Document:

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                                                                     Exhibit 4.1
                         REGISTRATION RIGHTS AGREEMENT

          THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
                                                    ---------
entered into as of May 22, 2001 by and among PG&E National Energy Group, Inc., a
Delaware corporation (the "Company"), and the Initial Purchasers (as hereinafter
                           -------
defined).

          This Agreement is made pursuant to the Purchase Agreement dated May
17, 2001 (the "Purchase Agreement"), by and among the Company, as issuer of the
               ------------------
$1,000,000,000 aggregate principal amount of 10.375% Senior Notes due 2011 (the
"Notes"), and the Initial Purchasers, which provides for, among other things,
 -----
the sale by the Company to the Initial Purchasers of the aggregate principal
amount of Notes specified therein.  In order to induce 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 capitalized
              -----------
defined terms shall have the following meanings:

          "Advice" shall have the meaning set forth in the last paragraph of
           ------
Section 3 hereof.

          "Affiliate" has the meaning given to that term in Rule 405 under the
           ---------
Securities Act or any successor rule thereunder.

          "Applicable Period" shall have the meaning set forth in Section 3(u)
           -----------------
hereof.

          "Business Day" shall mean any day other than a Saturday, a Sunday, or
           ------------
a day on which banking institutions in The City of New York are authorized or
required by law or executive order to remain closed.

          "Closing Date" shall mean May 22, 2001, the initial date of delivery
           ------------
of the Notes from the Company to the Initial Purchasers.

          "Company" shall have the meaning set forth in the preamble to this
           -------
Agreement and also includes the Company's successors and permitted assigns.

          "Depositary" shall mean The Depository Trust Company, or any other
           ----------
depositary appointed by the Company; provided, however, that such depositary
                                     --------  -------
must have an address in the Borough of Manhattan, The City of New York.

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

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
           ------------
amended from time to time.
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          "Exchange Notes" shall mean the 10.375% Senior Notes due 2011 issued
           --------------
by the Company under the Indenture containing terms identical in all material
respects to the Notes (except that (i) interest thereon shall accrue from the
last date on which interest was paid or duly provided for on the Notes or, if no
such interest has been paid, from the date of their original issue, (ii) they
will not contain terms with respect to transfer restrictions under the
Securities Act, and (iii) they will not provide for any Special Interest Premium
thereon.

          "Exchange Offer" shall mean the offer by the Company to the Holders to
           --------------
exchange all of the Registrable Notes held by each such Holder for a like amount
of Exchange Notes pursuant to Section 2(a) hereof.

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

          "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
all documents incorporated by reference therein.

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

          "Holder" shall mean any Initial Purchaser, for so long as it owns any
           ------
Registrable Notes, and each of its successors, assigns and direct and indirect
transferees who become registered owners of Registrable Notes under the
Indenture.

          "Indenture" shall mean the Indenture, dated as of May 22, 2001,
           ---------
between the Company, as issuer, and Wilmington Trust Company, as trustee, as the
same may be amended or supplemented from time to time in accordance with the
terms thereof.

          "Initial Purchasers" shall mean Lehman Brothers Inc., Morgan Stanley &
           ------------------
Co. Incorporated, Salomon Smith Barney Inc. and J.P. Morgan Securities Inc.

          "Inspectors" shall have the meaning set forth in Section 3(p) hereof.
           ----------

          "Majority Holders" shall mean the Holders of a majority of the
           ----------------
aggregate principal amount of outstanding Notes or Exchange Notes, as the case
may be.

          "Notes" shall have the meaning set forth in the preamble to this
           -----
Agreement.

          "Parent" shall mean PG&E Corporation, the sole indirect holder of all
           ------
of the stock of the Company.

          "Participating Broker-Dealer" shall have the meaning set forth in
           ---------------------------
Section 3(u) hereof.

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

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          "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 Notes covered by a Shelf Registration Statement, and by all other
amendments and supplements to a prospectus, including post-effective amendments,
and in each case including all documents incorporated by reference therein.

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

          "Records" shall have the meaning set forth in Section 3(p) hereof.
           -------

          "Registrable Notes" shall mean the Notes, until the earliest to occur
           -----------------
of (a) the date on which any Note has been exchanged by a Person other than a
Participating Broker-Dealer for Exchange Notes in the Exchange Offer, (b)
following the exchange by a Broker-Dealer in the Exchange Offer of any Note for
one or more Exchange Notes, the date on which such Exchange Notes are sold to a
purchaser in accordance with the Exchange Offer Registration Statement, (c) the
date on which any Note has been registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement and (d) the date on which
any Note is eligible to be distributed to the public pursuant to Rule 144(k)
under the Securities Act.

          "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 or National Association of Securities Dealers,
Inc. (the "NASD") registration and filing fees, including, if applicable, the
           ----
fees and expenses of any "qualified independent underwriter" (and its counsel)
that is required to be retained by any Holder of Registrable Notes in accordance
with the rules and regulations of the NASD, (ii) all fees and expenses incurred
in connection with compliance with state securities or blue sky laws (including
reasonable fees and disbursements of one counsel for all underwriters and
Holders as a group in connection with blue sky qualification of any of the
Exchange Notes or Registrable Notes) and compliance with the rules of the NASD,
(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, and in preparing or assisting in
preparing, printing and distributing any underwriting agreements, Notes sales
agreements and other documents relating to the performance of and compliance
with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements
of counsel for the Company and of the independent certified public accountants
of the Company and its subsidiaries, including the expenses of any "cold
comfort" letters required by or incident to the performance of and compliance
with this Agreement, (vi) the reasonable fees and expenses of the Trustee and
its counsel and any exchange agent or custodian, and (vii) the reasonable fees
and expenses of any special experts retained by the Company in connection with
any Registration Statement.

          "Registration Statement" shall mean any registration statement of the
           ----------------------
Company which covers any of the Exchange Notes or Registrable Notes 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 all
documents incorporated by reference therein.

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          "Rule 144(k) Period" shall mean the period of two years (or such
           ------------------
shorter period as may hereafter be referred to in Rule 144(k) under the
Securities Act (or similar successor rule)) commencing on the Closing Date.

          "SEC" shall mean the Securities and Exchange Commission.
           ---

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

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

          "Shelf Registration Event" shall have the meaning set forth in Section
           ------------------------
2(b) hereof.

          "Shelf Registration Event Date" shall have the meaning set forth in
           -----------------------------
Section 2(b) hereof.

          "Shelf Registration Statement" shall mean a "shelf" registration
           ----------------------------
statement of the Company pursuant to the provisions of Section 2(b) hereof which
covers all of the Registrable Notes (except Registrable Notes which the Holders
have elected not to include in such Shelf Registration Statement or the Holders
of which have not complied with their obligations under the penultimate
paragraph of Section 3 hereof or under the first paragraph of Section 2(b)
hereof) 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 all
documents incorporated by reference therein.

          "Special Interest Premium" shall have the meaning set forth in Section
           ------------------------
2(e) hereof.

          "TIA" shall have the meaning set forth in Section 3(m) hereof.
           ---

          "Trustee" shall mean the trustee under the Indenture.
           -------

          2.  Registration Under the Securities Act.
              -------------------------------------

          (a)  Exchange Offer.  Except as set forth in Section 2(b) below, the
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Company shall, for the benefit of the Holders, at the Company's cost, (i) file
with the SEC within 180 calendar days after the Closing Date an Exchange Offer
Registration Statement on an appropriate form under the Securities Act relating
to the Exchange Offer, (ii) use its reasonable best efforts to cause such
Exchange Offer Registration Statement to be declared effective under the
Securities Act by the SEC not later than the date which is 270 calendar days
after the Closing Date, and (iii) provided such Exchange Offer Registration
Statement has been declared effective under the Securities Act by the SEC,
commence the Exchange Offer and keep the Exchange Offer open for not less than
30 days, or longer if required by applicable law, after the date on which such
Registration Statement was declared effective by the SEC (such period referred
to herein as the "Exchange Period") and at the termination thereof issue,
                  ---------------
Exchange Notes in exchange for all Registrable Notes tendered prior thereto in
the Exchange Offer.

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          Each Holder of Registrable Notes to be exchanged in the Exchange Offer
shall be required, as a condition to participating in the Exchange Offer, to
represent that it acquires the Exchange Notes in the ordinary course of such
Holder's business and that it (i) is not an Affiliate of the Company, (ii) does
not hold any Notes to be exchanged for Exchange Notes in the Exchange Offer that
were acquired other than in the ordinary course of business, (iii) is not a
broker-dealer tendering Registrable Notes acquired directly from the Company,
(iv) at the time of the Exchange Offer, has no arrangements or understandings
with any Person to participate in the Exchange Offer for the purpose of
distributing the Exchange Notes.

          In connection with the Exchange Offer, the Company shall:

          (i)   mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;

          (ii)  utilize the services of the Depositary for the Exchange Offer
with respect to Notes represented by a global certificate;

          (iii) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York City time, on the last Business
Day of the Exchange Period, by sending to the institution specified in the
notice to Holders, a telegram, telex, facsimile transmission or letter setting
forth the name of such Holder, the principal amount of Registrable Notes
delivered for exchange, and a statement that such Holder is withdrawing his
election to have such Registrable Notes exchanged;

          (iv)  notify each Holder that any Registrable Security not tendered by
such Holder in the Exchange Offer will remain outstanding and continue to accrue
interest but will not retain any rights under this Agreement (except in the case
of the Initial Purchasers and Participating Broker-Dealers as provided herein);
and

          (v)   otherwise comply in all material respects with all applicable
laws and regulations relating to the Exchange Offer.

          As soon as practicable after the close of the Exchange Offer, the
Company shall:

          (i)   accept for exchange all Registrable Notes or portions thereof
duly tendered and not validly withdrawn pursuant to the Exchange Offer in
accordance with the terms of the Exchange Offer Registration Statement and
letter of transmittal;

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

          (iii) issue, and cause the Trustee under the Indenture to promptly
authenticate and deliver to each Holder, Exchange Notes equal in principal
amount to the principal amount of the Notes as are surrendered by such Holder.

          Interest on each Exchange Note issued pursuant to the Exchange Offer
will accrue from the last date on which interest was paid or duly provided for
on the Note surrendered in

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exchange therefor or, if no interest has been paid on such Note, from the date
of original issue of such Note. To the extent not prohibited by any judicial
order, judgment, law, regulation or applicable interpretation of the staff of
the SEC, the Company shall use 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 the conditions referred to in Section 2(b)(i) and
(ii) below and those conditions that are customary in similar exchange offers,
except as may be required by applicable law. Each Holder of Registrable Notes
who wishes to exchange such Registrable Notes for Exchange Notes in the Exchange
Offer will be required to make certain customary representations in connection
therewith, including, in the case of any Holder, representations that (i) it is
not an Affiliate of the Company, (ii) it is not a broker-dealer tendering
Registrable Notes acquired directly from the Company, (iii) the Notes being
exchanged, and the Exchange Notes to be received, by it have been or are being
acquired in the ordinary course of its business and (iv) at the time of the
Exchange Offer, it has no arrangements or understandings with any Person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. The Company shall inform the Initial Purchasers, after
consultation with the Trustee, of the names and addresses of the Holders to whom
the Exchange Offer is made, and the Initial Purchasers shall have the right to
contact such Holders in order to facilitate the tender of Registrable Notes in
the Exchange Offer.

          Upon consummation of the Exchange Offer in accordance with this
Section 2(a), the provisions of this Agreement shall continue to apply, mutatis
                                                                        -------
mutandis, solely with respect to Exchange Notes held by Initial Purchasers and
--------
Participating Broker-Dealers, and the Company shall have no further obligation
to register the Registrable Notes held by any other Holder pursuant to Section
2(b) of this Agreement.

          (b)  Shelf Registration.  If (i) because of any change in law,
               ------------------
regulation or in currently prevailing interpretations thereof by the staff of
the SEC, the Company is not permitted to effect the Exchange Offer as
contemplated by Section 2(a) hereof, (ii) the Exchange Offer is not consummated
within 300 days after the Closing Date or (iii) any Holder of Registrable Notes
that is a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) shall notify the Company prior to the 20th day following the
consummation of the Exchange Offer (A) that such Holder was prohibited by
applicable law or SEC policy from participating in the Exchange Offer, or (B)
that such Holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder, or (C) that such
Holder is a Participating Broker-Dealer and holds Notes acquired directly from
the Company or one of its Affiliates (any of the events specified in (i), (ii)
or (iii) being a "Shelf Registration Event", and the date of occurrence thereof,
                  ------------------------
the "Shelf Registration Event Date"), then in addition to or in lieu of
     -----------------------------
conducting the Exchange Offer contemplated by Section 2(a), as the case may be,
the Company shall promptly notify the Holders in writing thereof and shall, at
its cost, file as promptly as practicable after such Shelf Registration Event
Date and, in any event, within 90 days after such Shelf Registration Event Date,
a Shelf Registration Statement providing for the sale by the Holders of all of
the Registrable Notes (other than Registrable Notes owned by Holders who have
elected not to include such Registrable Notes

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<PAGE>

in such Shelf Registration Statement or who have not complied with their
obligations under the penultimate paragraph of Section 3 hereof or under this
paragraph), and shall use its reasonable best efforts to cause such Shelf
Registration Statement to be declared effective by the SEC as soon as
practicable and in any event, on or before the 120th day after the Shelf
Registration Event Date or, if later, the 300th day after the Closing Date. No
Holder of Registrable Notes shall be entitled to include any of its Registrable
Notes in any Shelf Registration pursuant to this Agreement unless and until such
Holder agrees in writing to be bound by all of the provisions of this Agreement
applicable to such Holder and furnishes to the Company in writing, within 15
days after receipt of a request therefor, such information as the Company may,
after conferring with counsel with regard to information relating to Holders
that would be required by the SEC to be included in such Shelf Registration
Statement or Prospectus included therein, reasonably request for inclusion in
any Shelf Registration Statement or Prospectus included therein. Each Holder as
to which any Shelf Registration is being effected agrees to furnish to the
Company, without request and as soon as practicable, all information with
respect to such Holder necessary to make the information previously furnished to
the Company by such Holder not materially misleading.

          The Company agrees to use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective and the Prospectus usable
for resales for the earlier of: (x) the expiration of the Rule 144(k) Period or
(y) such time as all of the Notes covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement or cease to be
Registrable Notes (the period from the effective date of the Shelf Registration
Statement until the earlier of the events described in clauses (x) or (y) being
the "Effectiveness Period").  The Company shall not permit any securities other
     --------------------
than Registrable Notes to be included in the Shelf Registration.  The Company
will, in the event a Shelf Registration Statement is declared effective, provide
to each Holder of Registrable Notes covered thereby, a reasonable number of
copies of the Prospectus which is a part of the Shelf Registration Statement,
notify each such Holder when the Shelf Registration has become effective and
take any other action required to permit unrestricted resales of the Registrable
Notes.  The Company further agrees to supplement or amend the Shelf Registration
Statement, 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 registrations, and the Company agrees to furnish to the Holders of
Registrable Notes covered by such Shelf Registration Statement copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.

          (c)  Expenses.  The Company shall pay all Registration Expenses in
               --------
connection with any Registration Statement filed pursuant to Section 2(a) and/or
2(b) hereof and will reimburse the Initial Purchasers for the reasonable fees
and disbursements Simpson Thacher & Bartlett incurred in connection with the
Exchange Offer.  Except as provided herein, each Holder shall pay all expenses
of its counsel, underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of such Holder's Registrable Notes
pursuant to the Shelf Registration Statement.

          (d)  Effective Registration Statement.  An Exchange Offer Registration
               --------------------------------
Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement
pursuant to Section 2(b) hereof

                                       7
<PAGE>

will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
                      --------  -------
effective, the offering of Registrable Notes pursuant to such Exchange Offer
Registration Statement or Shelf Registration Statement is interfered with by any
stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Exchange Offer Registration Statement or
Shelf Registration Statement will be deemed not to have been effective during
the period of such interference, until the offering of Registrable Notes
pursuant to such Registration Statement may legally resume. The Company will be
deemed not to have used its reasonable best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
to become, or to remain, effective during the requisite period if it voluntarily
takes any action that would result in any such Registration Statement not being
declared effective or that would result in the otherwise eligible Holders of
Registrable Notes covered thereby not being able to exchange or offer and sell
such Registrable Notes during that period, unless such action is required by
applicable law or regulation or permitted by Section 2(b)(iv)(B).

          (e)  Special Interest Premium.  In the event that:
               ------------------------

          (i)  the Exchange Offer Registration Statement is not filed with the
SEC on or prior to the 180th day after the Closing Date, then, commencing on the
181st day after the Closing Date, a special interest premium (the "Special
                                                                   -------
Interest Premium") shall accrue on the principal amount of the Notes at a rate
----------------
of 0.50% per annum;

          (ii)  the Exchange Offer Registration Statement is not declared
effective by the SEC on or prior to the 270th day after the Closing Date, then,
commencing on the 271st day after the Closing Date, a Special Interest Premium
shall accrue on the principal amount of the Notes at a rate of 0.50% per annum;

          (iii) (A) the Company has not exchanged Exchange Notes for all Notes
validly tendered, in accordance with the terms of the Exchange Offer, on or
prior to the 300th day after the Closing Date or (B) if the Shelf Registration
Statement is required to be filed pursuant to Section 2(b) but is not declared
effective by the SEC on or prior to the 300th day after the Closing Date, then,
commencing on the 301st day after the Closing Date, a Special Interest Premium
shall accrue on the principal amount of the Notes at the rate of 0.50% per
annum; or

          (iv) the Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be continuously effective or the
Prospectus contained in such Shelf Registration Statement ceases to be usable
for resales (A) at any time prior to the expiration of the Effectiveness Period
or (B) if related to corporate developments, public filings with the SEC or
similar events or because the Prospectus contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, and such
failure continues for more than 60 days (whether or not consecutive and whether
or not arising out of a single or multiple circumstances) in any twelve-month
period, then the Special Interest Premium shall accrue on the principal amount
of the Notes at a rate of 0.50% per annum commencing on the day that (in the
case of (A) above), or the 61st (cumulative) day after (in the case of (B)
above), such Shelf Registration Statement ceases to be effective or the
Prospectus ceases to be usable for resales;

                                       8
<PAGE>

provided, however, that the aggregate amount of the Special Interest Premium in
--------  -------
respect of the Notes may not exceed 0.50% per annum (regardless of whether
multiple events triggering a Special Interest Premium under this subsection (e)
exist); provided, further, however, that (1) upon the filing of the Exchange
        --------  -------  -------
Offer Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement (in the case of
clause (ii) above), (3) upon the exchange of Exchange Notes for all Notes
validly tendered (in the case of clause (iii)(A) above) or upon the
effectiveness of the Shelf Registration Statement (in the case of clause
(iii)(B) above) and (4) upon the earlier of (y) such time as the Shelf
Registration Statement which had ceased to remain effective or the Prospectus
which had ceased to be usable for resales again becomes effective and usable for
resales, as applicable, and (z) the expiration of the Effectiveness Period (in
each case of clause (iv) above), the Special Interest Premium on the principal
amount of the Notes as a result of such clause (or the relevant subclause
thereof) shall cease to accrue; provided, further, however, that if the Exchange
Offer Registration Statement is not declared effective by the SEC on or prior to
the 300th day after the Closing Date and the Company shall request Holders to
provide the information required by the SEC for inclusion in the Shelf
Registration Statement, the Notes owned by Holders who do not provide such
information when required pursuant to Section 2(b) will not be entitled to any
Special Interest Premium for any day after the 300th day after the Closing Date,
regardless of the existence of any events which would otherwise trigger a
Special Interest Premium under this subsection (e) for such Holders.

