Document:

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

 EXHIBIT 10.1 
  
 KFX INC. 
  
 SECOND ADDENDUM 
 TO THE 
 COMMON STOCK AND WARRANT PURCHASE AGREEMENT 
  
 This Second Addendum to the Common Stock and Warrant Purchase Agreement (this “Addendum”), is entered into as of July 1,
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, the Existing Investors and the Additional Investors have agreed to amend and restate the Amended and
Restated Investors’ Rights Agreement and the Amended and Restated Put Agreement in connection with the Closing (as defined in section 2.1); 
  
 WHEREAS the Company has authorized the sale and issuance of four hundred thousand (400,000) 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 to the Purchase
Agreement as its Exhibit A, to purchase four hundred fifty thousand (450,000) shares of Common Stock (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 Additional 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 four hundred thousand (400,000) shares of its Common Stock and Warrants to purchase four hundred fifty thousand (450,000) shares of Common Stock 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 that amount may be adjusted pursuant to the Warrants. 
  
 1.3  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 Additional Investors hereunder shall be considered “Shares” and “Warrants”, respectively, and shall be considered “Securities” collectively, for all purposes
under the Purchase Agreement. 
  
 1.4  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, the
Amended and Restated Investors’ Rights Agreement (as further amended and restated), the Amended and Restated Put Agreement (as further amended and restated), the Warrants issued pursuant to the Purchase Agreement, the First Addendum and this
Addendum. 
  
 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 shall take place at the offices of Shartsis, Friese & Ginsburg LLP, 18th Floor, One Maritime Plaza, San Francisco 94111, on July 1, 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 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 the Schedule A against delivery to the Company by each such Additional Investor at the Closing 
 

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 of a wire transfer of funds or promissory note for the aggregate purchase price
of the Shares acquired by such Additional Investor. 
  
 3.  Waiver of Section 1.3(c) of the Purchase
Agreement—Option to Make Additional Investment.    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 repay loan and/or debt obligations maturing during the month of June, 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 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 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 Investors’ Rights Agreement, the Amended and Restated Investors’ Rights Agreement, the Put and Call Option Agreement, the Amended and Restated Put Agreement and the Warrants issued pursuant to the
Purchase Agreement and the 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 Amended and Restated Investors’ Rights Agreement or section 7 of the Amended and Restated Put Agreement. 
  
 5.  Representations and Warranties of Additional Investors.    Each Additional Investor has reviewed
the representations and warranties set forth in section 3 of the Purchase Agreement. Each 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 Additional Investor. 
  
 6.  Additional Investors’ Obligations at Closing.    Each Additional Investor’s obligation to purchase and pay for the Securities is subject to the fulfillment to such 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 
 

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 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 Additional Investor at the Closing, relating to such 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 Additional Investor’s obligation to consummate the Closing set forth in sections 6.1 through 6.6, unless waived in writing by the
Additional Investor. 
  
 6.8  Opinion of Counsel.    The Company
shall deliver to 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 A. 
  
 6.9  Second Amended and Restated Investors’ Rights Agreement.    The Second Amended and Restated Investors’
Rights Agreement, in substantially the form attached hereto as Exhibit B, shall have been executed by all the parties thereto on or prior to such Closing. 
  
 6.10  Second Amended and Restated Put Agreement.    The Second Amended and Restated Put 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. 
  
 6.11  Expenses.    At the Closing, the Company shall pay the legal fees and expenses of SF&G (legal counsel only for Westcliff) and all due diligence fees and expenses 

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 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 6.11 shall be deemed to be payment to counsel for the Investors or the Additional Investors as
required to be made by the Company pursuant to section 2.7 of the Investors’ Rights Agreement, as amended and restated. 
  
 6.12  Legal Matters.    All matters of a legal nature which pertain to this Addendum and the transactions contemplated hereby shall have been approved by each
Additional Investor’s counsel. 
  
 6.13  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 the Additional
Investor, and the Additional Investor shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 
  
 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 Additional Investor contained in section 5 hereof shall be true and correct on and as of the Closing.

  
 7.2  Performance.    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, receipted, 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 and on Schedule A attached hereto for each 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 
 

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 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 Additional Investors, (c) SF&G does not represent any Investor or Additional Investor other than Westcliff in connection with the transaction contemplated hereby and thereby, and (d) each
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. 
  
 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 
 

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 THE ADDITIONAL INVESTORS: 
  

	 WESTCLIFF AGGRESSIVE GROWTH, L.P.
 WESTCLIFF LONG/SHORT, L.P.
 WESTCLIFF PARTNERS, L.P.
 WESTCLIFF SMALL CAP FUND, L.P.
  
 By:  Westcliff Capital Management, LLC
 Its:  General
Partner
  
 By:
                                        
                            
       Richard S. Spencer III, Manager
 

 

 	 	 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
 
	 
	 RAM TRADING, LTD.
  
 By:  Ritchie Capital Management, LLC
 Its:  Investment Adviser
  
 By:
                                        
                            
       David Popovich, Chief Financial Officer
 

 

 	 	 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
 

 
 

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 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
  
 By:
                                        
                        
       Richard S. Spencer III, Manager
 

 

 	 	 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
 
	 
	 RAM TRADING, LTD.
  
 By:  Ritchie Capital Management, LLC
 Its:  Investment Adviser
  
 By:
                                        
                        
       David Popovich, Chief Financial Officer
 

 

 	 	 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.
  
 By:  Peninsula Capital Management, Inc.
 Its:  General Partner
  
 By:
                                        
                        
       Scott Bedford, President
 

 

 

 

 	 	 COMMON SENSE PARTNERS, L.P.
  
 By:  Peninsula Capital Management, Inc.
 Its:  Investment Adviser
  
 By:
                                        
                        
       Scott Bedford, President
  
 By:  Common Sense Investment Management, LLC
 Its:  General Partner
  
 By:
                                        
                        
       Scott A. Thompson
       Director and Senior Vice
President Finance
 

 
 

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 EXHIBIT A 
  
 LEGAL OPINION 
 

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 EXHIBIT B 
  
 KFX INC. 
  
 SECOND AMENDED AND RESTATED
INVESTORS’ RIGHTS AGREEMENT 
  
 Dated as of July 1, 2002 
 

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 KFX INC. 
  
 SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT 
  
 THIS SECOND AMENDED AND
RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Agreement”) is made as of July 1, 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”) and the Second 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 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 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;

  
 WHEREAS, certain of the Investors are parties to that certain Second Addendum to the Common Stock and Warrant
Purchase Agreement, dated as of July 1, 2002 (the “Second Addendum”), which provides that, as a condition to the closing of the transactions contemplated by the Second Addendum, the 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 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:

  
 13.  Certain Definitions.    Capitalized terms not defined herein are
defined in the Purchase Agreement. The following definitions shall apply for purposes of this Agreement: 
  
 13.1  “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. 
 

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 13.2  “Holder” means any person owning
or having the right to acquire Registrable Securities or any assignee thereof in accordance with section 2.10 hereof. 
  
 13.3  “New 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

  
 13.4  “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). 
  
 13.5  “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. 

 
 13.6  “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. 

 
 13.7  “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. 
  
 13.8  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. 
  
 14.  Registration Rights.    The Company covenants and agrees as follows: 
  
 14.1  Mandatory Registration. 
 

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 (a)  Except as described in section 2.1(b):

  
 (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 New Registrable Securities: 
 

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 (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 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), 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 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 New Registrable Securities (A) are sold and (B) 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 Second Registration Statement with the SEC on or before July 31, 2002, 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 “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 New 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 New 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 New 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. 
 

 14 

  
 14.2  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. 
  
 14.3  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: 
 

 15 

  
 (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. 
  
 14.4  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:

 

 16 

  
 (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 
 

 17 

  
 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. 
  
 14.5  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; 
 

 18 

  
 (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. 
  
 14.6  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. 
 

 19 

  
 14.7  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 2.1 or 2.3 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 2.1 or 2.3.
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. 
  
 14.8  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. 
 

 20 

  
 (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 Reistrable 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 
 

 21 

 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. 
  
 14.9  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 or the use of Rule 144. 
  
 14.10.  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 
 

 22 

 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. 
  
 14.11  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 and 2.3 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. 
  
 15.  Covenants. 
  
 15.1  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 and Second Registration Warrants. If at any time the
number of Exercise Shares shall not be sufficient to effect the exercise of the Warrants and 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. 
  
 15.2  [INTENTIONALLY
OMITTED] 
  
 15.3  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. 
  
 15.4  Termination of Covenants.    The covenants set forth in sections 3.1 and 3.3 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. 
 

 23 

 16.  Subsequent Dilutive Offerings.    If during the period beginning on March 28,
2002 and ending on April 30, 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: 
  
 (a)  A number of shares of Common Stock equal to (i)(A) the number of shares of Common Stock purchased by such Holder pursuant to Purchase Agreement multiplied by (B) 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 (ii) the Purchase Price per Common Share Equivalent (as of the date of sale) issued in the Subsequent Dilutive Offering; and

  
 (b)  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 112.5% of the number of shares of Common Stock issued to that Investor pursuant to section 4(a) above. 
  
 17.  Right of First Offer. 
  
 17.1  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. 
  
 17.2  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 
 

 24 

 Equity Securities, 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 exercising the right of purchase of such remaining Equity Securities. If,
after the allocation in clause (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 
 

 25 

 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. 
  

17.3  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. 
  
 17.4  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. 
  
 17.5  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.

  
 18.  Miscellaneous. 
 

 26 

  
 18.1  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. 
  
 18.2  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, receipted,
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). 
  
 18.3  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. 
  
 18.4  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. 
  
 18.5  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. 
  
 18.6  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. 
  
 18.7  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 
  
 18.8  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. 
 

 27 

  
 [remainder of page intentionally left blank; signature page follows] 

  
 IN WITNESS WHEREOF, this Second 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
  
 By:
                                        
                        
        Richard S. Spencer III, Manager
 

 

 	 	 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
 

 
 

 29 

  
 
	 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.
  
 By:  Peninsula Capital Management, Inc.
 Its:  General Partner
  
 By:
                                        
                        
       Scott Bedford, President
 

 

 

 

 	 	 COMMON SENSE PARTNERS, L.P.
  
 By:  Peninsula Capital Management, Inc.
 Its:  Investment Adviser
  
 By:
                                        
                        
       Scott Bedford, President
  
 By:  Common Sense Investment Management, LLC
 Its:  General Partner
  
 By:
                                        
                        
       Scott A. Thompson
       Director and Senior Vice
President Finance
 

 
 

 30 

  
 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. 
 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 
 

 31 

  
 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

 

 32 

  
 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
 

 
 

 33 

  
 EXHIBIT C 
  
 KFX INC. 
  
 SECOND AMENDED AND RESTATED PUT
AGREEMENT 
  
 This SECOND AMENDED AND RESTATED PUT AGREEMENT (this “Agreement”), is made as of
July 1, 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”) and the Second Addendum described below, the “Purchase Agreement”); 
  
 WHEREAS, in connection with the closing of the transactions described in the Original Purchase Agreement, the Company and 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 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, the Grantees are parties to that certain Second Addendum to the Common Stock and Warrant Purchase Agreement, dated as of July 1, 2002 (the “Second
Addendum”), which provides that as a condition to the closing of the transactions contemplated by the Second Addendum the 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 and the Second 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 Second Amended and Restated Investors’ Rights Agreement); and 
  
 WHEREAS, the Company and the Grantees desire to amend and restate in its entirety the 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: 
 

 34 

  
 (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 Second
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 Closing Date 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) 
 

 35 

  
 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. 
  
 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, 
 

 36 

  
 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. 
 

 37 

  
 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, 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 and the Second 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 
 

 38 

 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, receipted, 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. 
 

 39 

  
 (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.] 
 

 40 

  
 IN WITNESS WHEREOF, this Second 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) 293-8430 
  
 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 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.
  
 By: Westcliff Capital Management, LLC
 Its: General Partner
  

By:
                                        
                
          Richard S. Spencer III, Manager
 

 

 

 	 	 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
 

 
 

 41 

  
 
	 RAM TRADING, LTD.
  
 By: Ritchie Capital Management, LLC
 Its:
Investment Adviser
  
 By:
                                        
                            
          David Popovich, Chief Financial Officer
 

 

 

 	 	 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.
  
 By: Peninsula Capital Management, Inc.
 Its:
General Partner
  
 By:
                                        
                            
          Scott Bedford, President
 

 

 

 	 	 COMMON SENSE PARTNERS, L.P.
  
