Document:

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                                                                    EXHIBIT 10.4

                                                              ISIN XS 0159832053
                                                           Common Code 015983205
                                                      Swiss Security No. 1529917

     NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE ON CONVERSION OF
THIS NOTE (THE "SHARES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE
HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF THE COMPANY
THAT THIS NOTE AND THE SHARES MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED OR DISPOSED OF UNLESS THE NOTE OR THE SHARES AS THE CASE MAY BE, HAS
BEEN REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR
BLUE SKY LAWS OR EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS ARE
AVAILABLE.

     IF THE HOLDER OF THIS NOTE WAS AN AFFILIATE OF THE COMPANY AT ANY TIME
DURING THE THREE MONTHS PRECEDING THE DATE OF ANY SUCH TRANSFER, THE FOREGOING
CONDITIONS MUST BE COMPLIED WITH REGARDLESS OF WHEN SUCH TRANSFER IS MADE.

     ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE U.S. INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED
IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES INTERNAL REVENUE CODE OF
1986, AS AMENDED.

     THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY ANY AGENCY OF THE
UNITED STATES GOVERNMENT.

                            HARKEN ENERGY CORPORATION
                 7% SENIOR CONVERTIBLE NOTES DUE 2007, SERIES E

                                   GLOBAL NOTE

     Harken Energy Corporation, a Delaware corporation (hereinafter, the
"Company," which term includes any successor to the Company), for value
received, hereby promises to pay to The Bank of New York Depository (Nominees)
Limited, upon presentation and surrender of this Global Note (the "Global Note")
the principal sum of ONE MILLION FOUR HUNDRED TWENTY THOUSAND DOLLARS (U.S.
$1,420,000) (the "Principal Amount") on March 31, 2007, and to pay interest
thereon from and including January 28, 2003, semi-annually in arrears on
September 30 and March 31 in each year, commencing March 31, 2003 (each an
"Interest Payment Date"), at the rate of 7% per annum, calculated on the basis
of a 360-day year consisting of twelve 30-day months, until the principal hereof
is paid or payment thereof is duly provided for; provided, however, that the
Principal Amount payable upon presentation and surrender may be reduced from
time to time in connection with conversions, redemptions, purchases,
cancellations and similar events described in the Terms and Conditions hereof,
and such reductions shall be duly noted on Schedule A hereto (which is
incorporated herein by this reference as if set out in full); and provided
further that interest accruing after the date of a reduction in Principal Amount
shall be calculated with reference to the new Principal Amount. While the Notes
are

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registered in the name of the Common Depository, payments of interest on each
Note shall be paid by the Paying Agent on each Interest Payment Date, commencing
March 31, 2003, to the Holder of such Note as shown on the Note Register at the
close of business on the applicable Record Date, such payment to be made in
accordance with the rules and procedures of Euroclear or Clearstream, as the
case may be.

     Upon failure of the Company to make any payment of interest or principal on
the date when due and payable, the outstanding principal balance of the Notes
and, to the extent permitted by law, interest thereon will bear interest at the
Default Rate beginning on the date such payment was due until the default is
cured.

     Notwithstanding any other provision of the Notes to the contrary, in no
event shall the interest contracted for, charged or received in connection with
the Notes (including any other costs or considerations that constitute interest
under applicable law which are contracted for, charged or received pursuant to
the Notes) exceed the maximum rate of nonusurious interest allowed under
applicable law as presently in effect and to the extent an increase is allowable
by such laws, but in no event shall any amount ever be paid or payable greater
than the amount contracted for in the Notes, and all amounts paid by the Company
which constitute usurious interest under the applicable law shall be applied in
the manner described herein.

     To the extent permitted by law, interest contracted for, charged or
received on the Notes shall be allocated over the entire term of this the Notes,
to the end that interest paid on the Notes does not exceed the maximum amount
permitted to be paid thereon by law.

     The principal and interest on the definitive Notes shall be payable at the
office or agency of the Company maintained for such purpose in the City of
London and the City of New York, New York, or at such other office of agency of
the Company as may be maintained for such purpose.

     This Global Note has been issued pursuant to resolutions adopted by the
Board of Directors of the Company at a meeting held on November 2, 2002. This
Global Note is a permanent security and is exchangeable in whole for definitive
Notes in bearer form, with interest coupons attached, upon the event specified
in the Terms and Conditions herein.

     Until transferred in full for the definitive Notes in certificated form,
this Global Note shall in all respects be ratably entitled to the same benefits
under, and subject to the same Terms and Conditions of the definitive Notes
authenticated and delivered hereunder.

     This Global Note, the definitive Notes, the Coupons, and the Terms and
Conditions shall be governed by and construed in accordance with the laws of the
State of New York.

     Unless the certificate of authentication hereon has been executed by the
Authenticating Agent by manual signature of one of its authorized signatories,
this Global Note shall not be entitled to any benefit under the Terms and
Conditions and shall not be valid or obligatory for any purpose.

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     IN WITNESS WHEREOF, the Company has caused this book-entry Note to be duly
executed in its corporate name by the manual or facsimile signatures of the
undersigned duly authorized officers of the Company.

Dated as of January 28, 2003.

                                       HARKEN ENERGY CORPORATION

                                       By:
                                          ------------------------------------
                                          Bruce N. Huff, President and
                                          Chief Operating Officer

[Corporate Seal]

ATTEST:

By:
   ---------------------------------------------------------------
   A. Wayne Hennecke, Senior Vice President-Finance and Secretary

                          CERTIFICATE OF AUTHENTICATION

     This Global Note is the Note referred to in the within mentioned Terms and
Conditions.

                                             THE BANK OF NEW YORK,
                                             Authenticating Agent

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

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                        TERMS AND CONDITIONS OF THE NOTES

     The U.S. $2,000,000 of 7% Senior Convertible Notes Due 2007, Series E (the
"Notes") of Harken Energy Corporation, a Delaware corporation (the "Company")
are constituted by, and authorized to be issued pursuant to these Terms and
Conditions and resolutions of the Board of Directors of the Company adopted at a
meeting held on November 2, 2002.

     Copies of a paying and conversion agency agreement dated as of January 28,
2003 (the "Agency Agreement"), made between the Company and The Bank of New
York, as paying and conversion agent (the "Paying Agent and "Conversion Agent,"
respectively, which expressions shall include any successors and assigns) are
available for inspection during normal business hours by the holders of the
Notes ("Noteholders") and the Couponholders at the specified office of the
Paying Agent. The Noteholders and the Couponholders are entitled to the benefit
of, are bound by, and are deemed to have notice of all the provisions of the
Agency Agreement.

     Certain terms not otherwise defined in the text hereof are defined in
Condition 19 herein.

1. Form, Denominations, and Title, and Certain Administrative Provisions

     (A) The Notes if issued in definitive bearer form will be serially
numbered, in denominations of U.S. $1,000 or multiples thereof (the "Authorized
Denomination"), each with Coupons attached on issue, and with such numerical and
other identification designation as the Company shall deem desirable.

     (B) Title to the Notes and to the Coupons in certificated form will pass by
delivery. The Company and the Paying Agent and Conversion Agent may (to the
fullest extent permitted by applicable laws) deem and treat the Holder of any
Note and the Holder of any Coupon as the absolute owner thereof for all purposes
(whether or not the Note or Coupon shall be overdue and notwithstanding any
notice to the contrary).

     Beneficial interests in the Notes will be represented by a global note (the
"Global Note"), without interest coupons, which will be deposited with a common
depository (the "Common Depository") and held on behalf of Morgan Guaranty Trust
Company of New York, as operator of the Euroclear System ("Euroclear"), and
Clearstream, societe anonyme ("Clearstream"), for credit to the accounts
designated by the Noteholders at Euroclear and Clearstream. Except as provided
herein, certificates will not be issued in exchange for beneficial interests in
this Global Note.

     (C) The Notes shall be executed on behalf of the Company by its President
and Chief Operating Offer under its corporate seal or a facsimile of such seal
reproduced thereon and attested by its Senior Vice President-Finance and
Secretary or an Assistant Secretary. The signature of any of these officers on
the Notes may be manual or facsimile signatures of the present or any future
such authorized officer and may be imprinted or otherwise reproduced on the
Notes.

     Notes bearing the manual or facsimile signatures of individuals who were at
any time 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 such Notes.

     At any time and from time to time hereafter, the Company may deliver Notes
executed by the Company to the Authenticating Agent for authentication, together
with a Company order for the authentication and delivery of such Notes, and the
Authenticating Agent in accordance with such Company order shall authenticate
and deliver such Notes. Such Company order shall specify the amount of Notes to
be authenticated and the date on which the original issue of Notes is to be
authenticated.

     The Global Note shall be dated as of the date of authentication.

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     No Note shall be entitled to any benefit hereunder or be valid or
obligatory for any purpose until the certificate of authentication substantially
in the form hereto is duly executed by the Authenticating Agent by the manual
signature of an authorized signatory of such Authentication Agent, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of these Terms and Conditions.

     In case the Company, pursuant to Conditions 3(B) and 3(C), shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its Properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have entered into an amendment
hereto, any of the Notes authenticated or delivered prior to such consolidation,
merger, conveyance, transfer, lease or other disposition may, from time to time,
at the request of the successor Person, be exchanged for other Notes executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Notes
surrendered for such exchange and of like principal amount; and the
Authenticating Agent, upon Company order of the successor Person, shall
authenticate and deliver Notes as specified in such request for the purpose of
such exchange.

     (D) If the Common Depository referred to in Condition 1(F) notifies the
Company that it is unwilling or unable to continue as Common Depository for this
Global Note, the Company shall use its best efforts to identify and appoint a
successor depository within 90 days of such notice. Pending the preparation of
definitive Notes, if required herein, the Company may execute, and upon Company
order the Authenticating Agent shall authenticate and deliver, temporary Notes
which are printed, lithographed, typewritten, mimeographed or otherwise produced
and in the 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 required to be issued pursuant to these Conditions,
the Company will cause definitive Notes to be prepared thereafter 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 without
charge to the Noteholder. Upon surrender for cancellation of any one or more
temporary Notes, the Company shall execute and the Authenticating Agent shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Notes of the Authorized Denomination or multiples thereof. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under these Terms and Conditions as the definitive Notes.

     (E) Upon surrender for exchange of any Note at the office or agency of the
Company designated pursuant to these Conditions, the Company shall execute, and
the Authenticating Agent shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of the Authorized
Denomination or denominations of a like aggregate principal amount.

     Furthermore, any Holder of this Global Note, by acceptance of this Global
Note, agrees that transfers of beneficial interest in such Global Note may be
effected only through a book-entry system maintained by the Holder of the Global
Note (or its agent), and that ownership of a beneficial interest in this Global
Note shall be required to be reflected by way of book entry.

     All Notes issued upon any exchange of Notes shall be the valid obligations
of the Company, evidencing the same debt, and entitled to the same benefits
hereunder, as the Notes surrendered upon such exchange.

     Every Note presented or surrendered for exchange shall (if so required by
the Company) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company, duly executed by the Noteholder
thereof or such Noteholder's attorney duly authorized in writing.

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     Except as otherwise provided herein, no service charge shall be made for
any exchange, conversion or redemption of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any exchange of Notes.

     The Company shall not be required (i) to issue or exchange any Note during
a period beginning at the opening of business 15 days before the selection of
Notes to be redeemed hereunder and ending at the close of business on the day of
such mailing of the relevant notice of redemption, (ii) to exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part, or (iii) to register the transfer of or
exchange of any Note during a period beginning five days before the date of
Maturity and ending on such date of Maturity.

     (F) (1) This Global Note shall be delivered to the Common Depository.
Members of, or participants in, Euroclear and Clearstream ("Agent Members")
shall have no direct rights hereunder with respect to any Global Note held on
their behalf by the Common Depository, or under such Global Note. The Common
Depository may be treated by the Company, and any agent of the Company, as the
absolute owner of such Global Note for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company or any agent of the
Company from giving effect to any written certification, proxy or other
authorization furnished by the Common Depository or shall impair, as between the
Common Depository and the Agent Members, the operation of customary practices
governing the exercise of the rights of a Noteholder.

     (2) Transfers of the Global Note shall be limited to transfers of the
Global Note in whole, but not in part, to the Common Depository, its successors
or their respective nominees. Interests of beneficial owners in the Global Note
may be transferred in accordance with the rules and procedures of the Common
Depository, Euroclear, Clearstream, and the provisions hereof. Definitive Notes
in bearer form shall be transferred to all beneficial holders in exchange for
their beneficial interests in the Global Note in accordance with the Common
Depository's procedures only if the Common Depository notifies the Company that
it is unwilling or unable to continue as Common Depository for the Global Note
and a successor depository is not appointed by the Company within 90 days of
such notice, or an Event of Default has occurred and is continuing and the
Company has received a request from any owner of a beneficial interest in the
Global Note for such a transfer or the Common Depository.

     (3) In connection with any transfer of beneficial interests in this Global
Note to beneficial owners pursuant to subsection (2) of this Condition, the
Common Depository shall reflect on its books and records the date and a decrease
in the Principal Amount of this Global Note in an amount equal to the principal
amount of the beneficial interests in this Global Note to be transferred, and
the Company shall execute, and the Authenticating Agent shall authenticate and
deliver, one or more definitive Notes in bearer form of like tenor and amount.

     (4) In connection with the transfer of the beneficial interests in the
entire Global Note to beneficial owners pursuant to subsection (2) of this
Condition, this Global Note shall be deemed to be surrendered to the Conversion
and Paying Agent for cancellation, and the Company shall execute, and the
Authenticating Agent shall authenticate and deliver, to each beneficial owner
identified by the Common Depository, in exchange for its beneficial interest in
this Global Note, an equal aggregate principal amount of definitive Notes in
bearer form.

     (5) Any definitive Note in bearer form delivered in exchange for an
interest in this Global Note pursuant to subsection (2) or subsection (3) of
this Condition shall bear the applicable legend regarding transfer restrictions
applicable to the bearer Note as counsel to the Company shall advise the
Company.

     (6) The Holder of this Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Noteholder is
entitled to take under these Terms and Conditions.

     (7) Any definitive Note in bearer form delivered in exchange for an
interest in this Global Note pursuant to subsection (2) or (3) of this Condition
will prior to delivery to the Noteholder have all matured

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Coupons as of such delivery date, which are attached to such bearer Note,
cancelled and voided by the Authenticating Agent.

     (8) Nothing contained herein shall be deemed to authorize any transfers (by
book-entry or otherwise) of this Global Note otherwise than in accordance with
the Securities Act. Unless otherwise required by applicable law, neither the
Company nor the Common Depository shall recognize or give effect to any attempt
to transfer (by book entry or otherwise) or convert any Note or any interest
therein in violation of the Securities Act.

     (G) The Noteholders by acceptance of the Notes hereby covenant and agree
that neither the Notes nor the Conversion Shares will be offered, sold,
transferred, pledged, converted or otherwise disposed of unless the Notes and/
or the Conversion Shares have been registered under the Securities Act or any
applicable state securities or blue sky laws or exemptions from the registration
requirements of such laws are available.

     (H) If (i) any mutilated Note or Coupon is surrendered to the
Authenticating Agent, or (ii) the Company and the Authentication Agent receive
evidence to their satisfaction of the destruction, loss or theft of any Note or
Coupon, and there is delivered to the Company and the Authenticating Agent such
security and/or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Authenticating
Agent that such Note or Coupon has been acquired by a bona fide purchaser, the
Company shall execute and upon Company order the Authenticating Agent shall
authenticate and deliver, in exchange for any such mutilated Note or Coupon or
in lieu of any such destroyed, lost or stolen Note or Coupon, a new Note or
Coupon of like tenor and principal amount, bearing a number not
contemporaneously Outstanding.

     In case any such mutilated, destroyed, lost or stolen Note or Coupon has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note or Coupon, pay such Note or Coupon, as the case
may be.

     Upon the issuance of any new Note or Coupon under this Section, 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 Authenticating Agent) connected
therewith.

     Every new Note or Coupon issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note or Coupon shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note or Coupon shall be at any time enforceable by anyone, and shall be
entitled to all benefits hereunder equally and proportionately with any and all
other Notes or Coupons duly issued hereunder.

     The provisions of this Condition 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 Note or Coupon.

     Any new Note issued under this Condition 1(H) in lieu of any destroyed,
lost or stolen Note shall be issued by the Authenticating Agent with all matured
Coupons as of such date of issuance cancelled or voided.

2. Status

     The Notes and any Coupons are direct, unconditional and unsecured
obligations of the Company and will rank pari passu, without any preference
among themselves. The Notes and any Coupons will rank senior to all Subordinated
Obligations of the Company, present and future, but, in the event of bankruptcy
or insolvency of the Company, only to the extent permitted by the applicable
laws relating to creditors' rights. The Notes will not be secured by any assets
or property of the Company. The Notes and any Coupons will rank pari passu with
all other present and future Indebtedness of the Company (including the
Company's 5.0% Senior Notes due 2003) other than Subordinated Obligations. The
Notes will rank senior to all existing and future Subordinated Obligations.

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3. Covenants

     (A) The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights
(charter and statutory) and franchises of the Company; provided, however, that
the Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer in
the best interests of the Company and the conduct of its business, and that the
loss thereof is not disadvantageous in any material respect to the Noteholders;
and provided, further, that nothing contained in this Condition 3(A) shall
prohibit any transaction permitted by Condition 3(B) or Condition 3(C) herein.

     (B) The Company will not merge or consolidate with or sell, convey,
transfer or lease or otherwise dispose of all, or substantially all of its
Properties and assets substantially as an entirety to any Person, unless: (a)
either (i) the Company shall be the surviving Person or (ii) the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or the Person which acquired by conveyance or transfer, or which
leases, the Properties and assets of the Company substantially as an entirety
(1) shall be a Person organized and validly existing under the laws of the
United States of America, any state thereof or the District of Columbia and (2)
shall expressly assume, by a written instrument, the Company's obligation for
the due and punctual payment of the principal of and interest on all the Notes
and the performance and observance of every Term and Condition contained herein
and in the Agency Agreement.

     (C) Upon any consolidation of the Company with or merger of the Company
with or into any other Person or any conveyance, transfer or lease of the
Properties and assets of the Company substantially as an entirety to any person,
the successor Person formed by such consolidation or into which the Company is
merged or 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 the Terms and Conditions contained herein with the same effect as if such
successor Person had been named as the Company herein, and in the event of any
such conveyance or transfer, the Company, except in the case of a lease, shall
be discharged of all obligations and covenants under the Notes and may be
dissolved and liquidated.

     (D) The Company will maintain in at least one European city an office or
agency where Notes may be presented or surrendered for payment, where Notes may
be surrendered for conversion or exchange and where notices and demands to or
upon the Company in respect of the Notes may be served. The corporate trust
office of the Paying Agent at One Canada Square, 48th Floor, London, E14 5AL,
England shall be such office or agency of the Company, unless the Company shall
designate and maintain some other offices or agencies for one or more of such
purposes pursuant to the terms of the Agency Agreement. The Company will give
prompt written notice to the Noteholders of any change in the location of any
such offices or agencies.

     The Company may also from time to time designate one or more other offices
or agencies (in or outside of Europe) where the Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind any
such designation; provided, that no such designation or rescission shall in any
manner relieve the Company of its obligation to maintain an office or agency in
Europe for such purposes. The Company will give prompt written notice to the
Noteholders of any such designation or rescission and any change in the location
of any such other office or agency.

     (E) The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or upon the income,
profits or Property of the Company and (b) all lawful claims for labour,
materials and supplies which, if unpaid, might by law become a Lien upon the
Property of the Company; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.

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     (F) The Company will not amend its Certificate of Incorporation or Bylaws
except as required by law, except in respect to such amendments that the Board
of Directors reasonably determines do not materially adversely affect the rights
of the Noteholder, or except to the extent that such amendment would not have a
material adverse effect on (a) the ability of the Company to perform its
obligations under the Notes or (b) the rights of the Noteholders, except that
neither (i) increases in the number of Shares and issuance thereof with related
securities, nor (ii) designations of Preferred Stock of the Company,
modifications of the terms of such designations and issuance thereof with
related securities, nor (iii) modification or expansion of the indemnity
provisions provided by the Company to its directors and officers, nor (iv)
change of the Company's registered agent shall be deemed an amendment hereunder.

     (G) To the extent permitted by law, the Company will provide to the Paying
Agent or to any Noteholder such statements, certificates or other documentation
concerning the organization or operations of the Company as may be reasonably
necessary to establish any exceptions or exemptions from United States federal
income tax withholding and reporting requirements.

     (H) The Company shall file a registration statement on Form S-3 (or such
other form as the Company may determine is appropriate or required under the
rules of the Commission), within ninety (90) days following the Issue Date in
respect of all Shares that may be issuable at any time upon the conversion
and/or redemption of the Notes. The Company shall use its best efforts to cause
the Commission to declare such registration statement (and any necessary
amendments thereto) effective. The Company shall also use its best efforts to
maintain the effectiveness of such registration statement, and to refile such a
registration statement from time to time in the event its effectiveness lapses,
until all such Shares that either are issued or that may be issued are Freely
Tradable in the United States.

     While any Conversion Right remains exercisable, the Company will use its
best efforts to list and maintain a listing of all Shares issued upon conversion
or redemption of the Note on a Stock Exchange. In the event a Stock Exchange
requires stockholder approval in order to complete the listing of the Shares to
be so issued upon conversion or redemption of the Note, then the Company will
use its best efforts to obtain such stockholder approval at the earliest
possible stockholder meeting. In this event, the conversion or redemption in
Shares will occur only if and when stockholder approval has been obtained. If
the Company is unable to obtain or maintain such listing of Shares, it will
forthwith give not less than 30 calendar days notice to the Noteholder of the
listing, de-listing or quotation or lack of quotation of the Shares (as a class)
by any such Stock Exchange.

     (I) If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the Notes,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Paying Agent of its action or failure so to act.

     Whenever the Company shall have one or more Paying Agents for the Notes, it
will, on or before 3:00 p.m. (London time) on the Business Day immediately
preceding each due date of the principal of or interest on any Notes, deposit
with a Paying Agent a sum sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal or interest.

     Pursuant to the terms of the Agency Agreement, the Paying Agent shall agree
with the Company, subject to the provisions of this Condition, that such Paying
Agent will:

          (1) hold all sums held by it for the payment of the principal of or
     interest on Notes in trust for the benefit of the Persons entitled thereto
     until such sums shall be paid to such Persons or otherwise disposed of as
     herein provided; and

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          (2) notify the Company by facsimile transmission or by telex if the
     Paying Agent has not, by the due date for the payment of any principal
     and/or interest in respect of the Notes or Coupons received unconditionally
     the full amount of such principal and interest due.

     Any money deposited with the Paying Agent, or then held by the Company, in
trust for the payment of the principal of or interest on any Note and remaining
unclaimed for two years after such principal or interest has become due and
payable shall be paid to the Company on the Company order, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the such Paying Agent with respect to such
trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the Authorized Newspapers, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company.

4. Interest

     The Notes bear interest from (and including) January 28, 2003 (the "Issue
Date"), at the rate of seven percent (7%) per annum, payable semi-annually in
arrears on September 30 and March 31 in each year (each an "Interest Payment
Date"), the first such payment to be made on March 31, 2003, in respect of the
period from (and including) January 28, 2003 to (but excluding) March 31, 2003,
and this interest payable will equal U.S. $35.00 per U.S. $1,000 principal
amount of the Notes for each complete semi-annual interest period.

     Each Note will cease to bear interest (i) from its due date for redemption
unless the Company shall default in the payment of the Redemption Price, in
which event interest shall continue to accrue as provided in herein, or (ii)
where the Conversion Right shall have been voluntarily exercised by the
Noteholder, from the Conversion Date, or (iii) in the case of a Mandatory
Conversion, from the Mandatory Conversion Date.

     Interest is calculated on the basis of a 360 day year consisting of 12
months of 30 days each and, in the case of an incomplete month, the number of
days elapsed.

5. Payments

     For so long as the Notes are represented by a Global Note, beneficial
interests in this Global Note will be shown on, and transfers thereof will be
effected only through, records maintained by, and in accordance with the rules
and procedures of, Euroclear or Clearstream, as the case may be.

     While the Notes are registered in the name of the Common Depository,
Payments of interest on each Note shall be paid by the Agent on each Interest
Payment Date, commencing March 31, 2003, to the Holder of such Note as shown on
the Note Register at the close of business on the applicable Record Date, such
payment to be made in accordance with the rules and procedures of such Common
Depository and in accordance with the rules and procedures of Euroclear or
Clearstream, as the case may be.

     In case of certificated Notes, payments of principal in respect of each
Note and any net proceeds payable under Condition 6(D) will only be made,
against presentation and surrender (or, in the case of part payment only,
endorsement) of the relevant Note at the specified office of the Paying Agent.
Payments of interest due on the Notes on an Interest Payment Date will be made
against presentation and surrender (or, in the case of part payment only,
endorsement) of the relevant Coupons at the specified office of the Paying
Agent. All payments of principal and interest shall be made in U.S. dollars.
Each such payment and any payment of the net proceeds of the sale of Shares
pursuant to Condition 6(D) will be made at the specified office of any Paying
Agent, at the option of the Holder, by U.S. dollar cheque mailed to an address,
or delivered in accordance with the Holder's instructions, or by transfer to a
U.S. dollar account maintained by the Holder in accordance with the holder's
instructions, subject in all cases to any applicable fiscal or other laws and
regulations, but without prejudice to the provisions of Condition 9.

                                       10

<PAGE>

     If, at any time, in the opinion of the Company or of the Paying Agent,
payments in U.S. dollars cannot be so made, payments will be made in U.S.
dollars in such other manner as may be approved by the Company and the Paying
Agent and notice of the alternative manner of payment will be given to the
Noteholders in accordance with Condition 15.

