**EXHIBIT 4.6**

 

**THE SECURITIESREPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS AMENDED, (THE “SECURITIES ACT”) OR ANY STATE OR OTHER SECURITIES LAWS ANDNEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, HYPOTHECATED,PLEDGED OR OTHERWISE DISPOSED OF IN THE UNITED STATES OR TO U.S. PERSONS EXCEPTPURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT ANDSUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCHLAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINIONARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.**

 

**THISNOTE IS ONE OF A SERIES OF NOTES OF THE SAME TERMS AND TENOR THAT MAY BE ISSUEDBY MAKER UP TO AN AGGREGATE OF $15,000,000.**

 

**PRB GAS TRANSPORTATION, INC.**

 

**SENIOR SUBORDINATED CONVERTIBLE NOTE**

 
| US  $                                     |   | January      , 2006 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                                                                                                                                                                                          |   | Denver, Colorado                             |

 

FORVALUE RECEIVED, PRB Gas Transportation, Inc., a corporation incorporated underthe laws of the State of Nevada (the “**Company**”),promises to pay to                                          (the “**Holder**”) or registered assigns, theprincipal amount of US $                                 ,and to pay interest (computed on the basis of a 360-day year) (a) on the unpaidprincipal amount at the rate of ten percent (10%) quarterly in arrearscommencing on March 15, 2006 and thereafter on the fifteenth day of each June,September, December and March thereafter (each, an “**InterestPayment Date**”) and (b) to the extent permitted by law on any overduepayment of the principal amount at the rate of twelve percent (12%) per annum.Principal and accrued but unpaid interest hereunder shall be due and payable ondemand on or after the Maturity Date (as defined in Section (f) hereof), unlessconverted by the Holder in accordance with Section (g) hereof.

 

Paymentsof principal and interest shall be made in lawful money of the United States ofAmerica by check and mailed to the address of the Holder specified in Section (m)(iv).

 

ThisNote is subject to the following terms and conditions:

 

(a)           **Note Subordination**. The indebtedness evidenced by this Note issubordinate and subject in right of payment as to principal and interest to theprior payment in full of all principal, premium, if any, and interest on allindebtedness of the Company, regardless of when incurred, includingindebtedness incurred after the date hereof, for money borrowed from theCompany’s principal banking institution (“**Senior Debt**”)which may be secured by the Company’s oil and gas reserves. Upon maturity ofany Senior Debt, payment in full must be made on such Senior Debt before anypayment is made on or in respect of this Note. During the continuance of anydefault with respect to any Senior Debt entitling the holder thereof toaccelerate the maturity thereof, or if any such default would be caused by anypayment upon or in respect of this Note, no payment may be made by the Companyupon or in respect of the Notes. Upon any distribution of assets of the Companyin any dissolution, winding up, liquidation or reorganization of the Company,payment of the principal of and premium, if any, and interest on the Notes willbe subordinated to the prior payment in full of all Senior Debt. (Such subordinationwill not prevent the occurrence of any event of default, as set forth in Section(c) below.)

 

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(b)          **Security.**This Note together withall Senior Convertible Secured Notes of the Company, is secured by a firstposition lien on all of the operating gathering assets of the Company as of thedate of all such notes except for the Crosby Gathering Line and the West TiogaGas Processing Plant.

 

(c)**          ****Default**.

 

(i)            **Default**. The occurrence of any one or more of thefollowing events shall constitute an event of default (an “**Event ofDefault**”) hereunder:

 

(1)           if the Company shall default in the punctualpayment of any sum payable with respect to, or in the observance or performanceof any of the agreements, promises, covenants, terms and conditions of any of,the Notes.