          Any Special Interest Premium due pursuant to Section 2(e)(i), (ii),
(iii) or (iv) above will be payable in cash on the next succeeding May 15 or
November 15, as the case may be, to eligible Holders (as determined under this
subsection (e)) on the relevant record dates for the payment of interest
pursuant to the Indenture.

          (f)  Specific Enforcement.  Without limiting the remedies available to
               --------------------
the Holders, the Company acknowledges that any failure by the Company to comply
with its obligations under Section 2(a) and Section 2(b) hereof may result in
material irreparable injury to the Holders for which there is no adequate remedy
at law, that it would not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, any Holder may obtain such
relief as may be required to specifically enforce the Company's obligations
under Section 2(a) and Section 2(b) hereof.

          3.  Registration Procedures.  In connection with the obligations of
              -----------------------
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:

          (a)  prepare and file with the SEC a Registration Statement or
          Registration Statements as prescribed by Sections 2(a) and 2(b) hereof
          within the relevant time period specified in Section 2 hereof on the
          appropriate form under the Securities Act, which form shall (i) be
          selected by the Company, (ii) in the case of a Shelf Registration, be
          available for the sale of the Registrable Notes by the selling Holders
          thereof and, in the case of an Exchange Offer, be available for the
          exchange of Registrable Notes, and (iii) comply as to form in all
          material respects

                                       9
<PAGE>

          with the requirements of the applicable form 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 (and, in the case of a Shelf
          Registration Statement, the Prospectus to be usable for resales) in
          accordance with Section 2 hereof; provided, however, that if (1) such
                                            --------  -------
          filing is pursuant to Section 2(b), or (2) a Prospectus contained in
          an Exchange Offer Registration Statement filed pursuant to Section
          2(a) is required to be delivered under the Securities Act by any
          Participating Broker-Dealer who seeks to sell Exchange Notes, before
          filing any Registration Statement or Prospectus or any amendments or
          supplements thereto, the Company shall furnish to and afford the
          Holders of the Registrable Notes and each such Participating Broker-
          Dealer, as the case may be, covered by such Registration Statement,
          their counsel and the managing underwriters, if any, a reasonable
          opportunity to review copies of all such documents (including copies
          of any documents to be incorporated by reference therein and all
          exhibits thereto) proposed to be filed; and the Company shall not file
          any Registration Statement or Prospectus or any amendments or
          supplements thereto in respect of which the Holders must be afforded
          an opportunity to review prior to the filing of such document if the
          Majority Holders of the Registrable Notes, depending solely upon which
          Holders must be afforded the opportunity of such review, or such
          Participating Broker-Dealer, as the case may be, their counsel or the
          managing underwriters, if any, shall reasonably object in a timely
          manner;

          (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 Effectiveness Period or
          the Applicable Period, as the case may be, and cause each Prospectus
          to be supplemented, if so determined by the Company or requested by
          the SEC, by any required prospectus supplement and as so supplemented
          to be filed pursuant to Rule 424 (or any similar provision then in
          force) under the Securities Act, and comply with the provisions of the
          Securities Act, the Exchange Act and the rules and regulations
          promulgated thereunder applicable to it with respect to the
          disposition of all Notes covered by each Registration Statement during
          the Effectiveness Period or the Applicable Period, as the case may be,
          in accordance with the intended method or methods of distribution by
          the selling Holders thereof described in this Agreement (including
          sales by any Participating Broker-Dealer);

          (c)  in the case of an Exchange Offer Registration Statement, if in
          the reasonable opinion of counsel to the Company there is a question
          as to whether the Exchange Offer is permitted by applicable law, seek
          a no-action letter or other favorable decision from the SEC allowing
          the Company to consummate an Exchange Offer for such Notes.  The
          Company hereby agrees to pursue the issuance of such a decision to the
          SEC staff level but shall not be required to take commercially
          unreasonable action to effect a change of SEC  policy.  The Company
          hereby agrees, however, to (i) participate in telephonic conferences
          with the SEC, (ii) deliver to the SEC staff an analysis prepared by
          counsel to the Company setting

                                       10
<PAGE>

          forth the legal bases, if any, upon which such counsel has concluded
          that such an Exchange Offer should be permitted and (iii) diligently
          pursue a resolution (which need not be favorable) by the SEC staff of
          such submission;

          (d)  in the case of an Exchange Offer Registration Statement, prior to
          the effectiveness of such statement, provide a supplemental letter to
          the SEC (i) stating that the Company is registering the Exchange Offer
          in reliance on the position of the SEC enunciated in Exxon Capital
                                                               -------------
          Holdings Corporation (available May 13, 1988), Morgan Stanley and Co.,
          --------------------                           -----------------------
          Inc. (available June 5, 1991), Brown & Wood LLP (available February 7,
          ----                           ----------------
          1997) and, if applicable, any no-action letter obtained pursuant to
          Section 3(c) and (ii) including a representation that the Company has
          not entered into any arrangement or understanding with any Person to
          distribute the Exchange Notes to be received in the Exchange Offer and
          that, to the best of the Company's information and belief, each Holder
          participating in the Exchange Offer is acquiring the Exchange Notes in
          its ordinary course of business and has no arrangement or
          understanding with any Person to participate in the distribution of
          the Exchange Notes received in the Exchange Offer;

          (e)  in the case of a Shelf Registration, (i) notify each Holder of
          Registrable Notes included in the Shelf Registration Statement, at
          least three Business Days prior to filing, that a Shelf Registration
          Statement with respect to the Registrable Notes is being filed and
          advising such Holder that the distribution of Registrable Notes will
          be made in accordance with the method selected by the Majority Holders
          of the Registrable Notes, (ii) furnish to each Holder of Registrable
          Notes included in the Shelf Registration Statement and to each
          underwriter of an underwritten offering of Registrable Notes, if any,
          without charge, as many copies of each Prospectus, including each
          preliminary prospectus, and any amendment or supplement thereto, and
          such other documents as such Holder or underwriter may reasonably
          request, in order to facilitate the public sale or other disposition
          of the Registrable Notes and (iii) consent to the use of the
          Prospectus or any amendment or supplement thereto by each of the
          selling Holders of Registrable Notes included in the Shelf
          Registration Statement in connection with the offering and sale of the
          Registrable Notes covered by the Prospectus or any amendment or
          supplement thereto;

          (f)  in the case of a Shelf Registration, register or qualify the
          Registrable Notes under all applicable state securities or "blue sky"
          laws of such jurisdictions by the time the applicable Registration
          Statement is declared effective by the SEC as any Holder of
          Registrable Notes covered by a Registration Statement and each
          underwriter of an underwritten offering of Registrable Notes shall
          reasonably request in writing in advance of such date of
          effectiveness, and do any and all other acts and things which may be
          reasonably necessary or advisable to enable such Holder and
          underwriter to consummate the disposition in each such jurisdiction of
          such Registrable Notes owned by such Holder; provided, however, that
                                                       --------  -------
          the Company shall not be required to (i) qualify as a foreign
          corporation or as a dealer in securities in any jurisdiction where it
          would not otherwise be required

                                       11
<PAGE>

          to qualify but for this Section 3(f), (ii) file any general consent to
          service of process in any jurisdiction where it would not otherwise be
          subject to such service of process or (iii) subject itself to taxation
          in any such jurisdiction if it is not then so subject;

          (g)  (1) in the case of a Shelf Registration or (2) if Participating
          Broker-Dealers from whom the Company has received prior written notice
          that they will be utilizing the Prospectus contained in the Exchange
          Offer Registration Statement as provided in Section 3(u) hereof, are
          seeking to sell Exchange Notes and are required to deliver
          Prospectuses, promptly notify each Holder of Registrable Notes, or
          such Participating Broker-Dealers, as the case may be, their counsel
          and the managing underwriters, if any, and promptly confirm such
          notice in writing (i) when a Registration Statement has become
          effective and when any post-effective amendments thereto become
          effective, (ii) of any request by the SEC or any state securities
          authority for amendments and supplements to a Registration Statement
          or 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 qualification of the
          Registrable Notes or the Exchange Notes to be offered or sold by any
          Participating Broker-Dealer in any jurisdiction described in Section
          3(f) hereof or the initiation of any proceedings for that purpose,
          (iv) in the case of a Shelf Registration, if, between the effective
          date of a Registration Statement and the closing of any sale of
          Registrable Notes covered thereby, the representations and warranties
          of the Company contained in any purchase agreement, securities sales
          agreement or other similar agreement cease to be true, correct and
          complete in all material respects, (v) of the happening of any event
          or the failure of any event to occur or the discovery of any facts,
          during the Effectiveness Period, which makes any statement made in
          such Registration Statement or the related Prospectus untrue in any
          material respect or which causes such Registration Statement or
          Prospectus to omit to state a material fact necessary in order to make
          the statements therein, in the light of the circumstances under which
          they were made, not misleading, as well as any other corporate
          developments, public filings with the SEC or similar events causing
          such Registration Statement not to be effective or the Prospectus not
          to be useable for resales and (vi) of the reasonable determination of
          the Company that a post-effective amendment to the Registration
          Statement would be appropriate;

          (h)  obtain the withdrawal of any order suspending the effectiveness
          of a Registration Statement as soon as practicable;

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

                                       12
<PAGE>

          (j)  in the case of a Shelf Registration, cooperate with the selling
          Holders of Registrable Notes to facilitate the timely preparation and
          delivery of certificates representing Registrable Notes to be sold and
          not bearing any restrictive legends (except any customary legend borne
          by securities held through The Depository Trust Company or any similar
          depository) and in such denominations (consistent with the provisions
          of the Indenture and the officer's certificate establishing the forms
          and the terms of the Notes pursuant to the Indenture) and registered
          in such names as the selling Holders or the underwriters may
          reasonably request (provided such names are consistent with the names
          of the selling securityholders set forth in the Shelf Registration
          Statement) at least two Business Days prior to the closing of any sale
          of Registrable Notes pursuant to such Shelf Registration Statement;

          (k)  in the case of a Shelf Registration or an Exchange Offer
          Registration, promptly after the occurrence of any event specified in
          Section 3(g)(ii), 3(g)(iii), 3(g)(v) (subject to the 60-day cumulative
          grace period within any twelve-month period provided for in Section
          2(e)(iv)(B)) or 3(g)(vi) hereof, prepare a supplement or post-
          effective amendment to such 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 the
          purchasers of the Registrable Notes, such Prospectus will not include
          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 each Holder to suspend use of the Prospectus as
          promptly as practicable after the occurrence of such an event, and
          each Holder hereby agrees to suspend use of the Prospectus until the
          Company has amended or supplemented the Prospectus to correct such
          misstatement or omission;

          (l)  obtain a CUSIP number, and any other appropriate security
          identification number, for the Exchange Notes or the Registrable
          Notes, as the case may be, not later than the effective date of a
          Registration Statement, and provide the Trustee with certificates for
          the Exchange Notes or the Registrable Notes, as the case may be, in a
          form eligible for deposit with the Depositary;

          (m)  cause the Indenture to be qualified under the Trust Indenture Act
          of 1939, as amended (the "TIA"), in connection with the registration
                                    ---
          of the Exchange Notes or Registrable Notes, as the case may be, and
          effect such changes to such documents as may be required for them to
          be so qualified in accordance with the terms of the TIA and execute,
          and 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 such documents to be so qualified in a
          timely manner;

          (n)  in the case of a Shelf Registration, enter into such agreements
          (including underwriting agreements) as are customary in underwritten
          offerings and take all such other appropriate actions in connection
          therewith as are reasonably requested

                                       13
<PAGE>

          by the Holders of at least 25% in aggregate principal amount of the
          Registrable Notes in order to expedite or facilitate the registration
          or the disposition of the Registrable Notes;

          (o)  in the case of a Shelf Registration, whether or not an
          underwriting agreement is entered into and whether or not the
          registration is an underwritten registration, if requested by (x) an
          Initial Purchaser, in the case where such Initial Purchaser holds
          Notes acquired by it as part of its initial placement, or (y) Holders
          of at least 25% in aggregate principal amount of the Registrable Notes
          covered thereby: (i) make such representations and warranties to
          Holders of such Registrable Notes and the underwriters (if any), with
          respect to the business of the Company as then conducted and the
          Registration Statement, Prospectus and documents, if any, incorporated
          or deemed to be incorporated by reference therein, in each case, as
          are customarily made by issuers to underwriters in underwritten
          offerings, and confirm the same if and when requested; (ii) obtain
          opinions of counsel to the Company and updates thereof (which may be
          in the form of a reliance letter) in form and substance reasonably
          satisfactory to the managing underwriters (if any) and the Holders of
          a majority in amount of the Registrable Notes being sold, addressed to
          each selling Holder and the underwriters (if any) covering the matters
          customarily covered in opinions requested in underwritten offerings
          and such other matters as may be reasonably requested by such
          underwriters (it being agreed that the matters to be covered by such
          opinion may be subject to customary qualifications and exceptions);
          (iii) obtain "cold comfort" letters and updates thereof in form and
          substance reasonably satisfactory to the managing underwriters from
          the independent certified public accountants of the Company, addressed
          to each of the underwriters, such letters to be in customary form and
          covering matters of the type customarily covered in "cold comfort"
          letters in connection with underwritten offerings and such other
          matters as reasonably requested by such underwriters in accordance
          with Statement on Auditing Standards No. 72; and (iv) if an
          underwriting agreement is entered into, the same shall contain
          indemnification provisions and procedures no less favorable than those
          set forth in Section 4 hereof (or such other provisions and procedures
          acceptable to Holders of a majority in aggregate principal amount of
          Registrable Notes covered by such Registration Statement and the
          managing underwriters) customary for such agreements with respect to
          all parties to be indemnified pursuant to said Section (including,
          without limitation, such underwriters and selling Holders); and in the
          case of an underwritten registration, the above requirements shall be
          satisfied at each closing under the related underwriting agreement or
          as and to the extent required thereunder;

          (p)  if (1) a Shelf Registration is filed pursuant to Section 2(b) or
          (2) a Prospectus contained in an Exchange Offer Registration Statement
          filed pursuant to Section 2(a) is required to be delivered under the
          Securities Act by any Participating Broker-Dealer who seeks to sell
          Exchange Notes during the Applicable Period, make reasonably available
          for inspection by any selling Holder of Registrable Notes or
          Participating Broker-Dealer, as applicable, who certifies to the
          Company

                                       14
<PAGE>

          that it has a current intention to sell Registrable Notes pursuant to
          the Shelf Registration, any underwriter participating in any such
          disposition of Registrable Notes, if any, and any attorney, accountant
          or other agent retained by any such selling Holder, Participating
          Broker-Dealer, as the case may be, or underwriter (collectively, the
          "Inspectors"), at the offices where normally kept, during the
           ----------
          Company's normal business hours, all financial and other records,
          pertinent organizational and operational documents and properties of
          the Company and the Parent (collectively, the "Records") as shall be
                                                         -------
          reasonably necessary to enable them to conduct due diligence
          activities, and cause the officers, trustees and employees of the
          Company and the Parent to supply all relevant information in each case
          reasonably requested by any such Inspector in connection with such
          Registration Statement; Records and information which the Company
          determines, in good faith, to be confidential and any Records and
          information which it notifies the Inspectors are confidential shall
          not be disclosed to any Inspector except where (i) the disclosure of
          such Records or information is necessary to avoid or correct a
          material misstatement or omission in such Registration Statement, (ii)
          the release of such Records or information is ordered pursuant to a
          subpoena or other order from a court of competent jurisdiction or is
          necessary in connection with any action, suit or proceeding or (iii)
          such Records or information previously has been made generally
          available to the public; each selling Holder of such Registrable Notes
          and each such Participating Broker-Dealer will be required to agree in
          writing that Records and information obtained by it as a result of
          such inspections shall be deemed confidential and shall not be used by
          it as the basis for any market transactions in the securities of the
          Company unless and until such is made generally available to the
          public through no fault of an Inspector or a selling Holder; and each
          selling Holder of such Registrable Notes and each such Participating
          Broker-Dealer will be required to further agree in writing that it
          will, upon learning that disclosure of such Records or information is
          sought in a court of competent jurisdiction, or in connection with any
          action, suit or proceeding, give notice to the Company and allow the
          Company at its expense to undertake appropriate action to prevent
          disclosure of the Records and information deemed confidential;

          (q)  comply with all applicable rules and regulations of the SEC so
          long as any provision of this Agreement shall be applicable and make
          generally available to its security holders earning statements
          satisfying the provisions of Section 11(a) of the Securities Act and
          Rule 158 thereunder (or any similar rule promulgated under the
          Securities Act) no later than 45 days after the end of any 12-month
          period (or 90 days after the end of any 12-month period if such period
          is a fiscal year) (i) commencing at the end of any fiscal quarter in
          which Registrable Notes are sold to underwriters in a firm commitment
          or best efforts underwritten offering and (ii) if not sold to
          underwriters in such an offering, commencing on the first day of the
          first fiscal quarter of the Company after the effective date of a
          Registration Statement, which statements shall cover said 12-month
          periods, provided that the obligations under this paragraph (q) shall
          be satisfied by the

                                       15
<PAGE>

          timely filing of quarterly and annual reports on Forms 10-Q and 10-K
          under the Exchange Act;

          (r)  if an Exchange Offer is to be consummated, upon delivery of the
          Registrable Notes by Holders to the Company (or to such other Person
          as directed by the Company ), in exchange for the Exchange Notes, the
          Company shall mark, or cause to be marked, on such Notes delivered by
          such Holders that such Notes are being cancelled in exchange for the
          Exchange Notes; it being understood that in no event shall such Notes
          be marked as paid or otherwise satisfied;

          (s)  cooperate with each seller of Registrable Notes covered by any
          Registration Statement and each underwriter, if any, participating in
          the disposition of such Registrable Notes and their respective counsel
          in connection with any filings required to be made with the NASD;

          (t)  take all other steps necessary to effect the registration of the
          Registrable Notes covered by a Registration Statement contemplated
          hereby;

          (u)  (A)  in the case of the Exchange Offer Registration Statement (i)
          include in the Exchange Offer Registration Statement a section
          entitled "Plan of Distribution," which section shall be reasonably
          acceptable to the Initial Purchasers or another representative of the
          Participating Broker-Dealers, and which shall contain a summary
          statement of the positions taken or policies made by the staff of the
          SEC with respect to the potential "underwriter" status of any broker-
          dealer that holds Registrable Notes acquired for its own account as a
          result of market-making activities or other trading activities (a
          "Participating Broker-Dealer") and that will be the beneficial owner
          ----------------------------
          (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes to
          be received by such broker-dealer in the Exchange Offer, whether such
          positions or policies have been publicly disseminated by the staff of
          the SEC or such positions or policies, in the reasonable judgment of
          the Initial Purchasers or such other representative, represent the
          prevailing views of the staff of the SEC, including a statement that
          any such broker-dealer who receives Exchange Notes for Registrable
          Notes pursuant to the Exchange Offer may be deemed a statutory
          underwriter and must deliver a prospectus meeting the requirements of
          the Securities Act in connection with any resale of such Exchange
          Notes, (ii) furnish to each Participating Broker-Dealer who has
          delivered to the Company the notice referred to in Section 3(g),
          without charge, as many copies of each Prospectus included in the
          Exchange Offer Registration Statement, including any preliminary
          Prospectus, and any amendment or supplement thereto, as such
          Participating Broker-Dealer may reasonably request (the Company hereby
          consents to the use of the Prospectus forming part of the Exchange
          Offer Registration Statement or any amendment or supplement thereto by
          any Person subject to the prospectus delivery requirements of the
          Securities Act, including all Participating Broker-Dealers, in
          connection with the sale or transfer of the Exchange Notes covered by
          the Prospectus or any amendment or supplement thereto), (iii) use its
          reasonable best efforts to keep the

                                       16
<PAGE>

          Exchange Offer Registration Statement effective and to amend and
          supplement the Prospectus contained therein in order to permit such
          Prospectus to be lawfully delivered by all Persons subject to the
          prospectus delivery requirements of the Securities Act for such period
          of time as such Persons must comply with such requirements under the
          Securities Act and applicable rules and regulations in order to resell
          the Exchange Notes; provided, however, that such period shall not be
                              --------  -------
          required to exceed 210 days (or such longer period if extended
          pursuant to the last sentence of Section 3 hereof) (the "Applicable
                                                                   ----------
          Period"), and (iv) include in the transmittal letter or similar
          ------
          documentation to be executed by an exchange offeree in order to
          participate in the Exchange Offer (x) the following provision:

          "If the exchange offeree is a broker-dealer
          holding Registrable Notes acquired for its own
          account as a result of market-making activities or
          other trading activities, it will deliver a
          prospectus meeting the requirements of the
          Securities Act in connection with any resale of
          Exchange Notes received in respect of such
          Registrable Notes pursuant to the Exchange Offer";

          and (y) a statement to the effect that by a Participating Broker-
          Dealer making the acknowledgment described in clause (x) and by
          delivering a Prospectus in connection with the exchange of Registrable
          Notes, the Participating Broker-Dealer will not be deemed to admit
          that it is an underwriter within the meaning of the Securities Act;
          and

          (B) in the case of any Exchange Offer Registration Statement, the
          Company agrees to deliver to the Initial Purchasers or to another
          representative of the Participating Broker-Dealers, if reasonably
          requested by an Initial Purchaser or such other representative of
          Participating Broker-Dealers, on behalf of the Participating Broker-
          Dealers upon consummation of the Exchange Offer (i) an opinion of
          counsel in form and substance reasonably satisfactory to such Initial
          Purchaser or such other representative of the Participating Broker-
          Dealers, covering the matters customarily covered in opinions
          requested in connection with Exchange Offer Registration Statements
          and such other matters as may be reasonably requested (it being agreed
          that the matters to be covered by such opinion may be subject to
          customary qualifications and exceptions), (ii) an officer's
          certificate substantially similar to that specified in Section 7(i) of
          the Purchase Agreement and such additional certifications as are
          customarily delivered in a public offering of debt Notes and (iii)
          upon the effectiveness of the Exchange Offer Registration Statement,
          comfort letters, in each case, in customary form if permitted by
          Statement on Auditing Standards No. 72.