     Each Note must be presented for redemption together with all unmatured
Coupons relating to such Note, failing which the full amount of any missing
unmatured Coupon (or, in the case of payment not being made in full, that
proportion of the full amount of the missing unmatured Coupons which the amount
so paid bears to the total amount due) will be deducted from the amount due for
payment. Each amount so deducted will be paid in the manner mentioned above
against presentation and surrender (or, in the case of part payment only,
endorsement) of such missing Coupon at any time before the expiry of six (6)
years after the Relevant Date in respect of the relevant Note (whether or not
such Coupon would otherwise have become void pursuant to Condition 10), or, if
later, five (5) years after the date on which such Coupon would have become due,
but not thereafter.

     All monies paid by the Company to the Paying Agent for the payment of
principal or interest on any Note which remain unclaimed at the end of two (2)
years after the principal on such Note will have become due and payable will be
repaid to the Company and the Holder of such Note or any Coupon appertaining
thereto will thereafter have only the rights of a creditor of the Company as
described in these Terms and Conditions or such rights as may be otherwise
provided by applicable law.

     A Holder shall be entitled to present a Note or Coupon for payment only on
a Presentation Date and shall not be entitled to any further interest or other
payment if a Presentation Date is after the due date.

     When making payments to Noteholders or Couponholders, fractions of one cent
will be rounded down to the nearest whole cent.

     The name of the initial Paying Agent and Conversion Agent and its initial
specified office is set out at the end of these Terms and Conditions. The
Company reserves the right at any time to vary or terminate the appointment of
the Paying Agent or Conversion Agent and to appoint additional or other Paying
Agents or Conversion Agents. Notice of any termination or appointment and of any
changes in specified offices will be given to the Noteholders promptly by the
Company in accordance with Condition 15.

6. Conversion

     (A) Optional Conversion by the Noteholders; Conversion Period and Price

     (i) Noteholders have the right, subject as provided herein and to any
applicable laws and regulations, to require the Company to convert all or any of
their Notes at their principal amount into Shares at any time during the
Conversion Period ("Conversion Right"). The Conversion Period begins after the
earlier to occur of (I) the close of the effective date of a Registration
Statement filed by the Company with the Commission with respect to the Shares or
(II) the date such Shares may be sold pursuant to the exemption from
registration under the Securities Act provided by Rule 144 or other exemption
from registration under the Securities Act, and ends upon the earliest to occur
of (A) the second Business Day prior to the later of March 31, 2007, or the date
on which all principal and interest on the Note is repaid in full, (B) if such
Notes shall have been called for redemption pursuant to Condition 7, the close
of the second Business Day prior to the Redemption Date, or (C) the effective
date of a Mandatory Conversion. Upon conversion, the right of the converting
Noteholder to repayment of the principal amount of the Note to be converted
(and, subject as provided in Condition 6(B)(iv), accrued and unpaid interest
thereon) shall be extinguished and released, and in consideration and in
exchange therefor the Company shall allot and issue Shares credited as paid up
in full as provided in this Condition 6.

                                       11

<PAGE>

     The number of Shares to be issued on conversion of a Note will be
determined by dividing the principal amount of the Note to be converted, plus
accrued and unpaid interest thereon, by the Conversion Price, (as defined below)
in effect on the Conversion Date, with the result being rounded down to the
nearest whole number.

     (ii) A Conversion Right may only be exercised in respect of the Authorized
Denomination or multiples thereof of Notes. If more than one Note is converted
at any one time by the same Holder, the number of Shares to be issued upon such
conversion will be calculated on the basis of the aggregate principal amount of
the Notes to be converted. Fractions of Shares will not be issued on conversion
and no cash adjustments will be made in respect thereof.

     (iii) Except for conversions pursuant to Condition 7(B)(iii), the price at
which Shares will be issued upon the exercise of a Conversion Right (the
"Conversion Price") initially will be U.S. $0.50. The Conversion Price will be
subject to adjustment in accordance with the manner provided in Condition 6(C).
The Company shall give notice of any adjustment of the Conversion Price in
accordance with Condition 15 within ten (10) Business Days with effective date
of such adjustment.

     (iv) Notwithstanding the provisions of paragraph (i) of this Condition
6(A), if the Company shall default in making payment in full in respect of any
Note which shall have been called for redemption or shall fail to issue Shares
in respect of any Conversion or redemption, then, from the Relevant Date,
interest shall continue to accrue on such Note and the Conversion Right
attaching to such Note will continue to be exercisable (unless already exercised
by the Company pursuant to Condition 6(D)) up to, and including the close of
business (at the place where the Note is deposited in connection with the
exercise of the Conversion Right) on the date upon which the full amount of the
monies payable in respect of such Note has been duly received by the Paying
Agent or, or the date of the issuance of the Conversion Shares or redemption
Shares.

     (B) Procedure for Conversion

     (i) To exercise the Conversion Right attaching to any Note, the Holder
thereof must complete, execute and deposit at his own expense during normal
business hours at the specified office of the Conversion Agent, a notice of
conversion (a "Conversion Notice") in the form for the time being currently
obtainable from the specified office of such Conversion Agent, together with the
relevant Note and any amount to be paid by the Noteholder pursuant to this
Condition 6(B)(i). The form of Conversion Notice is attached hereto as Exhibit
A.

     The Conversion Date must fall at a time when the Conversion Right attaching
to that Note is expressed in these Conditions to be exercisable and will be
deemed to be the date of the surrender of the Note and delivery of such
Conversion Notice and, if applicable, any payment to be made or indemnity given
under these Conditions in connection with the exercise of such Conversion Right.

     A Noteholder delivering a Note for conversion must pay any taxes and
capital, stamp, issue and registration duties arising on conversion (other than
any taxes or capital, or stamp duties payable in the U.S. or required by any
Stock Exchange, by the Company in respect of the allotment and issue of Shares
and listing of the Shares on conversion). A Conversion Notice delivered shall be
irrevocable.

     (ii) As soon as practicable, and in any event not later than fourteen (14)
calendar days after the Conversion Date, the Company will in the case of Notes
converted on exercise of the Conversion Right or a Note being converted in
accordance with Condition 6(D) and in respect of which a Conversion Notice or
has been delivered and the relevant Note, together with all Outstanding Coupons,
and amounts payable by the relevant Noteholder deposited as permitted by
sub-paragraph (i) above, cause the person or persons designated for the purpose
in the Conversion Notice to be registered as holder(s) of the relevant number of
Shares and will make a certificate or certificates for the relevant Shares
available for collection at the Company's principal office in Houston, Texas or
at the Company's transfer agent in New York, New York, or, if so requested in
the relevant Conversion Notice, will deliver such certificate or certificates to
the person and at the place specified in the

                                       12

<PAGE>

Conversion Notice, at the risk of the Noteholder, together with any other
securities, property or cash required to be delivered upon conversion and such
assignments and other documents (if any) as may be required by law to effect the
transfer thereof.

     (iii) The person or persons specified for that purpose will be deemed for
all purposes to be the Holder of record of the number of Shares issuable upon
conversion with effect from the Conversion Date or Mandatory Conversion Date, as
the case may be. The Shares issued upon conversion of the Notes will in all
respects rank pari passu with the issued and outstanding Shares of Common Stock
in issue on the relevant Conversion Date or Mandatory Conversion Date, as the
case may be, except for any right excluded by mandatory provisions of applicable
law. A Holder of Shares issued on conversion of Notes shall not be entitled to
any rights for any record date which precedes the relevant Conversion Date or
Mandatory Conversion Date, as the case may be.

     (iv) If any notice requiring the redemption of any Notes is given pursuant
to Condition 7(B) on or after the fifteenth (15th) calendar day prior to the
record date in respect of any dividend payable in respect of the Shares and such
notice specifies a date for redemption falling on or prior to the next following
Interest Payment Date, interest shall (subject as hereinafter provided) accrue
on Notes which shall have been delivered for conversion on or after such record
date from the preceding Interest Payment Date; provided, that the relevant
Noteholder's entitlement to interest on any Note, in the event that the Shares
allotted on conversion thereof shall carry an entitlement to receive such
dividend, shall be limited to the amount by which the interest such Noteholder
would have received had no conversion taken place exceeds the amount of the
dividend received on such Shares. Any such interest shall be paid by the Company
not later than fourteen (14) calendar days after the relevant Conversion Date by
U.S. dollar cheque drawn on, or by transfer to U.S. dollar account maintained by
the payee with, a bank outside the United States in accordance with instructions
given by the relevant Noteholder.

     (C) Adjustment of Conversion Price

     (i) Dividends or Distributions of Common Stock. In case the Company shall
pay or make a dividend or other distribution on its Common Stock exclusively in
Common Stock or shall pay or make a dividend or other distribution on any other
class of capital stock of the Company which dividend or distribution includes
Common Stock, the Conversion Price in effect at the opening of business on the
day next following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the opening
of business on the day next following the date fixed for such determination. For
the purposes of this Condition 6(C)(i), the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of the
Company. For the avoidance of doubt, this Condition does not apply to dividends
or other distributions in shares of the Common Stock pursuant to the terms of
the securities to which such dividend or other distribution may be made.

     (ii) Dividends or Distributions of Rights, Warrants or Options to Purchase
Common Stock. In case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights, warrants or options entitling
the holders thereof to subscribe for or purchase shares of Common Stock at a
price per share less than the Market Price per share (determined as provided in
paragraph (vii) of this Condition 6(C)) of the Common Stock on the date fixed
for the determination of stockholders entitled to receive such rights, warrants
or options, the Conversion Price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such Market Price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, outstanding at
the close of business on the date

                                       13

<PAGE>

fixed for such reduction to become effective immediately after the opening of
business on the day following the date fixed for such determination. For the
purposes of this paragraph (ii), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company.
The Company shall not issue any rights, warrants or options in respect of shares
of Common Stock held in the treasury of the Company.

     (iii) Dividends or Distributions in Cash. In case the Company shall, by
dividend or otherwise, make a distribution to all holders of its Common Stock
exclusively in cash in an aggregate amount that, together with (1) the aggregate
amount of any other distributions to all holders of its Common Stock made
exclusively in cash within the 12 months preceding the date of payment of such
distribution and in respect of which no Conversion Price adjustment pursuant to
this 6(C)(iii) has been made and (2) the aggregate of any cash plus the fair
market value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Company's
Board of Directors), as of the expiration of the tender or exchange offer
referred to below, of consideration payable in respect of any tender or exchange
offer by the Company or a Subsidiary for all or any portion of the Common Stock
concluded within the 12 months preceding the date of payment of such
distribution and in respect of which no Conversion Price adjustment pursuant to
paragraph (vi) of this Condition 6(C) has been made, exceeds five percent (5%)
of the product of the Market Price per share (determined as provided in
Condition 6(C)(vi) below) of the Common Stock on the date fixed for stockholders
entitled to receive such distribution times the number of shares of Common Stock
outstanding on such date, the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price reduction
contemplated by this paragraph (iii) by a fraction of which the numerator shall
be the Market Price per share (determined as provided Section Condition
6(C)(vi)) of the Common Stock on the date of such effectiveness less the amount
of cash so distributed applicable to one share of Common Stock and the
denominator shall be such Market Price per share of the Common Stock, such
reduction to become effective immediately prior to the opening of business on
the day following the date fixed for the payment of such distribution.

     (iv) All Other Distributions or Dividends. Subject to the last sentence of
this paragraph (iv), in case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness,
shares of any class of capital stock, securities, cash or Property (excluding
any rights, warrants or options referred to in Condition 6(C)(ii), any dividend
or distribution paid exclusively in cash and any dividend or distribution
referred to in Condition 6(C)(i), the Conversion Price shall be reduced so that
the same shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the effectiveness of the Conversion Price reduction
contemplated by this paragraph (iv) by a fraction of which the numerator shall
be the Market Price per share (determined as provided in paragraph (vi) of this
Condition 6(C)) of the Common Stock on the date of such effectiveness less the
fair market value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Company's
Board of Directors and shall, in the case of securities being distributed for
which prior thereto there is an actual or when issued trading market, be no less
than the value determined by reference to the average of the Market Price over
the period specified in the succeeding sentence), on the date of such
effectiveness, of the portion of the evidences of indebtedness, shares of
capital stock, securities, cash and Property so distributed applicable to one
share of Common Stock and the denominator shall be such Market Price per share
of the Common Stock, such reduction to become effective immediately prior to the
opening of business on the day next following the date fixed for the payment of
such distribution (such date to being referred to as the "Reference Date"). If
the Board of Directors determines the fair market value of any distribution for
purposes of this paragraph (iv) by reference to the actual or when issued
trading market for any securities comprising such distribution, it must in doing
so consider the prices in such market over the same period used in computing the
Market Price per share pursuant to paragraph (vi) of this Condition 6(C). For
purposes of this paragraph (iv), any dividend or distribution that includes
shares of Common Stock or rights, warrants or options to subscribe for or
purchase shares of Common Stock shall be deemed instead to be (1) a dividend or
distribution of the evidences of indebtedness, cash, Property, shares of capital
stock or securities other than such shares of Common Stock or such rights,
warrants or options (making any Conversion Price reduction required by this
paragraph (iv)) immediately followed by (2) a dividend or distribution of such
shares of Common Stock or such rights, warrants or options (making any further
Conversion Price reduction required by Condition 6(C)(i) or (ii)), except (A)
the Reference Date of such dividend or distribution as defined in this Condition
6(C)(iv)

                                       14

<PAGE>

shall be substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution," "the date fixed for
the determination of stockholders entitled to receive such rights, warrants or
options," and "the date fixed for such determination" within the meaning of
Condition 6(C)(i) and Condition 6(C)(ii) and (2) 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 Condition 6(C)(i)).

     (v) Subdivision of Common Stock. In case outstanding shares of Common Stock
shall be subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following the
day upon which such subdivision becomes effective shall be proportionately
reduced, and, conversely, in case outstanding shares of Common Stock shall each
be combined into a smaller number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately increased,
such reduction or increase, 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.

     (vi) Tender or Exchange Offer for Common Stock. In case a tender or
exchange offer made by the Company or any Subsidiary for all or any portion of
the Common Stock shall expire and such tender or exchange offer shall involve an
aggregate consideration having a fair market value (as determined in good faith
by the Board of Directors, whose determination shall be conclusive and described
in a resolution of the Company's Board of Directors) at the last time (the
"Expiration Time") tenders or exchanges may be made pursuant to such tender or
exchange offer (as it may be amended) that, together with (A) the aggregate of
the cash plus the fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Company's Board of Directors), as of the expiration of the other tender
or exchange offer referred to below, of consideration payable in respect of any
other tender or exchange offer by the Company or a Subsidiary for all or any
portion of the Common Stock concluded within the preceding 12 months and in
respect of which no Conversion Price adjustment pursuant to this paragraph (vi)
has been made and (B) the aggregate amount of any distributions to all holders
of the Common Stock made exclusively in cash within the preceding 12 months and
in respect of which no Conversion Price adjustment pursuant to Condition 6(C)(v)
has been made, exceeds five percent (5%) of the product of the Market Price per
share (determined as provided in Condition 6(C)(vii)) of the Common Stock on the
Expiration Time times the number of shares of Common Stock outstanding
(including any tendered shares) on the Expiration Time, the Conversion Price
shall be reduced (but not increased) so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the Expiration Time by a fraction of which the numerator shall be (1) the
product of the Market Price per share (determined as provided in Condition
6(C)(vii)) of the Common Stock at the Expiration Time times the number of shares
of Common Stock outstanding (including any tendered or exchanged shares) at the
Expiration Time minus (2) 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 or exchange offer) of all
shares validly tendered or exchanged 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 the denominator shall be the product of (1) such Market
Price per share at the Expiration Time times (2) such number of outstanding
shares at the Expiration Time less the number of Purchased Shares, such
reduction to become effective immediately prior to the opening of business on
the day following the Expiration Time.

     (vii) Determination of Market Price. For the purpose of any computation of
the Market Price under this paragraph (vii) and Conditions 6(C)(ii), (iv) and
(v), (A) if 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 Price pursuant to paragraphs (i), (ii), (iii), (iv), (v) or
(vi) above ("Other Event") occurs on or after the tenth Stock Exchange Business
Day prior to the date in question and prior to the "ex" date for the issuance or
distribution requiring such computation (the "Current Event"), the closing price
for each Stock Exchange Business 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 Price is so required to be adjusted as a result of such
Other Event, (B) if the "ex" date for any Other Event occurs after the "ex" date
for the Current Event and on or prior to the date in question, the closing price
for each Stock Exchange Business Day on and after the "ex" date for such Other
Event shall be

                                       15

<PAGE>

adjusted by multiplying such closing price by the reciprocal of the fraction by
which the Conversion Price is so required to be adjusted as a result of such
Other Event, (C) if the "ex" date for any Other Event occurs on the "ex" date
for the Current Event, one of those events shall be deemed for purposes of
clauses (A) and (B) of this proviso to have an "ex" date occurring prior to the
"ex" date for the other event, and (C) if the "ex" date for the Current Event is
on or prior to the date in question, after taking into account any adjustment
required pursuant to clause (B) of this proviso, the closing price for each
Stock Exchange Business Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value on the date in
question (as determined in good faith by the Board of Directors in a manner
consistent with any determination of such value for purposes of Condition
6(C)(iii) or Condition 6(C)(iv) or (C), whose determination shall be conclusive
and described in a resolution of the Company's Board of Directors) of the
portion of the rights, warrants, options, evidences of indebtedness, shares of
capital stock, securities, cash or Property being distributed applicable to one
share of Common Stock. For the purpose of any computation under Condition
6(C)(vi), the Market Price per share of Common Stock on any date in question
shall be deemed to be the Market Price on the date selected by the Company
commencing on or after the latest (the "Commencement Date") of (A) the date 20
Stock Exchange Business Days before the date in question, (B) the date of
commencement of the tender or exchange offer requiring such computation, and (C)
the date of the last amendment, if any, of such tender or exchange offer
involving a change in the maximum number of shares for which tenders are sought
or a change in the consideration offered, and ending not later than the date of
the Expiration Time of such tender or exchange offer (or, if such Expiration
Time occurs before the close of trading on a Stock Exchange Business Day, not
later than the Stock Exchange Business Day immediately preceding the date of
such Expiration Time); provided, however, that if the "ex" date for any Other
Event (other than the tender or exchange offer requiring such computation)
occurs on or after the Commencement Date and on or prior to the date of the
Expiration Time for the tender or exchange offer requiring such computation, the
closing price for each Stock Exchange Business 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 Price is so required to be adjusted as a result
of such other event. For purposes of this paragraph, the term "ex" date, (A)
when used 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) when used 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) when used with respect to any tender or exchange 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 tender or exchange offer.

     (viii) Further Reductions for Federal Income Tax. The Company may make such
reductions in the Conversion Price, in addition to those required by Conditions
6(C) (i), (ii), (iii), (iv), (v), and (vi), as it considers to be advisable in
order that any event treated for Federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.

     (ix) Adjustments to be Carried Forward. No adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least five percent (5%) in the Conversion Price; provided,
however, that any adjustments which by reason of this paragraph (ix) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.

     (x) Notice of Adjustments of Conversion Price

     Whenever the Conversion Price is adjusted as herein provided the Company
shall compute the adjusted Conversion Price in accordance with Section Condition
6(C) and shall prepare a certificate signed by the chief financial officer of
the Company setting forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be delivered to the Paying Agent and the Conversion
Agent, and the Company shall cause notice thereof to be published in accordance
with Condition 15 at least ten (10) Business Days in advance of the effective
date of such adjustment.

                                       16

<PAGE>

     (D) Mandatory Conversion

     (i) Each Noteholder acknowledges and agrees that provided the Shares into
which the Notes would be converted are Freely Tradeable and listed on a Stock
Exchange, the Company may, at its own cost (save those expenses or taxes
referred to in Condition 6(D)(iii)), at any time following ninety days from the
Effective Date, elect to exercise the Conversion Right on behalf of each and
every Noteholder in respect of all of the Notes Outstanding at the Conversion
Price applicable as of the date fixed by the Company for such conversion (the
"Mandatory Conversion Date"), provided that the average of the Market Price of
the Shares over the Stock Exchange Business Days in any thirty (30) consecutive
calendar day period following the Effective Date, is equal to or greater than
one hundred twenty-five percent (125%) of the Conversion Price. The Company will
give notice in the manner set out in Condition 15 that the criteria for
Mandatory Conversion under this Condition 6(D) has been met within 30 days of
having met such criteria. The form of Company Conversion Notice is attached
hereto as Exhibit B.

     (ii) At least 45 calendar days prior to the Mandatory Conversion Date, the
Company shall cause written notice of the Mandatory Conversion Date to be given
to the Paying and Conversion Agent. Not less than 30 and not more than 60
calendar days prior to the Mandatory Conversion Date, the Company shall cause
written notice of the Mandatory Conversion Date to be given to the Paying Agent,
the Conversion Agent and the Noteholders (in accordance with Condition 15).
Following such notice, each of the Noteholders will be required on or before the
Mandatory Conversion Date to deliver or procure delivery of its Notes with all
unmatured Coupons relating to such Notes together with a duly completed
Conversion Notice to the specified office of the Conversion Agent, during its
usual business hours for such purposes and perform together with the Company,
the obligations applicable to it on conversion specified in this Condition 6.
Failure to deliver the Conversion Notice shall not affect the conversion of such
Notes pursuant to the terms of this Condition 6(D).

     (iii) If any Noteholder with respect to whose Notes Mandatory Conversion
(pursuant to this Condition 6) is to take place shall fail to perform its
obligations specified in this Condition 6 or shall have a registered address in
any territory where, in the absence of any registration statement or other
special formalities or legal requirements, the issue, allotment, transfer or
delivery of the Shares arising on Mandatory Conversion in the reasonable opinion
of the Company, is or could be unlawful or impracticable, subject to applicable
law, Company shall make arrangements for the sale of such Shares to a third
party at the best consideration reasonably obtainable by the Company and arrange
for the Paying Agent to pay to such Noteholder the consideration received by it
in respect of such Shares (after any deduction required to reimburse any
reasonable and proper expenses incurred in arranging any such sale or any taxes
payable in connection therewith arising solely as a result of the Noteholder's
failure to perform its obligations under this Condition 6(D)).

     (iv) From and after the Mandatory Conversion Date and upon compliance by
the Company of its obligations hereunder with respect to such conversion, the
Notes shall cease to constitute Indebtedness of the Company and shall thereafter
be only deemed to represent the right to receive Shares.

     (E) Notice of Certain Corporate Action

     In case of the occurrence of one or more of the events that are listed
herein, the Company shall cause to be mailed to the Paying Agent and the
Conversion Agent and to be published in the manner provided under Condition 15
hereof within ten (10) Business Days after the date on which notice is sent to
the holders of the Company's Common Stock. Such events are: (i) the Company
shall declare a dividend (or any other distribution) on its Common Stock payable
(1) otherwise than exclusively in cash, or (2) exclusively in cash in an amount
that would require a Conversion Price adjustment pursuant to Condition
6(C)(iii); or (ii) the Company shall authorize the granting to the holders of
its Common Stock of rights, warrants or options to subscribe for or purchase any
shares of capital stock of any class or of any other rights (excluding employee
stock options); or (iii) of any reclassification of the Common Stock of the
Company (other than a subdivision or combination of its outstanding shares of
Common Stock), or of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding up of
the Company; or (v) the

                                       17

<PAGE>

Company or any Subsidiary of the Company shall commence a tender or exchange
offer for all or a portion of the Company's outstanding shares of Common Stock
(or shall amend any such tender or exchange offer); The Notice shall state (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, warrants or options, 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, warrants or options are to be
determined, or (ii) the date on which such reclassification, consolidation,
merger, sale, transfer, 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 re-classification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up,
or (iii) the date on which such tender offer commenced, the date on which such
tender offer is scheduled to expire unless extended, the consideration offered
and the other material terms thereof (or the material terms of any amendment
thereto).

     (F) Consolidation, Amalgamation or Merger

     In the event that the Company shall be a party to any transaction,
including without limitation any (i) recapitalization or reclassification of the
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 of the Common Stock), (ii) any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of all of the outstanding shares of Common
Stock of the Company), (iii) any sale or transfer of all or substantially all of
the assets of the Company, or (iv) any compulsory share exchange pursuant to
which the Common Stock is converted into the right to receive other securities,
cash or other Property, the Company will forthwith notify the Noteholders of
such event in accordance with Condition 15 and, then lawful provision shall be
made as part of the terms of such transaction whereby the Holder of each Note
then Outstanding shall have the right (during the period in which such Note is
convertible) to convert such Note into the class and amount of shares and other
securities and property receivable upon such transaction by a holder of such
number of shares of Common Stock which would have been liable to be issued upon
conversion of such Note immediately prior to the transaction. So far as legally
possible, the Company shall cause the Person formed by such consolidation or
resulting from such merger or which acquired such assets or which acquired the
Company's Shares, as the case may be, to execute and deliver the Paying Agent on
behalf of each of the Noteholders an amendment to these Terms and Conditions as
provided for under Condition 17. Such amendment shall provide for adjustments
which, for events subsequent to the effective date of such amendment, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Condition. The above provisions of this Condition 6(F) shall similarly
apply to successive transactions of the foregoing type.

     (G) Conversion Prohibited Under Certain Circumstances

     The Note shall not be convertible into Conversion Shares as provided in
this Condition 6 nor may it be redeemed for Shares as provided in Condition
7(B)(iii) herein if the Stock Exchange on which the Shares are listed requires
the approval by the stockholders of the Company of the issuance of the Shares
which may be issued upon the exercise of the conversion rights contained in this
Condition 6 or issued pursuant to Condition 7(B)(iii) and the stockholders fail
to approve such issuances of the Shares at an annual meeting or special meeting
held to approve such issuances.

