasonably requested by the Majority Tranche A Lenders, the Majority Tranche B Lenders, the Administrative Agent or the Appraiser with respect to the determination of the Required FMV Ratio. 9.27 Intercreditor Agreement. Notwithstanding anything provided herein to the contrary, the terms and provisions of the Intercreditor Agreement shall govern the relationship between the Tranche A Lender and the Tranche B Lender with respect to the rights, remedies and obligations of the Lenders under this Agreement and the other Financing Documents, including, without limitation, the subordination in payment of the Tranche B Loan and the limitation on the exercise of remedies by the Tranche B Lender under the Financing Documents. 9.28 Special Exculpation. NO CLAIM MAY BE MADE BY THE BORROWER OR ANY OTHER PERSON AGAINST THE COLLATERAL AGENT OR ANY LENDER OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH AND THE BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH 77 DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. SECTION 10. THE ADMINISTRATIVE AGENT; THE LEAD ARRANGER AND THE BOOK MANAGER. 10.1 Appointment. Lehman Commercial Paper Inc. shall be the Administrative Agent and shall act as specified herein and in the other Financing Documents. Each Lender hereby irrevocably authorizes, and the holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Administrative Agent to take such action on its behalf under the provisions of this Agreement, the other Financing Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder by or through its officers, directors, agents or employees. 10.2 Nature of Duties. The Administrative Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the Security Documents. Neither the Administrative Agent nor any of its officers, directors, agents or employees shall be liable for any action taken or omitted by it or them hereunder or under any other Financing Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Financing Document, or by reason of the use of the term "agent" with reference to the Administrative Agent, a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Financing Document, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or any other Financing Document except as expressly set forth herein. 10.3 Lack of Reliance on the Administrative Agent. Independently and without reliance upon the Administrative Agent, each Lender and each holder of any Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrower, except as expressly provided in this Agreement, the Administrative Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Administrative Agent shall not be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Financing Document or the financial condition of the Borrower or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or 78 any other Financing Document, or the financial condition of the Borrower or the existence or possible existence of any Default or Event of Default. 10.4 Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Waiver Lenders or the Majority Tranche A Lenders or the Majority Tranche B Lenders, as the case may be, with respect to any act or action (including failure to act) in connection with this Agreement or any other Financing Document, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Required Waiver Lenders or the Majority Tranche A Lenders or the Majority Tranche B Lenders, as the case may be, and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender or the holder of any Note shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder or under any other Financing Document in accordance with the instructions of the Required Waiver Lenders or the Majority Tranche A Lenders or the Majority Tranche B Lenders, as the case may be. 10.5 Reliance. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Administrative Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Financing Document its duties hereunder and thereunder, upon advice of counsel selected by it. 10.6 Indemnification. To the extent the Administrative Agent is not reimbursed and indemnified by the Borrower, each Lender will reimburse and indemnify the Administrative Agent, in proportion to its respective Loan, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties hereunder or under any other Financing Document, or in any way relating to or arising out of this Agreement or any other Financing Document; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. 10.7 The Administrative Agent in its Individual Capacity. With respect to its obligation to make Loans under this Agreement, and with respect to any Loan held by it or made by it, the Administrative Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lender," "Required Waiver Lenders", "Majority Tranche A Lenders", "Majority Tranche B Lenders", "holder of Note" or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower or any Affiliate of the Borrower as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 79 10.8 Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 10.9 Resignation or Replacement of the Administrative Agent. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Financing Documents at any time by giving 15 Business Days' prior written notice to the Borrower and each Lender. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (c) and (d) below or as otherwise provided below. (b) The Administrative Agent may be replaced at the written request of the Required Waiver Lenders at any time by such Lenders giving 15 Business Days' prior written notice to the Administrative Agent. Such replacement shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (c) and (d) below or as otherwise provided below. (c) Upon any such notice of resignation or replacement, as the case may be, the Required Waiver Lenders shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank, trust company or other financial institution which is a Lender and which shall be subject to the reasonable approval of the Borrower (unless an Event of Default shall be continuing) and the Majority Tranche A Lenders and the Majority Tranche B Lenders. (d) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of the Borrower, may then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Required Waiver Lenders appoint a successor Administrative Agent as provided above. (e) If no successor Administrative Agent has been appointed pursuant to clause (c) or (d) above by the 20th Business Day after the date such notice of resignation or replacement was given by the Administrative Agent or the Required Waiver Lenders, as the case may be, the Administrative Agent's resignation or replacement shall become effective and the Required Waiver Lenders shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Financing Document until such time, if any, as the Required Waiver Lenders appoint a successor Administrative Agent as provided above. 10.10 The Lead Arranger and Book Manager. Neither the Lead Arranger nor the Book Manager, in such respective capacity, shall have any duties or responsibilities under this Agreement or any other Financing Document, nor shall any of such Persons, in such respective capacities, have any obligations or liabilities hereunder or under any other Financing Document. 80 10.11 Direction to Administrative Agent and Collateral Agent. Each of the Lenders authorizes and directs the Administrative Agent and the Collateral Agent to execute and deliver the Intercreditor Agreement and the Security Documents and to perform their respective obligations thereunder. Each Lender agrees that it is bound by the provisions in the Security Documents and the Intercreditor Agreement relating to the Lenders to the same extent as if such Lender were a party thereto, including, without limitation, any provisions of the Security Documents requiring the Lenders to indemnify the Collateral Agent. The Administrative Agent and the Collateral Agent are express third-party beneficiaries of this Section. * * * IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. PG&E CORPORATION By:________________________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC., as a Lender and Administrative Agent By:________________________________________ Name: Title: LEHMAN BROTHERS INC., as Lead Arranger and Book Manager By:________________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By:_____________________________________ Name: Title: Appendix A DEFINED TERMS AND RULES OF INTERPRETATION 1. Defined Terms. "Additional Extended Date Certain" shall mean each of (i) March 2, 2005, and (ii) March 2, 2006. "Administrative Agent" shall mean Lehman Commercial Paper Inc., acting in its capacity as agent for the Lenders pursuant to the Credit Agreement, and any successor in such capacity. "Affiliate" shall mean, with respect to any Person, (a) any other Person that is directly or indirectly Controlled by, under common Control with or Controls such Person; (b) any other Person owning beneficially or Controlling five percent or more of the Voting Stock of such Person; or (c) any officer, director or partner of such Person, except with respect to any officer or director of the Borrower. "Applicable Margin" shall mean (a) with respect to the Tranche A Loan, (i) as to the Base Rate Loan, (x) during the period commencing on the Initial Closing Date to but excluding the date eighteen (18) months from the Initial Closing Date, 2.50% per annum and (y) during the period commencing on the date eighteen (18) months from the Initial Closing Date and thereafter, 4.00% per annum, and (ii) as to the Eurodollar Loan, (x) during the period commencing on the Initial Closing Date to but excluding the date eighteen (18) months from the Initial Closing Date, 2.50% per annum and (y) during the period commencing the date eighteen (18) months from the Initial Closing Date and thereafter, 4.00% per annum; and (b) with respect to the Tranche B Loan, (i) as to the Base Rate Loan, 3.00% per annum, and (ii) as to the Eurodollar Loan, 4.00% per annum. "Appraiser" shall have the meaning provided in Section 9.26 of the Credit Agreement. "Approved Appraiser" shall mean any independent nationally recognized investment bank experienced in the valuation of equity interests of a company similar to NEG, Inc. as may be reasonably proposed by the Borrower at the request of the Majority Tranche A Lenders or the Majority Tranche B Lenders; provided that the Borrower shall always propose at least two alternate investment banks. "Asset Sale" shall mean any sale, transfer or other disposition of any Property of the Borrower (including, without limitation, after the consummation of the Utility Spin-Off, the Capital Stock of, or any assets (taking into account all prior asset sales) having an aggregate book value in excess of $75,000,000 of, any Reorganization Subsidiary) and any member of the NEG Group. "Assignee" shall have the meaning provided in Section 9.11 of the Credit Agreement. 2 "Audited Financial Statements" shall have the meaning provided in Section 5.11 of the Credit Agreement. "Authorized Officer" shall mean (i) with respect to any Person that is a corporation or a limited liability company, the Chairman, President, any Vice President, Treasurer or Secretary of such Person and (ii) with respect to any Person that is a partnership, the President, any Vice President, Treasurer or Secretary (or Assistant Secretary) of a general partner or managing partner of such Person and in each case whose name appears on a certificate of incumbency of such Person delivered in accordance with the Credit Agreement, as such certificate may be amended from time to time. "Bankruptcy Code" shall have the meaning provided in Section 8.1(e) and Section 8A.1(e) of the Credit Agreement. "Bankruptcy Law" shall mean the Bankruptcy Code and any other Law of any jurisdiction relating to bankruptcy, insolvency, liquidation, reorganization, moratorium, winding-up or composition or readjustment of debts or any similar Law. "Base Rate", for any day, shall mean the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and (b) the Prime Rate for such day. Any changes in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. "Base Rate Loans" shall mean the Loans or any portion thereof which bears interest based upon the Base Rate. "Book Manager" shall mean Lehman Brothers Inc., a Delaware corporation. "Borrower" shall mean PG&E Corporation, a California corporation. "Borrowing" shall mean the borrowing of Loans of one Type from a Lender on a given date, provided that Base Rate Loans incurred pursuant to Section 2.7(b) shall be considered part of the related Borrowing of Eurodollar Loans. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in New York City, a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close in such city, and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, any Eurodollar Loan, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in the London interbank eurodollar market. "Business Plan" shall mean the certified copy of the business plan of NEG, Inc., as amended and restated as of the Closing Date, as delivered to the Lenders. "CA Fee" shall mean the fees and expenses of the Collateral Agent set forth in the Schedule of Fees with the Collateral Agent dated the Initial Closing Date. 3 "Capital Expenditure" shall mean, with respect to any Person, all expenditures by such Person which should be capitalized in accordance with generally accepted accounting principles, including all such expenditures with respect to fixed or capital assets (including, without limitation, expenditures for maintenance and repairs which should be capitalized in accordance with generally accepted accounting principles) and the amount of Capital Lease Obligations incurred by such Person. "Capital Lease Obligations" shall mean, for any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real or personal Property which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under U.S. GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board ("Statement No. 13")) and, for purposes of the Credit Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with U.S. GAAP (including such Statement No. 13). "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations and/or rights in or other equivalents (however designated, whether voting or nonvoting, ordinary or preferred) in the equity or capital of such Person, now or hereafter outstanding, and any and all rights, warrants or options exchangeable for or convertible into any thereof. "Cash Equivalents" shall mean, as to any Person, (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (ii) time deposits, demand deposits, certificates of deposit and other deposits of any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any State thereof or the District of Columbia having capital, surplus and undivided profits aggregating in excess of $200,000,000, with maturities of not more than one year from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than 90 days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by Standard & Poor's or at least P-1 or the equivalent thereof by Moody's and in each case maturing not more than one year after the date of acquisition by such Person, and (v) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (iv) above. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. (S) 9601 et seq. "Change of Control" shall mean any of the following: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become, or obtain rights (whether by means or warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 4 under the Exchange Act), directly or indirectly, of more than 25% of the outstanding common stock of the Borrower; (ii) the board of directors of the Borrower shall cease to consist of a majority of Continuing Directors; or (iii) a Specified Change of Control shall occur. "Change of Control Offer to Repay" shall have the meaning provided in Section 3.8 of the Credit Agreement. "Change of Control Offer to Repay Notice" shall have the meaning provided in Section 3.8 of the Credit Agreement. "Change of Control Offer Settlement Date" shall have the meaning provided in Section 3.8 of the Credit Agreement. "Change of Control Prepayment Fee" shall have the meaning provided in Section 3.8 of the Credit Agreement. "Charter Documents" shall mean, with respect to any Person, (i) the articles of incorporation or other similar organizational document of such Person, (ii) the by-laws or other similar document of such Person, (iii) any certificate of designation or instrument relating to the rights of preferred shareholders or other holders of Capital Stock of such Person and (iv) any shareholder rights agreement or other similar agreement. "Closing Date" shall mean the date upon which the conditions precedent set forth in Section 4.1 of the Credit Agreement have been satisfied (or waived by all the Lenders). "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code as in effect at the date of the Credit Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all Property that, in accordance with the terms of the Security Documents, is intended to be subject to any Lien in favor of the Collateral Agent, for the benefit of each Lender. "Collateral Agent" shall mean Deutsche Bank Trust Company Americas, acting as collateral agent for the benefit of the Lenders. "Compliance" shall have the meaning provided in Section 13 of the LLC Agreement, attached hereto as Annex A. "Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or intending to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary 5 obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the aggregate current exposure pursuant to each applicable agreement net of the fair market value of any posted collateral thereunder. "Continuing Directors" shall mean the directors of the Borrower on the Closing Date and each other director, if, in each case, such other director's nomination for election to the board of directors of the Borrower is recommended by at least 66-2/3% of the then Continuing Directors. "Control" shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of partnership interests or voting securities, by contract or otherwise. "Convertible Notes" shall mean the 7.50% Convertible Subordinated Notes due 2007 of the Borrower issued on the Closing Date pursuant to the Convertible Notes Indenture. "Convertible Notes Blockage Period" shall mean the period commencing the date the Administrative Agent or the Tranche A Lender has delivered a notice to the trustee under the Convertible Notes Indenture stating that an Event of Default exists hereunder, and terminating on the earlier of (A) the date on which such Event of Default is cured or waived in accordance with the Credit Agreement and (B) the date which is 240 days after the date of the receipt by the trustee of the default notice with respect thereto. "Convertible Notes Indenture" shall mean the Indenture entered into by the Borrower in connection with the issuance of the Convertible Notes, together with all instruments and other agreements entered into by the Borrower in connection therewith. "Covered Contracts" shall have the meaning provided in Section 5.7 of the Credit Agreement. "Covered Parties" shall have the meaning provided in Section 5.1 of the Credit Agreement. "CPUC" shall mean the California Public Utilities Commission or its successor. "Credit Agreement" shall mean the Amended and Restated Credit Agreement, dated as of June 25, 2002, among the Borrower, the Lenders party thereto, Lehman Commercial Paper Inc., as Administrative Agent and Lehman Brothers Inc., as Lead Arranger and Book Manager. "Date Certain" shall mean the Initial Date Certain, as such date may be extended pursuant to Section 2.9 of the Credit Agreement. "Default" shall mean any event or circumstance which with notice or lapse of time or both would become an Event of Default. 6 "Disclosure Letter" shall mean the letter from the Borrower, addressed to the Administrative Agent and the Lenders, dated as of June 25, 2002, with respect to certain disclosure of the Borrower. "Distribution" shall have the meaning provided in Section 13 of the LLC Agreement, attached hereto as Annex A. "Dividend" shall mean, with respect to any Person, that such Person has declared or paid a dividend, distribution or returned any equity capital to its stockholders, partners or members or authorized or made any other distribution, payment or delivery of property (other than common equity of such Person) or cash to its stockholders, partners or members as such (including, without limitation, any "spin-off" of assets or Capital Stock held by such Person to the shareholder or partners or members of such Person or any parent of such Person), or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for a consideration any shares of any class of its capital stock or any partnership or membership interests outstanding on or after the Closing Date (or any options or warrants issued by such Person with respect to its capital stock or other equity interests), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock or any partnership or membership interests of such Person outstanding on or after the Closing Date (or any options or warrants issued by such Person with respect to its capital stock or other equity interests). Without limiting the foregoing, "Dividends" with respect to any Person shall also include (i) all payments made or required to be made by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes and (ii) all "Pass-Through Dividends" made pursuant to, and as defined in, the Convertibles Notes Indenture. "Dollars" and the sign "$" shall each mean freely transferable, lawful money of the United States. "Effective Date" shall mean June 25, 2002. "Environmental Claim" shall mean, with respect to any Person, (i) any notice, claim, administrative, regulatory or judicial or equitable action, suit, Lien, judgment or demand by any other Person or (ii) any other written communication by any Governmental Authority, in either case alleging or asserting such Person's liability for investigatory costs, cleanup costs, consultants' fees, governmental response costs, damages to natural resources (including, without limitation, wetlands, wildlife, aquatic and terrestrial species and vegetation) or other Property, property damages, personal injuries, fines or penalties arising out of, based on or resulting from (x) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person or (y) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law or Governmental Approval issued under any Environmental Law. "Environmental Laws" shall mean any and all Laws, now or hereafter in effect, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health or safety, or to 7 emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes. "Equity Interest" shall have the meaning provided in Section 5.10(f) of the Credit Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of the Credit Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower or a Subsidiary of the Borrower would be deemed to be a "single employer" (i) within the meaning of Section 414(b), (c), (m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary of the Borrower being or having been a general partner of such person. "Eurodollar Loan" shall mean any Loan or any portion thereof which bears interest based on the Eurodollar Rate. "Eurodollar Rate" shall mean, with respect to each Interest Period in respect of a Eurodollar Loan, the rate per annum (rounded upwards, if necessary, to the nearest 1/1000 of 1%) determined by the Administrative Agent to be equal to the quotient obtained by dividing (a) the Eurorate for such Eurodollar Loan for such Interest Period by (b) 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest Period. As used herein, "Eurorate" shall mean, with respect to each Interest Period in respect of a Eurodollar Loan, as determined by the Administrative Agent, the rate per annum (rounded upwards, if necessary, to the nearest 1/1000 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Eurorate" shall mean, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/1000 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/1000 of 1%). "Event of Default" shall mean a Tranche A Event of Default or a Tranche B Event of Default. "EWG" shall mean an "exempt wholesale generator" as defined under PUHCA. 8 "Excess Additional Option Percentage" shall have the meaning provided in Section 2.10(b). "Existing Credit Agreement" shall have the meaning provided in the recitals hereto. "Existing Financing Documents" shall mean the Financing Documents (as defined in the Existing Credit Agreement). "Existing Indebtedness Agreements" shall have the meaning provided in Section 5.29 of the Credit Agreement. "Existing Tranche A Loan" shall have the meaning provided in the recitals hereto. "Existing Tranche B Loan" shall have the meaning provided in the recitals hereto. "Expense Sharing Agreement" shall mean each of the agreements entitled "Continuing Services Agreement" listed and marked with "*" on Schedule 5.17. "Extension Fee" shall have the meaning set forth in the Extension Fee Letter. "Extension Fee Letter" shall mean the Extension Fee Letter dated June 25, 2002 among the Borrower, Lehman Commercial Paper Inc., GECC and Wilmington Trust Company. "Extension Interest Prepayment Amount" shall mean with respect to an extension of the maturity date granted pursuant to Section 2.9(b) of the Credit Agreement the amount that is the total amount of interest payable on the Loans during such extension period based on a one-year Eurodollar Rate as of the first date of such extension discounted to present value as of such date using a discount rate of 4.25%. "Fair Market Value" shall have the meaning provided in Section 9.26 of the Credit Agreement. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/1000 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent (in its individual capacity) on such day on such transactions as determined by the Administrative Agent. "FERC" shall mean the Federal Energy Regulatory Commission or its successor. 9 "FI Subsidiaries" shall mean any of PG&E Energy Trading Holdings Corp., a California corporation, PG&E Gas Transmission, Northwest Corporation, a California corporation and PG&E Generating Company LLC, a Delaware limited liability company. "Financing Documents" shall mean, collectively, the Credit Agreement, the Notes, the Extension Fee Letter, the Lehman Fee Letter, the GECC Fee Letter, the Security Documents, the Intercreditor Agreement, the Warrant Agreement and the Option Agreement. "Foreign Pension Plan" shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "FPA" shall mean the Federal Power Act, as amended, and the rules and regulations promulgated thereunder. "GECC" shall mean General Electric Capital Corporation, a Delaware corporation. "GECC Fee Letter" shall mean the Tranche A Letter Agreement dated June 25, 2002 between the Borrower and GECC. "Governmental Approval" shall mean any authorization, consent, approval, license, ruling, permit, tariff, rate, certification, exemption, filing, variance, claim, order, judgment, decree, publication, notice to, declaration of or with, or registration by or with, any Governmental Authority. "Governmental Authority" shall mean any government, governmental department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body, domestic or foreign, federal, state or local having jurisdiction over the matter or matters in question. "Hazardous Material" shall mean any substance that is regulated or could lead to liability under any Environmental Law, including, but not limited to, any petroleum or petroleum product, asbestos in any form that is or could become friable, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls (PCB's), hazardous waste, hazardous material, hazardous substance, toxic substance, contaminant or pollutant, as defined or regulated as such under, any applicable Environmental Law. "Hedging Agreement" means any agreement in respect of any interest rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar 10 transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions entered into by the Borrower. "Holder" shall have the meaning provided in the Option Agreement. "Holding Company Conditions" shall mean the conditions set forth by the CPUC in Decision 96-11-017 or Decision 99-04-068 and any decision of the CPUC which imposes a requirement or condition on the Borrower affecting the Borrower's relationship with PGE Utility. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976. "Indebtedness" of any Person shall mean (i) all indebtedness of such Person for borrowed money, (ii) the deferred purchase price of assets or services which in accordance with U.S. GAAP would be shown on the liability side of the balance sheet of such Person, (iii) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second Person secured by any Lien on any Property owned by such first Person, whether or not such Indebtedness has been assumed, (v) all Capital Lease Obligations of such Person, (vi) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vii) all net obligations of such Person under Hedging Agreements and (viii) all Contingent Obligations of such Person; provided that Indebtedness shall not include (a) trade payables arising in the ordinary course of business so long as such trade payables are payable within 90 days of the date the respective goods are delivered or the respective services are rendered and are not overdue and (b) obligations with respect to the PG&E Corporation Supplemental Retirement Savings Plan, the PG&E Corporation Management Retention Program, the PG&E Corporation Senior Management Incentive Program, the PG&E Corporation Long-Term Incentive Program, the PG&E Corporation Short-Term Incentive Program, the Supplemental Executive Retirement Plan, the Postretirement Medical Plan, the Post Retirement Life Insurance Plan and the PG&E Corporation Deferred Compensation Plan for Non-Employee Directors, which obligations as of the Closing Date do not exceed $90,000,000 in the aggregate, as such obligations may accrue in the ordinary course of business pursuant to the terms of such Plans (as amended in the ordinary course of business and consistent with past practice), as may be adjusted in accordance with U.S. GAAP. "Indemnified Liabilities" shall have the meaning provided in Section 9.2(a) of the Credit Agreement. "Indemnified Matters" shall have the meaning provided in Section 9.2(b) of the Credit Agreement. "Indemnified Person" shall have the meaning provided in Section 9.2(a) of the Credit Agreement. "Initial Closing Date" shall mean March 1, 2001. 11 "Initial Date Certain" shall mean the second anniversary of the Initial Closing Date. "Insurance Proceeds" shall mean all amounts payable to the Borrower or the Collateral Agent in respect of any insurance required to be maintained (or caused to be maintained) by the Borrower pursuant to Section 5.9 of the Credit Agreement (other than general liability insurance, delayed completion insurance and business interruption insurance), regardless of whether such payments are received from any insurer or from either EPC Contractor pursuant to the EPC Contracts or otherwise. "Intercreditor Agreement" shall mean the Intercreditor and Subordination Agreement, dated as of June 25, 2002, among the Administrative Agent, the Collateral Agent, the Lenders and the holders party to the Warrant Agreement. "Interest Determination Date" shall mean, with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan. "Interest Payment Date" shall have the meaning provided in Section 2.5(d) of the Credit Agreement. "Interest Period" shall have the meaning provided in Section 2.6 of the Credit Agreement. "Interest Reserve Accounts" shall mean the collective reference to the Tranche A Interest Reserve Account and the Tranche B Interest Reserve Account. "Investment" in any Person shall mean, without duplication: (a) the acquisition (whether for cash, securities, other Property, services or otherwise) or holding of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of such Person, or any agreement to make any such acquisition or to make any capital contribution to such Person; or (b) the making of any deposit with, or advance, loan or other extension of credit to, such Person. "Investments" shall have the meaning provided in Sections 7.5 and 7A.5 of the Credit Agreement. "IPO" shall mean the sale, in an initial underwritten offering, registered under the Securities Act, of shares of NEG, Inc.'s common stock, where after such offering, the common stock sold in such offering is traded on the Nasdaq National Market or a national securities exchange. "Law" shall mean, with respect to any Person (i) any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement or other governmental restriction or any interpretation or administration of any of the foregoing by any Governmental Authority (including, without limitation, Governmental Approvals) applicable to such Person and (ii) any directive, guideline, policy, requirement or any similar form of decision of or determination by any Governmental Authority which is binding on such 12 Person, in each case, whether now or hereafter in effect (including, without limitation, in each case, any Environmental Law). "Lead Arranger" shall mean Lehman Brothers Inc., a Delaware corporation. "Lehman Fee Letter" shall mean the Fee Letter dated June 13, 2002 among the Borrower, Lehman Brothers Inc. and Lehman Commercial Paper Inc. "Lender" shall mean, individually or collectively, as the context may require, a Tranche A Lender, a Tranche B Lender and any Assignee thereof pursuant to Section 9.11 of the Credit Agreement. "Lender Addendum" shall mean, with respect to each Tranche B Lender becoming, or continuing as, a Tranche B Lender on the Closing Date, a Lender Addendum, substantially in the form of Schedule A, to be executed and delivered by such Lender pursuant to Section 9.25 of the Credit Agreement. "Lien" shall mean, with respect to any Property of any Person, any mortgage, lien, deed of trust, hypothecation, fiduciary transfer of title, assignment by way of security, lien, pledge, charge, lease, sale and lease-back arrangement, easement, servitude, trust arrangement, or security interest or encumbrance of any kind in respect of such Property, or any preferential arrangement having the practical effect of constituting a security interest with respect to the payment of any obligation with, or from the proceeds of, any Property of any kind (and a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such Property). "Limited Liability Company Interest" shall have the meaning provided in the LLC Pledge Agreement. "LLC" shall mean individually and collectively PG&E National Energy Group, LLC, a Delaware limited liability company, and the New LLC. "LLC Agreement" shall mean the Amended and Restated Limited Liability Company Agreement dated as of March 1, 2001 of PG&E National Energy Group LLC. "LLC Interests" shall mean, as to LLC, any and all shares of the profits and losses of such Person, any and all rights to receive distributions of such Person's assets, and any and all rights, benefits or privileges pertaining to any of the foregoing, including, without limitation, voting rights and the right to participate in management. "LLC Pledge Agreement" shall mean the Amended and Restated LLC Pledge Agreement, dated as of June 25, 2002, among the Borrower, as pledgor, LLC, as issuer, the Administrative Agent and Deutsche Bank Trust Company Americas, as pledgee, as Collateral Agent for the benefit of the Lenders. 13 "Loan" shall mean each of the Tranche A Loan and the Tranche B Loan, and shall also mean, where the context requires, any portion of any such loan held by a Lender or subject to a particular Interest Period or interest rate option. "Losses" shall have the meaning provided in Section 9.2(b) of the Credit Agreement. "Majority Tranche A Lenders" shall mean, at any time, the holders of more than 50% in principal amount of the Tranche A Loan then outstanding. "Majority Tranche B Lenders" shall mean, at any time, the holders of more than 50% in principal amount of the Tranche B Loan then outstanding. "Margin Stock" shall mean margin stock within the meaning of Regulation U and Regulation X. "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, liabilities, management or prospects of such Person. "Material Adverse Effect" shall mean a material adverse effect on (i) the condition (financial or otherwise), results of operations, business, Properties, liabilities, management or prospects of the Borrower, (ii) the ability of the Borrower, LLC or NEG, Inc. to timely perform any of its obligations under any of the Financing Documents to which it is a party, (iii) the legality, validity or enforceability of any material provision of any Financing Document, (iv) the rights and remedies of the Collateral Agent, the Administrative Agent, any Holder or any Lender under any of the Financing Documents or (v) the security interests provided under the Security Documents or the value thereof. "Moody's" shall mean Moody's Investors Service, Inc. "NAIC" shall mean the National Association of Insurance Commissioners. "NEG Equity Sale" shall mean the sale of up to 20% of the outstanding equity of NEG, Inc., substantially in the manner described in the NEG Equity Sale Letter with such changes in the transactions described therein as may hereafter occur; provided that no such changes will be made that will adversely affect the Lenders' security interest in the Collateral or the rights of the Holders under the Option Agreement (other than the effect of the release of up to 20% of the outstanding equity of NEG, Inc. to be released by the Lenders pursuant to the terms hereof in connection with any NEG Equity Sale). "NEG Equity Sale Letter" shall mean the letter from the Borrower addressed to the Administrative Agent and the Lenders dated November 19, 2001, describing the terms of a potential sale of no more than 20% of the outstanding equity of NEG, Inc. and certain other actions related thereto. "NEG Equity Transactions" shall mean, collectively, (a) the creation of a wholly-owned Subsidiary of NEG, Inc. (the "New LLC"), (b) the transfer to the New LLC of up to 200 14 shares of the common stock of NEG, Inc., provided, that, prior to such transfer, the New LLC becomes a party to the Stock Pledge Agreement on the same terms as those applicable to the pledgor thereunder on the Closing Date, and (c) the NEG Equity Sale; provided, further, that the Borrower shall give five (5) Business Days' prior written notice to the Lenders of the NEG Equity Transactions. "NEG Group" means LLC and each of its subsidiaries and each corporation, company or partnership in which any of the foregoing own a Controlling equity interest. "NEG, Inc." shall mean PG&E National Energy Group, Inc., a Delaware corporation. "NEG Subsidiary" shall mean, as the context may require, any or all Subsidiaries of NEG, Inc. "Net Debt Proceeds" shall mean, with respect to any incurrence of Indebtedness for borrowed money, the cash proceeds received by any Person (net of any tax, underwriting discounts and commissions and reasonable costs paid by such Person associated therewith) from the respective incurrence of such Indebtedness for borrowed money. "Net Equity Proceeds" shall mean, with respect to each issuance or sale of any equity by any Person or any capital contribution to such Person, the cash proceeds received by any Person (net of any tax, underwriting discounts and commissions and reasonable costs paid by such Person associated therewith) from the respective sale or issuance of its equity or from the respective capital contribution. "Net Insurance Proceeds" shall mean, with respect to any Recovery Event, the cash proceeds received by any Person (net of reasonable costs and taxes paid by such Person associated therewith) in connection with such Recovery Event. "Net Sale Proceeds" shall mean, for any Asset Sale, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received by any Person from such sale of assets (net of the fees and commissions and other reasonable costs paid by such Person associated therewith) relating to the assets sold. "New Investor" shall mean any purchaser of shares of the outstanding equity of NEG, Inc. in connection with the NEG Equity Sale, and their successors and assigns. "New LLC" shall have the meaning provided in the definition of "NEG Equity Transactions" in Appendix A to the Credit Agreement. "New Tranche B Commitment" shall mean as to any New Tranche B Lender, the obligation of such Lender, if any, to make a Tranche B Loan to the Borrower in a principal amount not to exceed the amount set forth in the Lender Addendum executed and delivered by such New Tranche B Lender pursuant to Section 9.25. The original aggregate amount of the New Tranche B Commitments is $420,000,000. 15 "New Tranche B Lender" shall mean any holder of a New Tranche B Commitment. "Note" shall have the meaning provided in Section 2.4 of the Credit Agreement. "Notice of Borrowing" shall have the meaning provided in Section 2.2 of the Credit Agreement. "Obligations" shall mean, collectively, (i) all loans, advances, debts, liabilities, and obligations, howsoever arising, owed by the Borrower under a Financing Document to the Administrative Agent or any Lender or its Affiliates of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all interest, fees, charges, expenses, attorneys' fees and consultants' fees chargeable to the Borrower; (ii) any and all sums advanced by the Collateral Agent, the Administrative Agent or any Lender in order to preserve the Collateral; and (iii) the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent, the Administrative Agent or any Lender of its rights under the Security Documents, together with reasonable attorneys' fees and court costs. "Officer's Certificate" shall mean an officer's certificate signed by an Authorized Officer of the Borrower. "Option" shall have the meaning provided in the Option Agreement. "Option Agreement" shall mean the Amended and Restated Option Agreement, dated as of June 25, 2002, among the Borrower, LLC, NEG, Inc., GPSF-F Inc., a Delaware corporation, LB I Group Inc., a Delaware corporation, and each other entity holding Options on the Closing Date. "Option Shares" shall have the meaning provided in the Option Agreement. "Payment Office" shall mean the office specified from time to time by the Administrative Agent as its payment office by notices to the Borrower and the Lenders. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Permitted Lien" shall have the meaning provided in Sections 7.1 and 7A.1 of the Credit Agreement. "Person" shall mean any individual, corporation, limited liability company, company, voluntary association, partnership, joint venture, trust, or other enterprises or unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "PGE Utility" shall mean Pacific Gas and Electric Company, a California corporation. 16 "Plan" shall mean any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an ERISA Affiliate, and each such plan for the five-year period immediately following the latest date on which the Borrower, or a Subsidiary of the Borrower or an Affiliate maintained, contributed to or had an obligation to contribute to such plan. "Pledged Interest" shall mean the Limited Liability Company Interests pledged under the LLC Pledge Agreement. "Preferential Rights" shall have the meaning provided in Section 5.4(b) of the Credit Agreement. "Prime Rate" shall mean the per annum rate of interest established from time to time by Deutsche Bank Trust Company Americas as its prime rate, which rate may not be the lowest rate of interest charged by Deutsche Bank Trust Company Americas to its customers. "Process Agent" shall have the meaning provided in Section 9.16(b) of the Credit Agreement. "Property" shall mean any property or asset of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, and any right or interest therein. "PUHCA" shall mean the Public Utility Holding Company Act of 1935, as amended, and rules and regulations promulgated thereunder. "QF" shall mean a "qualifying cogeneration facility" or a "qualifying small power production facility" as defined under the Public Utility Regulatory Policies Act of 1978, as amended. "Quarterly Dates" shall mean the last Business Day of each of March, June, September and December. "Real Estate" shall mean, with respect to any Person, all real estate assets, real property interests, including all easements, rights of way, feehold interests, leasehold interests and any options with respect to any of the foregoing, owned by such Person. "Recovery Event" shall mean the receipt by any Person of any cash insurance proceeds or condemnation awards payable (i) by reason of theft, loss, physical destruction, damage, taking or any other similar event with respect to any Property or assets of such Person or (ii) under any policy of insurance, except in the case of the Borrower, excluding such proceeds or awards attributable to PGE Utility or any Subsidiary of PGE Utility or any Reorganization Subsidiary. "Register" shall have the meaning provided in Section 9.11(e) of the Credit Agreement. 17 "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve system (or any successor). "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve system (or any successor). "Regulation X" shall mean Regulation X of the Board of Governors of the Federal Reserve system (or any successor). "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any Hazardous Material, but excluding (i) emissions from the engine exhaust of a motor vehicle and (ii) the normal application of fertilizer). "Reorganization Subsidiary" shall mean any of Gen, ETrans, GTrans and Newco (as such capitalized terms are defined in Annex B), and any successor or replacement of any such entity and any entity holding any substantial part of the assets contemplated by Annex B to be held by any such entity, in each case, after giving effect to the transactions described in Annex B. "Reportable Event" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043. "Required FMV Ratio" shall have the meaning provided in Section 7.16 of the Credit Agreement. "Required Waiver Lenders" shall mean, at any time, the holders of more than 50% in principal amount of the Loans then outstanding. "Reserve Account Control Agreements" shall mean, collectively, the Tranche A Interest Reserve Account Control Agreement and the Tranche B Interest Reserve Account Control Agreement. "Reserve Requirement" shall mean, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. 