<PAGE>

                                                                    Exhibit 10.7



                               LICENSE AGREEMENT

     LICENSE AGREEMENT (the "Agreement") made as of this 26th day of October,
2004 (the "Effective Date") by and between Dresser, Inc. ("Dresser") and
Dresser-Rand Group Inc. ("Dresser-Rand"). (Dresser and Dresser-Rand each
referred to herein as a "Party" and collectively as the "Parties.")

     WHEREAS, Dresser is the owner of the "Dresser" name and mark (the "Dresser
Name");

     WHEREAS, Dresser-Rand has been previously licensed to use the Dresser Name
solely as part of the combined name and mark "Dresser-Rand", and formatives and
derivatives thereof (collectively, the "Dresser-Rand Name"); and

     WHEREAS, the Parties wish to confirm their agreement that Dresser-Rand may
continue to use the Dresser-Rand Name in connection with those types of products
and services that it offers as of the Effective Date and on new products and
services that are natural extensions of those business lines (the "Dresser-Rand
Business Lines"), pursuant to the terms and subject to the conditions set forth
in this Agreement.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Dresser and Dresser-Rand hereby
agree as follows:

     1.  GRANT OF LICENSE.  Dresser grants to Dresser-Rand a world-wide,
limited, nonexclusive (except as set forth in this Section 1 with respect to the
combined name "Dresser-Rand"), terminable (solely as set forth in Section 5)
license ("LICENSE") to use as a part of any trade name, corporate name, domain
name (or similar or successor system), trademark or service mark, the Dresser
Name solely as part of the combined name and mark "Dresser-Rand" in connection
with the Dresser-Rand Business Lines and to use in a like manner the formatives
and derivatives of Dresser-Rand also solely in connection with the Dresser-Rand
Business Lines. Notwithstanding the foregoing sentence, the License is exclusive
(even as to Licensor) with respect to the use of the Dresser Name as a part of
the combined name and mark "Dresser-Rand" and formatives and derivatives
thereto. Dresser-Rand accepts the License subject to all of the terms and
conditions herein. All rights owned or held by Dresser but not expressly granted
to Dresser-Rand hereunder with respect to the Dresser Name and all other
trademarks owned by Dresser are reserved to Dresser. Subject to the terms and
conditions herein set forth, the license granted to Dresser-Rand hereunder will
include the right of Dresser-Rand to grant sublicenses to use the Dresser Name
in connection with the Dresser-Rand Business Lines. For each such sublicensee,
Dresser-Rand must either (i) Control the sublicensee or (ii) by law, contract or
otherwise, be able to terminate the sublicensee's right to use the Dresser Name
should the sublicensee fail to adhere to the Standards and Quality or the other
applicable terms and conditions hereof. ("CONTROL" or any grammatical variations
thereof shall mean either the ownership, directly or indirectly, of more than
50% of the voting securities of a corporation or other entity or the power to
direct the management or policies of such corporation or other entity whether by
operation of law, by contract, or otherwise.) Any sublicense granted by
Dresser-Rand in violation of the foregoing sentence, without the express written
consent of Dresser, shall be void.

     2.  OWNERSHIP.  Dresser-Rand covenants and agrees that, as between the
Parties, (a) Dresser and not Dresser-Rand is the sole and exclusive owner of the
Dresser Name; (b)
<PAGE>
Dresser-Rand will do nothing inconsistent with such ownership of Dresser; (c)
all use of the Dresser Name by Dresser-Rand, and the goodwill associated
therewith, shall inure solely to the benefit of and be on behalf of Dresser; (d)
Dresser-Rand shall assist Dresser in recording this Agreement with appropriate
government authorities if Dresser requests such assistance; (e) nothing in this
Agreement shall give Dresser-Rand any right, title or interest in the Dresser
Name other than the right to use the Dresser Name in accordance with this
Agreement; (f) other than as set forth in this Section 2, Dresser-Rand will not
file any trademark application for registration of any of the Dresser Name or
any marks similar thereto without the express written permission of
Dresser, (g) Dresser-Rand shall not acquire and shall not claim any title
to the Dresser Name adverse to Dresser by virtue of the License or through
Dresser-Rand's use of the Dresser Name, and (h) Dresser-Rand shall not contest
the title of Dresser to the Dresser Name or contest the validity of the License.
Subject to the other terms of this Agreement, Dresser-Rand at its own expense
shall have the right to file and maintain in its own name trademark or service
mark registrations for the Dresser-Rand Name. As between the Parties, (a)
Dresser-Rand shall be the sole and exclusive owner of the combined Dresser-Rand
Name (but not the underlying Dresser Name) and all goodwill associated with such
combined mark (but not the Dresser Name); (b) except as specifically allowed
herein, Dresser will do nothing inconsistent with such ownership of
Dresser-Rand; (c) nothing in this agreement shall give Dresser the right to use
the Dresser-Rand Name; (d) as a part of its obligations under and subject to
Section 11, Dresser shall assist Dresser-Rand in registering the Dresser-Rand
Name; and (e) Dresser will not file any trademark application or registration of
any of the Dresser-Rand Name.