7. Redemption and Purchase

     (A) Unless previously redeemed, converted or purchased and canceled as
provided herein, the Company will redeem the Notes at their principal amount on
March 31, 2007.

     (B) (i) If as a result of any change in, or amendment to, the laws or
regulations of the U.S. or any political sub-division of, or any authority in,
or of, the U.S. having power to tax, or any change in the application or
official interpretation of such laws or regulations, which change or amendment
becomes effective after March 31, 2002, the Company has or will become obliged
to pay additional amounts as provided or referred to in Condition 8

                                       18

<PAGE>

(and such amendment or change has been evidenced by the delivery by the Company
to the Paying Agent (who shall, in the absence of manifest error, accept such
certificate and opinion as sufficient evidence thereof) of (x) a certificate
signed by two officers of the Company on behalf of the Company stating that such
amendment or change has occurred (irrespective of whether such amendment or
change is then effective), describing the facts leading thereto and stating that
such obligation cannot be avoided by the Company taking reasonable measures
available to it and (y) an opinion of independent legal advisers of recognized
standing to the effect that such amendment or change has occurred (irrespective
of whether such amendment or change is then effective), the Company may at its
option, having given not less than 30 nor more than 60 calendar days' notice to
the Noteholders in accordance with Condition 15 (which notice shall be
irrevocable), redeem all the Notes but not some only, at their principal amount
together with interest (if any) accrued to (but excluding) the Redemption Date,
provided that no notice of redemption shall be given earlier than 90 calendar
days before the earliest date on which the Company would be required to pay such
additional amounts were a payment in respect of the Notes then due.

     (ii) The Company may, at its option and after having given not less than 30
nor more than 60 calendar days' notice to the Noteholders in accordance with
Condition 15 (which notice shall be irrevocable), redeem the Notes for cash, in
whole or in part, at their principal amount together with interest (if any)
accrued to (but excluding) the Redemption Date. If the Company elects to redeem
less than all the Notes, Company will select which Notes to redeem by lot,
random, or such other method as it shall deem fair and appropriate. Upon expiry
of any such notice period as is referred to in this Condition 7(B) (and subject
as provided above), the Company shall be bound to redeem Notes at their
principal amount, together with interest accrued to but excluding the Redemption
Date.

     (iii) Provided that the Shares which may be issued pursuant to this
paragraph shall be Freely Tradeable and listed on a Stock Exchange, commencing
March 31, 2006, the Company may redeem upon not less than 30 nor more than 60
days notice, pursuant and subject the Conditions listed above, up to 50% of the
Outstanding Notes for Shares and, on March 31, 2007, the scheduled Maturity
Date, the Company may redeem upon not less than 30 nor more than 60 days notice
any Outstanding Notes for Shares. If the Company elects to redeem the Notes for
Shares, each Note will be redeemed for the number of shares of Common Stock
equal to 110% of the sum of the face value of the Note plus interest accrued and
unpaid thereon divided by the average of the Market Price of the Shares over the
120 Stock Exchange Business Day period immediately preceding the date of notice
of such redemption. If the Company elects to redeem less than all the Notes, the
Company will select which Notes to redeem by lot, random, or such other method
as it shall deem fair and appropriate. Upon expiry of any such notice period as
is referred to in this Condition 7(B) (and subject as provided above), the
Company shall be bound to redeem Notes as described above.

     (C) Subject to applicable law, the Company or any of its Subsidiaries may
at any time purchase Notes together with unmatured Coupons in any manner and at
any price in the open market or by private treaty. If purchases are made by
tender, tenders must be available to all Noteholders alike. Notes purchased by
the Company or any of its Subsidiaries will forthwith be surrendered for
cancellation and shall no longer be deemed Outstanding.

     (D) All Notes which are redeemed by the Company will forthwith be canceled
(together with all related unmatured Coupons attached to or surrendered with the
Notes) and may not be reissued or resold.

8. Taxation

     All payments in respect of the Notes by the Company shall be made without
withholding or deduction for, or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature ("Taxes") imposed
or levied by or on behalf of the U.S. or any political sub-division of, or any
authority in, or of, the U.S. having power to tax, unless the withholding or
deduction of the Taxes is required by law. In that event, the Company will pay
such additional amounts as may be necessary in order that the net amounts
received by the Noteholders and Couponholders after the withholding or deduction
shall equal the respective amounts which would have been receivable in respect
of the Notes or, as the case may be, Coupons in the absence of the withholding
or

                                       19

<PAGE>

deduction; except that no additional amounts shall be payable in relation to any
payment in respect of any Note or Coupon:

     (A) to, or to a third party on behalf of, a Holder who is liable for the
Taxes in respect of the Note or Coupon by reason of such Holder having some
connection with the U.S. other than the mere holding of the Note or Coupon; and

     (B) presented for payment more than 30 calendar days after the Relevant
Date except to the extent that a Holder would have been entitled to additional
amounts on presenting the same for payment on the last day of such period of 30
calendar days; or

     (C) to, or to a third party on behalf of, a Holder who would not be liable
or subject to the withholding or deduction by making a declaration of
non-residence or other similar claim for exemption to the relevant tax
authority.

     Any reference in these Terms and Conditions to any amounts in respect of
the Notes shall be deemed also to refer to any additional amounts which may be
payable under this Condition.

9. Additional Covenants

     While any Conversion Right remains exercisable, the Company will, save with
the approval of an Extraordinary Resolution:

     (1) at all times keep available for issuance free from any preemptive
rights out of its authorized but unissued capital such number of Shares as would
enable the Conversion Rights and all other rights of subscription and exchange
for and conversion into Shares to be satisfied in full;

     (2) maintain a listing for all the issued Shares and all Shares to be
issued on the exercise of the Conversion Rights on a Stock Exchange, it being
understood that if the Company is unable to obtain or maintain such listing of
Shares and will forthwith give notice to the Noteholders in accordance with
Condition 15 of the listing, de-listing or quotation or lack of quotation of the
Shares (as a class) by any such Stock Exchange; and

     (3) not in any way modify the rights attaching to the Shares with respect
to voting, dividends or liquidation.

10. Prescription

     Notes and Coupons will become void unless presented for payment within
periods of ten (10) years (in the case of principal) and five (5) years (in the
case of interest) from the Relevant Date in respect of the Notes or the Coupons,
as the case may be, subject to the provisions of Condition 5.

11. Events of Default and Enforcement

     (A) Event of Default

     "Event of Default," wherever used in these Terms and Conditions, means any
one of the following events (whatever the reason for such Event of Default,
whether voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) which shall have occurred and is
continuing:

          (1) if default is made for a period of five (5) Business Days or more
     in the payment of interest or principal due in respect of the Notes or any
     of them; or

                                       20

<PAGE>

          (2) if the Company fails to perform or observe any of its other
     obligations, covenants, conditions or provisions under the Notes, these
     Terms and Conditions, the Company's 5.0% Senior Notes due 2003, or the
     trust indenture pursuant to which such 5.0% Senior Notes due 2003 were
     issued, and such failure continues for the period of 30 calendar days (or
     such longer period as the Majority Holders may in their absolute discretion
     permit) next following the service by the one or more of the Holders on the
     Company of notice requiring the same to be remedied; or

          (3) if (i) any other Indebtedness of the Company becomes due and
     payable prior to its Stated Maturity by reason of an event of default
     (howsoever defined) or (ii) any such Indebtedness of the Company is not
     paid when due or, as the case may be, within any applicable grace period or
     (iii) the Company fails to pay when due (or, as the case may be, within any
     applicable grace period) any amount payable by it under any present or
     future guarantee for, or indemnity in respect of, any Indebtedness of any
     Person or (iv) any security given by the Company or any subsidiary for any
     Indebtedness of any Person or any guarantee or indemnity of Indebtedness of
     any Person by the Company becomes enforceable by reason of default in
     relation thereto and steps are taken to enforce such security save in any
     such case where there is a bona fide dispute as to whether the relevant
     Indebtedness or any such guarantee or indemnity as aforesaid shall be due
     and payable (following any applicable grace period); provided, however,
     that in each such case the Indebtedness exceeds in the aggregate U.S.
     $2,000,000 and in each such case such event continues unremedied for a
     period of 30 calendar days (or such longer period as the Majority Holders
     may in their sole discretion consent to in writing upon receipt of written
     notice from the Company); or

          (4) if the Company shall generally fail to pay its debts as such debts
     come due (except debts which the Company may contest in good faith
     generally) or shall be declared or adjudicated by a competent court to be
     insolvent or bankrupt, shall consent to the entry of an order of relief
     against it in an involuntary bankruptcy case, shall enter into any
     assignment or other similar arrangement for the benefit of its creditors or
     shall consent to the appointment of a custodian (including, without
     limitation, a receiver, liquidator or Company); or

          (5) if a receiver, administrative receiver, administrator or other
     similar official shall be appointed in relation to the Company or in
     relation to the whole or a substantial part its undertaking or assets or a
     distress, execution or other process shall be levied or enforced upon or
     sued out against, or an encumbrancer shall take possession of, the whole or
     a substantial part of the assets of any of them and in any of the foregoing
     cases is not paid out or discharged within 90 calendar days (or such longer
     period as the Majority Holders may in their absolute discretion consent to
     in writing upon receipt of written notice from the Company); or

          (6) if the Company institutes proceedings to be adjudicated a
     voluntary bankrupt, or shall consent to the filing of a bankruptcy
     proceeding against it, or shall file a petition or answer or consent
     seeking organization under the laws of the Federal Bankruptcy Code or any
     similar applicable U.S. federal, state or foreign law, or shall consent to
     the filing of any such petition, or shall consent to the appointment of a
     receiver or liquidator or trustee or assignee (or other similar official)
     in bankruptcy or insolvency of it or its Property, or shall make an
     assignment for the benefit of creditors, or shall admit in writing its
     inability to pay its debts generally as they come due; or

          (7) if a decree or order by a court having jurisdiction in the
     premises shall have been entered adjudging the Company a bankrupt or
     insolvent, or approving as properly filed a petition seeking the
     reorganization of the Company under the Federal Bankruptcy Code or any
     other similar applicable U.S. federal, state or foreign law, and such
     decree or order shall have continued undischarged or unstayed for a period
     of 90 calendar days; or a decree or order of a court having jurisdiction in
     the premises for the appointment of a receiver or liquidator or trustee or
     assignee (or other similar official) in bankruptcy or insolvency of the
     Company or of all or substantially all of its Property, or for the winding
     up or liquidation of its affairs, shall have been entered, and such decree
     or order shall have continued undischarged and unstayed for a period of 90
     calendar days; or

          (8) if a warranty, representation, or other statement made by or on
     behalf of the Company contained herein or any certificate or other
     agreement furnished in compliance herewith is false in any material respect
     when made and such falsity continues for a period of 30 calendar days (or
     such longer period as the Majority

                                       21

<PAGE>

     Holders may in their absolute discretion permit) next following the service
     by one or more of the Holders on the Company of notice requiring the same
     to be remedied; or

          (9) if there is any final judgment or judgments for the payment of
     money exceeding in the aggregate U.S. $2,000,000 outstanding against the
     Company which has been outstanding for more than 60 calendar days from the
     date of its entry and shall not have otherwise been discharged in full or
     stayed by appeal, bond or otherwise.

     (B) Acceleration of Maturity; Rescission and Annulment

     If an Event of Default (other than an Event of Default specified in
Condition 11(A)(6) or 11(A)(7)) occurs and is continuing, then and in every such
case the Majority Holders may declare the principal amount of all the Notes and
accrued and unpaid interest thereon to be due and payable immediately, by a
notice in writing to the Company, and upon any such declaration such principal
amount and accrued and unpaid interest shall become immediately due and payable.

     If an Event of Default specified in Condition 11(A)(6) or Condition
11(A)(7) occurs and is continuing, then the principal amount of all the Notes
and all accrued and unpaid interest thereon shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
any Noteholder.

     At any time after a declaration of acceleration has been made and before a
judgment or decree for payment of the money due has been obtained by the
Majority Holders as hereinafter in this Condition provided, the Majority
Holders, with written notice to the Company, may rescind and annul such
declaration and its consequences if

          (1) the Company has paid or deposited in a manner satisfactory to such
     Holders a sum sufficient to pay

               (i) all overdue interest on all Outstanding Notes,

               (ii) all unpaid principal of any Outstanding Notes which has
          become due otherwise than by such declaration of acceleration, and
          interest on such unpaid principal at the rate prescribed therefor in
          the Notes,

               (iii) to the extent that payment of such interest is legally
          enforceable, interest on overdue interest at the rate prescribed
          therefor in the Notes, and

               (iv) all reasonable sums paid or advanced by the such Holders
          hereunder; and

          (2) all Events of Default, other than the non-payment of amounts of
     principal of or interest on Notes which have become due solely by such
     declaration of acceleration, have been cured or waived as provided in
     Condition 11(K)

     No such rescission shall affect any subsequent default or impair any right
consequent thereon.

     (C) Collection of Indebtedness and Suits for Enforcement by the Majority
Holders

     The Company covenants that if

          (1) default is made in the payment of any installment of interest on
     any Note when such interest becomes due and payable and such default
     continues for a period of five (5) Business Days, or

          (2) default is made in the payment of the principal of any Note at the
     Maturity thereof and such default continues for a period of five (5)
     Business Days,

                                       22

<PAGE>

the Company will, upon demand of the Majority Holders, pay to the Holders of the
Notes, the whole amount then due and payable on the Notes for principal and
interest, and interest on any overdue principal and, to the extent that payment
of such interest shall be legally enforceable, upon any overdue installment of
interest, at the rate prescribed therefor in the Notes, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable expenses, disbursements and
advances of the Holders, their agents and counsel, and the reasonable
compensation of such agents and counsel.

     If the Company fails to pay such amounts forthwith upon such demand, the
Majority Holders in their name, may institute a judicial proceeding for the
collection of the sums so due and unpaid, may prosecute such proceeding to
judgment or final decree and may enforce the same against the Company or any
other obligor upon the Notes and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the Property of the Company or any
other obligor upon the Notes, wherever situated.

     If an Event of Default occurs and is continuing, the Majority Holders may
in their discretion proceed to protect and enforce their rights and the rights
of the other Noteholders by such appropriate judicial proceedings as such
Holders shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in these terms
and conditions or to enforce any other proper remedy.

     (D) Majority Holders 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
Majority Holders (irrespective of whether the principal of the Notes shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Majority Holders shall have made any demand on the
Company for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,

          (1) to file and prove a claim for the whole amount of principal and
     interest owing and unpaid in respect of the Notes and to file such other
     papers or documents as may be necessary or advisable in order to have the
     claims of the Holders (including any claim for the reasonable expenses,
     disbursements and advances of such Holders, their agents and counsel) and
     of the other Noteholders allowed in such judicial proceeding, and the
     reasonable compensation of such agents and counsel, and

          (2) 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
Noteholder to make such payments to the Majority Holders due them for the
reasonable expenses, disbursements and advances of such Holders, their agents
and counsel and the reasonable compensation of such agents and counsel, and to
pay to the Paying Agent (where one is appointed) all such other sums due under
the Notes. In the absence of such appointment, any such sums shall be paid for
the rateable benefit of all the Noteholders.

     Nothing herein contained shall be deemed to authorize the Majority Holders,
except as permitted by law and these Terms and Conditions, to authorize or
consent to or accept or adopt on behalf of any Noteholder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Noteholder thereof, or to authorize the such Holder to vote in
respect of the claim of any Noteholder in any such proceeding, except to the
extent permitted by law.

     (E) Majority Holders May Enforce Claims Without Possession of Notes

                                       23

<PAGE>

     All rights of action and claims under these Terms and Conditions may be
prosecuted and enforced by the Majority Holders without the possession of any of
the Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Majority Holders shall be brought in their own
name and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Majority
Holders, their agents and counsel, be paid to the Paying Agent (where one is
appointed) for the rateable benefit of all the Noteholders in respect of which
such judgment has been recovered.

     (F) Application of Money Collected

     Any money collected by the Majority Holder pursuant to this Condition shall
be applied in the following order in case of the distribution of such money on
account of principal or interest, upon presentation of the Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:

     FIRST: To the payment of the amounts then due and unpaid for principal of
and interest on the Notes in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Notes for principal and
interest, respectively; and

     SECOND: The balance, if any, to the Person or Persons entitled thereto.

     (G) Unconditional Right of Holders to Receive Principal and Interest

     Notwithstanding any other provision in these Terms and Conditions, the
Holder of any Note or of any Coupon, as the case may be, shall have the right,
which is absolute and unconditional, to receive payment, as provided herein and
in such Note of the principal of and interest on, such Note on the respective
Stated Maturity or expressed in such Note (or, in the case of redemption, on the
Redemption Date) or Coupon and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder; provided, that all monies paid by the Company to the Paying Agent for
the payment of principal or interest on any Note which remain unclaimed at the
end of two (2) years after the Stated Maturity or Redemption Date of such Note
will be repaid to the Company and the Holder of any Note or Coupon shall
thereafter have only the rights of a creditor of the Company or such rights as
may be otherwise provided by applicable law.

     (H) Restoration of Rights and Remedies

     If the Majority Holders or any Noteholder has instituted any proceeding to
enforce any right or remedy under these Terms and Conditions and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Majority Holders or to such Noteholder, then and in every such
case, subject to any determination in such proceeding, the Company, the Majority
Holders and the Noteholders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Majority Holders and the Noteholders shall continue as though no such proceeding
had been instituted.

     (I) Rights and Remedies Cumulative

     Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes as provided herein, no right or
remedy herein conferred upon or reserved to the Noteholders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

                                       24

<PAGE>

     (J) Delay or Omission Not Waiver

     No delay or omission of the Majority Holders or Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Noteholders may be exercised from time to time, and as often as may be
deemed expedient, by the Noteholders.

     (K) Waiver of Past Defaults

     Subject to Condition 11(B), the Majority Holders may on behalf of the
Holders of all the Notes waive any past default hereunder and its consequences,
except a default

          (1) in respect of the payment of the principal of or interest on any
     Note, or

          (2) in respect of a covenant or provision hereof which under Condition
     17 cannot be modified or amended without the consent of the Holder of each
     Outstanding Note affected.

     Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of these Terms and Conditions; but no such waiver shall extend to any subsequent
or other default or Event of Default or impair any right consequent thereon.

     (L) Waiver of Stay or Extension 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 wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of these Terms and Conditions; and the Company (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law.

     (M) Requirements Regarding Agents

     (1) At any time after an Event of Default has occurred and is continuing
the Majority Holders shall notify in writing the Company and the Paying Agent,
and may by notice in writing to the Company and the Paying Agent:

          (i) require the Paying Agent, until notified to the contrary by
     Majority Holders, to hold all Notes and Coupons and all moneys, documents
     and records held by it in respect of Notes and Coupons to the order of the
     Holders; or

          (ii) require the Paying Agent to deliver to the Holders on a pro rata
     basis all funds held by it for the benefit of the Holders, and to deliver
     the documents and records held by it in respect of Notes and Coupons to the
     Holders, provided that such notice shall be deemed not to apply to any
     documents or records which the relevant Paying Agent is obliged to release
     by any law or regulation; and

          (iii) require the Company to make all subsequent payments in respect
     of the Notes and Coupons to or to the order of the Holders and not to the
     Paying Agent.

     (2) The Majority Holders shall notify the Paying Agent immediately upon the
cure or waiver of an Event of Default. Upon receipt of such notice, the
provisions of this Condition 11(M) shall no longer apply.

     (3) Prior to taking any action under this Agreement at the direction of any
Person with respect to the Notes, the Paying Agent shall be entitled to receive
(and shall receive) indemnity or security satisfactory to it.

                                       25

<PAGE>

12. Liability Solely Corporate

     No recourse shall be had for the payment of the principal of or interest on
any Notes or any part thereof, or for any claim based thereon or otherwise in
respect thereof, or of the indebtedness represented thereby, or upon any
obligation, covenant or agreement in these Terms and Conditions, against any
incorporator, or against any stockholder, officer or director, as such, past,
present or future, of the Company, or of any predecessor or successor Person,
either directly or through the Company or any such predecessor or successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, it being expressly agreed
and understood that the Notes and these Terms and Conditions which are a part
thereof are solely corporate obligations, and that no personal liability
whatsoever shall attach to, or be insured by, any such incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any predecessor or successor Person, either directly or through
the Company or any such predecessor or successor Person, because of the
indebtedness hereby authorized or under or by reason of any of the obligations,
covenants, promises or agreements contained in the Notes or the these Terms and
Conditions which constitute a part thereof or to be implied herefrom; and that
any such personal liability is hereby expressly waived and released as a
condition of, and as part of the consideration for the exchange transaction
pursuant to which the Notes were issued; provided, however, that nothing herein
contained shall be taken to prevent recourse to and the enforcement of the
liability, if any, of any stockholder or subscriber to capital stock of the
Company upon or in respect of shares of capital stock not fully paid up.

13. Defeasance and Covenant Defeasance

     (A) Company's Option to Effect Defeasance or Covenant Defeasance

     The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Condition 13(B) or Section 13(C)
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Condition, The Company shall promptly give notice of such election
to the Holders.

     (B) Legal Defeasance and Discharge

     Upon the Company's exercise under Condition 13(A) of the option applicable
to this Condition 13(B), the Company shall be deemed to have been discharged
from its obligations with respect to all Outstanding Notes on the date the
conditions set forth in Condition 13(D) are satisfied (hereinafter, "legal
defeasance"). For this purpose, such legal defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the Outstanding Notes, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Condition 13(E) and the other Conditions of these Terms
and Conditions referred to in (1) and (2) below, and to have satisfied all its
obligations under such Notes, including the obligation to pay interest on the
Notes, and these Terms and Conditions insofar as such Notes are concerned (and
the Holders, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (1) the rights of Holders of
Outstanding Notes to receive, solely from the trust fund described in Condition
13(D) and as more fully set forth in such Condition, payments in respect of the
principal of and interest on such Notes when such payments are due, and (B) the
Company's obligations with respect to the Notes under Conditions 1(D), 1(E),
1(H), 3(D) or 3(L). Subject to compliance with this Condition, the Company may
exercise its option under this Condition 13(B) notwithstanding the prior
exercise of its option under Condition 13(C) with respect to the Notes.

                                       26

<PAGE>

     (C) Covenant Defeasance

     Upon the Company's exercise under Section Condition 13(A) of the option
applicable to this Condition 13(C), the Company shall be released from its
obligations under any covenant contained in Condition 3 (except Condition 3(D)
with respect to the Outstanding Notes on and after the date the conditions set
forth in Section 13(D)) are satisfied (hereinafter, "covenant defeasance"), and
the Notes shall thereafter be deemed not to be "Outstanding" for the purposes of
any request, demand, authorization, direction, declaration, notice, consent,
waiver or Act of Noteholders (and the consequences of any thereof) in connection
with such covenants, but shall continue to be deemed "Outstanding" for all other
purposes hereunder. For this purpose, such covenant defeasance means that, with
respect to the Outstanding Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Condition 11(A)(4), but, except as specified above, the remainder of these and
the Notes shall be unaffected thereby.

     (D) Conditions to Legal Defeasance or Covenant Defeasance

     The following shall be the conditions to application of either Condition
13(B) or Section 13 (C) to the Outstanding Notes:

          (1) The Company shall irrevocably have deposited or caused to be
     deposited with the Paying Agent as trust funds in trust for the purpose of
     making the following payments, specifically pledged as security for, and
     dedicated solely to, the benefit of the Holders of such Notes, (A) money in
     an amount, or (B) U.S. Government Obligations which through the scheduled
     payment of principal and interest in respect thereof in accordance with
     their terms will provide, not later than one day before the due date of any
     payment, money in an amount, or (C) a combination thereof, sufficient, in
     the opinion of a nationally recognized firm of independent public
     accountants expressed in a written certification thereof delivered to the
     Paying Agent, to pay and discharge, and which shall be applied by the
     Paying Agent to pay and discharge, the principal of and interest on the
     Outstanding Notes on the Stated Maturity (or Redemption Date, if
     applicable) of such principal or installment of interest; provided that the
     Paying Agent shall have been irrevocably instructed to apply such money or
     the proceeds of such U.S. Government Obligations to said payments with
     respect to the Notes; and provided further that, upon the effectiveness of
     this Condition 13(D), the money or U.S. Government Obligations deposited
     shall not be subject to the rights of the Noteholders pursuant to the
     provisions of this Condition. Before or after such a deposit, the Company
     may give to the Paying Agent a notice of its election to redeem all of the
     Outstanding Notes at a future date in accordance with Condition 7, which
     notice shall be irrevocable. Such irrevocable redemption notice, if given,
     shall be given effect in applying the foregoing.

          (2) No Default or Event of Default with respect to the Notes shall
     have occurred and be continuing on the date of such deposit or, insofar as
     paragraphs (6) and (7) of Condition 11(A) hereof are concerned, at any time
     during the period ending on the 91st day after the date of such deposit (it
     being understood that this condition shall not be deemed satisfied until
     the expiration of such period).

          (3) No event or condition shall exist that pursuant to the provisions
     of Condition 13(B) or 13(C) would prevent the Company from making payments
     of the principal of or interest on the Notes on the date of such deposit or
     at any time during the period ending on the 91st day after the date of such
     deposit (it being understood that this condition shall not be deemed
     satisfied until the expiration of such period).

          (4) Such legal defeasance or covenant defeasance shall not result in a
     breach or violation of, or constitute a default under any material
     agreement or material instrument to which the Company is a party or by
     which it is bound.