18 "Return" shall have the meaning provided in Section 5.12 of the Credit Agreement. "Scheduled Project" shall have the meaning provided in Section 5.23 of the Credit Agreement. "SEC" shall mean the Securities and Exchange Commission. "SEC Filings" shall mean the filings of the Borrower and NEG, Inc. listed on Schedule B. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Security Documents" shall mean, collectively, the LLC Pledge Agreement, the Stock Pledge Agreement, the Reserve Account Control Agreements and all Uniform Commercial Code financing statements and other filings, recordings or regulations required by the Credit Agreement or the LLC Pledge Agreement or the Stock Pledge Agreement to be filed or made in respect of any such Security Document. "Senior Obligations" shall have the meaning provided in the Intercreditor Agreement. "Significant Subsidiaries" shall mean any of PG&E Gas Transmission, Northwest Corporation, a California corporation, PG&E Energy Trading Holdings Corporation, a California corporation, PG&E Generating Company, LLC, a Delaware limited liability company and USGen New England, Inc., a Delaware corporation. "Source" of a Lender shall mean the source from which such Lender is obtaining funds in connection with the funding or maintenance of its Eurodollar Loan. "Specified Change of Control" shall mean a "Change of Control" (or any other defined term having a similar purpose) as defined in the Convertible Notes Indenture. "Specified Rated Indebtedness" shall mean any long-term unsecured Indebtedness for borrowed money which (a) has a credit rating of no less than BBB- by Standard & Poor's or Baa3 by Moody's, (b) a maturity date no earlier than 180 days after the Tranche B Maturity Date and (c) does not constitute "Senior Obligations" for purposes of the Intercreditor Agreement. "Specified Subsidiaries" shall mean any of GTN Holdings LLC, a Delaware limited liability company and PG&E Energy Trading Holdings, LLC, a Delaware limited liability company. "Spin-Off" of NEG, Inc. shall mean a spin-off, divestiture, reorganization or other form of restructuring that results in NEG, Inc. no longer being a Subsidiary of LLC or the Borrower. 19 "Standard & Poor's" shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "Stock Pledge Agreement" shall mean the Amended and Restated Stock Pledge Agreement, dated as of June 25, 2002, among LLC, as pledgor, NEG, Inc., as issuer, the Administrative Agent and Deutsche Bank Trust Company Americas, as pledgee, as Collateral Agent for the benefit of the Lenders. "Subsidiary" shall mean, for any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Tax" shall have the meaning provided in Section 3.4 of the Credit Agreement. "Trading Day" shall mean a day during which trading in securities generally occurs on the New York Stock Exchange or, if the Borrower's common stock is not listed on the New York Stock Exchange, on the principal other national or regional securities exchange on which the Borrower's common stock then is listed or, if the Borrower's common stock is not listed on a national or regional securities exchange, on the National Association of Securities Dealers Automated Quotation System or, if the Borrower's common stock is not quoted on the National Association of Securities Dealers Automated Quotation System, on the principal other market on which the Borrower's common stock is then traded. "Tranche A Event of Default" shall have the meaning provided in Section 8.1 of the Credit Agreement. "Tranche A Interest Reserve Account" shall the mean the collateral account, account no. 34214, maintained with the Collateral Agent for the purposes of paying interest on the Tranche A Loan. "Tranche A Interest Reserve Account Control Agreement" shall mean the Tranche A Interest Reserve Account Security and Control Agreement, dated as of June 25, 2002, among the Borrower, the Collateral Agent and the bank party thereto, with respect to the Tranche A Interest Reserve Account. "Tranche A Lender" shall be the collective reference to (i) General Electric Capital Corporation, a New York corporation, and (ii) any other holder of the Tranche A Loan (including, without limitation, any Lender which becomes a holder of the Tranche A Loan pursuant to Section 2.10). "Tranche A Loan" shall mean the Loan continued by the Tranche A Lender on the Closing Date. 20 "Tranche B Event of Default" shall have the meaning provided in Sections 8.1 and 8A.1 of the Credit Agreement. "Tranche B Interest Reserve Account" shall the mean the collateral account, account no. 34213, maintained with the Collateral Agent for the purposes of paying interest on the Tranche B Loan. "Tranche B Interest Reserve Account Control Agreement" shall mean the Tranche B Interest Reserve Account Security and Control Agreement, dated as of June 25, 2002, among the Borrower, the Collateral Agent and the bank party thereto, with respect to the Tranche B Interest Reserve Account. "Tranche B Lender" shall be the collective reference to (i) Lehman Commercial Paper Inc., a New York corporation, and (ii) any other holder of the Tranche B Loan or the New Tranche B Commitment. "Tranche B Loan" shall be the collective reference to (i) the Loan converted into the Tranche B Loan pursuant to Section 2.1 of the Credit Agreement on the Closing Date and (ii) the Loan provided by the New Tranche B Lenders on the Closing Date. "Tranche B Maturity Date" shall mean September 2, 2006. "Type" shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan or a Eurodollar Loan. "Unaudited Financial Statements" shall have the meaning provided in Section 5.11 of the Credit Agreement. "Unfunded Current Liability" of any Plan shall mean the amount, if any, by which the value of the accumulated plan benefits under the Plan determined on a plan termination basis in accordance with actuarial assumptions at such time consistent with those prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds the fair market value of all plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions). "United States" and "U.S." shall each mean the United States of America. "U.S. GAAP" shall mean generally accepted accounting principles and practices as in effect from time to time in the United States. "Utility Regulation" means any law, regulation or rule of the Federal government, any state, or any agency or political subdivision of the foregoing which is applicable to an entity by virtue of (i) such entity's ownership or operation of assets used for the generation, transmission, distribution or sale of electric energy, (ii) such entity's transportation of natural or manufactured gas, gasoline, oil, or similar fuels, steam, chilled water or other products resulting in regulation similar to that imposed on the foregoing, (iii) such entity's engaging in the sale or provision of electric energy, natural gas or similar fuels, steam, water, chilled water, or telephone or other public utility services; provided that, such term shall not include laws, regulations or 21 rules of general applicability with respect to protection of the environment, hazardous waste, or public health or safety. "Utility Spin-Off" shall mean individually and collectively, any transfers, Investments, Indebtedness, Dividends, and other transactions to the extent substantially consistent with the transactions described in the attached Annex B (which summarizes the material provisions of the filed Plan of Reorganization, dated April 19, 2002, proposed by PGE Utility in connection with its bankruptcy proceeding) and undertaken pursuant to a confirmed plan of reorganization of PGE Utility under Chapter 11 of the Bankruptcy Code. "Voting Stock", with respect to any Person, shall mean Capital Stock the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of a contingency. "Warrant" shall have the meaning provided in the Warrant Agreement. "Warrant Agreement" shall mean the Warrant Agreement, dated as of June 25, 2002, among the Borrower and the holders party thereto, together with all instruments and other agreements (including, without limitation, the related Equity Registration Rights Agreement) entered into by the Borrower in connection therewith. 2. Rules of Interpretation. In each Financing Document, unless otherwise indicated: (a) each reference to, and the definition of, any document (including any Financing Document) shall be deemed to refer to such document as it may be amended, supplemented, revised or modified from time to time in accordance with its terms and, to the extent applicable, the terms of the Credit Agreement; (b) each reference to a Law or Governmental Approval shall be deemed to refer to such Law or Governmental Approval as the same may be amended, supplemented or otherwise modified from time to time; (c) any reference to a Person in any capacity includes a reference to its permitted successors and assigns in such capacity and, in the case of any Governmental Authority, any Person succeeding to any of its functions and capacities; (d) references to days shall refer to calendar days unless Business Days are specified; references to weeks, months or years shall be to calendar weeks, months or years, respectively; if any calendar day is not a Business Day, then performances required on such calendar day shall be deferred to the next Business Day; (e) all references to a "Section," "Appendix," "Annex," "Schedule" or "Exhibit" are to a Section of such Financing Document or to an Appendix, Annex, Schedule or Exhibit attached thereto; 22 (f) the table of contents and Section headings and other captions therein are for the purpose of reference only and do not affect the interpretation of such Financing Document; (g) defined terms in the singular shall include the plural and vice versa, and the masculine, feminine or neuter gender shall include all genders; (h) the words "hereof", "herein" and "hereunder", and words of similar import, when used in any Financing Document, shall refer to such Financing Document as a whole and not to any particular provision of such Financing Document; (i) the words "include," "includes" and "including" are deemed to be followed by the phrase "without limitation"; (j) where the terms of any Financing Document require that the approval, opinion, consent or other input of any Secured Party be obtained, such requirement shall be deemed satisfied only where the requisite approval, opinion, consent or other input is given by or on behalf of the relevant party in writing; (k) where the terms of any Financing Document require or permit any action to be taken by the Collateral Agent, such action shall be taken strictly in accordance with the applicable provisions of the relevant Financing Documents; (l) whenever the phrase "material compliance" is used, it shall be interpreted to mean that either the entity is in full compliance with the requirement or that any failure of the entity to be in compliance in all respects with the requirement could not reasonably be expected alone or together will all other such failures and all of the facts and circumstances to have a Material Adverse Effect; and (m) all reference to "knowledge" of a Person shall mean the knowledge or actual awareness of such Person of the subject matter in question after due inquiry and investigation and "knowledge" of the Borrower shall mean and include knowledge of the other Covered Parties. EX-99.5 7 dex995.txt AMENDED AND RESTATED LLC PLEDGE AGREEMENT EXECUTION COPY ================================================================================ AMENDED AND RESTATED LLC PLEDGE AGREEMENT by and among PG&E CORPORATION, as Pledgor PG&E NATIONAL ENERGY GROUP, LLC, as Issuer LEHMAN COMMERCIAL PAPER INC., as Administrative Agent and DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent for the benefit of the Lenders, as Pledgee ================================================================================ Dated as of June 25, 2002 ================================================================================ LLC PLEDGE AGREEMENT AMENDED AND RESTATED LLC PLEDGE AGREEMENT (as amended, modified or supplemented from time to time, this "Agreement"), dated as of June 25, 2002, among PG&E CORPORATION, a corporation organized and existing under the laws of the State of California (the "Pledgor"), PG&E NATIONAL ENERGY GROUP, LLC, a limited liability company organized and existing under the laws of the State of Delaware (the "Issuer"), LEHMAN COMMERCIAL PAPER INC., a corporation organized and existing under the laws of the State of New York, as Administrative Agent for the lenders (the "Lenders") from time to time parties to the Credit Agreement described below and DEUTSCHE BANK TRUST COMPANY AMERICAS (the "Pledgee"), as Collateral Agent for the benefit of the Lenders. W I T N E S S E T H : WHEREAS, the Pledgor is a party to the Credit Agreement, dated as of March 1, 2001 (as amended, the "Existing Credit Agreement"), with the lenders parties thereto, Lehman Commercial Paper Inc., as Administrative Agent, and others, pursuant to which such lenders made the Tranche A Loan (as defined in the Existing Credit Agreement, the "Existing Tranche A Loan") and the Tranche B Loan (as defined in the Existing Credit Agreement, the "Existing Tranche B Loan"); WHEREAS, pursuant to the Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Pledgor, the Lenders parties thereto, the Administrative Agent and others, the Existing Credit Agreement is being amended and restated in its entirety to modify certain of the terms applicable to the Existing Tranche A Loan, to reflect the repayment of the Existing Tranche B Loan and to provide for the making of an additional Tranche B Loan to the Pledgor; WHEREAS, the Pledgor, as Class A Member, owns one hundred percent (100%) of the issued and outstanding limited liability company interests of the Issuer; WHEREAS, the Pledgor, the Issuer, the Administrative Agent, the Pledgee, acting as Collateral Agent for the Lenders, and others, are parties to the LLC Pledge Agreement, dated as of March 1, 2001 (the "Existing LLC Pledge Agreement"); and WHEREAS, it is a condition precedent to the obligation of the Lenders to agree to amend and restate the Existing Credit Agreement and to make an additional Tranche B Loan to the Pledgor that the Existing LLC Pledge Agreement shall have been amended and restated as provided herein; NOW, THEREFORE, in consideration of the foregoing premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement, the Pledgor hereby agrees with the Administrative Agent, for the benefit of the Lenders, to amend and restate the Existing LLC Pledge Agreement to read in its entirety as follows: 1. SECURITY FOR OBLIGATIONS. This Agreement is made by the Pledgor for the benefit of the Pledgee, acting as Collateral Agent for the benefit of the Lenders (as more particularly described in Sections 3.1 and 3.2) to secure: (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all Obligations of the Pledgor and the Issuer under the Credit Agreement and the other Financing Documents and the obligations of the Issuer and the Pledgor under the Option Agreement, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising and howsoever evidenced, and the due performance and compliance by the Pledgor and the Issuer with the terms thereof; (ii) any and all sums advanced by the Pledgee or any Lender in order to preserve the Collateral or preserve its security interest in the Collateral (as defined below); and (iii) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i) and (ii) above, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder with respect thereto, together with reasonable attorneys' fees and court costs related thereto, all such obligations, liabilities, sums and expenses set forth in clauses (i) through (iii) of this Section 1, whether now existing or hereafter arising, that are (x) owing to the Tranche A Lenders, being herein called the "Tranche A Secured Obligations", and (y) owing to the Tranche B Lenders, being herein called the "Tranche B Secured Obligations" (collectively, the "Secured Obligations"). 2. DEFINITIONS. (a) Unless otherwise defined herein, all capitalized terms used herein and defined in Appendix A to the Credit Agreement shall be used herein as therein defined and the principles of construction set forth in Appendix A to the Credit Agreement shall apply to this Agreement. (b) In addition, the following capitalized terms used herein shall have the definitions specified below: "Agreement" has the meaning set forth in the first paragraph hereof. "Collateral" has the meaning set forth in Section 3.1 hereof. "Credit Agreement" has the meaning set forth in the second recital hereto. "Existing Credit Agreement" has the meaning set forth in the first recital hereto. "Existing LLC Pledge Agreement" has the meaning set forth in fourth recital hereto. 2 "Existing Tranche A Loan" has the meaning set forth in the first recital hereto. "Existing Tranche B Loan" has the meaning set forth in the first recital hereto. "Issuer" has the meaning set forth in the first paragraph hereof. "Lenders" has the meaning set forth in the first paragraph hereof. "Limited Liability Company Agreement" means the Amended and Restated Limited Liability Company Agreement of the Issuer, dated as of March 1, 2001, as amended, modified or supplemented from time to time and including any agreement which replaces such Limited Liability Company Agreement. "Limited Liability Company Assets" means all shares of capital stock, interests, rights, participations and/or rights in or other equivalents (however designated, whether voting or nonvoting), at any time owned in NEG, Inc. or any other company. "Limited Liability Company Interests" means the entire limited liability company membership interest at any time owned by the Pledgor in the Issuer. "Pledgee" has the meaning set forth in the first paragraph hereof. "Pledgor" has the meaning set forth in the first paragraph hereof. "Proceeds" has the meaning given such term in the UCC. "Process Agent" has the meaning set forth in Section 24 hereof. "Secured Obligations" has the meaning set forth in Section 1 hereof. "Securities Act" means the Securities Act of 1933, as amended and as in effect from time to time. "Tranche A Secured Obligations" has the meaning set forth in Section 1 hereof. "Tranche B Secured Obligations" has the meaning set forth in Section 1 hereof. "Transition Date" means the date upon which the Senior Obligations (as defined in the Intercreditor Agreement) shall have been indefeasibly paid in full in cash. "UCC" means the Uniform Commercial Code as in effect in the State of New York, the State of Delaware and the State of Maryland, as applicable, from time to time. 3 3. PLEDGE OF LIMITED LIABILITY COMPANY INTERESTS, ETC. 3.1 Pledge. (a) The Pledgor hereby confirms that pursuant to the Existing LLC Pledge Agreement the Pledgor transferred, pledged and assigned to the Pledgee, and granted to the Pledgee a first priority security interest in, all of the right, title and interest of the Pledgor in and to the following, whether now existing or hereafter from time to time acquired by the Pledgor (collectively, the "Collateral"); and the Pledgor does hereby repeat and confirm, on and as of the date hereof, such transfer, pledge, assignment and grant of a first priority security interest: (i) all Limited Liability Company Interests and all of the Pledgor's right, title and interest in the Issuer, including, without limitation: (A) all the capital thereof and the Pledgor's interest in all profits, losses, Limited Liability Company Assets and other distributions to which the Pledgor shall at any time be entitled in respect of such Limited Liability Company Interests; (B) all other payments due or to become due to the Pledgor in respect of such Limited Liability Company Interests, whether under the Limited Liability Company Agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise; (C) all of the Pledgor's claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under the Limited Liability Company Agreement or otherwise, or at law or otherwise in respect of Limited Liability Company Interests; (D) all of the Pledgor's rights under the Limited Liability Company Agreement or at law or otherwise to exercise and enforce every right, power, remedy, authority, option and privilege of the Pledgor relating to such Limited Liability Company Interests, including any power to terminate, cancel or modify the Limited Liability Company Agreement, if any, to execute any instruments and to take any and all other action on behalf of and in the name of the Pledgor in respect of such Limited Liability Company Interests and the Issuer, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or give receipt for any of the foregoing or to file any claims and to take any action in connection with any of the foregoing; and (E) all other property hereafter delivered in substitution for any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, distributions rights and other property at any time and from time to time 4 received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; (ii) to the extent that the Pledgor shall at any time have any right, title or interest therein, all shares of Capital Stock of NEG, Inc.; and (iii) all Proceeds of any and all of the foregoing. The foregoing transfer, pledge, assignment and grant of a first priority security interest is made to secure the prompt and complete payment and performance when due of all Tranche A Secured Obligations. (b) The Pledgor does hereby transfer, pledge and assign to the Pledgee, and does hereby grant to the Pledgee a second priority security interest in, all of the right, title and interest of the Pledgor in all Collateral whether now existing or hereafter acquired by the Pledgor. The foregoing transfer, pledge, assignment and grant of a second priority security interest is made to secure the prompt and complete payment and performance when due of the Tranche B Secured Obligations. (c) The security interest granted in Section 3.1(a) shall be senior in priority to the security interest granted in Section 3.1(b). 3.2 Separate Security Interests. The security interests created pursuant to each of Section 3.1(a) and 3.1(b) are separate and distinct security interests in the Collateral. 3.3 Procedures. (a) To the extent that the Pledgor at any time or from time to time owns, acquires or obtains any right, title or interest in any Collateral, such Collateral shall automatically (and without the taking of any action by the Pledgor) be pledged pursuant to Section 3.1 of this Agreement and, in addition thereto, the Pledgor shall (to the extent provided below) take the following actions as set forth below (as promptly as practicable and, in any event, within 10 days after it obtains such Collateral) for the benefit of the Pledgee: (i) if such Collateral is Limited Liability Company Interest evidenced by a certificate, the Pledgor shall deliver such certificate to the Pledgee, indorsed to the Pledgee or indorsed in blank or together with duly executed stock powers; and (ii) if such Collateral is Limited Liability Company Interest not represented by a certificate, the Pledgor shall take all actions required to perfect the security interest of the Pledgee therein under applicable Law, including, without limitation, causing the Issuer to duly authorize and execute, and deliver to the Pledgee, an agreement for the benefit of the Pledgee substantially in the form of Annex C hereto (appropriately completed to the reasonable satisfaction of the Pledgee and with such modifications, if any, as shall be, in the case of modifications requested by the Pledgee, reasonably satisfactory to the Pledgor or the Issuer and, in the case of modifications requested by the Pledgor, reasonably satisfactory to the Pledgee or the Issuer) pursuant to which the Issuer agrees to comply with any and all instructions originated by the Pledgee without further 5 consent by the registered owner and not to comply with instructions regarding such Limited Liability Company Interest originated by any other Person other than a court of competent jurisdiction; and (b) In addition to the actions required to be taken pursuant to Section 3.3(a) hereof, the Pledgor shall from time to time, at the sole expense of the Pledgor, cause appropriate financing statements (on Form UCC-1 or other appropriate form) under the Uniform Commercial Code as in effect in the various relevant States, in form covering all Collateral hereunder (with the form of such financing statements to be satisfactory to the Pledgee), to be filed in the relevant filing offices so that at all times the Pledgee has a security interest in all Collateral which is perfected by the filing of such financing statements (in each case to the maximum extent perfection by filing may be obtained under the laws of any relevant State). 3.4 Subsequently Acquired Collateral. If the Pledgor shall acquire (by purchase, dividend or similar distribution or otherwise) any additional Collateral at any time or from time to time after the date hereof, such Collateral shall automatically (and without any further action being required to be taken) be subject to the pledge and security interests created pursuant to Section 3.1 hereof and, furthermore, the Pledgor will promptly thereafter take (or cause to be taken) all action with respect to such Collateral in accordance with the procedures set forth in Section 3.3 hereof, and will promptly thereafter deliver to the Pledgee (i) a certificate executed by a principal executive officer of the Pledgor describing such Collateral and certifying that the same has been duly pledged in favor of the Pledgee (for the benefit of the Secured Parties) hereunder and (ii) supplements to Annexes A and B hereto as are reasonably necessary to cause such annexes to be complete and accurate at such time. 3.5 Transfer Taxes. Each pledge of Collateral under Section 3.1 hereof shall be accompanied by any transfer tax stamps required in connection with the pledge of such Collateral. 3.6 Certain Representations and Warranties Regarding the Collateral. The Pledgor represents and warrants that on the date hereof (i) the Limited Liability Company Interests held by the Pledgor consist of the number and type of interests described in Annex A hereto; (ii) each such Limited Liability Company Interest constitutes that percentage of the issued and outstanding equity interest of the Issuer as is set forth in Annex A hereto; (iii) the Pledgor has complied with the respective procedure set forth in Sections 3.3(a) and (b) hereof with respect to each item of Collateral hereunder; and (iv) the Limited Liability Company Interests pledged hereunder constitute 100% of the economic interest in the Issuer. 4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. If and to the extent necessary to enable the Pledgee to perfect its security interest in any of the Collateral or to exercise any of its remedies hereunder, the Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Collateral, which may be held in the name of the Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee. 6 5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until there shall have occurred and be continuing an Event of Default, the Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral owned by it, and to give consents, waivers or ratifications in respect thereof; provided, that, in each case, no vote shall be cast or any consent, waiver or ratification given or any action taken or omitted to be taken which would violate or be inconsistent with any of the terms of this Agreement or any other Financing Document, or which would have the effect of impairing the value of the Collateral or any part thereof or the position or interests of the Pledgee in the Collateral. All such rights of the Pledgor to vote and to give consents, waivers and ratifications shall cease in case an Event of Default has occurred and is continuing, and Section 7 hereof shall become applicable, and the Pledgee shall without further notice or consent be admitted and become a member of the Issuer. 6. DIVIDENDS AND OTHER DISTRIBUTIONS. All cash dividends, cash distributions, cash Proceeds and other cash amounts payable in respect of the Collateral (other than proceeds of any foreclosure in respect of the Collateral pursuant to Section 7 hereof, which proceeds shall be distributed and applied as provided in Section 9 hereof) consisting of the Limited Liability Company Interests shall be paid to the Pledgee, to be applied, at the instruction of the Majority Tranche A Lenders (or, after the Transition Date, the Majority Tranche B Lenders), to the payment and repayment of the Loans pursuant to Section 3.2 of the Credit Agreement and the relevant provisions of the Intercreditor Agreement. The Pledgee shall also be entitled to receive directly, and to retain as part of the Collateral: (i) all other or additional limited liability company interests, Limited Liability Company Assets or other property (including, but not limited to, cash dividends other than as set forth above) paid or distributed by way of dividend or otherwise in respect of the Collateral; (ii) all other or additional limited liability company interests or other property paid or distributed in respect of the Collateral by way of split, spin-off, split-up, reclassification, combination or similar rearrangement; and (iii) all other or additional limited liability company interests, Limited Liability Company Assets or other property (including, but not limited to, cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange, conveyance of assets, liquidation or similar reorganization. Nothing contained in this Section 6 shall limit or restrict in any way the Pledgee's right to have pledged to it proceeds of the Collateral in any form in accordance with Section 3 of this Agreement. All dividends, distributions or other payments which are received by the Pledgor contrary to the provisions of this Section 6 and Section 7 hereof shall be received in trust for the benefit of the Pledgee, shall be segregated from other property or funds of the Pledgor and shall be forthwith paid over to the Pledgee as Collateral in the same form as so received (with any necessary endorsement). 7 7. REMEDIES IN CASE OF DEFAULT OR EVENT OF DEFAULT. Subject to the Credit Agreement, if there shall have occurred and be continuing an Event of Default, the Pledgee shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement, any other Financing Document or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Pledgee shall be entitled to exercise all the rights and remedies of a secured party under the Uniform Commercial Code as in effect in any relevant jurisdiction and also shall be entitled, without limitation, to exercise the following rights: (i) to receive all amounts payable in respect of the Collateral; (ii) subject to the terms of the Limited Liability Company Agreement, to become a member of the Issuer without the consent of the Issuer or any member of the Issuer and to transfer all or any part of the Collateral into the Pledgee's name or the name of its nominee or nominees; (iii) to vote all or any part of the Collateral (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (the Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of the Pledgor, with full power of substitution to do so) and to exercise any and all of the rights or powers of the Pledgor in its capacity as a member of the Issuer or otherwise under the Limited Liability Company Agreement; (iv) at any time and from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by the Pledgor to the extent permitted by applicable Law), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine, in each case, to the extent permitted by applicable Law. The Pledgee shall not be obligated to make any such sale of Collateral regardless of whether any notice of sale has theretofore been given. The Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder (other than the right to pay the Secured Obligations in full), and all rights, if any, of marshalling the Collateral and any other security for the Secured Obligations or otherwise. At any such sale, to the extent permitted by applicable Law, the Pledgee may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. The Pledgee shall not be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto; and (v) to set-off any and all Collateral against any and all Secured Obligations and to apply such Collateral to the payment of any and all Secured Obligations. 8 If, pursuant to applicable Law, prior notice of any of the foregoing actions is required to be given to the Pledgee, the Pledgee hereby acknowledges that the minimum time required by such applicable Law, or if no minimum is specified, ten (10) days, shall be deemed a reasonable notice period. 8. REMEDIES, ETC., CUMULATIVE. Each and every right, power and remedy of the Pledgee provided for in this Agreement or in any other Financing Document, or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee of any one or more of the rights, powers or remedies provided for in this Agreement or any other Financing Document or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee to exercise any such right, power or remedy shall operate as a waiver thereof. No notice to or demand on the Pledgor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Pledgee to any other or further action in any circumstances without notice or demand. 9. APPLICATION OF PROCEEDS (a) All monies collected by the Pledgee upon any sale or other disposition of the Collateral pursuant to the terms of this Agreement, together with all other monies received by the Pledgee hereunder, shall be applied at the written instruction of the Majority Tranche A Lenders (or, after the Transition Date, the Majority Tranche B Lenders) for satisfaction of the Secured Obligations in the order provided in the Credit Agreement and the Intercreditor Agreement. (b) It is understood and agreed that the Pledgor shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral hereunder and the aggregate amount of the Secured Obligations. 10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt given by the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof. INDEMNITY. The Pledgor agrees (i) to indemnify and hold harmless the Pledgee and its successors, assigns, employees, officers, directors, agents and affiliates (individually an "Indemnitee," and collectively the "Indemnitees") from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, and (ii) to reimburse each Indemnitee for all reasonable costs and expenses, including reasonable attorneys' fees, in each case growing out of or resulting from this Agreement or the exercise by any Indemnitee of any right or remedy granted to it hereunder or under any other Financing Document (but excluding any claims, demands, losses, judgments and liabilities or expenses to the extent incurred by reason of gross negligence or willful misconduct 9 of such Indemnitee (as determined by a court of competent jurisdiction in a final and non-appealable decision)). In no event shall the Pledgee be liable, in the absence of gross negligence or willful misconduct on its part or on the part of any of its nominees or sub-agents, for any matter or thing in connection with this Agreement other than to account for monies actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Pledgor under this Section 11 are unenforceable for any reason, the Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable Law. The provisions of this Section 11 shall survive the termination of this Agreement and the resignation or removal of any Indemnitee. 12. PLEDGEE NOT A LIMITED LIABILITY COMPANY MEMBER. (a) Nothing herein shall be construed to make the Pledgee liable as a member of the Issuer or the Pledgor and the Pledgee by virtue of this Agreement or otherwise (except as referred to in the following sentence) shall not have any of the duties, obligations or liabilities of a member of the Issuer or the Pledgor. The parties hereto expressly agree that, unless the Pledgee shall become the absolute owner of Collateral pursuant hereto, this Agreement shall not be construed as creating a partnership or joint venture among the Pledgee, the Pledgor and/or any other Person. (b) Except as provided in the last sentence of paragraph (a) of this Section 12, the Pledgee, by accepting this Agreement, did not intend to become a member of the Issuer or the Pledgor or otherwise be deemed to be a co-venturer with respect to the Pledgor, the Issuer and/or any other Person either before or after an Event of Default shall have occurred. The Pledgee shall have only those powers set forth herein and the Pledgee shall assume none of the duties, obligations or liabilities of a member of the Issuer or the Pledgor except as provided in the last sentence of paragraph (a) of this Section 12. (c) The Pledgee shall not be obligated to perform or discharge any obligation of the Pledgor as a result of the pledge hereby effected. (d) The acceptance by the Pledgee of this Agreement, with all the rights, powers, privileges and authority so created, shall not at any time or in any event obligate the Pledgee to appear in or defend any action or proceeding relating to the Collateral to which it is not a party, or to take any action hereunder or thereunder, or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under the Collateral. 13. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (e) At any time and from time to time, upon the written request of the Pledgee, and at the sole expense of the Pledgor, the Pledgor will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Pledgee reasonably may deem appropriate in order to perfect and preserve the Pledgee's security interest in the Collateral and in order for the Pledgee to obtain the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction and the filing of any other equivalent or similar statement or document under any other applicable Law with any other applicable Governmental Authority with respect to the security interests granted hereby. The Pledgor also hereby authorizes the Pledgee to file any such financing or continuation statement 10 without the signature of the Pledgor to the extent permitted by applicable Law. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, such note or instrument shall be immediately delivered to the Pledgee and pledged to the Pledgee hereunder, duly endorsed, to the extent necessary, to the Pledgee. The Pledgor shall not change its name, identity, principal place of business or place of organization in any manner unless the Pledgor shall have given the Pledgee at least sixty (60) days' prior written notice thereof and shall have taken, at the Pledgor's sole expense, all action necessary or reasonably requested by the Pledgee in order to continue the perfection and priority of the security interests in the Collateral intended to be created by this Agreement. (a) The Pledgor hereby appoints the Pledgee, such Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, to act from time to time, solely after the occurrence and during the continuance of an Event of Default and subject to the Credit Agreement, in the Pledgee's reasonable discretion to take any action and to execute any instrument which the Pledgee may deem reasonably necessary or advisable to accomplish the purposes of this Agreement. 14. [OMITTED] 15. TRANSFER BY THE PLEDGOR. The Pledgor will not sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except as may be permitted in accordance with the terms of the Financing Documents). 16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR. (a) The Pledgor represents, warrants and covenants that: (i) it is the legal, beneficial and record owner of, and has good and marketable title to, all Collateral consisting of Limited Liability Company Interests and it has all rights in the Collateral necessary for the security interest purported to be created hereunder to attach (subject, in each case, to no pledge, lien, security interest, charge, option or other encumbrance whatsoever, except the liens and security interests created by this Agreement); (ii) it has full power, authority and legal right to pledge all the Collateral pledged by it pursuant to this Agreement; (iii) this Agreement has been duly authorized, executed and delivered by the Pledgor and constitutes a legal, valid and binding obligation of the Pledgor enforceable against the Pledgor in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law); 11 (iv) except to the extent already obtained or made, no consent of any other party (including, without limitation, any stockholder, partner, member or creditor of the Pledgor or the Issuer) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any Governmental Authority is required to be obtained by the Pledgor in connection with (a) the execution, delivery or performance of this Agreement, (b) the validity or enforceability of this Agreement, (c) the perfection or enforceability of the Pledgee's security interest in the Collateral or (d) except for compliance with or as may be required by applicable securities laws, the exercise by the Pledgee of any of its rights or remedies provided herein; (v) the execution, delivery and performance of this Agreement will not violate any provision of any applicable Law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or Governmental Authority, domestic or foreign, applicable to the Pledgor, or of the certificate of incorporation, operating agreement, limited liability company agreement, partnership agreement or by-laws of the Pledgor or of any securities or other interests issued by the Pledgor or the Issuer, or of any mortgage, deed of trust, indenture, lease, loan agreement, credit agreement or other material contract, agreement or instrument or undertaking to which the Pledgor or the Issuer is a party or by which any of its assets may be bound and will not result in the creation or imposition of (or the obligation to create or impose) any lien or encumbrance on any of the assets of the Pledgor or the Issuer except as contemplated by this Agreement; (vi) all of the Collateral consisting of Limited Liability Company Interests has been duly and validly issued and acquired, is fully paid and non-assessable and is subject to no options to purchase or similar rights; and (vii) the pledge and collateral assignment to the Pledgee of the Collateral consisting of Limited Liability Company Interests, together with continued possession by the Pledgee of any certificates, instruments, documents or other writings evidencing the Limited Liability Company Interests and/or the making of relevant filings or recordings and/or any other action required to be taken in accordance with Section 3.3 (all of which have been made or taken, as the case may be), creates in favor of the Pledgee a valid and perfected first priority security interest in such Collateral, and the proceeds thereof, in each case, for the benefit of the holders of the Tranche A Secured Obligations and a valid and perfected second priority security interest in such Collateral and the proceeds thereof, in each case for the benefit of the holders of the Tranche B Secured Obligations, subject to no prior Lien or encumbrance (other than any Permitted Lien that is non-consensual lien arising by operation of law, and the Option Agreement) or to any agreement purporting to grant to any third party a Lien or encumbrance (other than any Permitted Lien that is non-consensual lien arising by operation of law) on the property or assets of the Pledgor which would include the Limited Liability Company Interests and the Pledgee is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant jurisdiction to perfected security interests in respect of such Collateral. 12 (b) The Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Collateral and the proceeds thereof against the claims and demands of all persons whomsoever; and the Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee. 17. CHIEF EXECUTIVE OFFICE; RECORDS. The chief executive office of the Pledgor is located at the address specified in Annex B hereto. The Pledgor will not move its chief executive office except to such new location as the Pledgor may establish in accordance with the last sentence of this Section 17. The originals of all documents in the possession of the Pledgor evidencing all Collateral, including but not limited to all Limited Liability Company Interests, and the only original books of account and records of the Pledgor relating thereto are, and will continue to be, kept at such chief executive office as specified in Annex B hereto, or at such new locations as the Pledgor may establish in accordance with the last sentence of this Section 17; provided that all certificates representing the Limited Liability Company Interests shall be delivered to and to be held by the Pledgee. All Limited Liability Company Interests (other than any certificates evidencing such Limited Liability Company Interests) are, and will continue to be, maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, such chief executive office as specified in Annex B hereto, or such new locations as the Pledgor may establish in accordance with the last sentence of this Section 17. The Pledgor shall not establish a new location for its chief executive office or change its jurisdiction of organization until (i) it shall have given to the Pledgee not less than sixty (60) days' prior written notice of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Pledgee may reasonably request and (ii) with respect to such new location, it shall have taken all action necessary or reasonably requested by the Pledgee to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. Promptly after establishing a new location for its chief executive office in accordance with the immediately preceding sentence, the Pledgor shall deliver to the Pledgee a supplement to Annex B hereto so as to cause such Annex B hereto to be complete and accurate. 