     3. QUALITY STANDARDS. Dresser-Rand shall conduct its business under the
Dresser-Rand Name at a level of quality that is not materially lower than that
maintained as of the Effective Date ("STANDARDS AND QUALITY"). Dresser-Rand
shall not take any action which causes, or is reasonably likely to cause,
material destruction, decrease, or diminution of the "Dresser" name or the
reputation or goodwill thereof. Dresser-Rand agrees to cooperate with Dresser in
facilitating Dresser's monitoring of such nature and quality, to permit
commercially reasonable inspections of Dresser-Rand's operation, and to supply
Dresser with specimens of the uses of the Dresser Name upon Dresser's reasonable
request.

     4. ROYALTY. During the first ten years from the Effective Date,
Dresser-Rand shall pay to Dresser a total of $5,000,000 as follows: Dresser-Rand
shall pay to Dresser $1,000,000 upon the execution of the Agreement and $444,445
within thirty (30) days of each of the nine (9) successive anniversaries of this
Agreement. Notwithstanding the foregoing, Dresser-Rand shall not have any
obligation to make any such payment for any such year following Dresser's or
Dresser-Rand's termination of this Agreement pursuant to Section 5. Dresser-Rand
shall have no obligation to make any royalty payments to Dresser under or in
connection with this Agreement other than as set forth in this Section 4. The
royalty payments set forth in this Section 4 may be prepaid by Dresser-Rand at
any time, and Dresser-Rand shall have no obligation to make future royalty
payments under this Section 4 to the extent such prepayment covers amounts
otherwise due hereunder.

     5. TERM. This Agreement shall remain in effect for the first ten (10) years
from the Effective Date, and if Dresser-Rand pays to Dresser a total of
$5,000,000 in royalties as set forth in Section 4, then this Agreement shall
remain in effect in perpetuity (subject to termination as set forth below in
this Section 5), provided, however, that in any jurisdiction which prohibits
such perpetual licenses the Agreement shall remain in effect for no less than 50
years (and provided further that as between the Parties, neither Party shall
challenge the validity of such perpetual grants in any jurisdiction).
Notwithstanding the foregoing, (i) Dresser-Rand may terminate this Agreement at
any time in its discretion by providing written notice to Dresser, and (ii)
Dresser


                                       2
<PAGE>
may terminate this Agreement in the event that Dresser-Rand materially breaches
Sections 2, 3 or 4 of this Agreement and fails to remedy such default within
sixty (60) days after receiving written notice of such default from Dresser
(other than a royalty default under Section 4, which must be cured by
Dresser-Rand within seven (7) days of receipt of such written notice and may be
cured only upon payment by Dresser-Rand to Dresser of the amount due plus a
$25,000 late fee), subject to Dresser-Rand's right to phase out use of the
Dresser Name portion of the Dresser-Rand Name as soon as reasonably practicable
following such termination but in any event within six (6) months following
such termination. In the event of any expiration or termination of this
Agreement: (a) the provisions of Section 10 shall survive such termination and
(b) Dresser-Rand shall (i) within the previously specified period (i.e., within
six (6) months) discontinue all use of the Dresser Name and any mark, term, or
name confusingly similar thereto and delete the same from its corporate or
business name, and (ii) at Dresser's request, cooperate with Dresser to apply
to the appropriate authorities to cancel recording of this Agreement from all
government records. Dresser-Rand further agrees that in the event of any
expiration or termination of this Agreement, all right in the Dresser Name and
the goodwill connected therewith shall remain the property of Dresser.