                                       27

<PAGE>

          (5) In the case of an election under Condition 13(B), the Company
     shall have delivered to the Paying Agent an Opinion of Counsel stating that
     the Holders of the Outstanding Notes will not recognize income, gain or
     loss for U.S. federal income tax purposes as a result of such defeasance
     and will be subject to federal income tax on the same amounts, in the same
     manner and at the same times as would have been the case if such defeasance
     had not occurred.

          (f) The Company shall have delivered to the Paying Agent an Officers'
     Certificate and an Opinion of Counsel, each stating that all conditions
     precedent provided for relating to either the legal defeasance under
     Section 13(B) or the covenant defeasance under Section 13(C) (as the case
     may be) have been complied with.

     (E) Deposited Money and U.S. Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions

     Subject to the provisions of the disposition of unclaimed moneys contained
herein, all money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Paying Agent pursuant to Condition 13(D) in respect
of the Outstanding Notes shall be held in trust and applied by the Paying Agent,
in accordance with the provisions of these terms and conditions, to the payment,
either directly or through the Paying Agent (including the Company acting as its
own Paying Agent) as the to the Holders of the Notes of all sums due and to
become due thereon in respect of principal and interest, but such money and U.S.
Government Obligations need not be segregated from other funds except to the
extent required by law.

     (F) Reinstatement

     If the Paying Agent is unable to apply any money or U.S. Government
Obligations in accordance with Condition 13(E) by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's obligations under
these Terms and Condition shall be revived and reinstated as though no deposit
had occurred pursuant to Section Condition 13(B) or 13(C), as the case may be,
until such time as the Paying Agent is permitted to apply all such money or U.S.
Government Obligations in accordance with Condition 13(E); provided, however,
that no action taken in good faith by the Company after a deposit of money or
U.S. Government Obligations or both pursuant to Condition 13(E) and prior to the
revival and reinstatement of obligations under these Terms and Conditions
pursuant to this Condition 13(F) shall constitute the basis for the assertion of
an Event of Default pursuant to Condition 11; and provided, further, that if the
Company makes any payment of principal of or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held the Paying Agent.

14. Replacement of Notes and Coupons

     As provided in Conditions 1(H), should any Note or Coupon be lost, stolen,
mutilated, defaced or destroyed, it may be replaced at the specified office of
the Paying Agent upon payment by the claimant of the expenses incurred in
connection with the replacement and on such terms as to evidence indemnity and
security as the Company may reasonably require. Mutilated or defaced Notes or
Coupons must be surrendered before replacements will be issued.

15. Notices

     (A) Notices to all the Noteholders will be valid if published in one
Authorized Newspaper (unless another form of notice is permitted by these Terms
and Conditions) with a written copy provided to RP&C International, Limited. Any
notice shall be deemed to have been given on the date of publication or, if so
published more than once, on the date of the first publication. If publication
as provided above is not practicable, notice will be given in such other manner,
and shall be deemed to have been given on such date, as the Company may approve.

                                       28

<PAGE>

     (B) Couponholders will be deemed for all purposes to have notice of the
contents of any notice given to the Noteholders in accordance with this
Condition.

     (C) Any request, demand, authorization, direction, declaration, notice,
consent, waiver, Extraordinary Resolution or Act of Noteholders or other
document provided or pertained by these Terms and Conditions (herein
collectively called "Notice") to be made upon, given or furnished to, or filed
with the Company by any Noteholder shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if made, given, furnished
or filed in writing to or with the Company addressed to it at the address of its
principal office which shall initially be: Harken Energy Corporation, 580
WestLake Park Boulevard, Suite 600, Houston, Texas 77079, Attention: Mikel D.
Faulkner, Chairman of the Board and Chief Executive Officer Tel. (281) 504-4000,
Fax, (281) 504-4100; with a copy to A. Wayne Hennecke, Senior Vice
President-Finance and Secretary: Tel. (281) 504-4040, Fax. (281) 504-4110.

16. Acts of Noteholders, Meetings of Noteholders

     (A) Any Extraordinary Resolution, request, demand, authorization,
direction, declaration, notice, consent, waiver or other action provided by
these Terms and Conditions to be given or taken by Noteholders may be embodied
in and evidenced by one or more instruments of substantially similar tenor
signed by such Noteholders in person or by agents 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 Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Noteholders
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 these Terms and Conditions and conclusive in favor of the Company, if
made in the manner provided in this Condition.

     (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 witness, notary public or other 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 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 Company
deems sufficient.

     (C) Any Extraordinary Resolution, request, demand, authorization,
direction, notice, consent, waiver or other Act of the Holders of any Note shall
bind every future Holder of the same Note and the Holder of every Note issued
upon conversion or redemption thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done the Company or any
Paying or Conversion Agent in reliance thereon, whether or not notation of such
action is made upon such Note.

     (D) The Noteholders may convene a meeting at any time and from time to time
to consider any matter affecting the Holders of the Notes, including the
modification of the Terms and Conditions and to make, give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this these Terms and Conditions to be made, given or taken by
Holders of the Notes.

     (E) Notice of every meeting of the Holders of the Notes, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be given in the manner provided in Condition 15,
not less than 21 nor more than 180 days prior to the date fixed for the meeting.

     (F) To be entitled to vote at any meeting of Holders of the Notes, a Person
shall be (i) a Holder of one or more Outstanding Notes, or (ii) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Notes by such Holder or Holders. The only Persons who shall be
entitled to be present or to speak at any meeting of Noteholders shall be the
Persons entitled to vote at such meeting and their counsel, any representatives
of the Company, and their respective counsel.

                                       29

<PAGE>

     (G) The quorum at any meeting for passing any Extraordinary Resolution will
be one or more Persons present holding or representing 50% or more in principal
amount of the Outstanding Notes as of the date of the meeting, or at any
adjourned such meeting one or more Persons present whatever the principal amount
of the Notes held or represented by such Person and the vote required for
passing an Extraordinary Resolution at such meeting will be not less than a
majority of the principal amount of the Outstanding Notes and represented at
such meeting or adjournment thereof; provided, that at any meeting, the business
of which includes the modification of the provisions of the Terms and Conditions
and the provisions of these Terms and Conditions, the necessary quorum and vote
required for passing an Extraordinary Resolution will be one or more Persons
present holding or representing not less than a majority, or at any adjourned
such meeting not less than one-third, of the principal amount of the Outstanding
Notes. An Extraordinary Resolution passed at any meeting of the Holders of the
Notes will be binding on all Holders of the Notes, whether or not such
Noteholders are present at the meeting, and on the Holders of all Coupons.

17. Amendments to Terms and Conditions

     (A) Amendments with Consent of Noteholders

     With the consent of the Holders of a majority in principal amount of the
Notes Outstanding, the Company, when authorized by a Board Resolution, may amend
these Terms and Conditions for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions hereof or of
modifying in any manner the rights of the Noteholders hereunder; provided,
however, that no such amendment shall, without the consent of the Holder of each
Outstanding Note affected thereby:

          (1) change the Stated Maturity of the principal of, or any installment
     of principal of or interest on, any Note, or reduce the principal amount
     thereof or the rate of interest thereon, or change the coin or currency in
     which any Note or the interest thereon is payable, or impair the right to
     institute suit for the enforcement of any such payment after the Stated
     Maturity thereof (or, in the case of redemption, on or after the Redemption
     Date), or

          (2) reduce the percentage in principal amount of the Outstanding
     Notes, the consent of whose Holders is required for any amendment of these
     terms and conditions, or the consent of whose Holders is required for any
     waiver of compliance with certain provisions of these Terms and Conditions
     or certain defaults hereunder and their consequences provided for herein,
     or

          (3) modify any of the provisions of Condition 11(K), except to
     increase any such percentage or to provide that certain other provisions of
     these Terms and Conditions be modified or waived without the consent of the
     Holder of each Outstanding Note affected thereby,

          (4) modify any of the provisions of these Terms and Conditions
     relating to the subordination of the Notes in a manner adverse to the
     Holders thereof, or

          (5) modify any of the provisions of these Terms and Conditions
     relating to Conversion Rights or redemption rights.

     It shall not be necessary for any Act of Noteholders under this Section to
approve the particular form of any proposed amendment to the Terms and
Conditions, but it shall be sufficient if such Act shall approve the substance
thereof.

     (B) Effect of Amendments

     Upon the entering into of an amendment of these Terms and Conditions
pursuant to the terms hereof, these Terms and Conditions shall be modified in
accordance therewith, and amendment shall form a part of these Terms

                                       30

<PAGE>

and Conditions for all purposes; and every Holder of Notes theretofore or
thereafter delivered hereunder shall be bound thereby.

18. Governing Law

     The Notes, including these Terms and Conditions, the Coupons, and the
Agency Agreement are governed by, and will be construed in accordance with, the
laws of the State of New York.

19. Definitions of Certain Terms

     "Act," when used with respect to any Noteholder, has the meaning specified
in Condition 16.

     "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 and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.

     "Authenticating Agent" means The Bank of New York

     "Authorized Denomination" means U.S. $1,000.

     "Authorized Newspaper" means The Financial Times (European Edition) of
London, England. If such newspaper shall cease to be published, the Company
shall substitute for it another newspaper in Europe, customarily published at
least once a day for at least five (5) days in each calendar week, of general
circulation. If, because of temporary suspension of publication or general
circulation of such newspaper or for any other reason, it is impossible or, in
the opinion of the Company, impracticable to make any publication of any notice
required by these Conditions in the manner herein provided, such publication or
other notice in lieu thereof which is made by the Company in the exercise of its
reasonable discretion shall constitute a sufficient publication of such notice.

     "Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.

     "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is a day on which banking institutions in the City of New York, New York,
and London, England are not authorized or obliged by law, regulation or
executive order to close.

     "Capitalized Lease Obligation" means the amount of the liability under any
capital lease that, in accordance with GAAP, is required to be capitalized and
reflected as a liability on the balance sheet of the relevant Person.

     "Clearstream" means Clearstream, societe anonyme.

     "Commission" means the Securities and Exchange Commission, as from time to
time constituted or, if at any time after the Issue Date such Commission is not
existing, then the body performing similar duties at such time.

     "Common Depository" means the common depository appointed by Morgan
Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System, and Clearstream, societe anonyme, which shall initially be The
Bank of New York, including the nominees and successors of any Common
Depository.

     "Common Stock" means, with respect to any Person, any and all shares,
interests, participation and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the Issue Date, and includes, without limitation, all series and
classes of such common stock.

                                       31

<PAGE>

     "Company" means Harken Energy Corporation, until a successor Person shall
have become such pursuant to the applicable provisions of these Terms and
Conditions, and thereafter "Company" shall mean such successor Person.

     "Conversion Agent" means any Person (including the Company acting as
Conversion Agent) authorized by the Company to effect conversions of the Notes
on behalf of the Company. Pursuant to the terms hereof, the Company has
initially appointed The Bank of New York to act as the Conversion Agent.

     "Conversion Date" means the Business Day during the Conversion Period on
which the Conversion Right is exercised by delivery to the Conversion Agent of
the Note surrendered for conversion and the completed notice of a Noteholder's
intention to exercise its Conversion Right (as set forth in Exhibit A hereto)
with respect to any Note.

     "Conversion Period" means, with respect to any Note, the period which
begins after the earlier to occur of (I) the close of the effective date of a
Registration Statement filed by the Company with the Commission with respect to
the Shares or (II) the date such Shares may be sold pursuant to the exemption
from registration under the Securities Act provided by Rule 144 or other
exemption from registration under the Securities Act, and ends upon the earliest
to occur of (A) the second Business Day prior to the later of March 31, 2007, or
the date on which all principal and interest on the Note is repaid in full, (B)
if such Notes shall have been called for redemption pursuant to Condition 7 of
these Terms and Conditions, the close of the second Business Day prior to the
Redemption Date, or (C) the effective date of a Mandatory Conversion.

     "Conversion Price" means, in respect of a Conversion Right, initially U.S.
$0.50.

     "Conversion Right" means the right of a Holder of any Note to convert such
Note into Conversion Shares.

     "Conversion Shares" means the Shares into which the Notes are convertible.

     "Corporation" includes corporations, limited liability companies, limited
and general partnerships, associations, joint-stock companies and business
trusts.

     "Coupon" means bearer interest Coupons relating to the definitive Notes in
bearer form and any replacement Coupons issued therefore

     "Couponholder" means a Person who is the bearer of any Coupon.

     "Default Rate" means, with respect to the Notes, ten percent (10%) per
annum.

     "Effective Date" means the first Business Day following the date upon which
the Commission declares to be effective a registration statement filed by the
Company pursuant to the Securities Act relating to the Conversion Shares.

     "Euroclear" means the Euroclear System.

     "Extraordinary Resolution" means a resolution passed at a meeting of the
Noteholders duly convened and held in these Terms and Conditions.

     "Federal Bankruptcy Code" means the Bankruptcy Act or Title 11 of the
United States Code, as amended from time to time.

     "Freely Tradable" means, with respect to the Notes and the Conversion
Shares and redemption Shares, that under the Securities Act the holders thereof
may then offer and sell any amount of such outstanding securities to the public
in the United States without restrictions in transactions that are not brokers'
transactions (as defined in the Securities Act) either (i) pursuant to an
effective registration statement then in effect or (ii) pursuant to Rule 144(k).

                                       32

<PAGE>

For purposes of determining whether such securities are Freely Tradable, it
shall be assumed that no person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company has ever held such securities from and after their issuance.

     "Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as applied from time to
time by the Company and its Subsidiaries in the preparation of its financial
statements.

     "Guaranty" means all obligations of any Person (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation, of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including without
limitation all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any Property or assets constituting security therefor, or (ii) to advance or
supply funds (1) for the purchase or payment of such Indebtedness or obligation,
or (2) to enable the recipient of such funds to maintain certain financial
conditions (e.g. agreed amount of working capital) under loan or similar
documents, or (iii) to lease Property or to purchase securities or other
Property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under these Terms and
Conditions, a Guaranty in respect of any Indebtedness shall be deemed to be
Indebtedness equal to the principal amount and accrued interest of such
Indebtedness which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.

     "Holder or Noteholder" means a Person in whose name a Note is registered on
the Paying Agent's books, or if a Note is not in registered form, a Person who
is a bearer of a Note or Coupon, as the case may be.

     "Indebtedness" of any Person means and includes all present and future
obligations of such Person, which shall include all obligations (i) which in
accordance with generally accepted accounting principles in the United States
shall be classified upon a balance sheet of such Person as liabilities of such
Person, (ii) for borrowed money, (iii) which have been incurred in connection
with the acquisition of Property (including, without limitation, all obligations
of such Person evidenced by any debenture, bond, note, commercial paper or other
similar security, but excluding, in any case, obligations arising from the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection), (iv) secured by any Lien existing on Property owned by
such Person, even though such Person has not assumed or become liable for the
payment of such obligations, (v) created or arising under any conditional sale
or other title retention agreement with respect to Property acquired by such
Person, notwithstanding the fact that the rights and remedies of the seller,
lender or lessor under such agreement in the event of default are limited to
repossession or sale of such Property, (vi) which are Capitalized Lease
Obligations, (vii) for all Guaranties, whether or not reflected in the balance
sheet of such Person and (viii) which are all reimbursement and other payment
obligations (whether contingent, matured or otherwise) of such Person in respect
of any acceptance or documentary credit. Notwithstanding the foregoing,
Indebtedness shall not include (i) Indebtedness incidental to the operation of
the business of the Person in the ordinary course and in the aggregate not
material to the business and operations of the Person, (ii) Indebtedness for
which the Company or any of its Subsidiaries are the sole obligors and obligees,
and (iii) Indebtedness represented by purchase, rental or lease obligations not
to exceed $1,000,000 in any period of 12 months for any Person and its
Subsidiaries.

     "Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.

     "Issue Date" means January 28, 2003.

     "Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind whatsoever, including any interest in Property securing
an obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute or contract,
and including but not limited to the

                                       33

<PAGE>

security interest lien arising from a mortgage, encumbrance, pledge, conditional
sale or trust receipt or a lease, consignment or bailment for security purposes.
The term "Lien" shall include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting Property. For the purposes of these
Terms and Conditions, the Company or its Subsidiary shall be deemed to be the
owner of any Property which it has acquired or holds subject to a conditional
sale agreement, financing lease or other arrangement pursuant to which title to
the Property has been retained by or vested in some other Person for security
purposes.

     "Majority Holders" means the Holders of a majority of the principal amount
of Notes Outstanding.

     "Mandatory Conversion" means conversion of the Notes at the option of the
Company pursuant to Condition 6D.

     "Market Price" means the daily closing sale price of the Shares for a Stock
Exchange Business Day on a Stock Exchange.

     "Maturity," when used with respect to any Note, means the date on which the
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity or the Redemption Date and whether by declaration
of acceleration, call for redemption or otherwise.

     "Outstanding," when used with respect to Notes, means, as of the date of
determination, all Notes theretofore issued, except: (1) Notes heretofore
cancelled by the Paying and Conversion Agent or delivered to the Paying and
Conversion Agent for cancellation; (2) Notes, or portions thereof, for whose
payment or redemption money in the necessary amount has been theretofore
deposited any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the Holders of such Notes; provided that, if such Notes are to be
redeemed, notice of such redemption has been duly given or provision therefor
satisfactory to the a Paying Agent has been made; (3) Notes, except to the
extent provided in Conditions 13 (B) and 13(C), with respect to which the
Company has effected defeasance and/or covenant defeasance as provided in
Condition 13; and (4) Notes which have been paid pursuant to or in exchange for
or in lieu of which other Notes have been issued, however, that in determining
whether the Holders of the requisite principal amount of Outstanding Notes have
taken any Act or given or made any Extraordinary Resolution, Notes owned by the
Company or any other obligor upon the Notes or any Affiliate of the Company
(other than Persons whose Affiliate relationship arises solely from ownership of
Conversion Shares) or such other obligor shall be disregarded and deemed not to
be Outstanding.

     "Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of or interest on any
Notes on behalf of the Company. Pursuant to the terms and conditions hereof, the
Company has initially appointed The Bank of New York as the Paying Agent

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

     "Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued on or
after the Issue Date, and includes, without limitation, all classes and series
of preferred or preference stock.

     "Presentation Date" means the date on which a Note is presented by a
Noteholder for payment of principal or a Coupon is presented by the Couponholder
for payment of interest, as the case may be, or if such date is not a Business
Day in London and New York, the next date which is a Business Day in each of the
foregoing cities.

     "Property" or "Properties" means any kind of property or asset, whether
real, personal or mixed, or tangible or intangible, and any interest therein.

                                       34

<PAGE>

     "Record Date" means the 15th day preceding each Interest Payment Date
whether or not a Business Day.

     "Redemption Date," when used with respect to any Note to be redeemed, in
whole or in part, means the date fixed for such redemption by or pursuant to
these Terms and Conditions.

     "Redemption Price," when used with respect to any Note and Coupons to be
redeemed, means the price at which they are to be redeemed pursuant to the terms
hereof, plus accrued and upaid interest to, but excluding, the Redemption Date,
if applicable expressed in a number of Conversion Shares into which such Note
shall be converted in the event the Notes and/or Coupons are to be redeemed for
Shares and, in the event of any other redemption, a cash amount.

     "Relevant Date" means the date on which the payment first becomes due;
provided, that if the full amount of the money payable has not been received by
the Paying Agent on or before the due date, it shall mean the date on which, the
full amount of the money having been so received, notice to that effect shall
have been duly given to the Noteholders by the Company in accordance with
Condition 15.

     "Rule 144A" means Rule 144A, as amended, promulgated by the Commission
pursuant to the Securities Act.

     "Rule 144" means Rule 144, as amended, promulgated by the Commission
pursuant to the Securities Act.

     "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated from time to time by the Commission pursuant
thereto.

     "Shares" means the common stock, par value U.S. $0.01, of the Company (and
all other (if any) shares or stock resulting from any sub-division,
consolidation or reclassification of such shares).

     "Stated Maturity," when used with respect to any Indebtedness or any
installment of principal thereof or interest thereon, means the date specified
in such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of principal or interest is due and payable.

     "Stock Exchange" means any United States national or regional stock
exchange or quotation service such as NASDAQ National Market System or any
similar quotation service maintained by the National Quotation Bureau or any
successor thereto.

     "Stock Exchange Business Day" means any day (other than a Saturday or
Sunday) on which the a Stock Exchange is open for business.

     "Subordinated Obligation" means any Indebtedness of the Company outstanding
on such date which is contractually subordinate or junior in right of payment to
the Notes.

     "Subsidiary" of any Person means any Corporation of which at least a
majority of the shares of stock having by the terms thereof ordinary voting
power to elect a majority of the Board of Directors of such Corporation
(irrespective of whether or not at the time stock of any other class or classes
of such Corporation shall have or might have voting power by reason of the
happening of any contingency) is directly or indirectly owned or controlled by
the Person.

     "U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository

                                       35

<PAGE>

receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act),
as custodian with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government Obligation held
by such custodian for the account of the holder of such depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt.

         The Paying Agent and Conversion Agent is:

         The Bank of New York
         Attention:  Global Finance Unit
         101 Barclay, Floor 21W
         New York, New York 10286

                                       36

<PAGE>

                                   SCHEDULE A

                      Principal Amount of this Global Note

         The aggregate principal amount of this Global Note is as shown by the
latest entry made by or on behalf of the Paying Agent in the fourth column
below. Reductions in the outstanding principal amount of this Global Note
following redemption, conversion into shares of Common Stock, or the purchase
and cancellation of Notes are entered in the second and third columns below.

<TABLE>
<CAPTION>

                                                                       Outstanding
                        Reasons for change in                          principal            Notation made by or on
                           The outstanding                           Amount of this       Behalf of the Paying Agent
                         Principal amount of                             Global                  (other than
                               Global              Amount of       Note following such    In respect of the initial
         Date                   Note              Such change            Change                 Principal amount
--------------------------------------------------------------------------------------------------------------------
<S>                     <C>                       <C>              <C>                   <C>
..       , 2003              Not applicable         Not applicable                          Not applicable
--------------------------------------------------------------------------------------------------------------------

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

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

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

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

--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       37

<PAGE>

                                   SCHEDULE B

                Interest Payments in respect of this Global Note

The following payments of interest in respect of this Global Note have been
made:

<TABLE>
<CAPTION>

                          Amounts of interest                                  Notation made by and on behalf of the
      Date made             Due and payable        Amount of interest paid                 Paying Agent
---------------------------------------------------------------------------------------------------------------------
<S>                      <C>                      <C>                         <C>

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

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

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

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

---------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       38

<PAGE>

                                    EXHIBIT A

                           HOLDER'S CONVERSION NOTICE

To: [Conversion Agent]

     The undersigned Holder of the 7% Senior Convertible Notes Due 2007, Series
E (the "Notes") in the aggregate principal amount of U.S. $__________ tendered
herewith hereby irrevocably exercises the option to convert such Note(s) into
shares of Common Stock in accordance with the Terms and Conditions of the Notes
relating to the issuance by Harken Energy Corporation of an aggregate of U.S.
$1,420,000 of the Notes and directs that the Conversion Shares issuable and
deliverable upon such conversion be issued and delivered to the undersigned in
the name and at the address set forth below.

     If the Conversion Shares are to be issued in the name of a Person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith a certificate in proper form
certifying that the applicable restrictions on transfer have been complied with.

     All terms used and not otherwise defined herein have the respective
meanings set forth in the Terms and Conditions.

     DATE: _____________________

                                        -----------------------------------
                                        Name of Holder

                                        -----------------------------------
                                        Signature(s) of Holder

Address for Delivery
of Share Certificates

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

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

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

Name for Registration
of Share Certificates (if
Different than Holder):

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

                                      A-1

<PAGE>

                                    EXHIBIT B

                           COMPANY'S CONVERSION NOTICE

To: Conversion Agent

     Harken Energy Corporation (the "Company") hereby irrevocably exercises the
option to convert all of the 7% Senior Convertible Notes Due 2007, Series E (the
"Notes") of the Company that have not been previously converted and are
Outstanding at the date of this notice into shares of its Common Stock, in
accordance with the Terms and Conditions, pursuant to which the Company has
issued an aggregate of U.S. $1,420,000 of the Notes, and confirms that the
Conversion Shares issuable and deliverable upon conversion shall be issued and
delivered to the Noteholders in accordance with the instructions for
registration and delivery of the Conversion Shares to each Holder, to be
provided by each Holder to the Conversion Agent.

     The Company is entitled to exercise its option to convert because (i)
ninety (90) days has elapsed from the Effective Date, (ii) the average of the
Market Price of the Common Stock over the Stock Exchange Business Days during
the thirty (30) consecutive calendar day period beginning on ___________ and
ending on __________ (being a date after the Effective Date) equaled or exceeded
125% of the Conversion Price, and (iii) the Conversion Shares were Freely
Tradeable on the date such threshold was met and for the 30 calendar day period
after such date.

     All terms used and not otherwise defined herein shall have the respective
meanings set forth in the Terms and Conditions.

DATE:                                   HARKEN ENERGY CORPORATION
       --------------------

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

                                      B-1

<PAGE>

                                    EXHIBIT C

                    COMPANY'S NOTICE OF REDEMPTION FOR SHARES

To: [Paying and Conversion Agent]

     Harken Energy Corporation (the "Company") hereby irrevocably exercises the
option to convert _______ United States dollars (U.S. $__________) principal
amount of the 7% Senior Convertible Notes Due 2007, Series E (the "Notes") of
the Company that have not been previously converted and are Outstanding at the
date of this notice into shares of its Common Stock, in accordance with the
Terms and Conditions, pursuant to which the Company has issued an aggregate of
U.S. $2,000,000 of the Notes, and confirms that the Conversion Shares issuable
and deliverable upon conversion shall be issued and delivered to the Noteholders
in accordance with the instructions for registration and delivery of the
Conversion Shares to each Holder, to be provided by each Holder to the
Conversion Agent.

