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                                                                   EXHIBIT 10.HH

                                                                  EXECUTION COPY

                      AGREEMENT WITH RESPECT TO COLLATERAL

         This Agreement With Respect to Collateral (this "Agreement") dated as
of June 11, 2004 is by and among El Paso Production Oil & Gas USA, L.P., a
Delaware limited partnership, and each other Person that becomes party to this
Agreement pursuant to Section 4.4 hereof (individually, an "El Paso Pledgor"
and, collectively, the "El Paso Pledgors"), Bank of America, N.A., acting solely
in its capacity as Collateral Agent under the Collateral Agency Agreement (the
"Collateral Agent"), and The Office of the Attorney General of the State of
California, acting solely in its capacity as the Designated Representative under
the Designated Representative Agreement (the "Designated Representative").

                                    RECITALS

         WHEREAS, reference is made to that certain Master Settlement Agreement
made and entered into as of June 24, 2003 (the "Master Settlement Agreement"),
by and between, on the one hand, El Paso Corporation, El Paso Natural Gas
Company, and El Paso Merchant Energy, L.P. (collectively, the "El Paso Settling
Parties"); and, on the other hand, the Attorney General of the State of
California, the Governor of the State of California, the California Public
Utilities Commission, the California Department of Water Resources, the
California Energy Oversight Board, the Attorney General of the State of
Washington, the Attorney General of the State of Oregon, the Attorney General of
the State of Nevada, Pacific Gas & Electric Company, Southern California Edison
Company, the City of Los Angeles, the City of Long Beach, and classes consisting
of all individuals and entities in California that purchased natural gas and/or
electricity for use and not for resale or generation of electricity for the
purpose of resale, between September 1, 1996 and March 20, 2003, inclusive,
represented by class representatives Continental Forge Company, Andrew Berg,
Andrea Berg, Gerald J. Marcil, United Church Retirement Homes of Long Beach,
Inc., doing business as Plymouth West, Long Beach Brethren Manor, Robert Lamond,
Douglas Welch, Valerie Welch, William Patrick Bower, Thomas L. French, Frank
Stella, Kathleen Stella, John Clement Molony, SierraPine, Ltd., John Frazee and
Jennifer Frazee, John W.H.K. Phillip, and Cruz Bustamante;

         WHEREAS, the parties named in the preceding paragraph have agreed to
settle certain claims as more fully described in the Master Settlement
Agreement;

         WHEREAS, as part of such settlement, the El Paso Settling Parties have
agreed to make certain payments to the Settlement Fund as provided in the Master
Settlement Agreement;

         WHEREAS, as security for such payments, the El Paso Settling Parties
have agreed to grant, or cause certain of their Subsidiaries to grant, to the
Collateral Agent liens and security interests in the Collateral, all as more
fully provided for herein and in the Master Settlement Agreement;

         NOW, THEREFORE, for and in consideration of the mutual covenants and
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:

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                                   ARTICLE I.
                                   DEFINITIONS

         Section 1.1 Certain Defined Terms. As used in this Agreement, the terms
defined above shall have the meanings set forth herein and the following terms
shall have the following meanings (unless otherwise indicated, such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):

         "Additional Oil and Gas Collateral" shall have the meaning given to it
in Section 3.2 of this Agreement.

         "Collateral Agency Agreement" means that certain Collateral Agency
Agreement by and between the Collateral Agent and the Settlement Fund dated as
of even or near even date herewith.

         "Disposition" means, with respect to any Property, any sale, farm-out,
participation, assignment, gift, exchange, lease, conversion, transfer, or other
disposition of such Property, whether voluntary or involuntary. "Dispose" and
"Disposed" shall have correlative meanings.

         "Environmental Law" means any federal, state, or local statute, law
(common or statutory), ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree or judicial or agency interpretation, policy or guidance
relating to pollution or protection of the environment, health, safety or
natural resources, now or hereafter adopted, including without limitation those
relating to (a) the use, handling, transportation, treatment, storage, disposal,
release or discharge of Hazardous Substances; (b) pollution, contamination,
injury, destruction, loss, protection, cleanup, reclamation or restoration of
the air, surface water, groundwater, land surface or subsurface strata, or other
natural resources; (c) solid, gaseous or liquid waste generation, treatment,
processing, recycling, reclamation, cleanup, storage, disposal or
transportation; (d) exposure to pollutants, contaminants or hazardous, medically
infectious, or toxic substances, materials or wastes; (e) the safety or health
of employees; or (f) the manufacture, processing, handling, transportation,
distribution in commerce, use, storage or disposal of hazardous, medical,
infectious, or toxic substances, materials or wastes.

         "Environmental Claim" means any action, suit, demand, demand letter,
claim, notice of noncompliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, any Environmental Permit, or
arising from alleged injury or threat to health, safety or the environment,
including, without limitation, (a) by any Governmental Authority for
enforcement, cleanup, removal, response, remedial or other actions or damages,
and (b) by any Governmental Authority or third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.

         "Environmental Permit" means any permit, license, order, registration,
approval, or other authorization under Environmental Law.

         "Event of Default" has the meaning given to it in Section 5.1 of this
Agreement.

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         "GAAP" means United States generally accepted accounting principles as
in effect from time to time.

         "Governmental Authority" means, as to any person in connection with any
subject, any foreign, national, state or provincial governmental authority, or
any political subdivision of any state thereof, or any agency, department,
commission, board, authority, instrumentality, bureau or court, in each case
having jurisdiction over such person or such person's Property in connection
with such subject.

         "Guaranty" shall have the meaning given to it in Section 3.7 of this
Agreement.

         "Hazardous Substances" means any substances or materials (a) that are
or become regulated or defined as hazardous wastes, hazardous substances,
pollutants, contaminants, chemical substances or mixtures or toxic substances
under any Legal Requirement, (b) that are toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise harmful
to human health or the environment and that are or become regulated by any
Governmental Authority, (c) the presence of which require investigation or
remediation under any Legal Requirement, (d) the discharge or emission or
release of which requires a permit or license under any Legal Requirement or
other approval or authorization by any Governmental Authority, or (e) which
contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum-derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas, or
mold in amounts which cause adverse health effects.

         "Hydrocarbons" shall have the meaning ascribed to such term in Appendix
1.89 of the Master Settlement Agreement. For ease of use a copy of Appendix 1.89
has been attached hereto as Exhibit D-1.

         "Initial Oil and Gas Collateral" shall have the meaning given to it in
Section 3.2 of this Agreement.

         "Leases" shall have the meaning ascribed to such term in Appendix 1.89
of the Master Settlement Agreement.

         "Legal Requirement" means, as to any person, any law, statute,
ordinance, decree, requirement, order, judgment, rule, regulation (or official
interpretation of any of the foregoing) of, and the terms of any license or
permit issued by, any Governmental Authority.

         "Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, assets, liabilities
(actual or contingent), condition (financial or otherwise) or prospects of the
El Paso Settling Parties or the El Paso Pledgors taken as a whole, (b) a
material impairment of the ability of the El Paso Settling Parties to perform
their respective obligations under the Master Settlement Agreement; (c) a
material adverse effect upon the legality, validity, binding effect or
enforceability against any El Paso Settling Party or any El Paso Pledgor of any
Security Document to which it is a party; or (d) any breach of any
representation, warranty or covenant contained herein (without taking into
consideration any Material Adverse Effect qualifier contained therein) that
individually or in the aggregate with any breaches of any other representations,
warranties or covenants contained herein causes a

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decline in the Value of the Collateral by an amount in excess of five percent
(5%) of the then Discounted Amount of the Deferred Payments; provided, however,
that (i) in the case of any representation or warranty limited at the time made
by Section 2.2.2 of this Agreement, the decline in the Value of the Collateral
shall not exceed the lesser of (A) the greater of (x) five percent (5%) of the
Value of the additional Collateral, and (y) $2,000,000, and (B) five percent
(5%) of the then Discounted Amount of the Deferred Payments, and (ii) the
foregoing clause (d) shall not relieve the El Paso Settling Parties from their
obligations under Paragraph 8.3(a) of the Master Settlement Agreement, or
operate as a waiver or cure of any Event of Default under Paragraph 9.1(b) of
the Master Settlement Agreement, it being understood that the El Paso Settling
Parties are obligated to maintain the Minimum Collateral Coverage pursuant to
such provisions as of the relevant measurement dates notwithstanding that
certain actions or omissions permitted hereunder between measurement dates may
result in a temporary failure to maintain such Minimum Collateral Coverage.

         "Minimum Collateral Coverage" means the minimum collateral coverage
required under Paragraph 8.3(a) of the Master Settlement Agreement.

         "Oil and Gas Collateral" shall have the meaning ascribed to such term
in Appendix 1.89 of the Master Settlement Agreement.

         "Oil and Gas Properties" shall have the meaning ascribed to such term
in Appendix 1.89 of the Master Settlement Agreement.

         "Permitted Dispositions" means a Disposition of Collateral by any El
Paso Pledgor consisting of any of the following:

                  (a) sales of produced Hydrocarbons in the ordinary course of
         business; provided, however, the proceeds thereof will be subject to
         the terms of Section 5.4;

                  (b) so long as no Event of Default has occurred and is
         continuing, sales of other Collateral in the ordinary course of
         business, including without limitation the sale of: (i) inventory in
         the ordinary course of business, and (ii) equipment that is obsolete,
         no longer used or necessary, or routinely replaced or eliminated;
         provided, however, to the extent any of the foregoing constitutes Other
         Collateral pursuant to Security Documents hereinafter executed, then
         such Other Collateral shall be subject to the provisions in such other
         Security Documents with respect to Permitted Dispositions; and

                  (c) so long as no Event of Default has occurred and is
         continuing, Oil & Gas Collateral to the extent that there is no
         Reported Value attributable thereto.

         "Permitted Liens" means, with respect to any El Paso Pledgor, the
following liens on Property of such El Paso Pledgor:

                  (a) any lien created pursuant to any Security Document;

                  (b) purchase money liens upon any equipment acquired or held
         by such El Paso Pledgor in the ordinary course of business prior to or
         at the time of, or within sixty (60) calendar days after, such El Paso
         Pledgor's acquisition of such equipment; provided

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         that, the principal amount of the debt secured by such liens (i) was
         incurred solely for the purpose of financing the acquisition of such
         equipment, and does not exceed the aggregate purchase price of such
         equipment plus related transaction costs, (ii) is secured only by such
         equipment and the proceeds thereof and not by any other Collateral, and
         (iii) is not increased in amount;

                  (c) any lien, encumbrance, title defect or exception on or
         with respect to Oil and Gas Collateral or Other Collateral identified
         in any title opinion or title commitment covering such Collateral
         delivered in accordance with Section 3.2 of this Agreement that is not
         timely objected to in writing in accordance with the terms of Section
         3.2.1, 3.2.2, or 3.2.3 of this Agreement, as applicable;

                  (d) liens for taxes, assessments, or other governmental
         charges or levies not yet delinquent or that (provided foreclosure,
         sale, or other similar proceedings shall not have been initiated) are
         being contested in good faith by appropriate proceedings, and such
         reserves as may be required by GAAP shall have been made therefor;

                  (e) liens in favor of royalty owners, vendors, carriers,
         warehousemen, repairmen, mechanics, workmen, materialmen, construction,
         or similar liens arising by operation of law in respect of obligations
         that are not yet delinquent or that are being contested in good faith
         by appropriate proceedings, provided such reserves as may be required
         by GAAP shall have been made therefor;

                  (f) liens to operators and non-operators under joint operating
         agreements arising in the ordinary course of the business of such El
         Paso Pledgor to secure amounts owing, which amounts are not yet
         delinquent or are being contested in good faith by appropriate
         proceedings, provided such reserves as may be required by GAAP shall
         have been made therefor;

                  (g) with respect to Oil and Gas Collateral, any royalties,
         overriding royalties, net profits interests, production payments,
         reversionary interests, calls on production, and other burdens on or
         deductions from the proceeds of production, that do not secure debt for
         borrowed money and that are taken into account in computing the net
         revenue interests and working interests of such El Paso Pledgor;

                  (h) liens arising out of pledges or deposits under workers'
         compensation laws, unemployment insurance, old age pensions or other
         social security or retirement benefits, or similar legislation or to
         secure public or statutory obligations of such El Paso Pledgor;

                  (i) liens arising out of oil and gas leases and oil, gas, and
         mineral leases, unitization and pooling agreements and orders, farmout
         agreements, gas balancing agreements and other agreements, in each case
         that are customary in the oil, gas and mineral production business and
         that are entered into in the ordinary course of business, provided that
         any such lien (i) does not materially impair the use of the Property
         covered by such lien for the purposes for which such Property is held
         by such El Paso Pledgor or materially impair the Reported Value of such
         Property subject thereto, (ii) does not obligate any El Paso Pledgor to
         make a Disposition, other than a Permitted Disposition,

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         and (iii) is contained or referenced in instruments made available to
         the Independent Consultant.