     6.   ENFORCEMENT. Dresser-Rand shall promptly notify Dresser in writing
should it become aware of activity by a third party that reasonably would be
construed to constitute an infringement of the Dresser Name. Dresser shall
promptly notify Dresser-Rand in writing should it become aware of activity by a
third party that reasonably would be construed to constitute an infringement of
the Dresser-Rand Name. Dresser shall have the sole initial right to take, and
to determine whether or not to take, at Dresser's expense, any action(s) it
deems appropriate with respect to any such infringement, and Dresser-Rand shall,
at Dresser's expense, reasonably cooperate with Dresser in connection with any
such action. If Dresser declines or otherwise fails to take action sufficient
to prevent or terminate a particular infringement of the Dresser-Rand Name,
then Dresser-Rand may undertake, at Dresser Rand's expense, such action, and
Dresser shall, at Dresser-Rand's expense, reasonably cooperate with
Dresser-Rand in connection with any such action. All recovery in the form of
monetary damages or settlement shall belong to the Party principally bearing
the expense of bringing such claim or suit to the extent of the expense
incurred by such Party and then shall be apportioned equitably to the Parties
according to whether the damages were suffered by the Dresser Name or the
Dresser-Rand Name, respectively.

     7.   BUSINESS LINES. Dresser-Rand may use the Dresser-Rand Name on its
current products and services and on new products and services that are logical
extensions of those business lines (its "Existing Business"). Likewise, Dresser
may use the Dresser Name on its current products and services and on new
products and services that are logical extensions of those business lines (its
"Existing Business"). Dresser-Rand shall not expand beyond its Existing Business
under the Dresser-Rand Name into products or services which are directly and
materially competitive with the Dresser as of the Effective Date or such
products and services that are natural extensions thereof (the "Dresser Business
Lines"), and Dresser shall not expand beyond its Existing Business under the
Dresser Name into products or services which are directly and materially
competitive with the Dresser-Rand Business Lines. Either Dresser or Dresser-Rand
may expand its respective business lines under the Dresser Name or Dresser-Rand
Name, respectively, by entering into or acquiring a business that involves
products and services that are not in either the Dresser-Rand Business Lines or
the Dresser Business Lines (a "New Business"). If Dresser or Dresser-Rand first
enter into a New Business in a bona fide manner (e.g., substantially,
materially, in good faith, etc.), such New Business shall automatically be
deemed incorporated into the Dresser Business Lines (if Dresser enters such New
Business prior to Dresser-Rand) or the Dresser-Rand Business Lines (if
Dresser-Rand enters such New Business prior to Dresser) for all purposes under
this Agreement for so long as such

                                       3
<PAGE>
Party engages in such New Business in a bona fide manner. This Section is
intended to affect only the names and marks that the Parties use in conducting
their respective businesses, but not to otherwise affect the scope of each
Party's permissible activities.

     8. DR NAME. The Parties acknowledge that nothing in this Agreement shall
restrict or control the right of Dresser-Rand to use and register the name and
mark "DR" or any derivation thereof in any manner, and that, as between the
Parties, Dresser-Rand is the sole and exclusive owner of such name and mark.

     9. DISCLAIMERS. Dresser represents and warrants that: (i) the Dresser Name
is the subject of a number of United States and foreign trademark registrations
for a variety of goods and services; (ii) it has not granted and to its actual
knowledge its predecessors-in-interest and affiliates have not granted, any,
licenses or other rights in contravention of the License granted by it herein;
and (iii) it has no actual knowledge of any threats, claims or actions, or basis
for any such claims, alleging a violation of a third party's rights based solely
on the use of the term Dresser as a part of the combined name Dresser-Rand.
Dresser has not made, and does not make, any representations or warranties of
any kind, express or implied, with respect Dresser-Rand's right or ability to
use the Dresser-Rand Name. Except as set forth above, Dresser specifically
excludes and disclaims all warranties, including any warranties of
merchantability or fitness for any particular purpose or use with respect to the
Dresser Name, as licensed herein.