18. PLEDGOR'S OBLIGATIONS ABSOLUTE, ETC. The obligations of the Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever (except as provided under Section 20), including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Financing Document or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument including, without limitation, this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee (except as provided under Section 20); (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation 13 or other like proceeding relating to the Pledgor or the Issuer, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not the Pledgor shall have notice or knowledge of any of the foregoing. 19. REGISTRATION, ETC. (a) If there shall have occurred and be continuing an Event of Default, then upon receipt by the Pledgor from the Pledgee of a written request or requests that the Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Collateral consisting of Limited Liability Company Interests, the Pledgor as soon as practicable and at its expense will cause such registration to be effected (and be kept effective) and will cause such qualification and compliance to be declared effected (and be kept effective) as may be so requested if such registration, qualification or compliance is necessary to permit or facilitate the sale and distribution of such Collateral, including, without limitation, registration under the Securities Act, as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements, provided, that the Pledgee shall furnish to the Pledgor such information regarding the Pledgee as the Pledgor may reasonably request in writing and as shall be required in connection with any such registration, qualification or compliance. The Pledgor will cause the Pledgee to be kept advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee and all others participating in the distribution of such Collateral against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to the Pledgor by the Pledgee expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Collateral consisting of Limited Liability Company Interests pursuant to Section 7 hereof, and the Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act, as then in effect, the Pledgee may sell such Collateral or part thereof, as the case may be, by private sale in such manner and under such circumstances as the Pledgee may deem necessary or reasonably advisable in order that such sale may legally be effected without such registration. Without limiting the generality of the foregoing, in any event the Pledgee (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Collateral or part thereof shall have been filed under such Securities Act, (ii) may approach and negotiate with a single possible purchaser to effect such sale, and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Collateral or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability, except to the extent incurred by reason of its gross negligence, bad faith or willful misconduct, for selling all or any part of the Collateral at a 14 price which the Pledgee, in its sole and absolute discretion, deems reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid. 20. TERMINATION; RELEASE. (a) After payment in full of the Secured Obligations and termination of the Credit Agreement, this Agreement and the security interest created hereby shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 11 hereof shall survive any such termination), and the Pledgee, at the request and expense of the Pledgor, will execute and deliver to the Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to the Pledgor (without recourse and without any representation or warranty) such of the Collateral as has not theretofore been sold or otherwise applied or released pursuant to this Agreement, together with any monies at the time held by the Pledgee or any of its sub-agents hereunder. (b) At any time that the Pledgor desires that the Pledgee assign, transfer and deliver Collateral (and releases therefor) as provided in Section 20(a) hereof, it shall deliver to the Pledgee a certificate signed by a principal executive officer of the Pledgor stating that the release of the respective Collateral is permitted pursuant to such Section 20(a). 21. NOTICES, ETC. All notices, requests, demands or other communications hereunder shall be made in the manner and with the effect provided in Section 9.3 of the Credit Agreement at the addresses provided below or at such other address as shall have been furnished in writing by the relevant Person to the party required to give notice hereunder: (a) If to the Pledgor, at: PG&E Corporation One Market, Spear Tower, Suite 2400 San Francisco, CA 94105 Attention: Chief Counsel Tel: (415) 817-8201 Fax: (415) 817-8225 (b) If to the Pledgee, at: Deutsche Bank Trust Company Americas Corporate Trust and Agency Services 100 Plaza One, MS: 0603 Jersey City, NJ 07311 Attention: Carmina Bitar Day Tel: (201) 593-6832 Fax: (201) 593-6420 15 with a copy to the Administrative Agent at: Lehman Commercial Paper Inc. 745 Seventh Avenue New York, New York 10019 Attention: Frank Turner/Rich Divito Tel: (212) 526-2696/(212) 526-2425 Fax: (646) 758-1986/(646) 758-4618 22. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Pledgor and the Pledgee. 23. MISCELLANEOUS. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and assigns, provided that the Pledgor may not assign any of its rights or obligations under this Agreement without the prior consent of the Pledgee. The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. In the event that any provision of this Agreement shall prove to be invalid or unenforceable, such provision shall be deemed to be severable from the other provisions of this Agreement which shall remain binding on all parties hereto. 24. GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS AGREEMENT, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE AND MATTERS RELATING TO THE CREATION, VALIDITY, ENFORCEMENT OR PRIORITY OF THE SECURITY INTERESTS CREATED BY THIS AGREEMENT, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), EXCEPT AS MAY BE REQUIRED BY OTHER MANDATORY PROVISIONS OF LAW. (b) The Pledgor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Pledgor hereby irrevocably waives, to the fullest extent permitted by applicable Law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Pledgor hereby irrevocably appoints Corporation Service Company the "Process Agent"), with an office on the date hereof at 1177 Avenue of the Americas, 17th Floor, New York, NY 10036, as its agent to receive on its behalf and on behalf of its property, service of copies of the summons and complaint and any other process that may be served in any such action or proceeding. Service upon the Process Agent shall be deemed to be personal service on the Pledgor and shall be legal 16 and binding upon the Pledgor for all purposes notwithstanding any failure to mail copies of such (b) legal process to the Pledgor, or any failure on the part of the Pledgor to receive the same. Nothing herein shall affect the right of the Pledgee to serve process in any other manner permitted by applicable Law or any right of the Pledgee to bring legal action or proceedings in any other competent jurisdiction. The Pledgor further agrees that the aforesaid courts of the State of New York and of the United States of America for the Southern District of New York shall have exclusive jurisdiction with respect to any claim or counterclaim of the Pledgor based upon the assertion that the rate of interest charged in respect of any of the Secured Obligations under any Financing Document is usurious. To the extent permitted by applicable Law, the Pledgor further irrevocably agrees to the service of process of any of the aforementioned courts in any suit, action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, return receipt requested, to the Pledgor at the address referenced in Section 21. (c) The Pledgor agrees that it will at all times continuously maintain an agent to receive service of process in the State of New York on behalf of itself and its properties, and, in the event that for any reason the agent mentioned above shall not serve as agent for the Pledgor to receive service of process in the State of New York on its behalf, the Pledgor shall promptly appoint a successor satisfactory to the Pledgee so to serve, advise the Pledgee thereof, and deliver to the Pledgee evidence in writing of the successor agent's acceptance of such appointment. The foregoing provisions constitute, among other things, a special arrangement for service among the parties to this Agreement for the purposes of 28 U.S.C. (S) 1608. (d) To the extent the Pledgor may, in any action or proceeding arising out of or relating to this Agreement, be entitled under any applicable Law to require or claim that the Pledgee post security for costs or take similar action, the Pledgor hereby irrevocably waives and agrees not to claim the benefit of such entitlement. 25. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO OR THERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES TO ENTER INTO THE CREDIT AGREEMENT AND THE OTHER FINANCING DOCUMENTS. 26. WAIVER. The Pledgor waives any claim it may now or hereafter have against the Pledgee or any Lender for any consequential, exemplary or positive damages or in connection with relating to this Agreement or the other Financing Documents. 27. ACKNOWLEDGMENT AND AGREEMENT OF ISSUER. The Issuer agrees and acknowledges the pledge by the Pledgor of the Limited Liability Company Interests hereunder. The Issuer represents and warrants that on the date hereof (i) the Limited Liability Company Interests consist of the number and type of interests described in Annex A hereto; (ii) each such Limited Liability Company Interest constitutes that percentage of the issued and 17 outstanding equity interest of the Issuer as is set forth in Annex A hereto; (iii) all of the Limited Liability Company Interests have been duly authorized and, at the Closing Date, are and will be validly issued, fully paid and nonassessable, free and clear of all Liens and adverse claims, other than the Liens in favor of the Pledgee created hereby; (iv) the pledge by the Pledgor of, and the granting of a security interest in, the Limited Liability Company Interests to the Pledgee, does not violate the charter, by-laws, Limited Liability Company Agreement or any other agreement governing the Issuer or the Limited Liability Company Interests, (v) all Limited Liability Company Interests are represented by Certificate No. 1 registered in the name of the Pledgor and (vi) the Issuer has duly noted the pledge of the Limited Liability Company Interests to the Pledgee on its books and records. The Issuer further covenants and agrees that, unless otherwise notified by the Pledgee, (a) the Issuer shall deliver all certificates representing additional Limited Liability Company Interests to the Pledgee, (b) no additional class of limited liability company interest of the Issuer shall be created after the date hereof, (c) all distributions in respect of the Collateral consisting of the Limited Liability Company Interests shall be held by the Pledgee and applied pursuant to Section 6 and (d) subject to the terms of the Limited Liability Company Agreement, the Pledgee or its assignee shall be entitled to become a member of the Issuer without the consent of the Issuer or any member of the Issuer and to transfer all or any part of the Collateral into the Pledgee's name or the name of its nominee or assignee. 28. THIRD PARTY BENEFICIARIES. The parties hereto agree that the provisions hereof are for the benefit of the Collateral Agent and the Lenders and that the Collateral Agent and the Lenders shall be third party beneficiaries of this Agreement. 18 IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. PLEDGOR PG&E CORPORATION, By________________________________ Name: Title: ADMINISTRATIVE AGENT LEHMAN COMMERCIAL PAPER INC. By________________________________ Name: Title: PLEDGEE DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent for the benefit of the Lenders By________________________________ Name: Title: ISSUER PG&E NATIONAL ENERGY GROUP, LLC By_______________________________ Name: Title: 19 ANNEX A to LLC PLEDGE AGREEMENT LIST OF LIMITED LIABILITY COMPANY INTERESTS Name of Type of Limited Liability Company Interest Percentage Owned ------------------------- --------------------------- ---------------- PG&E NATIONAL Limited liability company 100% ENERGY GROUP, LLC membership interests, other than the Class B Units ANNEX B to LLC PLEDGE AGREEMENT CHIEF EXECUTIVE OFFICE PG&E Corporation One Market, Spear Tower, Suite 2400 San Francisco, CA 94105 ANNEX C to LLC PLEDGE AGREEMENT Form of Agreement Regarding Limited Liability Company Interests AGREEMENT (as amended, modified or supplemented from time to time, this "Agreement"), dated as of June 25, 2002, among PG&E CORPORATION (the "Pledgor"), DEUTSCHE BANK TRUST COMPANY AMERICAS (the "Pledgee"), as Collateral Agent for the benefit of the Lenders, and PG&E National Energy Group, LLC, as the issuer of the Limited Liability Company Interests (as defined below) (the "Issuer"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Pledgor, the Lenders and the Pledgee have entered into the Amended and Restated LLC Pledge Agreement, dated as of June 25, 2002 (as amended, restated, modified or supplemented from time to time, the "LLC Pledge Agreement"), under which, among other things, in order to secure the payment of the Secured Obligations (as defined in the LLC Pledge Agreement), the Pledgor will pledge to the Pledgee, and grant a security interest in favor of the Pledgee in, all of the right, title and interest of the Pledgor in and to any and all Limited Liability Company Interests (as defined in the LLC Pledge Agreement); and WHEREAS, the Pledgor desires the Issuer to enter into this Agreement in order to perfect the security interest of the Pledgee under the LLC Pledge Agreement in the Limited Liability Company Interests, to vest in the Pledgee control of the Limited Liability Company Interests and to provide for the rights of the parties under this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The Pledgor hereby irrevocably authorizes and directs the Issuer, and the Issuer hereby agrees to comply with any and all instructions and orders originated by the Pledgee (and its successors and assigns) regarding any and all of the Limited Liability Company Interests without the further consent by the registered owner (including the Pledgor), and not to comply with any instructions or orders regarding any or all of the Limited Liability Company Interests originated by any person or entity other than the Pledgee (and its successors and assigns) or a court of competent jurisdiction. 2. The Issuer hereby certifies that (i) no notice of any security interest, lien or other encumbrance or claim affecting the Limited Liability Company Interests (other than the security interest of the Pledgee) has been received by it, and (ii) the security interest of the Pledgee in the Limited Liability Company Interests has been registered in the books and records of the Issuer. 3. The Issuer hereby represents and warrants that (i) the pledge by the Pledgor of, and the granting by the Pledgor of a security interest in, the Limited Liability Company Interests to the Pledgee, does not violate the charter, by-laws, Limited Liability Company Agreement (as defined in the LLC Pledge Agreement) or any other agreement governing the Issuer or the Limited Liability Company Interests, and (ii) the Limited Liability Company Interests are fully paid and nonassessable, and (iii) it has not entered into and will not enter into any control agreement other than this Agreement with respect to the Limited Liability Company Interests. 4. All notices, statements of accounts, reports, prospectuses, financial statements and other communications to be sent to the Pledgor by the Issuer in respect of the Issuer will also be sent to the Pledgee at the following address: Deutsche Bank Trust Company Americas Corporate Trust and Agency Services 100 Plaza One, MS: 0603 Jersey City, NJ 07311 Attention: Carmina Bitar Day Tel: (201) 593-6832 Fax: (201) 593-6420 with a copy to the Administrative Agent at: Lehman Commercial Paper Inc. 745 Seventh Avenue New York, New York 10019 Attention: Frank Turner/Rich Divito Tel: (212) 526-2696/(212) 526-2425 Fax: (646) 758-1986/(646) 758-4618 5. Until the Pledgee shall have delivered written notice to the Issuer that all of the Secured Obligations have been paid in full, the Issuer will send any and all redemptions, distributions, interest or other payments in respect of the Limited Liability Company Interests from the Issuer for the account of the Pledgee only by wire transfers to the following address: ________________________________ ________________________________ ________________________________ ABA No.: _______________________ Account in the Name of: ________ Account No.: __________________ 2 6. Except as expressly provided otherwise in Sections 4 and 5, all notices provided for hereunder shall be in writing and in the English language (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by facsimile (i) shall immediately be confirmed by a telephone call to the recipient at the number specified below, or to such other number as shall be designated by such party in a written notice to the other parties hereto 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 below or to such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices (i) sent by express courier will be effective upon receipt by the addressee and (ii) transmitted by facsimile will be effective when sent and facsimile confirmation received, except that all notices to the Pledgee shall not be effective until actually received. The Pledgor and the Issuer acknowledge and agree that any agreement of the Pledgee to receive notices by telephone and facsimile is solely for the convenience and at the request of the Pledgor or the Issuer, as the case may be. The Pledgee shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Pledgor or the Issuer, as the case may be, to give such notice and the Pledgee shall not have any liability to the Pledgor or the Issuer or any other Person on account of any action taken or not taken by the Pledgee in reliance upon such telephonic or facsimile notice. All notices shall be addressed as follows: (a) if to the Pledgor, at: PG&E Corporation One Market, Spear Tower, Suite 2400 San Francisco, CA 94105 Attention: Chief Counsel Tel: (415) 817-8201 Fax: (415) 817-8225 (b) if to the Pledgee, at: Deutsche Bank Trust Company Americas Corporate Trust and Agency Services 100 Plaza One, MS: 0603 Jersey City, NJ 07311 Attention: Carmina Bitar Day Tel: (201) 593-6832 Fax: (201) 593-6420 with a copy to the Administrative Agent at: Lehman Commercial Paper Inc. 745 Seventh Avenue New York, New York 10019 Attention: Frank Turner/Rich Divito Tel: (212) 526-2696/(212) 526-2425 Fax: (646) 758-1986/(646) 758-4618 3 (c) if to the Issuer, at: PG&E National Energy Group, LLC 7500 Old Georgetown Road Bethesda, MD 20814-6161 Attention: General Counsel Tel.: (301) 280-6815 Fax.: (301) 280-6319 7. The Issuer hereby acknowledges to the provisions of the LLC Pledge Agreement and the rights of the Pledgee thereunder, including without limitation the rights of the Pledgee to receive and retain as part of the Collateral pursuant to Section 6 of the LLC Pledge Agreement any Limited Liability Company Assets that may be distributed on account of the Limited Liability Interest to Pledgor. 8. This Agreement shall be binding upon the successors and assigns of the Pledgor and the Issuer and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. In the event that any provision of this Agreement shall prove to be invalid or unenforceable, such provision shall be deemed to be severable from the other provisions of this Agreement which shall remain binding on all parties hereto. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in the manner whatsoever except in writing signed by the Pledgee, the Issuer and the Pledgor. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its principles of conflict of laws (other than Section 5-1401 of the New York General Obligations Law), except as may be required by other mandatory provisions of law. IN WITNESS WHEREOF, the Pledgor, the Pledgee and the Issuer have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. PLEDGOR PG&E CORPORATION By_____________________________ Name: Title: 4 PLEDGEE DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent for the benefit of the Lenders By_________________________________ Name: Title: ISSUER PG&E NATIONAL ENERGY GROUP, LLC, By_________________________________ Name: Title: 5 EX-99.6 8 dex996.txt AMENDED AND RESTATED STOCK PLEDGE AGREEMENT EXECUTION COPY ================================================================================ AMENDED AND RESTATED STOCK PLEDGE AGREEMENT by and among PG&E NATIONAL ENERGY GROUP, LLC, as Pledgor PG&E NATIONAL ENERGY GROUP, INC. as Issuer And LEHMAN COMMERCIAL PAPER INC., as Administrative Agent and DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent for the benefit of the Lenders, as Pledgee ================================================================================ Dated as of June 25, 2002 ================================================================================ PLEDGE AGREEMENT AMENDED AND RESTATED STOCK PLEDGE AGREEMENT (as amended, modified or supplemented from time to time, this "Agreement"), dated as of June 25, 2002, among PG&E NATIONAL ENERGY GROUP, LLC, a limited liability company organized and existing under the laws of the State of Delaware (the "Pledgor"), PG&E NATIONAL ENERGY GROUP, INC., a Delaware corporation, as Issuer (the "Issuer"), LEHMAN COMMERCIAL PAPER INC., a corporation organized and existing under the laws of the State of New York, as Administrative Agent for the lenders (the "Lenders") from time to time parties to the Credit Agreement described below and DEUTSCHE BANK TRUST COMPANY AMERICAS (the "Pledgee"), as Collateral Agent for the benefit of the Lenders. W I T N E S S E T H : WHEREAS, PG&E Corporation, a corporation organized and existing under the laws of the State of California ("PG&E"), is a party to the Credit Agreement, dated as of March 1, 2001 (as amended, the "Existing Credit Agreement"), with the lenders parties thereto, Lehman Commercial Paper Inc., as Administrative Agent, and others, pursuant to which such lenders made the Tranche A Loan (as defined in the Existing Credit Agreement, the "Existing Tranche A Loan") and the Tranche B Loan (as defined in the Existing Credit Agreement, the "Existing Tranche B Loan"); WHEREAS, pursuant to the Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among PG&E, the Lenders parties thereto, the Administrative Agent and others, the Existing Credit Agreement is being amended and restated in its entirety to modify certain of the terms applicable to the Existing Tranche A Loan, to reflect the repayment of the Existing Tranche B Loan and to provide for the making of an additional Tranche B Loan to PG&E; WHEREAS, the Pledgor owns one hundred percent (100%) of the issued and outstanding common stock of the Issuer; WHEREAS, the Pledgor, the Issuer, the Administrative Agent, the Pledgee, acting as Collateral Agent for the Lenders, and others, are parties to the Stock Pledge Agreement, dated as of March 1, 2001 (the "Existing Stock Pledge Agreement"); and WHEREAS, it is a condition precedent to the obligation of the Lenders to agree to amend and restate the Existing Credit Agreement and to make an additional Tranche B Loan to PG&E that the Existing Stock Pledge Agreement shall have been amended and restated as provided herein; NOW, THEREFORE, in consideration of the foregoing premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement, the Pledgor hereby agrees with the Administrative Agent, for the benefit of the Lenders, to amend and restate the Existing Stock Pledge Agreement to read in its entirety as follows: 1. SECURITY FOR OBLIGATIONS. This Agreement is made by the Pledgor for the benefit of the Pledgee, acting as Collateral Agent for the benefit of the Lenders (as more particularly described in Sections 3.1 and 3.2) to secure: (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all Obligations of PG&E and the Pledor under the Credit Agreement and the other Financing Documents and the obligations of PG&E and the Pledgor under the Option Agreement, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising and howsoever evidenced, and the due performance and compliance by PG&E and the Pledgor with the terms thereof; (ii) any and all sums advanced by the Pledgee or any Lender in order to preserve the Collateral or preserve its security interest in the Collateral (as defined below) and (iii) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i) and (ii) above, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder with respect thereto, together with reasonable attorneys' fees and court costs related thereto, all such obligations, liabilities, sums and expenses set forth in clauses (i) through (iii) of this Section 1, whether now existing or hereafter arising, that are (x) owing to the Tranche A Lenders, being herein called the "Tranche A Secured Obligations", and (y) owing to the Tranche B Lenders, being herein called the "Tranche B Secured Obligations" (collectively, the "Secured Obligations"). 2. DEFINITIONS. (a) Unless otherwise defined herein, all capitalized terms used herein and defined in Appendix A to the Credit Agreement shall be used herein as therein defined and the principles of construction set forth in Appendix A to the Credit Agreement shall apply to this Agreement. (b) In addition, the following capitalized terms used herein shall have the definitions specified below: "Agreement" has the meaning set forth in the first paragraph hereof. "Collateral" has the meaning set forth in Section 3.1 hereof. "Credit Agreement" has the meaning set forth in the second recital hereto. "Existing Credit Agreement" has the meaning set forth in the first recital hereto. "Existing Stock Pledge Agreement" has the meaning set forth in fourth recital hereto. "Existing Tranche A Loan" has the meaning set forth in the first recital hereto. "Existing Tranche B Loan" has the meaning set forth in the first recital hereto. "Holder" has the meaning set forth in the Option Agreement. "Issuer" has the meaning set forth in the first paragraph hereof. "Lenders" has the meaning set forth in the first paragraph hereof. "PG&E" has the meaning set forth in the first recital hereof. "Pledged Stock" means the shares of Capital Stock of the Issuer set forth on Annex A hereto, together with all other shares of Capital Stock of the Issuer at any time issued to, or otherwise held by, the Pledgor. "Pledgee" has the meaning set forth in the first paragraph hereof. "Pledgor" has the meaning set forth in the first paragraph hereof. "Proceeds" has the meaning given such term in the UCC. "Process Agent" has the meaning set forth in Section 24 hereof. "Secured Obligations" has the meaning set forth in Section 1 hereof. "Securities Act" means the Securities Act of 1933, as amended and as in effect from time to time. "Tranche A Secured Obligations" has the meaning set forth in Section 1 hereof. "Tranche B Secured Obligations" has the meaning set forth in Section 1 hereof. "Transition Date" means the date upon which the Senior Obligations (as defined in the Intercreditor Agreement) shall have been indefeasibly paid in full in cash. "UCC" means the Uniform Commercial Code as in effect in the State of New York from time to time. 3. PLEDGE OF PLEDGED STOCK, ETC. 3.1 Pledge. (a) The Pledgor hereby confirms that pursuant to the Existing Stock Pledge Agreement the Pledgor transferred, pledged and assigned to the Pledgee, and granted to the Pledgee a first priority security interest in, all of the right, title and interest of the Pledgor in and to the following, whether now existing or hereafter from time to time acquired by the Pledgor (collectively, the "Collateral"); and the Pledgor does hereby repeat and confirm, on and as of the date hereof, such transfer, pledge, assignment and grant of a first priority security interest: (i) the Pledged Stock; (ii) all other property hereafter delivered in substitution for any of the Pledged Stock, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, distributions rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (iii) all Proceeds of any and all of the foregoing; The foregoing transfer, pledge, assignment and grant of a first priority security interest is made to secure the prompt and complete payment and performance when due of all Tranche A Secured Obligations. (b) The Pledgor does hereby transfer, pledge and assign to the Pledgee, and does hereby grant to the Pledgee a second priority security interest in, all of the right, title and interest of the Pledgor in all Collateral, whether now existing or hereafter acquired by the Pledgor. The foregoing transfer, pledge, assignment and grant of a second priority security interest is made to secure the prompt and complete payment and performance when due of the Tranche B Secured Obligations. (c) The security interest granted in Section 3.1(a) shall be senior in priority to the security interest granted in Section 3.1(b). 3.2 Separate Security Interests. The security interests created pursuant to each of Section 3.1(a) and 3.1(b)are separate and distinct security interests in the Collateral. 3.3. Procedures. (a) To the extent that the Pledgor at any time or from time to time owns, acquires or obtains any right, title or interest in any Collateral, such Collateral shall automatically (and without the taking of any action by the Pledgor) be pledged pursuant to Section 3.1 of this Agreement and, in addition thereto, the Pledgor shall (as promptly as practicable and, in any event, within 10 days after it obtains such Collateral) deliver to the Pledgee any stock certificates evidencing such Collateral, duly endorsed in blank, and take such other actions as the Pledgee shall reasonably request to perfect the Pledgee's security interest in such Collateral. (b) In addition to the actions required to be taken pursuant to Section 3.3(a) hereof, the Pledgor shall from time to time, at the sole expense of the Pledgor, cause appropriate financing statements (on Form UCC-1 or other appropriate form) under the Uniform Commercial Code as in effect in the various relevant States, in form covering all Collateral hereunder (with the form of such financing statements to be satisfactory to the Pledgee), to be filed in the relevant filing offices so that at all times the Pledgee has a security interest in all Collateral which is perfected by the filing of such financing statements (in each case to the maximum extent perfection by filing may be obtained under the laws of any relevant State). 3.4 Subsequently Acquired Collateral. If the Pledgor shall acquire (by purchase, dividend or similar distribution or otherwise) any additional Collateral at any time or from time to time after the date hereof, such Collateral shall automatically (and without any further action being required to be taken) be subject to the pledge and security interests created pursuant to Section 3.1 hereof and, furthermore, the Pledgor will promptly thereafter take (or cause to be taken) all action with respect to such Collateral in accordance with the procedures set forth in Section 3.3 hereof, and will promptly thereafter deliver to the Pledgee (i) a certificate executed by a principal executive officer of the Pledgor describing such Collateral and certifying that the same has been duly pledged in favor of the Pledgee (for the benefit of the Secured Parties) hereunder and (ii) supplements to Annexes A and B hereto as are reasonably necessary to cause such annexes to be complete and accurate at such time. 3.5 Transfer Taxes. Each pledge of Collateral under Section 3.1 hereof shall be accompanied by any transfer tax stamps required in connection with the pledge of such Collateral. 3.6 Certain Representations and Warranties Regarding the Collateral. The Pledgor represents and warrants that on the date hereof (i) the Pledged Stock consists of the number and type of shares described in Annex A hereto; (ii) the Pledged Stock constitutes that percentage of the issued and outstanding common stock of the Issuer as is set forth in Annex A hereto; and (iii) the Pledgor has complied with the respective procedure set forth in Sections 3.3(a) and (b) hereof with respect to each item of Collateral hereunder. 4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. If and to the extent necessary to enable the Pledgee to perfect its security interest in any of the Collateral or to exercise any of its remedies hereunder, the Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Collateral, which may be held in the name of the Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee. 5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until there shall have occurred and be continuing an Event of Default, the Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral owned by it, and to give consents, waivers or ratifications in respect thereof; provided, that, in each case, no vote shall be cast or any consent, waiver or ratification given or any action taken or omitted to be taken which would violate or be inconsistent with any of the terms of this Agreement or any other Financing Document, or which would have the effect of impairing the value of the Collateral or any part thereof or the position or interests of the Pledgee in the Collateral. All such rights of the Pledgor to vote and to give consents, waivers and ratifications shall cease in case an Event of Default has occurred and is continuing, and Section 7 hereof shall become applicable, and the Pledgee shall without further notice or consent be admitted and become a shareholder of the Issuer. 6. DIVIDENDS AND OTHER DISTRIBUTIONS. All cash dividends, cash distributions, cash Proceeds and other cash amounts payable in respect of the Collateral (other than proceeds of any foreclosure in respect of the Collateral pursuant to Section 7 hereof, which proceeds shall be distributed and applied as provided in Section 9 hereof) shall be distributed to PG&E to the extent permitted by the LLC Agreement to be paid to the Pledgee, to be applied, at the instruction of the Majority Tranche A Lenders (or, after the Transition Date, the Majority Tranche B Lenders), to the payment and repayment of the Loans pursuant to Section 3.2 of the Credit Agreement and the relevant provisions of the Intercreditor Agreement. The Pledgee shall also be entitled to receive directly, and to retain as part of the Collateral: (i) all other or additional capital stock or other property (including, but not limited to, cash dividends other than as set forth above) paid or distributed by way of dividend or otherwise in respect of the Collateral; (ii) all other or additional capital stock or other property paid or distributed in respect of the Collateral by way of split, spin-off, split-up, reclassification, combination or similar rearrangement; and (iii) all other or additional capital stock or other property (including, but not limited to, cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange, conveyance of assets, liquidation or similar reorganization. Nothing contained in this Section 6 shall limit or restrict in any way the Pledgee's right to have pledged to it proceeds of the Collateral in any form in accordance with Section 3 of this Agreement. All dividends, distributions or other payments which are received by the Pledgor contrary to the provisions of this Section 6 and Section 7 hereof shall be received in trust for the benefit of the Pledgee, shall be segregated from other property or funds of the Pledgor and shall be forthwith paid over to the Pledgee as Collateral in the same form as so received (with any necessary endorsement). 7. REMEDIES IN CASE OF DEFAULT OR EVENT OF DEFAULT. Subject to the Credit Agreement, if there shall have occurred and be continuing an Event of Default, the Pledgee shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement, any other Financing Document or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Pledgee shall be entitled to exercise all the rights and remedies of a secured party under the Uniform Commercial Code as in effect in any relevant jurisdiction and also shall be entitled, without limitation, to exercise the following rights: (i) to receive all amounts payable in respect of the Collateral; (ii) to transfer all or any part of the Collateral into the Pledgee's name or the name of its nominee or nominees; (iii) to vote all or any part of the Collateral (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (the Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of the Pledgor, with full power of substitution to do so) and to exercise any and all of the rights or powers of the Pledgor in its capacity as a stockholder of the Issuer; (iv) at any time and from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by the Pledgor to the extent permitted by applicable Law), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine, in each case, to the extent permitted by applicable Law. The Pledgee shall not be obligated to make any such sale of Collateral regardless of whether any notice of sale has theretofore been given. The Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder (other than the right to pay the Secured Obligations in full), and all rights, if any, of marshalling the Collateral and any other security for the Secured Obligations or otherwise. At any such sale, to the extent permitted by applicable Law, the Pledgee may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. The Pledgee shall not be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto; and (v) to set-off any and all Collateral against any and all Secured Obligations and to apply such Collateral to the payment of any and all Secured Obligations. If, pursuant to applicable Law, prior notice of any of the foregoing actions is required to be given to the Pledgee, the Pledgee hereby acknowledges that the minimum time required by such applicable Law, or if no minimum is specified, ten (10) days, shall be deemed a reasonable notice period. 8. REMEDIES, ETC., CUMULATIVE. Each and every right, power and remedy of the Pledgee provided for in this Agreement or in any other Financing Document, or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee of any one or more of the rights, powers or remedies provided for in this Agreement or any other Financing Document or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee to exercise any such right, power or remedy shall operate as a waiver thereof. No notice to or demand on the Pledgor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Pledgee to any other or further action in any circumstances without notice or demand. 9. APPLICATION OF PROCEEDS. All monies collected by the Pledgee upon any sale or other disposition of the Collateral pursuant to the terms of this Agreement, together with all other monies received by the Pledgee hereunder, shall be applied at the written instruction of the Majority Tranche A Lenders (or, after the Transition Date, the Majority Tranche B Lenders) for satisfaction of the Secured Obligations in the order provided in the Credit Agreement and the Intercreditor Agreement. 10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt given by the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof. 11. [OMITTED] 12. CERTAIN LIMITATIONS (a) The Pledgee shall not be obligated to perform or discharge any obligation of the Pledgor as a result of the pledge hereby effected. (b) The acceptance by the Pledgee of this Agreement, with all the rights, powers, privileges and authority so created, shall not at any time or in any event obligate the Pledgee to appear in or defend any action or proceeding relating to the Collateral to which it is not a party, or to take any action hereunder or thereunder, or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under the Collateral. 13. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) At any time and from time to time, upon the written request of the Pledgee, and at the sole expense of the Pledgor, the Pledgor will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Pledgee reasonably may deem appropriate in order to perfect and preserve the Pledgee's security interest in the Collateral and in order for the Pledgee to obtain the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction and the filing of any other equivalent or similar statement or document under any other applicable Law with any other applicable Governmental Authority with respect to the security interests granted hereby. The Pledgor also hereby authorizes the Pledgee to file any such financing or continuation statement without the signature of the Pledgor to the extent permitted by applicable Law. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, such note or instrument shall be immediately delivered to the Pledgee and pledged to the Pledgee hereunder, duly endorsed, to the extent necessary, to the Pledgee. The Pledgor shall not change its name, identity, principal place of business or place of organization in any manner unless the Pledgor shall have given the Pledgee at least sixty (60) days' prior written notice thereof and shall have taken, at the Pledgor's sole expense, all action necessary or reasonably requested by the Pledgee in order to continue the perfection and priority of the security interests in the Collateral intended to be created by this Agreement. (b) The Pledgor hereby appoints the Pledgee, such Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, to act from time to time, solely after the occurrence and during the continuance of an Event of Default and subject to the Credit Agreement, in the Pledgee's reasonable discretion to take any action and to execute any instrument which the Pledgee may deem reasonably necessary or advisable to accomplish the purposes of this Agreement. 14. [OMITTED] 15. TRANSFER BY THE PLEDGOR. The Pledgor will not sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except as may be permitted in accordance with the terms of the Financing Documents). 16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR. (a) The Pledgor represents, warrants and covenants that: (i) it is the legal, beneficial and record owner of, and has good and marketable title to, all Collateral consisting of Pledged Stock and it has all rights in the Collateral necessary for the security interest purported to be created hereunder to attach (subject, in each case, to no pledge, lien, security interest, charge, option or other encumbrance whatsoever, except the liens and security interests created by this Agreement); (ii) it has full power, authority and legal right to pledge all the Collateral pledged by it pursuant to this Agreement; (iii) this Agreement has been duly authorized, executed and delivered by the Pledgor and constitutes a legal, valid and binding obligation of the Pledgor enforceable against the Pledgor in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law); (iv) except to the extent already obtained or made, no consent of any other party (including, without limitation, any stockholder, partner, member or creditor of the Pledgor or the Issuer) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any Governmental Authority is required to be obtained by the Pledgor in connection with (a) the execution, delivery or performance of this Agreement, (b) the validity or enforceability of this Agreement, (c) the perfection or enforceability of the Pledgee's security interest in the Collateral or (d) except for compliance with or as may be required by applicable securities laws, the exercise by the Pledgee of any of its rights or remedies provided herein; (v) the execution, delivery and performance of this Agreement will not violate any provision of any applicable Law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or Governmental Authority, domestic or foreign, applicable to the Pledgor, or of the certificate of incorporation, operating agreement, limited liability company agreement, partnership agreement or by-laws of the Pledgor or of any securities or other interests issued by the Pledgor or the Issuer, or of any mortgage, deed of trust, indenture, lease, loan agreement, credit agreement or other material contract, agreement or instrument or undertaking to which the Pledgor or the Issuer is a party or by which any of its assets may be bound and will not result in the creation or imposition of (or the obligation to create or impose) any lien or encumbrance on any of the assets of the Pledgor or the Issuer except as contemplated by this Agreement; (vi) all of the Collateral consisting of Pledged Stock has been duly and validly issued and acquired, is fully paid and non-assessable and is subject to no options to purchase or similar rights (other than pursuant to the Option Agreement); and (vii) the pledge and collateral assignment to the Pledgee of the Collateral consisting of Pledged Stock, together with continued possession by the Pledgee of any certificates, instruments, documents or other writings evidencing the Pledged Stock and/or the making of relevant filings or recordings and/or any other action required to be taken in accordance with Section 3.3 (all of which have been made or taken, as the case may be), creates in favor of the Pledgee a valid and perfected first priority security interest in such Collateral, and the proceeds thereof, in each case, for the benefit of the holders of the Tranche A Secured Obligations and a valid and perfected second priority security interest in such Collateral and the proceeds thereof, in each case for the benefit of the holders of the Tranche B Secured Obligations, subject to no prior Lien or encumbrance (other than any Permitted Lien that is a non-consensual lien arising by operation of law, and the Option Agreement) or to any agreement purporting to grant to any third party a Lien or encumbrance (other than any Permitted Lien that is a non-consensual lien arising by operation of law) on the property or assets of the Pledgor which would include the Pledged Stock and the Pledgee is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant jurisdiction to perfected security interests in respect of such Collateral. (b) The Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Collateral and the proceeds thereof against the claims and demands of all persons whomsoever; and the Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee. 17. CHIEF EXECUTIVE OFFICE; RECORDS. The chief executive office of the Pledgor is located at the address specified in Annex B hereto. The Pledgor will not move its chief executive office except to such new location as the Pledgor may establish in accordance with the last sentence of this Section 17. The originals of all documents in the possession of the Pledgor evidencing all Collateral and the only original books of account and records of the Pledgor relating thereto are, and will continue to be, kept at such chief executive office as specified in Annex B hereto, or at such new locations as the Pledgor may establish in accordance with the last sentence of this Section 17. The Pledgor shall not establish a new location for its chief executive office or change its jurisdiction of organization until (i) it shall have given to the Pledgee not less than sixty (60) days' prior written notice of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Pledgee may reasonably request and (ii) with respect to such new location, it shall have taken all action necessary or reasonably requested by the Pledgee to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. Promptly after establishing a new location for its chief executive office in accordance with the immediately preceding sentence, the Pledgor shall deliver to the Pledgee a supplement to Annex B hereto so as to cause such Annex B hereto to be complete and accurate. 