                  (j) easements, rights-of-way, restrictions, and other similar
         encumbrances, and defects in the chain of title that are customarily
         accepted in the oil and gas financing industry, none of which interfere
         with the ordinary conduct of the business of El Paso Pledgors or
         materially detract from the value or use of the Property to which they
         apply.

         "Property" of any Person means any property or assets (whether real,
personal, or mixed, tangible or intangible) of such Person.

         "Solvent" means, with respect to any Person, (a) its financial
condition is such that the fair value of its Property (exclusive of property
transferred, concealed or removed with intent to hinder, delay or defraud any
creditor) exceeds the sum of its liabilities, including contingent liabilities,
(b) it has not incurred and will not have incurred, and does not intend to
incur, debts and other liabilities, contingent obligations, and other
commitments beyond its ability to pay as they become due, and (c) it has
sufficient capital to conduct its business affairs and is not about to engage in
a business or transaction for which its Property would constitute unreasonably
small capital.

         Section 1.2 All capitalized terms not defined herein shall have the
meaning ascribed to them in the Master Settlement Agreement.

                                   ARTICLE II.
                         REPRESENTATIONS AND WARRANTIES

         Section 2.1 El Paso Pledgors. Except as provided herein in Section 2.2,
each El Paso Pledgor represents and warrants to the Designated Representative
and the Collateral Agent that as of the Effective Date, and as of the date on
which any Property of such El Paso Pledgor becomes Collateral:

                  2.1.1  Authorization; Binding Effect; Etc.

                  (a) (i) it has the full power and authority to enter into this
         Agreement and each Security Document to which it is a party and to
         perform all transactions, duties and obligations herein and therein set
         forth; (ii) it has taken all necessary actions duly and validly to
         authorize the execution and delivery of this Agreement and each
         Security Document to which it is a party in accordance with applicable
         law; (iii) it has authorized and directed its respective attorneys to
         have such papers executed and to take such other action as is necessary
         and appropriate to effectuate the terms of this Agreement and each
         Security Document to which it is a party; (iv) it has duly and validly
         executed and delivered this Agreement and each Security Document to
         which it is a party; (v) this Agreement and each Security Document to
         which it is a party constitutes its legal, valid and binding
         obligations, enforceable against it in accordance with their respective
         terms; and (vi) no promise, inducement or agreement not expressed
         herein, in any Security Document to which it is a party or in the
         Master Settlement Agreement has been made in connection with this
         Agreement;

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                  (b) to the extent that it deemed it necessary and desirable,
         it independently received appropriate, adequate, and competent
         technical, economic and legal and other advice with respect to this
         Agreement, the Security Documents to which it is a party and the other
         documents delivered by or on behalf of the parties under or in
         connection with this Agreement, and has not relied upon any technical,
         economic, legal or other advice provided to it by any other party with
         respect hereto; and

                  (c) it is represented by competent counsel with respect to
         this Agreement and the Security Documents to which it is a party and
         all matters covered herein and therein and it has been fully advised by
         said counsel with respect to its rights and obligations and with
         respect to the execution of this Agreement and such Security Documents.

                  2.1.2 Non-Contravention. The execution and delivery by it of
this Agreement and each of the Security Documents to which it is a party, and
the performance of its obligations hereunder and thereunder, will not (a)
violate any material statute, rule or regulation applicable to it, (b) violate
any order of any Governmental Authority applicable to it, (c) result in a
default under any provision of any indenture, credit agreement, or other
agreement relating to repayment of borrowed money or any guarantee of the
foregoing, or (d) result in a default under, or require the creation or
imposition of any lien upon or with respect to any Collateral now owned or
hereafter acquired by it pursuant to, any provision of any Lease or other
material agreement affecting or relating to any Collateral.

                  2.1.3 Solvency. Before and after giving effect to the
transactions contemplated by this Agreement and the Security Documents to which
it is a party, it is Solvent.

                  2.1.4 Title. It has good and marketable title to all of its
interests in the Collateral, free and clear of all liens and encumbrances,
except for (a) Permitted Liens, and (b) liens, encumbrances, or other title
defects or title exceptions with respect to any specific Lease to the extent
that they (i) individually or in the aggregate have an adverse impact on the
value of such Lease of less than $500,000.00, and (ii) could not reasonably be
expected to have a Material Adverse Effect when all other liens, encumbrances,
other title defects and title exceptions permitted by this Section 2.1.4(b) are
taken into account.

                  2.1.5 Condition. With respect to such El Paso Pledgor's
interest in the Collateral, the Collateral is in sufficient repair, working
order and condition (ordinary wear and tear excepted) to allow such Collateral
to serve its intended purpose, except where, individually or in the aggregate,
the failure of the foregoing could not reasonably be expected to have a Material
Adverse Effect.

                  2.1.6 Environmental Condition. With respect to its interest in
the Collateral, such El Paso Pledgor is currently in compliance with all terms
and conditions of all Environmental Permits and with all other requirements of
applicable Environmental Laws relating to its interest in the Collateral, except
in each case, where, individually or in the aggregate, such noncompliance could
not reasonably be expected to have a Material Adverse Effect.

                  2.1.7 Permits, Licenses, Etc. Such El Paso Pledgor possesses
all authorizations, permits, and licenses that are necessary for the ownership
and operation of its interest in the

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Collateral, except where, individually or in the aggregate, its failure to do so
could not reasonably be expected to have a Material Adverse Effect.

                  2.1.8 Authorization and Approvals. No consent or approval or,
except as contemplated in respect of filings or recordations in connection with
the perfection of the liens created by the Security Documents, filing with, any
Governmental Authority or, to its knowledge, after reasonable inquiry, any other
Person is required for the due execution, delivery, and performance by such El
Paso Pledgor of this Agreement or the other Security Documents to which it is a
party or the consummation of the transactions contemplated thereby.

                  2.1.9 Certain Representations Regarding Oil and Gas
Collateral. To its knowledge, after reasonable inquiry, with respect to any Oil
and Gas Collateral of such El Paso Pledgor:

                  (a) the ownership of such Collateral does not obligate such El
         Paso Pledgor to bear costs and expenses relating to the maintenance,
         development or operations of such Collateral in an amount in excess of
         its working interest in such Collateral;

                  (b) there are no material gas imbalances, take or pay
         prepayments or other prepayments, in each case with respect to such
         Collateral which would require such El Paso Pledgor to deliver
         Hydrocarbons produced from such Collateral at some future time without
         then or thereafter receiving payment therefor;

                  (c) the ownership of such Collateral entitles such El Paso
         Pledgor to receive (i) at least the net revenue decimal or percentage
         interest of the Hydrocarbons produced from the tract of land disclosed
         in writing to the Collateral Agent, and (ii) if such Collateral is
         subject to a unit or units, entitles such El Paso Pledgor to receive at
         least the net revenue decimal or percentage interest of the substances
         covered by such unit which are produced from, or allocated to such
         unit, as has been disclosed in writing to the Collateral Agent;

                  (d) the Leases forming part of the Oil and Gas Collateral are
         in full force and effect, except to the extent such failure could not
         reasonably be expected to have a Material Adverse Effect, and such El
         Paso Pledgor is not in default with respect to such El Paso Pledgor's
         obligations under the Leases, except to the extent such default could
         not reasonably be expected to have a Material Adverse Effect;

                  (e) all severance and production taxes due and payable with
         respect to production from the Collateral have been duly paid; and

                  (f) the Collateral is being produced and operated, and
         production therefrom has been and is being sold, in conformity with all
         applicable laws, rules and regulations, and orders of all regulatory
         authorities having jurisdiction, except in each case where,
         individually or in the aggregate, such noncompliance could not
         reasonably be expected to have a Material Adverse Effect.

                  2.1.10 Litigation. There is no Environmental Claim, action,
suit or proceeding pending, or to the knowledge of such El

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Paso Pledgor threatened, against or involving such El Paso Pledgor in any court,
or before any arbitrator of any kind, or before any Governmental Authority, that
taking into account the exhaustion of all appeals would have a Material Adverse
Effect or which purports to affect the legality, validity, binding effect or
enforceability of the Security Documents as to which it is a party.

         Section 2.2 Limitations on Certain Representations and Warranties.

                  2.2.1 Non-Operated Properties. Notwithstanding anything herein
to the contrary, with respect to the representations and warranties in Sections
2.1.5, 2.1.6 and 2.1.7 that relate to Oil & Gas Collateral of any El Paso
Pledgor but for which such El Paso Pledgor is not the operator of record, such
representations and warranties shall be deemed to be limited to the knowledge of
such El Paso Pledgor, after reasonable inquiry.

                  2.2.2 Additional Collateral. Whenever any Additional Oil and
Gas Collateral is given to the Collateral Agent by an El Paso Pledgor after the
date hereof, such El Paso Pledgor's representations and warranties herein in
Sections 2.1.5, 2.1.6, 2.1.9 and 2.1.10 shall relate solely to such Additional
Oil and Gas Collateral. Whenever any additional or substitute Collateral is
given to the Collateral Agent by an El Paso Pledgor after the date hereof that
is not Additional Oil and Gas Collateral (a) such El Paso Pledgor's
representations and warranties herein in Sections 2.1.5, 2.1.6, and 2.1.10 shall
relate solely to the additional or substitute Collateral being pledged and any
Security Documents such El Paso Pledgor executes in connection therewith and (b)
the representations and warranties herein in Section 2.1.9 shall not be deemed
made.

         Section 2.3 Designated Representative. The Designated Representative
represents and warrants to the each El Paso Pledgor and the Collateral Agent
that as of the Effective Date:

                  2.3.1  Authorization; Binding Effect; Etc.

                  (a) (i) it has the full power and authority to enter into this
         Agreement and to perform all transactions, duties and obligations
         herein and therein set forth; (ii) it has taken all necessary actions
         duly and validly to authorize the execution and delivery of this
         Agreement in accordance with applicable law; (iii) it has authorized
         and directed its respective attorneys to have such papers executed and
         to take such other action as is necessary and appropriate to effectuate
         the terms of this Agreement; (iv) it has duly and validly executed and
         delivered this Agreement; (v) this Agreement constitutes its legal,
         valid and binding obligations, enforceable against it in accordance
         with this Agreement's terms; and (vi) no promise, inducement or
         agreement not expressed herein or in the Master Settlement Agreement
         has been made in connection with this Agreement;

                  (b) to the extent that it deemed it necessary and desirable,
         it independently received appropriate, adequate, and competent
         technical, economic and legal and other advice with respect to this
         Agreement and the other documents delivered by or on behalf of the
         parties under or in connection with this Agreement, and has not relied
         upon any technical, economic, legal or other advice provided to it by
         any other party with respect hereto; and

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                  (c) it is represented by competent counsel with respect to
         this Agreement and all matters covered herein and it has been fully
         advised by said counsel with respect to its rights and obligation and
         with respect to the execution of this Agreement.