10. INDEMNITY.

     (a) DRESSER AGREES TO INDEMNIFY, HOLD HARMLESS AND DEFEND DRESSER-RAND AND
         ITS RESPECTIVE PARTNERS, OFFICERS, EMPLOYEES, AGENTS AND OTHER
         REPRESENTATIVES FROM AND AGAINST ANY AND ALL SUITS, DEMANDS, OR CLAIMS
         AND ALL COSTS, LOSSES, LIABILITIES, EXPENSES, SETTLEMENTS (WHETHER
         VOLUNTARY OR OTHERWISE) AND JUDGMENTS INCURRED IN CONNECTION THEREWITH,
         INCLUDING ATTORNEY'S FEES AND COURT COSTS (SUCH FEES AND COURT COSTS
         EITHER HAVING BEEN INCURRED IN DEFENSE OF SUCH CLAIMS, DEMANDS OR SUITS
         OR OTHERWISE), FOR ANY BREACH OF THE REPRESENTATIONS AND WARRANTIES SET
         FORTH IN SECTION 9.

     (b) DRESSER-RAND ACKNOWLEDGES AND AGREES THAT IT WILL HAVE NO CLAIM AGAINST
         DRESSER FOR ANY DAMAGE TO PROPERTY OR INJURY TO PERSONS ARISING OUT OF
         THE OPERATION OF DRESSER-RAND'S BUSINESS.

     (c) DRESSER-RAND AGREES TO INDEMNIFY, HOLD HARMLESS AND DEFEND DRESSER AND
         ITS RESPECTIVE PARTNERS, OFFICERS, EMPLOYEES, AGENTS AND OTHER
         REPRESENTATIVES FROM AND AGAINST ANY AND ALL SUITS, DEMANDS, OR CLAIMS
         AND ALL COSTS, LOSSES, LIABILITIES, EXPENSES, SETTLEMENTS (WHETHER
         VOLUNTARY OR OTHERWISE) AND JUDGMENTS INCURRED IN CONNECTION THEREWITH,
         INCLUDING ATTORNEY'S FEES AND COURT COSTS (SUCH FEES AND COURT COSTS
         EITHER HAVING BEEN INCURRED IN DEFENSE OF SUCH CLAIMS, DEMANDS OR SUITS
         OR OTHERWISE), INCLUDING


                                        4
<PAGE>
          WITHOUT LIMITATION ALL CLAIMS, DEMANDS AND SUITS FOR DAMAGES OR
          INJURIES, INCLUDING DEATH, TO ANY AND ALL PERSONS OR PROPERTY, WHETHER
          REAL OR ASSERTED AND WHETHER ARISING IN EQUITY, AT COMMON LAW, OR BY
          STATUTE, OR UNDER THE LAW OF CONTRACTS, TORTS (INCLUDING WITHOUT
          LIMITATION, NEGLIGENCE AND STRICT LIABILITY WITHOUT REGARD TO FAULT)
          OR PROPERTY, OF EVERY KIND OR CHARACTER, AND WHETHER OR NOT DUE IN
          WHOLE OR IN PART TO DRESSER'S SOLE OR CONCURRENT NEGLIGENCE OR OTHER
          FAULT, BREACH OF CONTRACT OR WARRANTY, OR STRICT LIABILITY WITHOUT
          REGARD TO FAULT, BASED UPON, IN CONNECTION WITH, RESULTING FROM OR
          ARISING OUT OF THIS AGREEMENT (OR THE CORRESPONDING PROVISIONS OF ANY
          SUBLICENSE BY ANY SUBLICENSEE) OR THE PROVIDING BY DRESSER-RAND OR ANY
          SUBLICENSEE OF GOODS OR SERVICES UNDER OR IN CONNECTION WITH THE
          DRESSER NAME.