18. PLEDGOR'S OBLIGATIONS ABSOLUTE, ETC. The obligations of the Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever (except as provided under Section 20), including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Financing Document or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument including, without limitation, this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee (except as provided under Section 20); (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to the Pledgor or the Issuer, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not the Pledgor shall have notice or knowledge of any of the foregoing. 19. REGISTRATION, ETC. (a) If there shall have occurred and be continuing an Event of Default, then upon receipt by the Pledgor from the Pledgee of a written request or requests that the Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Collateral consisting of Pledged Stock, the Pledgor as soon as practicable and at its expense will cause such registration to be effected (and be kept effective) and will cause such qualification and compliance to be declared effected (and be kept effective) as may be so requested if such registration, qualification or compliance is necessary to permit or facilitate the sale and distribution of such Collateral, including, without limitation, registration under the Securities Act, as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements, provided, that the Pledgee shall furnish to the Pledgor such information regarding the Pledgee as the Pledgor may reasonably request in writing and as shall be required in connection with any such registration, qualification or compliance. The Pledgor will cause the Pledgee to be kept advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee and all others participating in the distribution of such Collateral against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to the Pledgor by the Pledgee expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Collateral consisting of Pledged Stock pursuant to Section 7 hereof, and the Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act, as then in effect, the Pledgee may sell such Collateral or part thereof, as the case may be, by private sale in such manner and under such circumstances as the Pledgee may deem necessary or reasonably advisable in order that such sale may legally be effected without such registration. Without limiting the generality of the foregoing, in any event the Pledgee (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Collateral or part thereof shall have been filed under such Securities Act, (ii) may approach and negotiate with a single possible purchaser to effect such sale, and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Collateral or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability, except to the extent incurred by reason of its gross negligence, bad faith or willful misconduct, for selling all or any part of the Collateral at a price which the Pledgee, in its sole and absolute discretion, deems reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid. 20. TERMINATION; RELEASE. (a) After payment in full of the Secured Obligations and termination of the Credit Agreement, this Agreement and the security interest created hereby shall terminate, and the Pledgee, at the request and expense of the Pledgor, will execute and deliver to the Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to the Pledgor (without recourse and without any representation or warranty) such of the Collateral as has not theretofore been sold or otherwise applied or released pursuant to this Agreement, together with any monies at the time held by the Pledgee or any of its sub-agents hereunder. (b) At any time that the Pledgor desires that the Pledgee assign, transfer and deliver Collateral (and releases therefor) as provided in Section 20(a) hereof, it shall deliver to the Pledgee a certificate signed by a principal executive officer of the Pledgor stating that the release of the respective Collateral is permitted pursuant to such Section 20(a). (c) Upon the direction of the Administrative Agent, the Collateral Agent will release shares of the Pledged Stock in connection with (i) the NEG Equity Transactions to the extent provided in the Credit Agreement or (ii) any exercise of the rights of the Holders under the Option Agreement. 21. NOTICES, ETC. All notices, requests, demands or other communications hereunder shall be made in the manner and with the effect provided in Section 9.3 of the Credit Agreement at the addresses provided below or at such other address as shall have been furnished in writing by the relevant Person to the party required to give notice hereunder: (a) If to the Pledgor, at: PG&E National Energy Group, LLC 7500 Old Georgetown Road Bethesda, MD 20814-6161 Attention: General Counsel Tel.: (301) 280-6815 Fax.: (301) 280-6319 (b) If to the Pledgee, at: Deutsche Bank Trust Company Americas Corporate Trust and Agency Services 100 Plaza One, MS: 0603 Jersey City, NJ 07311 Attention: Carmina Bitar Day Tel: (201) 593-6832 Fax: (201) 593-6420 with a copy to the Administrative Agent at: Lehman Commercial Paper Inc. 745 Seventh Avenue New York, New York 10019 Attention: Frank Turner/Rich Divito Tel: (212) 526-2696/(212) 526-2425 Fax: (646) 758-1986/(646) 758-4618 (c) If to the Issuer, at: PG&E National Energy Group, Inc. 7500 Old Georgetown Road Bethesda, MD 20814-6161 Attention: General Counsel Tel: (301) 280-6815 Fax: (301) 280-6319 22. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Pledgor and the Pledgee. 23. MISCELLANEOUS. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and assigns, provided that the Pledgor may not assign any of its rights or obligations under this Agreement without the prior consent of the Pledgee. The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. In the event that any provision of this Agreement shall prove to be invalid or unenforceable, such provision shall be deemed to be severable from the other provisions of this Agreement which shall remain binding on all parties hereto. 24. GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS AGREEMENT, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE AND MATTERS RELATING TO THE CREATION, VALIDITY, ENFORCEMENT OR PRIORITY OF THE SECURITY INTERESTS CREATED BY THIS AGREEMENT, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), EXCEPT AS MAY BE REQUIRED BY OTHER MANDATORY PROVISIONS OF LAW. (b) The Pledgor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Pledgor hereby irrevocably waives, to the fullest extent permitted by applicable Law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Pledgor hereby irrevocably appoints Corporation Service Company (the "Process Agent"), with an office on the date hereof at 1177 Avenue of the Americas, 17th Floor, New York, NY 10036, as its agent to receive on its behalf and on behalf of its property, service of copies of the summons and complaint and any other process that may be served in any such action or proceeding. Service upon the Process Agent shall be deemed to be personal service on the Pledgor and shall be legal and binding upon the Pledgor for all purposes notwithstanding any failure to mail copies of such legal process to the Pledgor, or any failure on the part of the Pledgor to receive the same. Nothing herein shall affect the right of the Pledgee to serve process in any other manner permitted by applicable Law or any right of the Pledgee to bring legal action or proceedings in any other competent jurisdiction. The Pledgor further agrees that the aforesaid courts of the State of New York and of the United States of America for the Southern District of New York shall have exclusive jurisdiction with respect to any claim or counterclaim of the Pledgor based upon the assertion that the rate of interest charged in respect of any of the Secured Obligations under any Financing Document is usurious. To the extent permitted by applicable Law, the Pledgor further irrevocably agrees to the service of process of any of the aforementioned courts in any suit, action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, return receipt requested, to the Pledgor at the address referenced in Section 21. (c) The Pledgor agrees that it will at all times continuously maintain an agent to receive service of process in the State of New York on behalf of itself and its properties, and, in the event that for any reason the agent mentioned above shall not serve as agent for the Pledgor to receive service of process in the State of New York on its behalf, the Pledgor shall promptly appoint a successor satisfactory to the Pledgee so to serve, advise the Pledgee thereof, and deliver to the Pledgee evidence in writing of the successor agent's acceptance of such appointment. The foregoing provisions constitute, among other things, a special arrangement for service among the parties to this Agreement for the purposes of 28 U.S.C. ss. 1608. (d) To the extent the Pledgor may, in any action or proceeding arising out of or relating to this Agreement, be entitled under any applicable Law to require or claim that the Pledgee post security for costs or take similar action, the Pledgor hereby irrevocably waives and agrees not to claim the benefit of such entitlement. 25. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO OR THERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES TO ENTER INTO THE CREDIT AGREEMENT AND THE OTHER FINANCING DOCUMENTS. 26. WAIVER. The Pledgor waives any claim it may now or hereafter have against the Pledgee or any Lender for any consequential, exemplary or positive damages or in connection with relating to this Agreement or the other Financing Documents. 27. ACKNOWLEDGMENT AND AGREEMENT OF ISSUER. The Issuer agrees and acknowledges the pledge by the Pledgor of the Pledged Stock hereunder. The Issuer represents and warrants that on the date hereof (i) the common stock of the Issuer is described in Annex A hereto; (ii) the Pledged Stock constitutes 100% of the issued and outstanding common stock of the Issuer, as is set forth in Annex A hereto; (iii) all of the shares of the Pledged Stock have been duly issued, are fully paid and non-assessable and are free and clear of all Liens and adverse claims, other than the Liens in favor of the Pledgee created hereby and the Option Agreement; (iv) the pledge by the Pledgor of, and the granting of a security interest in, the Pledged Stock, does not violate the charter, by-laws or any other agreement governing the Issuer, (v) the Pledged Stock is represented by the stock certificate described in Annex A hereto, (vi) the Issuer has duly noted the pledge of the Pledged Stock to the Pledgee on its stock ledger. The Issuer further covenants and agrees that, unless otherwise notified by the Pledgee, (a) the Issuer shall deliver all certificates representing additional shares of common stock of the Issuer to the Pledgee, (b) no additional class of Capital Stock of the Issuer shall be created after the date hereof and (c) all distributions in respect of the Collateral consisting of Pledged Stock shall be held by the Pledgee and applied pursuant to Section 6. 28. THIRD PARTY BENEFICIARIES. The parties hereto agree that the provisions hereof are for the benefit of the Collateral Agent and the Lenders and that the Collateral Agent and the Lenders shall be third party beneficiaries of this Agreement. IN WITNESS WHEREOF, the Pledgor, the Pledgee and the Issuer have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. PLEDGOR PG&E NATIONAL ENERGY GROUP, LLC By__________________________________ Name: Title: ADMINISTRATIVE AGENT LEHMAN COMMERCIAL PAPER INC., as Administrative Agent By__________________________________ Name: Title: PLEDGEE DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent for the benefit of the Lenders By__________________________________ Name: Title: ISSUER PG&E NATIONAL ENERGY GROUP, INC. By__________________________________ Name: Title: ANNEX A to PLEDGE AGREEMENT
LIST OF PLEDGED STOCK Name of Type of Number of Issuer Interest Shares Certificate No. Percentage Owned - ------------------------------------ ------------ ----------- --------------- ---------------- PG&E National Energy Group, Inc., a Common Stock 1,000 3 100% Delaware corporation
ANNEX B to PLEDGE AGREEMENT CHIEF EXECUTIVE OFFICE PG&E National Energy Group, LLC 7500 Old Georgetown Road Bethesda, MD 20814-6161 Attention: General Counsel Tel: (301) 280-6815 Fax: (301) 280-6319 EX-99.7 9 dex997.txt AMENDED AND RESTATED OPTION AGREEMENT EXECUTION COPY ================================================================================ AMENDED AND RESTATED OPTION AGREEMENT By and Among PG&E NATIONAL ENERGY GROUP, INC., PG&E CORPORATION, PG&E NATIONAL ENERGY GROUP, LLC, and THE HOLDERS __________________________ Dated as of June 25, 2002 __________________________ ================================================================================ Table of Contents
Page ARTICLE I Definitions............................................................ 1 SECTION 1.01. Definitions................................................... 1 ARTICLE II Grant of the Option................................................... 9 SECTION 2.01. Grant and Authorization of the Option......................... 9 ARTICLE III Representations, Warranties and Covenants............................ 10 SECTION 3.01. Representations, Warranties and Covenants of LLC.............. 10 SECTION 3.02. Representations, Warranties and Covenants of the Company...... 12 SECTION 3.03. Representations, Warranties and Covenants of the Initial Holders...................................................... 15 ARTICLE IV Exercise Terms........................................................ 15 SECTION 4.01. Exercise Price................................................ 15 SECTION 4.02. Exercise Amounts.............................................. 15 SECTION 4.03. Manner of Exercise............................................ 16 SECTION 4.04. Transfer of Option Shares..................................... 16 SECTION 4.05. Fractional Option Shares...................................... 17 SECTION 4.06. Reservation of Option Shares.................................. 17 SECTION 4.07. Compliance with Law........................................... 17 ARTICLE V Transfer Restrictions.................................................. 17 SECTION 5.01. Restrictions on Transfers of Option and Option Shares......... 17 SECTION 5.02. Notation...................................................... 18 ARTICLE VI Holders' Put Rights................................................... 18 SECTION 6.01. Granting of Put; Put Option Purchase Price.................... 18 SECTION 6.02. Put Notice.................................................... 18 SECTION 6.03. Purchasing Party Notices...................................... 19 SECTION 6.04. Obligation to Purchase the Option............................. 19 ARTICLE VII Special Right of Call................................................ 19 SECTION 7.01. Granting of Call; Price....................................... 19 SECTION 7.02. Call Notice. The Call Notice shall:........................... 19 SECTION 7.03. Obligation to Call............................................ 20 ARTICLE VIII Registration, Drag-Along, Tag-Along and Preemptive Rights........... 20
i SECTION 8.01. Drag-Along................................................... 20 SECTION 8.02. Tag-Along.................................................... 21 SECTION 8.03. Expenses of Sale............................................. 21 ARTICLE IX Registration Rights................................................... 21 SECTION 9.01. Piggy-Back and Shelf Registration Rights..................... 21 SECTION 9.02. Demand Registration.......................................... 23 SECTION 9.03. Hold-Back Agreements; Restrictions on Public Sale by Holders...................................................... 25 SECTION 9.04. Registration Procedures...................................... 25 SECTION 9.05. Registration Expenses........................................ 29 SECTION 9.06. Indemnification.............................................. 29 ARTICLE X Miscellaneous.......................................................... 32 SECTION 10.01. SEC Reports and other Financial Information.................. 32 SECTION 10.02. Persons Benefiting........................................... 32 SECTION 10.03. Amendments and Waivers....................................... 32 SECTION 10.04. Notices...................................................... 33 SECTION 10.05. Governing Law; Waiver of Jury Trial; Submission of Jurisdiction................................................. 35 SECTION 10.06. Successors and Assigns....................................... 36 SECTION 10.07. Severability................................................. 36 SECTION 10.08. Entire Agreement............................................. 36 SECTION 10.09. Counterparts................................................. 36 SECTION 10.10. Headings..................................................... 36 SECTION 10.11. Publicity.................................................... 36 SECTION 10.12. Restricted Transactions...................................... 36 SECTION 10.13. Rule 144/145................................................. 37 SECTION 10.14. Remedies..................................................... 37 SECTION 10.15. Acknowledgment............................................... 37 SECTION 10.16. Waiver....................................................... 37 SECTION 10.17. Register..................................................... 37 SECTION 10.18. Intercreditor Agreement...................................... 38
Annex 1 Gross Up Analysis for Options Granted on Each Extension Date Annex 2 Put Option Purchase Price (Original Option of GPSF) Annex 3 Percentage of Options Held by Each Holder on the Closing Date ii AMENDED AND RESTATED OPTION AGREEMENT, dated as of June 25, 2002, by and among PG&E National Energy Group, Inc., a Delaware corporation (the "Company"), PG&E Corporation, a California corporation (the "Borrower"), PG&E National Energy Group, LLC, a Delaware limited liability company (the "LLC"), GPSF-F Inc., a Delaware corporation ("GPSF"), and LB I Group Inc., a Delaware corporation ("LBI"), (each, an "Initial Holder", and together the "Initial Holders") and each entity named on the signature pages hereof as a "Subsequent Holder" (each, a "Subsequent Holder"). W I T N E S S E T H: WHEREAS, General Electric Capital Corporation and Lehman Commercial Paper Inc. (the "Initial Lenders") provided certain credit facilities to the Borrower on the terms and conditions set forth in the Credit Agreement, dated as of March 1, 2001, among the Borrower, the lenders from time to time parties thereto and others (as amended, the "Existing Credit Agreement"); WHEREAS, pursuant to the Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the lenders from time to time parties thereto (the "Lenders") and others, the Existing Credit Agreement is being amended and restated in its entirety to modify certain of its terms and to provide additional loans to the Borrower; WHEREAS, LLC owns 1,000 shares of the Common Stock of the Company, which shares represent 100% of the outstanding Common Stock of the Company; WHEREAS, the Company, the Borrower, LLC, and the Holders are parties to the Option Agreement, dated as of March 1, 2001 (the "Existing Option Agreement"); WHEREAS, pursuant to the Existing Option Agreement, on the Initial Closing Date, LLC granted the Original Option described herein to the Initial Holders; and WHEREAS, it is a condition precedent to the obligation of the Lenders to agree to modify certain terms of, and to provide additional loans under, the Existing Credit Agreement that the Existing Option Agreement shall have been amended and restated as provided herein; 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 Option: 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. "Additional Option" shall have the meaning provided in Section 2.01(b) hereof. 2 "Advice" shall have the meaning set forth in Section 9.04 hereof. "Agreement" shall mean this Amended and Restated Option Agreement, as the same may be amended, modified or supplemented from time to time. "Approved Sale" shall have the meaning set forth in Section 8.01 hereof. "Assignee" shall have the meaning set forth in Section 5.01 hereof. "Board" shall mean the "Board of Control" of LLC or the board of directors of the Company, as the case may be, or any committee thereof duly authorized to act on behalf of such "Board of Control" or board of directors. "Borrower" shall mean PG&E Corporation, a California corporation. "Business Day" shall mean any day except Saturday, Sunday and any day that shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other government action to close. "Call" shall mean the call right of the LLC pursuant to Article VII hereof. "Call Notice" shall have the meaning set forth in Section 7.01 hereof. "Call Option Purchase Price" shall mean, with respect to the right of LLC to purchase any Option pursuant to any Call Notice delivered under Article VII hereof, for which the consideration includes (i) at any time prior to the closing date of the IPO, the Current Market Price of an Option Share as of the Call Repurchase Date multiplied by the Option Share Number in effect on the date of delivery of the Call Notice ("Call Price") and (ii) after the closing date of the IPO, at the election of LLC, (x) the delivery of a number of shares of Common Stock of the Company equal to the Option Share Number in effect on the Call Repurchase Date or (y) the Call Price. "Call Repurchase Date" shall have the meaning set forth in Section 7.02 hereof. "Common Stock" shall mean, with respect to any Person, any and all shares, interests, participations and/or rights in or other equivalents (however designated, whether voting or nonvoting) in the common equity of such Person, now or hereafter outstanding, and any and all rights, warrants or options exchangeable for or convertible into any thereof. "Common Stock Equivalent" shall mean any Convertible Security or warrant, option or other right to subscribe for or purchase any shares of Common Stock or any Convertible Security, other than an Option. "Company" shall have the meaning set forth in the first paragraph of this Agreement, and its successors and assigns. "Convertible Securities" shall mean evidences of indebtedness, shares of capital stock or other securities which are or may be at any time convertible into or exchangeable for 3 shares of Common Stock. The term "Convertible Security" shall mean one of the Convertible Securities. "Credit Agreement" shall have the meaning set forth in the second recital of this Agreement. "Current Market Price" of an Option Share shall mean, except as hereinafter provided, the average of the daily market prices for the Common Stock of the Company for the twenty (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 Markets 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 LLC or the Company, or, if there is no such firm, as furnished by any member of the National Association of Securities Dealers, Inc. selected by LLC or 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, the Current Market Price of an Option Share shall be the fair market value per share of the Common Stock of the Company as determined by a panel of two independent appraisers (together, the "Independent Appraisers") who shall be independent investment banks experienced in the evaluation of the value of securities of a corporation of a type similar to the Company (one to be selected by the relevant Purchasing Party, and the other by the relevant Holder or a Majority in Interest of Evaluating Holders, as applicable), which determination shall not take into account any discount attributable to the minority status of the Option and/or Option Shares, or any other minority interest, or the illiquidity of the Option and/or Option Shares. In the event the Independent Appraisers are unable to agree upon the Current Market Price within ten (10) days of their selection, then the two Independent Appraisers shall select a third independent appraiser who shall be an independent 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 fifteen (15) days of its selection. A determination by the Independent Appraiser of the Current Market Price shall be final and binding upon the Borrower, LLC, the Company and the Holders. 4 The relevant Purchasing Party shall pay the fees and expenses of the independent appraiser it appoints. The relevant Holder or Evaluating Holders, as applicable, shall pay the fees and expenses of the independent 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 independent appraiser be appointed, each of the relevant Purchasing Party and the relevant Holder (or Evaluating Holders, where applicable) shall pay fifty percent (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. "Date Certain" shall have the meaning set forth in the Credit Agreement. "Demand" shall have the meaning set forth in Section 9.02(a) hereof. "Demand Registration" shall have the meaning set forth in Section 9.02(a) hereof. "Demand Registration Statement" shall have the meaning set forth in Section 9.02(b) hereof. "Dividend" shall mean any dividend or other distribution on Common Stock whether in the form of money, evidences of the Company's indebtedness, or any other 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 Additional Option Percentage" shall have the meaning provided in Section 2.01(b) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated pursuant thereto. "Exercise Price" shall have the meaning set forth in Section 4.01 hereof. "Existing Credit Agreement" shall have the meaning set forth in the first recital of this Agreement. "Existing Option Agreement" shall have the meaning set forth in the fifth recital of this Agreement. "Extension Date" shall mean the first day of any period for which the maturity of the Tranche A Loan has been extended, which period shall expire on an Additional Extended Date Certain. 5 "Extension Fee Loan" shall have the meaning provided in Section 2.01(b) hereof. "Full Repayment Date" shall mean the date of repayment in full of the Tranche A Loan. "Fully Diluted Basis" shall mean, with respect to the Common Stock, at any date as of which the number of shares thereof is to be determined, a calculation based on all shares of Common Stock outstanding at such date and all shares of Common Stock issuable pursuant to Convertible Securities or Common Stock Equivalents, outstanding on such date together with any Option Shares issuable pursuant to any Option. "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 the United States of America or foreign. "GPSF" shall have the meaning set forth in the first paragraph of this Agreement. "Holder" shall mean for purposes of the Original Option, the Initial Holders and the Subsequent Holders, or for purposes of the Additional Option, the Tranche A Lenders and the Assignees, designees or transferees of the Option or any portion thereof or any Option Shares and/or Registrable Securities. "HSR Act" shall have the meaning set forth in Section 3.01(f) hereof. "Indemnified Party" shall have the meaning set forth in Section 9.06(c) hereof. "Indemnifying Party" shall have the meaning set forth in Section 9.06(c) hereof. "Independent Third Party" shall have the meaning set forth in Section 8.01 hereof. "Initial Holders" shall have the meaning set forth in the preamble of this Agreement. "Initial Lenders" shall have the meaning set forth in the first recital of this Agreement. "IPO" shall mean the sale, in the initial underwritten offering, registered under the Securities Act, of shares of the Company's Common Stock, where, after such offering, the Common Stock sold in such offering is traded on the Nasdaq National Market or a national securities exchange. "LBI" shall have the meaning set forth in the first paragraph of this Agreement. "Lenders" shall have the meaning set forth in the preamble of this Agreement. "LLC" shall have the meaning set forth in the first paragraph of this Agreement, and shall for purposes of Article III include the New LLC, and their respective successors and assigns. 6 "Losses" shall have the meaning set forth in Section 9.06(a) hereof. "Majority Holders" shall mean the Holders of at least a 30% interest in the Option or the Option Shares. "Majority in Interest of Evaluating Holders" shall mean, at any time and from time to time, the Holders of at least a 51% interest in the Option 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, liabilities, management or prospects 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 business, condition (financial or otherwise), results of operations, properties, assets, liabilities or prospects of LLC, (B) materially and adversely affect the ability of LLC or the Company to perform its obligations under this Agreement or (C) materially and adversely affect the rights and remedies of the Holders under this Agreement. "Option" shall mean collectively the Original Option and the Additional Option. "Option Agreement" shall mean this Agreement. "Option Share Number" shall mean, at any time, the aggregate number of Option Shares which may at such time be purchased upon exercise of the Option, after giving effect to all prior adjustments to such number made or required to be made under the terms of this Agreement. "Option Shares" shall mean all the shares of Common Stock of the Company issuable or issued upon the exercise of the Option, or all the shares of Common Stock of the Company, if any, deliverable upon the exercise by LLC of its call right pursuant to Article VII hereof. "Original Option" shall have the meaning provided in Section 2.01(a) hereof. "Person" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Piggy-Back Registration" shall have the meaning set forth in Section 9.01(a) hereof. "Piggy-Back Registration Offer" shall have the meaning set forth in Section 9.01(a) hereof. "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. 7 "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. "Prospectus" shall mean the Prospectus included in any Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by an prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Purchasing Party" shall mean either LLC or the Borrower, as applicable. "Put Effective Date" shall mean (i) with respect to the Original Option, the earlier of the Full Repayment Date and, at each Holder's election, (x) the Initial Date Certain, as such date may be extended pursuant to Section 2.9(a) of the Credit Agreement or (y) any Additional Extended Date Certain, if the Initial Date Certain has been extended pursuant to Section 2.9(b) of the Credit Agreement, and (ii) with respect to the Additional Option, the earlier of the Full Repayment Date and the Date Certain. "Put Notice" shall have the meaning set forth in Section 6.01 hereof. "Put Option Price Loan" shall have the meaning provided in Section 6.04 hereof. "Put Option Purchase Price" shall mean (a) subject to clause (b) below, with respect to the exercise of any option to sell any Option pursuant to any Put Notice delivered in accordance with Article VI hereof by any Holder of an Option, the Current Market Price of an Option Share as of the Put Repurchase Date multiplied by the Option Share Number in effect on the date of delivery of the Put Notice and (b) with respect to the exercise of any option to sell any Option pursuant to any Put Notice delivered in accordance with Section 6.01(b) hereof by GPSF, the higher of (i) the Current Market Price of any Option Share as of the Put Repurchase Date multiplied by the Option Share Number in effect on the date of delivery of the Put Notice and (ii) the sum of the (x) the applicable deemed Put Option Price of the Option Share in respect of the Original Option of GPSF as set forth on Annex 2 hereto corresponding to the relevant Put Repurchase Date within the period set forth in such Annex plus (y) the Current Market Price of any Option Share in respect of the Additional Option, if applicable, as of the Put Repurchase Date multiplied by the Option Share Number in respect thereof in effect on the date of delivery of the Put Notice; provided, however, that during the time that no Junior Obligee (as defined in the Intercreditor Agreement) is continuing to exercise the rights and remedies under the Financing Documents to foreclose on the Collateral, this clause (b) shall not apply. "Put Repurchase Date" shall mean, with respect to the exercise of any put option pursuant to Article VI hereof, a date designated by the Purchasing Party which is not earlier than ten (10) days, or more than thirty (30) days, after the date of receipt by the Purchasing Party of the Put Notice; provided, however, if the exercise of any put option pursuant to Article VI hereof 8 is in connection with the refinancing in full of the Credit Agreement, then the Put Repurchase Date shall be the earlier of (i) the date of such refinancing or (ii) such thirty (30) day period; provided, further, that in the event the Current Market Price shall not have been finally determined on any date that otherwise would have been a Put Repurchase Date, then the Put Repurchase Date shall be extended to the fifth Business Day following the date of such final determination of the Current Market Price. "Register" shall have the meaning set forth in Section 10.17 hereof. "Registrable Securities" shall mean any of (i) the Option Shares (whether or not the related Option has been exercised), (ii) any other securities issued or issuable with respect to any Option Shares by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, until, in the case of any such Option Share or security, (A) it has been registered effectively pursuant to the Securities Act and disposed of in accordance with a Registration Statement covering it, (B) it ceases to be outstanding or (C) it has been sold or otherwise transferred pursuant to Rule 144 or could be sold or otherwise transferred under Rule 144(k) under the Securities Act and is not subject to any restrictive legend or stop transfer order and (iii) any of the shares received pursuant to Section 7.01. "Registration Expenses" shall have the meaning set forth in Section 9.05 hereof. "Registration Statement" shall mean any registration statement contemplated by Section 9.01 or Section 9.02 hereof, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Rule 144 Transaction" shall mean a transfer of Common Stock (a) complying with Rule 144 under the Securities Act as such rule or a successor thereto is in effect on the date of such transfer (but not including a sale other than pursuant to a "brokers transaction" as defined in clauses (i) and (ii) of paragraph (g) of Rule 144 as in effect on the date hereof) and (b) occurring at a time when the Common Stock or Preferred Stock is registered pursuant to Section 12 of the Exchange Act. "Sale Notice" shall have the meaning set forth in Section 8.01 hereof. "Section 9.04(iii) Notice" shall have the meaning set forth in Section 9.04 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Shelf Registration" shall have the meaning set forth in Section 9.01(c) hereof. "Special Counsel" shall mean any special counsel to the Holders, for which Holders of Registrable Securities will be reimbursed pursuant to Section 9.04 hereof. 9 "Subsequent Holder" shall have the meaning set forth in the preamble of this Agreement. "Tag-Along Notice" shall have the meaning set forth in Section 8.02 hereof. "Transfer Agent" shall have the meaning set forth in Section 4.04 hereof. "Underwritten Offering" shall mean a registration in connection with which securities of the Company are sold to an underwriter for reoffering to the public pursuant to an effective registration statement. ARTICLE II Grant of the Option SECTION 2.01. Grant and Authorization of the Option. (a) In consideration of the making of the loans by the Initial Lenders to the Borrower under the Existing Credit Agreement as a condition to the lending of the loans thereunder, LLC granted to the Initial Holders on the Initial Closing Date, an unconditional, irrevocable option (the "Original Option") to purchase from LLC subject to the terms hereof, up to three percent (3.0%) of the total common equity of the Company computed on a Fully Diluted Basis, which Option may be exercised as provided in Article IV. (b) In consideration of the extension by the Tranche A Lenders of the maturity date of the Tranche A Loan under Section 2.9(b) of the Credit Agreement and as a condition to such extension of the maturity date thereunder, effective on each Extension Date and only if such Extension Date occurs, LLC hereby grants to the Holders (to be allocated among the Holders as described in the last paragraph of this Section 2.01(b)), an unconditional, irrevocable option (collectively, the "Additional Option") to purchase from LLC a percentage of the total common equity of the Company outstanding on such Extension Date, computed on a Fully Diluted Basis, as determined pursuant to Section 4.02(b) of this Agreement, which Additional Option may be exercised as provided in Article IV hereof; provided that to the extent that such percentage exceeds one percent (1.0%) for each Additional Option (such excess only, the "Excess Additional Option Percentage"), then, at the Borrower's option, (i) the Holders may receive such Additional Option with respect to the Excess Additional Option Percentage, or (ii) the Borrower may pay on such Extension Date to such Holders an amount equal to the Put Option Purchase Price with respect to such Excess Additional Option Percentage; provided, further, that the Borrower shall exercise its option referred to in the foregoing proviso equally and on a non-discriminatory basis with respect to all Holders entitled to a portion of such Excess Additional Option Percentage. Such Put Option Purchase Price may, at the Borrower's option, (x) be paid in immediately available funds, or (y) be deemed to constitute a Tranche A Loan made on such Put Repurchase Date in a principal amount equal to the amount of such Put Option Purchase Price and all in accordance with the terms of Section 2.10(c) of the Credit Agreement (the "Extension Fee Loan"); provided, that the Borrower shall exercise its option referred to in this sentence equally and on a non-discriminatory basis with respect to all Holders entitled to a portion of such 10 Put Option Purchase Price. For purposes of determining the Put Option Purchase Price, the date immediately preceding the date on which the grant of the Additional Option with respect to the Excess Additional Option Percentage would, but for clause (ii) of the preceding paragraph, become effective shall be deemed to be the date of delivery of a Put Notice with respect to such Excess Additional Option Percentage and the Put Repurchase Date with respect to such Excess Additional Option Percentage). The Additional Option granted on such Extension Date shall be distributed among the Holders based on the respective aggregate principal amount of Tranche A Loans (other than Extension Fee Loans and Put Option Price Loans) held by such Holders or their respective affiliates on such Extension Date; provided, however, that any Excess Additional Option Percentage determined for any Extension Date shall be distributed among the Holders pro rata based upon the respective aggregate principal amount of Extension Fee Loans and Put Option Price Loans held by such Holders or their respective affiliates on such Extension Date (which amount shall include the most recently extended Put Option Price Loan plus the aggregate principal amount of any Extension Fee Loan made prior to such Extension Date). ARTICLE III Representations, Warranties and Covenants SECTION 3.01. Representations, Warranties and Covenants of LLC. LLC represents and warrants to, and agrees with, the Holders as follows: (a) It is a limited liability company duly organized, validly existing and in good standing under the laws of the state of Delaware. (b) It has the corporate power and authority (i) to execute, deliver and perform its obligations under this Agreement, (ii) to grant the Option, (iii) to transfer the Option Shares transferable upon due exercise or call of the Option, and (iv) to cause the Company to have the Transfer Agent record the transfer of the Option Shares transferable upon due exercise or call of the Option. (c) LLC is (and at all times prior to the Closing Date from and after January 12, 2001, was) the sole direct owner of all of the outstanding Capital Stock of the Company free and clear of all Liens and adverse claim, other than the Liens in favor of the Collateral Agent created by the Security Documents, and indirectly owns the equity of the Company's Subsidiaries, or a portion thereof, as applicable. (d) This Agreement has been duly executed and delivered by LLC and constitutes the legal, valid and binding obligation of LLC, enforceable against LLC in accordance with its terms. The Option has been duly granted to the Initial Holders and constitutes, the legal, valid and binding obligation of LLC, enforceable against the LLC in accordance with its terms except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and (B) any 11 rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (e) Except as set forth in Part F of the Disclosure Letter, each of (i) the execution, delivery and performance of this Agreement by LLC and the Company, (ii) the offering, grant, and delivery of the Option and the Option Shares transferable upon the exercise of the Option or the Call, 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, member or stockholder action of LLC and the Company and (B) will not (1) conflict with, violate or constitute a default under (x) any provision of the certificate of formation, operating agreement or certificate of incorporation, by-laws or other constitutive documents of LLC or the Company, (y) any law, statute, rule or regulation or any order of any Governmental Authority applicable to LLC, the Company or any of their subsidiaries or either of their respective properties or (z) any provision of any indenture or other material agreement or other material instrument to which LLC, the Company or any of their 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 LLC, the Company or any of their subsidiaries. (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 LLC or the Company, and any consent, approval, authorization, declaration or filing or the expiration of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act")) is or will be required in connection with (i) the execution, delivery and performance of this Agreement by LLC or the Company, (ii) the grant of the Option and the transfer of the Option Shares pursuant to the exercise of the Option in accordance with this Agreement, other than with respect to (A) the exercise by any Holder of its right to convert the Option to Option Shares under this Agreement, or (B) the delivery by LLC of Option Shares pursuant to its call right under Article VII of this Agreement, which may require filing(s) under the HSR Act and (iii) the performance by LLC or the Company of its obligations under this Agreement, or as a condition to the legality, validity or enforceability of this Agreement or the consummation of the transactions contemplated thereby, other than such authorizations and approvals as have already been obtained and are in full force and effect. (g) Except as set forth in Section 5.6 of the Credit Agreement, there are not any judicial, administrative, arbitral or other actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of LLC, threatened against or affecting LLC or any business, property, prospects or rights of LLC (i) that involve this Agreement or the transactions contemplated thereby or (ii) which if adversely determined, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to the Company and the Significant Subsidiaries, taken as a whole. 