Document:

Prepared by R.R. Donnelley Financial -- Addendum to Common Stock and Warrant Agrmnt

 EXHIBIT 10.1 
  
 KFX INC. 
  
 THIRD ADDENDUM

 TO THE 
 COMMON
STOCK AND WARRANT PURCHASE AGREEMENT 
  
 This Third Addendum to the Common Stock and Warrant Purchase Agreement (this “Addendum”), is entered into as of July 19, 2002, by and among KFx Inc., a Delaware corporation (the “Company”), the
parties listed on Schedule A attached hereto (each, an “Additional Investor” and collectively, the “Additional Investors”), and the parties listed on Schedule B attached hereto (the “Existing
Investors”), with reference to the following facts: 
  
 WHEREAS, the Company and the Existing Investors are
parties to that certain Common Stock and Warrant Purchase Agreement, dated as of March 28, 2002 (the “Purchase Agreement”; each capitalized term not otherwise defined herein has the meaning ascribed to that term in the Purchase
Agreement), which provides that the Existing Investors or their designees may purchase from the Company shares of Common Stock and Warrants on the same terms and conditions as set forth in the Purchase Agreement and that such investors will become
parties to the Purchase Agreement, the Investors’ Rights Agreement, as amended and restated, and the Put and Call Option Agreement, as amended and restated; 
  
 WHEREAS, the Company and the Existing Investors entered into an Addendum to the Common Stock and Warrant Purchase Agreement (the “First Addendum”), Amended and Restated Investors’
Rights Agreement and Amended and Restated Put Agreement, all dated as of April 30, 2002; 
  
 WHEREAS, the Company and
the Existing Investors entered into a Second Addendum to the Common Stock and Warrant Purchase Agreement (the “Second Addendum”), Second Amended and Restated Investors’ Rights Agreement (as amended and restated, referred to
herein as the “Investors’ Rights Agreement”) and Second Amended and Restated Put Agreement (as amended and restated, referred to herein as the “Put Agreement”), all dated as of July 1, 2002; 

 
 WHEREAS, the Company, the Existing Investors and the Additional Investors have agreed to amend and restate the Investors’
Rights Agreement and amend and restate the Put Agreement in connection with the Closing (as defined in section 2.1); 
  
 WHEREAS the Company has authorized the sale and issuance of one million four hundred sixty thousand (1,460,000) shares of its Common Stock (the “Shares”) pursuant to the terms of this Addendum; 

 
 WHEREAS the Company has authorized the issuance of warrants, in substantially the form attached hereto as Exhibit A, to
purchase seven million nine hundred and two thousand five hundred (7,902,500) shares of Common Stock (in addition to the five million four hundred thousand (5,400,000) shares of Common Stock authorized pursuant to the Purchase Agreement, First
Addendum and Second Addendum and to be surrendered for exchange as described herein) (the “Warrants”, and together with the Shares, the “Securities”) pursuant to the terms of this Addendum; and 

  
 WHEREAS the Company wishes to sell to the Existing Investors and the Additional
Investors, and the Existing Investors and the Additional Investors wish to purchase, the Shares and Warrants on the terms and conditions set forth herein. 
  
 NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants and conditions set forth in this Agreement, the parties agree as follows: 
  
 1.    Authorization and Sale of the Shares. 
  
 1.1    Authorization.    The Company has authorized the issuance and sale pursuant to the terms and
conditions hereof of one million four hundred sixty thousand (1,460,000) shares of its Common Stock and Warrants to purchase seven million nine hundred and two thousand five hundred (7,902,500) shares of Common Stock (in addition to the warrants to
purchase five million four hundred thousand (5,400,000) shares of Common Stock authorized pursuant to the Purchase Agreement, First Addendum and Second Addendum and to be surrendered for exchange as described herein) on exercise of such Warrants.

  
 1.2    Issuance and Sale of the Shares and
Warrants.    On the terms and subject to the conditions hereof, each Additional Investor agrees, severally but not jointly, to purchase, and the Company agrees to issue and sell to each such Additional Investor, at the
Closing: (a) the number of shares of Common Stock set forth opposite the name of such Additional Investor on Schedule A at a purchase price of $2.50 per share, and (b) Warrants to purchase the number of shares of Common Stock set forth
opposite the name of such Additional Investor on Schedule A at a price of $2.75 per share of Common Stock, as the number of such shares and price per share may be adjusted pursuant to the Warrants. 
  
 1.3    Surrender of Existing Investors’ Warrants for Exchange.    On
the terms and subject to the conditions hereof, each Existing Investor agrees, severally but not jointly, to acquire, and the Company agrees to issue to each Existing Investor, at the Closing, Warrants to purchase the number of shares of Common
Stock set forth opposite the name of such Existing Investor on Schedule B in exchange for the surrender at the Closing of the warrants described opposite such Existing Investor on Schedule B. The Existing Investors will not surrender
any warrants issued to them pursuant to section 2 of the Investors’ Rights Agreement. 
  
 1.4    Parties to the Purchase Agreement.    The Company and the Existing Investors hereby agree that pursuant to this Addendum each Additional Investor shall hereby become a party to
the Purchase Agreement. In connection therewith, each Additional Investor shall be deemed to (i) be a party to the Purchase Agreement, (ii) be an “Investor” for all purposes under the Purchase Agreement and (iii) have all rights and
obligations of an Investor thereunder. The Shares and Warrants acquired by the Existing Investors and the Additional Investors hereunder shall be considered “Shares” and “Warrants”, respectively, and shall be considered
“Securities” collectively, for all purposes under the Purchase Agreement. 
  
 1.5    Defined Terms.    For purposes of this Addendum and the representations and warranties of the Company in the Purchase Agreement that are incorporated herein by reference in
section 4.2, the term “Related Documents” means the Purchase Agreement (as amended), the Investors’ Rights Agreement (as further amended and restated), the Put 

 Agreement (as further amended and restated), the Warrants issued pursuant to the Purchase Agreement (as amended).

  
 2.    Closing; Delivery. 
  
 2.1    Closing.    Upon satisfaction of the conditions set forth in sections 6 and 7, the closing of the purchase,
sale and issuance of the Shares and Warrants listed on Schedule A attached hereto and the issuance of Warrants listed on Schedule B attached hereto shall take place at the offices of Shartsis, Friese & Ginsburg LLP, 18th Floor, One
Maritime Plaza, San Francisco 94111, on July 19, 2002 (the “Closing Date”), at 10:00 a.m., or at such other time and place as the parties may agree (the “Closing”). 
  
 2.2    Delivery at the Closing.    Subject to the terms of this Addendum,
at the Closing: 
  
 (a)    The Company will deliver to each Additional Investor
listed on Schedule A attached hereto (i) a stock certificate representing the number of shares of Common Stock set forth opposite the name of such Additional Investor on Schedule A and (ii) a Warrant to purchase the number of shares of
Common Stock set forth opposite the name of such Additional Investor on Schedule A against delivery to the Company by each such Additional Investor at the Closing of a wire transfer of funds or promissory note for the aggregate purchase price
of the Shares acquired by such Additional Investor; and 
  
 (b)    The Company
will deliver to each Existing Investor listed on Schedule B attached hereto a Warrant to purchase the number of shares of Common Stock set forth opposite the name of such Existing Investor on Schedule B against surrender to the Company
by each such Existing Investor at the Closing for cancellation the warrants set forth opposite the name of such Existing Investor on Schedule B. 
  
 3.    Amendment and Waiver of Section 1.3(c) of the Purchase Agreement—Option to Make Additional Investment. 
  
 3.1    Amendment.    Section 1.3(c) of the Purchase Agreement (as amended by section 3.1 of the First
Addendum) is hereby amended by deleting the references to “July 31, 2002”, and “$15,000,000” contained therein and substituting “July 19, 2003”, and “$25,000,000”, respectively, therefor. 

 
 3.2    Waiver.    The Company, the Additional Investors and the
Existing Investors hereby agree to waive the last sentence of section 1.3(c) of the Purchase Agreement in connection with this Addendum (and this Addendum only). In connection with such waiver, the Company, the Additional Investors and the Existing
Investors hereby agree that the proceeds from the sale of the Shares pursuant to this Addendum shall be used as follows: (a) to make the final payment with respect to the Company’s 6% Convertible Debentures due on July 29, 2002, which payment
must be deposited on July 22, 2002, with the Paying Agent, as defined in the Indenture between the Company and First Bank National Association, dated as of July 25, 1997, and (b) the proceeds remaining after the payments described in clause (a)
shall be used for general corporate purposes. 
  

  
 4.    Representations and Warranties of the Company;
Disclosure.    Each Additional Investor hereby acknowledges receipt of the Purchase Agreement and the exhibits and schedules thereto. The Company represents and warrants to each Existing Investor and Additional Investor that:

  
 4.1    The representatives and warranties of the Company set forth in section
2 of the Purchase Agreement and section 8 of the Put and Call Option Agreement, dates as of March 28, 2002, were true and correct when made. 
  
 4.2    The representations and warranties referred to above, which are incorporated by reference herein and made a part hereof, are true and correct as of the date hereof as if made
on the date hereof, except (a) for changes resulting from the transactions contemplated in the Purchase Agreement, the First Addendum, the Second Addendum, the Investors’ Rights Agreement, the Put Agreement and the warrants issued pursuant to
the Purchase Agreement, the First Addendum and the Second Addendum, and (b) as set forth in Disclosure Schedule 4.2 attached hereto. 
  
 4.3    The Company has complied with and is not in violation of any covenant set forth in section 4 of the Purchase Agreement, sections 3 (that is, the Company has, among other
things, repurchased all of the Pegasus Series C Preferred Stock set forth on Disclosure Schedule 3 thereof) and 4 of the First Addendum, section 3 of the Investors’ Rights Agreement or section 7 of the Put Agreement. 
  
 5.    Representations and Warranties of Existing Investors and Additional
Investors.    Each Existing Investor and Additional Investor has reviewed the representations and warranties set forth in section 3 of the Purchase Agreement. Each Existing Investor and Additional Investor, severally but not
jointly, represents and warrants to the Company that such representations and warranties, which are incorporated herein by reference and made a part hereof, are true and correct as of the date hereof with respect to such Existing Investor and
Additional Investor. 
  
 6.    Existing Investors’ and Additional Investors’
Obligations at Closing.    Each Existing Investor’s and Additional Investor’s obligation to purchase and pay for the Securities is subject to the fulfillment to such Existing Investor’s and Additional
Investor’s satisfaction at the Closing of the following conditions: 
  
 6.1    Representations and Warranties Correct; Performance Obligations.    The representations and warranties of the Company contained in section 4 hereof shall be true and correct on
and as of the date of the Closing with the same force and effect as if they had been made on and as of such date, subject to changes contemplated by this Addendum. 
  
 6.2    Performance.    The Company shall have performed and complied with all agreements, obligations and
conditions contained in this Addendum that are required to be performed by it or with which it is required to have complied on or before the Closing. 
  
 6.3    Securities Compliance.    The Company shall have taken all action necessary to comply with any federal
or state securities laws applicable to the transactions contemplated hereunder. 
  

  
 6.4    Consents, Permits, and
Waivers.    The Company shall have obtained any and all consents, licenses, permits, orders, authorizations, waivers and the like necessary or appropriate for consummation of the transactions contemplated by this Addendum and
the other Related Documents (except for such as may be properly obtained subsequent to the Closing). 
  
 6.5    Stockholder Approval.    The Company shall have satisfied all stockholder approval requirements of applicable law, rule or regulation, including provisions of the American Stock
Exchange, or any other exchange or market on which the Common Stock is then listed or traded. 
  
 6.6    Absence of Litigation.    No proceeding challenging this Addendum, the other Related Documents, the Warrants issued in connection with this Addendum or the transactions
contemplated hereby or thereby, or seeking to prohibit, alter, prevent or delay the Closing, shall have been instituted before any court, arbitrator or governmental body, agency or official and shall be pending. 
  
 6.7    Compliance Certificate.    The Company shall deliver to each Existing Investor and
each Additional Investor at the Closing, relating to such Existing Investor’s and Additional Investor’s purchase of the Common Stock and the issuance of the Warrants, a certificate signed by the President of the Company stating that the
Company has complied with or satisfied each of the conditions to the Existing Investor’s and the Additional Investor’s obligation to consummate the Closing set forth in sections 6.1 through 6.6, unless waived in writing by the Existing
Investor or the Additional Investor. 
  
 6.8    Opinion of
Counsel.    The Company shall deliver to each Existing Investor and each Additional Investor at the Closing an opinion of counsel for the Company, dated as of the Closing, in the form attached hereto as Exhibit B.

  
 6.9    Third Amended and Restated Investors’ Rights
Agreement.    The Third Amended and Restated Investors’ Rights Agreement, in substantially the form attached hereto as Exhibit C, shall have been executed by all the parties thereto on or prior to such Closing.

  
 6.10    Third Amended and Restated Put Agreement.    The Third
Amended and Restated Put Agreement, in substantially the form attached hereto as Exhibit D, shall have been executed by all the parties thereto on or prior to such Closing. 
  
 6.11    Legal Matters.    All matters of a legal nature which pertain to this Addendum and the transactions contemplated
hereby shall have been approved by each Existing Investor’s and each Additional Investor’s counsel. 
  
 6.12    Proceedings and Documents.    All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to each Existing Investor and each Additional Investor, and each Existing Investor and each Additional Investor shall have received all such counterpart original and certified or other copies of such
documents as it may reasonably request. 
  

  
 6.13    Additional
Disclosure.    The Company shall provide to each Existing Investor and each Additional Investor a detailed analysis and summary of the following (all of which must be satisfactory to each Existing Investor and each Additional
Investor): 
  
 (a)    The Company’s capital requirements through December
31, 2002; 
  
 (b)    All terms, conditions and requirements for the Company to
maintain its listing on the American Stock Exchange; and 
  
 (c)    The
Company’s capital requirements for its first 500,000 to 600,000 ton K-Fuel processing plant. 
  
 7.    The Company’s Conditions to the Closing.    The Company’s obligation to deliver the Securities at the Closing is subject to the fulfillment to the Company’s
satisfaction at such Closing of the following conditions: 
  
 7.1    Representations and Warranties.    The representations and warranties of each Existing Investor and each Additional Investor contained in section 5 hereof shall be true and
correct on and as of the Closing. 
  
 7.2    Performance.    The Existing Investors and the Additional Investors shall have performed and complied in all material respects with all agreements, obligations, and conditions
contained in the Addendum that are required to be performed by it or them or with which it or they are required to have complied on or before the Closing. 
  
 8.    Notices.    Any notice, consent, authorization or other communication to be given hereunder shall be in writing and shall be deemed duly given and
received when delivered personally or transmitted by facsimile transmission with receipt acknowledged by the addressee, three days after being mailed by first class mail, or the next business day after being deposited for next-day delivery with a
nationally recognized overnight delivery service, charges and postage prepaid, properly addressed to the party to receive such notice at the address(es) specified on the signature page of this Addendum for the Company, on Exhibit E attached to the
Purchase Agreement for each Existing Investor and on Schedule A attached hereto for each Additional Investor (or at such other address as shall be specified by like notice). 
  
 9.    Counterparts.    This Addendum may be executed in any number of counterparts, each of which shall constitute an
original, and all of which together shall be considered one and the same agreement. 
  
 10.    Governing Law.    This Addendum shall be governed by and construed and interpreted in accordance with the law of the State of New York, without regard to that state’s
conflict of laws principles. 
  
 11.    Attorneys’ Fees.    If
any action at law or in equity is necessary to enforce or interpret the terms of this Addendum, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled. 
  

  
 12.    Representation.    Each
party hereto acknowledges that (a) Westcliff Capital Management, LLC retained SF&G to represent Westcliff in connection with this Addendum, the other Related Documents and the transactions related hereto and thereto, (b) the interests of
Westcliff may not necessarily coincide with the interests of other Existing Investors or Additional Investors, (c) SF&G does not represent any Existing Investor or Additional Investor other than Westcliff in connection with the transaction
contemplated hereby and thereby, and (d) each Existing Investor and Additional Investor has consulted with, or has had an opportunity to consult with, its own legal counsel and has not relied on SF&G for legal counsel in connection with this
Addendum, the other Related Documents and the transactions related hereto and thereto. 
  
 13.    Expenses.    Within 10 days after receipt of an invoice therefor, the Company shall pay the legal fees and expenses of SF&G (legal counsel only for Westcliff) and all due
diligence fees and expenses incurred by Westcliff, incurred in connection with this Addendum, the other Related Documents and the transactions contemplated hereby and thereby. For the avoidance of doubt, no fees paid to SF&G pursuant to this
section 13 shall be deemed to be payment to counsel for the Existing Investors or the Additional Investors as required to be made by the Company pursuant to section 2.7 of the Investors’ Rights Agreement. 
  
 [remainder of page intentionally left blank; signature page follows] 
  

  
 IN WITNESS WHEREOF, this Addendum has been duly executed by or on behalf of the
parties hereto as of the date first above written. 
  
 KFX INC.

  
 By:                                     
                                        
                                        
                    
 Name:                                    
                                        
                                        
               
 Title:                                    
                                        
                                        
                 
  
 Address: 
 3300 East First Avenue, Suite 290 
 Denver, CO 80206 
 Fax: (303) 293-8430 
  
  
 with a copy to: 
  
 Leslie J. Goldman, Esq. 
 Skadden, Arps,
Slate, Meagher & Flom LLP 
 1440 New York Avenue, N.W. 
 Washington, DC 20005 
 Facsimile: (202) 393-5719 
  

  
 THE ADDITIONAL INVESTORS: 
  

	 WESTCLIFF PUBLIC VENTURES—KFX, L.P.
 	 	  	 	 RAM TRADING, LTD.
 
	 
	 By:
 	 	 Westcliff Capital Management, LLC
 	 	  	 	 By:
 	 	 Westcliff Capital Management, LLC                        
 
	 Its:
 	 	 General Partner
 	 	  	 	 Its:
 	 	 Investment Adviser
 
	 
	 By:
 	 	  	 	  	 	 By:
 	 	  
	  	 	 
	 	  	 	  	 	 

	  	 	 Richard S. Spencer III, Manager
 	 	  	 	  	 	 David Popovich, Chief Financial Officer
 

 
  

  
 THE EXISTING INVESTORS 
  
 
	 WESTCLIFF AGGRESSIVE GROWTH, L.P.
 WESTCLIFF ENERGY PARTNERS, L.P.
 WESTCLIFF LONG/SHORT, L.P.

WESTCLIFF PARTNERS, L.P.
 WESTCLIFF PUBLIC VENTURES FUND, L.P.
 WESTCLIFF SMALL CAP FUND, L.P.
  
 By:  Westcliff Capital Management, LLC
 Its:   General
Partner
 	 	  	 	 WESTCLIFF FOUNDATION
 WESTCLIFF MASTER FUND, L.P.
 WESTCLIFF PROFIT SHARING AND MONEY PURCHASE PENSION
PLAN
 CANCER CENTER OF SANTA BARBARA
 PALM TRUST
 PARKER FOUNDATION
 UNIVERSITY OF SAN FRANCISCO
 
	  	 	  	 	  	 	 By:
 Its:
 	 	 Westcliff Capital Management, LLC
 Investment Adviser and Attorny-In-Fact

	 By:
 	 	  	 	  	 	  	 	  
	  	 	 
	 	  	 	  	 	  
	  	 	 Richard S. Spencer III, Manager
 	 	  	 	 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Richard S. Spencer III, Manager
 

 
  
 
	 RAM TRADING, LTD.    
 	 	  	 	 NORANDA FINANCE, INC. RETIREMENT PLAN FOR AFFILIATED COMPANIES TRUST
 
	 By:
 	 	 Ritchie Capital Management, LLC
 	 	  	 	  	 	  
	 Its:
  
  
  
 By:
 

 

 

 	 	 Investment Adviser
  
  
  
 
David Popovich, Chief Financial Officer
 	 	  	 	 By:
 	 	 Mellon Bank, N.A., solely in its capacity as Trustee for the Noranda Finance, Inc. Retirement Plan for Affiliated Companies Trust (as directed by Westcliff
Capital Management, LLC), and not in its individual capacity
 
	  	 	  	 	  	 	  
 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Bernadette T. Rist
 Authorized Signatory
 

 
  
 
	 PENINSULA FUND, L.P.
 	 	  	 	 COMMON SENSE PARTNERS, L.P.
 
	 
	 By:
 	 	 Peninsula Capital Management, Inc.
 	 	  	 	 By:
 	 	 Peninsula Capital Management, Inc.
 
	 Its:
 	 	 General Partner
 	 	  	 	 Its:
 	 	 Investment Adviser
 
	 
	 By:
 	 	  	 	  	 	 By:
 	 	  
	  	 	 
	 	  	 	  	 	 

	  	 	 Scott Bedford, President
 	 	  	 	  	 	 Scott Bedford, President
 
	 
	  	 	  	 	  	 	 By:
 	 	 Common Sense Investment Management, LLC
 
	  	 	  	 	  	 	 Its:
 	 	 General Partner
 
	 
	  	 	  	 	  	 	 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Scott A. Thompson
 Director and Senior Vice President
Finance
 

 
  

 EXHIBIT A 
  
 FORM OF WARRANT 
  
 THE WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT
HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH LAWS OR UNLESS, IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER, SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED. 
  
 WARRANT TO PURCHASE COMMON STOCK 
 OF

 KFX INC. 
  
 July 19, 2002 
 No. 
  
 This certifies that [HOLDER] (the “Holder”) is entitled, subject to the terms and conditions of this Warrant, to purchase from KFx Inc., a Delaware
corporation (the “Company”), all or any part of an aggregate of [SHARES] shares of the Company’s authorized and unissued Common Stock, par value $0.001 per share (the “Warrant Stock”), at the Warrant
Price (as defined herein), upon surrender of this Warrant at the principal offices of the Company, together with a duly executed subscription form in the form attached hereto as Exhibit A and simultaneous payment of the Warrant Price for each share
of Warrant Stock so purchased in lawful money of the United States, unless exercised in accordance with the provisions of section 2.6 of this Warrant. The Holder may exercise the Warrant at any time after the date of this Warrant and prior to the
eighth anniversary of the date of issuance of this Warrant (the “Expiration Date”). 
  
 The Warrant
is one of a series of warrants issued pursuant to that certain Common Stock and Warrant Purchase Agreement, dated as of March 28, 2002, as amended by the Addendum to the Purchase Agreement, dated April 30, 2002, by the Second Addendum to the
Purchase Agreement, dated as of July 1, 2002, and by the Third Addendum to the Purchase Agreement, dated as of July 19, 2002, all by and among the Company and certain of the investors listed on Schedule A and Schedule B attached to the Third
Addendum (the “Investors”) (as amended, the “Purchase Agreement”). 
  
 1.    Definitions.    The following definitions shall apply for purposes of this Warrant: 
  
 1.1    “Acquisition” means any consolidation, merger or reorganization of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent of the Company’s voting power
immediately after such consolidation, merger or reorganization, or any transaction or 

 series of related transactions to which the Company is a party in which in excess of fifty percent of the Company’s
voting power is transferred, excluding any consolidation, merger or reorganization effected exclusively to change the domicile of the Company. 
  
 1.2    “Asset Transfer” means a sale, lease or other disposition of all or substantially all of the assets of the Company. 
  
 1.3    “Company” means the “Company” as defined above and includes any
corporation or other entity that succeeds to or assumes the obligations of the Company under this Warrant. 
  
 1.4    “Fair Market Value” of a share of Warrant Stock means (a) if the Common Stock is traded on a securities exchange, the average of the closing price each day over the thirty consecutive day
period ending three days before the date on which the fair market value of the securities is being determined, (b) if the Common Stock is actively traded over-the counter, the average of the closing bid and asked prices quoted on the NASDAQ system
(or similar system) each day over the thirty consecutive day period ending three days before the date on which the fair market value of the securities is being determined, or (c) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, then as determined by mutual agreement of the Holder and the Company. 
  
 1.5    “Holder” means the “Holder” as defined above and includes any transferee who shall at the time be the registered holder of this Warrant.

  
 1.6    “Investors’ Rights Agreement” means that certain
Investors’ Rights Agreement, dated as of March 28, 2002, as amended and restated, by and among the Company, the Holder and certain other investors listed on the Schedule of Investors attached to the Investors’ Rights Agreement.

  
 1.7    “Put Agreement” means that certain Third Amended and
Restated Put Agreement, dated as of July 19, 2002, as it may be amended from time to time, by and among the Company and the grantees listed on Exhibit A thereto. 
  
 1.8    “SEC” means the Securities and Exchange Commission. 
  
 1.9    “Securities Act” means the Securities Act of 1933, as amended. 
  
 1.10    “Warrant” means this Warrant and any warrant(s) delivered in substitution or
exchange therefor, as provided herein. 
  
 1.11    “Warrant
Price” means $2.75 per share of Warrant Stock, as the same may be adjusted pursuant to the terms of this Warrant. 
  
 1.12    “Warrant Stock” means the Common Stock of the Company. The number and character of shares of Warrant Stock are subject to adjustment as provided herein and the term “Warrant
Stock” shall include stock and other securities and property at any time receivable or issuable upon exercise of this Warrant in accordance with its terms. 
  

  
 2.    Exercise. 
  
 2.1    Method of Exercise.    Subject to the terms and conditions of this
Warrant, the Holder may exercise the purchase rights represented by this Warrant in whole or in part, at any time or from time to time, on or after the date hereof and before the Expiration Date, by surrendering this Warrant at the principal offices
of the Company, together with the subscription form attached hereto, duly completed and executed by the Holder, and payment of an amount equal to the product obtained by multiplying (a) the number of shares of Warrant Stock so purchased by (b) the
Warrant Price. 
  
 2.2    Form of Payment.    Except
as provided in section 2.6, payment may be made by (a) a check payable to the Company’s order, (b) wire transfer of funds to the Company, (c) cancellation of indebtedness of the Company to the Holder, or (d) any combination of the foregoing.

