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United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2004

o Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to ___________

Commission file number: 001-32212

Endeavour International Corporation

(Exact name of registrant as specified in its charter)

Nevada 88-0448389

(State or other jurisdiction of incorporation or

organization)

(I.R.S. Employer Identification No.)

1000 Main Street, Suite 3300, Houston, Texas 77002

(Address of principal executive offices) (Zip code)

(713) 307-8700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class of Stock Name of Each Exchange on Which Registered

Common Stock

$0.001 par value per share

American Stock Exchange

Securities registered pursuant to Section 12(g) of the Exchange Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during

the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements

for the past 90 days.  Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best

of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this

Form 10-K . o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes o No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common

equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second

fiscal quarter. Common stock aggregate market value held by non-affiliates as of June 30, 2004: $150,576,000.

As of March 10, 2005, 74,035,162 shares of the issuer’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE :

Proxy statement of Endeavour International Corporation relating to the 2005 Annual Meeting of Stockholders expected to be held on June 2, 2005, which

is incorporated by reference into Part III of this Form 10-K.
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Part I 1

Item 1. Business 1

Item 2. Properties 15

Item 3. Legal Proceedings 18

Item 4. Submission of Matters to a Vote of Security Holders 18

Part II 18

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18

Item 6. Selected Financial Data 19

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30

Item 8. Financial Statements and Supplementary Data 32

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 90

Item 9A. Controls and Procedures 90

Item 9B. Other Information 94

Part III 94

Item 10. Directors and Executive Officers of the Registrant 94

Item 11. Executive Compensation 94

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 94

Item 13. Certain Relationships and Related Transactions 94

Item 14. Principal Accounting Fees and Services 9 5

Item 15. Exhibits and Financial Statement Schedules 9 5

Indenture dated as of January 20, 2005

List of Subsidiaries

Consent of KPMG LLP

Consent of LJ Soldinger Associates LLC

Consent of Gaffney, Cline & Associates Ltd.

Certificate of Co-Chief Executive Officer

Certificate of Co-Chief Executive Officer

Certificate of Chief Accounting Officer

Certificate of Co-Chief Executive Officer

Certificate of Co-Chief Executive Officer

Certificate of Chief Accounting Officer

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Forward-Looking Statements

The information contained in this Annual Report on Form 10-K and in other public statements by the Company and Company officers or directors includes or

may contain certain forward-looking statements. The words “may,” “will,” “expect,” “anticipate,” “believe,” “continue,” “estimate,” “project,” “intend,” and

similar expressions used in this Report are intended to identify forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of

1933 and Section 21E of the U.S. Securities Exchange Act of 1934. You should not place undue reliance on these forward-looking statements, which speak

only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or

circumstances after the date they are made or to reflect the occurrence of unanticipated events. You should also know that such statements are not guarantees of

future performance and are subject to risks, uncertainties and assumptions. Many of these risks and uncertainties are set forth under the caption “Risk

Factors” in Item 1 of this report. Should any of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may

differ materially from those included within the forward-looking statements.

Part I

Item 1. Business

Endeavour International Corporation is a Nevada corporation formed on January 13, 2000 (as Expression Graphics, Inc.) to market and sell graphics media

products, such as symbols, logos, pictures, signs and business advertisements, over the Internet. In February, 2002, we experienced a change in management,

began to implement a new business plan and changed our name to Continental Southern Resources, Inc. Beginning in 2002, we have been engaged in the

business of acquiring, exploring for, and developing natural gas and oil properties. Since February 26, 2004, we have primarily focused on the acquisition,

exploration and development of energy reserves in the North Sea.

Our principal executive offices are located at 1000 Main Street, Suite 3300, Houston, Texas 77002, and our telephone number is (713) 307-8700. Unless the

context otherwise requires, references to the “Company”, “Endeavour”, “we”, “us” or “our” mean Endeavour International Corporation or any of our

consolidated subsidiaries. If you are not familiar with the oil and gas terms used in this report, please refer to the explanations of such terms under the caption

“Commonly Used Oil and Gas Terms” in Item 7 of this report.

We file reports with the Securities and Exchange Commission (the “Commission”). The public may read and copy any materials that we file with the

Commission at the Commission’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. We make available free of charge our annual

report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to

Section 13(a) or 15(d) of the Exchange Act on our internet website at www.endeavourcorp.com, as soon as reasonably practicable after we electronically file or

furnish such material with or to the Commission.

During 2004, we significantly transformed the nature and scope of our business. While we have been engaged in oil and gas activities since 2002, our

operations had previously been focused in Louisiana, Mississippi and Oklahoma. On February 26, 2004, we completed a series of transactions that provided:

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• a new management team;

• a new business strategy of exploration, exploitation and acquisition focused on the North Sea;

• the acquisition of NSNV, Inc. which possessed the seismic data and management team that were central to the Company’s new strategy; and

• a restructuring which resulted in the sale of all our interests in U.S. oil and gas properties.

The transformed company, renamed Endeavour International Corporation, emerged with a business strategy firmly focused on exploration, production and

development in the North Sea. With this transformation, our plan is to take advantage of an industry transition that is occurring in the region similar to what

occurred in the Gulf of Mexico in the 1980s. Some major integrated energy companies are in the process of restructuring their portfolios away from what is

considered a more mature producing area. The restructuring of portfolios by larger energy companies in the Gulf of Mexico during the 1980s created financial

and development opportunities for smaller, niche players with the technical capabilities to profitably exploit the available oil and gas reserves. We believe that a

similar transition is now underway in the North Sea. At the same time, initiatives are being undertaken by governing authorities to renew the industry’s interest

in the area through the offering of attractive fiscal and licensing terms. Through the application of seismic technology and innovative geologic and engineering

concepts, we plan to take advantage of the potential of the North Sea.

Throughout 2004, we made significant strides in our goal to capitalize on opportunities in the North Sea. Simultaneous with the restructuring in February, we

completed a private offering of common stock for net proceeds of $46 million. This offering financed the initial transactions in the transformation and

provided capital for us to proceed with our business plan for the remainder of 2004. In July 2004, we participated in the 22nd Licensing Round in the United

Kingdom, receiving nine production licenses that cover 18 blocks.

In September 2004, we were notified by the Ministry of Petroleum and Energy in Norway of our pre-qualification as a licensee on the Norwegian Continental

Shelf. This process evaluates the competency of a company from a financial, technical and organizational perspective to participate in exploration and

production activities on the Norwegian Continental Shelf. It also considers the company’s competency concerning issues related to health, safety and the

environment. Our qualification makes us one of a limited number of active companies qualified as an operator or a licensee in Norway.

In November 2004, we purchased a 76.66% majority interest in OER oil AS (“OER”), a privately held Norwegian exploration and production company based

in Oslo (the “OER Acquisition”). In January 2005, we purchased the remaining 23.34% interest in OER from twenty-four minority interest holders. With this

acquisition, we hold working interests in the Brage and Njord fields operated by Norsk Hydro. Our current production from these net interests is

approximately 1,900 BOEPD.

In December 2004, we were awarded a 7.5 percent ownership in two additional licenses in Norway as part of the 2004 Awards in Predefined Areas, a

concession round held annually by the Norwegian Ministry of Petroleum and Energy in mature parts of the Norwegian Continental Shelf. The awarded areas

cover approximately 600 square kilometers or 232 square miles, equivalent to 30 Gulf of Mexico blocks, near our Njord interests. The Company and its

partners are currently conducting exploration and exploitation activities in the Njord field that are expected to extend the life of the field beyond 2013.

In January 2005, we entered into an agreement with PGS Exploration (UK) Ltd (“PGS”) to obtain data under PGS’s Holland MegaSurvey, including 3D

seismic data, covering approximately 15,000 square kilometers in the Dutch North Sea. The Holland MegaSurvey product will bring together open file,

brokered and PGS multi-client data into one format along with a series of regional maps.

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In January and February 2005, we issued $81.25 million aggregate principal amount of convertible senior notes due 2012 in a private placement to qualified

institutional buyers, pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The purpose of the notes issuance

is to fund expenditures to explore for and develop oil and gas properties, working capital and general corporate purposes, which may include future

acquisitions of interests in oil and gas properties.

Business Strategy

Our strategy involves taking advantage of the shift of the major integrated energy companies away from the North Sea, the significant contraction of the

independent sector, and the opportunities these changes create for new independent companies. We intend to leverage vertical alliances with companies that

offer capabilities or technologies that will enhance our future exploratory and developmental efforts.

We have the right to use the 3D Mega Merge dataset, recently compiled by PGS, that covers approximately 79,200 square kilometers of the United Kingdom

Continental Shelf and the Norwegian Continental Shelf. PGS overcame major technological challenges to bring together, for the first time, open-file, brokeraged

and PGS multi-client 3D seismic data into one format. Also, included in the agreement is access to the North Sea Digital Atlas, a dataset consisting of a

multitude of regional maps on key horizons, interpreted from 110,000 kilometers of 2D data tied to over 1,200 wells. In January 2005, we added PGS’s

Holland MegaSurvey, including 3D seismic data, covering approximately 15,000 square kilometers in the Dutch North Sea.

We believe the use of the 3D Mega Merge, Holland MegaSurvey and the North Sea Digital Atlas, coupled with over 20 man-years of associated

interpretation from PGS, will enable proprietary mapping for purposes of identifying development and exploration opportunities not yet exploited by the energy

industry in the North Sea. From our perspective, this data gives us a period of competitive advantage over current operators and other niche independent

exploration and production companies entering the North Sea. Our efforts to establish a leadership role in the area are supported by the analysis of key

geophysical data using advanced technologies to better understand and manage risk and improve the probability of early, profitable results.

We believe that this combination of the most comprehensive seismic data available to the industry in this region with advanced geologic concepts will result in

the discovery and/or exploitation of new energy resources in the North Sea.

United Kingdom Opportunity

The exploration and exploitation potential of the United Kingdom was our initial focus for establishing our business plan. The UK has led the way in

regulatory and fiscal reform to encourage more entrants for exploration. Also, approximately two-thirds of our 3D Mega Merge covers the UK. Our success in

the 22nd Licensing Round is evidence of our long-term commitment to growth opportunities in the UK sector.

Norway Opportunity

The exploration potential of Norway is also of particular interest to us. Norway is immature from a historical drilling activity and well density perspective.

While the UK has offered initiatives and incentives to encourage exploration and production activities, historic regulatory and fiscal policies in Norway have

controlled the pace and scope of exploration activities and prevented drilling and development from all but the very largest of fields. The dynamics of world oil

and gas supply and

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demand, global competition, and the increasing need to support the government’s policies have caused the Norwegian government to reconsider its current

regulations and fiscal policies. As a result, Norway has begun to take proactive steps to promote more exploration and development and retain its position as a

premier supplier of oil and, particularly, natural gas to the UK and Europe. The signing of a framework agreement with the UK to encourage, among other

things, the construction of additional natural gas pipeline infrastructure between the two countries exemplifies Norway’s commitment to expanding its energy

industry. We intend to position ourselves to capture the opportunities that these new policies may provide.

Netherlands Opportunity

Our business model was recently expanded to include evaluation of exploration and exploitation potential in the Netherlands through the acquisition of the

Holland MegaSurvey. We will focus our efforts on new exploration opportunities in two play areas in the southern gas-prone region of the Dutch North Sea

and an immature oil play in the northern part of the sector that could extend from our activities in the UK Central Graben area. Dutch regulatory and fiscal

terms are comparable to those in the UK and the relatively low level of industry competition makes this sector a reasonable place for us to expand our search

for high quality investment opportunities.

Acquisition Strategy

Our acquisition strategy will focus on asset management processes of other companies and corporate opportunities that are identified and prioritized by

utilizing our extensive regional datasets. An overriding objective will be to gain a level of production and cash flow that will support a strong exploration effort

and provide investment funding for exploitation opportunities we identify in acquired assets.

Through the use of the North Sea Digital Atlas, existing extensive regional and local maps and proprietary interpretation of the 3D Mega Merge and Holland

MegaSurvey, we intend to identify specific targets for investment. These will primarily include:

• existing oil and gas producing properties,

• the acquisition of oil and gas producing properties,

• acquiring the rights to explore, evaluate and exploit “fallow blocks” and “fallow discoveries” in the all three sectors (“fallow” refers to blocks on which

initial exploratory terms or follow-up appraisal requirements have expired), and

• the rights to leaseholds available in future licensing rounds in the UK, Norway and the Netherlands.

We intend to develop an asset portfolio balanced between exploration and exploitation, oil and gas, leverage and equity, with the ultimate objective of funding

continued growth and building long-term value for our stockholders. Our value creation capabilities will rely heavily on the extensive industry contact base of

our executive team and the development of innovative transaction models. The most desirable targets for investment are natural gas projects with long life

production profiles and oil-producing assets that provide near-term cash flow, as well as upside from further drilling. Low risk exploration with significant

option value in upside potential should provide expanded growth opportunities. We will also focus on acquiring regional “hub” assets with access to

infrastructure in areas which hold the most promise for sustainable exploration activity. Corporate acquisitions with quality assets that are undervalued may

also be pursued.

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Technical Strategy

Our technical strategy is founded on a philosophy that regional petroleum systems analyses improve competitive advantage, reduce exploration risk and

optimize value creation. This strategy consists of understanding source rock maturation, hydrocarbon migration pathways, trap and seal integrity, and

reservoir distribution to the fullest extent possible. This system has been successfully employed by our new management team in their past experiences to

identify and commercialize reserves in basins worldwide.

Technical teams are initially focusing their efforts in the regions of the North Sea that offer large reserve potential, proven play concepts and undeveloped oil

and gas resources. A number of opportunities may be available due to asset divestitures, relinquishment of fallow acreage (including unexploited discoveries)

and introduction of UK promote licenses. We have assembled a London-based team of experienced technical and commercial professionals for the specific

purpose of evaluating and developing opportunities in the region. With the OER Acquisition, we have a regional office in Oslo, Norway, focused on operations

and business development. Senior management, experienced technical and commercial professionals and a small administrative staff located at corporate

headquarters in Houston provide strategic direction and guidance and oversee administrative, legal and financial support. Information technology support is

outsourced and the workstation environment is server- and or/high-end personal computer- based.

Executive Officers

Name Age Positions Held

William L. Transier 50 Co-Chief Executive Officer and Director of the Company since February 2004; From 1999 to 2003, Executive Vice

President and Chief Financial Officer for Ocean Energy, Inc. prior to its merger with Devon Energy Corporation;

From September 1998 to March 1999, Mr. Transier was executive vice president and Chief Financial Officer for

Seagull Energy Corporation

John N. Seitz 53 Co-Chief Executive Officer and Director of the Company since February 2004; January 2002 to March 2003, Chief

Executive Officer, Chief Operating Officer and President of Anadarko Petroleum Corporation; President and Chief

Operating Officer from 1999 to 2003 of Anadarko Petroleum Corporation; Vice President-Exploration from 1997 to

1999 of Anadarko Petroleum Corporation

Michael D. Cochran 63 Executive Vice President Exploration of the Company since February 2004; From 2001 to 2003, Senior Vice President,

Strategy and Planning, for Anadarko Petroleum Corporation; From 1997 to 2001, Vice President, World-Wide

Exploration for Anadarko Petroleum Corporation

Bruce H. Stover 5 6 Executive Vice President Operations and Business Development of the Company since February 2004; From 1997 to

2003, Mr. Stover was Senior Vice President, Worldwide Business Development for Anadarko Petroleum

Corporation

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Name Age Positions Held

H. Don Teague 62 Executive Vice President, Administration, General Counsel and Secretary of the Company since March 2004; From

2000 to 2004, an independent consultant; From 1997 to 2000, Executive Vice President and General Counsel of ICG

Communications, Inc.

Robert L. Thompson 58 Vice President, Chief Accounting Officer and Corporate Planning of the Company since March 2004; From 2001 to

2003, Vice President and Controller of Ocean Energy, Inc.; From 2000 to 2001, senior consultant on finance and

economics at Cambridge Energy Research Associates

Competition

The petroleum and natural gas industry is highly competitive. Numerous independent oil and gas companies, oil and gas syndicates and major oil and gas

companies actively seek out and bid for oil and gas properties as well as for the services of third party providers, such as drilling companies, upon which we

rely. A substantial number of our competitors have longer operating histories in this region and substantially greater financial and personnel resources than we

do. Many of these companies not only explore for, produce and market petroleum and natural gas, but also carry out refining operations and market the

resultant products on a worldwide basis. Such larger or vertically integrated competitors may be in a position to outbid us for particular prospect rights. These

competitors may also be better able to withstand sustained periods of unsuccessful drilling. Larger competitors may be able to absorb the burden of any

changes in laws and regulations more easily than we can, which would adversely affect our competitive position. In addition, most of our competitors have

been operating for a much longer time and have demonstrated the ability to operate through industry cycles.

The petroleum and natural gas producers also compete with other suppliers of energy and fuel to industrial, commercial and individual customers.

Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the governments

and/or agencies thereof and other factors out of our control including, international political conditions, overall levels of supply and demand for oil and gas,

and the markets for synthetic fuels and alternative energy sources.

Regulation

The exploration, production and sale of oil and gas are extensively regulated by governmental bodies. Applicable legislation is under constant review for

amendment or expansion. These efforts frequently result in an increase in the regulatory burden on companies in our industry and consequently an increase in

the cost of doing business and decrease in profitability. Numerous governmental departments and agencies are authorized to, and have, issued rules and

regulations imposing additional burdens on the oil and gas industry that often are costly to comply with and carry substantial penalties for failure to comply.

Production operations are affected by changing tax and other laws relating to the petroleum industry, by constantly changing administrative regulations and

possible interruptions or termination by government authorities.

Oil and gas mineral rights may be held by individuals or corporations and by governments having jurisdiction over the area in which such mineral rights are

located. As a general rule, parties holding such mineral rights grant licenses or leases to third parties to facilitate the exploration and development of these

mineral rights. The terms of the leases and licenses are generally established to require timely

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development. Notwithstanding the ownership of mineral rights, the government of the jurisdiction in which mineral rights are located generally retains

authority over the manner of development of those rights.

Regulatory authorities have established rules and regulations requiring permits for drilling operations, drilling bonds and reports concerning operations. The

areas in which we operate have statutes and regulations governing various environmental and conservation matters, including the unitization or pooling of oil

and gas properties and the establishment of maximum rates of production from oil and gas wells. Many authorities may also restrict production to the market

demand for oil and gas. Such statutes and regulations may limit the rate at which oil and gas could otherwise be produced from our properties.

Environmental

Our operations are also subject to a variety of constantly changing laws and regulations governing the discharge of materials into the environment or otherwise

relating to environmental protection. Significant fines and penalties may be imposed for the failure to comply with environmental laws and regulations. Some

environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances, rendering a person liable for environmental

damage without regard to negligence or fault on the part of such person. In addition, we may be subject to claims alleging personal injury or property damage

as a result of alleged exposure to hazardous substances, such as oil and gas related products or for other reasons.

Some environmental protection laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for

acts which were in compliance with all applicable laws at the time the acts were performed. Changes in the environmental laws and regulations, or claims for

damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us. These laws and regulations may

substantially increase the cost of exploring for, developing, producing or processing oil and gas and may prevent or delay the commencement or continuation

of a given project and thus generally could have a material adverse effect upon our capital expenditures, earnings, or competitive position. We believe that we

are in substantial compliance with current applicable environmental laws and regulations. Nevertheless, changes in existing environmental laws and

regulations or in the interpretations thereof could have a significant impact on us and the oil and gas industry in general.

Water discharge regulations and waste discharge permitting requirements have been adopted or are expected in the future to prohibit the discharge of produced

water and sand and some other substances related to the oil and gas industry. Although the costs to comply with such mandates under applicable laws may be

significant, the entire industry will experience similar costs, and we do not believe that these costs will have a material adverse impact on our financial

condition and operations.

Operational Hazards and Insurance

Our operations are subject to particular hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable

flows of oil, gas or well fluids, fires and pollution and other risks. These hazards can cause personal injury or death, damage or destruction of property and

equipment, pollution or environmental damage and suspension of operation.

In the projects that we own a non-operating interest directly or own an equity interest in a limited partnership which owns a non-operating interest, either the

operator for the project or we may maintain insurance of various types to cover our operations with policy limits and retention liability customary in

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the industry. In other cases, we may separately retain insurance coverages. We believe the coverage and types of insurance are currently adequate. The

occurrence of a significant adverse event, the risks of which are not fully covered by insurance, could have a material adverse effect on our ownership

interests and thereby financial condition and results of operations.

Employees

As of March 7, 2005, we have 40 full-time employees. We believe that we maintain good relationships with our employees, none of whom are covered by a

collective bargaining agreement. We also utilize the services of various consultants who provide us, among other things, technical support and accounting

services.

Risk Factors

The following material risk factors, among others, may affect our financial condition and results of operations.

We have had operating losses to date and do not expect to be profitable in the foreseeable future.

We have been operating at a loss each year since our inception, and we expect to continue to incur substantial losses for the foreseeable future. Net loss

applicable to common stockholders for the years ended December 31, 2004, 2003 and 2002 was $23.8 million, $41.2 million and $4.8 million, respectively.

We expect to incur substantial expenditures in connection with our oil and gas exploration activities. Further, we expect to continue to experience negative cash

flow for the foreseeable future and cannot predict when, or if, we might become profitable.

If we are unable to generate additional financing, we will not be able to adequately fund our existing development and exploration projects,

acquire additional oil and gas interests, or maintain our rights in such projects.

We may not have an adequate amount of financial resources to adequately fund our development and exploration projects on a long-term basis. In the past, we

have relied on the sale of our debt and equity securities to fund the acquisition, exploration and development of our petroleum properties. To continue funding

these projects and to have the ability to fund additional projects, we will need to raise additional capital. We cannot assure you that additional funding will be

available to us for exploration and development of our projects or to fulfill our obligations under any agreements. We also cannot assure you that we will be

able to generate sufficient operating cash flow or obtain adequate financing in the future or that the terms of any such financing will be favorable. Failure to

generate such additional operating cash flow or obtain such additional financing could result in delay, postponement or cancellation of further exploration and

development of our projects or the loss of our interest in such properties.

Acquiring interests in properties for oil and natural gas exploration is speculative in nature and may not ever result in operating revenues or

profits.

We cannot assure you that we will discover oil and gas in commercial quantities in our current properties or properties we acquire in the future. Our success

depends upon our ability to acquire working and revenue interests in properties upon which gas and oil reserves are ultimately discovered. We expect to

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ultimately derive the cash flow necessary to fund our operations from the oil and gas produced from our producing properties and/or the sale of our properties,

but there is no assurance we will be able to do so.

In the event we are unable to identify additional gas and oil prospects in which we can acquire an interest at an affordable price, we may not be

able to sustain our growth rate and ability to spread risk.

One element of our strategy is to continue to grow and spread risk through selected acquisitions of additional ownership interests in gas and oil prospects. If we

are unable to execute this aspect of our strategy in a timely manner, we may not be able to manage our risks and our operations may be adversely affected.

Some of the consequences could be:

• we may not be able to identify additional desirable gas and oil prospects and acquire leasehold or other ownership interests in such prospects at a

desirable price;

• any of our completed, currently planned, or future acquisitions of ownership interests in gas and oil prospects may not include prospects that contain

proven gas or oil reserves;

• we may not have the ability to develop prospects which contain proven gas or oil reserves to the point of commercial production;

• we may not have the financial ability to consummate additional acquisitions of ownership interests in gas and oil prospects or to develop the prospects

which we acquire to the point of production; and

• we may not be able to consummate such additional acquisitions on terms favorable to us.

We may not be able to replace production with new reserves.

In general, the volume of production from oil and gas properties declines as reserves are depleted. The decline rates depend on reservoir characteristics. Our

reserves will decline as they are produced unless we acquire properties with proved reserves or conduct successful development and exploration drilling

activities. Our future natural gas and oil production is highly dependent upon our level of success in finding or acquiring additional reserves.

Our recent growth is due in large part to acquisitions of producing properties. The successful acquisition of producing properties requires an assessment of a

number of factors, some of which are beyond our control. These factors include recoverable reserves, future oil and gas prices, operating costs, and potential

environmental and other liabilities, and other factors. Such assessments are inexact and their accuracy is inherently uncertain. In connection with such

assessments, we perform a review of the subject properties, which we believe is generally consistent with industry practices. However, such a review will not

reveal all existing or potential problems. In addition, the review will not permit a buyer to become sufficiently familiar with the properties to fully assess their

deficiencies and capabilities. We cannot assure you that we will be able to acquire properties at acceptable prices because the competition for producing oil and

gas properties is intense and many of our competitors have financial and other resources that are substantially greater than those available to us.

Market fluctuations in the prices of oil and gas could adversely affect the price at which we can sell gas or oil discovered on our properties.

Market fluctuations in the prices of oil and gas can adversely affect the price that we can sell gas and oil discovered on our properties. In recent decades, there

have been periods of both worldwide over-production and underproduction of hydrocarbons and periods of both increased and relaxed energy conservation

efforts. These conditions have resulted in periods of excess supply of, and reduced demand

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for, crude oil on a worldwide basis and for natural gas on a domestic basis. These periods have historically been followed by periods of short supply of, and

increased demand for, crude oil and, to a lesser extent, natural gas. The excess or short supply of natural gas and crude oil has placed pressures on prices and

has resulted in dramatic price fluctuations, even during relatively short periods of seasonal market demand. We cannot predict with any degree of certainty

future oil and natural gas prices. Changes in oil and natural gas prices significantly affect our revenues, operating results, profitability and the value of our oil

and gas reserves. Lower prices may reduce the amount of oil and natural gas that we can produce economically. In an attempt to reduce our price risk, we

periodically enter into hedging transactions with respect to a portion of our expected future production. We cannot assure you that such transactions will reduce

the risk or minimize the effect of any decline in oil or natural gas prices.

Lower oil and gas prices may cause us to record ceiling test write-downs.

We use the full cost method of accounting for our oil and gas operations. Accordingly, we capitalize the cost to acquire, explore for and develop oil and gas

properties. Under full cost accounting rules, the net capitalized costs of oil and gas properties (net of related deferred taxes), including estimated capitalized

abandonment costs, may not exceed a “ceiling limit” which is based upon the present value of estimated future net cash flows from proved reserves,

discounted at 10% and excluding cash flows related to estimated abandonment costs, plus the lower of cost or fair value of unproved properties. If net

capitalized costs of oil and gas properties exceed the ceiling limit, we must charge the amount of the excess to earnings. This is called a “ceiling test writedown.” This charge does not impact cash flow from operating activities, but does reduce net income. The risk that we will be required to write down the

carrying value of oil and gas properties increases when oil and natural gas prices are low. In addition, write-downs may occur if we experience substantial

downward adjustments to our estimated proved reserves. We cannot assure you that we will not experience ceiling test write-downs in the future.

The oil and gas exploration industry is extremely competitive, which may adversely affect our profitability.

The oil and gas industry is intensely competitive and we compete with other companies that have longer operating histories and greater financial and other

resources than we do. Many of these companies not only explore for and produce crude oil and natural gas but also conduct refining operations and market

petroleum and other products on a worldwide basis. These competitors can sustain longer periods of reduced prices of gas and oil and may also be in a better

position to outbid us to purchase particular interests in oil and gas properties.

Our ability to produce sufficient quantities of oil and gas from our properties may be adversely affected by a number of factors outside of our

control. If we are unable to produce oil and gas from our properties in commercial quantities, our operations will be severely affected.

Our business of exploring for and producing oil and gas involves a substantial risk of investment loss. Drilling oil and gas wells involves the risk that the

wells may be unproductive or that the wells, although productive, do not produce oil or gas in economic quantities. Other hazards, such as unusual or

unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids, or other conditions may substantially delay or prevent

completion of any well. This could result in a total loss of our investment in a particular property. Adverse weather conditions can also hinder drilling

operations. A productive well may become uneconomic if water or other deleterious substances are encountered, which impair or prevent the production of oil

and gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. As with any

petroleum property, we cannot assure you that oil and gas will be produced from the properties in which

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we have interests, nor can we assure the marketability of oil and gas which may be acquired or discovered. There are numerous factors beyond our control,

including the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, allowable production

and environmental protection. We cannot predict how these factors will adversely affect our business.

We operate in foreign countries and are subject to political, economic and other uncertainties.

We currently have operations in the United Kingdom, Norway, the Netherlands and, through our subsidiary PHT Partners, L.P., the Kingdom of Thailand.

We may expand international operations to other countries or regions in the future. International operations are subject to political, economic and other

uncertainties, including:

• the risk of war, acts of terrorism, revolution, border disputes, expropriation, renegotiation or modification of existing contracts, import, export and

transportation regulations and tariffs;

• taxation policies, including royalty and tax increases and retroactive tax claims;

• exchange controls, currency fluctuations and other uncertainties arising out of foreign government sovereignty over our international operations;

• laws and policies of the U.S. affecting foreign trade, taxation and investment; and

• the possibility of having to be subject to the exclusive jurisdiction of foreign courts in connection with legal disputes and the possible inability to subject

foreign persons to the jurisdiction of courts in the United States.

Foreign countries have occasionally asserted rights to land, including oil and gas properties, through border disputes. If a country claims superior rights to oil

and gas leases or concessions granted to us by another country, our interests could be lost or decreased in value. Various regions of the world have a history of

political and economic instability. This instability could result in new governments or the adoption of new policies that might assume a substantially more

hostile attitude toward foreign investment. In an extreme case, such a change could result in termination of contract rights and expropriation of foreign–owned

assets. This could adversely affect our interests.

If the operator of a prospect in which we participate does not maintain or fails to obtain adequate insurance, our interest in such prospect could

be materially and adversely affected.

Oil and gas operations are subject to particular hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions,

uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life,

severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation.

We do not currently operate all of our oil and gas properties. In the projects in which we own a non-operating interest directly or own an equity interest in a

limited partnership which in turn owns a non-operating interest, the operator for the prospect may maintain insurance of various types to cover our operations

with policy limits and retention liability customary in the industry. The occurrence of a significant adverse event that is not fully covered by insurance could

result in the loss of our total investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations.

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The cost of decommissioning is uncertain.

As a result of our business strategy, we expect to incur obligations to abandon and decommission certain structures in the North Sea. To date the industry has

little experience of removing oil and gas structures in the North Sea. Fewer than 10% of the 400 structures have been removed and these were small steel

structures and sub sea installations in the shallower waters of the Southern North Sea. In addition, certain groups have been established to study issues

relating to decommissioning and abandonment and how the costs will be borne. Because the experience is limited, it is difficult to predict the costs of any

future decommissions for which we might become obligated.

Our failure to comply with environmental regulations could result in significant fines and penalties and our cost of compliance with such

regulations could result in large expenses, either of which could adversely affect our operations.

Our operations are subject to a variety of national, state, local, and international laws and regulations governing the discharge of materials into the environment

or otherwise relating to environmental protection. Significant fines and penalties may be imposed for the failure to comply with environmental laws and

regulations. Some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances, rendering a person liable

for environmental damage without regard to negligence or fault on the part of such person. In addition, we may be subject to claims alleging personal injury or

property damage as a result of alleged exposure to hazardous substances such as oil and gas related products.

Some environmental protection laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for

acts which were in compliance with all applicable laws at the time the acts were performed. Changes in the environmental laws and regulations, or claims for

damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us. Therefore, we may incur significant

environmental compliance costs in the future.

Our failure to comply with various levels of governmental regulations to which we are subject could result in significant fines and/or penalties

and our cost of compliance with such regulations could result in large expenses, either of which would adversely affect our operations.

Oil and gas exploration, development and production are subject to various types of regulation by local, state and federal agencies. Regulations and laws

affecting the oil and gas industry are comprehensive and under constant review for amendment and expansion. These regulations and laws carry substantial

penalties for failure to comply. The regulatory burden on the oil and gas industry increases our cost of doing business and, consequently, adversely affects our

profitability.

We are dependent on our executive officers and need to attract and retain additional qualified personnel.

Our future success depends in large part on the service of William L. Transier and John N. Seitz, both of whom have substantial experience in the oil and gas

industry. If either were to resign it could have a material adverse effect on our business, operating results and financial condition. While we have employment

agreements with each of Mr. Transier and Mr. Seitz, there can be no assurance that such agreements will be enforceable in all circumstances, that we will have

the resources to enforce such agreements or that we will have the ability to retain their services due to resignation or otherwise. Further, we do not intend to

maintain key-person life insurance on either Mr. Transier or Mr. Seitz. Our future success also depends upon our ability to attract, assimilate and retain

highly qualified technical and

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other management personnel. There can be no assurance that we will continue to attract, assimilate and retain key personnel, and the failure to do so will have

a material adverse effect on our business, operating results and financial condition.

You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock.

We may in the future issue our previously authorized and unissued securities which will result in the dilution of the ownership interests of our present

stockholders. We are currently authorized to issue 150,000,000 shares of common stock and 376,287 shares of preferred stock with such designations,

preferences and rights as determined by our board of directors. At March 7, 2005, we have issued 74,035,162 shares of common stock, and outstanding

options and warrants to purchase an additional 6,653,500 shares of our common stock. We also have additional shares available for grant under the

Company’s recently adopted Incentive Plan, which was approved at our 2004 annual meeting of stockholders. Additional incentive plans for employees may

be adopted in the future. Issuance of these shares of common stock may substantially dilute the ownership interests of our existing stockholders. The potential

issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock. We may also issue additional

shares of our stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes, or

for other business purposes. This would further dilute the interests of our existing stockholders. In the first quarter of 2005, we issued $81.25 million of

convertible senior notes that are convertible into shares of our common stock at an initial conversion rate of 199.2032 shares of common stock per $1,000

principal amount of notes, subject to adjustment. Should the noteholders choose to convert their senior notes into common stock, this would further dilute the

interests of our existing stockholders.

We do not intend to pay dividends in the foreseeable future.

We have never declared or paid a dividend on our common stock. We intend to retain earnings, if any, for use in the operation and expansion of our business

and therefore do not anticipate declaring or paying any dividends in the foreseeable future.

The trading price of our common stock may be volatile.

The trading price of our shares has from time to time fluctuated significantly and in the future may be subject to similar fluctuations. The trading price may

be affected by a number of factors, including the risk factors set forth herein, as well as our operating results, financial condition, announcements or drilling

activities, general conditions in the oil and gas exploration and development industry, and other events or factors. In recent years, broad stock market indices,

in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide

fluctuations in the market price of our common stock. These fluctuations may have an extremely negative effect on the market price of our common stock.

There is a limited market for our common stock.

Our common stock is trading on the American Stock Exchange. Historically, there has not been an active trading market for significant volumes of our

common stock. We are not certain that an active trading market for significant volumes of our common stock will develop, or if such a market develops, that

it will be sustained.

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If we are unable to fulfill commitments under any of our licenses, we will lose our interest in such license which will result in the loss of our

entire investment in such license.

Our ability to retain licenses in which we obtain an interest will depend on our ability to fulfill the commitments made with respect to each license. We cannot

assure you that we or the other participants in the projects will have the financial ability to fund these potential commitments.

Our operations are extremely dependent on other companies and other service providers over which we have no control.

While we employ exploration and development personnel, we may also rely upon the services of geologists, geophysicists, chemists, engineers and other

scientists to assist in the exploration and analysis of our prospects to determine a method in which the prospects may be developed in a cost-effective manner.

In addition, we rely upon the owners and operators of oil rigs and drilling equipment to drill and develop our prospects to production. Although we have

developed relationships with a number of third party service providers, we cannot assure that we will be able to continue to rely on such persons. If any of

these relationships with third party service providers are terminated or are unavailable on terms that are favorable to us, then we will not be able to execute our

business plan.

Our debt level governing our debt could negatively impact our financial condition, results of operations and business prospects.

As of December 31, 2004, we had $4 million in outstanding indebtedness. In addition, we completed a private placement of $81.25 million of senior

indentures in the first quarter of 2005. Our level of indebtedness could have important consequences on our operations, including:

• making it more difficult for us to satisfy our obligations under the indentures or other debt and increasing the risk that we may default on our debt

obligations;

• requiring us to dedicate a substantial portion of our cash flow from operating activities to required payments on debt, thereby reducing the availability

of cash flow for working capital, capital expenditures and other general business activities;

• limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other general business

activities;

• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• decreasing our ability to successfully withstand a downturn in our business or the economy generally; and

• placing us at a competitive disadvantage against other less leveraged competitors.

We may be required to repay all or a portion of our debt on an accelerated basis in certain circumstances. If we fail to comply with the covenants and other

restrictions in the agreements governing our debt, it could lead to an event of default and the acceleration of our repayment of outstanding debt. Our ability to

comply with these covenants and other restrictions may be affected by events beyond our control, including prevailing economic and financial conditions.

We may not have sufficient funds to make such repayments. If we are unable to repay our debt out of cash on hand, we could attempt to refinance such debt,

sell assets or repay such debt with the proceeds from an equity offering. We cannot assure you that we will be able to generate sufficient cash flow from

operating activities to pay the interest on our debt or that future borrowings, equity financings or proceeds from the sale of assets will be available to pay or

refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock, a refinancing of our debt or a sale of assets

include

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financial market conditions and our market value and operating performance at the time of such offering or other financing. We cannot assure you that any

such offering, refinancing or sale of assets can be successfully completed.

Item 2. Properties

United Kingdom

Endeavour currently anticipates serving as operator of five production licenses we hold located in the Central North Sea. These include licenses covering:

• Blocks 21/11c and 20/15b (100% equity);

• Block 21/20c (100% equity);

• Block 22/24e (60% equity);

• Block 30/23b (60% equity); and

• Blocks 31/26b and 39/1b (60% equity).

Other non-operated licenses in which we currently hold interests include licenses covering the following:

Southern Gas Basin:

• Blocks 42/10 and 42/15 (50% equity);

• Blocks 43/22, 43/23, 43/27b, 43/28 and 43/29 (25% equity);

• Blocks 44/21c and 44/25b (25% equity)

Central North Sea:

• Block 23/16e (47.5% equity); and

• Block 23/17b (47.5% equity).

These licenses cover more than a half million acres, approximately 2,160 square kilometers, or equivalent to more than 100 Gulf of Mexico blocks. Of the

licenses, four licenses covering eight blocks were granted under traditional terms that require the company to fulfill a work program within four years from the

date of award. The remaining five licenses covering 10 blocks are under “promote” terms that require the company to pay reduced license fees for a two-year

period as exploratory evaluations are conducted. It is anticipated that the above percentages will be reduced in most of these blocks through farm-outs or

bringing in partners prior to extensive work being carried out in the blocks.

Norway

As a result of our recent acquisition of OER, we have interests in three fields in the Norwegian sector of the North Sea:

• a 4.4% working interest in the Brage field (Norsk Hydro is the operator);

• a 2.5% working interest in the Njord field (Norsk Hydro is the operator); and

• a 49% working interest in the Agat (non-producing) field (RWE is the operator).

We also have a 7.5% ownership in two licenses awarded as part of the 2004 Awards in Predefined Areas. The awarded areas cover approximately 600 square

kilometers or 232 square miles, equivalent to 30 Gulf of Mexico blocks, in area near the Njord field where we hold an interest. The Company and its partners

are currently conducting exploration and exploitation activities in the Njord area that are expected to extend the life of the field beyond 2013.

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Thailand - Khorat Plateau

We have interests in the Kingdom of Thailand through our ownership interest in PHT Partners, L.P. (“PHT”), a limited partnership. We have a 93.77%

limited partnership interest in PHT and a 100% interest in PHT Holding GP, LLC, which is the general partner of PHT and owns a 1% general partnership

interest in PHT. Certain other parties hold interests in PHT entitling them to 20% and 15% respectively of the distributions from PHT after return of all capital

contributions and expenditures. PHT has a 21.08% interest in APICO, LLC (“APICO”), which in turn has a 35% interest in the Phu Horm licenses in

Thailand. During 2003, the Phu Horm 3 well was redrilled and the 45-day test of the well established that the well was capable of production in excess of

30,000 Mcf per day.

In May 2004, the Phu Horm Project was approved as a Production Area by the Thailand Department of Mineral Fuels. Drilling of two additional appraisal

wells commenced during the second quarter of 2004. These wells have been completed successfully and tested gas and have expanded the known limits of the

reservoir. Engineering, design and permitting for the gas production facilities for the project are continuing. First gas sales are expected to commence from the

Phu Horm Project in 2006.

APICO also has a 100% interest in Onshore Exploration Block Nos. L15/43 and L27/43, covering an area of approximately 7,500 square kilometers.

Planned Exploration and Development Expenditures

We anticipate exploration and development expenditures in 2005 to be approximately $36.6 million. These anticipated expenditures include $14.1 million in

the United Kingdom, $8.4 million in Norway, $4 million in Thailand, $1.2 million in the Netherlands, $1.9 million on other exploration expenditures and

$7.0 million in capitalized employee costs and interest. We may increase or decrease our planned activities for 2005, depending upon drilling results, potential

acquisition candidates, product prices, the availability of capital resources, and other factors affecting the economic viability of such activities.

Reserves

For 2004, our oil and gas reserves were estimated by the independent reserve engineers Gaffney, Cline & Associates Ltd. Our proved oil and gas reserves at

December 31, 2004 and 2003 included the following:

Oil Gas Oil Equivalents

(MBbls) (MMcf) (MBOE)

2004:

Norway 1,543 6,725 2,664

Equity Interest in Entities with Oil and Gas Properties (Thailand) 75 25,006 4,243

2003:

United States — 52 9

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Drilling Statistics

A well is considered productive for purposes of the following table if it justifies the installation of permanent equipment for the production of oil or gas. The

information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number

of productive wells drilled, quantities of reserves found or economic value. The following table shows the results of the oil and gas wells drilled and tested

during 2004:

Productive Wells Dry Holes In Progress Wells

Gross Net Gross Net Gross Net

Norway 1 0.03 — — 2 0.07

Equity Interest in Entities with Oil and Gas Properties

(Thailand) 2 0.14 — — — —

We do not own any drilling rigs, and all of our drilling activities are conducted by independent drilling contractors.

Productive Well Summary

At December 31, 2004, our productive wells including the following:

Oil Gas

Gross Net Gross Net

Norway 25 0.95 — —

Equity Interest in Entities with Oil and Gas Properties (Thailand) — — 3 0.21

Undeveloped Acreage

The following table sets forth certain information regarding our developed and undeveloped acreage as of December 31, 2004 in the areas indicated.

Developed Undeveloped

Gross Net Gross Net

United Kingdom — — 307,387 180,104

Norway 74,356 2,873 278,446 70,279

Total North Sea 74,356 2,873 585,833 250,383

Equity Interest in Entities with Oil and Gas Properties (Thailand) — — 1,969,564 201,290

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Item 3. Legal Proceedings

In March 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf (collectively “Plaintiffs”) commenced an action against

Endeavour International Corporation (“Endeavour”), f/k/a Continental Southern Resources, Inc. (“CSOR”), as well as BWP Gas, L.L.C. and HBA Gas, Inc.

in state court in Oklahoma City, Oklahoma. In the petition, Plaintiffs allege that in 2003, at a time when CSOR intended to acquire a majority of the

membership interests in BWP, that BWP entered into an agreement to assign to Plaintiffs 2.5 million common shares of Endeavour stock upon compliance by

Plaintiffs with certain contractual obligations including but not limited to completion and initial commercial production of the Mary #2-34 well, along with the

presentation of a development plan and the commencement of the next exploration or development well in the Potato Hills Deep Prospect. Plaintiffs allege in their

petition that BWP, HBA and Endeavour are alter egos of each other and jointly and severally liable to Plaintiffs for failing to deliver to Plaintiffs the Endeavour

common stock. Plaintiffs seek delivery of the stock as well as a temporary restraining order, a primary and permanent injunction (i) enjoining all dilutions of

Plaintiffs’ rights pertaining to Endeavour stock; (ii) enjoining Endeavour from all future stock issuances and transfers of assets not in the ordinary course of

business and (iii) prohibiting the alienation or encumbrance of the Endeavour stock that is allegedly in HBA’s possession. On April 6, 2004, the defendants

removed the action from the state court to the United States District Court for the Western District of Oklahoma. On October 21, 2004, the United States

District Court granted a motion to remand to state court filed by the Plaintiffs and remanded the matter to the District Court of Oklahoma County, Oklahoma.

While the outcome can not be predicted at this time, management believes it has good and valid defenses in this litigation and intends to litigate vigorously.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted for a vote of our stockholders during the fourth quarter of 2004.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Our common stock currently trades on the American Stock Exchange under the symbol “END”. Between February and June 2004, our common stock traded

on the OTC Bulletin Board under the symbol “EVOR.” From February 27, 2002 to February 27, 2004, our common stock traded on the OTC Bulletin Board

under the symbol “CSOR”. The following table sets forth the range of high and low prices per share of our common stock for each of the calendar quarters

identified below as reported by the American Stock Exchange or the OTC Bulletin Board. These quotations represent inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.

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2004 2003

High Low High Low

First Quarter $ 5.10 $ 2.18 $ 5.25 $ 3.30

Second Quarter 4.35 3.35 3.47 2.63

Third Quarter 3.50 2.55 2.90 1.95

Fourth Quarter 4.55 3.22 2.29 2.10

Holders

As of March 1, 2005, the number of holders of record of our common stock was 344. We believe that there are a number of additional beneficial owners of our

common stock who hold such shares in street name.

Dividends

We have not paid any cash dividends to date, and have no intention of declaring or paying any cash dividends on our common stock in the foreseeable future.