(d)       DRESSER AGREES TO INDEMNIFY, HOLD HARMLESS AND DEFEND DRESSER-RAND AND
          ITS RESPECTIVE PARTNERS, OFFICERS, EMPLOYEES, AGENTS AND OTHER
          REPRESENTATIVES FROM AND AGAINST ANY AND ALL SUITS, DEMANDS, OR CLAIMS
          AND ALL COSTS, LOSSES, LIABILITIES, EXPENSES, SETTLEMENTS (WHETHER
          VOLUNTARY OR OTHERWISE) AND JUDGMENTS INCURRED IN CONNECTION
          THEREWITH, INCLUDING ATTORNEY'S FEES AND COURT COSTS (SUCH FEES AND
          COURT COSTS EITHER HAVING BEEN INCURRED IN DEFENSE OF SUCH CLAIMS,
          DEMANDS OR SUITS OR OTHERWISE), INCLUDING WITHOUT LIMITATION ALL
          CLAIMS, DEMANDS AND SUITS FOR DAMAGES OR INJURIES, INCLUDING DEATH, TO
          ANY AND ALL PERSONS OR PROPERTY, WHETHER REAL OR ASSERTED AND WHETHER
          ARISING IN EQUITY, AT COMMON LAW, OR BY STATUTE, OR UNDER THE LAW OF
          CONTRACTS, TORTS (INCLUDING WITHOUT LIMITATION, NEGLIGENCE AND STRICT
          LIABILITY WITHOUT REGARD TO FAULT) OR PROPERTY, OF EVERY KIND OR
          CHARACTER, AND WHETHER OR NOT DUE IN WHOLE OR IN PART TO DRESSER'S
          SOLE OR CONCURRENT NEGLIGENCE OR OTHER FAULT, BREACH OF CONTRACT OR
          WARRANTY, OR STRICT LIABILITY WITHOUT REGARD TO FAULT, BASED UPON, IN
          CONNECTION WITH, RESULTING FROM OR ARISING OUT OF THIS AGREEMENT OR
          THE PROVIDING BY DRESSER OF GOODS OR SERVICES UNDER OR IN CONNECTION
          WITH THE DRESSER NAME.

(e)       DRESSER-RAND'S AND DRESSER'S RESPECTIVE CONTRACTUAL OBLIGATION OF
          INDEMNIFICATION SHALL EXTEND TO ALL CLAIMS, DEMANDS, AND CAUSES OF
          ACTION ALLEGING ACTS OF NEGLIGENCE, FAULT, OR CONTRIBUTORY NEGLIGENCE
          ON THE PART OF THE OTHER PARTY; PROVIDED, HOWEVER, EACH PARTY'S
          CONTRACTUAL OBLIGATION OF INDEMNIFICATION HEREUNDER SHALL NOT EXTEND
          TO ANY CONSEQUENCES OF


                                       5


<PAGE>
          THE OTHER PARTY'S NEGLIGENCE, ERROR, BREACH OF
          CONTRACT OR OMISSIONS.

     10.  SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of each of the Parties and their respective successors and
assigns.

     11.  FURTHER ASSURANCES. Each Party hereto shall from time to time, at the
request of the other Party, execute and deliver such other documents and take
such other actions as such other Party may reasonably request in order to more
effectively secure to the requesting Party the rights granted or reserved
herein, including, but not limited to, the filing of United States and foreign
trademark and trade name registrations to the Dresser Name and the Dresser-Rand
Name. To the extent there are expenses consequent to taking such actions, the
Party requesting such actions shall reimburse all reasonable out of pocket
expenses of the other Party in performing such actions.

     12.  INDEPENDENT CONTRACTOR. This Agreement shall not be deemed to create a
partnership or joint venture. Neither Party hereto shall have the right to
obligate or bind the other Party in any manner whatsoever, and nothing herein
contained shall give or is intended to give any rights of any kind to any third
persons.

     13.  WAIVER. The failure of either Party hereto to insist in any one or
more instances upon performance of any terms or conditions of this Agreement
will not be construed as a waiver of future performance of any such term,
covenant, or condition and the obligations of any Party with respect to such
term, covenant or condition will continue in full force and effect and either
Party may, within the time provided by applicable law, enforce any or all of
such rights.

     14.  NOTICES. Any notice required or permitted to be sent shall be in
writing and shall be sent by Federal Express or like courier delivery, or if
sent by facsimile, with a confirmation copy by mail. Notices shall be sent to
the Parties respective principal executive offices and addressed to the "General
Counsel". Notice shall be effective upon receipt.