     Each Note so redeemed will be redeemed for the number of Shares of Common
Stock equal to 110% of the face value of the Note plus interest accrued and
unpaid thereon divided by US $__________, which represents the average of the
Market Price of the Common Stock over the 120 Stock Exchange Days day period
immediately preceding the pricing date.

         All terms used and not otherwise defined herein shall have the
resIpective meanings set forth in the Terms and Conditions.

DATE:    __________________           HARKEN ENERGY CORPORATION

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

                                      C-1EXHIBIT 10.9

                                                                  Execution Copy

                                7,000,000 SHARES

                             DENBURY RESOURCES INC.

                                  COMMON STOCK

                             UNDERWRITING AGREEMENT

                                                               November 21, 2002

LEHMAN BROTHERS INC.
CIBC WORLD MARKETS CORP.
RAYMOND JAMES AND ASSOCIATES,
INC.
JOHNSON RICE & ASSOCIATES, L.L.C.
         As Representatives of the several
         Underwriters named in Schedule 1 hereto
c/o Lehman Brothers Inc.
745 Seventh Avenue
New York, NY 10019

Dear Sirs:

     Certain stockholders of Denbury Resources Inc., a Delaware corporation (the
"COMPANY"), named in Schedule 2 hereto (the "SELLING STOCKHOLDERS"),  propose to
sell an aggregate of 7,000,000 shares (the "FIRM Stock") of the Company's common
stock, par value $.001 per share (the "COMMON STOCK"). In addition,  the Selling
Stockholders  propose to grant to the  underwriters  named in  Schedule 1 hereto
(the  "UNDERWRITERS"),  an option to purchase up to an additional 500,000 shares
of the Common  Stock,  in the  aggregate,  on the terms and for the purposes set
forth in Section 3 below  (the  "OPTION  STOCK").  The Firm Stock and the Option
Stock, if purchased, are hereinafter collectively called the "STOCK." This is to
confirm the agreement  concerning the purchase of the Stock from the Company and
the Selling Stockholders by the Underwriters.

     1.  Representations,  Warranties and Agreements of the Company. The Company
represents, warrants and agrees that:

          (a) A  registration  statement on Form S-3 (File No.  333-57382)  with
     respect to the Stock has (i) been  prepared  by the  Company in  conformity
     with the  requirements  of the  Securities  Act of 1933,  as  amended  (the
     "SECURITIES   ACT"),   and  the  rules  and  regulations  (the  "RULES  AND
     REGULATIONS") of the Securities and Exchange  Commission (the "COMMISSION")
     thereunder,  (ii) been filed with the  Commission  under the Securities Act
     and  (iii)  become  effective  under  the  Securities  Act.  Copies of such
     registration  statement and  amendments  thereto have been delivered by the
     Company  to you  as  the  representatives  (the  "REPRESENTATIVES")  of the
     Underwriters.  As used in this Agreement,

<PAGE>

     "EFFECTIVE TIME" means the date and the time as of which such  registration
     statement, or the most recent post-effective amendment thereto, if any, was
     declared  effective by the Commission;  "EFFECTIVE  DATE" means the date of
     the Effective Time; "PRELIMINARY PROSPECTUS" means each prospectus included
     in such registration  statement,  or amendments  thereto,  before it became
     effective  under  the  Securities  Act and any  prospectus  filed  with the
     Commission by the Company with the consent of the Representatives  pursuant
     to Rule 424(a) of the Rules and Regulations; "REGISTRATION STATEMENT" means
     such registration  statement,  as amended at the Effective Time,  including
     all information contained in the final prospectus filed with the Commission
     pursuant  to Rule  424(b) of the Rules and  Regulations  and deemed to be a
     part of the  registration  statement as of the  Effective  Time pursuant to
     paragraph (b) of Rule 430A of the Rules and  Regulations;  and "PROSPECTUS"
     means the  prospectus  supplement and the  accompanying  prospectus and all
     information  incorporated  by reference  therein at such time,  in the form
     first  used to  confirm  sales  of  Stock.  Reference  made  herein  to any
     Preliminary Prospectus or to the Prospectus shall be deemed to refer to and
     include any documents incorporated by reference therein pursuant to item 12
     of Form S-3 under the  Securities  Act, as of the date of such  Preliminary
     Prospectus or the Prospectus,  as the case may be, and any reference to any
     amendment or supplement  to any  Preliminary  Prospectus or the  Prospectus
     shall be  deemed  to refer to and  include  any  document  filed  under the
     Securities Exchange Act of 1934, as amended ("EXCHANGE ACT") after the date
     of such Preliminary  Prospectus or the Prospectus,  as the case may be, and
     incorporated by reference in the Preliminary  Prospectus or the Prospectus,
     as the case may be; and any reference to any amendment to the  Registration
     Statement  shall be deemed to include  any  periodic  report of the Company
     filed  with  the  Commission  pursuant  to  Section  13(a)  or 15(d) of the
     Exchange Act after the Effective Time that is  incorporated by reference in
     the  Registration  Statement.  The  Commission  has not  issued  any  order
     preventing or suspending the use of any Preliminary Prospectus.

          (b) The Registration  Statement  conforms,  and the Prospectus and any
     further  amendments or  supplements  to the  Registration  Statement or the
     Prospectus  will,  when  they  become  effective  or  are  filed  with  the
     Commission,  as the case may be,  conform in all  material  respects to the
     requirements of the Securities Act and the Rules and Regulations and do not
     and will not, as of the applicable  Effective Date (as to the  Registration
     Statement and any amendment  thereto) and as of the applicable  filing date
     (as to the Prospectus and any amendment or supplement  thereto)  contain an
     untrue  statement  of a  material  fact or omit to  state a  material  fact
     required to be stated therein or necessary to make the  statements  therein
     not misleading;  provided that no  representation or warranty is made as to
     information contained in or omitted from the Registration  Statement or the
     Prospectus  in reliance  upon and in  conformity  with written  information
     furnished to the Company through the Representatives by or on behalf of any
     Underwriter specifically for inclusion therein.

          (c) The documents  incorporated by reference in the  Prospectus,  when
     they were filed with the Commission,  conformed in all material respects to
     the  requirements  of the Exchange Act and the Rules and  Regulations,  and
     none of such  documents  contained an untrue  statement of material fact or
     omitted to state a material fact required to be stated therein or necessary
     to make the statements therein not misleading; and any further

                                      -2-

<PAGE>

     documents so filed and  incorporated by reference in the  Prospectus,  when
     such documents are filed with the Commission,  will conform in all material
     respects  to the  requirements  of the  Exchange  Act  and  the  rules  and
     regulations  thereunder  and will not  contain  any untrue  statement  of a
     material  fact or omit to  state a  material  fact  required  to be  stated
     therein or necessary to make the statements therein not misleading.

          (d) The  Company and each of its  subsidiaries  (as defined in Section
     17) have been duly  incorporated or formed, as the case may be, and validly
     existing as their respective  business  entities and in good standing under
     the laws of their  respective  jurisdictions of incorporation or formation,
     as the  case may be,  are duly  qualified  to do  business  and are in good
     standing as foreign  corporations  or limited  liability  companies in each
     jurisdiction  in which their  respective  ownership or lease of property or
     the conduct of their  respective  businesses  requires  such  qualification
     (except where the failure to so qualify or be in good standing as a foreign
     corporation or limited  liability company would not have a material adverse
     effect on the consolidated  financial  position,  stockholders' or members'
     equity (as the case may be), results of operation, business or prospects of
     the Company and its subsidiaries, taken as a whole), and have all power and
     authority  necessary  to own or hold  their  respective  properties  and to
     conduct  the  businesses  in  which  they  are  engaged;  and  none  of the
     subsidiaries  of  the  Company  other  than  Denbury  Offshore,  Inc.  is a
     "SIGNIFICANT SUBSIDIARY",  as such term is defined in Rule 405 of the Rules
     and Regulations under the Securities Act.

          (e) The Company has an authorized  capitalization  as set forth in the
     Prospectus,  and all of the issued  shares of capital  stock of the Company
     have  been duly and  validly  authorized  and  issued,  are fully  paid and
     non-assessable  and conform to the  description  thereof  contained  in the
     Prospectus;  and  all of  the  issued  shares  of  capital  stock  of  each
     subsidiary of the Company have been duly and validly  authorized and issued
     and are fully paid and non-assessable and (except for directors' qualifying
     shares) are owned directly or indirectly by the Company,  free and clear of
     all liens, encumbrances, equities or claims.

          (f) The shares of Stock to be sold by the Selling  Stockholders to the
     Underwriters hereunder have been duly and validly authorized.

          (g) This Agreement has been duly authorized, executed and delivered by
     the Company.

          (h) The execution,  delivery and  performance of this Agreement by the
     Company and the consummation of the transactions  contemplated  hereby will
     not conflict with or result in a breach or violation of any of the terms or
     provisions of, or constitute a default under, any indenture, mortgage, deed
     of trust, loan agreement or other agreement or instrument, which violation,
     breach or conflict would have a material adverse effect on the consolidated
     financial position,  stockholders' or members' equity (as the case may be),
     results  of  operation,  business  or  prospects  of the  Company  and  its
     subsidiaries,  taken  as a  whole,  to  which  the  Company  or  any of its
     subsidiaries is a party or by which the Company or any of its  subsidiaries
     is bound or to which any of the property or assets of the Company or any of
     its subsidiaries is subject,  nor will such

                                      -3-

<PAGE>

     actions result in any violation of the provisions of the charter or by-laws
     of the Company or any of its subsidiaries or any statute or any order, rule
     or  regulation  of  any  court  or  governmental   agency  or  body  having
     jurisdiction  over the Company or any of its  subsidiaries  or any of their
     properties or assets;  and except for the  registration  of the Stock under
     the   Securities  Act  and  such   consents,   approvals,   authorizations,
     registrations or  qualifications  as may be required under the Exchange Act
     and applicable  state  securities  laws in connection with the purchase and
     distribution  of the  Stock  by the  Underwriters,  no  consent,  approval,
     authorization  or order of, or filing or registration  with, any such court
     or governmental agency or body is required for the execution,  delivery and
     performance  of this Agreement by the Company and the  consummation  of the
     transactions contemplated hereby other than those that have been obtained.

          (i) Except as described  in the  Prospectus,  there are no  contracts,
     agreements or  understandings  between the Company and any person  granting
     such  person  the right  (other  than  rights  which  have  been  waived or
     satisfied) to require the Company to file a  registration  statement  under
     the  Securities  Act with respect to any securities of the Company owned or
     to be owned by such  person or to  require  the  Company  to  include  such
     securities  in the  securities  registered  pursuant  to  the  Registration
     Statement  or in any  securities  being  registered  pursuant  to any other
     registration statement filed by the Company under the Securities Act.

          (j) Except as set forth in the Prospectus, the Company has not sold or
     issued any shares of Common Stock during the six-month period preceding the
     date of the Prospectus, including any sales pursuant to Rule 144A under, or
     Regulations D or S of, the Securities Act other than shares issued pursuant
     to director  compensation  plans,  employee benefit plans,  qualified stock
     options  plans  or  other  employee   compensation  plans  or  pursuant  to
     outstanding options, rights or warrants.

          (k) Neither the Company  nor any of its  subsidiaries  has  sustained,
     since the date of the latest audited financial  statements  included in the
     Prospectus,  any material loss or interference with its business from fire,
     explosion, flood or other calamity, whether or not covered by insurance, or
     from any labor dispute or court or  governmental  action,  order or decree,
     otherwise than as set forth or contemplated  in the Prospectus,  and, since
     such date,  there has not been any change in the capital  stock (except for
     exercises of options since such date under the Company's  existing director
     compensation plans, existing stock option plan and issuances of stock under
     the  Company's  existing  stock  purchase  plan) or  long-term  debt of the
     Company or any of its subsidiaries or any material  adverse change,  or any
     development   involving  a  prospective  material  adverse  change,  in  or
     affecting  the  management,  financial  position,  stockholders'  equity or
     results  of  operations,  business  or  prospects  of the  Company  and its
     subsidiaries, taken as a whole, otherwise than as set forth or contemplated
     in the Prospectus.

          (l)  The  financial  statements   (including  the  related  notes  and
     supporting  schedules),  filed  as part of the  Registration  Statement  or
     included in the  Prospectus  present  fairly the  financial  condition  and
     results of operations of the entities purported to be shown thereby, at the
     dates and for the periods  indicated,  and have been prepared in

                                      -4-
<PAGE>

     conformity  with  generally  accepted  accounting  principles  applied on a
     consistent basis throughout the periods involved.

          (m) Deloitte & Touche  L.L.P.,  who have certified  certain  financial
     statements of the Company,  whose reports  appear in the Prospectus and who
     has  delivered  one of the  initial  letters  referred  to in Section  9(g)
     hereof, are and have been independent public accountants as required by the
     Securities Act and the Rules and Regulations, during the periods covered by
     the financial statements on which they reported.

          (n) DeGolyer and MacNaughton,  whose reserve audits or evaluations are
     referenced or appear,  as the case may be, in the  Prospectus  and who have
     delivered  the letters  referred to in Section  9(i)  hereof,  were,  as of
     December 31, 2000 and December 31, 2001, as the case may be, and are, as of
     the date hereof,  independent engineers with respect to the Company and its
     subsidiaries.

          (o) The  Company  and  each  of its  subsidiaries  has  (1)  generally
     satisfactory or good and indefeasible title to all its interests in its oil
     and gas properties,  title investigations  having been carried out by or on
     behalf of such person in  accordance  with good practice in the oil and gas
     industry in the areas in which such  properties  are located,  (2) good and
     marketable  title in fee simple to all of its other real property,  and (3)
     good and  marketable  title to all personal  property  owned by it, in each
     case free and clear of all liens,  encumbrances  and defects except such as
     are  described in the  Prospectus or such as do not  materially  affect the
     value of such  properties as a whole and do not  materially  interfere with
     the use made and proposed to be made of such  properties  as a whole by the
     Company and its  subsidiaries;  and all real  properties and buildings held
     under  lease by the  Company  and its  subsidiaries  are held by them under
     valid,  subsisting and enforceable  leases, with such exceptions as are not
     material and do not interfere  with the use made and proposed to be made of
     such   properties  and  buildings  as  a  whole  by  the  Company  and  its
     subsidiaries.

          (p) The  Company  and  its  subsidiaries  carry,  or are  covered  by,
     insurance in such amounts and covering such risks as the Company reasonably
     believes is adequate for the conduct of their respective businesses and the
     value of their respective properties and is customary for companies engaged
     in  similar  businesses  in similar  industries.

          (q) The Company and its subsidiaries own or possess adequate rights to
     use all material patents, patent applications,  trademarks,  service marks,
     trade  names,   trademark   registrations,   service  mark   registrations,
     copyrights  and  licenses  necessary  for the  conduct of their  respective
     businesses  and  have no  reason  to  believe  that  the  conduct  of their
     respective  businesses will conflict with, and have not received any notice
     of any claim of conflict with, any such rights of others.

          (r)  Except  as  described  in the  Prospectus,  there are no legal or
     governmental  proceedings  pending  to  which  the  Company  or  any of its
     subsidiaries  is a party or of which any  property or assets of the Company
     or any of its subsidiaries is the subject which, if determined adversely to
     the Company or any of its  subsidiaries,  would be  reasonably  expected to
     have a material  adverse  effect on the  consolidated  financial

                                      -5-

<PAGE>

     position,   stockholders'  equity,  results  of  operations,   business  or
     prospects of the Company and its  subsidiaries,  taken as a whole;  and, to
     the best of the Company's knowledge,  no such proceedings are threatened or
     contemplated by governmental authorities or threatened by others.

          (s) The  conditions  for use of Form S-3,  as set forth in the General
     Instructions thereto, have been satisfied.

          (t) There are no contracts or other documents which are required to be
     described  in the  Prospectus  or filed  as  exhibits  to the  Registration
     Statement by the Securities Act or by the Rules and Regulations  which have
     not  been  described  in  the  Prospectus  or  filed  as  exhibits  to  the
     Registration Statement or incorporated therein by reference as permitted by
     the Rules and Regulations.

          (u) No relationship,  direct or indirect,  exists between or among the
     Company  on the  one  hand,  and  the  directors,  officers,  stockholders,
     customers or suppliers of the Company on the other hand,  which is required
     to be described in the Prospectus which is not so described.

          (v) No labor disturbance by the employees of the Company exists or, to
     the  knowledge  of the  Company,  is  imminent  which  might be  reasonably
     expected to have a material adverse effect on the management,  consolidated
     financial position,  stockholders' equity, results of operations,  business
     or prospects of the Company and its subsidiaries, taken as a whole.

          (w) The Company is in  compliance  in all material  respects  with all
     presently applicable  provisions of the Employee Retirement Income Security
     Act  of  1974,  as  amended,   including  the   regulations  and  published
     interpretations  thereunder ("ERISA"); no "REPORTABLE EVENT" (as defined in
     ERISA) has  occurred  with  respect to any  "PENSION  PLAN" (as  defined in
     ERISA) for which the Company would have any material liability; the Company
     has not incurred and does not expect to incur any material  liability under
     (I) TITLE IV OF ERISA WITH RESPECT TO TERMINATION  OF, OR WITHDRAWAL  FROM,
     ANY "pension plan" or (ii) Section 412 or 4971 of the Internal Revenue Code
     of  1986,   as   amended,   including   the   regulations   and   published
     interpretations  thereunder (the "CODE"); and each "PENSION PLAN" for which
     the  Company  would have any  material  liability  that is  intended  to be
     qualified  under Section 401(a) of the Code is so qualified in all material
     respects and, to the best of the Company's knowledge, nothing has occurred,
     whether by action or by failure to act,  which would cause the loss of such
     qualification.

          (x) The Company and its subsidiaries have filed all federal, state and
     local income and  franchise  tax returns  required to be filed  through the
     date  hereof or have filed for  appropriate  extensions  for such taxes and
     have paid all taxes due thereon,  and no tax deficiency has been determined
     adversely to the Company or any of its subsidiaries which has had (nor does
     the Company have any knowledge of any tax deficiency  which,  if determined
     adversely to the Company or any of its subsidiaries, might have) a material
     adverse  effect  on  the  consolidated  financial  position,  stockholders'
     equity, results of operations, business or prospects of the Company and its
     subsidiaries, taken as a whole.

                                      -6-

<PAGE>

          (y) Since the date as of which  information is given in the Prospectus
     through the date  hereof,  and except as may  otherwise be disclosed in the
     Prospectus,  the Company has not (i) except for  exercises of options since
     such date  under the  Company's  existing  director  compensation  plans or
     existing  stock  option plan and  issuances  of stock  under the  Company's
     existing  stock  purchase  plan,  issued or granted  any  securities,  (ii)
     incurred any  liability or  obligation,  direct or  contingent,  other than
     liabilities and  obligations  which were incurred in the ordinary course of
     business,  (iii) entered into any transaction not in the ordinary course of
     business or (iv) declared or paid any dividend on its capital stock.

          (z) The  Company  (i) makes and keeps  accurate  books and records and
     (ii)  maintains  internal  accounting  controls  which  provide  reasonable
     assurance   that  (A)   transactions   are  executed  in  accordance   with
     management's  authorization,  (B) transactions are recorded as necessary to
     permit   preparation   of  its   financial   statements   and  to  maintain
     accountability  for its assets,  (C) access to its assets is permitted only
     in  accordance  with  management's   authorization  and  (D)  the  reported
     accountability   for  its  assets  is  compared  with  existing  assets  at
     reasonable intervals.

          (aa)  Neither  the  Company  nor  any  of its  subsidiaries  (i) is in
     violation of its charter or by-laws, (ii) is in default in any respect, and
     no event has occurred  which,  with notice or lapse of time or both,  would
     constitute  such a default,  in the due  performance  or  observance of any
     term, covenant or condition contained in any indenture,  mortgage,  deed of
     trust,  loan  agreement or other  agreement or  instrument to which it is a
     party or by which it is bound or to which any of its  properties  or assets
     is subject or (iii) is in violation  in any respect of any law,  ordinance,
     governmental  rule,  regulation or court decree to which it or its property
     or assets  may be subject  or has  failed to obtain  any  license,  permit,
     certificate,  franchise  or  other  governmental  authorization  or  permit
     necessary  to the  ownership  of its  property  or to  the  conduct  of its
     business,  expect,  in the cases of clauses (ii) and (iii),  such defaults,
     events,  violations or failures that in the aggregate  might  reasonably be
     expected to have a material adverse effect on the management,  consolidated
     financial position,  stockholders' equity, results of operations,  business
     or prospects of the Company and its subsidiaries, taken as a whole.

          (bb) The course of conduct of the Company in transactions  between the
     Company and its subsidiaries on one hand, and Genesis  Partners,  L.P. (the
     "PARTNERSHIP")   and  its   subsidiaries  on  the  other  hand,  since  the
     acquisition  by the Company of Genesis  Energy LLC, the general  partner of
     the  Partnership,  has at all  times  been  "fair  and  reasonable"  to the
     Partnership, as determined within the context of Section 7.9 of the limited
     partnership agreement of the Partnership.

          (cc) There has been no  storage,  disposal,  generation,  manufacture,
     refinement, transportation,  handling or treatment of toxic wastes, medical
     wastes,  hazardous wastes or hazardous  substances by the Company or any of
     its  subsidiaries  (or,  to the  knowledge  of the  Company,  any of  their
     predecessors  in  interest)  at,  upon or from any of the  property  now or
     previously  owned or leased by the Company or its subsidiaries in violation
     of any applicable law, ordinance, rule,

                                      -7-

<PAGE>

     regulation,  order,  judgment,  decree  or permit  or which  would  require
     remedial  action under any applicable  law,  ordinance,  rule,  regulation,
     order,  judgment,  decree or permit,  except for any  violation or remedial
     action  which would not have,  or could not be  reasonably  likely to have,
     singularly  or in the  aggregate  with all  such  violations  and  remedial
     actions,  a  material  adverse  effect  on  the  management,   consolidated
     financial position,  stockholders' equity, results of operations,  business
     or prospects of the Company and its subsidiaries, taken as whole; there has
     been no material  spill,  discharge,  leak,  emission,  injection,  escape,
     dumping or release of any kind onto such  property or into the  environment
     surrounding  such  property  of any toxic  wastes,  medical  wastes,  solid
     wastes,  hazardous  wastes or hazardous  substances due to or caused by the
     Company or any of its  subsidiaries or with respect to which the Company or
     any  of its  subsidiaries  have  knowledge,  except  for  any  such  spill,
     discharge,  leak,  emission,  injection,  escape,  dumping or release which
     would not have or would not be reasonably likely to have,  singularly or in
     the  aggregate  with  all  such  spills,   discharges,   leaks,  emissions,
     injections,  escapes,  dumpings and releases,  a material adverse effect on
     the management,  consolidated  financial  position,  stockholders'  equity,
     results  of  operations,  business  or  prospects  of the  Company  and its
     subsidiaries,  taken as a whole; and the terms "HAZARDOUS  WASTES",  "TOXIC
     WASTES",  "HAZARDOUS  SUBSTANCES"  and  "MEDICAL  WASTES"  shall  have  the
     meanings specified in any applicable local, state, federal and foreign laws
     or regulations  with respect to  environmental  protection  ("ENVIRONMENTAL
     LAWS").

          (dd) Neither the Company nor any subsidiary is an "INVESTMENT COMPANY"
     as defined in the Investment Company Act of 1940, as amended.

          (ee) Except as  described  in the  Prospectus,  no  subsidiary  of the
     Company is currently  prohibited,  directly or indirectly,  from paying any
     dividends  to the  Company,  from  making  any other  distribution  on such
     subsidiary's  capital  stock,  from  repaying  to the  Company any loans or
     advances to such  subsidiary from the Company or from  transferring  any of
     such subsidiary's property or assets to the Company or any other subsidiary
     of the Company.

          (ff)  The  Company  and  its   subsidiaries   possess  all   licenses,
     certificates,  permits and other  authorizations  issued by the appropriate
     federal,  state or foreign regulatory  authorities  ("PERMIT" or "PERMITS")
     necessary  for the  ownership  of  property  or assets or to conduct  their
     respective  businesses  except where the failure to have such Permits would
     not  reasonably  be  expected  to have a  material  adverse  effect  on the
     management,  consolidated financial position, stockholders' equity, results
     of operations,  business or prospects of the Company and its  subsidiaries,
     taken as a whole;  neither  the  Company  nor any of its  subsidiaries  has
     received  any  notice  of   proceedings   relating  to  the  revocation  or
     modification of any such Permit which,  singly or in the aggregate,  if the
     subject  of an  unfavorable  decision,  ruling  or  finding,  would  have a
     material adverse effect on the management, consolidated financial position,
     stockholders' equity,  results of operations,  business or prospects of the
     Company and its subsidiaries, taken as a whole; the Company and each of its
     subsidiaries  has operated and is operating its business in compliance with
     and not in  violation of any of its  obligations  with respect to each such
     Permit except where such violation would not reasonably be expected to have
     a  material  adverse  effect  on  the  management,  consolidated  financial
     position,   stockholders'  equity,  results  of  operations,   business  or
     prospects of the Company and its  subsidiaries,  taken as

                                      -8-

<PAGE>

     a whole;  no event has occurred  which allows,  or after notice or lapse of
     time or both would allow,  revocation or  termination of any such Permit or
     result in any other  impairment  of the rights of the Company or any of its
     subsidiaries  under  any  such  Permit,   subject  in  each  case  to  such
     qualification  as described in the Prospectus;  and, except as described in
     the Prospectus, such permits contain no restrictions that are burdensome to
     the Company or any of its subsidiaries  except for restrictions  that would
     not,  singly or in the  aggregate,  have a material  adverse  effect on the
     management,  consolidated financial position, stockholders' equity, results
     of operations,  business or prospects of the Company and its  subsidiaries,
     taken as a whole.