 By: Peninsula Capital Management, Inc.
 Its: Investment Adviser
  
 By:
                                        
                
          Scott Bedford, President
  
 By: Common Sense Investment Management, LLC
 Its: General Partner
  

By:
                                        
                
          Scott A. Thompson
          Director and Senior Vice President Finance
 

 
 

 42 

 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 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
 

 
 

 43 

  
 
	 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 
 

 44 

 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 Second Amended and Restated Put Agreement, dated as of July 1, 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 
  
                                      
                          
 Typed or Printed Name 
  
                                      
                          
 Social Security Number 
  
 Dated:
            , 200   
 

 45 

 EXHIBIT C 
  
 PEGASUS SECURITIES 
  
 Notes Payable 
  
 
	 
	 $7,497,511
 	  	 Due on Demand, including interest
 
	 
	         650,000
 	  	 Additional advances projected for balance of 2002
 
	 
	  	  
	 
	         $8,147,511
 	  	 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 Aggressive Growth, L.P.
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831) 479-3642
  
 	  	 11,081
 	    	 12,466
 	  	 $
 	 27,702.50
 
	 Westcliff Partners, L.P.
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831) 479-3642
  
 	  	 26,539
 	    	 29,856
 	  	 $
 	 66,347.50
 
	 Westcliff Long/Short, L.P.
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831) 479-3642
  
 	  	 6,926
 	    	 7,792
 	  	 $
 	 17,315.00
 
	 Westcliff Small Cap Fund, L.P.
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831) 479-3642
  
 	  	 6,607
 	    	 7,433
 	  	 $
 	 16,517.50
 
	 Cancer Center of Santa Barbara
 c/o Westcliff Capital Management, LLC
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831)
479-3642
  
 	  	 3,450
 	    	 3,881
 	  	 $
 	 8,625.00
 
	 Westcliff Master Fund, L.P.
 c/o Westcliff Capital Management, LLC
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831)
479-3642
  
 	  	 56,570
 	    	 63,642
 	  	 $
 	 141,425.00
 
	 Parker Foundation
 c/o Westcliff Capital Management, LLC
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831)
479-3642
  
 	  	 7,361
 	    	 8,281
 	  	 $
 	 18,402.50
 
	 Palm Trust
 c/o Westcliff Capital Management, LLC
 	  	 11,451
 	    	 12,883
 	  	 $
 	 28,627.50
 

 
 

 47 

  
 
	 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831) 479-3642
  
 	  	  	  	  	  	  	  
	 University of San Francisco
 c/o Westcliff Capital Management, LLC
 200 Seventh Avenue, Suite 105
 Santa Cruz, CA 95062
 Fax: (831)
479-3642
  
 	  	 7,227
 	  	 8,130
 	  	 $
 	 18,067.50
 
	 Westcliff Profit Sharing and Money
 Purchase Pension Plan
 c/o Westcliff Capital Management, LLC
 200 Seventh Avenue, Suite 105
 Santa Cruz,
CA 95062
 Fax: (831) 479-3642
  
 	  	 1,608
 	  	 1,809
 	  	 $
 	 4,020.00
 
	 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
  

	  	 61,180
 	  	 68,827
 	  	 $
 	 152,950.00
 
	 Ram Trading, Ltd.
 c/o David Popovich
 Ritchie Capital Management, LLC
 210 East State Street
 Batavia, IL 60510
  
 	  	 200,000
 	  	 225,000
 	  	 $
 	 500,000.00
 
	  	  	 
	  	 
	  	 
	 

	 TOTAL
 	  	 400,000
 	  	 450,000
 	  	 $
 	 1,000,000.00
 
	  	  	 
	  	 
	  	 
	 

 
 

 48 

  
 SCHEDULE B 
  
 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. 
 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 
 Ram
Trading, Ltd. 
 Peninsula Fund, L.P. 
 Common Sense Partners, L.P. 
 

 49 

  
 Disclosure Schedule 4.2 
  
 Aside from the schedules of exceptions in the original Common Stock and Warrant Purchase Agreement, the following changes have occurred. 
  

	 	1.
	 
	The common shares outstanding as of June 30, 2002 are 35,040,879 shares, excluding the 400,000 shares to be issued pursuant to this Second Addendum. KFx
Inc. has authorized the issuance of 180,000 shares, which have not been issued. 
 

  

	 	2.
	 
	Excluding the warrants provided in the Common Stock and Warrant Purchase Agreement and the First and Second Addenda thereto, KFx Inc. has issued warrants to
purchase 112,500 shares in connection with an agreement for services. 
 

  

	 	3.
	 
	The KFx Inc. 2002 Stock Incentive Plan was ratified and approved at the Annual Meeting of the Shareholders held June 14, 2002. 
 

 

	 	4.
	 
	The American Stock Exchange has approved a plan to meet the continued listing requirements of KFx Inc. common stock for trading. 

  

	 	5.
	 
	The disclosure in Section 8. (a) of the Amended and Restated Put and Call Option Agreement has been corrected in the disclosure schedule to the Second Amended
and Restated Put Agreement. 
 

 

 50<PAGE>
                                                                     EXHIBIT 4.1

                         REGISTRATION RIGHTS AGREEMENT

        This REGISTRATION RIGHTS AGREEMENT dated June 28, 2002 (the "Agreement")
is entered into by and among Science Applications International Corporation, a
Delaware corporation (the "Company"), and the several Initial Purchasers listed
in Schedule 1 hereto (the "Initial Purchasers"), for whom J.P. Morgan Securities
Inc. is acting as representative (the "Representative").

        The Company and the Initial Purchasers are parties to the Purchase
Agreement dated June 21, 2002 (the "Purchase Agreement"), which provides for the
sale by the Company to the Initial Purchasers of $550,000,000 aggregate
principal amount of the Company's 6 1/4% Notes due 2012 (the "2012 Notes"), and
$250,000,000 aggregate principal amount of the Company's 7 1/8% Notes due 2032
(the "2032 Notes", and together with the 2012 Notes, the "Securities"). As an
inducement to the Initial Purchasers to enter into the Purchase Agreement, the
Company has agreed to provide to the Initial Purchasers and their direct and
indirect transferees the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the closing under the
Purchase Agreement.

        In consideration of the foregoing, the parties hereto agree as follows:

        1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:

        "Business Day" shall mean any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed.

        "Closing Date" shall mean the Closing Date as defined in the Purchase
Agreement.

        "Company" shall have the meaning set forth in the preamble and shall
also include the Company's successors.