Our Series B Preferred Stock is subject to a cumulative 8% dividend. Unless the full amount of the foregoing dividends is paid in full, we cannot declare or

pay any dividend on our common stock. The declaration and payment of dividends is subject to the discretion of our Board of Directors and to certain

limitations imposed under Nevada corporate laws. The timing, amount and form of dividends, if any, will depend on, among other things, our results of

operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

Item 6. Selected Financial Data

The following table sets forth some of our historical consolidated financial data. The following data should be read in conjunction with “Item 7. Management’s

Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto included elsewhere

herein. The selected consolidated financial data provided below are not necessarily indicative of our future results of operations or financial performance.

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Selected Financial Data (1)

(Amounts in thousands, except per share data) Year Ended December 31,

2004 2003 2002 2001 2000 (2)

Revenues $ 3,663 $ 27 $ 16 $ — $ —

Net Loss (23,372) (36,829) (4,487) (68) (49)

Net Loss Per Common Share - Basic and Diluted (0.37) (1.18) (0.24) (0.06) (0.11)

Summary Balance Sheet Data:

Total Assets 101,737 12,582 25,019 54 1

Long-term Debt 2,150 — — — —

(1) Includes the following acquisitions and dispositions:

 • acquisition of NSNV in February 2004;

 • acquisition of OER in November 2004;

 • acquisition of BWP in May 2003;

 • disposition of BWP, Knox Miss and LSP in 2004; and

 • disposition of CSR-Waha in 2003.

(2) Represents the period from January 13, 2000 (Inception) through December 31, 2000.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking

statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to the Company on

the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated

in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned “ RISK FACTORS” in Item 1 and

elsewhere in this report. The following should be read in conjunction with the audited financial statements and the notes thereto included elsewhere herein.

Overview

As discussed previously, we significantly transformed the nature and scope of our business through various transactions during 2004. These transactions had

significant impacts on our results of operations and financial conditions and include the NSNV and OER acquisitions, the Offering, the Restructuring and

the sales of LSP and Knox Miss, as discussed below.

The NSNV Acquisition

On February 26, 2004, we acquired NSNV, Inc. (“NSNV”), through a merger with a newly created subsidiary of the Company, resulting in NSNV

becoming a wholly-owned subsidiary of the Company (the “NSNV Acquisition”). The NSNV Acquisition was accounted for as a purchase of assets and not

a business combination. Therefore, the consideration given was allocated to the fair value of the identifiable assets and liabilities acquired with the excess of

$10.8 million expensed. Prior to the NSNV Acquisition, we had one employee and were focused on oil and gas operations in the United States. With

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the NSNV Acquisition, we gained a new management team, technical and financial staff and a new international focus in the North Sea.

The OER Acquisition

In November 2004, we purchased a 76.66% majority interest in OER oil AS (“OER”), a privately held Norwegian exploration and production company based

in Oslo (the “OER Acquisition”). The purchase price of the OER Acquisition was NOK (Norwegian kroner) 172.5 million, approximately $27.6 million,

plus $0.8 million in professional expenses for legal and accounting services. The OER Acquisition provided oil and gas sales of $3.7 million for 2004.

The Offering

In an offering of common stock (the “Offering”) that closed on February 26, 2004, we issued 25 million shares of common stock at $2.00 per share in a

private placement. The estimated net proceeds of the Offering were $46 million after deduction of offering expenses. A portion of the net proceeds were used in

the Restructuring for the purchase of 14.1 million shares of our common stock and 0.1 million shares of our Series B Preferred Stock for $5.3 million and for

repayment of the principal amount of debentures in the amount of $1.5 million. The remainder is being used for general corporate purposes, including

potential acquisitions.

The Restructuring

Simultaneous with the consummation of the NSNV Acquisition and the Offering, we restructured various financial and stockholder related items (the

“Restructuring”). Specifically, we completed the following:

• repaid $1.5 million principal amount of our outstanding convertible notes and issued 0.4 million shares of our common stock in exchange for the

remaining principal balance due under the Trident convertible debenture at a contractual conversion price of $1.60 per share;

• issued approximately one million shares of our common stock in exchange for the $1.55 million principal balance and accrued interest due under the

Marcus convertible debenture at a contractual conversion price of $1.75 per share;

• issued 2.8 million shares of our common stock upon conversion of all of the outstanding Series C Preferred Stock, and accrued dividends, at a

contractual conversion price of $1.70 per share;

• purchased 14.1 million shares of common stock and 103,500 shares of Series B Preferred Stock for $5.3 million in cash; and

• purchased all outstanding shares of Series A Preferred Stock and a portion of the Series B Preferred Stock in exchange for certain of our non-core

assets, including:

• 100% of our ownership interest in BWP Gas, LLC;

• 864,560 shares of restricted common stock of BPK Resources, Inc.;

• 400,000 shares of common stock of Trimedia Group, Inc.;

• notes receivable due with a combined principal of $0.8 million; and

• subscription receivables with a combined principal of $0.4 million.

The Sales of Knox Miss and LSP

After completing the Restructuring, we sold our entire limited partnership interest in Knox Miss. Partners, L.P., a Delaware limited partnership that owns a

50% interest in certain oil and gas leases located in Mississippi, as well as our related interest in Knox Miss., LLC, the 1% sole general partner of Knox Miss.

Partners, L.P., for $5.0 million. The $5.0 million was payable $500,000 in cash and by the issuance of a

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$4.5 million short-term note that was paid during 2004. During the second quarter of 2004, we sold all of our equity interest in Louisiana Shelf Partners, L.P.

(“LSP”) for $250,000 in cash and a $2 million contingent deferred payment that is payable from proceeds from production of drilling activities on the oil and

gas leases held by LSP.

Results of Operations

Revenues

Revenues for 2004 consisted primarily of production of 92,982 BOE from assets acquired in the OER Acquisition. Revenues for 2003 and 2002 consisted of

production from Oklahoma properties and our interest in CSR-Waha, respectively, both of which have been sold.

Operating and DD&A Expenses

Similar to revenues, operating expenses and DD&A expenses for 2004 are related to assets acquired in the OER Acquisition while 2003 and 2002 operating

expenses relate to properties which have been sold.

Unproved property impairment expenses were $25.2 million during 2003 due to the impairment of Oklahoma properties and the unsuccessful drilling results

in Louisiana.

Bad Debt Expense

Bad debt expense increased to $1.8 million in 2003 from $0.6 million in 2002. All of the bad debt expense for 2003 and 2002 was related to our investment in

Touchstone Resources, Ltd. (“Touchstone”), a Canadian Exchange listed company and the parent company of Touchstone USA, Inc. As of December 31,

2003, we had recorded bad debt reserves for the full balance of our investment in Touchstone. As discussed in Note 8 to the Consolidated Financial Statements

herein, in 2004, we received 1.2 million common shares of Touchstone Resources USA, Inc. (a public company trading on the OTC Bulletin Board) in

exchange for the promissory notes from Touchstone. As the net book value of these notes was zero, we recorded a non-cash gain on the approximately

$1.8 million (included in other income), the market value of the shares received on the date of the exchange.

General and Administrative Expenses

With our acquisitions that occurred in 2004, we have over 35 employees at December 31, 2004 versus a single employee for 2003 and 2002. Components of

G&A expenses for these periods are as follows:

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(Amounts in thousands) Year Ended December 31,

2004 2003 2002

Compensation $ 4,544 $ 168 $ 119

Non-cash stock-based compensation 7,995 — —

Fair market value adjustment of stock options – non-cash 1,183 — —

Consulting, legal and accounting fees 2,893 1,540 802

Occupancy costs 439 19 6

Other expenses 2,057 534 298

Gross G&A expenses 19,111 2,261 1,225

Less: capitalized G&A expenses (4,403) — —

Net G&A expenses $ 14,708 $ 2,261 $ 1,225

Other (Income) and Expense

Other (income) expense increased to $7.3 million during the year ended December 31, 2004 as compared to $5.0 million for the corresponding period in 2003.

The 2004 expense consisted of a $10.8 million expense for consideration given in excess of fair value of identifiable assets acquired in the NSNV Acquisition,

interest expense of $0.3 million incurred primarily on outstanding convertible debt and a $0.2 million loss in on the sale of marketable securities as part of the

Restructuring, partially offset by $0.4 million net gain in connection with our sales of assets, $1.8 million in income related to the gain on the exchange of

shares from Touchstone, $1.4 million gain on the settlement of an oil commodity swap, $0.5 million in interest income and $0.3 million in foreign currency

exchange losses. All of the convertible debt was sold or converted to common stock as part of the Restructuring.

Other (income) expense was $5.0 million during the fiscal year ended December 31, 2003 as compared to $2.7 million for the fiscal year ended December 31,

2002. The increase was primarily due to $1.7 million in losses on the sale of marketable securities.

Income Taxes

Our tax expense in 2004 of $0.7 million, including $0.5 million of foreign currency losses attributable to tax liability balances, relates to our Norwegian

operations. In 2004, our Norwegian operations had income before taxes of $0.1 million as compared to a net loss before taxes of $22.7 million for the total

company. During 2003 and 2002, we did not record any income tax benefits as there was no assurance that we could generate any taxable earnings, and

therefore recorded valuation allowances on the full amount of deferred tax assets generated.

Liquidity and Capital Resources

(Amounts in thousands) December 31, 2004 December 31, 2003

Net working capital $ 4,699 $ (6,051)

Long-term debt $ 2,150 $ —

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Year Ended December 31,

(Amounts in thousands) 2004 2003 2002

Net cash provided by (used in):

Operating activities $ 6,918 $ (3,179) $ (900)

Investing activities $(35,233) $ (7,475) $(23,959)

Financing activities $ 36,487 $ 10,381 $ 25,150

We have historically funded our operations and acquisitions through issuances of debt and equity securities. Some of the significant issuances of debt and

equity, as well as the uses of the proceeds, in 2004, 2003 and 2002 are as follows:

• in November 2004, we purchased OER for $27.6 million in cash;

• in February 2004, we issued 25 million shares of common stock and 0.7 million warrants at an exercise price of $2.00 per share;

• in February 2004, we funded the purchase of NSNV through the issuance of 12.5 million shares of common stock;

• during 2004 and 2003, we issued 1.8 million shares of our common stock to RAM for $2.2 million;

• between May and July 2003, we issued 477,500 shares of Series C Convertible Preferred Stock for $10.00 per share;

• in May 2003, we funded the purchases of BWP through the issuance of 3.3 million shares of common stock and 1.7 million warrants at an exercise

price of $2.00 per share expiring in three years;

• in April 2002, we borrowed $1.5 million from Trident through a 12% secured convertible promissory note; and

• in July 2003, we increased the principal amount of the promissory note to Trident to $2.1 million and extended the maturity date to July 31, 2004.

Subsequent Events

In January 2005, we purchased the remaining 23.34% minority interest, 1,299,772 shares, in OER for consideration of NOK 6.98 and 1.68 shares of our

common stock per share of OER. The aggregate consideration paid was approximately US$ 1.4 million in cash and 2,183,617 shares of our common stock.

In January and February 2005, we issued $81.25 million aggregate principal amount of convertible senior notes due 2012 in a private placement to qualified

institutional buyers, pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The notes bear interest at a rate of

6.00% per annum and are convertible into shares of our common stock at an initial conversion rate of 199.2032 shares of common stock per $1,000 principal

amount of notes, subject to adjustment, which is equal to an initial conversion price of approximately $5.02 per share.

The purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas properties, working capital and general corporate purposes,

which may include future acquisitions of interests in oil and gas properties.

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In January 2005, we entered into an oil commodity swap where we pay market Brent and receive a fixed price that ranges from $46.20 per barrel in the initial

month to $40.00 per barrel at the end of the contract. The contract covers 600 barrels per day from February 2005 through December 2006. The contract

requires us to provide $2 million in collateral, subject to possible adjustment.

Outlook

Anticipated Capital Expenditures

We anticipate exploration and development expenditures in 2005 to be $36.6 million. These expenditures include $14.1 million in the United Kingdom,

$8.4 million in Norway, $4 million in Thailand, $1.2 million in the Netherlands, $1.9 million on other exploration expenditures and $7.0 million in

capitalized employee costs and interest. We may increase or decrease our planned activities for 2005, depending upon drilling results, potential acquisition

candidates, product prices, the availability of capital resources, and other factors affecting the economic viability of such activities.

Liquidity and Financial Resources

The $81.25 million of convertible senior notes issued in 2005 bear interest at 6% and are due in 2012. Combined with the existing debt from our newly

acquired Norwegian subsidiary, we expect to incur approximately $5 million in interest expense during 2005. In addition, the debt from our newly acquired

Norwegian subsidiary, with approximately $4 million outstanding at December 31, 2004, is payable in equal installments in July 2005 and January 2006.

Critical Accounting Policies and Estimates

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in

the United States of America (“US GAAP”) and have been presented on a going concern basis, which contemplates the realization of assets and satisfaction of

liabilities in the normal course of business. These accounting principles require management to use estimates, judgments and assumptions that affect the

reported amounts of assets and liabilities as of the date of the financial statements, and revenues and expenses during the reporting period. Management

reviews its estimates, including those related to the determination of proved reserves, estimates of future dismantlement costs, income taxes and litigation.

Actual results could differ from those estimates.

Management believes that it is reasonably possible the following material estimates affecting the financial statements could significantly change in the coming

year: (1) estimates of proved oil and gas reserves, (2) estimates as to the expected future cash flow from proved oil and gas properties, and (3) estimates of

future dismantlement and restoration costs. In addition, alternatives may exist among various accounting methods. In such cases, the choice of accounting

method may also have a significant impact on reported amounts. Our critical accounting policies are as follows:

Full Cost Accounting

Under the full cost method, all acquisition, exploration and development costs, including certain directly related employee costs and a portion of interest

expense, incurred for the purpose of finding oil and gas are capitalized. These capitalized costs are accumulated in pools on a country–by–country basis.

Capitalized costs include the cost of drilling and equipping productive wells, including the estimated costs of dismantling and abandoning these assets, dry

hole costs, lease acquisition costs, seismic and other

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geological and geophysical costs, delay rentals and costs related to such activities. Employee costs associated with production and other operating activities

and general corporate activities are expensed in the period incurred.

Where proved reserves are established, capitalized costs are limited on a country–by–country basis (the ceiling test). The ceiling test is calculated as the sum

of the present value of future net cash flows related to estimated production of proved reserves, using end–of–the–current–period prices, discounted at 10%,

plus the lower of cost or estimated fair value of unproved properties, all net of expected income tax effects. Under the ceiling test, if the capitalized cost of the

full cost pool exceeds the ceiling limitation, the excess is charged as an impairment expense.

In countries where the existence of proved reserves has not yet been determined, leasehold costs, seismic costs and other costs incurred during the exploration

phase remain capitalized in unproved property cost centers until proved reserves have been established or until exploration activities cease. If exploration

activities result in the establishment of a proved reserve base, amounts in the unproved property cost center are reclassified as proved properties and become

subject to depreciation, depletion and amortization and the application of the ceiling test. If exploration efforts in a country are unsuccessful in establishing

proved reserves, it may be determined that the value of exploratory costs incurred there have been permanently diminished in part or in whole. Therefore,

based on the impairment evaluation and future exploration plans, the unproved property cost centers related to the area of interest could be impaired, and

accumulated costs charged against earnings.

Capitalized Interest

We capitalize interest on expenditures for significant exploration and development projects while activities are in progress to bring the assets to their intended

use. Capitalized interest is calculated by multiplying our weighted-average interest rate on debt by the amount of qualifying costs and is limited to gross interest

expense. As costs are transferred to the full cost pool, the associated capitalized interest is also transferred to the full cost pool.

Dismantlement, Restoration and Environmental Costs

Effective January 1, 2003, we recognize liabilities for asset retirement obligations associated with tangible long-lived assets, such as producing well sites,

offshore production platforms, and natural gas processing plants, with a corresponding increase in the related long-lived asset. The asset retirement cost is

depreciated along with the property and equipment in the full cost pool. The asset retirement obligation is recorded at fair value and accretion expense,

recognized over the life of the property, increases the liability to its expected settlement value. If the fair value of the estimated asset retirement obligation

changes, an adjustment is recorded for both the asset retirement obligation and the asset retirement cost.

Revenue Recognition

We use the entitlements method to account for sales of gas production. We may receive more or less than our entitled share of production. Under the

entitlements method, if we receive more than our entitled share of production, the imbalance is treated as a liability at the market price at the time the imbalance

occurred. If we receive less than our entitled share, the imbalance is recorded as an asset at the lower of the current market price or the market price at the time

the imbalance occurred. Oil revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and

title has transferred, and if collectibility of the revenue is probable.

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Derivative Instruments and Hedging Activities

From time to time, we may utilize derivative financial instruments to hedge cash flows from operations or to hedge the fair value of financial instruments. We

may use derivative financial instruments with respect to a portion of our oil and gas production to achieve a more predictable cash flow by reducing our

exposure to price fluctuations. These transactions are likely to be swaps, collars or options and to be entered into with major financial institutions or

commodities trading institutions. Derivative financial instruments are intended to reduce our exposure to declines in the market prices of crude oil and natural

gas that we produce and sell, and to manage cash flows in support of our annual capital expenditure budget.

Derivative instruments (including certain derivative instruments embedded in other contracts) are recorded at fair market value and included in the balance

sheets as assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the

resulting designation, which is established at its inception. We document, at the inception of a hedge, the hedging relationship, the risk management objective

and the strategy for undertaking the hedge. The documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature

of the risk being hedged, and the method that will be used to assess effectiveness of derivative instruments that receive hedge accounting treatment.

Derivative instruments designated as cash flow hedges are reflected at fair value in our Consolidated Balance Sheets. Changes in fair value, to the extent the

hedge is effective, are recognized in other comprehensive income until the forecasted transaction occurs. Hedge effectiveness is assessed at least quarterly based

on total changes in the derivative’s fair value. Any ineffective portion of the derivative instrument’s change in fair value is recognized immediately in other

(income) expense.

Income Taxes

We use the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax

consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or

settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes

the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion

of, or all of, the deferred tax assets will not be realized.

Stock-Based Compensation Arrangements

We account for stock–based compensation plans for employees and directors using the intrinsic value method. Under this method, we record no compensation

expense for stock options granted when the exercise price of options granted is equal to or greater than the fair market value of our common stock on the date of

grant. We apply the fair value method in accounting for stock-based grants to non-employees using the Black-Scholes Method.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standard No. 123 (revised 2004), ShareBased Payment (“SFAS 123R”), which replaces

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SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to

be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 will no longer be an

alternative to financial statement recognition. SFAS 123R is effective for periods beginning after June 15, 2005. The guidance also provides for classifying

awards as either liabilities or equity, which impacts when and if the awards must be remeasured to fair value subsequent to the grant date. We plan to adopt

SFAS 123R on July 1, 2005.

At the time of adoption, companies can select from three transition methods, two of which would allow for restatement of certain prior periods. Management

anticipates selecting the transition method in which prior period financial statements would not be restated. The adoption of SFAS No. 123R is not expected to

have a significant effect on our financial condition and will not affect our consolidated cash flows. The future impact on our consolidated results of operations

of the adoption of SFAS 123R cannot be predicted as certain of our deferred compensation plans are treated as liabilities and are currently accounted for using

the variable method of accounting. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of

SFAS 123 as described in the disclosure of pro forma net loss and loss per share included in Note 2 to our consolidated financial statements herein.

Disclosures about Contractual Obligations and Commercial Commitments

The following table sets forth the Company’s obligations and commitments to make future payments under its lease agreements and other long-term obligations

as of December 31, 2004:

(Amounts in thousands) Payments due by Period

After 5

Contractual Obligations Total 1 Year 2-3 Years 4-5 Years Years

Long-term debt $ 4,276 $ 2,138 $ 2,138 $ — $ —

Operating leases for office leases and equipment 1,207 613 342 252 —

Capital leases for computer equipment 130 118 12 — —

Purchase commitment — PGS 4,500 2,500 2,000 — —

Total Contractual Cash Obligations $ 10,113 $ 5,369 $ 4,492 $ 252 $ —

Commonly Used Oil and Gas Terms

Below are explanations of some commonly used terms in the oil and gas business.

Basis risk – The risk associated with the sales point price for oil or gas production varying from the reference (or settlement) price for a particular hedging

transaction.

Bbl – One stock tank barrel, or 42 U.S. gallons liquid volume, of crude oil or other liquid hydrocarbons.

BOE – Barrel of oil equivalent, determined using the ratio of one Bbl of crude oil or condensate to six Mcf of natural gas.

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BOPD – Barrels of oil per day.

BOEPD – Barrels of oil equivalent per day.

Completion — The installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to

the appropriate agency.

Developed acreage — The number of acres that are allocated or assignable to producing wells or wells capable of production.

Development well – A well drilled within the proved area of an oil or natural gas field to the depth of a stratigraphic horizon known to be productive,

including a well drilled to find and produce probable reserves.

Dry hole or well – A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production

exceed production expenses and taxes.

Exploration or exploratory well – A well drilled to find and produce oil or natural gas reserves that is not a development well.

Farm-in or farm-out – An agreement whereunder the owner of a working interest in an oil and gas lease assigns the working interest or a portion thereof to

another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage.

The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a “farm-in,” while the interest transferred by

the assignor is a “farm-out.”

FPSO – A floating production, storage and off-loading vessel, commonly used overseas to produce oil locations where pipeline infrastructure may not exist.

Field – An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature or

stratigraphic condition.

Gas lift – The process of injecting natural gas into the wellbore to facilitate the flow of produced fluids from the reservoir to the production train.

Gross acres or gross wells – The total acres or wells in which we own a working interest.

In progress wells – Wells where drilling activity is ongoing, wells awaiting installation of permanent equipment and wells awaiting the drilling of additional

delineation wells.

MBbls – One thousand barrels of crude oil or other liquid hydrocarbons.

MBOE – One thousand barrels of oil equivalent, determined using the ratio of one Bbl of crude oil or condensate to six Mcf of natural gas.

Mcf – One thousand cubic feet of natural gas.

MMcf – One million cubic feet of natural gas.

Net acres or net wells – The sum of the fractional working interests we own in gross acres or gross wells, as the case may be.

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Productive well – A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production

exceed production expenses and taxes.

Prospect – A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using

reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

Proved developed producing reserves – Proved developed reserves that are expected to be recovered from completion intervals currently open in existing wells

and capable of production to market.

Proved developed reserves – Proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods.

Proved developed nonproducing reserves – Proved developed reserves expected to be recovered from zones behind casing in existing wells.

Proved reserves – The estimated quantities of crude oil or natural gas that geological and engineering data demonstrate with reasonable certainty to be

recoverable in future years from known reservoirs under existing economic and operating conditions.

Proved undeveloped reserves – Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively

major expenditure is required for recompletion.

Reservoir – A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable

rock or water barriers and is individual and separate from other reservoirs.

Undeveloped acreage – Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities

of oil and natural gas regardless of whether such acreage contains proved reserves.

Working interest – The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of

production.

Workover – Operations on a producing well to restore or increase production.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Risk

The international scope of our business operations exposes us to the risk of fluctuations in foreign currency markets. As a result, we are subject to foreign

currency exchange rate risk due to effects that foreign exchange rate movements of those currencies have on our costs and on the cash flows that we receive

from foreign operations. We operate a centralized currency management operation to take advantage of potential opportunities to naturally offset exposures

against each other. To date, we have

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addressed our foreign currency exchange rate risks principally by maintaining our liquid assets in interest-bearing accounts in U.S. dollars, until payments in

foreign currency are required, but we have not reduced this risk by hedging to date.

Commodity Price Risk

We produce and sell crude oil and natural gas. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices

applicable which has been volatile and unpredictable for several years. As a result, our financial results can be significantly impacted as these commodity

prices fluctuate widely in response to changing market forces. We may engage in oil and gas hedging activities to realize commodity prices which we consider

favorable.

Interest Rate Risk

We are exposed to changes in interest rates. Changes in interest rates affect the interest earned on cash and cash equivalents and the interest rate paid on

borrowings under debt from our newly acquired Norwegian subsidiary. This debt, with approximately $4 million outstanding at December 31, 2004, bears

interest at the 6-month Norwegian Inter-Bank Offering Rate (NIBOR) plus 1.4%, currently 3.43%, and is payable in equal installments in July 2005 and

January 2006. We do not currently use interest rate derivative financial instruments to manage exposure to interest rate changes, but may do so in the future.

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Endeavour International Corporation:

We have audited the accompanying consolidated balance sheet of Endeavour International Corporation and subsidiaries as of December 31, 2004, and the

related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2004. These consolidated financial

statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based

on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that

we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting

principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits

provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Endeavour International

Corporation and subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the year ended December 31, 2004, in

conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Endeavour

International Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated

Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 7, 2005 expressed an

unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP

Houston, Texas

March 7, 2005

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Endeavour International Corporation

Houston, Texas

We have audited the accompanying consolidated balance sheet of Endeavour International Corporation (formerly, Continental Southern Resources, Inc.) as of

December 31, 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2003 and

2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial

statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that

we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting

principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit

provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Endeavour International Corporation

as of December 31, 2003, and the results of operations, changes in stockholders’ equity and its cash flows for the years ended December 31, 2003 and 2002 in

conformity with accounting principles generally accepted in the United States of America.

In 2004 and as described in Note 2 of the financial statements, the Company changed its method of accounting for oil and gas operations from the successful

efforts method originally used to the full cost method. In accordance with the guidance of Accounting Principles Board Opinion 20 Reporting a Change in

Accounting Principle this change was retroactively applied to all periods presented in these financial statements.

L J SOLDINGER ASSOCIATES LLC

Deer Park, Illinois

March 16, 2004 (Except for Note 2,

as to which the date is June 15, 2004)

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Endeavour International Corporation

Consolidated Balance Sheets

(Amounts in thousands, except share data)

December 31,

2004 2003

Assets

Current Assets:

Cash and cash equivalents $ 8,975 $ 57

Accounts receivable 4,286 87

Notes receivable - related party — 838

Interest receivable – related party — 158

Marketable securities — 512

Marketable securities – related party — 207

Prepaid expenses and other current assets 3,814 1,461

Total Current Assets 17,075 3,320

Equity Interests in Entities with Oil and Gas Properties 3,688 2,839

Property and Equipment, Net (Notes 2 and 7) 50,228 6,423

Goodwill 20,119 —

Other Assets 10,627 —

Total Assets $101,737 $12,582

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Consolidated Balance Sheets

(Amounts in thousands, except share data)

December 31,

2004 2003

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable $ 2,909 $ 2,529

Current portion of long-term debt 2,138 3,243

Deferred equity option — 870

Accrued expenses and other 7,329 2,729

Total Current Liabilities 12,376 9,371

Long-Term Debt 2,150 —

Deferred Taxes 18,012 —

Other Liabilities 8,979 —

Total Liabilities 41,517 9,371

Minority Interest 3,248 30

Commitments and Contingencies

Stockholders’ Equity:

Preferred stock (Liquidation preference: $2,300) — 5

Common stock; shares issued and outstanding – 69,995,165 shares at 2004 and 37,144,668 at 2003 70 37

Additional paid-in capital 133,919 50,175

Less stock subscription receivables — (250)

Less stock subscription receivable – related party — (175)

Accumulated other comprehensive loss (528) (489)

Deferred compensation (6,570) —

Accumulated deficit (69,919) (46,122)

Total Stockholders’ Equity 56,972 3,181

Total Liabilities and Stockholders’ Equity $101,737 $ 12,582

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Consolidated Statements of Operations

(Amounts in thousands, except per share data)

For the Year Ended December 31,

2004 2003 2002

Revenues $ 3,663 $ 27 $ 16

Expenses:

Operating expenses 2,066 6 17

Depreciation, depletion and amortization 2,180 1,497 —

Impairment of oil and gas properties — 25,168 —

Bad debt expense – related party — 1,800 551

Equity loss from entities with oil and gas properties 201 1,217 28

General and administrative 14,708 2,132 1,135

General and administrative – related party — 129 90

Total expenses 19,155 31,949 1,821

Loss From Operations (15,492) (31,922) (1,805)

Other (Income) Expense:

Consideration given in excess of fair market value of assets acquired 10,779 — —

Interest expense 295 3,570 3,312

Interest income (536) (240) (460)

Loss on marketable securities – related party 207 1,659 —

Gain on collection of promissory notes (1,848) — (165)

Other (1,565) — (1)

Total Other Expense 7,332 4,989 2,686

Loss Before Minority Interest (22,824) (36,911) (4,491)

Minority Interest 122 82 4

Loss Before Income Taxes (22,702) (36,829) (4,487)

Income Tax Expense 670 — —

Net Loss (23,372) (36,829) (4,487)

Preferred Stock Dividends (425) (4,406) (284)

Net Loss to Common Stockholders $(23,797) $ (41,235) $ (4,771)

Net Loss Per Common Share — Basic and Diluted $ (0.37) $ (1.18) $ (0.24)

Weighted Average Number of Common Shares Outstanding — Basic and Diluted 64,400 35,076 20,174

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Consolidated Statements of Cash Flows

(Amounts in thousands)

For the Year Ended December 31,

2004 2003 2002

Cash Flows from Operating Activities:

Net loss $(23,372) $(36,829) $ (4,487)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation, depletion and amortization 2,180 1,497 10

Impairment of oil and gas properties — 25,168 —

Consideration given in excess of fair value of identifiable assets acquired 10,779 — —

Deferred tax expense 199 — —

Amortization of deferred compensation 6,830 539 —

Gain on collection of promissory notes (1,848) — —

Fair market value adjustment of stock options 1,183 — —

Gain on sale of assets (355) — —

Bad debt expense – related party — 1,800 551

Amortization of discount on marketable securities — — (343)

Amortization of discount on note payable 195 2,857 2,152

Amortization of loan costs — 263 75

Equity loss from entities with oil and gas properties 201 1,217 28

Realized loss on marketable securities 207 1,659 —

Realized gain on share exchange — — (165)

Shares and options issued for services rendered 160 258 —

Other (108) (31) 288

Changes in assets and liabilities:

(Increase) Decrease in receivables 1,859 (129) (107)

(Increase) Decrease in prepaid expenses and other 3,847 (1,271) (155)

Increase (Decrease) in current liabilities 4,961 (177) 1,253

Net Cash Provided by (Used in) Operating Activities 6,918 (3,179) (900)

Cash Flows From Investing Activities:

Capital expenditures (7,064) (3,835) (17,618)

Investment in entities with oil and gas properties (2,081) (2,828) (1,401)

Acquisitions, net of cash acquired (26,817) — —

Acquisition of entities with oil and gas properties, net of cash acquired — (2,350) —

Acquisition of notes receivable — (10) (1,428)

Acquisition of notes receivable – related party — (176) —

Repayment of notes receivable — 152 792

Repayment of notes receivable – related party — 1,316 —

Purchase of marketable securities — (5) (4,304)

Proceeds from sale of assets 740 261 —

Other investing activities (11) — —

Net Cash Used in Investing Activities $(35,233) $ (7,475) $(23,959)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Consolidated Statements of Cash Flows

(Amounts in thousands)

For the Year Ended December 31,

2004 2003 2002

Cash Flows From Financing Activities:

Repayment of borrowings $ (6,156) $ (1,200) $ —

Repayment of borrowings – related party — (1,399) —

Proceeds from borrowings — 1,764 15,436

Proceeds from borrowings – related party — 1,254 —

Proceeds from deferred equity option — 870 —

Financing costs paid — — (245)

Receipts of subscription receivable — 1,430 —

Receipts of subscription receivable – related party — 1,924 —

Purchase and retirement of common stock and Series B preferred stock (5,031) — —

Proceeds from warrant exercises 1,250 — —

Proceeds from common and preferred stock issued and issuable, net of issuance costs 46,539 5,738 9,959

Other financing activities (115) — —

Net Cash Provided by Financing Activities 36,487 10,381 25,150

Net Increase (Decrease) in Cash and Cash Equivalents 8,171 (273) 291

Effect of foreign currency changes on cash 747 — —

Cash and Cash Equivalents, Beginning of Period 57 330 39

Cash and Cash Equivalents, End of Period $ 8,975 $ 57 $ 330

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Consolidated Statements of Stockholders’ Equity

(Amounts in thousands)

Additional Stock

Preferred Preferred Preferred Common Paid-In Subscription

Stock - A Stock - B Stock - C Stock Capital Receivable

Balance at December 31, 2001 $ — $ — $ — $ 2 $ 150 $ —

Issuance of common stock — — — 10 4,427 —

Issuance of warrants — — — — 2,312 —

Conversion of warrants — — — 12 (12) —

Conversion of notes payable 4 — — 9 22,137 —

Stock subscription receivable — — — — — (2,480)

Stock subscription receivable – related party — — — — — (1,156)

Additional financing costs to be amortized on convertible

debt — — — — 1,947 —

Preferred stock dividend — — — — — —

Comprehensive Loss:

Net Loss — — — — — —

Other comprehensive income (net of tax):

Unrealized gain (loss) on available-for- sale

securities — — — — — —

Balance, December 31, 2002 4 — — 33 30,961 (3,636)

Payment of subscription receivable — — — — — 1,781

Payment of subscription receivable – related party — — — — — 1,430

Issuance of common stock — — — 4 8,434 —

Issuance of warrants and options — — — — 3,198 —

Issuance of Series C preferred stock — — 1 — 7,231 —

Additional financing expense on convertible notes — — — — 351 —

Preferred stock dividend — — — — — —

Comprehensive Loss:

Net Loss — — — — — —

Other comprehensive income (net of tax):

Unrealized gain (loss) on available-for- sale

securities — — — — — —

Balance, December 31, 2003 $ 4 $ — $ 1 $ 37 $50,175 (425)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Consolidated Statements of Stockholders’ Equity

(Amounts in thousands)

Additional Stock

Preferred Preferred Preferred Common Paid-In Subscription

Stock - A Stock - B Stock - C Stock Capital Receivable

Balance, December 31, 2003 $ 4 $ — $ 1 $ 37 $ 50,175 $ (425)

Exchange of non-core assets in the Restructuring (4) — — — (2,352) 425

Conversion of preferred stock in the Restructuring — — (1) 3 211 —

Conversion of notes in the Restructuring — — — 1 1,958 —

Issuance of common stock and warrants in the

Offering, net of expenses — — — 25 46,064 —

Issuance of common stock and warrants for acquisition

of NSNV, net of expenses — — — 13 25,687 —

Issuance of common stock and stock options as

deferred compensation — — — 3 13,397 —

Other issuances of common stock — — — 1 1,352

Repurchase and retirement of common and preferred

stock — — — (14) (5,005) —

Amortization of deferred compensation — — — — — —

Conversion of warrants — — — 1 1,249 —

Preferred stock dividend — — — — — —

Fair market value adjustment of stock options — — — — 1,183 —

Comprehensive Loss:

Net Loss — — — — — —

Other comprehensive income (net of tax):

Unrealized gain (loss) on available-for- sale securities — — — — — —

Balance, December 31, 2004 $ — $ — $ — $ 70 $133,919 $ —

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Consolidated Statements of Stockholders’ Equity

(Amounts in thousands)

Accumulated

Other Total Total

Deferred Comprehensive Accumulated Stockholders’ Comprehensive

Compensation Loss Deficit Equity Loss

Balance at December 31, 2001 $ — $ — $ (116) $ 36

Issuance of common stock — — — 4,437

Issuance of warrants — — — 2,312

Conversion of warrants — — — —

Conversion of notes payable — — — 22,150

Stock subscription receivable — — — (2,480)

Stock subscription receivable – related party — — — (1,156)

Additional financing costs to be amortized on convertible debt — — — 1,947

Preferred stock dividend — — (284) (284)

Comprehensive Loss:

Net Loss — — (4,487) (4,487) $ (4,487)

Other comprehensive income (net of tax):

Unrealized gain (loss) on available-for- sale securities — (1,000) — (1,000) (1,000)

Balance, December 31, 2002 — (1,000) (4,887) 21,475 $ (5,487)

Payment of subscription receivable — — — 1,781

Payment of subscription receivable – related party — — — 1,430

Issuance of common stock — — — 8,438

Issuance of warrants and options — — — 3,198

Issuance of Series C preferred stock — — — 7,232

Additional financing expense on convertible notes — — — 351

Preferred stock dividend — — (4,406) (4,406)

Comprehensive Loss:

Net Loss — — (36,829) (36,829) $ (36,829)

Other comprehensive income (net of tax):

Unrealized gain (loss) on available-for- sale securities — 511 — 511 511

Balance, December 31, 2003 $ — $ (489) $ (46,122) $ 3,181 $ (36,318)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Consolidated Statements of Stockholders’ Equity

(Amounts in thousand)

Accumulated

Other Total Total

Deferred Comprehensive Accumulated Stockholders’ Comprehensive

Compensation Loss Deficit Equity Loss

Balance, December 31, 2003 $ — $ (489) $ (46,122) $ 3,181

Exchange of non-core assets in the Restructuring — 207 — (1,724)

Conversion of preferred stock in the Restructuring — — — 213

Conversion of notes in the Restructuring — — — 1,959

Issuance of common stock and warrants in the Offering, net of

expenses — — — 46,089

Issuance of common stock and warrants for acquisition of

NSNV, net of expenses — — — 25,700

Issuance of common stock and stock options as deferred

compensation (13,400) — — —

Other issuances of common stock — — — 1,353

Repurchase and retirement of common and preferred stock — — — (5,019)

Amortization of deferred compensation 6,830 — — 6,830

Conversion of warrants — — — 1,250

Preferred stock dividend — — (425) (425)

Fair market value adjustment of stock options — — — 1,183

Comprehensive Loss:

Net Loss — — (23,372) (23,372) $ (23,372)

Other comprehensive income (net of tax):

Unrealized gain (loss) on available-for- sale securities — (246) — (246) (246)

Balance, December 31, 2004 $ (6,570) $ (528) $ (69,919) $ 56,972 $ (23,618)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Note 1 - Description of Business

Endeavour International Corporation, formerly Continental Southern Resources, Inc. and Expression Graphics, Inc., was incorporated under the laws of the

state of Nevada on January 13, 2000. The Company was in the development stage through September 30, 2004. The year 2004 is the first year during which it

is considered an operating company. As used in these Notes to Consolidated Financial Statements, the terms the “Company”, “Endeavour”, “we”, “us”, “our”

and similar terms refer to Endeavour International Corporation and, unless the context indicates otherwise, its consolidated subsidiaries.

On February 26, 2004, we completed a series of transactions that significantly transformed the nature and scope of our business. These changes include:

• a new management team;

• a new business strategy of exploration, exploitation and acquisition that is focused on the North Sea;

• the acquisition of NSNV, Inc. which possessed the seismic data and management team that is central to the Company’s new strategy; and

• a restructuring which resulted in the sale of all interests in U.S. oil and gas properties.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in

the United States of America (“US GAAP”) and have been presented on a going concern basis, which contemplates the realization of assets and satisfaction of

liabilities in the normal course of business. These accounting principles require management to use estimates, judgments and assumptions that affect the

reported amounts of assets and liabilities as of the date of the financial statements, and revenues and expenses during the reporting period. Management

reviews its estimates, including those related to the determination of proved reserves, estimates of future dismantlement costs, income taxes and litigation.

Actual results could differ from those estimates.

Management believes that it is reasonably possible the following material estimates affecting the financial statements could significantly change in the coming

year: (1) estimates of proved oil and gas reserves, (2) estimates as to the expected future cash flow from proved oil and gas properties, and (3) estimates of

future dismantlement and restoration costs.

Principles of Consolidation

The accompanying consolidated financial statements include all of the accounts of Endeavour and our consolidated subsidiaries. All significant intercompany

accounts and transactions have been eliminated. We use the equity method to account for all limited ownership interests that range up to 50%. Affiliate

companies in which we directly or indirectly own more than 50% of the outstanding voting interest are accounted for under the consolidation method of

accounting.

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Change in Method of Accounting for Oil and Gas Operations

During the second quarter of 2004, we changed from the successful efforts method of accounting for oil and gas properties to the full cost method. We believe

that the full cost method of accounting is more appropriate for Endeavour in light of the significant changes in our operations that have occurred. We believe

capitalization of seismic and other exploration technology expenditures as well as the cost of all wells recognizes the value these expenditures add to the program

of an exploration focused company like Endeavour. Amortization of these costs over the life of the discovered reserves provides a more appropriate method of

matching revenues and expenses related to our exploration strategy. Our technical strategy is founded on a philosophy that regional petroleum systems analyses

improve competitive advantage, reduce exploration risk and optimize value creation. Regional petroleum systems analysis has been successfully employed by

our new management and technical team in their past experiences to identify and commercialize reserves in basins worldwide.

Prior to February 2004, the Company had no technical exploration and production staff and did not have any production until the fourth quarter of 2003. The

only producing property, which had minimal production, was sold in the February 2004 restructuring.

We believe the full cost method of accounting will more accurately reflect the results of our future operations. The full cost method of accounting is used by

many independent oil and gas companies and its use will allow investors to better assess the performance of the company.

We have restated all prior financial statements as a result of the conversion to full cost accounting. As a part of this process, all previous charges related to the

successful efforts method of accounting for oil and gas assets were reversed, raising the book value of those properties as well as our stockholders’ equity. The

full cost method, however, requires performing quarterly ceiling tests to ensure that the carrying value of oil and gas assets on the balance sheet is not

overstated. In ceiling tests performed for the quarter ended December 31, 2003, a $10.1 million impairment was recorded as capitalized costs exceeded the

ceiling test limits. The ceiling test was based on natural gas prices of $4.74 per thousand cubic feet (Mcf) for natural gas that included adjustments for basis

differentials and other pricing factors. Quarterly full cost ceiling tests will be based on the then-current market prices for both natural gas and oil, after

adjustments. The end result of the full cost conversion is that both the book value of our properties and stockholders’ equity are at approximately the same

levels that would have existed if we had continued with the successful efforts method of accounting.

The effect of the accounting change on net loss follows:

(Amounts in thousands, except per share data) Year Ended December 31,

2003 2002

Net loss to common shareholders under successful efforts $ (37,248) $ (8,671)

Adjustments to full cost (3,986) 3,900

Net loss to common shareholders under full cost $ (41,234) $ (4,771)

Loss per basic and diluted share under successful efforts $ (1.06) $ (0.43)

Loss per basic and diluted share under full cost $ (1.18) $ (0.24)

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Notes to Consolidated Financial Statements

The effect of the accounting change on the balance sheet follows:

Net Oil and Gas Property and Deficit Accumulated During the

(Amounts in thousands) Equipment Development Stage

December 31, December 31, December 31, December 31,

2003 2002 2003 2002

Under successful efforts $ 6,499 $ 15,078 $ (46,036) $ (8,788)

Adjustments to full cost (86) 3,900 (86) 3,900

Under full cost $ 6,413 $ 18,978 $ (46,122) $ (4,888)

Cash and Cash Equivalents

We consider all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents.

Inventories

Materials and supplies and oil inventories are valued at the lower of cost or market value (net realizable value).

Full Cost Accounting for Oil and Gas Operations

Under the full cost method, all acquisition, exploration and development costs, including certain directly related employee costs and a portion of interest

expense, incurred for the purpose of finding oil and gas are capitalized and accumulated in pools on a country–by–country basis. During 2004, we capitalized

$4.4 million in certain directly related employee costs. Capitalized costs include the cost of drilling and equipping productive wells, including the estimated

costs of dismantling and abandoning these assets, dry hole costs, lease acquisition costs, seismic and other geological and geophysical costs, delay rentals

and costs related to such activities. Employee costs associated with production and other operating activities and general corporate activities are expensed in the

period incurred.

Where proved reserves are established, capitalized costs are limited on a country–by–country basis (the ceiling test). The ceiling test is calculated as the sum

of the present value of future net cash flows related to estimated production of proved reserves, using end–of–the-current-period prices, discounted at 10%,

plus the lower of cost or estimated fair value of unproved properties, all net of expected income tax effects. Under the ceiling test, if the capitalized cost of the

full cost pool exceeds the ceiling limitation, the excess is charged as an impairment expense.

We utilize a single cost center for each country where we have operations for amortization purposes. Any conveyances of properties are treated as adjustments

to the cost of oil and gas properties with no gain or loss recognized unless the operations are suspended in the entire cost center or the conveyance is significant

in nature.

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Notes to Consolidated Financial Statements

The costs of investments in unproved properties and portions of costs associated with major development projects are excluded from the depreciation, depletion

and amortization (“DD&A”) calculation until the project is evaluated.

Unproved property costs include leasehold costs, seismic costs and other costs incurred during the exploration phase. In areas where proved reserves are

established, significant unproved properties are evaluated periodically for impairment. If a reduction in value has occurred, these property costs are considered

impaired and are transferred to the related full cost pool. Unproved properties whose acquisition costs are not individually significant are aggregated, and the

portion of such costs estimated to be ultimately nonproductive, based on experience, are amortized to the full cost pool over an average holding period.

In countries where the existence of proved reserves has not yet been determined, leasehold costs, seismic costs and other costs incurred during the exploration

phase remain capitalized in unproved property cost centers until proved reserves have been established or until exploration activities cease. If exploration

activities result in the establishment of a proved reserve base, amounts in the unproved property cost center are reclassified as proved properties and become

subject to depreciation, depletion and amortization and the application of the ceiling test. If exploration efforts in a country are unsuccessful in establishing

proved reserves, it may be determined that the value of exploratory costs incurred there have been permanently diminished in part or in whole. Therefore,

based on the impairment evaluation and future exploration plans, the unproved property cost centers related to the area of interest could be impaired, and

accumulated costs charged against earnings.