     Any  certificate  signed by any officer of the Company and delivered to the
Representatives  or counsel for the Underwriters in connection with the offering
of the Stock shall be deemed a representation and warranty by the Company, as to
matters covered thereby, to each Underwriter.

     2. Representations,  Warranties and Agreements of the Selling Stockholders.
Each Selling Stockholder severally,  and not jointly,  represents,  warrants and
agrees that:

          (a)  The  Selling  Stockholder  has,  and  immediately  prior  to each
     Delivery Date (as defined in Section 5 hereof) the Selling Stockholder will
     have, good and valid title to the shares of Stock to be sold by the Selling
     Stockholder   hereunder  on  such  date,  free  and  clear  of  all  liens,
     encumbrances,  equities  or claims;  and upon  delivery  of such shares and
     payment  therefor  pursuant  hereto  and  thereto  (and  assuming  that the
     Underwriters  acquire the shares of Stock without any notice of any adverse
     claim (within the meaning of Section 8-105 of the Uniform  Commercial Code)
     that has been created by the  Underwriters  or their  Affiliates)  good and
     valid  title to such  shares,  free and clear of all  liens,  encumbrances,
     equities or claims, will pass to the several Underwriters.

          (b) The  Selling  Stockholder  has full right,  partnership  power and
     authority  to enter  into  this  Agreement;  the  execution,  delivery  and
     performance  of  this  Agreement  by  the  Selling   Stockholder   and  the
     consummation by the Selling  Stockholder of the  transactions  contemplated
     hereby will not conflict  with or result in a breach or violation of any of
     the terms or  provisions  of, or constitute a default  under,  any material
     indenture,  mortgage,  deed of trust,  loan agreement or other agreement or
     instrument  to which  the  Selling  Stockholder  is a party or by which the
     Selling  Stockholder  is bound or to which any of the property or assets of
     the Selling  Stockholder  is subject,  nor will such actions  result in any
     violation of the provisions of the  certificate  of limited  partnership or
     the partnership agreement of the Selling Stockholder, or any statute or any
     order,  rule or  regulation  of any  court or  governmental  agency or body
     having  jurisdiction over the Selling Stockholder or the property or assets
     of the Selling  Stockholder;  and, except for the registration of the Stock
     under the  Securities  Act and such  consents,  approvals,  authorizations,
     registrations,  filings  or  qualifications  as may be  required  under the
     Exchange Act and applicable  state  securities  laws in connection with the
     purchase and  distribution  of the Stock by the  Underwriters,  no consent,
     approval,  authorization  or order of, or filing or registration  with, any
     such court or  governmental  agency or body is required for the  execution,
     delivery and  performance of this Agreement by the Selling

                                      -9-

<PAGE>

     Stockholder  and  the  consummation  by  the  Selling  Stockholder  of  the
     transactions contemplated hereby and thereby.

          (c) The  Registration  Statement  and the  Prospectus  and any further
     amendments or supplements to the Registration  Statement or the Prospectus,
     when they become  effective or are filed with the  Commission,  as the case
     may be, do not and will not, as of the applicable Effective Date (as to the
     Registration  Statement and any amendment thereto) and as of the applicable
     filing date (as to the Prospectus and any amendment or supplement  thereto)
     contain an untrue  statement of a material fact or omit to state a material
     fact  required to be stated  therein or  necessary  to make the  statements
     therein not misleading;  provided,  however, the foregoing  representations
     and  warranties  shall  only  apply  to  statements  or  omissions  in  the
     Registration  Statement  or the  Prospectus  made in  reliance  upon and in
     conformity with information relating to such Selling Stockholder  furnished
     to the Company in writing by such  Selling  Stockholder  expressly  for use
     therein; and provided,  further, that no representation or warranty is made
     as to information  contained in or omitted from the Registration  Statement
     or  the  Prospectus  in  reliance  upon  and  in  conformity  with  written
     information  furnished to the Company through the  Representatives by or on
     behalf of any Underwriter specifically for inclusion therein.

          (d) The Selling  Stockholder has not taken and will not take, directly
     or indirectly,  any action which is designed to or which has constituted or
     which might reasonably be expected to cause or result in the  stabilization
     or  manipulation  of the price of any security of the Company to facilitate
     the sale or resale of the shares of the Stock.

     3.  Purchase  of  the  Stock  by the  Underwriters.  On  the  basis  of the
representations  and  warranties  contained  in,  and  subject  to the terms and
conditions of, this Agreement,  each Selling  Stockholder  hereby agrees to sell
the  number of shares of the Firm  Stock set  opposite  its name in  Schedule  2
hereto,  severally and not jointly, to the several  Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase the number of shares
of the Firm Stock set  opposite  that  Underwriter's  name in Schedule 1 hereto.
Each  Underwriter  shall be obligated to purchase from each Selling  Stockholder
that number of shares of the Common Stock which  represents the same  proportion
of the  number  of  shares  of  the  Firm  Stock  to be  sold  by  each  Selling
Stockholder,  as the number of shares of the Firm Stock set forth  opposite  the
name of such  Underwriter in Schedule 1 represents of the total number of shares
of the Firm Stock to be  purchased by all of the  Underwriters  pursuant to this
Agreement.  The respective purchase obligations of the Underwriters with respect
to the Firm Stock shall be rounded among the  Underwriters  to avoid  fractional
shares, as the Representatives may determine.

     In addition,  the Selling Stockholders specified in Schedule 2 hereto grant
to the Underwriters  options to purchase up to an aggregate of 500,000 shares of
Option  Stock.  Such  options  are  granted  solely for the  purpose of covering
over-allotments  in the sale of Firm Stock and are  exercisable  as  provided in
Section 5 hereof.  Shares of Option Stock shall be purchased  severally  for the
account of each  Underwriter in proportion to the number of shares of Firm Stock
set forth opposite the name of such Underwriters in Schedule 1 hereto. The price
of both the Firm Stock and any Option Stock shall be $9.50 per share.

                                      -10-

<PAGE>

         The Selling Stockholders shall not be obligated to deliver any of the
Stock to be delivered on the First Delivery Date or the Second Delivery Date, as
the case may be, except upon payment for all the Stock to be purchased on such
Delivery Date as provided herein.

     4.  Offering  of  Stock  by the  Underwriters.  Upon  authorization  by the
Underwriters of the release of the Firm Stock, the several  Underwriters propose
to offer the Firm Stock for sale upon the terms and  conditions set forth in the
Prospectus.

     5.  Delivery of and Payment for the Stock.  Delivery of and payment for the
Firm Stock  shall be made at the office of Andrews & Kurth  L.L.P.,  600 Travis,
Suite 4200,  Houston,  Texas 77002,  at 9:00 A.M.,  Houston,  Texas time, on the
third full business day  following  the date of this  Agreement or at such other
date or place as shall be determined by agreement  between the  Representatives,
the  Selling  Stockholders  and the  Company.  This date and time are  sometimes
referred to herein as the "FIRST DELIVERY DATE." On the First Delivery Date, the
Selling  Stockholders  shall  deliver  or  cause  to be  delivered  certificates
representing  the Firm  Stock to the  Representatives  for the  account  of each
Underwriter against payment to or upon the order of the Selling  Stockholders of
the purchase price by wire transfer in immediately  available funds.  Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement  is  a  further  condition  of  the  obligation  of  each  Underwriter
hereunder.  Upon delivery,  the Firm Stock shall be registered in such names and
in such denominations as the  Representatives  shall request in writing not less
than two full business days prior to the First Delivery Date. For the purpose of
expediting  the checking and packaging of the  certificates  for the Firm Stock,
the  Selling  Stockholders  shall,  or  shall  cause a  custodian  to,  make the
certificates  representing  the  Firm  Stock  available  for  inspection  by the
Representatives  in New York,  New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.

     At any  time  on or  before  the  thirtieth  day  after  the  date  of this
Agreement,  the options  granted in Section 3 above may be  exercised by written
notice  being  given  to  the  Company  and  the  Selling  Stockholders  by  the
Representatives. Exercise of these options shall be exercised pro rata among the
Selling  Stockholders  set  forth in  Schedule  2 hereto  as  determined  by the
Representatives.  Such notice shall set forth the aggregate  number of shares of
Option Stock as to which the options are being exercised, the names in which the
shares of Option  Stock are to be  registered,  the  denominations  in which the
shares of Option Stock are to be issued and the date and time,  as determined by
the  Representatives,  when the  shares  of Option  Stock  are to be  delivered;
provided,  however,  that this date and time shall not be earlier than the First
Delivery  Date nor earlier than the second  business day after the date on which
the options  shall have been  exercised  nor later than the fifth  business  day
after the date on which the options shall have been exercised. The date and time
the  shares of Option  Stock are  delivered  are  sometimes  referred  to as the
"SECOND  DELIVERY DATE" and the First Delivery Date and the Second Delivery Date
are sometimes each referred to as a "DELIVERY DATE".

     Delivery  of and  payment  for the Option  Stock shall be made at the place
specified in the first sentence of the first  paragraph of this Section 5 (or at
such  other   place  as  shall  be   determined   by   agreement   between   the
Representatives, the Selling Stockholders and the Company) at 9:00 A.M., Dallas,
Texas time,  on the Second  Delivery  Date.  On the Second  Delivery  Date,  the
Selling  Stockholders  shall deliver or cause to be delivered  the  certificates

                                      -11-

<PAGE>

representing  the Option  Stock to the  Representatives  for the account of each
Underwriter against payment to or upon the order of the Selling  Stockholders of
the purchase price by wire transfer in immediately  available funds.  Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement  is  a  further  condition  of  the  obligation  of  each  Underwriter
hereunder. Upon delivery, the Option Stock shall be registered in such names and
in such  denominations  as the  Representatives  shall  request in the aforesaid
written notice.  For the purpose of expediting the checking and packaging of the
certificates  for the Option  Stock,  the  Selling  Stockholders  shall make the
certificates  representing  the Option Stock  available  for  inspection  by the
Representatives  in New York,  New York, not later than 2:00 P.M., New York City
time, on the business day prior to the Second Delivery Date.

     6. Further Agreements of the Company. The Company agrees:

          (a)  To  prepare   the   Prospectus   in  a  form   approved   by  the
     Representatives  and to file the  Prospectus  pursuant to Rule 424(b) under
     the Securities Act not later than the Commission's close of business on the
     second  business day following the execution and delivery of this Agreement
     or, if applicable,  such earlier time as may be required by Rule 430A(a)(3)
     under the Securities Act; to make no further amendment or any supplement to
     the Registration Statement or to the Prospectus except as permitted herein;
     to advise the  Representatives,  promptly after it receives notice thereof,
     of the time when any amendment to the Registration Statement has been filed
     or becomes  effective or any  supplement  to the  Prospectus or any amended
     Prospectus  has been filed and to furnish the  Representatives  with copies
     thereof; to advise the  Representatives,  promptly after it receives notice
     thereof,  of the  issuance  by the  Commission  of any stop order or of any
     order preventing or suspending the use of any Preliminary Prospectus or the
     Prospectus,  of the  suspension  of the  qualification  of  the  Stock  for
     offering or sale in any  jurisdiction,  of the initiation or threatening of
     any  proceeding  for any such purpose,  or of any request by the Commission
     for the  amending or  supplementing  of the  Registration  Statement or the
     Prospectus or for additional information; and, in the event of the issuance
     of any stop order or of any order  preventing or suspending  the use of any
     Preliminary   Prospectus  or  the   Prospectus   or  suspending   any  such
     qualification, to use promptly its best efforts to obtain its withdrawal;

          (b) To furnish promptly to each of the  Representatives and to counsel
     for the  Representatives  a signed copy of the  Registration  Statement  as
     originally filed with the Commission, and each amendment thereto filed with
     the Commission, including all consents and exhibits filed therewith;

          (c) To deliver  promptly  to the  Representatives  such  number of the
     following  documents as the Representatives  shall reasonably request:  (i)
     conformed copies of the Registration Statement as originally filed with the
     Commission  and each amendment  thereto (in each case  excluding  exhibits)
     and, (ii) each  Preliminary  Prospectus,  the Prospectus and any amended or
     supplemented  Prospectus;  and, if the delivery of a prospectus is required
     at any time after the  Effective  Time in  connection  with the offering or
     sale of the Stock or any other  securities  relating thereto and if at such
     time any events shall have occurred as a result of which the  Prospectus as
     then  amended  or  supplemented  would  include  an untrue  statement  of a
     material fact

                                      -12-

<PAGE>

     or omit  to  state  any  material  fact  necessary  in  order  to make  the
     statements therein, in the light of the circumstances under which they were
     made when such  Prospectus is  delivered,  not  misleading,  or, if for any
     other reason it shall be necessary to amend or supplement the Prospectus or
     to file under the Exchange Act any  document  incorporated  by reference in
     the  Prospectus in order to comply with the  Securities Act or the Exchange
     Act, to notify the  Representatives  and, upon their request,  to file such
     document and to prepare and furnish without charge to each  Underwriter and
     to any dealer in securities as many copies as the  Representatives may from
     time to time reasonably  request of an amended or  supplemented  Prospectus
     which will correct such statement or omission or effect such compliance;

          (d)  To  file  promptly  with  the  Commission  any  amendment  to the
     Registration   Statement  or  the  Prospectus  or  any  supplement  to  the
     Prospectus that may, in the judgment of the Company or the Representatives,
     be required by the Securities Act or requested by the Commission;

          (e)  Prior  to  filing  with  the  Commission  any  amendment  to  the
     Registration  Statement  or  supplement  to the  Prospectus,  any  document
     incorporated  by reference in the Prospectus or any prospectus  pursuant to
     Rule 424 of the Rules and  Regulations,  to  furnish a copy  thereof to the
     Representatives  and counsel for the Underwriters and obtain the consent of
     the Representatives to the filing; provided, that the foregoing restriction
     shall not preclude  the Company from (x) filing  without the consent of the
     Representatives any document required to be filed under the Exchange Act or
     (y) after the period set forth in Section 6(i) of this Agreement,  amending
     the Registration Statement or filing a prospectus;

          (f) As soon as practicable after the Effective Date, to make generally
     available  to  the  Company's  security  holders  and  to  deliver  to  the
     Representatives  an earnings  statement of the Company and its subsidiaries
     (which need not be audited)  complying with Section 11(a) of the Securities
     Act and the Rules and Regulations (including, at the option of the Company,
     Rule 158);

          (g) For a period of three  years  following  the  Effective  Date,  to
     furnish  to the  Representatives  copies  all  materials  furnished  by the
     Company to its  stockholders  and all public  reports  and all  reports and
     financial  statements  furnished by the Company to the  principal  national
     securities  exchange upon which the Common Stock may be listed  pursuant to
     requirements  of or  agreements  with such  exchange  or to the  Commission
     pursuant to the Exchange Act or any rule or  regulation  of the  Commission
     thereunder;  provided  however  that the  Company  shall not be required to
     provide the Representatives with any such reports,  registration statements
     or similar  forms that have been filed with the  Commission  by  electronic
     transmission pursuant to EDGAR;

          (h)   Promptly   from  time  to  time  to  take  such  action  as  the
     Representatives  may  reasonably  request to qualify the Stock for offering
     and  sale  under  the  securities  laws  of  such   jurisdictions   as  the
     Representatives  may  request  and to comply with such laws so as to permit
     the continuance of sales and dealings therein in such  jurisdictions for as
     long  as may be  necessary  to  complete  the  distribution  of the  Stock;
     provided that in connection

                                      -13-

<PAGE>

     therewith the  Company  shall  not be  required  to  qualify  as a  foreign
          corporation or to file a general  consent to service of process in any
          jurisdiction;

          (i) For a period of 90 days from the date of the  Prospectus:  not to,
     directly  or  indirectly,  (1) offer for sale,  sell,  pledge or  otherwise
     dispose of (or enter into any  transaction  or device which is designed to,
     or could be expected  to,  result in the  disposition  by any person at any
     time in the  future  of) any  shares of Common  Stock  (including,  without
     limitation,  shares of Common  Stock that may be deemed to be  beneficially
     owned in accordance  with the rules and  regulations  of the Securities and
     Exchange  Commission  and shares of Common  Stock  that may be issued  upon
     exercise  of any  option or  warrant)  or  securities  convertible  into or
     exchangeable  for Common  Stock  (other than the  Stock),  or sell or grant
     options,  rights or warrants  with respect to any shares of Common Stock or
     securities  convertible  into or exchangeable  for Common Stock (expect for
     issuances  of stock or  grants of  options  under  the  Company's  existing
     director compensation plan and employee stock purchase and option plans) or
     (2) enter into any swap or other derivatives  transaction that transfers to
     another,  in whole or in part,  any of the  economic  benefits  or risks of
     ownership  of such shares of Common  Stock,  whether  any such  transaction
     described in clause (1) or (2) above is to be settled by delivery of Common
     Stock or other securities,  in cash or otherwise,  in each case without the
     prior   written   consent  of  Lehman   Brothers  Inc.  on  behalf  of  the
     Underwriters;  and  (3)  unless  Lehman  Brothers  Inc.  on  behalf  of the
     Underwriters  gives its prior  written  consent,  permit  sales that may be
     restricted under  registration  rights  agreements  between the Company and
     stockholders  in which  stockholders  have  agreed  not to sell  shares  if
     requested  by  underwriters  in an  offering;  and to cause each  executive
     officer and  director  and 5%  beneficial  owner of the  Company  listed on
     Schedule  3 hereto  to  furnish  to the  Underwriters,  prior to the  First
     Delivery Date, a letter or letters,  substantially in the form of Exhibit A
     hereto,  pursuant to which each such person shall agree not to, directly or
     indirectly,  ((1) offer for sale, sell,  pledge or otherwise dispose of (or
     enter into any  transaction  or device  which is  designed  to, or could be
     expected  to,  result in the  disposition  by any person at any time in the
     future  of) any  shares of Common  Stock  (including,  without  limitation,
     shares of Common  Stock  that may be  deemed  to be  beneficially  owned in
     accordance  with the rules and  regulations  of the Securities and Exchange
     Commission  and shares of Common Stock that may be issued upon  exercise of
     any option or warrant) or securities  convertible  into or exchangeable for
     Common  Stock  (other than the Stock),  or (2) enter into any swap or other
     derivatives transaction that transfers to another, in whole or in part, any
     of the  economic  benefits or risks of  ownership  of such shares of Common
     Stock, whether any such transaction described in clause (1) or (2) above is
     to be settled by delivery of Common Stock or other  securities,  in cash or
     otherwise,  in each  case  without  the  prior  written  consent  of Lehman
     Brothers Inc. on behalf of the Underwriters;  provided  however,  that such
     executive  officer,  director or 5% beneficial  owner listed on Schedule II
     hereof may make bona fide gifts to persons or entities who agree in writing
     with  the  Underwriters  to be  bound  by  the  provisions  of  the  letter
     substantially in the form of Exhibit A hereto furnished to the Underwriters
     and provided further that certain officers and directors approved by Lehman
     Brothers  Inc. may sell or otherwise  transfer up to an aggregate of 60,000
     Shares;

                                      -14-

<PAGE>

          (j) Prior to the Effective  Date, to apply,  to the extent  necessary,
     for the listing of the Stock on the New York Stock  Exchange and to use its
     best efforts to complete that listing,  subject only to official  notice of
     issuance, prior to the First Delivery Date;

          (k) To take such steps as shall be  necessary  to ensure that  neither
     the Company nor any subsidiary shall become an "investment  company" within
     the meaning of such term under the  Investment  Company Act of 1940 and the
     rules and regulations of the Commission thereunder; and

          (l) To not directly or indirectly take any action designed to or which
     has  constituted  or which might  reasonably be expected to cause or result
     in, under the Exchange Act or otherwise,  stabilization  or manipulation of
     the price of any security of the Company to  facilitate  the sale or resale
     of the Stock.

     7.  Further   Agreements   of  the  Selling   Stockholders.   Each  Selling
Stockholder, severally and not jointly, agrees:

          (a) For a period of 90 days from the date of the Prospectus not to (1)
     offer for sale,  sell,  pledge or  otherwise  dispose of (or enter into any
     transaction or device which is designed to, or could be expected to, result
     in the  disposition  by any person at any time in the future of) any shares
     of Common Stock or securities  convertible  into or exchangeable for Common
     Stock  (other  than  the  Stock)  or (2)  enter  into  any  swap  or  other
     derivatives transaction that transfers to another, in whole or in part, any
     of the  economic  benefits or risks of  ownership  of such shares of Common
     Stock, whether any such transaction described in clause (1) or (2) above is
     to be settled by delivery of Common Stock or other  securities,  in cash or
     otherwise,  without the prior  written  consent of Lehman  Brothers Inc. on
     behalf of the Underwriters;

          (b) That the Stock to be sold by the Selling Stockholder  hereunder is
     subject  to  the  interest  of  the  Underwriters  and  the  other  Selling
     Stockholders  hereunder,  and  that the  Selling  Stockholders  shall  not,
     directly or indirectly,  take any action that may terminate its obligations
     hereunder (other than the termination of this Agreement); and

          (c) To  deliver  to  the  Representatives  on or  prior  to the  First
     Delivery Date or the Second  Delivery  Date, as the case may be, a properly
     completed and executed United States Treasury Department Form W-9.

     8.  Expenses.  The  Company  agrees  to pay (a) the costs  incident  to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation,  printing and filing
under the  Securities Act of the  Registration  Statement and any amendments and
exhibits  thereto;  (c) the costs of distributing the Registration  Statement as
originally filed and each amendment  thereto and any  post-effective  amendments
thereof (including,  in each case, exhibits),  any Preliminary  Prospectus,  the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement;  (d) the costs of producing and distributing  this Agreement and
any other related documents in connection with the offering,  purchase, sale and
delivery of the Stock;  (e) the filing fees  incident to securing  any  required
review by the NASD of the terms of sale of the Stock; (f) any applicable listing
or other

                                      -15-

<PAGE>

fees;  (g) all other  costs and  expenses  incident  to the  performance  of the
obligations  of the Company and the Selling  Stockholders  under this  Agreement
except that the discount to the Underwriters for the purchase of the Stock shall
be borne by the Selling Stockholders;  provided that, except as provided in this
Section 8 and in Section 13 below the Underwriters shall pay their own costs and
expenses,  including the costs and expenses of their counsel, any transfer taxes
on the Stock which they may sell and the expenses of advertising any offering of
the Stock made by the  Underwriters,  and, as between the  Underwriters  and the
Selling  Stockholders only, each of the Selling  Stockholders shall pay the fees
and   expenses  of  his  or  its   counsel,   any   custodian   (and  any  other
attorney-in-fact),  and any transfer taxes payable in connection with his or its
respective sales of Stock to the Underwriters;  and provided  further,  that the
provisions of this Section 8 shall not affect any agreement that the Company and
any Selling Stockholder may have entered into, or may hereafter enter into, with
respect  to the  sharing  or  reimbursement  of any of the  foregoing  costs and
expenses.

     9. Conditions of Underwriters'  Obligations.  The respective obligations of
the  Underwriters  hereunder are subject to the accuracy,  when made and on each
Delivery  Date,  of the  representations  and  warranties of the Company and the
Selling Stockholders contained herein, to the performance by the Company and the
Selling Stockholders of their respective obligations  hereunder,  and to each of
the following additional terms and conditions:

          (a) The Prospectus shall have been timely filed with the Commission in
     accordance  with  Section  6(a)  above;   no  stop  order   suspending  the
     effectiveness of the Registration  Statement or any part thereof shall have
     been issued and no proceeding for that purpose shall have been initiated or
     threatened  by the  Commission;  and  any  request  of the  Commission  for
     inclusion of additional  information in the  Registration  Statement or the
     Prospectus or otherwise shall have been complied with.

          (b) No Underwriter  shall have discovered and disclosed to the Company
     on or prior to such  Delivery Date that the  Registration  Statement or the
     Prospectus  or any  amendment  or  supplement  thereto  contains  an untrue
     statement  of a fact  which,  in the  opinion  of  Andrews & Kurth  L.L.P.,
     counsel for the  Underwriters,  is material or omits to state a fact which,
     in the opinion of such  counsel,  is material  and is required to be stated
     therein or is necessary to make the statements therein not misleading.

          (c) All corporate  proceedings and other legal matters incident to the
     authorization,  form  and  validity  of  this  Agreement,  the  Stock,  the
     Registration  Statement  and the  Prospectus,  and all other legal  matters
     relating to this Agreement and the transactions  contemplated  hereby shall
     be  reasonably  satisfactory  in all  material  respects to counsel for the
     Underwriters,  and the  Company  and the  Selling  Stockholders  shall have
     furnished  to such  counsel all  documents  and  information  that they may
     reasonably request to enable them to pass upon such matters.