        "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

        "Exchange Dates" shall have the meaning set forth in Section 2(a)(ii)
hereof.

        "Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof.

        "Exchange Offer Registration" shall mean a registration under the
Securities Act effected pursuant to Section 2(a) hereof.

<PAGE>

        "Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in each
case including the Prospectus contained therein, all exhibits thereto and any
document incorporated by reference therein.

        "Exchange Securities" shall mean notes issued by the Company under the
Indenture containing terms identical to the 2012 Notes and the 2032 Notes,
respectively (except that the Exchange Securities will not be subject to
restrictions on transfer or to any increase in annual interest rate for failure
to comply with this Agreement) and to be offered to Holders of the 2012 Notes
and the 2032 Notes, respectively, in exchange for Securities pursuant to the
Exchange Offer.

        "Holders" shall mean the Initial Purchasers, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct and
indirect transferees who become owners of Registrable Securities under the
Indenture; provided that for purposes of Sections 4 and 5 of this Agreement, the
term "Holders" shall include Participating Broker-Dealers.

        "Initial Purchasers" shall have the meaning set forth in the preamble.

        "Indenture" shall mean the Indenture relating to the Securities dated as
of June 28, 2002 between the Company and JPMorgan Chase Bank, as trustee, and as
the same may be amended from time to time in accordance with the terms thereof.

        "Majority Holders" shall mean the Holders of a majority of the aggregate
principal amount of outstanding Registrable Securities; provided that whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities owned directly or
indirectly by the Company or any of its affiliates shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage or amount.

        "Participating Broker-Dealers" shall have the meaning set forth in
Section 4(a) hereof.

        "Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a government or
agency or political subdivision thereof.

        "Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all

                                       2
<PAGE>

other amendments and supplements to such prospectus, and in each case including
any document incorporated by reference therein.

        "Purchase Agreement" shall have the meaning set forth in the preamble.

        "Registrable Securities" shall mean the Securities; provided that the
Securities shall cease to be Registrable Securities (i) when a Registration
Statement with respect to such Securities has been declared effective under the
Securities Act and such Securities have been exchanged or disposed of pursuant
to such Registration Statement, (ii) when such Securities are eligible to be
sold pursuant to Rule 144(k) (or any similar provision then in force, but not
Rule 144A) under the Securities Act or (iii) when such Securities cease to be
outstanding.

        "Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
Underwriters or Holders in connection with blue sky qualification of any
Exchange Securities or Registrable Securities), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus and any amendments or
supplements thereto, any underwriting agreements, securities sales agreements or
other similar agreements and any other documents relating to the performance of
and compliance with this Agreement, (iv) all rating agency fees, (v) all fees
and disbursements relating to the qualification of the Indenture under
applicable securities laws, (vi) the fees and disbursements of the Trustee and
its counsel, (vii) the fees and disbursements of counsel for the Company and, in
the case of a Shelf Registration Statement, the reasonable fees and
disbursements of one counsel for the Holders (which counsel shall be selected by
the Majority Holders and which counsel may also be counsel for the Initial
Purchasers) and (viii) the fees and disbursements of the independent public
accountants of the Company, including the expenses of any special audits or
"comfort" letters required by or incident to the performance of and compliance
with this Agreement, but excluding fees and expenses of counsel to the
Underwriters (other than fees and expenses set forth in clause (ii) above) or
the Holders and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities by a Holder.

        "Registration Statement" shall mean any registration statement of the
Company that covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement and all amendments and supplements
to any such registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and any
document incorporated by reference therein.

                                       3
<PAGE>

        "SEC" shall mean the Securities and Exchange Commission.

        "Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.

        "Shelf Effectiveness Period" shall have the meaning set forth in Section
2(b) hereof.

        "Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.

        "Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company that covers all the Registrable Securities (but no
other securities unless approved by the Holders whose Registrable Securities are
to be covered by such Shelf Registration Statement) on an appropriate form under
Rule 415 under the Securities Act, or any similar rule that may be adopted by
the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and any document incorporated by
reference therein.

        "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended from time to time.

        "Trustee" shall mean the trustee with respect to the Securities under
the Indenture.

        "Underwriter" shall have the meaning set forth in Section 3 hereof.

        "Underwritten Offering" shall mean an offering in which Registrable
Securities are sold to an Underwriter for reoffering to the public.

        2. Registration Under the Securities Act. (a) To the extent not
prohibited by any applicable law or applicable interpretations of the staff of
the SEC (the "Staff"), the Company shall use its reasonable best efforts to (i)
cause to be filed an Exchange Offer Registration Statement covering an offer to
the Holders to exchange all the Registrable Securities for Exchange Securities
and (ii) have such Registration Statement remain effective until 180 days after
the closing of the Exchange Offer. The Company shall commence the Exchange Offer
promptly after the Exchange Offer Registration Statement is declared effective
by the SEC and use its reasonable best efforts to complete the Exchange Offer
not later than 60 days after such effective date.

        The Company shall commence the Exchange Offer by mailing the related
Prospectus, appropriate letters of transmittal and other accompanying documents
to each Holder stating, in addition to such other disclosures as are required by
applicable law:

                                       4
<PAGE>

(i)     that the Exchange Offer is being made pursuant to this Agreement and
        that all Registrable Securities validly tendered and not properly
        withdrawn will be accepted for exchange;

(ii)    the dates of acceptance for exchange (which shall be a period of at
        least 20 Business Days from the date such notice is mailed) (the
        "Exchange Dates");

(iii)   that any Registrable Security not tendered will remain outstanding and
        continue to accrue interest but will not retain any rights under this
        Agreement;

(iv)    that any Holder electing to have a Registrable Security exchanged
        pursuant to the Exchange Offer will be required to surrender such
        Registrable Security, together with the appropriate letters of
        transmittal, to the institution and at the address (located in the
        Borough of Manhattan, The City of New York) and in the manner specified
        in the notice, prior to the close of business on the last Exchange Date;
        and

(v)     that any Holder will be entitled to withdraw its election, not later
        than the close of business on the last Exchange Date, by sending to the
        institution and at the address (located in the Borough of Manhattan, The
        City of New York) specified in the notice, a telegram, telex, facsimile
        transmission or letter setting forth the name of such Holder, the
        principal amount of Registrable Securities delivered for exchange and a
        statement that such Holder is withdrawing its election to have such
        Securities exchanged.