12 (h) Subject to the accuracy of the Initial Holders' representations set forth in Section 3.03 and, in the case of an Option transfer, compliance with Section 5.01(b), the grant of the Option and the offering, sale and delivery of the Option and the Option 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 Option or the Option Shares under the Securities Act. (i) The Option Shares, when transferred and delivered against payment of the Exercise Price therefor, will be duly authorized, validly issued, fully paid and nonassessable, and subject to no Liens in respect of the issuance thereof. (j) LLC will not amend its Charter Document or enter into any agreement inconsistent with this Agreement or that would make the LLC or the Company unable to comply with the terms of this Agreement. (k) At all times on or after the date of delivery of a Call Notice, LLC shall promptly notify each Holder of any contemplated transaction, including the entering into any agreement, letter of intent, commitment or memorandum of understanding, whether binding or not, which could reasonably be expected to have a material impact upon the value of the Common Stock of the Company, unless such Holder has previously requested the LLC not to deliver such notice to such Holder (upon which request the LLC shall be entitled to rely) ; provided, however, (i) such information may not be used by such Holder in a manner which would result in a violation of Section 10(b) of the Exchange Act, and the rules promulgated thereunder, and (ii) each Holder shall keep such information confidential, unless (A) LLC or the Company informs it that such information is no longer confidential, which LLC or the Company shall do promptly upon the information ceasing to be of a confidential nature, (B) such information becomes generally available to the public (other than as a result of a breach of this provision by the Holder), (C) the Holder is requested or required by a Governmental Authority or in connection with a legal proceeding or pursuant to legal process or otherwise required by law to disclose such information; provided that (i) the Holder shall notify LLC prior to making any such disclosure and (ii) the Holder shall not disclose any information solely for the purpose of relieving itself of its obligations under Section 3.01(k)(i) hereof, (D) such information was available to the Holder on a non-confidential basis from a source (other than the Company, LLC or their representatives) that, to the Holder's knowledge, is not and was not prohibited from disclosing such information to the Holder by a contractual, legal or fiduciary obligation or (E) such information is disclosed by any Holder to an independent appraiser in connection with the determination of the Current Market Price of any Option Shares; provided, however, that such independent appraiser agrees in writing to keep such information confidential. (l) LLC owns 1,000 shares of the Common Stock of the Company, which shares represent 100% of the outstanding Common Stock of the Company. Such shares of Common Stock are free and clear of all Liens and adverse claims, other than the Liens in favor of the Collateral Agent created by the Financing Documents. SECTION 3.02. Representations, Warranties and Covenants of the Company. The Company represents, warrants and covenants to, and agrees with, the Holders as follows: 13 (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware. (b) The Company has the corporate power and authority (i) to execute, deliver and perform its obligations under this Agreement and (ii) to cause its Transfer Agent to record the transfer of Common Stock upon due exercise of the Option. (c) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and (B) any rights to indemnity or contribution hereunder may be limited by federal and state securities laws and public policy considerations. (d) Each of (i) the execution, delivery and performance of this Agreement by the Company and (ii) 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 certificate 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 its 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. (e) 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, and any consent, approval, authorization, declaration or filing or the expiration of any waiting period under the HSR), is or will be required in connection with (i) the execution, delivery and performance of this Agreement by the Company, (ii) the transfer of the Common Stock pursuant to the exercise of the Option in accordance with this Agreement, other than with respect to (A) the exercise by any Holder of its right to convert the Option to Option Shares under this Agreement, or (B) the delivery by LLC of Option Shares pursuant to its call right under Article VII of this Agreement, which may require filing(s) under the HSR Act and (iii) the performance by the Company of its obligations under this Agreement, or as a condition to the legality, validity or enforceability of this 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. 14 (f) Except as set forth in Section 5.6 of the Credit Agreement, there are not any judicial, administrative, arbitral or other actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of the Company, threatened against or affecting the Company or any business, property, prospects or rights of the Company (i) that involve this Agreement or the transactions contemplated thereby or (ii) which if adversely determined, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or result in a Material Adverse Change to the Company and the Significant Subsidiaries, taken as a whole. (g) The Option Shares, when transferred and delivered against payment of the Exercise Price therefor, will be duly authorized, validly issued, fully paid and non-assessable, and subject to no Liens. (h) 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. (i) At all times on or after the date of delivery of a Call Notice, the Company shall promptly notify each Holder of any contemplated transaction, including the entering into any agreement, letter of intent, commitment or memorandum of understanding, whether binding or not, which could reasonably be expected to have a material impact upon the value of the Common Stock of the Company, unless such Holder has previously requested the Company not to deliver such notice to it (upon which request the Company shall be entitled to rely); provided, however, (i) such information may not be used by such Holder in a manner which would result in a violation of Section 10(b) of the Exchange Act, and the rules promulgated thereunder, and (ii) each Holder shall keep such information confidential, unless (A) LLC or the Company informs it that such information is no longer confidential, which LLC or the Company shall do promptly upon the information ceasing to be of a confidential nature, (B) such information becomes generally available to the public (other than as a result of a breach of this provision by the Holder), (C) the Holder is requested or required by a governmental authority or in connection with a legal proceeding or pursuant to legal process or otherwise required by law to disclose such information; provided that (i) the Holder shall notify LLC prior to making any such disclosure and (ii) the Holder shall not disclose any information solely for the purpose of relieving itself of its obligations under Section 3.02(i)(i) hereof, (D) such information was available to the Holder on a non-confidential basis from a source (other than the Company, LLC or their representatives) that, to the Holder's knowledge, is not and was not prohibited from disclosing such information to the Holder by a contractual, legal or fiduciary obligation, or (E) such information is disclosed by any Holder to an independent appraiser in connection with the determination of the Current Market Value of any Option Shares; provided, however, that such independent appraiser agrees in writing to keep such information confidential. (j) Immediately prior to the Closing, the Company's authorized capital stock consists of 1,000 shares of Common Stock of which 1,000 shares are validly issued and outstanding. Such 1,000 shares of Common Stock will be validly issued and outstanding as of the Closing Date, free and clear of all Liens and adverse claims, other than the Liens in favor of the Collateral Agent created by the Financing Documents. 15 SECTION 3.03. Representations, Warranties and Covenants of the Initial Holders. Each Initial Holder represents and warrants to, and agree with, the Company, the Borrower and LLC that the Option and Option Shares are being acquired by such Initial Holder for its own account and not with a view to or for sale in connection with any distribution thereof that would violate the registration provisions of the Securities Act or the applicable state securities laws of any state, and each Initial Holder will not distribute the Option and Option Shares in violation of the registration provisions of the Securities Act or the applicable securities laws of any state. ARTICLE IV Exercise Terms SECTION 4.01. Exercise Price. The Option shall entitle the Holders thereof, subject to adjustment pursuant to the terms of this Agreement, to purchase shares of Common Stock of the Company at an exercise price (the "Exercise Price") of $1.00 for the percentage of the total shares of such Common Stock set forth in Section 4.02. LLC shall, at all times that the Option or any portion thereof remains outstanding, maintain a Register indicating the Holders' respective ownership interests in the Option, as more fully set forth in Section 10.17 hereof. SECTION 4.02. Exercise Amounts. (a) (i) Subject to the terms and conditions set forth herein, the percentage (and no more than the percentage indicated) of the total shares of Common Stock of the Company on a Fully Diluted Basis as to which the pro rata portion of the Original Option held by a Holder may be exercised in the aggregate shall be the corresponding pro rata portion of 3%. On the Closing Date, the pro rata portion of the Option held by each Holder is set forth on Annex 3. (b) The percentage of the total shares of Common Stock of the Company on a Diluted Basis as to which the ratable portion (such ratable portion to be determined as provided in the last sentence of Section 2.01(b)of this Agreement) of the aggregate Additional Option held by a Holder under Section 2.01(b) hereof shall be fixed on the date such Additional Option becomes effective under Section 2.01(b) of this Agreement and shall be equal to the sum of the following, expressed as a percentage: (i) (0.8671%); plus (ii) B - A; plus ----- A (iii) in the event that (1) the Borrower elects the option described in clause (y) of the second paragraph of Section 2.01(b) hereof and (2) the calculation described in clause (ii) above results in a positive number, X; - A 16 Where: A = $600,000,000 B = the aggregate outstanding principal amount of Tranche A Loans on such date (other than any Extension Fee Loan made on such date); and X = an amount equal to the product of (i) 0.8671% multiplied by (ii) the percentage determined pursuant to Section 4.02(b)(ii) hereof multiplied by (iii) the Fair Market Value (as defined in Section 9.26 of the Credit Agreement) of the Company as of such date; provided, that the sum of the percentages determined pursuant to clauses (i), (ii) and (iii) above shall in no event be less than 0.75%. For purposes of illustration an example of the calculation of such percentage is attached hereto as Annex 1. (c) At any time, and from time to time, when the number of Option Shares into which the Option of a Holder is convertible into is calculated pursuant to this Section 4.02, the Company shall provide a certificate (which shall be signed by its chief executive, chief financial officer or treasurer), setting forth a detailed explanation of how the Option Share Number was calculated. SECTION 4.03. Manner of Exercise. An Option may be exercised upon notice and payment to LLC of the Exercise Price for the Option Shares being purchased upon such exercise. The pro rata portion of the Option held by any Holder shall be exercisable at the election of such Holder either in full or in part at any time from and after the date hereof, or from time to time after the date hereof, but in no event more than 45 days following the Date Certain; provided, that the 45-day period referred to above in this sentence shall not be deemed to commence until (A) the Full Repayment Date has occurred and (B) the LLC has given notice to the Holders that such Date Certain and Full Repayment Date have occurred. SECTION 4.04. Transfer of Option Shares. Upon the payment of the Exercise Price, LLC shall transfer and the Company 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 Option Shares so purchased upon the exercise of such Option. 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 Option Shares as of the date of the payment of the Exercise Price. LLC and 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 its offices at the address set forth in Section 10.04 hereof. 17 SECTION 4.05. Fractional Option Shares. Until the closing date of the IPO, LLC shall be required to transfer fractional Option Shares on the exercise of the Option. On or after the closing date of the IPO, if any fraction of an Option Share would, except for the provisions of this Section 4.05, be issuable on the exercise of the Option (or specified portion thereof), the number of shares to be transferred will be rounded up to the nearest whole number. SECTION 4.06. Reservation of Option Shares. LLC shall at all times keep reserved out of the Common Stock it owns, a number of shares of Common Stock free and clear of all liens, other than the Liens created by the Financing Documents, sufficient to provide for (i) the exercise of the Option and (ii) the transfer of all Option Shares transferable upon the exercise of the Option. LLC and the Company will keep a copy of this Agreement on file with the Transfer Agent. All Option Shares which may be transferred to the respective Holder upon exercise of the Option shall, upon transfer and payment of the Exercise Price pursuant to Section 4.04 hereof, be fully paid, nonassessable, free of preemptive rights and free from all taxes, Liens, charges and security interests with respect to the issue thereof. LLC or the Company will supply the Transfer Agent with duly executed stock certificates for such purpose. SECTION 4.07. Compliance with Law. If any shares of Common Stock required to be reserved for purposes of exercise of the Option 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 transferred upon exercise, LLC and 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. LLC and the Company will take all such action as may be necessary or appropriate in order that LLC may validly and legally transfer fully paid and nonassessable Option Shares on the exercise of the Option from time to time outstanding. ARTICLE V Transfer Restrictions SECTION 5.01. Restrictions on Transfers of Option and Option Shares. The following restrictions on transfer shall apply to the Option and Option Shares: (a) No Holder or transferee thereof shall sell, transfer or convey in any manner whatsoever any Option or Option Shares except in accordance with the terms and provisions of this Agreement. (b) Each Holder may, without the consent of the Borrower, sell or assign any part of the Option or Option Shares and the other rights and obligations of such Holder to any Person or any assignee thereof (an "Assignee") unless the sale or assignment of the Option or Option Shares and such other rights and obligations of such Holder to such Person would reasonably put the business of the Borrower at a competitive disadvantage, in which case such sale or assignment shall require the consent of the Borrower; provided, however, that such consent shall not be required if the Option or Option Shares are sold pursuant to a public 18 distribution of such Option or Option Shares. The Assignee shall agree to be bound by the terms of this Agreement and such Option and shall provide: (i) if such Option or Option Shares are being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act or pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or Regulation S under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect and, with respect to transfers pursuant to Rule 144 or Regulation S, an opinion of counsel reasonably acceptable to the Company to the effect that such transfer does not require registration under the Securities Act; or (ii) if such Option or Option Shares are being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect and an opinion of counsel reasonably acceptable to the Company to the effect that such transfer does not require registration under the Securities Act, 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 or any other Financing Document to the contrary, any Holder may assign all or any portion of the Option or Option Shares held by it as collateral security. SECTION 5.02. Notation. A notation will be made in the appropriate transfer records of the Company or the LLC, as applicable, with respect to any such transfer of the Option and Option Shares referred to in this Agreement. ARTICLE VI Holders' Put Rights SECTION 6.01. Granting of Put; Put Option Purchase Price. Subject to the limitations set forth herein, (a) provided that the Company shall not have consummated an IPO prior to the Put Effective Date, at any time or from time to time, after the Put Effective Date until 45 days thereafter, any Holder, and (b) at any time or from time to time, after any Junior Obligee (as defined in the Intercreditor Agreement) shall have commenced to exercise the rights and remedies under the Financing Documents to foreclose on the Collateral pursuant to the Intercreditor Agreement, GPSF, upon written notice to a Purchasing Party (a "Put Notice"), shall be entitled to sell and such Purchasing Party shall be obligated to purchase from such Holder, all of the Option held by any such Holder at the Put Option Purchase Price; provided, that the 45-day period referred to in clause (a) above in this sentence shall not be deemed to commence until the LLC has given notice to the Holders that such Put Effective Date has occurred. SECTION 6.02. Put Notice. Each Put Notice delivered pursuant to Section 6.01 hereof shall specify: 19 (a) the name of the Holder of the Option delivering such Put Notice; (b) that such Holder is exercising its Option, pursuant to this Article VI, and the percentage of the Option held by such Holder that is being exercised thereunder. SECTION 6.03. Purchasing Party Notices.(a) The Purchasing Party, within ten (10) days of receipt of each such Put Notice, shall deliver to each Holder other than a Holder that has delivered a Put Notice, a notice (i) specifying the respective Put Repurchase Date and (ii) stating the percentage (determined on a Fully-Diluted Basis) of the Option which is and will be held by each such Holder both before and after the Put Repurchase Date, respectively (assuming no other Holder elects to sell all or any portion of the Option held by such Holder) (the "LLC Notice"). (b) The Purchasing Party, within two (2) days of the final determination of the Put Option Purchase Price, shall deliver to the Holder or Holders exercising its or their put option pursuant to this Article VI a notice containing a detailed calculation of the Put Option Purchase Price with respect to the Option which is to be so repurchased from such Holder. SECTION 6.04. Obligation to Purchase the Option. The Purchasing Party shall be obligated to purchase all of such Holder's Option which is the subject of such Put Notice, and shall pay on the Put Repurchase Date with respect to such Put Notice the Put Option Purchase Price in immediately available funds or, at the Purchasing Party's option, the Put Option Purchase Price shall be deemed to constitute a Tranche A Loan made on such Put Repurchase Date in a principal amount equal to the amount of such Put Option Purchase Price and all in accordance with the terms of Section 2.10(b) of the Credit Agreement (the "Put Option Price Loan"); provided, that the Put Option Purchase Price in respect to any Put Repurchase Date occurring on or after the Full Repayment Date shall be paid in cash. The Company shall use its best efforts to cause the Put Option Purchase Price to be determined as promptly as practicable after the receipt of a Put Notice, and in any event by the date which is 45 days after the receipt of such Put Notice. ARTICLE VII Special Right of Call SECTION 7.01. Granting of Call; Price. Provided that all principal, interest, accrued fees, and any other amounts due and payable under the Financing Documents shall have been paid in full, at any time thereafter, LLC may give not less than 60 days, prior irrevocable written notice to all (but not less than all) Holders of the Option (a "Call Notice") to repurchase all, but not less than all, of the unexercised Option then held by such Holders, at the Call Option Purchase Price. SECTION 7.02. Call Notice. The Call Notice shall: (a) state that LLC intends to purchase the unexercised Option, pursuant to this Article VII, from the Holders; 20 (b) specify the date, which shall be no earlier than 60 days from the date of delivery of the Call Notice, on which LLC will repurchase the Option of the Holders (the "Call Repurchase Date"); (c) contain a reasonably detailed calculation of the Call Option Purchase Price and the Current Market Price with respect to the Option Shares; and (d) set forth any information required to be disclosed under Section 3.01(k) hereof. SECTION 7.03. Obligation to Call. The Call Notice having been so given to each Holder and each Holder having not exercised its Option within thirty (30) days after receiving such Call Notice, LLC shall be obligated to purchase the Option specified in the Call Notice with respect to each Holder, and shall pay the Call Option Purchase Price, payable to each Holder in immediately available funds, if applicable, on the Call Repurchase Date. ARTICLE VIII Registration, Drag-Along, Tag-Along and Preemptive Rights SECTION 8.01. Drag-Along. If, prior to the closing date of the IPO, LLC or the Company shall propose to sell or convey 75% or more of its shares of the Company's Common Stock and Convertible Securities (calculated on an as-converted basis), or any interest therein, to an Independent Third Party (including, without limitation, a sale of the Company by merger, consolidation, sale of all or substantially all of its assets, sale of all of the Company's outstanding Common Stock and Convertible Securities or otherwise) (the "Approved Sale"), LLC or the Company shall give prompt written notice (the "Sale Notice") to the Holders setting forth the terms and conditions of the proposed transfer, including the identity of the Independent Third Party, the number of shares of the Company's Common Stock and Convertible Securities to be transferred, the per share price to be paid for the shares of the Company's Common Stock and Convertible Securities to be transferred and the type and nature of the consideration to be received therefor. By so indicating in the Sale Notice, LLC shall be entitled to require the Holders to sell to the Independent Third Party in the same transaction their portion of the Option and Option Shares, on the same terms and conditions set forth in the Sale Notice; provided, however, that the provisions of this Section 8.01 shall not apply to the sale or conveyance of any Common Stock of the Company pledged by LLC pursuant to the terms of the Stock Pledge Agreement until such time as such Common Stock is no longer pledged thereunder. Without limitation as to the foregoing, the Holders will consent to and raise no objections against the Approved Sale. If the Approved Sale is structured as a merger or consolidation, each Holder shall waive any dissenters rights, appraisal rights or similar rights in connection with such merger or consolidation. The Holders will take all necessary and desirable actions in connection with the consummation of any Approved Sale. For purposes of this Section 8.01, an "Independent Third Party" is any Person who, prior to such sale, does not own in excess of 5% of the Company's Common Stock and Convertible Securities in the aggregate on a Fully Diluted Basis, who is not controlling, controlled by or under common control with any such 5% owner of the Company's Common Stock and Convertible Securities in the aggregate and who is not the 21 spouse, ancestor or descendant (by birth or adoption) of any such 5% owner of the Company's Common Stock and Convertible Securities in the aggregate. SECTION 8.02. Tag-Along. If, prior to the closing date of the IPO, LLC or the Company shall propose to sell or convey 75% or more of its shares of the Company's Common Stock or Convertible Securities (calculated on an as-converted basis) to an Independent Third Party, LLC shall provide each Holder with written notice (the "Tag-Along Notice") setting forth the terms and conditions of the proposed transfer, including the identity of the Independent Third Party, the number of shares of the Company's Common Stock and/or Convertible Securities to be transferred, the per share price to be paid for the shares of the Company's Common Stock and/or Convertible Securities to be transferred and the type and nature of the consideration to be received therefor. Each Holder, by written notice to LLC delivered within 10 days after the date of such Tag-Along Notice, shall be entitled to require LLC to include in the proposed sale to the Independent Third Party in the same transaction all of its Option and Option Shares (or, if LLC is selling less than all of the Company's Common Stock it owns, a percentage of each such Holder's Option and Option Shares equivalent to the percentage of the Company's Common Stock and Convertible Securities and rights to acquire shares of the Company's Common Stock and Convertible Securities to be sold by LLC or the Company), on the same terms and conditions set forth in the Tag-Along Notice; provided, however, that the provisions of this Section 8.02 shall not apply to the sale or conveyance of any Common Stock of the Company pledged by LLC pursuant to the terms of the Stock Pledge Agreement until such time as such Common Stock is no longer pledged thereunder. All fractional shares resulting from the calculation contained in the prior sentence will be rounded to the nearest whole share. LLC shall use its reasonable best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Holders in any contemplated transfer and LLC shall not transfer any of its shares to the prospective transferee(s) if the prospective transferee(s) declines to allow participation of the Holders. Following their compliance with the foregoing, LLC and any Holders who have elected to participate in the contemplated transfer may, within 90 days after the expiration of the 10-day period referenced above, transfer all of the shares specified in the Tag-Along Notice to the transferee(s) specified in the Tag-Along Notice at a price not less than the price per share specified in the Tag-Along Notice and on other terms no less favorable to the transferors in any material respect than the terms specified in the Tag-Along Notice. SECTION 8.03. Expenses of Sale. As between the Holders and the Company, the Company will pay the costs of any sale of the Option and Option Shares pursuant to a sale pursuant to Section 8.01 or 8.02 of this Agreement to the extent that such costs are incurred for the benefit of all holders of Common Stock and rights to acquire Common Stock and are not otherwise paid by the acquiring party. Costs incurred by the Holders on their own behalf will not be considered costs of the transaction hereunder. ARTICLE IX Registration Rights SECTION 9.01. Piggy-Back and Shelf Registration Rights. (a) If the Company at any time in connection with, or after the consummation of, the IPO proposes to file a registration statement under the Securities Act with respect to any Underwritten Offering by the 22 Company for its own account or for the account of holders of any Common Stock, Convertible Securities or Common Stock Equivalent to be offered for cash (other than on Form S-4 or S-8) then the Company shall in each case give written notice of such proposed filing to the Holders at least twenty (20) days before the anticipated filing date, and such notice shall offer (a "Piggy-Back Registration Offer") such Holders the opportunity to include all of the Registrable Securities held by them in such registration statement (a "Piggy-Back Registration"). In such event (x) the right of any Holder to registration pursuant to this Section 9.01(a) may be conditioned upon such Holder's participation in such underwriting and of the inclusion such Holder's Registrable Securities in the underwriting to the extent provided herein and (y) in cases initially involving the registration for sale of securities for the account of a holder or holders exercising rights similar to those of the Holders set forth in Section 9.02 of this Agreement, securities shall be registered in such offering in the order of priority set forth in Section 9.02 hereof. If any such Holder desires to have Registrable Securities registered and included in such Underwritten Offering under this Section 9.01(a) such Holder shall so notify the Company in writing within ten (10) days after the receipt by such Holder of the written notice provided for in the preceding sentence (which notification shall set forth the amount of Registrable Securities for which registration is requested), and the Company will use its reasonable best efforts to cause all such Registrable Securities to be registered under the Securities Act to the extent requisite to permit the disposition in such Underwritten Offering; provided, however, that if the managing underwriter or underwriters of such offering, as selected by the Company, shall advise the Company in writing that in its or their opinion the total amount or kind of securities that the Holders, the Company and any other Persons or entities intend to include in such offering exceeds the amount that can be sold in such offering without an adverse effect on the price, timing or distribution of the securities offered by the Company, the Company shall be required to include in such registration only the amount of Registrable Securities and securities of other persons or entities, if any, that the managing underwriter or underwriters determine, in its or their sole discretion, can be sold without an adverse effect on the price, timing or distribution of the securities offered. In such event, in cases initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities which the Company proposes to register, (ii) second, the securities which may have been requested to be included in such registration pursuant to this Agreement (pro rata based on the amount of securities sought to be registered by such Persons) and (iii) third, the securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company. (b) At any time prior to the date of printing preliminary prospectuses in connection with an Underwritten Offering under Section 9.01(a) hereof, a Holder that previously requested Piggy-Back Registration thereof may withdraw all or part of its Registrable Securities from such offering by providing notice to such effect to the Company. (c) (i) Within forty-five (45) days after delivery of a written notice by Holders of more than 50% of the Registrable Securities which notice may be delivered at any time after the date on which the Company becomes eligible to prepare and file a shelf registration statement (the "Shelf Registration") on Form S-3 (or such successor form to Form S-3 as the Company may at the time be eligible to use), the Company shall file a registration statement for the registration of securities under the Securities Act providing for the sale from time to time by the Holders of all of their Registrable Securities then outstanding, and all 23 Registrable Securities issuable thereafter. The Company may include in the Shelf Registration shares of Common Stock sold for the account of the Company, but no other person. For the avoidance of doubt, it is hereby acknowledged and agreed by all parties hereto that a request for a Shelf Registration pursuant to this Section 9.01(c) shall not constitute a Demand for a Demand Registration and for all purposes of this Agreement, a Shelf Registration shall not be counted in the tabulation of the number of Demand Registrations under Section 9.02 hereof. (ii) The registration rights of the Holders pursuant to this Section 9.01(c) and the ability to offer and sell Registrable Securities pursuant to a Shelf Registration are subject to the following conditions and limitations, and each of the Holders agrees with the Company that (i) if the Company determines in its good faith judgment, at any time prior to or during the effectiveness of the filing of a Shelf Registration pursuant to this Section 9.01(c)(ii), that the Company possesses material non-public information relating to a pending or imminent event or announcement or is engaged in confidential negotiations or other confidential business activities (including, but not limited to, information related to any pending or proposed consolidation, merger, reorganization, recapitalization or other similar transaction and any pending discussions related thereto), upon written notice of such determination by the Company delivered to the Holders, the rights of each of the Holders to publicly offer, publicly sell or publicly distribute any Registrable Securities pursuant to such Shelf Registration or to require the Company to take action with respect to the registration or sale of any Registrable Securities pursuant to such Shelf Registration (including any action contemplated by Section 9.04 hereof) will be suspended until the date upon which the Company notifies the Holders in writing that suspension of such rights for the grounds set forth in this Section 9.01(c)(ii) is no longer necessary; provided, however, the Company shall not be permitted to suspend the rights of the Holders pursuant to this Section 9.01(c)(ii) for more than an aggregate of ninety (90) days within any twelve-month period; provided, further, that no one suspension shall last more than sixty (60) days. SECTION 9.02. Demand Registration. (a) Demand Registration Rights. At any time and from time to time after the consummation of the IPO, the Majority Holders may make a written request to the Company (each a "Demand") for registration with the SEC under and in accordance with the provisions of the Securities Act of all or part of their Registrable Securities (each a "Demand Registration"). Within ten (10) days after receipt of a Demand, the Company will send to all of the other Holders written notice (the "Notice") of such Demand and, subject to the conditions set forth in the following paragraph, the Company will include in the Demand Registration all Registrable Securities of such other Holders with respect to which the Company has received written requests for inclusion therein within ten (10) days after receipt by the applicable Holder of the Notice. Any Demand made pursuant to this Section 9.02(a) shall specify the aggregate amount of the Registrable Securities to be registered and shall also specify the intended methods of disposition thereof. The Company will use its reasonable best efforts to cause all such Registrable Securities to be registered under the Securities Act to the extent requisite to permit the 24 disposition in such Demand Registration; provided, however, that if the managing underwriter or underwriters of such offering, as selected by the Company, shall advise the Company in writing that in its or their opinion the total amount or kind of securities that the Holders, the Company and any other Persons or entities intend to include in such offering exceeds the amount that can be sold in such offering without an adverse effect on the price, timing or distribution of the securities offered by the Holders, the Company shall be required to include in such registration only the amount of Registrable Securities and securities of the Company and such other persons or entities, if any, that the managing underwriter or underwriters determine, in its or their sole discretion, can be sold without an adverse effect on the price, timing or distribution of the securities offered. In such event, securities shall be registered in such offering in the following order of priority: (i) first, the securities which have been requested to be included in such registration pursuant to this Section 9.02(a) and pursuant to "piggy back" registration rights pursuant to contractual commitments of the Company (pro rata based on the amount of the securities sought to be registered by the Holders and such other persons exercising "piggy back" registration rights), and (ii) second, any securities which the Company proposes to register. (b) Effective Registration and Expenses. The Company agrees to use its reasonable best efforts to file as soon as reasonably practicable (but in any event within thirty (30) days), after any such Demand a registration statement in respect of the Demand Registration (a "Demand Registration Statement"). The Company agrees to use its reasonable best efforts to have such Demand Registration Statement declared effective as soon as practicable after such filing, but in any event, no later than ninety (90) days after filing of the registration statement. The Company agrees, if necessary, to supplement or amend any Demand Registration Statement, as required by the registration form utilized by the Company or by the instructions applicable to such registration form or by the Securities Act or as reasonably requested (which request shall result in the filing of a supplement or amendment subject to approval thereof by the Company, which approval shall not be unreasonably withheld) by the Holders included in the Demand Registration Statement, and the Company agrees to furnish to the Holders copies of any such supplement or amendment prior to its being used and/or filed with the SEC. (c) Number of Demand Registrations. The Holders shall be entitled to four (4) Demand Registrations. The Company shall not be deemed to have effected a Demand Registration (i) unless and until the Demand Registration Statement is declared effective and remains effective for a period of at least one hundred and eighty (180) days or until all the securities registered pursuant thereto have been sold, whichever is the first to occur; (ii) if, after the Registration Statement has become effective, it is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason not attributable to the Holders, unless all stop orders, injunctions and orders shall have been lifted or rescinded, all requirements shall have been satisfied or waived, and the registration statement has thereafter become effective again; (iii) if the customary conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied or waived, other than by reason of a failure on the part of any Holder; or (iv) if the Holders initiating the Demand Registration were unable to sell all of the securities they requested be included in such Demand Registration. 