          The Company may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Company such information
regarding such seller as may be required by the staff of the SEC to be included
in a Registration Statement. The Company may exclude from such registration the
Registrable Notes of any seller who unreasonably fails to furnish such
information within a reasonable time after receiving such

                                       17
<PAGE>

request. The Company shall have no obligation to register under the Securities
Act the Registrable Notes of a seller who so fails to furnish such information.

          In the case of a Shelf Registration Statement, or if Participating
Broker-Dealers who have notified the Company that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as provided in
this Section 3(u) are seeking to sell Exchange Notes and are required to deliver
Prospectuses, each Holder agrees that, upon receipt of any notice from the
Company of the occurrence of any event specified in Section 3(g)(ii), 3(g)(iii),
3(g)(v) or 3(g)(vi) hereof, such Holder will forthwith discontinue disposition
of Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(k) hereof or until it is advised in writing (the "Advice") by the
                                                            ------
Company that the use of the applicable Prospectus may be resumed, and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies in such Holder's possession, other than permanent
file copies then in such Holder's possession, of the Prospectus covering such
Registrable Notes or Exchange Notes, as the case may be, current at the time of
receipt of such notice. If the Company shall give any such notice to suspend the
disposition of Registrable Notes or Exchangeable Notes, as the case may be,
pursuant to a Registration Statement, the Company shall use its reasonable best
efforts to file and have declared effective (if an amendment), as soon as
practicable after the resolution of the related matters, an amendment or
supplement to the Registration Statement and shall extend the period during
which such Registration Statement is required to be maintained effective and the
Prospectus usable for resales pursuant to this Agreement by the number of days
in the period from and including the date of the giving of such notice to and
including the date when the Company shall have made available to the Holders (x)
copies of the supplemented or amended Prospectus necessary to resume such
dispositions or (y) the Advice.

          4.      Indemnification and Contribution. (a) In connection with a
                  --------------------------------
Shelf Registration Statement or in connection with any delivery of a Prospectus
contained in an Exchange Offer Registration Statement by any Participating
Broker-Dealer or Initial Purchaser, as applicable, who seeks to sell Exchange
Notes, the Company shall indemnify and hold harmless each Holder of Registrable
Notes included within any such Shelf Registration Statement and each
Participating Broker-Dealer or Initial Purchaser selling Exchange Notes, and
each Person, if any, who controls any such Person within the meaning of Section
15 of the Securities Act:

          (i)   against any and all loss, liability, claim, damage and expense
          whatsoever, as incurred, arising out of, or based upon, any untrue
          statement or alleged untrue statement of a material fact contained in
          any Registration Statement (or any amendment or supplement thereto),
          covering Registrable Notes or Exchange Notes, as applicable, or the
          omission or alleged omission therefrom of a material fact required to
          be stated or necessary in order to make the statements therein not
          misleading or arising out of any untrue statement or alleged untrue
          statement of a material fact contained in any Prospectus, or the
          omission or alleged omission therefrom of a material fact necessary in
          order to make the statements therein, in the light of the
          circumstances under which they were made, not misleading;

                                       18
<PAGE>

          (ii)  against any and all loss, liability, claim, damage and expense
          whatsoever, as incurred, to the extent of the aggregate amount paid in
          settlement of any litigation, or any investigation or proceeding by
          any governmental agency or body, commenced or threatened, or of any
          claim whatsoever based upon any such untrue statement or omission, or
          any such alleged untrue statement or omission; provided that any such
          settlement is effected with the prior written consent of the Company;
          and

          (iii) against any and all expenses whatsoever, as incurred (including
          the reasonable fees and disbursements of counsel chosen by such
          Holder, such Participating Broker-Dealer, or any underwriter (except
          to the extent otherwise expressly provided in Section 4(c) hereof)),
          reasonably incurred in investigating, preparing or defending against
          any litigation, or any investigation or proceeding by any governmental
          agency or body, commenced or threatened, or any claim whatsoever based
          upon any such untrue statement or omission, or any such alleged untrue
          statement or omission, to the extent that any such expense is not paid
          under subparagraph (i) or (ii) of this Section 4(a);

provided, however, that this indemnity does not apply to any loss, liability,
--------  -------
claim, damage or expense to the extent arising out of (i) an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished in writing to the Company by the
Initial Purchasers or any Holder, underwriter or Participating Broker-Dealer for
use in a Registration Statement (or any amendment thereto) or any Prospectus (or
any amendment or supplement thereto) or (ii) the failure of any Holder to comply
with the provisions of the last paragraph of Section 3.

          (b)  Each of the Initial Purchasers and each Holder, underwriter or
Participating Broker-Dealer agrees, severally and not jointly, to indemnify and
hold harmless the Company and each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any and all loss, liability, claim, damage and expense
whatsoever described in the indemnity contained in Section 4(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Initial Purchaser, Holder, underwriter or Participating Broker-
Dealer expressly for use in such Registration Statement (or any amendment
thereto), or any such Prospectus (or any amendment or supplement thereto);
provided, however, that in the case of a Shelf Registration Statement, no such
--------  -------
Holder shall be liable for any claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Registrable Notes pursuant to
such Shelf Registration Statement.

          (c)  Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have under this Section 4 to the extent that it is
not materially prejudiced by such failure as a result thereof, and in any event
shall not relieve it

                                       19
<PAGE>

from liability which it may have otherwise on account of this Agreement. In the
case of parties indemnified pursuant to Section 4(a) or (b) above, counsel to
the indemnified parties shall be selected by such parties. An indemnifying party
may participate at its own expense in the defense of such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for the fees and expenses of
more than one counsel (in addition to local counsel), separate from their own
counsel, for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional written
release of each indemnified party from all liability arising out of such
litigation, investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.

          (d)    In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unenforceable by an indemnified party
although applicable in accordance with its terms, the Company and the Holders
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by the
Company and the Holders, as incurred; provided, however, that no Person guilty
                                      --------  -------
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person that was not
guilty of such fraudulent misrepresentation.  As between the Company and the
Holders, such parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by this Agreement in
such proportion as shall be appropriate to reflect the relative fault of the
Company, on the one hand, and the Holders, on the other hand, with respect to
the statements or omissions which resulted in such loss, liability, claim,
damage or expense, or action in respect thereof, as well as any other relevant
equitable considerations.  The relative fault of the Company, on the one hand,
and of the Holders, on the other hand, 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, on the one hand, or by or on behalf of the
Holders, on the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 4 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the relevant equitable considerations.  For purposes of this Section 4, each
Affiliate of a Holder, and each director, officer and employee and Person, if
any, who controls a Holder or such Affiliate within the meaning of Section 15 of
the Securities Act or Section 20

                                       20
<PAGE>

of the Exchange Act shall have the same rights to contribution as such Holder
and each Person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company.

          5.   Participation in an Underwritten Registration.  No Holder may
               ---------------------------------------------
participate in an underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Notes on the basis provided in the
underwriting arrangement approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up letters and
other documents reasonably required under the terms of such underwriting
arrangements.

          6.   Selection of Underwriters.  The Holders of Registrable Notes
               -------------------------
covered by the Shelf Registration Statement who desire to do so may sell the
Notes covered by such Shelf Registration in an underwritten offering, subject to
the provisions of Section 3(l) hereof. In any such underwritten offering, the
underwriter or underwriters and manager or managers that will administer the
offering will be selected by the Holders of a majority in aggregate principal
amount of the Registrable Notes included in such offering; provided, however,
                                                           --------  -------
that such underwriters and managers must be reasonably satisfactory to the
Company.

          7.     Miscellaneous.
                 -------------

          (a)  Rule 144 and Rule 144A.  For so long as the Company is subject to
               ----------------------
the reporting requirements of Section 13 or 15 of the Exchange Act and any
Registrable Notes remain outstanding, the Company will file the reports required
to be filed by it under the Securities Act and Section 13(a) or 15(d) of the
Exchange Act and the rules and regulations adopted by the SEC thereunder;
provided, however, that if the Company ceases to be so required to file such
--------  -------
reports, it will, upon the request of any Holder of Registrable Notes, (a) make
publicly available such information as is necessary to permit sales of its
securities pursuant to Rule 144 under the Securities Act, (b) deliver such
information to a prospective purchaser as is necessary to permit sales of its
securities pursuant to Rule 144A under the Securities Act, and (c) take such
further action that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Registrable
Notes without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such rule may
be amended from time to time, (ii) Rule 144A under the Securities Act, as such
rule may be amended from time to time, or (iii) any similar rules or regulations
hereafter adopted by the SEC.  Upon the request of any Holder of Registrable
Notes, the Company will deliver to such Holder a written statement as to whether
it has complied with such requirements.

                                       21
<PAGE>

          (b)  No Inconsistent Agreements.  The Company and the Parent have not
               --------------------------
entered into, nor will the Company or the Parent on or after the date of this
Agreement enter into, any agreement which is inconsistent with the rights
granted to the Holders of Registrable Notes in this Agreement or otherwise
conflicts with the provisions hereof without the written consent of Holders of a
majority in aggregate principal amount of the outstanding Registrable Notes.
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 the Company's or
the Parent's other issued and outstanding securities under any such agreements.

          (c)  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 a majority in aggregate principal amount of the outstanding Registrable Notes
affected by such amendment, modification, supplement, waiver or departure;
provided that no amendment, modification or supplement or waiver or consent to
--------
the departure with respect to the provisions of Section 4 hereof shall be
effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder of Registrable Notes.  Notwithstanding the foregoing
sentence, (i) this Agreement may be amended, without the consent of any Holder
of Registrable Notes, by written agreement signed by the Company and the Initial
Purchasers, to cure any ambiguity, correct or supplement any provision of this
Agreement that may be inconsistent with any other provision of this Agreement or
to make any other provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with other provisions of this
Agreement, (ii) this Agreement may be amended, modified or supplemented, and
waivers and consents to departures from the provisions hereof may be given, by
written agreement signed by the Company and the Initial Purchasers to the extent
that any such amendment, modification, supplement, waiver or consent is, in
their reasonable judgment, necessary or appropriate to comply with applicable
law and regulation (including any interpretation of the Staff of the SEC) or any
change therein and (iii) to the extent any provision of this Agreement relates
to an Initial Purchaser, such provision may be amended, modified or
supplemented, and waivers or consents to departures from such provisions may be
given, by written agreement signed by such Initial Purchaser and the Company.

          (d)  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 7(d), which address initially is, with respect to the Initial
Purchasers:

          c/o Lehman Brothers Inc.
          3 World Financial Center
          New York, NY 10285
          Attention: Debt Capital Markets, Power Group

and (ii) if to the Company, initially at the Company's address:

          PG&E National Energy Group, Inc.
          7500 Old Georgetown Road
          Bethesda, MD 20814
          Attn:  General Counsel

and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 7(d).

                                       22
<PAGE>

          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.

          (e)  Successors and Assigns.  This Agreement shall inure to the
               ----------------------
benefit of and be binding upon the successors, assigns and transferees of the
Initial Purchasers, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
                                        --------  -------
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Notes in violation of the terms of the Purchase Agreement or the
Indenture.  If any transferee of any Holder shall acquire Registrable Notes in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, 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.

          (f)  Third Party Beneficiaries.  Each Holder and any Participating
               -------------------------
Broker-Dealer shall be third party beneficiaries of the agreements made
hereunder among the Initial Purchasers and the Company, and the Initial
Purchasers 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 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.

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

          (i)  GOVERNING LAW.  THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE
               -------------
IN THE STATE OF NEW YORK.  THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

          (j)  Severability.  In the event that any one or more of the
               ------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

                                       23
<PAGE>

          (k)  Notes Held by the Company or its Affiliates.  Whenever the
               -------------------------------------------
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or its Affiliates
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.

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

                         PG&E NATIONAL ENERGY GROUP, INC.

                         By:  /s/ P. Chrisman Iribe
                              ------------------------------------
                              Name:  P. Chrisman Iribe
                              Title:  President and Chief Operating Officer

Confirmed and accepted as of
the date first above written:
LEHMAN BROTHERS INC.

By: LEHMAN BROTHERS INC.
     For itself and as Representative of the
     several Initial Purchasers

By:      /s/ Greg H. Hall
    ----------------------------------
     Authorized Signatory

                                      24<PAGE>

                                                                     Exhibit 4.2

                                                                  EXECUTION COPY
                                                                  --------------

                       PG&E NATIONAL ENERGY GROUP, INC.,
                                   as Issuer

                         10.375% SENIOR NOTES DUE 2011

                                   INDENTURE

                           Dated as of May 22, 2001

                           WILMINGTON TRUST COMPANY,
                                  as Trustee
<PAGE>

                               Table of Contents

<TABLE>
<CAPTION>
                                                                                                                 Page
<S>                                                                                                                <C>
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE..............................................................   1
SECTION 1.1.  Definitions.........................................................................................   1
SECTION 1.2.  Other Definitions...................................................................................   7
SECTION 1.3.  Incorporation by Reference of Trust Indenture Act...................................................   7
SECTION 1.4.  Rules of Construction...............................................................................   8
SECTION 1.5.  One Class Of Notes..................................................................................   8

ARTICLE II THE NOTES..............................................................................................   8
SECTION 2.1.  Form and Dating.....................................................................................   8
SECTION 2.2.  Execution and Authentication........................................................................  10
SECTION 2.3.  Registrar and Paying Agent..........................................................................  11
SECTION 2.4.  Paying Agent to Hold Money in Trust.................................................................  12
SECTION 2.5.  Holder Lists........................................................................................  12
SECTION 2.6.  Transfer And Exchange...............................................................................  12
SECTION 2.7.  Replacement Notes...................................................................................  25
SECTION 2.8.  Outstanding Notes...................................................................................  26
SECTION 2.9.  Treasury Notes......................................................................................  26
SECTION 2.10. Temporary Notes.....................................................................................  26
SECTION 2.11. Cancellation........................................................................................  27
SECTION 2.12. Defaulted Interest..................................................................................  27
SECTION 2.13. CUSIP Numbers.......................................................................................  27

ARTICLE III REDEMPTION AND PREPAYMENT.............................................................................  28
SECTION 3.1.  Notices To Trustee..................................................................................  28
SECTION 3.2.  Selection of Notes to be Redeemed...................................................................  28
SECTION 3.3.  Notice of Redemption................................................................................  28
SECTION 3.4.  Effect Of Notice Of Redemption......................................................................  29
SECTION 3.5.  Deposit of Redemption Price.........................................................................  29
SECTION 3.6.  Notes Redeemed in Part..............................................................................  30
SECTION 3.7.  Optional Redemption.................................................................................  30
SECTION 3.8.  Mandatory Redemption................................................................................  30

ARTICLE IV COVENANTS..............................................................................................  30
SECTION 4.1.  Payment of Notes....................................................................................  30
SECTION 4.2.  Maintenance of Office or Agency.....................................................................  31
SECTION 4.3.  Corporate Existence.................................................................................  31
SECTION 4.4.  Reports.............................................................................................  31
SECTION 4.5.  Compliance Certificate..............................................................................  32
SECTION 4.6.  Taxes...............................................................................................  32
SECTION 4.7.  Stay, Extension and Usury Laws......................................................................  33
SECTION 4.8.  Liens...............................................................................................  33
SECTION 4.9.  Restriction on Asset Sales..........................................................................  34
</TABLE>

                                       i
<PAGE>

<TABLE>
<CAPTION>

<S>                                                                                                                <C>
ARTICLE V SUCCESSORS..............................................................................................  35
SECTION 5.1.  Covenant Not to Merge, Consolidate, Sell, Lease or Transfer Assets Except Under Certain Conditions..  35
SECTION 5.2.  Successor Corporation Substituted...................................................................  35

ARTICLE VI EVENTS OF DEFAULT......................................................................................  35
SECTION 6.1.  Events of Default...................................................................................  35
SECTION 6.2.  Acceleration........................................................................................  37
SECTION 6.3.  Other Remedies......................................................................................  37
SECTION 6.4.  Waiver of Past Defaults.............................................................................  37
SECTION 6.5.  Control by Majority.................................................................................  37
SECTION 6.6.  Limitation on Suits.................................................................................  38
SECTION 6.7.  Rights of Holders of Notes to Receive Payment.......................................................  38
SECTION 6.8.  Collection Suit By Trustee..........................................................................  38
SECTION 6.9.  Trustee May File Proofs of Claim....................................................................  39
SECTION 6.10. Priorities..........................................................................................  39
SECTION 6.11. Undertaking for Costs...............................................................................  39

ARTICLE VII TRUSTEE...............................................................................................  40
SECTION 7.1.  Duties of Trustee...................................................................................  40
SECTION 7.2.  Rights of Trustee...................................................................................  41
SECTION 7.3.  Individual Rights of Trustee........................................................................  42
SECTION 7.4.  Trustee's Disclaimer................................................................................  42
SECTION 7.5.  Notice of Defaults..................................................................................  42
SECTION 7.6.  Reports by Trustee to Holders.......................................................................  42
SECTION 7.7.  Compensation and Indemnity..........................................................................  43
SECTION 7.8.  Replacement of Trustee..............................................................................  44
SECTION 7.9.  Successor Trustee by Merger, etc....................................................................  44
SECTION 7.10. Eligibility; Disqualification.......................................................................  45
SECTION 7.11. Preferential Collection of Claims Against Company...................................................  45
SECTION 7.12. Other Capacities....................................................................................  45

ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE.............................................................  45
SECTION 8.1.  Option to Effect Legal Defeasance or Covenant Defeasance............................................  45
SECTION 8.2.  Legal Defeasance and Discharge......................................................................  45
SECTION 8.3.  Covenant Defeasance.................................................................................  46
SECTION 8.4.  Conditions to Legal or Covenant Defeasance..........................................................  46
SECTION 8.5.  Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.......  48
SECTION 8.6.  Repayment to Company................................................................................  48
SECTION 8.7.  Reinstatement.......................................................................................  48