     15.  ENTIRE AGREEMENT. This Agreement sets forth the entire agreement, and
supersedes all prior negotiations, understandings, and agreements, between the
Parties concerning the subject matter hereof. No amendment or modification of
this Agreement shall be made except by a writing that references this Agreement
and that is signed non-electronically by the Party to be bound thereby. This
Agreement may be executed in two or more counterparts, each of which will be
deemed an original, and all of which together will constitute one document.

     16.  SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable, such
determination shall not affect the validity or enforceability of any other part
or provision of this Agreement, and the invalid or unenforceable provision shall
be deemed modified to the least degree necessary to remedy such invalidity.

     17.  GOVERNING LAW. This Agreement shall be governed and interpreted in
accordance with the laws of the State of New York without regard to principles
of conflict of laws.

     18.  GOOD FAITH. Each Party agrees that, in its respective dealings with
the other Party under or in connection with the performance of this Agreement,
it shall act in good faith.


                                       6


<PAGE>
19.  DISPUTE RESOLUTION AND ARBITRATION.

(a)  The Parties will attempt in good faith to promptly resolve any Claim (as
     defined below). In the event of a Claim, the disputing Party shall give the
     other Party written notice of the Claim and if the Parties fail to resolve
     the Claim at the operational level within thirty (30) days of the receipt
     of such notice, each Party shall nominate a senior officer of its
     management to meet at a mutually agreed time and place not later than forty
     five (45) days after the notice of the Claim was received to attempt to
     resolve such Claim or disagreement. Should a resolution of such Claim or
     disagreement not be obtained within fifteen (15) days after the meeting of
     senior officers for such purpose (or in the event that a Party seeks to
     avoid the obligation to negotiate or in the event that a Party unilaterally
     and in breach of the Agreement initiates litigation or any other dispute
     resolution process), either Party may then, by notice to the other, seek to
     resolve the Claim in accordance with the provisions of this Section 19.

(b)  The Parties hereby agree to resolve by binding arbitration any and all
     claims, demands, actions, disputes, controversies, damages, losses,
     liabilities, judgments, payments of interest, penalties, enforcement of
     settlement agreements, deficiencies, any and all demands not yet matured
     into one of the foregoing, and other matters in question arising out of or
     relating to this Agreement, the alleged breach thereof, or in any way
     relating to the subject matter of this Agreement (each of which is referred
     to as a "CLAIM"), even though some or all of such Claims allegedly are
     extra-contractual in nature and even though some or all of such Claims
     sound in contract, tort or otherwise, at law or in equity, in accordance
     with Commercial Arbitration Rules (the Supplementary Procedures for Large,
     Complex Disputes, if applicable) of the American Arbitration Association
     (the "AAA") in effect at the time of the Claims, as modified by the
     procedures set forth in EXHIBIT A hereto. The Parties hereby acknowledge
     and agree that this Agreement and the obligations to be performed hereunder
     constitute interstate commerce.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.

Dresser, Inc.                              Dresser-Rand Group Inc.

By: /s/ James A. Nattier                   By: /s/ Vincent R. Volpe Jr.
   ------------------------------             ----------------------------

Print Name: James A. Nattier               Print Name: Vincent R. Volpe Jr.

Title: Executive VP & CFO                  Title: President & CEO

Date: 10/26/04                             Date: 10/26/04


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| APPROVED|
| BY  GHD |
|     --- |
| LEGAL   |
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                                       7