 

(2)           if any warranty, representation or statementof fact made herein by the Company is false or misleading in any materialrespect when made;

 

(3)           if the Company or any significant subsidiary,as defined in Rule 405 of the Rules and Regulations under the Securities Act of1933, as amended (“**Significant Subsidiary**”)shall be dissolved or liquidated or any proceeding for dissolution orliquidation of the Company or any Significant Subsidiary is commenced or theCompany or any Significant Subsidiary fails to maintain its corporateexistence;

 

(4)            if the Company or any Significant Subsidiarybecomes insolvent (however defined or evidenced) or makes an assignment for thebenefit of creditors (or similar arrangement under the laws of the State of Colorado);

 

(5)           if there shall be filed by or against theCompany or any Significant Subsidiary any petition for any relief under thebankruptcy laws of the United States now or hereafter in effect or anyproceeding shall be commenced with respect to the Company or any SignificantSubsidiary under any insolvency, readjustment of debt, reorganization,dissolution, liquidation or similar law or statute of any jurisdiction now orhereafter in effect (whether at law or in equity), provided that in the case ofany involuntary filing or the commencement of any involuntary proceedingagainst the Company or any Significant Subsidiary such proceeding or petitionshall have continued undismissed and unvacated for at least 60 days;

 

(6)           if the usual business of the Company or anySignificant Subsidiary shall cease or be terminated or suspended;

 

(7)           if any proceeding, procedure or remedysupplementary to or in enforcement of judgment shall be commenced against, orwith respect to any property of, the Company or any Significant Subsidiary; or

 

(8)           if any petition or application to any courtor tribunal, at law or in equity, be filed by or against the Company or anySignificant Subsidiary for the appointment of any receiver or trustee for theCompany or any Significant Subsidiary or any part of the property of theCompany or any Significant Subsidiary, provided that in the case of anyinvoluntary filing against the Company or any Significant Subsidiary, suchproceeding or appointment shall have continued undismissed and unvacated for atleast 60 days.

 

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(ii)           **Remedies Upon Default**. If any Event of Default shall occur for anyreason, then and in any such event, in addition to all rights and remedies ofthe Holder under applicable law or otherwise, all such rights and remediesbeing cumulative, not exclusive and enforceable alternatively, successively andconcurrently, the Holder may, at its option, declare any or all amounts owingunder this Note, to be due and payable, whereupon the then unpaid balancehereof, together with all interest accrued thereon, shall forthwith become dueand payable, together with interest accruing thereafter at the then applicableinterest rate stated above until the indebtedness evidenced by this Note ispaid in full, plus the costs and expenses of collection hereof, including, butnot limited to) attorney’s fees and legal expenses.

 

(iii)          **The Company’s Waivers**. The Company (i) waives diligence, demand,presentment, protest and notice of any kind, (ii) agrees that it will not benecessary for the Holder to first institute suit in order to enforce payment ofthis Note and (iii) consents to any one or more extensions or postponements oftime of payment, release, surrender or substitution of collateral security, orforbearance or other indulgence, without notice or consent, The pleading of anystatute of limitations as a defense to any demand against the Company is herebyexpressly waived by the Company.

 

(iv)          **Certain Obligors**. The Holder may proceed against the Companyand any guarantors or endorsees hereof in such order and manner as the Holdermay choose. None of the rights of the Holder shall be waived or diminished byany failure or delay in the exercise thereof.

 

(d)           **Covenants**. The Company covenants and agrees that, solong as this Note is outstanding and unpaid:

 

(i)            **Payment of Note**. The Company will punctually pay or cause tobe paid the principal, premium, if any, and Interest on this Note at the datesand places and in the manner specified herein. Any sums required to be withheldfrom any payment of principal, premium, if any, or Interest on this Note byoperation of law or pursuant to any order, judgment, execution, treaty, rule orregulation may be withheld by the Company and paid over in accordancetherewith. In the event any restriction is placed upon payment of principal,premium, if any, or Interest by virtue of a currency or monetary control law,rule or regulation of Canada or of the United States Federal Government, as setforth in a written notice delivered to the Holder within thirty (30) days afterthe imposition of such a restriction, such payments shall be deposited to theaccount of the payee in a bank, trust company or other financial institution inthe United States, as directed by the payee. Such payment or deposit will bedeemed payment to the Holder.