        As a condition to participating in the Exchange Offer, a Holder will be
required to represent to the Company that (i) any Exchange Securities to be
received by it will be acquired in the ordinary course of its business, (ii) at
the time of the commencement of the Exchange Offer it has no arrangement or
understanding with any Person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Securities in violation of the
provisions of the Securities Act, (iii) it is not an "affiliate" (within the
meaning of Rule 405 under Securities Act) of the Company and (iv) if such Holder
is a broker-dealer that will receive Exchange Securities for its own account in
exchange for Registrable Securities that were acquired as a result of
market-making or other trading activities, then such Holder will deliver a
Prospectus in connection with any resale of such Exchange Securities.

        As soon as practicable after the last Exchange Date, the Company shall:

(i)     accept for exchange Registrable Securities or portions thereof validly
        tendered and not properly withdrawn pursuant to the Exchange Offer; and

(ii)    deliver, or cause to be delivered, to the Trustee for cancellation all
        Registrable Securities or portions thereof so accepted for exchange by
        the Company and issue, and cause the Trustee to promptly authenticate
        and

                                       5
<PAGE>

        deliver to each Holder, Exchange Securities equal in principal amount to
        the principal amount of the Registrable Securities surrendered by such
        Holder.

        The Company shall use its reasonable best efforts to complete the
Exchange Offer as provided above and shall comply with the applicable
requirements of the Securities Act, the Exchange Act and other applicable laws
and regulations in connection with the Exchange Offer. The Exchange Offer shall
not be subject to any conditions, other than that the Exchange Offer does not
violate any applicable law or applicable interpretations of the Staff of the
SEC.

        (b) In the event that (i) the Company determines that the Exchange Offer
Registration provided for in Section 2(a) above is not available or may not be
completed as soon as practicable after the last Exchange Date because it would
violate any applicable law or applicable interpretations of the Staff of the
SEC, (ii) the Exchange Offer is not for any other reason completed by January
28, 2003 or (iii) the Exchange Offer has been completed and in the opinion of
counsel for the Initial Purchasers, a Registration Statement must be filed and a
Prospectus must be delivered by the Initial Purchasers in connection with any
offering or sale of Registrable Securities originally purchased and still held
by the Initial Purchasers, the Company shall use its reasonable best efforts to
cause to be filed as soon as practicable after such determination, date or
notice of such opinion of counsel is given to the Company, as the case may be, a
Shelf Registration Statement providing for the sale of all the Registrable
Securities by the Holders thereof and to have such Shelf Registration Statement
declared effective by the SEC. To the extent a Shelf Registration Statement is
required to be filed pursuant to clause (ii) but the Exchange Offer is completed
on a date later than January 28, 2003, upon consummation of the Exchange Offer
the Company will no longer be required to file, make effective or continue the
effectiveness of the Shelf Registration Statement.

        In the event that the Company is required to file a Shelf Registration
Statement solely as a result of the matters referred to in clause (iii) of the
preceding sentence, the Company shall use its reasonable best efforts to file
and have declared effective by the SEC both an Exchange Offer Registration
Statement pursuant to Section 2(a) with respect to all Registrable Securities
and a Shelf Registration Statement (which may be a combined Registration
Statement with the Exchange Offer Registration Statement) with respect to offers
and sales of Registrable Securities held by the Initial Purchasers after
completion of the Exchange Offer.

        The Company agrees to use its reasonable best efforts to keep the Shelf
Registration Statement continuously effective until the earlier of (i) two years
from the Closing Date, (ii) expiration of the period referred to in Rule 144(k)
under the Securities Act with respect to the Registrable Securities or (iii)
such shorter period that will terminate when all the Registrable Securities
covered by the Shelf

                                       6
<PAGE>

Registration Statement have been sold pursuant to the Shelf Registration
Statement (the "Shelf Effectiveness Period"). The Company further agrees to
supplement or amend the Shelf Registration Statement and the related Prospectus
if required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the Securities Act or by any other rules and regulations thereunder for shelf
registration or if reasonably requested by a Holder of Registrable Securities
with respect to information relating to such Holder, and to use its reasonable
best efforts to cause any such amendment to become effective and such Shelf
Registration Statement and Prospectus to become usable as soon as thereafter
practicable. The Company agrees to furnish to the Holders of Registrable
Securities copies of any such supplement or amendment promptly after its being
used or filed with the SEC.

        (c) The Company shall pay all Registration Expenses in connection with
the registration pursuant to Section 2(a) and Section 2(b) hereof. Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.

        (d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC.

        In the event that either the Exchange Offer is not completed or the
Shelf Registration Statement, if required hereby, is not declared effective on
or prior to January 28, 2003, the interest rate on the Registrable Securities
will be increased by 0.25% per annum, in each case until the Exchange Offer is
completed or the Shelf Registration Statement, if required hereby, is declared
effective by the SEC or the Securities become freely tradable under the
Securities Act.

        (e) The parties hereto agree that the liquidated damages provided for in
Section 2(d) constitute a reasonable estimate of and are intended to constitute
the sole damages that will be suffered by the Initial Purchasers and the Holders
by reason of the failure of the Company to comply with its obligations under
Section 2(a) and 2(b) hereof.

        3. Registration Procedures. In connection with its obligations pursuant
to Section 2(a) and Section 2(b) hereof, the Company shall as expeditiously as
possible:

        (a) prepare and file with the SEC a Registration Statement on the
appropriate form under the Securities Act, which form (x) shall be selected by
the Company, (y) shall, in the case of a Shelf Registration, be available for
the sale of the Registrable Securities by the selling Holders thereof and (z)
shall comply as to form in all material respects with the requirements of the
applicable form

                                       7
<PAGE>

and include all financial statements required by the SEC to be filed therewith;
and use its reasonable best efforts to cause such Registration Statement to
become effective and remain effective for the applicable period in accordance
with Section 2 hereof;

        (b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period in accordance with
Section 2 hereof and cause each Prospectus to be supplemented by any required
prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424
under the Securities Act; and keep each Prospectus current during the period
described in Section 4(3) of and Rule 174 under the Securities Act that is
applicable to transactions by brokers or dealers with respect to the Registrable
Securities or Exchange Securities;