<PAGE>

                                   EXHIBIT A
                             ARBITRATION PROCEDURES

(1)  Number and Selection of Arbitrators. The arbitration shall be conducted by
     a single arbitrator except that, if the amount in controversy exceeds
     $1,000,000 or involves equitable relief, either Party may require, by
     notice given to the other, that the matter be heard by a panel of three
     arbitrators. If the claimant elects to require three arbitrators, the
     election must be set forth in the Notice and Demand for Arbitration. If the
     respondent elects to require three arbitrators, notice of the election must
     be provided to the claimant and the AAA within twenty one (21) days from
     the date the Notice and Demand for Arbitration is given. If neither Party
     so elects in the manner and within the time set forth above, the matter
     shall be heard by a single arbitrator. If there is to be a single
     arbitrator, the arbitrator shall be selected pursuant to the Commercial
     Arbitration Rules of the AAA. If there are to be three arbitrators, each
     Party shall have twenty one (21) days from the date the Notice and Demand
     for Arbitration is given to select an arbitrator and notify the AAA and the
     other Party of the selection. The Party-appointed arbitrators shall then
     select the third arbitrator, who shall act as chairperson of the panel. If
     the Party-appointed arbitrators fail to agree upon a third arbitrator
     within twenty one (21) days from the date the Notice and Demand for
     Arbitration is given, the third arbitrator shall be selected by the AAA.
     Any neutral arbitrator, whether appointed by the AAA or by the
     Party-appointed arbitrators, shall be licensed to practice law and shall
     have not less than 15 years of experience as an attorney or judge. In
     addition, the neutral arbitrator shall have experience with trademarks and
     complex business disputes. While the third arbitrator shall be neutral, the
     two Party-appointed arbitrators are not required to be neutral and it shall
     not be grounds for removal of either of the two Party-appointed arbitrators
     or for vacating the arbitrators' award that either of such arbitrators has
     past or present minimal relationships with the Party that appointed such
     arbitrator. Evident partiality on the part of an arbitrator exists only
     where the circumstances are such that a reasonable person would have to
     conclude there in fact existed actual bias and a mere appearance or
     impression of bias will not constitute evident partiality or otherwise
     disqualify an arbitrator. Minimal or trivial past or present relationships
     between the neutral arbitrator and the Party selecting such arbitrator or
     any of the other arbitrators, or the failure to disclose such minimal or
     trivial past or present relationships, will not by themselves constitute
     evident partiality or otherwise disqualify any arbitrator. Each arbitrator
     must agree in writing to his or her acceptance as an arbitrator to abide
     by the terms and conditions of this Agreement.

(2)  Location of Arbitration. The arbitration shall be conducted in Houston,
     Texas, at the office of the AAA or such other location agreed upon by the
     Parties.

(3)  Discovery. The Chair shall conduct discovery and resolve all discovery
     disputes. The Chair shall authorize such discovery as may be shown to be
     necessary to ensure a fair hearing; provided that, such discovery is
     completed within twenty (20) days of the date of the final hearing. Except
     as needed for presentation in lieu of a live appearance, each Party shall
     be limited to five (5) business days (9:00 a.m. to 5:00 p.m.) of
     depositions. This limitation shall apply to each separate arbitration that
     may be conducted pursuant to this Agreement. Discovery shall be conducted
     in accordance with the Federal Rules of Civil Procedure, except that:


                                       8
<PAGE>
          (i)       no deposition shall exceed eight (8) hours and all
                    depositions must be completed within one hundred twenty
                    (120) days from the date the Notice and Demand for
                    Arbitration is given.

          (ii)      there shall be no requests for admissions,

          (iii)     each Party shall be limited to no more than fifteen (15)
                    interrogatories, including subparts.

          (iv)      each Party shall be limited to no more than two document
                    requests, including subparts, and

          (v)       documentary discovery shall be limited to documents directly
                    relevant to the matter in dispute. All privileges under
                    state and federal law, including attorney-client, work
                    product, and party communication privileges, shall be
                    preserved and protected.

          (vi)      all experts engaged by a Party must be disclosed to the
                    other Party within sixty (60) days from the date the Notice
                    and Demand for Arbitration is given. All discovery requests
                    must be served within twenty (90) days from the date the
                    Notice and Demand for Arbitration is given. A Party shall
                    not be required to respond to discovery requests served on
                    the Party after that deadline.

(4)       Evidence. The arbitrators shall not be bound by the rules of evidence
          or of civil procedure, but rather may consider such writings and oral
          presentations as such arbitrator or the Parties may deem desirable or
          necessary. Prior to testifying, whether directly in the presence of
          the arbitrators or through  depositions, each witness shall be sworn
          to tell the truth, subject to the perjury laws of the state in which
          the Final Arbitration hearing is held.

(5)       Scope of Arbitrators' Powers. The arbitrators may award injunctive
          relief of any other legal or equitable remedy available from a court,
          including the joinder of Parties or consolidation of this arbitration
          with any other involving common issues of law or fact which may
          promote judicial economy.