 

Nothingin this Note or in any other agreement between the Holder and the Company shallrequire the Company to pay, or the Holder toaccept, interest in an amount which would subject the Holder to any penalty orforfeiture under applicable law. In the event that the payment of any charges,fees or other sums due under this Note or provided for in any other agreementbetween the Company and the Holder are or could be held to be in the nature ofinterest and would subject the Holder to any penalty or forfeiture underapplicable law, then ipso facto the obligations of the Company to make suchpayment to the Holder shall be reduced to the highest rate authorized underapplicable law and, in the event that the Holder shall have ever received,collected, accepted or applied as interest any amount in excess of the maximumrate of interest permitted to be charged by applicable law, such amount whichwould be excess interest under applicable law shall be applied first to thereduction of principal then outstanding, and, second, if such principal amountis paid in full, any remaining excess shall forthwith be returned to theCompany.

 

(ii)           **Maintenance of CorporateExistence: Merger****and Consolidation.**The Company will at all times cause to be done all things necessary orappropriate to preserve and keep in full force and effect its corporateexistence and the corporate existence of any Significant Subsidiary and all ofits rights and franchises and shall not consolidate with or merge into anyother corporation or transfer all or substantially all of its assets to anyperson unless (i) the corporation formed by such consolidation or into whichthe Company is merged or to which the assets of the Company are transferred isa

 

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corporation that expresslyassumes all of the obligations of the Company under this Note and (ii) aftergiving effect to such transaction, no Event of Default and no event which, afternotice or lapse of time, or both, would become an Event of Default, shall haveoccurred and be continuing.

 

(iii)          **Maintenance of Properties**. The Company will reasonably maintain ingood repair, working order and condition, reasonable wear and tear excepted,its properties and other assets, and those of its Significant Subsidiaries, andfrom time to time make all necessary or desirable repairs, renewals andreplacements thereto.

 

(iv)          **Payment of Taxes.**The Company will use its best efforts to payor discharge or cause to be paid, set aside for payment or discharge, beforethe same shall become delinquent, all taxes, assessments and governmentalcharges levied or imposed upon the Company or upon its income, profits orproperty; provided, that the Company shall not be required to pay or dischargeor cause to be paid or discharged any such tax, assessment, charge or claimwhose amount or validity is being contested in good faith by appropriateproceedings.

 

(v)           **Compliance with Statutes**. The Company will and will cause itsSignificant Subsidiaries to comply in all material respects with all applicablestatutes and regulations of the provinces of Canada and of the United States ofAmerica and of any state or municipality, and of any agency thereof, in respectof the conduct of business and the ownership of property by the Company and itsSignificant Subsidiaries; provided, that nothing contained in this Section (d)(v)shall require the Company or a Significant Subsidiary to comply with any suchstatute or regulations so long as its legality or applicability shall becontested in good faith.

 

(vi)          **Reports; Financial Statements: NoAdverse Change**. Thefinancial statements included in the Company’s filings (the “**SEC Filings**”) with United States Securities and ExchangeCommission did not contain any untrue statement of a material fact or omit tostate a material fact required to be stated therein or necessary to make thestatements made therein, in light of the circumstances in which they were made,not misleading. The financial statements included in the SEC Filings (includingthe related notes and schedules) fairly present, as of December 31, 2005, thefinancial position and results of operations for the periods set forth therein(subject, in the case of unaudited statements, to the omission of certain notesnot ordinarily accompanying such unaudited financial statements, and to normalyear-end audit adjustments which are not material in amount or effect), in eachcase in accordance with generally accepted accounting principles consistentlyapplied during the period involved. Since December 31, 2005, there has been nomaterial adverse change in the Company’s or a Significant Subsidiary’sbusiness, properties, financial condition or results of operations, except asdisclosed in the SEC Filings.

 

(vii)         **Restrictions on Dividends,Redemptions Etc.** The Companywill not declare or pay any dividend or make any other distribution of theCompany, except dividends or distributions payable in equity securities of theCompany.