  
 2.3    Partial Exercise.    Upon a partial
exercise of this Warrant, this Warrant shall be surrendered by the Holder and replaced with a new Warrant or Warrants of like tenor for the balance of the shares of Warrant Stock purchasable under the Warrant surrendered upon such purchase. The
Warrant or Warrants will be delivered to the Holder thereof within a reasonable time. 
  
 2.4    No Fractional Shares.    No fractional shares may be issued upon any exercise of this Warrant, and any fractions shall be rounded down to the nearest whole number of shares. If
upon any exercise of this Warrant a fraction of a share results, the Company will pay to the Holder an amount equal to the such fraction multiplied by the Fair Market Value of a share of Warrant Stock. 
  
 2.5    Automatic Exercise.    Anything herein to the contrary
notwithstanding, this Warrant shall be deemed to be automatically exercised [insert if this warrant is issued to Ram Trading, Ltd.: to the extent permitted by Section 2.7 of this Warrant], with no notice required by the Holder and, in
lieu of payment as provided for in Section 2.2 of this Warrant, on a Net Issue Exercise basis as described in Section 2.6, immediately prior to the closing of an Acquisition or an Asset Transfer if the value of the cash, stock or other property that
the Holder would receive for each share of Warrant Stock if the Holder had exercised this Warrant immediately prior to the closing of an Acquisition or an Asset Transfer exceeds the Warrant Price. [Insert if this warrant is issued to Ram Trading,
Ltd.: Any portion of this Warrant that is not automatically exercised pursuant to the terms of this Section 2.5, shall remain outstanding and shall remain subject to the terms set forth herein, following such Acquisition or Asset Transfer, as
the case may be.] For purposes of this Section 2.5, the value of stock or other property described in the previous sentence will be deemed its fair market value as determined by mutual agreement of the Holder and the Company. 

 
 2.6    Net Issue Exercise Election.    The Holder may elect to
convert all or a portion of this Warrant, without the payment by the Holder of any additional consideration, by the surrender of this Warrant or such portion to the Company, with the net issue exercise election selected in the subscription form
attached hereto as Exhibit A, duly completed and executed by 

  
 the Holder, into up to the number of shares of Warrant Stock that is obtained
under the following formula: 
  
 X = Y (A-B) 
 A 
  

	        where 
 	X = the number of shares of Warrant Stock to be issued to the Holder pursuant to this section 2.6. 
 

 

	 	Y = the number of shares of Warrant Stock purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the number of shares of Warrant
Stock represented by the portion of the Warrant being exercised. 
 

 

	 	A = the Fair Market Value of one share of Warrant Stock as at the time the net issue exercise election is made pursuant to this section 2.6. 

 

	 	B = the Warrant Price. 
 

 
 2.7    [Insert if this warrant is issued to Ram Trading, Ltd.]    Limitations on Exercises.    The Company shall not effect any
exercise of this Warrant, and the Holder of this Warrant shall not have the right to exercise any portion of this Warrant pursuant to this Section 2, to the extent that after giving effect to such exercise, the Holder (together with the
Holder’s affiliates) would beneficially own in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (a) exercise of the remaining, unexercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (b) exercise or conversion of the unexercised or unconverted portion
of any other securities of the Company (including, without limitation, any other warrants, convertible notes or convertible preferred stock) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2.7, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Section 2.7, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form
10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. For any reason at any time,
upon the written or oral request of the Holder, the Company shall within three business days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was
reported. 

  
 3.    Issuance of Stock 
  
 3.1    This Warrant shall be deemed to have been exercised immediately prior to the close of business
on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of
business on such date; provided, that in the event this Warrant is automatically exercised in connection with an Acquisition or Asset Transfer pursuant to section 2.5, then the shares of Warrant Stock purchased pursuant to this Warrant shall be and
are deemed to be issued to the Holder as the record owner of such shares immediately prior to such Acquisition or Asset Transfer. As soon as practicable, but in any event no later than three days after such date, the Company shall issue and deliver
to the person or persons entitled to receive the same a certificate or certificates for the number of whole shares of Warrant Stock issuable upon such exercise. 
  
 3.2    The Company covenants and agrees that: (a) all Warrant Stock that may be issued upon the exercise of the rights represented by
this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, free from all preemptive rights, free from all taxes, liens and charges with respect to the issue thereof and free and clear of any
restrictions on transfer (other than under the Securities Act and state securities laws); and (b) that during the period within which the rights represented by this Warrant may be exercised, the Company will, at all times, have authorized, and
reserved for the purpose of the issue upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of Warrant Stock to provide for the exercise of the rights represented by this Warrant. The offer, sale and issuance of the
Warrant Stock issued upon the exercise of this Warrant shall be exempt from the registration requirements of the Securities Act and applicable state securities laws, and neither the Company nor any authorized agent acting on its behalf has taken or
will take any action hereafter that would cause the loss of such exemption. 
  
 4.    Adjustment Provisions.    The number and character of shares of Warrant Stock issuable on exercise of this Warrant (or any shares of stock or other securities or property at the
time receivable or issuable upon exercise of this Warrant) and the Warrant Price therefor, are subject to adjustment upon the occurrence of the following events between the date this Warrant is issued and the date it is exercised: 

 
 4.1    Subsequent Dilutive Event. 
  
 (a)    If, during the period beginning on the date of issuance of this Warrant and ending on and including the first anniversary of such
date, the Company issues warrants, options or any other securities (except for Preferred Stock) of the Company convertible, exercisable or exchangeable into or for Common Stock (or other securities convertible into Common Stock) at an exercise price
per share that is less than the Warrant Price, the Warrant Price shall be reduced to equal such lower exercise price. 
  
 (b)    If, during the period beginning on the date of issuance of this Warrant and ending on and including the first anniversary of such date, the exercise price of any warrants, options or other
securities (except for Preferred Stock) of the Company convertible, exercisable or exchangeable into or for Common Stock (or other securities convertible into 

  
 Common Stock) is reduced to a price that is less than the Warrant Price, the
Warrant Price shall be reduced to equal such lower exercise price. 
  
 4.2    Adjustments for Subdivisions, Combinations, etc.    If the Company shall at any time after the date of issuance of this Warrant (a) subdivide the outstanding shares of the
Company, (b) combine the outstanding shares of the Company into a smaller number of shares, or (c) declare any stock dividend, reclassification or recapitalization or other similar event affecting the number of outstanding shares of Warrant Stock
(or such other stock or securities), then the Warrant Price and the number and kind of shares of Warrant Stock receivable on exercise, in effect at the time of the effective date of such subdivision, combination, stock dividend, reclassification or
recapitalization or other similar event, shall be proportionally adjusted so that on exercise of the Warrant after such time the Holder shall receive the same number and kind of shares which, if this Warrant had been exercised immediately prior to
such date, the Holder would have owned upon such exercise and been entitled to receive by virtue of such subdivision, combination, stock dividend, reclassification or recapitalization. Such adjustment shall be made successively when any event listed
above shall occur and shall be retroactive to the record date, if any, for such event. Any adjustment made pursuant to this section 4.2 shall become effective immediately on the effective date of such event retroactive to the record date, if any,
for such event. All calculations made under this section 4.2 shall be made to the nearest 1/100th cent or
to the nearest share, as the case may be. 
  
 4.3    Adjustment for Other
Dividends and Distributions.    In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution payable with respect to the
Warrant Stock that is payable in (a) securities of the Company (other than issuances with respect to which adjustment is made under section 4.2), or (b) assets, then, and in each such case, the Holder, upon exercise of this Warrant at any time after
the consummation, effective date or record date of such event, shall receive, in addition to the shares of Warrant Stock issuable upon such exercise prior to such date, the securities or such other assets of the Company to which the Holder would
have been entitled upon such date if the Holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 
  
 4.4    Adjustment for Reorganization, Consolidation, Merger.    In case of any reorganization of the Company
(or of any other corporation or entity, the stock or other securities of which are at the time receivable upon the exercise of this Warrant) after the date of this Warrant, or in case, after such date, the Company (or any such corporation or entity)
shall consolidate with or merge into another corporation or entity or convey all or substantially all of its assets to another corporation or entity, then, and in each such case, the Holder, upon the exercise of this Warrant (as provided in section
2), at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such
consummation, the stock or other securities or property to which the Holder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if the Holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in this Warrant. The successor or purchasing corporation or entity in such reorganization, consolidation, merger or conveyance (if other than the Company) shall duly execute and deliver to the
Holder a supplement hereto acknowledging such corporation’s or 

  
 entity’s obligations under this Warrant. In each such case, the terms of
this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after the consummation of such reorganization, consolidation, merger or conveyance. 
  
 4.5    [Insert if this Warrant is issued pursuant to the Purchase Agreement]
Adjustment on Satisfaction of the Put Agreement.    If, in accordance with the Put Agreement, the Company purchases all of the shares of Common Stock issued pursuant to the Purchase Agreement, then, to the extent that all
of the Warrant Stock issuable on exercise of this Warrant have not been purchased by, or issued on a Net Issue Exercise basis pursuant to section 2.6 hereof to, the Holder, the number of remaining shares of Warrant Stock issuable on exercise of this
Warrant (or any shares of stock or other securities or property at the time receivable or issuable on exercise of this Warrant) shall be reduced to an amount equal to the product of (a) the number of such shares of Warrant Stock (or other shares or
securities or property at the time receivable or issuable on exercise of this Warrant), and (b) a fraction, the numerator of which is 112.5 and the denominator of which is 212.5. 
  
 [Insert if this Warrants is issued pursuant to the Investors’ Rights Agreement:] INTENTIONALLY OMITTED. 
  
 4.6    Notice of Adjustments.    Whenever the Warrant Price or number of
shares of Warrant Stock issuable upon exercise hereof shall be adjusted pursuant to Section 4 hereof, the Company shall issue a written notice setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Warrant Price and number of shares of Warrant Stock purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such notice to be mailed to the Holder. The Company
shall provide the Holder with not less than 10 days prior written notice of (a) any event resulting in an adjustment under Section 4 and (b) any sale, lease or other disposition of all or substantially all of the assets of the Company. 

 
 4.7    No Change Necessary.    The form of this Warrant need not
be changed because of any adjustment in the Warrant Price or in the number of shares of Warrant Stock issuable upon its exercise. 
  
 5.    No Rights or Liabilities as Stockholder.    This Warrant does not by itself entitle the Holder to any voting rights or other rights as a stockholder of the Company. In the absence
of affirmative action by the Holder to purchase Warrant Stock by exercise of this Warrant, no provisions of this Warrant, and no enumeration herein of the rights or privileges of the Holder, shall cause the Holder to be a stockholder of the Company
for any purpose. 
  
 6.    Attorneys’ Fees.    In the event any
party is required to engage the services of any attorneys for the purpose of enforcing this Warrant, or any provision thereof, the prevailing party shall be entitled to recover its reasonable expenses and costs in enforcing this Warrant, including
attorneys’ fees. 
  
 7.    Transfer.    This Warrant may be
transferred or assigned by the Holder, in whole or in part, if the Holder (a) provides written notice to the Company prior to such transfer or 

  
 assignment, in the form attached hereto as Exhibit B, and (b) delivers to the Company, on the
Company’s reasonable request, a written opinion of such Holder’s counsel reasonably satisfactory to the Company (or other evidence reasonably satisfactory to the Company) that such transfer does not require registration or qualification
under the Securities Act and any applicable state securities law; provided, however, that the Holder shall not be required to comply with clause (b) of this sentence if the transfer shall have been made by (x) a Holder which is a partnership or
limited liability company to a partner, former partner, member, former member, or other affiliate of such partnership or limited liability company, as the case may be, or (y) a Holder to any corporation, partnership or limited liability company
controlling, controlled by, or under common control or investment management with such Holder. The rights and obligations of the Company and the Holder under this Warrant shall be binding upon and benefit their respective permitted successors,
assigns, heirs, administrators and transferees. 
  
 8.    Loss or
Mutilation.    Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership and the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to it, and (in the
case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new Warrant of like tenor. 
  
 9.    Governing Law.    This Warrant shall be governed by and construed and interpreted in accordance with the laws of the State of New York, without
giving effect to its conflicts of law principles. 
  
 10.    Headings.    The headings and captions used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references
in this Warrant to sections and exhibits shall, unless otherwise provided, refer to sections hereof and exhibits attached hereto, all of which exhibits are incorporated herein by this reference. 
  

11.    Notices.    Any request, consent, notice or other communication required or permitted under this Warrant shall be
in writing and shall be deemed duly given and received when delivered personally or transmitted by facsimile, one business day after being deposited for next-day delivery with a nationally recognized overnight delivery service, or three days after
being deposited as first class mail with the United States Postal Service, all charges or postage prepaid, and properly addressed to the party to receive the same at the address indicated for such party on the signature pages of the Purchase
Agreement. Any party may, at any time, by providing ten days’ advance notice to the other party hereto, designate any other address in substitution of the an address established pursuant to the foregoing. All correspondence to the Company shall
be addressed as follows: 
  
 KFx Inc. 
 3300 East First Avenue, Suite 290 
 Denver, CO 80206 
 Facsimile: (303) 293-8430 
 Attention: Chief Executive Officer 
  
 with a copy to: 

  
 Leslie J. Goldman, Esq. 
 Skadden, Arps, Slate, Meagher & Flom LLP 
 1440 New York Avenue, N.W. 
 Washington, DC 20005 
 Facsimile: (202) 393-5719 
  
 12.    Amendment; Waiver.    Any term of this Warrant may be amended, and the observance of
any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder. 
  
 13.    Severability.    If one or more provisions of this Warrant are held to be unenforceable under applicable law, such
provision(s) shall be replaced with a provision that accomplishes, to the extent possible, the original business purpose of such provision in a valid and enforceable manner, and the balance of the Warrant shall be interpreted as if such provision
were so modified and shall be enforceable in accordance with its terms. 
  
 14.    Terms
Binding.    By acceptance of this Warrant, the Holder accepts and agrees to be bound by all the terms and conditions of this Warrant. 
  
 15.    Valid Issuance; Taxes.    All shares of Warrant Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and
non-assessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery thereof. The Company shall not be required to pay any tax or other charge imposed in connection with any
transfer involved in the issuance of any certificate for shares of Warrant Stock in any name other than that of the Holder of this Warrant. 
  
 16.    Registration Rights.    All shares of Warrant Stock issuable upon exercise of this Warrant shall be deemed to be “Registrable Securities”
or such other definition of securities entitled to registration rights pursuant to the Investors’ Rights Agreement, and are entitled, subject to the terms and conditions of that agreement, to all registration rights granted to holders of
Registrable Securities thereunder. 
  
 17.    No Impairment.    The
Company will not, by amendment of its certificate of incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of
the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock issuable upon the exercise of this Warrant above the amount payable therefor upon
such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Warrant Stock upon exercise of this Warrant. 

  
 IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the date
forth below. 
  
 Dated: July 19, 2002 
  

	 KFX INC.
 
	 
	 By:
 	 	  
	  	 	 

	  	 	 Name: Theodore Venners
 Title:    President and Chief
Executive Officer
 

 

  
 EXHIBIT A 
  
 FORM OF SUBSCRIPTION 
 (To be signed only on exercise of Warrant) 

 
 To:    KFx Inc. 
  
 (1)    Check the box that applies and then provide the necessary information: 
  
  ̈    Purchase
Election.    The undersigned Holder hereby elects to purchase              shares of Common Stock of KFx Inc. (the “Warrant Stock”), pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full. 
  
  ̈    Net Issue Exercise Election.    The undersigned Holder
elects to convert the Warrant into shares of Warrant Stock by net issue exercise election pursuant to section 2.6 of the Warrant. This conversion is exercised with respect to
             shares of Common Stock of KFx Inc. (the “Warrant Stock”) covered by the Warrant. 
  
 (2)    In exercising the Warrant, the undersigned Holder hereby makes the representations and warranties set forth on Appendix I hereto as of the date
hereof. 
  
 (3)    Please issue a certificate or certificates representing such shares of Warrant
Stock in the name or names specified below: 
  
 
	 
	    	 

	 (Name)
 	    	 (Name)
 
	  	    	  
	 
	    	 

	 (Address)
 	    	 (Address)
 
	  	    	  
	 
	    	 

	 (City, State,Zip Code)
 	    	 (City, State, Zip Code)
 
	  	    	  
	 
	    	 

	 (Federal Tax Identification Number)
 	    	 (Federal Tax Identification Number)
 
	  	    	  
	 
	    	 

	 (Date)
 	    	 (Signature of Holder)
 

 
  

  
 Appendix I 
 INVESTMENT REPRESENTATION 
  
 The undersigned,
             (the “Holder”), intends to acquire shares of Common Stock (the “Common Stock”) of KFx Inc. (the “Company”) from the Company pursuant to the
exercise or conversion of a Warrant to Purchase Common Stock held by the Holder. The Company intends to issue the Common Stock to the Holder in a transaction not involving a public offering and pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, the Holder
represents, warrants and agrees as follows: 
  
 (a)  The Holder is acquiring the Common Stock for its own account, to hold for
investment, and the Holder shall not make any sale, transfer or other disposition of the Common Stock in violation of the Securities Act or the rules promulgated thereunder or in violation of any applicable state securities law. 

 
 (b)  The Holder has been advised that the Common Stock has not been registered under the Securities Act or state securities laws on the
ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on the Holder’s representations set forth herein. 
  

(c)  The Holder has been informed that under the Securities Act, the Common Stock must be held indefinitely unless it is subsequently registered under the Securities Act or unless
an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by the Holder of the Common Stock. The Holder further agrees that the Company may refuse to permit the Holder to sell, transfer
or dispose of the Common Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the Securities Act and any applicable state securities laws covering such transfer, or unless the Holder furnishes an
opinion of counsel reasonably satisfactory to counsel for the Company to the effect that such registration is not required. 
  
 The Holder
also understands and agrees that there will be placed on the certificate(s) for the Common Stock or any substitutions therefor, a legend stating in substance: 
  
 “The securities represented by this certificate have not been registered or qualified under the Securities Act of 1933, as amended, or any state
securities laws and thus may not be transferred unless restricted or qualified under that act or such laws or unless, in the opinion of counsel reasonably satisfactory to the issues, registration or qualification is not required.” 

 

  
 EXHIBIT B 
  
 ASSIGNMENT FORM 
 (To assign the foregoing Warrant to Purchase Common Stock,

 execute this form and supply required information. 
 Do not use this form
to purchase shares.) 
  
 FOR VALUE RECEIVED, the foregoing Warrant to Purchase Common Stock and all rights evidenced thereby are hereby
assigned to 
  
 
(Please Print) 
  
 whose address is 
 
(Please Print) 
  
 
 
 Dated: 
                     ,           

	

	

 
	 
	 Holder’s Signature:
 	 	 

	 Holder’s Address:
 	 	 

	  	 	 

	  	 	  
	  	 	  

 

	

	

  
 EXHIBIT B 
  
 LEGAL OPINION 

  
 EXHIBIT C 
  
 THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT 
  
 THIS THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Agreement”) is made as of July 19, 2002, by and among KFx Inc., a Delaware corporation (the “Company”), and the
Investors listed on Schedule A hereto (each of whom is herein called individually, an “Investor” and all of whom are herein called, collectively, the “Investors”), with reference to the following facts:

  
 WHEREAS, certain of the Investors are parties to the Common Stock and Warrant Purchase Agreement, dated as of
March 28, 2002 (the “Original Purchase Agreement” and as amended by the Addendum to the Common Stock and Warrant Purchase Agreement, dated as of April 30, 2002 (the “First Addendum”), the Second Addendum to the
Common Stock and Warrant Purchase Agreement, dated as of July 1, 2002, and the Third Addendum described below, the “Purchase Agreement”); 
  
 WHEREAS, in connection with the closing of the transactions described in the Original Purchase Agreement, the Company and certain of the Investors entered into an Investors’ Rights Agreement,
dated as of March 28, 2002 (the “Original Investors’ Rights Agreement”); 
  
 WHEREAS, the
Company and certain of the Investors amended the Original Investors’ Rights Agreement pursuant to that certain First Amendment to Investors’ Rights Agreement, dated as of April 18, 2002; 
  
 WHEREAS the Company and certain of the Investors amended and restated in its entirety the Original Investors’ Rights Agreement (as
amended by the First Amendment to Investors’ Rights Agreement) pursuant to the Amended and Restated Investors’ Rights Agreement, dated as of April 30, 2002, and pursuant to the Second Amended and Restated Investors’ Rights Agreement,
dated as of July 1, 2002; 
  
 WHEREAS, the Investors are parties to that certain Third Addendum to the Common Stock
and Warrant Purchase Agreement, dated as of July 19, 2002 (the “Third Addendum”), which provides that, as a condition to the closing of the transactions contemplated by the Third Addendum, the Second Amended and Restated
Investors’ Rights Agreement must be amended and restated in its entirety; 
  
 WHEREAS, the Company and the
Investors desire to amend and restate in its entirety the Second Amended and Restated Investors’ Rights Agreement pursuant to this Agreement. 
  
 NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and for other consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto
further agree as follows: 
  
 1.    Certain
Definitions.    Capitalized terms not defined herein are defined in the Purchase Agreement. The following definitions shall apply for purposes of this Agreement: 
  
 1.1    “Additional Registrable Securities” means Registrable Securities that are (a) shares of the Company’s
Common Stock issued pursuant to the Second Addendum and, if applicable, shares related to such shares issued pursuant to this Agreement, (b) shares of the Company’s Common Stock issued on exercise of the Warrants issued pursuant to the Second

  
 Addendum and, if applicable, this Agreement, and (c) any Common Stock of the
Company issued as (or issuable on the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in clauses (a)
and (b) above 
  
 1.2    “Form S-3” means such form under the
Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company
with the SEC. 
  
 1.3    “Holder” means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in accordance with section 2.10 hereof. 
  
 1.4    “New Registrable Securities” means Registrable Securities that are (a) shares of the Company’s Common Stock issued pursuant to the Third Addendum and, if applicable, shares
related to such shares issued pursuant to this Agreement, (b) shares of the Company’s Common Stock issued on exercise of the Warrants issued pursuant to the Third Addendum and, if applicable, this Agreement, and (c) any Common Stock of the
Company issued as (or issuable on the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in clauses (a)
and (b) above 
  
 1.5    “Purchase Price” means $2.50 per share
of Common Stock or Preferred Stock, as the case may be, as that price shall be appropriately adjusted to reflect any stock dividend, stock split, reverse stock split, combination of shares, reclassification, recapitalization or other similar event
affecting the number of outstanding shares of Common Stock (or such other stock or securities). 
  
 1.6    “Purchase Price Per Common Share Equivalent” means (a) if Common Stock is issued in the Subsequent Dilutive Offering, the price per share of Common Stock, or (b) if Preferred Stock is
issued in the Subsequent Dilutive Offering, the price at which a share of such Preferred Stock is issued in the Subsequent Dilutive Offering divided by the number of shares of Common Stock into which such share of Preferred Stock may be converted.

  
 1.7    “Register”, “registered”, and
“registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration
statement or document. 
  
 1.8    “Registrable Securities” means
(a) the shares of the Company’s Common Stock issued pursuant to the Purchase Agreement and, if applicable, this Agreement, (b) shares of the Company’s Common Stock previously acquired by the Investors and listed on Schedule B hereto, (c)
shares of the Company’s Common Stock issuable on exercise of the Warrants (as defined in the Purchase Agreement) issued pursuant to the Purchase Agreement and, if applicable, this Agreement, and (d) any Common Stock of the Company issued as (or
issuable on the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced 

 in clauses (a), (b) and (c) above; provided that there shall be excluded any Registrable Securities sold by a person in a
transaction in which that person’s rights under section 2 are not assigned. 
  
 1.9    The number of shares of “Registrable Securities” outstanding shall be determined by the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock
issuable pursuant to then exercisable or convertible securities that are, Registrable Securities. 
  
 2.    Registration Rights.    The Company covenants and agrees as follows: 
  
 2.1    Mandatory Registration. 
  
 (a)    Except as described in sections 2.1(b) and 2.1(c): 
  
 (i)    The Company shall prepare and file with the SEC on or before May 7, 2002 (the “Filing Deadline”) a registration statement on Form S-3 (or, if Form S-3 is not then available, on such form of
registration statement that is then available to effect a registration of all Registrable Securities, subject to consent of the Investors holding at least a majority of the Registrable Securities) for the purpose of registering under the Securities
Act all of the Registrable Securities for resale by, and for the account of, the Holders as selling stockholders thereunder (the “Registration Statement”). The Company shall use best efforts to cause the Registration Statement to
become effective as soon as possible after filing. The Company shall keep such registration statement effective at all times until the earlier of the date on which all the Registrable Securities (A) are sold and (B) can be sold by all the Holders
(and any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) in any three-month period without volume limitation and without registration in compliance with Rule 144 under the Securities Act. The date on which the
Registration Statement is withdrawn pursuant to the preceding sentence is the “Registration Withdrawal Date”. 
  
 (ii)    If the Company has not filed the Registration Statement with the SEC on or before May 7, 2002, the Company shall issue to each Holder an additional warrant (on the same
terms and conditions as the Warrants, including the Exercise Price then in effect (a “Registration Warrant”)), to acquire that number of shares of Common Stock equal to ten percent (10%) of the number of shares of Common Stock
issuable on exercise of the Warrants issued to that Holder. 
  
 (iii)    At the
end of each thirty (30) day period (or a portion thereof) after May 7, 2002, that the Registration Statement has not been filed with the SEC, the Company shall issue to each Holder a Registration Warrant to acquire that number of shares of Common
Stock equal to (A) ten percent (10%) of the number of shares of Common Stock issuable on exercise of the Warrants issued to that Holder, multiplied by (B) a fraction, the numerator of which is the number of days during such thirty-day period before
the date on which the Registration Statement was filed with the SEC and the denominator of which is thirty. 
  