                  2.3.2 Non-Contravention. The execution and delivery of this
Agreement by it, and the performance of its obligations hereunder, will not (a)
violate any material statute, rule or regulation applicable to it, or (b)
violate any order of any Governmental Authority applicable to it.

                                  ARTICLE III.
                                   COVENANTS

         So long as any Secured Obligations shall remain outstanding, each El
Paso Pledgor agrees, unless the Designated Representative shall otherwise
consent in writing, to comply with the following covenants.

         Section 3.1 Inspection Rights; Reports. At any reasonable time from
time to time, upon reasonable notice, each El Paso Pledgor shall (a) permit the
Designated Representative or its designees, agents or representatives thereof,
at their own cost and expense (unless an Event of Default has occurred and is
continuing), and at their own risk, to inspect, and appraise the Collateral, and
perform such other due diligence with respect to the Collateral as the
Designated Representative or its designees, agents or representatives may
reasonably require to confirm the El Paso Pledgors' compliance with the terms of
the Master Settlement Agreement, this Agreement and any other Security
Documents, and (b) provide to the Designated Representative within a reasonable
time such other reports and certificates relating to the Collateral as may be
reasonably requested by the Designated Representative or its designees, agents
or representatives.

         Section 3.2 Title Review and Opinions.

                  3.2.1 With respect to the Property that is Oil and Gas
Collateral on the Effective Date (the "Initial Oil and Gas Collateral"), the
Settlement Fund, through its legal counsel, Thompson & Knight, LLP ("T&K"), has
conducted a limited review of the title of the Initial Oil and Gas Collateral.
Based on that review, the Settlement Fund, through T&K, has in good faith
endeavored to provide the El Paso Pledgors on or prior to the Effective Date
with written notice of all material liens, encumbrances and other title defects
and exceptions identified by T&K during its review that are not Permitted Liens
and that are objectionable to the Settlement Fund. The applicable El Paso
Pledgors hereby agree to cure such objectionable liens, encumbrances, and other
title defects and exceptions in accordance with the terms of Section 3.9 of this
Agreement.

         The Settlement Fund shall be entitled to title opinions prepared by
counsel reasonably acceptable to the Designated Representative and in form and
substance reasonably satisfactory to the Designated Representative concerning
not less than eighty percent (80%) of the Reported Value of the Initial Oil and
Gas Collateral unless a lesser percentage is otherwise agreed to in writing by
the Designated Representative. The Designated Representative, on behalf of the
Settlement Fund, agrees to cause T&K to deliver all title opinions covering
Initial Oil and Gas

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Collateral required by this section to it and the Collateral Agent (with copies
to the applicable El Paso Pledgors) within one-hundred twenty (120) days after
the Effective Date, unless otherwise consented to in writing by the El Paso
Pledgors. Any liens, encumbrances, title defects or exceptions contained in such
title opinions that are not Permitted Liens and that are objectionable to the
Settlement Fund shall be objected to in writing by the Collateral Agent to the
applicable El Paso Pledgor within thirty (30) days after the delivery of the
title opinion covering such Oil and Gas Collateral. Such objectionable liens,
encumbrances, title defects, and exceptions shall be cured by the applicable El
Paso Pledgors in accordance with Section 3.9 hereof.

         The Settlement Fund, through the Collateral Agent, shall have the right
at any time to object in writing to the applicable El Paso Pledgors as to any
liens, encumbrances or other title defects or exceptions on or with respect to
any Initial Oil and Gas Collateral that are not Permitted Liens and that are
either not identified in the title opinions covering such Initial Oil and Gas
Collateral or affect Initial Oil and Gas Collateral for which no title opinion
was given. The El Paso Pledgors shall cure such liens, encumbrances, other title
defects and exceptions in accordance with Section 3.9. Other than the costs,
expenses, and fees incurred by the Settlement Fund for T&K's title review
conducted prior to the Effective Date and the title review and preparation of
title opinions by T&K delivered pursuant to the second subparagraph of this
Section 3.2.1, no El Paso Pledgor shall, unless otherwise agreed to in writing
by that El Paso Pledgor, be responsible for any costs, expenses or fees incurred
by or on behalf of the Collateral Agent, the Designated Representative, or the
Settlement Fund with respect to any title review or the preparation of other
title opinions covering the Initial Oil and Gas Collateral.

                  3.2.2 In connection with the substitution or addition of any
Oil and Gas Collateral after the Effective Date (the "Additional Oil and Gas
Collateral"), the Settlement Fund shall be entitled to title opinions prepared
by counsel reasonably acceptable to the Designated Representative addressed to
and in form and substance reasonably satisfactory to the Designated
Representative covering not less than eighty percent (80%) of the Reported Value
of the Additional Oil and Gas Collateral. All title opinions covering Additional
Oil and Gas Collateral shall be delivered to the Designated Representative and
Collateral Agent (with a copy to the appropriate El Paso Pledgors)
simultaneously with the delivery pursuant to Section 4.3 of the Additional
Collateral Certificate covering such Additional Oil and Gas Collateral;
provided, however, that the title opinions covering Additional Oil and Gas
Collateral for which an Additional Collateral Certificate is delivered to the
Collateral Agent within sixty (60) days after the Effective Date may, at the
option of the El Paso Pledgor providing such Additional Oil and Gas Collateral,
be delivered by T&K within one-hundred twenty (120) days after the date on which
the Additional Collateral Certificate has been delivered (unless otherwise
consented to in writing by such El Paso Pledgor) if T&K has been afforded an
opportunity during such sixty (60) day period to conduct a limited review of the
title of such Additional Oil and Gas Collateral consistent with the review it
undertook with respect to the Initial Oil and Gas Collateral.

         As soon as practical, but in any event no later than thirty (30) days
after the date on which each such title opinion covering any compliant
Additional Oil and Gas Collateral is received by the Collateral Agent with
respect to any Additional Oil and Gas Collateral, the Collateral Agent, on
behalf of the Settlement Fund, shall deliver to the applicable El Paso Pledgors
a written list of any liens, encumbrances or other title defects or exceptions
(other than Permitted Liens) with respect to such Additional Oil and Gas
Collateral that are unacceptable to

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the Settlement Fund. The El Paso Pledgors shall cure such liens, encumbrances or
other title defects or exceptions in accordance with Section 3.9.

         The Collateral Agent, on behalf of the Settlement Fund, shall have the
right at any time to object to any liens, encumbrances or other title defects or
exceptions on or with respect to any Additional Oil and Gas Collateral that are
not Permitted Liens and that are either not identified in such title opinions or
affect Additional Oil and Gas Collateral for which no title opinion has been
given. The El Paso Pledgors shall cure such liens, encumbrances or other title
defects or exceptions in accordance with Section 3.9.

         Other than the costs, expenses, and fees incurred in the preparation of
the title opinions delivered pursuant to the first subparagraph of this Section
3.2.2, and any title review by T&K within sixty (60) days of the Effective Date
in connection with any Additional Oil and Gas Collateral for which an Additional
Collateral Certificate will be delivered to the Collateral Agent within such
sixty (60) day period, no El Paso Pledgor shall, unless otherwise agreed to in
writing by that El Paso Pledgor, be responsible for any costs, expenses or fees
incurred by or on behalf of the Collateral Agent, the Designated Representative,
or the Settlement Fund with respect to any title review or the preparation of
other title opinions covering Additional Oil and Gas Collateral.

                  3.2.3 In connection with the substitution or addition of any
Other Collateral, the Settlement Fund shall be entitled to conduct a review of
the state of the El Paso Pledgors' title to such Other Collateral. Such review
shall include as to Other Collateral constituting real estate, the right to
require the applicable El Paso Pledgors to deliver one or more title commitments
and ultimately title policies covering title to such real property constituting
Other Collateral, together with re-insurance if requested by the Settlement Fund
(through the Designated Representative or Collateral Agent). Any such title
commitments (and ultimately, title policies) shall be (a) issued by the national
office of a title insurance company rated at least A-X or better by the then
current edition of Best's Insurance Reports published by A.M. Best Company, (b)
in an amount at least equal to the Value of such Other Collateral customarily
covered by title insurance (including real property and improvements), and (c)
contain such endorsements, have omitted such standard exceptions, and otherwise
be in a form that is usual and customary in secured lending transactions where
the collateral is of a similar type and quality as such Other Collateral. As
soon as practical, but in any event no later than thirty (30) days after the
completion of such title review (and thirty (30) days after delivery of all
title commitments, if any are required), the Collateral Agent shall deliver to
the applicable El Paso Pledgors a written list of any liens, encumbrances or
other title defects or title exceptions with respect to the Other Collateral
that do not constitute Permitted Liens and that adversely affect such Pledgor's
title to, or the marketability of, the Other Collateral or the Value of such
Other Collateral. The El Paso Pledgors shall cure such liens, encumbrances or
other title defects or title exceptions in accordance with Section 3.9.

         Section 3.3 Compliance with Laws, Etc. Each El Paso Pledgor shall
comply, in all material respects with all Legal Requirements; provided, however,
that nothing in this Section 3.3 shall prevent such El Paso Pledgor, in good
faith and with reasonable diligence, from contesting the validity or application
of any such laws or regulations by appropriate legal proceedings; provided,
however, with respect to any challenge of a violation that might result in

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imposition of monetary obligations, adequate reserves in conformity with GAAP
must be provided. Each El Paso Pledgor shall maintain and possess all
authorizations, permits, and licenses that are necessary for the ownership and
operation of the Collateral, except to the extent failure to do so could not
reasonably be expected to have a Material Adverse Effect.

         Section 3.4 Payments. Each El Paso Pledgor shall pay and discharge,
before the same shall become delinquent, (a) all taxes, assessments, and
governmental charges or levies imposed upon it or upon its income or profits or
Property that are attributable to its interest in the Collateral that are
material in amount, prior to the date on which penalties attach thereto, and (b)
all lawful claims that are material in amount which, if unpaid, would by law
become a lien upon the Collateral; provided, however, that such El Paso Pledgor
shall not be required to pay or discharge any such tax, assessment, charge,
levy, or claim which is being contested in good faith and by appropriate
proceedings, and with respect to which reserves in conformity with GAAP have
been provided.

         Section 3.5 Maintenance of Collateral. With respect to its interest in
the Collateral, each El Paso Pledgor shall (a) maintain, develop and protect the
Collateral in a good and workmanlike manner and in accordance in all material
respects with all applicable Legal Requirements and, in the case of Oil and Gas
Collateral, as a prudent operator would in accordance with generally accepted
practices in the oil and gas industry applicable to Leases and contracts; (b)
abstain from knowingly or willfully permitting, or where applicable, failing to
cure or cease, the commission of waste or other injury, destruction, or loss of
natural resources, or the violation of any Environmental Law that could
reasonably be expected to be material in nature; and (c) observe and comply with
all of the terms and provisions, express or implied, of the Oil and Gas
Properties in order to keep the Oil and Gas Properties in full force and effect
so long as the Oil and Gas Properties are producing Hydrocarbons in commercial
quantities; and (d) comply in all material respects with all contracts and
agreements applicable to or relating to the Collateral or the production and
sale of Hydrocarbons therefrom; provided, however, that such El Paso Pledgor (i)
shall not be required to perpetuate or renew any Lease that constitutes Oil and
Gas Collateral by payment of delay rentals, drilling of wells, conducting
reworking operations, or conducting seismic operations, (ii) may abandon or
release any Lease that constitutes Oil and Gas Collateral that, in the opinion
of such El Paso Pledgor is uneconomic, or (iii) may pool and unitize Leases that
constitutes Oil and Gas Collateral with third-party Leases.