 

(viii)        **Transactions with Affiliates**. Neither the Company nor any of itsSignificant Subsidiaries will itself, and will not permit any of theirrespective officers or directors, or holder of 5% or more of the Company’sCommon Stock, to engage in any transaction of any kind or nature with anyaffiliate of the Company or any Significant Subsidiary, other than transactionswith any wholly-owned subsidiary of the Company or any Significant Subsidiaryor pursuant to the terms of any agreement existing as of the date hereofbetween the Company or any Significant Subsidiary and any affiliate of theCompany or any Significant Subsidiary, unless such transaction, or in the caseof a course of related or similar transactions or continuing transactions, suchcourse of transactions or continuing transactions is or are upon terms whichare fair to the Company or any Significant Subsidiary and which are reasonably

 

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similar to, or morebeneficial to the Company or any Significant Subsidiary than the terms deemedlikely to occur in similar transactions with unrelated persons under the samecircumstances.

 

(e)           **No Prepayment**. This Note may not be prepaid in whole or inpart except as set forth in Section (h) below.

 

(f)            **Maturity**. If this Note is not converted at the optionof the Holder in accordance with Section (g) hereof, the principal amount ofthis Note, together with accrued but unpaid interest, shall be due and payableon demand thirty (30) months from the date of this Note (the “**Maturity Date**”).

 

(g)           **Conversion**. All or any portion ofthe principal amount of this Note, together with accrued but unpaid interest,may be converted into shares of Common Stock (the “**Note Shares**”)at the option of the Holder at any time on or prior to the Maturity Date,subject to the terms and conditions set forth in this Section (g). Uponconversion into Note Shares, the principal amount and accrued but unpaidinterest on this Note that are applicable to the Note Shares that have been soconverted shall be discharged.

 

(i)            **Conversion Price**. The number of Note Shares into which thisNote may be converted shall be determined by dividing the aggregate amount ofprincipal and accrued but unpaid interest outstanding on this Note on theConversion Date (as defined below) by seven dollars ($7.00) (subject toadjustment under certain circumstances) (the “**ConversionPrice**”).

 

(ii)           **Method of Conversion**. Before the Holder shall be entitled toreceive Note Shares upon the conversion of this Note or any portion thereof,the Holder shall surrender this Note and deliver a Notice of Conversion (in theform attached hereto as **Exhibit A**) tothe office of the Company or its designated agent. The Notice of Conversionshall state therein the amount of the Note being converted into Note Shares andthe amount(s) in which the certificate(s) for Note Shares are to be issued. Thetime of conversion (the “**Conversion Date**”)shall be the close of business on the first business day following the date onwhich the Company receives the Notice of Conversion. Interest on Notesconverted ceases to accrue on and after the date of the Notice of Conversion.

 

(iii)         **Issuance of Note Shares.**The Company shall, as soon as practicableafter surrender of this Note and receipt of the Notice of Conversion, but in noevent more than three (3) business days thereafter, issue and deliver to theHolder, a certificate(s) for the number of Note Shares to which the Holdershall be entitled as aforesaid.

 

(iv)          **No Fractional Shares**. No fractional Note Shares shall be issuableupon conversion of this Note or any portion thereof, If the conversion of thisNote would result in the issuance of a fractional share of Common Stock, suchfractional share shall be rounded up to the nearest whole share and issued to theHolder.

 

(v)**Adjustment of Conversion Price; Merger**.

 

(1)           If the Company at any time or from time totime while this Note is issued and outstanding shall declare or pay, withoutconsideration, any dividend on the Common Stock payable in Common Stock, or shalleffect a subdivision of the outstanding shares of Common Stock into a greaternumber of shares of Common Stock (by stock split, reclassification or otherwisethan by payment of a dividend in Common Stock or in any right to acquire CommonStock), or if the outstanding shares of Common Stock shall be combined orconsolidated, by reclassification or otherwise, into a lesser number of sharesof Common Stock, then the Conversion Price in effect immediately before suchevent shall, concurrently with the effectiveness of such event, beproportionately decreased or increased, as appropriate. If the Company shalldeclare or pay, without consideration, any dividend on the Common Stock payablein any right to acquire Common Stock for no consideration, then the Companyshall be

 

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deemed to have made adividend payable in Common Stock in an amount of shares equal to the maximumnumber of shares issuable upon exercise of such rights to acquire Common Stock.