Other Property and Equipment

Other oil and gas assets, computer equipment and furniture and fixtures are recorded at cost, less accumulated depreciation. The assets are depreciated using

the straight-line method over their estimated useful lives of two to five years.

Capitalized Interest

We capitalize interest on expenditures for significant exploration and development projects while activities are in progress to bring the assets to their intended

use. Capitalized interest is calculated by multiplying our weighted-average interest rate on debt by the amount of qualifying costs and is limited to gross interest

expense. As costs are transferred to the full cost pool, the associated capitalized interest is also transferred to the full cost pool.

Marketable Securities

The marketable securities reflected in these financial statements are deemed by management to be “available-for-sale” and, accordingly, are reported at fair

value, with unrealized gains and losses reported in other comprehensive income and reflected as a separate component within the Statement of Stockholders’

Equity. Realized gains and losses on securities available-for-sale are included in other income/expense and, when applicable, are reported as a reclassification

adjustment, net of tax, in other comprehensive income. Gains and losses on the sale of available-for-sale securities are determined using the specificidentification method.

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Notes to Consolidated Financial Statements

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of OER oil

AS, subsequently renamed Endeavour Energy Norge AS. Intangible assets represent the purchase price allocation to the assembled workforce as a result of the

acquisition of NSNV, Inc. We assess the carrying amount of goodwill and other indefinite-lived intangible assets by testing the asset for impairment annually

at year-end, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test requires allocating

goodwill and all other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the book value of the

reporting unit. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

Dismantlement, Restoration and Environmental Costs

Effective January 1, 2003, we recognize liabilities for asset retirement obligations associated with tangible long-lived assets, such as producing well sites,

offshore production platforms, and natural gas processing plants, with a corresponding increase in the related long-lived asset. The asset retirement cost is

depreciated along with the property and equipment in the full cost pool. The asset retirement obligation is recorded at fair value and accretion expense,

recognized over the life of the property, increases the liability to its expected settlement value. If the fair value of the estimated asset retirement obligation

changes, an adjustment is recorded for both the asset retirement obligation and the asset retirement cost.

Revenue Recognition

We use the entitlements method to account for sales of gas production. We may receive more or less than our entitled share of production. Under the

entitlements method, if we receive more than our entitled share of production, the imbalance is treated as a liability at the market price at the time the imbalance

occurred. If we receive less than our entitled share, the imbalance is recorded as an asset at the lower of the current market price or the market price at the time

the imbalance occurred. Oil revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and

title has transferred, and if collectibility of the revenue is probable.

Significant Customers

Substantially all of our oil sales are to one customer, Statoil ASA, and substantially all of our gas and natural gas liquids sales are to one customer, Norsk

Hydro.

Derivative Instruments and Hedging Activities

From time to time, we may utilize derivative financial instruments to hedge cash flows from operations or to hedge the fair value of financial instruments. We

may use derivative financial instruments with respect to a portion of our oil and gas production to achieve a more predictable cash flow by reducing our

exposure to price fluctuations. These transactions are likely to be swaps, collars or options and to be entered into with major financial institutions or

commodities trading institutions. Derivative financial instruments are intended to reduce our exposure to declines in the market prices of crude oil and natural

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Notes to Consolidated Financial Statements

gas that we produce and sell, and to manage cash flows in support of our annual capital expenditure budget.

Derivative instruments (including certain derivative instruments embedded in other contracts) are recorded at fair market value and included in the balance

sheets as assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the

resulting designation, which is established at its inception. We document, at the inception of a hedge, the hedging relationship, the risk management objective

and the strategy for undertaking the hedge. The documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature

of the risk being hedged, and the method that will be used to assess effectiveness of derivative instruments that receive hedge accounting treatment.

Derivative instruments designated as cash flow hedges are reflected at fair value in our Consolidated Balance Sheets. Changes in fair value, to the extent the

hedge is effective, are recognized in other comprehensive income until the forecasted transaction occurs. Hedge effectiveness is assessed at least quarterly based

on total changes in the derivative’s fair value. Any ineffective portion of the derivative instrument’s change in fair value is recognized immediately in other

(income) expense.

Concentrations of Credit and Market Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times

during the year, we may exceed the federally insured limits. To mitigate this risk, we place our cash deposits only with high credit quality institutions.

Management believes the risk of loss is minimal.

Derivative financial instruments that hedge the price of oil and gas will be generally executed with major financial or commodities trading institutions which

expose us to market and credit risks, and may at times be concentrated with certain counterparties or groups of counterparties. Although notional amounts are

used to express the volume of these contracts, the amounts potentially subject to credit risk, in the event of non–performance by the counterparties, are

substantially smaller. The creditworthiness of counterparties is subject to continuing review and full performance is anticipated.

As an independent oil and gas producer, our revenue, profitability and future rate of growth are substantially dependent upon prevailing prices for oil and gas,

which are dependent upon numerous factors beyond our control, such as economic, political and regulatory developments and competition from other sources

of energy. The energy markets have historically been very volatile, and there can be no assurance that oil and gas prices will not be subject to wide fluctuations

in the future. A substantial or extended decline in oil and gas prices could have a material adverse effect on our financial position, results of operations, cash

flows and our access to capital and on the quantities of oil and gas reserves that may be economically produced.

Foreign Currency Translation

The U.S. dollar is the functional currency for all of our existing foreign operations, as predominantly all revenue transactions in these operations are

denominated in U.S. dollars. For foreign operations with the U.S. dollar as the functional currency, monetary assets and liabilities are translated into U.S.

dollars at the exchange rate on the balance sheet date. Nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Income

and expense items are translated at average rates of exchange

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Notes to Consolidated Financial Statements

prevailing during each period. Translation adjustments are recognized currently as a component of foreign currency gain or loss and deferred income taxes. To

the extent that business transactions are not denominated in U.S. dollars, we are exposed to foreign currency exchange rate risk. For the year ended

December 31, 2004, we had foreign currency losses of $0.3 million included in other income and $0.5 million included in income tax expense.

Financial Instruments

The carrying amounts reflected in the consolidated balance sheets for cash and equivalents, short-term receivables and short-term payables approximate their

fair value due to the short maturity of the instruments. The carrying value of the investment in equity securities approximates fair value based on their market

trading price. The carrying value of the note receivable with detachable warrants reflects a discount for the value of warrants. The carrying value of the

convertible notes is recorded at the value of the underlying collateral. The carrying value of remaining debt approximates fair value as the debt bears interest at

a market rate.

Income Taxes

We use the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax

consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or

settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes

the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion

of, or all of, the deferred tax assets will not be realized.

Stock-Based Compensation Arrangements

We account for stock–based compensation plans for employees and directors using the intrinsic value method. Under this method, we record no compensation

expense for stock options granted when the exercise price of options granted is equal to or greater than the fair market value of our common stock on the date of

grant. We apply the fair value method in accounting for stock-based grants to non-employees using the Black-Scholes Method.

During 2003, we granted 700,000 options to then-current directors. While all the options granted had an exercise price higher than the market value of the stock

on the date of grant, a subsequent modification of these options has triggered variable accounting. We are required to record compensation expense if the

modified option price is lower than the market price of the stock at the end of a reporting period until the options expire or are exercised. For the years ended

December 30, 2004 and 2003, we recorded non-cash general and administrative expenses of $1.2 million and none, respectively, related to these options. The

net loss for 2003 also includes stock-based compensation cost of $217,000 related to options and restricted stock granted to a then-current director.

Had compensation expense for the years ended December 31, 2004, 2003 and 2002 been determined under fair value provisions, our net loss and net loss per

share would have been the following:

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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share data) Year Ended December 31,

2004 2003 2002

Net loss to common stockholders, as reported $ (23,797) $(41,235) $ (4,771)

Add:

Stock-based compensation expense as reported 6,360 — —

Less:

Total stock-based compensation expense determined under fair-value-based method for all awards, net of tax (6,503) (826) (1,305)

Pro forma net loss $ (23,940) $(42,061) $ (6,076)

Loss per share:

Basic – as reported $ (0.37) $ (1.18) $ (0.24)

Basic – pro forma $ (0.37) $ (1.20) $ (0.30)

These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the

vesting period and additional options may be issued in future years. The estimated fair value of each option granted was calculated using the Black-Scholes

Method. The following summarizes the weighted average of the assumptions used in the method.

2004 2003 2002

Risk free rate 4.0%

1.63 –

3.84% 1.23%

Expected years until exercise 5.0 3.0 - 5.0 2.0

Expected stock volatility 31% 100% 110%

Dividend yield — — —

Loss Per Share

Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares

outstanding for the period. Diluted loss per share includes the effect of our outstanding stock options, warrants and shares issuable pursuant to convertible

debt under the treasury stock method, if including such instruments is dilutive. For each of the periods presented, shares associated with stock options,

warrants and convertible debt are not included because their inclusion would be antidilutive (i.e., reduce the net loss per share).

The common shares potentially issuable arising from these instruments, which were outstanding during the periods presented in the financial statements,

consisted of:

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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands) December 31,

2004 2003 2002

Options 1,093 1,025 500

Warrants 1,472 2,758 783

Convertible Debt — 4,320 1,414

Common shares potentially issuable 2,565 8,103 2,697

Impairment of Loans

We impair loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price

or the fair value of the collateral if the loan is collateral dependent. We used the fair value of the loan collateral to measure the impairment of the loans and

ceased accruing interest income on the loans.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standard No. 123 (revised 2004), ShareBased Payment (“SFAS 123R”), which replaces SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments to

employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures

previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. SFAS 123R is effective for periods beginning after

June 15, 2005. The guidance also provides for classifying awards as either liabilities or equity, which impacts when and if the awards must be remeasured to

fair value subsequent to the grant date. We plan to adopt SFAS 123R on July 1, 2005.

At the time of adoption, companies can select from three transition methods, two of which would allow for restatement of certain prior periods. Management

anticipates selecting the transition method in which prior period financial statements would not be restated. The adoption of SFAS No. 123R is not expected to

have a significant effect on our financial condition and will not affect our consolidated cash flows. The future impact on our consolidated results of operations

of the adoption of SFAS 123R cannot be predicted as certain of our deferred compensation plans are treated as liabilities and are currently accounted for using

the variable method of accounting. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of

SFAS 123 as described in the disclosure of pro forma net loss and loss per share included in Note 2 above.

Note 3 - Acquisitions and Dispositions

Acquisition of NSNV, Inc.

On February 26, 2004, we acquired NSNV, Inc. (“NSNV”), through a merger with a newly created subsidiary of the Company, resulting in NSNV

becoming a wholly-owned subsidiary of the Company (the “NSNV Acquisition”). NSNV was a private company owned by William L. Transier, John N.

Seitz

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Notes to Consolidated Financial Statements

and PGS Exploration (UK) Limited (“PGS”), a United Kingdom corporation that is a provider of geophysical services. The former shareholders of NSNV

received an aggregate of 12.5 million of our common shares in the merger, representing approximately 18.9% of our outstanding common stock immediately

after the closing of the merger.

The NSNV Acquisition provided with us the following competitive advantages: (i) a pre-eminent seismic and geological database of the North Sea region and

(ii) a proven and experienced management team comprised of Messrs. Transier and Seitz, each pursuant to three-year employment agreements, and certain

other former executives of Ocean Energy, Inc. and Anadarko Petroleum Corporation. Upon consummation of the NSNV Acquisition, our sole officer, Stephen

P. Harrington, and directors Humbert Powell, Thomas Michael Curran and Gary Krupp resigned and William L. Transier and John N. Seitz became the CoChief Executive Officers and Directors.

The NSNV Acquisition was accounted for as a purchase of assets and not a business combination. Therefore, the consideration given was allocated to the fair

value of the identifiable assets and liabilities acquired with the excess expensed.

The following is a calculation of the consideration given:

(Amounts in thousands, except per share data)

Shares of common stock issued 12,500

Price per share $ 2.00

Fair value of stock issued 25,000

Add: Capitalized acquisition costs 452

Consideration given $25,452

Capitalized acquisition costs are professional expenses for legal and accounting services.

The consideration given for the NSNV Acquisition was allocated as follows:

(Amounts in thousands)

Current assets $ 1,059

Property and equipment 11,386

Intangible asset – workforce in place 4,800

Other assets 3,500

Current liabilities (2,478)

Long-term commitments (3,594)

Fair value of net identifiable assets acquired 14,673

Consideration (25,452)

Consideration given in excess of fair value of identifiable assets acquired $(10,779)

Acquisition of OER Oil AS

In November 2004, we purchased a 76.66% majority interest in OER Oil AS (“OER”), a privately held Norwegian exploration and production company

based in Oslo, Norway (the “OER Acquisition”). The

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Notes to Consolidated Financial Statements

purchase price of the OER Acquisition was NOK (Norwegian kroner) 172.5 million, approximately $27.6 million, plus $0.8 million in professional

expenses for legal and accounting services.

We also entered into agreements with the twenty-four minority interest holders of OER, including certain members of OER’s management, to purchase the

remaining 23.34% interest in OER. The purchase of the interests of the minority shareholders was completed in January 2005 for a combination of common

stock and cash (see Note 24).

The consideration given for the OER Acquisition was allocated as follows:

(Amounts in thousands)

Current assets $ 8,099

Property and equipment 34,032

Goodwill 20,119

Other assets 2,428

Current liabilities (1,250)

Long-term debt, including current portion of long-term debt (8,480)

Deferred tax liability (16,646)

Other long-term liabilities (6,720)

Minority interest (3,224)

Consideration given $ 28,358

Unaudited Pro Forma Information

The following table sets forth unaudited pro forma condensed combined financial and operating data which are presented to give effect to the NSNV

Acquisition and the OER Acquisition as if each event had occurred as of January 1, 2003. The information does not purport to be indicative of actual results,

if any of these transactions had been in effect for the periods indicated, or of future results.

(Amounts in thousands, except per share data) Year Ended December 31,

2004 2003

Revenues $ 30,467 $ 20,882

Net loss to common stockholders (21,065) (40,052)

Net loss per share – basic and diluted $ (0.29) (1.00)

The Restructuring

Simultaneous with the consummation of the NSNV Acquisition and an offering of $50 million in common stock discussed in Note 15, we restructured

various financial and stockholder related items (the “Restructuring”). Specifically, we completed the following:

• Repaid $1.5 million principal amount of our outstanding convertible notes and issued 0.4 million shares of our common stock in exchange for the

remaining principal balance due under the Trident convertible debenture at a contractual conversion price of $1.60 per share;

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• Issued approximately one million shares of our common stock in exchange for the $1.55 million principal balance and accrued interest due under

the Marcus convertible debenture at a contractual conversion price of $1.75 per share;

• Issued 2.8 million shares of our common stock upon conversion of all of the outstanding Series C Preferred Stock, and accrued dividends, at a

contractual conversion price of $1.70 per share;

• Purchased 14.1 million shares of common stock and 103,500 shares of Series B Preferred Stock for $5.3 million in cash; and

• Purchased all outstanding shares of Series A Preferred Stock and a portion of the Series B Preferred Stock in exchange for certain of our non-core

assets, including:

• 100% of our ownership interest in BWP Gas, LLC;

• 864,560 shares of restricted common stock of BPK Resources, Inc.;

• 400,000 shares of common stock of Trimedia Group, Inc.;

• Notes receivable due from CSR Hackberry, LLC, Snipes, LLC and BPK Resources, Inc. (“BPK”) with a combined principal of

$0.8 million; and

• Subscription receivables due from FEQ Investments, Inc. (“FEQ”) and GWR Trust with a combined principal of $0.4 million.

Sale of Knox Miss. Partners, L.P.

During the first quarter of 2004, we sold all of our limited partnership units in Knox Miss. Partners, L.P (“Knox Miss”) for $5.0 million and received

$500,000 in cash and a $4.5 million short-term note that was secured by a pledge of the limited partnership interest. The short-term note was paid in full

during 2004. We recorded a gain on the sale of Knox Miss of $1.2 million during the first quarter of 2004.

Sale of Louisiana Shelf Partners, L.P.

During the second quarter of 2004, we sold all of our equity interest in Louisiana Shelf Partners, L.P. (“LSP”) for $250,000 in cash and a $2 million

contingent deferred payment that is payable from proceeds from production of drilling activities on the oil and gas leases held by LSP. With the uncertainty of

collection of the contingent deferred payment, no receivable was recorded at the time of the sale. In connection with the sale, we recorded a loss of $895,000

during the second quarter of 2004.

Sale of CSR-WAHA Partners, LP

In January 2003, we sold our 99% limited partnership interest in CSR-WAHA Partners, LP (“CSR-WAHA”), a Delaware Limited Partnership to BPK and in

return, received a cash payment of $0.2 million, a $1.5 million promissory note due on April 30, 2003, and 0.6 million shares of the common stock of BPK.

This resulted in a gain of $1.2 million. On April 14, 2003, we agreed to extend the due date of the $1.5 million promissory note to June 30, 2004 for

0.1 million shares of BPK’s common stock. The note receivable, accrued interest and shares of BPK were included in the exchange of our non-core assets in

the Restructuring.

The following reflects the results of operations of the disposed assets:

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Notes to Consolidated Financial Statements

(Amounts in thousands) Year Ended December 31,

2004 2003 2002

BWP:

Revenues $ 8 $ 27 $ —

Operating loss (2) (12,023) —

Knox Miss:

Revenues $ — $ — $ —

Operating loss (6) (632) (26)

LSP:

Revenues $ — $ — $ —

Operating loss (1) (1,123) (3)

CSR-Waha:

Revenues $ — $ — $ —

Operating loss — — (7)

Note 4 - Liquidity and Capital Resources

In January and February 2005, we completed a private debt offering in which we raised gross proceeds of $81.25 million of convertible senior notes due 2012.

The notes bear interest at a rate of 6.00% per annum and are convertible into shares of our common stock at an initial conversion rate of 199.2032 shares of

common stock per $1,000 principal amount of notes, subject to adjustment, which is equal to an initial conversion price of approximately $5.02 per share.

The purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas properties, working capital and general corporate purposes,

which may include future acquisitions of interests in oil and gas properties.

Restricted Cash

Our Norwegian subsidiary maintains a restricted cash balance of approximately $2.5 million as collateral for a banker’s guarantee, adjusted for the

Norwegian Consumer Price Index, associated with abandonment and dismantlement costs. Should the guarantee exceed the amount in the restricted cash

account, including interest, we are required to deposit an amount sufficient for the security to make up 100% of the guarantee liability of the bank.

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Notes to Consolidated Financial Statements

Note 5 — Prepaid Expenses and Other Current Assets

 Prepaid expenses and other current assets consisted of the following:

December 31,

(Amounts in thousands) 2004 2003

Deferred seismic and other costs — PGS $ 2,498 $ —

Crude oil inventory 255 —

Prepaid insurance 252 —

Deferred costs associated the NSNV Acquisition — 1,201

Other 809 260

$ 3,814 $ 1,461

Note 6 – Equity Interests in Entities with Oil and Gas Properties

The following table summarizes our interests in oil and gas non-public limited partnerships accounted for under the equity method of accounting as of

December 31, 2004 and 2003.

(Amounts in thousands) December 31, 2004 December 31, 2003

Excess of

Carrying Excess of

Carrying Value Over Carrying Value

Value Net Assets Carrying Value Over Net Assets

APICO, LLC $ 3,688 $ 86 $ 1,693 $ 238

Louisiana Shelf Partners, L.P. — — 1,146 —

$ 3,688 $ 86 $ 2,839 $ 238

The following table summarizes financial information for the limited partnerships accounted for under the equity method of accounting at December 31, 2004

and 2003 and has been prepared from the financial statements of the respective entities:

(Amounts in thousands) December 31, 2004 December 31, 2003

Total Assets $ 16,780 $ 11,545

Total Liabilities $ 29 $ 373

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Notes to Consolidated Financial Statements

Year Ended December 31,

(Amounts in thousands) 2004 2003 2002

Results of Operations:

Revenue $ — $ — $ —

Loss from operations $ (956) $ (4,962) $ (130)

Net Loss $ (956) $ (4,888) $ (127)

APICO, LLC

On June 26, 2002, we entered into a limited partnership agreement with PHT Gas, LLC and formed PHT Partners, L.P. (“PHT”). We have a 93.77% limited

partnership interest and a 100% interest in PHT Holding GP, LLC, which is the general partner of PHT and owns a 1% general partnership interest in PHT.

Prior to February 26, 2004, PH Gas LLC was the general partner of PHT. Certain other parties hold interest in PHT entitling them to 20% and 15%

respectively of the distributions from PHT after return of all capital contributions and expenditures. PHT has a 21.08% interest in APICO, LLC (“APICO”),

which in turn has 35% interest in the Phu Horm licenses in Thailand.

We are not subject to capital calls in connection with our limited partnership interest in PHT. However, PHT is subject to cash calls from its investment in

APICO. If PHT does not meet its cash calls, then our investment in PHT may become impaired. Pursuant to the APICO membership agreement, PHT and the

other APICO members will be called upon from time to time for additional contributions so as to meet the reasonable capital requirements of APICO. If PHT or

any other member fails to make required capital contributions or meet the required cash calls in the amounts and at the times specified in the membership

agreement, then they would be in default. If the default is not cured, a defaulting member may lose its interests in APICO. As of December 31, 2004, PHT has

funded its proportional share of additional capital calls.

Louisiana Shelf Partners, L.P.

On December 31, 2002, we entered into a limited partnership agreement with LS Gas, LLC and formed Louisiana Shelf Partners, L.P. of which we were a

limited partner with an approximate 25% interest and LS Gas, LLC was the general partner. As of December 31, 2003, LSP acquired various geological and

geophysical data and interests in oil, gas and mineral leases located in Louisiana. With the determination of the initial test well as a dry hole, management

decided not to pursue additional exploration in Louisiana and all drilling and acquisition costs were written off during 2003.

As discussed earlier, we sold our interest in LSP in 2004 and recorded a loss of $895,000.

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Notes to Consolidated Financial Statements

Note 7 — Property and Equipment

Property and equipment included the following:

(Amounts in thousands) December 31,

2004 2003

Oil and gas properties under the full cost method:

Subject to amortization $ 20,081 $ 11,468

Not subject to amortization:

Acquired in 2004 26,749 —

Acquired in 2003 — 2,612

Acquired in 2002 — 18,978

46,830 33,058

Other oil and gas activities 4,875 —

Computers, furniture and fixtures 635 10

Total property and equipment 52,340 33,068

Accumulated depreciation, depletion and amortization (2,112) (26,645)

Net property and equipment $ 50,228 $ 6,423

The costs not subject to amortization relate to unproved properties which are excluded from amortized capital costs until it is determined whether or not proved

reserves can be assigned to such properties.

Prior to the NSNV Acquisition, our oil and gas properties consisted of oil and gas interests in the United States Gulf Coast area. We recorded impairment

charges of $15 million during 2003 when we decided not to pursue additional exploration in leases in a contracted area known as Hell Hole Bayou. We also

recorded a $10.1 million impairment on Oklahoma properties as capitalized costs exceeded the ceiling test limits at December 31, 2003. The ceiling test was

based on natural gas prices of $4.74 per thousand cubic feet (Mcf) for natural gas that included adjustments for basis differentials and other pricing factors.

All U.S. oil and gas properties held at December 31, 2003 were sold as part of the Restructuring.

At December 31, 2004, our oil and gas properties consist primarily of producing properties in Norway and capitalized exploration costs in the North Sea.

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Notes to Consolidated Financial Statements

Note 8 — Marketable Securities

Available-for-sale securities consist of the following at December 31, 2004 and 2003:

(Amounts in thousands) December 31, 2004 December 31, 2003

Gross Gross

Unrealized Fair Unrealized Fair

Cost Loss Value Cost Loss Value

Current – related party $ — $ — $ — $ 1,209 $ (489) $ 719

Long-term 1,848 (528) 1,320 — — —

Total $ 1,848 $ (528) $ 1,320 $ 1,209 $ (489) $ 719

Touchstone Securities

In connection with the February 2002 acquisition of various working interests, we purchased, for $2.0 million, a 10% secured convertible promissory note in

the principal amount of $2.0 million and a detached warrant to purchase approximately 1.1 million shares of common stock at an exercise price of $1.88 from

Touchstone Resources, Ltd. (“Touchstone”), a Canadian Exchange listed company and the parent company of Touchstone USA, Inc. The secured convertible

promissory note, with a maturity date of August 22, 2004, had an initial conversion price of $1.88. The fair value of the note receivable was $0.8 million and

the fair value of the warrants on the date the note was issued, valued by using the Black-Scholes Method, was $1.2 million. Consequently, a discount in the

amount of $1.2 million was recorded in connection with this note.

In June 2002 we purchased, for the sum of $1.6 million, an additional 10% convertible promissory note in the principal amount of $1.6 million and a

detached warrant to purchase 2 million shares of common stock at an exercise price of $1.00 until December 28, 2002 from Touchstone. The secured

convertible promissory note, which matured December 28, 2002, had an initial conversion price of $0.80. The fair values of the note receivable was

$1.2 million and the fair value of the warrants on the date the note was issued, valued by using the Black-Scholes Method, was $0.4 million. Consequently, a

discount in the amount of $0.4 million was recorded in connection with this note. On March 20, 2003, we renegotiated the $1.6 million promissory note

receivable, now due February 28, 2005, from Touchstone. The principal amount of the new note increased to $1.7 million, which included accrued interest of

$0.1 million. The original expiration date to purchase 2.0 million shares of stock in Touchstone was extended until February 28, 2005.

Management evaluated the collectibility of the loans from Touchstone and believed that Touchstone would not be able to repay the loans. Therefore, we

measured and recorded an impairment charge of $0.6 million in 2002 and $1.8 million in 2003 on the loans and accrued interest. We also recognized a loss of

$1.6 million in regards to the Touchstone warrants. The loans had a significant discount which reduced their carrying value. In connection with the

impairment charge we stopped amortizing the loan discount and accruing interest as of the fourth quarter of 2002. Consequently, these loans and warrants had

no carrying value at December 31, 2003 based on the fair market value of the underlying loan collateral.

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Notes to Consolidated Financial Statements

The president of Touchstone USA was the managing member of PHT Gas, LLC, which was the general partner of PHT Partners, LP as of December 31,

2003.

In May 2004, we received 1.2 million common shares of Touchstone Resources USA, Inc. (a public company trading on the OTC Bulletin Board) (the

“Touchstone Shares”) in exchange for the convertible promissory notes of Touchstone (the “Touchstone Exchange”). The net book value of the convertible

promissory notes was zero; as such, we recorded a non-cash gain on the Touchstone Exchange of approximately $1.8 million, the market value of the

Touchstone Shares on the date of the exchange. The Touchstone Shares reflected in these financial statements are deemed by management to be “available-forsale” and, accordingly are reported at fair value, with unrealized gains and losses reported in other comprehensive income.

Other Securities

In January 2003, we received 0.6 million shares of the common stock of BPK as part of the consideration for the sale of our 99% limited partnership interest

in CSR-WAHA Partners, LP to BPK. As of December 31, 2003, we owned 0.9 million shares of BPK common stock with a fair market value of $0.2 million.

One of our directors was also the president and a director of BPK at December 31, 2003. As of December 31, 2003, we also owned 0.4 million shares of

common stock of Trimedia Entertainment, Inc. with a fair market value of $0.5 million.

In February 2004, as part of the Restructuring, all of our shares in BPK and Trimedia Entertainment, Inc., which were held as of December 31, 2003, were

included in the exchange of our non-core assets in the Restructuring.

Note 9 – Other Assets

Other long-term assets consisted of the following at December 31:

(Amounts in thousands) 2004 2003

Intangible assets – workforce in place $ 4,800 $ —

Long-term portion of PGS commitment 2,000 —

Marketable securities 1,320 —

Restricted cash 2,507 —

$ 10,627 $ —

Intangible assets represent the purchase price allocated to the assembled workforce as a result of the acquisition of NSNV, Inc. For discussion of the PGS

commitment, see Note 21. The marketable securities represent the 1.2 million shares of Touchstone Resources USA, Inc. received in the Touchstone Exchange

(see Note 8).

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Notes to Consolidated Financial Statements

Note 10 — Income Taxes

The loss before income taxes and the components of the income tax expense recognized on the Consolidated Statement of Income are as follows:

(Amounts in thousands) Year Ended December 31,

2004 2003 2002

Loss before income taxes:

Domestic $ (19,905) $(36,829) $ (4,487)

Foreign (2,797) — —

$(22,702) $(36,829) $ (4,487)

Current Taxes:

Federal $ — $ — $ —

State — — —

Foreign — — —

Total current taxes — — —

Deferred Taxes:

Federal — — —

State — — —

Foreign 670 — —

Total deferred taxes 670 — —

Income tax expenses $ 670 $ — $ —

Deferred income taxes result from the net tax effects of temporary timing differences between the carrying amounts of assets and liabilities reflected on the

financial statements and the amounts recognized for income tax purposes. The tax effects of temporary differences that give rise to significant portions of

deferred tax assets and liabilities are as follows at December 31:

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Notes to Consolidated Financial Statements

(Amounts in thousands) 2004 2003

Deferred tax asset:

Allowance for impairment on marketable securities $ — $ 848

Allowance for impairment on oil and gas properties — 4,004

Allowance for bad debt — 712

Deferred compensation 2,069 86

Asset retirement obligation 5,294 —

Net operating loss and capital loss carryforward 14,188 9,419

Uplift carryforward 1,057 —

Total deferred tax assets 22,608 15,069

Less valuation allowance (10,129) (14,713)

Total deferred tax assets after valuation allowance 12,479 356

Deferred tax liability:

Intangible drilling costs — (199)

Installment sale gain — (157)

Property, plant and equipment (29,175) —

Sale/leaseback (1,316) —

Total deferred tax liabilities (30,491) (356)

Net deferred tax asset (liability) $ (18,012) $ —

We recognized a deferred tax liability of approximately $3.3 million due to the excess of book over tax basis of the assets acquired in the NSNV Acquisition.

We recognized a deferred tax liability of approximately $16.6 million due to the excess of book over tax basis of the assets acquired in the OER Acquisition.

At December 31, 2004, we had the following carryforwards available to reduce future income taxes:

(Amounts in thousands)

Types of Carryforward

Years of

Expiration

Carryforward

Amounts

Net operating loss – U.S. federal 2020 - 2024 $ 29,410

Net operating loss – Norway Indefinite $ 2,544

Net operating loss – U.K. Indefinite $ 2,848

Capital loss – U.S. federal 2009 $ 2,227

Uplift — Norway Indefinite $ 1,057

With the exception of $2.5 million of net operating loss carryforward and $1.1 million of uplift carryforward attributable to OER, our recently acquired

Norwegian subsidiary, the remaining carryforward amounts shown above have not been recognized for financial statement reporting purposes to reduce the

deferred tax liability as a valuation allowance has been established.

For U.S. federal income tax purposes, certain limitations are imposed on an entity’s ability to utilize its NOLs in future periods if a change of control, as

defined for federal income tax purposes, has taken place.

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Notes to Consolidated Financial Statements

In general terms, the limitation on utilization of NOLs and other tax attributes during any one year is determined by the value of an acquired entity at the date

of the change of control multiplied by the then-existing long-term, tax-exempt interest rate. The manner of determining an acquired entity’s value has not yet

been addressed by the Internal Revenue Service. The Company has determined that, for federal income tax purposes, a change of control occurred during 2004.

However, we do not believe such limitations will significantly impact our ability to utilize the NOLS; rather the ability to generate future taxable income will.

Recognition of the benefits of the deferred tax assets will require that we generate future taxable income. There can be no assurance that we will generate any

earnings or any specific level of earning in future years. Therefore, we have established a valuation allowance for deferred tax assets of approximately

$10.1 million and $14.7 million as of December 31, 2004 and 2003, respectively. The valuation allowance decreased during 2004 due to $5.5 million

attributable to the exchange of non-core assets in the Restructuring, $3.3 million attributable to the deferred tax liability established in the NSNV acquisition,

and increased by $4.2 million for 2004 net operating losses.

The following table presents the principal reasons for the difference between our effective tax rates and the United States federal statutory income tax rate of

35%.

(Amounts in thousands) Year Ended December 31,

2004 2003 2002

Federal income tax expense (benefit) at statutory rate $ (7,946) $(12,890) $ (1,570)

State income tax expense (benefit) (net of effect of federal benefit) — (2,110) (110)

Book deductions not deductible for income tax purposes 3,849 1,273 722

Taxation of foreign operations 633 — —

Change in valuation allowance 4,134 13,727 958

Income Tax Expense (Benefit) $ 670 $ — $ —

Effective Income Tax Rate (3)% 0% 0%

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Notes to Consolidated Financial Statements

Note 11 — Accrued Expenses

We had the following accrued expenses outstanding:

(Amounts in thousands) December 31,

2004 2003

Accrued liabilities for certain stock-based compensation plans $ 1,188 $ —

Accrued capital expenditures and operating expenses 1,475 —

Accrued compensation 1,978 —

Accrued interest — 243

Preferred dividends 329 1,927

Other 2,359 559

$ 7,329 $ 2,729

Note 12 – Debt and Notes Payable

Our debt and notes payable consisted of the following:

December 31,

(Amounts in thousands) 2004 2003

Handelsbanken $ 4,276 $ —

12% secured convertible promissory notes — 3,650

Capitalized leases 130 —

Less: debt discount — (407)

4,406 3,243

Less: current portion of capitalized leases (118) —

Less: current portion of debt (2,138) (3,243)

Long-term debt $ 2,150 $ —

Handelsbanken

With the OER Acquisition, we have an outstanding debt agreement with Handelsbanken. At December 31, 2004, NOK 26 million (approximately

US$4 million) is outstanding, and bears interest at the 6-month Norwegian Inter-Bank Offering Rate (NIBOR) plus 1.4%, currently 3.43%. The debt is

repayable in semi-annual installments through January 2006. In addition, Handelsbanken has provided a guarantee of NOK 15 million (approximately

US$2.5 million) on our behalf to the operator of the Brage and Njord fields and the Norwegian Ministry of Petroleum and Energy for the abandonment and

decommissioning costs for these fields.

The debt agreement contains customary covenants, including but not limited to, limitations on our Norwegian subsidiary’s ability to incur liens, make

acquisitions and investments, or sell or transfer assets. Additionally, our Norwegian subsidiary may not permit its book equity to fall below 25%.

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Notes to Consolidated Financial Statements

12% Convertible Promissory Notes – Trident Notes

In April 2002, we entered into a loan agreement to borrow $1.5 million from Trident Growth Fund, L.P. (“Trident”). The note was a 12% secured convertible

promissory note secured by substantially all of the assets of the Company. The note was to originally mature on October 21, 2003 but was extended as noted

below. Trident had the option to convert the principal amount of the note into our common stock. As additional incentive to make the $1.5 million loan,

Trident was issued a warrant to purchase 0.2 million shares of our common stock expiring on April 30, 2012. The initial conversion price of the note and

warrant was $2.00. However, the conversion price was reduced to $1.60 as a result of a subsequent private offering and is subject to other adjustments

according to the provisions of the note. We paid loan commitment and origination fees of 1% and 4%, respectively, which were recorded as loan costs of which

$45,000 was amortized to interest expense in 2002. On July 29, 2003, the loan was amended to extend the maturity date to July 31, 2004 and increase the

principal amount to $2.1 million. As consideration for Trident’s increasing of the original loan to $2.1 million, we granted Trident a warrant to purchase

0.2 million shares of the common stock at an exercise price of $1.60 per share. The warrant is exercisable immediately and expires on July 23, 2008.

As described in the loan agreement, we were required to comply with various financial covenants. Any failure to comply with such covenants may be deemed

a default on the loan by Trident. We did not meet three of the financial loan covenants as of December 31, 2002; however, Trident waived the specific

covenants for six months. In consideration for this waiver, we granted Trident a warrant to purchase 0.03 million shares of common stock at an exercise price

of $1.60 per share. The warrant is exercisable immediately and expires on April 30, 2012. As of June 30, 2003, we failed to meet the loan covenants again and

Trident waived the covenant until June 30, 2004. As consideration for Trident’s second waiver of the loan covenants and extension of the maturity date of the

original $1.5 million note, on July 29, 2003 we granted Trident a warrant to purchase 0.1 million shares of common stock at an initial exercise price of $1.60

per share. The warrant is exercisable immediately and expires on April 30, 2012. These warrants were valued at $0.2 million using the Black-Scholes Method.

We have allocated the proceeds from issuance of the convertible Trident promissory note and warrants based on a fair value basis for each item. Consequently,

the convertible Trident promissory note was recorded with discounts of $0.6 million based on the ascribed value of the warrants as determined by using the

Black-Scholes Method. The note discounts for the warrant were amortized over the period from the date of issuance to the maturity date of the note. Beneficial

conversion discounts of $1.5 million were recorded since the Trident promissory note was convertible into common shares of stock at a rate of $1.60 per

share while the prevailing common stock share price was $3.10 and $2.10 on April 5, 2003 and July 29, 2003, respectively, when the original $1.5 million

and additional $0.6 million note was made. These discounts were being amortized over the term of the loan. As of December 31, 2003 and 2002, we amortized

$1.2 and $0.5 million of the discount.

Under the terms of the loan agreement, we were required to register all shares of its common stock issuable upon conversion of the note or exercise of the

warrants by October 2002. We would have been subject to a monthly penalty of either 25,000 shares of its common stock or $10,000, at the option of the

lender. However, we were granted a waiver until June 30, 2004 regarding the requirement.

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Notes to Consolidated Financial Statements

In February 2004, $1.5 million of principal was repaid on the note and $0.6 million of principal was converted into 0.4 million shares of our common stock

as part of the Restructuring and the conversion price of the warrants was increased to $2.00 per share.

12% Convertible Promissory Notes – Marcus Notes

During October 2002, we issued two unsecured 12% convertible promissory notes to Michael Marcus in the amount of $0.8 million and $0.8 million,

respectively. Both notes matured on October 15, 2003. The lender had the option to convert the principal amount of the note into our common stock at a

conversion price of $3.25. The lender was issued a warrant to purchase a total of 0.2 million shares of our common stock at an exercise price of $5.00 per

share as an additional incentive to make the loans. The warrant expires on October 15, 2005. In October 2003, the loan was amended to extend the maturity

date to June 30, 2004 and reduce the conversion price from $3.25 to $2.50. As consideration for the lender’s extension of the note, we granted the lender a

warrant to purchase 50,000 shares of the common stock at an exercise price of $5.00 per share. The warrants are exercisable immediately and expire on

October 17, 2006. These warrants were valued at $0.1 million using the Black-Scholes Method.

We have allocated the proceeds from issuance of the convertible promissory notes and warrants based on a fair value basis of each item. Consequently, the

convertible promissory notes were recorded with a discount of $0.3 million and $0.4 million, respectively, based on the ascribed value of the warrants as

determined by using the Black-Scholes Method. The note discount for the warrant was amortized over the period from the date of issuance to the stated

maturity date of the note. An additional beneficial conversion discount of $0.4 million and $0.4 million was recorded for the $0.8 million and $0.8 million

promissory notes, respectively, since the notes were convertible into common shares of stock at a rate of $3.25 per share while the prevailing common stock

share price was $4.90 and $5.05, respectively. This discount was also amortized over the term of the loan. As of December 31, 2003, we have amortized the

total discount for these notes.

In February 2004 as part of the Restructuring, the notes with outstanding principal of $1.55 million and accrued interest were converted into 1.0 million

shares of our common stock and the conversion price of the warrants was changed to $2.00 per share. The conversion rate was based on existing contractual

terms.

Other Debt

In February 2003, Knox Miss borrowed $1.2 million from Gibralt US, Inc. and issued a promissory note bearing interest at 12%. The note was payable the

earlier of June 30, 2003 or upon closing of $2 million of equity financing by the Company. The lender also received 75 thousand shares of our common stock

for making the loan. The loan was guaranteed by us and FEQ Investments. This note was paid in July 2003.

Throughout 2003, we issued various demand and promissory notes for an aggregate of $0.9 million. All notes were repaid by December 31, 2003.

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Debt Maturities

At December 31, 2004, our aggregate annual maturities of long-term debt are $2.1 million in each year 2005 and 2006.

Note 13 — Limited Partnership Interest Transferred Under Contractual Arrangements/Deferred Equity Option

In August 2003, we entered into a security purchase agreement with RAM Trading, Ltd. (“RAM”), whereby RAM purchased 150,000 shares of our common

stock and 7 of our 25.25 limited partnership units in Louisiana Shelf Partners, L.P. The total purchase price was $1.0 million of which $0.3 million was

allocated to the sale of the common stock. The remaining $0.7 million of the purchase price was treated as a deferred equity option.

In October 2003, we entered into another security purchase agreement with RAM, whereby RAM purchased 150,000 shares of our common stock and 10 of

our 99 limited partnership units in Knox Miss Partners, L.P. The total purchase price was $1.2 of which $0.3 million was allocated to the sale of the common

stock. The remaining $0.9 million of the purchase price was treated as a deferred equity option. The security purchase agreement was amended in

December 2003 to increase the number of shares issuable upon exercise of the option to 835,000.

The agreements provided us a call option to purchase the limited partnership interest back from RAM and RAM a put option to sell the interest back to us.

The sale of these interests was not recognized for accounting purposes, and the carrying value of the limited partnerships was not affected by the transaction

nor was a gain or loss was reported from the sale of the limited partnership interests. The cost bases of these interests were reclassified to a separate line in the

balance sheet labeled “Limited Partnership Interest Transferred Under Contractual Arrangement.”

We exercised our call option to buy back the limited partnership interest in Louisiana Shelf Partners, L.P. from RAM in October 2003 and issued 650,000

shares of our common stock in full payment of the option. The exercise of the call option resulted in an increase in our equity of $0.7 million and a

corresponding decrease in the deferred equity option.

We exercised our call option to buy back the limited partnership interest in Knox Miss Partners, L.P from RAM in February 2004 and issued 835,000 shares

of our common stock in full payment of the option. The exercise of the call option will result in an increase in our equity of $0.9 million and a corresponding

decrease in the deferred equity option.

Note 14 — Other Liabilities

Other liabilities included the following:

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(Amounts in thousands) December 31,

2004 2003

Asset retirement obligations $ 6,902 $ —

Long-term commitment to PGS (see Note 21) 2,000 —

Other 77 —

$ 8,979 $ —

 Our asset retirement obligations relate to obligation of the plugging and abandonment of oil and gas properties acquired in the OER Acquisition. The asset

retirement obligation is recorded at fair value and accretion expense, recognized over the life of the property, increases the liability to its expected settlement

value. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded for both the asset retirement obligation and the asset

retirement cost. The following table provides a rollforward of the asset retirement obligations for the current year:

(Amounts in thousands)

Carrying amount of asset retirement obligations as of January 1, 2004 $ —

Liabilities incurred 6,658

Accretion expense 57

Impact of foreign currency exchange rate changes 187

Carrying amount of asset retirement obligations as of December 31, 2004 $ 6,902

Note 15 — Private Placement Offerings – Subscription Receivables

The Offering

In an offering of common stock (the “Offering”) that closed on February 26, 2004, we issued 25 million shares of common stock at $2.00 per share in a

private placement. The estimated net proceeds of the Offering were $46 million after deduction of offering costs of $3.9 million. In addition, warrants to

purchase 700,000 shares of common stock at $2.00 per share were issued to the placement agent. A portion of the net proceeds were used in the Restructuring

for the purchase of 14.1 million shares of our common stock and 0.1 million shares of our Series B Preferred Stock for $5.3 million and for repayment of the

principal amount of the Trident note in the amount of $1.5 million. The remainder is to be used for general corporate purposes, including potential

acquisitions.

Effective September 17, 2004, we registered for sale approximately 40 million shares of our common stock, that were previously issued to numerous

stockholders in the Offering or were required to be registered upon registration of the Offering shares. We did not and will not receive any proceeds from the

registration of these shares of our common stock.

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Subscription Receivables

In March 2002 in a private placement offering, we received subscription commitments for funding an aggregate of $3.6 million to be collected over a period of

approximately twelve months. As of December 31, 2002, we had collected $1.4 million, reduced the receivable by $53,750 for services provided by two

officers through June 30, 2002 and had outstanding subscription receivables of $2.1 million, of which $0.9 million was due from an entity affiliated with the

then president of the Company. As of December 31, 2003, we had collected the remaining $2.1 million along with accrued interest. The subscription

receivables bore interest at 2.69%. An additional $0.6 million was subscribed to and paid in May 2002. Concurrently with this offering we issued an option

to an investor as an inducement to accelerate funding its commitment. The option granted the investor a right to invest an additional $0.6 million in the

Company, at the same terms and conditions as its initial investment within 180 days from the date it funded its original investment. The investor exercised the

option in September 2002.

In exchange for the cash proceeds and subscriptions receivable, we issued unsecured convertible promissory notes which were to mature one year from

issuance and bore interest at 8% per annum. These notes were converted to common stock and shares of Series A preferred stock on May 31, 2002 when our

shareholders approved the amendments to our Articles of Incorporation to increase the authorized shares of our common stock to 150 million, authorize

approximately 10 million shares of undesignated preferred stock, par value $.001 per share, and the Board of Directors authorized the issuance of shares of

Series A preferred stock (the “May 2002 Article Amendment”). The original principal amount of the promissory notes converted into a number of Units equal

to the original principal amount of the promissory note divided by the conversion price of $1.00 per Unit. Each Unit consisted of approximately 1.43 fullypaid shares of common stock and approximately 0.99 fully-paid shares of Series A Preferred Stock. The conversion of the $4.2 million notes resulted in the

issuance of 5.9 million of common shares and 4.1 million of Series A preferred shares.