         Section 3.6 Maintenance of Insurance. Each El Paso Pledgor shall at all
times maintain or cause to be maintained, with financially sound and reputable
insurance companies, insurance for its Property and with respect to all
Collateral consistent with best practices and in such amounts, covering such
risks, in such form and with such deductibles as are customarily carried by
companies of similar size engaged in similar businesses and owning similar
properties in localities where such El Paso Pledgor operates. Upon demand by the
Collateral Agent, any insurance policies covering Collateral shall be endorsed
to provide (a) for payment of losses to the Collateral Agent on behalf of the
Settlement Fund as its interests may appear, (b) that such policies may not be
canceled or reduced or affected in any material manner for any reason without
fifteen (15) days prior notice to Collateral Agent, (c) for any other matters
specified in any applicable Security Document.

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         Reimbursement under any liability insurance maintained by the El Paso
Pledgors pursuant to this Section 3.6 may be paid directly to the Person who has
incurred the liability covered by such insurance. With respect to any loss
involving damage to Collateral, each El Paso Pledgor will make or cause to be
made the necessary repairs to or replacements of such Collateral, and any
proceeds of insurance maintained by each El Paso Pledgor pursuant to this
Section 3.6 and paid to the Collateral Agent shall be paid to such El Paso
Pledgor by the Collateral Agent as reimbursement for the costs of such repairs
or replacements as such repairs or replacements are made or acquired.

         Section 3.7 Grant of Liens. As more fully provided for in Paragraphs
8.3(e) and 8.3(f) and Appendix 1.89 of the Master Settlement Agreement, each El
Paso Pledgor shall deliver to the Collateral Agent (a) (i) an executed
non-recourse guaranty (the "Guaranty"), which Guaranty shall be in form and
substance substantially similar to the form of guaranty attached hereto as
Exhibit A-1, (ii) as appropriate, executed deeds of trust or mortgages granting
liens encumbering its interests in Oil and Gas Collateral, which deeds of trust
shall be in form and substance substantially similar to the form of deed of
trust attached hereto as Exhibit A-2 and which mortgage shall be in form and
substance substantially similar to the form of mortgage attached hereto as
Exhibit A-3, and (iii) with respect to any Other Collateral, such executed
Security Documents as the Designated Representative or such El Paso Pledgor may
reasonably require, (b) (i) stand-alone audited financial statements with
accompanying footnotes (or if such El Paso Pledgor does not obtain stand-alone
audited financial statements then unaudited management prepared income
statements and balance sheets) for it as of the close of the immediately
preceding calendar year and unaudited management prepared income statements and
balance sheets for it current through the last day of the immediately preceding
calendar quarter, in each case such financial statements (other than any
unaudited management prepared income statements or balance sheets) having been
prepared in accordance with GAAP, except as is expressly disclosed in such
financial statements or by such El Paso Pledgor in the certificate required
below in clause (b)(iii), applied in a manner consistent with past practice and
fairly presenting, in all material respects, the financial condition of the El
Paso Pledgor, (ii) a schedule listing in detail all assets and liabilities due
to or from any of the other El Paso Releasees, liability for taxes under
Internal Revenue Code Regs., Section 1.1502-6 (or similar state, local or
foreign law) unless such El Paso Pledgor is a disregarded entity for tax
purposes, any "loss contingency" as defined in Statement of Financial Accounting
Standards No. 5, any "capital leases" as defined in Statement of Financial
Accounting Standard No. 13, and any derivatives required to be identified by
Statement of Financial Accounting Standard No. 133, (iii) a Certificate signed
by the Chief Financial Officer with respect to Sections 3.7(b)(i) and (ii)
above, and (iv) a Certificate of its Chief Financial Officer certifying that
there has not been a material adverse change in the assets, liabilities or
financial condition of such El Paso Pledgor as of the date of the Effective Date
or, as applicable, the date on which such El Paso Pledgor pledges additional
Collateral, (c) an executed Secretary's, Managing Member's, General Partner's or
other like certificate certifying as of the date of the Additional Collateral
Certificate (i) adoption of resolutions and/or votes authorizing granting of a
lien against the Additional Collateral and the execution and delivery of any
Security Documents and other documents, instruments, and agreements executed in
connection therewith, and that the same remain in full force and effect as of
the date of the Additional Collateral Certificate, and (ii) incumbency, (d)
certified copies of its articles of incorporation and bylaws, articles of
organization and operating agreement, partnership agreement or other like entity
formation and governing documents, (e) an executed

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solvency certificate in form and substance satisfactory to the Designated
Representative, (f) a Certificate of Good Standing (or its equivalent) from the
Secretary of State of the state in which such El Paso Pledgor was organized, (g)
a Certificate of Foreign Qualification from the Secretary of State of each
foreign state in which Collateral of such El Paso Pledgor is located, (h) a
legal opinion of counsel reasonably acceptable to the Designated Representative,
which legal opinion shall be in form and substance substantially similar to the
form of legal opinion attached hereto as Exhibit A-4 and shall be addressed to
the Collateral Agent, the Designated Representative, the Settlement Fund, and
each of the Settling Claimants, and (i) the title opinions, title policies, and
other documents required by the terms of Sections 3.2.1, 3.2.2 and 3.2.3 hereof,
as applicable.

         Section 3.8 Maintenance of Liens. Each El Paso Pledgor shall promptly
cure any defects in the execution and delivery of the Security Documents as to
which it is a party and this Agreement. Each El Paso Pledgor hereby authorizes
the Collateral Agent to file any initial financing statements, amendments or
continuation statements without the signature of such El Paso Pledgor to the
maximum extent permitted by applicable law, including Section 9-509 of the
Uniform Commercial Code as in effect in the state where the Collateral is
located and the state where such El Paso Pledgor is organized (as the same may
be amended, modified or succeeded), in order to perfect or maintain the
perfection of any lien or security interest granted under any of the Security
Documents. Each El Paso Pledgor will promptly execute and deliver to the
Collateral Agent upon request all such other documents, agreements and
instruments necessary to further evidence and more fully describe the Property
intended as Collateral, or to correct any omissions in the Security Documents,
or to perfect, protect or preserve any liens created pursuant to any of the
Security Documents, or to make any recordings, to file any notices or obtain any
consents, all as may be necessary or appropriate in connection therewith.

         Section 3.9 Title Defects. As to any liens, encumbrances, material
title defects or title exceptions burdening Collateral that are not Permitted
Liens, and that are objected to pursuant to Section 3.2 hereof, each El Paso
Pledgor shall with reasonable dispatch, but in no event more than sixty (60)
days after the date of such objection, either (a) cure such liens, encumbrances,
title defects or title exceptions which are not Permitted Liens, (b) substitute
Properties with no material title defects or exceptions except for Permitted
Liens and which substitute Properties shall have sufficient Value to maintain
the Minimum Collateral Coverage in accordance with the terms of Section 4.1
hereof, or (c) agree with the Designated Representative as to a mutually
acceptable reduced value for such Collateral that takes into account such title
defects or title exceptions.

         Section 3.10 No Liens, Etc. No El Paso Pledgor shall create, assume,
incur, or suffer to exist, any lien on or in respect of any of interest in its
respective Collateral, except that such El Paso Pledgor may create, incur,
assume, and suffer to exist (a) Permitted Liens, and (b) contracts to effect a
Permitted Disposition.

         Section 3.11 Dispositions. Except for Permitted Dispositions, and in
connection with the substitution or release of Collateral provided for in
Article IV, no El Paso Pledgor shall Dispose of any of its interests in the
Collateral.

         Section 3.12 Non-Operated Properties. Notwithstanding anything herein
to the contrary, with respect to any of the covenants in Section 3.1, 3.3 and
3.5 hereof that relate to Oil

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and Gas Collateral but for which one of the El Paso Pledgors is not the operator
of record, then such covenant shall be deemed to be satisfied so long as the
such El Paso Pledgor uses reasonable efforts to cause the operator of such Oil
and Gas Collateral to comply with such covenants.

                                   ARTICLE IV.
                SUBSTITUTION, RELEASE, AND ADDITION OF COLLATERAL

         Section 4.1 Right to Substitute Collateral. An El Paso Pledgor may,
subject to the terms of this Article IV, at any time provide to the Collateral
Agent substitute Collateral and in connection therewith obtain a release from
the Collateral Agent as to existing Collateral. To effect a substitution of
Collateral, an El Paso Pledgor shall comply with the obligations set out in
Section 4.3 with respect to the substitute Collateral that will be added, and
the El Paso Pledgor and the Collateral Agent shall comply with the obligations
set out in Section 4.2 with respect to the Collateral to be released.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing, then an El Paso Pledgor may only substitute Collateral pursuant to
this Article IV if such substitution of Collateral shall cure such Event of
Default within the time period provided herein in Section 5.

         Section 4.2       Collateral Release Provisions.

                  4.2.1 Any El Paso Pledgor may request from time to time that
the Collateral Agent release, reduce or surrender Collateral, including any
Letters of Credit, if after giving effect to such request and the pledge of any
additional Collateral on such date, the Value of all Collateral exceeds the
Minimum Collateral Coverage and, if a Monetization has been effected, following
such release, the ratio of the aggregate stated amount of Letters of Credit
divided by the Discounted Amount of the Deferred Payments shall be the same or
greater than such ratio immediately prior thereto. Such request shall be made
pursuant to a certificate ("Release Certificate") in form and substance
substantially similar to the instrument attached hereto as Exhibit B-1. The
Value of the Collateral to be released, reduced or surrendered shall not exceed
the difference between (a) the aggregate Value of all Collateral immediately
prior to the date of such release, reduction or surrender and after giving
effect to the pledge of any additional Collateral on such date, and (b) the
Value of Collateral required to maintain the Minimum Collateral Coverage. The
Release Certificate shall be accompanied by execution counterparts of the
instruments to be executed by the Collateral Agent (which instruments shall be
reasonably satisfactory to the Collateral Agent) to effect such release,
reduction or surrender, and if a Monetization has been effected, written
certification addressed to the Collateral Agent, executed by a Responsible
Officer of El Paso Corporation, stating that following such release, the ratio
of the aggregate stated amount of Letters of Credit divided by the Discounted
Amount of the Deferred Payments will be the same or greater than such ratio
immediately prior thereto. Promptly (and in any event within ten (10) Business
Days) after the Collateral Agent's receipt of the Release Certificate, the
Collateral Agent shall execute and deliver to such El Paso Pledgor, at such El
Paso Pledgor's sole cost and expense, all such instruments and take all such
other actions as reasonably requested by such El Paso Pledgor to effect the
release of any liens or security interests held by the Collateral Agent on such
Collateral and the surrender or reduction, as specifically requested, of the
applicable Letters of Credit; provided, however, that if any additional
Collateral is required to be given by the El Paso Settling Parties to maintain
the

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Minimum Collateral Coverage (after giving effect to the release, surrender or
reduction requested by such El Paso Pledgor), then the Collateral Agent shall
have no obligation to execute and deliver to such El Paso Pledgor any
instruments or take any other actions to effect the release of any liens or
security interests held by the Collateral Agent on such Collateral and the
surrender or reduction, as specifically requested, of the applicable Letters of
Credit, until all of the requirements set forth herein and in Section 4.3 have
been satisfied.

                  4.2.2  Permitted Dispositions

                           (a) Any El Paso Pledgor may consummate one or more
         Permitted Dispositions described in clause (a) and (b) of the
         definition of Permitted Disposition without any action required on
         behalf of the Collateral Agent. To the extent an El Paso Pledgor
         requests a lien release in connection with any such Permitted
         Disposition, the Collateral Agent shall as promptly as practicable (and
         in any event within ten (10) Business Days after such request) execute
         and deliver to such El Paso Pledgor, at such El Paso Pledgor's sole
         cost and expense, all such instruments (which instruments shall be
         reasonably satisfactory to the Collateral Agent) and take all such
         actions as reasonably requested by such El Paso Pledgor to effect the
         release of any liens or security interests held by the Collateral Agent
         on such Collateral.