          (d) Jenkens and  Gilchrist,  A  Professional  Corporation,  shall have
     furnished to the  Representatives on behalf of the Underwriters its written
     opinion, as counsel to the Company, addressed to the Underwriters and dated
     such Delivery Date, in form and substance  reasonably  satisfactory  to the
     Representatives, to the effect that:

                                      -16-

<PAGE>

               (i) The  Company  and each of its  subsidiaries  have  been  duly
          incorporated  and are  validly  existing  as  corporations  or limited
          liability  companies,  as the case may be, in good standing  under the
          laws of their respective  jurisdictions of incorporation or formation,
          are duly  qualified to do business and are in good standing as foreign
          corporations or limited  liability  companies in each  jurisdiction in
          which their  respective  ownership or lease of property or the conduct
          of their respective  businesses  requires such  qualification,  (other
          than  where the  failure to so  qualify  or be in good  standing  as a
          foreign  corporation  would not have a material  adverse effect on the
          consolidated  financial  position,  stockholders'  equity,  results of
          operation or business of the Company and its subsidiaries,  taken as a
          whole),  and have all power  and  authority  necessary  to own or hold
          their  respective  properties and conduct the businesses  described in
          the Propsectus;

               (ii) The Company has an authorized capitalization as set forth in
          the  Prospectus,  and all of the issued shares of capital stock of the
          Company have been duly and validly  authorized  and issued,  are fully
          paid  and  non-assessable  and  conform  to  the  description  thereof
          contained in the  Prospectus;  and all of the issued shares of capital
          stock (or the  equivalent) of each subsidiary of the Company have been
          duly  and   validly   authorized   and  issued  and  are  fully  paid,
          non-assessable  and (except for any directors'  qualifying shares) are
          owned  directly or  indirectly  by the Company,  free and clear of all
          liens, encumbrances, equities or claims;

               (iii) The shares of the Stock being  delivered  on such  Delivery
          Date  to  the  Underwriters  hereunder  have  been  duly  and  validly
          authorized and validly issued and are fully paid and non-assessable;

               (iv)  Except  as  described  in  the  Prospectus,  there  are  no
          preemptive  or other rights to subscribe  for or to purchase,  nor any
          restriction  upon the voting or transfer  of, any shares of the Common
          Stock  (including  the Stock)  pursuant  to the  Company's  charter or
          by-laws or any  agreement or other  instrument  filed as an exhibit to
          one of the Company's periodic reports under the Exchange Act;

               (v) To the best of such counsel's  knowledge,  there are no legal
          or governmental proceedings pending to which the Company or any of its
          subsidiaries  is a party or of which  any  property  or  assets of the
          Company or any of its subsidiaries is the subject which, if determined
          adversely  to the  Company  or any of its  subsidiaries,  might have a
          material  adverse  effect  on  the  consolidated  financial  position,
          stockholders' equity, results of operations,  business or prospects of
          the Company and its  subsidiaries,  taken as a whole; and, to the best
          of such counsel's  knowledge,  no such  proceedings  are threatened or
          contemplated by governmental authorities or threatened by others;

               (vi) The Registration  Statement was declared effective under the
          Securities  Act as of the date and time  specified  in such  counsel's
          opinion,  the Prospectus was filed with the Commission pursuant to the
          subparagraph of Rule

                                      -17-

<PAGE>

          424(b) of the Rules and  Regulations  specified in such opinion on the
          date specified  therein and no stop order suspending the effectiveness
          of the Registration Statement has been issued and, to the knowledge of
          such counsel,  no proceeding for that purpose is pending or threatened
          by the Commission;

               (vii)  The  Registration  Statement  and the  Prospectus  and any
          further amendments or supplements thereto made by the Company prior to
          each Delivery Date (except for the financial  statements and financial
          schedules and other  financial and related  statistical  data included
          therein, as to which such counsel need express no belief) comply as to
          form in all material  respects with the requirements of the Securities
          Act and the Rules and Regulations,  and the documents  incorporated by
          reference in the Prospectus  when they where filed with the Commission
          (except for the financial statements and financial schedules and other
          financial and related  statistical data included therein,  as to which
          such  counsel  need  express  no  belief)  complied  as to form in all
          material  respects with the  requirements  of the Exchange Act and the
          Rules and Regulations;

               (viii)  The  statements  contained  in the  Prospectus  under the
          heading  "Description  of Capital  Stock"  insofar as such  statements
          refer  to  statements  of law,  descriptions  of  statutes,  rules  or
          regulations or legal  conclusions,  are accurate and fair summaries of
          such statements of law, descriptions of statutes, rules or regulations
          or legal conclusions;

               (ix) To such counsel's knowledge, there are no contracts or other
          documents  which are  required to be described  in the  Prospectus  or
          filed as exhibits to the Registration  Statement by the Securities Act
          or by the Rules and Regulations which have not been described or filed
          as exhibits to the Registration  Statement or incorporated  therein by
          reference as permitted by the Rules and Regulations;

               (x)  This  Agreement  has  been  duly  authorized,  executed  and
          delivered by the Company;

               (xi) The  compliance by the Company with all of the provisions of
          this Agreement and the consummation of the  transactions  contemplated
          hereby will not  conflict  with or result in a breach or  violation of
          any of the terms or provisions of, or constitute a default under,  any
          indenture,  mortgage, deed of trust, loan agreement or other agreement
          or instrument known to such counsel to which the Company or any of its
          subsidiaries  is a  party  or by  which  the  Company  or  any  of its
          subsidiaries  is bound or to which  any of the  material  property  or
          assets of the Company or any of its subsidiaries is subject,  nor will
          such actions  result in any violation of the provisions of the charter
          or by-laws of the Company or any of its subsidiaries or any statute or
          any order,  rule or  regulation  known to such counsel of any court or
          governmental  agency or body having  jurisdiction  over the Company or
          any of its  subsidiaries  or any of their  properties or assets;  and,
          except for the  registration of the Stock under the Securities Act and
          such   consents,   approvals,    authorizations,    registrations   or
          qualifications   as  may  be  required  under

                                      -18-

<PAGE>

          the Exchange Act and applicable  state  securities  laws in connection
          with the purchase and  distribution of the Stock by the  Underwriters,
          no  consent,  approval,  authorization  or  order  of,  or  filing  or
          registration  with, any such court or  governmental  agency or body is
          required for the execution, delivery and performance of this Agreement
          by the Company and the consummation of the  transactions  contemplated
          hereby and thereby;

          (xii) To such counsel's knowledge,  except as described or included in
          the Prospectus,  there are no contracts,  agreements or understandings
          between  the  Company  and any person  granting  such person the right
          (other than rights which have been waived or satisfied) to require the
          Company to file a registration statement under the Securities Act with
          respect to any  securities of the Company owned or to be owned by such
          person or to require the  Company to include  such  securities  in the
          securities registered pursuant to the Registration Statement or in any
          securities  being  registered   pursuant  to  any  other  registration
          statement filed by the Company under the Securities Act;

          (xiii)  Neither  the  Company  nor any  subsidiary  is an  "investment
          company" as defined in the Investment Company Act of 1940, as amended.

     In rendering such opinion, such counsel may state that (x) their opinion is
limited to matters governed by the Federal laws of the United States of America,
the laws of the State of Texas and the General  Corporation  Law of the State of
Delaware,  and that such  counsel is not admitted in Delaware and (y) insofar as
the foregoing  opinions  relate to the valid  existence and good standing of the
Company  and  its  subsidiaries,  they  are  based  solely  on  certificates  of
authorities in the states of organization  of the Company and such  subsidiaries
that  such  counsel  received  in  response  to  such  counsel's   requests  for
confirmation  of the  existence  and  good  standing  of the  Company  and  such
subsidiaries in such states, copies of which certificates have been furnished to
you,  and, in rendering  the opinion set forth in opinion (i) above with respect
to the  qualification  and the good  standing  as a foreign  corporation  of the
Company and such  subsidiaries,  such counsel has relied solely on  certificates
such counsel  received from the states  necessary to give such opinion that such
counsel received in response to such counsel's requests for confirmation of such
qualification  and good  standing,  as the case may be, of the  Company and such
subsidiaries in such states, copies of which certificates have been furnished to
you.

     Such counsel  shall also have  furnished to the  Representatives  a written
statement,  addressed to the  Underwriters and dated such Delivery Date, in form
and substance reasonably satisfactory to the Representatives, to the effect that
(x) such  counsel  has acted as counsel to the  Company in  connection  with the
preparation of the  Registration  Statement and (y) based on the  foregoing,  no
facts have come to the attention of such counsel which lead them to believe that
the  Registration  Statement  (except for the financial  statements  and related
schedules and other financial data, and reserve information included therein, as
to which  such  counsel  need  express  no  belief)  as of the  Effective  Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein not misleading, or that the Prospectus (except as stated above) contains
any  untrue  statement  of a  material  fact or omits to state a  material  fact
necessary  in  order  to  make  the  statements  therein,  in the  light  of the
circumstances under which they were made, not

                                      -19-

<PAGE>

misleading.  The foregoing opinion and statement may be qualified by a statement
to the effect  that such  counsel  does not assume  any  responsibility  for the
accuracy,   completeness  or  fairness  of  the  statements   contained  in  the
Registration Statement or the Prospectus,  except for the statements made in the
Prospectus  under the caption  "Description  of Capital  Stock"  insofar as such
statements relate to the Stock and concern legal matters.

          (e) Counsel for the Selling  Stockholders  shall have furnished to the
     Representatives  on behalf of the  Underwriters  its  written  opinion,  as
     counsel  to the  Selling  Stockholders  for whom it is acting  as  counsel,
     addressed to the  Underwriters  and dated the First  Delivery Date, in form
     and substance reasonably satisfactory to the Representatives, to the effect
     that:

               (i) The Selling  Stockholder has the  partnership  power to enter
          into this  Agreement and to perform its  obligations  thereunder,  the
          execution,  delivery and  performance of this Agreement have been duly
          authorized  by  all  necessary   partnership  action  of  the  Selling
          Stockholder;

               (ii) The  execution  and delivery by the Selling  Stockholder  of
          this Agreement and the performance of its  obligations  thereunder (a)
          do not require any consent, approval,  authorization,  registration or
          qualification  of or with any  governmental  authority  of the  United
          States of  America  or the State of New  York,  except  such as may be
          required under the Securities Act of 1933 and the Securities  Exchange
          Act of 1934 (but we express no  opinion as to any  consent,  approval,
          authorization,  registration  or  qualification  that may be  required
          under  state  securities  or Blue Sky  laws),  (b) do not  result in a
          breach  or  violation  of any of  the  terms  and  provisions  of,  or
          constitute a default under,  any of the  constituent  documents of the
          Selling  Stockholder  and (c) do not violate the terms of any New York
          State or United  States  federal  law or  regulation  of the  Delaware
          Partnership  Act (but we  express no  opinion  with  respect to United
          States  federal  securities  laws or any state  securities or Blue Sky
          laws).

               (iii)  Assuming  each  Underwriter  acquires  its interest in the
          Stock  to be  sold by the  Selling  Stockholder  to  such  Underwriter
          without notice of any adverse claim (within the meaning of the Uniform
          Commercial Code as in effect in the State of New York (the "UCC")) and
          such  Underwriter  has paid the purchase  price for such Stock and has
          had such Stock credited to the securities  account of such Underwriter
          maintained with The Depository  Trust Company,  then such  Underwriter
          will have a securities entitlement (as defined in Section 8-102(a)(17)
          of the UCC) to such Stock purchased by such  Underwriter and no action
          based on an adverse  claim to such Stock  credited to such  securities
          account, whether framed in conversion,  replevin,  constructive trust,
          equitable  lien  or  other  theory,   may  be  asserted  against  such
          Underwriter.

     In  rendering  such  opinion,  such  counsel  may (x) limit the  opinion in
section  9(e)(ii) above to those  documents  received by counsel set forth in an
exhibit to the opinion (which constituent  documents shall be certified as true,
complete and correct copies by the Selling Stockholders or their affiliates) and
(y) state that its opinion is limited to matters governed by the

                                      -20-

<PAGE>

Federal  laws of the United  States of America  and the laws of the State of New
York,  the Delaware  Revised  Uniform  Limited  Partnership  Act and the General
Corporation Law of Delaware and that such counsel is not admitted in Delaware.

          (f) The  Representatives  shall  have  received  from  Andrews & Kurth
     L.L.P., counsel for the Underwriters,  such opinion or opinions, dated such
     Delivery  Date,  with respect to the  issuance  and sale of the Stock,  the
     Registration  Statement,  the Prospectus  and other related  matters as the
     Representatives  may  reasonably  require,   and  the  Company  shall  have
     furnished to such counsel such documents as they reasonably request for the
     purpose of enabling them to pass upon such matters.

          (g) At the time of execution of this Agreement, the Underwriters shall
     have  received a letter from  Deloitte & Touche LLP, in form and  substance
     satisfactory  to the  Representatives,  addressed to the  Underwriters  and
     dated the date  hereof  (i)  confirming  that they are  independent  public
     accountants  within the meaning of the Securities Act and are in compliance
     with  the  applicable   requirements   relating  to  the  qualification  of
     accountants  under  Rule 2-01 of  Regulation  S-X of the  Commission,  (ii)
     stating,  as of the date  hereof  (or,  with  respect to matters  involving
     changes or  developments  since the respective  dates as of which specified
     financial  information  is given in the  Prospectus,  as of a date not more
     than five days prior to the date hereof),  the  conclusions and findings of
     such firm with  respect  to the  financial  information  and other  matters
     ordinarily  covered by  accountants'  "COMFORT  LETTERS" to underwriters in
     connection with registered public offerings.

          (h) With respect to the letter of Deloitte & Touche LLP referred to in
     the preceding paragraph and delivered to the Representatives,  on behalf of
     the  Underwriters,  concurrently  with the execution of this Agreement (the
     "INITIAL LETTER"),  the Company shall have furnished to the Representatives
     a letter (the "BRING-DOWN LETTER"), addressed to the Underwriters and dated
     such  Delivery  Date  (i)  confirming  that  they  are  independent  public
     accountants  within the meaning of the Securities Act and are in compliance
     with  the  applicable   requirements   relating  to  the  qualification  of
     accountants  under  Rule 2-01 of  Regulation  S-X of the  Commission,  (ii)
     stating,  as of the date of the  bring-down  letter  (or,  with  respect to
     matters involving changes or developments  since the respective dates as of
     which specified financial  information is given in the Prospectus,  as of a
     date not more than five days prior to the date of the  bring-down  letter),
     the  conclusions  and findings of such firm with  respect to the  financial
     information  and other  matters  covered  by the  initial  letter and (iii)
     confirming in all material  respects the conclusions and findings set forth
     in the initial letter.

          (i) At each of the time of the execution of this  Agreement and at the
     Delivery Date, the Company shall have  furnished to the  Representatives  a
     letter from  DeGolyer and  MacNaughton  addressed to the  Underwriters  and
     dated  the  date  hereof  and  dated  the  date  of  such  Delivery   Date,
     respectively,  confirming that they are or were independent  engineers with
     respect to the  Company and  stating,  as of the date of such  letter,  the
     conclusions  and findings of such firm with respect to the  information and
     other  matters  covered by their letter  delivered  to the  Representatives
     concurrently  with the execution of

                                      -21-

<PAGE>

     this Agreement and confirming in all material  respects the conclusions and
     findings set forth in such prior letter.

          (j) The Company shall have furnished to the Representatives, addressed
     to the Underwriters, a certificate,  dated such Delivery Date, of its chief
     executive officer and its chief financial officer stating that:

               (i) The representations, warranties and agreements of the Company
          in Section 1 hereof are true and correct as of such Delivery Date; the
          Company has complied with all its agreements contained herein; and the
          conditions  set  forth in  Sections  9(a) and 9(l)  hereof  have  been
          fulfilled; and

               (ii) They have carefully examined the Registration  Statement and
          the Prospectus and, in their opinion (A) as of the Effective Date, the
          Registration  Statement  and  Prospectus  did not  include  any untrue
          statement of a material fact and did not omit to state a material fact
          required  to be stated  therein or  necessary  to make the  statements
          therein not misleading,  and (B) since the Effective Date no event has
          occurred which should have been set forth in a supplement or amendment
          to the Registration Statement or the Prospectus.

          (k)  Each  Selling  Stockholder  (or  any  custodian  or one  or  more
     attorneys-in-fact  on  behalf  of  each  Selling  Stockholder)  shall  have
     furnished to the  Representatives on the First Delivery Date a certificate,
     dated the First  Delivery  Date,  signed by, or on behalf  of, the  Selling
     Stockholder  (or any  custodian or one or more  attorneys-in-fact)  stating
     that  the  representations,   warranties  and  agreements  of  the  Selling
     Stockholder  contained herein are true and correct in all material respects
     as of the First Delivery Date and that the Selling Stockholder has complied
     with  all  agreements  contained  herein  to be  performed  by the  Selling
     Stockholder at or prior to the First Delivery Date.

          (l) (i) Neither the  Company  nor any of its  subsidiaries  shall have
     sustained  since  the  date  of the  latest  audited  financial  statements
     included in the Prospectus any loss or interference  with its business from
     fire,  explosion,  flood or  other  calamity,  whether  or not  covered  by
     insurance, or from any labor dispute or court or governmental action, order
     or decree, otherwise than as set forth or contemplated in the Prospectus or
     (ii) since such date  there  shall not have been any change in the  capital
     stock or long-term  debt of the Company or any of its  subsidiaries  or any
     change, or any development  involving a prospective change, in or affecting
     the general affairs, management,  financial position, stockholders' equity,
     prospects  or results of  operations  of the Company and its  subsidiaries,
     otherwise than as set forth or contemplated  in the Prospectus,  the effect
     of which,  in any such case  described  in clause  (i) or (ii),  is, in the
     judgment  of the  Representatives,  so  material  and adverse as to make it
     impracticable  or  inadvisable  to proceed with the public  offering or the
     delivery of the Stock being  delivered on such  Delivery  Date on the terms
     and in the manner contemplated in the Prospectus.

          (m) Subsequent to the execution and delivery of this  Agreement  there
     shall not have  occurred any of the  following:  (i) trading in  securities
     generally on the New York Stock  Exchange or the American Stock Exchange or
     in the over-the-counter market, or

                                      -22-

<PAGE>

     trading  in  any  securities  of the  Company  on  any  exchange  or in the
     over-the-counter  market, shall have been suspended or minimum prices shall
     have  been  established  on  any  such  exchange  or  such  market  by  the
     Commission,   by  such  exchange  or  by  any  other   regulatory  body  or
     governmental authority having jurisdiction, (ii) a banking moratorium shall
     have been declared by Federal or state authorities, (iii) the United States
     shall  have  become  engaged  in  hostilities,  there  shall  have  been an
     escalation in  hostilities  involving the United States or there shall have
     been a declaration  of a national  emergency or war by the United States or
     (iv) there shall have  occurred such a material  adverse  change in general
     economic, political or financial conditions (or the effect of international
     conditions on the financial  markets in the United States shall be such) as
     to make it, in the  judgment  of a  majority  in  interest  of the  several
     Underwriters,  impracticable  or  inadvisable  to  proceed  with the public
     offering or delivery of the Stock being  delivered on such Delivery Date on
     the terms and in the manner contemplated in the Prospectus.

          (n) To the extent  required,  the New York Stock  Exchange  shall have
     approved  the  Stock  for  listing,  subject  only to  official  notice  of
     issuance.

     All  opinions,  letters,  evidence  and  certificates  mentioned  above  or
elsewhere  in this  Agreement  shall  be  deemed  to be in  compliance  with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.

     10. Indemnification and Contribution.

          (a) The Company shall  indemnify  and hold harmless each  Underwriter,
     its  officers  and  employees  and each  person,  if any,  who controls any
     Underwriter  within the meaning of the Securities Act, from and against any
     loss,  claim,  damage or  liability,  joint or  several,  or any  action in
     respect thereof  (including,  but not limited to, any loss, claim,  damage,
     liability  or action  relating to purchases  and sales of Stock),  to which
     that  Underwriter,  officer,  employee  or  controlling  person  may become
     subject,  under the  Securities  Act or  otherwise,  insofar  as such loss,
     claim, damage, liability or action arises out of, or is based upon, (i) any
     untrue  statement or alleged untrue  statement of a material fact contained
     in (A)  any  Preliminary  Prospectus,  the  Registration  Statement  or the
     Prospectus  or in  any  amendment  or  supplement  thereto  or  (B)  in any
     materials or information provided to investors by, or with the approval of,
     the Company in  connection  with the marketing of the offering of the Stock
     ("MARKETING  MATERIALS"),  including any roadshow or investor presentations
     made to  investors  by the Company  (whether in person or  electronically);
     (ii)  the  omission  or  alleged  omission  to  state  in  any  Preliminary
     Prospectus,  the  Registration  Statement  or  the  Prospectus,  or in  any
     amendment or supplement thereto, or in any Marketing Materials any material
     fact  required to be stated  therein or  necessary  to make the  statements
     therein not  misleading;  or (iii) any act or failure to act or any alleged
     act or failure to act by any Underwriter in connection with, or relating in
     any manner to, the Stock or the offering  contemplated hereby, and which is
     included as part of or referred to in any loss, claim, damage, liability or
     action  arising out of or based upon matters  covered by clause (i) or (ii)
     above  (provided  that the  Company  shall not be liable  under this clause
     (iii) to the extent that it is determined in a final judgment by a court of
     competent  jurisdiction that such loss, claim, damage,  liability or action
     resulted  directly  from any such acts or  failures  to act  undertaken  or
     omitted to be

                                      -23-

<PAGE>

     taken  by  such  Underwriter   through  its  gross  negligence  or  willful
     misconduct),  and shall  reimburse each  Underwriter and each such officer,
     employee or controlling  person promptly upon demand for any legal or other
     expenses  reasonably  incurred by that  Underwriter,  officer,  employee or
     controlling  person  in  connection  with  investigating  or  defending  or
     preparing  to defend  against any such loss,  claim,  damage,  liability or
     action as such expenses are incurred;  provided,  however, that the Company
     shall  not be liable in any such  case to the  extent  that any such  loss,
     claim,  damage,  liability or action  arises out of, or is based upon,  any
     untrue  statement  or  alleged  untrue  statement  or  omission  or alleged
     omission made in any Preliminary Prospectus,  the Registration Statement or
     the  Prospectus,  or in any such amendment or supplement,  in reliance upon
     and in conformity  with written  information  concerning  such  Underwriter
     furnished to the Company through the Representatives by or on behalf of any
     Underwriter  specifically  for inclusion  therein which consists  solely of
     information  set forth in  Section  10(f)  hereof;  and  provided  further,
     however that the Company shall not be liable to any Underwriter in any such
     case with respect to any untrue  statement or alleged  untrue  statement or
     omission  or  alleged  omission  of a  material  fact  in  the  Preliminary
     Prospectus to the extent that the loss, claim,  damage or liability of such
     Underwriter (or the action in respect thereof) arises out of a sale by such
     Underwriter of Stock to a person who was not sent or given,  at or prior to
     the closing of such sale to such person,  a copy of the  Prospectus as then
     amended or supplemented,  if the Company had previously  furnished (or made
     available) copies thereof to such Underwriter and the statement or omission
     in question contained in the Preliminary  Prospectus was corrected therein.
     The foregoing indemnity agreement is in addition to any liability which the
     Company may otherwise have to any  Underwriter or to any officer,  employee
     or controlling person of that Underwriter.

          (b)  Each  Selling  Stockholders,  severally  and not  jointly,  shall
     indemnify and hold harmless each  Underwriter,  its officers and employees,
     and each person, if any, who controls any Underwriter within the meaning of
     the Securities Act, from and against any loss, claim,  damage or liability,
     joint or  several,  or any action in respect  thereof  (including,  but not
     limited  to, any loss,  claim,  damage,  liability  or action  relating  to
     purchases and sales of Stock), to which that Underwriter, officer, employee
     or  controlling  person may become  subject,  under the  Securities  Act or
     otherwise,  insofar as such loss, claim, damage, liability or action arises
     out of, or is based  upon,  (1) any  untrue  statement  or  alleged  untrue
     statement of a material fact contained in any Preliminary  Prospectus,  the
     Registration  Statement or the Prospectus or in any amendment or supplement
     thereto or (2) the omission or alleged omission to state in any Preliminary
     Prospectus,  Registration Statement or the Prospectus,  or in any amendment
     or supplement  thereto,  any material fact required to be stated therein or
     necessary to make the  statements  therein not  misleading,  in the case of
     subparagraphs  (1) and (2) of this  Section to the extent,  but only to the
     extent,  that such untrue statement or alleged untrue statement or omission
     or alleged omission was made in reliance upon or in conformity with written
     information  furnished to the Company or such  Underwriter  by such Selling
     Stockholder directly or through such Selling Stockholder's representatives,
     specifically for use in the preparation  thereof;  and shall reimburse each
     Underwriter,  its officers and employees and each such  controlling  person
     for any legal or other expenses  reasonably  incurred by that  Underwriter,
     its  officers  and  employees  or  controlling  person in  connection  with
     investigating  or defending  or preparing to defend  against any such loss,
     claim, damage, liability or action as such expenses are incurred; provided,
     however, that the Selling Stockholders shall not be liable in any such case
     to the extent that any such loss, claim, damage,

                                      -24-

<PAGE>

     liability or action arises out of, or is based upon,  any untrue  statement
     or alleged  untrue  statement or omission or alleged  omission  made in any
     Preliminary Prospectus,  the Registration Statement or the Prospectus or in
     any such  amendment or supplement  in reliance upon and in conformity  with
     written  information  concerning such Underwriter  furnished to the Company
     through the Representatives by or on behalf of any Underwriter specifically
     for inclusion therein which consists solely of the information specified in
     Section  10(f)  hereof  and  provided,  further,  that with  respect to any
     Preliminary  Prospectus,  the foregoing indemnity agreement shall not inure
     to the benefit of any Underwriter  from whom the person asserting any loss,
     claim,  damage,  liability  or  expense  purchased  Stock,  or  any  person
     controlling  such  Underwriter,  if copies of the  Prospectus  were  timely
     delivered to the  Underwriter  pursuant to this Agreement and a copy of the
     Prospectus  (as then  amended or  supplemented  if the  Company  shall have
     furnished any amendments or  supplements  thereto) was not sent or given by
     or on behalf of such  Underwriter to such person,  if required by law so to
     have been delivered and if the  Prospectus (as so amended or  supplemented)
     would have  cured the  defect  giving  rise to such  loss,  claim,  damage,
     liability or expense. However, in no event shall the Selling Stockholder be
     liable under the  provisions of this Section 10 for any amount in excess of
     the total proceeds  received by such Selling  Stockholder  from the sale of
     the Stock by such Selling  Stockholder  (after deducting  commissions,  but
     before  taxes and any  other  expenses)  pursuant  to this  Agreement.  The
     foregoing  indemnity  agreement is in addition to any  liability  which the
     Selling  Stockholders may otherwise have to any Underwriter or any officer,
     employee or controlling person of that Underwriter.