Other

On February 4, 2004, we issued a private placement offering of 125,000 shares of our common stock, $.001 par value per share at $2.00 per share.

As discussed in Note 24, in January and February 2005, we issued $81.25 million aggregate principal amount of convertible senior notes due 2012.

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Notes to Consolidated Financial Statements

Note 16 — Stockholders’ Equity

The activity in shares of our common and preferred stock during 2004, 2003 and 2002 included the following:

(Amounts in thousands) Year Ended December 31,

2004 2003 2002

Common Stock:

Outstanding at the beginning of the year 37,145 32,718 1,648

Issuance of common stock in the Offering 25,000 — —

Issuance of common stock in the NSNV Acquisition 12,675 — —

Other issuances 4,462 4,427 10,972

Repurchases of common stock (14,098) — —

Conversion of notes payable 1,402 — 8,996

Conversion of preferred stock 2,809 — —

Conversion of warrants — — 11,550

Exercise of warrants 600 — —

Cancellations — — (448)

Outstanding at the end of the year 69,995 37,145 32,718

Series A Preferred Stock:

Outstanding at the beginning of the year 4,091 4,091 —

Conversion of notes payable — — 4,091

Transfer of non-core assets (4,091) — —

Outstanding at the end of the year — 4,091 4,091

Series B Preferred Stock:

Outstanding at the beginning of the year 143 143 —

Conversion of notes payable — — 143

Repurchases of preferred stock (103)

Transfer of non-core assets (20) — —

Outstanding at the end of the year 20 143 143

Series C Preferred Stock:

Outstanding at the beginning of the year 478 — —

Issuances of preferred stock — 478 —

Conversion to common stock (478) — —

Outstanding at the end of the year — 478 —

Common Stock

The Common Stock is $0.001 par value common stock, 150,000,000 shares authorized.

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In April and September 2002, we cancelled 448,000 shares of common stock, which were tendered to the Company for cancellation by former officers of the

Company when it was named Expression Graphics, Inc.

In February 2002, as partial consideration for the $10.0 million private placement, we issued 3,285,100 shares of common stock and warrants to purchase

11 million shares of common stock with an aggregate exercise price of $2.00 valued at $875,200, which were exercised May 31, 2002. We issued a warrant to

purchase 450,000 shares of common stock, at an aggregate exercise price of $1, to a registered broker dealer as payment of a commission for services rendered

in connection with the $10.0 million private offering. The warrants were converted into 450,000 common shares of stock on May 31, 2002. We recorded this

non-cash item as a loan cost of $45,000 based on the ascribed value of the warrants, which was charged to interest expense. The above common stock and

warrants had an ascribed value of $.02 per share.

From February through August 2002, as consideration for services rendered in connection with the acquisition of certain oil and gas interests, we issued to an

unrelated party a warrant to purchase 300,000 shares of our common stock at an exercise price of $2.25 per share valued at $3,000. This warrant was

exercised in February 2005. As additional consideration we issued a warrant to purchase 100,000 shares of our common stock at an aggregate exercise price of

$1.00 valued at $10,000. The warrant was automatically deemed exercised upon the May 2002 Article Amendment. The ascribed value of the warrants,

totaling $13,000, increased the cost of the oil and gas interests purchased and was a non-cash item.

In April and May 2002, we issued and sold mandatory convertible promissory notes in the aggregate principal amount of $3.7 million to three accredited

investors pursuant to Rule 506. The maturity date of the notes was one year from the date of the notes. We expensed a 10% commission with respect to this

offering. Concurrent with the May 2002 Article Amendment, we effected a 1 for 5 reverse stock split of common stock shares and automatically converted the

principal amount of those notes into an aggregate of 2.3 million shares of common stock.

Upon the May 2002 Article Amendment, we converted $4.2 million of debt into 5.9 million shares of common stock and 4.1 million shares of Series A

preferred stock.

During June and July 2002, we sold 1.9 million shares of common stock in a private placement for $2.25 per share of which 155,000 shares were issuable

as of December 31, 2002. We recorded $0.8 million in offering costs and legal costs related to the private placement.

In August 2002, as consideration for services rendered in connection with the acquisition of oil and gas interests, we issued to an unrelated party a warrant to

purchase 100,000 shares of our common stock at an exercise price of $2.25 per share valued at $140,000. This warrant expires on August 7, 2005.

In September 2002, an investor exercised its option to invest an additional $550,000 in the Company, at the same terms and conditions as its initial

investment. The investor issued us a subscription note for $550,000 and we in turn issued a note for $550,000. This $550,000 was immediately converted

into a number of units equal to the original principal amount of the promissory note divided by the conversion price of $1.00 per unit. Each unit consisted of

1.429 shares of common stock and approximately 0.0099 shares of Series B preferred stock. Accordingly, the $550,000 note was converted into 0.8 million

issuable shares of common stock and 5,427 issued Series A preferred stock. As of December 31, 2003,

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$175,000 of the subscription receivable remained outstanding. The subscription receivable and accrued interest were included in the exchange of our non-core

assets in the Restructuring.

In October 2002, as additional incentive for a lender to loan a total of $1.6 million to the Company, we issued to the lender a warrant to purchase a total of

232,500 shares of our common stock at an exercise price of $5.00 per share exercisable at any time through the expiration date of October 2005.

In November 2002, we sold 76,923 shares of common stock in a private placement for $3.25 per share of which 76,923 shares were issuable as of

December 31, 2002.

In May 2003, we issued to the former Class B member of BWP and its designee (consisting of creditors and consultants of BWP) 3.3 million shares of

common stock and 1.7 million warrants at an exercise price of $2.00 per share expiring in three years as consideration for its purchase of the 100% of the

Class B Membership in BWP.

We entered into two securities purchase agreements with RAM during 2003. In connection with these agreements we issued 950,000 shares of our common

stock to RAM in consideration of proceeds of $1.3 million.

In December 2003, RAM entered into an agreement with Lancer Offshore, Inc. and Lancer Partners, L.P. to purchase 14.1 million shares of common stock and

0.1 million shares of Series B Preferred Stock (collectively, the “Lancer Shares”) for $5.3 million. Concurrent with the execution of the foregoing agreement,

the Company entered into an agreement with RAM to purchase the Lancer Shares for $5.3 million subject to RAM completing the purchase of the Lancer

Shares which was finalized February 2004.

In March 2004, as consideration for services rendered in connection with the purchase of the shares of common stock and Series B Preferred stock from

RAM, we issued to an unrelated party 300,000 shares of its common stock.

During 2004, we issued 3.1 million shares of common stock as deferred compensation to new management, directors and employees. Approximately

1.7 million, 0.7 million and 0.7 million shares vest in 2005, 2006 and 2007, respectively.

Series A Preferred Stock

The Series A Preferred Stock, $0.001 par value with 9.5 million shares authorized at December 31, 2003, was to pay dividends of 8% of the original issuing

price per share per annum, which are cumulative prior to any dividends on the common stock or any series of stock to be created. All shares of our Series A

Preferred Stock were included in the exchange of non-core assets in the Restructuring.

Series B Preferred Stock

In September 2002, the Company authorized and designated 500,000 shares of Preferred Stock, as Series B Preferred Stock par value $.001 per share.

The Series B Preferred Stock is to pay dividends of 8% of the original issuing price per share per annum, which are cumulative prior to any dividends on the

common stock and on parity with the payment of any

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Notes to Consolidated Financial Statements

dividend or other distribution on the Series A Preferred Stock and any other series of preferred stock that has similar characteristics. The holders of each share

of Series B Preferred Stock are entitled to be paid out of available funds prior to any distributions to holders of common stock in the amount of $100.00 per

outstanding share plus all accrued dividends.

At any time after the earlier of (i) five business days after the date on which the Company sells, assigns, transfers or refinances certain of its working interests

in an exploration project located in Vermillion, Louisiana, and receives net proceeds equal to at least $10,000,000, or (ii) the third anniversary of the initial

issuance date of the Series B Preferred Stock, the Company may, upon approval of its Board redeem all or a portion of the outstanding shares of Series B

preferred stock at a cost of the liquidation preference and all accrued and unpaid dividends.

In September 2002, we converted $3.9 million in promissory notes for 39,429 shares of our Series B Preferred Stock. As of December 31, 2003, subscription

receivable in the amount of $250,000 remained outstanding, which was included in the exchange of our non-core assets in the Restructuring.

In December 2002, we converted $9.9 million in promissory notes into 98,571 shares of our Series B Preferred Stock.

As part of the Restructuring, the majority of shares of our Series B Preferred Stock were repurchased or included in the exchange of non-core assets.

Series C Convertible Preferred Stock

The Series C Preferred Stock, $0.001 par value with 1.5 million shares authorized at December 31, 2003, was to pay dividends of 6% of the original issue

price ($10.00) per share per annum, which are cumulative prior to any dividends on the common stock and on parity with the payment of any dividend or

other distribution on the Series A Preferred Stock, Series B Preferred Stock, and any other series of preferred stock that has similar characteristics.

Since our common stock price exceeded the initial conversion price of the Series C Preferred Stock there was a beneficial conversion feature recorded as a

preferred stock dividend in the amount of $2.8 million as of December 31, 2003.

Between May and July 2003, we sold 477,500 shares of Series C Convertible Preferred Stock in a private placement for $10.00 per share. We recorded

$307,200 in offering costs related to this offering. In February 2004, our Series C Preferred shareholders converted all of their 477,500 shares of Series C

Preferred Stock into 2.8 million shares of our common stock in the Restructuring.

Stock Warrants

We have the following outstanding warrants to purchase our common stock at December 31, 2004 and 2003:

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(Amounts in

thousands, except

per share data) December 31, 2004 December 31, 2003

Expiration Date Exercise Price Shares Exercise Price Shares

February 2005 $ 2.25 200 $ 2.25 300

August 2005 — — $ 2.25 100

October 2005 $ 2.00 233 $ 5.00 233

May 2006 $ 2.00 1,550 $ 2.00 1,650

October 2006 $ 2.00 50 $ 5.00 50

July 2008 — — $ 1.60 150

February 2009 $ 2.00 700 — —

April 2012 $ 2.00 125 $ 1.60 275

2,858 2,758

All warrants are currently exercisable. During 2004, 282,500 warrants with an exercise price of $5.00 and 425,000 warrants with an exercise price of $1.60

were repriced to an exercise price of $2.00. During 2004, 200,000 warrants with an exercise price of $2.25 per share and 400,000 warrants with an exercise

price of $2.00 per share were exercised.

The weighted average grant-date fair value of warrants granted during 2004 and 2003 was $2.19 and $0.88, respectively.

Stock Options

Information relating to stock options outstanding at December 31, 2004 is summarized as follows:

(Amounts in

thousands, except

per share data) Options Outstanding Options Exercisable

Weighted Average Weighted Average Weighted Average

Range of Exercise Number of Options Remaining Exercise Price Per Exercise Price Per

Prices Outstanding Contractual Life Share Number Exercisable Share

$2.00 1,858 4 years $ 2.00 — —

$2.30 500 4 years $ 2.30 500 $ 2.30

$3.00 - $3.78 520 3 years $ 3.04 475 $ 3.00

2,878 4 years $ 2.24 975 $ 2.64

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Notes to Consolidated Financial Statements

 Information relating to stock options is summarized as follows:

(Amounts in

thousands, except

per share data) 2004 2003 2002

Weighted Average Weighted Average Weighted Average

Exercise Price per Exercise Price per Exercise Price per

Number of Shares Share Number of Shares Share Number of Shares Share

Balance outstanding – beginning of

year 1,025 $ 2.76 500 $ 5.00

Granted 1,903 $ 2.03 525 $ 3.19 500 $ 5.00

Expired (50) $ 5.00 — — — —

Balance outstanding – end of year 2,878 $ 2.24 1,025 $ 2.76 500 $ 5.00

The weighted average grant-date fair value of options granted during 2004, 2003 and 2002 was $1.50, $0.70 and $2.61, respectively.

The 1.9 million options granted during 2004 were granted pursuant to our 2004 Stock Incentive Plan which has been approved by our shareholders. All other

stock options have been granted pursuant to stock option plans that were not subject to shareholder approval.

Note 17 — Related Party Transactions

In February 2002, we received subscription agreement commitments for promissory notes aggregating $10 million, which were originally to be funded by

August 5, 2003. As incentive to accelerate the funding of their commitments, we issued options to the lenders. If the lenders funded their commitments by

March 7, 2002, they would have the option to invest an additional $4 million in us within 120 days of the original funding, at the same terms and conditions

as the initial $10 million investment. The fair value of the warrants, as determined by an independent valuation, amounted to $0.1 million and was expensed

in full upon their issuance. In February 2002 the full $10 million was funded to us. In consideration for the funds received, we issued two promissory notes

totaling $9.9 million. Interest accrued at 8% per annum. The fair value of these two notes was determined by an independent valuation to be $8.8 million and

a corresponding discount of $1.1 million was recorded. The discount has been amortized over the term of the note using the effective interest rate method.

During July and August 2003, FEQ paid $305,000 of its outstanding subscription agreement. As of December 31, 2003, $175,000 remained outstanding

along with accrued interest. The subscription receivable was included in the exchange of non-core assets in the Restructuring.

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We also issued the lenders 3.3 million shares of common stock, and warrants to purchase an aggregate of 11 million shares of our common stock at an

aggregate exercise price of $2.00. The common stock and warrants had an ascribed value of approximately $0.10 per share. We issued warrants to purchase

0.5 million shares of common stock, at an aggregate exercise price of $1.00, to a registered broker dealer as payment of a commission for the offering. All

warrants issued in connection with this offering were automatically deemed exercised at May 31, 2002, the date we obtained all required approvals of its

shareholders to amend the our Articles of Incorporation to increase the authorized shares of our common stock to at least 90 million shares.

In December 2002, the lender and its assignees exchanged their entire principal of $9.9 million in promissory notes into 0.1 million shares of our Series B

Preferred Stock. The original principal amount of the promissory note converted into a number of units (“Units”) equal to the original principal amount of the

promissory note divided by the conversion price of $100.00 per Unit. Each Unit consisted of 1 fully-paid share of Series B Preferred Stock. Upon conversion

of the note, the balance of unamortized discounts was recorded as interest expense. The accrued interest we owed on the note of approximately $693,000 as of

December 31, 2002 was assigned by the lender to FEQ Investments, Inc.

In June 2002, the lender exercised its option to invest $4 million in the Company. The investor funded $2.5 million and assigned the option to invest the

remaining $1.5 million to various investors. As consideration for the full amount of $4 million, we issued a note for $3.9 million and will issue the lender and

its assignees an aggregate 5.7 million shares of common stock. The common stock and note were valued at $0.5 million and $3.5 million, respectively, as

determined by an independent valuation. The related discount of $0.4 million was being amortized over the term of the loan. On September 30, 2002, the lender

and its assignees exchanged their entire principal of $3.9 million in promissory notes into 0.04 million shares of our Series B Preferred Stock. The original

principal amount of the promissory notes were converted into a number of units equal to the original principal amount of the promissory note divided by the

conversion price of $100.00 per Unit. Each Unit consisted of 1 fully-paid share of Series B Preferred Stock. The remaining subscription receivable amounted

to $1.0 million at December 31, 2002. Upon conversion of the note, the balance of the unamortized discounts was recorded as interest expense.

During January and May 2003, we borrowed $0.3 million from SPH Investments, Inc. and issued various 10% demand notes. In January 2003, we borrowed

$0.1 million from SPH Investments, Inc. Profit Sharing Plan and issued a 10% demand note. Each of these notes, plus accrued interest, was repaid by

December 31, 2003.

In 2003, the Company relied upon Touchstone USA to provide it with additional reserve assessment analysis and engineering services in connection with the

exploration and development of its prospects.

The president of Touchstone USA was the managing member of PHT Gas, LLC, which was the general partner of PHT Partners, LP as of December 31,

2003.

In 2002, Mr. Harrington, our former President, initially provided services to us without compensation. In addition, an affiliate of the president provided

accounting services to us without charge. For the three months ended March 31, 2002 the value of these services was de minimis. We recorded as expense an

amount representing the value of these services provided prospectively.

In June 2002, we borrowed funds in the amount of $300,000 from an affiliate of our former president. The loan was repaid as of December 31, 2002.

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Notes to Consolidated Financial Statements

In August 2002, we purchased 819,000 shares representing approximately 7% of ownership in BPK Resources, Inc. At the time of this transaction, we and

BPK Resources had one common director who was also president of BPK Resources. As of December 31, 2003, we held 864,500 shares of BPK Resources

common stock.

In August and October 2002, we loaned the aggregate of $0.4 million and $0.2 million to BPK Resources, Inc. and its subsidiary, CSR – Hackberry Partners,

L.P., respectively. We received various demand promissory notes with annual interest rates of 10% and 12%. These note receivables and accrued interest were

included in the exchange of our non-core assets in the Restructuring.

During 2002, we loaned a total of $0.5 million to International Travel CD’s, Inc. (“ILCD”) for which we received various 10% unsecured promissory notes

that were due 45 days from the date of issuance. In October 2002, we entered into an Assignment and Release Agreement with ILCD whereby we agreed to

purchase and assume the assignment of a secured promissory note between ILCD and Snipes Productions, LLC for full satisfaction of the remaining unpaid

balance of the ILCD promissory notes amounting to $0.1 million. The note receivable and accrued interest were included in the exchange of our non-core assets

in the Restructuring. The Company acquired 20,000 shares of common stock of ILCD, and in August 2002 the Company also loaned ILCD a total of

$475,000. At the time of both of these transactions, the president of the Company was also the president of ILCD.

During 2002, we and our subsidiary Knox-Miss entered into long-term consulting agreements of $6,000 and $3,000 per month, respectively, with ESC

Consulting, Inc. At the time the contract was executed the president of ESC Consulting was also the president of FEQ Investments, Inc. (the former managing

member of PHT Gas, LLC and CSR, LLC). Subsequently, the president of FEQ Investments resigned and a new president was appointed.

During 2002, we paid investment-banking fees of $200,000 and $260,000, respectively, to FEQ Investments, Inc. and KAB Investments, Inc. (a company

under common ownership with FEQ Investments, Inc.). The investment banking fees related to the acquisition of certain oil and gas properties and certain

convertible debt placements. As of December 31, 2002, $385,000 of these fees was capitalized as costs related to the acquisition of oil and gas properties.

In January 2003, LSP loaned FEQ (the former managing member of PHT Gas, LLC and CSR, LLC) $1,220,000 and received a 10% promissory note. As of

December 31, 2003, principal in the amount of $5,000 remained outstanding along with in accrued interest. In the fourth quarter of 2003, LSP loaned an

additional $125,000 to FEQ which was outstanding at December 2003. The loans by LSP were included in our sale of LSP during 2004.

During third quarter 2004, we executed a sublease for office space with Reliant Energy Corporate Services, LLC through March 31, 2008. One of our Co-Chief

Executive Officers is a member of Board of Directors of parent company of Reliant Energy Corporate Services, LLC. See Note 19.

In December 2004, we entered into a contract with GX Technology whereby GX Technology would provide seismic data analysis for approximately

$0.3 million. One of our co-Chief Executive Officers is a member of the Board of Directors of Input/Output Inc., the parent company of GX Technology. At

December 31, 2004, we had not yet paid any funds to GX Technology.

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Note 18 — Supplementary Cash Flow Disclosures

Cash paid during the period for interest and income taxes was as follows:

(Amounts in thousands) Year Ended December 31,

2004 2003 2002

Interest paid $ 130 $ 210 $ 132

Income taxes paid $ — $ — $ —

Non-Cash Investing and Financing Transactions

We recorded a reduction in the amount of its unrealized loss on the investment in marketable securities of $0.5 million for the year ended December 31, 2003.

We recorded an unrealized loss in the amount of $1.0 million in connection with our investment in marketable securities and warrants for the year ended

December 31, 2002.

The Company recorded discounts on the Trident note payable of $0.6 million and $1.5 million due to the value of attached warrants and the beneficial

conversion feature on the promissory note in 2003 and 2002, respectively.

In 2002, the Company recorded a discount of $0.8 million and $0.8 million, respectively, on two notes due to the value of attached warrants and the beneficial

conversion feature on the promissory notes.

The Company acquired various oil and gas interests of which the Company owed $52,996 as of December 31, 2003 and $1.1 million as of December 31,

2002.

As consideration for 2002 services rendered in connection with the acquisition of oil and gas interests, we issued warrants. The value of the warrants, which

was $140,000, was recorded as other capitalized costs in the oil and gas interests.

In 2002, we converted the $3.9 million and $9.9 million notes payable into shares of our preferred Series B stock.

We recorded $0.4 million, $1.6 million and $0.3 million in dividends in 2004, 2003 and 2002, respectively.

We recorded a dividend in the amount of $2.8 million related to the beneficial conversion feature included in the Series C preferred stock issued in 2003.

We issued common stock and warrants to acquire its interest in BWP in 2003.

In 2003, we recorded $0.2 million as the value of the warrants granted to two lenders for the extension of the maturity dates of the loans from those lenders.

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Endeavour International Corporation

Notes to Consolidated Financial Statements

In 2004, we issued 12.5 million shares in the NSNV Acquisition with a total purchase price of approximately $25 million. Therefore, the Merger increased

current assets by $1.1 million, oil and gas properties by $11.4 million, other assets by $8.3 million, current liabilities by $2.5 million, other liabilities by

$3.6 million and equity by $25 million through a noncash transaction that was not reflected in the statement of cash flows.

Noncash investing activities also were incurred with the exchange of certain non-core assets, including BWP Gas, LLC, for all of the Series A Preferred Stock

and 20,213 shares of the Series B Preferred Stock, and the Touchstone Exchange. Noncash financing activities were also incurred, including the conversion

of all of our Series C Preferred Stock and a portion of our convertible notes into common stock.

Note 19 — Leases

Operating Leases

During third quarter 2004, we executed a sublease for office space with Reliant Energy Corporate Services, LLC through March 31, 2008. Lease payments are

expected to be approximately $180,000 for each of the years ended December 31, 2005, 2006 and 2007, and $45,000 for the year ended December 31, 2008. In

addition, we have leases for office space and equipment with lease payments of $428,000, $157,000 and $22,000 for the years ended December 31, 2005,

2006 and 2007, respectively.

Capital Leases

We are the lessee of various computer equipment under capital leases expiring in various years through 2006. The assets and liabilities under capital leases are

recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over the lower of their related

lease terms or their estimated productive lives. Depreciation of assets under capital leases is included in depreciation expense.

Minimum future lease payments under capital leases as of December 31, 2004, for each of the next three years and in the aggregate are:

(Amounts in thousands) Amount

2005 $ 123

2006 16

2007 3

Net minimum lease payments 142

Less: Amount representing interest (12)

Present value of net minimum lease payment $ 130

Interest rates on capitalized leases are approximately 3.5% and are imputed based on the lower of company’s incremental borrowing rate at the inception of each

lease or the lessor’s implicit rate of return.

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Note 20 — Comprehensive Loss

Excluding net loss, our source of comprehensive loss is from the net unrealized loss on its marketable debt securities, which are classified as available-forsale. The following summarizes the components of comprehensive loss:

(Amounts in thousands) Year Ended December 31,

2004 2003 2002

Net loss $(23,372) $(36,829) $ (4,487)

Unrealized loss (528) (465) (1,000)

Reclassification adjustment for loss realized in net loss above 282 976 —

Unrealized gain (loss), net (246) 511 (1,000)

Comprehensive loss $ (23,618) $ (36,318) $ (5,487)

Note 21 — Commitments and Contingencies

General

The oil and gas industry is subject to regulation by federal, state and local authorities. In particular, gas and oil production operations and economics are

affected by environmental protection statutes, tax statutes and other laws and regulations relating to the petroleum industry. We believe we are in compliance

with all federal, state and local laws, regulations applicable to the Company and its properties and operations, the violation of which would have a material

adverse effect on us or our financial condition.

PGS Commitment

On December 16, 2003, NSNV and PGS entered into an agreement where, in exchange for certain consideration including, among other things, 18.5% of the

outstanding stock of NSNV and a three-year product and service commitment, PGS agreed to grant NSNV the right to use 79,200 square kilometers of 3-D

seismic and related data in the North Sea region, including the 3D Mega Merge and North Sea Digital Atlas databases. Under the agreement, NSNV is

required to purchase products and services from PGS or certain of its affiliates that have an aggregate invoice value over three years of at least $4.5 million for

a period of three years commencing on December 16, 2003 as follows:

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Endeavour International Corporation

Notes to Consolidated Financial Statements

(amounts in thousands)

Through December 15, 2005 $ 2,500

December 16, 2005 to December 15, 2006 2,000

Total PGS commitment $ 4,500

During 2004, we signed an agreement with PGS whereby PGS will provide certain information relating to the Holland MegaSurvey to us for approximately

$1.2 million. This agreement will apply towards our 2004 and 2005 commitments.

Legal Proceeding

In March 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf (collectively “Plaintiffs”) commenced an action against

Endeavour International Corporation (“Endeavour”), f/k/a Continental Southern Resources, Inc. (“CSOR”), as well as BWP Gas, L.L.C. and HBA Gas, Inc.

in state court in Oklahoma City, Oklahoma. In the petition, Plaintiffs allege that in 2003, at a time when CSOR intended to acquire a majority of the

membership interests in BWP, that BWP entered into an agreement to assign to Plaintiffs 2.5 million common shares of Endeavour stock upon compliance by

Plaintiffs with certain contractual obligations including but not limited to completion and initial commercial production of the Mary #2-34 well, along with the

presentation of a development plan and the commencement of the next exploration or development well in the Potato Hills Deep Prospect. Plaintiffs allege in their

petition that BWP, HBA and Endeavour are alter egos of each other and jointly and severally liable to Plaintiffs for failing to deliver to Plaintiffs the Endeavour

common stock. Plaintiffs seek delivery of the stock as well as a temporary restraining order, a primary and permanent injunction (i) enjoining all dilutions of

Plaintiffs’ rights pertaining to Endeavour stock; (ii) enjoining Endeavour from all future stock issuances and transfers of assets not in the ordinary course of

business and (iii) prohibiting the alienation or encumbrance of the Endeavour stock that is allegedly in HBA’s possession. On April 6, 2004, the defendants

removed the action from the state court to the United States District Court for the Western District of Oklahoma. On October 21, 2004, the United States

District Court granted a motion to remand to state court filed by the Plaintiffs and remanded the matter to the District Court of Oklahoma County, Oklahoma.

While the outcome can not be predicted at this time, management believes it has good and valid defenses in this litigation and intends to litigate vigorously.

Note 22 – Derivative Financial Instruments

In November 2004, we entered into an oil commodity swap covering 600 barrels of oil per day from December 2004 through December 2006 where we would

pay market Brent and receive a fixed price of $41.90. In December 2004, we settled the swap for a net gain of $1.4 million. Due to the short nature of this

contract, we did not designate this derivative as a cash flow hedge, and therefore we recorded the full $1.4 million gain in other income in 2004.

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Note 23 – Segment and Geographic Information

We have determined we have one reportable operating segment being the acquiring, exploration and development of natural gas and oil properties. Our

operations are conducted in geographic segments as follows:

(Amounts in thousands) 2004 2003 2002

Revenue Long-lived Assets Revenue Long-lived Assets Revenue Long-lived Assets

United States $ 8 $ 32,846 $ 27 $ 7,569 $ 16 $ 21,639

United Kingdom — 8,918 — — — —

Norway 3,655 39,210 — — — —

Thailand — 3,688 — 1,693 — 1,137

$ 3,663 $ 84,662 $ 27 $ 9,262 $ 16 $ 22,776

Note 24 — Subsequent Events

Purchase of Minority Interest in OER

In January 2005, we purchased the remaining 23.34% minority interest, 1,299,772 shares, in OER for consideration of NOK 6.98 and 1.68 shares of our

common stock per share of OER. The aggregate consideration paid was approximately US$ 1.4 million in cash and 2,183,617 shares of our common stock.

Convertible Senior Notes

In January and February 2005, we issued $81.25 million aggregate principal amount of convertible senior notes due 2012 in a private placement to qualified

institutional buyers, pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The notes bear interest at a rate of

6.00% per annum and are convertible into shares of our common stock at an initial conversion rate of 199.2032 shares of common stock per $1,000 principal

amount of notes, subject to adjustment, which is equal to an initial conversion price of approximately $5.02 per share.

The purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas properties, working capital and general corporate purposes,

which may include future acquisitions of interests in oil and gas properties.

Derivative Instruments

In January 2005, we entered into an oil commodity swap where we pay market Brent and receive a fixed price that ranges from $46.20 per barrel in the initial

month to $40.00 per barrel at the end of the contract.

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Endeavour International Corporation

Notes to Consolidated Financial Statements

The contract covers 600 barrels per day from February 2005 through December 2006. The contract requires us to provide $2 million in collateral.

Note 25 – Quarterly Financial Data

Second

(Amounts in thousands, except per share data) First Quarter Quarter Third Quarter Fourth Quarter

2004

Revenues $ 8 $ — $ — $ 3,655

Operating expenses 2,723 3,403 4,130 8,899

Loss from operations (2,715) (3,403) (4,130) (5,245)

Net loss to common stockholders (12,924) (2,326) (4,026) (4,520)

Net loss per common share – basic and diluted (0.26) (0.03) (0.06) (0.06)

2003

Revenues $ — $ — $ — $ 27

Operating expenses 1,165 764 16,919 13,101

Loss from operations (1,165) (764) (16,919) (13,074)

Net loss to common stockholders (2,329) (4,812) (18,416) (15,677)

Net loss per common share – basic and diluted (0.07) (0.14) (0.51) (0.23)

Note 26 — Supplemental Oil and Gas Disclosures — Unaudited

Capitalized Costs Relating to Oil and Gas Producing Activities

(Amounts in thousands) United Kingdom Norway United States Thailand Other Total

December 31, 2004:

Proved $ — $ 20,081 $ — $ — $ — $ 20,081

Unproved 8,769 17,523 — — 457 26,749

Total capitalized costs 8,769 37,604 — — 457 46,830

Accumulated depreciation, depletion and amortization — (901) — — — (901)

Net capitalized costs $ 8,769 $ 36,703 $ — $ — $ 457 $ 45,929

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Capitalized Costs Relating to Oil and Gas Producing Activities

(Amounts in thousands) United Kingdom Norway United States Thailand Other Total

December 31, 2003:

Proved $ — $ — $ 11,468 $ — $ — $ 11,468

Unproved — — 21,590 — — 21,590

Total capitalized costs — — 33,058 — — 33,058

Accumulated depreciation, depletion and amortization — — (26,645) — — (26,645)

Net capitalized costs $ — $ — $ 6,413 $ — $ — $ 6,413

Equity Method Investees for the year ended December 31,:

2004 $ — $ — $ — $ 3,532 $ — $ 3,532

2003 $ — $ — $ 4,171 $ 1,405 $ — $ 5,576

Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities

United

(Amounts in thousands) Kingdom Norway United States Thailand Other Total

Year Ended December 31, 2004:

Acquisition costs:

Proved $ — $ 19,210 $ — $ — $ — $ 19,210

Unproved 4,534 14,822 — — — 19,356

Exploration costs 4,235 2,700 — — 457 7,392

Development costs — 872 — — — 872

Total costs incurred $ 8,769 $ 37,604 $ — $ — $ 457 $ 46,830

Year Ended December 31, 2003:

Acquisition costs:

Proved $ — $ — $ — $ — $ — $ —

Unproved — — 11,962 — — 11,962

Exploration costs — — 2,118 — — 2,118

Development costs — — — — — —

Total costs incurred $ — $ — $ 14,080 $ — $ — $ 14,080

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities

United

(Amounts in thousands) Kingdom Norway United States Thailand Other Total

Year Ended December 31, 2002:

Acquisition costs:

Proved $ — $ — $ — $ — $ — $ —

Unproved — — 16,129 — — 16,129

Exploration costs — — 2,849 — — 2,849

Development costs — — — — — —

Total costs incurred $ — $ — $ 18,978 $ — $ — $18,978

Equity Method Investees for the year ended December 31,:

2004 $ — $ — $ — $ 2,127 $ — $ 2,127

2003 $ — $ — $ 8,758 $ 643 $ — $ 9,401

2002 $ — $ — $ — $ 762 $ — $ 762

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Results of Operations for Oil and Gas Producing Activities

United

(Amounts in thousands) Kingdom Norway United States Thailand Other Total

Year Ended December 31, 2004:

Revenues $ — $ 3,655 $ 8 $ — $ — $ 3,663

Production expenses — 2,064 1 — — 2,065

DD&A — 901 2 — — 903

Income tax expense — 538 — — — 538

Results of activities $ — $ 152 $ 5 $ — $ — $ 157

Year Ended December 31, 2003:

Revenues $ — $ — $ 27 $ — $ — $ 27

Production expenses — — 6 — — 6

DD&A — — 1,497 — — 1,497

Impairment of oil and gas properties — — 25,168 — — 25,168

Income tax expense — — — — — —

Results of activities $ — $ — $ (26,644) $ — $ — $(26,644)

Year Ended December 31, 2002:

Revenues $ — $ — $ 16 $ — $ — $ 16

Production expenses — — 17 — — 17

DD&A — — — — — —

Impairment of oil and gas properties — — — — — —

Income tax expense — — — — — —

Results of activities $ — $ — $ (1) $ — $ — $ (1)

Equity Method Investees for the year ended December 31,: 2

2004 $ — $ — $ — $ (201) $ — $ (201)

2003 $ — $ — $ (1,123) $ (85) $ — $ (1,208)

2002 $ — $ — $ — $ (25) $ — $ (25)

Oil and Gas Reserves

Proved reserves are estimated quantities of oil, gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be

recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can

reasonably be expected to be recovered through existing wells with existing equipment and operating methods. The reserve volumes presented are estimates only

and should not be construed as being exact quantities. These reserves may or may not be recovered and may increase or decrease as a result of our future

operations and changes in economic conditions. Our oil and gas reserves were estimated by independent reserve engineers.

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Year Ended December 31,

2004 2003 2002

United United United

States Norway Thailand Total States States

Proved Oil Reserves (MBbls):

Proved reserves, beginning of year — — — — — —

Purchase of proved reserves, in place — 1,634 — 1,634 — —

Production — (91) — (91) — —

Sales of reserves, in place — — — — — —

Extensions and discoveries — — — — — —

Revisions of previous estimates — — — — — —

Proved reserves, end of year — 1,543 — 1,543 — —

Proved Gas Reserves (MMcf):

Proved reserves, beginning of year 52 — — 52 — —

Purchase of proved reserves, in place — 6,740 — 6,740 60 —

Production (2) (15) — (17) (8) —

Sales of reserves, in place (50) — — (50) — —

Extensions and discoveries — — — — — —

Revisions of previous estimates — — — — — —

Proved reserves, end of year — 6,725 — 6,725 52 —

Proved Reserves (MBOE):

Proved reserves, beginning of year 9 — — 9 — —

Purchase of proved reserves, in place — 2,757 — 2,757 10 —

Production (1) (93) — (94) (1) —

Sales of reserves, in place (8) — — (8) — —

Extensions and discoveries — — — — — —

Revisions of previous estimates — — — — — —

Proved reserves, end of year — 2,664 — 2,664 9 —

Equity in proved reserves of equity method investees:

Gas (MMcf) — — 25,006 25,006 — —

Natural gas liquids (MBbls) — — 75 75 — —

Proved Reserves (MBOE) — — 4,243 4,243 — —

Proved Developed Oil Reserves (MBbls) — 1,094 — 1,094 — —

Proved Developed Gas Reserves (MMcf) — 123 — 123 52 —

Proved Developed Reserves (MBOE) — 1,115 — 1,115 9 —

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Our reserves in Norway were acquired in the OER Acquisition and include 622 MBOE at December 31, 2004 held by the minority interest in OER. As

discussed in Note 24, we purchased the 23.34% minority interest in OER in January 2005.

Our equity in proved reserves of equity method investees in Thailand includes 243 MBOE at December 31, 2004 held by the minority interest of

approximately 5%. There are no proved, developed reserves associated with our equity method investees in Thailand.

Standardized Measure of Discounted Future Net Cash Flows

Future cash inflows and future production and development costs are determined by applying year-end prices and costs to the estimated quantities of oil and

gas to be produced. Estimated future income taxes are computed using current statutory income tax rates for where production occurs. The resulting future net

cash flows are reduced to present value amounts by applying a 10% annual discount factor.

Estimates of future cash inflows are based on prices at year-end. Oil, gas and condensate prices are escalated only for fixed and determinable amounts under

provisions in some contracts. Estimated future cash inflows are reduced by estimated future development, production, abandonment and dismantlement costs

based on year-end cost levels, assuming continuation of existing economic conditions, and by estimated future income tax expense. Income tax expense, both

U.S. and foreign, is calculated by applying the existing statutory tax rates, including any known future changes, to the pretax net cash flows giving effect to

any permanent differences and reduced by the applicable tax basis. The effect of tax credits is considered in determining the income tax expense.

The standardized measure of discounted future net cash flows is not intended to present the fair market value of our oil and gas reserves. An estimate of fair

value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs,

an allowance for return on investment and the risks inherent in reserve estimates.

Under the full cost method of accounting, a noncash charge to earnings related to the carrying value of the Company’s oil and gas properties on a country-bycountry basis may be required when prices are low. Whether we will be required to take such a charge depends on the prices for crude oil and natural gas at the

end of any quarter, as well as the effect of both capital expenditures and changes to proved reserves during that quarter. Given the volatility of natural gas and

oil prices, it is reasonably possible that our estimate of discounted future net cash flows from proved oil and gas reserves will change in the near term. If a

noncash charge were required, it would reduce earnings for the period and result in lower DD&A expense in future periods.

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Endeavour International Corporation

Notes to Consolidated Financial Statements

Standardized Measure of Discounted Future Net Cash Flows

(Amounts in thousands) December 31,

2004 2003

United

Norway Thailand Total States

Future cash inflows $ 89,073 $ — $ 89,073 $ 190

Future production costs (42,715) — (42,715) (74)

Future development costs (21,192) — (21,192) —

Future income tax expense (12,086) — (12,086) —

Future net cash flows (undiscounted) 13,080 — 13,080 116

Annual discount of 10% for estimated timing 2,815 — 2,815 (45)

Standardized measure of future net cash flows $ 10,265 $ — $ 10,265 $ 71

Equity Method Investees $ — $ 15,251 $ 15,251 $ —

Principal Sources of Change in the Standardized Measure of Discounted Future Net Cash Flows

(Amounts in thousands) Year Ended December 31,

2004 2003 2002

Standardized measure, beginning of period $ 71 $ — $ —

Net changes in prices and production costs 1,581 — —

Future development costs 871 — —

Revisions of previous quantity estimates — — —

Extension of reservoir — — —

Sale of reserves in place (71) — —

Accretion of discount — — —

Changes in income taxes, net 1,063 — —

Sale of oil and gas produced, net of production costs (1,591) — —

Purchased reserves 10,498 71 —

Change in estimated future development costs, production, timing and other (2,157) — —

Standardized measure, end of period $ 10,265 $ 71 $ —

Equity Method Investors $ 15,251 $ — $ —

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our co-executive officers (“Co-CEOs”) and our Chief Accounting Officer, we

evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2004. Based on that evaluation our Co-CEOs and our Chief

Accounting Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in our reports filed

or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and

Exchange Commission rules and forms.

Management’s Assessment on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rules 13a-15(f)

and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Our internal controls were designed to provide reasonable assurance as to the reliability of

our financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting

principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Projections of any evaluation of the

effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2004. In making this assessment, our

management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission (COSO). Based on our assessment, our internal controls over financial reporting were effective as of December 31, 2004 based on the foregoing

criteria. Management included in its assessment of internal controls over financial reporting all consolidated entities except those falling under OER oil AS.

Endeavour International Corporation acquired OER oil AS on November 23, 2004. OER oil AS’s internal control over financial reporting related to total assets

of $63.3 million and total revenues of $3.7 million as of and for the year ended December 31, 2004. As permitted by the SEC’s published guidance, we

excluded these entities from our assessment as they were acquired late in the year, and it was not possible to conduct our assessment between the date of

acquisition and the end of the year.

KPMG LLP, an independent registered public accounting firm, audited management’s assessment of the effectiveness of internal control over financial

reporting and issued the report set forth on the following page.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarterly period ended December 31, 2004 that have materially affected, or

are reasonably likely to materially affect, our internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Endeavour International Corporation:

We have audited Management’s Assessment on Internal Control Over Financial Reporting, that Endeavour International Corporation maintained effective

internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the

Committee of Sponsoring Organizations of the Treadway Commission (COSO). Endeavour International Corporation’s management is responsible for

maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our

responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial

reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that

we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material

respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and

evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and

the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over

financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect

the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being

made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or

timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of

effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Endeavour International Corporation maintained effective internal control over financial reporting as of

December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of

Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Endeavour International Corporation maintained, in all material

respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Endeavour International Corporation acquired OER oil AS on November 23, 2004, and management excluded from its assessment of the effectiveness of

Endeavour International Corporation’s internal control over financial reporting as of December 31, 2004, OER oil AS’s internal control over financial reporting

associated with total assets of $63.3 million and total revenues of $3.7 million included in the consolidated financial statements of Endeavour International

Corporation and subsidiaries as of and for the year ended December 31, 2004. Our audit of internal control over financial reporting of Endeavour International

Corporation also excluded an evaluation of the internal control over financial reporting of OER oil AS.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of

Endeavour International Corporation and subsidiaries as of December 31, 2004, and the related consolidated statements of operations, changes in

stockholders’ equity and cash flows for the year ended December 31, 2004, and our report dated March 7, 2005 expressed an unqualified opinion on those

consolidated financial statements.

KPMG LLP

Houston, Texas

March 7, 2005

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Item 9B. Other Information

None.

Part III

Item 10. Directors and Executive Officers of the Registrant.

Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of

1934, will be incorporated by reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K and will provide the

information required under Part III, Item 10.

Item 11. Executive Compensation

Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of

1934, will be incorporated by reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K and will provide the

information required under Part III, Item 11.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of

1934, will be incorporated by reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K and will provide the

information required under Part III, Item 12.

Item 13. Certain Relationships and Related Transactions

Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of

1934, will be incorporated by reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K and will provide the

information required under Part III, Item 13.

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Item 14. Principal Accounting Fees and Services.

Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of

1934, will be incorporated by reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K and will provide the

information required under Part III, Item 14.

Item 15. Exhibits and Financial Statement Schedules

(a) (1) and (2) Financial Statements and Financial Statement Schedules

See our consolidated financial statements included in Item 8 above.

(a) (3) Exhibits.

See “Index of Exhibits” below which lists the documents filed as exhibits herewith.

(b) Exhibits.

See “Index of Exhibits” below which lists the documents filed as exhibits herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf

by the undersigned, thereunto duly authorized.

Endeavour International Corporation

By: /s/ William L. Transier /s/ John N. Seitz

William L. Transier John N. Seitz

Co-Chief Executive Officer Co-Chief Executive Officer

Date: March 11, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and

in the capacities and on the dates indicated.

Signature Title Date

By: /s/ William L. Transier Co-Chief Executive Officer and March 11, 2005

Director (Co-Principal Executive

William L. Transier Officer)

By: /s/ John N. Seitz Co-Chief Executive Officer and March 11, 2005

Director (Co-Principal

John N. Seitz Executive Officer)

By: /s/ John B. Connally III Director March 11, 2005

John B. Connally III

By: /s/ Barry J. Galt Director March 11, 2005

Barry J. Galt

By: /s/ Nancy K. Quinn Director March 11, 2005

Nancy K. Quinn

By: /s/ Robert L. Thompson Chief Accounting Officer March 11, 2005

(Principal Financial Officer and

Robert L. Thompson Principal Accounting Officer)

9 6
Table of Contents

Index to Exhibits

Exhibit Description

2.1 Agreement and Plan of Merger by and among Continental Southern Resources, Inc., CSOR Acquisition Corp. and NSNV, Inc. (Incorporated by

reference to Exhibit 2.1 on Current Report on Form 8-K (Commission File No. 000-33439) filed February 27, 2004)

2.2 Plan and Agreement of Merger, dated as of February 27, 2004, between Continental Southern Resources, Inc. (n/k/a Endeavour International

Corporation) and its wholly-owned subsidiary Endeavour International Corporation (Incorporated by reference to Exhibit 10.1 on Current Report

on Form 8-K (Commission File No. 000-33439) filed on March 1, 2004)

3.1 Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q (Commission File

No. 001-32212) for the quarter ended June 30, 2004)

3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q (Commission File No. 001-

32212) for the quarter ended June 30, 2004)

3.3 Amended and Restated Certificate of Designation of Series B Preferred Stock filed February 26, 2004 (Incorporated by reference to Exhibit 3.3 of

our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter ended June 30, 2004.)

3.4 Articles of Merger filed February 27, 2004 (Incorporated by reference to Exhibit 3.4 of our Quarterly Report on Form 10-Q (Commission File No.

001-32212) for the quarter ended June 30, 2004.)

3.5 Specimen of Common Stock Certificate (Incorporated by reference to Exhibit 3.7 of our Quarterly Report on Form 10-Q (Commission File

No. 001-32212) for the quarter ended June 30, 2004.)

4.1(a) Warrants to Purchase Common Stock issued to Gemini Growth Fund, L.P. in April 2002 (Incorporated by reference to Exhibit 4.6 of our

Quarterly Report on Form 10-QSB (Commission File No. 000-33439) for the Quarter Ended June 30, 2002.)