 (iv)    If the Registration Statement has not been declared effective by the SEC on or before June 21, 2002, the Company shall issue to each Holder a Registration Warrant to acquire that number of shares of Common
Stock equal to ten percent 

 (10%) of the number of shares of Common Stock issuable on exercise of the Warrants issued to that Holder. 

 
 (v)    At the end of each thirty (30) day period (or a portion thereof) after June 21,
2002, that the Registration Statement has not been declared effective by the SEC, the Company shall issue to each Holder a Registration Warrant to acquire that number of shares of Common Stock equal to (A) ten percent (10%) of the number of shares
of Common Stock issuable on exercise of the Warrants issued to that Holder, multiplied by (B) a fraction, the numerator of which is the number of days during such thirty-day period before the date on which the Registration Statement is declared
effective by the SEC and the denominator of which is thirty. 
  
 (b)    Notwithstanding anything contained in section 2.1(a) to the contrary, with respect to Additional Registrable Securities: 
  
 (i)    The Company shall prepare and file with the SEC on or before July 31, 2002 (A) a registration statement on Form S-3 (or, if Form
S-3 is not then available, on such form of registration statement that is then available to effect a registration of all Additional Registrable Securities, subject to consent of the Investors holding at least a majority of the Additional Registrable
Securities) or (B) an amendment to the Registration Statement described in section 2.1(a), for the purpose of registering under the Securities Act all of the Additional Registrable Securities for resale by, and for the account of, the Holders of
Additional Registrable Securities as selling stockholders thereunder (such registration statement or amendment to the Registration Statement, as the case may be, is referred to herein as the “Second Registration Statement”). The
Company shall use best efforts to cause the Second Registration Statement to become effective as soon as possible after filing. The Company shall keep such registration statement effective at all times until the earlier of the date on which all the
Additional Registrable Securities are sold and can be sold by all the Holders of Additional Registrable Securities (and any affiliate of such Holder with whom such Holder must aggregate its sales under Rule 144) in any three-month period without
volume limitation and without registration in compliance with Rule 144 under the Securities Act. 
  
 (ii)    If the Company has not filed the Second Registration Statement with the SEC on or before July 31, 2002, the Company shall issue to each Holder of Additional Registrable Securities an additional warrant (on
the same terms and conditions as the Warrants, including the Exercise Price then in effect (a “Second Registration Warrant”)), to acquire that number of shares of Common Stock equal to ten percent (10%) of the number of shares of
Common Stock issuable on exercise of the Warrants issued to that Holder. 
  
 (iii)    At the end of each thirty (30) day period (or a portion thereof) after July 31, 2002, that the Second Registration Statement has not been filed with the SEC, the Company shall issue to each Holder of
Additional Registrable Securities a Second Registration Warrant to acquire that number of shares of Common Stock equal to (A) ten percent (10%) of the number of shares of Common Stock issuable on exercise of the Warrants issued to that Holder,
multiplied by (B) a fraction, the numerator of which is the number of days during such thirty-day period before the date on which the Second Registration Statement was filed with the SEC and the denominator of which is thirty. 

 (iv)    If the Second Registration Statement has not been declared effective by the
SEC on or before August 31, 2002, the Company shall issue to each Holder of Additional Registrable Securities a Second Registration Warrant to acquire that number of shares of Common Stock equal to ten percent (10%) of the number of shares of Common
Stock issuable on exercise of the Warrants issued to that Holder. 
  
 (v)    At
the end of each thirty (30) day period (or a portion thereof) after August 31, 2002, that the Second Registration Statement has not been declared effective by the SEC, the Company shall issue to each Holder of Additional Registrable Securities a
Second Registration Warrant to acquire that number of shares of Common Stock equal to (A) ten percent (10%) of the number of shares of Common Stock issuable on exercise of the Warrants issued to that Holder, multiplied by (B) a fraction, the
numerator of which is the number of days during such thirty-day period before the date on which the Second Registration Statement is declared effective by the SEC and the denominator of which is thirty. 
  
 (c)    Notwithstanding anything contained in section 2.1(a) or 2.1(b) to the contrary, with respect to
New Registrable Securities: 
  
 (i)    The Company shall prepare and file with
the SEC not later than the earlier of August 16, 2002, and one week after each of the Registration Statement and Second Registration Statement is declared effective by the SEC (the “Required Filing Date”), (A) a registration
statement on Form S-3 (or, if Form S-3 is not then available, on such form of registration statement that is then available to effect a registration of all New Registrable Securities, subject to consent of the Investors holding at least a majority
of the New Registrable Securities), or (B) an amendment to the Registration Statement described in section 2.1(a) or the Second Registration Statement described in section 2.1(b), for the purpose of registering under the Securities Act all of the
New Registrable Securities for resale by, and for the account of, the Holders of New Registrable Securities as selling stockholders thereunder (such registration statement or amendment to registration statement, as the case may be, is referred to
herein as the “Third Registration Statement”). The Company shall use best efforts to cause the Third Registration Statement to become effective as soon as possible after filing. The Company shall keep such registration statement
effective at all times until the earlier of the date on which all the New Registrable Securities are sold and can be sold by all the Holders of New Registrable Securities (and any affiliate of such Holder with whom such Holder must aggregate its
sales under Rule 144) in any three-month period without volume limitation and without registration in compliance with Rule 144 under the Securities Act. 
  
 (ii)    If the Company has not filed the Third Registration Statement with the SEC on or before the Required Filing Date, the Company
shall issue to each Holder of New Registrable Securities an additional warrant (on the same terms and conditions as the Warrants, including the Exercise Price then in effect (a “Third Registration Warrant”)), to acquire that number
of shares of Common Stock equal to five percent (5%) of the number of shares of Common Stock issuable on exercise of the Warrants issued pursuant to the Third Addendum to that Holder. 
  
 (iii)    At the end of each thirty (30) day period (or a portion thereof) after the Required Filing Date that the Third Registration
Statement has not been filed 

  
 with the SEC, the Company shall issue to each Holder of New Registrable
Securities a Third Registration Warrant to acquire that number of shares of Common Stock equal to (A) five percent (5%) of the number of shares of Common Stock issuable on exercise of the Warrants issued pursuant to the Third Addendum to that
Holder, multiplied by (B) a fraction, the numerator of which is the number of days during such thirty-day period before the date on which the Third Registration Statement was filed with the SEC and the denominator of which is thirty. 

 
 (iv)    If the Third Registration Statement has not been declared effective by the SEC on
or before thirty days after it is filed (the “Required Effective Date”), the Company shall issue to each Holder of New Registrable Securities a Third Registration Warrant to acquire that number of shares of Common Stock equal to
five percent (5%) of the number of shares of Common Stock issuable on exercise of the Warrants issued pursuant to the Third Addendum to that Holder. 
  
 (v)    At the end of each thirty (30) day period (or a portion thereof) after the Required Effective Date that the Third Registration
Statement has not been declared effective by the SEC, the Company shall issue to each Holder of New Registrable Securities a Third Registration Warrant to acquire that number of shares of Common Stock equal to (A) five percent (5%) of the number of
shares of Common Stock issuable on exercise of the Warrants issued pursuant to the Third Addendum to that Holder, multiplied by (B) a fraction, the numerator of which is the number of days during such thirty-day period before the date on which the
Third Registration Statement is declared effective by the SEC and the denominator of which is thirty. 
  
 2.2    Company Registration. 
  
 (a)    If (but without any obligation to do so) the Company proposes to register any of its stock (including a registration effected by the Company for stockholders other than the Holders) or other securities
under the Securities Act in connection with the public offering of such securities, the Company shall, at such time, promptly give each Holder notice of such registration. On the request of each Holder given within thirty days after such notice by
the Company, the Company shall, subject to the provisions of section 2.2(c), cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. 
  
 (b)    The Company shall have the right to terminate or withdraw any registration initiated by it
under this section 2.2 prior to the effectiveness of such registration, whether or not any Holder shall have elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance
with section 2.7 hereof. 
  
 (c)    In connection with any offering involving an
underwriting of shares of the Company’s capital stock, the Company shall not be required under this section 2.2 to include any requesting Holder’s securities in such underwriting, unless such Holder accepts the terms of the underwriting as
agreed between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters) and enters into an underwriting agreement in customary form with the underwriter or underwriters selected by the Company, and

  
 then only in such quantity as the underwriters advise the Company in writing in
their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by the Holders to be included in such offering exceeds the amount of securities sold
other than by the Company that the underwriters advise the Company in writing in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such Registrable
Securities that the underwriters determine in their sole discretion will not jeopardize the success of the offering (the Registrable Securities so included to be apportioned pro rata among the selling Holders according to the total amount of
Registrable Securities entitled to be included therein owned by each selling Holder or in such other proportions as shall mutually be agreed to by such selling Holders); provided, that in no event shall the amount of Registrable Securities of the
selling Holders included in the offering be reduced below one-third of the total amount of securities included in such offering. For purposes of such apportionment among Holders, for any selling stockholder that is a Holder of Registrable Securities
and that is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons
shall be deemed to be a single “selling Holder”, and any pro rata reduction with respect to such “selling Holder” shall be based on the aggregate amount of Registrable Securities owned by all such related entities and
individuals. 
  
 2.3    Form S-3 Registration.    If,
at any time after the Registration Withdrawal Date, the Company shall receive from one or more Holders a request or requests that the Company effect a registration on Form S-3 and any related blue sky or similar qualification or compliance with
respect to the Registrable Securities owned by such Holder or Holders, the Company shall: 
  
 (a)    Within five days of the receipt thereof, give notice of the proposed registration, and any related blue sky or similar qualification or compliance, to all other Holders; and 
  
 (b)    Cause, as soon as reasonably practicable, such Registrable Securities to be registered for
offering and sale on Form S-3 and cause such Registrable Securities to be qualified in such jurisdictions as such Holders may reasonable request, together with all or such portion of the Registrable Securities of any other Holders joining in such
request as are specified in a request given within twenty days after receipt of such notice from the Company; provided that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this section
2.3: 
  
 (i)    If the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $1,000,000; 
  
 (ii)    If the Company has, within the twelve month period preceding the date of such request,
already effected two registrations for the Holders pursuant to this section 2.3 or section 2.4; 

  
 (iii)    If the Company furnishes to the
Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety days after receipt of the request of the Holder or Holders
under this section 2.3; provided that the Company shall not utilize this right, together with its right under section 2.4(c), more than once in any twelve month period; provided, further, that the Company shall not register shares for its own
account during such ninety day period unless the Holder can exercise its right to request the registration of Registrable Securities under section 2.2; or 
  
 (iv)    In any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or compliance. 
  
 (c)    Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as reasonably practicable after
receipt of the request or requests of the Holders. 
  
 2.4    Request for Registration.

  
 (a)    If, at any time after the Registration Withdrawal Date, the Company is
not eligible to effect a registration on Form S-3 and the Company shall, during such period that it is not so eligible, receive a written request from the Holders that the Company file a registration statement under the Securities Act covering the
registration of all or a portion of the Registrable Securities then outstanding, then the Company shall: 
  
 (i)    within five days of the receipt thereof, give notice of the proposed registration, and any related blue sky or similar qualification or compliance, to all other Holders; and 
  
 (ii)    cause, as soon as reasonably practicable, such Registrable Securities to be registered for
offering and sale and cause such Registrable Securities to be qualified in such jurisdictions as such Holders may reasonable request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are
specified in a request given within twenty days after receipt of such notice from the Company; provided that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this section 2.4: 

 
 (A)    if the Holders propose to sell Registrable Securities at an aggregate price to the
public of less than $1,000,000; 
  
 (B)    if the Company has, within the twelve
month period preceding the date of such request, already effected two registrations for the Holders pursuant to section 2.3 or this section 2.4; and 
  

  
 (C)    in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. 
  
 (b)    If the Holders initiating the registration request hereunder (“Initiating Holders”) intend to distribute the
Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to section 2.4(a) and the Company shall include such information in the written notice referred to
in section 2.4(a). The underwriter will be selected by a majority in interest (as determined by the number of Registrable Securities held) of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any
Holder to include his, her or its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided
in section 2.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this section 2.4, if the underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities owned by
each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. 
  
 (c)    Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a
registration statement pursuant to this section 2.4, a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be seriously detrimental to the Company
and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of
not more than ninety days after receipt of the request of the Initiating Holders; provided that the Company may not utilize this right, together with its right under section 2.3(b)(iii) more than once in any twelve month period; provided further,
that the Company shall not register shares for its own account during such ninety day period unless the Holder can exercise its right to request the registration of Registrable Securities under section 2.2. 
  
 2.5    Obligations of the Company.    Whenever required under this section
2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: 
  
 (a)    Except as otherwise provided in section 2.1, prepare and file with the SEC a registration statement with respect to such Registrable Securities and use best efforts to cause such registration
statement to become effective, and, on the request of the Holders of a 

  
 majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to 180 days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided that (i) such 180-day period shall be extended for a period of time equal
to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on
Form S-3 (or any other Form, to the extent permitted by law) that are intended to be offered on a continuous or delayed basis, such 180-day period shall be extended, if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, except to the extent that the Holders (and any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) of such Registrable Securities may sell those Registrable Securities in any
three-month period without regard to the volume limitation and without registration in compliance with Rule 144 under the Securities Act; 
  
 (b)    Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be
necessary to comply with the Securities Act with respect to the disposition of all securities covered by such registration statement during the period of time such registration statement remains effective; 
  
 (c)    Furnish to the Holders such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request to facilitate the disposition of Registrable Securities owned by them; 
  
 (d)    Use best efforts to register and qualify the securities covered by such registration statement
under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or jurisdictions; 
  
 (e)    In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;

  
 (f)    During the period of time such registration statement remains
effective, notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act or the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; and, thereafter, the Company will promptly prepare (and, when completed, deliver to each selling Holder) a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the
circumstances then existing; 

  
 (g)    Cause all such Registrable Securities
registered hereunder to be listed on each securities exchange on which securities of the same class issued by the Company are then listed; 
  
 (h)    Provide a transfer agent and registrar for all Registrable Securities registered hereunder and a CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration; and 
  
 (i)    Furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this section 2, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this section 2 if such
securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities, and (ii) a “comfort” letter signed by the independent public accountants who have certified the Company’s financial statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus included therein) and with respect to events subsequent to the date of the financial statements, as are customarily covered in accountants’ letters delivered to the
underwriters in underwritten public offerings of securities addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 
  
 2.6    Information from Holder.    It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding such Holder, the Registrable Securities held by such Holder, and the
intended method of disposition of such securities as shall be required to effect the registration of such Registrable Securities. 
  
 2.7    Expenses of Registration.    All expenses incurred in connection with registrations, filings or qualifications pursuant to sections 2.1, 2.2, 2.3
and 2.4, including (without limitation) all registration, filing and qualification fees, printing fees and expenses, accounting fees and expenses, fees and disbursements of counsel for the Company and the fees and disbursements of counsel for the
selling Holders selected by the Holders, shall be borne by the Company. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to section 2.3 or 2.4 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based on the number of Registrable Securities
that were requested to be included in the withdrawn registration); provided that, if at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition (financial or otherwise), business, or prospects of the
Company from that known to the Holders at the time of their request and shall have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay
any of such expenses and shall retain their rights pursuant to section 2.3 or 2.4. Anything herein to the contrary 

 notwithstanding, all underwriting discounts, commissions and transfer taxes incurred in connection with a sale of
Registrable Securities shall be borne and paid by the Holder thereof, and the Company shall have no responsibility therefor. 
  
 2.8    Indemnification.    If any Registrable Securities are included in a registration statement under this section 2: 
  
 (a)    To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the
partners, officers, directors, stockholders, members and managers of such Holder, legal counsel and accountants for such Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or any other federal or state
securities law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based on any of the following statements, omissions or violations (collectively a “Violation”): (i) any
untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will reimburse such Holder, underwriter or controlling person for any legal or other expenses
incurred, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided that the indemnity agreement in this section 2.8(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based on a Violation that occurs in reliance on and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or
controlling person. 
  
 (b)    To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who shall have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, legal counsel
and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities to which any
of the foregoing persons may become subject, under the Securities Act, the Exchange Act or any other federal or state securities law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based on
any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance on and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such
Holder will reimburse any person intended to be indemnified pursuant to this section 2.8(b), for any legal or other expenses reasonably incurred, as incurred, by such person in connection with investigating or defending any such loss, claim, damage,
liability or action; provided that the 

 indemnity agreement in this section 2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld or delayed); and provided further that in no event shall any indemnity by such Holder under this section 2.8(b),
when aggregated with amounts contributed, if any, pursuant to section 2.8(d), exceed the net proceeds from the sale of Registrable Securities hereunder received by such Holder. 
  
 (c)    Promptly after receipt by an indemnified party under this section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this section 2.8, deliver to the indemnifying party notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent that the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided
that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such
proceeding. The failure to notify the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified
party under this section 2.8, but the omission so to notify the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this section 2.8. 
  
 (d)    If the indemnification provided in this section 2.8 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party
on the other in connection with the statements or omissions that shall have resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided that in no event shall any contribution by a
Holder under this section 2.8(d), when aggregate with amounts paid, if any, pursuant to section 2.8(b), exceed the net proceeds from the sale of Registrable Securities hereunder received by such Holder. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 
  
 (e)    Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 

  
 (f)    The obligations of the Company and
Holders under this section 2.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this section 2, and otherwise. 
  
 2.9    Reports under Exchange Act.    With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees
to: 
  
 (a)    Make and keep public information available, as those terms are
used in SEC Rule 144, at all times; 
  
 (b)    Take such action as is necessary
to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities; 
  
 (c)    File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; 
  
 (d)    Furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith on request, (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form; and 
  
 (e)    Undertake any additional actions reasonably necessary to maintain the availability of the Registration Statement, Second Registration Statement, Third Registration Statement or the use of Rule 144.

  
 2.10    Assignment of Registration Rights.    The
rights to cause the Company to register Registrable Securities pursuant to this section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such Registrable Securities that (a) is a subsidiary,
parent, current or former partner, current or former limited partner, current or former member, current or former manager or stockholder of a Holder, (b) is an entity controlling, controlled by or under common control, or under common investment
management, with a Holder, including without limitation a corporation, partnership or limited liability company that is a direct or indirect parent or subsidiary of the Holder, or (c) is a transferee or assignee of at least 10,000 (as adjusted for
stock split, combinations, dividends and the like) shares of such Registrable Securities; provided that: (i) the Company is, within a reasonable time after such transfer, notified of the name and address of such transferee or assignee and the
Registrable Securities with respect to which such registration rights are being assigned; (ii) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement; and (iii) such assignment shall be
effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. 

  
 2.11    Limitations on Subsequent
Registration Rights.    From and after the date of this Agreement, the Company shall not, without the prior consent of the Holders of at least two-thirds of the Registrable Securities then outstanding, enter into any
agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder to include such securities in any registration filed under sections 2.1, 2.3 and 2.4 hereof, unless under the terms
of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are
included; provided, however, that this section shall not apply to the transaction described on Schedule 2.14 of the Purchase Agreement. 
  
 3.    Covenants. 
  
 3.1    Reserve for Exercise Shares.    The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock such number of shares of Common
Stock (the “Exercise Shares”) as shall be sufficient to enable it to comply with its exercise obligations under the Warrants, Registration Warrants, Second Registration Warrants and Third Registration Warrants. If at any time the
number of Exercise Shares shall not be sufficient to effect the exercise of the Warrants, Second Registration Warrants and Third Registration Warrants, the Company will forthwith take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number as will be sufficient for such purposes. The Company will obtain authorization, consent, approval or other action by, or make any filing with, any administrative body that may be required
under applicable state securities laws in connection with the issuance of Exercise Shares. 
  
 3.2    Preferred Stock.    Except for the transaction described in item 2 of Schedule 2.14 of the Purchase Agreement, the Company shall not issue any preferred stock of the Company (or
other securities of any nature convertible into preferred stock of the Company) without the consent of Holders holding at least two-thirds of the then outstanding Registrable Securities. 
  
 3.3    Right to Develop or Participate in Commercial Projects (K-Fuel Processing Plants) That Use K-Fuel
Technology.    Subject to that certain First Amended Limited Liability Agreement of K-Fuel LLC, dated as of June 29, 1999, between the Company and Kennecott Alternative Fuels, Inc. (“Kennecott”) (the
“K-Fuel Agreement”), the Company agrees to grant a license, through K-Fuel LLC, or cause K-Fuel LLC to grant a license, to one or more of the Holders (or their affiliates or one or more entities that are formed by one or more of the
Holders) (referred to herein as the “Licensee”) to develop Commercial Projects (as defined in the K-Fuel Agreement) and to otherwise provide, manufacture, use, employ, practice, distribute, reproduce, disseminate, make, have made,
sell, offer to sell, have sold, research, design, develop, market or otherwise exploit any and all rights under the K-Fuel Technology (as defined in the K-Fuel Agreement) that are requested by one or more of the Licensees, and grants to the
Licensees the right to participate in any and all Commercial Projects in which the Company or its affiliates participate, in connection with the greater of the (a) construction of one or more Commercial Projects in the United States in which the
aggregate production of K-Fuel Products per year from such Commercial Projects allocable to the Licensees based on the Licensees’ pro rata equity ownership interest in such Commercial Projects is not greater than fifty million tons (for

  

 example, if a Commercial Project produces ten million tons of K-Fuel Products per year and the Licensees have a fifty
percent equity ownership interest in that Commercial Project, then five million tons of such K-Fuel Products shall be allocable to the Licensees ownership interest in that Commercial Project) and (b) construction of six Commercial Projects in the
United States in which the Licensees (individually or as a group) take an equity interest. Such license will include any and all rights relating to such K-Fuel Technology, including all right to market all K-Fuel Products (as defined in the K-Fuel
Agreement) produced by the Commercial Project at market prices, to manage the Commercial Project for reasonable fees, and to supply coal and other related feedstock for any such Commercial Project. Notwithstanding the foregoing, Kennecott shall
retain the right to market its share of K-Fuel Product produced by each Commercial Project in which Kennecott has at least a twenty percent equity interest. Licensee shall pay license fees and royalties in connection with such Commercial Projects at
the lesser of the rate applicable to a non-Kennecott project under the K-Fuel Agreement or the lowest rate charged by the Company and K-Fuel LLC, in the aggregate, for a non-Kennecott project. It is further agreed and understood that the Commercial
Projects contemplated herein may be third-party projects under 10.7 of the K-Fuel Agreement. 
  
 3.4    Right to Participate in Place of the Company.    For Commercial Projects that are determined to fall under 10.5(iii) of the K-Fuel Agreement, (a) to the extent that the Company
does not exercise its entire option to fund a portion of the capital for a Commercial Project pursuant to the K-Fuel Agreement (that is, the Company does not elect to fund any portion of such Commercial Project or elects to fund less than fifty
percent of such Commercial Project), the Company hereby assigns to the Licensee(s) the Company’s right to exercise the Company’s option thereunder with respect to the unexercised portion and the Licensee(s) shall have all of the
Company’s rights thereunder, and (b) to the extent that the Company exercises its option to fund a portion of the capital for a Commercial Project, the Company hereby assigns to the Licensee(s) fifty percent of the Company’s right to fund
that portion of such Commercial Project, and the Licensee(s) shall have all of the Company’s rights thereunder. The rights of the Licensee(s) in this section are subject to the limitations on overall participation in Commercial Projects by
Licensee(s) in Section 3.3. 
  
 3.5    Right of First Refusal to Market K-Fuel
Products in the United States.    KFX hereby grants, through K-Fuel LLC, or agrees to cause K-Fuel LLC to grant, to the Holders, the right of first refusal to market the K-Fuel Products in the United States. 

 
 3.6    Exclusive Rights in India.    The Company hereby grants,
through K-Fuel LLC, or agrees to cause K-Fuel LLC to grant, to the Holders an irrevocable, transferable, exclusive right and license, with the right to grant sublicenses, to develop Commercial Projects and otherwise provide, manufacture, use,
employ, practice, distribute, reproduce, disseminate, make, have made, sell, offer to sell, have sold, research, design, develop, market or otherwise exploit any and all rights under the K-Fuel Technology, within India. The exclusive rights and
licenses granted under this section shall expire on the seventh anniversary of the Closing Date (as defined in the Third Addendum); provided, however, that such rights and licenses shall be extended for successive seven year terms on the achievement
of certain milestones to be negotiated in good faith by the Company and the Holders. 
  

  
 3.7    Further
Assurances.    The Company shall take all steps necessary to secure approval for each license, any and all Commercial Projects contemplated or authorized herein and any and all assignments of rights described herein,
including all actions that are required under section 10.5 of the K-Fuel Agreement prior to undertaking a Commercial Project. 
  
 3.8    Subordination of Koppelman Royalties.    Within ten days of the Closing, the Company shall obtain from all persons or entities, who are entitled to
any Royalty (as defined in the Agreement to Amend Amendment to Agreements and Royalty Agreement dated as of June 3, 1996, by and among Theodore Venners, the Company and Edward Koppelman, individually, as trustee of the Riverfront Trust, dated
December 31, 1980, as trustee of F.H. Prince Trust, dated September 5, 1979, and as a general partner of KGM Associates, a California limited partnership) and any other distribution, payment or allocation, a subordination of such Royalty and other
such distribution, payment or allocation to which such persons or entities may be entitled with respect to a Commercial Project (as defined in the First Amended Limited Liability Agreement of K-Fuel LLC (the “K-Fuel Agreement”),
dated as of June 29, 1999, by and between the Company and Kennecott Alternative Fuels, Inc.) in which the Company or an Affiliate (as defined in the K-Fuel Agreement) has an equity interest until the Company receives a Return with respect to such
Commercial Project of fifteen percent, and which subordination shall provide that thereafter such persons shall be entitled to a Royalty and other distributions, payments or allocations to which they may be entitled only with respect to Returns in
excess of fifteen percent. The subordination shall provide that the “Return” for a particular Commercial Project is equal to the percentage derived by dividing (a) the sum of (i) the royalties and fees received by the Company from the
Commercial Project, (ii) distributions received by the Company from K-Fuel LLC that relate to or are based on royalties and fees received by K-Fuel LLC from the Commercial Project and (iii) other distributions, dividends or payments received by the
Company from the Commercial Project made to the Company in its capacity as a participant in the Commercial Project (and excluding payments in the nature of a return of equity, debt repayment or payments for services rendered by the Company to the
Commercial Project) by (b) the total amount invested in the Commercial Project. The waiver shall apply to the first two Commercial Projects in which the Company or an Affiliate has an equity interest. 
  