                           (b) Any El Paso Pledgor may request from time to time
         that the Collateral Agent release Collateral to the extent the release
         is granted in connection with a Permitted Disposition described in
         clause (c) of the definition of Permitted Disposition. Such request
         shall be made pursuant to a Release Certificate. The Release
         Certificate shall be accompanied by execution counterparts of the
         instruments to be executed by the Collateral Agent (which instruments
         shall be reasonably satisfactory to the Collateral Agent) to effect
         such release. Promptly (and in any event within ten (10) Business Days)
         of the Collateral Agent's receipt of the Release Certificate, the
         Collateral Agent shall execute and deliver to such El Paso Pledgor, at
         such El Paso Pledgor's sole cost and expense, all such instruments
         (which instruments shall be reasonably satisfactory to the Collateral
         Agent) and take all such other actions as reasonably requested by such
         El Paso Pledgor to effect the release of any liens or security
         interests held by the Collateral Agent on such Collateral.

                  4.2.3 If in connection with a release to be granted under the
terms of this Section 4.2, all of the Collateral granted or delivered in
connection with this Agreement and all other Security Documents by a particular
El Paso Pledgor has been surrendered or released, then the documents granting or
evidencing such surrender or release shall include an express acknowledgment
from the Collateral Agent that such El Paso Pledgor is fully released from all
the terms and conditions of this Agreement and any other Security Documents to
which it is a party (including any Guaranty), except to the extent that any
terms and conditions set forth therein expressly survive such surrender or
release.

                  4.2.4 Upon the satisfaction in full of the Secured
Obligations, the Collateral Agent shall at the expense of the requesting El Paso
Pledgor, contemporaneously with such payment in full, (a) acknowledge in a
written instrument (in form and substance reasonably acceptable to the parties
hereto) the termination of this Agreement and the other Security

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Documents, except to the extent that any terms and conditions set forth therein
expressly survive such termination, (b) execute and deliver to the El Paso
Pledgors instruments reflecting such release in full, and (c) and take all such
other actions as reasonably requested by the El Paso Pledgors to effect the
release of all liens or security interests held by the Collateral Agent on such
Collateral.

                  4.2.5 Unless otherwise specified by the Collateral Agent, the
El Paso Pledgors shall coordinate the recordation of any such releases granted
pursuant to this Section 4.2.

         Section 4.3 Additional Collateral. As provided in Section 8.3(f) of the
Master Settlement Agreement, any El Paso Pledgor or proposed El Paso Pledgor may
at any time provide the Collateral Agent with additional Collateral. Such
additional Collateral shall be provided by means of a certificate ("Additional
Collateral Certificate") in form and substance substantially similar to the
instrument attached hereto as Exhibit B-2. The Additional Collateral Certificate
shall be accompanied by (a) executed counterparts of the instruments executed by
the El Paso Pledgor to effect the pledging of such Collateral, including (as
appropriate) those agreements, instruments, certificates and opinions required
pursuant to Section 3.7 hereof (except that if the El Paso Pledgor pledging the
additional Collateral has delivered to the Collateral Agent copies of the
documents listed in Sections 3.7(b)(i) through 3.7(b)(iii) in the four (4) month
period immediately prior to the pledging of such additional Collateral, then the
deliveries required pursuant to Sections 3.7(b)(i) through 3.7(b)(iii) shall not
be required and the certificate required by Section 3.7(b)(iv) shall certify
that that there has not been a material adverse change in the assets,
liabilities or financial condition of such El Paso Pledgor since the date on
which the items required by Section 3.7(b)(i) were last delivered), (b) a duly
executed Compliance Certificate dated as of the date of the Additional
Collateral Certificate which, if the additional Collateral includes Other
Collateral, gives effect to the coverage ratio required for such additional
Other Collateral by the Designated Representative, (c) in the case of Oil and
Gas Collateral, a supplemental report from an Independent Consultant confirming
the Reported Value of the Oil and Gas Collateral that is to be added, (d) in the
case of Other Collateral, an appraisal by an appraiser selected pursuant to
Paragraph 8.3(f)(ii)(D) of the Master Settlement Agreement confirming the fair
market value of the Other Collateral that is to be added, and (e) in the case of
the addition of Other Collateral, written confirmation addressed to the
Designated Representative from any rating agency rating any securities issued in
connection with a Monetization that any rating on such securities will not be
withdrawn or downgraded as a result of such substitution, addition or release.
The additional Collateral shall be deemed to be held by the Collateral Agent
contemporaneously with the delivery by the El Paso Pledgor of the instruments
provided for in this Section 4.3.

         Section 4.4 Additional El Paso Pledgors. If after the Effective Date
any El Paso Settling Party or any direct or indirect wholly-owned Subsidiary of
any El Paso Settling Party not currently a party to this Agreement and that is a
Releasee under the Master Settlement Agreement provides Property as additional
Collateral, including Letters of Credit, under Paragraph 8.3(f) of the Master
Settlement Agreement, then such party shall automatically be deemed to be a
party to, and bound by the terms of, this Agreement from and after the date of
such grant without any further action. In connection therewith, the granting
party shall include an acknowledgement that such party shall be deemed to be an
El Paso Pledgor subject to the

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terms of this Agreement in the applicable Additional Collateral Certificate
and/or any Security Document to be executed by such party.

         Section 4.5 Additional Reports. With respect to the requirement in
Paragraph 8.3(f)(C) of the Master Settlement Agreement and Section 4.3 above, to
provide a supplemental report from an Independent Consultant confirming the
Reported Value of any Additional Oil and Gas Collateral, the El Paso Pledgor
delivering the report and associated Compliance Certificate and the Independent
Consultant shall have the right to provide such information based on the then
most recent Independent Consultant's report as updated by El Paso's internal
reviews if (a) such report was issued by the Independent Consultant one hundred
twenty (120) days or fewer days prior to the date on which the proposed
substitution or addition shall become effective, or (b) the Reported Value of
the Additional Oil and Gas Collateral, together with the Reported Value of all
Additional Oil and Gas Collateral provided pursuant hereto during the thirty
(30) days prior to the date on which the proposed substitution or addition shall
become effective, does not in the aggregate exceed five percent (5%) of the
Discounted Amount of the Deferred Payments calculated as of such effective date.

         Section 4.6 Compliance Certificates. Any Compliance Certificate
required to be delivered by El Paso Corporation to the Collateral Agent under
the terms of the Master Settlement Agreement or this Agreement shall be in form
and substance substantially similar to the instrument attached hereto as Exhibit
C.

         Section 4.7 Paragraph 8.3 to Master Settlement Agreement. For ease of
use, Paragraph 8.3 of the Master Settlement Agreement is attached hereto as
Exhibit D-2.

                                   ARTICLE V.
                           EVENTS OF DEFAULT; REMEDIES

         Section 5.1 Events of Default. Subject to the terms of Section 5.2
hereof, the occurrence of any of the following events shall constitute an "Event
of Default" hereunder:

                  5.1.1 Master Settlement Agreement. The occurrence of an "Event
of Default" under Paragraph 9.1 of the Master Settlement Agreement.

                  5.1.2 Breach. (a) If any representation or warranty made or
deemed to be made by any El Paso Pledgor in this Agreement or in any other
Security Document, shall prove to have been incorrect in any material respect
when made or deemed to be made, (b) if the representation made by any El Paso
Pledgor in Section 2.1.3 of this Agreement or in any other Security Document
relating to whether such El Paso Pledgor is Solvent shall prove to have been
incorrect when made or deemed to be made, or (c) if any El Paso Pledgor shall in
any material respect fail to perform or observe any other term or covenant set
forth in this Agreement; or

                  5.1.3 Invalidity of Security Documents. Any material provision
of this Agreement or any other Security Document shall for any reason cease to
be valid and binding on any El Paso Pledgor or any El Paso Pledgor shall so
state in writing; or

                  5.1.4 Security Documents. (a) The Collateral Agent shall fail
to have a perfected lien or security interest in any Collateral, (b) any
Security Document shall at any time and for

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any reason cease to create the lien on any Property purported to be subject to
such agreement or cease to be in full force and effect, or (c) the validity of
any Security Document shall be contested by any El Paso Pledgor.

         Section 5.2 Exceptions to Events of Default.

                  5.2.1 Notice and Cure. With respect to any of the events
provided for in clauses 5.1.2(c), 5.1.4(a), and 5.1.4(b) above, such event shall
not constitute an Event of Default unless the same shall remain unremedied for
thirty (30) days after the earlier of written notice thereof by the Designated
Representative or Collateral Agent, and a Responsible Officer of El Paso
Corporation or the breaching El Paso Pledgor becoming aware of such failure;
provided, however, that if El Paso Corporation and/or the breaching party has
undertaken in good faith and with due diligence to cure such breach during the
30-day cure period and such breach is capable of being cured, then the breaching
party shall have an additional thirty (30) days to cure the breach.

                  5.2.2 Minimum Collateral Coverage. If any El Paso Pledgor
shall (a) be in breach of any representation or warranty set forth in Sections
2.1.4, or 2.1.9 (a), (b), (c) or (e), (b) fail to perform or observe any term or
covenant set forth in any of Sections 3.3, 3.4, 3.5, or 3.8 of this Agreement,
or (c) be in default under Section 5.1.4(a) and/or 5.1.4(b) above, then in any
such case such failure or default shall not constitute an Event of Default if
within thirty (30) days after the earlier of written notice thereof by the
Designated Representative or Collateral Agent, and a Responsible Officer of El
Paso Corporation or the breaching El Paso Pledgor becoming aware of such failure
or default, El Paso Corporation delivers a Compliance Certificate to the
Collateral Agent certifying as of the date of such Compliance Certificate that
notwithstanding such breach, the Value of the Collateral is equal to or in
excess of the Minimum Collateral Coverage after taking into account the decline
in the Value of the Collateral caused by such breach, failure or default.

         Section 5.3 Remedies. An Event of Default hereunder constitutes an
"Event of Default" under Paragraph 9.1(c) of the Master Settlement Agreement.
Upon the occurrence of any Event of Default and during the continuance thereof,
the Designated Representative may, at its option, upon prior notice to El Paso
Corporation, exercise (or cause the Collateral Agent to exercise) any of the
rights and remedies provided for in the Master Settlement Agreement, this
Agreement and any of the other Security Documents. No remedy conferred upon the
Designated Representative or Collateral Agent hereunder or thereunder is
intended to be exclusive of any other remedy, and each remedy shall be
cumulative of all other remedies existing by contract, at law, in equity, by
statute or otherwise.