4.1(b) First Amendment to Warrants to Purchase Common Stock dated July 29, 2003 (warrant # 2002-1) (Incorporated by reference to Exhibit 4.5 of

our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003.)

4.1(c) Second Amendment to Warrants to Purchase Common Stock dated February 26, 2004 (warrant # 2002-1) (Incorporated by reference to

Exhibit 4.5 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003.)

4.2(a) Warrants to Purchase Common Stock issued to Trident Growth Fund, LP dated July 29, 2003 (warrant # 2003-3) (Incorporated by reference to

Exhibit 4.7 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)
Table of Contents

Exhibit Description

4.2(b) First Amendment to Warrants to Purchase Common Stock dated February 26, 2004 (warrant # 2003-3) (Incorporated by reference to Exhibit 4.7

of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

4.3(a) Warrants to Purchase Common Stock issued to Trident Growth Fund, LP (warrant # 2003-1) (Incorporated by reference to Exhibit 4.8 of our

Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

4.3(b) First Amendment to Warrants to Purchase Common Stock dated July 29, 2003 (warrant #2003-1) (Incorporated by reference to Exhibit 4.8 of

our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

4.3(c) Second Amendment to Warrants to Purchase Common Stock dated February 26, 2004 (warrant # 2003-1) (Incorporated by reference to

Exhibit 4.8 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

4.4 Warrant to Purchase 25,000 Shares of Common Stock issued to Trident Growth Fund, L.P. (Incorporated by reference to Exhibit 10.11 of our

Annual Report on Form 10-KSB (Commission File No. 000-33439) for the Year Ended December 31, 2002).

* 4.5 Indenture, dated as of January 20, 2005, between Endeavour International Corporation and Wells Fargo Bank, National Association, as

Trustee, relating to the 6.00% Convertible Senior Notes due 2012.

4.6 Registration Rights Agreement dated as of January 20, 2005, among Endeavour International Corporation and J.P. Morgan Securities Inc. and

Sanders Morris Harris Inc., as Placement Agents (Incorporated by reference to our Exhibit 4.2 to our Current Report on Form 8-K (Commission

File No. 001-32212) filed on January 24, 2005.)

4.7(a) Debt agreement between OER oil AS and Handelsbanken (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K

(Commission File No. 001-32212) filed on November 30, 2004.)

4.7(b) Amendment to debt agreement between OER oil AS and Handelsbanken (Incorporated by reference to Exhibit 10.2 to our Current Report on

Form 8-K (Commission File No. 001-32212) filed on November 30, 2004.)

10.1 Form of Amended and Restated Option to Purchase 100,000 Shares of Common Stock dated August 8, 2003, between the Company and each of

Stephen P. Harrington, Humbert B. Powell, III, Gary Krupp, Thomas M. Curran and John B. Connally III (Incorporated by reference to

Exhibit 10.25 of our Quarterly Report on Form 10-QSB (Commission File No. 000-33439) for the quarter ended June 30, 2003).

10.2(a) Option to Purchase 200,000 shares of Common Stock issued to Joseph M. Fioravanti (Incorporated by reference to Exhibit 10.26 of our

Quarterly Report on Form 10-QSB (Commission File No. 000-33439) for the quarter ended June 30, 2003.)

10.2(b) Amendment to Option to Purchase Common Stock dated February 26, 2004 between the Company and Joseph M. Fiorvanti (Incorporated by

reference to Exhibit 10.7 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003.)
Table of Contents

Exhibit Description

10.3 Form of Amendment to Amended and Restated Option to Purchase Common Stock dated February 26, 2004, executed by each of Stephen P.

Harrington, Humbert B. Powell, III Gary Krupp, Thomas M. Curran and John B. Connally. (Incorporated by reference to Exhibit 10.8 of

our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

10.4(a) Limited Partnership Agreement of PHT Partners, L.P. dated August 14, 2002 (Incorporated by reference to Exhibit 10.13 of our Quarterly

Report on Form 10-QSB (Commission File No. 000-33439) for the Quarter Ended March 31, 2003).

10.4(b) Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated June 23, 2003 (Incorporated by reference to Exhibit 10.10 of

our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003.)

10.4(c) Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated August 27, 2003 (Incorporated by reference to Exhibit 10.10 of

our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003.)

10.4(d) Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated February 26, 2004 (Incorporated by reference to Exhibit 10.10

of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003.)

10.5 Operating Agreement of BWP Gas, LLC dated July 21, 2003 (Incorporated by reference to Exhibit 10.19 of our Quarterly Report on Form 10-

QSB (Commission File No. 000-33439) for the Quarter Ended June 30, 2003)

10.6 Exploration Agreement dated May 19, 2003 by and among BWP Gas, LLC, The GHK Company, LLC and GHK Potato Hills Limited

Partnership (Incorporated by reference to Exhibit 10.20 of our Quarterly Report on Form 10-QSB (Commission File No. 000-33439) for the

Quarter Ended June 30, 2003)

10.7 Membership Purchase Agreement dated May 27, 2003 by and among BWP Gas, LLC, HBA Gas, Inc. and the Registrant (Incorporated by

reference to Exhibit 10.21 of our Quarterly Report on Form 10-QSB (Commission File No. 000-33439) for the Quarter Ended June 30, 2003)

10.8 Form of Common Stock Purchase Warrant dated October 18, 2002 issued to Michael Marcus and Amendment to Common Stock Purchase

Warrant issued to Michael Marcus. (Incorporated by reference to Exhibit 10.20 of our Annual Report on Form 10-KSB (Commission File

No. 000-33439) for the year ended December 31, 2003)

10.9 Purchase and Sale Agreement by and between Continental Southern Resources, Inc. and CSOR Preferred Liquidation, LLC, dated

February 26, 2004. (Incorporated by reference to Exhibit 10.21 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for

the year ended December 31, 2003)

 10.10(a) Stock Acquisition Agreement dated as of December 16, 2003 between Continental Southern Resources, Inc. and Ram Trading, Ltd.

(Incorporated by reference to Exhibit 99.6 of the Schedule 13D (Commission File No. 005-62401) filed on March 9, 2004 by Ram Trading,

Ltd. et al)
Table of Contents

Exhibit Description

10.10(b) Amendment to Stock Acquisition Agreement dated as of December 30, 2003 by and between Ram Trading, Ltd. and Continental Southern

Resources, Inc. (Incorporated by reference to Exhibit 99.7 of the Schedule 13D (Commission File No. 005-62401) filed on March 9, 2004 by

Ram Trading, Ltd. et al)

10.11 Common Stock Purchase Warrant dated February 26, 2004 issued to Sanders Morris Harris Inc. in connection with the private placement of

25,000,000 shares of the Company’s common stock. (Incorporated by reference to Exhibit 10.24 of our Annual Report on Form 10-KSB

(Commission File No. 000-33439) for the year ended December 31, 2003)

10.12 Form of Securities Purchase Agreement, dated February 4, 2004, by and between Continental Southern Resources, Inc. and certain purchasers

pursuant to a private placement of 125,000 shares of Company’s common stock. (Incorporated by reference to Exhibit 10.25 of our Annual

Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

10.13 Registration Rights Agreement dated as of February 26, 2004 pursuant to the private placement of 25,000,000 shares of the Company’s

common stock. (Incorporated by reference to Exhibit 10.26 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the

year ended December 31, 2003)

10.14 Piggyback Registration Rights Agreement dated as of February 26, 2004 between the Company and certain purchasers. (Incorporated by

reference to Exhibit 99.2 of the Schedule 13D (Commission File No. 005-62401) filed on March 9, 2004 by Ram Trading, Ltd. et al).

10.15 Interest Purchase Agreement dated February 26, 2004 by and between Continental Southern Resources, Inc. and Knox Gas, LLC. (Incorporated

by reference to Exhibit 10.28 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

10.16 Interest Pledge Agreement, dated February 26, 2004, by and among Knox Gas, LLC and Continental Southern Resources, Inc. (Incorporated

by reference to Exhibit 10.29 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

10.17 Secured Promissory Note dated February 26, 2004, made by Knox Gas, LLC in favor of Continental Southern Resources, Inc. (Incorporated

by reference to Exhibit 10.30 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

10.18(a) Securities Purchase Agreement dated October 28, 2003 by and between Continental Southern Resources, Inc. and Ram Trading, Ltd. regarding

the purchase and sale of interests in Knox-Miss Partners, LP. (Incorporated by reference to Exhibit 10.31 of our Annual Report on Form 10-

KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

10.18(b) First Amendment to Securities Purchase Agreement dated December 10, 2003 by and between Continental Southern Resources, Inc. and Ram

Trading, Ltd. (Incorporated by reference to Exhibit 10.32 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year

ended December 31, 2003)
Table of Contents

Exhibit Description

10.19 Securities Purchase Agreement dated August 27, 2003 by and between Continental Southern Resources, Inc. and Ram Trading, Ltd. regarding

the purchase and sale of interests in Louisiana Shelf-Partners, L.P. (Incorporated by reference to Exhibit 10.33 of our Annual Report on Form

10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

10.20 Form of Lock Up Agreement executed by each of the current executive officers of the Company and PGS Exploration (UK) Limited.

(Incorporated by reference to Exhibit 10.34 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended

December 31, 2003)

10.21 Form of Lock-up Agreement executed by certain of the Company’s stockholders. (Incorporated by reference to Exhibit 10.35 of our Annual

Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

†10.22 2004 Incentive Plan, effective February 26, 2004. (Incorporated by reference to Exhibit 10.36 of our Annual Report on Form 10-KSB

(Commission File No. 000-33439) for the year ended December 31, 2003)

†10.23 Employment Agreement dated February 26, 2004 by and between Continental Southern Resources, Inc. and William L. Transier.

(Incorporated by reference to Exhibit 10.37 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended

December 31, 2003)

†10.24 Employment Agreement dated February 26, 2004 by and between Continental Southern Resources, Inc. and John N. Seitz. (Incorporated by

reference to Exhibit 10.38 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003)

†10.25 Form of Restricted Stock Award Agreement. (Incorporated by reference to Exhibit 10.39 of our Annual Report on Form 10-KSB (Commission

File No. 000-33439) for the year ended December 31, 2003)

10.26(a) Agreement between PGS Exploration (UK) Limited and NSNV, Inc. as Licensee. (Portions of this exhibit have been omitted pursuant to a

request for confidential treatment.) (Incorporated by reference to Exhibit 10.1 for our Quarterly Report on Form 10-Q (Commission File

No. 000-33439) for the quarter ended March 31, 2004.)

10.26(b) Appendix No. 1 to License Agreement No. 2004-85 between PGS Exploration (UK) Ltd. and Endeavour Operating Corporation, dated

January 10, 2005 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on

January 11, 2005.)

10.27 Share Sale and Purchase Agreement between Lundin Petroleum B.V. and Endeavour Energy Norge AS dated October 12, 2004 (Incorporated

by reference to Exhibit 2.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on October 14, 2004.)

10.28 Form of Conditional Offer to Buy Shares of Stock to the Minority Stockholders of OER oil AS (Incorporated by reference to Exhibit 2.1 to

our Current Report on Form 8-K (Commission File No. 001-32212) filed on November 15, 2004.)
Table of Contents

Exhibit Description

†10.29 Form of Nonstatutory Stock Option Agreement between Endeavour International Corporation and William L. Transier, John N. Seitz,

Michael D. Cochran, Bruce H. Stover, H. Don Teague and Robert L. Thompson, individually (Incorporated by reference to Exhibit 10.1 to

our Current Report on Form 8-K (Commission File No. 001-32212) on January 5, 2005.)

†10.30 Form of One-Year Restricted Stock Agreement between Endeavour International Corporation and William L. Transier, John N. Seitz, Michael

D. Cochran, Bruce H. Stover, H. Don Teague and Robert L. Thompson, individually (Incorporated by reference to Exhibit 10.2 to our

Current Report on Form 8-K (Commission File No. 001-32212) on January 5, 2005.)

†10.31 Form of Three-Year Restricted Stock Agreement between Endeavour International Corporation and William L. Transier, John N. Seitz,

Michael D. Cochran, Bruce H. Stover, H. Don Teague and Robert L. Thompson, individually (Incorporated by reference to Exhibit 10.3 to

our Current Report on Form 8-K (Commission File No. 001-32212) on January 5, 2005.)

†10.32 Form of Stock Grant Agreement between Endeavour International Corporation and William L. Transier, John N. Seitz, Michael D. Cochran,

Bruce H. Stover, H. Don Teague and Robert L. Thompson, individually (Incorporated by reference to Exhibit 10.4 to our Current Report on

Form 8-K (Commission File No. 001-32212) filed on January 5, 2005.)

10.33 License Agreement No. 2004-85 between PGS Exploration (UK) Ltd. and Endeavour Operating Corporation, dated December 21, 2004

(Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on January 11, 2005.)

14.1 Code of Ethics of Endeavour International Corporation. (Incorporated by reference to Exhibit 14.1 of our Annual Report on Form 10-KSB

(Commission File No. 000-33439) for the year ended December 31, 2003)

*21.1 List of Subsidiaries.

*23.1 Consent of Independent Registered Public Accounting Firm - KPMG LLP.

*23.2 Consent of Independent Registered Public Accounting Firm - LJ Soldinger Associates LLP.

*23.3 Consent of Independent Reserve Engineers - Gaffney, Cline & Associates Ltd.

*31.1 Certificates of William L. Transier, Co-Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as

amended.

*31.2 Certificate of John N. Seitz, Co-Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

*31.3 Certificate of Robert L. Thompson, Chief Accounting Officer, pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as

amended.

*32.1 Certification of William L. Transier, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002.

*32.2 Certificate of John N. Seitz, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002.
Table of Contents

Exhibit Description

*32.3 Certification of Robert L. Thompson, Chief Accounting Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002.

* Filed herewith.

† Identifies management contracts and compensatory plans or arrangements.
Exhibit 4.5

ENDEAVOUR INTERNATIONAL CORPORATION

6.00% Convertible Senior Notes due 2012

INDENTURE

Dated as of January 20, 2005

WELLS FARGO BANK, NATIONAL ASSOCIATION

TRUSTEE
ARTICLE 1

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 1.01. Definitions 1

Section 1.02. Other Definitions. 8

Section 1.03. Incorporation by Reference of Trust Indenture Act 9

Section 1.04. Rules of Construction 9

Section 1.05. Acts of Holders 9

ARTICLE 2

THE NOTES

Section 2.01. Designation Amount and Issue of Notes 11

Section 2.02. Form of Notes 11

Section 2.03. Execution and Authentication 11

Section 2.04. Note Registrar, Paying Agent and Conversion Agent 12

Section 2.05. Paying Agent to Hold Money and Notes in Trust 12

Section 2.06. Noteholder Lists 13

Section 2.07. Transfer and Exchange; Restrictions on Transfer; Depositary 13

Section 2.08. Replacement Notes 20

Section 2.09. Outstanding Notes; Determination of Holders’ Action 21

Section 2.10. Temporary Notes 22

Section 2.11. Cancellation 22

Section 2.12. Persons Deemed Owners 23

Section 2.13. CUSIP Numbers 23

Section 2.14. Default Interest 23

ARTICLE 3

REDEMPTION AND REPURCHASE UPON A CHANGE OF CONTROL

Section 3.01. Company’s Right to Redeem 23

Section 3.02. Notice of Optional Redemption; Selection of Notes. 23

Section 3.03. Payment of Notes Called for Redemption by the Company 25

Section 3.04. Conversion Arrangement on Call for Redemption 26

Section 3.05. Purchase of Notes at Option of the Holder Upon Change of Control 27

Section 3.06. Effect of Change of Control Purchase Notice 34

Section 3.07. Deposit of Change of Control Purchase Price 35

Section 3.08. Notes Purchased in Part 36

Section 3.09. Covenant to Comply with Securities Laws upon Purchase of Notes 36

Section 3.10. Repayment to the Company 36

ARTICLE 4

COVENANTS

Section 4.01. Payment of Principal, Premium, Interest on the Notes 37

Section 4.02. Reports by the Company 37

Section 4.03. Compliance Certificate 38

Section 4.04. Further Instruments and Acts 38

Section 4.05. Maintenance of Office or Agency 38

Section 4.06. Delivery of Certain Information 38

Section 4.07. Existence 39

Section 4.08. Maintenance of Properties 39

Section 4.09. Payment of Taxes and Other Claims 39

Section 4.10. Liquidated Damages Notice 39

ARTICLE 5

SUCCESSOR CORPORATION

Section 5.01. When Company May Merge Or Transfer Assets 40

ARTICLE 6

DEFAULTS AND REMEDIES

Section 6.01. Events of Default 41

Section 6.02. Acceleration 43

Section 6.03. Other Remedies 44

Section 6.04. Waiver of Past Defaults 44

Section 6.05. Control By Majority 44
Section 6.06. Limitation On Suits 44

Section 6.07. Rights of Holders to Receive Payment 45

Section 6.08. Collection Suit by Trustee 45

Section 6.09. Trustee May File Proofs of Claim 45

Section 6.10. Priorities 46

Section 6.11. Undertaking For Costs 46

Section 6.12. Waiver Of Stay, Extension Or Usury Laws 47

ARTICLE 7

TRUSTEE

Section 7.01. Duties And Responsibilities Of The Trustee; During Default; Prior To Default 47

Section 7.02. Certain Rights of the Trustee 48

Section 7.03. Trustee not Responsible for Recitals, Dispositions of Notes or Application of Proceeds

Thereof 50

Section 7.04. Trustee and Agents May Hold Notes; Collections, Etc 50

Section 7.05. Moneys Held by Trustee 50

Section 7.06. Compensation And Indemnification Of Trustee And Its Prior Claim 50

Section 7.07. Right of Trustee to Rely on Officers’ Certificate, Etc 51

Section 7.08. Conflicting Interests 51

Section 7.09. Persons Eligible for Appointment as Trustee 52

Section 7.10. Resignation and Removal; Appointment of Successor Trustee 52

Section 7.11. Acceptance of Appointment by Successor Trustee 53

Section 7.12. Merger, Conversion, Consolidation or Succession to Business of Trustee 54

Section 7.13. Preferential Collection of Claims Against the Company 54

Section 7.14. Reports By The Trustee 55

Section 7.15. Trustee to Give Notice of Default, But May Withhold in Certain Circumstances 55

ARTICLE 8

DISCHARGE OF INDENTURE

Section 8.01. Discharge Of Indenture 55

Section 8.02. [intentionally Omitted]. 56

Section 8.03. Paying Agent to Repay Monies Held 56

Section 8.04. Return Of Unclaimed Monies 56

ARTICLE 9

SUPPLEMENTAL INDENTURES

Section 9.01. Without Consent Of Holders 56

Section 9.02. With Consent Of Holders 57

Section 9.03. Compliance with Trust Indenture Act 58

Section 9.04. Revocation and Effect of Consents, Waivers and Actions 58

Section 9.05. Notation on or Exchange of Notes 58

Section 9.06. Trustee to Sign Supplemental Indentures 59

Section 9.07. Effect of Supplemental Indentures 59

ARTICLE 10

CONVERSION

Section 10.01. Conversion Right and Conversion Price 59

Section 10.02. Exercise of Conversion Right 60

Section 10.03. Fractions of Shares 61

Section 10.04. Adjustment of Conversion Rate 61

Section 10.05. Notice of Adjustments of Conversion Rate 70

Section 10.06. Notice Prior to Certain Actions 70

Section 10.07. Company to Reserve Common Stock 71

Section 10.08. Taxes on Conversions 71

Section 10.09. Covenant as to Common Stock 72

Section 10.10. Cancellation of Converted Notes 72

Section 10.11. Effect of Reclassification, Consolidation, Merger or Sale 72

Section 10.12. Responsibility of Trustee for Conversion Provisions 73

ARTICLE 11

RESERVED

ARTICLE 12

MISCELLANEOUS

Section 12.01. Trust Indenture Act Controls 74
Section 12.02. Notices 74

Section 12.03. Communication by Holders with Other Holders 75

Section 12.04. Certificate and Opinion as to Conditions Precedent 75

Section 12.05. Statements Required in Certificate or Opinion 75

Section 12.06. Separability Clause 76

Section 12.07. Rules by Trustee, Paying Agent, Conversion Agent and Note Registrar 76

Section 12.08. Legal Holidays 76

Section 12.09. GOVERNING LAW 76

Section 12.10. No Recourse Against Others 76

Section 12.11. Successors 76

Section 12.12. Benefits of Indenture 76

Section 12.13. Table of Contents, Heading, Etc 77

Section 12.14. Authenticating Agent 77

Section 12.15. Execution In Counterparts 78

EXHIBITS

Exhibit A

Exhibit B-1

Form of Global Note

Transfer Certificate
TIA SECTION INDENTURE SECTION

310(a)(1) 7.09

(a)(2) 7.09

(a)(3) N.A.

(a)(4) N.A.

(a)(5) 7.09

(b)

7.08;

7.09;

7.10;

7.11

(c) N.A.

311(a) 7.13

(b) 7.13

(c) N.A.

312(a) 2.06

(b) 12.03

(c) 12.03

313(a) 7.14(a)

(b)(1) 7.14(a)

(b)(2) 7.14(a)

(c) 12.02

(d) 7.14(b)

314(a)

4.02;

4.03;

12.02

(c)(1) 12.04

(c)(2) 12.04

(c)(3) N.A.

(e) 12.05

(f) N.A.

315(a) 7.01

(b)

7.15;

12.02

(c) 7.01

(d) 7.01

(e) 6.11

316(a) (last sentence) 2.09

(a)(1)(A) 6.05

(a)(1)(B) 6.04

(a)(2) N.A.

(b) 6.07

317(a)(1) 6.08

(a)(2) 6.09

(b) 2.05

318(a) 12.01

N.A. means Not Applicable

 

*Note: This Cross Reference Table shall not, for any purpose, be deemed to be part of the Indenture.

INDENTURE dated as of January 20, 2005 between ENDEAVOUR INTERNATIONAL CORPORATION, a Nevada

corporation (the "Company") and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association,

as Trustee hereunder (the "Trustee").

RECITALS OF THE COMPANY

authorized the creation of an issue of its 6.00% Convertible Senior Notes due 2012 (herein called the "Notes") of substantially the tenor and

amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture.

All things necessary to make the Notes, when the Notes are executed by the Company and authenticated and

delivered hereunder, the valid and legally binding obligations of the Company, and to make this Indenture a valid

agreement of the Company, in accordance with their and its terms, have been done. Further, all things necessary to

duly authorize the issuance of the Common Stock of the Company issuable upon the conversion of the Notes, and to

duly reserve for issuance the number of shares of Common Stock issuable upon such conversion, have been done.

This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act of 1939, as

amended, that are required to be a part of and to govern indentures qualified under the Trust Indenture Act of 1939, as

amended.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually

covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows:

ARTICLE 1

Definitions And Other Provisions Of General Application

Section 1.01 . Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless

the context otherwise requires:

(1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural

as well as the singular;

(2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with

GAAP; and

(3) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture

as a whole and not to any particular Article, Section or other subdivision.
means an unlimited principal amount of Notes (other than the Initial Notes) issued from time to time with the same terms and conditions,

except for any differences in the issue price and interest accrued prior to the issue date of the Additional Notes, and the same CUSIP number

as the Initial Notes under this Indenture in accordance with Section 2.01 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" when

used with respect to any specified person means the power to direct or cause the direction of the management and

policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or

otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Board of Directors" means either the board of directors of the Company, or any duly authorized committee of

such board.

"Board Resolution" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the

Secretary or an Assistant Secretary of the Company, to be in full force and effect on the date of such certification, shall

have been delivered to the Trustee.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which

the banking institutions in The City of New York or the city in which the Corporate Trust Office is located are

authorized or obligated by law or executive order to close or be closed.

"Capital Stock" of any corporation means any and all shares, interests, rights to purchase, warrants, options,

participations or other equivalents of or interests in (however designated) stock issued by that corporation.

"Closing Date" has the meaning specified in the Placement Agency Agreement.

"Closing Price" of any security on any date of determination means:

(1) the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such security

on the American Stock Exchange on such date;

(2) if such security is not listed for trading on the American Stock Exchange on any such date, the closing

sale price as reported in the composite transactions for the principal U.S. securities exchange on which such

security is so listed;
(3) if such security is not so listed on a U.S. national or regional securities exchange, the closing sale price

as reported by the NASDAQ Stock Market, or if such security is not listed on the NASDAQ Stock Market, the

closing sale price as reported by the Nasdaq OTC Bulletin Board service (f/k/a NASDAQ Over-the-Counter

Bulletin Board);

(4) if such security is not so reported, the last quoted bid price for such security in the over-the-counter

market as reported by the Pink Sheets LLC (f/k/a National Quotation Bureau) or similar organization; or

(5) if such bid price is not available, the average of the mid-point of the last bid and ask prices of such

security on such date from at least three nationally recognized independent investment banking firms retained for

this purpose by the Company.

"Common Stock" means the common stock, par value $.001 per share, of the Company, authorized at the date

of this Indenture as originally executed.

"common stock" means any stock of any class of capital stock which has no preference in respect of dividends

or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the issuer.

"Company" means the party named as the "Company" in the first paragraph of this Indenture until a successor

replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The

foregoing sentence shall likewise apply to any subsequent such successor or successors.

"Company Order" means a written order signed in the name of the Company by any two Officers of the

Company.

"Conversion Agent" means any person authorized by the Company to convert Notes in accordance with

Article 10 hereof.

"Conversion Price" as of any day will equal $1,000 divided by the Conversion Rate as of such date and

rounded to the nearest cent. The Conversion Price shall initially be approximately $5.02 per share of Common Stock.

"Conversion Rate" has the meaning specified in Section 10.01.

"Corporate Trust Office" means the principal office of the Trustee at which at any time its corporate trust

business shall be administered, which office at the date hereof is located at 1000 Louisiana Street, Suite 640,

Houston, Texas 77002, or such other address as the Trustee may designate from time to time by notice to the Holders

and the Company, or the principal corporate trust office of any successor Trustee (or such other address as a

successor Trustee may designate from time to time by notice to the Holders and the Company).

"Default" means any event which is, or after notice or passage of time or both would be, an Event of Default.
means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in 2.07(d) as the Depositary with

respect to such Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture,

and thereafter, "Depositary" shall mean or include such successor.

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

"Holder" or "Noteholder" as applied to any Note, or other similar terms (but excluding the term "beneficial

holder"), means any Person in whose name at the time a particular Note is registered on the Note Registrar’s books.

"Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms

hereof, including the provisions of the TIA that are deemed to be a part hereof.

"Initial Notes" means Notes in an aggregate principal amount not to exceed $65,000,000 (or $81,250,000, if the

Purchasers’ Option is fully exercised by the Initial Purchasers) issued under this Indenture.

"Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes.

"Issue Date" of any Note means the date on which the Note was originally issued or deemed issued as set forth

on the face of the Note.

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of

any kind in respect of such asset given to secure indebtedness, whether or not filed, recorded or otherwise perfected

under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof,

any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing

statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any such

lien, pledge, charge or security interest).

"Liquidated Damages" has the meaning specified for "Liquidated Damages Amount" in Section 2(e) of the

Registration Rights Agreement.

"Notes" has the meaning ascribed to it in the first paragraph under the caption " Recitals of the Company." The

Initial Notes and any Additional Notes will rank equally and ratably and shall be treated as a single class for all

purposes under this Indenture.

"Officer" means the Chairman of the Board, the Vice Chairman, the Chief Executive Officer, the President, any

Executive Vice President, any Senior Vice President, any Vice President, the Treasurer or the Secretary or any

Assistant Treasurer or Assistant Secretary of the Company.
"Officers’ Certificate" means a written certificate containing the information specified in Sections 12.04 and

12.05, signed in the name of the Company by any two Officers of the Company, and delivered to the Trustee. An

Officers’ Certificate given pursuant to Section 4.03 shall be signed by an authorized financial or accounting Officer of

the Company but need not contain the information specified in Sections 12.04 and 12.05.

"Opinion of Counsel" means a written opinion containing the information specified in Sections 12.04 and 12.05,

from legal counsel. The counsel may be an employee of, or counsel to, the Company.

"person" or "Person" means any individual, corporation, limited liability company, partnership, joint venture,

association, joint-stock company, trust, unincorporated organization, or government or any agency or political

subdivision thereof.

"Placement Agency Agreement" means the Placement Agency Agreement dated January 11, 2005 between the

Company and the Placement Agents.

"Placement Agents" means J.P. Morgan Securities Inc. and Sanders Morris Harris Inc.

"Portal Market" means The Portal Market operated by the National Association of Securities Dealers, Inc. or any

successor thereto.

"principal" of a Note means the principal amount due on the Stated Maturity as set forth on the face of the Note

or the amount of any Change of Control Purchase Price and Make-Whole Premium, if any, payable pursuant to

Section 3.05(a), whichever is applicable.

"Private Placement Memorandum" means the private placement memorandum dated January 13, 2005 in

connection with the sale of the Notes.

"Purchase Agreements" means the Securities Purchase Agreements dated as of January 13, 2005, between

the Company and the Purchasers.

"Purchasers" means the investors who have agreed to purchase the Notes pursuant to Purchase Agreements.

"Purchasers’ Option" means the option granted by the Company to the Purchasers to purchase up to

$16,250,000 aggregate principal amount of Notes pursuant to the Purchase Agreements.

"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of January 20,

2005, between the Company and the Placement Agents, as amended from time to time in accordance with its terms.

"Regular Record Date" means, with respect to the interest payable on any Interest Payment Date, the close of

business on January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest

Payment Date.

"Responsible Officer" means, when used with respect to the Trustee, any officer within the corporate trust

department of the Trustee, including any vice president, assistant vice president, assistant treasurer, trust officer or

any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at

the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such

person’s knowledge of and familiarity with the particular subject, and who shall have direct responsibility for the

administration of this Indenture.

"Rule 144A" means Rule 144A under the Securities Act (or any successor provision), as it may be amended

from time to time.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the United States Securities Act of 1933 (or any successor statute), as amended from

time to time.

"Significant Subsidiary" means any direct or indirect Subsidiary of the Company that meets any of the following

conditions:

(1) the Company’s and its other Subsidiaries’ investments in and advances to such Subsidiary exceed 10%

of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed

fiscal year;

(2) the Company’s and its other Subsidiaries’ proportionate share of the total assets (after intercompany

eliminations) of such Subsidiary exceed 10% of the total assets of the Company and its Subsidiaries

consolidated as of the end of the most recently completed fiscal year; or

(3) the Company’s and its other Subsidiaries’ equity in the income from continuing operations before income

taxes, extraordinary items and cumulative effect of a change in accounting principle of such Subsidiary exceed

10% of such income of the Company and its Subsidiaries consolidated for the most recently completed fiscal

year.

"Stated Maturity," when used with respect to any Note or any installment of interest thereon, means the date

specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and

payable.
"Subsidiary" means (i) a corporation, a majority of whose Capital Stock with voting power, under ordinary

circumstances, to elect directors is, at the date of determination, directly or indirectly owned by the Company, by one or

more Subsidiaries of the Company or by the Company and one or more Subsidiaries of the Company, (ii) a

partnership in which the Company or a Subsidiary of the Company holds a majority interest in the equity capital or

profits of such partnership, or (iii) any other person (other than a corporation) in which the Company, a Subsidiary of

the Company or the Company and one or more Subsidiaries of the Company, directly or indirectly, at the date of

determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority

of the directors or other governing body of such person.

"TIA" means the Trust Indenture Act of 1939 as in effect on the date of this Indenture; provided, however, that in

the event the TIA is amended after such date, TIA means, to the extent required by any such amendment, the TIA as so

amended.

"Trading Day" means a day during which trading in Common Stock generally occurs on the American Stock

Exchange or, if the Common Stock is not listed on the American Stock Exchange, on the principal other national or

regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not listed on a

national or regional securities exchange, on the NASDAQ Stock Market or, if the Common Stock is not quoted on the

NASDAQ Stock Market, on the principal other market on which the Common Stock is then traded.

"Trustee" means the party named as the "Trustee" in the first paragraph of this Indenture until a successor

replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The

foregoing sentence shall likewise apply to any subsequent such successor or successors.

"United States" means the United States of America (including the States and the District of Columbia), its

territories, its possessions and other areas subject to its jurisdiction (its "possessions" including Puerto Rico, the

U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands).

"Voting Stock" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power

to vote for the election of directors of such Person.

Section 1.02 . Other Definitions.

Defined in

Term Section

"Act" 1.05(a)

"Agent Members" 2.07(d)

"Authenticating Agent" 12.14

"Bankruptcy Law" 6.01

"beneficial ownership" 3.02(a)

"Certificated Notes" 2.07(b)
"Change of Control" 3.05(a)

"Change of Control Purchase Date" 3.05(a)

"Change of Control Purchase Notice" 3.05(e)

"Change of Control Purchase Price". 3.05(a)

"Conversion Price" 10.01

"Conversion Rate" 10.01

"Current Market Price" 10.04(g)

"Custodian" 6.01

"Effective Date" 3.05(a)

"Event of Default" 6.01

"Exchange Act" 3.02(a)

"excluded securities" 10.04(d)

"Expiration Time" 10.04(f)

"fair market value" 10.04(g)

"Global Note" 2.07(b)

"Legal Holiday" 12.08

"Liquidated Damages Notice" 4.10

"Make-Whole Premium" 3.05(a)

"Non-Electing Share" 10.11

"Note Register" 2.04

"Note Registrar" 2.04

"Notice of Default" 6.01

"Paying Agent" 2.04

"Principal Amount" 2.07(b)

"Public Acquirer Change of Control. 3.05(d)

"Public Acquirer Common Stock 3.05(d)

"Purchased Shares" 10.04(f)

"Record Date" 10.04(g)

"Redemption Date" 3.02

"Redemption Notice" 3.02

"Redemption Price" 3.01

"Reference Period" 10.04(d)

"Restricted Note" 10.02

"Restricted Securities" 2.07(d)

"Rule 144A Information" 4.06

"Stock Price" 3.05(a)

"transfer" 2.07(d)

"Trigger Event" 10.04(d)

Section 1.03 . 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. The following TIA terms

used in this Indenture have the following meanings:

"Commission" means the SEC.
"indenture Notes" means the Notes.

"indenture Note holder" means a Noteholder.

"indenture to be qualified" means this Indenture.

"indenture trustee" or "institutional trustee" means the Trustee.

"obligor" on the indenture Notes means the Company.

All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or

defined by SEC rule have the meanings assigned to them by such definitions.

Section 1.04 . Rules of Construction. Unless the context otherwise requires:

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

(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally

accepted accounting principles as in effect from time to time;

(c) "or" is not exclusive;

(d) "including" means including, without limitation; and

(e) words in the singular include the plural, and words in the plural include the singular.

Section 1.05 . Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other

action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more

instruments of substantially similar tenor signed by such Holders in person or by their agent duly appointed in writing;

and, except as herein otherwise expressly provided, such action shall become effective when such instrument or

instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument

or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the " Act"

of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing

appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee

and the Company, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the

affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take

acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to such

officer the execution thereof. Where such execution is by a signer acting in a capacity other than such signer’s

individual capacity, such certificate or affidavit shall also constitute sufficient proof of such signer’s authority. The fact

and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may

also be proved in any other manner which the Trustee deems sufficient.

The ownership of Notes shall be proved by the Note Register or by a certificate of the Note Registrar.
authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the

holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done,

omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such

Note.

If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent,

waiver or other Act, the Company may, at its option, by or pursuant to a resolution of the Board of Directors, fix in

advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction,

notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed,

such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such

record date, but only the Holders of record at the close of business on such record date shall be deemed to be

Holders for purposes of determining whether Holders of the requisite proportion of outstanding Notes have authorized

or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for

that purpose the outstanding Notes shall be computed as of such record date; provided that no such authorization,

agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective

pursuant to the provisions of this Indenture not later than six months after the record date.

ARTICLE 2

The Notes

Section 2.01 . Designation Amount and Issue of Notes. The Notes shall be designated as "6.00% Convertible

Senior Notes due 2012". Except pursuant to Sections 2.07, 2.08, 3.08 and 10.02 hereof, Initial Notes not to exceed

the aggregate principal amount of $65,000,000 (or $81,250,000 if the Purchasers’ Option is fully exercised by the

Purchasers), upon the execution of this Indenture, may be executed by the Company and delivered to the Trustee for

authentication, and the Trustee shall thereupon authenticate and deliver said Initial Notes upon a Company Order,

without any further action by the Company hereunder. In addition, the Trustee shall authenticate and deliver Additional

Notes in aggregate principal amounts specified by the Company, without the consent of the Holders.

Section 2.02 . Form of Notes. The Notes and the Trustee’s certificate of authentication to be borne by such

Notes shall be substantially in the form set forth in Exhibit A, which is incorporated in and made a part of this

Indenture.
such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same

may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture,

or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any

securities exchange or automated quotation system on which the Notes may be listed, or to conform to usage.

Any Global Note shall represent such of the outstanding Notes as shall be specified therein and shall provide that

it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate

amount of outstanding Notes represented thereby may from time to time be increased or reduced to reflect transfers or

exchanges permitted hereby. Any endorsement of a Global Note to reflect the amount of any increase or decrease in

the amount of outstanding Notes represented thereby shall be made by the Trustee, in such manner and upon

instructions given by the holder of such Notes in accordance with this Indenture. Payment of principal of and interest

and premium (including Make-Whole Premium), if any, on any Global Note shall be made to the holder of such Note.

The terms and provisions contained in the form of Note attached as Exhibit A hereto shall constitute, and are

hereby expressly made, a part of this Indenture and, to the extent applicable, 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.

Section 2.03 . Execution and Authentication. The Notes shall be executed on behalf of the Company by an

Officer of the Company. The signatures of such Officer on the Notes may be manual or facsimile.

Notes bearing the manual or facsimile signatures of individuals who were at the time of the execution of the Notes

the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them

have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at

the date of authentication of such Notes. Notes shall be dated the date of their authentication.

No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there

appears on such Note a certificate of authentication substantially in the form provided for herein duly executed by the

Trustee or an Authenticating Agent by manual signature of an authorized officer, and such certificate upon any Note

shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered

hereunder.

The Notes shall be issued only in registered form without coupons and only in denominations of $1,000 in

principal amount and any integral multiple thereof.
Note Registrar, Paying Agent and Conversion Agent. The Company shall maintain an office or agency where Notes may be presented for

registration of transfer or for exchange ("Note Registrar"), an office or agency where Notes may be presented for purchase or payment

("Paying Agent") and an office or agency where Notes may be presented for conversion (" Conversion Agent"). The Note Registrar shall

keep a register (the "Note Register") in which, subject to such reasonable regulations as it may prescribe it shall provide for the registration

and transfer of the Notes. The Company may have one or more co-registrars, one or more additional paying agents and one or more

additional conversion agents. The term Paying Agent includes any additional paying agent, including any named pursuant to Section 4.05.

The term Conversion Agent includes any additional conversion agent, including any named pursuant to Section 4.05.

The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to

maintain a Note Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such and shall be entitled to

appropriate compensation therefor pursuant to Section 7.06. The Company or any Subsidiary or an Affiliate of either

of them may act as Paying Agent, Note Registrar, Conversion Agent or co-registrar.

The Company initially appoints the Trustee as Note Registrar, Conversion Agent and Paying Agent in connection

with the Notes.

Section 2.05 . Paying Agent to Hold Money and Notes in Trust. Except as otherwise provided herein, on or

prior to each due date of payments in respect of any Note, the Company shall deposit with the Paying Agent a sum of

money (in immediately available funds if deposited on the due date) or, to the extent applicable, Common Stock

sufficient to make such payments when so becoming due. The Company shall require each Paying Agent (other than

the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Noteholders or the Trustee all

money and Common Stock held by the Paying Agent for the making of payments in respect of the Notes and shall

notify the Trustee of any default by the Company in making any such payment. At any time during the continuance of

any such default, the Paying Agent shall, upon the written request of the Trustee, forthwith pay to the Trustee all money

and Common Stock so held in trust. If the Company, a Subsidiary or an Affiliate of the Company acts as Paying Agent,

it shall segregate the money and Common Stock held by it as Paying Agent and hold it as a separate trust fund. The

Company at any time may require a Paying Agent to pay all money and Common Stock held by it to the Trustee and to

account for any funds and Common Stock disbursed by it. Upon doing so, the Paying Agent shall have no further

liability for the money or Common Stock.

Section 2.06 . Noteholder 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 Noteholders. If the Trustee is not the Note Registrar, the

Company shall cause to be furnished to the Trustee at least semiannually on January 15 and July 15 a listing of

Noteholders dated within 15 days of the date on which the list is furnished 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 Noteholders.
Transfer and Exchange; Restrictions on Transfer; Depositary. (a) Upon surrender for registration of transfer of any Note, together with a

written instrument of transfer satisfactory to the Note Registrar duly executed by the Noteholder or such Noteholder’s attorney duly authorized

in writing, at the office or agency of the company designated as Note Registrar or co-registrar pursuant to Section 2.04, and satisfaction of the

requirements of such transfer set forth in this Section, the Company shall execute, and the Trustee shall authenticate and deliver, in the

name of the designated transferee or transferees, one or more new Notes of any authorized denomination or denominations, of a like

aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. The Company shall not charge a

service charge for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to pay all taxes,

assessments or other governmental charges that may be imposed in connection with the transfer or exchange of the Notes from the

Noteholder requesting such transfer or exchange.

At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination or

denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged, together with a

written instrument of transfer satisfactory to the Note Registrar duly executed by the Noteholder or such Noteholder’s

attorney duly authorized in writing, at such office or agency. Whenever any Notes are so surrendered for exchange,

the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the

exchange is entitled to receive.

All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the

Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered

upon such registration of transfer or exchange.

The Company shall not be required to make, and the Note Registrar need not register, transfers or exchanges of

any Notes in respect of which a Change of Control Purchase Notice (as defined in Section 3.05(e)) has been given

and not withdrawn by the Holder thereof in accordance with the terms of this Indenture (except, in the case of Notes to

be purchased in part, the portion thereof not to be purchased).
Notes are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Notes that, upon initial issuance are

beneficially owned by QIBs or as a result of a sale or transfer after initial issuance are beneficially owned by QIBs, will be represented by one

or more Notes in global form registered in the name of the Depositary or the nominee of the Depositary (the "Global Note"), except as

otherwise specified below. The transfer and exchange of beneficial interests in any such Global Note shall be effected through the Depositary

in accordance with this Indenture and the procedures of the Depositary therefor. The Trustee shall make appropriate endorsements to reflect

increases or decreases in the principal amounts of any such Global Note as set forth on the face of the Note (" Principal Amount") to reflect

any such transfers. Except as provided below, beneficial owners of a Global Note shall not be entitled to have certificates registered in their

names, will not receive or be entitled to receive physical delivery of certificates in definitive form ("Certificated Notes") and will not be

considered holders of such Global Note.

(c) (i) So long as the Notes are eligible for book-entry settlement with the Depositary, or unless otherwise

required by law, upon any transfer of a Certificated Note to a QIB in accordance with Rule 144A that requests delivery

of such Note in the form of an interest in the Global Note, and upon receipt of the Certificated Note or Notes being so

transferred, together with a certification, substantially in the form of Exhibit B-1 hereto, from the transferor that the

transfer is being made in compliance with Rule 144A (or other evidence satisfactory to the Trustee), the Trustee shall

make an endorsement on the Global Note to reflect an increase in the aggregate Principal Amount of the Notes

represented by such Global Note, and the Trustee shall cancel such Certificated Note or Notes in accordance with the

standing instructions and procedures of the Depositary.

(ii) Upon any sale or transfer of a Note to the Company or any Subsidiary thereof (other than pursuant to

a registration statement that has been declared effective under the Securities Act or after the expiration of the

holding period applicable to sales thereof under Rule 144(k) under the Securities Act), the transferor shall, prior

to such sale or transfer, furnish to the Company and/or Trustee such certifications, including a certification

substantially in the form of Exhibit B-1 hereto, legal opinions or other information as they may reasonably require

to confirm that the proposed transfer is being made pursuant to an exemption from, or in a transaction not

subject to, the registration requirements of the Securities Act. Upon any transfer of a beneficial interest in the

Global Note to the Company or such Subsidiary, as the case may be, the Trustee shall make an endorsement on

the Global Note to reflect a decrease in the aggregate Principal Amount of the Notes represented by such Global

Note, and the Company shall execute a Certificated Note or Notes in exchange therefor, and the Trustee, upon

receipt of such Certificated Note or Notes and a Company Order, shall authenticate and deliver such, Certificated

Note or Notes.

(iii) Upon any sale or transfer of a Note pursuant to the exemption from registration provided by Rule 144

under the Securities Act, the transferor shall, prior to such sale or transfer, furnish to the Company and/or the

Trustee such certifications, including a certification substantially in the form of Exhibit B-1 hereto, legal opinions

or other information as they may reasonably require to confirm that the proposed transfer is being made pursuant

to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Upon

any transfer of a beneficial interest in the Global Note to such transferee, the Trustee shall make an endorsement

on the Global Note to reflect a decrease in the aggregate Principal Amount of the Notes represented by such

Global Note, and, at the request of the transferee, either (1) the Company shall execute a Certificated Note or

Notes in exchange therefor, and the Trustee, upon receipt of such Certificated Note or Notes and a Company

Order, shall authenticate and deliver such, Certificated Note or Notes or (2) if a Global Note that does not bear the

legend set forth in Section 2.07(d) has previously been executed and authenticated, the Trustee shall make an

endorsement on such Global Note to reflect a corresponding increase in the aggregate Principal Amount of Notes

represented by such Global Note.
endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this

Indenture as may be required by the Trustee, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to

be tradeable on The Portal Market or as may be required for the Notes to be tradeable on any other market developed for trading of securities

pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any

securities exchange or automated quotation system upon which the Notes may be listed or traded or to conform with any usage with respect

thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject.