 3.9    Termination of Covenants. 
  
 (a)    The covenants set forth in sections 3.1 and 3.2 shall terminate as to each Holder and be of no further force and effect at the
time the Holders no longer hold any Registrable Securities. 
  
 (b)    The
agreements, covenants, licenses and other rights set forth in sections 3.3 through 3.8 may be terminated only with the written consent of all the parties hereto. 
  
 3.10    Pro Rata Participation.    Holders may exercise their rights under section 3.3 to develop Commercial
Projects in the United States, under section 3.4 to participate in place of the Company, under section 3.5 to market K-Fuel Products and under section 3.6 to develop Commercial Projects in India and otherwise obtain any and all rights relating to
the K-Fuel Technology within India as described in section 3.6, as follows: 
  

  
 (a)    If Holder(s) who purchased more than
more than twenty-five percent of the Registrable Securities pursuant to the Purchase Agreement (the “Proposing Holders”) elect to exercise their rights under any of sections 3.3, 3.4, 3.5 or 3.6, then the Proposing Holders shall
notify the other Holders in writing of the terms of any proposal (the “Proposal”) for the exercise of such rights, including the name of the Proposing Holder (the “Proposal Manager”) to whom such Holders should
deliver their responding notices described in the following sentence. Within fifteen days after receipt of the Proposal, each Holder (including each Proposing Holder) shall notify the Proposal Manager whether it elects to participate in the Proposal
and specify the Holder’s desired participation percentage in the Proposal. 
  
 (b)    Each Holder (including each Proposing Holder) electing to participate in a Proposal shall be entitled to participate in such Proposal to the extent of that Holder’s desired participation percentage set
forth in its notice to the Proposal Manager unless the sum of the participating Holders’ (including the Proposing Holders’) specified participation percentages exceeds one hundred percent. If the sum of the participating Holders’
(including the Proposing Holders’) specified participation percentages exceeds one hundred percent, then (i) each participating Holder shall be granted a participation percentage equal to its pro rata share (or any portion thereof if such
Holder specifies a participating percentage less than its pro rata share) of the Proposal, and (ii) if, after the allocation in clause (i) (and, if necessary, in this clause (ii)), any portion of the Proposal has not been allocated, each Holder that
shall have specified a greater participation percentage than it shall have been allocated under clause (i) (and, if necessary, under this clause (ii)) shall be granted a fraction of the remaining participation percentage of the Proposal, the
numerator of which is the number of shares of Registrable Securities purchased pursuant to the Purchase Agreement by such Holder (or its assignor) and the denominator of which is the number of shares of Registrable Securities purchased pursuant to
the Purchase Agreement by all participating Holders (or their assignors) that request the remaining participation percentage of the Proposal. If, after the allocation in clauses (i) and (ii), any participation percentage of the Proposal shall not
have been allocated, the procedure set forth in clause (ii) shall be repeated until one hundred percent of the Proposal shall have been allocated or until each Holder shall have been allocated the maximum participation percentage specified in its
notice. A Holder’s pro rata share of the Proposal shall be equal to a fraction of such Proposal, the numerator of which is the number of shares of Registrable Securities purchased pursuant to the Purchase Agreement by such Holder (or its
assignor) and the denominator of which is the number of shares of Registrable Securities purchased pursuant to the Purchase Agreement by all Holders (or their assignors) who are exercising the right to participate in such Proposal pursuant to this
section 3.10. If a Holder has been assigned only a portion of the Registrable Securities purchased pursuant to the Purchase Agreement by an assignor thereof, that Holder’s pro rata share of the Proposal shall be equal to a fraction of such
Proposal, the numerator of which is the portion of the shares purchased pursuant to the Purchase Agreement by the assigning Holder and assigned to the Holder and the denominator of which is the number of shares of Registrable Securities purchased
pursuant to the Purchase Agreement by all Holders (or their assignors) who are exercising the right to participate in such Proposal pursuant to this section 3.10. 
  
 4.    Subsequent Dilutive Offerings.    If during the period beginning on March 28, 2002 and ending on July 19, 2003, the
Company issues shares of Common Stock or Preferred Stock at a Purchase Price Per Common Share Equivalent less than the Purchase Price (a “Subsequent 
  

 Dilutive Offering”), then the Company shall, within ten (10) days of the closing of the Subsequent Dilutive Offering, issue to each
Holder: 
  
 4.1    A number of shares of Common Stock equal to (a)(i) the number
of shares of Common Stock purchased by such Holder pursuant to Purchase Agreement multiplied by (ii) the remainder of the Purchase Price minus the Purchase Price Per Common Share Equivalent (as of the date of sale) issued in the Subsequent Dilutive
Offering, divided by (b) the Purchase Price per Common Share Equivalent (as of the date of sale) issued in the Subsequent Dilutive Offering; and 
  
 4.2    A Warrant (which has the same terms and conditions as the Warrants, including the Warrant Price (as defined in the Warrants) then in effect) to purchase a number of shares of
Common Stock equal to 212.5% of the number of shares of Common Stock issued to that Investor pursuant to section 4.1 above. 
  
 5.    Right of First Offer. 
  
 5.1    Holders’ Rights.    So long as a person is a Holder, the Company hereby grants to each such Holder the first right to purchase the Equity Securities (as defined in Section
5.5) that the Company may from time to time desire to issue during the period beginning on the Closing Date and ending on and including the second anniversary of the Closing Date. A Holder that chooses to exercise the right of first offer may
designate as purchasers under such right himself, herself or itself, a current or former constituent partner, affiliate or current or former member of itself or an entity controlling, controlled by or under common control with itself, including
without limitation a corporation or limited liability company that is a parent or subsidiary, in such proportions as it deems appropriate. 
  
 5.2    Notice. 
  
 (a)    Prior to any sale or issuance by the Company of any Equity Securities, the Company shall notify each Holder in writing (the “Notice”) of its bona fide intention to sell and issue such
securities, setting forth the number of shares of Equity Securities it proposes to sell and the price and other terms upon which it proposes to make such sale. Within 30 days after receipt of the Notice, each Holder shall notify the Company whether
it elects to exercise its right to purchase all (or any part thereof) of the Equity Securities so offered and specify the number of shares of Equity Securities the Holder elects to acquire. If the participating Holders elect, in aggregate, to
acquire less than all of the Equity Securities the Company proposes to sell, then each Holder shall be entitled to purchase the number of Equity Securities each such Holder specified in its election to participate. If the participating Holders
elect, in aggregate, to acquire more than all of the Equity Securities the Company proposes to sell, then (i) each Holder shall be entitled to purchase its pro rata share (or any portion thereof if such Holder elects to purchase less than its pro
rata share) of all of the Equity Securities the Company proposes to sell, and (ii) if, after the allocation in clause (i) (and, if necessary, in this clause (ii)), any shares of Equity Securities have not been allocated, each Holder that shall have
subscribed for more shares of Equity Securities than shall have been allocated under clause (i) (and, if necessary, under this clause (ii)) shall be entitled to purchase a fraction of such remaining Equity Securities, the numerator of which is the
number of shares of Registrable Securities 
  

 purchased pursuant to the Purchase Agreement by such Holder (or its assignor) and the denominator of which is the number
of shares of Registrable Securities purchased pursuant to the Purchase Agreement by all Holders (or their assignors) exercising the right of purchase of such remaining Equity Securities. If, after the allocation in clauses (i) and (ii), any shares
of Equity Securities shall not have been allocated, the procedure set forth in clause (ii) shall be repeated until all of the Equity Securities shall have been allocated or until each Holder shall have been allocated the maximum number of shares
specified in its notice. A Holder’s pro rata share of the Equity Securities shall be equal to a fraction of such Equity Securities, the numerator of which is the number of shares of Registrable Securities purchased pursuant to the Purchase
Agreement by such Holder (or its assignor) and the denominator of which is the number of shares of Registrable Securities purchased pursuant to the Purchase Agreement by all Holders (or their assignors) who are exercising the right of purchase of
such Equity Securities pursuant to this section 5.2(a). If a Holder has been assigned only a portion of the Registrable Securities purchased pursuant to the Purchase Agreement by an assignor thereof, that Holder’s pro rata share of the Equity
Securities shall be equal to a fraction of such Equity Securities, the numerator of which is the portion of the shares purchased pursuant to the Purchase Agreement by the assigning Holder and assigned to the Holder and the denominator of which is
the number of shares of Registrable Securities purchased pursuant to the Purchase Agreement by all Holders (or their assignors) who are exercising the right of purchase of such Equity Securities pursuant to this section 5.2(a). 

 
 (b)    Subject to section 5.2(c), the Holders hereby waive their rights under section
5.2(a) with respect to the transaction described on Schedule 5.14 of the Purchase Agreement. 
  
 (c)    Notwithstanding anything contained in section 5.2(a), prior to any sale or issuance by the Company or by its subsidiaries of any Investment-Related Securities in connection with a commercial investment in
the Company or any of its subsidiaries (a “Commercial Investment”) by any person or entity (including pursuant to the transaction described on Schedule 2.14 of the Purchase Agreement), the Company shall notify each Holder in writing
(the “Commercial Investment Notice”) of its bona fide intention to enter into an agreement regarding the proposed Commercial Investment. Within 30 days after receipt of such Commercial Investment Notice, each Holder shall have the
right to offer to the Company or its subsidiaries within 30 days of the Notice a substantially similar Commercial Investment. The Company or its subsidiaries shall be required to accept any such offer by the Holders, unless after the allocations of
such Commercial Investment pursuant to this section 5.2(c), the Holders electing to participate in such Commercial Investment have not elected to participate in the entire amount of such Commercial Investment. If the participating Holders elect, in
aggregate, to make Commercial Investment that is more than the Company requires, then (i) each Holder shall be entitled to participate in the Commercial Investment based on its pro rata share, as described in section 5.2(a) above (or any portion
thereof if such Holder elects to purchase less than its pro rata share) of the Commercial Investment, and (ii) if, after the allocation in clause (i) (and, if necessary, in this clause (ii)), any participation in the Commercial Investment has not
been allocated, each Holder that shall have subscribed for a greater participation in the Commercial Investment than shall have been allocated under clause (i) (and, if necessary, under this clause (ii)) shall be entitled to participate in a
fraction of such remaining Commercial Investment, the numerator of which is the number of shares of Registrable Securities purchased pursuant to the 

 Purchase Agreement by such Holder and the denominator of which is the number of shares of Registrable Securities
purchased pursuant to the Purchase Agreement by all Holders who are exercising their right to participate in the Commercial Investment. If, after the allocation in clauses (i) and (ii), any participation in the Commercial Investment shall not have
been allocated, the procedure set forth in clause (ii) shall be repeated until all of the participation in the Commercial Investment has been allocated. For purposes of this section 5.2(c), the term “Investment-Related Securities” shall
mean (a) common stock of the Company or any subsidiary; (b) rights, options or warrants to purchase common stock of the Company or any subsidiary; (c) any security of the Company or any subsidiary other than common stock having voting rights in the
election of the Board of Directors, not contingent upon a failure to pay dividends; (d) any equity- or debt-related security of the Company or any subsidiary convertible into or exchangeable for any of the foregoing; and (e) any agreement or
commitment to issue any of the foregoing. 
  
 5.3    Failure to
Notify.    After expiration of all notice periods specified in Section 5.2 above, the Company may, during a period of 90 days following the expiration of such notice periods, sell and issue to other persons such Equity
Securities as to which the Holders do not indicate a desire to purchase or enter into the Commercial Investment transaction as to which the Holders do not elect to participate or if the Holders do not participate for the entire amount of the
Commercial Investment, at a price not less and upon terms and conditions not more favorable to the offeree than those set forth in the Notice or Commercial Notice, as the case may be. In the event the Company does not sell such Equity Securities
within said 90 day period, the Holders shall no longer be obligated to purchase the Equity Securities pursuant to their elections to purchase such Equity Securities under Section 5.2(a), and the Company shall not thereafter issue or sell any Equity
Securities without first offering such securities to the Holders in the manner provided herein. In the event the Company does not enter into the proposed Commercial Investment transaction within said 90 day period, the Company shall not thereafter
enter into a Commercial Investment transaction without first offering such Commercial Investment to the Holders in the manner provided herein. 
  
 5.4    Payment.    If a Holder gives the Company notice that such Holder desires to purchase any of the Equity Securities offered by the Company or
participate in any Commercial Investment in the Company, payment for the Equity Securities or Commercial Investment shall be by check or wire transfer against delivery of the Equity Securities at the executive offices of the Company within 10 days
after giving the Company such notice, or, if later, the closing date for the sale of such Equity Securities or Commercial Investment proposed by the Company in the Notice. The Company and any affected Holder shall take all such action as may be
required by any regulatory authority in connection with the exercise by a Holder of the right to purchase Equity Securities or make such a Commercial Investment as set forth in this Section 5. 
  

5.5    Equity Securities.    The term “Equity Securities” shall mean (a) Common Stock;
(b) rights, options or warrants to purchase Common Stock; (c) any security other than Common Stock having voting rights in the election of the Board of Directors, not contingent upon a failure to pay dividends; (d) any equity- or debt-related
security convertible into or exchangeable for any of the foregoing; and (e) any agreement or commitment to issue any of the foregoing. 

  
 6.    Miscellaneous. 
  
 6.1    Amendments and Waivers.    Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investors holding more than two-thirds of
the Registrable Securities then outstanding. Any amendment or waiver effective in accordance with this Section 6.1 shall be binding upon each Investor, his, her or its heirs, representatives or permitted assigns, and the Company and its heirs,
representatives and permitted assigns. 
  
 6.2    Notices.    Any notice, consent, authorization or other communication to be given hereunder shall be in writing and shall be deemed duly given and received when delivered
personally or transmitted by facsimile transmission with receipt acknowledged by the addressee, three days after being mailed by first class mail, or the next business day after being deposited for next-day delivery with a nationally recognized
overnight delivery service, charges and postage prepaid, properly addressed to the party to receive such notice at the address(es) specified on the signature page of this Agreement for the Company and on Schedule A for each Investor (or at such
other address as shall be specified by like notice). 
  
 6.3    Entire
Agreement.    This Agreement (including the Schedules hereto), the Purchase Agreement and the Warrants contain the entire agreement of the parties and supersede all prior negotiations, correspondence, term sheets, agreements
and understandings, written and oral, between or among the parties regarding the subject matter hereof. 
  
 6.4    Successors and Assigns.    This Agreement shall inure to the benefit of and be binding upon the respective heirs, representatives, successors and permitted assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective heirs, representatives, successors and permitted
assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 
  
 6.5    Severability.    If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, such
provision shall be replaced with a provision that accomplishes, to the extent possible, the original business purpose of such provision in a valid and enforceable manner, and the balance of the Agreement shall be interpreted as if such provision
were so modified and shall be enforceable in accordance with its terms. 
  
 6.6    Governing Law.    This Agreement shall be governed by and construed and interpreted in accordance with the law of the State of New York, without regard to that state’s
conflict of laws principles. 
  
 6.7    Further
Assurances.    Each party shall execute such other and further certificates, instruments and other documents as may be reasonably necessary and proper to implement, complete and perfect the transactions contemplated by this
Agreement. 
  

  
 6.8 Aggregation of Stock.    All
shares of Registrable Securities held or acquired by affiliated entities or persons, or entities or persons under common investment management, shall be aggregated together for the purpose of determining the availability of any rights under this
Agreement. 
  
 [remainder of page intentionally left blank; signature page follows] 

  
 IN WITNESS WHEREOF, this Third Amended and Restated Investors’ Rights Agreement has been duly
executed by or on behalf of the parties hereto as of the date first above written. 
  
 
	 KFx INC.
 
	 
	 By:
 	 	  
	  	 	 

	  	 	 Name:
 Title:
 
	 
	  	 	 Address:
 3300 East First Avenue, Suite 290
 Denver, CO 80206
 Fax: (303) 293-8430
  
 with a copy to:

 
 Leslie J. Goldman, Esq.
 Skadden, Arps, Slate, Meagher & Flom LLP
 1440 New York Avenue, N.W.
 Washington, DC 20005
 Facsimile: (202)
393-5719
 

 
  
  
 THE INVESTORS: 
  
 
	 WESTCLIFF AGGRESSIVE GROWTH, L.P.
 WESTCLIFF ENERGY PARTNERS, L.P.
 WESTCLIFF LONG/SHORT, L.P.

WESTCLIFF PARTNERS, L.P.
 WESTCLIFF PUBLIC VENTURES FUND, L.P.
 WESTCLIFF SMALL CAP FUND, L.P
  
 By:   Westcliff Capital Management, LLC
 Its:   General Partner
 	 	  	 	  WESTCLIFF FOUNDATION
 WESTCLIFF MASTER FUND, L.P.
 WESTCLIFF PROFIT SHARING AND MONEY PURCHASE PENSION
PLAN
 CANCER CENTER OF SANTA BARBARA
 PALM TRUST
 PARKER FOUNDATION
 UNIVERSITY OF SAN FRANCISCO
  
 By:   Westcliff Capital Management, LLC
 Its:   Investment Adviser and
Attorney-In-Fact
 
	 By:
 	 	  	 	  	 	  	 	  
	  	 	 
Richard S. Spencer III, Manager
 	 	  	 	  	 	  
	  	 	  	 	  	 	 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Richard S. Spencer III, Manager
 

 

  
 
	 RAM TRADING, LTD.
 	 	  	 	 NORANDA FINANCE, INC. RETIREMENT PLAN FOR AFFILIATED COMPANIES TRUST
  
 
	  	 	  	 	  	 	 By:
 	 	 Mellon Bank, N.A., solely in its capacity as Trustee for the Noranda Finance, Inc. Retirement Plan for Affiliated Companies Trust (as directed by Westcliff
Capital Management, LLC), and not in its individual capacity
 
	 
	  	 	  	 	  	 	 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Bernadette T. Rist
 Authorized Signatory
 

 
  
 
	 PENINSULA FUND, L.P.
 	 	  	 	 COMMON SENSE PARTNERS, L.P.
  
 
	 By:
 	 	 Peninsula Capital Management, Inc.
 	 	  	 	 By:
 	 	 Peninsula Capital Management, Inc.
 
	 Its
 	 	 General Partner
 	 	  	 	 Its:
 	 	 Investment Adviser
 
	 
	 By:
 	 	  	 	  	 	 By:
 	 	  
	  	 	 
	 	  	 	  	 	 

	  	 	 Scott Bedford, President
 	 	  	 	  	 	 Scott Bedford, President
 
	 
	  	 	  	 	  	 	 By:
 	 	 Common Sense Investment Management, LLC
 
	  	 	  	 	  	 	 Its:
 	 	 General Partner
 
	 
	  	 	  	 	  	 	 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Scott A. Thompson
 Director and Senior Vice President
Finance
 

 

 SCHEDULE A 
  
 SCHEDULE OF INVESTORS 
  
 Name of Investor, Address and Facsimile
Number 
  
 Westcliff Aggressive Growth, L.P. 
 Westcliff Energy Partners, L.P. 
 Westcliff
Foundation Westcliff Long/Short, L.P. 
 Westcliff Master Fund, L.P. 
 Westcliff Partners, L.P. 
 Westcliff Profit Sharing and Money Purchase Pension Plan

 Westcliff Public Ventures Fund, L.P. 
 Westcliff Small Cap Fund, L.P. 
 Westcliff Public Ventures—KFx, L.P. 
 Cancer Center of Santa Barbara 
 Palm Trust

 Parker Foundation 
 University of San Francisco 
  
 c/o Westcliff Capital Management, LLC 

200 Seventh Avenue, Suite 105 
 Santa
Cruz, CA 95062 
 Fax: (831) 479-3642 
  
 Noranda Finance, Inc. Retirement Plan for 
 Affiliated Companies Trust 
 c/o Mellon Bank, N.A. 
 One Mellon Bank Center 
 Pittsburgh, PA 15258-0001 
 Attention: Bernadette T. Rist 

  
 Peninsula Fund, L.P. 
 c/o Scott Bedford 
 Peninsula Capital
Management, Inc. 
 One Sansome Street, Suite 3134 
 San Francisco, CA 94104 
  
 Common Sense Partners, L.P. 
 c/o Scott Bedford 
 Peninsula Capital
Management, Inc. 
 One Sansome Street, Suite 3134 
 San Francisco, CA 94104 
  
 Ram Trading, Ltd. 
 c/o David Popovich 
 Ritchie Capital
Management, LLC 
 210 East State Street 
 Batavia, IL 60510 
  
 For any notice to a Westcliff-related entity, send a copy to:

  
 John F. Milani, Esq. 
 Shartsis, Friese & Ginsburg LLP 
 One Maritime Plaza, 18th Floor 
 San Francisco, CA 94111 
 Fax: (415)
421-2922 
  

  
 SCHEDULE B 
  
 INVESTORS’ COMMON STOCK 
  
 
	 Investor Name
 
	    	 Number of Shares of Common Stock
 

	 Westcliff Energy Partners, L.P.
 	    	 67,500
 
	 
	 Westcliff Public Ventures Fund, L.P.
 	    	 41,200
 

 

  
 EXHIBIT D 
  
 THIRD AMENDED AND RESTATED PUT AGREEMENT 
  
 This THIRD AMENDED AND RESTATED PUT AGREEMENT (this “Agreement”), is made as of July 19, 2002, by and among KFx Inc., a Delaware corporation (the “Company”), and the parties listed on the Schedule of
Grantees attached hereto as Exhibit A (each, a “Grantee” and collectively, the “Grantees”), with reference to the following facts: 
  
 WHEREAS, the Grantees are parties to the Common Stock and Warrant Purchase Agreement, dated as of March 28, 2002 (the “Original Purchase Agreement” and as
amended by the Addendum to the Common Stock and Warrant Purchase Agreement, dated as of April 30, 2002 (the “First Addendum”), the Second Addendum, dated as of July 1, 2002 (the “Second Addendum”) and the Third
Addendum described below, the “Purchase Agreement”); 
  
 WHEREAS, in connection with the closing of
the transactions described in the Original Purchase Agreement, the Company and certain of the Grantees entered into a Put and Call Option Agreement, dated as of March 28, 2002 (the “Original Put Agreement”); 
  
 WHEREAS in connection with the closing of the transactions described in the First Addendum, the Company and certain of the Grantees
amended and restated the Original Put Agreement in its entirety pursuant to the Amended and Restated Put Agreement, dated as of April 30, 2002; 
  
 WHEREAS in connection with the closing of the transactions described in the Second Addendum, the Company and certain of the Grantees amended and restated the Original Put Agreement in its entirety
pursuant to the Second Amended and Restated Put Agreement, dated as of July 1, 2002; 
  
 WHEREAS, the Grantees are
parties to that certain Third Addendum to the Common Stock and Warrant Purchase Agreement, dated as of July 19, 2002 (the “Third Addendum”), which provides that as a condition to the closing of the transactions contemplated by the
Third Addendum the Second Amended and Restated Put Agreement must be amended and restated in its entirety; 
  
 WHEREAS, the Company has agreed to grant the Grantees the right to cause the shares of Common Stock (the “Shares”) acquired pursuant to the Purchase Agreement, the First Addendum, the Second Addendum and the Third
Addendum to be purchased by the Company under the terms and conditions provided in this Agreement. For purposes of this Agreement, “Shares” includes all shares of Common Stock issued in connection with any and all Subsequent Dilutive
Offerings (as defined in the Third Amended and Restated Investors’ Rights Agreement); and 
  
 WHEREAS, the
Company and the Grantees desire to amend and restate in its entirety the Second Amended and Restated Put Agreement pursuant to this Agreement. 
  
 NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein, the parties agree as follows: 

  
 1.    Definitions.    Capitalized
terms used and not otherwise defined in this Agreement have the meanings respectively ascribed to them in the Purchase Agreement. In addition, the following terms when capitalized have the following meanings in this Agreement: 

 
 (a)    “Put Exercise Notice” means a written notice, in substantially the
form of Exhibit B attached hereto, from a Grantee to the Company exercising such Grantee’s Put Option and specifying the number of Shares with respect to which such Put Option is being exercised. 
  
 (b)    “Put Option” means each Grantee’s right and option to require the
Company, on the terms and conditions set forth herein, to purchase all or any portion of the Shares acquired by such Grantee pursuant to the Purchase Agreement. Anything herein to the contrary notwithstanding, the Put Options granted hereunder shall
become effective on the earlier of (i) July 31, 2002 or (ii) the redemption or conversion of all outstanding bonds issued under that certain Indenture, dated as of July 25, 1997, between the Company and First Bank National Association, doing
business as Colorado National Bank, as trustee. 
  
 2.    Grant of Put
Option.    Subject to the terms and conditions set forth herein, the Company irrevocably grants and issues to each Grantee a Put Option to require the Company to purchase the Shares at a purchase price (the “Put
Payment Price”) per Share of (i) $2.50 or, if the Company has effected one or more Subsequent Dilutive Offerings prior to the exercise of the Put Option, at the lowest Purchase Price Per Common Share Equivalent (as defined in the Third
Amended and Restated Investors’ Rights Agreement) prior to the exercise of the Put Option, as equitably adjusted from time to time for combinations of shares, stock splits, stock dividends, recapitalizations and the like (the “Share
Purchase Price”), plus (ii) interest on the Share Purchase Price at the rate of nine percent (9%) simple interest per annum from the date on which such Shares subject to the exercise of the Put Option were originally acquired from the
Company (except that, for purposes of this section 2, the Shares issued to the Grantees in connection with a Subsequent Dilutive Offering shall be deemed to have been issued on the date on which the Shares underlying such additional issuance were
originally purchased from the Company) to the date on which the Put Payment Price is paid in full. 
  