(6)       Remedy. This dispute resolution procedure is intended to be the
          exclusive method of resolving any Claim.

(7)       Enforcement: Finality. Either Party may apply to the courts of the
          United States District Court for the Southern District of Texas, to
          enforce any portion of this arbitration agreement (as provided in 8
          U.S.C. (section) 3) or to enter judgment upon the award (as provided
          in 8 U.S.C. (section) 9). In addition, the award rendered by the
          arbitration shall be final and judgment thereon may be entered by any
          court having jurisdiction over the Party against whom enforcement is
          sought. Each Party agrees that this arbitration agreement and the
          decision and the award of the arbitrators shall be treated as final
          and binding without the right of appeal to the courts and as an
          absolute and final bar to any suit instituted in any federal, state or
          local court relating to the dispute, except as provided in the Federal
          Arbitration Act.

(8)       Arbitration Confidentiality. All aspects of an Arbitration conducted
          pursuant to this Agreement shall be and remain confidential and all
          participants shall be bound by





                                       9
<PAGE>
     judicially enforceable obligations of strict confidentiality except to the
     extent the Parties agree in writing to waive in whole or part such
     confidentiality.

(9)  Applicable Law. The enforcement of this agreement to arbitrate and all
     procedural aspects of this agreement to arbitrate, including, but not
     limited to, the construction and interpretation of this agreement to
     arbitrate, the scope of the arbitrable issues, allegations of waiver, delay
     or defenses as to arbitrarily, and the rules governing the conduct of the
     arbitration, shall be governed by and construed pursuant to the Federal
     Arbitration Act. In deciding the substance of any such claim, dispute or
     disagreement, the arbitrators shall apply the substantive laws of the State
     of New York; provided, however, that THE ARBITRATORS SHALL HAVE NO
     AUTHORITY TO AWARD PUNITIVE DAMAGES UNDER ANY CIRCUMSTANCES (WHETHER IT BE
     EXEMPLARY DAMAGES, TREBLE DAMAGES, OR ANY OTHER PENALTY OR PUNITIVE TYPE OF
     DAMAGES) REGARDLESS OF WHETHER SUCH DAMAGES MAY BE AVAILABLE UNDER NEW YORK
     LAW, THE PARTIES HEREBY WAIVING THEIR RIGHT, IF ANY, TO RECOVER AND SUCH
     PUNITIVE DAMAGES IN CONNECTION WITH ANY SUCH CLAIMS, DISPUTES OR
     DISAGREEMENTS REGARDLESS OF WHETHER SUCH CLAIM, DISPUTE OR DISAGREEMENT
     ARISES UNDER THE LAW OF CONTRACTS, TORTS (INCLUDING, WITHOUT LIMITATION,
     NEGLIGENCE OF EVERY KIND AND STRICT LIABILITY WITHOUT FAULT), OR PROPERTY,
     OR AT COMMON LAW OR IN EQUITY OR OTHERWISE AND REGARDLESS OF THE METHOD BY
     WHICH THE DISPUTE IS RESOLVED, (I.E., REGARDLESS OF WHETHER THE DISPUTE IS
     ARBITRATED, LITIGATED OR RESOLVED IN ANY OTHER FASHION). The arbitrators
     shall certify in their award that they have faithfully applied the terms
     and conditions of this Agreement and that no part of their award includes
     any amount for exemplary or punitive damages.

(10) Timing of Arbitration. The arbitration hearing shall be scheduled to be
     held no later than one hundred fifty (150) days after the date the Notice
     and Demand for Arbitration is given.

(5)  The Arbitrators' Award. The decision of the arbitrator, or a majority of
     the arbitrators, shall be reduced to writing and shall be delivered to the
     Parties no later than 15 days following the close of the arbitration
     hearing. Each Party shall bear the Party's own attorneys' fees and other
     costs and expenses incurred in connection with the arbitration, including
     without limitation the fees and expenses of the arbitrator to be appointed
     by such Party in the case of a three-arbitrator panel. The Parties shall
     share the other arbitrator's fees and any fees charged by the AAA equally.


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