(d) Every Note that bears or is required under this Section 2.07(d) to bear the legend set forth in this

Section 2.07(d) (together with any Common Stock issued upon conversion of the Notes and required to bear the

legend set forth in Section 2.07(e), collectively, the "Restricted Securities") shall be subject to the restrictions on

transfer set forth in this Section 2.07(d) (including those set forth in the legend set forth below) unless such

restrictions on transfer shall be waived by written consent of the Company, and the holder of each such Restricted

Security, by such Noteholder’s acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in

Sections 2.07(d) and 2.07(c), the term "transfer" encompasses any sale, pledge, loan, transfer or other disposition

whatsoever of any Restricted Security.

Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or

any successor provision), any certificate evidencing such Note (and all securities issued in exchange therefor or

substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend

set forth in Section 2.07(e), if applicable) shall bear a legend in substantially the following form, unless such Note has

been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which

continues to be effective at the time of such transfer), or unless otherwise agreed by the Company in writing, with

written notice thereof to the Trustee:

THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF

THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS

AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS

SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS

SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED,

SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN

THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM,

OR NOT SUBJECT TO, REGISTRATION.
HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH

SECURITY, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES THEREOF UNDER RULE 144(K)

UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) (THE "RESALE RESTRICTION PERIOD"), ONLY (A) TO

ENDEAVOUR INTERNATIONAL CORPORATION (THE "COMPANY"), OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS

THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A

"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS

OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE

TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN

DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM

THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING UNDER RULE 144, IF AVAILABLE, SUBJECT IN

EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE

PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL. EACH

PURCHASER ACKNOWLEDGES THAT PRIOR TO THE EXPIRATION OF THE RESALE RESTRICTION PERIOD, THE COMPANY

AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION

AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A

CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND

DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE

HOLDER AFTER EXPIRATION OF THE RESALE RESTRICTION PERIOD.

Any Note (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall

have expired in accordance with their terms or as to conditions for removal of the foregoing legend set forth therein

have been satisfied may, upon surrender of such Note for exchange to the Note Registrar in accordance with the

provisions of this Section 2.07, be exchanged for a new Note or Notes, of like tenor and aggregate principal amount,

which shall not bear the restrictive legend required by this Section 2.07(d).
provisions of this Indenture (other than the provisions set forth in Section 2.07(c), with respect to transfers of beneficial interests in a Global

Note, and in this Section 2.07(d)), a Global Note may not be transferred as a whole or in part except by the Depositary to a nominee of the

Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such

nominee to a successor Depositary or a nominee of such successor Depositary.

Neither any members of, or participants in, the Depositary (collectively, the "Agent Members") nor any other

Persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any

Global Note registered in the name of the Depositary or any nominee thereof, or under any such Global Note, and the

Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the

Company or the Trustee as the absolute owner and holder of such Global Note for all purposes whatsoever.

Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or

the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or

such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person

on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the

exercise of the rights of a holder of any Note.

The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The

Depository Trust Company to act as Depositary with respect to the Notes in global form. Initially, the Global Note shall

be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited

with the Trustee, as custodian for Cede & Co.

If at any time the Depositary for a Global Note notifies the Company that it is unwilling or unable to continue as

Depositary for such Note, the Company may appoint a successor Depositary with respect to such Note. If a

successor Depositary is not appointed by the Company within ninety (90) days after the Company receives such

notice, the Company will execute, and the Trustee, upon receipt of an Officers’ Certificate for the authentication and

delivery of Notes, will authenticate and deliver, Certificated Notes, in aggregate principal amount equal to the principal

amount of such Global Note, in exchange for such Global Note.

If a Certificated Note is issued in exchange for any portion of a Global Note after the close of business at the

office or agency where such exchange occurs on any Regular Record Date and before the opening of business at

such office or agency on the next succeeding Interest Payment Date, interest will not be payable on such Interest

Payment Date in respect of such Certificated Note, but will be payable on such Interest Payment Date only to the

Person to whom interest in respect of such portion of such Global Note is payable in accordance with the provisions

of this Indenture.
in exchange for all or a part of a Global Note pursuant to this Section 2.07 shall be registered in such names and in such authorized

denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon

execution and authentication, the Trustee shall deliver such Certificated Notes to the Persons in whose names such Certificated Notes are

so registered.

At such time as all interests in a Global Note have been converted, canceled, exchanged for Certificated Notes, or

transferred to a transferee who receives Certificated Notes thereof, such Global Note shall, upon receipt thereof, be

canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and

the Trustee. At any time prior to such cancellation, if any interest in a Global Note is exchanged for Certificated Notes,

converted, repurchased or canceled, or transferred to a transferee who receives Certificated Notes therefor or any

Certificated Note is exchanged or transferred for part of a Global Note, the principal amount of such Global Note shall,

in accordance with the standing procedures and instructions existing between the Depositary and the Trustee, be

appropriately reduced or increased, as the case may be, and an endorsement shall be made on such Global Note, by

the Trustee to reflect such reduction or increase.

(e) Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities

Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of any

Note shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a

registration statement that has been declared effective under the Securities Act (and which continues to be effective at

the time of such transfer) or such Common Stock has been issued upon conversion of Notes that have been

transferred pursuant to a registration statement that has been declared effective under the Securities Act, or unless

otherwise agreed by the Company in writing with written notice thereof to the transfer agent:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS

AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS

SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED,

SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN

THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM,

OR NOT SUBJECT TO, REGISTRATION.
HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH

SECURITY, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES THEREOF UNDER RULE 144(K)

UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) (THE "RESALE RESTRICTION PERIOD"), ONLY (A) TO

ENDEAVOUR INTERNATIONAL CORPORATION (THE "COMPANY"), OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS

THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A

"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS

OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE

TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN

DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM

THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING UNDER RULE 144, IF AVAILABLE, SUBJECT IN

EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE

PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL. EACH

PURCHASER ACKNOWLEDGES THAT PRIOR TO THE EXPIRATION OF THE RESALE RESTRICTION PERIOD, THE COMPANY

AND THE TRANSFER AGENT RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,

CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, AND IN EACH OF THE FOREGOING

CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED

AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST

OF THE HOLDER AFTER THE EXPIRATION OF THE RESALE RESTRICTION PERIOD.

Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their

terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon

surrender of the certificates representing such shares of Common Stock for exchange in accordance with the

procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like

number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.07(e).
Common Stock issued upon the conversion or exchange of a Note that, prior to the expiration of the holding period applicable to sales thereof

under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may

not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the

registration requirements of the Securities Act in a transaction which results in such Notes or Common Stock, as the case may be, no longer

being "restricted securities" (as defined under Rule 144).

Section 2.08 . Replacement Notes. If (a) any mutilated Note is surrendered to the Trustee, or (b) the Company,

the Trustee and, if applicable, the Authenticating Agent receive evidence to their satisfaction of the destruction, loss or

theft of any Note, and there is delivered to the Company, the Trustee and, if applicable, the Authenticating Agent such

Note or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the

Company, the Trustee or, if applicable, the Authenticating Agent that such Note has been acquired by a bona fide

purchaser, the Company shall execute and upon its written request the Trustee or the Authenticating Agent shall

authenticate and deliver, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note,

a new Note of like tenor and principal amount, bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, or

is about to be purchased by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of

issuing a new Note, pay or purchase such Note, as the case may be.

Upon the issuance of any new Notes under this Section 2.08, the Company may require the payment of a sum

sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other

expenses (including the fees and expenses of the Trustee and any Authenticating Agent) connected therewith.

Every new Note issued pursuant to this Section 2.08 in lieu of any mutilated, destroyed, lost or stolen Note shall

constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen

Note shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and

proportionately with any and all other Notes duly issued hereunder.

The provisions of this Section 2.08 are exclusive and shall preclude (to the extent lawful) all other rights and

remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes.

Section 2.09 . Outstanding Notes; Determination of Holders’ Action. Notes outstanding at any time are all the

Notes authenticated by the Trustee except for those cancelled by it or delivered to it for cancellation, those paid

pursuant to Section 2.08 and those described in this Section 2.09 as not outstanding. A Note does not cease to be

outstanding because the Company or an Affiliate thereof holds the Note; provided, however, that in determining

whether the Holders of the requisite principal amount of the outstanding Notes have given or concurred in any

request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or any

other obligor upon the Notes or any Affiliate of the Company or such other obligor shall be disregarded and deemed

not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such

request, demand, authorization, direction, notice, consent or waiver, only Notes which a Responsible Officer of the

Trustee actually knows to be so owned shall be so disregarded. Subject to the foregoing, only Notes outstanding at the

time of such determination shall be considered in any such determination (including, without limitation, determinations

pursuant to Articles 6 and 9).
pursuant to Section 2.08, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a

bona fide purchaser.

If the Paying Agent holds, in accordance with this Indenture, on the Business Day following the Change of Control

Purchase Date, or on Stated Maturity, money or securities, if permitted hereunder, sufficient to pay Notes payable on

that date, then immediately after such Change of Control Purchase Date or Stated Maturity, as the case may be, such

Notes shall cease to be outstanding and interest on such Notes shall cease to accrue.

If a Note is converted in accordance with Article 10, then from and after the time of conversion on the conversion

date, such Note shall cease to be outstanding and interest shall cease to accrue on such Note.

Section 2.10 . Temporary Notes. Pending the preparation of definitive Notes, the Company may execute, and

upon a Company Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed,

typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the

definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and

other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of

such Notes.

If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable

delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon

surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to

Section 2.04, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes the

Company shall execute and the Trustee or an Authenticating Agent shall authenticate and deliver in exchange therefor a

like principal amount of definitive Notes of authorized denominations. Until so exchanged the temporary Notes shall in

all respects be entitled to the same benefits under this Indenture as definitive Notes.
Cancellation. All Notes surrendered for payment, purchase by the Company pursuant to Article 3, conversion or registration of transfer or

exchange shall, if surrendered to any person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The

Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the

Company may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Trustee. The

Company may not issue new Notes to replace Notes it has paid or delivered to the Trustee for cancellation or that any Holder has converted

pursuant to Article 10. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section 2.11,

except as expressly permitted by this Indenture. All cancelled Notes held by the Trustee shall be disposed of by the Trustee in its customary

manner.

Section 2.12 . Persons Deemed Owners. Prior to due presentment of a Note for registration of transfer, the

Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note

is registered as the owner of such Note for the purpose of receiving payment of principal of the Note or the payment

of any Change of Control Purchase Price in respect thereof, and interest thereon, for the purpose of conversion and

for all other purposes whatsoever, whether or not such Note be overdue, and neither the Company, the Trustee nor

any agent of the Company or the Trustee shall be affected by notice to the contrary.

Section 2.13 . CUSIP Numbers. The Company in issuing the Notes may use " CUSIP" numbers (if then

generally in use). No representation is made as to the correctness of such CUSIP numbers and reliance may be

placed only on the other identification numbers printed on the Notes. The Company will promptly notify the Trustee of

any change in the CUSIP numbers.

Section 2.14 . Default Interest. If the Company defaults in a payment of interest on the Notes, it shall pay, or

shall deposit with the Paying Agent money in immediately available funds sufficient to pay, the defaulted interest, plus

(to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent

special record date. A special record date, as used in this Section 2.14 with respect to the payment of any defaulted

interest, shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest,

whether or not such day is a Business Day. At least 15 days before the subsequent special record date, the Company

shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date

and the amount of defaulted interest to be paid.

ARTICLE 3

Redemption and Repurchase Upon A Change Of Control

Section 3.01 . Company’s Right to Redeem. Prior to January 20, 2010, the Notes shall not be redeemable at the

Company’s option. At any time on or after January 20, 2010 and prior to Stated Maturity, the Company, at its option,

may redeem the Notes, in whole or in part, in accordance with the provisions of Section 3.02, Section 3.03 and

Section 3.04 on the Redemption Date for a redemption price (the "Redemption Price") in cash equal to 100% of the

principal amount of the Notes plus any accrued and unpaid interest and Liquidated Damages, if any, on the Notes

redeemed to but excluding the Redemption Date.
Notice of Optional Redemption; Selection of Notes.

(a) In case the Company shall desire to exercise the right to redeem all or, as the case may be, any part of the

Notes pursuant to Section 3.01, it shall fix a date for redemption (the "Redemption Date") and it or, at its written

request (which request must include the information listed in Section 3.02(b) and be received by the Trustee not fewer

than thirty-five (35) days prior (or such shorter period of time as may be acceptable to the Trustee) to the Redemption

Date), the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed a notice of such

redemption (a "Redemption Notice") not fewer than twenty (20) nor more than sixty (60) days prior to the

Redemption Date to each holder of Notes so to be redeemed as a whole or in part at its last address as the same

appears on the Note Register; provided that if the Company shall give such notice, it shall also give written notice of

the Redemption Date to the Trustee. Such mailing shall be by first class mail. The notice, if mailed in the manner herein

provided, shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In

any case, failure to give such notice by mail or any defect in the notice to the holder of any Note designated for

redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note.

Concurrently with the mailing of any such Redemption Notice, the Company shall issue a press release announcing

such redemption, the form and content of which press release shall be determined by the Company in its sole

discretion. The failure to issue any such press release or any defect therein shall not affect the validity of the

Redemption Notice or any of the proceedings for the redemption of any Note called for redemption.

(b) Each such Redemption Notice shall specify the aggregate principal amount of Notes to be redeemed, the

CUSIP, ISIN or similar number or numbers of the Notes being redeemed, the Redemption Date (which shall be a

Business Day), the Redemption Price at which Notes are to be redeemed, the place or places of payment, that

payment will be made upon presentation and surrender of such Notes, that Interest accrued and unpaid up to but not

including the Redemption Date will be paid as specified in said notice, and that on and after said date Interest thereon

or on the portion thereof to be redeemed will cease to accrue. Such notice shall also state the current Conversion Rate

and the date on which the right to convert such Notes or portions thereof into Common Shares will expire. If fewer

than all the Notes are to be redeemed, the Redemption Notice shall identify the Notes to be redeemed (including CUSIP,

ISIN or similar number or numbers, if any). In case any Note is to be redeemed in part only, the Redemption Notice

shall state the portion of the principal amount thereof to be redeemed and shall state that, on and after the Redemption

Date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof

will be issued.
the Redemption Date specified in the Redemption Notice given as provided in this Section 3.02, the Company will deposit with the Trustee

or with one or more Paying Agents an amount of money in immediately available funds sufficient to redeem on the Redemption Date all the

Notes (or portions thereof) so called for redemption (other than those theretofore surrendered for conversion into Common Shares) at the

appropriate Redemption Price; provided that if such payment is made on the Redemption Date it must be received by the Trustee or Paying

Agent, as the case may be, by 10:00 a.m., New York City time, on such date. The Company shall be entitled to retain any interest, yield or

gain on amounts deposited with the Trustee or any Paying Agent pursuant to this Section 3.02(c) in excess of amounts required hereunder to

pay the Redemption Price. Subject to the last sentence of Section 7.05, if any Note called for redemption is converted pursuant hereto prior to

such Redemption Date, any money deposited with the Trustee or any Paying Agent or so segregated and held in trust for the redemption of

such Note shall be paid to the Company upon its written request, or, if then held by the Company, shall be discharged from such trust.

Whenever any Notes are to be redeemed, the Company will give the Trustee written notice in the form of an Officers’ Certificate not fewer

than thirty-five (35) days (or such shorter period of time as may be acceptable to the Trustee) prior to the Redemption Date as to the aggregate

principal amount of Notes to be redeemed.

(d) If the Company opts to redeem less than all of the Outstanding Notes, the Trustee shall select or cause to be

selected the Notes or portions thereof of the Global Note or the Notes in certificated form to be redeemed (in principal

amounts of $1,000 or integral multiples thereof) by lot, on a pro rata basis or by another method the Trustee deems

fair and appropriate. If any Note selected for partial redemption is submitted for conversion in part after such selection,

the portion of such Note submitted for conversion shall be deemed (so far as may be possible) to be from the portion

selected for redemption. The Notes (or portions thereof) so selected shall be deemed duly selected for redemption for

all purposes hereof, notwithstanding that any such Note is submitted for conversion in part before the mailing of the

Redemption Notice.

Upon any redemption of less than all of the Outstanding Notes, the Company and the Trustee may (but need not),

solely for purposes of determining the pro rata allocation among such Notes as are unconverted and Outstanding at

the time of redemption, treat as Outstanding any Notes surrendered for conversion during the period of fifteen

(15) days next preceding the mailing of a Redemption Notice and may (but need not) treat as Outstanding any Note

authenticated and delivered during such period in exchange for the unconverted portion of any Note converted in part

during such period.

Section 3.03 . Payment of Notes Called for Redemption by the Company. If notice of redemption has been

given as provided in Section 3.02(a), the Notes or portion of Notes with respect to which such notice has been given

shall, unless converted into Common Shares pursuant to the terms hereof, become due and payable on the

Redemption Date and at the place or places stated in such notice at the applicable Redemption Price, unless the

Company shall default in the payment of the Redemption Price. Interest on the Notes or portion of Notes so called for

redemption shall cease to accrue and after the close of business on the Business Day immediately preceding the

Redemption Date (unless the Company shall default in the payment of the Redemption Price), such Notes shall cease

to be convertible into Common Shares and, except as provided in Section 7.05, to be entitled to any benefit or security

under this Indenture, and the holders thereof shall have no right in respect of such Notes except the right to receive

the Redemption Price thereof. On presentation and surrender of such Notes at a place of payment in said notice

specified, the said Notes or the specified portions thereof shall be paid and redeemed by the Company at the

applicable Redemption Price; provided that if the applicable Redemption Date is an Interest Payment Date, the Interest

payable on such Interest Payment Date shall be paid on such Interest Payment Date to the holders of record of such

Notes on the applicable record date instead of the holders surrendering such Notes for redemption on such date.
Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder

thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed

portion of the Note or Notes so presented.

Notwithstanding the foregoing, the Trustee shall not redeem any Notes or mail any Redemption Notices during the

continuance of a default in payment of Interest on the Notes. If any Note called for redemption shall not be so paid

upon surrender thereof for redemption, the principal shall, until paid or duly provided for, continue to bear interest at

the rate borne by the Note, and such Note shall remain convertible into Common Shares, cash or a combination of

cash and Common Shares until the principal and Interest shall have been paid or duly provided for. The Company will

notify all of the holders if the Company redeems any of the Notes.

Section 3.04 . Conversion Arrangement on Call for Redemption. In connection with any redemption of Notes,

the Company may arrange for the purchase and conversion of any Notes by an agreement with one or more

investment banks or other purchasers to purchase such Notes by paying to the Trustee in trust for the Noteholders,

on or before the date fixed for redemption, an amount not less than the applicable redemption price, together with

Interest accrued and unpaid to, but excluding, the date fixed for redemption, of such Notes. Notwithstanding anything to

the contrary contained in this Article 3, the obligation of the Company to pay the redemption price of such Notes,

together with Interest accrued and unpaid to, but excluding, the date fixed for redemption, shall be deemed to be

satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered

into, a copy of which will be filed with the Trustee prior to the date fixed for redemption, any Notes not duly

surrendered for conversion by the holders thereof may, at the option of the Company, be deemed, to the fullest extent

permitted by law, acquired by such purchasers from such holders and surrendered by such purchasers for

conversion, all as of immediately prior to the close of business on the date fixed for redemption (and the right to

convert any such Notes shall be extended through such time), subject to payment of the above amount as aforesaid.

At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner

as it would monies deposited with it by the Company for the redemption of Notes. Without the Trustee’s prior written

consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Notes

shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth

in this Indenture.
Purchase of Notes at Option of the Holder Upon Change of Control. (a) If there shall have occurred a Change of Control, all or any portion of

the Notes of any Holder equal to $1,000 or a whole multiple of $1,000, shall be repurchased by the Company, at the option of such Holder, at

a repurchase price equal to 100% of the aggregate principal amount of the Notes to be repurchased, together with accrued and unpaid interest

and Liquidated Damages, if any, to, but excluding, the purchase date (the "Change of Control Purchase Price"), on the date (the

"Change of Control Purchase Date") that is 45 days after the date the Company delivered the notice required under Section 3.05(d) (or if

such 45th day is not a Business Day, the next succeeding Business Day); provided, however, that if the Change of Control Purchase Date is

after a Regular Record Date but on or prior to the corresponding Interest Payment Date, the accrued and unpaid interest becoming due on

such Interest Payment Date shall be payable to the Holders of such Notes, or one or more predecessor Notes, registered as such on the

relevant Regular Record Date according to their terms.

If there shall have occurred a Change of Control pursuant to clause (ii) of the definition thereof set forth in this

Section 3.05(a), the Company will pay on the Change of Control Purchase Date a Make-Whole Premium to the

Holders of the Notes in addition to the Change of Control Purchase Price. The Make-Whole Premium will also be paid

on the Change of Control Purchase Date to the Holders of the Notes who convert their Notes on or after the date on

which the Company has given a notice to all Holders of Notes in accordance with Section 3.05(d) hereof and on or

before the Change of Control Purchase Date.

The "Make-Whole Premium" will be determined by reference to the table below and is based on the date on

which the Change of Control becomes effective (the "Effective Date") and the price (the "Stock Price") paid per

share of the Company’s Common Stock in the transaction constituting the Change of Control. If the holders of the

Company’s Common Stock receive only cash in the transaction, the Stock Price shall be the cash amount paid per

share of the Company’s Common Stock. Otherwise, the Stock Price shall be equal to the average Closing Price per

share of the Company’s Common Stock over the ten Trading Day period ending on the Trading Day immediately

preceding the Effective Date.

The following table shows what the Make-Whole Premium would be for each hypothetical Stock Price and

Effective Date set forth below, expressed as a percentage of the principal amount of the Notes.

Make-Whole Premium Upon a Change of Control (% of Face Value)

Stock Price on Effective Date

Effective date $ $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00

3.72

January 15, 2005 0.0% 23.2% 21.7% 20.2% 19.0% 17.9% 17.0% 16.2% 15.5% 14.9% 14.3% 13.7% 13.2%

January 15, 2006 0.0% 21.4% 19.6% 18.0% 16.7% 15.6% 14.8% 14.0% 13.3% 12.7% 12.2% 11.7% 11.2%

January 15, 2007 0.0% 19.0% 16.9% 15.1% 13.7% 12.6% 11.8% 11.1% 10.5% 10.0% 9.5% 9.1% 8.7%

January 15, 2008 0.0% 15.7% 13.1% 11.1% 9.6% 8.6% 7.8% 7.3% 6.8% 6.5% 6.2% 5.9% 5.7%

January 15, 2009 0.0% 10.8% 7.5% 5.3% 4.0% 3.3% 2.8% 2.5% 2.4% 2.2% 2.1% 2.1% 2.0%

January 15, 2010 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

January 15, 2011 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

January 15, 2012 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
The actual Stock Price and Effective Date may not be set forth on the table, in which case:

(i) If the actual Stock Price on the Effective Date is between two Stock Prices on the table or the actual

Effective Date is between two Effective Dates on the table, the Make-Whole Premium will be determined by a

straight-line interpolation between the Make-Whole Premiums set forth for the two Stock Prices and the two

Effective Dates on the table based on a 365-day year, as applicable;

(ii) If the Stock Price on the Effective Date exceeds $16.00 per share (subject to adjustment described below),

no Make-Whole Premium will be paid; and

(iii) If the Stock Price on the Effective Date is less than or equal to $3.72 per share (subject to adjustment

described below), no Make-Whole Premium will be paid.

The Stock Prices set forth in the first column of the table above will be adjusted as of any date on which the

Conversion Rate is adjusted. The adjusted Stock Prices will equal the Stock Prices applicable immediately prior to

such adjustment multiplied by a fraction, the numerator of which is the Conversion Rate immediately prior to the

adjustment giving rise to the Stock Price adjustment and the denominator of which is the Conversion Rate so adjusted.

The Company shall pay, at its option, the Change of Control Purchase Price and/or Make-Whole Premium in

cash or shares of its Common Stock.

If the Company pays the Change of Control Purchase Price and/or Make-Whole Premium in shares of its

Common Stock, the value of its Common Stock to be delivered in respect of the Change of Control Purchase Price

and/or Make-Whole Premium shall be deemed to be equal to the average Closing Price per share over the ten Trading

Day period ending on the Trading Day immediately preceding the Change of Control Purchase Date. The Company

may pay the Change of Control Purchase Price and/or Make-Whole Premium in shares of its Common Stock only if

the information necessary to calculate the Closing Price per share is published in a daily newspaper of general

circulation or by other appropriate means.

Whenever in this Indenture (including Sections 2.01, 6.01(a) and 6.07 hereof) or Exhibit A annexed hereto there is

a reference, in any context, to the principal of any Note as of any time, such reference shall be deemed to include

reference to the Change of Control Purchase Price in respect to such Note to the extent that such Change of Control

Purchase Price is, was or would be so payable at such time, plus any applicable Make-Whole Premium, and express

mention of the Change of Control Purchase Price in any provision of this Indenture shall not be construed as

excluding the Change of Control Purchase Price in those provisions of this Indenture when such express mention is

not made.
Control" of the Company shall be deemed to have occurred at such time after the original issuance of the Notes as any of the following

events shall occur:

(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities

Exchange Act of 1934, as amended (the "Exchange Act"), acquires the beneficial ownership (as defined in

Rules 13d-3 and 13d-5 under the Exchange Act, except that such Person shall be deemed to have "beneficial

ownership" of all securities that such Person has the right to acquire, whether such right is exercisable

immediately or only after the passage of time), directly or indirectly, through a purchase, merger or other

acquisition transaction, of 50% or more of the total voting power of the total outstanding Voting Stock of the

Company other than an acquisition by the Company, any of its Subsidiaries or any employee benefit plans of the

Company; or

(ii) the Company consolidates with, or merges with or into, another Person or conveys, transfers, leases

or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with or

merges with or into the Company other than:

(A) any transaction (1) that does not result in any reclassification, conversion, exchange or

cancellation of outstanding shares of the Capital Stock of the Company and (2) pursuant to which holders

of the Capital Stock of the Company immediately prior to the transaction are entitled to exercise, directly or

indirectly, 50% or more of the total voting power of all shares of the Capital Stock of the Company entitled to

vote generally in the election of directors of the continuing or surviving person immediately after the

transaction;

(B) any merger for the purpose of changing the Company’s jurisdiction of incorporation and

resulting in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into

shares of common stock of the surviving entity; or

(C) any transaction in which all of the consideration for the Common Stock (excluding cash

payments for fractional shares and cash payments made in respect of dissenters’ appraisal rights) in the

transaction or transactions constituting the Change of Control consists of common stock traded on a

United States national securities exchange or quoted on the Nasdaq National Market, or which will be so

traded or quoted when issued or exchanged in connection with the Change of Control, and as a result of

such transaction or transactions the Notes become convertible solely into such common stock, or
(iii) during any consecutive two-year period, individuals who at the beginning of that two-year period

constituted the Board of Directors (together with any new directors whose election to the Board of Directors, or

whose nomination for election by the stockholders of the Company, was approved by a vote of a majority of the

directors then still in office who were either directors at the beginning of such period or whose election or

nomination for election were previously so approved) cease for any reason to constitute a majority of the Board

of Directors then in office; or

(iv) the stockholders of the Company pass a special resolution approving a plan of liquidation or

dissolution and no additional approvals of the Company’s stockholders are required under applicable law to

cause a liquidation or dissolution.

Beneficial ownership will be determined in accordance with Rule 13d-3 promulgated by the SEC under the

Exchange Act. The term "person" includes any syndicate or group that would be deemed a "person" under

Section 13(d)(3) of the Exchange Act.

(b) The following are conditions to the Company’s election to pay for the Change of Control Purchase Price and

Make-Whole Premium in Common Stock:

(i) The shares of Common Stock to be issued upon repurchase of Notes hereunder:

(A) shall not require registration under any federal securities law before such shares may be freely

transferable without being subject to any transfer restrictions under the Securities Act upon repurchase or,

if such registration is required, such registration shall be completed and shall become effective prior to the

Change of Control Purchase Date; and

(B) shall not require registration with, or approval of, any governmental authority under any state law

or any other federal law before shares may be validly issued or delivered upon repurchase or if such

registration is required or such approval must be obtained, such registration shall be completed or such

approval shall be obtained prior to the Change of Control Purchase Date.

(ii) The shares of Common Stock to be listed upon repurchase of Notes hereunder are, or shall have

been, approved for listing on the American Stock Exchange or listed on another national securities exchange or, if

not so listed, on the Nasdaq National Market or the Nasdaq OTC Bulletin Board service (f/k/a NASDAQ Over-theCounter Bulletin Board), in any case, prior to the Change of Control Purchase Date, and the Company complies

with the listing requirements thereof.

(iii) All shares of Common Stock which may be issued upon repurchase of Notes will be issued out of the

Company’s authorized but unissued Common Stock and will, upon issue, be duly and validly issued and fully

paid and nonassessable and free of any preemptive or similar rights.
(iv) If any of the conditions set forth in clauses (i) through (iii) of this Section 3.05(b) are not satisfied in

accordance with the terms thereof, the Change of Control Purchase Price and Make-Whole Premium shall be paid

by the Company only in cash. The Company may not change the form of consideration to be paid with respect to

the Change of Control Purchase Price and Make-Whole Premium once it has given notice set forth in Section

3.05(d) to Holders, except as described in the immediately preceding sentence.

(c) Notwithstanding the foregoing, in the case of a Public Acquirer Change of Control (as defined below), the

Company may, in lieu of paying a Make-Whole Premium as described in Section 3.05(a), elect to adjust the

Conversion Rate and the related conversion obligation such that from and after the effective date of such Public

Acquirer Change of Control, Holders of the Notes will be entitled to convert the Notes into a number of shares of

Public Acquirer Common Stock (as defined below) by multiplying the Conversion Rate in effect immediately before the

Public Acquirer Change of Control by a fraction:

(i) the numerator of which will be (i) in the case of a share exchange, consolidation, merger or binding

share exchange, pursuant to which the Common Stock is converted into cash, securities or other property, the

average value of all cash and any other consideration (as determined by the Board of Directors) paid or payable

per share of Common Stock or (ii) in the case of any other Public Acquirer Change of Control, the average of the

last reported sale price of the Common Stock for the five consecutive trading days prior to but excluding the

effective date of such Public Acquirer Change of Control, and

(ii) the denominator of which will be the average of the last reported sale prices of the Public Acquirer

Common Stock for the five consecutive trading days commencing on the Trading Day next succeeding the

effective date of such Public Acquirer Change of Control.

A "Public Acquirer Change of Control" means any event constituting a Change Of Control that would

otherwise obligate the Company to pay a Make-Whole Premium as described in Section 3.05(a) and the acquirer (or

any entity that is a directly or indirectly wholly-owned Subsidiary of the acquirer or of which the acquirer is a directly or

indirectly wholly-owned Subsidiary) has a class of common stock traded on a national securities exchange or quoted

on the Nasdaq National Market or which will be so traded or quoted when issued or exchanged in connection with

such event (the ‘‘Public Acquirer Common Stock ’’).

After the adjustment of the Conversion Rate in connection with a Public Acquirer Change of Control, the

Conversion Rate will be subject to further similar adjustments in the event that any of the events described in

Section 10.01 occur thereafter.

Upon a Public Acquirer Change of Control, if the Company so elects, Holders may convert the Notes at the

adjusted Conversion Rate described in the second preceding paragraph but will not be entitled to the Make-Whole

Premium described under Section 3.05(a). The Company is required to notify Holders of its election in writing of such

transaction. In addition, the Holder can also, subject to certain conditions, require the Company to repurchase all or a

portion of its Notes as described under Section 3.05(a).
the 30th day after the occurrence of a Change of Control, the Company, or, at the written request and expense of the Company prior to or on

the 30th day after such occurrence, the Trustee, shall give to all Holders, in the manner provided in Section 12.02 hereof, notice of the

occurrence of the Change of Control and of the purchase right set forth herein arising as a result thereof. The Company shall also deliver a

copy of such notice of a purchase right to the Trustee. The notice shall include a form of Change of Control Purchase Notice (as defined in

Section 3.05(e)) to be completed by the Holder and shall state:

(1) briefly, the events causing a Change of Control and the date of such Change of Control;

(2) the date by which the Change of Control Purchase Notice pursuant to this Section 3.05

must be given;

(3) the Change of Control Purchase Date;

(4) the Change of Control Purchase Price and whether the Change of Control Purchase Price

will be payable in cash or Common Stock;

(5) the name and address of the Paying Agent and the Conversion Agent;

(6) that Notes as to which a Change of Control Purchase Notice has been given may be

converted pursuant to Article 10 hereof only if the Change of Control Purchase Notice has been

withdrawn in accordance with the terms of this Indenture;

(7) that Notes must be surrendered to the Paying Agent to collect payment;

(8) that the Change of Control Purchase Price for any Note as to which a Change of Control

Purchase Notice has been duly given and not withdrawn will be paid promptly following the later of the

Change of Control Purchase Date and the time of surrender of such Note as described in (7) above;

(9) briefly, the procedures the Holder must follow to exercise rights under this Section 3.05;

(10) briefly, the conversion rights of the Notes, including the Conversion Rate and any

adjustments thereto;
(11) the procedures for withdrawing a Change of Control Purchase Notice;

(12) the CUSIP number of the Notes;

(13) whether a Make-Whole Premium shall be paid by the Company and the form of

consideration to be paid in respect of the Make-Whole Premium; and

(14) if a Make-Whole Premium is paid by the Company, that a Make-Whole Premium shall be

paid by the Company on the Change of Control Purchase Date to Holders of Notes who have

converted their Notes into the Company’s Common Stock on or after the date the Company has given

notice to all Holders in accordance with Section 3.05(d) and on or before the Change of Control

Purchase Date.

(e) A Holder may exercise its rights specified in this Section 3.05 upon delivery of a written notice of purchase

("Change of Control Purchase Notice") to the Paying Agent prior to the Change of Control Purchase Date, stating:

(1) the certificate number of the Note, if any, which the Holder will deliver to be purchased or

the appropriate Depositary procedures if the Notes are not in certificated form;

(2) the portion of the principal amount of the Note which the Holder will deliver to be

purchased, which portion must be $1,000 or any whole multiple thereof; and

(3) that such Note shall be purchased pursuant to the terms and conditions specified in

paragraph 5 on the reverse side of the Notes and in this Indenture.

If the Notes are not in certificated form, a Holder’s Change of Control Purchase must comply with the appropriate

DTC procedures.

The delivery of such Note to the Paying Agent prior to the Change of Control Purchase Date (together with all

necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the

Change of Control Purchase Price therefor; provided, however, that such Change of Control Purchase Price shall be

so paid pursuant to this Section 3.05 only if the Note so delivered to the Paying Agent shall conform in all respects to

the description thereof set forth in the related Change of Control Purchase Notice.

The Company shall purchase from the Holder thereof, pursuant to this Section 3.05, a portion of a Note so

delivered for purchase if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions

of this Indenture that apply to the purchase of all of a Note also apply to the purchase of such portion of such Note.
Company contemplated pursuant to the provisions of this Section 3.05 shall be consummated by the delivery of the consideration to be

received by the Holder promptly following the later of the Change of Control Purchase Date and the time of delivery of the Note to the Paying

Agent in accordance with this Section 3.05.

Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Change of Control

Purchase Notice contemplated by this Section 3.05 shall have the right to withdraw such Change of Control Purchase

Notice at any time prior to the close of business on the Business Day prior to the Change of Control Purchase Date

by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.06.

The Paying Agent shall promptly notify the Company of the receipt by it of any Change of Control Purchase

Notice or written withdrawal thereof.

Section 3.06 . Effect of Change of Control Purchase Notice. Upon receipt by the Paying Agent of the Change of

Control Purchase Notice specified in Section 3.05(e), the Holder of the Note in respect of which such Change of

Control Purchase Notice was given shall (unless such Change of Control Purchase Notice is withdrawn as specified

in the following two paragraphs) thereafter be entitled to receive solely the Change of Control Purchase Price with

respect to such Note. Such Purchase Price (along with the Make-Whole Premium, if any) shall be paid to such Holder,

subject to receipt of consideration for the Notes by the Paying Agent, promptly following the later of (x) the Change of

Control Purchase Date with respect to such Note (provided the conditions in Section 3.05(e), as the case may be,

have been satisfied) or (y) the time of delivery of such Note to the Paying Agent by the Holder thereof in the manner

required by Section 3.05(e), as the case may be. Notes in respect of which a Change of Control Purchase Notice has

been given by the Holder thereof may not be converted pursuant to Article 10 hereof on or after the date of the delivery

of such Change of Control Purchase Notice unless such Change of Control Purchase Notice has first been validly

withdrawn as specified in the following two paragraphs.

A Change of Control Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to

the office of the Paying Agent in accordance with the Change of Control Purchase Notice at any time prior to the close

of business on the Business Day immediately preceding the Change of Control Purchase Date specifying:

(1) the certificate number of the Note in respect of which such notice of withdrawal is being

submitted or, if not in certificated form, the applicable Depositary procedures,

(2) the principal amount of the Note with respect to which such notice of withdrawal is being

submitted, and
(3) the principal amount, if any, of such Note which remains subject to the original Change of

Control Purchase Notice and which has been or will be delivered for purchase by the Company.

There shall be no purchase of any Notes pursuant to Section 3.05 if there has occurred (prior to, on or after, as

the case may be, the giving, by the Holders of such Notes, of the required Change of Control Purchase Notice) and is

continuing an Event of Default (other than a default in the payment of the Change of Control Purchase Price with

respect to such Notes). The Paying Agent will promptly return to the respective Holders thereof any Notes (x) with

respect to which a Change of Control Purchase Notice has been withdrawn in compliance with this Indenture, or

(y) held by it during the continuance of an Event of Default (other than a default in the payment of the Change of

Control Purchase Price with respect to such Notes) in which case, upon such return, the Change of Control

Purchase Notice with respect thereto shall be deemed to have been withdrawn.

Section 3.07 . Deposit of Change of Control Purchase Price. Prior to 10:00 a.m. (New York City time) on the

Change of Control Purchase Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the

Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in

trust as provided in Section 2.05) an amount of cash (in immediately available funds if deposited on such Business

Day) or Common Stock sufficient to pay the aggregate Change of Control Purchase Price of all the Notes or portions

thereof which are to be purchased as of the Change of Control Purchase Date and an amount in cash or shares of

Common Stock sufficient to pay any Make-Whole Premium.

If the Trustee or other Paying Agent appointed by the Company, or the Company or an Affiliate of the Company, if

it or such Affiliate is acting as the Paying Agent, holds cash or shares of Common Stock sufficient to pay the

aggregate Change of Control Purchase Price of all the Notes or portions thereof that are to be purchased as of the

Change of Control Purchase Date and an amount in cash or shares of Common Stock sufficient to pay any MakeWhole Premium, then immediately after the Change of Control Purchase Date (i) such Notes will cease to be

outstanding, (ii) interest on such Notes will cease to accrue and (iii) all other rights of the holders of such Notes will

terminate other than the right to receive the Change of Control Purchase Price and the Make-Whole Premium, if any,

upon delivery of the Notes, whether or not book-entry transfer of the Notes has been made or the Notes have been

delivered to the Trustee or Paying Agent.

Section 3.08 . Notes Purchased in Part. Any Note which is to be purchased only in part shall be surrendered at

the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written

instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or

such Holder’s attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate

and deliver to the Holder of such Note, without service charge, a new Note or Notes, of any authorized denomination

as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal

amount of the Note so surrendered which is not purchased.
Covenant to Comply with Securities Laws upon Purchase of Notes. In connection with any offer to purchase or purchase of Notes under

Section 3.05 hereof (provided that such offer or purchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used

herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), the Company shall

(i) comply with Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which may then be applicable, (ii) file the

related Schedule TO (or any successor schedule, form or report) or any other schedule required under the Exchange Act, and (iii) otherwise

comply with all federal and state securities laws so as to permit the rights and obligations under Section 3.05 to be exercised in the time and

in the manner specified in Section 3.05.

Section 3.10 . Repayment to the Company. The Trustee and the Paying Agent shall return to the Company any

cash or shares of Common Stock that remains unclaimed as provided in paragraph 12 of the Notes, together with

interest or dividends, if any, thereon, held by them for the payment of the Change of Control Purchase Price and MakeWhole Premium, if any; provided, however, that to the extent that the aggregate amount of cash or shares of Common

Stock deposited by the Company pursuant to Section 3.07 exceeds the aggregate Change of Control Purchase Price

of the Notes and Make-Whole Premium, if any, or portions thereof which the Company is obligated to purchase as of

the Change of Control Purchase Date then promptly after the Business Day following the Change of Control Purchase

Date the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon.

ARTICLE 4

Covenants

Section 4.01 . Payment of Principal, Premium, Interest on the Notes. The Company will duly and punctually pay

the principal of and premium, if any, and interest (including Liquidated Damages, if any) in respect of the Notes in

accordance with the terms of the Notes and this Indenture. The Company will deposit or cause to be deposited with the

Trustee as directed by the Trustee, no later than the day of the Stated Maturity of any Note or installment of interest, all

payments so due. Principal amount, Change of Control Purchase Price, cash interest and any applicable Make-Whole

Premium shall be considered paid on the applicable date due if on such date (or, in the case of a Change of Control

Purchase Price or any applicable Make-Whole Premium on the Business Day following the applicable Change of

Control Purchase Date) the Trustee or the Paying Agent holds, in accordance with this Indenture, money or Notes, if

permitted hereunder, sufficient to pay all such amounts then due.

The Company shall, to the extent permitted by law, pay cash interest on overdue amounts at the rate per annum

set forth in paragraph 1 of the Notes, which interest shall accrue from the date such overdue amount was originally

due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such

interest shall be payable on demand.
Reports by the Company. The Company shall file with the Trustee (and the SEC after the Indenture becomes qualified under the TIA), and

transmit to holders of Notes, such information, documents and other reports and such summaries thereof, as may be required pursuant to

the TIA at the times and in the manner provided pursuant to the TIA, whether or not the Notes are governed by the TIA; provided, however,

that any such information, documents or reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act shall

be filed with the Trustee within fifteen (15) days after the same is so required to be filed with the SEC; provided, however, that delivery may

be effected in accordance with the provisions of Rule 19a-1 under the TIA if and during any time the Company is eligible thereunder; and

provided further, that the Company shall not be required to deliver to the Trustee any material for which the Company has sought and

received confidential treatment by the SEC. Delivery of such reports, information and documents to the Trustee is for informational purposes

only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from

information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled

to rely exclusively on Officers’ Certificates).

Section 4.03 . Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of

each fiscal year of the Company (beginning with the fiscal year ending on December 31, 2005) an Officers’ Certificate,

stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and

observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or

requirement of notice provided hereunder) and if the Company shall be in default, specifying all such defaults and the

nature and status thereof of which they may have knowledge.

Section 4.04 . Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver

such further instruments and do such further acts as may be reasonably necessary or proper to carry out more

effectively the purposes of this Indenture.

Section 4.05 . Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, the

City of New York, an office or agency of the Trustee, Note Registrar, Paying Agent and Conversion Agent where Notes

may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer,

exchange, purchase or conversion and where notices and demands to or upon the Company in respect of the Notes

and this Indenture may be served. The Corporate Trust Office and each office or agency of the Trustee in the Borough

of Manhattan, the City of New York, shall initially be one such office or agency for all of the aforesaid purposes. The

Company shall give prompt written notice to the Trustee of the location, and of any change in the location, of any such

office or agency (other than a change in the location of the office of the Trustee). 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 address of the Trustee set forth in

Section 12.02.
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; provided, however, that no such designation or rescission shall in any manner relieve

the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes.

Section 4.06 . Delivery of Certain Information. At any time when the Company is not subject to Section 13 or

15(d) of the Exchange Act, upon the request of a holder or any beneficial holder of Notes or shares of Common Stock

issued upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information

(as defined below) to such Holder or any beneficial holder of Notes or holder of shares of Common Stock issued

upon conversion of Notes, or to a prospective purchaser of any such security designated by any such holder, as the

case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the

Securities Act in connection with the resale of any such security. "Rule 144A Information" shall be such information

as is specified pursuant to Rule 144A(d)(4) under the Securities Act.

Section 4.07 . Existence. Subject to Article 5, the Company will do or cause to be done all things necessary to

preserve and keep in full force and effect its existence and rights (charter and statutory); provided, however, that the

Company shall not be required to preserve any such right if the Company shall determine that the preservation thereof

is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous

in any material respect to the Noteholders.

Section 4.08 . Maintenance of Properties. The Company will cause all properties used or useful in the conduct

of its business or the business of any Significant Subsidiary to be maintained and kept in good condition, repair and

working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals,

replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so

that the business carried on in connection therewith may be properly and advantageously conducted at all times;

provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or

maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the

conduct of its business or the business of any Significant Subsidiary and not disadvantageous in any material respect

to the Noteholders.