 3.    Expiration Date of the Put Option.    Each Put Option shall expire and be of no further force or effect at the earlier of the time when it shall have been exercised with respect to
all Shares that the Grantee holds or 11:59 p.m., California time, on December 23, 2002 (the “Expiration Date”). 
  
 4.    Exercise of the Put Option. 
  
 (a)    If at any time prior to the Expiration Date, a Grantee wishes to exercise its Put Option, such Grantee shall deliver a Put Exercise Notice to the Company. Such Put Exercise Notice shall be effective if and
only if it is received by the Company on or prior to the Expiration Date. 
  
 (b)    Within ten (10) days of delivery of the Put Exercise Notice, the Company shall notify the Grantees in writing (the “Company Notice”) of how the Company intends to pay the Put Payment Price.
The Company shall pay to each such Grantee the full amount of the Put Payment Price for each of the Shares that the Grantee has elected to have purchased by the 

  
 Company as soon as possible after the delivery of the Put Exercise Notice;
provided that, subject to section 4(c), such payment must be made not later than one hundred (100) days after delivery of the Put Exercise Notice (the “Payment Period”). If the Company indicates in the Company Notice that it will
pay the Put Payment Price with cash that the Company has on hand, then the Company must indicate how those funds were raised and when it will pay the Put Payment Price. If the Company indicates in the Company Notice that intends to raise the assets
to pay the Put Payment Price by selling the Pegasus Securities (as defined below) or the assets of Pegasus, then the Company must (i) commence marketing Pegasus (as defined below) as soon as possible, (ii) use commercially reasonable efforts to sell
the Pegasus Securities or the assets of Pegasus in a reasonable and orderly manner and (iii) provide periodic updates to, and respond to inquiries from, the Grantees regarding the progress of such sale. 
  
 (c)    If the Company does not pay the full amount of the Put Payment Price for all of the Shares to
be purchased by the Company during the Payment Period, then the Company shall effect such purchase of the Shares by transferring to the Grantees all of the Company’s right, title and interest in and to all the shares (the “Pegasus
Securities”) of common stock and preferred stock of Pegasus Technologies, Inc., a South Dakota corporation (“Pegasus”), that the Company owns, with the Company’s endorsement when necessary or appropriate or with stock
powers duly executed in blank with the Company’s signature; provided that the Company is required to effect the purchase described in this section 4(c) only if the Grantees holding at least two-thirds of the Shares then outstanding exercise the
Put Option, in which case all Shares then outstanding shall become subject to and bound by such put transaction. If the Company is required to effect the purchase described in this section 4(c), then each Grantee shall be entitled to receive as
consideration for its Shares a fraction of the Pegasus Securities, the numerator of which is the number of shares of Shares then held by each such Grantee and the denominator of which is the number of Shares then held by all of the Grantees
participating in such put. For purposes of this Agreement, “Pegasus Securities” includes (i) any sums paid as liquidating dividends or as a return of capital with respect to the Pegasus Securities, (ii) any stock certificates (including,
without limitation, any certificates representing a stock dividend, stock split or a distribution in connection with any reclassification, increase or reduction of capital), options or rights, whether in respect of, as an addition to, in
substitution for or in exchange for all or any portion of the Pegasus Securities, or otherwise, or (iii) any property distributed on or with respect to Pegasus Securities pursuant to a recapitalization or reclassification of capital or pursuant to a
reorganization of Pegasus. 
  
 (d)    Each Share that is not purchased as
described herein shall remain outstanding and the Grantee holding such Share shall be entitled to all the rights of a stockholder of the Company until such Share is purchased as described herein. 
  

(e)    At the closing of the put transaction at which the Company purchases the Shares, each participating Grantee shall deliver to
the Company a certificate or certificates representing all the Shares being put, which shall be free and clear of all liens, claims, charges and encumbrances of any kind whatsoever. 
  
 5.    Call Option.    Pursuant to the terms of the First Amended and Restated Put Agreement, the Company’s Call Option,
as described in the Original Put Agreement was 

  
 terminated and cancelled, and, accordingly, the Company has no rights to exercise all or any portion of
the Call Option described therein. 
  
 6.    [INTENTIONALLY OMITTED] 

 
 7.    Covenants of the Company.    The Company covenants that: 

 
 (a)    The Company will not, by amendment of its charter documents or through any
reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities or any other voluntary action, avoid or seek to avoid the performance of any of the terms of this Agreement, but will at all
times in good faith take all necessary action to carry out all such terms. 
  
 (b)    As long as any Put Option remains effective and unexercised, as a whole or in part, the Company will not (i) sell, assign (by operation of law or otherwise), transfer, convey, or otherwise dispose of, or
grant any option with respect to, any of the Pegasus Securities or the assets of Pegasus or (ii) create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or security interest with respect to any of the Pegasus Securities or
the assets of Pegasus or the proceeds thereof other than that created hereby. 
  
 (c)    Without the written consent of Grantees holding at least two-thirds of Shares then outstanding, the Company will not, prior to the Expiration Date, permit, authorize or cause (i) the sale, transfer or other
disposition of the Pegasus Securities owned by the Company, (ii) the sale, transfer or other disposition of any material asset of, or the sale, transfer or other disposition of all or substantially all of the assets of, Pegasus to any other
person(s) or entity(ies) (including, but not limited to, any license of Pegasus’ intellectual property rights), (iii) the consolidation with or merger into any other person or entity or permit any such person or entity to consolidate with or
merge into Pegasus, (iv) Pegasus to incur indebtedness of any nature, or (v) except as set forth in section 7(f) below, Pegasus to issue any additional shares of capital stock or sell or otherwise dispose of any shares of capital stock held in
treasury to any person or entity. Notwithstanding the foregoing, however, Pegasus may sub-license its intellectual property rights in the ordinary course of business and consistent with the five-year business plan that has been provided to the
Grantees. 
  
 (d)    The Company shall promptly (i) notify the Grantees of any
event of which the Company becomes aware causing material loss or depreciation in the value of the Pegasus Securities or assets of Pegasus, (ii) deliver to the Grantees all written notices received by the Company with respect to the Pegasus
Securities and (iii) pay promptly when due all taxes, assessments, and governmental charges or levies on the Pegasus Securities and assets of Pegasus. 
  
 (e)    At all times prior to the Expiration Date, the Company shall cause Pegasus to continue to operate under its five-year business
plan and such business plan shall not be materially modified without the prior written consent of Grantees holding at least two-thirds of Shares then outstanding. 
  
 (f)    If Pegasus (i) has any capital requirements at any time prior to the Expiration Date, (ii) intends to repurchase or otherwise
acquire the shares or other beneficial ownership interest of its minority stockholders or (iii) repay any of its outstanding indebtedness, 

  
 the Company shall fund such capital requirements, stock repurchase program or
debt repayment program by making equity investments or contributions to Pegasus in exchange for securities of Pegasus and all such securities issued by Pegasus shall be deemed to be “Pegasus Securities”, and the Company shall not permit or
cause Pegasus to satisfy such capital requirements by any other means without the prior written consent of Grantees holding at least two-thirds of Shares then outstanding. Anything herein to the contrary notwithstanding, none of such investments or
contributions by the Company shall be in the form of a loan or other form of indebtedness. 
  
 8.    Representations and Warranties of the Company.    The Company hereby represents, warrants and agrees as follows: 
  
 (a)    Subject only to this Agreement, the Company owns all right, title and interest, of record and beneficial, in and to all of the
Pegasus Securities as of the date hereof. The shares of Pegasus Securities set forth on Exhibit C hereto constitute all of the issued and outstanding shares of capital stock of Pegasus of any class held by the Company. The Pegasus Securities that
are now outstanding have been duly and validly issued, fully paid and nonassessable. Except for issuances of up to $500,000 of securities of Pegasus to Kennecott Energy Company, a Delaware corporation, and except as disclosed on Disclosure
Schedule 8(a), there are no outstanding options, warrants or rights to acquire any capital stock of any class of Pegasus, and there has not been approved by Pegasus and there is not now pending any issuance or sale by Pegasus of capital stock of
any class. 
  
 (b)    The Pegasus Shares are owned by the Company free and clear
of any pledge, mortgage, hypothecation, lien, charge or encumbrance, or any security interest therein or in the proceeds thereof, except as provided by this Agreement for the benefit of the Grantees. 
  
 (c)    The Company warrants and will defend the Grantees’ right, title and interest in and to the
Pegasus Securities and the proceeds thereof against the claims of any persons or entities. 
  
 9.    Remedies Cumulative.    The Company agrees that the rights, powers and remedies given to Grantees by this Agreement, the Purchase Agreement, the First Addendum, the Second
Addendum, the Third Addendum and the Third Amended and Restated Investors’ Rights Agreement are cumulative and concurrent and not exclusive of any thereof or of any other powers, rights or remedies available to the Grantees, whether existing at
law or in equity or by statute or otherwise and shall be in addition to every other right, power or remedy provided in this Agreement or such other agreements or now or hereafter existing or in equity or by statute or otherwise, and the exercise or
beginning of the exercise by the Grantees of any one or more of such rights, powers and remedies shall not preclude the simultaneous or later exercise by the Grantees of any or all such other rights, powers and remedies. No failure on the part of
the Grantees to exercise any right, power or remedy shall operate as a waiver thereof. 
  
 10.    Miscellaneous. 
  
 (a)    Indemnification.    The Company agrees to indemnify and hold harmless each Grantee and its respective members, managers, partners, officers, directors, employees and agents from
and against all losses, claims, expenses, judgments, damages and liabilities, 

  
 including attorney fees and expert fees, which arise in connection with or arise
out of the breach of any representations, warranties, agreements and/or covenants of the Company contained in this Agreement. 
  
 (b)    Amendments and Waivers.    Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Grantees holding more than two-thirds of the then outstanding Shares. Any amendment or waiver effective in
accordance with this section 10(b) shall be binding upon each Grantee, his, her or its heirs, representatives or permitted assigns, and the Company and its heirs, representatives and permitted assigns. 
  
 (c)    Notices.    Any notice, consent, authorization or other
communication to be given hereunder shall be in writing and shall be deemed duly given and received when delivered personally or transmitted by facsimile transmission with receipt acknowledged by the addressee, three days after being mailed by first
class mail, or the next business day after being deposited for next-day delivery with a nationally recognized overnight delivery service, charges and postage prepaid, properly addressed to the party to receive such notice at the address(es)
specified on the signature page of this Agreement for the Company and on Exhibit A for each Grantee (or at such other address as shall be specified by like notice). 
  
 (d)    Entire Agreement.    This Agreement and the other Related Documents contain the entire agreement of
the parties and supersede all prior negotiations, correspondence, term sheets, agreements and understandings, written and oral, between or among the parties regarding the subject matter hereof. 
  

(e)    Successors and Assigns.    This Agreement shall inure to the benefit of and be binding upon the
respective heirs, representatives, successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective heirs, representatives,
successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 
  
 (f)    Severability.    If any provision of this Agreement is held by a court of competent jurisdiction to be
unenforceable under applicable law, such provision shall be replaced with a provision that accomplishes, to the extent possible, the original business purpose of such provision in a valid and enforceable manner, and the balance of the Agreement
shall be interpreted as if such provision were so modified and shall be enforceable in accordance with its terms. 
  
 (g)    Governing Law.    This Agreement shall be governed by and construed and interpreted in accordance with the law of the State of New York, without regard to that state’s
conflict of laws principles. 
  
 (h)    Attorneys’
Fees.    If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable 

  
 attorneys’ fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled. 
  
 (i)    Interpretation.    This Agreement shall be construed according to its fair language. The rule of construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement. 
  
 (j)    Further Assurances.    The Company agrees that at any time and from time to time, on written request of a Grantee, the Company will execute and deliver such further documents and
do such further acts and things as the Grantees reasonably requests to effect the purposes of this Agreement. 
  
 (k)    Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall constitute an original, and all of which together shall be considered one and
the same agreement. 
  
 (l)    Assignment.    The
Company shall not assign this Agreement or any rights hereunder or delegate any duties hereunder. Any attempted or purported assignment or delegation in violation of the preceding sentence shall be void. 
  
 (m)    Titles and Subtitles.    The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 
  
 [Signatures appear on the following page.] 
  

  
 IN WITNESS WHEREOF, this Third Amended and Restated Put Agreement has been duly
executed by or on behalf of the parties as of the date first above written. 
  
 THE COMPANY

  
 KFX INC. 
  
 By:                                     
                                        
                                        
                    
 Print Name:                                  
                                        
                                        
     
 Title:                                    
                                        
                                        
                 
  

	 	Address:
	 
	3300 East First Avenue, Suite 290 
 

	 	    
	 
	Denver, CO 80206 
 

	 	Facsimile:
	 
	(303) 293-843 0 
 

  
 with a copy to: 
  
 Leslie J. Goldman, Esq.

 Skadden, Arps, Slate, Meagher & Flom LLP 
 1440 New York Avenue, N.W. 
 Washington, DC 20005 
 Facsimile: (202) 393-5719 
  
 THE
GRANTEES: 
  
 
	 WESTCLIFF AGGRESSIVE GROWTH, L.P.
 WESTCLIFF ENERGY PARTNERS, L.P.
 WESTCLIFF LONG/SHORT, L.P.

WESTCLIFF PARTNERS, L.P.
 WESTCLIFF PUBLIC VENTURES FUND, L.P.
 WESTCLIFF SMALL CAP FUND, L.P.
 WESTCLIFF PUBLIC VENTURES—KFx, L.P.
  
 By:   Westcliff Capital Management, LLC
 Its:   General Partner
 	 	  	 	 WESTCLIFF FOUNDATION
 WESTCLIFF MASTER FUND, L.P.

WESTCLIFF PROFIT SHARING AND MONEY PURCHASE PENSION PLAN
 CANCER CENTER OF SANTA BARBARA

PALM TRUST
 PARKER FOUNDATION
 UNIVERSITY OF SAN FRANCISCO
 
	  	 	  	 	  	 	 By:   Westcliff Capital Management, LLC
 Its:   Investment Adviser and Attorney-In-Fact
 
	 By:
 	 	  	 	  	 	  	 	  
	  	 	 
	 	  	 	  	 	  
	  	 	 Richard S. Spencer III, Manager
 	 	  	 	 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Richard S. Spencer III, Manager
 

 

  
 
	 RAM TRADING, LTD.
  
 By:   Ritchie Capital Management, LLC
 Its:   Investment Adviser
 	 	  	 	 NORANDA FINANCE, INC. RETIREMENT PLAN FOR AFFILIATED COMPANIES TRUST
 
	 By:
 	 	  	 	  	 	 By:
   
 	 	 Mellon Bank, N.A., solely in its capacity as Trustee for the Noranda Finance, Inc. Retirement Plan for Affiliated Companies Trust (as directed by Westcliff
Capital Management, LLC), and not in its individual capacity
 
	  	 	 
	 	  	 	  	 	  
	  	 	 David Popovich, Chief Financial Officer
 	 	  	 	  	 	  
	  	 	  	 	  	 	  	 	  
	  	 	  	 	  	 	 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Bernadette T. Rist
 Authorized Signatory
 

 
  
 
	 PENINSULA FUND, L.P.
 	 	  	 	 COMMON SENSE PARTNERS, L.P.
 
	 
	 By:   Peninsula Capital Management, Inc.
 Its:   General Partner
 	 	  	 	 By: Its:
 	 	 Peninsula Capital Management, Inc.
 Investment Adviser
 
	 
	 By:
 	 	  	 	  	 	 By:
 	 	  
	  	 	 
	 	  	 	  	 	 

	  	 	 Scott Bedford, President
 	 	  	 	  	 	 Scott Bedford, President
 
	 
	  	 	  	 	 By: Its:
 	 	 Common Sense Investment Management, LLC
 General Partner

	 
	  	 	  	 	  	 	 By:
 	 	  
	  	 	  	 	  	 	  	 	 

	  	 	  	 	  	 	  	 	 Scott A. Thompson
 Director and Senior Vice President
Finance
 

 

  
 EXHIBIT A 
  
 SCHEDULE OF GRANTEES 
  
 Name of Grantee, Address and Facsimile Number 
  
 Westcliff Aggressive
Growth, L.P. 
 Westcliff Energy Partners, L.P. 
 Westcliff Long/Short, L.P. 
 Westcliff Partners, L.P. 
 Westcliff Public Ventures Fund, L.P. 
 Westcliff Public Ventures—KFx, L.P. 
 Westcliff Small Cap Fund, L.P. 
 Westcliff Foundation 
 Westcliff Master
Fund, L.P. 
 Westcliff Profit Sharing And Money Purchase Pension Plan 
 Cancer Center Of Santa Barbara 
 Palm Trust 
 Parker Foundation 
 University Of San
Francisco 
 c/o Westcliff Capital Management, LLC 
 200 Seventh Avenue, Suite 105 
 Santa Cruz, CA 95062 
 Fax: (831) 479-3642 
  
 Noranda Finance, Inc. Retirement Plan for 
 Affiliated Companies Trust 
 c/o Mellon Bank, N.A. 
 One Mellon Bank
Center 
 Pittsburgh, PA 15258-0001 
  
 Attention: Bernadette T. Rist 
  
 Peninsula Fund, L.P. 
 c/o Scott Bedford 
 Peninsula Capital Management, Inc. 
 One
Sansome Street, Suite 3134 
 San Francisco, CA 94104 
  
 Common Sense Partners, L.P. 
 c/o Scott
Bedford Peninsula 
 Capital Management, Inc. 
 One Sansome Street, Suite 3134 
 San Francisco, CA 94104 

  
 Ram Trading, Ltd. 
 c/o David Popovich 
 Ritchie Capital
Management, LLC 
 210 East State Street 
 Batavia, IL 60510 
  
 For any notice to a Westcliff-related entity, send a copy to:

  
 John F. Milani, Esq. 
 Shartsis, Friese & Ginsburg LLP 
 One Maritime Plaza, 18th Floor 
 San Francisco, CA 94111 
 Fax: (415) 421-2922 

  
 EXHIBIT B 
  
 PUT EXERCISE NOTICE 
 BY GRANTEE OF 
 PUT OPTION GRANTED BY 
 KFx INC. 
  
 KFx Inc. 
 3300 East First Avenue, Suite 290

 Denver, CO 80206 
  
 Ladies and Gentlemen: 
  
 Pursuant to the Third Amended and Restated Put Agreement, dated as
of July 19, 2002, among KFx Inc., a Delaware corporation (the “Company”), the undersigned and other purchasers of Common Stock of the Company (the “Stock”), granting to me a put option (the “Put Option”) to require the
Company to purchase up to an aggregate of              shares of my Stock on the terms and conditions and at the times set forth therein and at the Put Payment Price (as defined in
the Put Agreement), I hereby exercise the Put Option with respect to              shares of my Stock. 
  
 Very truly yours, 
  
                                      
                                        
                                        
                           
 Signature 
 Dated:
                        , 200     
                                      
                                        
                                        
                           
 Typed or Printed Name 
  
                                      
                                        
                                        
                           
 Social Security Number 

 EXHIBIT C 
  
 PEGASUS SECURITIES 
  
 Notes Payable 
  

	 $7,616,214
 	  	 Due on Demand, including interest
 
	 800,000
 	  	 Additional advances projected for the balance of 2002
 
	 
	  	  
	 $8,416,214
 	  	 Total present and projected advances to Pegasus
 
	 
	  	  

 
  
 Preferred Stock – Series C 
  
 2,798,161 Shares 
  
 Common Stock 
  
 11,177,563 Shares 
  
 Warrants 
  
 1,805,000 Shares 
  
 
	 Exercise Price
 	  	 $1.07 per share
 
	 Expiration Date
 	  	 February 26, 2004 (475,000 shares)
 December 5, 2004 (855,000 shares)

January 10, 2005 (475,000 shares)
 

 

 SCHEDULE A 
  
 ADDITIONAL INVESTORS 
  
 
	 Additional Investor Name and Address
 
	  	 Shares of Common Stock
 
	  	 Shares of Common Stock Issuable On Exercise of the Warrant
 
	  	 Aggregate Investment Amount
 

	 Westcliff Public Ventures—KFx, L.P.
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831) 479-3642
 	  	 730,000
 	  	 1,551,250
 	  	 $
 	 1,825,000.00
 
	 
	 Ram Trading, Ltd.
 c/o David Popovich
 Ritchie Capital Management, LLC
 210 East State Street
 Batavia, IL 60510
 	  	 730,000
 	  	 1,551,250
 	  	 $
 	 1,825,000.00
 
	  	  	 
	  	 
	  	 
	 

	 TOTAL
 	  	 1,460,000
 	  	 3,102,500
 	  	 $
 	 3,650,000.00
 

 

 SCHEDULE B 
  
 EXISTING INVESTORS 
  
 
	 Name of Existing Investor
 
	    	 Warrant Number of Warrant Surrendered for Conversion
 
	    	 Shares of Common Stock Issuable on Exercise of Each Warrant Surrendered for Conversion
 
	    	 Shares of Common Stock Exercisable on Exercise of the Warrants to be Issued
 

	 Westcliff Aggressive Growth, L.P.
 	    	 WC-01
WC-18
WC-49
 	    	 35,936
30,035
12,466
 	    	 148,159
 
	 Westcliff Energy Partners, L.P.
 	    	 WC-02
 	    	 228,184
 	    	 431,014
 
	 Westcliff Long/Short, L.P.
 	    	 WC-04
WC-20
WC-51
 	    	 23,469
 20,446
7,792
 	    	 97,669
 
	 Westcliff Partners, L.P.
 	    	 WC-03
WC-19
WC-50
 	    	 81,790
71,545
29,856
 	    	 346,027
 
	 Westcliff Public Ventures Fund, L.P.
 	    	 WC-05
WC-21
 	    	 300,388
132,506
 	    	 817,689
 
	 Westcliff Small Cap Fund, L.P.
 	    	 WC-06
WC-22
WC-52
 	    	 28,370
24,999
7,433
 	    	 114,848
 
	 Westcliff Foundation
 	    	 WC-12
WC-28
 	    	 8,504
26,502
 	    	 66,122
 
	 Westcliff Master Fund, L.P.
 	    	 WC-08
WC-24
WC-54
 	    	 187,926
164,916
63,642
 	    	 786,692
 
	 Westcliff Profit Sharing and Money Purchase Pension Plan
 	    	 WC-13
WC-29
 WC-58
 	    	 5,614
4,930
 1,809
 	    	 23,333
 
	 Cancer Center of Santa Barbara
 	    	 WC-07
WC-23
WC-53
 	    	 19,191
18,242
3,881
 	    	 78,038
 
	 Palm Trust
 	    	 WC-10
WC-26
WC-56
 	    	 35,402
31,597
12,883
 	    	 150,888
 
	 Parker Foundation
 	    	 WC-09
WC-25
WC-55
 	    	 37,699
35,797
8,281
 	    	 154,468
 
	 University of San Francisco
 	    	 WC-11
WC-27
WC-57
 	    	 38,036
36,105
8,130
 	    	 155,401
 

 

  
 
	 Ram Trading, Ltd.
 	  	 WC-17
 WC-31
 WC-60
 	  	 450,000
1,800,000
225,000
 	  	 4,675,000
 
	 Peninsula Fund, L.P.
 	  	 WC-16
 	  	 301,500
 	  	 569,500
 
	 Noranda Finance, Inc. Retirement Plan
 	  	 WC-14

 WC-30
 WC-59
 	  	 319,491
302,380
68,827
 	  	 1,304,652
 
	 Common Sense Partners, L.P.
 	  	 WC-15
 	  	 148,500
 	  	 280,500
 
	 TOTAL
 	  	  	  	 5,400,000
 	  	 10,200,000<PAGE>

                                                                     EXHIBIT 4.2
================================================================================

                           EL PASO NATURAL GAS COMPANY

                                     ISSUER

                                       AND

                               JPMORGAN CHASE BANK

                                     TRUSTEE

                                   ----------

                          FIRST SUPPLEMENTAL INDENTURE

                            DATED AS OF JUNE 10, 2002

                                       TO

                                    INDENTURE

                          DATED AS OF NOVEMBER 13, 1996

                                   ----------

                         8 3/8% NOTES DUE JUNE 15, 2032

                                   ----------

================================================================================

<PAGE>

         FIRST SUPPLEMENTAL INDENTURE, dated as of June 10, 2002 (herein called
the "First Supplemental Indenture"), between EL PASO NATURAL GAS COMPANY, a
Delaware corporation (herein called the "Company"), having its principal office
at 1001 Louisiana Street, Houston, Texas 77002 and JPMORGAN CHASE BANK (formerly
known as The Chase Manhattan Bank), a banking corporation duly organized and
existing under the laws of the State of New York, as trustee under the Indenture
referred to below (herein called the "Trustee").