         Section 5.4 Rights Prior to an Event of Default. Notwithstanding
anything to the contrary contained herein or in any Deed of Trust or other
Security Document given by an El Paso Pledgor in connection with the Master
Settlement Agreement, each El Paso Pledgor that is a grantor under such a Deed
of Trust or other Security Document shall have, until the occurrence and
continuance of an Event of Default and written notice is provided to it by the
"Beneficiary" terminating its rights under this Section 5.4, the right to
collect all Hydrocarbons, payments received in lieu of Hydrocarbons, including
as-extracted Hydrocarbons, income, proceeds and other economic benefits
attributable to the Collateral subject thereto and the products obtained or

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processed therefrom, execute division orders, transfer orders and other
instruments as may be required to direct all proceeds to such El Paso Pledgor
without the necessity of joinder by the "Beneficiary" under such Deed of Trust
in such division orders, transfer orders or other instruments, and use and enjoy
all Hydrocarbons, payments received in lieu of Hydrocarbons, income, proceeds
and other economic benefits attributable to the Collateral subject to such Deed
of Trust or other Security Documents and the products obtained or processed
therefrom free and clear of any liens granted in such Deed of Trust or other
Security Documents. Any amounts received by the Designated Representative, the
Collateral Agent, the Settlement Fund or any "Beneficiary" under any Deed of
Trust or any other Security Document to which the El Paso Pledgors are entitled
pursuant to the foregoing, shall be held in trust by the recipient and promptly
delivered to the applicable El Paso Pledgor. Notwithstanding anything in any
Deed of Trust or other Security Document to the contrary, neither the Designated
Representative, the Collateral Agent, the Settlement Fund nor any "Beneficiary"
shall exercise any of the rights set out in Section 3.1 (c), (d), (f) and (g) of
the Deed of Trust or any similar provisions within any other Security Document,
except after the occurrence and during the continuation of an Event of Default.
The Collateral Agent shall, upon request by and at the sole cost and expense of
any El Paso Pledgor, promptly certify in writing to any person the terms of this
Section 5.4 and that as of the date of its certification, such El Paso Pledgor's
rights under this Section 5.4 have not been terminated or suspended.

                                   ARTICLE VI.
                             ENVIRONMENTAL INDEMNITY

         Section 6.1 Environmental Indemnity. Each El Paso Pledgor shall
indemnify, defend and hold harmless the Designated Representative, the
Collateral Agent, the Settling Claimants, and each trustee under any Deed of
Trust, and their affiliates and each of their respective officers, directors,
shareholders, agents, and employees (each, an "Indemnified Party") from and
against all claims, demands, causes of action, suits, orders, damages,
judgments, liens, penalties, costs, and expenses, attorneys' fees and costs
(whether incurred for an Indemnified Party's primary defense or for enforcement
of its indemnification rights), including, without limitation, any claim for
bodily or personal injury, or death to any person, or loss or damage to
Property, for any Environmental Claim or requirement of any Environmental Law
arising from any Security Document as to which such El Paso Pledgor is a party
or relating to such El Paso Pledgor's ownership of the Collateral. WITHOUT
LIMITATION, IT IS THE INTENTION OF SUCH EL PASO PLEDGOR AND SUCH EL PASO PLEDGOR
AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH
RESPECT TO CLAIMS, DEMANDS, CAUSES OF ACTION, SUITS, ORDERS, DAMAGES, JUDGMENTS,
LIENS, PENALTIES AND EXPENSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE
OUT OF STRICT LIABILITY OR OUT OF THE NEGLIGENCE OF SUCH INDEMNIFIED PARTY,
provided that such indemnities shall not apply to any particular Indemnified
Party (but shall apply to the other Indemnified Parties) to the extent the
subject of the indemnification is caused by or arises out of the gross
negligence or willful misconduct of such particular Indemnified Party.

         Section 6.2 Notice of Claim. Promptly after receipt of notice of such
claim by any Indemnified Party, the Collateral Agent shall promptly give written
notification to the El Paso Pledgor owning the affected Collateral of any
Environmental Claim that could reasonably result

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in an indemnity claim under Section 6.1. After receipt of such notification from
the Collateral Agent of any such Environmental Claim, such El Paso Pledgor shall
have the right upon notice to the Collateral Agent to defend, at its own
expenses and by its own counsel, any Environmental Claim and the Designated
Representative and Collateral Agent shall cooperate in such defense against such
Environmental Claim. Notwithstanding anything herein to the contrary, neither
the Designated Representative or the Collateral Agent may settle or compromise
any Environmental Claim over the objection of the El Paso Pledgor. In connection
with the defense of any Environmental Claim, the Designated Representative
Collateral Agent shall make available to the El Paso Pledgor any books, records,
or other documents within its control that are necessary or appropriate for such
defense.

                                  ARTICLE VII.
                                 MISCELLANEOUS

         Section 7.1 Fees, Costs and Expenses. The El Paso Pledgors jointly and
severally agree to pay or cause to be paid in accordance with Section 4.1(i) of
the Matter Settlement Agreement (a) all fees, costs, and expenses incurred by
the Settlement Fund under the terms and provisions of the Collateral Agency
Agreement, except to the extent that the Settlement Fund has expressly agreed to
bear any such fees, costs or expenses in this Agreement, any other Security
Document, or the Master Settlement Agreement, (b) all reasonable expenses
incurred by the Collateral Agent in connection with the preparation of the
Collateral Agency Agreement and the review by the Collateral Agent of this
Agreement and any other Security Documents, including reasonable attorneys' and
paralegal fees, disbursements and costs, all at such rates and with respect to
such services as the Collateral Agent in its sole discretion may elect to pay
(as such rates may vary from time to time during the course of the performance
of such services), (c) all reasonable fees, costs, and expenses incurred by the
Settlement Fund for the title review and title opinions contemplated by Section
3.2 of this Agreement, including its reasonable attorneys' and paralegal fees,
disbursements and costs, all at such rates and with respect to such services as
the Settlement Fund in its sole discretion may elect to pay (as such rates may
vary from time to time during the course of the performance of such services),
(d) all reasonable fees, costs, and expenses incurred by the Designated
Representative, Collateral Agent, and Settlement Fund in connection with any
waiver or amendment of this Agreement or any of the other Security Documents
requested by any of the El Paso Pledgors, including reasonable attorneys' and
paralegal fees, disbursements and costs, all at such rates and with respect to
such services as such parties in their sole discretion may elect to pay (as such
rates may vary from time to time during the course of the performance of such
services), and (e) all fees, costs, and expenses incurred by the Designated
Representative, Collateral Agent, and Settlement Fund in connection with an
Event of Default (including fees costs and expenses incurred in preparation for
the declaring of such Event of Default) and the exercise, preservation, or
enforcement of any of rights, remedies, or options under the Security Documents
by the Designated Representative, Collateral Agent, or Settlement Fund,
including, without limitation, as to this clause (e): (i) those fees, costs and
expenses incurred or paid to protect, preserve, collect, sell, advertise,
locate, take possession of, liquidate or otherwise deal with any Collateral
given by the El Paso Pledgors to secure the Secured Obligations, (ii) all fees,
costs and expenses of dealing with any person or entity in any bankruptcy
proceeding, (iii) all expenses incurred by the Designated Representative,
Collateral Agent, and Settlement Fund for their reasonable attorneys' and
paralegal fees, disbursements and costs, all at such rates and with respect to
such services as the same in their sole discretion may

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elect to pay (as such rates may vary from time to time during the course of the
performance of such services), and (iv) all fees, costs and expense of
appraisers, investment bankers, and other experts that may be retained by the
Collateral Agent and Settlement Fund in connection with such collection efforts.
The amount of such fees, costs and expenses shall, if not paid within the time
set forth in Section 4.1(i) of the Master Settlement Agreement, bear interest at
the same rate of interest chargeable for late Deferred Payments under Paragraph
4.5 of the Master Settlement Agreement. All such fees, costs and expenses shall
be a part of the Secured Obligations and shall constitute "Settlement Expenses"
under Paragraph 4.1(i) of the Master Settlement Agreement.

         Section 7.2 Security Document. This Agreement and each Guaranty, deed
of trust, mortgage and or other security agreement or instrument delivered
pursuant to Section 3.7 of this Agreement or Paragraph 8.3(f) of the Master
Settlement Agreement constitutes a Security Document under the Master Settlement
Agreement.

         Section 7.3 Conflicts. Except with respect to any definition set forth
herein in Section 1.1, in the event of an express conflict between the terms of
this Agreement and the terms of the Master Settlement Agreement, the terms of
the Master Settlement Agreement shall govern. With respect to any definition set
forth herein in Section 1.1, the terms of this Agreement shall control.

         Section 7.4       Notices.

                  7.4.1 Form and Addresses. All notices required or permitted
under this Agreement shall be in writing to the other party and shall be
delivered in person, by facsimile, by overnight mail, or by registered or
certified mail, to the parties at the following addresses and facsimile numbers:

         If to an El Paso Pledgor:

                  General Counsel
                  El Paso Corporation
                  1001 Louisiana Street
                  Houston, TX  77002
                  Facsimile:  (713) 420-2340

         If to the Designated Representative:

                  Kenneth Alex, Esq.
                  Office of the Attorney General
                  1515 Clay Street
                  P.O. Box 70550 Oakland, CA 94612-0550
                  Facsimile: (510) 622-2270

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                                                                  EXECUTION COPY

         If to the Collateral Agent:

                  Bank of America, N.A.
                  901 Main Street, 17th Floor
                  Dallas, TX  75202
                  Attn:  Mr. Dickerman C. Sadler
                  Facsimile:  (214) 209-2924

                  7.4.2 Date of Delivery. Any notice required or permitted under
this Agreement shall: (a) if delivered in person, be deemed to have given or
made at the time of delivery; (b) if sent via overnight, certified or registered
mail, be deemed to have been given or made on the date of receipt; and (c) if
sent by facsimile or other similar form of communication, be deemed to have been
given or made on the first Business Day following the calendar day on which it
was sent.

                  7.4.3 Address Changes. The El Paso Settling Parties, the
Designated Representative and the Collateral Agent may each give written notice
of a change of address in the same manner described in this Section 7.4, in
which event all subsequent written communications shall be given to that party
at the changed address.

         Section 7.5 Amendments, Etc. No amendment or modification of any
provision of this Agreement or any other Security Document shall in any event be
effective unless the same shall be in writing and signed by the Designated
Representative and the El Paso Pledgors. No waiver of any provision hereof nor
consent to any departure from any provision hereof by any party hereto shall be
effective unless the same shall be in writing and signed by the person to be
bound thereby, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. In the event
that any amendment or modification of any provision of this Agreement shall
increase the burdens on the Collateral Agent, then the Collateral Agent shall be
given at least forty (40) days prior written notice of the effective date of
such amendment. Unless otherwise agreed to in writing by the El Paso Pledgors
and the Designated Representative, the Collateral Agent shall have ten (10) days
after receipt of such notice to tender its resignation or execute such amendment
or modification.

         Section 7.6 Confidentiality. Subject to the terms of the Master
Settlement Agreement, each of the Designated Representative and the Collateral
Agent agrees that it will use its commercially reasonable best efforts not to
disclose, without the prior consent of any El Paso Pledgor, any information
delivered to the Collateral Agent that is identified by stamp or in writing as
confidential with respect to such El Paso Pledgor and furnished pursuant to this
Agreement, provided that any of the foregoing may disclose any such information
(a) to the Settling Claimants and to its or their respective employees,
auditors, accountants, counsel or other representatives and to its or their
employees, auditors, accountants, counsel or other representatives of its or
their affiliates, whether existing at the date of this Agreement or any
subsequent time; provided the party receiving such information is made aware of
the restrictions set forth herein, (b) as has become generally available to the
public, (c) as may be required or appropriate in any report, statement or
testimony submitted to any Governmental Authority having or claiming to have
jurisdiction over such person, (d) as may be required or appropriate in response
to any summons or subpoena or in connection with any litigation or regulatory

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proceeding, (e) in order to comply with any law, order, regulation or ruling, or
(f) as may be required in connection with any Monetization, sale, pledge or
other disposition pursuant to Paragraph 8.3(c) of the Master Settlement
Agreement.

         Section 7.7 Construction of Agreement. The language of this Agreement
shall be construed as a whole, according to its fair meaning and intendment, and
not strictly for or against any party hereto, regardless of who drafted or was
principally responsible for drafting the Agreement or any specific terms or
conditions hereof.

         Section 7.8 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
excluding any conflict of laws or choice of law provisions that would require
reference to the laws of another state.