25 (d) Selection of Underwriters and Counsel. The Company shall select the lead managing underwriter in connection with a Demand Registration, subject to the approval of the Holders initiating the Demand Registration, which approval shall not be unreasonably withheld. SECTION 9.03. Hold-Back Agreements; Restrictions on Public Sale by Holders. The registration rights of the Holders pursuant to this Agreement and the ability to offer and sell Registrable Securities pursuant to a Registration Statement are subject to the following conditions and limitations, and each of the Holders agrees with the Company that: (i) If the Company determines in its good faith judgment, at any time prior to the filing of a Registration Statement pursuant to Section 9.02 hereof, that the Company possesses material non-public information relating to a pending or imminent event or announcement or is engaged in confidential negotiations or other confidential business activities (including, but not limited to, information related to any pending or proposed consolidation, merger, reorganization, recapitalization or other similar transaction and any pending discussions related thereto), upon written notice of such determination by the Company delivered prior to the filing of a Registration Statement pursuant to Section 9.02 hereof, the rights of each of the Holders to publicly offer, publicly sell or publicly distribute any Registrable Securities pursuant to such Registration Statement or to require the Company to take action with respect to the registration or sale of any Registrable Securities pursuant to such Registration Statement (including any action contemplated by Section 9.04 hereof) will be suspended until the date upon which the Company notifies the Holders in writing that suspension of such rights for the grounds set forth in this Section 9.03 is no longer necessary; provided, however, the Company shall not be permitted to suspend the rights of the Holders pursuant to this Section 9.03(i) for more than an aggregate of ninety (90) days within any twelve-month period; provided, further, that no one suspension shall last more than sixty (60) days. If the Company shall so postpone the filing of a Demand Registration Statement, the Majority Holders shall have the right to withdraw the request for registration by giving the Company written notice within twenty (20) days after receipt of the notice of postponement (and, in the event of such withdrawal, such request shall not be counted as the one Demand Registration to which the Holders are entitled pursuant to Section 9.02(c) hereof). (ii) In the case of the registration of any underwritten primary offering of capital stock of the Company, each Holder agrees, in connection with such Underwritten Offering, to enter into an underwriting agreement containing such terms and covenants customary for such Underwritten Offerings, including, but not limited to, representations of such Holders in accordance with Section 9.04 of this Agreement; provided that nothing in this Section 9.03 shall require any Holder to provide any indemnification or contribution obligations inconsistent with Section 9.06 hereof. SECTION 9.04. Registration Procedures. In connection with the Company's registration obligations pursuant to Section 9.01 and Section 9.02 hereof, the Company will: (i) prepare and file with the SEC as expeditiously as possible (but in any event within thirty (30) days after a Demand Request) a Registration Statement on the 26 appropriate form available for the sale of such Registrable Securities and use its reasonable best efforts to cause such Registration Statement to become effective and remain effective until all Registrable Securities covered by such Registration Statement have been sold but in no event longer than 180 days from the effectiveness of such Registration Statement; (ii) prepare and file with the SEC such amendments, including post-effective amendments, to a Registration Statement as may be necessary to keep such Registration Statement continuously effective until all Registrable Securities covered by such Registration Statement have been sold in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such Registration Statement; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (iii) notify the Holders of Registrable Securities to be sold and their Special Counsel, if any, immediately (a) when a Registration Statement or any post-effective amendment thereto has become effective, (b) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (c) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose, (d) if at any time any of the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated hereby cease to be true and correct in all material respects, (e) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (f) of the happening of any event that makes any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in a Registration Statement, Prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of a Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (iv) furnish to each Holder and their Special Counsel, if any, without charge, at least one executed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits (other than exhibits to documents incorporated by reference into such Registration Statement) to the extent requested by 27 such person (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC; (v) deliver to each Holder and their Special Counsel, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus and preliminary prospectus) and each amendment or supplement thereto as such persons reasonably request in order to facilitate the disposition of the Registrable Securities owned by such persons; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (vi) in connection with any public offering of Registrable Securities pursuant to a Registration Statement, use its reasonable best efforts to register or qualify such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder or managing underwriter reasonably requests in writing; use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things in the opinion of the Company necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject; (vii) upon the occurrence of any event contemplated by Section 9.04(iii)(f) hereof, prepare and furnish promptly to each Holder of Registrable Securities to be sold a number of copies of a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered to the purchasers of such Registrable Securities such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (viii) use its reasonable best efforts to cause all Registrable Securities relating to such Registration Statement to be listed on each securities exchange, if any, on which similar securities issued by the Company are then listed and if not so listed, to be listed on the NASD automated quotation system; (ix) obtain an opinion from the Company's counsel and a "cold comfort" letter or letters from the Company's independent public accountants in customary form and covering such matters as are customarily covered by such opinions and "cold comfort" letters delivered to underwriters in underwritten public offerings, which opinion and letter shall be reasonably satisfactory to the underwriter (or to each Holder in the event there is 28 no underwriter participating in the offering), and furnish to each Holder participating in the offering and to each underwriter, a copy of such opinion and letter addressed to such Holder or underwriter; (x) use its reasonable best efforts to promptly obtain the withdrawal of any order suspending the effectiveness of the registration statement; (xi) provide a transfer agent and registrar for all such Registrable Securities no later than the effective date of such registration statement; and (xii) make its employees and personnel available and otherwise provide reasonable assistance to the underwriters (taking into account the needs of the Company's business and the requirements of the marketing process including, without limitation, the participation by such employees and personnel in "road shows") in the marketing of Registrable Securities in any Underwritten Offering. The Company may require each seller of Registrable Securities to furnish to the Company such information regarding the distribution of such Registrable Securities as is required by law to be disclosed by such seller in a Registration Statement and the Company may exclude from such registration the Registrable Securities of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request. Each Holder agrees by acquisition of its Registrable Securities that, upon receipt of any written notice from the Company of the happening of any event of the kind described in Section 9.04(iii)(b), 9.04(iii)(c), 9.04(iii)(d), 9.04(iii)(e) or 9.04(iii)(f) hereof (such notice, a "Section 9.04(iii) Notice"), such Holder will forthwith discontinue disposition of such Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 9.04(vii) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. In the event the Company provides the Holders a Section 9.04 (iii) Notice and does not provide Advice or a supplemented Prospectus thereof, then the Majority Holders initiating a Demand Registration shall have the right to withdraw the registration to which the Section 9.04(iii) Notice relates by giving the Company written notice within ten days after receipt of the Section 9.04(iii) Notice (and, in the event of such withdrawal, such registration shall not be counted as the Demand Registration to which the Holders are entitled pursuant to Section 9.02(c) hereof). In connection with any underwriting agreement to be entered into by any Holder with respect to any registration pursuant to Section 9.01 or 9.02 hereof, (i) such Holder shall not be required to make any representations or warranties to, or agreements with, the Company or any underwriter other than representations, warranties or agreements as are customarily given by selling Holders of securities regarding such Holder, such Holder's ownership of and title to its Registrable Securities to be included in such offering, (ii) the liability of such Holder to the Company, any underwriter or other person under such underwriting agreement shall be limited to 29 liability arising from misstatements or omissions contained in any information furnished in writing by such Holder expressly for use in the Registration Statement relating to such offering and will be limited to an amount equal to the net proceeds such Holder derives from such registration, and (iii) the requirements of any lock-up provisions in the underwriting agreement shall be limited to one hundred and eighty (180) days in the case of an IPO, and ninety (90) days for each offering registered pursuant to the Exchange Act or the Securities Act subsequent to the IPO. SECTION 9.05. Registration Expenses. All fees and expenses incident to the performance of or compliance with a Piggyback Registration, Demand Registration or a Shelf Registration (the "Registration Expenses") shall be borne by the Company whether or not a Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (B) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the managing underwriter or underwriters, if any, or the Holder initiating a Demand Registration or Shelf Registration may designate)), (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) transfer agent and listing fees, (v) fees and disbursements of counsel for the Company and one Special Counsel for the Holders, (vi) fees and disbursements of all independent certified public accountants for the Company (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vii) Securities Act liability insurance, if the Company so desires such insurance, (viii) fees and expenses payable to a Qualified Independent Underwriter (as such term is defined in Rule 2720 of the National Association of Securities Dealers, Inc.'s By-Laws), if required and (ix) fees and expenses of all other persons retained by the Company; provided that the discounts and commissions of any underwriter or underwriters will be borne by the selling Holders included in a Registration Statement in the relative proportion to the number of Registrable Securities of each such Holder included in any Registration Statement. Notwithstanding the foregoing, the Company shall in all events be responsible for its internal expenses (including, without limitation, all salaries and expenses of its officers and employees). SECTION 9.06. Indemnification. (a) Indemnification by the Company. The Company shall indemnify and hold harmless each Holder, the officers, directors, agents and employees of each of them, and each person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the directors, officers, agents and employees of such controlling persons, to the fullest extent lawful, from and against any and all losses, claims, damages and liabilities (collectively, "Losses"), arising out of or based upon (i) any untrue or alleged untrue statement of a material fact contained in a Registration Statement under which Registrable Securities held by such Holder were registered under the Securities Act or offered for sale, in any preliminary prospectus (if used prior to the effective date of such Registration Statement) or in any Prospectus or any form of prospectus or in any amendment or supplement 30 thereto (if used during the period the Company is required to keep the Registration Statement effective), in each case on the effective date of such Registration Statement or post-effective amendment, or the date of such Prospectus, including any preliminary prospectus, or supplement, (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, necessary to make the statements therein in the light of the circumstances under which they were made) not misleading, and (iii) any violation or alleged violation by the Company of either of the Securities Act or the Exchange Act, or any rule or regulation promulgated thereunder, or any state securities law, and will reimburse, as incurred, each such indemnified party for any reasonable legal or other out-of-pocket expenses reasonably incurred by them in connection with investigating or defending against or appearing as a third party witness in connection with any such Losses or action or threatened action in respect thereof; provided, however, that the Company will not be liable in any such case to the extent, but only to the extent, that any such Losses arise out of or are based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, preliminary prospectus, Prospectus, form of prospectus or any amendment or supplement thereto, in reliance upon and in conformity with information regarding such Holder furnished in writing to the Company by or on behalf of such Holder expressly for use therein. (b) Indemnification by a Holder. In connection with a Registration Statement in which a Holder is participating, such Holder shall furnish to the Company in writing such information as is required by law to be disclosed by such seller in a Registration Statement and agrees to indemnify and hold harmless the Company, its directors, officers, agents and employees, each person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling persons, to the fullest extent lawful, from and against all Losses arising solely out of or based solely upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus, or any form of prospectus or amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for use therein. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly shall so notify the person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations pursuant to this Agreement, except to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure to give notice shall have actually prejudiced the Indemnifying Party. 31 Any such Indemnified Party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly (but in any event, no later than 10 days after the Indemnified Party provides notice to the Indemnifying Party of its failure to do so) to assume the defense of such action, claim or proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such action, claim or proceeding; or (3) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall (x) reasonably conclude that one or more legal defenses are available to it that are not available to the Indemnified Party or (y) have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party), it being understood, however, that, the Indemnifying Party shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all Indemnified Parties (other than counsel for which the Indemnifying Party has agreed to pay under clause (1) above), which firm shall be designated in writing by the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending proceeding in respect of which any Indemnified Party is a party and is entitled to indemnity hereunder unless such settlement relates solely to the payment of money damages and (x) includes a full unconditional release of such Indemnified Party from all liabilities on claims that are the subject matter of such proceeding and (y) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the Indemnified Party. All fees and expenses of the Indemnified Party (including fees and expenses to the extent incurred in connection with investigating or preparing to defend such action or proceeding) for which the indemnifying party is responsible pursuant to this Section 9.06(c) shall be paid to the Indemnified Party, as incurred, within ten Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). (d) Contribution. If indemnification under Section 9.06(a) or 9.06(b) hereof is unavailable or insufficient to cover losses of an Indemnified Party, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in 32 connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 9.06(c) hereof, any legal or other fees or expenses incurred by such party in connection with any investigation or Proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 9.06(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 9.06(d), an Indemnifying Party that is a Holder shall not be required to contribute any amount in excess of the amount by which the net proceeds actually received by such Indemnifying Party from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Indemnifying Party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. ARTICLE X Miscellaneous SECTION 10.01. SEC Reports and other Financial Information. LLC shall provide the Holders, within fifteen (15) days after the Company files 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. 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, the Company shall, subsequent to its IPO, continue to file such annual reports and information, documents and other reports with the SEC and LLC 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 10.02. Persons Benefiting. Nothing in this Agreement is intended or shall be construed to confer upon any Person other than LLC, the Company and the Holders any right, remedy or claim under or by reason of this Agreement or any part hereof. SECTION 10.03. 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 all the parties hereto (or their transferees). 33 SECTION 10.04. Notices. (a) 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 LLC or 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. (b) 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. (c) LLC 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 LLC or the Company. The Holder shall be entitled to rely on the authority of any Person purporting to be a Person authorized by LLC or the Company to give such notice and the Holder shall not have any liability to LLC or 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. (d) If the notice or communication shall be in writing, then such notice or communication shall be delivered to the following addresses: if to LLC: PG&E National Energy Group, LLC 7500 Old Georgetown Road Bethesda, MD 20814-6161 Attention: General Counsel Tel.: (301) 280-6815 Fax.: (301) 280-6319 if to the Company: PG&E National Energy Group, Inc. 7500 Old Georgetown Road Bethesda, MD 20814-6161 Attention: General Counsel Tel.: (301) 280-6815 Fax.: (301) 280-6310 34 with a copy to: Weil, Gotshal & Manges, LLP 100 Crescent Court, Suite 1300 Dallas, TX 75201 Attention: Glenn D. West Tel.: (214) 746-7700 Fax.: (214) 746-7777 if to GPSF: c/o General Electric Capital Corporation 201 High Ridge Road Stamford, CT 06927 Attention: General Counsel - Structured Finance Group Telephone: (203) 357-6823 Facsimile: (203) 357-6632 with copies to: GE Capital Services Structured Finance Group, Inc. 120 Long Ridge Road Stamford, Connecticut 06927 Attention: Manager of Portfolio - Energy Group and, GE Capital Services Structured Finance Group, Inc. 120 Long Ridge Road Stamford, Connecticut 06927 Attention: Manager - Legal Administration if to LBI: c/o Lehman Commercial Paper Inc. 745 Seventh Avenue New York, NY 10019 Attention: Frank Turner/Rich Divito Telephone: (212) 526-2696/(212) 526-2425 Facsimile: (646) 758-1986/(646) 758-4618 Each party hereto by notice to the other parties may designate additional or different addresses for subsequent notices or communications. 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. 35 SECTION 10.05. Governing Law; Waiver of Jury Trial; Submission of Jurisdiction. (a) THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF (other than SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) SHALL GOVERN THE CONSTRUCTION, INTERPRETATION AND ENFORCEABILITY OF THIS AGREEMENT AND ANY DISPUTE, CASE OR CONTROVERSY ARISING IN OR UNDER OR RELATED TO OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP BETWEEN OR AMONG THE PARTIES HERETO, WHETHER SOUNDING IN TORT, CONTRACT OR OTHER LEGAL OR EQUITABLE RELIEF. (b) EACH OF LLC, THE COMPANY, THE BORROWER 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 CONDUCT OF ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE. (c) EACH OF LLC, THE COMPANY, THE BORROWER 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 CORPORATION SERVICE COMPANY, WHICH EACH OF LLC, THE COMPANY AND THE BORROWER IRREVOCABLY APPOINTS AS SUCH PERSON'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS WITHIN THE STATE OF NEW YORK. LLC, THE COMPANY AND THE BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. (d) NOTHING IN THIS SECTION 10.05 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 LLC, THE BORROWER OR THE COMPANY OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. (e) EACH OF LLC, THE COMPANY, THE BORROWER 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 36 CONTRACT OR TORT OR OTHERWISE. EACH OF LLC, THE BORROWER, THE COMPANY, AND THE HOLDERS HEREBY AGREES AND CONSENTS 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 10.06. 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. None of LLC, the Borrower or the Company may assign its rights or obligations hereunder without the prior written consent of each of the Holders. SECTION 10.07. 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 10.08. Entire Agreement. This Agreement represents the final and complete agreement of the parties hereto, and all prior negotiations, representations, 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 Option Shares. SECTION 10.09. 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 10.10. 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 10.11. Publicity. Except as otherwise required by law, none of the parties hereto shall issue any press release or make any other public statement, in each case relating to, connected with or arising out of this Agreement or the matters contained herein or therein, without obtaining the prior approval of the Initial Holders and the Company to the contents and the manner of presentation and publication thereof. No references to the Initial Holders shall be made in any public statement without the Initial Holders' consent. SECTION 10.12. Restricted Transactions. Except as provided by the Financing Documents, LLC and the Company will not, and will not permit any of their Subsidiaries to, enter into any transaction or series of related transaction, whether or not in the ordinary course of business, with any Affiliate of the Company, the Borrower or LLC or any of their Subsidiaries, which would adversely affect any of the right or benefit of the Holders with respect to the 37 exercise of the Option or is intended to frustrate or defraud the Holders of their ability to exercise the option hereunder. SECTION 10.13. Rule 144/145. The Company agrees to timely file the reports required to be filed by it under the Securities Act or the Exchange Act and, after consummation of the IPO, to take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (A) Rule 144 and Rule 145 under the Securities Act, as such Rules may be amended from time to time, or (B) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder after consummation of the IPO, LLC will deliver to such Holder a written statement as to whether the Company has complied with such requirements. SECTION 10.14. Remedies. In the event of a breach by LLC, the Company, the Borrower or a Holder of any of their obligations under this Agreement, each Holder, LLC, the Borrower or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. LLC, the Company, the Borrower 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 10.15. Acknowledgment. The parties hereto acknowledge, accept and ratify the allocations provided for in Section 3.5 of the Credit Agreement. SECTION 10.16. Waiver. LLC and the Company waive any claim they 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 10.17. Register. LLC hereby agrees to maintain a register (the "Register") on which it will record the proportionate ownership percentages of the Holders of the Option from time to time. With respect to any Holder, the transfer of the Option of such Holder and the rights pursuant to such Option shall not be effective until such transfer is recorded on the Register maintained by the LLC with respect to ownership of such Option and prior to such recordation all rights of the transferor with respect to such Option shall remain the transferor's. The registration of assignment or transfer of all or part of any Holder's Option shall be recorded promptly by LLC only upon the receipt by LLC of a properly executed and delivered assignment and assumption agreement pursuant to, and all other documents and instruments required under, Section 5.01(b) hereof. Upon the request of any Holder, LLC 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 Option and their respective ownership percentages. For the avoidance of doubt, it is hereby acknowledged and agreed by all parties hereto that the Register initially recorded that on the Initial Closing Date GPSF acquired 60% of the Option, and that LBI Group Inc. acquired 40% of the Option; subsequent to the Initial Closing Date 50% of the Option initially acquired by LBI Group Inc. 38 was transferred pursuant to this Agreement to the Subsequent Holders, in proportions set forth in the Register as of the Closing Date. SECTION 10.18. Intercreditor Agreement. Nothwithstanding anything provided herein to the contrary, the terms and provisions of the Intercreditor Agreement shall govern the relationship among the Holders with respect to the rights, remedies and obligations of the Holders under this Option Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. PG&E NATIONAL ENERGY GROUP, INC. By: _____________________________ Name: Title: PG&E CORPORATION By: _____________________________ Name: Title: PG&E NATIONAL ENERGY GROUP, LLC By: _____________________________ Name: Title: INITIAL HOLDERS: --------------- LB I GROUP INC. By: _____________________________ Name: Title: GPSF-F INC. By: ________________________________ Name: Title: SUBSEQUENT HOLDERS: FARALLON CAPITAL PARTNERS, L.P., as a Subsequent Holder By:_________________________________ Name: Title: FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P., as a Subsequent Holder By:_________________________________ Name: Title: FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P., as a Subsequent Holder By:_________________________________ Name: Title: FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P., as a Subsequent Holder By:_________________________________ Name: Title: TINICUM PARTNERS, L.P., as a Subsequent Holder By:_________________________________________ Name: Title: FARALLON CAPITAL OFFSHORE INVESTORS, INC., as a Subsequent Holder By:_________________________________________ Name: Title: Annex 1 [See Attached] Annex 2 PUT OPTION PURCHASE PRICE (ORIGINAL OPTION OF GPSF)
Put Option Price of Original Period Beginning Up To But Excluding Option of GPSF May 2, 2002 June 2, 2002 $18,750,000 June 2, 2002 July 2, 2002 $20,000,000 July 2, 2002 August 2, 2002 $21,250,000 August 2, 2002 September 2, 2002 $22,500,000 September 2, 2002 October 2, 2002 $23,750,000 October 2, 2002 November 2, 2002 $25,000,000 November 2, 2002 December 2, 2002 $26,250,000 December 2, 2002 January 2, 2003 $27,500,000 January 2, 2003 February 2, 2003 $28,750,000 February 2, 2003 March 2, 2003 $30,000,000 March 2, 2003 April 2, 2003 $31,250,000 April 2, 2003 May 2, 2003 $32,500,000 May 2, 2003 June 2, 2003 $33,750,000 June 2, 2003 July 2, 2003 $35,000,000 July 2, 2003 August 2, 2003 $36,250,000 August 2, 2003 September 2, 2003 $37,500,000 September 1, 2003 October 2, 2003 $38,750,000 October 2, 2003 November 2, 2003 $40,000,000 November 2, 2003 December 2, 2003 $41,250,000 December 2, 2003 January 2, 2004 $42,500,000 January 2, 2004 February 2, 2004 $43,750,000 February 2, 2004 and thereafter $45,000,000
Annex 3
Holder Pro Rata Portion GPSF-F 60% LBI Group Inc. 20% Farallon Capital Partners, L.P. 25% of 20% Farallon Capital Institutional Partners, L.P. 23% of 20% Farallon Capital Institutional Partners II, L.P. 5% of 20% Farallon Capital Institutional Partners III, L.P. 5% of 20% Tinicum Partners, L.P. 1% of 20% Farallon Capital Offshore Investors, Inc. 41% of 20%
EX-99.8 10 dex998.txt INTERCREDITOR AND SUBORDINATION AGREEMENT ================================================================================ INTERCREDITOR AND SUBORDINATION AGREEMENT Dated as of June 25, 2002 Among THE ADMINISTRATIVE AGENT UNDER THE CREDIT AGREEMENT, THE TRANCHE A LENDERS PARTY TO THE CREDIT AGREEMENT, THE TRANCHE B LENDERS PARTY TO THE CREDIT AGREEMENT, THE HOLDERS PARTY TO THE WARRANT AGREEMENT, and THE COLLATERAL AGENT ================================================================================ TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS. ................................................................................ 1 1.1 Certain Defined Terms ....................................................................... 1 SECTION 2. SUBORDINATION OF JUNIOR OBLIGATIONS. ........................................................ 3 2.1 Subordination to Senior Obligations ......................................................... 3 2.2 Payment Over of Proceeds Upon Dissolution, etc .............................................. 4 2.3 Authorization of the Initial Tranche A Lender to File Claims, etc ........................... 5 2.4 No Payment; etc ............................................................................. 5 2.5 Limitation on Remedies ...................................................................... 7 2.6 Provisions Solely to Define Relative Rights ................................................. 8 2.7 No Waiver of Subordination Provisions ....................................................... 8 2.8 Legend on Tranche B Notes and Warrants ...................................................... 9 2.9 Further Instruments and Documents ........................................................... 9 2.10 Transfer of Junior Obligations Subject to this Agreement .................................... 9 2.11 Subrogation ................................................................................. 10 SECTION 3. COLLATERAL AGENT. ........................................................................... 10 3.1 Appointment ................................................................................. 10 3.2 Exculpatory Provisions ...................................................................... 11 3.3 Reliance by Collateral Agent ................................................................ 11 3.4 Notice of Default ........................................................................... 11 3.5 Indemnification ............................................................................. 12 3.6 Successor Collateral Agent .................................................................. 12 3.7 Miscellaneous ............................................................................... 13 SECTION 4. MISCELLANEOUS. .............................................................................. 13 4.1 Severability ................................................................................ 13 4.2 Notices ..................................................................................... 13 4.3 Successors and Assigns ...................................................................... 14 4.4 Counterparts ................................................................................ 14 4.5 Special Exculpation ......................................................................... 14 4.6 Governing Law ............................................................................... 14 4.7 Waiver of Jury Trial ........................................................................ 14 4.8 No Impairments of Other Rights of Secured Parties and no Rights or Obligations of the Company ..................................................................................... 14 4.9 Amendment; Waiver ........................................................................... 15 4.10 Headings; Table of Contents, etc ............................................................ 15 4.11 Conflicts With Other Security Documents ..................................................... 15 4.12 Marshaling .................................................................................. 15 4.13 Waiver of Rights ............................................................................ 15 4.14 Continuation of Subordination; Termination of Agreement ..................................... 15
(i)
Page ---- 4.15 Specific Performance....................................................... 15
(ii) INTERCREDITOR AND SUBORDINATION AGREEMENT, dated as of June 25, 2002, among (i) LEHMAN COMMERCIAL PAPER INC., as Administrative Agent (the "Administrative Agent") under the Credit Agreement (as defined herein), (ii) the Tranche A Lenders party to the Credit Agreement from time to time (the "Tranche A Lenders"), (iii) the Tranche B Lenders party to the Credit Agreement from time to time (the "Tranche B Lenders"), (iv) the Holders party to the Warrant Agreement from time to time (the "Tranche B Holders") and (v) DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent (the "Collateral Agent") for the benefit of the Lenders. W I T N E S S E T H WHEREAS, PG&E Corporation (the "Company"), the Tranche A Lenders, and certain of the Tranche B Lenders are parties to that certain Credit Agreement, dated as of March 1, 2001, as amended (the "Existing Credit Agreement"); WHEREAS, on the date hereof the Existing Credit Agreement is being amended and restated in its entirety by the Amended and Restated Credit Agreement, dated as of June 25, 2002 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Company, the Lenders from time to time parties thereto, the Administrative Agent and others; WHEREAS, the obligations of the Credit Parties under the Financing Documents (such term and other capitalized terms used herein being used with the definitions given to such terms in Section 1.1) are secured as set forth in the Security Documents; and WHEREAS, the parties hereto desire to enter into this Agreement to set forth their mutual understanding with respect to the exercise of certain rights, remedies and options by the respective parties hereto under the above-described documents, and the priority of their respective security interests created by the Security Documents; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. 1.1 Certain Defined Terms. (a) Unless otherwise defined herein, all capitalized terms used herein and defined in Appendix A to the Credit Agreement shall be used herein as therein defined and the principles of construction set forth in Appendix A to the Credit Agreement shall apply to this Agreement. (b) In addition, the following capitalized terms used herein shall have the definitions specified below: "Agreement" shall mean this Intercreditor and Subordination Agreement, as amended, supplemented or otherwise modified from time to time. "Credit Parties" shall mean the Company, NEG, Inc. and LLC, collectively. "Default Notice" shall mean a written notice delivered by the Initial Tranche A Lender to the Administrative Agent stating that (i) a Tranche A Default for non-payment of principal, interest or any other amounts under the Financing Documents with respect to the Tranche A Loan has occurred or (ii) an Event of Default has occurred. "Event of Default" shall mean a Tranche A Event of Default and/or a Tranche B Event of Default. "Initial Tranche A Lender" shall mean General Electric Capital Corporation, a Delaware corporation. "Junior Obligations" shall mean, on any date, collectively, (i) all obligations of the Company and the other Credit Parties in respect of principal of, and interest on (including, without limitation, interest accruing after the filing of a petition initiating any proceeding under the Bankruptcy Code, whether or not allowed as a claim in such proceeding) the Tranche B Loan, (ii) all payment obligations of the Company and the other Credit Parties in respect of the Warrant Agreement to the Tranche B Holders, (iii) all other obligations of the Company and the other Credit Parties owing to the Tranche B Lenders under or relating to the Financing Documents (other than the Option Agreement) in respect of fees, premiums, indemnities, reimbursement of fees, expenses or other amounts, and (iv) any debt which is incurred in compliance with the terms and conditions of this Agreement and the Credit Agreement for the purpose of refinancing, restructuring, extending or renewing the obligations of one or more of the Credit Parties in respect of the Tranche B Loan; provided, that obligations of the Credit Parties to the Tranche B Lenders or any affiliate thereof, and their respective successors and assigns, under the Option Agreement shall not constitute Junior Obligations. "Junior Obligees" shall mean the holders of the Junior Obligations. "Payment Blockage Period" has the meaning provided in Section 2.4(b). "Put Option Purchase Price" has the meaning provided in the Option Agreement. "Reorganization Securities" shall mean shares of stock of the Borrower as reorganized or readjusted, or securities of the Borrower or any other corporation provided for by a plan of reorganization or readjustment with respect to the Borrower, the terms of which are not substantially better for the holders thereof than the terms of the Junior Obligations and the payment of which is subordinated, at least to the extent provided in this Agreement with respect to the Junior Obligations, to the payment in full of all Senior Obligations which may at the time be outstanding; provided that (i) the Senior Obligations are (A) assumed without modification and without alteration of the legal, equitable and contractual rights of the holders of the Senior Obligations by the new corporation, if any, resulting from any such reorganization or readjustment, or (B) the legal, equitable and contractual rights of the holders of Senior Obligations, are reinstated in accordance with Section 1124 of the United States Bankruptcy Code, or (ii) the legal, equitable and contractual rights of the holders of Senior Obligations under the Financing Documents and this Agreement are not, without the consent of such holders, altered by such reorganization or readjustment. -2- "Senior Obligations" shall mean, on any date, collectively, (i) all obligations of the Company and the other Credit Parties in respect of principal of, and interest on (including, without limitation, interest accruing after the filing of a petition initiating any proceeding under the Bankruptcy Code, whether or not allowed as a claim in such proceeding) the Tranche A Loan, (ii) all other obligations of the Company and the other Credit Parties due and owing to the Tranche A Lenders or GPSF-F Inc. (or its successors and assigns) under or relating to the Financing Documents in respect of fees, premiums, indemnities, reimbursement of fees, expenses or other amounts, (iii) any debt which is incurred in compliance with the terms and conditions of this Agreement and the Credit Agreement for the purpose of refinancing, restructuring, extending or renewing the obligations of one or more of the Credit Parties in respect of the Tranche A Loan, (iv) the obligations of the Credit Parties to purchase any shares covered by a Put Notice (as defined in the Option Agreement) delivered by any Holder, or any of its successors and assigns, at the Put Option Purchase Price, prior to such date pursuant to the terms of the Option Agreement and (v) any claims of the Senior Obligees with respect to any judgment ordered by a court in any action brought at law or in equity (such as an action brought for recession, restitution, or unjust enrichment) against the Borrower on any Credit Party in lieu, in whole or in part, of an action to enforce the obligations of the Borrower or any Credit Party under the Financing Documents. For the avoidance of doubt, "Specified Rated Indebtedness" does not constitute "Senior Obligations" for purposes of this Agreement. "Senior Obligees" shall mean the holders of the Senior Obligations. "Tranche A Default" shall mean any event or circumstance which with notice or lapse of time or both would become a Tranche A Event of Default. "Tranche A Event of Default" shall have the meaning set forth in the Credit Agreement. "Tranche B Event of Default" shall have the meaning set forth in the Credit Agreement. "Transition Date" shall mean the date upon which the Senior Obligations shall have been indefeasibly paid in full in cash. "Warrants" shall have the meaning provided in the Warrant Agreement. SECTION 2. SUBORDINATION OF JUNIOR OBLIGATIONS. 2.1 Subordination to Senior Obligations. Each Junior Obligee and each holder of a Junior Obligation by its acceptance thereof, on behalf of itself and its successors and assigns, hereby covenants and agrees, that (a) to the extent and in the manner set forth in this Section 2, the Junior Obligations are hereby expressly made subordinate and junior in right of payment to the indefeasible payment in full in cash of all of the Senior Obligations, and (b) the security interests held for the benefit of the Senior Obligations in any Collateral rank and will rank superior and prior to the security interests held for the benefit of the Junior Obligations, irrespective of any statement to the contrary in any Financing Document or any other agreement, -3- the time or order or method of attachment or perfection of Liens, the time or order of filing of financing statements, or the giving or failure to give notice of the acquisition or expected acquisition of purchase money or other security interests. The provisions of this Section 2 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Obligations, and such provisions are made for the benefit of the holders of Senior Obligations, and such holders are hereby made obligees hereunder to the same extent as if they were parties to this Agreement, and they and/or each of them may proceed to enforce such provisions. 2.2 Payment Over of Proceeds Upon Dissolution, etc. In the event (a) of any insolvency or bankruptcy case or proceeding, or any receivership, reorganization or other similar case or proceeding in connection therewith, relative to the Company or any of the other Credit Parties, or to any such Credit Party's assets, (b) of any total or partial liquidation, dissolution or other winding up of the Company or any other Credit Party, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, (c) of any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company or any other Credit Party, in each case whether voluntary or involuntary or (d) the Senior Obligations, or any part thereof, shall mature or be declared due and payable prior to the stated maturity date thereof upon the occurrence of any Event of Default, then and in any such event: (i) the Senior Obligees shall first be entitled to receive indefeasible payment in full in cash of all amounts due in respect of the Put Option Price after delivery by a Holder of the Put Notice (as such payment obligation is more fully described in clause (iv) of the definition of "Senior Obligations" in Section 1.1) and all other amounts due or to become due in respect of the other Senior Obligations (including, without limitation, all amounts (including, without limitation, any prepayments) in respect of the Senior Obligations, whether due in the ordinary course or by reason of acceleration or otherwise) before the Junior Obligees are entitled to receive any payment (in cash, property or securities (other than the Tranche B Interest Reserve Account and any proceeds thereof, Reorganization Securities and the pay-in-kind interest due and payable from time to time under Section 2.5(g) of the Credit Agreement) or by set-off or otherwise), directly or indirectly, on account of any principal, interest, premium or other amount on or in respect of the Junior Obligations or as a redemption, retirement, purchase, defeasance, prepayment or acquisition of any Junior Obligations; (ii) any payment by, or distribution of assets of any Credit Party of any kind or character (in cash, property or securities (other than the Tranche B Interest Reserve Account and any proceeds thereof, Reorganization Securities and the pay-in-kind interest due and payable from time to time under Section 2.5(g) of the Credit Agreement) or by set-off or otherwise), to which any Junior Obligee would be entitled but for the provisions of this Section 2, shall be paid by the liquidating trustee or agent or other Person making such payment or distribution (whether a trustee in bankruptcy, a receiver, custodian or liquidating trustee or otherwise) directly to the Initial Tranche A Lender, for application to payment of all Senior Obligations (including, without limitation, all amounts (including, without limitation, any prepayments) in respect of Senior Obligations, whether due in the ordinary course or by reason of acceleration), to the extent necessary to indefeasibly pay in full in cash all Senior Obligations remaining -4- unpaid, after giving effect to any concurrent payment or distribution directly to the Senior Obligees; and (iii) notwithstanding the foregoing provisions of this Section 2.2, after any of the events described in clauses (a) through (d) of this Section 2.2, in the event that any payment or distribution of assets of any Credit Party of any kind or character (in cash, property or securities (other than the Tranche B Interest Reserve Account and any proceeds thereof, Reorganization Securities and the pay-in-kind interest due and payable from time to time under Section 2.5(g) of the Credit Agreement) or by set-off or otherwise), shall be received by any Junior Obligee, directly or indirectly, whether on account of any principal, interest, premium or other amount on or in respect of the Junior Obligations or as a redemption, retirement, purchase, defeasance, prepayment or acquisition of any Junior Obligations or otherwise, before all Senior Obligations are indefeasibly paid in full in cash, such payment or distribution shall be received and held in trust for the benefit of, and shall be immediately paid over to, the Initial Tranche A Lender, for application to payment of all Senior Obligations, to the extent necessary to indefeasibly pay in full in cash all Senior Obligations (including, without limitation, all amounts (including, without limitation, any prepayments) in respect of Senior Obligations, whether due in the ordinary course or by reason of acceleration) remaining unpaid, after giving effect to any concurrent payment or distribution directly to the Senior Obligees. 2.3 Authorization of the Initial Tranche A Lender to File Claims, etc. Subject to the rights of the Junior Obligees provided in Section 2.5, in the event that (i) a bankruptcy proceeding shall be commenced by or against the Borrower and (ii) on or before the date which is ten Business Days before the last date upon which the Junior Obligees are required to file a proof of claim in such bankruptcy proceeding any Junior Obligee (the claims of which have not been scheduled by the Borrower in its filing as undisputed) does not file a proof of claim in respect of the Junior Obligations owing to such Junior Obligee (any Junior Obligee, the claims of which have not been scheduled by the Borrower in its filing as undisputed, and which has failed to so file such proof of claim, a "Defaulting Junior Obligee"), then, in such event, such Defaulting Junior Obligee hereby irrevocably authorizes and empowers (without imposing any obligation on) the Initial Tranche A Lender under the circumstances set forth in Section 2.2 to file such proof of claim in respect of the Junior Obligations owing to such Defaulting Junior Obligee. The proceeds of all such claims shall be applied as required by the provisions of this Agreement. Each Defaulting Junior Obligee hereby irrevocably appoints the Initial Tranche A Lender as attorney-in-fact and shall execute and deliver to the Initial Tranche A Lender all such further instruments confirming the foregoing appointment and authorization, and all such proofs of claim and other instruments, and shall take all such other action as may be reasonably requested by the Initial Tranche A Lender in order to enable the Initial Tranche A Lender to, subject to the rights of such Defaulting Junior Obligee provided in Section 2.5, enforce all claims upon or in respect of the Junior Obligations owing to such Defaulting Junior Obligee. 