                             RECITALS OF THE COMPANY

         WHEREAS, the Company has heretofore executed and delivered to the
Trustee the Indenture, dated as of November 13, 1996 (herein called the
"Original Indenture"), providing for the issuance from time to time of one or
more series of the Company's unsecured debentures, notes or other evidences of
indebtedness (herein called the "Securities"), the terms of which are to be
determined as set forth in Section 301 of the Original Indenture; and

         WHEREAS, Section 901 of the Original Indenture provides, among other
things, that the Company and the Trustee may enter into indentures supplemental
to the Original Indenture for, among other things, the purpose of establishing
the form or terms of Securities of any series as permitted by Sections 201 and
301 of the Original Indenture; and

         WHEREAS, the Company desires to create a series of the Securities in an
aggregate principal amount of $300,000,000, which series shall be designated the
8 3/8% Notes due June 15, 2032 (the "Notes"), and all action on the part of the
Company necessary to authorize the issuance of the Notes under the Original
Indenture and this First Supplemental Indenture has been duly taken; and

         WHEREAS, all acts and things necessary to make the Notes, when executed
by the Company and completed, authenticated and delivered by the Trustee as
provided in the Original Indenture and this First Supplemental Indenture, the
valid and binding obligations of the Company and to constitute these presents a
valid and binding supplemental indenture and agreement according to its terms,
have been done and performed;

         NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:

         That in consideration of the premises and the issuance of the Notes,
the Company covenants and agrees with the Trustee, for the equal and
proportionate benefit of all Holders of the Notes, as follows:

                                    ARTICLE I

                TERMS AND ISSUANCE OF 8 3/8% NOTES DUE JUNE 15, 2032

         SECTION 1.01 Issue of Notes. A series of Securities which shall be
designated the "8 3/8% Notes due June 15, 2032" (and which shall consist of the
Series A Notes and the Exchange Notes) shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Original Indenture,
including without limitation the terms set forth in this First Supplemental
Indenture (including the form of Notes referred to in Section 2.02 hereof). The
aggregate

<PAGE>

principal amount of Notes which may be authenticated and delivered under the
Original Indenture shall not, except as permitted by the provisions of the
Original Indenture and this First Supplemental Indenture, exceed $300,000,000.
The entire amount of Notes may forthwith be executed by the Company and
delivered to the Trustee and shall be authenticated by the Trustee and delivered
to or upon the order of the Company pursuant to Section 303 of the Original
Indenture.

                                   ARTICLE II

                          FORMS; TRANSFER AND EXCHANGE

         SECTION 2.01 Definitions. For purposes of this First Supplemental
Indenture and the Notes, the following terms shall have the meanings indicated
below. Terms used herein but not defined shall have the meaning assigned to them
in the Original Indenture.

         "Additional Interest" means all additional interest then owing pursuant
to Section 6(a) of the Registration Rights Agreement.

         "Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Note, the rules and procedures of
the Depositary, Euroclear and Clearstream that apply to such transfer or
exchange.

         "Broker-Dealer" has the meaning set forth in the definition of
"Participating Broker-Dealer" in the Registration Rights Agreement.

         "Certificated Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.04 hereof, in the
form of Exhibit A-1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.

         "Clearstream" means Clearstream Banking, societe anonyme, Luxembourg.

         "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this First Supplemental Indenture.

         "Distribution Compliance Period" means the 40-day distribution
compliance period as defined in Regulation S.

         "Euroclear" means Euroclear Bank S.A./NV, as operator of the Euroclear
system.

         "Exchange Notes" means the 8 3/8% Series B Notes due June 15, 2032,
having terms substantially identical to the Series A Notes, offered to the
Holders of the Series A Notes under the Exchange Offer Registration Statement.

                                      -2-
<PAGE>

         "Exchange Offer" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to the Holders of the Series A
Notes to exchange their Series A Notes for the Exchange Notes.

         "Exchange Offer Registration Statement" means that certain registration
statement to be filed by the Company with the Commission to register the
Exchange Notes for issuance in the Exchange Offer.

         "Global Note Legend" means the legend set forth in Section 2.04(g)(ii),
which is required to be placed on all Global Notes issued under this First
Supplemental Indenture.

         "Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A-1 hereto issued in accordance with Sections 2.02, 2.04(b), 2.04(d) or
2.04(f) hereof.

         "Holder" means a Person in whose name a Note is registered on the
Registrar's books; and "Holders" means the Persons in whose names the Notes are
registered on the Registrar's books.

         "Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.

         "Initial Purchaser" means Credit Suisse First Boston Corporation.

         "Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Series A Notes for use by such
Holders in connection with the Exchange Offer.

         "Non-U.S. Person" means a person who is not a U.S. Person.

         "Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.

         "Notes" means the Series A Notes and the Exchange Notes.

         "Offering" means the offering of the Series A Notes by the Company.

         "Participant" means, with respect to DTC, Euroclear or Clearstream, a
Person who has an account with DTC, Euroclear or Clearstream, respectively (and,
with respect to DTC, shall include Euroclear and Clearstream).

         "Private Placement Legend" means the legend set forth in Section
2.04(g)(i) to be placed on all Notes except where otherwise permitted by the
provisions of this First Supplemental Indenture.

         "QIB" means a "qualified institutional buyer" as defined in Rule 144A
of the rules and regulations promulgated by the Commission under the Securities
Act.

                                      -3-
<PAGE>

         "Registrar" means the Security Registrar.

         "Registration Rights Agreement" means that certain agreement among the
Company and the Initial Purchaser requiring the Company to file the Exchange
Offer Registration Statement and the Shelf Registration Statement.

         "Regulation S" means Regulation S promulgated by the Commission under
the Securities Act.

         "Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.

         "Regulation S Permanent Global Note" means a permanent Global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and that has the "Schedule of Exchange of Interests in the
Global Note" attached thereto and deposited with or on behalf of and registered
in the name of the Depositary or its nominee, issued in a denomination equal to
the principal amount of the Regulation S Temporary Global Note upon expiration
of the Distribution Compliance Period.

         "Regulation S Temporary Global Legend" means the legend set forth in
Section 2.04(g)(iii), which is required to be placed on the Regulation S
Temporary Global Note.

         "Regulation S Temporary Global Note" means a temporary Global Note in
the form of Exhibit A-2 hereto bearing the Global Note Legend, the Private
Placement Legend and the Regulation S Temporary Global Legend set forth in
Section 2.04(g)(iii) and that has the "Schedule of Exchange of Interests in the
Global Note" attached thereto and deposited with or on behalf of and registered
in the name of the Depositary or its nominee, issued in a denomination equal to
the outstanding principal amount of the Notes initially sold in reliance on Rule
903 of Regulation S.

         "Restricted Certificated Note" means a Certificated Note bearing the
Private Placement Legend.

         "Restricted Global Note" means a Global Note bearing the Private
Placement Legend and that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto and
that is deposited with or on behalf, and registered in the name, of the
Depositary or its nominee.

         "Rule 144" means Rule 144 promulgated by the Commission under the
Securities Act.

         "Rule 144A" means Rule 144A promulgated by the Commission under the
Securities Act.

         "Rule 144A Global Note" means the Global Note in the form of Exhibit
A-1 hereto bearing the Global Note Legend and the Private Placement Legend and
that has the "Schedule of Exchange of Interests in the Global Note" attached
thereto and deposited with and registered in the name of the Depositary or its
nominee that will be issued in a denomination equal to the outstanding principal
amount of the Notes sold in reliance on Rule 144A.

                                      -4-
<PAGE>

         "Rule 903" means Rule 903 of Regulation S promulgated by the Commission
under the Securities Act.

         "Rule 904" means Rule 904 of Regulation S promulgated by the Commission
under the Securities Act.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Series A Notes" means the $300,000,000 principal amount of 8 3/8%
Notes due June 15, 2032 issued in the Offering.

         "Shelf Registration Statement" means that certain shelf registration
statement filed by the Company in accordance with the Registration Rights
Agreement with the Commission to register resales of the Series A Notes or the
Exchange Notes.

         "Unrestricted Certificated Note" means one or more Certificated Notes
that do not bear and are not required to bear the Private Placement Legend.

         "Unrestricted Global Note" means a permanent Global Note in the form of
Exhibit A-1 attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary or its nominee, representing Notes that do not bear the Private
Placement Legend.

         "U.S. Person" means a U.S. person as defined in Rule 902(k) of
Regulation S promulgated by the SEC under the Securities Act.

         SECTION 2.02 Form of Notes and Trustee's Certificate of Authentication.
Notes issued in global form shall be substantially in the form of Exhibit A-1 or
A-2 (as applicable) attached hereto (including the Global Note Legend and the
"Schedule of Exchanges in the Global Note" attached thereto). Notes issued in
definitive form shall be substantially in the form of Exhibit A-1 attached
hereto (but without the Global Note Legend and without the "Schedule of
Exchanges of Interests in the Global Note" attached thereto). The form of the
Trustee's certificate of authentication shall be substantially as set forth on
Exhibit A-1 and Exhibit A-2 attached hereto. Each Global Note shall represent
such of the Outstanding Notes as shall be specified therein and each shall
provide that it shall represent the aggregate principal amount of Outstanding
Notes from time to time endorsed thereon and that the aggregate principal amount
of Outstanding Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect transfers and exchanges. Any endorsement
of a Global Note to reflect the amount of any increase or decrease in the
aggregate principal amount of outstanding Notes represented thereby shall be
made by the Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by Section
2.04 hereof. The terms of the Notes as set forth in Exhibits A-1 and A-2 are
incorporated herein by reference.

         Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of a Rule 144A Global Note, which shall be deposited on
behalf of the purchasers of the Notes represented thereby with the Trustee, at
its Corporate Trust Office, as custodian for the

                                      -5-
<PAGE>

Depositary, and registered in the name of the Depositary or the nominee of the
Depositary for the accounts of such purchasers, duly executed by the Company and
authenticated by the Trustee as provided in the Original Indenture. Notes
offered and sold in reliance on Regulation S shall be issued initially in the
form of the Regulation S Temporary Global Note, which shall be deposited on
behalf of the purchasers of the Notes represented thereby with the Trustee, at
its Corporate Trust Office, as custodian for the Depositary, and registered in
the name of the Depositary or the nominee of the Depositary for the accounts of
designated agents holding on behalf of Euroclear or Clearstream, duly executed
by the Company and authenticated by the Trustee as provided in the Original
Indenture. The Distribution Compliance Period shall be terminated upon the
receipt by the Trustee of (i) written certificates from Euroclear and
Clearstream substantially in the form of Exhibit D hereto, together with copies
of certificates from the account holders thereof substantially in the form of
Exhibit E hereto certifying that they have received certification of non-United
States beneficial ownership of 100% of the aggregate principal amount of the
Regulation S Temporary Global Note (except to the extent of any beneficial
owners thereof who acquired an interest therein during the Distribution
Compliance Period pursuant to another exemption from registration under the
Securities Act and who will take delivery of a beneficial ownership interest in
a Rule 144A Global Note bearing a Private Placement Legend, all as contemplated
by Section 2.04(b)(iii) hereof), and (ii) an Officers' Certificate from the
Company to the effect that the Distribution Compliance Period has terminated.
Following the termination of the Distribution Compliance Period, beneficial
interests in the Regulation S Temporary Global Note shall be exchanged for
beneficial interests in Regulation S Permanent Global Notes pursuant to the
Applicable Procedures. Simultaneously with the authentication of Regulation S
Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary
Global Note. The aggregate principal amount of the Regulation S Temporary Global
Note and the Regulation S Permanent Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee, as the case may be, in connection with transfers of
interest as hereinafter provided.

         The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Clearstream" and "Customer Handbook" of Clearstream shall be
applicable to transfers of beneficial interests in the Regulation S Temporary
Global Note and the Regulation S Permanent Global Notes that are held by the
members of or participants in the Depositary through Euroclear or Clearstream.

         SECTION 2.03 Depository and Note Custodian. The Company initially
appoints The Depository Trust Company ("DTC") to act as Depositary with respect
to the Global Notes.

         The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.

         SECTION 2.04 Transfer and Exchange.

         (a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All

                                      -6-
<PAGE>

Global Notes may be exchanged by the Company for Certificated Notes if (i) the
Company delivers to the Trustee notice from the Depositary that it is unwilling
or unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 90 days after the date of such
notice from the Depositary, (ii) the Company in its sole discretion determines
that the Global Notes (in whole but not in part) should be exchanged for
Certificated Notes and delivers a written notice to such effect to the Trustee
or (iii) an Event of Default has occurred and is continuing and the Company
delivers to the Trustee notice that the Depositary is unwilling to continue to
act as Depositary; provided that in no event shall the Regulation S Temporary
Global Note be exchanged by the Company for Certificated Notes prior to (x) the
expiration of the Distribution Compliance Period and (y) the receipt by the
Registrar of the certificates from the Depositary, Euroclear and Clearstream
referred to in clause (i) of the second paragraph of Section 2.02. If a Default
or an Event of Default with respect to a Note occurs and is continuing, the
Company shall, at the request of the Holder thereof, exchange all or part of a
Global Note that is a Restricted Global Note or an Unrestricted Global Note, as
the case may be, for one or more Certificated Notes representing Series A Notes
or Exchange Notes, as the case may be; provided that the principal amount of
each of such Certificated Notes, and such Global Note, after such exchange,
shall be $1,000 or an integral multiple thereof. Whenever a Global Note is
exchanged as a whole for one or more Certificated Notes, it shall be surrendered
by the Holder thereof to the Trustee for cancellation. Whenever a Global Note is
exchanged in part for one or more Certificated Notes, it shall be surrendered by
the Holder thereof to the Trustee and the Trustee shall make the appropriate
notations to the Schedule of Exchanges of Interests in the Global Note attached
thereto pursuant to Section 2.02 hereof. A Global Note may not be exchanged for
another Note other than as provided in this Section 2.04(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.04(b), (c) or (f) hereof.

         (b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this First
Supplemental Indenture and the Applicable Procedures. Beneficial interests in
the Restricted Global Notes shall be subject to restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs as applicable:

                  (i) Transfer of Beneficial Interests in the Same Global Note.
         Beneficial interests in any Restricted Global Note may be transferred
         to Persons who take delivery thereof in the form of a beneficial
         interest in the same Restricted Global Note in accordance with the
         transfer restrictions set forth in the Private Placement Legend;
         provided, however, that prior to the expiration of the Distribution
         Compliance Period transfers of beneficial interests in the Regulation S
         Temporary Global Note may not be made to a U.S. Person or for the
         account or benefit of a U.S. Person (other than an Initial Purchaser).
         Beneficial interests in any Unrestricted Global Note may be transferred
         to Persons who take delivery thereof in the form of a beneficial
         interest in an Unrestricted Global Note. No written orders or
         instructions shall be required to be delivered to the Registrar to
         effect the transfers described in this Section 2.04(b)(i).

                                      -7-
<PAGE>

                  (ii) All Other Transfers and Exchanges of Beneficial Interests
         in Global Notes. In connection with all transfers and exchanges of
         beneficial interests (other than a transfer of a beneficial interest in
         a Global Note to a Person who takes delivery thereof in the form of a
         beneficial interest in the same Global Note), the transferor of such
         beneficial interest must deliver to the Registrar either (A) (i) a
         written order from a Participant or an Indirect Participant given to
         the Depositary in accordance with the Applicable Procedures directing
         the Depositary to credit or cause to be credited a beneficial interest
         in another Global Note in an amount equal to the beneficial interest to
         be transferred or exchanged and (ii) instructions given in accordance
         with the Applicable Procedures containing information regarding the
         Participant account to be credited with such increase or (B) (i) a
         written order from a Participant or an Indirect Participant given to
         the Depositary in accordance with the Applicable Procedures directing
         the Depositary to cause to be issued a Certificated Note in an amount
         equal to the beneficial interest to be transferred or exchanged and
         (ii) instructions given by the Depositary to the Registrar containing
         information regarding the Person in whose name such Certificated Note
         shall be registered to effect the transfer or exchange referred to in
         (i) above; provided that in no event shall Certificated Notes be issued
         upon the transfer or exchange of beneficial interests in the Regulation
         S Temporary Global Note prior to (x) the expiration of the Distribution
         Compliance Period and (y) the receipt by the Registrar of the
         certificates from the Depositary, Euroclear and Clearstream referred to
         in clause (i) of the second paragraph of Section 2.02. Upon an Exchange
         Offer by the Company in accordance with Section 2.04(f) hereof, the
         requirements of this Section 2.04(b)(ii) shall be deemed to have been
         satisfied upon receipt by the Registrar of the instructions contained
         in the Letter of Transmittal or an agent's message in lieu thereof in
         accordance with the Applicable Procedures delivered by the holder of
         such beneficial interests in the Restricted Global Notes. Upon
         satisfaction of all of the requirements for transfer or exchange of
         beneficial interests in Global Notes contained in this First
         Supplemental Indenture, the Notes and otherwise applicable under the
         Securities Act, the Trustee shall adjust the principal amount of the
         relevant Global Note(s) pursuant to Section 2.04(a) hereof.

                  (iii) Transfer of Beneficial Interests to Another Restricted
         Global Note. A beneficial interest in any Restricted Global Note may be
         transferred to a Person who takes delivery thereof in the form of a
         beneficial interest in another Restricted Global Note if the transfer
         complies with the requirements of clause (ii) above and the Registrar
         receives the following:

                           (A) if the transferee will take delivery in the form
                  of a beneficial interest in the Rule 144A Global Note, then
                  the transferor must deliver a certificate in the form of
                  Exhibit B hereto, including the certifications in item (1)
                  thereof; and

                           (B) if the transferee will take delivery in the form
                  of a beneficial interest in the Regulation S Temporary Global
                  Note or the Regulation S Permanent Global Note, then the
                  transferor must deliver a certificate in the form of Exhibit B
                  hereto, including the certifications in item (2) thereof.

                                      -8-
<PAGE>

                  (iv) Transfer and Exchange of Beneficial Interests in a
         Restricted Global Note for Beneficial Interests in the Unrestricted
         Global Note. A beneficial interest in any Restricted Global Note may be
         exchanged by any holder thereof for a beneficial interest in an
         Unrestricted Global Note or transferred to a Person who takes delivery
         thereof in the form of a beneficial interest in an Unrestricted Global
         Note if the exchange or transfer complies with the requirements of
         clause (ii) above and:

                           (A) such exchange or transfer is effected pursuant to
                  the Exchange Offer in accordance with the Registration Rights
                  Agreement and the holder of the beneficial interest to be
                  transferred, in the case of an exchange, or the transferee, in
                  the case of a transfer, is not (i) a Broker-Dealer, (ii) a
                  Person participating in the distribution of the Exchange Notes
                  or (iii) a Person who is an affiliate (as defined in Rule 144)
                  of the Company;

                           (B) any such transfer is effected pursuant to the
                  Shelf Registration Statement in accordance with the
                  Registration Rights Agreement;

                           (C) any such transfer is effected by a Broker-Dealer
                  pursuant to the Exchange Offer Registration Statement in
                  accordance with the Registration Rights Agreement; or

                           (D) the Registrar receives the following:

                                    (i) if the holder of such beneficial
                           interest in a Restricted Global Note proposes to
                           exchange such beneficial interest for a beneficial
                           interest in an Unrestricted Global Note, a
                           certificate from such holder in the form of Exhibit C
                           hereto, including the certifications in item (1)(a)
                           thereof;

                                    (ii) if the holder of such beneficial
                           interest in a Restricted Global Note proposes to
                           transfer such beneficial interest to a Person who
                           shall take delivery thereof in the form of a
                           beneficial interest in an Unrestricted Global Note, a
                           certificate from such holder in the form of Exhibit B
                           hereto, including the certifications in item (4)
                           thereof; and

                                    (iii) in each such case set forth in this
                           subparagraph (D), an Opinion of Counsel in form
                           reasonably acceptable to the Registrar to the effect
                           that such exchange or transfer is in compliance with
                           the Securities Act and that the restrictions on
                           transfer contained herein and in the Private
                           Placement Legend are not required in order to
                           maintain compliance with the Securities Act.

         If any such transfer is effected at a time when an Unrestricted Global
Note has not yet been issued, the Company shall issue and, upon receipt of an
authentication order in accordance with the Original Indenture, the Trustee
shall authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of beneficial interests
transferred pursuant to subparagraph (A), (B), (C) or (D) above.

                                      -9-
<PAGE>

         Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.

         (c) Transfer or Exchange of Beneficial Interests for Certificated
Notes.

                  (i) If any holder of a beneficial interest in a Restricted
         Global Note proposes to exchange such beneficial interest for a
         Certificated Note or to transfer such beneficial interest to a Person
         who takes delivery thereof in the form of a Certificated Note, then,
         upon receipt by the Registrar of the following documentation:

                           (A) if the holder of such beneficial interest in a
                  Restricted Global Note proposes to exchange such beneficial
                  interest for a Certificated Note, a certificate from such
                  holder in the form of Exhibit C hereto, including the
                  certifications in item (2)(a) thereof;

                           (B) if such beneficial interest is being transferred
                  to a QIB in accordance with Rule 144A under the Securities
                  Act, a certificate to the effect set forth in Exhibit B
                  hereto, including the certifications in item (1) thereof;

                           (C) if such beneficial interest is being transferred
                  to a Non-U.S. Person in an offshore transaction in accordance
                  with Rule 903 or Rule 904 under the Securities Act, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (2) thereof;

                           (D) if such beneficial interest is being transferred
                  pursuant to an exemption from the registration requirements of
                  the Securities Act in accordance with Rule 144 under the
                  Securities Act, a certificate to the effect set forth in
                  Exhibit B hereto, including the certification in item (3)(a)
                  thereof;

                           (E) if such beneficial interest is being transferred
                  to the Company, a certificate to the effect set forth in
                  Exhibit B hereto, including the certification in item (3)(b)
                  thereof; or

                           (F) if such beneficial interest is being transferred
                  pursuant to an effective registration statement under the
                  Securities Act, a certificate to the effect set forth in
                  Exhibit B hereto, including the certification in item (3)(c)
                  thereof;

         the Trustee shall cause the aggregate principal amount of the
         applicable Global Note to be reduced accordingly pursuant to Section
         2.04(a) hereof, and the Company shall execute and the Trustee shall
         authenticate and deliver to the Person designated in the instructions a
         Certificated Note in the appropriate principal amount. Any Certificated
         Note issued in exchange for a beneficial interest in a Restricted
         Global Note pursuant to this Section 2.04(c) shall be registered in
         such name or names and in such authorized denomination or denominations
         as the holder of such beneficial interest shall instruct the Registrar
         through instructions from the Depositary and the Participant or
         Indirect Participant. The Trustee shall deliver such Certificated Notes
         to the Persons in whose names such Notes are so registered. Any
         Certificated Note issued in exchange for a

                                      -10-
<PAGE>

         beneficial interest in a Restricted Global Note pursuant to this
         Section 2.04(c)(i) (other than subparagraph (F)) shall bear the Private
         Placement Legend and shall be subject to all restrictions on transfer
         contained therein.

                  (ii) Notwithstanding Sections 2.04(c)(i)(A) and (C) hereof, a
         beneficial interest in the Regulation S Temporary Global Note may not
         be (A) exchanged for a Certificated Note prior to (x) the expiration of
         the Distribution Compliance Period and (y) the receipt by the Registrar
         of the certificates from the Depositary, Euroclear and Clearstream
         referred to in clause (i) of the second paragraph of Section 2.02 or
         (B) transferred to a Person who takes delivery thereof in the form of a
         Certificated Note prior to compliance with the conditions set forth in
         clause (A) above or unless the transfer is pursuant to an exemption
         from the registration requirements of the Securities Act other than
         Rule 903 or Rule 904.

                  (iii) Notwithstanding 2.04(c)(i) hereof, a holder of a
         beneficial interest in a Restricted Global Note may exchange such
         beneficial interest for an Unrestricted Certificated Note or may
         transfer such beneficial interest to a Person who takes delivery
         thereof in the form of an Unrestricted Certificated Note only if:

                           (A) such exchange or transfer is effected pursuant to
                  the Exchange Offer in accordance with the Registration Rights
                  Agreement and the holder of such beneficial interest, in the
                  case of an exchange, or the transferee, in the case of a
                  transfer, is not (i) a Broker-Dealer, (ii) a Person
                  participating in the distribution of the Exchange Notes or
                  (iii) a Person who is an affiliate (as defined in Rule 144) of
                  the Company;

                           (B) any such transfer is effected pursuant to the
                  Shelf Registration Statement in accordance with the
                  Registration Rights Agreement;

                           (C) any such transfer is effected by a Broker-Dealer
                  pursuant to the Exchange Offer Registration Statement in
                  accordance with the Registration Rights Agreement; or

                           (D) the Registrar receives the following:

                                    (i) if the holder of such beneficial
                           interest in a Restricted Global Note proposes to
                           exchange such beneficial interest for a Certificated
                           Note that does not bear the Private Placement Legend,
                           a certificate from such holder in the form of Exhibit
                           C hereto, including the certifications in item (1)(b)
                           thereof;

                                    (ii) if the holder of such beneficial
                           interest in a Restricted Global Note proposes to
                           transfer such beneficial interest to a Person who
                           shall take delivery thereof in the form of a
                           Certificated Note that does not bear the Private
                           Placement Legend, a certificate from such holder in
                           the form of Exhibit B hereto, including the
                           certifications in item (4) thereof; and

                                      -11-
<PAGE>

                                    (iii) in each such case set forth in this
                           subparagraph (D), an Opinion of Counsel in form
                           reasonably acceptable to the Company, to the effect
                           that such exchange or transfer is in compliance with
                           the Securities Act and that the restrictions on
                           transfer contained herein and in the Private
                           Placement Legend are not required in order to
                           maintain compliance with the Securities Act.

                           (iv) If any holder of a beneficial interest in an
                  Unrestricted Global Note proposes to exchange such beneficial
                  interest for a Certificated Note or to transfer such
                  beneficial interest to a Person who takes delivery thereof in
                  the form of a Certificated Note, then, upon satisfaction of
                  the conditions set forth in Section 2.04(b)(ii) hereof, the
                  Trustee shall cause the aggregate principal amount of the
                  applicable Global Note to be reduced accordingly pursuant to
                  Section 2.04(a) hereof, and the Company shall execute and the
                  Trustee shall authenticate and deliver to the Person
                  designated in the instructions a Certificated Note in the
                  appropriate principal amount. Any Certificated Note issued in
                  exchange for a beneficial interest pursuant to this Section
                  2.04(c)(iv) shall be registered in such name or names and in
                  such authorized denomination or denominations as the holder of
                  such beneficial interest shall instruct the Registrar through
                  instructions from the Depositary and the Participant or
                  Indirect Participant. The Trustee shall deliver such
                  Certificated Notes to the Persons in whose names such Notes
                  are so registered. Any Certificated Note issued in exchange
                  for a beneficial interest pursuant to this Section 2.04(c)(iv)
                  shall not bear the Private Placement Legend. A beneficial
                  interest in an Unrestricted Global Note cannot be exchanged
                  for a Certificated Note bearing the Private Placement Legend
                  or transferred to a Person who takes delivery thereof in the
                  form of a Certificated Note bearing the Private Placement
                  Legend.