        (c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Initial Purchasers, to counsel for
such Holders and to each Underwriter of an Underwritten Offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus as they
may reasonably request, including each preliminary Prospectus, and any amendment
or supplement thereto, in order to facilitate the sale or other disposition of
the Registrable Securities thereunder; and the Company consents to the use of
such Prospectus and any amendment or supplement thereto in accordance with
applicable law by each of the selling Holders of Registrable Securities and any
such Underwriters in connection with the offering and sale of the Registrable
Securities covered by and in the manner described in such Prospectus or any
amendment or supplement thereto in accordance with applicable law;

        (d) use its reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or blue sky laws of
such jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC; cooperate
with the Holders in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; and do any and all other acts
and things that may be reasonably necessary or advisable to enable each Holder
to complete the disposition in each such jurisdiction of the Registrable
Securities owned by such Holder; provided that the Company shall not be required
to (i) qualify as a foreign corporation or other entity or as a dealer in
securities in any such jurisdiction where it would not otherwise be required to
so qualify, (ii) file any general consent to service of process in any such
jurisdiction; (iii) subject itself to taxation in any such jurisdiction if it is
not so subject; or (iv) make any change to its certificate of incorporation or
bylaws or any agreement between it and its stockholders;

                                       8
<PAGE>

        (e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for such Holders and counsel for the Initial
Purchasers promptly and, if requested by any such Holder or counsel, confirm
such advice in writing (i) when a Registration Statement has become effective
and when any post-effective amendment thereto has been filed and becomes
effective, (ii) of any request by the SEC or any state securities authority for
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to an offering of such Registrable Securities cease
to be true and correct in all material respects or if the Company receives any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose, (v) of the happening of any event during the period
a Shelf Registration Statement is effective that makes any statement made in
such Registration Statement or the related Prospectus untrue in any material
respect or that requires the making of any changes in such Registration
Statement or Prospectus in order to make the statements therein not misleading
and (vi) of any determination by the Company that a post-effective amendment to
a Registration Statement would be appropriate;

        (f) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide immediate notice to each Holder of the withdrawal of
any such order;

        (g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without any
documents incorporated therein by reference or exhibits thereto, unless
requested);

        (h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and enable such Registrable Securities to be
issued in such denominations and registered in such names (consistent with the
provisions of the Indenture) as the selling Holders may reasonably request at
least one Business Day prior to the closing of any sale of Registrable
Securities;

        (i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) hereof, use its reasonable best efforts to

                                       9
<PAGE>

prepare and file with the SEC a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company shall notify the
Holders of Registrable Securities to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and such Holders hereby
agree to suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;

        (j) in the case of a Shelf Registration: a reasonable time prior to the
filing of any Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus (excluding any
documents incorporated by reference therein), provide copies of such document to
the Initial Purchasers and their counsel and to the Majority Holders of
Registrable Securities and their counsel and make such of the representatives of
the Company as shall be reasonably requested by the Initial Purchasers or their
counsel and the Majority Holders of Registrable Securities or their counsel
available for discussion of such document, and the Company shall not, at any
time after initial filing of a Registration Statement, file any Prospectus, any
amendment of or supplement to a Registration Statement or a Prospectus
(excluding any documents incorporated by reference therein), of which the
Initial Purchasers and their counsel and the Majority Holders of Registrable
Securities and their counsel shall not have previously been advised and
furnished a copy or to which the Initial Purchasers or their counsel and the
Majority Holders or their counsel shall reasonably object, unless in the
Company's judgment such filing is necessary to comply with the securities laws
or to avoid penalties hereunder;

        (k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;

        (l) cause the Indenture to be qualified under the Trust Indenture Act in
connection with the registration of the Exchange Securities or Registrable
Securities, as the case may be; cooperate with the Trustee and the Holders to
effect such changes to the Indenture as may be required for the Indenture to be
so qualified in accordance with the terms of the Trust Indenture Act; and
execute, and use its reasonable best efforts to cause the Trustee to execute,
all documents as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;

        (m) in the case of a Shelf Registration, make reasonably available for
inspection by a representative of the Majority Holders of the Registrable
Securities (an "Inspector"), any Underwriter participating in any disposition

                                       10
<PAGE>

pursuant to such Shelf Registration Statement, and attorneys and accountants
designated by the Inspector, at reasonable times and in a reasonable manner, all
pertinent financial and other records, documents and properties of the Company
and use its reasonable best efforts to cause the officers, directors and
employees of the Company to supply all information reasonably requested by any
such Inspector, Underwriter, attorney or accountant in connection with a Shelf
Registration Statement; provided that if any such information is identified by
the Company as being confidential or proprietary, each Person receiving such
information shall take such actions as are reasonably necessary to protect the
confidentiality of such information to the extent such action is otherwise not
inconsistent with, an impairment of or in derogation of the rights and interests
of any Inspector, Holder or Underwriter);

        (n) in the case of a Shelf Registration, use its reasonable best efforts
to cause all Registrable Securities to be listed on any securities exchange or
any automated quotation system on which similar securities issued by the Company
are then listed if requested by the Majority Holders, to the extent such
Registrable Securities satisfy applicable listing requirements;

        (o) if reasonably requested by any Holder of Registrable Securities
covered by a Registration Statement, promptly incorporate in a Prospectus
supplement or post-effective amendment such information with respect to such
Holder as such Holder reasonably requests to be included therein and make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as the Company has received notification of the matters to be
incorporated in such filing; and

        (p) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith (including
those requested by the Holders of a majority in principal amount of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible, make
such representations and warranties to the Holders and any Underwriters of such
Registrable Securities with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents incorporated
by reference or deemed incorporated by reference, if any, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested, (ii) if
requested by Majority Holders, use its reasonable best efforts to obtain
opinions of counsel to the Company (which counsel and opinions, in form, scope
and substance, shall be reasonably satisfactory to the Holders and such
Underwriters and their respective counsel) addressed to each selling Holder and
Underwriter of Registrable Securities, covering the matters customarily covered
in opinions requested in underwritten offerings, (iii) if requested by Majority
Holders, use its reasonable best efforts to obtain "comfort" letters from the
independent certified public accountants of the Company (and, if necessary, any

                                       11
<PAGE>

other certified public accountant of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data are or are required to be included in the Registration Statement) addressed
to each selling Holder and Underwriter of Registrable Securities, such letters
to be in customary form and covering matters of the type customarily covered in
"comfort" letters in connection with underwritten offerings and (iv) use its
reasonable best efforts to deliver such documents and certificates as may be
reasonably requested by the Holders of a majority in principal amount of the
Registrable Securities being sold or the Underwriters, and which are customarily
delivered in underwritten offerings, to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause (i) above
and to evidence compliance with any customary conditions contained in an
underwriting agreement.