ARTICLE IX AMENDMENT, SUPPLEMENT AND WAIVER.......................................................................  49
SECTION 9.1.  Without Consent of Holders of Notes.................................................................  49
SECTION 9.2.  With Consent of Holders of Notes....................................................................  50
SECTION 9.3.  Compliance With Trust Indenture Act.................................................................  51
SECTION 9.4.  Revocation and Effect of Consents...................................................................  51
</TABLE>

                                     -ii-
<PAGE>

<TABLE>
<S>                                                                                                                <C>
SECTION 9.5.   Notation on or Exchange of Notes...................................................................  51
SECTION 9.6.   Trustee to Sign Amendments, etc....................................................................  51

ARTICLE X MISCELLANEOUS...........................................................................................  52
SECTION 10.1.  Trust Indenture Act Controls.......................................................................  52
SECTION 10.2.  Notices............................................................................................  52
SECTION 10.3.  Communication by Holders of Notes With Other Holders Of Notes......................................  53
SECTION 10.4.  Certificate and Opinion as to Conditions Precedent.................................................  53
SECTION 10.5.  Statements Required in Certificate or Opinion......................................................  54
SECTION 10.6.  Rules by Trustee and Agents........................................................................  54
SECTION 10.7.  No Personal Liability of Directors, Officers, Employees and Shareholders...........................  54
SECTION 10.8.  Governing Law......................................................................................  54
SECTION 10.9.  No Adverse Interpretation of Other Agreements......................................................  54
SECTION 10.10. Successors.........................................................................................  55
SECTION 10.11. Severability.......................................................................................  55
SECTION 10.12. Counterpart Originals..............................................................................  55
SECTION 10.13. Table of Contents, Headings, etc...................................................................  55
</TABLE>

                                     -iii-
<PAGE>

                             CROSS-REFERENCE TABLE*

Trust Indenture Act Section                                   Indenture Section

310(a)(1)..........................................................       7.10
   (a)(2)..........................................................       7.10
   (a)(3)..........................................................       N.A.
   (a)(4)..........................................................       N.A.
   (a)(5)..........................................................       7.10
   (b).............................................................       7.10
   (c).............................................................       N.A.
311(a).............................................................       7.11
   (b).............................................................       7.11
   (c).............................................................       N.A.
312(a).............................................................        2.5
   (b).............................................................       10.3
   (c).............................................................       10.3
313(a).............................................................        7.6
   (b)(1)..........................................................        7.7
   (b)(2)..........................................................       N.A.
   (c).............................................................  7.6; 10.2
   (v)(d)..........................................................        7.6
314(a)(1-3)........................................................        4.4
   (a)(4)..........................................................       N.A.
   (b).............................................................       10.2
   (c)(1)..........................................................       10.4
   (c)(2)..........................................................       10.4
   (c)(3)..........................................................       N.A.
   (e).............................................................       10.5
   (f)............................................................. N.A.; 10.2
315(a).............................................................        7.1
   (b).............................................................  7.5; 10.2
   (c).............................................................        7.1
   (d).............................................................        7.1
   (e).............................................................       6.11
316(a)(last sentence)..............................................        2.9
   (a)(1)(A).......................................................        6.5
   (a)(1)(B).......................................................        6.4
   (a)(2)..........................................................       N.A.
   (b).............................................................        6.7
   (c).............................................................       2.12
317(a)(1)..........................................................        6.8
   (a)(2)..........................................................        6.9
   (b).............................................................        2.2
318(a).............................................................       10.1
   (b).............................................................       N.A.
   (c).............................................................       10.1

N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.

                                      -i-
<PAGE>

          INDENTURE dated as of May 22, 2001 between PG&E NATIONAL ENERGY GROUP,
INC., a Delaware corporation (the "Company"), and WILMINGTON TRUST COMPANY, as
trustee (the "Trustee").

          The Company and the Trustee agree as follows for the equal and ratable
benefit of the registered holders (the "Holders") of the Notes (as defined
below):

                                   ARTICLE I

                   DEFINITIONS AND INCORPORATION BY REFERENCE
                   ------------------------------------------

                   SECTION 1.1.    Definitions
                   ---------------------------

          "Additional Notes" means Notes (other than the Initial Notes and the
Exchange Notes) issued under this Indenture in accordance with Section 2.2
hereof.

          "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 20% or more of the voting securities of a Person shall
be deemed to be control.

          "Agent" means any Registrar, Paying Agent, co-registrar,
authenticating agent or securities custodian.

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

          "Bankruptcy Law" means Title 11 of the United States Code (11 U.S.C.
(S)(S) 101 et. seq.) or any similar federal or state law for the relief of
debtors.

          "Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board of
Directors.

          "Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
or the general partner, in the case of a limited partnership, of such Person
(or, if such Person is a partnership, one of its general partners) to have been
duly adopted by the Board of Directors of such Person or the general partner, in
the case of a limited partnership, of such Person and to be in full force and
effect on the date of such certification, and delivered to the Trustee.

          "Business Day" means any day other than a Legal Holiday.
<PAGE>

          "Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participation, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distribution of
assets of, the issuing Person.

          "Clearstream" means Clearstream Banking, S.A.

          "Code" means the Internal Revenue Code of 1986, as amended.

          "Commission" means the Securities and Exchange Commission.

          "Company" has the meaning assigned to it in the preamble to this
Indenture.

          "Comparable Treasury Issue" means the United States Treasury security
selected by Lehman Brothers Inc. or an Affiliate as having a maturity comparable
to the remaining term of the Notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the Notes.

          "Comparable Treasury Price" means the average of three Reference
Treasury Dealer Quotations obtained by the Trustee in respect of the Notes to be
redeemed on the applicable redemption date.

          "Consolidated Net Tangible Assets" means, as of the date of
determination thereof, the total amount of all of the Company's assets,
determined on a consolidated basis in accordance with GAAP as of such date, less
the sum of (a) the Company's consolidated current liabilities determined in
accordance with GAAP, and (b) the Company's assets properly classified as
intangible assets in accordance with GAAP.

          "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 10.2 hereof or such other address as to which the
Trustee may give notice to the Company.

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

          "Default" means any event that is, or with the passage of time or the
giving of notice (or both) would be, an Event of Default.

          "Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.6 hereof in the form
of Exhibit A hereto, except that such Note shall not bear the Global Note Legend
and shall not have the "Schedule of Exchanges of Interests in the Global Note"
attached thereto.

          "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 hereof as
the Depositary with respect to

                                      -2-
<PAGE>

the Notes, and any and all successors thereto appointed as depositary hereunder
and having become such pursuant to the applicable provision of this Indenture.

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

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.

          "Exchange Notes" means the Company's 10.375% Senior Notes due 2011
issued by the Company pursuant to the Exchange Offer.

          "Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.

          "Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.

          "GAAP" means generally accepted accounting principles in the United
States set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants, the statements
and pronouncements of the Financial Accounting Standards Board and such other
statements by such other entities (including the Commission) as have been
accepted by a significant segment of the accounting profession, which are
applicable at the date of this Indenture.

          "Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes.

          "Global Note Legend" means the legend set forth in Section 2.6(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.

          "Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.

          "Holder" has the meaning assigned to it in the preamble to this
Indenture.

          "IAI Global Note" means the Global Note substantially in the form of
Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend
and deposited with or on behalf of and registered in the name of the Depositary
or its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.

          "Indenture" means this Indenture, as amended or supplemented from time
to time.

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

          "Initial Notes" means the $1,000,000,000 in aggregate principal amount
of Notes issued under this Indenture on the date hereof.

                                      -3-
<PAGE>

          "Institutional Accredited Investor" or "IAI" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who is not also a QIB.

          "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.

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

          "Moody's" means Moody's Investors Services, Inc.

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

          "Notes" means the Initial Notes, the Exchange Notes and the Additional
Notes, to the extent applicable.

          "Offering" means the offering of the Initial Notes by the Company.

          "Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, any President of an Operating
Division, any Chief Operating Officer of an Operating Division, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice President of such Person.

          "Officer's Certificate" means a certificate signed on behalf of any
Person by either the principal executive officer or the principal financial
officer, the treasurer or the principal accounting officer of such Person that
meets the requirements of Section 10.5 hereof.

          "144A Global Note" means a global Note in the form of Exhibit A hereto
bearing the Global Note Legend and the Private Placement Legend and deposited
with or on behalf of, and registered in the name of, the Depositary or its
nominee that will be issued in a denomination equal to the outstanding principal
amount of the Notes sold in reliance on Rule 144A.

          "Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee that meets the requirements of Section 10.5
hereof.  The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.

          "Participant" means, with respect to the Depositary, Euroclear or
Clearstream, a Person who has an account with the Depositary, Euroclear or
Clearstream, respectively (and, with respect to The Depository Trust Company,
shall include Euroclear and Clearstream).

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

                                      -4-
<PAGE>

          "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.

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

          "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

          "Reference Treasury Dealer Quotation" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Company by a Reference Treasury Dealer at 3.30 p.m., New York
City time, on the third Business Day preceding the redemption date.

          "Reference Treasury Dealers" means Lehman Brothers Inc. (so long as it
continues to be a primary U.S. Government securities dealer) and any two other
primary U.S. Government securities dealers chosen by the Company.  If Lehman
Brothers Inc. ceases to be a primary U.S. Government securities dealer, the
Company will appoint in its place another nationally recognized investment
banking firm that is a primary U.S. Government securities dealer.

          "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of May 22, 2001, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.

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

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

          "Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.

          "Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A hereto bearing the Global Note Legend, the Private
Placement Legend and the Regulation S Temporary Global Note Legend and deposited
with or on behalf of and registered in the name of the Depositary or its
nominee, issued in a denomination equal to the outstanding principal amount of
the Notes initially sold in reliance on Rule 903 of Regulation S.

          "Regulation S Temporary Global Note Legend" means the legend set forth
in Section 2.6(g)(iii) to be placed on the Regulation S Temporary Global Note.

                                      -5-
<PAGE>

          "Remaining Scheduled Payments" means, with respect to each Note that
the Company is redeeming, the remaining scheduled payments of the principal and
interest that would be due after the related redemption date if such Note were
not redeemed.  However, if the redemption date is not a scheduled interest
payment date with respect to that Note, the amount of the next succeeding
scheduled interest payment on that Note will be reduced by the amount of
interest accrued on such Note to the redemption date.

          "Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Office of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers
with direct responsibility for the administration of this Indenture and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.

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

          "Restricted Global Note" means a global Note in the form of Exhibit A
attached hereto that bears the Global Note Legend and the Private Placement
Legend.

          "Restricted Period" means the 40-day restricted period as defined in
Regulation S.

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

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

          "Rule 903" means Rule 903 promulgated under the Securities Act.

          "Rule 904" means Rule 904 promulgated under the Securities Act.

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

          "Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.

          "Special Interest Premium" means all moneys then owing pursuant to
Section 2(e) of the Registration Rights Agreement.

          "Standard and Poor's" means Standard & Poor's, a Division of The
McGraw-Hill Companies, Inc.

          "Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person, (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (i) and
related to such Person or (b) the

                                      -6-
<PAGE>

only general partners of which are such Person or of one or more entities
described in clause (i) and related to such Person (or any combination thereof)
and (iii) any limited liability company of which more than 50% of the total
membership interests is at the time owned or controlled, directly or indirectly,
by such Person.

          "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.

          "Treasury Yield" means, with respect to any redemption date, an annual
rate equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
the redemption date.  The semiannual equivalent yield to maturity will be
computed as of the third business day immediately preceding the redemption date.

          "Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.

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

          "Unrestricted Global Note" means a permanent global Note in the form
of Exhibit A attached hereto that bears the Global Note Legend but not the
Private Placement Legend and that is deposited with or on behalf of and
registered in the name of the Depositary.

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

          SECTION 1.2. Other Definitions
          ------------------------------

                                                        Defined in
          Term                                           Section
          ----                                           -------
          "Authentication Order"                           2.2
          "Covenant Defeasance"                            8.3
          "DTC"                                            2.3
          "Event of Default"                               6.1
          "Indebtedness"                                   4.8
          "Legal Defeasance"                               8.2
          "Liens"                                          4.8
          "Paying Agent"                                   2.3
          "Registrar"                                      2.3

          SECTION 1.3. Incorporation by Reference of Trust Indenture Act
          --------------------------------------------------------------

          Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
All terms used in this Indenture

                                      -7-
<PAGE>

that are defined by the TIA, defined by TIA reference to another statute or
defined by Commission rule under the TIA have the meanings so assigned to them.

          SECTION 1.4. Rules of Construction
          ----------------------------------

          Unless the context otherwise requires:

          (1)  a term has the meaning assigned to it;

          (2)  an accounting term not otherwise defined has the meaning assigned
     to it in accordance with GAAP;

          (3)  "or" is not exclusive;

          (4)  words in the singular include the plural, and in the plural
     include the singular; and

          (5)  references to sections of or rules under the Securities Act shall
     be deemed to include substitute, replacement or successor sections or rules
     adopted by the Commission from time to time.

          SECTION 1.5. One Class of Notes
          -------------------------------

          The Initial Notes, the Additional Notes and the Exchange Notes shall
vote and consent together on all matters as one class and none of the Initial
Notes, the Additional Notes or the Exchange Notes shall have the right to vote
or consent as a separate class on any matter.

                                  ARTICLE II

                                   THE NOTES
                                   ---------

          SECTION 2.1. Form and Dating
          ----------------------------

          (a)  General.

          The aggregate principal amount of Notes that may be authenticated and
delivered under this Indenture is unlimited.  The Notes will initially be issued
in an aggregate principal amount of $1,000,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 2.6, 2.7, 2.10, 3.6 or 9.5.
The Company may, without the consent of the Holders, create and issue Additional
Notes ranking equally with the Initial Notes and otherwise similar in all
respects so that the Additional Notes shall be consolidated and form a single
series with the Initial Notes. The Trustee shall authenticate Additional Notes
upon receipt of an Authentication Order and an Officer's Certificate, subject to
Section 2.2 , specifying the amount of Additional Notes to be authenticated.

          The Company may issue Exchange Notes from time to time pursuant to an
Exchange Offer, in each case pursuant to a Board Resolution, subject to Section
2.2, included in

                                      -8-
<PAGE>

an Officer's Certificate delivered to the Trustee, in authorized denominations
in exchange for a like principal amount of Initial Notes. Upon any such
exchange, the Initial Notes and any Additional Notes shall be canceled in
accordance with Section 2.11 and shall no longer be deemed outstanding for any
purpose.

          The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto.  The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage.  Each
Note shall be dated the date of its authentication.  The Notes shall be issuable
only in fully registered form, without coupons, in denominations of $100,000 and
integral multiples of $1,000 in excess thereof.  Interest on the Notes shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.

          The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.  However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.

          (b)  Global Notes and Definitive Notes.

          Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the Global Notes Legend thereon and the
"Schedule of Exchanges of Interests in the Global Note" attached thereto).
Notes issued in definitive form shall be substantially in the form of Exhibit A
attached hereto (but without the Global Note Legend thereon and without the
"Schedule of Exchanges of Interests in the Global Note" attached thereto).  Each
Global Note shall represent such of the outstanding Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate principal amount of outstanding Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions.  Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the aggregate principal amount of outstanding Notes
represented thereby shall be made by the Trustee or the Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.6 hereof.

          (c)  Temporary Global Notes.

          Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note, which shall be
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, at its Wilmington, Delaware office, as custodian for the Depositary,
and registered in the name of the Depositary or the nominee of the Depositary
for the accounts of designated agents holding on behalf of Euroclear or
Clearstream, duly executed by the Company and authenticated by the Trustee as
hereinafter provided.  The Company shall promptly notify the Trustee in writing
of the termination of the Restricted Period.  Following the termination of the
Restricted Period and following subsequent receipt by the Trustee and the
Company of (i) one or more certificates substantially in the form set forth in
Section 2.2 below, and (ii) an Authentication Order (as defined in Section 2.2),
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Regulation S

                                      -9-
<PAGE>

Permanent Global Notes, beneficial interests in which shall be exchanged for
beneficial interests in the Regulation S Temporary Global Note pursuant to the
Applicable Procedures. Simultaneously with the authentication of Regulation S
Permanent Global Note representing the total outstanding principal amount of
Notes represented by the Regulation S Temporary Global Note, the Trustee shall
cancel the Regulation S Temporary Global Note. The aggregate principal amount of
the Regulation S Temporary Global Note and the Regulation S Permanent Global
Notes may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.

          (d)  Euroclear, Clearstream Procedures Applicable.

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

          SECTION 2.2. Execution and Authentication
          -----------------------------------------

          Two Officers shall sign the Notes for the Company by manual or
facsimile signature.  The Company's seal, if any, shall be reproduced on the
Notes and may be in facsimile form.

          If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.

          A Note shall not be valid until authenticated by the manual signature
of the Trustee.  The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.

          The Trustee shall, upon a written order of the Company signed by two
Officers of the Company (an "Authentication Order"), authenticate Notes for
original issue.

          The Trustee may (at the expense of the Company) appoint an
authenticating agent acceptable to the Company to authenticate Notes.  An
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent.  An authenticating agent has the same rights as an
Agent to deal with Holders or an Affiliate of the Company and has the same
protections under Article VII herein.

The form of certificate referred to in Section 2.1(c), 2.6(b)(ii) and 2.6(c)(ii)
is as follows:

          WILMINGTON TRUST COMPANY
          1100 North Market Street
          Wilmington, Delaware 19890

          Attention: Corporate Trust Administration

                                     -10-
<PAGE>

                    Re:  PG&E NATIONAL ENERGY GROUP, INC.
                         10.375% Senior Notes due 2011
                         -----------------------------

          Ladies and Gentlemen:

               This letter relates to 10.375% Senior Notes due 2011 (the
"Notes") issued by PG&E National Energy Group, Inc. (the "Company") represented
by a temporary global note (the "Temporary Global Note"). Pursuant to Section
2.1 of the Indenture dated as of May 22, 2001 relating to the Notes (the
"Indenture"), we hereby certify that (1) we are the beneficial owner of $
principal amount of Notes represented by the Temporary Global Note and (2) we
are a person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the Securities Act of
1933, as amended. Accordingly, you are hereby requested to issue a beneficial
interest in a permanent global note representing the undersigned's interest in
the principal amount of Notes represented by the Temporary Global Note, all in
the manner provided by the Indenture.

          You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to matters covered hereby.  Terms used in this certificate have the
meanings set forth in Regulation S.

               Very truly yours,

               [Name of Holder]

               By:_____________________
                  Authorized Signature

cc:  PG&E National Energy Group, Inc.

          SECTION 2.3. Registrar and Paying Agent
          ---------------------------------------

          The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").  The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents.  The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent.  The Company may change any
Paying Agent or Registrar without notice to any Holder.  The Company shall
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture.  If the Company fails to appoint or maintain another entity
as Registrar or Paying Agent, the Trustee shall act as such.  The Company or any
of its Subsidiaries may act as Paying Agent or Registrar.

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

                                     -11-
<PAGE>

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

          SECTION 2.4. Paying Agent to Hold Money in Trust
          ------------------------------------------------

          The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Special Interest Premium, if any, or interest on the
Notes, and will notify the Trustee in writing of any default by the Company in
making any such payment.  While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee.  The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee.  Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Subsidiary) shall have no further liability for the money.  If the
Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent.  Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee shall serve as Paying Agent for the Notes.

          SECTION 2.5. Holder Lists
          -------------------------

          The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a).  If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA (S) 312(a).

          SECTION 2.6. Transfer and Exchange
          ----------------------------------

          (a)  Transfer and Exchange of Global Notes.