                  (d) Transfer and Exchange of Certificated Notes for Beneficial
         Interests.

                           (i) If any Holder of a Restricted Certificated Note
                  proposes to (a) exchange such Note for a beneficial interest
                  in a Restricted Global Note, (b) transfer such Note to a
                  Person who takes delivery thereof in the form of a beneficial
                  interest in a Restricted Global Note, (c) transfer such Note
                  to the Company, or (d) transfer such Note pursuant to an
                  effective registration statement under the Securities Act,
                  then, upon receipt by the Registrar of the following
                  documentation:

                                    (A) if the Holder of such Restricted
                           Certificated Note proposes to exchange such Note for
                           a beneficial interest in a Restricted Global Note, a
                           certificate from such Holder in the form of Exhibit C
                           hereto, including the certifications in item (2)(b)
                           thereof;

                                    (B) if such Certificated Note is being
                           transferred to a QIB in accordance with Rule 144A
                           under the Securities Act, a certificate to the effect
                           set forth in Exhibit B hereto, including the
                           certifications in item (1) thereof;

                                    (C) if such Certificated Note is being
                           transferred to a Non-U.S. Person in an offshore
                           transaction in accordance with Rule 903 or Rule 904
                           under the

                                      -12-
<PAGE>

                           Securities Act, a certificate to the effect set forth
                           in Exhibit B hereto, including the certifications in
                           item (2) thereof;

                                    (D) if such Certificated Note is being
                           transferred pursuant to an exemption from the
                           registration requirements of the Securities Act in
                           accordance with Rule 144 under the Securities Act, a
                           certificate to the effect set forth in Exhibit B
                           hereto, including the certification in item (3)(a)
                           thereof;

                                    (E) if such Certificated Note is being
                           transferred to the Company, a certificate to the
                           effect set forth in Exhibit B hereto, including the
                           certification in item (3)(b) thereof; or

                                    (F) if such Certificated Note is being
                           transferred pursuant to an effective registration
                           statement under the Securities Act, a certificate to
                           the effect set forth in Exhibit B hereto, including
                           the certification in item (3)(c) thereof;

                  the Trustee shall cancel the Certificated Note, increase or
                  cause to be increased the aggregate principal amount of, in
                  the case of clauses (A), (D) and (E) above, the appropriate
                  Restricted Global Note, in the case of clause (B) above, the
                  Rule 144A Global Note, in the case of clause (C) above, the
                  Regulation S Global Note, and in the case of clause (F) above,
                  the Unrestricted Global Note.

                           (ii) A Holder of a Restricted Certificated Note may
                  exchange such Note for a beneficial interest in an
                  Unrestricted Global Note or transfer such Restricted
                  Certificated Note to a Person who takes delivery thereof in
                  the form of a beneficial interest in an Unrestricted Global
                  Note only if:

                                    (A) such exchange or transfer is effected
                           pursuant to the Exchange Offer in accordance with the
                           Registration Rights Agreement and the Holder, in the
                           case of an exchange, or the transferee, in the case
                           of a transfer, is not (i) a Broker-Dealer, (ii) a
                           Person participating in the distribution of the
                           Exchange Notes or (iii) a Person who is an affiliate
                           (as defined in Rule 144) of the Company;

                                    (B) any such transfer is effected pursuant
                           to the Shelf Registration Statement in accordance
                           with the Registration Rights Agreement;

                                    (C) any such transfer is effected by a
                           Broker-Dealer pursuant to the Exchange Offer
                           Registration Statement in accordance with the
                           Registration Rights Agreement; or

                                    (D) the Registrar receives the following:

                                             (i) if the Holder of such
                                    Restricted Certificated Note proposes to
                                    exchange such Note for a beneficial interest
                                    in the Unrestricted Global Note, a
                                    certificate from such Holder in the form of
                                    Exhibit C hereto, including the
                                    certifications in item (1)(c) thereof;

                                      -13-
<PAGE>

                                             (ii) if the Holder of such
                                    Restricted Certificated Note proposes to
                                    transfer such Note to a Person who shall
                                    take delivery thereof in the form of a
                                    beneficial interest in the Unrestricted
                                    Global Note, a certificate from such Holder
                                    in the form of Exhibit B hereto, including
                                    the certifications in item (4) thereof; and

                                             (iii) in each such case set forth
                                    in this subparagraph (D), an Opinion of
                                    Counsel in form reasonably acceptable to the
                                    Company to the effect that such exchange or
                                    transfer is in compliance with the
                                    Securities Act and that the restrictions on
                                    transfer contained herein and in the Private
                                    Placement Legend are not required in order
                                    to maintain compliance with the Securities
                                    Act.

         Upon satisfaction of the conditions of any of the subparagraphs in this
         Section 2.04(d)(ii), the Trustee shall cancel the Certificated Notes
         and increase or cause to be increased the aggregate principal amount of
         the Unrestricted Global Note.

                  (iii) A Holder of an Unrestricted Certificated Note may
         exchange such Note for a beneficial interest in an Unrestricted Global
         Note or transfer such Certificated Notes to a Person who takes delivery
         thereof in the form of a beneficial interest in an Unrestricted Global
         Note at any time. Upon receipt of a request for such an exchange or
         transfer, the Trustee shall cancel the applicable Unrestricted
         Certificated Note and increase or cause to be increased the aggregate
         principal amount of one of the Unrestricted Global Notes.

         If any such exchange or transfer from a Certificated Note to a
beneficial interest is effected at a time when an Unrestricted Global Note has
not yet been issued, the Company shall issue and, upon receipt of an
authentication order in accordance with the Original Indenture, the Trustee
shall authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of beneficial interests
transferred pursuant to this Section 2.04(d).

         (e) Transfer and Exchange of Certificated Notes for Certificated Notes.
Upon request by a Holder of Certificated Notes and such Holder's compliance with
the provisions of this Section 2.04(e), the Registrar shall register the
transfer or exchange of Certificated Notes. Prior to such registration of
transfer or exchange, the requesting Holder shall present or surrender to the
Registrar the Certificated Notes duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney, duly authorized in writing. In addition, the
requesting Holder shall provide any additional certifications, documents and
information, as applicable, pursuant to the provisions of this Section 2.04(e).

                  (i) Restricted Certificated Notes may be transferred to and
         registered in the name of Persons who take delivery thereof if the
         Registrar receives the following:

                                      -14-
<PAGE>

                           (A) if the transfer will be made pursuant to Rule
                  144A under the Securities Act, then the transferor must
                  deliver a certificate in the form of Exhibit B hereto,
                  including the certifications in item (1) thereof; and

                           (B) if the transfer will be made pursuant to Rule 903
                  or Rule 904, then the transferor must deliver a certificate in
                  the form of Exhibit B hereto, including the certifications in
                  item (2) thereof.

                  (ii) Any Restricted Certificated Note may be exchanged by the
         Holder thereof for an Unrestricted Certificated Note or transferred to
         a Person or Persons who take delivery thereof in the form of an
         Unrestricted Certificated Note if:

                           (A) such exchange or transfer is effected pursuant to
                  the Exchange Offer in accordance with the Registration Rights
                  Agreement and the Holder, in the case of an exchange, or the
                  transferee, in the case of a transfer, is not (i) a
                  Broker-Dealer, (ii) a Person participating in the distribution
                  of the Exchange Notes or (iii) a Person who is an affiliate
                  (as defined in Rule 144) of the Company;

                           (B) any such transfer is effected pursuant to the
                  Shelf Registration Statement in accordance with the
                  Registration Rights Agreement;

                           (C) any such transfer is effected by a Broker-Dealer
                  pursuant to the Exchange Offer Registration Statement in
                  accordance with the Registration Rights Agreement; or

                           (D) the Registrar receives the following:

                                    (i) if the Holder of such Restricted
                           Certificated Note proposes to exchange such Note for
                           an Unrestricted Certificated Note, a certificate from
                           such Holder in the form of Exhibit C hereto,
                           including the certifications in item (1)(d) thereof;

                                    (ii) if the Holder of such Restricted
                           Certificated Note proposes to transfer such Note to a
                           Person who shall take delivery thereof in the form of
                           an Unrestricted Certificated Note, a certificate from
                           such Holder in the form of Exhibit B hereto,
                           including the certifications in item (4) thereof; and

                                    (iii) in each such case set forth in this
                           subparagraph (D), an Opinion of Counsel in form
                           reasonably acceptable to the Company to the effect
                           that such exchange or transfer is in compliance with
                           the Securities Act and that the restrictions on
                           transfer contained herein and in the Private
                           Placement Legend are not required in order to
                           maintain compliance with the Securities Act.

                  (iii) A Holder of Unrestricted Certificated Notes may transfer
         such Notes to a Person who takes delivery thereof in the form of an
         Unrestricted Certificated Note at any

                                      -15-
<PAGE>

         time. Upon receipt of a request for such a transfer, the Registrar
         shall register the Unrestricted Certificated Notes pursuant to the
         instructions from the Holder thereof. Unrestricted Certificated Notes
         cannot be exchanged for or transferred to Persons who take delivery
         thereof in the form of a Restricted Certificated Note.

         (f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an authentication order in accordance with the Original
Indenture, the Trustee shall authenticate (i) one or more Unrestricted Global
Notes in an aggregate principal amount equal to the principal amount of the
beneficial interests in the Restricted Global Notes tendered for acceptance by
Persons that are not (x) Broker-Dealers, (y) Persons participating in the
distribution of the Exchange Notes or (z) Persons who are affiliates (as defined
in Rule 144) of the Company and accepted for exchange in the Exchange Offer and
(ii) Certificated Notes in an aggregate principal amount equal to the principal
amount of the Restricted Certificated Notes accepted for exchange in the
Exchange Offer. Concurrent with the issuance of such Notes, the Trustee shall
cause the aggregate principal amount of the applicable Restricted Global Notes
to be reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of
Certificated Notes so accepted Certificated Notes in the appropriate principal
amount.

         (g) Legends. The following legends shall appear on the face of all
Global Notes and Certificated Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.

                  (i) Private Placement Legend.

                           (A) Except as permitted by subparagraph (B) below,
                  each Global Note and each Certificated Note (and all Notes
                  issued in exchange therefor or substitution thereof) shall
                  bear a legend in substantially the following form:

                  "THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
                  TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
                  SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND THIS NOTE
                  MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED IN
                  THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
                  THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT
                  THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM
                  THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
                  RULE 144A THEREUNDER.

                  THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY
                  THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR
                  OTHERWISE TRANSFERRED ONLY (I) IN THE UNITED STATES TO A

                                      -16-
<PAGE>

                  PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
                  INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
                  SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
                  RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE
                  TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES
                  ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
                  THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
                  AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH OF CASES (I)
                  THROUGH (IV), IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
                  LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER
                  WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
                  PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS
                  REFERRED TO IN CLAUSE (A) ABOVE."

                           (B) Notwithstanding the foregoing, any Global Note or
                  Certificated Note issued pursuant to subparagraphs (b)(iv),
                  (c)(i)(F), (c)(iii), (c)(iv), (d)(i)(F), (d)(ii), (d)(iii),
                  (e)(ii), (e)(iii) or (f) to this Section 2.04 (and all Notes
                  issued in exchange therefor or substitution thereof) shall not
                  bear the Private Placement Legend.

                  (ii) Global Note Legend. Each Global Note shall bear a legend
         in substantially the following form:

                  "THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
                  INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
                  NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY
                  NOT BE TRANSFERRED TO, OR REGISTERED OR EXCHANGED FOR
                  SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN
                  THE DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY
                  BE REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
                  IN THE INDENTURE. EVERY SECURITY AUTHENTICATED AND DELIVERED
                  UPON REGISTRATION OF, TRANSFER OF, OR IN EXCHANGE FOR OR IN
                  LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO
                  THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES.

                  UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED
                  REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
                  CORPORATION, TO THE

                                      -17-
<PAGE>

                  COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
                  PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF
                  CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
                  REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY
                  PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
                  REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
                  TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
                  VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH
                  AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
                  HEREIN."

                  (iii) Regulation S Temporary Global Note Legend. The
         Regulation S Temporary Global Note shall bear a legend in substantially
         the following form:

                  "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL
                  NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE
                  FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE SUPPLEMENT TO
                  THE INDENTURE (AS DEFINED HEREIN) RELATING TO THIS GLOBAL
                  NOTE. NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
                  REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO
                  RECEIVE PAYMENT OF INTEREST HEREON."

                                   ARTICLE III

                  CERTAIN AMENDMENTS TO THE ORIGINAL INDENTURE

         SECTION 3.01 Modification of Section 1104 in Respect of the Senior
Notes. Notwithstanding the terms of Section 1104 of the Original Indenture, if
the Company elects to redeem any of the Outstanding Notes, the notice of
redemption required to be furnished pursuant to Section 1104 of the Original
Indenture does not need to specify the Redemption Price (which will be the
Make-Whole Price (as such term is defined in the form of Note attached hereto as
Exhibit A)), but such notice of redemption may instead specify the manner of
calculation of the Make-Whole Price. In such event, the Company shall notify the
Trustee of the Make-Whole Price with respect to such redemption promptly after
the calculation thereof, and the Trustee shall not be responsible for such
calculation.

         SECTION 3.02 Amendment to Section 205 of the Original Indenture. From
and after the date of this First Supplemental Indenture, Section 205 of the
Original Indenture shall be amended by deleting such provision in its entirety
and replacing it with the following:

         Section 2.05 Form of Trustee's Certificate of Authentication.

                                      -18-
<PAGE>

                  The Trustee's certificates of authentication shall be in
         substantially the following form:

                  This is one of the Securities of the series designated therein
         referred to in the within-mentioned Indenture.

                                                JPMORGAN CHASE BANK,
                                                   AS TRUSTEE

                                                By:
                                                    ----------------------------
                                                    Authorized Officer

                                   ARTICLE IV

                                  MISCELLANEOUS

         SECTION 4.01 Execution as Supplemental Indenture. This First
Supplemental Indenture is executed and shall be construed as an indenture
supplemental to the Original Indenture and, as provided in the Original
Indenture, this First Supplemental Indenture forms a part thereof. Except as
herein expressly otherwise defined, the use of the terms and expressions herein
is in accordance with the definitions, uses and constructions contained in the
Original Indenture.

         SECTION 4.02 Responsibility for Recitals, Etc. The recitals herein and
in the Notes (except in the Trustee's certificate of authentication) shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no representations
as to the validity or sufficiency of this First Supplemental Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of the Notes or of the proceeds thereof.

         SECTION 4.03 Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements in this First Supplemental
Indenture contained by the Company shall bind its successors and assigns whether
so expressed or not.

         SECTION 4.04 New York Contract. THIS FIRST SUPPLEMENTAL INDENTURE AND
EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.

         SECTION 4.05 Execution and Counterparts. This First Supplemental
Indenture may be executed with counterpart signature pages or in any number of
counterparts, each of which shall be an original but such counterparts shall
together constitute but one and the same instrument.

         SECTION 4.06 Capitalized Terms. Capitalized terms not otherwise defined
in this First Supplemental Indenture shall have the respective meanings assigned
to them in the Original Indenture.

                                      -19-
<PAGE>

         IN WITNESS WHEREOF, said EL PASO NATURAL GAS COMPANY has caused this
First Supplemental Indenture to be executed in its corporate name by its
Chairman of the Board or its President or one of its Vice Presidents, and said
JPMORGAN CHASE BANK has caused this First Supplemental Indenture to be executed
in its corporate name by one of its Assistant Vice Presidents as of June 10,
2002.

                                       EL PASO NATURAL GAS COMPANY

                                       By:  /s/ H. Brent Austin
                                            ------------------------------------
                                            Name:  H. Brent Austin
                                            Title: Executive Vice President and
                                            Chief Financial Officer

                                       JPMORGAN CHASE BANK

                                       By:  /s/ Richard Lorenzen
                                            ------------------------------------
                                            Name:  Richard Lorenzen
                                            Title: Assistant Vice President

                                      -20-
<PAGE>

                                                                     EXHIBIT A-1

                                 (Face of Note)

         [THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR
EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE
DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY
AUTHENTICATED AND DELIVERED UPON REGISTRATION OF, TRANSFER OF, OR IN EXCHANGE
FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE
FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES.

         UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]*

                           EL PASO NATURAL GAS COMPANY

                    8 3/8% [SERIES B] NOTE DUE JUNE 15, 2032

NO.                                                                        U.S.$
CUSIP No. 283695BJ2

         EL PASO NATURAL GAS COMPANY, a corporation duly incorporated and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to ______, or registered assigns, the
principal sum of _________ United States Dollars [or such other principal sum as
shall be set forth on the Schedule of Exchanges of Interests in the Global Note
annexed hereto]* on June 15, 2032, and to pay interest thereon from June 10,
2002, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually on June 15 and December 15 in each
year, commencing December 15, 2002, at the rate of 8 3/8% per annum, until the
principal hereof is paid or made available for payment.

------------------------------------
*   Insert in Global Notes only.

                                      A1-1
<PAGE>

The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the June 1 or December 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date and shall either be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest to be fixed by the Trustee, notice of which shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at such time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in such Indenture.

         [Payment of the principal of and premium, if any, and interest on this
Security will be made by transfer of immediately available funds to a bank
account in New York, New York designated by the Holder in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts.]*

         [Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, or at such other offices or
agencies as the Company may designate; provided, however, that payment of
interest may be made at the option of the Company by check mailed to the
addresses of the Persons entitled thereto as such addresses shall appear in the
Security Register.]**

         Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

         Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

------------------------------------
*        Insert in Global Notes only.
**       Insert in Certificated Notes only.

                                      A1-2
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

Dated:

                                        EL PASO NATURAL GAS COMPANY

                                        By:
                                             -----------------------------------
                                             Name:
                                             Title:

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

                                        JPMORGAN CHASE BANK,
                                             AS TRUSTEE

                                        By:
                                             -----------------------------------
                                             Authorized Officer

                                      A1-3
<PAGE>

                                 (Back of Note)

                           EL PASO NATURAL GAS COMPANY
                    8 3/8% [Series B] Note due June 15, 2032

[THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF
THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF
THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE
MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) IN THE UNITED
STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH OF
CASES (I) THROUGH (IV), IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN CLAUSE (A) ABOVE.]***

         This Security is one of a duly authorized issue of Securities of the
Company (the "Securities"), issued and to be issued in one or more series under
an Indenture dated as of November 13, 1996 (as supplemented through the date
hereof, the "Indenture"), between the Company and JPMorgan Chase Bank (formerly
known as The Chase Manhattan Bank), as Trustee (the "Trustee," which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, obligations, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. As provided in the Indenture, the Securities may be issued in one or
more series, which different series may be issued in various aggregate principal
amounts, may provide for re-opening in the future to issue additional Securities
of the series without the consent or approval of the holders of Outstanding
Securities, may mature at different times, may bear interest, if any, at
different rates, may be subject to different redemption provisions, if any, may
be subject to different sinking, purchase or analogous funds, if any, may be
subject to different covenants and Events of Default and may

------------------------------------
***   Insert only in Restricted Global Notes and Restricted Certificates Notes.

                                      A1-4
<PAGE>

otherwise vary as in the Indenture provided or permitted. This Security is one
of a series of Securities designated on the face hereof limited in aggregate
principal amount to U.S. $300,000,000, except that in accordance with the
provisions of the Indenture the series of Securities may be reopened in the
future without the consent of the holders of the then Outstanding Securities to
issue additional Securities of this series.

         The Securities of this series are redeemable, upon not less than 30 nor
more than 60 days' notice by mail, as a whole or in part, at the option of the
Company at any time at the "Make-Whole Price." As used herein, the term
"Make-Whole Price" means an amount equal to the greater of:

         (1)      100% of the principal amount of the Securities of this series
                  to be redeemed; and

         (2)      as determined by an Independent Investment Banker, the sum of
                  the present values of the remaining scheduled payments of
                  principal and interest on the Securities to be redeemed (not
                  including any portion of such payments of interest accrued as
                  of the Redemption Date) discounted back to the Redemption Date
                  on a semi-annual basis (assuming a 360-day year consisting of
                  twelve 30-day months) at the Treasury Rate (as defined below)
                  plus 50 basis points.

plus, in the case of both (1) and (2), accrued and unpaid interest to the
Redemption Date, but interest installments whose Stated Maturity is on or prior
to such Redemption Date will be payable to the Holders of such Securities, or
one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture. On and after the applicable Redemption Date, interest will cease to
accrue on the Securities of this series to be redeemed, unless a default is made
in payment of the Make-Whole Price.

         "Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Securities of this series to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Securities of this series.

         "Comparable Treasury Price" means, with respect to any Redemption Date,
(1) the average of four Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (2) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations.

         "Independent Investment Banker" means Credit Suisse First Boston
Corporation and its successors, or, if such firm or the successors, if any, to
such firm, as the case may be, are unwilling or unable to select the Comparable
Treasury Issue, an independent investment banking institution of national
standing appointed by the Trustee after consultation with the Company.

         "Reference Treasury Dealer" means Credit Suisse First Boston
Corporation and three additional primary U.S. government securities dealers in
New York City (each a "Primary Treasury Dealer") selected by the Trustee after
consultation with the Company, and their

                                      A1-5
<PAGE>

respective successors (provided, however, that if any such firm or any such
successor, as the case may be, shall cease to be a primary U.S. government
securities dealer in New York City, the Trustee, after consultation with the
Company, shall substitute therefor another Primary Treasury Dealer).

         "Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such Redemption Date.

         "Treasury Rate" means, with respect to any redemption date, (1) the
yield, under the heading which represents the average for the immediately
preceding week, appearing in the most recently published statistical release
designated "H.15(519)" or any successor publication that is published weekly by
the Board of Governors of the Federal Reserve System and that establishes yields
on actively traded United States Treasury securities adjusted to constant
maturity under the caption "Treasury Constant Maturities," for the maturity
corresponding to the Comparable Treasury Issue (if no maturity is within three
months before or after the Stated Maturity, yields for the two published
maturities most closely corresponding to the Comparable Treasury Issue shall be
determined, and the Treasury Rate shall be interpolated or extrapolated from
such yields on a straight-line basis, rounding to the nearest month) or (2) if
such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, calculated using a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date. The Treasury Rate shall be calculated
on the third Business Day preceding the Redemption Date.

         In the event of redemption of this Security in part only, a new
Security or Securities of this series and of like tenor for the unredeemed
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.

         If an Event of Default with respect to the Securities of this series
shall occur and be continuing, the principal of the Securities of this series
may be declared due and payable in the manner and with the effect provided in
the Indenture.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all series to be affected (voting as one class). The
Indenture also contains provisions permitting the Holders of a majority in
aggregate principal amount of the Outstanding Securities of all affected series
(voting as one class), on behalf of the Holders of all Securities of such
series, to waive compliance by the Company with certain provisions of the
Indenture. The Indenture permits, with certain exceptions as therein provided,
the Holders of a majority in aggregate principal amount of Securities of any
series then Outstanding to waive past defaults under the Indenture with respect
to such series and their

                                      A1-6
<PAGE>

consequences. Any such consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Security.

         As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity and the Trustee
shall not have received from the Holders of a majority in principal amount of
the Securities of this series at the time Outstanding a direction inconsistent
with such request, and shall have failed to institute any such proceeding, for
60 days after receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of this Security
for the enforcement of any payment of principal hereof or interest hereon on or
after the respective due dates expressed herein.

         Holders shall have a right to receive Additional Interest with respect
to the Securities of this series under certain circumstances set forth in the
Registration Rights Agreement dated as of the date hereof between the Company
and Credit Suisse First Boston Corporation.

         No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Security at the times, place(s) and rate, and in the coin or
currency, herein prescribed.

         This Global Security or portion hereof may not be exchanged for
Definitive Securities except in the limited circumstances provided in the
Indenture.

         The holders of beneficial interests in this Global Security will not be
entitled to receive physical delivery of Definitive Securities except as
described in the Indenture and will not be considered the Holders hereof for any
purpose under the Indenture.]*

         [As provided in the Indenture and subject to certain limitations set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in the Borough of Manhattan, The City of New York, or at
such other offices or agencies as the Company may designate, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
this series and of like tenor, of authorized denominations and for a like
aggregate principal amount, will be issued to the designated transferee or
transferees.]**

------------------------------------
*        Insert in Global Notes only.
**       Insert in Certificates Notes only.

                                      A1-7
<PAGE>

         The Securities of this series are issuable only in registered form,
without coupons, in denominations of U.S. $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, the Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a different
authorized denomination, as requested by the Holder surrendering the same.

         No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.

         Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

         No recourse under or upon any obligation, covenant or agreement of or
contained in the Indenture or of or contained in any Security, or for any claim
based thereon or otherwise in respect thereof, or in any Security, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person, either directly or through
the Company or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment, penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released by the acceptance hereof and as a condition of,
and as part of the consideration for, the Securities and the execution of the
Indenture.

         The Indenture provides that the Company (a) will be discharged from any
and all obligations in respect of the Securities (except for certain obligations
described in the Indenture), or (b) need not comply with certain restrictive
covenants of the Indenture, in each case if the Company deposits, in trust, with
the Trustee money or U.S. Government Obligations (or a combination thereof)
which through the payment of interest thereon and principal thereof in
accordance with their terms will provide money, in an amount sufficient to pay
all the principal of and interest of the Securities, but such money need not be
segregated from other funds except to the extent required by law.

         THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.