 

(2)           If the Common Stock shall be changed into thesame or a different number of shares of any other class or classes of stock,whether by capital reorganization, reclassification or otherwise (other than asubdivision or combination of shares provided for in Section (g)(v)(1)), theConversion Price then in effect shall, concurrently with the effectiveness ofsuch reorganization or reclassification, be proportionately adjusted so thatthe Note Shares shall be convertible into, in lieu of the number of shares ofCommon Stock which the Holder would otherwise have been entitled to receive, anumber of shares of such other class or classes of stock equivalent to thenumber of shares of Note Shares that would have been subject to receipt by theHolder upon payment of Note Shares on this Note immediately before that change.

 

(3)           In case of any consolidation or merger of theCompany with any other corporation, limited liability company or any otherentity (each such transaction, a “**Merger**”), thecorporation formed by the Merger shall succeed to the covenants, stipulations,promises and the agreements contained in this Note. In the event of a Merger,the Company shall make appropriate provisions so that the Holder shall have theright thereafter to convert this Note into the kind and amount of securitiesreceivable upon such Merger by a Holder of the number of securities into whichthis Note might have been converted immediately prior to a Merger. The aboveprovisions shall similarly apply to successive Mergers.

 

(4)           Upon the occurrence of each adjustment orreadjustment of any Conversion Price pursuant to this Section (g)(v), theCompany at its expense shall promptly compute such adjustment or readjustmentin accordance with the terms hereof and prepare and furnish to the Holder anotice setting forth such adjustment or readjustment and showing in detail thefacts upon which such adjustment or readjustment is based.

 

(vi)          **Reservation of Stock**. The Company shall at all times reserve andkeep available out of its authorized but unissued shares of Common Stock,solely for the purpose of effecting the conversion of this Note into NoteShares, such number of its shares of Common Stock as shall from time to time besufficient to effect the conversion of all of the Notes; and if at any time thenumber of authorized but unissued shares of Common Stock shall not besufficient to effect the conversion of all of the Notes then, the Company willtake such corporate action as may be necessary to increase its authorized butunissued shares of Common Stock to such number of shares as shall be sufficientfor such purpose, including without limitation, engaging in best efforts toobtain the requisite stockholder approval of any necessary amendment to itsArticles of Incorporation or charter documents.

 

(vii)         **Issue Taxes**. The Company shall pay any and all issue andother taxes that may be payable in respect of any issue or delivery of NoteShares; provided, that the Company shall not be obligated to pay any transfertaxes resulting from any transfer requested by the Holder in connection withany such conversion.

 

(h)           **Call Provision.**This Note may be retiredby the Company, at its option, by the payment of the principal amount of thisNote plus any accrued but unpaid interest upon 10 days prior written notice tothe Holder (the “Call Notice Period”) if the closing selling price of theCompany’s Common Stock for 10 consecutive trading days exceeds 200% of theconversion price of this Note as set forth in Section (g).

 

(i)            **Registration: Registration ofTransfer and Exchange of this Note**.

 

(i)            The Company shall keep or cause to be kept anote register (the “**Note Register**”)

 

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for the Notes in which,subject to such reasonable regulations as it may prescribe, the Company shallprovide for the registration of the Notes and the registration of transfers ofthe Notes.

 

(ii)           Subject to the restrictions on transfer setforth herein, this Note may be exchanged, at the option of each Holder, forother Notes in any authorized denominations, of a like aggregate principalamount, upon surrender of this Note to be exchanged at the offices of theCompany or its designated agent (either, the “**Registrar**”).

 

(iii)          All Notes issued upon any registration oftransfer or exchange of this Note shall be valid obligations of the Company,evidencing the same debt, and entitling the Holder to the same benefits underthis Note.

 

(iv)          Every Note presented or surrendered forregistration of transfer or exchange shall be duly endorsed by, or beaccompanied by a written instrument of transfer in form satisfactory to theRegistrar, duly executed by the Holder thereof or such Holder’s attorney dulyauthorized in writing.

 

(v)           No charge shall be made to a Holder for anyregistration of transfer or exchange of Notes.