Section 4.09 . Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or

discharged, before the same may become delinquent, (i) all taxes, assessments and governmental charges levied or

imposed upon the Company or any Significant Subsidiary or upon the income, profits or property of the Company or

any Significant Subsidiary, (ii) all claims for labor, materials and supplies which, if unpaid, might by law become a lien

or charge upon the property of the Company or any Significant Subsidiary and (iii) all stamps and other duties, if any,

which may be imposed by the United States or any political subdivision thereof or therein in connection with the

issuance, transfer, exchange or conversion of any Notes or with respect to this Indenture; provided, however, that, in

the case of clauses (i) and (ii), the Company shall not be required to pay or discharge or cause to be paid or

discharged any such tax, assessment, charge or claim (A) if the failure to do so will not, in the aggregate, have a

material adverse impact on the Company, or (B) if the amount, applicability or validity is being contested in good faith

by appropriate proceedings.
Liquidated Damages Notice. In the event that the Company is required to pay Liquidated Damages to holders of Notes pursuant to the

Registration Rights Agreement, the Company will provide written notice (" Liquidated Damages Notice") to the Trustee of its obligation to

pay Liquidated Damages no later than fifteen days prior to the proposed payment date for the Liquidated Damages, and the Liquidated

Damages Notice shall set forth the amount of Liquidated Damages to be paid by the Company on such payment date. The Trustee shall not

at any time be under any duty or owe a responsibility to any holder of Notes to determine the Liquidated Damages, or with respect to the

nature, extent or calculation of the amount of Liquidated Damages when made, or with respect to the method employed in such calculation of

the Liquidated Damages.

ARTICLE 5

Successor Corporation

Section 5.01 . When Company May Merge Or Transfer Assets. The Company may, without the consent of the

Holders of the Notes, consolidate with, merge with or convert into any other Person or convey, transfer or lease all or

substantially all of its properties and assets to any other Person, if:

(a) (i) such Person (other than an individual) is organized and validly existing under the laws of the United States

or any State thereof or the District of Columbia or any political subdivisions of the United States or (ii) the Company

delivers to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee to the effect that the rights of the

Holders of the Notes would not be affected adversely as a result of the law of the jurisdiction of organization of such

Person insofar as such law affects the ability of such Person to pay and perform any obligations and undertakings in

connection with its Notes or the ability of the Holders to enforce such obligations and undertakings, if such Person is

organized under the laws of a foreign jurisdiction, and (iii) in case of (i) or (ii) such Person shall expressly assume,

by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of

the obligations of the Company under the Notes and this Indenture;

(b) at the time of such transaction, no Event of Default and no event which, after notice or lapse of time, would

become an Event of Default, shall have happened and be continuing; and
shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger,

conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental

indenture, comply with this Article 5 and that all conditions precedent herein provided for relating to such transaction have been satisfied.

For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of the properties and

assets of one or more Subsidiaries (other than to the Company or another Subsidiary), which, if such assets were

owned by the Company, would constitute all or substantially all of the properties and assets of the Company, shall be

deemed to be the transfer of all or substantially all of the properties and assets of the Company.

The successor person formed by such consolidation or into which the Company is merged or the successor

person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may

exercise every right and power of, the Company under this Indenture with the same effect as if such successor had

been named as the Company herein; and thereafter, except in the case of a lease and obligations the Company may

have under a supplemental indenture pursuant to Section 10.11, the Company shall be discharged from all obligations

and covenants under this Indenture and the Notes. Subject to Section 9.06, the Company, the Trustee and the

successor person shall enter into a supplemental indenture to evidence the succession and substitution of such

successor person and such discharge and release of the Company.

ARTICLE 6

Defaults And Remedies

Section 6.01 . Events of Default. An "Event of Default" occurs if:

(a) the Company fails to pay when due the principal of or premium (including Make-Whole Premium), if any, on

any of the Notes at maturity, upon exercise of a repurchase right or otherwise;

(b) the Company fails to pay an installment of interest (including Liquidated Damages, if any) on any of the Notes

that continues for 30 days after the date when due;

(c) the Company fails to deliver shares of Common Stock, together with cash in lieu of fractional shares and any

Make-Whole Premium, when such Common Stock or cash in lieu of fractional shares and any Make-Whole Premium

are required to be delivered upon conversion of a Note and such failure continues for 10 days after such delivery

date;

(d) the Company fails to give notice regarding a Change of Control within the time period specified in

Section 3.05;
fails to perform or observe any other term, covenant or agreement contained in the Notes or this Indenture for a period of 60 days after receipt

by the Company of a Notice of Default (as defined below);

(f) (i) the Company or any Significant Subsidiary fails to make any payment by the end of the applicable grace

period, if any, after the final scheduled payment date for such payment with respect to any indebtedness for borrowed

money in an aggregate amount in excess of $5 million or (ii) indebtedness for borrowed money of the Company or

any Significant Subsidiary in an aggregate amount in excess of $5 million shall have been accelerated or otherwise

declared due and payable, or required to be prepaid or repurchased (other than by regularly scheduled required

prepayment) prior to the scheduled maturity thereof as a result of a default with respect to such indebtedness, in either

case without such indebtedness referred to in subclause (i) or (ii) of this clause (f) having been discharged, cured,

waived, rescinded or annulled, for a period of 30 days after receipt by the Company of a Notice of Default;

(g) the Company, or any Significant Subsidiary, or any Subsidiaries of the Company which in the aggregate

would constitute a Significant Subsidiary pursuant to or under or within the meaning of any Bankruptcy Law:

(i) commences a voluntary case or proceeding;

(ii) consents to the entry of an order for relief against it in an involuntary case or proceeding or the

commencement of any case against it;

(iii) consents to the appointment of a Custodian of it or for any substantial part of its property;

(iv) makes a general assignment for the benefit of its creditors;

(v) files a petition in bankruptcy or answer or consent seeking reorganization or relief; or

(vi) consents to the filing of such a petition or the appointment of or taking possession by a Custodian;

and

(h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(i) is for relief against the Company or any Significant Subsidiary or any Subsidiaries of the Company

which in the aggregate would constitute a Significant Subsidiary in an involuntary case or proceeding, or

adjudicates the Company or any Significant Subsidiary or any Subsidiaries of the Company which in the

aggregate would constitute a Significant Subsidiary insolvent or bankrupt;

(ii) appoints a Custodian of the Company or any Significant Subsidiary or any Subsidiaries of the

Company which in the aggregate would constitute a Significant Subsidiary or for any substantial part of its or their

properties; or
(iii) orders the winding up or liquidation of the Company or any Significant Subsidiary or any Subsidiaries

of the Company which in the aggregate would constitute a Significant Subsidiary;

and the order or decree remains unstayed and in effect for 60 days.

For purposes of Sections 6.01(g) and 6.01(h) above:

"Bankruptcy Law" means Title 11, United States Code, or any similar federal or state law for the relief of

debtors.

"Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any

Bankruptcy Law.

A Default under clause (e) or (f) above is not an Event of Default until the Trustee notifies the Company, or the

Holders of at least 25% in aggregate principal amount of the Notes at the time outstanding notify the Company and the

Trustee, of the Default and the Company does not cure such Default (and such Default is not waived) within the time

specified in clause (e) or (f) above after actual receipt of such notice. Any such notice must specify the Default,

demand that it be remedied and state that such notice is a " Notice of Default."

The Company shall deliver to the Trustee, within five Business Days of becoming aware of the occurrence of an

Event of Default, written notice thereof. In addition, the Company shall deliver to the Trustee, within 30 days after they

become aware of the occurrence thereof, written notice of any event which with the lapse of time would become an

Event of Default under clause (e) above, its status and what action the Company is taking or proposes to take with

respect thereto.

The Trustee shall, within 90 days of the occurrence of an Event of Default, give to the Noteholders notice of all

uncured Events of Defaults known to it, provided that the Trustee shall be protected in withholding such notice if the

Trustee, in good faith, determines that the withholding of such notice is in the best interest of the Noteholders, except

in the case of an Event of Default described in Section 6.01(a) or 6.01(b).

Section 6.02 . Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(g) or

6.01(h)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate

principal amount of the Notes at the time outstanding by notice to the Company and the Trustee, may declare the Notes

due and payable at their principal amount together with accrued interest (including Liquidated Damages, if any). Upon a

declaration of acceleration, such principal and accrued and unpaid interest to the date of payment shall be immediately

due and payable. If an Event of Default is cured prior to any such declaration by the Trustee or the Holders, the

Trustee and the Holders shall not be entitled to declare the Notes due and payable as provided herein as a result of

such cured Event of Default and any such cured Event of Default shall be deemed waived by the Holders and the

Trustee.
specified in Sections 6.01(g) or 6.01(h) above occurs and is continuing, then the principal and the accrued interest (including Liquidated

Damages, if any) on all the Notes shall become and be immediately due and payable without any declaration or other act on the part of the

Trustee or any Noteholders.

The Holders of a majority in aggregate principal amount of the Notes at the time outstanding, by notice to the

Trustee (and without notice to any other Noteholder) may rescind or annul an acceleration and its consequences if the

rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or

waived except nonpayment of the principal and any accrued cash interest (including Liquidated Damages, if any) that

have become due solely as a result of acceleration and if all amounts due to the Trustee under Section 7.06 have been

paid. No such rescission shall affect any subsequent Default or impair any right consequent thereto.

Section 6.03 . Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any

available remedy to collect the payment of the principal, the premium, if any, and any accrued cash interest (including

Liquidated Damages, 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 the Trustee does not possess any of the Notes or produce any of

the Notes in the proceeding. A delay or omission by the Trustee or any Noteholder 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. No remedy is exclusive of any other remedy. All available remedies are cumulative.

Section 6.04 . Waiver of Past Defaults. The Holders of a majority in aggregate principal amount of the Notes at

the time outstanding, by notice to the Trustee (and without notice to any other Noteholder), may waive an existing Event

of Default and its consequences except (1) an Event of Default described in Section 6.01(a) or 6.01(b) or (2) an Event

of Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Noteholder

affected. When an Event of Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent

or other Event of Default or impair any consequent right.

Section 6.05 . Control By Majority. The Holders of a majority in aggregate principal amount of the Notes at the

time outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the

Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any

direction that conflicts with law or this Indenture or that the Trustee determines in good faith is prejudicial to the rights

of other Noteholders or would involve the Trustee in personal liability unless the Trustee is offered indemnity

satisfactory to it against loss, liability or expense.
Limitation On Suits. A Noteholder may not pursue any remedy with respect to this Indenture or the Notes unless:

(1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing;

(2) the Holders of at least 25% in aggregate principal amount of the Notes at the time outstanding make a

written request to the Trustee to pursue the remedy;

(3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability

or expense;

(4) the Trustee does not comply with the request within 60 days after receipt of such notice, request and offer

of security or indemnity; and

(5) the Holders of a majority in aggregate principal amount of the Notes at the time outstanding do not give the

Trustee a direction inconsistent with the request during such 60-day period.

A Noteholder may not use this Indenture to prejudice the rights of any other Noteholder or to obtain a preference

or priority over any other Noteholder.

Section 6.07 . Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the

right of any Holder to receive payment of the principal amount, premium, if any, Change of Control Purchase Price, the

Make-Whole Premium, if applicable, or any accrued cash interest (including Liquidated Damages, if any) in respect of

the Notes held by such Holder, on or after the respective due dates expressed in the Notes or any Change of Control

Purchase Date, and to convert the Notes in accordance with Article 10, or to bring suit for the enforcement of any

such payment on or after such respective dates or the right to convert, shall not be impaired or affected adversely

without the consent of such Holder.

Section 6.08 . Collection Suit by Trustee. If an Event of Default described in Section 6.01(a) or 6.01(b) occurs

and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the

Company for the whole amount owing with respect to the Notes and the amounts provided for in Section 7.06.

Section 6.09 . Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency,

liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to

the Company or any other obligor upon the Notes or the property of the Company or of such other obligor or their

creditors, the Trustee (irrespective of whether the principal amount, Change of Control Purchase Price, any applicable

Make-Whole Premium or any accrued cash interest in respect of the Notes shall then be due and payable as therein

expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the

Company for the payment of any such amount) shall be entitled and empowered, by intervention in such proceeding

or otherwise,
prove a claim for the whole amount of the principal amount, Change of Control Purchase Price, any applicable Make-Whole Premium or any

accrued cash interest and to file such 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, expenses, disbursements and advances of the Trustee, its agents and counsel or any

other amounts due the Trustee under Section 7.06) and of the Holders allowed in such judicial proceeding, and

(b) to collect and receive any moneys or other property payable or deliverable on any such claims and to

distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official 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 the Trustee any amount due it for

the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and

any other amounts due the Trustee under Section 7.06.

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 thereof, 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 pursuant to this Article 6, it shall pay out the money in

the following order:

(1) to the Trustee for amounts due under Section 7.06;

(2) to Noteholders for amounts due and unpaid on the Notes for the principal amount, Change of Control

Purchase Price or any accrued cash interest (including Liquidated Damages, if any) as the case may be, ratably,

without preference or priority of any kind, according to such amounts due and payable on the Notes; and

(3) the balance, if any, to the Company.

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

At least 15 days before such record date, the Trustee shall mail to each Noteholder and the Company a notice that

states the record date, the payment date and the amount to be paid.
Undertaking For Costs. 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 Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit

of an undertaking to pay the costs of the suit in the manner and to the extent provided in the TIA, and the court in its discretion may assess

reasonable costs, including reasonable attorneys’ fees and expenses, 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 6.11 does not apply to a suit by the Trustee, a suit by a Holder

pursuant to Section 6.07 or a suit by Holders of more than 10% in aggregate principal amount of the Notes at the time outstanding.

Section 6.12 . Waiver Of Stay, Extension Or Usury Laws. The Company covenants (to the extent that it may

lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or

advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in

force, which would prohibit or forgive the Company from paying all or any portion of the principal amount, Change of

Control Purchase Price, any applicable Make-Whole Premium or any accrued cash interest (including Liquidated

Damages, if any) in respect of Notes, or any interest on such amounts, as contemplated herein, or which may affect

the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby

expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the

execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as

though no such law had been enacted.

ARTICLE 7

Trustee

Section 7.01 . Duties And Responsibilities Of The Trustee; During Default; Prior To Default. The Trustee, prior

to the occurrence of an Event of Default hereunder and after the curing or waiving of all such Events of Default which

may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this

Indenture. In case an Event of Default hereunder has occurred (which has not been cured or waived), 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 their exercise, as a reasonable person would exercise or use under the circumstances in the conduct of his own

affairs.

No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action,

its own negligent failure to act or its own willful misconduct, except that

(a) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all such Events of

Default which may have occurred:

(i) the duties and obligations of the Trustee shall be determined solely by the express provisions of this

Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are

specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture

against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth

of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or

opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any

such statements, certificates or opinions which by any provision hereof are specifically required to be furnished

to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to

the requirements of this Indenture;

(b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or

Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the

pertinent facts; and

(c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in

accordance with the direction of the Holders pursuant to Section 6.05 relating to the time, method and place of

conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon

the Trustee, under this Indenture.

None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or

otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights

or powers.

Section 7.02 . Certain Rights of the Trustee. Subject to Section 7.01:

(a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any

resolution, Officers’ Certificate or any other certificate, statement, instrument, opinion, report, notice, request, consent,

order, bond, debenture, note, coupon, Note or other paper or document (whether in its original or facsimile form)

believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by

an Officers’ Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution

of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the secretary or an assistant

secretary of the Company;

(c) the Trustee may consult with counsel of its selection and any advice or Opinion of Counsel shall be full and

complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in

good faith and in accordance with such advice or Opinion of Counsel;
shall be under no obligation to exercise any of the trusts or powers vested in it by this Indenture with the request, order or direction of any of

the Noteholders pursuant to the provisions of this Indenture, unless such Noteholders shall have offered to the Trustee reasonable security

or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred therein or thereby;

(e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be

authorized or within the discretion, rights or powers conferred upon it by this Indenture;

(f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all such Events of

Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution,

certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond,

debenture, note, coupon, security, or other paper or document unless requested in writing to do so by the Holders of

not less than a majority in aggregate principal amount of the Notes then outstanding; provided that, if the payment

within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of

such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it

by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a

condition to proceeding; the reasonable expenses of every such investigation shall be paid by the Company or, if paid

by the Trustee or any predecessor trustee, shall be repaid by the Company upon demand;

(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either

directly or by or through agents or attorneys not regularly in its employ and the Trustee shall not be responsible for

any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder;

(h) the Trustee shall not be required to take notice or be deemed to have notice of any Event of Default, except

failure of the Company to cause to be made any of the payments required to be made to the Trustee, unless the

Trustee shall be specifically notified by a writing of such default by the Company or by the Holders of at least 25%

aggregate principal amount of the Notes then outstanding delivered to the Corporate Trust Office of the Trustee and, in

the absence of such notice so delivered the Trustee may conclusively assume no default exists;

(i) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its

right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder,

and each agent, custodian and other Person employed to act hereunder;

(j) before taking any action or refraining from taking any action under this Indenture, the Trustee may require that

indemnity satisfactory to it be furnished for the reimbursement of all expenses to which it may be put and to protect it

against all liability, including costs incurred in defending itself against any and all charges, claims, complaints,

allegations, assertions or demands of any nature whatsoever, except liability which is adjudicated to be a result of the

Trustee’s negligence or willful misconduct in connection with any such action; and
therein expressly so provided, every provision of this Indenture relating to the conduct of, or affecting the liability of, or affording protection to

the Trustee shall be subject to the provisions of this Section 7.02.

Section 7.03 . Trustee not Responsible for Recitals, Dispositions of Notes or Application of Proceeds Thereof.

The recitals contained herein and in the Notes, except the Trustee’s certificates of authentication, shall be taken as the

statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee

makes no representation as to the validity or sufficiency of this Indenture or of the Notes. The Trustee shall not be

accountable for the use or application by the Company of any of the Notes or of the proceeds thereof.

Section 7.04 . Trustee and Agents May Hold Notes; Collections, Etc.. The Trustee or any agent of the Company

or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes with the same rights

it would have if it were not the Trustee or such agent and, subject to Sections 7.08 and 7.13, if operative, may

otherwise deal with the Company and receive, collect, hold and retain collections from the Company with the same

rights it would have if it were not the Trustee or such agent.

Section 7.05 . Moneys Held by Trustee. Subject to the provisions of Section 8.04 hereof, all moneys received by

the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were

received, but need not be segregated from other funds except to the extent required by mandatory provisions of law.

Neither the Trustee nor any agent of the Company or the Trustee shall be under any liability for interest on any

moneys received by it hereunder. Under no circumstances shall the Trustee be liable in its individual capacity for the

obligations evidenced by the Notes. In accepting the trust hereby created, the Trustee acts solely as Trustee for the

Holders of the Notes and not in its individual capacity and all persons, including without limitation the Holders of Notes

and the Company having any claim against the Trustee arising from this Indenture shall look only to the funds and

accounts held by the Trustee hereunder for payment except as otherwise provided herein.

Section 7.06 . Compensation And Indemnification Of Trustee And Its Prior Claim.. The Company covenants

and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation (which shall

not be limited by any provision of law in regard to the compensation of a trustee of an express trust) to be agreed to in

writing by the Trustee and the Company, and the Company covenants and agrees to pay or reimburse the Trustee and

each predecessor Trustee upon its request for all expenses, disbursements and advances incurred or made by or on

behalf of it in accordance with any of the provisions of this Indenture (including (i) the reasonable compensation and

the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ and

(ii) interest at the prime rate on any disbursements and advances made by the Trustee and not paid by the Company

within 5 days after receipt of an invoice for such disbursement or advance) except any such expense, disbursement

or advance as shall be determined by a court of competent jurisdiction to have been caused by its own negligence or

bad faith. The Company also covenants to fully indemnify each of the Trustee, each predecessor Trustee, any

Authenticating Agent and any officer, director, employee or agent of the Trustee, each such predecessor Trustee or any

such Authenticating Agent for, and to hold it harmless against, any and all loss, liability, claim, damage or expense

(including legal fees and expenses) incurred without negligence or willful misconduct on its part, arising out of or in

connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder,

including the costs and expenses of defending itself against or investigating any claim of liability in the premises. The

obligations of the Company under this Section 7.06 to compensate and indemnify the Trustee, each predecessor

Trustee, any Authenticating Agent and any officer, director, employee or agent of the Trustee, each such predecessor

Trustee or any such Authenticating Agent and to pay or reimburse the Trustee and each predecessor Trustee for

expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the

satisfaction and discharge of this Indenture. Such additional indebtedness shall be a senior claim to that of the Notes

upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the

Holders of particular Notes, and the Notes are hereby effectively subordinated to such senior claim to such extent.

The provisions of this Section 7.06 shall survive the termination of this Indenture and the resignation or removal of the

Trustee. The Trustee’s fees and expenses are intended to constitute an "Administrative Expense" under the

Bankruptcy Law.
Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its

duties hereunder, or in the exercise of any of its rights or powers, if repayment of such funds or adequate indemnity against such risk or

liability is not assured to its satisfaction.

Section 7.07 . Right of Trustee to Rely on Officers’ Certificate, Etc.. Subject to Sections 7.01 and 7.02,

whenever in the administration of the trusts of this Indenture the Trustee shall deem it necessary or desirable that a

matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other

evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the

part of the Trustee, be deemed to be conclusively proved and established by an Officers’ Certificate delivered to the

Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant

to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith

thereof.

Section 7.08 . Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of

the TIA, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and

subject to the provisions of, the TIA.

Section 7.09 . Persons Eligible for Appointment as Trustee. The Trustee shall at all times be a corporation or

banking association having a combined capital and surplus of at least $50,000,000. If such corporation or banking

association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid

supervising or examining authority, then, for the purposes of this Section 7.09, the combined capital and surplus of

such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of

condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of

this Section 7.09, the Trustee shall resign immediately in the manner and with the effect specified in Section 7.10.
Resignation and Removal; Appointment of Successor Trustee. (a) The Trustee, or any trustee or trustees hereafter appointed, may at any

time resign with respect to one or more or all series of Notes by giving written notice of resignation to the Company and by mailing notice

thereof by first class mail to the Holders of Notes at their last addresses as they shall appear on the Note Register. Upon receiving such notice

of resignation, the Company shall promptly appoint a successor trustee or trustees by written instrument in duplicate, executed by authority

of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee or

trustees. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice

of resignation, the resigning trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a

successor trustee, or any Noteholder who has been a bona fide Holder of a Note for at least six months may, subject to the provisions of

Section 7.11, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such

court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee.

(b) In case at any time any of the following shall occur:

(i) the Trustee shall fail to comply with the provisions of Section 7.08 with respect to any Notes after

written request therefor by the Company or by any Noteholder who has been a bona fide Holder of a Note for at

least six months; or

(ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 7.09 and shall fail to

resign after written request therefor by the Company or by any Noteholder; or

(iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver

or liquidator of the Trustee or of its property shall be appointed, or any public officer shall take charge or control

of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; or

(iv) the Company shall determine that the Trustee has failed to perform its obligations under this Indenture

in any material respect;
remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy

of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of

Section 7.11, any Noteholder who has been a bona fide Holder of a Note for at least six months may on behalf of himself and all others

similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such

court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. If

no successor trustee shall have been appointed and have accepted appointment within 30 days after a notice of removal has been given, the

removed trustee may petition a court of competent jurisdiction for the appointment of a successor trustee.

(c) The Holders of a majority in aggregate principal amount of the Notes at the time outstanding may at any time

remove the Trustee and appoint a successor trustee by delivering to the Trustee so removed, to the successor trustee

so appointed and to the Company the evidence provided for in Section 1.05 of the action in that regard taken by the

Noteholders.

(d) Any resignation or removal of the Trustee and any appointment of a successor trustee pursuant to any of the

provisions of this Section 7.10 shall become effective upon acceptance of appointment by the successor trustee as

provided in Section 7.11.

Section 7.11 . Acceptance of Appointment by Successor Trustee. Any successor trustee appointed as provided

in Section 7.10 shall execute and deliver to the Company and to the predecessor trustee an instrument accepting such

appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective

and such successor trustee, without any further act, deed or conveyance, shall become vested with all rights, powers,

duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee hereunder; but,

nevertheless, on the written request of the Company or of the successor trustee, upon payment of its charges then

unpaid, the trustee ceasing to act shall pay over to the successor trustee all moneys at the time held by it hereunder

and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and

obligations. Upon request of any such successor trustee, the Company shall execute any and all instruments in

writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers.

Any trustee ceasing to act shall, nevertheless, retain a prior claim upon all property or funds held or collected by such

trustee to secure any amounts then due it pursuant to the provisions of Section 7.06.

No successor trustee shall accept appointment as provided in this Section 7.11 unless at the time of such

acceptance such successor trustee shall be qualified under the provisions of Section 7.08 and eligible under the

provisions of Section 7.09.

Upon acceptance of appointment by any successor trustee as provided in this Section 7.11, the Company shall

mail notice thereof by first class mail to the Holders of Notes at their last addresses as they shall appear in the Note

Register. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called

for by the preceding sentence may be combined with the notice called for by Section 7.10. If the Company fails to mail

such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall

cause such notice to be mailed at the expense of the Company.
Merger, Conversion, Consolidation or Succession to Business of Trustee. Any corporation or banking association into which the Trustee

may be merged or converted or with which it may be consolidated, or any corporation or banking association resulting from any merger,

conversion or consolidation to which the Trustee shall be a party, or any corporation or banking association succeeding to all or substantially

all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder; provided that such corporation or banking

association shall be qualified under the provisions of Section 7.08 and eligible under the provisions of Section 7.09, without the execution or

filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case at the

time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but

not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee or Authenticating

Agent and deliver such Notes so authenticated; and, in case at that time any of the Notes shall not have been authenticated, any successor to

the Trustee or any Authenticating Agent appointed by such successor Trustee may authenticate such Notes either in the name of any

predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificate shall have the full force and effect that

this Indenture provides for the certificate of authentication of the Trustee; provided that the right to adopt the certificate of authentication of any

predecessor Trustee or to authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by

merger, conversion or consolidation.

Section 7.13 . Preferential Collection of Claims Against the Company. If and when the Trustee shall be or

become a creditor of the Company (or any other obligor upon the Notes), the Trustee shall be subject to the

provisions of the TIA regarding the collection of the claims against the Company (or any such other obligor).

Section 7.14 . Reports By The Trustee. (a) Within sixty (60) days after May 15 of each year commencing with the

year 2005, the Trustee shall transmit to Holders and other persons such reports dated as of May 15 of the year in

which such reports are made concerning the Trustee and its actions under this Indenture as may be required pursuant

to the TIA.

(b) A copy of each such report shall, at the time of such transmission to Noteholders, be furnished to the

Company and be filed by the Trustee with each stock exchange upon which the Notes are listed and also with the

SEC. The Company agrees to notify the Trustee when and as the Notes become admitted to trading on any national

securities exchange or become delisted therefrom.

Section 7.15 . Trustee to Give Notice of Default, But May Withhold in Certain Circumstances. The Trustee shall

transmit to the Noteholders, as the names and addresses of such Holders appear on the Note Register, notice by mail

of all Events of Defaults which have occurred, such notice to be transmitted within 90 days after the occurrence

thereof, unless such defaults shall have been cured before the giving of such notice; provided that, except in the case

of an Event of Default in the payment of the principal of, premium, if any, or interest (including Liquidated Damages, if

any) on any of the Notes when due or in the payment of any repurchase obligation, the Trustee shall be protected in

withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of

directors or trustees and/or Responsible Officers of the Trustee in good faith determines that the withholding of such

notice is in the best interests of the Noteholders.
Discharge Of Indenture

Section 8.01 . Discharge Of Indenture. When all outstanding Notes will become due and payable within one year

of their Stated Maturity and the Company has deposited with the Trustee cash sufficient to pay and discharge all

outstanding Notes on the date of their Stated Maturity, then the Company may discharge its obligations under this

Indenture while Notes remain outstanding; provided that provisions of Section 2.04, Section 2.05, Section 2.06,

Section 2.07, Section 2.08, Section 4.01, Section 4.05, Section 7.06, Article 10 and this Article 8 shall survive until the

Notes have been paid in full. The Trustee shall join in the execution of a document prepared by the Company

acknowledging satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers’

Certificate and Opinion of Counsel as required by Section 12.04 and at the cost and expense of the Company; the

Company, however, hereby agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and

properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly

rendered by the Trustee in connection with this Indenture or the Notes. The Company will remain obligated to issue

shares of its Common Stock upon conversion of the Notes until such maturity as described under Article 10.

Section 8.02 . [intentionally Omitted].

Section 8.03 . Paying Agent to Repay Monies Held. Upon the discharge of this Indenture, all monies then held

by any Paying Agent of the Notes (other than the Trustee) shall, upon written request of the Company, be repaid to it or

paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such

monies.

Section 8.04 . Return Of Unclaimed Monies. Subject to the requirements of applicable law, any monies

deposited with or paid to the Trustee or the Paying Agent for payment of the principal of, premium, if any, or interest on

Notes and not applied but remaining unclaimed by the holders of Notes for two years after the date upon which the

principal of, premium, if any, or interest on such Notes, as the case may be, shall have become due and payable,

shall be repaid to the Company by the Trustee or the Paying Agent on written demand and all liability of the Trustee or

the Paying Agent shall thereupon cease with respect to such monies; and the holder of any of the Notes shall

thereafter look only to the Company for any payment that such holder may be entitled to collect unless an applicable

abandoned property law designates another Person.
Supplemental Indentures

Section 9.01 . Without Consent Of Holders. The Company and the Trustee may, from time to time and at any

time, enter into an indenture or indentures supplemental hereto without the consent of any Noteholder for one or more

of the following purposes:

(a) adding to the Company’s covenants for the benefit of the Holders;

(b) surrendering any right or power conferred upon the Company, including, without limitation, the right to pay

the Purchase Price upon Change of Control and/or Make-Whole Premium in shares of the Company’s Common

Stock;

(c) providing for the assumption of the Company’s obligations to the Holders in the case of a merger,

consolidation, conveyance, transfer or lease in accordance with Article 5;

(d) increasing the Conversion Rate or reducing the Conversion Price; provided that the increase or reduction will

not adversely affect the interests of Holders in any material respect;

(e) complying with the requirements of the SEC in order to effect or maintain the qualification of this Indenture

under the TIA;

(f) making any changes or modifications to this Indenture necessary in connection with the registration of the

Notes under the Securities Act as contemplated by the Registration Rights Agreement; provided that this action does

not adversely affect the interests of the Holders in any material respect;

(g) curing any ambiguity or correcting or supplementing any defective provision contained in this Indenture;

provided that such modification or amendment does not adversely affect the interests of the Holders in any material

respect; provided, however, that any change to conform this Indenture to the Description of the Notes contained in the

Private Placement Memorandum shall be deemed not to adversely affect the interests of the Holders of the Notes in

any material respect;

(h) adding or modifying any other provisions which the Company and the Trustee may deem necessary or

desirable and which will not adversely affect the interests of the Holders in any material respect;

(i) complying with the requirements regarding merger or transfer of assets; or
uncertificated Notes in addition to the certificated Notes so long as such uncertificated Notes are in registered form for purpose of the Internal

Revenue Code of 1986, as amended.

Notwithstanding any other provision of the Indenture or the Notes, the Registration Rights Agreement and the

obligation to pay Liquidated Damages thereunder may be amended, modified or waived in accordance with the

provisions of the Registration Rights Agreement.

Section 9.02 . With Consent Of Holders. With the written consent of the Holders of at least a majority in

aggregate principal amount of the Notes at the time outstanding, the Company and the Trustee may, from time to time

and at any time, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to

or change in any manner or eliminating any of the provisions of this Indenture or any supplemental indenture or of

modifying in any manner the rights of the Holders of the Notes. However, without the consent of each Noteholder so

affected, a supplemental indenture may not:

(a) change the payment date of the principal of or any installment of interest on any Note (including any payment

of Liquidated Damages or Make-Whole Premium);

(b) reduce the principal amount of, or any premium (including Make-Whole Premium) or interest on (including

any payment of Liquidated Damages), any Note;

(c) change the currency of payment of such Note or interest thereon;

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

(e) modify the Company’s obligations to maintain an office or agency in New York City;

(f) except as otherwise permitted or contemplated by provisions concerning corporate reorganizations,

adversely affect the repurchase option of Holders upon a Change of Control or the conversion rights of Holders; or

(g) reduce the percentage in aggregate principal amount of Notes outstanding necessary to modify or amend this

Indenture or to waive any past Event of Default.

It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of

any proposed supplemental indenture, but it shall be sufficient if such consent approves the substance thereof.

After a supplemental indenture under this Section 9.02 becomes effective, the Company shall mail to each Holder

a notice briefly describing the supplemental indenture.
Compliance with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall comply with the TIA; provided

that this Section 9.03 shall not require such supplemental indenture or the Trustee to be qualified under the TIA prior to the time such

qualification is in fact required under the terms of the TIA or the Indenture has been qualified under the TIA, nor shall it constitute any

admission or acknowledgment by any party to such supplemental indenture that any such qualification is required prior to the time such

qualification is in fact required under the terms of the TIA or the Indenture has been qualified under the TIA.

Section 9.04 . Revocation and Effect of Consents, Waivers and Actions. Until a supplemental indenture, waiver

or other action by Holders becomes effective, a consent thereto by a Holder of a Note hereunder is a continuing

consent by the Holder and every subsequent Holder of that Note or portion of the Note that evidences the same

obligation as the consenting Holder’s Note, even if notation of the consent, waiver or action is not made on the Note.

However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder’s Note

or portion of the Note if the Trustee receives the notice of revocation before the date the supplemental indenture,

waiver or action becomes effective. After a supplemental indenture, waiver or action becomes effective, it shall bind

every Noteholder.

Section 9.05 . Notation on or Exchange of Notes. Notes authenticated and delivered after the execution of any

supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form

approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so

determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such

supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee

or an Authenticating Agent in exchange for outstanding Notes.

Section 9.06 . Trustee to Sign Supplemental Indentures. The Trustee shall sign any supplemental indenture

authorized pursuant to this Article 9 if the amendment contained therein does not adversely affect the rights, duties,

liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign such supplemental indenture. In

signing such supplemental indenture the Trustee shall be provided with, and (subject to the provisions of

Section 7.01) shall be fully protected in relying upon, an Officers’ Certificate and an Opinion of Counsel stating that

such amendment is authorized or permitted by this Indenture.

Section 9.07 . Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this

Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of

this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered

hereunder shall be bound thereby.
Conversion

Section 10.01 . Conversion Right and Conversion Price. Subject to and upon compliance with the provisions of

this Article, at the option of the Holder thereof, any Note or any portion of the principal amount thereof which is $1,000

or an integral multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into duly

authorized, fully paid and nonassessable shares of Common Stock, at the Conversion Rate, determined as

hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the close of business on

the final maturity date of the Notes.

In the case of a Change of Control for which the Holder exercises its repurchase right with respect to a Note or

portion thereof, such conversion right in respect of the Note or portion thereof shall expire at the close of business

on the Business Day immediately preceding the Change of Control Purchase Date.

The rate at which shares of Common Stock shall be delivered upon conversion per $1,000 principal amount of

Notes (the "Conversion Rate") shall be initially equal to 199.2032, which is equal to an initial Conversion Price of

approximately $5.02. The Conversion Rate and the Conversion Price shall be adjusted in certain instances as

provided in paragraphs (a), (b), (c), (d), (e), (f), (h) and (i) of Section 10.04 hereof.

If a Holder converts some or all of its Notes when there exists an Event (as defined in the Registration Rights

Agreement), such Holder shall receive additional shares of Common Stock upon conversion equal to 3% of the

applicable Conversion Rate for each $1,000 principal amount of Notes.

Section 10.02 . Exercise of Conversion Right. To exercise the conversion right, the Holder of any Note to be

converted shall surrender such Note duly endorsed or assigned to the Company or in blank, at the office of any

Conversion Agent, accompanied by a duly signed conversion notice substantially in the form attached to the Note to

the Company stating that the Holder elects to convert such Note or, if less than the entire principal amount thereof is to

be converted, the portion thereof to be converted.

Notes surrendered for conversion during the period from the close of business on any Regular Record Date to

the opening of business on the next succeeding Interest Payment Date shall be accompanied by payment in New York

Clearing House funds or other funds acceptable to the Company of an amount equal to the interest to be received on

such Interest Payment Date on the principal amount of Notes being surrendered for conversion.

Notes shall be deemed to have been converted immediately prior to the close of business on the day of surrender

of such Notes for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders

of such Notes as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable

upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such

time. As promptly as practicable on or after the conversion date, the Company shall cause to be issued and delivered

to such Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon

conversion, together with payment in lieu of any fraction of a share as provided in Section 10.03 hereof.
which is converted in part only, upon such conversion the Company shall execute and the Trustee or an Authenticating Agent shall

authenticate and deliver to the Holder thereof, at the expense of the Company, a new Note or Notes of authorized denominations in aggregate

principal amount equal to the unconverted portion of the principal amount of such Notes.

If shares of Common Stock to be issued upon conversion of a Note that is a Restricted Security (a "Restricted

Note"), or securities to be issued upon conversion of a Restricted Note in part only, are to be registered in a name

other than that of the Holder of such Restricted Note, such Holder must deliver to the Conversion Agent a certificate in

substantially the form of Exhibit B-1 hereto, dated the date of surrender of such Restricted Note and signed by such

Holder, as to compliance with the restrictions on transfer applicable to such Restricted Note. Neither the Trustee nor

any Conversion Agent, Note Registrar or transfer agent shall be required to register in a name other than that of the

Holder of Notes or shares of Common Stock issued upon conversion of any such Restricted Note not so

accompanied by a properly completed certificate.

Section 10.03 . Fractions of Shares. No fractional shares of Common Stock shall be issued upon conversion

of any Note or Notes. If more than one Note shall be surrendered for conversion at one time by the same Holder, the

number of full shares which shall be issued upon conversion thereof shall be computed on the basis of the

aggregate principal amount of the Notes (or specified portions thereof) so surrendered. Instead of any fractional share

of Common Stock which would otherwise be issued upon conversion of any Note or Notes (or specified portions

thereof), the Company shall pay a cash adjustment in respect of such fraction (calculated to the nearest one-100th of

a share) in an amount equal to the same fraction of the quoted price of the Common Stock as of the Trading Day

preceding the date of conversion.

Section 10.04 . Adjustment of Conversion Rate. The Conversion Rate shall be subject to adjustments,

calculated by the Company, from time to time as follows:

(a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding

Common Stock in shares of Common Stock, the Conversion Rate in effect at the opening of business on the date

following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall

be increased by dividing such Conversion Rate by a fraction:

(1) the numerator of which shall be the number of shares of Common Stock outstanding at the close of

business on the Record Date (as defined in Section 10.04(g)) fixed for such determination, and
(2) the denominator of which shall be the sum of such number of shares and the total number of shares

constituting such dividend or other distribution.

Such increase shall become effective immediately after the opening of business on the day following the Record Date.

For the purpose of this paragraph (a), the number of shares of Common Stock at any time outstanding shall not

include shares held in the treasury of the Company. The Company will not pay any dividend or make any distribution

on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described

in this Section 10.04(a) is declared but not so paid or made, the Conversion Rate shall again be adjusted to the

Conversion Rate which would then be in effect if such dividend or distribution had not been declared.

(b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of

Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which

such subdivision becomes effective shall be proportionately increased, and conversely, in case outstanding shares

of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in

effect at the opening of business on the day following the day upon which such combination becomes effective shall

be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the

opening of business on the day following the day upon which such subdivision or combination becomes effective.

(c) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common

Stock entitling them (for a period expiring within forty-five (45) days after the date fixed for determination of

stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a

price per share less than the Closing Price on the Trading Day immediately preceding the time of announcement of

such issuance ("Market Price"), the Conversion Rate shall be adjusted by dividing the Conversion Rate in effect

immediately prior to such Record Date by a fraction:

(1) the numerator of which shall be the number of shares of Common Stock outstanding at the close of

business on the Record Date plus the number of shares which the aggregate offering price of the total number of

shares so offered for subscription or purchase (or the aggregate conversion price of the convertible securities

so offered) would purchase at such Market Price, and

(2) the denominator of which shall be the number of shares of Common Stock outstanding on the close of

business on the Record Date plus the total number of additional shares of Common Stock so offered for

subscription or purchase (or into which the convertible securities so offered are convertible).

Such adjustment shall become effective immediately after the opening of business on the day following the Record

Date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of

Common Stock (or securities convertible into Common Stock) are not delivered pursuant to such rights or warrants,

upon the expiration or termination of such rights or warrants the Conversion Rate shall be readjusted to the

Conversion Rate which would then be in effect had the adjustments made upon the issuance of such rights or

warrants been made on the basis of the delivery of only the number of shares of Common Stock (or securities

convertible into Common Stock) actually delivered. In the event that such rights or warrants are not so issued, the

Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such Record Date

had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase

shares of Common Stock at less than such Market Price, and in determining the aggregate offering price of such

shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants

and any amount payable on exercise or conversion thereof, the value of such consideration if other than cash, to be

determined by the Board of Directors.
Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of Capital Stock of the Company

(other than any dividends or distributions to which Section 10.04(a) applies) or evidences of its indebtedness, cash or other assets, including

securities, but excluding (1) any rights or warrants referred to in Section 10.04(c), (2) any stock, securities or other property or assets

(including cash) distributed in connection with a reclassification, change, merger, consolidation, statutory share exchange, combination, sale

or conveyance to which Section 10.11 hereof applies and (3) dividends and distributions paid exclusively in cash (the securities described in

foregoing clauses (1), (2) and (3) hereinafter in this Section 10.04(d) called the " excluded securities"), then, in each such case (unless the

Company elects to reserve such securities for distribution to the Noteholders upon the conversion of the Notes so that any such Holder

converting Notes will receive upon such conversion, in addition to the shares of Common Stock to which such Holder is entitled, the amount

and kind of such securities which such Holder would have received if such Holder had converted its Notes into Common Stock immediately

prior to the Record Date), subject to the second succeeding paragraph of this Section 10.04(d), the Conversion Rate shall be adjusted by

dividing the Conversion Rate in effect immediately prior to the close of business on the Record Date (as defined in Section 10.04(g)) with

respect to such distribution by a fraction:

(1) the numerator of which shall be the Current Market Price (determined as provided in Section 10.04(g)) on

such Record Date less the fair market value (as determined by the Board of Directors, whose determination shall

be conclusive and set forth in a Board Resolution) on such Record Date of the portion of the securities so

distributed (other than excluded securities) applicable to one share of Common Stock (determined on the basis of

the number of shares of the Common Stock outstanding on the Record Date), and

(2) the denominator of which shall be such Current Market Price.

Such adjustment shall become effective immediately prior to the opening of business on the day following the Record

Date. However, in the event that the then fair market value (as so determined) of the portion of the securities so

distributed (other than excluded securities) applicable to one share of Common Stock is equal to or greater than the

Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that

each Holder shall have the right to receive upon conversion of a Note (or any portion thereof) the amount of securities

so distributed (other than excluded securities) such Holder would have received had such Holder converted such Note

(or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid

or made, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such

dividend or distribution had not been declared.
determines the fair market value of any distribution for purposes of this Section 10.04(d) by reference to the actual or when issued trading

market for any securities comprising all or part of such distribution (other than excluded securities), it must in doing so consider the prices in

such market over the same period (the "Reference Period") used in computing the Current Market Price pursuant to Section 10.04(g) to the

extent possible, unless the Board of Directors in a Board Resolution determines in good faith that determining the fair market value during

the Reference Period would not be in the best interest of the Holder.

Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to

subscribe for or purchase shares of the Company’s Capital Stock (either initially or under certain circumstances),

which rights or warrants, until the occurrence of a specified event or events (" Trigger Event"):

(i) are deemed to be transferred with such shares of Common Stock;

(ii) are not exercisable; and

(iii) are also issued in respect of future issuances of Common Stock,

shall be deemed not to have been distributed for purposes of this Section 10.04(d) (and no adjustment to the

Conversion Rate under this Section 10.04(d) will be required) until the occurrence of the earliest Trigger Event. If such

right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become

exercisable to purchase different securities, evidences of indebtedness or other assets or entitle the holder to

purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase

price, then the occurrence of each such event shall be deemed to be the date of issuance and Record Date with

respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the

holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger

Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an

adjustment to the Conversion Rate under this Section 10.04(d):

(1) in the case of any such rights or warrants which shall all have been redeemed or repurchased

without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final

redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though

it were a cash distribution, to give equal to the per share redemption or repurchase price received by a holder

of Common Stock with respect to such rights or warrant (assuming such holder had retained such rights or

warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and

(2) in the case of such rights or warrants all of which shall have expired or been terminated without

exercise, the Conversion Rate shall be readjusted as if such rights and warrants had never been issued.

No adjustment of the Conversion Rate shall be made pursuant to this Section 10.04(d) in respect of rights or warrants

distributed or deemed distributed on any Trigger Event to the extent that such rights or warrants are actually distributed,

or reserved by the Company for distribution to holders of Notes upon conversion by such holders of Notes to

Common Stock.