         Section 7.9 Waiver of Jury Trial. EACH PARTY HERETO EXPRESSLY AND
VOLUNTARILY WAIVES ANY AND ALL RIGHTS, WHETHER ARISING UNDER THE UNITED STATES
OR ANY STATE CONSTITUTION, ANY RULES OF CIVIL PROCEDURE, COMMON LAW OR
OTHERWISE, TO DEMAND A TRIAL BY JURY IN ANY ACTION, LAWSUIT, PROCEEDING,
COUNTERCLAIM OR ANY OTHER LITIGATION PROCEDURE BASED UPON, OR ARISING OUT OF
THIS AGREEMENT AND ANY OTHER SECURITY DOCUMENT AS TO WHICH IT IS A PARTY. NO
PARTY HERETO, NOR ANY ASSIGNEE OR SUCCESSOR OF ANY OF SUCH PARTY SHALL SEEK A
JURY TRIAL IN ANY SUCH ACTION. EACH PARTY AGREES THAT IT SHALL NOT SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION WHEN A JURY TRIAL CANNOT BE OR
HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. THE
PARTIES HAVE NOT IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER OF THE SAME
PARTIES THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

         Section 7.10 Headings. The headings in this Agreement are for
convenience only. They in no way limit, alter or affect the meaning of this
Agreement.

         Section 7.11 Jurisdiction and Venue. Each party hereto hereby consents
to the jurisdiction of the courts of the State of California and the United
States Courts located in the Central District of California, as well as to the
jurisdiction of all courts to which an appeal may be taken from such courts, for
the purpose of any suit, action or other proceeding arising out of this
Agreement and expressly waives any and all objections they may have as to venue
in such courts.

         Section 7.12 Integration. This Agreement, the Master Settlement
Agreement and the Security Documents represent the final agreement among the
parties hereto and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. There are no
unwritten oral agreements among the parties.

         Section 7.13 No Waiver; Remedies. No failure on the part of the
Designated Party, the Collateral Agent, or any Settling Claimant to exercise,
and no delay in exercising, any right under the Master Settlement Agreement,
hereunder or under any Security Document shall

                                       25
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                                                                  EXECUTION COPY

operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right.

         Section 7.14 Successors, Assigns and Counterparts. This Agreement shall
become effective when (a) it shall have been executed by the initial El Paso
Pledgors, the Designated Representative, and the Collateral Agent and (b) the
Effective Date of the Master Settlement Agreement occurs. Thereafter, this
Agreement shall be binding upon and inure to the benefit of each El Paso
Pledgor, the Designated Representative, and the Collateral Agent, and their
respective successors and assigns. Nothing in this Agreement shall be construed
or interpreted to impart any rights or obligations to any third party (other
than a permitted successor or assignee bound to this Agreement or the Settling
Claimants and their successors and assigns). This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

         Section 7.15 Third Party Beneficiaries. The Settling Claimants shall be
third party beneficiaries of this Agreement and of each of the other Security
Documents, provided that all rights and remedies of the Settling Claimants shall
be exercised by the Designated Representative or Collateral Agent as provided
therein.

         Section 7.16 Severability. In case one or more provisions of this
Agreement or the other Security Documents shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality,
and enforceability of the remaining provisions contained herein or therein shall
not be affected or impaired thereby.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
                            SIGNATURE PAGES FOLLOW.]

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            [Signature Page to Agreement With Respect to Collateral]

                                       EL PASO PLEDGORS:

                                       EL PASO PRODUCTION OIL & GAS USA, L.P.

                                           By: EL PASO PRODUCTION OIL & GAS
                                               COMPANY, its general partner

                                       By:    /s/ D. Mark Leland
                                              ----------------------------------
                                       Name:  D, Mark Leland
                                       Title: Executive Vice President and
                                              Chief Financial Officer

<PAGE>

                                                                  EXECUTION COPY

            [Signature Page to Agreement With Respect to Collateral]

                                           DESIGNATED REPRESENTATIVE:

                                           THE OFFICE OF THE ATTORNEY GENERAL OF
                                           THE STATE OF CALIFORNIA, acting
                                           solely in its capacity as Designated
                                           Representative under the Designated
                                           Representative Agreement

                                           By:    /s/ Ken Alex
                                                  ----------------------------
                                           Name:  Ken Alex
                                           Title: Acting Senior Assistant
                                                  Attorney General

<PAGE>

                                                                  EXECUTION COPY

            [Signature Page to Agreement With Respect to Collateral]

                                           COLLATERAL AGENT:

                                           BANK OF AMERICA, N.A.

                                           By:    /s/ Dickerman C. Sadler
                                                  ------------------------------
                                           Name:  Dickerman C. Sadler
                                           Title: Senior Vice Presidentexv4w02

 

EXHIBIT 4.02

FLEXTRONICS INTERNATIONAL LTD.

1997 EMPLOYEE SHARE PURCHASE PLAN

As Adopted September 10, 1997

As Amended August 27, 1999, September 21, 2000, August 29, 2002, September 30,
2003, and August 4, 2004

     1. Establishment of Plan. Flextronics International Ltd. (the “Company”)
proposes to grant options for purchase of the Company’s Ordinary Shares to
eligible employees of the Company and its Participating Subsidiaries (as
hereinafter defined) pursuant to this Employee Share Purchase Plan (this
"Plan”). For purposes of this Plan, “Parent Corporation” and “Subsidiary”
(collectively, “Participating Subsidiaries”) shall have the same meanings as
“parent corporation” and “subsidiary corporation” in Sections 424(e) and
424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"Code”). “Participating Subsidiaries” are Parent Corporations or Subsidiaries
that the Board of Directors of the Company (the “Board”) designates from time
to time as corporations that shall participate in this Plan. The Company
intends this Plan to qualify as an “employee stock purchase plan” under Section
423 of the Code (including any amendments to or replacements of such Section),
and this Plan shall be so construed. Any term not expressly defined in this
Plan but defined for purposes of Section 423 of the Code shall have the same
definition herein. A total of 5,400,000* Ordinary Shares of the Company are
reserved for issuance under this Plan. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.

     2. Purpose. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees’ sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.

     3. Administration. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer
this Plan (the “Committee”). As used in this Plan, references to the
“Committee” shall mean either such committee or the Board if no committee has
been established. Subject to the provisions of this Plan and the limitations
of Section 423 of the Code or any successor provision in the Code, all
questions of interpretation or application of this Plan shall be determined by
the Committee and its decisions shall be final and binding upon all
participants. Members of the Committee shall receive no compensation for their
services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred
in connection with the administration of this Plan shall be paid by the
Company.

     4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:

           (a) employees who are not employed by the Company or Participating
Subsidiaries one month before the beginning of such Offering Period;

           (b) employees who are customarily employed for twenty (20) hours or less
per week;

           (c) employees who are customarily employed for five (5) months or less in
a calendar year;

           (d) employees who, together with any other person whose shares would be
attributed to such employee pursuant to Section 424(d) of the Code, own shares
or hold options to purchase shares possessing five percent (5%) or more of the
total combined voting power or value of all classes of shares of the Company or
any of its Participating Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period, would own shares
or hold options to purchase shares possessing five percent (5%) or more of the
total combined voting power or value of all classes of shares of the Company or
any of its Participating Subsidiaries; and

	*	 	The initial number of shares reserved for issuance was 600,000 shares.
Amendments to increase the number of shares reserved for issuance were approved
by shareholders on: August 27, 1999 (to 1,600,000 shares); September 21, 2000
(to 2,400,000 shares); August 29, 2002 (to 3,400,000 shares); September 30,
2003 (to 4,400,000 shares); and September 23, 2004 (to 5,400,000 shares). All
share numbers reflect the two-for-one stock splits effected as a bonus issue
(the Singapore equivalent of a stock dividend) paid on December 22, 1998,
December 22, 1999 and October 16, 2000.

 

 

          (e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any purpose other than federal income and employment
tax purposes.

     5. Offering Dates. The offering periods of this Plan (each, an “Offering
Period”) shall be of six (6) months duration commencing on December 1 and June
1 of each year and ending on May 31 and November 30 of each year. Each
Offering Period shall consist of one (1) six-month purchase period (a “Purchase
Period”) during which payroll deductions of the participants are accumulated
under this Plan. The first Offering Period shall begin on December 1, 1997.
The first business day of each Offering Period is referred to as the “Offering
Date”. The last business day of each Purchase Period is referred to as the
"Purchase Date”. The Board shall have the power to change the duration of
Offering Periods or Purchase Periods with respect to offerings (and
specifically shall have the power to change the duration of Offering Periods
from six (6) months to twenty-four (24) months) without shareholder approval if
such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period or Purchase Period to be affected. The
Board may amend or terminate any Offering Period that commences after November
30, 2004, if the Board determines that a change in applicable accounting rules
or a change in applicable laws, renders an amendment or termination desirable.

     6. Participation in this Plan. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company’s treasury department (the “Treasury Department”) not
later than fifteen (15) days before such Offering Date unless a later time for
filing the subscription agreement authorizing payroll deductions is set by the
Committee for all eligible employees with respect to a given Offering Period.
An eligible employee who does not deliver a subscription agreement to the
Treasury Department by such date after becoming eligible to participate in such
Offering Period shall not participate in that Offering Period or any subsequent
Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than fifteen (15)
days preceding a subsequent Offering Date. Once an employee becomes a
participant in an Offering Period, such employee will automatically participate
in the Offering Period commencing immediately following the last day of the
prior Offering Period unless the employee withdraws from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.

     7. Grant of Option on Enrollment. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of whole Ordinary Shares of the Company
determined by dividing (a) the amount accumulated in such employee’s payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of an Ordinary Share of the
Company on the Offering Date (but in no event less than the par value of the
Company’s Ordinary Shares), or (ii) eighty-five percent (85%) of the fair
market value of an Ordinary Share of the Company on the Purchase Date (but in
no event less than the par value of the Company’s Ordinary Shares) and rounding
down to the nearest whole number, provided, however, that the number of
Ordinary Shares of the Company subject to any option granted pursuant to this
Plan shall not exceed the lesser of (a) the maximum number of shares set by the
Committee pursuant to Section 10(c) below with respect to the applicable
Purchase Date, or (b) the maximum number of shares which may be purchased
pursuant to Section 10(b) below with respect to the applicable Purchase Date.
The fair market value of the Company’s Ordinary Shares shall be determined as
provided in Section 8 hereof.

     8. Purchase Price. The purchase price per share at which an Ordinary
Share of the Company will be sold in any Offering Period shall be eighty-five
percent (85%) of the lesser of:

           (a) The fair market value on the Offering Date; or

           (b) The fair market value on the Purchase Date.

           Notwithstanding the foregoing, in no event may the purchase price of an
Ordinary Share of the Company be less than the par value. For purposes of this
Plan, the term “Fair Market Value” means, as of any date, the value of an
Ordinary Share of the Company determined as follows:

2

 

	(a)	 	if such Ordinary Shares are then quoted on the
Nasdaq National Market, the closing price on the Nasdaq
National Market on the date of determination as reported in The
Wall Street Journal;

	(b)	 	if such Ordinary Shares are publicly traded and are
then listed on a national securities exchange, the closing
price on the date of determination on the principal national
securities exchange on which the Ordinary Shares are listed or
admitted to trading as reported in The Wall Street Journal;

	(c)	 	if such Ordinary Shares are publicly traded but are
not quoted on the Nasdaq National Market nor listed or admitted
to trading on a national securities exchange, the average of
the closing bid and asked prices on the date of determination
as reported in The Wall Street Journal;

	(d)	 	if none of the foregoing is applicable, by the Board in good faith.

     9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance Of
Shares.

           (a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant’s compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean base salary, overtime pay,
commissions, bonuses, and shift premiums not to exceed $250,000 per year,
provided however, that for purposes of determining a participant’s base salary,
any election by such participant to reduce his or her regular cash remuneration
under Sections 125 or 401(k) of the Code shall be treated as if the participant
did not make such election. Payroll deductions shall commence on the first
payday following the Offering Date and shall continue to the end of the
Offering Period unless sooner altered or terminated as provided in this Plan.