        In the case of a Shelf Registration Statement, the Company may require
each Holder of Registrable Securities to furnish to the Company such information
regarding such Holder, including a selling stockholder questionnaire, and the
proposed disposition by such Holder of such Registrable Securities as the
Company may from time to time reasonably request in writing.

        In the case of a Shelf Registration Statement, each Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e)(iii) or
3(e)(v) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(i) hereof and, if so directed by the Company, such Holder will deliver
to the Company all copies in its possession, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Securities that is current at the time of receipt of such notice.

        If the Company shall give any such notice to suspend the disposition of
Registrable Securities pursuant to a Registration Statement, the Company shall
extend the period during which the Registration Statement shall be maintained
effective pursuant to this Agreement by the number of days during the period
from and including the date of the giving of such notice to and including the
date when the Holders shall have received copies of the supplemented or amended
Prospectus necessary to resume such dispositions. The Company may give any such
notice only twice during any 365-day period and any such suspensions shall not
exceed 45 days for each suspension and there shall not be more than two
suspensions in effect during any 365-day period.

        The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders of the
Registrable

                                       12
<PAGE>

Securities included in such offering, subject to the Company's consent, which
consent shall not be unreasonably withheld.

        4. Participation of Broker-Dealers in Exchange Offer. (a) The Staff of
the SEC has taken the position that any broker-dealer that receives Exchange
Securities for its own account in the Exchange Offer in exchange for Securities
that were acquired by such broker-dealer as a result of market-making or other
trading activities (a "Participating Broker-Dealer") may be deemed to be an
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Securities.

        The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Securities, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Securities owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the
Securities Act in connection with resales of Exchange Securities for their own
accounts, so long as the Prospectus otherwise meets the requirements of the
Securities Act.

        (b) In light of the above, and notwithstanding the other provisions of
this Agreement, the Company agrees to amend or supplement the Prospectus
contained in the Exchange Offer Registration Statement, as would otherwise be
contemplated by Section 3(i), for a period of up to 180 days after the last
Exchange Date (as such period may be extended pursuant to the penultimate
paragraph of Section 3 of this Agreement), if requested by the Initial
Purchasers or by one or more Participating Broker-Dealers, in order to expedite
or facilitate the disposition of any Exchange Securities by Participating
Broker-Dealers consistent with the positions of the Staff recited in Section
4(a) above. The Company further agrees that Participating Broker-Dealers shall
be authorized to deliver such Prospectus during such period in connection with
the resales contemplated by this Section 4.

        (c) The Initial Purchasers shall have no liability to the Company or any
Holder with respect to any request that they may make pursuant to Section 4(b)
above.

        5. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each Initial Purchaser and each Holder, their respective
affiliates and each Person, if any, who controls any Initial Purchaser or any
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, reasonable legal fees and other
expenses incurred in connection with any suit, action or proceeding or any claim
asserted), joint or several, that are caused by any untrue statement or alleged
untrue

                                       13
<PAGE>

statement of a material fact contained in any Registration Statement or any
Prospectus or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with any information relating
to any Initial Purchaser or any Holder furnished to the Company in writing
through J.P. Morgan Securities Inc. or any selling Holder expressly for use
therein. In connection with any Underwritten Offering permitted by Section 3,
the Company will also indemnify the Underwriters, if any, selling brokers,
dealers and similar securities industry professionals participating in the
distribution, their respective affiliates and each Person who controls such
Persons (within the meaning of the Securities Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the
Holders, if requested in connection with any Registration Statement.
Notwithstanding the foregoing, with respect to any untrue statement in or
omission from any related preliminary prospectus, the indemnity agreement
contained in this Section 5 shall not inure to the benefit of any Holder from
whom the person asserting any such loss, claim, damage, liability or action
received Securities or Exchange Securities to the extent that such loss, claim,
damage, liability or action of or with respect to such Holder results from the
fact that both (i) a copy of the final prospectus (excluding any documents
incorporated by reference therein) was not sent or given to such person at or
prior to the written confirmation of the sale of such Securities or Exchange
Securities to such person and (ii) the untrue statement in or omission from the
related preliminary prospectus was corrected in the final prospectus unless, in
either case, such failure to deliver the final prospectus was a result of
non-compliance by the Company with Section 2(b), 3(c) and 3(g).

        (b) Each Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company, the Initial Purchasers and the other selling Holders,
their respective affiliates, the directors of the Company, each officer of the
Company who signed the Registration Statement and each Person, if any, who
controls the Company, any Initial Purchaser and any other selling Holder within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the indemnity set forth in paragraph (a) above, but
only with respect to any losses, claims, damages or liabilities that are caused
by any untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with any information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement and any Prospectus.

        (c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnification may be sought pursuant to either
paragraph (a) or (b) above, such Person (the "Indemnified Person") shall
promptly notify the Person against whom such indemnification may be sought

                                       14
<PAGE>

(the "Indemnifying Person") in writing; provided that the failure to notify the
Indemnifying Person shall not relieve it from any liability that it may have
under this Section 5 except to the extent that it has been materially prejudiced
(through the forfeiture of substantive rights or defenses) by such failure; and
provided, further, that the failure to notify the Indemnifying Person shall not
relieve it from any liability that it may have to an Indemnified Person
otherwise than under this Section 5. If any such proceeding shall be brought or
asserted against an Indemnified Person and it shall have notified the
Indemnifying Person thereof, the Indemnifying Person shall retain counsel
reasonably satisfactory to the Indemnified Person to represent the Indemnified
Person and any others entitled to indemnification pursuant to this Section 5
that the Indemnifying Person may designate in such proceeding and shall pay the
fees and expenses of such counsel related to such proceeding. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person
has failed within a reasonable time to retain counsel reasonably satisfactory to
the Indemnified Person; (iii) the Indemnified Person shall have reasonably
concluded that there may be legal defenses available to it that are different
from or in addition to those available to the Indemnifying Person; or (iv) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood and agreed that the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed. Any such
separate firm (x) for any Initial Purchaser, its affiliates and any control
Persons of such Initial Purchaser shall be designated in writing by J.P. Morgan
Securities Inc., (y) for any Holder, its affiliates and any control Persons of
such Holder shall be designated in writing by the Majority Holders and (z) in
all other cases shall be designated in writing by the Company. The Indemnifying
Person shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Person agrees to indemnify each
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an Indemnified Person shall have requested that an Indemnifying Person reimburse
the Indemnified Person for the reasonable fees and expenses of counsel as
contemplated by this paragraph, the Indemnifying Person shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 60 days after receipt by the Indemnifying
Person of such request and (ii) the Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement. No Indemnifying Person shall, without the written

                                       15
<PAGE>

consent of the Indemnified Person, effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnification could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional release
of such Indemnified Person, in form and substance reasonably satisfactory to
such Indemnified Person, from all liability on claims that are the subject
matter of such proceeding and (B) does not include any statement as to or any
admission of fault, culpability or a failure to act by or on behalf of any
Indemnified Person.