          A Global Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary, by a nominee of the Depositary to the
Depositary or to another nominee of the Depositary, or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.  All Global Notes will be exchanged by the Company for Definitive
Notes if (i) the Company delivers to the Trustee written notice from the
Depositary that it is unwilling or unable to continue to act as Depositary or
that it is no longer a clearing agency registered under the Exchange Act and, in
either case, a successor Depositary is not appointed by the Company within 120
days after the date of such notice from the Depositary or (ii) there shall have
occurred and be continuing an Event of Default with respect to the applicable
Notes and beneficial owners holding interests representing an aggregate
principal amount of at least 51% of such Notes represented by Global Notes
advise the Trustee in writing that the continuation of a book-entry system
through the Depositary is no longer in such owners' best interests or (iii) the
Company executes and delivers to the Trustee an order that the Global Notes will
be so exchangeable.  Upon the occurrence of either of the preceding events in
(i), (ii) or (iii) above, Definitive Notes shall be issued in such names as the
Depositary shall instruct the

                                     -12-
<PAGE>

Trustee in writing. Global Notes also may be exchanged or replaced, in whole or
in part, as provided in Sections 2.7 and 2.11 hereof. Every Note authenticated
and delivered in exchange for, or in lieu of, a Global Note or any portion
thereof, pursuant to this Section 2.6 or Section 2.7 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Note, except
as otherwise provided herein. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.6(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.6(b), (c) or (f) hereof.

          (b)  Transfer and Exchange of Beneficial Interests in the Global
Notes.

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

               (i)  Transfer of Beneficial Interests in the Same Global Note.
     Beneficial interests in any Restricted Global Note may be transferred to
     Persons who take delivery thereof in the form of a beneficial interest in
     the same Restricted Global Note in accordance with the transfer
     restrictions set forth in the Private Placement Legend; provided, however,
     that prior to the expiration of the Restricted Period, transfers of
     beneficial interests in the Temporary Regulation S Global Note may not be
     made to a U.S. Person or for the account or benefit of a U.S. Person (other
     than the Initial Purchaser).  Beneficial interests in any Unrestricted
     Global Note may be transferred to Persons who take delivery thereof in the
     form of a beneficial interest in an Unrestricted Global Note.  No written
     orders or instructions shall be required to be delivered to the Registrar
     to effect the transfers described in this Section 2.6(b)(i).

               (ii) All Other Transfers and Exchanges of Beneficial Interests in
     Global Notes.  In connection with all transfers and exchanges of beneficial
     interests that are not subject to Section 2.6(b)(i) above, the transferor
     of such beneficial interest must deliver to the Registrar either (A) (1) a
     written order from a Participant or an Indirect Participant given to the
     Depositary in accordance with the Applicable Procedures directing the
     Depositary to credit or cause to be credited a beneficial interest in
     another Global Note in an amount equal to the beneficial interest to be
     transferred or exchanged and (2) instructions given in accordance with the
     Applicable Procedures containing information regarding the Participant
     account to be credited with such increase or (B) (1) a written order from a
     Participant or an Indirect Participant given to the Depositary in
     accordance with the Applicable Procedures directing the Depositary to cause
     to be issued a Definitive Note in an amount equal to the beneficial
     interest to be transferred or exchanged and (2) instructions given by the
     Depositary to the Registrar containing information regarding the Person in
     whose name such Definitive Note shall be registered to effect the transfer
     or exchange referred to in (B)(1) above; provided that in no event shall
     Definitive Notes be issued upon the transfer or exchange of beneficial
     interests in the Regulation S Temporary Global Note prior to (x) the
     expiration of the Restricted

                                     -13-
<PAGE>

     Period and (y) the receipt by the Registrar of any certificate(s) in the
     form set forth in Section 2.2 and required pursuant to Rule
     903(b)(3)(ii)(B) under the Securities Act. Upon consummation of an Exchange
     Offer by the Company in accordance with Section 2.6(f) hereof, the
     requirements of this Section 2.6(b)(ii) shall be deemed to have been
     satisfied upon receipt by the Registrar of the instructions contained in
     the Letter of Transmittal delivered by the Holder of such beneficial
     interests in the Restricted Global Notes. Upon satisfaction of all of the
     requirements for transfer or exchange of beneficial interests in Global
     Notes contained in this Indenture and the Notes or otherwise applicable
     under the Securities Act, the Trustee shall adjust the principal amount of
     the relevant Global Note(s) pursuant to Section 2.6(h) hereof.

               (iii)  Transfer of Beneficial Interests to Another Restricted
     Global Note.  A beneficial interest in any Restricted Global Note may be
     transferred to a Person who takes delivery thereof in the form of a
     beneficial interest in another Restricted Global Note if the transfer
     complies with the requirements of Section 2.6(b)(ii) above and the
     Registrar receives the following:

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

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

               (C)  if the transferee will take delivery in the form of a
          beneficial interest in the IAI Global Note, then the transferor must
          deliver a certificate in the form of Exhibit B hereto, including the
          certifications and certificates and Opinion of Counsel required by
          item (3) thereof, if applicable.

               (iv)   Transfer and Exchange of Beneficial Interests in a
     Restricted Global Note for Beneficial Interests in the Unrestricted Global
     Note. A beneficial interest in any Restricted Global Note may be exchanged
     by any holder thereof for a beneficial interest in an Unrestricted Global
     Note or transferred to a Person who takes delivery thereof in the form of a
     beneficial interest in an Unrestricted Global Note if the exchange or
     transfer complies with the requirements of Section 2.6(b)(ii) above and:

               (A)  such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the holder of the beneficial interest to be transferred, in the
          case of an exchange, or the transferee, in the case of a transfer,
          certifies in the applicable Letter of Transmittal that it is not (1) a
          broker-dealer, (2) a Person participating in the distribution of the
          Exchange Notes or (3) a Person who is an Affiliate of the Company;

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

                                     -14-
<PAGE>

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

               (D)  the Registrar receives the following:

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

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

          and, in each such case set forth in this subparagraph (D), if the
          Registrar so requests or if the Applicable Procedures so require, an
          Opinion of Counsel in form reasonably acceptable to the Registrar to
          the effect that such exchange or transfer is in compliance with the
          Securities Act and that the restrictions on transfer contained herein
          and in the Private Placement Legend are no longer required in order to
          maintain compliance with the Securities Act.

               If any such transfer is effected pursuant to subparagraph (B) or
     (D) above at a time when an Unrestricted Global Note has not yet been
     issued, the Company shall issue and, upon receipt of an Authentication
     Order in accordance with Section 2.2 hereof, the Trustee shall authenticate
     one or more Unrestricted Global Notes in an aggregate principal amount
     equal to the aggregate principal amount of beneficial interests transferred
     pursuant to subparagraph (B) or (D) above.

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

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

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

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

                                     -15-
<PAGE>

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

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

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

               (E)  if such beneficial interest is being transferred to an
          Institutional Accredited Investor in reliance on an exemption from the
          registration requirements of the Securities Act other than those
          listed in subparagraphs (B) through (D) above, a certificate to the
          effect set forth in Exhibit C hereto, including the certifications,
          certificates and Opinion of Counsel required by item (3) thereof, if
          applicable;

               (F)  if such beneficial interest is being transferred to the
          Company or any of its Subsidiaries, a certificate to the effect set
          forth in Exhibit B hereto, including the certifications in item (3)(b)
          thereof; or

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

     the Trustee shall cause the aggregate principal amount of the applicable
     Global Note to be reduced accordingly pursuant to Section 2.6(h) hereof,
     and the Company shall execute and the Trustee shall upon receipt of an
     Authentication Order authenticate and deliver to the Person designated in
     the instructions a Definitive Note in the appropriate principal amount.
     Any Definitive Note issued in exchange for a beneficial interest in a
     Restricted Global Note pursuant to this Section 2.6(c) shall be registered
     in such name or names and in such authorized denomination or denominations
     as the holder of such beneficial interest shall instruct the Registrar
     through instructions from the Depositary and the Participant or Indirect
     Participant.  The Trustee shall (at the expense of the Company) deliver
     such Definitive Notes to the Persons in whose names such Notes are so
     registered.  Any Definitive Note issued in exchange for a beneficial
     interest in a Restricted Global Note pursuant to this Section 2.6(c)(i)
     shall bear the Private Placement Legend and shall be subject to all
     restrictions on transfer contained therein.

               (ii) Beneficial Interests in Regulation S Temporary Global Note
     to Definitive Notes. Notwithstanding Sections 2.6(c)(i)(A) and (C) hereof,
     a beneficial interest in the Regulation S Temporary Global Note may not be
     exchanged for a Definitive Note or transferred to a Person who takes
     delivery thereof in the form of a

                                     -16-
<PAGE>

     Definitive Note prior to (x) the expiration of the Restricted Period and
     (y) the receipt by the Registrar of any certificate(s) in the form set
     forth in Section 2.2 and required pursuant to Rule 903(b)(3)(ii)(B) under
     the Securities Act, except in the case of a transfer pursuant to an
     exemption from the registration requirements of the Securities Act other
     than Rule 903 or Rule 904.

               (iii)  Beneficial Interests in Restricted Global Notes to
     Unrestricted Definitive Notes.  A holder of a beneficial interest in a
     Restricted Global Note may exchange such beneficial interest for an
     Unrestricted Definitive Note or may transfer such beneficial interest to a
     Person who takes delivery thereof in the form of an Unrestricted Definitive
     Note only if:

               (A)  such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the holder of such beneficial interest, in the case of an
          exchange, or the transferee, in the case of a transfer, certifies in
          the Letter of Transmittal that it is not (1) a broker-dealer, (2) a
          Person participating in the distribution of the Exchange Notes or (3)
          a Person who is an Affiliate of the Company;

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

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

               (D)  the Registrar receives the following:

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

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

          and, in each such case set forth in this subparagraph (D), if the
          Registrar so requests or if the Applicable Procedures so require, an
          Opinion of Counsel in form reasonably acceptable to the Registrar to
          the effect that such exchange or transfer is in compliance with the
          Securities Act and that the restrictions on transfer contained herein
          and in the Private Placement Legend are no longer required in order to
          maintain compliance with the Securities Act.

                                     -17-
<PAGE>

               (iv) Beneficial Interests in Unrestricted Global Notes to
     Unrestricted Definitive Notes.  If any holder of a beneficial interest in
     an Unrestricted Global Note proposes to exchange such beneficial interest
     for a Definitive Note or to transfer such beneficial interest to a Person
     who takes delivery thereof in the form of a Definitive Note, then, upon
     satisfaction of the conditions set forth in Section 2.6(b)(ii) hereof, the
     Trustee shall cause the aggregate principal amount of the applicable Global
     Note to be reduced accordingly pursuant to Section 2.6(h) hereof, and the
     Company shall execute and the Trustee shall upon receipt of an
     Authentication Order authenticate and (at the expense of the Company)
     deliver to the Person designated in the instructions a Definitive Note in
     the appropriate principal amount.  Any Definitive Note issued in exchange
     for a beneficial interest pursuant to this Section 2.6(c)(iv) shall be
     registered in such name or names and in such authorized denomination or
     denominations as the holder of such beneficial interest shall instruct the
     Registrar through instructions from the Depositary and the Participant or
     Indirect Participant.  The Trustee shall (at the expense of the Company)
     deliver such Definitive Notes to the Persons in whose names such Notes are
     so registered.  Any Definitive Note issued in exchange for a beneficial
     interest pursuant to this Section 2.6(c)(iv) shall not bear the Private
     Placement Legend.

          (d)  Transfer and Exchange of Definitive Notes for Beneficial
Interests in Global Notes.

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

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

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

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

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

                                     -18-
<PAGE>

               (E)  if such Restricted Definitive Note is being transferred to
          an Institutional Accredited Investor in reliance on an exemption from
          the registration requirements of the Securities Act other than those
          listed in subparagraphs (B) through (D) above, a certificate to the
          effect set forth in Exhibit C hereto, including the certifications,
          certificates and Opinion of Counsel required by item (3)(d) thereof,
          if applicable; or

               (F)  if such Restricted Definitive Note is being transferred to
          the Company or any of its Subsidiaries, a certificate to the effect
          set forth in Exhibit B hereto, including the certifications in item
          (3)(b) thereof;

     the Trustee shall cancel the Restricted Definitive Note and increase or
     cause to be increased the aggregate principal amount of the appropriate
     Restricted Global Note.

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

               (A)  such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the Holder, in the case of an exchange, or the transferee, in the
          case of a transfer, certifies in the Letter of Transmittal that it is
          not (1) a broker-dealer, (2) a Person participating in the
          distribution of the Exchange Notes or (3) a Person who is an Affiliate
          of the Company;

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

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

               (D)  the Registrar receives the following:

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

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

                                     -19-
<PAGE>

               and, in each such case set forth in this subparagraph (D), if the
               Registrar so requests or if the Applicable Procedures so require,
               an Opinion of Counsel in form reasonably acceptable to the
               Registrar to the effect that such exchange or transfer is in
               compliance with the Securities Act and that the restrictions on
               transfer contained herein and in the Private Placement Legend are
               no longer required in order to maintain compliance with the
               Securities Act.

     Upon satisfaction of the conditions of any of the subparagraphs in this
     Section 2.6(d)(ii), the Trustee shall cancel the Definitive Notes and
     increase or cause to be increased the aggregate principal amount of the
     Unrestricted Global Note.

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

                    (iv)  If any such exchange or transfer from a Definitive
     Note to a beneficial interest is effected pursuant to subparagraphs
     (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note
     has not yet been issued, the Company shall issue and, upon receipt of an
     Authentication Order in accordance with Section 2.2 hereof, the Trustee
     shall authenticate one or more Unrestricted Global Notes in an aggregate
     principal amount equal to the principal amount of Definitive Notes so
     transferred.

          (e)  Transfer and Exchange of Definitive Notes for Definitive Notes.

          Upon request by a Holder of Definitive Notes and such Holder's
compliance with the provisions of this Section 2.6(e), the Registrar shall
register the transfer or exchange of Definitive Notes.  Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing.  In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.6(e).

               (i)  Restricted Definitive Notes to Restricted Definitive Notes.
     Any Restricted Definitive Note may be transferred to and registered in the
     name of Persons who take delivery thereof in the form of a Restricted
     Definitive Note if the Registrar receives the following:

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

                                     -20-
<PAGE>

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

               (C)  if the transfer will be made pursuant to any other exemption
          from the registration requirements of the Securities Act, then the
          transferor must deliver a certificate in the form of Exhibit B hereto,
          including the certifications, certificates and Opinion of Counsel
          required by item (3) thereof, if applicable.

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

               (A)  such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the Holder, in the case of an exchange, or the transferee, in the
          case of a transfer, certifies in the Letter of Transmittal that it is
          not (1) a broker-dealer, (2) a Person participating in the
          distribution of the Exchange Notes or (3) a Person who is an Affiliate
          of the Company;

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

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

               (D)  the Registrar receives the following:

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

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

          and, in each such case set forth in this subparagraph (D), if the
          Registrar so requests, an Opinion of Counsel in form reasonably
          acceptable to the Registrar to the effect that such exchange or
          transfer is in compliance with the Securities Act and that the
          restrictions on transfer contained herein and in the Private Placement
          Legend are no longer required in order to maintain compliance with the
          Securities Act.

                                     -21-
<PAGE>

               (iii) Unrestricted Definitive Notes to Unrestricted Definitive
     Notes.  A Holder of Unrestricted Definitive Notes may transfer such Notes
     to a Person who takes delivery thereof in the form of an Unrestricted
     Definitive Note.  Upon receipt of a request to register such a transfer,
     the Registrar shall register the Unrestricted Definitive Notes pursuant to
     the instructions from the Holder thereof.

          (f)  Exchange Offer.

          Upon the occurrence of the Exchange Offer in accordance with the
Registration Rights Agreement, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.2, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of the beneficial interests in the
Restricted Global Notes tendered for acceptance by Persons that certify in the
Letters of Transmittal that (x) they are not broker-dealers, (y) they are not
participating in a distribution of the Exchange Notes and (z) they are not
Affiliates of the Company, and accepted for exchange in the Exchange Offer and
(ii) Definitive Notes in an aggregate principal amount equal to the principal
amount of the Restricted Definitive Notes accepted for exchange in the Exchange
Offer.  Concurrently with the issuance of such Notes, the Trustee shall cause
the aggregate principal amount of the applicable Restricted Global Notes to be
reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and (at the expense of the Company) deliver to the Persons
designated by the Holders of Definitive Notes so accepted Definitive Notes in
the appropriate principal amount.

          (g)  Legends.

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

               (i)   Private Placement Legend.

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

     "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
     AMENDED (THE "SECURITIES ACT").  THE HOLDER HEREOF, BY PURCHASING THIS
     SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
     BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (A)(1) TO THE
     COMPANY, (2) IN A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION
     PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, (3) SO LONG AS THIS SECURITY
     IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
     ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
     QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING
     FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
     TO WHOM NOTICE

                                     -22-
<PAGE>

     IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
     RELIANCE ON RULE 144A, (4) OUTSIDE THE UNITED STATES IN A TRANSACTION
     MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT, (5) IN
     ACCORDANCE WITH ANOTHER APPLICABLE EXEMPTION FROM THE REGISTRATION
     REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
     ACCEPTABLE TO THE COMPANY) OR (6) PURSUANT TO A REGISTRATION STATEMENT
     WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT AND (B) IN EACH
     CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF EACH STATE OF THE
     UNITED STATES. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS
     AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED
     INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION
     THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR
     (7) UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") AND
     THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR
     DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE
     MEANING OF REGULATION S UNDER THE SECURITIES ACT. AN INSTITUTIONAL
     ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE
     COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY
     REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY
     COMPLIES WITH THE FOREGOING RESTRICTIONS."

          (B)  Notwithstanding the foregoing, any Global Note or Definitive Note
issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii),
(e)(ii), (e)(iii) or (f) to this Section 2.6 (and all Notes issued in exchange
therefor or substitution thereof) shall not bear the Private Placement Legend.

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

     "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
     GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
     BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
     CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
     MAY BE REQUIRED PURSUANT TO SECTION 2.7 OF THE INDENTURE, (II) THIS GLOBAL
     NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(a)
     OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE
     FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS
     GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR
     WRITTEN CONSENT OF THE COMPANY."

                                     -23-
<PAGE>

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

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

               (iv)  IAI Note Legend. The IAI Global Note and each Definitive
     Note held by an Institutional Accredited Investor shall bear a legend in
     substantially the following form:

     "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
     AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER
     AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
     FOREGOING RESTRICTIONS."

          (h)  Cancellation and/or Adjustment of Global Notes.

          At such time as all beneficial interests in a particular Global Note
have been exchanged for Definitive Notes or a particular Global Note has been
redeemed, repurchased or canceled in whole and not in part, each such Global
Note shall be returned to or retained and canceled by the Trustee in accordance
with Section 2.11 hereof.  At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for or transferred to a Person
who will take delivery thereof in the form of a beneficial interest in another
Global Note or for Definitive Notes, the principal amount of Notes represented
by such Global Note shall be reduced accordingly and an endorsement shall be
made on such Global Note by the Trustee or by the Depositary at the direction of
the Trustee to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note, such other Global Note
shall be increased accordingly and an endorsement shall be made on such Global
Note by the Trustee or by the Depositary at the direction of the Trustee to
reflect such increase.

          (i)  General Provisions Relating to Transfers and Exchanges.

               (i)   To permit registrations of transfers and exchanges, the
     Company shall execute and the Trustee shall authenticate Global Notes and
     Definitive Notes upon receipt of an Authentication Order in accordance with
     Section 2.2 hereof or upon receipt of a written request of the Registrar.