         All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

                                      A1-8
<PAGE>

         [FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
                 (Please Print or Typewrite Name and Address of Assignee)

the within instrument of EL PASO NATURAL GAS COMPANY and does hereby irrevocably
constitute and appoint ________________________ Attorney to transfer said
instrument on the books of the within-named Company, with full power of
substitution in the premises.

Please Insert Social Security or
Other Identifying Number of Assignee:

----------------------------------            ----------------------------------

Dated:
      ----------------------------            ----------------------------------
                                                    (Signature)

NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.]**

             [SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

         The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Certificated Note, or exchanges of a part of
another Global Note or Certificated Note for an interest in this Global Note,
have been made:

<Table>
<Caption>
                                                                          Principal amount of
                                                                           this Global Note         Signature of
                           Amount of decrease    Amount of increase in      following such      authorized signatory
                           in principal amount    principal amount of        decrease (or        of Trustee or Note
    Date of Exchange       of this Global Note      this Global Note           increase)             Custodian]*
----------------------   ----------------------  ---------------------    -------------------   --------------------
<S>                      <C>                     <C>                      <C>                   <C>

</Table>

------------------------------------
*        Insert in Global Notes only.
**       Insert in Certificated Notes only.

                                      A1-9
<PAGE>

                                                                     EXHIBIT A-2

                  (Face of Regulation S Temporary Global Note)

         [THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR
EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE
DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY
AUTHENTICATED AND DELIVERED UPON REGISTRATION OF, TRANSFER OF, OR IN EXCHANGE
FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE
FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES.

         UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]*

                           EL PASO NATURAL GAS COMPANY

                    8 3/8% [SERIES B] NOTE DUE JUNE 15, 2032

NO.                                                                        U.S.$
CUSIP No. U5326AAA8

         EL PASO NATURAL GAS COMPANY, a corporation duly incorporated and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to _________ , or registered assigns, the
principal sum of _________ United States Dollars [or such other principal sum as
shall be set forth on the Schedule of Exchanges of Interests in the Global Note
annexed hereto]* on June 15, 2032, and to pay interest thereon from June 10,
2002, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually on December 15 and June 15 in

------------------------------------
*        Insert in Global Notes only.

                                      A2-1
<PAGE>

each year, commencing December 15, 2002, at the rate of 8 3/8% per annum, until
the principal hereof is paid or made available for payment. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the
December 1 or June 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date and shall either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice of which shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at such time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in such Indenture.

         [Payment of the principal of and premium, if any, and interest on this
Security will be made by transfer of immediately available funds to a bank
account in New York, New York designated by the Holder in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts.]*

         [Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, or at such other offices or
agencies as the Company may designate; provided, however, that payment of
interest may be made at the option of the Company by check mailed to the
addresses of the Persons entitled thereto as such addresses shall appear in the
Security Register.]**

         Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

         Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

--------------------------------------------
*        Insert in Global Notes only.
**       Insert in Certificated Notes only.

                                      A2-2
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

Dated:

                                         EL PASO NATURAL GAS COMPANY

                                         By:
                                             -----------------------------------
                                                Name:
                                                Title:

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

                                         JPMORGAN CHASE BANK,
                                              AS TRUSTEE

                                         By:
                                             -----------------------------------
                                                Authorized Officer

                                      A2-3
<PAGE>

                  (Back of Regulation S Temporary Global Note)

                           EL PASO NATURAL GAS COMPANY
                    8 3/8% [Series B] Note Due June 15, 2032

THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE SUPPLEMENT TO THE INDENTURE (AS DEFINED HEREIN) RELATING TO
THIS GLOBAL NOTE. NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF
INTEREST HEREON.

THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF
THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF
THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE
MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) IN THE UNITED
STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH OF
CASES (I) THROUGH (IV), IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN CLAUSE (A) ABOVE.

         This Security is one of a duly authorized issue of Securities of the
Company (the "Securities"), issued and to be issued in one or more series under
an Indenture dated as of November 13, 1996 (as supplemented through the date
hereof, the "Indenture"), between the Company and JPMorgan Chase Bank (formerly
known as The Chase Manhattan Bank), as Trustee (the "Trustee," which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, obligations, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. As provided in the Indenture, the

                                      A2-4
<PAGE>

Securities may be issued in one or more series, which different series may be
issued in various aggregate principal amounts, may provide for re-opening in the
future to issue additional Securities of the series without the consent or
approval of the holders of Outstanding Securities, may mature at different
times, may bear interest, if any, at different rates, may be subject to
different redemption provisions, if any, may be subject to different sinking,
purchase or analogous funds, if any, may be subject to different covenants and
Events of Default and may otherwise vary as in the Indenture provided or
permitted. This Security is one of a series of Securities designated on the face
hereof limited in aggregate principal amount to U.S. $300,000,000, except that
in accordance with the provisions of the Indenture the series of Securities may
be reopened in the future without the consent of the holders of the then
Outstanding Securities to issue additional Securities of this series.

         The Securities of this series are redeemable, upon not less than 30 nor
more than 60 days' notice by mail, as a whole or in part, at the option of the
Company at any time at the "Make-Whole Price." As used herein, the term
"Make-Whole Price" means an amount equal to the greater of:

         (1)      100% of the principal amount of the Securities to be redeemed;
                  and

         (2)      as determined by an Independent Investment Banker, the sum of
                  the present values of the remaining scheduled payments of
                  principal and interest on the Securities to be redeemed (not
                  including any portion of such payments of interest accrued as
                  of the Redemption Date) discounted back to the Redemption Date
                  on a semi-annual basis (assuming a 360-day year consisting of
                  twelve 30-day months) at the Treasury Rate (as defined below)
                  plus 50 basis points.

plus, in the case of both (1) and (2), accrued and unpaid interest to the
Redemption Date, but interest installments whose Stated Maturity is on or prior
to such Redemption Date will be payable to the Holders of such Securities, or
one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture. On and after the applicable Redemption Date, interest will cease to
accrue on the Securities of this series to be redeemed, unless a default is made
in payment of the Make-Whole Price.

         "Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Securities of this series to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Securities of this series.

         "Comparable Treasury Price" means, with respect to any Redemption Date,
(1) the average of four Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (2) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations.

                                      A2-5
<PAGE>

         "Independent Investment Banker" means Credit Suisse First Boston
Corporation and its successors, or, if such firm or the successors, if any, to
such firm, as the case may be, are unwilling or unable to select the Comparable
Treasury Issue, an independent investment banking institution of national
standing appointed by the Trustee after consultation with the Company.

         "Reference Treasury Dealer" means Credit Suisse First Boston
Corporation and three additional primary U.S. government securities dealers in
New York City (each a "Primary Treasury Dealer") selected by the Trustee after
consultation with the Company, and their respective successors (provided,
however, that if any such firm or any such successor, as the case may be, shall
cease to be a primary U.S. government securities dealer in New York City, the
Trustee, after consultation with the Company, shall substitute therefor another
Primary Treasury Dealer).

         "Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such Redemption Date.

         "Treasury Rate" means, with respect to any Redemption Date, (1) the
yield, under the heading which represents the average for the immediately
preceding week, appearing in the most recently published statistical release
designated "H.15(519)" or any successor publication that is published weekly by
the Board of Governors of the Federal Reserve System and that establishes yields
on actively traded United States Treasury securities adjusted to constant
maturity under the caption "Treasury Constant Maturities," for the maturity
corresponding to the Comparable Treasury Issue (if no maturity is within three
months before or after the Stated Maturity, yields for the two published
maturities most closely corresponding to the Comparable Treasury Issue shall be
determined, and the Treasury Rate shall be interpolated or extrapolated from
such yields on a straight-line basis, rounding to the nearest month) or (2) if
such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, calculated using a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date. The Treasury Rate shall be calculated
on the third Business Day preceding the Redemption Date.

         In the event of redemption of this Security in part only, a new
Security or Securities of this series and of like tenor for the unredeemed
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.

         If an Event of Default with respect to the Securities of this series
shall occur and be continuing, the principal of the Securities of this series
may be declared due and payable in the manner and with the effect provided in
the Indenture.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the

                                      A2-6
<PAGE>

Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of all series to be
affected (voting as one class). The Indenture also contains provisions
permitting the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all affected series (voting as one class), on behalf
of the Holders of all Securities of such series, to waive compliance by the
Company with certain provisions of the Indenture. The Indenture permits, with
certain exceptions as therein provided, the Holders of a majority in aggregate
principal amount of Securities of any series then Outstanding to waive past
defaults under the Indenture with respect to such series and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.

         As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity and the Trustee
shall not have received from the Holders of a majority in principal amount of
the Securities of this series at the time Outstanding a direction inconsistent
with such request, and shall have failed to institute any such proceeding, for
60 days after receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of this Security
for the enforcement of any payment of principal hereof or interest hereon on or
after the respective due dates expressed herein.

         Holders shall have a right to receive Additional Interest with respect
to the Securities of this series under certain circumstances set forth in the
Registration Rights Agreement dated as of the date hereof between the Company
and Credit Suisse First Boston Corporation.

         No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Security at the times, place(s) and rate, and in the coin or
currency, herein prescribed.

         [This Global Security or portion hereof may not be exchanged for
Definitive Securities except in the limited circumstances provided in the
Indenture.

         The holders of beneficial interests in this Global Security will not be
entitled to receive physical delivery of Definitive Securities except as
described in the Indenture and will not be considered the Holders hereof for any
purpose under the Indenture.]*

         [As provided in the Indenture and subject to certain limitations set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for

---------------------------
*        Insert in Global Notes only.

                                      A2-7
<PAGE>

registration of transfer at the office or agency of the Company in the Borough
of Manhattan, The City of New York, or at such other offices or agencies as the
Company may designate, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities of this series and of like tenor, of
authorized denominations and for a like aggregate principal amount, will be
issued to the designated transferee or transferees.]**

         The Securities of this series are issuable only in registered form,
without coupons, in denominations of U.S. $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, the Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a different
authorized denomination, as requested by the Holder surrendering the same.

         No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.

         Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

         No recourse under or upon any obligation, covenant or agreement of or
contained in the Indenture or of or contained in any Security, or for any claim
based thereon or otherwise in respect thereof, or in any Security, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person, either directly or through
the Company or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment, penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released by the acceptance hereof and as a condition of,
and as part of the consideration for, the Securities and the execution of the
Indenture.

         The Indenture provides that the Company (a) will be discharged from any
and all obligations in respect of the Securities (except for certain obligations
described in the Indenture), or (b) need not comply with certain restrictive
covenants of the Indenture, in each case if the Company deposits, in trust, with
the Trustee money or U.S. Government Obligations (or a combination thereof)
which through the payment of interest thereon and principal thereof in
accordance with their terms will provide money, in an amount sufficient to pay
all the principal of and interest of the Securities, but such money need not be
segregated from other funds except to the extent required by law.

---------------------------
**       Insert in Certificated Notes only.

                                      A2-8
<PAGE>

         THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.

         All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

                                      A2-9
<PAGE>

         [FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
                   (Please Print or Typewrite Name and Address of Assignee)

the within instrument of EL PASO NATURAL GAS COMPANY and does hereby irrevocably
constitute and appoint ________________________ Attorney to transfer said
instrument on the books of the within-named Company, with full power of
substitution in the premises.

Please Insert Social Security or
Other Identifying Number of Assignee:

----------------------------------            ----------------------------------

Dated:
      ----------------------------            ----------------------------------
                                                    (Signature)

NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.]**

             [SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

         The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Certificated Note, or exchanges of a part of
another Global Note or Certificated Note for an interest in this Global Note,
have been made:

<Table>
<Caption>
                                                                          Principal amount of
                                                                           this Global Note         Signature of
                           Amount of decrease    Amount of increase in      following such      authorized signatory
                           in principal amount    principal amount of        decrease (or        of Trustee or Note
    Date of Exchange       of this Global Note      this Global Note           increase)             Custodian]*
----------------------   ----------------------  ---------------------    -------------------   --------------------
<S>                      <C>                     <C>                      <C>                   <C>

</Table>

------------------------------------
*        Insert in Global Notes only.
**       Insert in Certificated Notes only.

                                     A2-10
<PAGE>

                                                                       EXHIBIT B

                         FORM OF CERTIFICATE OF TRANSFER

JPMorgan Chase Bank
Corporate Trust Office
450 West 33rd Street
New York, NY  10001

Attention:  Institutional Trust Services

[Registrar address block]

              Re:  8 3/8% Notes due June 15, 2032 of El Paso Natural Gas Company

         Reference is hereby made to the Indenture, dated as of November 13,
1996 (the "Indenture"), between El Paso Natural Gas Company, as issuer (the
"Issuer"), and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank),
as trustee, as supplemented by the First Supplemental Indenture thereto, dated
as of June 10, 2002 (collectively, the "Indenture"). Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.

         ______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:

                             [CHECK ALL THAT APPLY]

1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
RULE 144A GLOBAL NOTE OR A CERTIFICATED NOTE PURSUANT TO RULE 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Certificated Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Certificated Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and such
Person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and
such Transfer is in compliance with any applicable blue sky securities laws of
any state of the United States. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred beneficial interest
or Certificated Note will be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the 144A Global Note and/or the
Certificated Note and in the Indenture and the Securities Act.

2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
REGULATION S TEMPORARY GLOBAL NOTE, THE REGULATION S PERMANENT GLOBAL NOTE OR A
CERTIFICATED NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in

                                      B1-1
<PAGE>

accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly,
the Transferor hereby further certifies that (i) the Transfer is not being made
to a person in the United States and (x) at the time the buy order was
originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes that the
Transferee was outside the United States or (y) the transaction was executed in,
on or through the facilities of a designated offshore securities market and
neither such Transferor nor any Person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States, (ii) no directed
selling efforts have been made in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act, and (iv) if the proposed transfer is being
made prior to the expiration of the Distribution Compliance Period, the transfer
is not being made to a U.S. Person or for the account or benefit of a U.S.
Person (other than an Initial Purchaser). Upon consummation of the proposed
transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Certificated Note will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Regulation S
Permanent Global Note, the Regulation S Temporary Global Note and/or the
Certificated Note and in the Indenture and the Securities Act.

3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN A RESTRICTED GLOBAL NOTE, UNRESTRICTED GLOBAL NOTE (IN THE CASE OF
CLAUSE (c)) OR A RESTRICTED CERTIFICATED NOTE PURSUANT TO ANY PROVISION OF THE
SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Certificated Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):

         (a) [ ] such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;

                                       or

         (b) [ ] such Transfer is being effected to the Company or a Subsidiary
of the Company;

                                       or

         (c) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act.

4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN
UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED CERTIFICATED NOTE.

         (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance

                                      B1-2
<PAGE>

with the transfer restrictions contained in the Indenture and any applicable
blue sky securities laws of any state of the United States and (ii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act.
Upon consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Certificated Note will no
longer be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes, on Restricted
Certificated Notes and in the Indenture.

         (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Certificated Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes, on Restricted Certificated Notes and in the Indenture.

         This certificate and the statements contained herein are made for your
benefit and for the benefit of the Company and Credit Suisse First Boston
Corporation, the initial purchaser of the Notes being transferred (the "Initial
Purchaser"). We acknowledge that you, the Company and the Initial Purchaser will
rely upon our confirmations, acknowledgments and agreements set forth herein,
and we agree to notify you promptly in writing if any of our representations or
warranties herein ceases to be accurate and complete.

                                           -------------------------------------
                                           [Insert Name of Transferor]

                                           By:
                                               ---------------------------------
                                                  Name:
                                                  Title:

Dated:                      ,
       ---------------------  ------

cc:    Company
       Initial Purchaser

                                      B1-3
<PAGE>

                       ANNEX A TO CERTIFICATE OF TRANSFER

1.       The Transferor owns and proposes to transfer the following:

                            [CHECK ONE OF (a) OR (b)]

         (a)   [ ]   a beneficial interest in the:

               (i)   [ ] Rule 144A Global Note (CUSIP 283695BJ2), or

               (ii)  [ ] Regulation S Global Note (CUSIP U5326AAA8), or

         (b)   [ ]   a Restricted Certificated Note.

2.       After the Transfer the Transferee will hold:

                                   [CHECK ONE]

         (a)   [ ]   a beneficial interest in the:

               (i)   [ ] Rule 144A Global Note (CUSIP 283695BJ2), or

               (ii)  [ ] Regulation S Global Note (CUSIP U5326AAA8), or

               (iii) [ ] Unrestricted Global Note (CUSIP  ); or

         (b)   [ ]   a Restricted Certificated Note; or

         (c)   [ ]   an Unrestricted Certificated Note,

in accordance with the terms of the Indenture.

                                      B1-4
<PAGE>

                                                                       EXHIBIT C

                         FORM OF CERTIFICATE OF EXCHANGE

JPMorgan Chase Bank
Corporate Trust Office
450 W. 33rd Street
New York, NY  10001

Attention:  Institutional Trust Services

[Registrar address block]

                  Re:      8 3/8% Notes due June 15, 2032 of El Paso Natural Gas
                           Company

         Reference is hereby made to the Indenture, dated as of November 13,
1996 (the "Indenture"), between El Paso Natural Gas Company, as issuer (the
"Issuer"), and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank),
as trustee, as supplemented by the First Supplemental Indenture thereto, dated
as of June 10, 2002 (collectively, the "Indenture"). Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.

         _________ , (the "Owner") owns and proposes to exchange the Note[s] or
interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:

1. EXCHANGE OF RESTRICTED CERTIFICATED NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED CERTIFICATED NOTES OR BENEFICIAL
INTERESTS IN AN UNRESTRICTED GLOBAL NOTE

         (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the United States
Securities Act of 1933, as amended (the "Securities Act"), (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest in an Unrestricted Global Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.

         (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED CERTIFICATED NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Certificated Note, the Owner

                                      C-1
<PAGE>

hereby certifies (i) the Certificated Note is being acquired for the Owner's own
account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to the Restricted Global Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Certificated Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.

         (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Certificated Note for a beneficial interest in
an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Certificated Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.

         (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED NOTE TO
UNRESTRICTED CERTIFICATED NOTE. In connection with the Owner's Exchange of a
Restricted Certificated Note for an Unrestricted Certificated Note, the Owner
hereby certifies (i) the Unrestricted Certificated Note is being acquired for
the Owner's own account without transfer, (ii) such Exchange has been effected
in compliance with the transfer restrictions applicable to Restricted
Certificated Notes and pursuant to and in accordance with the Securities Act,
(iii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the Unrestricted Certificated Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.

2. EXCHANGE OF RESTRICTED CERTIFICATED NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED CERTIFICATED NOTES OR BENEFICIAL
INTERESTS IN RESTRICTED GLOBAL NOTES

         (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED CERTIFICATED NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Certificated Note with an equal principal amount, the Owner hereby certifies
that the Restricted Certificated Note is being acquired for the Owner's own
account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Certificated Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Certificated Note and in
the Indenture and the Securities Act.

         (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Certificated Note for a beneficial interest in the
[CHECK ONE] [ ] Rule 144A Global

                                      C-2
<PAGE>

Note, [ ] Regulation S Permanent Global Note, [ ] Regulation S Temporary Global
Note, with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.

         This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and Credit Suisse First Boston
Corporation, the initial purchaser of the Notes being exchanged (the "Initial
Purchaser"). We acknowledge that you, the Issuers and the Initial Purchaser will
rely upon our confirmations, acknowledgments and agreements set forth herein,
and we agree to notify you promptly in writing if any of our representations or
warranties herein ceases to be accurate and complete.

                                           -------------------------------------
                                           [Insert Name of Owner]

                                           By:
                                               ---------------------------------
                                                  Name:
                                                  Title:

Dated:                      ,
       ---------------------  ------

cc:    Issuer
       Initial Purchaser

                                      C-3
<PAGE>

                                                                       EXHIBIT D

                       [FORM OF CERTIFICATE TO BE GIVEN BY
                       THE EUROCLEAR OPERATOR, CLEARSTREAM
                   AND/OR ANY OTHER RELEVANT CLEARING SYSTEM]

                                   CERTIFICATE

          8 3/8% NOTES DUE JUNE 15, 2032 OF EL PASO NATURAL GAS COMPANY

          REPRESENTED BY REGULATION S TEMPORARY GLOBAL NOTE NO. _____.

         This is to certify that, based solely on certifications we have
received in writing, by tested telex or by electronic transmission from member
organizations appearing in our records as persons being entitled to a portion of
the principal amount set forth below (our "MEMBER ORGANIZATIONS"), as of the
date hereof, ____________ principal amount of the above-captioned Securities (i)
is owned by persons that are not citizens or residents of the United States,
domestic partnerships, domestic corporations or any estate or trust the income
of which is subject to United States Federal income taxation regardless of its
source ("UNITED STATES PERSONS"), (ii) is owned by United States persons that
are (a) foreign branches of United States financial institutions (as defined in
the applicable U.S. Treasury Regulations Section) ("FINANCIAL INSTITUTIONS")
purchasing for their own account or for resale, or (b) United States persons who
acquired the Securities through foreign branches of United States financial
institutions and who hold the Securities through such United States financial
institutions on the date hereof (and in either case (a) or (b), each such United
States financial institution has agreed, on its own behalf or through its agent,
that we may advise El Paso Corporation (the "ISSUER") or the Issuer's agent that
it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the
U.S. Internal Revenue Code of 1986, as amended, and the regulations thereunder),
or (iii) is owned by United States or foreign financial institutions for
purposes of resale during the restricted period (as defined in U.S. Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(7)), and such United States or foreign
financial institutions described in clause (iii) above (whether or not also
described in clause (i) or (ii)) have certified that they have not acquired the
Securities for purposes of resale directly or indirectly to a United States
person or to a person within the United States or its possessions.

         As used herein, "UNITED STATES" means the United States of America
(including the States and the District of Columbia); and its "POSSESSIONS"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.

         We further certify (i) that we are not making available herewith for
exchange any portion of the temporary Global Note representing the
above-captioned Securities excepted in the above-referenced certificates of
Member Organizations and (ii) that as of the date hereof we have not received
any notification from any of our Member Organizations to the effect that the
statements made by such Member Organizations with respect to any portion of the
part submitted herewith are no longer true and cannot be relied upon as the date
hereof.

         We understand that this certification is required in connection with
certain tax laws and, if applicable, certain securities laws of the United
States. In connection therewith, if

                                      D-1
<PAGE>

administrative or legal proceedings are commenced or threatened in connection
with which this certification is or would be relevant, we irrevocably authorize
you to produce this certification to any interested party in such proceedings.

                                      D-2
<PAGE>

Dated:                           , 19
        -------------------------

[To be dated no earlier than [insert Exchange Date]]

                                         [EUROCLEAR S.A./N.V.,
                                         as Operator of the Euroclear System]

                                         [CLEARSTREAM]

                                         [OTHER]

                                         By:
                                              ----------------------------------
                                              Name:
                                              Title:

                                      D-3
<PAGE>

                                                                       EXHIBIT E

                 [FORM OF CERTIFICATE TO BE GIVEN BY AN ACCOUNT
                  HOLDER OF THE EUROCLEAR OPERATOR, CLEARSTREAM
                   AND/OR ANY OTHER RELEVANT CLEARING SYSTEM]

                                   CERTIFICATE

          8 3/8% NOTES DUE JUNE 15, 2032 OF EL PASO NATURAL GAS COMPANY

          REPRESENTED BY REGULATION S TEMPORARY GLOBAL NOTE NO. _____.

         This is to certify that as of the date hereof, and except as set forth
below, the above-captioned Securities held by you for our account (i) are owned
by person(s) that are not citizens or residents of the United States, domestic
partnerships, domestic corporations or any estate or trust the income of which
is subject to United States Federal income taxation regardless of its source
("UNITED STATES PERSON(s)"), (ii) are owned by United States person(s) that are
(a) foreign branches of United States financial institutions (as defined in the
applicable U.S. Treasury Regulations Section) ("FINANCIAL INSTITUTIONS")
purchasing for their own account or for resale, or (b) United States person(s)
who acquired the Securities through foreign branches of United States financial
institutions and who hold the Securities through such United States financial
institutions on the date hereof (and in either case (a) or (b), each such United
States financial institution hereby agrees, on its own behalf or through its
agent, that you may advise El Paso Corporation (the "ISSUER") or the Issuer's
agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or
(C) of the U.S. Internal Revenue Code of 1986, as amended, and the regulations
thereunder), or (iii) are owned by United States or foreign financial
institution(s) for purposes of resale during the restricted period (as defined
in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition if
the owner of the Securities is a United States or foreign financial institution
described in clause (iii) above (whether or not also described in clause (i) or
(ii)) such financial institution has not acquired the Securities for purposes of
resale directly or indirectly to a United States person or to a person within
the United States or its possessions.

         As used herein, "UNITED STATES" means the United States of America
(including the States and the District of Columbia); and its "POSSESSIONS"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.

         We undertake to advise you promptly by tested telex on or prior to the
date on which you intend to submit your certification relating to the Securities
held by you for our account in accordance with your Applicable Procedures if any
applicable statement herein is not correct on such date, and in the absence of
any such notification it may be assumed that this certification applies as of
such date.

         This certification excepts and does not relate to $            of such
interest in the above-captioned Securities in respect of which we are not able
to certify and as to which we understand exchange for beneficial interests in a
permanent Global Note or exchange and delivery of definitive Securities cannot
be made until we do so certify.

                                       E-1
<PAGE>

         We understand that this certification is required in connection with
certain tax laws and, if applicable, certain securities laws of the United
States. In connection therewith, if administrative or legal proceedings are
commenced or threatened in connection with which this certification is or would
be relevant, we irrevocably authorize you to produce this certification to any
interested party in such proceedings.

                                       E-2
<PAGE>

Dated:                           , 20
       --------------------------

[To be dated no earlier than the 10th day before [insert Exchange Date]]

                                          [NAME OF ACCOUNT HOLDER]

                                          By:
                                               ---------------------------------
                                               (Authorized Signatory)
                                               Name:
                                               Title:

                                      E-3

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