           (b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department’s receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease
the rate of payroll deductions for any subsequent Offering Period by filing
with the Treasury Department a new authorization for payroll deductions not
later than fifteen (15) days before the beginning of such Offering Period.

           (c) All payroll deductions made for a participant are credited to his or
her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.

           (d) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the
participant wishes to withdraw from that Offering Period under this Plan and
have all payroll deductions accumulated in the account maintained on behalf of
the participant as of that date returned to the participant, the Company shall
apply the funds then in the participant’s account to the purchase of whole
Ordinary Shares of the Company reserved under the option granted to such
participant with respect to the Offering Period to the extent that such option
is exercisable on the Purchase Date. The purchase price per share shall be as
specified in Section 8 of this Plan. Any cash remaining in a participant’s
account after such purchase of shares shall be refunded to such participant in
cash, without interest; provided, however that any amount remaining in such
participant’s account on a Purchase Date which is less than the amount
necessary to purchase a full Ordinary Share of the Company shall be carried
forward, without interest, into the next Purchase Period or Offering Period, as
the case may be. In the event that this Plan has been oversubscribed, all
funds not used to purchase shares on the Purchase Date shall be returned to the
participant, without interest. No Ordinary Shares shall be purchased on a
Purchase Date on behalf of any employee whose participation in this Plan has
terminated prior to such Purchase Date.

3

 

           (e) As promptly as practicable after the Purchase Date, the Company shall
issue shares for the participant’s benefit representing the shares purchased
upon exercise of his or her option.

           (f) During a participant’s lifetime, such participant’s option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised.

     10. Limitations on Shares to be Purchased.

           (a) No participant shall be entitled to purchase shares under this Plan
at a rate which, when aggregated with his or her rights to purchase shares
under all other employee share purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan.

           (b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of an
Ordinary Share of the Company on the Offering Date as the denominator may be
purchased by a participant on any single Purchase Date.

           (c) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the
Committee may, in its sole discretion, set a maximum number of shares which may
be purchased by any employee at any single Purchase Date (hereinafter the
"Maximum Share Amount”). Until otherwise determined by the Committee, there
shall be no Maximum Share Amount. In no event shall the Maximum Share Amount,
if any, exceed the amounts permitted under Section 10(b) above. If a new
Maximum Share Amount is set, then all participants must be notified of such
Maximum Share Amount prior to the commencement of the next Offering Period.
Once the Maximum Share Amount is set, it shall continue to apply with respect
to all succeeding Purchase Dates and Offering Periods unless revised by the
Committee as set forth above.

           (d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
reasonably practicable and as the Committee shall determine to be equitable.
In such event, the Company shall give written notice of such reduction of the
number of shares to be purchased under a participant’s option to each
participant affected thereby.

           (e) Any payroll deductions accumulated in a participant’s account which
are not used to purchase shares due to the limitations in this Section 10 shall
be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.

     11. Withdrawal.

           (a) Each participant may withdraw from an Offering Period under this Plan
by signing and delivering to the Treasury Department a written notice to that
effect on a form provided for such purpose. Such withdrawal may be elected at
any time at least fifteen (15) days prior to the end of an Offering Period.

           (b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or
her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a
date subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.

           (c) If the purchase price on the first day of any current Offering Period
in which a participant is enrolled is higher than the purchase price on the
first day of any subsequent Offering Period, the Company will automatically
enroll such participant in the subsequent Offering Period. Any funds
accumulated in a participant’s account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior

4

 

     to the first day of such subsequent Offering Period. A participant does not
need to file any forms with the Company to automatically be enrolled in the
subsequent Offering Period

     12. Termination of Employment. Termination of a participant’s employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event,
the payroll deductions credited to the participant’s account will be returned
to him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case
of sick leave, military leave, or any other leave of absence approved by the
Board; provided that such leave is for a period of not more than ninety (90)
days or reemployment upon the expiration of such leave is guaranteed by
contract or statute.

     13. Return of Payroll Deductions. In the event a participant’s interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant’s account. No interest shall accrue on the payroll deductions
of a participant in this Plan.

     14. Capital Changes. Subject to any required action by the shareholders
of the Company, the number of Ordinary Shares covered by each option under this
Plan which has not yet been exercised and the number of Ordinary Shares which
have been authorized for issuance under this Plan but have not yet been placed
under option (collectively, the “Reserves”), as well as the price of each
Ordinary Share covered by each option under this Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in
the number of issued and outstanding Ordinary Shares of the Company resulting
from a stock split or the payment of a stock dividend (but only on the Ordinary
Shares) or any other increase or decrease in the number of issued and
outstanding Ordinary Shares effected without receipt of any consideration by
the Company; provided, however, that (a) conversion of any convertible
securities of the Company shall not be deemed to have been “effected without
receipt of consideration” and (b) no such adjustment shall be made if as a
result, the purchase price for each Ordinary Share shall fall below the par
value thereof and if such adjustment would but for this paragraph (b) result in
the purchase price being less than the par value of an Ordinary Share, the
purchase price payable shall be the par value of an Ordinary Share. Such
adjustment shall be made by the Committee, whose determination shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of any class, or securities convertible into shares of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Ordinary Shares subject to an option.

     In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Committee. The
Committee may, in the exercise of its sole discretion in such instances,
declare that the options under this Plan shall terminate as of a date fixed by
the Committee and give each participant the right to exercise his or her option
as to all of the optioned shares, including shares which would not otherwise be
exercisable. In the event of (i) a merger or consolidation in which the
Company is not the surviving corporation (other than a merger or consolidation
with a wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the shareholders of the Company or their relative share holdings and the
options under this Plan are assumed, converted or replaced by the successor
corporation, which assumption will be binding on all participants), (ii) a
merger in which the Company is the surviving corporation but after which the
shareholders of the Company immediately prior to such merger (other than any
shareholder that merges, or which owns or controls another corporation that
merges, with the Company in such merger) cease to own their shares or other
equity interest in the Company, (iii) the sale of substantially all of the
assets of the Company, or (iv) the acquisition, sale, or transfer of more than
50% of the outstanding shares of the Company by tender offer or similar
transaction, each option under this Plan may be assumed or an equivalent option
may be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. In the event such surviving corporation refuses to
assume or substitute options under this Plan, (i) this Plan will terminate upon
the consummation of such transaction, unless otherwise provided by the
Committee, and (ii) the Committee may declare that the options under this Plan
shall terminate as of a date fixed by the Committee, and give each Participant
the right to exercise such participant’s option as to all of the optioned
shares. If the Committee makes an option fully exercisable in the event of a
merger, consolidation or sale of assets, the Committee shall notify the
participant that the option shall be fully exercisable for a certain period,
and the option and this Plan will terminate upon the expiration of such period.

5

 

     The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Ordinary Shares covered by each outstanding option, in the
event that the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of its outstanding Ordinary
Shares, or in the event of the Company being consolidated with or merged into
any other corporation, provided however, that no such adjustment shall be made
if as a result, the purchase price for each Ordinary Share would fall below the
par value thereof and if such adjustment would result in the purchase price
being less than the par value of an Ordinary Share, the purchase price payable
shall be the par value of an Ordinary Share.

     15. Nonassignability. Neither payroll deductions credited to a
participant’s account nor any rights with regard to the exercise of an option
or to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will or the laws of descent and
distribution) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be void and without effect.

     16. Reports. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.

     17. Notice of Disposition. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within one (1) year from the Purchase Date on which such
shares were purchased (the “Notice Period”). Unless such participant is
disposing of any of such shares during the Notice Period, such participant
shall keep the certificates representing such shares in his or her name (and
not in the name of a nominee) during the Notice Period. The Company may, at
any time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company’s
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.

     18. No Rights to Continued Employment. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee’s
employment.

     19. Equal Rights And Privileges. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an “employee stock purchase plan” within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.

     20. Notices. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

     21. Term; Shareholder Approval. This Plan will become effective on the
date that it is adopted by the Board. This Plan shall be approved by the
shareholders of the Company, in any manner permitted by applicable corporate
law, within twelve (12) months before or after the date this Plan is adopted by
the Board. No purchase of shares pursuant to this Plan shall occur prior to
such shareholder approval. This Plan shall continue until the earlier to occur
of (a) termination of this Plan by the Board (which termination may be effected
by the Board at any time), (b) issuance of all of the Ordinary Shares reserved
for issuance under this Plan, or (c) ten (10) years from the adoption of this
Plan by the Board.

     22. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, the rules and regulations promulgated thereunder, and the

6

 

requirements of any stock exchange or automated quotation system upon which the
shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

     23. Applicable Law. The Plan shall be governed by the substantive laws
of Singapore.

     24. Amendment or Termination of this Plan. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the shareholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:

           (a) increase the number of shares that may be issued under this Plan; or

           (b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.

7

 

Flextronics International, Ltd.

Employee Share Purchase Plan

ENROLLMENT FORM/PAYROLL DEDUCTION CHANGE/ NOTICE OF WITHDRAWAL

Personal Information

	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 
	 	 	

	

	 	Last
	 	First
	 	Middle	 	 
	 
	 	 	 	 	 	 	 	 
	Address:
	 	 	 	 	 	 	 	 
	 	 	

	 
	 	 	 	 	 	 	 	 
	 	 	

	 	 	 	 	 	 	 
	Social Security Number:

	 	 	 	Date of Birth	 	 
	

	 	

	 	 	 	

			
	 	 	 
	Purchase Agreement
	 	Purchase Period Beginning June       Dec     

	o	 	I hereby elect to enroll in the Flextronics International, LTD. (the
“Company”) 1997 Employee Share Purchase Plan (the “Plan”) and subscribe
to purchase shares of the Company’s Common Stock in accordance with the
Plan. I understand that my payroll deductions will be effective for any
successive Purchase Periods unless I submit a Notice of Withdrawal. I
have received a copy of the Company’s most recent Prospectus, which
describes the Plan and the most recent 10K report. I understand that my
participation is in all respects subject to the terms of the Plan. I
understand that the Company has the right, exercisable in its sole
discretion, to amend, or terminate the Plan at any time. Should the
Company elect to terminate the Plan, I shall have no further rights to
purchase Common Stock pursuant to this Agreement. I hereby authorize
payroll deductions from each paycheck in that percentage as shown below.
	 
	 	 	% of Payroll Deduction:      2      3      4      5      6      7      8      9      10

			
	 	 	 
	Payroll Deduction Change
	 	Purchase Period Beginning June       Dec     

	o	 	I hereby elect to change my payroll deduction to the percentage shown
below. I understand that I may only decrease my rate (including to
zero) once during a Purchase Period and that I may only increase my rate
to be effective at the start of the next Offering Period. I understand
that this form must be received by the Company on or before the Deadline
Date immediately preceding each Purchase Date.
	 
	 	 	% of Payroll Deduction:      2      3      4      5      6      7      8      9      10

			
	 	 	 
	Notice of Withdrawal
	 	Purchase Period Beginning June       Dec     

	o	 	I hereby elect to withdrawal from the Plan. I understand that I will not
be able to enroll in the Plan until the next offering period and that it
will be necessary to complete a new Enrollment Form. All contributions
not used to purchase stock will be refunded to me as soon as reasonably
possible. This form must be received by the Company on or before the
Deadline Date immediately preceding a Purchase Date.

Beneficiary Designation (optional)

	 	 	 	 	 	 	 	 	 
	 

	 	Beneficiary
	 	 	 	Relationship of Beneficiary	 	 
	

	 	 	 	

	 	 	 	

Signature

	 	 	 	 	 
	

	 	Date	 	 
	

	 	 	 	

	Employee Signature

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