For purposes of this Section 10.04(d) and Sections 10.04(a), 10.04(b) and 10.04(c), any dividend or distribution

to which this Section 10.04(d) is applicable that also includes shares of Common Stock, a subdivision or combination

of Common Stock to which Section 10.04(b) applies, or rights or warrants to subscribe for or purchase shares of

Common Stock to which Section 10.04(c) applies (or any combination thereof), shall be deemed instead to be:

(1) a dividend or distribution of the evidences of indebtedness, assets, shares of Capital Stock, rights or

warrants other than such shares of Common Stock, such subdivision or combination or such rights or warrants

to which Sections 10.04(a), 10.04(b) and 10.04(c) apply, respectively (and any Conversion Rate increase

required by this Section 10.04(d) with respect to such dividend or distribution shall then be made), immediately

followed by

(2) a dividend or distribution of such shares of Common Stock, such subdivision or combination or such

rights or warrants (and any further Conversion Rate increase required by Sections 10.04(a), 10.04(b) and

10.04(c) with respect to such dividend or distribution shall then be made), except:

(A) the Record Date of such dividend or distribution shall be substituted as (x) "the date fixed for

the determination of stockholders entitled to receive such dividend or other distribution ",

"Record Date fixed for such determinations" and "Record Date" within the meaning of
Section 10.04(a), (y) "the day upon which such subdivision becomes effective" and "the day upon

which such combination becomes effective" within the meaning of Section 10.04(b), and (z) as "the

date fixed for the determination of stockholders entitled to receive such rights or warrants", "the

Record Date fixed for the determination of the stockholders entitled to receive such rights or

warrants" and such "Record Date" within the meaning of Section 10.04(c), and
(B) any shares of Common Stock included in such dividend or distribution shall not be deemed

"outstanding at the close of business on the date fixed for such determination" within the meaning

of Section 10.04(a) and any reduction or increase in the number of shares of Common Stock resulting

from such subdivision or combination shall be disregarded in connection with such dividend or distribution.

(e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash

(excluding any cash that is distributed upon a reclassification, change, merger, consolidation, statutory share

exchange, combination, sale or conveyance to which Section 10.11 hereof applies or as part of a distribution referred

to in Section 10.04(d) hereof), then and in each such case, immediately after the close of business on such date, the

Conversion Rate shall be increased by dividing the Conversion Rate in effect immediately prior to the close of

business on such Record Date by a fraction:

(i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount

equal to the quotient of (x) such amount distributed to all holders of its Common Stock and (y) the number of

shares of Common Stock outstanding on the Record Date, and

(ii) the denominator of which shall be equal to the Current Market Price on such date.

However, in the event that the then fair market value (as so determined) of the portion of the securities so distributed

(other than excluded securities) applicable to one share of Common Stock is equal to or greater than the Current

Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each

Holder shall have the right to receive upon conversion of a Note (or any portion thereof) the amount of cash such

Holder would have received had such Holder converted such Note (or portion thereof) immediately prior to such

Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be

adjusted to be the Conversion Rate which would then be in effect if such dividend or distribution had not been

declared.

(f) In case a tender offer made by the Company or any of its Subsidiaries for all or any portion of the Common

Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to

stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased

Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of

Directors, whose determination shall be conclusive and set forth in a Board Resolution) that combined together with

the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination

shall be conclusive and set forth in a Board Resolution), as of the expiration of such tender offer, of other

consideration payable in respect of any other tender offers, by the Company or any of its Subsidiaries for all or any

portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in

respect of which no adjustment pursuant to this Section 10.04(f) has been made exceeds 10% of the product of the

Current Market Price (determined as provided in Section 10.04(g)) as of the last time (the "Expiration Time") tenders

could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common

Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately

prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be

adjusted by dividing the Conversion Rate in effect immediately prior to close of business on the date of the Expiration

Time by a fraction:
(i) the numerator of which shall be the number of shares of Common Stock outstanding (including any

tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the

Trading Day next succeeding the Expiration Time, and

(ii) the denominator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the

aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the

terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares

deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the

product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration

Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time.

Such increase (if any) shall become effective immediately prior to the opening of business on the day following the

Expiration Time. In the event that the Company or any such Subsidiary, as the case may be, is obligated to purchase

shares pursuant to any such tender offer, but the Company or any such Subsidiary, as the case may be, is

permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the

Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such tender offer

had not been made. If the application of this Section 10.04(f) to any tender offer would result in a reduction in the

Conversion Rate, no adjustment shall be made for such tender offer under this Section 10.04(f).

(g) For purposes of this Section 10.04, the following terms shall have the meanings indicated:

(1) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock

for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that if:

(i) the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring

such computation) that requires an adjustment to the Conversion Rate pursuant to Section 10.04(a), (b), (c), (d),

(e) or (f) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the

"ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which

the Conversion Rate is so required to be adjusted as a result of such other event;
(ii) the "ex" date for any event (other than the issuance or distribution requiring such computation) that

requires an adjustment to the Conversion Rate pursuant to Section 10.04(a), (b), (c), (d), (e) or (f) occurs on or

after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the

Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying

such Closing Price by the reciprocal of the fraction by which the Conversion Rate is so required to be adjusted

as a result of such other event; and

(iii) the "ex" date for the issuance or distribution requiring such computation is prior to the day in question,

after taking into account any adjustment required pursuant to clause (i)or (ii) of this proviso, the Closing Price for

each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the

fair market value (as determined by the Board of Directors in a manner consistent with any determination of such

value for purposes of Section 10.04(d) or (f), whose determination shall be conclusive and set forth in a Board

Resolution) of the evidences of indebtedness, shares of Capital Stock or assets being distributed applicable to

one share of Common Stock as of the close of business on the day before such "ex" date.

For purposes of any computation under Section 10.04(f), the Current Market Price of the Common Stock on any

date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the

next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender offer

requiring such computation) that requires an adjustment to the Conversion Rate pursuant to Section 10.04(a), (b), (c),

(d), (e) or (f) occurs on or after the Expiration Time for the tender offer requiring such computation and prior to the day

in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by

dividing such Closing Price by the reciprocal of the fraction by which the Conversion Rate is so required to be

adjusted as a result of such other event. For purposes of this paragraph, the term " ex" date, when used:

(A) with respect to any issuance or distribution, means the first date on which the Common Stock

trades regular way on the relevant exchange or in the relevant market from which the Closing Price was

obtained without the right to receive such issuance or distribution;

(B) with respect to any subdivision or combination of shares of Common Stock, means the first date

on which the Common Stock trades regular way on such exchange or in such market after the time at which

such subdivision or combination becomes effective, and
(C) with respect to any tender offer, means the first date on which the Common Stock trades regular

way on such exchange or in such market after the Expiration Time of such offer.

Notwithstanding the foregoing, whenever successive adjustments to the Conversion Rate are called for pursuant to

this Section 10.04, such adjustments shall be made to the Current Market Price as may be necessary or appropriate

to effectuate the intent of this Section 10.04 and to avoid unjust or inequitable results as determined in good faith by the

Board of Directors.

(2) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm’s

length transaction.

(3) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in

which the holders of Common Stock have the right to receive any cash, securities or other property or in which

the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash,

securities or other property, the date fixed for determination of stockholders entitled to receive such cash,

securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or

otherwise).

(h) The Company may make such increases in the Conversion Rate, in addition to those required by

Section 10.04(a), (b), (c), (d), (e) or (f), as the Board of Directors considers to be advisable to avoid or diminish any

income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or

distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes.

To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by

any amount for any period of time if the period is at least 20 days and the increase is irrevocable during the period and

the Board of Directors determines in good faith that such increase would be in the best interests of the Company,

which determination shall be conclusive and set forth in a Board Resolution. Whenever the Conversion Rate is

increased pursuant to the preceding sentence, the Company shall mail to the Trustee and each Holder at the address

of such Holder as it appears in the Note Register a notice of the increase at least 15 days prior to the date the

increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period

during which it will be in effect.

(i) No adjustment to the Conversion Rate shall be required unless such adjustment would require an increase or

decrease of at least 1% in such rate; provided, however, that any adjustments which by reason of this

Section 10.04(i) are not required to be made shall be carried forward and taken into account in any subsequent

adjustment. All calculations under this Article 10 shall be made by the Company and shall be made to the nearest one

hundredth of a cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for

a change in the par value or no par value of the Common Stock.
which this Section 10.04 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company

may defer until the occurrence of such event (i) issuing to the Holder of any Note converted after such Record Date and before the occurrence

of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event

over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any

amount in cash in lieu of any fraction pursuant to Section 10.03 hereof.

(k) For purposes of this Section 10.04, the number of shares of Common Stock at any time outstanding shall

not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip

certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make

any distribution on shares of Common Stock held in the treasury of the Company.

Section 10.05 . Notice of Adjustments of Conversion Rate. Whenever the Conversion Rate is adjusted as

herein provided (other than in the case of an adjustment pursuant to the second paragraph of Section 10.04(h) for

which the notice required by such paragraph has been provided), the Company shall promptly file with the Trustee and

any Conversion Agent other than the Trustee an Officers’ Certificate setting forth the adjusted Conversion Rate and

showing in reasonable detail the facts upon which such adjustment is based. Promptly after delivery of such Officers’

Certificate, the Company shall prepare a notice stating that the Conversion Rate has been adjusted and setting forth

the adjusted Conversion Rate and the date on which each adjustment becomes effective, and shall mail such notice to

each Holder at the address of such Holder as it appears in the Note Register within 20 days of the effective date of

such adjustment. Failure to deliver such notice shall not effect the legality or validity of any such adjustment.

Section 10.06 . Notice Prior to Certain Actions. In case at any time after the date hereof:

(1) the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise

than in cash out of its capital surplus or its consolidated retained earnings;

(2) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to

subscribe for or purchase any shares of Capital Stock of any class (or of securities convertible into shares of

Capital Stock of any class) or of any other rights;

(3) there shall occur any reclassification of the Common Stock of the Company (other than a subdivision or

combination of its outstanding Common Stock, a change in par value, a change from par value to no par value or

a change from no par value to par value), or any merger, consolidation, statutory share exchange or combination

to which the Company is a party and for which approval of any shareholders of the Company is required, or the

sale, transfer or conveyance of all or substantially all of the assets of the Company; or
(4) there shall occur the voluntary or involuntary dissolution, liquidation or winding up of the Company;

the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Notes

pursuant to Section 4.03 hereof, and shall cause to be provided to the Trustee and all Holders in accordance with

Section 12.02 hereof, at least 20 days (or 10 days in any case specified in clause (1) or (2) above) prior to the

applicable record or effective date hereinafter specified, a notice stating:

(A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or

warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be

entitled to such dividend, distribution, rights or warrants are to be determined, or

(B) the date on which such reclassification, merger, consolidation, statutory share exchange,

combination, sale, transfer, conveyance, dissolution, liquidation or winding up is expected to become

effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to

exchange their shares of Common Stock for securities, cash or other property deliverable upon such

reclassification, merger, consolidation, statutory share exchange, sale, transfer, dissolution, liquidation or

winding up.

Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings or

actions described in clauses (1) through (4) of this Section 10.06.

Section 10.07 . Company to Reserve Common Stock. The Company shall at all times reserve and keep

available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting

the conversion of Notes, the full number of shares of fully paid and nonassessable Common Stock then issuable

upon the conversion of all Notes outstanding.

Section 10.08 . Taxes on Conversions. Except as provided in the next sentence, the Company will pay any and

all taxes (other than taxes on income) and duties that may be payable in respect of the issue or delivery of shares of

Common Stock on conversion of Notes pursuant hereto. A Holder delivering a Note for conversion shall be liable for

and will be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and

delivery of shares of Common Stock in a name other than that of the Holder of the Note or Notes to be converted, and

no such issue or delivery shall be made unless the Person requesting such issue has paid to the Company the

amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been

paid.
Covenant as to Common Stock. The Company covenants that all shares of Common Stock which may be issued upon conversion of Notes

will upon issue be fully paid and nonassessable and, except as provided in Section 10.08, the Company will pay all taxes, liens and charges

with respect to the issue thereof.

Section 10.10 . Cancellation of Converted Notes. All Notes delivered for conversion shall be delivered to the

Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in

Section 2.11.

Section 10.11 . Effect of Reclassification, Consolidation, Merger or Sale . If any of following events occur,

namely:

(1) any reclassification or change of the outstanding shares of Common Stock (other than a change in par

value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or

combination),

(2) any merger, consolidation, statutory share exchange or combination of the Company with another

corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other

property or assets (including cash) with respect to or in exchange for such Common Stock or

(3) any sale or conveyance of all or substantially all the properties and assets of the Company to any other

corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other

property or assets (including cash) with respect to or in exchange for such Common Stock,

the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee and the

Company a supplemental indenture (which shall comply with the TIA as in force at the date of execution of such

supplemental indenture if such supplemental indenture is then required to so comply) providing that such Note shall

be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash)

which such Holder would have been entitled to receive upon such reclassification, change, merger, consolidation,

statutory share exchange, combination, sale or conveyance had such Notes been converted into Common Stock

immediately prior to such reclassification, change, merger, consolidation, statutory share exchange, combination, sale

or conveyance assuming such holder of Common Stock did not exercise its rights of election, if any, as to the kind or

amount of securities, cash or other property receivable upon such reclassification, change, merger, consolidation,

statutory share exchange, combination, sale or conveyance (provided that, if the kind or amount of securities, cash or

other property receivable upon such reclassification, change, merger, consolidation, statutory share exchange,

combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of

election shall not have been exercised ("Non-Electing Share"), then for the purposes of this Section 10.11 the kind

and amount of securities, cash or other property receivable upon such reclassification, change, merger,

consolidation, statutory share exchange, combination, sale or conveyance for each Non-Electing Share shall be

deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). Such

supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the

adjustments provided for in this Article 10. If, in the case of any such reclassification, change, merger, consolidation,

statutory share exchange, combination, sale or conveyance, the stock or other securities and assets receivable

thereupon by a holder of shares of Common Stock includes shares of stock or other securities and assets of a

corporation other than the successor or purchasing corporation, as the case may be, in such reclassification,

change, merger, consolidation, statutory share exchange, combination, sale or conveyance, then such supplemental

indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the

interests of the Holders of the Notes as the Board of Directors shall reasonably consider necessary by reason of the

foregoing, including to the extent practicable the provisions providing for the repurchase rights set forth in

Section 3.05 hereof.
notice of the execution of such supplemental indenture to be mailed to each Holder, at the address of such Holder as it appears on the Note

Register, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental

indenture.

The above provisions of this Section 10.11 shall similarly apply to successive reclassifications, mergers,

consolidations, statutory share exchanges, combinations, sales and conveyances.

If this Section 10.11 applies to any event or occurrence, Section 10.04 hereof shall not apply.

Section 10.12 . Responsibility of Trustee for Conversion Provisions. The Trustee, subject to the provisions of

Section 7.01 hereof, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder

of Notes to determine whether any facts exist which may require any adjustment of the Conversion Rate, or with

respect to the nature or intent of any such adjustments when made, or with respect to the method employed, or herein

or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee, subject to the

provisions of Section 7.01 hereof, nor any Conversion Agent shall be accountable with respect to the validity or value

(of the kind or amount) of any Common Stock, or of any other securities or property, which may at any time be issued

or delivered upon the conversion of any Note; and it or they do not make any representation with respect thereto.

Neither the Trustee, subject to the provisions of Section 7.01 hereof, nor any Conversion Agent shall be responsible

for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of stock or

share certificates or other securities or property upon the surrender of any Note for the purpose of conversion; and

the Trustee, subject to the provisions of Section 7.01 hereof, and any Conversion Agent shall not be responsible or

liable for any failure of the Company to comply with any of the covenants of the Company contained in this Article.
Reserved

ARTICLE 12

Miscellaneous

Section 12.01 . Trust Indenture Act Controls. This Indenture is hereby made subject to, and shall be governed

by, the provisions of the TIA required to be part of and to govern indentures qualified under the TIA; provided,

however, that, unless otherwise required by law, notwithstanding the foregoing, this Indenture and the Notes issued

hereunder shall not be subject to the provisions of subsections (a)(1), (a)(2), and (a)(3) of Section 314 of the TIA as

now in effect or as hereafter amended or modified; provided further that this Section 12.01 shall not require this

Indenture or the Trustee to be qualified under the TIA prior to the time such qualification is in fact required under the

terms of the TIA, nor shall it constitute any admission or acknowledgment by any party to the Indenture that any such

qualification is required prior to the time such qualification is in fact required under the terms of the TIA. If any

provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this

Indenture by the TIA, the required provision shall control.

Section 12.02 . Notices. Any request, demand, authorization, notice, waiver, consent or communication shall be

in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows or transmitted

by facsimile transmission (confirmed by guaranteed overnight courier) to the following facsimile numbers:

if to the Company:

Endeavour International Corporation 

1000 Main Street, Suite 3300 

Houston, Texas 77002 

Attention: General Counsel 

Telephone: (713) 307-8700 

Facsimile: (713) 307-8794

if to the Trustee:

Wells Fargo Bank, National Association 

1000 Louisiana Street, Suite 640 

MAC T5001-061 

Houston, Texas 77002 

Attn: Deirdre H. Ward 

Telephone: (713) 319-1658 

Facsimile: (713) 650-0579
Trustee by notice given to the other in the manner provided above may designate additional or different addresses for subsequent notices or

communications.

Any notice or communication given to a Noteholder shall be mailed to the Noteholder, by first-class mail, postage

prepaid, at the Noteholder’s address as it appears on the registration books of the Note Registrar and shall be

sufficiently given if so mailed within the time prescribed.

Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with

respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given,

whether or not received by the addressee.

If the Company mails a notice or communication to the Noteholders, it shall mail a copy to the Trustee and each

Note Registrar, Paying Agent, Conversion Agent or co-registrar.

Section 12.03 . Communication by Holders with Other Holders. Noteholders may communicate pursuant to

Section 312(b) of the TIA with other Noteholders with respect to their rights under this Indenture or the Notes. The

Company, the Trustee, the Note Registrar, the Paying Agent, the Conversion Agent and anyone else shall have the

protection of Section 312(c) of the TIA.

Section 12.04 . 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:

(1) an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided

for in this Indenture relating to the proposed action have been complied with; and

(2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have

been complied with.

Section 12.05 . Statements Required in Certificate or Opinion. Each Officers’ Certificate or Opinion of Counsel

with respect to compliance with a covenant or condition provided for in this Indenture shall include:

(1) a statement that each person making such Officers’ Certificate or Opinion of Counsel has read such

covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the

statements or opinions contained in such Officers’ Certificate or Opinion of Counsel are based;

(3) a statement that, in the opinion of each such person, he has made such examination or investigation as

is necessary to enable such person to express an informed opinion as to whether or not such covenant or

condition has been complied with; and

(4) a statement that, in the opinion of such person, such covenant or condition has been complied with.

Section 12.06 . Separability Clause. 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 12.07 . Rules by Trustee, Paying Agent, Conversion Agent and Note Registrar. The Trustee may make

reasonable rules for action by or a meeting of Noteholders. The Note Registrar, Conversion Agent and the Paying

Agent may make reasonable rules for their functions.

Section 12.08 . Legal Holidays. A "Legal Holiday" is any day other than a Business Day. If any specified date

(including a date for giving notice) is a Legal Holiday, the action shall be taken on the next succeeding day that is not a

Legal Holiday, and, if the action to be taken on such date is a payment in respect of the Notes, no interest, if any, shall

accrue for the intervening period.

Section 12.09 . GOVERNING LAW. THIS INDENTURE AND THE NOTES WILL BE GOVERNED BY, AND

CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

Section 12.10 . No Recourse Against Others. A director, officer, employee or stockholder, as such, of the

Company shall not 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. By accepting a Note, each Noteholder

shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the

Notes.

Section 12.11 . Successors. All agreements of the Company in this Indenture and the Notes shall bind its

successor. All agreements of the Trustee in this Indenture shall bind its successor.

Section 12.12 . Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to

any Person, other than the parties hereto, any Paying Agent, any authenticating agent, any Note Registrar and their

successors hereunder and the holders of Notes, any benefit or any legal or equitable right, remedy or claim under this

Indenture.
Table of Contents, Heading, Etc. The table of contents and the titles 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 hereof, and shall in no way modify or restrict any of the terms or

provisions hereof.

Section 12.14 . Authenticating Agent. The Trustee may appoint an authenticating agent (the "Authenticating

Agent") that shall be authorized to act on its behalf, and subject to its direction, in the authentication and delivery of

Notes in connection with the original issuance thereof and transfers and exchanges of Notes hereunder, including

under Sections 2.03, 2.07, 2.08, 3.08 and 10.02, as fully to all intents and purposes as though the authenticating agent

had been expressly authorized by this Indenture and those Sections to authenticate and deliver Notes. For all

purposes of this Indenture, the authentication and delivery of Notes by the Authenticating Agent shall be deemed to be

authentication and delivery of such Notes "by the Trustee" and a certificate of authentication executed on behalf of the

Trustee by an Authenticating Agent shall be deemed to satisfy any requirement hereunder or in the Notes for the

Trustee’s certificate of authentication. Such Authenticating Agent shall at all times be a Person eligible to serve as

trustee hereunder pursuant to Section 7.09.

Any corporation into which any Authenticating Agent may be merged or converted or with which it may be

consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating

Agent shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of any

Authenticating Agent, shall be the successor of the Authenticating Agent hereunder, if such successor corporation is

otherwise eligible under this Section 2.14, without the execution or filing of any paper or any further act on the part of

the parties hereto or the Authenticating Agent or such successor corporation.

Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the

Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of

termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon

such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section, the

Trustee shall either promptly appoint a successor Authenticating Agent or itself assume the duties and obligations of

the former Authenticating Agent under this Indenture and, upon such appointment of a successor Authenticating Agent,

if made, shall give written notice of such appointment of a successor Authenticating Agent to the Company and shall

mail notice of such appointment of a successor Authenticating Agent to all holders of Notes as the names and

addresses of such holders appear on the Note Register.

The Company agrees to pay to the Authenticating Agent from time to time such reasonable compensation for its

services as shall be agreed upon in writing between the Company and the Authenticating Agent.
Sections 2.12, 7.03, 7.04, 7.07 and this Section 2.14 shall be applicable to any Authenticating Agent.

Section 12.15 . Execution In Counterparts(a) . This Indenture may be executed in any number of counterparts,

each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the

respective parties hereto as of the date first above written.

ENDEAVOUR INTERNATIONAL CORPORATION

By:

Name: H. Don Teague

Title: Executive Vice President--Administration, General Counsel and

Secretary

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Trustee

By:

Name: Christina Faith

Title: Vice President
EXHIBIT A

FOR GLOBAL NOTE ONLY: [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED

REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR

REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN

THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED

REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE

& CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE

DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR

OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE &

CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART,

TO NOMINEES OF THE DEPOSITORY TRUST COMPANY, OR TO A SUCCESSOR THEREOF OR SUCH

SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO

TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE

INDENTURE REFERRED TO ON THE REVERSE HEREOF.]

IF REQUIRED PURSUANT TO SECTION 2.07(d): [THIS SECURITY AND THE SHARES OF COMMON STOCK

ISSUABLE UPON CONVERSION OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES

ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS

SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY NOR ANY

INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,

PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR

UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR

OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD

APPLICABLE TO SALES THEREOF UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR

PROVISION) (THE "RESALE RESTRICTION PERIOD"), ONLY (A) TO ENDEAVOUR INTERNATIONAL

CORPORATION (THE "COMPANY"), OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS THE SECURITIES

ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A

"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT

PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO

WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT

TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR

(D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE

SECURITIES ACT, INCLUDING UNDER RULE 144, IF AVAILABLE, SUBJECT IN EACH OF THE FOREGOING

CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF

SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL. EACH

PURCHASER ACKNOWLEDGES THAT PRIOR TO THE EXPIRATION OF THE RESALE RESTRICTION PERIOD,

THE COMPANY AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF AN OPINION OF

COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH

OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE

OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND

WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER EXPIRATION OF THE RESALE

RESTRICTION PERIOD.]
ENDEAVOUR INTERNATIONAL CORPORATION

6.00% Convertible Senior Notes due 2012

No. CUSIP: 29257MAA8 

Issue Date:

ENDEAVOUR INTERNATIONAL CORPORATION, a Nevada corporation promises to pay to [Cede & Co.]* [ ]

or registered assigns, [the principal amount of DOLLARS ($ )] [the principal amount as set forth on Schedule I

hereto]* on January 15, 2012.

This Note shall bear interest as specified on the other side of this Note. This Note is convertible as specified on

the other side of this Note.

Additional provisions of this Note are set forth on the other side of this Note.

Dated: ENDEAVOUR INTERNATIONAL CORPORATION

By: --

 Name:

 Title:

*Include only on Global Security
AUTHENTICATION

This is one of the Notes referred to in the within-mentioned Indenture (as defined on the other side of this Note).

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Trustee

By: 

Authorized Signatory

By: 

As Authenticating Agent 

(if different from Trustee)

Dated: 
6.00% Convertible Senior Note due 2012

1. Cash Interest.

The Company promises to pay interest in cash on the principal amount of this Note at the rate per annum of

6.00%. The Company will pay cash interest semiannually in arrears on January 15 and July 15 of each year (each an

"Interest Payment Date"), beginning July 15, 2005, to Holders of record at the close of business on January 1 and

July 1 (whether or not a business day) (each a "Regular Record Date"), as the case may be, immediately preceding

such Interest Payment Date, and the Company will pay interest in arrears on the Maturity Date to the Holder to whom it

pays the principal of this Note. Cash interest on the Notes will accrue from the most recent date to which interest has

been paid or duly provided or, if no interest has been paid, from the Issue Date. Cash interest will be computed on the

basis of a 360-day year of twelve 30-day months. The Company shall pay cash interest on overdue principal at the

rate borne by the Notes plus 2% per annum, and it shall pay interest in cash on overdue installments of cash interest

(including Liquidated Damages, if any) at the same rate to the extent lawful. All such overdue cash interest shall be

payable on demand. The Company further promises to pay Liquidated Damages that it may from time to time be

required to pay pursuant to Section 2(e) of the Registration Rights Agreement at the same time and in the same manner

as payments of interest as specified herein.

2. Method of Payment.

Subject to the terms and conditions of the Indenture, the Company will make payments in respect of the principal

of, premium, if any, and cash interest on this Note and in respect of Change of Control Purchase Price and any

applicable Make-Whole Premium to Holders who surrender Notes to a Paying Agent to collect such payments in

respect of the Notes. The Company will pay cash amounts in money of the United States that at the time of payment is

legal tender for payment of public and private debts. However, the Company may make such cash payments by check

payable in such money. A holder of Notes with an aggregate principal amount in excess of $3,000,000 will be paid by

wire transfer in immediately available funds at the election of such holder. Any payment required to be made on any day

that is not a Business Day will be made on the next succeeding Business Day.

3. Paying Agent, Conversion Agent and Note Registrar.

Initially, Wells Fargo Bank, National Association (the "Trustee"), will act as Paying Agent, Conversion Agent and

Note Registrar. The Company may appoint and change any Paying Agent, Conversion Agent, Note Registrar or coregistrar without notice, other than notice to the Trustee except that the Company will maintain at least one Paying Agent

in the State of New York, City of New York, Borough of Manhattan, which shall initially be an office or agency of the

Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent,

Note Registrar or co-registrar.
The Company issued the Notes under an Indenture dated as of January 20, 2005 (the "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 by reference to the Trust Indenture Act of 1939, as in effect from time to time (the "TIA"). Capitalized terms

used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all

such terms, and Noteholders are referred to the Indenture and the TIA for a statement of those terms.

The Notes are general unsecured obligations of the Company (except as provided in Paragraph 12 hereof)

limited to $65,000,000 aggregate principal amount or $81,250,000 aggregate principal amount if the Purchasers’

Option is exercised fully (subject to Section 2.08 of the Indenture). The Indenture does not limit other indebtedness of

the Company, secured or unsecured.

5. Redemption and Repurchase by the Company at the Option of the Holder.

Prior to January 20, 2010, the Notes shall not be redeemable at the Company’s option. At any time on or after

January 20, 2010 and prior to Stated Maturity, the Company, at its option, may redeem the Notes, in whole or in part, in

accordance with the Indenture on the Redemption Date for a Redemption Price in cash equal to 100% of the principal

amount of the Notes plus any accrued and unpaid interest and Liquidated Damages, if any, on the Notes redeemed to

but not including the Redemption Date.

If there shall have occurred a Change of Control (subject to certain conditions provided for in the Indenture),

each Holder, at such Holder’s option, shall have the right, in accordance with the provisions of the Indenture, to

require the Company to purchase its Notes (or any portion of the principal amount hereof that is at least $1,000 or

any whole multiple thereof, provided that the portion of the principal amount of this Note to be outstanding after such

purchase is at least equal to $1,000) at the Change of Control Purchase Price in cash or Common Stock, at the

Company’s option, plus any accrued and unpaid interest to but not including the Change of Control Purchase Date.
occurred a Change of Control pursuant to clause (ii) of the definition thereof, and a Holder surrenders its Notes for purchase, the Company

shall pay to such Holder a Make-Whole Premium in addition to the Change of Control Purchase Price. The Make-Whole Premium will also

be paid on the Change of Control Purchase Date to the Holders of the Notes who convert their Notes on or after the date on which the

Company has given a notice to all Holders of Notes in accordance with Section 3.05(d) of the Indenture and on or before the Change of

Control Purchase Date.

The Company may, in lieu of paying a Make-Whole Premium, elect to adjust the Conversion Rate and the related

conversion obligation such that from and after the effective date of such Public Acquirer Change of Control, Holders of

the Notes will be entitled to convert their Notes into a number of shares of Public Acquirer Common Stock by adjusting

the Conversion Rate in effect immediately before the Public Acquirer Change of Control as set forth in the Indenture.

A written notice of the Change of Control will be given to the Holders as provided in the Indenture. To exercise a

purchase right, a Holder must deliver to the Trustee a Change of Control Purchase Notice as provided in the Indenture.

Holders have the right to withdraw any Change of Control Purchase Notice by delivering to the Paying Agent a

written notice of withdrawal in accordance with the provisions of the Indenture.

6. Conversion.

Subject to the next two succeeding sentences, a Holder of a Note may convert it into Common Stock of the

Company at any time before the close of business on the final maturity date of the Note. A Note in respect of which a

Holder has delivered a Change of Control Purchase Notice exercising the option of such Holder to require the

Company to purchase such Note may be converted only if such notice of exercise is withdrawn in accordance with

the terms of the Indenture.

The initial Conversion Rate shall be initially equal to 199.2032 shares of Common Stock per $1,000 principal

amount of the Notes, subject to adjustment in certain events described in the Indenture, which is equal to an initial

Conversion Price of approximately $5.02 per share of Common Stock. The Company shall pay a cash adjustment as

provided in the Indenture in lieu of any fractional share of Common Stock.

If a Holder converts some or all of its Notes when there exists an Event (as defined in the Registration Rights

Agreement), such Holder shall receive additional shares of Common Stock upon conversion equal to 3% of the

Conversion Rate for each $1,000 principal amount of Notes.
Holder must (1) complete and manually sign the conversion notice below (or complete and manually sign a facsimile of such notice) and

deliver such notice to the Conversion Agent, (2) surrender the Note to the Conversion Agent, (3) furnish appropriate endorsements and

transfer documents if required by the Conversion Agent, the Company or the Trustee and (4) pay any transfer or similar tax, if required.

7. Denominations; Transfer; Exchange.

The Notes are in fully registered form, without coupons, in denominations of $1,000 of principal amount and

integral multiples of $1,000. A Holder may transfer or exchange Notes in accordance with the Indenture. The Note

Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and

to pay any taxes and fees required by law or permitted by the Indenture. The Note Registrar need not transfer or

exchange any Notes in respect of which a Change of Control Purchase Notice has been given and not withdrawn

(except, in the case of a Note to be purchased in part, the portion of the Note not to be purchased).

8. Persons Deemed Owners.

The registered Holder of this Note may be treated as the owner of this Note for all purposes.

9. Unclaimed Money or Notes.

The Trustee and the Paying Agent shall return to the Company upon written request any money or Notes held by

them for the payment of any amount with respect to the Notes that remains unclaimed for two years, subject to

applicable unclaimed property law. After return to the Company, Holders entitled to the money or Notes must look to

the Company for payment as general creditors unless an applicable abandoned property law designates another

person.

10. Amendment; Waiver.

Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the

written consent of the Holders of at least a majority in aggregate principal amount of the Notes at the time outstanding

and (ii) certain Defaults or Events of Default may be waived with the written consent of the Holders of a majority in

aggregate principal amount of the Notes at the time outstanding. Subject to certain exceptions set forth in the Indenture,

without the consent of any Noteholder, the Company and the Trustee may amend the Indenture or the Notes, among

other things, to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or

to make any change that does not adversely affect the rights of any Noteholder, or to comply with any requirement of

the SEC in connection with the qualification of the Indenture under the TIA.
Under the Indenture, Events of Default include (1) the Company fails to pay when due the principal of or

premium (including Make-Whole Premium), if any, on any of the Notes at maturity, upon exercise of a repurchase right

or otherwise; (2) the Company fails to pay an installment of interest (including Liquidated Damages, if any) on any of

the Notes that continues for 30 days after the date when due; (3) the Company fails to deliver shares of Common

Stock, together with cash in lieu of fractional shares and any Make-Whole Premium, when such Common Stock or

cash in lieu of fractional shares and any Make-Whole Premium is required to be delivered upon conversion of a Note

and such failure continues for 10 days after such required delivery date; (4) the Company fails to give notice regarding

a Change of Control within the time period specified in the Indenture; (5) the Company fails to perform or observe any

other term, covenant or agreement contained in the Notes or the Indenture for a period of 60 days after written notice of

such failure, requiring the Company to 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 then

outstanding; (6) (A) the Company or any Significant Subsidiary fails to make any payment by the end of the applicable

grace period, if any, after the final scheduled payment date for such payment with respect to any indebtedness for

borrowed money in an aggregate amount in excess of $5 million or (B) indebtedness for borrowed money of the

Company or any Significant Subsidiary in an aggregate amount in excess of $5 million shall have been accelerated or

otherwise declared due and payable, or required to be prepaid or repurchased (other than by regularly scheduled

required prepayment) prior to the scheduled maturity thereof as a result of a default with respect to such indebtedness

referred to in subclause (A) or (B) hereof, in either case without such having been discharged, cured, waived,

rescinded or annulled, for a period of 30 days after receipt by the Company of a Notice of Default and (7) certain

events of bankruptcy, insolvency or reorganization with respect to the Company or any Significant Subsidiary or any

Subsidiaries of the Company which in the aggregate would constitute a Significant Subsidiary. If an Event of Default

(other than an Event of Default specified in clause (7) above) occurs and is continuing, the Trustee, or the Holders of

at least 25% in aggregate principal amount of the Notes at the time outstanding, may declare all the Notes to be due and

payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes

becoming due and payable immediately upon the occurrence of such Events of Default.
enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it

receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Notes at

the time outstanding may direct the Trustee in its exercise of any trust or power. The Trustee shall, within 90 days of the occurrence of an

Event of Default, give notice of such Event of Default to the holders of the Notes, provided that the Trustee may withhold from Noteholders

notice of any continuing Default (except a Default in payment of amounts specified in clause (1) or (2) above) if it determines that withholding

notice is in their interests.

12. Trustee Dealings with the Company.

Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other

capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by

the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would

have if it were not Trustee.

13. No Recourse Against Others.

A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any

obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of

such obligations or their creation. By accepting a Note, each Noteholder waives and releases all such liability. The

waiver and release are part of the consideration for the issue of the Notes.

14. Authentication.

This Note shall not be valid until an authorized signatory of the Trustee or an Authenticating Agent manually

signs the Trustee’s Certificate of Authentication on the other side of this Note.

15. Abbreviations.

Customary abbreviations may be used in the name of a Noteholder 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 Gift to Minors Act).

16. GOVERNING LAW.

THE INDENTURE AND THIS NOTE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,

THE LAWS OF THE STATE OF NEW YORK.
to any Noteholder upon written request and without charge a copy of the Indenture which has in it the text of this Note in larger type.

Requests may be made to:

Endeavour International Corporation 

1000 Main, Suite 3300

Houston, Texas 77002
TO: ENDEAVOUR INTERNATIONAL CORPORATION

WELLS FARGO BANK, NATIONAL ASSOCIATION

The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or

the portion thereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of

Endeavour International Corporation in accordance with the terms of the Indenture referred to in this Note, and directs

that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional

shares and Make-Whole Premium, if any, and any Notes representing any unconverted principal amount hereof, be

issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any

portion of this Note not converted are to be issued in the name of a person other than the undersigned, the

undersigned will provide the appropriate information below and pay all transfer taxes payable with respect thereto. Any

amount required to be paid by the undersigned on account of interest accompanies this Note.

Dated: 

 

Signature(s)

Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the

requirements of the Note 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 Note Registrar in

addition to, or in substitution for, STAMP, all in accordance with the Securities

Exchange Act of 1934, as amended.

 

Signature Guarantee
of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder:

 

(Name)

 

(Street Address)

 

(City, State and Zip Code)

 

Please print name and address

Principal amount to be converted 

(if less than all):

$ 

Social Security or Other Taxpayer 

Identification Number:

Fill in the information below for any person to whom the check for the payment of fractional shares, if any, and

Make-Whole Premium, if any, is to be delivered if other than the registered holder:

 

(Name)

 

(Street Address)

 

(City, State and Zip Code)

 

Please print name and address

Social Security or Other Taxpayer 

Identification Number:
TO: ENDEAVOUR INTERNATIONAL CORPORATION

WELLS FARGO BANK, NATIONAL ASSOCIATION

The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from

Endeavour International Corporation (the "Company") as to the occurrence of a Change of Control with respect to the

Company and requests and instructs the Company to repay the entire principal amount of this Note (Certificate

No. ), or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with

the terms of the Indenture referred to in this Note to the registered holder hereof. If the Company has elected to pay the

Change of Control Purchase Price and, if applicable, the Make-Whole Premium, in Common Stock, the undersigned

hereby elects to receive the Change of Control Purchase Price in Common Stock.

Dated: 

 

 

Signature(s)

NOTICE: The above signatures of the holder(s) hereof must correspond with the name as

written upon the face of the Note in every particular without alteration or enlargement or any

change whatever.

Principal amount to be repaid (if less than all):

$ 

 

Social Security or Other

Taxpayer Identification Number
For value received hereby sell(s) assign(s) and transfer(s) unto (Please insert social security or other

Taxpayer Identification Number of assignee) the within Note, and hereby irrevocably constitutes and appoints

 attorney to transfer said Note on the books of the Company, with full power of substitution in the premises.

In connection with any transfer of the Note prior to the expiration of the holding period applicable to sales thereof

under Rule 144(k) under the Securities Act (or any successor provision) (other than any transfer pursuant to a

registration statement that has been declared effective under the Securities Act), the undersigned confirms that such

Note is being transferred:

• To Endeavour International Corporation or a subsidiary thereof; or

• Inside the United States pursuant to and in compliance with Rule 144A under the Securities

Act of 1933, as amended; or

• Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended;

and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an

"affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate").
transferee is an Affiliate of the Company.

Dated: 

 

 

Signature(s)

Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the

requirements of the Note 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 Note Registrar in addition

to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of

1934, as amended.

 

Signature Guarantee

NOTICE: The signature of the conversion notice, the Change of Control Purchase Notice or the assignment must

correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or

any change whatever.
ENDEAVOUR INTERNATIONAL CORPORATION

6.00% Convertible Senior Notes Due 2012

No:

Date Principal Amount Notation Explaining

Principal Amount

Recorded

Authorized

Signature of

Trustee
Transfer Certificate

In connection with any transfer of any of the Notes within the period prior to the expiration of the holding period

applicable to the sales thereof under Rule 144(k) under the Securities Act of 1933, as amended (the "Securities Act")

(or any successor provision), the undersigned registered owner of this Note hereby certifies with respect to

$ principal amount of the above-captioned Notes presented or surrendered on the date hereof (the "Surrendered

Notes") for registration of transfer, or for exchange or conversion where the Notes issuable upon such exchange or

conversion are to be registered in a name other than that of the undersigned registered owner (each such transaction

being a "transfer"), that such transfer complies with the restrictive legend set forth on the face of the Surrendered

Notes for the reason checked below:

• 

• 

• 

• 

A transfer of the Surrendered Notes is made to the Company or

any subsidiaries; or

The transfer of the Surrendered Notes complies with Rule 144A

under the U.S. Securities Act of 1933, as amended (the

"Securities Act"); or

The transfer of the Surrendered Notes is pursuant to an

effective registration statement under the Securities Act, or

The transfer of the Surrendered Notes is pursuant to another

available exemption from the registration requirement of the

Securities Act.

and unless the box below is checked, the undersigned confirms that, to the undersigned’s knowledge, such Notes are

not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act (an "Affiliate").

• The transferee is an Affiliate of the Company.

DATE: 

Signature(s)

(If the registered owner is a corporation, partnership or

fiduciary, the title of the Person signing on behalf of

such registered owner must be stated.
Exhibit 21.1

SUBSIDIARIES

Name: Jurisdiction of Organization

1. Endeavour Operating Corporation,

formerly NSNV, Inc. Delaware

2. Endeavour Energy UK Limited England and Wales

3. Endeavour Energy Norge AS Norway

4. Endeavour Norge AS Norway

5. PHT Partners, L.P. Delaware

6. PHT Holding GP, LLC Texas
Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Endeavour International Corporation:

We consent to the incorporation by reference in the registration statements (No. 333-119577 and No. 333-118503) on Form S-8 and Form S-3 of Endeavour

International Corporation of our reports dated March 7, 2005, with respect to the consolidated balance sheet of Endeavour International Corporation as of

December 31, 2004, and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year ended December 31, 2004,

management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 and the effectiveness of internal control over

financial reporting as of December 31, 2004, which reports appear in the December 31, 2004 annual report on Form 10-K of Endeavour International

Corporation .

Our report dated March 7, 2005, on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal

control over financial reporting as of December 31, 2004, contains an explanatory paragraph that states that management excluded from its assessment of the

effectiveness of Endeavour International Corporation’s internal control over financial reporting as of December 31, 2004, OER oil AS’s internal control over

financial reporting associated with total assets of $63.3 million and total revenues $3.7 million as of and for the year ended December 31. 2004.

/s/ KPMG LLP

Houston, Texas

March 7, 2005
EXHIBIT 23.2

INDEPENDENT AUDITORS’ CONSENT

 We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 filed on 9/20/04 (No. 333-118503) and

Form S-8 filed on 10/7/04 (No. 333-119577) of our report dated March 16, 2004 (Except for Note 2, as to which the date is June 15, 2004) which appears on

page 33 of the 2004 Form 10-K Annual Report.

/s/ L J SOLDINGER ASSOCIATES LLC 

LJ Soldinger Associates LLC 

Deer Park, Illinois, USA

March 10, 2005
EXHIBIT 23.3

CONSENT OF INDEPENDENT RESERVOIR ENGINEERS

We hereby consent to the inclusion in the Endeavour International Corporation Form 10-K for the year ended December 31, 2004, and the incorporation by

reference in Registration Statement number No. 333-119577 of Endeavour International Corporation on Form S-8 and number 333-118503 of Endeavour

International Corporation on Form S-3 of the reference to Gaffney, Cline & Associates Ltd.

Bentley, Surrey, England

March 9, 2005

Gaffney, Cline & Associates Ltd.

 

William B. Cline, PE

Director
Exhibit 31.1

CERTIFICATIONS

I, William L. Transier, certify that:

1. I have reviewed this annual report on Form 10-K of Endeavour International Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements

made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial

condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange

Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant

and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to

ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,

particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our

supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external

purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness

of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal

quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the

registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely

to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over

financial reporting.

Date: March 11, 2005

/s/ William L. Transier 

William L. Transier, Co-Chief Executive Officer 
Exhibit 31.2

CERTIFICATIONS

I, John N. Seitz, certify that:

1. I have reviewed this annual report on Form 10-K of Endeavour International Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements

made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial

condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange

Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant

and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to

ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,

particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our

supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external

purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness

of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal

quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the

registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely

to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over

financial reporting.

Date: March 11, 2005

/s/ John N. Seitz 

John N. Seitz, Co-Chief Executive Officer 
Exhibit 31.3

CERTIFICATIONS

I, Robert L. Thompson, certify that:

1. I have reviewed this annual report on Form 10-K of Endeavour International Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements

made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial

condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange

Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant

and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to

ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,

particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our

supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external

purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness

of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal

quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the

registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely

to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over

financial reporting.

Date: March 11, 2005

/s/ Robert L. Thompson 

Robert L. Thompson, Chief Accounting Officer 
Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 In connection with the Annual Report of Endeavour International Corporation (the “Company”) on Form 10-K for the annual period ended December 31,

2004 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, William L. Transier, Co-Chief Executive Officer of the

Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William L. Transier 

William L. Transier 

Co-Chief Executive Officer 

March 11, 2005

 A signed original of this written statement required by Section 906 has been provided to Endeavour International Corporation and will be retained by

Endeavour International Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 In connection with the Annual Report of Endeavour International Corporation (the “Company”) on Form 10-K for the annual period ended December 31,

2004 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, John N. Seitz, Co-Chief Executive Officer of the Company,

certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John N. Seitz 

John N. Seitz 

Co-Chief Executive Officer 

March 11, 2005

 A signed original of this written statement required by Section 906 has been provided to Endeavour International Corporation and will be retained by

Endeavour International Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 In connection with the Annual Report of Endeavour International Corporation (the “Company”) on Form 10-K for the annual period ended December 31,

2004 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Robert L. Thompson, Chief Accounting Officer of the

Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert L. Thompson 

Robert L. Thompson 

Chief Accounting Officer 

March 11, 2005

 A signed original of this written statement required by Section 906 has been provided to Endeavour International Corporation and will be retained by

Endeavour International Corporation and furnished to the Securities and Exchange Commission or its staff upon request.