 

(vi)          Prior to due presentment for registration oftransfer of any Note, the Company may treat the person in whose name any Noteis registered (as of the day of determination) as the Holder for the purpose ofreceiving payments of principal of and interest on such Note and for all otherpurposes, and neither the Company nor any agent of the Company shall beaffected by notice to the contrary.

 

(j)            **Other Provisions Relating toRights of the Holder of this Note**.

 

(i)            **Rights of the Holder of this Note**. This Note shall not entitle the Holder toany of the rights of a shareholder of the Company, including, withoutlimitation, the right to vote, to receive dividends and other distributions, orto receive any notice of, or to attend, meetings of shareholders or any otherproceedings of the Company. This Section (j)(i) shall not affect the rights ofthe Holder in its capacity as a shareholder of the Company upon conversion ofthis Note and issuance to the Holder of Note Shares pursuant to Section (g)hereof.

 

(ii)           **Lost,Stolen, Mutilated or Destroyed Note**. If this Note shall be mutilated, lost, stolen ordestroyed, the Company shall execute and deliver, in exchange and substitutionfor and upon cancellation of a mutilated Note, or in lieu of or in substitutionfor a lost, stolen or destroyed Note, a new Note for the principal amount ofthis Note so mutilated, lost, stolen or destroyed but only upon receipt ofevidence (which may consist of a signed affidavit of the Holder), of such loss,theft**or destruction of such Note, and of the ownership thereof,and indemnity, if requested, all reasonably satisfactory to the Company.

 

(k)           **Securities Law Compliance;Registration Rights**.

 

(i)            **Restrictions on Transfer**. The Holder and the Company understand thateach of (i) the Holder’s right to convert this Note and (ii) the ability of theCompany to issue the Note Shares are subject to full compliance with theprovisions of all applicable securities laws and the availability thereunder ofan exemption from registration, and that the certificates evidencing the NoteShares, shall bear a legend substantially to the effect of the legend on thefirst page hereof.

 

(ii)           **Compliance with Laws**. The Holder agrees to comply with allapplicable laws, rules and regulations of all federal and state securitiesregulators within the United States, including but not limited to, theSecurities and Exchange Commission, the National Association of SecuritiesDealers,

 

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Inc. and applicable statesecurities regulators with respect to disclosure, filings and any otherrequirements resulting in any way from the issuance of this Note.

 

(iii)          **Registration of Note Shares UnderSecurities Act of 1933**. TheCompany has agreed to promptly file a registration statement with the UnitedStates Securities and Exchange commission under the Securities Act of 1933, asamended, (the “Securities Act”) for the sale of all the Common Stock underlyingthe Note under a Registration Rights Agreement entered into between the Companyand the Holder as of                                         (the Note and the Registration Rights Agreement are together referred to as the“**Transaction Documents**”).

 

(l)            **Holder Representations**. The Holder hereby represents, warrants andcovenants to the Company as of the date hereof:

 

(i)            **Requisite Power and Authority**. The Holder has all necessary power andauthority to execute and deliver the Transaction Documents and to carry outtheir provisions. All actions on the Holder’s part required for the lawfulexecution and delivery of the Transaction Documents for which it has executedand delivered have been taken prior to the date hereof.

 

(ii)           **Investment Representations**. The Holder understands that the Note andthe Note Shares have not been registered under the Securities Act. The Holderalso understands that the Note is being offered and sold pursuant to anexemption from registration contained in regulations under the Securities Actbased in part upon the Holder’s representations contained herein.

 

(1)           **Acquisition for Own Account**. The Holder is acquiring the Debenture to beacquired by the Holder for its own account, or the account of its designatedassignee, for investment only, and not with a view towards distribution inviolation of applicable securities laws.

 

(2)           **Accredited Investor**. Holder represents that it, and each of itspartners (limited or general), is an “accredited investor” within the meaningof Rule 501(a) of Regulation D as promulgated under the Securities Act.

 

(3)           **Financial Experience**. The Holder and each of its partners(limited or general) has such knowledge and experience in financial andbusiness matters as to be capable of evaluating the merits and risks of aninvestment in the Note or Note Shares to be acquired by the Holder and is ableto bear the economic risk of loss of the entire investment.