               (ii)  No service charge shall be made to a holder of a beneficial
     interest in a Global Note or to a Holder of a Definitive Note for any
     registration of transfer or exchange, but the Company may require payment
     of a sum sufficient to cover any transfer tax or similar governmental
     charge payable in connection therewith (other than

                                     -24-
<PAGE>

     any such transfer taxes or similar governmental charge payable upon
     exchange or transfer pursuant to Sections 2.10, 3.6 and 9.5 hereof).

               (iii)  The Registrar shall not be required to register the
     transfer of or exchange any Note selected for redemption in whole or in
     part, except the unredeemed portion of any Note being redeemed in part.

               (iv)   All Global Notes and Definitive Notes issued upon any
     registration of transfer or exchange of Global Notes or Definitive Notes
     shall be the valid obligations of the Company, evidencing the same debt,
     and entitled to the same benefits under this Indenture, as the Global Notes
     or Definitive Notes surrendered upon such registration of transfer or
     exchange.

               (v)    The Company shall not be required (A) to issue, to
     register the transfer of or to exchange any Notes during a period beginning
     at the opening of business 15 days before the day of any selection of Notes
     for redemption under Section 3.2 hereof and ending at the close of business
     on the day of selection, (B) to register the transfer of or to exchange any
     Note so selected for redemption in whole or in part, except the unredeemed
     portion of any Note being redeemed in part or (c) to register the transfer
     of or to exchange a Note between a record date and the next succeeding
     interest payment date.

               (vi)   Prior to due presentment for the registration of a
     transfer of any Note, the Trustee, any Agent and the Company may deem and
     treat the Person in whose name any Note is registered as the absolute owner
     of such Note for the purpose of receiving payment of principal of and
     interest on such Notes and for all other purposes, and none of the Trustee,
     any Agent or the Company shall be affected by notice to the contrary.

               (vii)  The Trustee shall authenticate Global Notes and Definitive
     Notes in accordance with the provisions of Section 2.2 hereof.

               (viii) All certifications, certificates and Opinions of Counsel
     required to be submitted to the Registrar pursuant to this Section 2.6 to
     effect a registration of transfer or exchange may be submitted by
     facsimile.

          SECTION 2.7.  Replacement Notes
          -------------------------------

          If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's and
the Company's requirements are met.  If required by the Trustee or the Company,
an indemnity bond must be supplied by the Holder that is sufficient in the
judgment of the Trustee and the Company to protect the Company, the Trustee, any
Agent and any authenticating agent from any loss that any of them may suffer if
a Note is replaced.  The Company and the Trustee may charge for their expenses
in replacing a Note.

                                     -25-
<PAGE>

          Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.

          SECTION 2.8.  Outstanding Notes
          -------------------------------

          The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding.  Except as set forth in Section 2.9 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section 2.9
hereof.

          If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a protected purchaser.

          If the principal amount of any Note is considered paid under Section
4.1 hereof, it ceases to be outstanding and shall cease to accrue interest.

          If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.

          SECTION 2.9.  Treasury Notes
          ----------------------------

          In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that a Responsible Officer of the Trustee knows are so owned shall be
so disregarded.

          SECTION 2.10. Temporary Notes
          -----------------------------

          Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes.  Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee.  Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate Definitive Notes in exchange for temporary Notes.

          Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture equally and proportionately with all other Notes duly issued
hereunder.

                                     -26-
<PAGE>

          SECTION 2.11.  Cancellation
          ---------------------------

          The Company at any time may deliver Notes to the Trustee for
cancellation.  The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes.  Certification of the destruction of all canceled Notes shall be
delivered (at the expense of the Company) to the Company.  The Company may not
issue new Notes to replace Notes that it has paid or that have been delivered to
the Trustee for cancellation.

          SECTION 2.12.  Defaulted Interest
          ---------------------------------

          If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.1 hereof.  The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment.  The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest.  At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.

          SECTION 2.13.  CUSIP Numbers
          ----------------------------

          The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use) and, if so, the Trustee may use "CUSIP" numbers in notices of
redemption as a convenience to Holders, provided, however, that any such notice
may state that no representation is made as to the accuracy of such numbers
either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers placed
thereon, and any such redemption shall not be affected by any defect in or
omission of such numbers.

          In the event that the Company shall issue and the Trustee shall
authenticate any Additional Notes pursuant to this Indenture, the Company shall
use its best efforts to obtain the same CUSIP number for such Additional Notes
as is printed on the Notes outstanding at such time; provided, however, that if
any Additional Notes are determined, pursuant to an Opinion of Counsel, to be a
different class of security than the Notes outstanding at such time for federal
income tax purposes, the Company may obtain a CUSIP number for such Additional
Notes that is different from the CUSIP number printed on the Notes then
outstanding.

                                     -27-
<PAGE>

                                  ARTICLE III
                                  -----------

                           REDEMPTION AND PREPAYMENT
                           -------------------------

          SECTION 3.1.  Notices To Trustee
          --------------------------------

          If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date, an Officer's
Certificate setting forth (i) the Section of this Indenture pursuant to which
the redemption shall occur, (ii) the redemption date, (iii) the principal amount
of Notes to be redeemed and (iv) the redemption price.

          SECTION 3.2.  Selection of Notes to be Redeemed
          -----------------------------------------------

          If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee deems fair and appropriate.  In the
event of partial redemption by lot, the particular Notes to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Notes not
previously called for redemption.

          The Trustee shall promptly notify the Company of the Notes selected
for redemption and, in the case of any Note selected for partial redemption, the
principal amount thereof to be redeemed.  Notes and portions of Notes selected
shall be in amounts of $1,000 or whole multiples of $1,000; except that if all
of the Notes of a Holder are to be redeemed, the entire outstanding amount of
Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed.
Except as provided in the preceding sentence, provisions of this Indenture that
apply to Notes called for redemption also apply to portions of Notes called for
redemption.

          SECTION 3.3.  Notice of Redemption
          ----------------------------------

          At least 30 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address.

          The notice shall identify the Notes to be redeemed and shall state:

          (a)  the redemption date;

          (b)  the redemption price;

          (c)  if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;

                                     -28-
<PAGE>

          (d)  the name and address of the Paying Agent;

          (e)  that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;

          (f)  that, unless the Company fails to deposit the Redemption Price
and accrued interest, if any, with the Trustee or Paying Agent, interest on
Notes called for redemption ceases to accrue on and after the redemption date;

          (g)  the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and

          (h)  that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.

          At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officer's Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.

          SECTION 3.4.  Effect of Notice of Redemption
          --------------------------------------------

          Once notice of redemption is mailed in accordance with Section 3.3
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price.  A notice of redemption may not be
conditional.

          SECTION 3.5.  Deposit of Redemption Price
          -----------------------------------------

          One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date.  The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.

          If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption.  If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date.  If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.1 hereof.

                                     -29-
<PAGE>

          SECTION 3.6.    Notes Redeemed in Part
          --------------------------------------

          Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon receipt of an Authentication Order, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.

          SECTION 3.7.    Optional Redemption
          -----------------------------------

          The Company at its option may, at any time, redeem the Notes, in whole
or in part, upon payment of a redemption price equal to (A) the greater of (i)
100% of the principal amount of the Notes to be redeemed or (ii) the sum of
present values of the Remaining Scheduled Payments on the Notes being redeemed
discounted to the date of redemption on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at a rate equal to the Treasury Yield
plus 50 basis points, plus, in either case, (B) accrued and unpaid interest, if
any, on the principal amount of Notes being redeemed to the redemption date.

          SECTION 3.8.    Mandatory Redemption
          ------------------------------------

          The Company shall not be required to make mandatory redemption or
sinking fund payments with respect to the Notes.

                                   ARTICLE IV

                                   COVENANTS
                                   ---------

          SECTION 4.1.    Payment of Notes
          --------------------------------

          The Company shall pay or cause to be paid the principal of, premium,
if any, and interest and the Special Interest Premium, if any, on the Notes on
the dates and in the manner provided in the Notes.  Principal, premium, if any,
and interest and the Special Interest Premium, if any, shall be considered paid
on the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by
the Company in immediately available funds and designated for and sufficient to
pay all principal, premium, if any, and interest and the Special Interest
Premium, if any, then due.  The Company shall pay all the Special Interest
Premium, if any, in the same manner on the dates and in the amounts set forth in
the Registration Rights Agreement.

          The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at the rate equal to 1% per annum in excess of
the then applicable interest rate on the Notes to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Special Interest
Premium, if any, (without regard to any applicable grace period) from time to
time on demand at the same rate to the extent lawful.

                                     -30-
<PAGE>

          SECTION 4.2.    Maintenance of Office or Agency
          -----------------------------------------------

          The Company shall maintain in the Wilmington, Delaware, an office or
agency (which may be an office of the Trustee or an Affiliate of the Trustee,
Registrar or co-registrar) where Notes may be surrendered for registration of
transfer or for exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served.  The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency.  If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee.

          The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations.  The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.

          The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.3.

          SECTION 4.3.    Corporate Existence
          -----------------------------------

          Subject to Article V hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, and the corporate, partnership or other existence of each of its
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
the rights (charter and statutory), licenses and franchises of the Company and
its Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Subsidiaries, if the Board of Directors or the
management of the Company, as applicable shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in
any material respect to the Holders of the Notes.

          SECTION 4.4.    Reports
          -----------------------

          (a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding and irrespective of whether the
Exchange Offer Registration Statement or the Shelf Registration Statement has
been declared effective by the Commission, the Company shall furnish the Trustee
and each of the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K (commencing with the Form 10-Q for the quarter
ending June 30, 2001) if the Company were required to file such financial
information, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition and
results of operations of the Company and any consolidated Subsidiaries and, with
respect to the annual information only, reports thereon by the Company's

                                     -31-
<PAGE>

independent public accountants (which shall be firm(s) of established national
reputation) and (ii) all information that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations.

          (b) For so long as any Notes remain outstanding, the Company shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.

          SECTION 4.5.    Compliance Certificate
          --------------------------------------

          (a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal quarter, an Officer's Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
quarter has been made under the supervision of the signing Officers with a view
to determining whether the Company has kept, observed, performed and fulfilled
its obligations under this Indenture, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture (or,
if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.

          (b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to Section 4.4(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article IV or Article V hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable, directly or indirectly, to
any Person for any failure to obtain knowledge of any such violation.

          (c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officer's Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.

          SECTION 4.6.    Taxes
          ---------------------

          The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.

                                     -32-
<PAGE>

          SECTION 4.7.    Stay, Extension and Usury Laws
          ----------------------------------------------

          The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company hereby expressly waives (to
the extent that it may lawfully do so) all benefit or advantage of any such law,
and covenants that it shall not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.

          SECTION 4.8.    Liens
          ---------------------

          The Company will not pledge, mortgage, hypothecate or permit to exist
any mortgage, pledge or other lien upon any property at any time directly owned
by the Company or any of its Subsidiaries to secure any indebtedness for money
borrowed which is incurred, issued or assumed by the Company or to secure any
guarantees issued by the Company of indebtedness for money borrowed
(collectively, "Indebtedness") without providing for the Notes to be equally and
ratably secured with any and all such Indebtedness and with any other
Indebtedness similarly entitled to be equally and ratably secured; provided,
however, that this agreement will not apply to, or prevent the creation or
existence of:

     (1)  mortgages, pledges, liens, charges, security interests or encumbrances
          (collectively, "Liens") on the assets of the Company existing at the
          original date of issuance of the Notes and, to the extent the Company
          or any of its Subsidiaries consolidates with, or merges into, another
          entity, Liens on the assets of such entity in existence on the date of
          such consolidation or merger and securing debt of such entity,
          provided that such debt and Liens were not created or incurred in
          anticipation of such consolidation or merger;

     (2)  purchase money or construction financing Liens that do not exceed the
          cost or value of the property being purchased or constructed;

     (3)  Liens granted in connection with extending, renewing, replacing or
          refinancing in whole or in part the Indebtedness (including increasing
          the principal amount of such Indebtedness, provided that any such Lien
          is limited to all or part of the same property or assets (plus
          improvements, accessions, proceeds or dividends or distributions in
          respect thereof) that secured (or, under the written arrangements
          under which the original Lien arose, could secure) the Indebtedness
          being extended, renewed, replaced or refinanced) secured by Liens
          described in clauses (1) and (2) above; and

     (4)  other Liens not to exceed 10% of the Company's Consolidated Net
          Tangible Assets, provided that:

          (a)       neither the Company nor its Subsidiaries shall be permitted
                    to create or to permit to exist any Liens to secure
                    Indebtedness in reliance upon this Section 4.8(4) until the
                    earlier to occur of:

                                     -33-
<PAGE>

                    (x)   the first date on or after May 22, 2003 on which the
                          Notes are rated at least Baa3 by Moody's and BBB- by
                          Standard & Poor's, and

                    (y)   the date on which Moody's rates the Notes Baa1 or
                          higher and Standard & Poor's rates the Notes BBB+ or
                          higher; and

          (b)       notwithstanding the restriction in Section 4.8(4)(a) above,
                    the Company and its Subsidiaries shall be permitted to
                    create and permit to exist Liens in reliance upon this
                    Section 4.8(4) to secure Indebtedness not to exceed $250
                    million in the aggregate.

          If the Company proposes to pledge, mortgage or hypothecate any
property at any time directly owned by the Company or any of its Subsidiaries to
secure any Indebtedness, other than as permitted by clauses (1) through (4) of
the previous paragraph, the Company shall give prior written notice thereof to
the Trustee, who shall give notice to the Holders, and the Company shall, prior
to or simultaneously with such pledge, mortgage or hypothecation, effectively
secure all the Notes equally and ratably with such Indebtedness.

          This Section 4.8 shall not restrict the ability of the Company's
Subsidiaries and Affiliates to pledge, mortgage, hypothecate or permit to exist
any mortgage, pledge or lien upon their assets not securing Indebtedness or
otherwise securing any indebtedness incurred by them in connection with project
financings or otherwise.

          SECTION 4.9.    Restriction on Asset Sales
          ------------------------------------------

          Except for the sale of all or substantially all of the assets of the
Company pursuant to Section 5.1, and other than assets required to be sold to
conform with governmental regulations, the Company shall not, and shall cause
its Subsidiaries not to, sell or otherwise dispose of any assets (other than
short-term, readily marketable investments purchased for cash management
purposes with funds not representing the proceeds of other asset sales) if, on a
pro forma basis, the aggregate net book value of all such sales during the most
recent 12-month period would exceed 10% of Consolidated Net Tangible Assets
computed as of the end of the most recent quarter preceding such sale; provided,
however, that any such sales shall be disregarded for purposes of this 10%
limitation if the proceeds are invested in assets in the Company's business, in
the energy trading, energy services, power generation, electric transmission or
gas transmission and storage businesses or in similar or related lines of
business and, provided further, that the Company may sell or otherwise dispose
of assets in excess of such 10% limitation if the proceeds from such sales or
dispositions, which are not reinvested as provided above, are retained by the
Company as cash or cash equivalents or are used by the Company to purchase
Notes, which are then delivered to the Trustee for cancellation, or to purchase
and retire notes or Indebtedness ranking pari passu in right of payment to the
Notes or indebtedness of the Company's Subsidiaries.

                                     -34-
<PAGE>

                                   ARTICLE V

                                  SUCCESSORS
                                  ----------

          SECTION 5.1.    Covenant Not to Merge, Consolidate, Sell, Lease or
          ------------------------------------------------------------------
Transfer Assets Except Under Certain Conditions
-----------------------------------------------

          The Company shall not merge or consolidate with or into any other
Person and the Company shall not sell, lease or convey, in a single transaction
or in a series of transactions, all or substantially all of its assets to any
Person, unless (1) the Company is the continuing corporation, or the successor
corporation or the person that acquires all or substantially all of the
Company's assets is a corporation organized and existing under the laws of the
United States or a state thereof or the District of Columbia and expressly
assumes all the Company's obligations under the Notes and this Indenture or
assumes such obligations as a matter of law, (2) immediately after giving effect
to such merger, consolidation, sale, lease or conveyance, there is no Default or
Event of Default hereunder, (3) if, as a result of the merger, consolidation,
sale, lease or conveyance, any or all of the Company's property would become the
subject of a Lien that would not be permitted by this Indenture, the Company
secures the Notes equally and ratably with the obligations secured by that Lien
and (4) the Company delivers or causes to be delivered to the Trustee an
Officers' Certificate and Opinion of Counsel each stating that the merger,
consolidation, sale, lease or conveyance comply with this Indenture.

          SECTION 5.2.    Successor Corporation Substituted
          -------------------------------------------------

          Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.1 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, conveyance or other disposition is made
shall succeed to, and be substituted for (so that from and after the date of
such consolidation, merger, sale, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale or
conveyance of all of the Company's assets that meets the requirements of Section
5.1 hereof.

                                  ARTICLE VI

                               EVENTS OF DEFAULT
                               -----------------

          SECTION 6.1.    Events of Default
          ---------------------------------

          An "Event of Default" occurs if:

          (a) the Company defaults in the payment of any installment of interest
upon any of the Notes as and when the same shall become due and payable, and
such default continues for a period of 30 days;

                                     -35-
<PAGE>

          (b) the Company defaults in the payment of all or any part of the
principal of, or premium, if any, on, any of the Notes as and when the same
shall become due and payable either at maturity, upon any redemption, by
declaration of acceleration or otherwise;

          (c) the Company fails duly to observe or perform any other covenant or
agreement on the part of the Company in the Notes or in this Indenture and such
failure continues for a period of 90 days after the date on which notice
specifying such failure, stating that such notice is a "Notice of Default"
hereunder and demanding that the Company remedy the same, shall have been given
to the Company by the Trustee, or to the Company and the Trustee by the Holders
of at least 25% in aggregate principal amount of the Notes at the time
outstanding;

          (d) an event of default as defined in any instrument of the Company
under which there may be issued, or by which there may be secured or evidenced,
any Indebtedness in excess of $50,000,000 shall occur, which event of default
has resulted in the acceleration of such Indebtedness, or any default occurring
in payment of any such Indebtedness at final maturity (and after the expiration
of any applicable grace periods);

          (e) one or more final, nonappealable judgments, decrees or orders of
any court, tribunal, arbitrator, administrative or other governmental body or
similar entity for the payment of money shall be rendered against the Company or
any of its properties in an aggregate amount in excess of $50,000,000 (excluding
the amount thereof covered by insurance) and such judgment, decree or order
shall remain unvacated, undischarged and unstayed for more than 90 days, except
while being contested in good faith by appropriate proceedings;

          (f) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, or a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment, or composition of or in respect
of the Company under any applicable federal or state law, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or for any substantial part of its property or ordering
the winding up or liquidation of its affairs, shall have been entered, and such
decree or order shall remain unstayed and in effect for a period of 90
consecutive days; or

          (g) the Company shall commence a voluntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or consent to the entry of a decree or
order for relief in an involuntary case or proceeding under any such law, or to
the commencement of any bankruptcy or insolvency case or proceeding against the
Company, or the filing by the Company of a petition or answer to consent seeking
reorganization or relief under any such applicable federal or state law, or the
consent by the Company to the filing of such petition or to the appointment of
or the taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or of any
substantial part of its property, or the making by the Company of an assignment
for the benefit of creditors, or the taking of action by the Company in
furtherance of any such action.

                                     -36-
<PAGE>

          SECTION 6.2.    Acceleration
          ----------------------------

          If any Event of Default (other than an Event of Default specified in
clause (f) or (g) of Section 6.1 hereof) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately.  If an Event of
Default specified in clause (f) or (g) of Section 6.1 hereof occurs, all
outstanding Notes shall be due and payable without further action or notice.
Holders of the Notes may not enforce this Indenture or the Notes except as
provided in this Indenture.  Subject to Sections 6.6, 7.1(e) and 7.7, Holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power.  The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.  The
Holders of a majority in aggregate principal amount of the then outstanding
Notes by notice to the Trustee may on behalf of the Holders of all of the Notes
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction and if
all existing Events of Default (except nonpayment of principal, interest or
premium that has become due solely because of the acceleration) have been cured
or waived.