2.4 No Payment; etc. (a) So long as any Senior Obligations shall remain outstanding and shall not have been indefeasibly paid in full in cash, no payment (in cash, property or securities (whether or not such securities are subordinated) or by set-off or otherwise) shall be made or agreed to be made by the Company (and the Company will not permit any other -5- Credit Party to make, or agree to make, any payment), directly or indirectly, on account of any amounts (including, without limitation, any prepayments) in respect of the Junior Obligations or as a redemption, retirement, purchase, defeasance, prepayment or acquisition of any Junior Obligations, except as expressly permitted by this Agreement and the other Financing Documents. Except as otherwise provided in Section 2.5(c) below, the Senior Obligees shall have the right in their sole discretion to exercise or direct the Collateral Agent to exercise any remedies against the Collateral (other than the Tranche B Interest Reserve Account and any proceeds thereof) at any time following a Tranche A Event of Default and to control all decisions with respect to the timing on waiver of exercise of remedies under the Financing Documents, including any remedies against the Collateral (other than the Tranche B Interest Reserve Account and any proceeds thereof). (b) Notwithstanding the provisions of the preceding paragraph to the contrary, (i) except during the Payment Blockage Period, the Company may continue to make payment of interest on any Junior Obligation when due and payable pursuant to the Credit Agreement, (ii) whether or not a Payment Blockage Period is then in effect, the Company may (x) continue to make payment of interest, but solely from proceeds of the Tranche B Interest Reserve Account, on any Junior Obligations when due and payable pursuant to the Credit Agreement, (y) continue to make payment of pay-in-kind interest when due and payable pursuant to the Credit Agreement and (z) make payments to the Junior Obligees under Section 3.8 of the Credit Agreement if any Tranche A Lender shall not have accepted the Change of Control Offer to Repay. As used herein, "Payment Blockage Period" shall mean the period commencing the date the Initial Tranche A Lender has delivered a Default Notice to the Administrative Agent and during which period payments in respect of the Junior Obligations are not permitted to be retained by the Junior Obligees pursuant to Section 2 of this Agreement; provided that (i) any Payment Blockage Period arising from an Event of Default (other than a payment or bankruptcy Event of Default) by the Company under Section 8 of the Credit Agreement shall terminate on the earlier of (A) the date on which such Event of Default is cured or waived in accordance with the Credit Agreement and (B) the date which is 179 days after the date of the receipt by the Administrative Agent of the Default Notice with respect thereto, (ii) no more than one Default Notice may be delivered to initiate a Payment Blockage Period during any consecutive 365-day period, (iii) the Initial Tranche A Lender agrees not to deliver a Default Notice to block payment of amounts payable by the Company to the Junior Obligees under Section 3.8 of the Credit Agreement if any Tranche A Lender shall not have accepted the Change of Control Offer to Repay and (iv) any Payment Blockage Period arising from a payment Event of Default shall terminate on the date on which such Event of Default is cured or waived by the Tranche A Lenders in accordance with the Credit Agreement. (c) In the event that, notwithstanding the foregoing provisions of Section 2.4(a), any payment prohibited by said Section shall be received by any Junior Obligee, such payment shall be held in trust for the benefit of, and shall be paid over to, the Initial Tranche A Lender, for application pursuant to the provisions of the Credit Agreement and this Agreement. Any payment or distribution that is so paid over to the Initial Tranche A Lender and applied to the Senior Obligations shall not be deemed to have been a payment on account of, and shall not reduce the amount of, the Junior Obligations. -6- 2.5 Limitation on Remedies. (a)(I) So long as any Senior Obligation shall remain outstanding or during any Payment Blockage Period, except as expressly permitted by and subject to the terms of this Agreement (including, without limitation, Section 2.5(a)(II) below), the Junior Obligees shall have no right to (i) except to the extent not prohibited by clause (II) of this Section 2.5(a), commence, prosecute or participate in any administrative, legal or equitable action against any of the Credit Parties relating to any Junior Obligations (it being understood that the holders of the Junior Obligations may participate in any such action in which the Tranche A Lender or its representative is participating (and not commenced by the holders of the Junior Obligations in such capacity) to the extent necessary to maintain their claims to, and to preserve their rights in respect of, the Junior Obligations), (ii) commence or join in the commencement of a proceeding under any bankruptcy, insolvency, liquidation, reorganization or other similar law in its capacity as a holder of Junior Obligations (it being understood that the holders of the Junior Obligations may participate in any such proceeding not commenced by the holders of the Junior Obligations in such capacity to the extent necessary to maintain their claims to, and to preserve their rights in respect of, the Junior Obligations), or (iii) direct the Administrative Agent or the Collateral Agent to do any of the foregoing and (II) during any Payment Blockage Period, except as expressly permitted by and subject to the terms of this Agreement (including, without limitation, Section 2.5(c) below), the Junior Obligees shall have no right to (i) take any action or institute any proceedings to collect or enforce the payment of any of the Junior Obligations (other than the Tranche B Interest Reserve Account and any proceeds thereof), (ii) take any action under the Financing Documents or otherwise to foreclose or sell or otherwise realize upon any Collateral (other than the Tranche B Interest Reserve Account and any proceeds thereof) or enforce any of the Financing Documents or to exercise any right, remedy or power in respect of the Junior Obligations under any of the Financing Documents or otherwise available to it under applicable law, or (iii) direct the Administrative Agent or the Collateral Agent to do any of the foregoing. (b) If any Junior Obligee, in violation of the provisions herein set forth, shall commence, prosecute or participate in any suit, action, case or proceeding against any Credit Party, any Senior Obligee may at the expense of the Junior Obligees, intervene and interpose as a defense or plea the provisions set forth herein, and such Senior Obligee shall, in any event, be entitled to restrain the enforcement of the payment provisions of the Junior Obligations in its own name in the same suit, action, case or proceeding or in any independent suit, action, case or proceeding. (c) In the event of the occurrence and continuance of a Tranche B Event of Default, the Junior Obligees, pursuant to the terms of this Agreement, shall not exercise any of their remedies against any Credit Party or the Collateral under the Financing Documents unless the Junior Obligees shall have first delivered to the Senior Obligees a notice of such Tranche B Event of Default together with reasonable detail describing the nature of such Tranche B Event of Default and the Senior Obligees shall have a period of 180 days after the receipt of such notice to, at its option, elect to cure such Tranche B Event of Default. After the expiration of such 180 day period, if the Tranche B Event of Default shall not have been cured or waived in accordance with the Credit Agreement, the Junior Obligees may (i) exercise their rights and remedies under the Financing Documents (other than to foreclose on the Collateral) and/or (ii) foreclose on the Collateral pursuant to the terms of the Security Documents; provided that the Junior Obligees may not foreclose on any Collateral unless either (x) the Junior Obligees shall have delivered -7- evidence reasonably satisfactory to the Senior Obligees of binding written commitment(s) from creditworthy purchaser(s) committing to purchase the Collateral in cash or equivalent consideration, subject only to customary closing conditions precedent, such that the net proceeds of the foreclosure of the Collateral shall be sufficient to indefeasibly pay and satisfy the Senior Obligations in full or (y) the Senior Obligees shall have consented thereto in writing. Upon satisfaction of either of the conditions set forth in Section 2.5(c)(iii), the Senior Obligees agree to direct the Collateral Agent to follow the instructions of the Tranche B Lenders with respect to the exercise of the rights and remedies under the Financing Documents to foreclose on the Collateral, subject to the other terms of this Agreement and the other Financing Documents, including, without limitation, the order of priority in the application of proceeds with respect thereto as set forth herein or therein. (d) If the Senior Obligees shall elect to cure any Tranche B Event of Default as contemplated in Section 2.5(c) above, the Senior Obligees shall be subrogated to the rights of the Junior Obligees to receive payments or distribution of assets of the Credit Parties made on the Junior Obligations so satisfied or to bring any claim or action against the Credit Parties with respect thereto. (e) In the event that (i) an Event of Default has occurred and is continuing under the Credit Agreement and (ii) the Senior Obligee has not delivered a Payment Blockage Notice to the Trustee under, and in each case as defined in, the Convertible Notes Indenture, nothing in this Agreement shall prohibit the Junior Obligee or the Administrative Agent from delivering such a Payment Blockage Notice. 2.6 Provisions Solely to Define Relative Rights. Nothing contained in this Agreement is intended to or shall impair, as among the Credit Parties, the Senior Obligees, and the Junior Obligees, the obligations of the Credit Parties, which are absolute and unconditional, to pay the Senior Obligees and the Junior Obligees, as and when the same shall become due and payable in accordance with the terms of the Financing Documents, the principal of, interest on and other amounts due with respect to the Senior Obligations and the Junior Obligations, or affect the relative rights of the Senior Obligees and the Junior Obligees vis-a-vis other creditors of the Credit Parties. 2.7 No Waiver of Subordination Provisions. (a) The provisions contained in this Section 2, the subordination effected thereby, and the rights of the Senior Obligees shall not be affected by, (i) any amendment of, or addition or supplement to, any Financing Document or any instrument or agreement relating thereto or to the Senior Obligations, (ii) any exercise or non-exercise of any right, power or remedy under or in respect of any Financing Document or the Collateral or any instrument or agreement relating thereto or to the Senior Obligations, (iii) any waiver, consent, release, indulgence, extension, renewal, modification, delay, nonperfection or other action, inaction or omission in respect of any Financing Document or the Collateral or any instrument or agreement relating thereto or to the Senior Obligations, (iv) any deferral, extension, renewal, modification, refinancing or refunding of the Senior Obligations, or (v) any merger or consolidation of any Credit Party into or with another Person or any sale, lease or transfer of any or all of the assets of any Credit Party to any other Person. -8- (b) The obligations of the Junior Obligees under these subordination provisions shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Obligation, or any other payment to any holder of any Senior Obligation in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Obligation upon the occurrence of any proceeding under any bankruptcy, insolvency, liquidation, reorganization or other similar law, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Credit Party or any substantial part of its property, or otherwise, all as though such payment had not been made. 2.8 Legend on Tranche B Notes and Warrants. (a) Each Tranche B Note shall contain the following legend conspicuously noted on the face thereof: "THIS PROMISSORY NOTE 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", and shall specifically state that a copy of this Agreement is on file with the Collateral Agent and is available for inspection at the Collateral Agent's offices. (b) Each Warrant shall contain the following legend conspicuously noted on the face thereof: "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", and shall specifically state that a copy of this Agreement is on file with the Collateral Agent and is available for inspection at the Collateral Agent's offices. 2.9 Further Instruments and Documents. Each Junior Obligee agrees that, from time to time, it will execute and deliver all further instruments and documents, and take all further actions, that are necessary or that any Senior Obligee may reasonably request, in order to effectuate the subordination provisions contained in this Section 2 and to enforce the Senior Obligees' rights and remedies hereunder with respect to such subordination provisions. 2.10 Transfer of Junior Obligations Subject to this Agreement. The Junior Obligees shall require each transferee or assignee of all or part of the Junior Obligations to agree in writing that such transferee or assignee and such Junior Obligations are subject to the provisions of this Agreement. -9- 2.11 Subrogation. (a) The Junior Obligees hereby waive all rights of subrogation to the claims of any of the Senior Obligees against any Credit Party, and waive all rights of recourse to any security for any Senior Obligations, until such time as all Senior Obligations shall have been indefeasibly paid in full in cash pursuant to the terms and provisions thereof; provided, that if any payment to any Senior Obligee is rescinded as a result of a legal proceeding or otherwise, the subrogation of Junior Obligees as provided herein shall likewise be rescinded until all of the Senior Obligations are indefeasibly paid in full in cash. (b) Subject to the indefeasible payment in full of the Senior Obligations in cash pursuant to the terms and provisions thereof, the Junior Obligees shall be subrogated to the extent of the payments or distributions made to the Senior Obligees pursuant to the provisions of this Agreement to the rights of the Senior Obligees to receive payments or distributions applicable to the Senior Obligations until the Junior Obligations shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the Senior Obligees of any cash, property or securities to which the Junior Obligees would be entitled except for the provisions of this Agreement, and no payment over pursuant to the provisions of this Agreement, to or for the benefit of the holders of Senior Obligations, shall, as between the Borrower, its creditors other than the Senior Obligees, and the Junior Obligees, be deemed to be a payment by the Borrower to or on account of the Senior Obligations; and no payments or distributions of cash, property or securities to or for the benefit of the Junior Obligees pursuant to the subrogation provisions of this Agreement, which would otherwise have been paid to the Senior Obligees shall be deemed to be a payment by the Borrower to or for the account of the Senior Obligees. It is understood that the provisions of this Section 2 are and are intended solely for the purposes of defining the relative rights of the Junior Obligees, on the one hand, and the Senior Obligees, on the other hand. SECTION 3. COLLATERAL AGENT. 3.1 Appointment. Each Lender hereby appoints, designates and authorizes the Collateral Agent to take such action on its behalf under the provisions of this Agreement and each Security Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any Security Document, together with such powers as are reasonably incidental thereto. Each Lender authorizes the Collateral Agent to execute, deliver and perform each of the Security Documents and such Lender agrees to be bound by all of the agreements of the Collateral Agent contained in the Security Documents. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Financing Document, the Collateral Agent shall not have any duties or responsibilities except those expressly set forth herein and in the Security Documents, and the Collateral Agent does not have or shall not be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any Financing Document or otherwise exist against the Collateral Agent. Without limiting the generality of the foregoing sentence, the use of the term "Collateral Agent," in this Agreement with reference to the Collateral Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only a relationship between independent contracting parties. -10- 3.2 Exculpatory Provisions. Neither the Collateral Agent nor any of its officers, directors, employees or agents shall (i) be liable for any action taken or omitted to be taken by it under or in connection with this Agreement or any other Financing Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders or any other Person for any recital, statement, representation or warranty made by any Covered Party or any Affiliate of any Covered Party, or any officer thereof, contained in this Agreement or in any other Financing Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Collateral Agent under or in connection with, this Agreement or any other Financing Document, or for the value of or title to any Collateral, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Financing Document, or for any failure of any Covered Party or any other party to any Financing Document to perform its obligations hereunder or thereunder. The Collateral Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Financing Document, or to inspect the books or records of any Covered Party or any Affiliate of any Covered Party. Anything in this Agreement to the contrary notwithstanding, in no event shall the Collateral Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to loss of profits). 3.3 Reliance by Collateral Agent. The Collateral Agent shall be entitled to rely conclusively, and shall be fully protected in so relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Collateral Agent. The Collateral Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Financing Document (i) if such action would, in the opinion of the Collateral Agent (upon consultation with counsel), be contrary to applicable Law or the terms of any Financing Document, (ii) if such action is not specifically provided for in the Financing Documents, and it shall not have received such written advice or concurrence of (A) with respect to each Security Document other than the Tranche B Interest Reserve Account Control Agreement, the Majority Tranche A Lenders (or, after the Transition Date, the Majority Tranche B Lenders) or (B) with respect to the Tranche B Interest Reserve Account Control Agreement, the Majority Tranche B Lenders, in each case as the Collateral Agent deems appropriate, (iii) unless, if it so requests, such Collateral Agent shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Security Documents in accordance with a written request or written consent of (A) with respect to each Security Document other than the Tranche B Interest Reserve Account Control Agreement, the Majority Tranche A Lenders (or, after the Transition Date, the Majority Tranche B Lenders) or (B) with respect to the Tranche B Interest Reserve Account Control Agreement, the Majority Tranche B Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 3.4 Notice of Default. The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Collateral -11- Agent shall have received written notice from a Lender or the Borrower referring to the Credit Agreement, describing such Default or Event of Default and stating that such notice is a "Notice of Default". If the Collateral Agent receives any such notice of the occurrence of a Default or an Event of Default, it shall give notice thereof to the Administrative Agent and the Lenders. The Collateral Agent shall take such action with respect to such Default or Event of Default as may be requested in writing by (A) with respect to each Security Document other than the Tranche B Interest Reserve Account Control Agreement, the Majority Tranche A Lenders (or, after the Transition Date, the Majority Tranche B Lenders) or (B) with respect to the Tranche B Interest Reserve Account Control Agreement, the Majority Tranche B Lenders; provided, however, that unless and until the Collateral Agent has received any such request, the Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default under the Security Documents as it shall deem advisable or in the best interest of the Lenders. 3.5 Indemnification. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Collateral Agent, its officers, directors, employees, counsel, agents and attorneys in fact ("Agent Related Person") (to the extent not reimbursed by or on behalf of any Covered Party within 90 days of the Collateral Agent's request to the Borrower for payment and without limiting the obligation of the Covered Parties to do so), pro rata in accordance with the aggregate principal amount of the Loans held by such Lenders (as determined by the Administrative Agent), from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to the Collateral Agent or the Agent Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Collateral Agent upon demand as provided above of any costs or out-of-pocket expenses incurred by such Collateral Agent or Agent Related Person (to the extent not reimbursed by or on behalf of the Covered Parties within 90 days of the Collateral Agent's request to the Borrower for payment and without limiting the obligation of the Covered Parties to do so) in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any document contemplated by or referred to herein, pro rata in accordance with the aggregate principal amount of the Loans held by such Lenders (as determined by the Administrative Agent). The provisions of this section shall survive termination of this Agreement or earlier resignation or removal of the Collateral Agent. Notwithstanding anything herein to the contrary, the Collateral Agent shall be entitled to set off from any Collateral or proceeds thereof any amounts due and owing to it pursuant to this Section 3.5 solely to the extent such amounts are not paid by any Covered Party or the Lenders as provided herein and in the Financing Documents and such amounts remain unpaid by the Lenders for a period of thirty days after demand therefor. 3.6 Successor Collateral Agent. Subject to the appointment and acceptance of a successor as provided below, the Collateral Agent may resign at any time by giving notice thereof to the Lenders and the Borrower, and the Collateral Agent may be removed at any time with or without cause by the Required Waiver Lenders upon thirty (30) days prior written notice. Upon any such resignation or removal, the Required Waiver Lenders shall have the right to -12- appoint a successor to the Collateral Agent. If no successor Collateral Agent shall have been appointed by the Required Waiver Lenders, and shall have accepted such appointment within 30 days after the resigning Collateral Agent's giving of notice of resignation or the giving of any notice of removal of such Collateral Agent, then the resigning Collateral Agent or Collateral Agent being removed, as the case may be, may at the Borrower's expense, appoint a successor to such Collateral Agent. If the Collateral Agent shall resign or be removed pursuant to the foregoing provisions, upon the acceptance of appointment by a successor Collateral Agent hereunder, the former Collateral Agent shall deliver all Collateral then in its possession to the successor Collateral Agent. Upon the acceptance of its appointment as a successor Collateral Agent hereunder, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of such resigning or removed Collateral Agent, and such resigning Collateral Agent or removed Collateral Agent shall be discharged from its duties and obligations hereunder and under the other Financing Documents. 3.7 Miscellaneous. (a) None of the provisions of this Agreement or any other Financing Document shall require the Collateral Agent to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not assured to it. (b) The Collateral Agent may execute any of the trusts or powers hereunder or perform any duties hereunder or under any Security Document either directly or by or through agents, attorneys, custodians or nominees appointed with due care, and shall not be responsible for any willful misconduct or negligence on the part of any agent, attorney, custodian or nominee so appointed. (c) Any corporation into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation succeeding to the business of the Collateral Agent shall be the successor of the Collateral Agent hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. SECTION 4. MISCELLANEOUS. 4.1 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. 4.2 Notices. All notices, requests, demands or other communications hereunder shall be made in the manner and with the effect provided in Section 9.3 of the Credit Agreement at the addresses provided therein (and to the Collateral Agent, at the address set forth below its signature block hereto) or at such other address as shall have been furnished in writing by the relevant Person to the party required to give notice hereunder. -13- 4.3 Successors and Assigns. Whenever in this Agreement any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included and all covenants, promises and agreements in this Agreement by or on behalf of the respective parties hereto shall bind and inure to the benefit of the respective successors and permitted assigns of such parties, whether so expressed or not. Nothing in this Agreement, express or implied, is intended or shall be construed to confer upon, or to give to, any Person other than the parties hereto and their respective successors and permitted assigns and Persons for whom the parties hereto are acting as agents or representatives, any right, remedy or claim under or by reason of this Agreement or any covenant, condition or stipulation hereof; and the covenants, stipulations and agreements contained in this Agreement are and shall be for the sole and exclusive benefit of the parties hereto and their respective successors and permitted assigns and Persons for whom the parties hereto are acting as agents or representatives. 4.4 Counterparts. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all counterparts together constituting only one instrument. 4.5 Special Exculpation. NO CLAIM MAY BE MADE BY THE COMPANY OR ANY OTHER PERSON AGAINST THE COLLATERAL AGENT OR ANY LENDER OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH AND THE COMPANY HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. 4.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). 4.7 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO. 4.8 No Impairments of Other Rights of Secured Parties and no Rights or Obligations of the Company. Nothing in this Agreement is intended or shall be construed to impair, -14- diminish or otherwise adversely affect any other rights the Lenders may have or may obtain against the Company or any other Credit Party. 4.9 Amendment; Waiver. No amendment or waiver of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the parties hereto and any such waiver or amendment shall be effective only in the specific instance and for the specific purpose for which given. No delay on the part of any Person in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial waiver by such Person of any right, power or remedy preclude any further exercise thereof, or the exercise of any other right, power or remedy. 4.10 Headings; Table of Contents, etc. Headings herein and the table of contents hereof are for convenience only and shall not be relied upon in interpreting or enforcing this Agreement. 4.11 Conflicts With Other Security Documents. In the event of any conflict between the terms of this Agreement and the other Financing Documents, the provisions of this Agreement shall control. 4.12 Marshaling. The Junior Obligees hereby waive, to the fullest extent permitted by applicable law, any rights they may have under applicable law to assert the doctrine of marshaling or otherwise to require any Senior Obligee to marshal any Property of any Credit Party for the benefit of any Lender. 4.13 Waiver of Rights. Each Junior Obligee hereby waives, to the fullest extent permitted by applicable law, any rights it may have to enjoin or otherwise obtain a judicial or administrative order preventing any Senior Obligee from taking, or refraining from taking, any action with respect to all or any part of the Collateral that is permitted under this Agreement. 4.14 Continuation of Subordination; Termination of Agreement. This Agreement shall in all respects be a continuing agreement and shall remain in full force and effect until Senior Obligees shall have received indefeasible payment in full in cash of all Senior Obligations pursuant to the respective terms and provisions of the Financing Documents; provided, that this Agreement shall continue to be effective or be reinstated, as the case may be, (i) if at any time any payment of any Senior Obligations is rescinded, avoided or must otherwise be returned by any Tranche A Lender upon the insolvency, bankruptcy or reorganization of any Credit Party, all as though such payment had not been made, and (ii) irrespective of any invalidity, unenforceability or illegality of the Senior Obligations, any part thereof or any of the transactions contemplated by the Financing Documents, and (iii) shall also apply with respect to any judgment ordered by a court in any action brought at law or in equity (such as an action brought for rescission, restitution, or unjust enrichment) against the Borrower or any other Credit Party in lieu, in whole or in part, of an action to enforce the obligations of the Borrower or any Credit Party under the Financing Documents. 4.15 Specific Performance. Each party hereto agrees that as between the Senior Obligees and the Junior Obligees, such parties may demand specific performance of the provisions of this Agreement, at any time the Senior Obligees or the Junior Obligees, as the case -15- may be, shall have failed to comply with any term or provision hereof. The Lenders hereby irrevocably waive any defense based on the adequacy of a remedy at law that might be asserted as a bar to such remedy of specific performance. -16- IN WITNESS WHEREOF, the parties hereto, by their officers duly authorized, have caused this Intercreditor and Subordination Agreement to be duly executed and delivered as of the date first above written. LEHMAN COMMERCIAL PAPER INC., as Administrative Agent By:_____________________________________ Title: EX-99.9 11 dex999.txt WARRANT AGREEMENT EXECUTION COPY ================================================================================ 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 __________________________ ================================================================================ TABLE OF CONTENTS
Page ---- 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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Page ---- 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
ii 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. 2 "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, Lehman Commercial Paper Inc., as Administrative Agent and Lehman 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 3 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. 4 "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 Lehman 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. 5 "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 6 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 7 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. 8 (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 Hart-Scott-Rodino 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 9 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. 10 (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 bill 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 EDGAR, 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 One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Assistant Treasurer Facsimile: (415) 267-7265 Telephone: (415) 267-7052 with copies to: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Chief Counsel - Corporate Facsimile: (415) 817-8225 Telephone: (415) 817-8200 and Latham & Watkins 633 West Fifth Street Suite 4000 Los Angeles, California 90071 Attention: Tom Sadler, Esq. Facsimile: (213) 891-8763 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, 100 PLAZA ONE, MS: 0603, JERSEY CITY, NJ 07311. 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, Spear Tower Suite 2400 San Francisco, California 94105 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: _______________ 2 EX-99.10 12 dex9910.txt RESALE REGISTRATION RIGHTS AGREEMENT EXECUTION COPY Resale Registration Rights Agreement between PG&E Corporation and The Purchasers Identified On The Signature Pages Hereto Dated as of June 25, 2002 TABLE OF CONTENTS
Page ---- 1. Definitions .......................................................... 1 2. Shelf Registration ................................................... 5 3. Registration Failure Liquidated Damages ............................. 8 4. Registration Procedures ............................................. 9 5. Registration Expenses ............................................... 16 6. Indemnification and Contribution ...................................... 16 7. Rules 144 and 144A .................................................... 20 8. Participation in Underwritten Registrations ........................... 20 9. Selection of Underwriters ............................................. 20 10. Miscellaneous ......................................................... 21
Resale Registration Rights Agreement, dated as of June 25, 2002, between PG&E Corporation, a California corporation (together with any successor entity, herein referred to as the "Issuer"), and the purchasers identified on the signature pages hereto (individually, a "Purchaser" and collectively, the "Purchasers"). Pursuant to the Purchase Agreement, dated the date hereof, between the Issuer and the Purchasers (the "Purchase Agreement"), the Purchasers have agreed to purchase from the Issuer $280,000,000 aggregate principal amount of the Issuer's 7.50% Convertible Subordinated Notes due 2007 (together with any PIK Securities or other securities that may be issued thereon, the "Securities"). The Securities are convertible into Conversion Shares (as defined below) on the terms, and subject to the conditions, set forth in the Indenture (as defined herein). To induce the Purchasers to purchase the Securities, the Issuer has agreed to provide the registration rights set forth in this Agreement pursuant to the Purchase Agreement. The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: Agreement: This Resale Registration Rights Agreement, as amended, modified or otherwise supplemented from time to time in accordance with the terms hereof. Applicable Amount: With respect to (i) each Security on any day, the principal amount of the Security on such day and (ii) each Conversion Share, the principal amount of the related Security from which said share was converted. Bankruptcy Code: Title 11 of the United States Code entitled "Bankruptcy", as now or hereafter in effect, or any successor thereto. Blue Sky Application: As defined in Section 6(a)(i) hereof. broker-dealer: Any broker or dealer registered under the Exchange Act. Business Day: A 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. Closing Date: The date of this Agreement. Commission: Securities and Exchange Commission. Common Stock: The common stock, no par value, of the Issuer, existing on the date of this agreement, or any other shares of capital stock of the issuer into which such Common Stock shall be reclassified or changed. Conversion Shares: The shares of Common Stock issued or issuable upon conversion of the Securities, including, for the avoidance of doubt, upon the conversion of any PIK Securities. 2 Damages Payment Date: Each interest Payment Date. For purposes of this Agreement, if no Securities are outstanding, "Damages Payment Date" shall mean each June 30 and December 31. Effectiveness Period: As defined in Section 2(b)(iii) hereof. Effectiveness Target Date: As defined in Section 2(b)(ii) hereof. Exchange Act: Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. Holder: A Person who owns, beneficially or otherwise, Transfer Restricted Securities. Indemnified Holder: As defined in Section 6(a) hereof. Indenture: The Indenture, dated the date hereof, between the Issuer and the Trustee, pursuant to which the Securities are to be issued, as such Indenture is amended, modified or supplemented from time to time in accordance with the terms thereof. Initial Effectiveness Period: As defined in Section 2(a)(iii) hereof. Initial Effectiveness Target Date: As defined in Section 2(a) (ii) hereof. Initial Registration Trigger Date: As defined in Section 2(a) (i) hereof. Initial Shelf Registration Statement: As defined in Section 2 (a)(i) hereof. Interest Payment Date: As defined in the Indenture. Issuer: As defined in the preamble hereto. Majority of Holders: Holders holding more than 50% of the aggregate principal amount of Securities outstanding at the time of determination; provided that, for purpose of this definition, a holder of Conversion Shares which constitute Transfer Restricted Securities shall be deemed to hold an aggregate principal amount of Securities (in addition to the principal amount of Securities held by such holder) equal to the product of (x) the number of such Conversion Shares then held by such holder and (y) the prevailing Conversion Price (as defined in the Indenture) at the time of conversion. NASD: National Association of Securities Dealers, Inc. PIK Securities: As defined in the Indenture, including all Conversion Shares issued or issuable with respect thereto. Person: 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. 3 PG&E: Pacific Gas and Electric Company, a California corporation. Prospectus: The prospectus included in a Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Purchase Agreement: As defined in the preamble hereto. Purchasers: As defined in the preamble hereto. Questionnaire: As defined in Section 2(c) hereof. Questionnaire Deadline: As defined in Section 2(c) hereof. Record Holder: With respect to any Damages Payment Date, each Person who is a Holder on the record date with respect to the Interest Payment Date on which such Damages Payment Date shall occur. In the case of a Holder of Conversion Shares, "Record Holder" shall mean each Person who is a Holder of Conversion Shares which constitutes Transfer Restricted Securities on the 15/th/ day preceding the relevant Damages Payment Date. Registration Default: As defined in Section 3(a) hereof. Registration Failure Liquidated Damages: As defined in Section 3(a) hereof. Registration Trigger Date: As defined in Section 2(a)(i) hereof. Securities: As defined in the preamble hereto. Securities Act: Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. Shelf Registration Statement: As defined in Section 2(b)(i) hereof. Shelf Termination Election: Any election by the Issuer to terminate the effectiveness of any Shelf Registration Statement. Subject PIK Security: (i) Any PIK Security at the time it is originally issued under the Indenture; and (ii) in connection with any Shelf Termination Election, all PIK Securities outstanding at the date thereof. Subsequent Effectiveness Period: As defined in Section 2(b) (iii) hereof. Subsequent Effectiveness Target Date: As defined in Section 2 (b)(ii) hereof. Subsequent Registration Trigger Date: As defined in Section 2 (b)(i) hereof. Subsequent Shelf Registration Statement: As defined in Section 2(b)(i) hereof. 4 Suspension Notice: As defined in Section 4(c) hereof. Suspension Period: As defined in Section 4(b)(i) hereof. Transfer Conditions: With respect to any Subject PIK Security issued under the Indenture, means the delivery by the Issuer to the Trustee and each Holder of such Subject PIK Security of (a) an Officer's Certificate confirming that (i) such Subject PIK Security is not required to bear the restricted securities legend provided for in the Indenture and (ii) that such Subject PIK Security may be sold or transferred by a person who is not an affiliate of the Issuer pursuant to Rule 144(k) under the Securities Act (or any other similar provision then in force), or is otherwise freely transferable, without regard to any volume or manner of sale restrictions and (b) an Opinion of Counsel (as defined in the Indenture), which shall be an opinion of outside counsel, which confirms such conclusion and states that the holders of the Subject PIK Securities are entitled to rely on such opinion or, if such an Opinion of Counsel was previously delivered, a confirmation from such counsel that there is no change in the opinion previously delivered. Transfer Restricted Securities: Each (a) Conversion Share and (b) any other securities issued or issuable with respect to such Conversion Share by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, until the earlier of: (i) the date on which such Conversion Share or other security has been registered under the Securities Act on a registration statement which has been declared effective by the Commission and disposed of in accordance with such registration statement; (ii) the date on which such Conversion Share or other security (A) has been transferred in compliance with Rule 144 under the Securities Act or (B) may be sold or transferred by a person who is not an affiliate of the Issuer pursuant to Rule 144(k) under the Securities Act (or any other similar provision then in force) without regard to any volume or manner of sale restrictions thereunder; provided, however, that, in the case of Conversion Shares issuable upon conversion of any PIK Securities, the Transfer Conditions have been satisfied or the date as of which this determination is made is at least two years after the issue date of such PIK Security; or (iii) the date on which, following the issuance of such Conversion Share upon conversion of Securities, such Conversion Share or other security ceases to be outstanding (whether as a result of repurchase and cancellation, conversion or otherwise). Trustee: U.S. Bank, N.A., as trustee under the Indenture, and any subsequent trustee thereunder. Underwritten Registration or Underwritten Offering: A registration in which securities of the Issuer are sold to an underwriter for reoffering to the public. 5 VWAP: 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 and ignoring any block trade (which for purposes of this definition means any transfer of more than 100,000 shares (subject to adjustment to reflect stock dividends, stock splits, stock combinations or other similar transactions after the date of this Agreement) of such security pursuant to an individual transaction), 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 and ignoring any block trade (which for purposes of this definition means any transfer of more than 100,000 shares (subject to adjustment to reflect stock dividends, stock splits, stock combinations or other similar transactions after the date of this Agreement) of such security pursuant to an individual transaction), 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 a Majority of Holders. 2. Shelf Registration. (a) The Issuer shall: (i) use its best efforts to not later than the date that is 90 days after the date of the consummation of a "plan of reorganization" under the Bankruptcy Code with respect to PG&E (the "Initial Registration Trigger Date"), cause to be filed a registration statement pursuant to Rule 415 under the Securities Act (together with any amendments thereto, the "Initial Shelf Registration Statement"), which Initial Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities held by, or issuable to, the Holders (or which may be issued to the Holders at any time upon conversion of any PIK Securities, as reasonably determined by the Issuer) that have provided the information required pursuant to the terms of Section 2(c) hereof; (ii) use its best efforts to cause the Initial Shelf Registration Statement to be declared effective by the Commission not later than 180 days after the Registration Trigger Date (the "Initial Effectiveness Target Date"); and (iii) after such Initial Shelf Registration Statement has been declared effective, keep the Initial Shelf Registration Statement continuously effective, 6 supplemented and amended as required by the provisions of Section 4(b) hereof to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities entitled to the benefit of this Agreement and (B) conforms with the requirements of this Agreement and the Securities Act for a period (the "Initial Effectiveness Period") ending on the earlier of: (1) June 25, 2004, or, if any PIK Securities have been issued prior to such date, the earlier of (A) the second anniversary of the most recent date on which any such PIK Securities were authenticated by the Trustee pursuant to the Indenture and (B) the date on which the Transfer Conditions are satisfied; or (2) such shorter period that will terminate when (x) all of the Holders of Transfer Restricted Securities are able to sell all Transfer Restricted Securities immediately without restriction pursuant to Rule 144(k) under the Securities Act or any successor rule thereto; provided, however, that, in the case of Conversion Shares issued or issuable upon conversion of any PIK Securities, the Transfer Conditions have been satisfied or the date as of which this determination is made is at least two years after the issue date of such PIK Security, (y) all Securities and Transfer Restricted Securities have ceased to be outstanding (whether as a result of repurchase and cancellation, conversion or otherwise) or (z) all Transfer Restricted Securities have been registered under the Initial Shelf Registration Statement and have been sold in accordance therewith. (b) Following the expiration of the Initial Effectiveness Period, the Issuer may make a Shelf Termination Election by delivering written notice thereof and, evidence of the satisfaction of the Transfer Conditions to each Holder of Securities or Transfer Restricted Securities. In the event, however, that, following the expiration of the Initial Effectiveness Period and the making of such Shelf Termination Election, the Issuer issues any PIK Securities and the Transfer Conditions have not been satisfied with respect to any such issuance then the Issuer shall: (i) use its best efforts to file, not later than 20 days after the date on which such PIK Securities are issued (the "Subsequent Registration Trigger Date" and, together with the Initial Registration Trigger Date, a "Registration Trigger Date") cause to be filed a registration statement pursuant to Rule 415 under the Securities Act (together with any amendments thereto, the "Subsequent Shelf Registration Statement" and, together with the Initial Shelf Registration Statement, a "Shelf Registration Statement") which Subsequent Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities held by Holders (or which may be issued to the Holders at any time upon conversion of any PIK Securities) that have provided the information required pursuant to the terms of Section 2(c) hereof; (ii) use its best efforts to cause the Subsequent Shelf Registration Statement to be declared effective by the Commission not later than 60 days after 7 the Subsequent Registration Trigger Date (the "Subsequent Effectiveness Target Date" and, together with the Initial Effectiveness Target Date, the "Effectiveness Target Date"); and (iii) after such Subsequent Shelf Registration Statement has been declared effective, keep the Subsequent Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 4(b) hereof to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities entitled to the benefit of this Agreement and (B) conforms with the requirements of this Agreement and the Securities Act for a period (the "Subsequent Effectiveness Period" and, together with the Initial Effectiveness Period, the "Effectiveness Period") ending on the earlier of: (1) the earlier of (A) the second anniversary of the most recent date on which any such PIK Securities were authenticated by the Trustee pursuant to the Indenture and (B) the date on which the Transfer Conditions are satisfied; or (2) such shorter period that will terminate when (x) all of the Holders of Transfer Restricted Securities are able to sell all Transfer Restricted Securities immediately without restriction pursuant to Rule 144(k) under the Securities Act or any successor rule thereto; provided, however, that, in the case of any Conversion Shares issued or issuable upon conversion of any PIK Securities, the Transfer Conditions have been satisfied or the date as of which this determination is made is at least two years after the issue date of such PIK Security, (y) when no Securities or Transfer Restricted Securities remain outstanding (whether as a result of repurchase and cancellation, conversion or otherwise) or (z) all Transfer Restricted Securities have been registered under the Subsequent Shelf Registration Statement and have been sold in accordance therewith. (c) No Holder of Transfer Restricted Securities shall be permitted to include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless such Holder completes a Selling Securityholder Notice and Questionnaire, substantially in the form attached hereto as Exhibit A (as the same may be amended or modified from time to time to reasonably reflect changes in applicable law) (the "Questionnaire"), and delivers it to the Issuer prior to or on the 15th Business Day after such Holder's receipt of the Questionnaire from the Issuer (each such deadline, a "Questionnaire Deadline"). Prior to such time, each Holder may complete the Questionnaire and deliver it to the Issuer prior to such request and, as a result, shall be entitled to have its Transfer Restricted Securities included in the applicable Shelf Registration Statement filed with the Commission. In addition, upon receipt of one or more written requests for additional information from the Issuer, each Holder who intends to be named as a selling securityholder in the applicable Shelf Registration Statement shall furnish to the Issuer in writing, within 15 Business Days after such Holder's receipt of such request, such additional information regarding such Holder and the proposed distribution by such Holder of its Transfer Restricted Securities, in connection with the Shelf Registration Statement 8 or Prospectus or Preliminary Prospectus included therein and in any application to be filed with or under state securities law, as the Issuer may reasonably request. No Holder of Transfer Restricted Securities shall be entitled to Registration Failure Liquidated Damages pursuant to Section 3 hereof unless such Holder shall have provided such reasonably requested information prior to or on the applicable Questionnaire Deadline. Each Holder whose Transfer Restricted Securities are being registered pursuant to a Shelf Registration Statement agrees to furnish promptly to the Issuer all information required to be disclosed in order to make information previously furnished to the Issuer by such Holder not materially misleading. 