 

(4)           **Information.** The Company has provided to Holder theopportunity to ask questions and receive answers concerning the terms andconditions of the transactions contemplated in the Transaction Documents and ithas had access to such information concerning the Company as it has considerednecessary or appropriate in connection with its investment decision to acquirethe Note and Note Shares.

 

(5)**          ****Transfer Restrictions**. Holder agrees that if it decides to offer,sell or otherwise transfer the Note or Note Shares, it****will not offer,sell or otherwise transfer the Security directly or indirectly, unless:

 

(A)          the sale is made pursuant to registrationunder the Securities Act;

 

(B)           the sale is made pursuant to the exemptionfrom the registration

 

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requirements under theSecurities Act provided by Rule 144 thereunder and in accordance with anyapplicable state securities or “**Blue Sky**”****laws; or

 

(C)           the Security is sold in a transaction thatdoes not require registration under the Securities Act or any applicable statelaws and regulations governing the offer and sale of securities, and it****hasprior to such sale furnished to the Company an opinion of counsel reasonablysatisfactory to the Company.

 

(6)           **Due Diligence**. (i) The Holder has been solely responsiblefor its own “due diligence” investigation of the Company and its management,business and financial condition, for its own analysis of the merits and risksof this investment and for its own analysis of the fairness and desirability ofthe terms of the investment; (ii) in taking any action or performing any rolerelative to the arranging of the proposed investment, the Holder has actedsolely in its own interest; and (iii)****neither the Holder nor any of itsagents or employees has acted as an agent of the Company, or as an issuer,underwriter, broker, dealer or investment adviser relative to any securityinvolved in this investment.

 

(7)           **Tax****Consequences**. Holder understands and agrees that theremay be material tax consequences to the Holder of an acquisition or dispositionof the Note or Note Shares. The Company gives no opinion and makes norepresentation with respect to the tax consequences to the Holder under UnitedStates, state, local or foreign tax law of the undersigned’s acquisition ordisposition of the Note or Note Shares.

 

(8)           **No General****Solicitation.**The Holder confirms that the Holder hasreceived no general solicitation or general advertisement and has attended noseminar or meeting (whose attendees have been invited by any generalsolicitation or general advertisement) and has received no advertisement in anynewspaper, magazine or similar media, broadcast on television or radioregarding the offering of the Note or Note Shares.

 

(m)         **Other Matters**.

 

(i)            **Binding Effect; Assignment**. The provisions of this Note shall bebinding upon and inure to the benefit of the parties hereto and the successorsand assigns of the Company.

 

(ii)           **Further Actions**. At any time and from time to time, theCompany and the Holder agree, without further consideration, to take suchactions and to execute and deliver such documents as the other may reasonablyrequest to consummate the transactions contemplated in this Note.

 

(iii)          **Modification:Waiver**.This Note sets forth the entire understanding of the Company and the Holderwith respect to the subject matter hereof and supersedes all existingagreements between them concerning such subject matter. This Note may beamended, modified, superseded, canceled, renewed or extended, and the termshereof may be waived, only by a written instrument signed by the Company andHolders of at least fifty-one percent (51%) in principal amount of the Notes atthe time outstanding; provided, however, that the consent of a Holder shall berequired to modify the terms of this Note affecting the payment of principalamount of, or interest on, such Holder’s Note or the term of such Holder’sNote. Any waiver by the Company or the Holder of a breach of any provision ofthis Note shall not operate as or be construed to be a waiver of any otherbreach of such provision or of any breach of any other provision of this Note.The failure of the Company or the Holder to insist upon strict adherence to anyterm of this Note on one or more occasions shall not be considered a waiver ordeprive that party of the right thereafter to insist upon strict adherence tothat term or any other term of this Note. No delay on the part of any party inexercising any right, power or privilege hereunder shall operate as a waiverthereof or hereof, nor shall any waiver on the part of any party of any right,power or privilege hereunder preclude any other or further exercise hereof orthe exercise of any other right, power or privilege hereunder. Any waiver must

 

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be inwriting. The rights and remedies provided herein are cumulative and are notexclusive of any rights or remedies which any party may otherwise have at lawor in equity.