          (c) Each Underwriter,  severally and not jointly,  shall indemnify and
     hold  harmless  the  Company,  its  officers  and  employees,  each  of its
     directors,  and each person,  if any,  who controls the Company  within the
     meaning  of the  Securities  Act,  and  each  Selling  Stockholder  and its
     officers and employees,  each of its directors, and each person if any, who
     controls the Selling  Stockholder  within the meaning of the Securities Act
     from and against any loss, claim, damage or liability, joint or several, or
     any action in respect  thereof,  to which the Company or any such director,
     officer or controlling person may become subject,  under the Securities Act
     or  otherwise,  insofar as such loss,  claim,  damage,  liability or action
     arises out of, or is based upon, (i) any untrue statement or alleged untrue
     statement of a material fact contained in any Preliminary  Prospectus,  the
     Registration  Statement or the Prospectus or in any amendment or supplement
     thereto  or  (ii)  the  omission  or  alleged  omission  to  state  in  any
     Preliminary Prospectus, the Registration Statement or the Prospectus, or in
     any amendment or  supplement  thereto,  or in any  Marketing  Materials any
     material  fact  required  to be stated  therein  or  necessary  to make the
     statements therein not misleading, but in each case only to the extent that
     the untrue  statement  or alleged  untrue  statement or omission or alleged
     omission  was  made  in  reliance  upon  and  in  conformity  with  written
     information  concerning such  Underwriter  furnished to the Company through
     the  Representatives  by or on behalf of that Underwriter  specifically for
     inclusion   therein,   and  shall  reimburse  the  Company,   such  Selling
     Stockholder  and any such director,  officer or  controlling  person of the
     Company  or the  Selling  Stockholder  for  any  legal  or  other  expenses
     reasonably  incurred by the Company,  such Selling  Stockholder or any such
     director,  officer or  controlling  person of

                                      -25-

<PAGE>

     the Company or the Selling  Stockholder in connection with investigating or
     defending  or  preparing to defend  against any such loss,  claim,  damage,
     liability or action as such expenses are incurred.  The foregoing indemnity
     agreement  is in  addition  to any  liability  which  any  Underwriter  may
     otherwise  have  to the  Company,  such  Selling  Stockholder  or any  such
     director,  officer,  employee or  controlling  person of the Company or the
     Selling Stockholder.

          (d) Promptly after receipt by an indemnified  party under this Section
     10 of  notice  of  any  claim  or  the  commencement  of  any  action,  the
     indemnified  party  shall,  if a claim  in  respect  thereof  is to be made
     against  the   indemnifying   party  under  this  Section  10,  notify  the
     indemnifying  party in  writing  of the claim or the  commencement  of that
     action;  provided,  however,  that the  failure to notify the  indemnifying
     party shall not relieve it from any liability  which it may have under this
     Section 10 except to the extent it has been  materially  prejudiced by such
     failure; and, provided further, that the failure to notify the indemnifying
     party  shall  not  relieve  it from any  liability  which it may have to an
     indemnified  party  otherwise than under this Section 10. If any such claim
     or action  shall be brought  against  an  indemnified  party,  and it shall
     notify the  indemnifying  party thereof,  the  indemnifying  party shall be
     entitled to participate therein and, to the extent that it wishes,  jointly
     with any other similarly notified indemnifying party, to assume the defense
     thereof with counsel  reasonably  satisfactory  to the  indemnified  party.
     After notice from the  indemnifying  party to the indemnified  party of its
     election  to assume the defense of such claim or action,  the  indemnifying
     party shall not be liable to the  indemnified  party under this  Section 10
     for any legal or other expenses  subsequently  incurred by the  indemnified
     party in connection with the defense thereof other than reasonable costs of
     investigation;  provided,  however,  that the  Underwriters  shall have the
     right to employ  counsel to represent  jointly the  Underwriters  and those
     other Underwriters and their respective officers, employees and controlling
     persons who may be subject to liability arising out of any claim in respect
     of which indemnity may be sought by the Underwriters against the Company or
     any  Selling  Stockholder  under  this  Section  10 if,  in the  reasonable
     judgment  of  the  Underwriters,  it is  advisable  for  the  Underwriters,
     officers,  employees and controlling  persons to be jointly  represented by
     separate counsel,  and in that event the fees and expenses of such separate
     counsel  shall  be  paid  by  the  Company  or  Selling  Stockholders.   No
     indemnifying  party  shall (i)  without  the prior  written  consent of the
     indemnified  parties  (which consent shall not be  unreasonably  withheld),
     settle or  compromise  or consent to the entry of any judgment with respect
     to any pending or threatened claim,  action,  suit or proceeding in respect
     of which  indemnification  or contribution may be sought hereunder (whether
     or not the  indemnified  parties  are actual or  potential  parties to such
     claim or action) unless such settlement,  compromise or consent includes an
     unconditional  release of each indemnified party from all liability arising
     out of such claim,  action,  suit or proceeding,  or (ii) be liable for any
     settlement of any such action  effected  without its written consent (which
     consent  shall  not be  unreasonably  withheld),  but if  settled  with the
     consent of the  indemnifying  party or if there be a final  judgment of the
     plaintiff in any such action,  the  indemnifying  party agrees to indemnify
     and hold  harmless  any  indemnified  party  from and  against  any loss or
     liability by reason of such settlement or judgment.

                                      -26-

<PAGE>

          (e) If the  indemnification  provided for in this Section 10 shall for
     any  reason  be  unavailable  to  or   insufficient  to  hold  harmless  an
     indemnified  party under  Section  10(a),  10(b) or 10(c) in respect of any
     loss,  claim,  damage  or  liability,  or any  action in  respect  thereof,
     referred  to  therein,  then  each  indemnifying  party  shall,  in lieu of
     indemnifying  such  indemnified  party,  contribute  to the amount  paid or
     payable by such indemnified party as a result of such loss,  claim,  damage
     or liability, or action in respect thereof, (i) in such proportion as shall
     be appropriate to reflect the relative benefits received by the Company and
     the Selling  Stockholders on the one hand and the Underwriters on the other
     from the offering of the Stock or (ii) if the allocation provided by clause
     (i) above is not  permitted by  applicable  law, in such  proportion  as is
     appropriate to reflect not only the relative benefits referred to in clause
     (i)  above  but also the  relative  fault of the  Company  and the  Selling
     Stockholders on the one hand and the Underwriters on the other with respect
     to the statements or omissions which resulted in such loss,  claim,  damage
     or liability,  or action in respect thereof,  as well as any other relevant
     equitable  considerations;  provided,  the  Selling  Stockholders  and  the
     Underwriters shall be obligated to contribute under this Section 10(e) only
     with respect to losses,  liabilities,  claims,  damages or expenses arising
     out of an untrue  statement  or omission  or alleged  untrue  statement  or
     omission of a material fact made in reliance  upon and in  conformity  with
     the information contained in Section 10(g) or Section 10(f),  respectively,
     hereunder.  The relative  benefits  received by the Company and the Selling
     Stockholders on the one hand and the Underwriters on the other with respect
     to such offering shall be deemed to be in the same  proportion as the total
     net proceeds from the offering of the Stock  purchased under this Agreement
     (before  deducting  expenses)  received  by the  Company  and  the  Selling
     Stockholders,  on the one hand,  and the total  underwriting  discounts and
     commissions  received by the Underwriters with respect to the shares of the
     Stock purchased under this Agreement,  on the other hand, bear to the total
     gross  proceeds  from the  offering  of the shares of the Stock  under this
     Agreement,  in each case as set forth in the table on the cover page of the
     Prospectus.  The relative fault shall be determined by reference to whether
     the untrue or alleged  untrue  statement of a material  fact or omission or
     alleged  omission to state a material fact relates to information  supplied
     by the Company, the Selling Stockholders or the Underwriters, the intent of
     the  parties  and  their  relative  knowledge,  access to  information  and
     opportunity to correct or prevent such statement or omission.  The Company,
     the Selling  Stockholders and the  Underwriters  agree that it would not be
     just and equitable if contributions  pursuant to this Section 10(e) were to
     be determined by pro rata allocation (even if the Underwriters were treated
     as one entity for such purpose) or by any other method of allocation  which
     does not take into account the equitable considerations referred to herein.
     The amount paid or payable by an indemnified party as a result of the loss,
     claim, damage or liability, or action in respect thereof, referred to above
     in this  Section  shall be deemed to include,  for purposes of this Section
     10(e), any legal or other expenses  reasonably incurred by such indemnified
     party in  connection  with  investigating  or defending  any such action or
     claim.  Notwithstanding  the  provisions  of  this  Section  10(e),  (i) no
     Underwriter  shall be  required to  contribute  any amount in excess of the
     amount by which the total price at which the Stock  underwritten  by it and
     distributed  to the public was offered to the public  exceeds the amount of
     any damages which such  Underwriter  has otherwise paid or become liable to
     pay by reason of any untrue or alleged  untrue  statement  or  omission  or
     alleged

                                      -27-

<PAGE>

     omission and (ii) no Selling  Stockholder  shall be required to  contribute
     any  amount  in  excess  of the total  proceeds  received  by such  Selling
     Stockholder  from the  offering  of the Stock by such  Selling  Stockholder
     (after deducting commissions,  but before taxes and any other expenses). No
     person  guilty of  fraudulent  misrepresentation  (within  the  meaning  of
     Section 10(f) of the Securities Act) shall be entitled to contribution from
     any  person who was not guilty of such  fraudulent  misrepresentation.  The
     Underwriters'  obligations  to contribute as provided in this Section 10(e)
     are several in proportion to their respective underwriting  obligations and
     not joint.

          (f) The Underwriters  severally  confirm and the Company  acknowledges
     that the statements with respect to the public offering of the Stock by the
     Underwriters  set forth on the cover page of, the list of Underwriters  and
     their  respective  participation  in the sale of Stock  under  the  caption
     "Underwriting" in, and the paragraphs addressing the underwriting discount,
     concessions and  reallowances,  stabilization,  short positions,  syndicate
     transactions  and penalty bids appearing  under the caption  "Underwriting"
     in,  the  Prospectus  are  correct  and  constitute  the  only  information
     concerning such  Underwriters  furnished in writing to the Company by or on
     behalf of the  Underwriters  specifically for inclusion in the Registration
     Statement and the Prospectus.

     11. Defaulting Underwriters.

     If, on either Delivery Date, any Underwriter defaults in the performance of
its obligations under this Agreement, the remaining non-defaulting  Underwriters
shall be obligated to purchase the Stock which the defaulting Underwriter agreed
but failed to purchase on such Delivery Date in the respective proportions which
the number of shares of the Firm Stock set opposite  the name of each  remaining
non-defaulting  Underwriter  in Schedule 1 hereto  bears to the total  number of
shares  of  the  Firm  Stock  set  opposite  the  names  of  all  the  remaining
non-defaulting  Underwriters in Schedule 1 hereto;  provided,  however, that the
remaining non-defaulting  Underwriters shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of shares of the Stock to be purchased on
such Delivery Date, and any remaining  non-defaulting  Underwriter  shall not be
obligated to purchase  more than 110% of the number of shares of the Stock which
it agreed to purchase on such  Delivery  Date pursuant to the terms of Section 3
hereof.  If the foregoing  maximums are exceeded,  the remaining  non-defaulting
Underwriters,  or those other underwriters  satisfactory to the Underwriters who
so agree, shall have the right, but shall not be obligated, to purchase, in such
proportion  as may be agreed upon among them,  all the Stock to be  purchased on
such  Delivery  Date.  If  the  remaining  Underwriters  or  other  underwriters
satisfactory  to the  Underwriters do not elect to purchase the shares which the
defaulting  Underwriter  or  Underwriters  agreed but failed to purchase on such
Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation  of  the  Underwriters  to  purchase,   and  the  applicable  Selling
Stockholders to sell, the Option Stock) shall terminate without liability on the
part of any non-defaulting Underwriter or the Selling Stockholders,  except that
the Company will continue to be liable for the payment of expenses to the extent
set forth in  Sections  8 and 13  hereof.  As used in this  Agreement,  the term
"Underwriter"  includes,  for all purposes of this Agreement  unless the context
requires  otherwise,  any party not listed in Schedule 1 hereto who,

                                      -28-

<PAGE>

pursuant to this Section 11, purchases Firm Stock which a defaulting Underwriter
agreed but failed to purchase.

     Nothing  contained  herein shall  relieve a defaulting  Underwriter  of any
liability  it may have to the Selling  Stockholders  for  damages  caused by its
default. If other underwriters are obligated or agree to purchase the Stock of a
defaulting  or  withdrawing   Underwriter,   either  the  Representatives,   the
applicable  Selling  Stockholders  or the Company may postpone the Delivery Date
for up to seven full  business  days in order to effect any changes  that in the
opinion of counsel for the  Company,  counsel for the  Selling  Stockholders  or
counsel for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.

     12.  Termination.  The  obligations  of the  Underwriters  hereunder may be
terminated  by the  Underwriters  by notice given to and received by the Company
and the Selling Stockholders prior to delivery of and payment for the Firm Stock
if, prior to that time,  any of the events  described  in Sections  9(l) or 9(m)
hereof, shall have occurred or if the Underwriters shall decline to purchase the
Stock for any reason permitted under this Agreement.

     13.  Reimbursement of Underwriters'  Expenses.  If any Selling  Stockholder
shall fail to tender the Stock for delivery to the Underwriters by reason of any
failure,  refusal  or  inability  on the  part  of the  Company  or any  Selling
Stockholder to perform any agreement on its part to be performed, or because any
other  condition  of the  Underwriters'  obligations  hereunder  required  to be
fulfilled  by the  Company or the Selling  Stockholders  is not  fulfilled,  the
Company  will  reimburse  the  Underwriters  for  all  reasonable  out-of-pocket
expenses  (including  reasonable fees and  disbursements of counsel) incurred by
the Underwriters in connection with this Agreement and the proposed  purchase of
the Stock,  and upon demand the Company shall pay the full amount thereof to the
Representatives.  If this Agreement is terminated  pursuant to Section 12 hereof
by reason of the  default of one or more  Underwriters,  neither the Company nor
the Selling  Stockholders  shall be obligated to reimburse  any  Underwriter  on
account of those expenses.

     14.  Notices,  etc.  All  statements,   requests,  notices  and  agreements
hereunder shall be in writing, and:

          (a) if to the Underwriters,  shall be delivered or sent by mail, telex
     or facsimile  transmission to Lehman Brothers Inc., Syndicate  Registration
     Department, 399 Park Avenue, New York, New York 10022, (Fax: 212-526-0943),
     with a copy,  in the case of any notice  pursuant to Section  8(c),  to the
     Director of  Litigation,  Office of the General  Counsel,  Lehman  Brothers
     Inc., 399 Park Avenue, New York, New York 10022;

          (b) if to the  Company,  shall be  delivered  or sent by mail,  telex,
     facsimile  transmission  or recognized  overnight  delivery  service to the
     address of the Company set forth in the Registration Statement,  Attention:
     Phyl Rykhoek (Fax: (972) 673-2051); and

          (c) if to any Selling Stockholder, shall be delivered or sent by mail,
     telex,  facsimile  transmission or recognized overnight delivery service to
     such Selling Stockholder at the address set forth on Schedule 2 hereto;

                                      -29-

<PAGE>

provided,  however,  that any notice to an Underwriter pursuant to Section 10(d)
above shall be  delivered  or sent by mail,  telex,  facsimile  transmission  or
recognized  overnight  delivery  service to such  Underwriter at its address set
forth  in its  acceptance  telex  to the  Underwriters,  which  address  will be
supplied to any other party hereto by the  Underwriters  upon request.  Any such
statements,  requests,  notices or  agreements  shall take effect at the time of
receipt thereof.  The Company and the Selling  Stockholders shall be entitled to
act and rely upon any request,  consent,  notice or  agreement  given or made on
behalf of the  Underwriters  by Lehman  Brothers  Inc.,  and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent, notice
or agreement given or made on behalf of the Selling Stockholders by a custodian.

     15. Persons Entitled to Benefit of Agreement. This Agreement shall inure to
the benefit of and be binding upon the  Underwriters,  the Company,  the Selling
Stockholders and their respective personal representatives and successors.  This
Agreement and the terms and  provisions  hereof are for the sole benefit of only
those persons, except that (A) the representations,  warranties, indemnities and
agreements  of the  Company  and  the  Selling  Stockholders  contained  in this
Agreement  shall also be deemed to be for the  benefit of the person or persons,
if any,  who  control  any  Underwriter  within the meaning of Section 15 of the
Securities Act and (B) the indemnity agreement of the Underwriters  contained in
Section  10(c)  of this  Agreement  shall be  deemed  to be for the  benefit  of
directors  of  the  Company,  directors  or  general  partners  of  the  Selling
Stockholders,  as the case may be,  officers  of the Company who have signed the
Registration  Statement  and any  person  controlling  the  Company or a Selling
Stockholder  within the meaning of Section 15 of the Securities Act.  Nothing in
this Agreement is intended or shall be construed to give any person,  other than
the persons referred to in this Section 15, any legal or equitable right, remedy
or claim  under or in  respect  of this  Agreement  or any  provision  contained
herein.

     16. Survival. The respective indemnities,  representations,  warranties and
agreements  of the  Company,  the  Selling  Stockholders  and  the  Underwriters
contained  in this  Agreement  or made by or on  behalf  on them,  respectively,
pursuant to this  Agreement,  shall  survive the delivery of and payment for the
Stock and shall remain in full force and effect, regardless of any investigation
made by or on behalf of any of them or any person controlling any of them.

     17.  Definition of the Terms "Business Day" and  "Subsidiary." For purposes
of this Agreement,  (a) "BUSINESS DAY" means any day on which the American Stock
Exchange is open for trading and (b)  "SUBSIDIARY"  has the meaning set forth in
Rule 405 of the Rules and Regulations.

     18.  Governing  Law. This  Agreement  shall be governed by and construed in
accordance with the laws of New York.

     19.   Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts  and,  if  executed  in more  than one  counterpart,  the  executed
counterparts  shall each be deemed to be an original  but all such  counterparts
shall together constitute one and the same instrument.

     20. Headings. The headings herein are inserted for convenience of reference
only  and  are  not  intended  to be  part  of,  or to  affect  the  meaning  or
interpretation of, this Agreement.

                                      -30-

<PAGE>

     If the foregoing correctly sets forth the agreement among the Company,  the
Selling  Stockholders and the  Underwriters,  please indicate your acceptance in
the space provided for that purpose below.

                                          Very truly yours,

                                          DENBURY RESOURCES INC.

                                   By:
                                        ----------------------------------------
                                   Name:  Gareth Roberts
                                   Title:  Chief Executive Officer and President

                                   The Selling Stockholders named in Schedule 2
                                   to this Agreement:

                                   TPG PARTNERS, L.P.

                                   By: TPG GenPar, L.P., general partner

                                        By: TPG Advisors, Inc., general partner

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

                                   TPG PARALLEL I, L.P.

                                   By: TPG GenPar, L.P.,  general partner

                                        By: TPG Advisors, Inc., general partner

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

                                      -31-
<PAGE>

                                   TPG PARTNERS II, L.P.

                                   By: TPG GenPar II, L.P., general partner

                                        By: TPG Advisors II, Inc.

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

                                   TPG PARALLEL II, L.P.

                                   By: TPG GenPar II, L.P., general partner

                                        By: TPG Advisors II, Inc.

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

                                   TPG INVESTORS II, L.P.

                                   By: TPG GenPar II, L.P., general partner

                                        By: TPG Advisors II, Inc.

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

                                   TPG 1999 EQUITY PARTNERS II, L.P.

                                   By:  TPG Advisors II, Inc.

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

                                      -32-
<PAGE>

Accepted:

LEHMAN BROTHERS INC.
CIBC  WORLD MARKETS CORP.
RAYMOND JAMES & ASSOCIATES,
INC.
JOHNSON RICE & COMPANY, L.L.C.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto

By:
   -----------------------------------------
   Authorized Representative

                                      -33-
<PAGE>

                                  Schedule 1-1
                                   SCHEDULE 1

<TABLE>
<CAPTION>
-------------------------------------------------- -------------------------------- ----------------------------------
                                                                                    NUMBER OF SHARES OF OPTION STOCK
                                                                                          TO BE PURCHASED (IF
                                                   NUMBER OF SHARES OF FIRM STOCK   OVER-ALLOTMENT OPTION EXERCISED
               NAME OF UNDERWRITER                         TO BE PURCHASED                      IN FULL)
               -------------------                         ---------------                      --------
-------------------------------------------------- -------------------------------- ----------------------------------
<S>                                                               <C>                                   <C>
Lehman Brothers Inc.........................                      3,500,000                             250,000
CIBC World Markets Corp.....................                      1,750,000                             125,000
Raymond James & Associates, Inc.............                        875,000                              62,500
Johnson Rice & Company, L.L.C. .............                        875,000                              62,250
                                                                    -------                              ------
                    Total...................                      7,000,000                             500,000
</TABLE>

                                  Schedule 1-1
<PAGE>

                                  Schedule 2-1
                                   SCHEDULE 2

<TABLE>
<CAPTION>
NAME AND ADDRESS OF SELLING STOCKHOLDER                                NUMBER OF SHARES OF     NUMBER OF SHARES OF
---------------------------------------                                --------------------    --------------------
                                                                            FIRM STOCK             OPTION STOCK
<S>                                                                           <C>                             <C>
TPG Partners, L.P.                                                            2,035,517                       145,394

TPG Parallel I, L.P.                                                                 202,855                   14,490

TPG Partners II, L.P.                                                              4,057,008                  289,785

TPG Parellel II, L.P.                                                                276,861                   19,776

TPG Investors II, L.P.                                                               423,188                   30,228

TPG Equity Partners II, L.P.                                                           4,571                      327

                  Total                                                            7,000,000                  500,000
                                                                                   =========                  =======
</TABLE>

(1) Each of these Selling  Stockholders  has granted the  Underwriters  a 30-day
option to purchase shares of Option Stock.

                                  Schedule 2-1
<PAGE>
                                                                       EXHIBIT A

                            LOCK-UP LETTER AGREEMENT

                               November ___, 2002

LEHMAN BROTHERS INC.
CIBC WORLD MARKETS
RAYMOND JAMES & ASSOCIATES,
INC. JOHNSON RICE & COMPANY, L.L.C.
      As representatives of the several underwriters named
      in Schedule I to the Underwriting Agreement
c/o Lehman Brothers Inc.
745 Seventh Avenue
New York, New York  10019

Dear Sirs:

     The  undersigned  understands  that  you,  representatives  of the  several
underwriters  (collectively,  the  "Underwriters")  propose  to  enter  into  an
Underwriting Agreement (the "Underwriting Agreement") providing for the purchase
by the  Underwriters  of  shares  (the  "Shares")  of  Common  Stock of  Denbury
Resources Inc. (the "Company") and that the Underwriters  propose to reoffer the
Shares to the public (the "Offering").

     In  consideration  of the  execution of the  Underwriting  Agreement by the
Underwriters,  and for other good and valuable  consideration,  the  undersigned
hereby  irrevocably  agrees that,  without the prior  written  consent of Lehman
Brothers Inc., the undersigned will not,  directly or indirectly,  (1) offer for
sale, sell,  pledge,  or otherwise  dispose of (or enter into any transaction or
device that is designed to, or could be expected to,  result in the  disposition
by any  person  at any  time  in the  future  of) any  shares  of  Common  Stock
(including,  without limitation, shares of Common Stock that may be deemed to be
beneficially  owned  by  the  undersigned  in  accordance  with  the  rules  and
regulations of the Securities and Exchange Commission and shares of Common Stock
that may be issued  upon  exercise  of any  option  or  warrant)  or  securities
convertible  into or  exchangeable  for Common  Stock (other than the Shares) or
sell or grant  options,  rights or warrants with respect to any shares of Common
Stock or securities  convertible  into or exchangeable for Common Stock owned by
the undersigned on the date of execution of this Lock-Up Letter  Agreement or on
the date of the completion of the Offering,  or (2) enter into any swap or other
derivatives  transaction that transfers to another,  in whole or in part, any of
the  economic  benefits or risks of  ownership  of such shares of Common  Stock,
whether  any such  transaction  described  in  clause  (1) or (2) above is to be
settled by delivery of Common Stock or other  securities,  in cash or otherwise,
for a period of 90 days after the date of the Final  Prospectus  relating to the
Offering;  provided  however,  that the  undersigned may make bona fide gifts to
persons or entities who agree in writing with you to be bound by the  provisions
of this Lock-Up Letter Agreement.  In furtherance of the foregoing,  the Company
and its Transfer Agent are hereby  authorized to decline to make any transfer of
securities  if such  transfer  would  constitute  a violation  or breach of this
Lock-Up Letter Agreement.

                                  Exhibit A-1
<PAGE>

         It is understood that, if the Company notifies you that it does not
intend to proceed with the Offering, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Shares, I will be released from our obligations
under this Lock-Up Letter Agreement.

         The undersigned understands that the Company and the Underwriters will
proceed with the Offering in reliance on this Lock-Up Letter Agreement.

         The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Letter Agreement and that,
upon request, the undersigned will execute any additional documents necessary in
connection with the enforcement hereof. Any obligations of the undersigned shall
be binding upon the heirs, personal representatives, successors and assigns of
the undersigned.

                                      Very truly yours,

                                      Name:

                                  Exhibit A-2

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