          SECTION 6.3.    Other Remedies
          ------------------------------

          If an Event of Default occurs and is continuing, the Trustee, in its
sole discretion, may pursue any available remedy to collect the payment of
principal, premium, if any, interest and the Special Interest Premium, if any,
on the Notes or to enforce the performance of any provision of the Notes or this
Indenture.

          The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.  A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default.  All remedies
are cumulative to the extent permitted by law.

          SECTION 6.4.    Waiver of Past Defaults
          ---------------------------------------

          Holders of a majority in aggregate principal amount of the then
outstanding Notes by written notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and the Special Interest Premium, if any,
or interest on, the Notes.  Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.

          SECTION 6.5.    Control by Majority
          -----------------------------------

          Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it.  However, the Trustee

                                     -37-
<PAGE>

may refuse to follow any direction that conflicts with law or this Indenture or
that the Trustee determines may be unduly prejudicial to the rights of other
Holders of Notes or that may involve the Trustee in personal liability. The
Trustee may take any other action consistent with this Indenture relating to any
such direction.

          SECTION 6.6.    Limitation on Suits
          -----------------------------------

          A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:

          (a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;

          (b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;

          (c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee security and indemnity satisfactory to the Trustee
against any loss, liability or expense;

          (d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
security and indemnity; and

          (e) the Holders of a majority in principal amount of the then
outstanding Notes do not give the Trustee a direction inconsistent with the
request.

          A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.

          SECTION 6.7.    Rights of Holders of Notes to Receive Payment
          -------------------------------------------------------------

          Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and the Special
Interest Premium, if any, and interest on the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.

          SECTION 6.8.    Collection Suit By Trustee
          ------------------------------------------

          If an Event of Default specified in Section 6.1(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium and the Special Interest Premium, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
fees, expenses, disbursements and advances of the Trustee, its agents and
counsel.

                                     -38-
<PAGE>

          SECTION 6.9.    Trustee May File Proofs of Claim
          ------------------------------------------------

          The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, fees,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the compensation, fees, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under or in connection with this Indenture.  To the extent that the
payment of any such compensation, fees, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee under
or in connection with this Indenture out of the estate in any such proceeding
shall be denied for any reason, payment of the same shall be secured by a
perfected, first priority Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise, and such Lien in
favor of a predecessor Trustee shall be senior to the Lien in favor of the
current Trustee.  Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

          SECTION 6.10.    Priorities
          ---------------------------

          If the Trustee collects any money or other property pursuant to this
Article, it shall be applied in the following order:

          First:  to the Trustee (including any predecessor Trustee), its agents
and attorneys for amounts due under Section 7.7 hereof, including payment of all
compensation, fees, expenses and liabilities incurred, and all advances made, by
the Trustee and the costs and expenses of collection;

          Second:  to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and the Special Interest Premium, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and the Special Interest
Premium, if any and interest, respectively; and

          Third:  to the Company or to such party as a court of competent
jurisdiction shall direct.

          The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

          SECTION 6.11.    Undertaking for Costs
          --------------------------------------

                                     -39-
<PAGE>

          In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.

                                  ARTICLE VII

                                    TRUSTEE
                                    -------

          SECTION 7.1.    Duties of Trustee
          ---------------------------------

          (a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.

          (b) Except during the continuance of an Event of Default:

               (i)   the duties of the Trustee shall be determined solely by the
     express provisions of this Indenture and the Trustee need perform only
     those duties that are specifically set forth in this Indenture and no
     others, and no implied covenants or obligations shall be read into this
     Indenture against the Trustee; and

               (ii)  in the absence of bad faith on its part, the Trustee may
     conclusively rely, as to the truth of the statements and the correctness of
     the opinions expressed therein, upon certificates or opinions furnished to
     the Trustee and conforming to the requirements of this Indenture.  However,
     the Trustee shall examine the certificates and opinions to determine
     whether or not they conform to the requirements of this Indenture.

          (c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

               (i)   this paragraph does not limit the effect of paragraph (b)
     of this Section;

               (ii)  the Trustee shall not be liable for any error of judgment
     made in good faith by a Responsible Officer, unless it is proved that the
     Trustee was negligent in ascertaining the pertinent facts; and

               (iii) the Trustee shall not be liable with respect to any action
     it takes or omits to take in good faith in accordance with a direction
     received by it pursuant to Section 6.5 hereof.

                                     -40-
<PAGE>

          (d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c), (e) and (f) of this Section.

          (e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request or direction of any Holders, unless such Holder shall have offered and,
if requested, provided to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.

          (f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.

          SECTION 7.2.    Rights of Trustee
          ---------------------------------

          (a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company personally or by agent or attorney.

          (b) Whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may rely upon an Officer's Certificate, an
Opinion of Counsel, or both. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officer's Certificate
or Opinion of Counsel. The Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.

          (c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.

          (d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.

          (e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.

          (f) No permissive right of the Trustee to act hereunder shall be
construed as a duty.

                                     -41-
<PAGE>

          SECTION 7.3.    Individual Rights of Trustee
          --------------------------------------------

          The Trustee, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee.  However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as trustee or resign.  Any Agent may do the same with
like rights and duties.  The Trustee is also subject to Sections 7.10 and 7.11
hereof.

          SECTION 7.4.    Trustee's Disclaimer
          ------------------------------------

          The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Notes or the Registration
Rights Agreement; it shall not be accountable for the Company's use of the
proceeds from the Notes or any money paid to the Company or upon the Company's
direction under any provision of this Indenture; it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement or recital herein or
any statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its certificate of
authentication.

          SECTION 7.5.    Notice of Defaults
          ----------------------------------

          If a Default or Event of Default occurs and is continuing and if the
Trustee receives written notice thereof, the Trustee shall (at the expense of
the Company) mail to Holders of Notes a notice of the Default or Event of
Default within 90 days after it occurs.  Except in the case of a Default or
Event of Default in payment of principal of, premium, if any, the Special
Interest Premium, if any, or interest on any Note, the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Notes.  For purposes of this Indenture, the Trustee shall not be deemed to have
received notice of any Default (except a Default or Event of Default in payment
of principal of, premium, if any, the Special Interest Premium, if any, or
interest on any Note) unless a Responsible Officer of the Trustee has received
actual notice of such Default.

          SECTION 7.6.    Reports by Trustee to Holders
          ---------------------------------------------

          Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall (at the expense of the Company) mail to the Holders of the Notes a
brief report dated as of such reporting date that complies with TIA (S) 313(a)
(but if no event described in TIA (S) 313(a) has occurred within the twelve
months preceding the reporting date, no report need be transmitted).  The
Trustee also shall comply with TIA (S) 313(b)(2).  The Trustee shall also
transmit by mail all reports as required by TIA (S) 313(c).

          A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA (S) 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange and thereafter shall promptly file all

                                     -42-
<PAGE>

reports with the Commission and such stock exchange as are required to be filed
by the rules and regulations of the Commission and of such stock exchange.

          SECTION 7.7.    Compensation and Indemnity
          ------------------------------------------

          The Company agrees to pay to the Trustee from time to time
compensation as agreed upon by the Trustee and the Company, and, in the absence
of any such agreement, reasonable compensation for its acceptance of this
Indenture and services hereunder.  The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust.  The
Company shall reimburse the Trustee promptly upon request for all disbursements,
advances and expenses incurred or made by it in addition to the compensation for
its services.  Such expenses shall include the compensation, disbursements and
expenses of the Trustee's agents and reasonable fees and expenses of counsel.

          The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.7) and defending itself against any claim (whether asserted by
the Company or any Holder or any other Person) or liability in connection with,
relating to, or arising out of (i) the exercise or performance of any of its
powers or duties hereunder, or in connection herewith, and (ii) the validity,
invalidity, adequacy or inadequacy of this Indenture, the Notes or the
Registration Rights Agreement, except to the extent any such loss, liability or
expense may be attributable to its negligence or willful misconduct.  The
Trustee shall notify the Company promptly of any claim for which it intends to
seek indemnity.  Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder.  The Company shall defend the
claim and the Trustee shall cooperate in the defense.  The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel.  The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.

          The obligations of the Company to the Trustee under this Indenture
shall survive the satisfaction and discharge of this Indenture.

          To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes.

          When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(f) or (g) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

          The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.

                                     -43-
<PAGE>

          SECTION 7.8.  Replacement of Trustee
          ------------------------------------

          A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.

          The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company.  The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing.  The Company may
by a Board Resolution remove the Trustee if:

          (a) the Trustee fails to comply with Section 7.10 hereof;

          (b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;

          (c) a custodian or public officer takes charge of the Trustee or its
property; or

          (d) the Trustee becomes incapable of acting.

          If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.

          If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.

          If the Trustee, after receiving a written request to resign by any
Holder of a Note who has been a bona fide Holder of a Note for at least six
months, fails to comply with Section 7.10, such Holder of a Note may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.

          A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture.  The successor Trustee shall mail a notice of its
succession to Holders of the Notes.  The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7 hereof.  Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof
shall continue for the benefit of the retiring Trustee.

          SECTION 7.9.  Successor Trustee by Merger, etc.
          -----------------------------------------------

          If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee or Agent, as the case may be.

                                     -44-
<PAGE>

          SECTION 7.10.  Eligibility; Disqualification
          --------------------------------------------

          There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that together with its direct parent, if any, or in the case of
a corporation included in a bank holding company system, its related bank
holding company, has a combined capital and surplus of at least $50 million as
set forth in its most recent published annual report of condition.

          This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).

          SECTION 7.11.  Preferential Collection of Claims Against Company
          ----------------------------------------------------------------

          The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b).  A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.

          SECTION 7.12.  Other Capacities
          -------------------------------

          All references in this Indenture to the Trustee shall be deemed to
refer to the Trustee in its capacity as Trustee and in its capacities as any
Agent, to the extent acting in such capacities, and every provision of this
Indenture relating to the conduct or affecting the liability or offering
protection, immunity or indemnity to the Trustee shall be deemed to apply with
the same force and effect to the Trustee acting in its capacity as any Agent.

                                 ARTICLE VIII
                                 ------------

                   LEGAL DEFEASANCE AND COVENANT DEFEASANCE
                   ----------------------------------------

          SECTION 8.1.  Option to Effect Legal Defeasance or Covenant Defeasance
          ----------------------------------------------------------------------

          The Company may, at its option and at any time, elect to have either
Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon compliance
with the conditions set forth below in this Article VIII.

          SECTION 8.2.  Legal Defeasance and Discharge
          --------------------------------------------

          Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes
(hereinafter, "Legal Defeasance").  For this purpose, Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper

                                     -45-
<PAGE>

instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of Holders of outstanding Notes to receive solely from the trust fund described
in Section 8.4 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest and the Special
Interest Premium, if any, on such Notes when such payments are due, (b) the
Company's obligations with respect to such Notes under Article II and Section
4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee
and any Agent hereunder and the Company's obligations in connection therewith,
including, without limitation, Article VII and Section 8.5 and 8.7 hereunder,
and (d) this Article VIII.  Subject to compliance with this Article VIII, the
Company may exercise its option under this Section 8.2 notwithstanding the prior
exercise of its option under Section 8.3 hereof.

          SECTION 8.3.  Covenant Defeasance
          ---------------------------------

          Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be released from its
obligations under the covenants contained in Sections 4.2, 4.4, 4.5, 4.6, 4.7,
4.8 and 4.9 hereof, under Section 6.1(c) hereof with respect to such covenants,
and under Section 6.1 (f) and (g) hereof with respect to the outstanding Notes
on and after the date the conditions set forth in Section 8.4 are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes).  For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.1 hereof, but, except as specified above,
the remainder of this Indenture and such Notes shall be unaffected thereby.  In
addition, upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3 hereof, subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, Sections 6.1(d) through 6.1(g)
hereof shall not constitute Events of Default.

          SECTION 8.4.  Conditions to Legal or Covenant Defeasance
          --------------------------------------------------------

          The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Notes:

          In order to exercise either Legal Defeasance or Covenant Defeasance:

          (a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in United States dollars, non-
callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest and the Special Interest Premium, if any, on the outstanding Notes on
the

                                     -46-
<PAGE>

stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date;

          (b) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;

          (c) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, among other things, the
defeasance trust does not constitute an "investment company" within the meaning
of the Investment Company Act of 1940, as amended;

          (d) in the case of an election under Section 8.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;

          (e) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (subject to customary qualifications and assumptions)
after the 123rd day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;

          (f) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Sections 6.1(f) or 6.1(g)
hereof are concerned, at any time in the period ending on the 123rd day after
the date of deposit;

          (g) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;

          (h) the Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that, subject to customary
assumptions and exclusions, all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance have been complied with; and

          (i) the Trustee shall have received such other documents, assurances
and Opinions of Counsel as the Trustee shall have reasonably required.

                                     -47-
<PAGE>

          SECTION 8.5.  Deposited Money and Government Securities to be Held in
          ---------------------------------------------------------------------
Trust; Other Miscellaneous Provisions
-------------------------------------

          Subject to Section 8.6 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.5, the
"Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent), to the
Holders of such Notes of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law.

          The Company agrees to pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.4 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

          Anything in this Article VIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.

          SECTION 8.6.  Repayment to Company
          ----------------------------------

          Any money deposited with the Trustee or any Paying Agent, or then held
by the Company in trust for the payment of the principal of, premium, if any,
the Special Interest Premium, if any, or interest on any Note and remaining
unclaimed for two years after such principal, and premium, if any, the Special
Interest Premium, if any, or interest has become due and payable shall be paid
to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once in The New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.

          SECTION 8.7.  Reinstatement
          ---------------------------

          If the Trustee or Paying Agent is unable to apply any United States
dollars or noncallable Government Securities in accordance with Section 8.2 or
8.3 hereof, as the case may

                                     -48-
<PAGE>

be, by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3
hereof until such time as the Trustee or Paying Agent is permitted by such court
or governmental authority to apply all such money in accordance with Section 8.2
or 8.3 hereof, as the case may be; provided, however, that, if the Company makes
any payment of principal of, premium, if any, the Special Interest Premium, if
any, or interest on any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.

                                  ARTICLE IX

                       AMENDMENT, SUPPLEMENT AND WAIVER
                       --------------------------------

          SECTION 9.1.  Without Consent of Holders of Notes
          -------------------------------------------------

          Notwithstanding Section 9.2 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:

          (a) to cure any ambiguity, defect or inconsistency;

          (b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article II hereof (including
the related definitions) in a manner that does not adversely affect any Holder;

          (c) to provide for the assumption of the Company's obligations to the
Holders of the Notes by a successor to the Company pursuant to Article V hereof;

          (d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes;

          (e) to make any change that is not inconsistent with this Indenture
and does not adversely affect the legal rights hereunder of any Holder of the
Notes; or

          (f) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the TIA.

          Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 7.2 hereof,
the Trustee shall join with the Company in the execution of any amended or
supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.

                                     -49-
<PAGE>

          SECTION 9.2.  With Consent of Holders of Notes
          ----------------------------------------------

          Except as provided below in this Section 9.2, the Company and the
Trustee may amend or supplement this Indenture and the Notes with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding voting as a single class (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer for
the Notes), and, subject to Sections 6.4 and 6.7 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, the Special Interest Premium, if any, or interest
on the Notes, except a payment default resulting from an acceleration that has
been rescinded) or compliance with any provision of this Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Notes voting as a single class (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Notes).  Section 2.8 hereof shall determine which Notes are considered
to be "outstanding" for purposes of this Section 9.2.

          Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 7.2 hereof, the Trustee shall join with the
Company in the execution of such amended or supplemental Indenture unless such
amended or supplemental Indenture directly affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into such
amended or supplemental Indenture.

          It shall not be necessary for the consent of the Holders of Notes
under this Section 9.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.

          After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver.  Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.  Subject to Sections 6.4 and 6.7 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a
single class may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes.  However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.2 may not
(with respect to any Notes held by a non-consenting Holder):

          (a) change the stated maturity of the principal of, or interest on,
any Note;

          (b) reduce the principal amount of, reduce the rate of, or extend or
change the time for payment of interest on, any Note;

          (c) change the place or currency of payment of principal of, or
interest on, any Note;

                                     -50-
<PAGE>

          (d) reduce any amount payable upon the redemption of any Note;

          (e) impair the right to institute suit for the enforcement of any
payment on or with respect to any Note;

          (f) reduce the percentage in principal amount of outstanding Notes the
consent of whose holders is required for modification or amendment of this
Indenture;

          (g) reduce the percentage in principal amount of outstanding Notes
necessary for waiver of compliance with certain provisions of this Indenture or
for waiver of certain Defaults; or

          (h) modify such provisions with respect to modification and waiver.

          SECTION 9.3.  Compliance With Trust Indenture Act
          -------------------------------------------------

          Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.

          SECTION 9.4.  Revocation and Effect of Consents
          -----------------------------------------------

          Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note, even if notation of the consent is not made on any
Note.  However, any such Holder or subsequent Holder may revoke the consent as
to its Note if the Trustee receives written notice of revocation before the date
the waiver, supplement or amendment becomes effective.  An amendment, supplement
or waiver becomes effective in accordance with its terms and thereafter binds
every Holder.

          SECTION 9.5.  Notation on or Exchange of Notes
          ----------------------------------------------

          The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated.  The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.

          Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.

          SECTION 9.6.  Trustee to Sign Amendments, etc.
          ----------------------------------------------

          The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article IX if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it.  In executing any amended or supplemental Indenture,
the Trustee shall be entitled to receive and (subject to Section 7.1 hereof)
shall be fully protected in relying upon, in addition to the documents required
by

                                     -51-
<PAGE>

Section 10.4 hereof, an Officer's Certificate and an Opinion of Counsel stating
that the execution of such amended or supplemental Indenture is authorized or
permitted by this Indenture.

                                   ARTICLE X

                                 MISCELLANEOUS
                                 -------------

          SECTION 10.1.  Trust Indenture Act Controls
          -------------------------------------------

          If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the duties imposed by TIA (S) 318(c) shall
control.

          SECTION 10.2.  Notices
          ----------------------

          Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address

          If to the Company:

               PG&E National Energy Group, Inc.
               7500 Old Georgetown Road
               Bethesda, Maryland 20814
               Attention: John R. Cooper

               With a copy to each of:

               PG&E National Energy Group, Inc.
               7500 Old Georgetown Road
               Bethesda, Maryland 20814
               Attention: General Counsel

               and

               Orrick Herrington & Sutcliffe LLP
               Old Federal Reserve Bank Building
               400 Sansome Street
               San Francisco, California 94111
               Attention: Leslie P. Jay, Esq.

          If to the Trustee:

               Wilmington Trust Company
               1100 North Market Street
               Wilmington, Delaware  19890
               Attention: Corporate Trust Administration
               Facsimile: (302) 651-8882

                                     -52-
<PAGE>

          The Company or the Trustee, by notice to the others, may designate
additional or different addresses for subsequent notices or communications.

          All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.

          Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar.  Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA.  Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.

          If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it, except for notices or communications to the Trustee, which shall be
effective only upon actual receipt thereof.

          If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

          SECTION 10.3.  Communication by Holders of Notes With Other Holders Of
          ----------------------------------------------------------------------
Notes
-----

          Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes.  The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).

          SECTION 10.4.  Certificate and Opinion as to Conditions Precedent
          -----------------------------------------------------------------

          Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

          (a) an Officer's Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.5 hereof) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and

          (b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.5 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.

                                     -53-
<PAGE>

          SECTION 10.5.  Statements Required in Certificate or Opinion
          ------------------------------------------------------------

          Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:

          (a) a statement that the Person making such certificate or opinion has
read such covenant or condition;

          (b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;

          (c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and

          (d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.