        (d) If the indemnification provided for in paragraphs (a) and (b) above
is unavailable to an Indemnified Person or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company from the offering of the Securities and the
Exchange Securities, on the one hand, and by the Holders from receiving
Securities or Exchange Securities registered under the Securities Act, on the
other hand, or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) but also the relative fault of the
Company on the one hand and the Holders on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Holders on the other shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

        (e) The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation that does not take account of the equitable
considerations referred to in paragraph (d) above. The amount paid or payable by
an Indemnified Person as a result of the losses, claims, damages and liabilities
referred to in paragraph (d) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Person in connection with any such action or claim.
Notwithstanding the provisions of this Section 5, in no event shall a Holder be
required to contribute any amount in excess of the amount by which the total
price at which the Securities or Exchange Securities sold by such Holder exceeds
the amount of any damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning

                                       16
<PAGE>

of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.

        (f) The remedies provided for in this Section 5 are not exclusive and
shall not limit any rights or remedies that may otherwise be available to any
Indemnified Person at law or in equity.

        (g) The indemnity and contribution provisions contained in this Section
5 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Initial Purchasers or any Holder, their respective affiliates or any Person
controlling any Initial Purchaser or any Holder, or by or on behalf of the
Company, its affiliates or the officers or directors of or any Person
controlling the Company, (iii) acceptance of any of the Exchange Securities and
(iv) any sale of Registrable Securities pursuant to a Shelf Registration
Statement.

        6. General.

        (a) No Inconsistent Agreements. The Company represents, warrants and
agrees that (i) the rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
any other outstanding securities issued or guaranteed by the Company under any
other agreement and (ii) the Company has not entered into, or on or after the
date of this Agreement will enter into, any agreement that is inconsistent with
the rights granted to the Holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof.

        (b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of at least
a majority in aggregate principal amount of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
consent; provided that no amendment, modification, supplement, waiver or consent
to any departure from the provisions of Section 5 hereof shall be effective as
against any Holder of Registrable Securities unless consented to in writing by
such Holder. Any amendments, modifications, supplements, waivers or consents
pursuant to this Section 6(b) shall be by a writing executed by each of the
parties hereto.

        (c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Initial
Purchasers, the address set forth in the Purchase Agreement; (ii) if to the
Company, initially at the Company's

                                       17
<PAGE>

address set forth in the Purchase Agreement and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Section 6(c); and (iii) to such other persons at their respective addresses as
provided in the Purchase Agreement and thereafter at such other address, notice
of which is given in accordance with the provisions of this Section 6(c). All
such notices and communications shall be deemed to have been duly given: at the
time delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and on the next Business
Day if timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.

        (d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Registrable Securities in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all the terms of this Agreement, and by taking and holding such
Registrable Securities such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement
and such Person shall be entitled to receive the benefits hereof. The Initial
Purchasers (in their capacity as Initial Purchasers) shall have no liability or
obligation to the Company with respect to any failure by a Holder to comply
with, or any breach by any Holder of, any of the obligations of such Holder
under this Agreement.

        (e) Purchases and Sales of Securities. The Company shall not, and shall
use its reasonable best efforts to cause its affiliates (as defined in Rule 405
under the Securities Act) not to, purchase and then resell or otherwise transfer
any Registrable Securities.

        (f) Third Party Beneficiaries. Each Holder shall be a third party
beneficiary to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of other Holders
hereunder.

        (g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

                                       18
<PAGE>

        (h) Headings. The headings in this Agreement are for convenience of
reference only, are not a part of this Agreement and shall not limit or
otherwise affect the meaning hereof.

        (i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.

        (j) Miscellaneous. This Agreement contains the entire agreement between
the parties relating to the subject matter hereof and supersedes all oral
statements and prior writings with respect thereto. If any term, provision,
covenant or restriction contained in this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable or against public
policy, the remainder of the terms, provisions, covenants and restrictions
contained herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. The Company and the Initial Purchasers shall
endeavor in good faith negotiations to replace the invalid, void or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, void or unenforceable
provisions.

                                       19
<PAGE>

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                            SCIENCE APPLICATIONS
                                            INTERNATIONAL CORPORATION

                                            By:
                                               ---------------------------------
                                               Name:  William A. Roper, Jr.
                                               Title: Corporate Executive Vice
                                                      President

Confirmed and accepted as of the date first above written:

J.P. MORGAN SECURITIES INC.

For itself and on behalf of the
several Initial Purchasers

By:
   -----------------------------------
          Authorized Signatory

                                       20
<PAGE>

                                                                      Schedule I

<TABLE>
<CAPTION>
                                                        Principal             Principal
                                                        Amount of             Amount of
               Initial Purchaser                        2012 Notes            2032 Notes
               -----------------                       ------------          ------------
<S>                                                    <C>                   <C>
J.P. Morgan Securities Inc.                            $275,000,000          $125,000,000
Morgan Stanley & Co. Incorporated                       $68,750,000           $31,250,000
Salomon Smith Barney Inc.                               $68,750,000           $31,250,000
The Royal Bank of Scotland plc                          $27,500,000           $12,500,000
Tokyo-Mitsubishi International plc                      $27,500,000           $12,500,000
Wachovia Securities, Inc.                               $27,500,000           $12,500,000
BNY Capital Markets, Inc.                               $11,000,000            $5,000,000
McDonald Investments Inc.                               $11,000,000            $5,000,000
Mellon Financial Markets, LLC                           $11,000,000            $5,000,000
Mizuho International plc                                $11,000,000            $5,000,000
SG Cowen Securities Corporation                         $11,000,000            $5,000,000
                                                       ------------          ------------
                                          Total        $550,000,000          $250,000,000
</TABLE>

                                       21

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