 

(iv)          **Notices**. Any notice or other communication requiredor permitted to be given hereunder shall be in writing and shall be mailed bycertified mail, return receipt requested, or delivered against receipt if to(i) the Company, to PRB Gas Transportation, Inc., 1875 Lawrence Street, Suite450, Denver, Colorado 80202, and (ii) the Holder, to                                               ,or to such Holder at its last address as shown on the Note Register (or to suchother address as the party shall have furnished in writing in accordance withthe provisions of this Section (m)(iv)). Any notice or other communicationgiven by certified mail shall be deemed given at the time of certificationthereof, except for a notice changing a party’s address which shall be deemedgiven at the time of receipt thereof.

 

(v)           **Severability**. If any provision of this Note is invalid, illegalor unenforceable, the balance of this Note shall remain in effect, and if anyprovision is inapplicable to any person or circumstance, it shall neverthelessremain applicable to all other persons and circumstances. The rate of intereston this Note is subject to any limitations imposed by applicable usury laws.

 

(vi)          **Headings**. The headings in this Note are solely forconvenience of reference and shall be given no effect in the construction orinterpretation of this Note.

 

(vii)         **Governing Law**. This Agreement shall be governed by andconstrued in all respects under the laws of the State of Colorado, without referenceto its conflict of laws rules or principles. Any suit, action, proceeding orlitigation arising out of or relating to this Agreement shall be brought andprosecuted in such federal or state court or courts located within the State ofColorado, City and County of Denver, as provided by law. The parties herebyirrevocably and unconditionally consent to the jurisdiction of each such courtor courts located within the State of Colorado and to service of process byregistered or certified mail, return receipt requested, or by any other mannerprovided by applicable law, and hereby irrevocably and unconditionally waiveany right to claim that any suit, action, proceeding or litigation so commencedhas been commenced in an inconvenient forum. The prevailing party in any suchsuit or action shall be paid all costs of suit including fees of counsel,filing fees and all other costs of bringing and pursuing the action.

 

(viii)        **Due Authorization**. The execution and delivery of this Note andthe consummation of the transactions contemplated herein have been authorizedby the Board of Directors of the Company and by any necessary vote or with theconsent of the shareholders of the Company.

 

INWITNESS WHEREOF, the Company has caused this Note to be executed on its behalfby its Chairman of the Board of Directors thereunto duly authorized.

 
|   | PRB  GAS TRANSPORTATION, INC. |
|--------|-------------------------------|
|   |                          |
|   | By:                           |   |
|   |                          | Robert  W. Wright |
|   |                          | Chairman  of the Board of Directors |

 

 

[SIGNATURE OF HOLDER ON FOLLOWING PAGE]

 

10

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INWITNESS WHEREOF, the Holder has executed this Note this                day of January, 2006.

 

 
|   | By:                           |   |
|--------|-------------------------------|--------|
|   |                          |
|   |                          |
|   |                          |
|   | (Address)                     |
|   |                          |
|   |                          |
|   |                          |
|   | (City/State/Zip  Code)        |
|   |                          |
|   |                          |
|   |                          |
|   | (Area  Code/Telephone Number) |

 

11

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**EXHIBIT A**

 

**NOTICE OF CONVERSION**

 

Theundersigned being the holder of the attached Senior Subordinated Convertible Note(s)(the “**Note(s)**”) due the Maturity Date (asdefined in the Note) of PRB Gas Transportation**,**Inc. (the “Company”), hereby exercises the option to convert theNote(s) into Note Shares (as defined in the Note(s)) in accordance with theterms of the Note(s).

 

Theundersigned directs that the Note Shares be issued in the name of the Holder ofthe attached Note and delivered as soon as practicable and in accordance withthe provisions of the Note(s) to:

 

 
| Full  address: |   |   |
|----------------|--------|--------|
|           |   |   |
|           |   |   |
|           |   |   |
| Date:          |   |   |   |
|           |   |   |
|           |   |   |
| By:            |   |   |   |
| Name:          |   |   |   |
|                |        |        |  |  |

 

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