          SECTION 10.6.  Rules by Trustee and Agents
          ------------------------------------------

          The Trustee may make reasonable rules for action by or at a meeting of
Holders.  The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

          SECTION 10.7.  No Personal Liability of Directors, Officers, Employees
          ----------------------------------------------------------------------
and Shareholders
----------------

          No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or this Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation.  Each Holder by accepting a
Note waives and releases all such liability.  The waiver and release are part of
the consideration for issuance of the Notes.  Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.

          SECTION 10.8.  Governing Law
          ----------------------------

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

          SECTION 10.9.  No Adverse Interpretation of Other Agreements
          ------------------------------------------------------------

          This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.

                                     -54-
<PAGE>

              SECTION 10.10.  Successors
              --------------------------

              All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.

              SECTION 10.11.  Severability
              ----------------------------

              In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

              SECTION 10.12.  Counterpart Originals
              -------------------------------------

              The parties may sign any number of copies of this Indenture.  Each
signed copy shall be an original, but all of them together represent the same
agreement.

              SECTION 10.13.  Table of Contents, Headings, etc.
              -------------------------------------------------

              The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.

                           [Signature page follows]

                                     -55-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Indenture, as of the date first above
written.

                                         PG&E NATIONAL ENERGY GROUP, INC.

                                         By:  /s/ John R. Cooper
                                              -------------------------------
                                              Name:  John R. Cooper
                                              Title:  Senior Vice President

                                         WILMINGTON TRUST COMPANY

                                         By:  /s/  James P. Lawler
                                              -------------------------------
                                              Name:  James P. Lawler
                                              Title:  Vice President
<PAGE>

                                   EXHIBIT A

                                (Face of Note)

[Insert the Global Note Legend, if applicable pursuant to the provisions of the
                                  Indenture]

[Insert the Private Placement Legend, if applicable pursuant to the provisions
                               of the Indenture]
[Insert the Regulation S Temporary Global Note legend, if applicable pursuant to
                       the provisions of the Indenture]
 [Insert the IAI Note Legend, if applicable pursuant to the provisions of the
                                  Indenture]

                                                                CUSIP __________

                         10.375% Senior Notes due 2011

No.______                                                           $__________

                       PG&E NATIONAL ENERGY GROUP, INC.

promises to pay to_____________________________________________or registered
assigns, the principal sum of_____________________________________ dollars on
May 16, 2011.

Interest Payment Dates: May 15 and November 15

Record Dates: May 1 and November 1

                              PG&E NATIONAL ENERGY GROUP, INC.

                              By:___________________________
                                 Name:     John R. Cooper
                                 Title:    Senior Vice President

                              By:___________________________
                                 Name:     Leslie H. Everett
                                 Title     Secretary

This is one of the Notes referred
to in the within-mentioned Indenture:

WILMINGTON TRUST COMPANY,
as Trustee

By: _______________________     Dated:
Name:
Title:

                                      A-1
<PAGE>

                               (Reverse of Note)

                         10.375% Senior Notes due 2011

          Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.

          1.   Interest. PG&E National Energy Group, Inc. (the "Company"), a
Delaware corporation, promises to pay interest on the principal amount of this
Note at 10.375% per annum from May 22, 2001 until maturity and shall pay the
Special Interest Premium, if any, payable pursuant to Section 2(e) of the
Registration Rights Agreement referred to below. The Company shall pay interest
and Special Interest Premium, if any, semi-annually on May 15 and November 15 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each, an "Interest Payment Date"). Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
November 15, 2001. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at a rate that is 1% per annum in
excess of the then applicable interest rate, to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Special Interest
Premium, if any, (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.

          2.   Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Special Interest Premium, if any, to the Persons
who are registered Holders of Notes at the close of business on the May 1 or
November 1 next preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture (as herein defined) with
respect to defaulted interest. The Notes will be payable as to principal,
premium and Special Interest Premium, if any, and interest at the office or
agency of the Paying Agent (which may be the Company), or, at the option of the
Company, payment of interest and Special Interest Premium, if any, may be made
by check mailed to the Holders at their addresses set forth in the register of
Holders, and provided that all payments of principal, premium, if any, interest
and Special Interest Premium, if any, with respect to Notes the Holders owning
at least $50 million aggregate amount of Notes, which Holders have given wire
transfer instructions to the Company at least ten business days prior to the
applicable payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.

          3.   Paying Agent and Registrar.  Initially, Wilmington Trust Company,
the Trustee ("Trustee") under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.

          4.   Indenture. The Company issued this Note under an Indenture dated
as of May 22, 2001, as amended or supplemented from time to time ("Indenture"),
between the Company and the Trustee. The terms of the Notes include those stated
in the Indenture and those made part of the Indenture

                                      A-2
<PAGE>

by reference to the TIA. The Notes are subject to all such terms, and Holders
are referred to the Indenture and the TIA for a statement of such terms. To the
extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling.

          5.   Optional Redemption.  The Notes will be subject to redemption at
any time at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, for the greater of (i) 100% of the principal
amount of Notes being redeemed, or (ii) the sum of the present values of the
Remaining Scheduled Payments of principal and interest on the Notes being
redeemed discounted to the date of redemption on a semiannual basis, (assuming a
360-day year of twelve 30-day months) using a discount rate equal to the
Treasury Yield plus 50 basis points, plus in either case, accrued and unpaid
interest, if any, on the principal amount of Notes being redeemed to the
redemption date.

          6.   Notice of Redemption.  Notice of redemption will be mailed, by
first class mail, at least 30 days but not more than 60 days before the
redemption date to each Holder whose Notes are to be redeemed at its registered
address. Notes in denominations larger than $1,000 may be redeemed in part but
only in whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date, interest ceases to accrue on
Notes or portions thereof called for redemption, if the Company has deposited
with the Trustee or with the Paying Agent, one Business Day prior the redemption
date, money sufficient to pay the redemption price of and accrued interest on
all Notes to be redeemed on that date.

          7.   Denominations, Transfer, Exchange.  The Notes are in registered
form without coupons in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The transfer of Notes may be registered and Notes may
be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company and the
Registrar need not exchange or register the transfer of any Note selected for
redemption, in whole or in part, except for the unredeemed portion of any Note
being redeemed in part. The Company need not exchange or register the transfer
of any Notes for a period of 15 days before a selection of Notes to be redeemed
or during the period between a record date and the next succeeding Interest
Payment Date.

          8.   Persons Deemed Owners.  The registered Holder of a Note may be
treated as its owner for all purposes.

          9.   Amendment, Supplement and Waiver.  Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes voting as a single class, and, subject to Sections 6.4 and 6.7 of the
Indenture, any existing Default or Event of Default (other than a Default or
Event of Default in the payment of the principal of, premium, if any, the
Special Interest Premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of the Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes
voting as a single class. Without the consent of any Holder of a Note, the
Indenture or the Notes may be amended or supplemented to cure any ambiguity,
defect or inconsistency; to provide for uncertificated Notes in addition to or
in place of certificated Notes or to alter the provisions of Article II of the
Indenture (including the related definitions) in a manner that does not
adversely affect any Holder; to provide for the assumption of the Company's
obligations to Holders of the Notes by a successor to the Company pursuant to
Article V of the Indenture; to make any change that would provide any additional
rights or benefits to the Holders of the Notes, to make any change that is not
inconsistent with the Indenture and does not adversely affect the legal rights

                                      A-3
<PAGE>

under the Indenture of any Holder of Notes; or to comply with the requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the TIA.

          10.  Defaults and Remedies.  An "Event of Default" occurs if: (i) the
Company defaults in the payment of any installment of interest upon any of the
Notes as and when the same shall become due and payable, and such default
continues for a period of 30 days; (ii) the Company defaults in the payment of
all or any part of the principal of, or premium, if any, on, any of the Notes as
and when the same shall become due and payable either at maturity, upon any
redemption, by declaration of acceleration or otherwise; (iii) the Company fails
duly to observe or perform any other covenant or agreement on the part of the
Company in the Notes or in this Indenture and such failure continues for a
period of 90 days after the date on which notice specifying such failure,
stating that such notice is a "Notice of Default" under the Indenture and
demanding that the Company remedy the same, shall have been given to the Company
by the Trustee, or to the Company and the Trustee by the Holders of at least 25%
in aggregate principal amount of the Notes at the time outstanding; (iv) an
event of default, as defined in any instrument of the Company under which there
may be issued, or by which there may be secured or evidenced, any Indebtedness
in excess of $50,000,000 shall occur, which event of default has resulted in the
acceleration of such Indebtedness, or any default occurring in payment of any
such Indebtedness at final maturity (and after the expiration of any applicable
grace periods); (v) one or more final, nonappealable judgments, decrees or
orders of any court, tribunal, arbitrator, administrative or other governmental
body or similar entity for the payment of money shall be rendered against the
Company or any of its properties in an aggregate amount in excess of $50,000,000
(excluding the amount thereof covered by insurance) and such judgment, decree or
order shall remain unvacated, undischarged and unstayed for more than 90 days,
except while being contested in good faith by appropriate proceedings; (vi) a
court having jurisdiction in the premises shall enter a decree or order for
relief in respect of the Company in an involuntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or a decree or order adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment, or composition of or in respect of the Company under
any applicable federal or state law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
for any substantial part of its property or ordering the winding up or
liquidation of its affairs, shall have been entered, and such decree or order
shall remain unstayed and in effect for a period of 90 consecutive days; or
(vii) the Company shall commence a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or consent to the entry of a decree or
order for relief in an involuntary case or proceeding under any such law, or to
the commencement of any bankruptcy or insolvency case or proceeding against the
Company, or the filing by the Company of a petition or answer to consent seeking
reorganization or relief under any such applicable federal or state law, or the
consent by the Company to the filing of such petition or to the appointment of
or the taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or of any
substantial part of its property, or the making by the Company of an assignment
for the benefit of creditors, or the taking of action by the Company in
furtherance of any such action. If any Event of Default (other than an Event of
Default specified in clause (vi) or (vii) hereof) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
If an Event of Default specified in clause (vi) or (vii) hereof occurs, all
outstanding Notes shall be due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may withhold from Holders of the Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by written notice to
the Trustee may on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences under the

                                      A-4
<PAGE>

Indenture, except a continuing Default or Event of Default in the payment of the
principal of, premium and the Special Interest Premium, if any, or interest on,
the Notes.

          11.  Trustee Dealings With Company.  The Trustee, in its individual or
any other capacity, may become the owner or pledgee of Notes and may otherwise
deal with the Company or any Affiliate of the Company with the same rights it
would have if it were not the Trustee.

          12.  No Recourse Against Others. No director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes, the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.

          13.  Authentication.  This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

          14.  Abbreviations.  Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

          15.  Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes.  In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of May 22, 2001, among the Company and the Initial Purchasers
named therein (the "Registration Rights Agreement").

          16.  CUSIP Numbers.  Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

          17.  Available Information.  The Company will furnish to any Holder
upon written request and without charge a copy of the Indenture and/or the
Registration Rights Agreement. Requests may be made to:

          PG&E National Energy Group, Inc.
          7500 Old Georgetown Road
          Bethesda, MD  20814
          Attention: General Counsel

          18.  Counterparts.  This Note may be executed by one or more of the
parties to this Note on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.

                                      A-5

<PAGE>

                             Assignment Form/(1)/

To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to

________________________________________________________________________________
                 (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

________________________________________________________________________________

Date: ___________

                                   Your signature:______________________________
                                   (Sign exactly as your name appears on the
                                   face of this Note)

                                   Tax Identification No.:______________________

                                   SIGNATURE GUARANTEE:

                                   ___________________________

                                   Signatures must be guaranteed by an "eligible
                                   guarantor institution" meeting the
                                   requirements of the Registrar, which
                                   requirements include membership or
                                   participation in the Security Transfer Agent
                                   Medallion Program ("STAMP") or such other
                                   "signature guarantee program" as may be
                                   determined by the Registrar in addition to,
                                   or in substitution for, STAMP, all in
                                   accordance with the Securities Exchange Act
                                   of 1934, as amended.

(1)  This Assignment Form should be included only if the Note is in definitive
     form.

                                      A-6
<PAGE>

          SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE/(1)/

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

<TABLE>
<CAPTION>
                                                                Principal
                         Amount of                               Amount            Signature of
                        decrease in        Amount of         of this Global         authorized
                         Principal          increase              Note               officer
                           Amount         in Principal       following such       of Trustee or
Date of                of this Global    Amount of this       decrease (or             Note
Exchange                    Note          Global Note           increase)           Custodian
--------              ----------------  ----------------    -----------------    ---------------
<S>                 <C>                 <C>                 <C>                  <C>

</TABLE>

(1) This Schedule should be included only if the Note is in global form.

                                      A-7
<PAGE>

                                   EXHIBIT B
                        FORM OF CERTIFICATE OF TRANSFER

PG&E National Energy Group, Inc.
7500 Old Georgetown Road
Bethesda, MD  20814
Attention: General Counsel

Wilmington Trust Company
1100 North Market Street
Wilmington, DE  19890
Attention: Corporate Trust Administration

          Re:  10.375% Senior Notes due 2011
               -----------------------------

          Reference is hereby made to the Indenture, dated as of May 22, 2001
(the "Indenture"), between PG&E National Energy Group, Inc. (the "Company") and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

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

[CHECK ALL THAT APPLY]

1. [_] Check if Transferee will take delivery of a beneficial interest in the
       ----------------------------------------------------------------------
144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is
-----------------------------------------------------------
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.

2. [_] Check if Transferee will take delivery of a beneficial interest in the
       ----------------------------------------------------------------------
Temporary Regulation S Global Note, the Regulation S Global Note or a Definitive
--------------------------------------------------------------------------------
Note pursuant to Regulation S. The Transfer is being effected pursuant to and in
-----------------------------
accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly,
the Transferor hereby further certifies that (i) the Transfer is not being made
to a person in the United States and (x) at the time the buy order was
originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes

                                      B-1
<PAGE>

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

3. [_] Check and complete if Transferee will take delivery of a beneficial
       -------------------------------------------------------------------
interest in the IAI Global Note or a Definitive Note pursuant to any provision
------------------------------------------------------------------------------
of the Securities Act other than Rule 144A or Regulation S. The Transfer is
----------------------------------------------------------
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):

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

                                      or

        (b) [_] such Transfer is being effected to the Company or a subsidiary
thereof;

                                      or

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

                                      or

        (d) [_] such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor
hereby further certifies that it has not engaged in any general solicitation
within the meaning of Regulation D under the Securities Act and the Transfer
complies with the transfer restrictions applicable to beneficial interests in a
Restricted Global Note or Restricted Definitive Notes and the requirements of
the exemption claimed, which certification is supported by (1) a certificate
executed by the Transferee in the form of Exhibit D to the Indenture and (2) if
such Transfer is in respect of a principal amount of Notes at the time of
transfer of less than $250,000, an Opinion of Counsel provided by the Transferor
or the Transferee (a copy of which the Transferor has attached to this
certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on transfer enumerated in the

                                      B-2
<PAGE>

Private Placement Legend printed on the IAI Global Note and/or the Definitive
Notes and in the Indenture and the Securities Act.

4.[_] Check if Transferee will take delivery of a beneficial interest in an
       ---------------------------------------------------------------------
Unrestricted Global Note or of an Unrestricted Definitive Note.
--------------------------------------------------------------

        (a) [_] Check if Transfer is Pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.

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

        (c) [_] Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.

        This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                              ___________________________
                              [Insert Name of Transferor]

                              By:________________________
                                 Name:
                                 Title:
Dated: _______ __, ___

                                      B-3
<PAGE>

                      ANNEX A TO CERTIFICATE OF TRANSFER

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

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

        (a)  [_] a beneficial interest in the:

             (i)   [_] 144A Global Note (CUSIP _______), or

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

             (iii) [_] IAI Global Note (CUSIP _______); or

        (b)  [_] a Restricted Definitive Note.

2.  After the Transfer the Transferee will hold:

                                  [CHECK ONE]

        (a)  [_] a beneficial interest in the:

             (i)    [_] 144A Global Note (CUSIP _______), or

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

             (iii)  [_] a IAI Global Note (CUSIP _______), or

             (iv)   [_] Unrestricted Global Note (CUSIP _______); or

        (b)  [_] a Restricted Definitive Note; or

        (c)  [_] an Unrestricted Definitive Note,

             in accordance with the terms of the Indenture.

                                      B-4
<PAGE>

                                   EXHIBIT C
                        FORM OF CERTIFICATE OF EXCHANGE

PG&E National Energy Group, Inc.
7500 Old Georgetown Road
Bethesda, MD 20814
Attention: General Counsel

Wilmington Trust Company
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust Administration

          Re:  10.375% Senior Notes due 2011
               -----------------------------

                         (CUSIP ____________________)

          Reference is hereby made to the Indenture, dated as of May 22, 2001
(the "Indenture"), between PG&E National Energy Group, Inc. (the "Company") and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

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

1.   Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note

          (a) [_] Check if Exchange is from beneficial interest in a Restricted
                  -------------------------------------------------------------
Global Note to beneficial interest in an Unrestricted Global Note. In connection
-----------------------------------------------------------------
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.

          (b) [_] Check if Exchange is from beneficial interest in a Restricted
                  -------------------------------------------------------------
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
-------------------------------------------
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the

                                      C-1
<PAGE>

Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.

          (c) [_] Check if Exchange is from Restricted Definitive Note to
                  -------------------------------------------------------
beneficial interest in an Unrestricted Global Note. In connection with the
--------------------------------------------------
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.

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

2.   Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests
in Restricted Global Notes

          (a) [_]  Check if Exchange is from beneficial interest in a Restricted
                   -------------------------------------------------------------
Global Note to Restricted Definitive Note. In connection with the Exchange of
-----------------------------------------
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.

          (b)  [_] Check if Exchange is from Restricted Definitive Note to
                   -------------------------------------------------------
beneficial interest in a Restricted Global Note. In connection with the
-----------------------------------------------
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with
an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer and (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.

                                      C-2
<PAGE>

          This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                              _______________________
                              [Insert Name of Owner]

                              By:____________________
                              Name:
                              Title:

Dated:_______, ___

                                      C-3
<PAGE>

                                                                       EXHIBIT D
                           FORM OF CERTIFICATE FROM
                  ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

PG&E National Energy Group, Inc.
7500 Old Georgetown Road
Bethesda, MD 20814
Attention: General Counsel

Wilmington Trust Company
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust Administration

          Re:  10.375% Senior Notes due 2011
               -----------------------------

     Reference is hereby made to the Indenture, dated as of May 22, 2001 (the
"Indenture"), between PG&E National Energy Group, Inc. (the "Company") and
Wilmington Trust Company, as trustee.  Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

     In connection with our proposed purchase of $____________ aggregate
principal amount of:

          (a) [_] a beneficial interest in a Global Note, or

          (b) [_] a Definitive Note,

     we confirm that:

     1.   We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").

     2.   We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence.  We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and, if such transfer is in respect of
a principal amount of Notes at the time of transfer of less than $250,000, an
Opinion of Counsel in form reasonably acceptable to the Company to the effect
that such transfer is in compliance with the Securities

                                      D-1
<PAGE>

Act, (D) outside the United States in accordance with Rule 904 of Regulation S
under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under
the Securities Act or (F) pursuant to an effective registration statement under
the Securities Act, and we further agree to provide to any person purchasing the
Definitive Note or beneficial interest in a Global Note from us in a transaction
meeting the requirements of clauses (A) through (E) of this paragraph a notice
advising such purchaser that resales thereof are restricted as stated herein.

     3.   We understand that, on any proposed resale of the Notes or beneficial
interest therein, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions.  We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.

     4.   We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.

     5.   We are acquiring the Notes or beneficial interest therein purchased by
us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.

     You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.

                              [Insert Name of Acquiring Institutional Accredited
                              Investor]

                              By:_______________________________________
                              Name:
                              Title:
                              Dated:

                                     D-2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00027-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00027-of-00352.parquet"}]]