3. Registration Failure Liquidated Damages. (a) If: (i) any Shelf Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Target Date; or (ii) except as provided in Section 4(b)(i) hereof, any Shelf Registration Statement is filed and declared effective but, during the applicable Effectiveness Period, shall thereafter cease to be effective or fail to be usable for its intended purpose without there being filed with the Commission within ten Business Days a post-effective amendment to such Shelf Registration Statement, a supplement to the Prospectus or a report pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such failure and, in the case of a post-effective amendment, is itself immediately declared effective; (each such event referred to in foregoing clauses (i) and (ii), a "Registration Default"), the Issuer hereby agrees, subject to Section 2(c), to pay liquidated damages ("Registration Failure Liquidated Damages") with respect to the Transfer Restricted Securities from and including the day following the Registration Default to but excluding the day on which the Registration Default has been cured, accruing at a rate: (A) in respect of the Securities, to each holder of Securities, equal to 0.50% per annum of the Applicable Amount of the Securities; and (B) in respect of any Conversion Shares, to each holder of Conversion Shares, equal to 0.50% per annum of the Applicable Amount of the Conversion Shares. (b) All accrued Registration Failure Liquidated Damages shall be paid in arrears to Record Holders by the Issuer on each Damages Payment Date (i) by wire transfer of immediately available funds or by federal funds check or (ii) in PIK Securities. Following the cure of all Registration Defaults relating to any particular Security or Conversion Share, the accrual of Registration Failure Liquidated Damages with respect to such Security or Conversion Share will cease. The Issuer agrees to deliver all notices, certificates and other documents contemplated by the Indenture in connection with the payment of Registration Failure Liquidated Damages. 9 All obligations of the Issuer set forth in this Section 3 that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Transfer Restricted Security shall have been satisfied in full; provided, however, that the Registration Failure Liquidated Damages shall cease to accrue on the last day of the Effectiveness Period. The Registration Failure Liquidated Damages set forth above shall be the exclusive monetary remedy available to the Holders of Transfer Restricted Securities for such Registration Default; provide, however, that the Holders of Transfer Restricted Securities shall be entitled to any remedy (including, without limitation, monetary damages) which the Holders may have at law or in equity in the event that the Issuer engages in conduct which either is grossly negligent or intentionally malfeasant; provided, further, however, that in no event shall the Issuer's filing and prosecution in good faith of a Shelf Registration Statement in accordance with the terms of this Agreement and advice of a firm of qualified securities counsel be considered as grossly negligent or intentionally malfeasant for purposes of this Agreement 4. Registration Procedures. (a) In connection with any Shelf Registration Statement, the Issuer shall comply with all the provisions of Section 4(b) hereof and shall use its best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and pursuant thereto, shall as expeditiously as possible prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Securities Act. (b) In connection with any Shelf Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities, the Issuer shall: (i) subject to any notice by the Issuer in accordance with this Section 4(b) of the existence of any fact or event of the kind described in Section 4(b)(iii)(D), use its best efforts to keep the Shelf Registration Statement continuously effective during the Effectiveness Period; upon the occurrence of any event that would cause such Shelf Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not be effective and usable for resale of Transfer Restricted Securities during the Effectiveness Period, the Issuer shall file promptly an appropriate amendment to such Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its best efforts to cause such amendment to be declared effective and such Shelf Registration Statement and the related Prospectus to become usable for their intended purposes as soon as practicable thereafter. Notwithstanding the foregoing, the Issuer may suspend the effectiveness of any Shelf Registration Statement by written notice (which notice shall not contain any material nonpublic information) to the Holders for a period 10 (each such period, a "Suspension Period"); provided that the Company shall promptly notify the Holders in writing (which notice shall not contain any material non-public information) of the date the Suspension Period will begin and the expected duration of such period; and provided, further, that no Suspension Period shall exceed 45 consecutive days and all such Suspension Periods shall not exceed an aggregate of 90 days within any consecutive twelve-month period if: (x) an event occurs and is continuing as a result of which such Shelf Registration Statement would, in the Issuer's reasonable judgment, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (y) the Issuer reasonably determines that the disclosure of such event at such time would have a material adverse effect on the business of the Issuer (and its subsidiaries, if any, taken as a whole); Notwithstanding the foregoing, in the event that any Holder has, prior to the receipt of notice of the commencement of a Suspension Period, entered into a binding contract to sell any Conversion Shares pursuant to a Shelf Registration Statement, and in accordance with the plan of distribution therein, the Issuer agrees not to prevent its transfer agent from delivering such Conversion Shares to the purchaser thereof without any restrictive legend and otherwise in accordance with the applicable requirements of the Indenture. The Issuer shall use its commercially reasonable efforts to provide any documents, opinions or other information reasonably requested by the transfer agent in connection with any such sale. (ii) Prepare and file with the Commission such amendments (including post-effective amendments) and supplements to such Shelf Registration Statement as may be necessary to keep such Shelf Registration Statement continuously effective during the Effectiveness Period; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Shelf Registration Statement as so amended or in such Prospectus as so supplemented. (iii) Advise the underwriter(s), if any, and selling Holders promptly (but in any event within five Business Days) and, if requested by such Persons, to confirm such advice in writing (provided, however, that in no event shall such advice contain any material non-public information): 11 (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to any Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of any Shelf Registration Statement under the Securities Act or any notification with respect to the suspension by any state securities commission of the qualification or exemption from qualification of any of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation or threatening of any proceeding for any of the preceding purposes, or (D) of the existence of any fact or the happening of any event (the nature of which need not be disclosed) during the Effectiveness Period, that makes any statement of a material fact made in any Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in any Shelf Registration Statement or the Prospectus in order to make the statements therein not misleading, and that in the case of a Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each Holder of Securities, by accepting the same, agrees to hold any communication from the Company pursuant to this Section 4(b)(iii) in confidence. If at any time the Commission shall issue any stop order suspending the effectiveness of any Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Issuer shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time and will provide to the Purchasers and each Holder who is named in such Shelf Registration Statement prompt notice of the withdrawal of any such order (provided that in no event shall such notice contain any material non-public information). (iv) Furnish to each of the selling Holders and each of the underwriter(s), if any, before filing with the Commission, one copy of any Shelf Registration Statement and copies of any Prospectus included therein or any 12 amendments or supplements to such Shelf Registration Statement or Prospectus (other than documents incorporated by reference after the initial filing of such Shelf Registration Statement), which documents will be subject to the review of such Holders and underwriter(s), if any, for a period of at least ten Business Days (in the case of a Shelf Registration Statement and the initial Prospectus contained therein) and two Business Days (in the case of any amendment or supplement thereto), and the Issuer will not file such Shelf Registration Statement or initial Prospectus or any amendment or supplement to the Shelf Registration Statement or Prospectus (other than documents incorporated by reference) to which a selling Holder of Transfer Restricted Securities covered by the Shelf Registration Statement or the underwriter(s), if any, shall reasonably object within ten Business Days prior to the filing of such Shelf Registration Statement and Prospectus and within two Business Days prior to the filing of any amendment or supplement thereto. A selling Holder or underwriter, if any, shall be deemed to have reasonably objected to such filing only if a Shelf Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission with respect to the information concerning such Holder or its intended plan of distribution with respect to the Transfer Restricted Securities. (v) Make available at reasonable times for inspection by one or more representatives of the selling Holders, designated in writing by a Majority of Holders whose Transfer Restricted Securities are included in a Shelf Registration Statement, any underwriter participating in any distribution pursuant to such Shelf Registration Statement, and any attorney or accountant retained by such selling Holders or any of the underwriter(s), all financial and other records, pertinent corporate documents and properties of the Issuer as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the Issuer's officers, directors, managers and employees to supply all information reasonably requested by any such representative or representatives of the selling Holders, underwriter, attorney or accountant in connection with the Shelf Registration Statement after the filing thereof and before its effectiveness, provided, however, that any information designated by the Issuer as confidential at the time of delivery of such information shall be kept confidential by the recipient thereof; provided, further, that in no event shall the Issuer be required to furnish any material nonpublic information pursuant to this subsection (v). (vi) If reasonably requested by any selling Holders or the underwriter(s), if any, promptly incorporate in a Shelf Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation: (1) information relating to the "Plan of Distribution" of the Transfer Restricted Securities, (2) information with respect to the number of shares of Common Stock being sold to such underwriter(s), (3) the purchase price being paid therefor and (4) any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; provided, however, that with respect to any information 13 requested for inclusion by a selling Holder, this clause (vi) shall apply only to such information that relates to the Transfer Restricted Securities to be sold by such selling Holder; and make all required filings of such Prospectus supplement or post-effective amendment as soon as reasonably practicable after the Issuer is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment. (vii) Deliver to each selling Holder and each of the underwriter(s), if any, without charge, upon the effectiveness of any Shelf Registration Statement, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; subject to any notice by the Issuer in accordance with this Section 4(b) of the existence of any fact or event of the kind described in Section 4(b)(iii) (D), the Issuer hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto. (viii) The Issuer shall: (A) upon request, furnish to each selling Holder and each underwriter in the case of an underwritten registration where an underwriting agreement is entered into, if any, in such substance and scope as they may reasonably request and as are customarily made by issuers to underwriters in primary underwritten offerings for selling security holders, upon the date of closing of any sale of Transfer Restricted Securities in an Underwritten Registration: (1) opinions, each dated the date of such closing, of counsel to the Issuer covering such of the matters as are customarily covered in legal opinions to underwriters in connection with underwritten offerings of securities; and (2) customary comfort letters, dated the date of such closing, from the Issuer's independent accountants (and from any other accountants whose report is contained or incorporated by reference in the Shelf Registration Statement) in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings of securities; (B) set forth in full in the underwriting agreement, if any, indemnification provisions and procedures which provide rights no less protective than those set forth in Section 6 hereof with respect to all parties to be indemnified by the Issuer; and (C) deliver such other documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with 14 any customary conditions contained in the underwriting agreement or other agreement entered into by the selling Holders pursuant to this clause (ix). (ix) Before any public offering of Transfer Restricted Securities, cooperate with the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions in the United States as the selling Holders or underwriter(s), if any, may reasonably request, use best efforts to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by a Shelf Registration Statement; provided, however, that the Issuer shall not be required (A) to register or qualify as a foreign corporation or a dealer of securities where it is not now so qualified or to take any action that would subject it to the service of process in any jurisdiction where it is not now so subject or (B) to subject itself to taxation in any such jurisdiction if it is not now so subject. (x) Cooperate with the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends (unless required by applicable securities laws); and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, may request at least two Business Days before any sale of Transfer Restricted Securities made by such selling Holders or underwriter(s). (xi) Use its best efforts to cause the Transfer Restricted Securities covered by a Shelf Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities as may be necessary to enable the selling Holders or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities pursuant to such Shelf Registration Statement. (xii) Subject to Section 4(b)(i) hereof, if any fact or event contemplated by Section 4(b)(iii)(D) hereof shall exist or have occurred, use its best efforts to prepare a supplement or post-effective amendment to a Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to any purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (xiii) [Reserved] 15 (xiv) Cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter that is required to be retained in accordance with the rules and regulations of the NASD. (xv) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and all reporting requirements under the Exchange Act. (xvi) Cause all Transfer Restricted Securities covered by any Shelf Registration Statement to be listed or quoted, as the case may be, on each securities exchange or automated quotation system on which similar securities issued by the Issuer are then listed or quoted and, if not so listed, to be listed on the NASD automated quotation system. (xvii) Provide to each Holder upon written request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act after the effective date of the applicable Shelf Registration Statement. (xviii) If reasonably requested by the underwriters, make appropriate officers of the Issuer available to the underwriters for meetings with prospective purchasers of the Transfer Restricted Securities and prepare and present to potential investors customary "road show" or marketing materials in a manner consistent with other new issuances of other securities similar to the Transfer Restricted Securities; but in no event more than once in any 12 month period. (c) Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice (a "Suspension Notice") (which notice shall not contain any material nonpublic information) from the Issuer of the existence of any fact of the kind described in Section 4(b)(iii)(D) hereof, such Holder will, and will use its reasonable best efforts to cause any underwriter(s) in an Underwritten Offering to, forthwith discontinue disposition of Transfer Restricted Securities pursuant to any Shelf Registration Statement until: (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 4(b)(xii) hereof; or (ii) such Holder is advised in writing by the Issuer that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Issuer, each Holder will deliver to the Issuer (at the Issuer's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice of suspension. 16 5. Registration Expenses. All expenses incident to the Issuer's performance of or compliance with this Agreement shall be borne by the Issuer regardless of whether a Shelf Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees and expenses (including filings made by the Purchasers or Holders with the NASD); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing of Prospectuses and certificates for the Conversion Shares) and the Issuer's expenses for messenger and delivery services and telephone; (iv) all fees and disbursements of counsel to the Issuer and, subject to Section 5(b) below, the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing (or authorizing for quotation) the Common Stock on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Issuer (including the expenses of any special audit and comfort letters required by or incident to such performance). The Issuer shall bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal, accounting or other duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Issuer. (b) In connection with any Shelf Registration Statement required by this Agreement, including any amendment or supplement thereto, and any other documents delivered to any Holders, the Issuer shall reimburse the Purchasers and the Holders of Transfer Restricted Securities being registered pursuant to each such Shelf Registration Statement, as applicable, for the reasonable fees and disbursements not to exceed $10,000, of not more than one counsel, which shall be such counsel as may be chosen by a Majority of Holders for whose benefit the Shelf Registration Statement is being prepared. 6. Indemnification and Contribution. (a) The Issuer shall indemnify and hold harmless each Holder, such Holder's officers, directors and employees and each person, if any, who controls such Holder within the meaning of the Securities Act (each, an "Indemnified Holder"), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to resales of the Transfer Restricted Securities) ("Liabilities"), to which such Indemnified Holder may become subject, insofar as any such Liability arises out of, or is based upon: 17 (i) any untrue statement or alleged untrue statement of a material fact contained in (A) any Shelf Registration Statement or Prospectus or any amendment or supplement thereto or (B) any blue sky application or other document or any amendment or supplement thereto prepared or executed by the Issuer (or based upon written information furnished by or on behalf of the Issuer expressly for use in such blue sky application or other document or amendment on supplement) filed in any jurisdiction specifically for the purpose of qualifying any or all of the Transfer Restricted Securities under the securities law of any state or other jurisdiction (such application or document being hereinafter called a "Blue Sky Application"); or (ii) the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Indemnified Holder promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Holder in connection with investigating or defending or preparing to defend against any such Liability as such expenses are incurred; provided, however, that the Issuer shall not be liable to any Holder in any such case to the extent that any such Liability arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in a Shelf Registration Statement or Prospectus or amendment or supplement thereto or Blue Sky Application in reliance upon and in conformity with written information furnished to the Issuer by or on behalf of such Holder or its related Indemnified Holder specifically for use in such Shelf Registration Statement or Prospectus and provided, further, however, that the Issuer shall not be liable to the underwriter for any Holder or, in the case of any non-underwritten offering, to any Holder or its related Indemnified Holder to the extent that (A) such Liability arises out of or is based upon an untrue statement or omission made in any preliminary prospectus if (i) such underwriter or Holder, as applicable, failed to send or deliver a copy of the final prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the Person asserting the claim from which such Liabilities arise, to the extent such underwriter or Holder, as applicable, was required to send and deliver such final prospectus, and (ii) the final prospectus would have corrected such untrue statement or such omission; or (B) such Liability arises out of or is based upon an untrue statement or omission in any such prospectus if (x) such untrue statement or omission is corrected in an amendment or supplement to such prospectus, and (y) having previously been furnished by or on behalf of the Issuer with copies of such prospectus as so amended or supplemented, such underwriter or Holder, as applicable, thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of a Security to the Person asserting the claim from which such Liability arises. The foregoing indemnity agreement is in addition to any liability which the Issuer may otherwise have to any Indemnified Holder. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holder and shall survive the transfer of the Transfer Restricted Securities by such Holder. (b) Each Holder, severally and not jointly, shall indemnify and hold harmless the Issuer, its officers, directors and employees and each person, if any, who controls the Issuer within the meaning of the Securities Act, from and against any Liability, joint or several, in 18 respect thereof, to which the Issuer or any such officer, director, employee or controlling person may become subject, insofar as any such Liability arises out of, or is based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any Shelf Registration Statement or Prospectus or any amendment or supplement thereto or any Blue Sky Application; or (ii) the omission or the alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Issuer by or on behalf of such Holder (or its related Indemnified Holder) specifically for use therein, and shall reimburse the Issuer and any such director, officer, employee or controlling person promptly upon demand for any legal or other expenses reasonably incurred by the Issuer or any such director, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such Liability as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any Holder may otherwise have to the Issuer or any of its directors, officers, employees or controlling persons and any such director, officer, employee or controlling person. Notwithstanding anything to the contrary contained herein, no Holder shall be liable under this Section 6(b) for any amount in excess of the net proceeds to such Holder as a result of the sale of Transfer Restricted Securities pursuant to the applicable Shelf Registration Statement or Prospectus. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that a Majority of Holders shall have the right to employ a single counsel to represent jointly a Majority of Holders and their respective officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by a Majority of Holders against the Issuer or any of its directors, officers, employees or controlling persons under this Section 6; and, provided further, that if a Majority of Holders shall 19 have reasonably concluded that there may be one or more legal defenses available to them and their respective officers, employees and controlling persons that are different from or additional to those available to the Issuer and its officers, directors, employees and controlling persons, the fees and expenses of a single separate counsel shall be paid by the Issuer. No indemnifying party shall: (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld) settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 6 shall for any reason be unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b) in respect of any Liability referred to therein, each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such Liability: (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuer from the offering and sale of the Transfer Restricted Securities on the one hand and a Holder with respect to the sale by such Holder of the Transfer Restricted Securities on the other, or (ii) if the allocation provided by clause (6)(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 6(d)(i) but also the relative fault of the Issuer on the one hand and the Holders on the other in connection with the statements or omissions or alleged statements or alleged omissions that resulted in such Liability, as well as any other relevant equitable considerations. The relative benefits received by the Issuer on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under the Purchase Agreement (before deducting expenses) received by the Issuer on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Transfer Restricted Securities on the other. The relative fault of the parties shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer on the one hand or the Holders on the other, the intent of the parties and their relative knowledge, access to information and opportunity to 20 correct or prevent such statement or omission. The Issuer and each Holder agree that it would not be just and equitable if the amount of contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). The amount paid or payable by an indemnified party as a result of the Liability referred to above in this Section 6 shall be deemed to include, for purposes of this Section 6, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 6, no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Transfer Restricted Securities purchased by it were resold exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute as provided in this Section 6(d) are several and not joint. 7. Rules 144 and 144A. The Issuer shall file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Issuer is not required to file such reports, it will, upon written request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A, if the Conversion Price meets the requirements of Rule 144A(d)(3)(i). The Issuer covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell such Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A, if the Conversion Price meets the requirements of Rule 144A(d)(3)(i), (including the requirements of Rule 144A(d)(4)). The Issuer will provide a copy of this Agreement to prospective purchasers of Transfer Restricted Securities identified to the Issuer upon request by any Purchaser. Upon the request of any Holder of Transfer Restricted Securities, the Issuer shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Issuer to register any of its securities pursuant to the Exchange Act. 8. Participation in Underwritten Registrations. No Holder may participate in any Underwritten Registration hereunder unless such Holder: (i) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements; and (ii) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. 9. Selection of Underwriters. The Holders of Transfer Restricted Securities covered by a Shelf Registration Statement who desire to do so may sell such Transfer Restricted 21 Securities in an Underwritten Offering if approved by the Issuer. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Issuer; provided that such investment bankers and managers must be reasonably satisfactory to the Majority of Holders whose Transfer Restricted Securities are included in such offering. 10. Miscellaneous. (a) Remedies. The Issuer acknowledges and agrees that any failure by the Issuer to comply with its obligations under Section 2 hereof may result in material irreparable injury to the Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Issuer's obligations under Section 2 hereof. The Issuer further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) Adjustments Affecting Transfer Restricted Securities. The Issuer shall not, directly or indirectly, take any action with respect to the Transfer Restricted Securities as a class that would adversely affect the ability of the Holders of Transfer Restricted Securities to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement. (c) No Inconsistent Agreements. The Issuer will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. In addition, the Issuer shall not grant to any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) the right to include any of its securities in any Shelf Registration Statement provided for in this Agreement other than the Transfer Restricted Securities. The Issuer has not previously entered into any agreement (which has not expired or been terminated) granting any registration rights with respect to its securities to any Person which rights conflict with the provisions hereof. (d) Amendments and Waivers. This Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless the Issuer has obtained the written consent of a Majority of Holders. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, facsimile transmission, or air courier guaranteeing overnight delivery: (i) If to a Purchaser, at the address for such Purchaser set forth below such Purchaser's signature on the signature page(s) hereof; (ii) if to a Holder who is not otherwise a Purchaser, at the address set forth on the counterpart signature page to this Agreement provided by such Holder pursuant to Section 10(f) below and 22 (iii) if to the Issuer: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Assistant Treasurer Facsimile: (415) 267-7265 Telephone: (415) 267-7052 With copies to: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 Attention: Chief Counsel - Corporate Facsimile: (415) 817-8225 Telephone: (415) 817-8200 and Latham & Watkins 633 West Fifth Street Suite 4000 Los Angeles, California 90071 Attention: Tom Sadler Facsimile: (213) 891-8763 Telephone: (213) 485-1234 All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if transmitted by facsimile; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that (i) this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign is a Permitted Assign (as defined in the Purchase Agreement) or acquired Transfer Restricted Securities from such Holder in compliance with any restrictions on transfer applicable thereto and (ii) nothing contained herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities, in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall 23 be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. The Issuer hereby agrees to extend the benefits of this Agreement to subsequent Holders of Transfer Restricted Securities who execute a counterpart signature page hereto. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. (h) Securities Held by the Issuer or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Issuer or its "affiliates" (as such term is defined in Rule 405 under the Securities Act) (other than the Purchasers or subsequent Holder of Transfer Restricted Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Transfer Restricted Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (j) Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. (k) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired or invalidated thereby. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Issuer with respect to the Transfer Restricted Securities. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Issuer with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. [Signature pages follow] In Witness Whereof, the parties have executed this Agreement as of the date first written above. PG&E CORPORATION By: _____________________________ Name: Title: Jackson Investment Fund Ltd. By:_____________________________ Name: Title: Address for notices: c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Bradford Couri and Kenneth A. Simpler Facsimile: (312) 368-1348 with a copy to: Katten Muchin Zavis Rosenman 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Attention: Robert Brantman, Esq. Facsimile: 312-902-1061 Telephone: 312-902-5200 Citadel Credit Trading Ltd. By:_____________________________ Name: Title: Address for notices: c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Bradford Couri and Kenneth A. Simpler Facsimile: (312) 368-1348 with a copy to: Katten Muchin Zavis Rosenman 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Attention: Robert Brantman, Esq. Facsimile: 312-902-1061 Telephone: 312-902-5200 Citadel Equity Fund Ltd. By:_____________________________ Name: Title: Address for notices: c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Bradford Couri and Kenneth A. Simpler Facsimile: (312) 368-1348 with a copy to: Katten Muchin Zavis Rosenman 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Attention: Robert Brantman, Esq. Facsimile: 312-902-1061 Telephone: 312-902-5200 EXHIBIT A PG&E CORPORATION FORM OF SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE Beneficial owners that do not complete this Questionnaire within 20 Business Days of receipt hereof and deliver it to the Issuer as provided below will not be named as selling securityholders in the prospectus and therefor will not be permitted to sell any Transfer Restricted Securities pursuant to the Shelf Registration Statement. The undersigned beneficial holder of 7.50% Convertible Subordinated Notes due 2007 (together with any PIK Securities or other securities that may be issued thereon, the "Securities") of PG&E Corporation, a California corporation (the "Issuer"), or shares of common stock, no par value per share, issuable upon conversion of the Securities (the "Conversion Shares" and together with the Securities, the "Transfer Restricted Securities") of the Issuer understands that the Issuer has filed, or intends to file, with the Securities and Exchange Commission (the "Commission") a registration statement (the "Shelf Registration Statement"), for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Transfer Restricted Securities in accordance with the terms of the Resale Registration Rights Agreement, dated as of June 25, 2002 (the "Registration Rights Agreement") between the Issuer and the Purchasers named therein. A copy of the Registration Rights Agreement is available from the Issuer upon request at the address set forth below. All capitalized terms not otherwise defined herein have the meaning ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Transfer Restricted Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Transfer Restricted Securities pursuant to the Shelf Registration Statement, a beneficial owner of Transfer Restricted Securities generally will be required to be named as a selling securityholder in the related Prospectus, deliver a Prospectus to purchasers of Transfer Restricted Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below). Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related Prospectus. Accordingly, holders and beneficial owners of Transfer Restricted Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and the related Prospectus. NOTICE The undersigned beneficial owner (the "Selling Securityholder") of Transfer Restricted Securities hereby gives notice to the Issuer of its intention to sell or otherwise dispose of Transfer Restricted Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The A-1 undersigned, by signing and returning this Questionnaire, understands that it will be bound by the terms and conditions of this Questionnaire and the Registration Rights Agreement. Pursuant to the Registration Rights Agreement and subject to the terms thereof, the undersigned has agreed to indemnify and hold harmless the Issuer, the Issuer's directors, the Issuer's officers who sign the Shelf Registration Statement and each person, if any, who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against certain losses set forth therein arising in connection with statements concerning the undersigned made in the Shelf Registration Statement or the related Prospectus in reliance upon the information provided in this Questionnaire. The undersigned hereby provides the following information to the Issuer and represents and warrants that such information is accurate and complete: QUESTIONNAIRE 2. Information Regarding Selling Securityholder (a) Full legal name of Selling Securityholder: __________________ (b) Full legal name of registered holder (if not the same as (a) above) through which Transfer Restricted Securities listed in Item (3) below are held: __________________________________________________________ (c) Full legal name of DTC participant (if applicable and if not the same as (b) above) through which Transfer Restricted Securities listed in Item (3) are held: __________________________________________________ 3. Address for Notices to Selling Securityholders Telephone: ____________________________ Fax: _________________________________ Contact Person: ________________________ 4. Beneficial Ownership of Transfer Restricted Securities (a) Type of Transfer Restricted Securities beneficially owned, and principal amount of Securities or number of Conversion Shares, as the case may be, beneficially owned: _____________ __________________________________ (b) CUSIP No(s). of such Transfer Restricted Securities beneficially owned: _________________________________________ A-2 5. Beneficial Ownership of the Issuer's Securities Owned by the Selling Securityholder Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Issuer other than the Transfer Restricted Securities listed above in Item (3) ("Other Securities"). (a) Type and amount of Other Securities beneficially owned by the Selling Securityholder: _________________________________________ (b) CUSIP No(s). of such Other Securities beneficially owned: _________________________________________________________________ 6. Relationship with the Issuer Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Issuer (or its predecessors or affiliates) during the past three years. State any exceptions here: ____________________________________________ 7. Plan of Distribution Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Transfer Restricted Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows (if at all). Such Transfer Restricted Securities may be sold from time to time directly by the undersigned or, alternatively, through underwriters, broker-dealers or agents. If the Transfer Restricted Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Transfer Restricted Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions): (i) on any national securities exchange or quotation service on which the Transfer Restricted Securities may be listed or quoted at the time of sale; (ii) in the over-the-counter market; (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market; or (iv) through the writing of options, whether such options are listed on an options exchange or otherwise; (v) ordinary brokers' transactions; A-3 (vi) purchases by brokers, dealers or underwriters as principal and resale by these purchasers for their own accounts pursuant to this prospectus; (vii) "at the market," to or through market makers, or into an existing market for our common stock; (viii) in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents; (ix) through transactions in swaps or other derivatives ( whether exchange-listed or otherwise); or (x) to cover short sales. In connection with sales of the Transfer Restricted Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Transfer Restricted Securities and deliver Transfer Restricted Securities to close out such short positions, or loan or pledge Transfer Restricted Securities to broker-dealers that in turn may sell such securities. State any exceptions here: ___________________________________________ _______________________________________________________________________ Note: In no event will such method(s) of distribution take the form of an underwritten offering of the Transfer Restricted Securities without the prior agreement of the Issuer. 8. Instructions for Delivery of Questionnaire Please return the completed and executed Questionnaire to PG&E Corporation at: PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, CA 94105 Attention: Assistant Treasurer 9. Acknowledgments By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (7) above and the inclusion of such information in the Shelf Registration Statement and the related Prospectus. The undersigned understands that such information will be relied upon by the Issuer in connection with the preparation or amendment of the Shelf Registration Statement and the related Prospectus. A-4 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Questionnaire to be executed and delivered either in person or by its duly authorized agent. Beneficial Owner By: ________________________________ Name: Title: Date: A-5 -----END PRIVACY-ENHANCED MESSAGE-----