Document:

<PAGE>   1

                        FIRST AMENDMENT TO LOAN AGREEMENT

          THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment"), dated as of
June 20, 2000, is between SOUTH HAMPTON REFINING CO., a Texas corporation
("Borrower"), and SOUTHWEST BANK OF TEXAS, N.A., a national banking association
("Lender").

                                    RECITALS:

          A. Borrower and Lender entered into that certain Loan Agreement dated
as of September 30, 1999 (the "Agreement").

          B. Borrower and Lender now desire to amend the Agreement as herein set
forth.

          NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                   ARTICLE I.

                                   Definitions

          Section 1.1. Definitions. Capitalized terms used in this Amendment,
to the extent not otherwise defined herein, shall have the meanings given to
such terms in the Agreement, as amended hereby.

                                   ARTICLE II.

                                   Amendments

          Section 2.1. Amendment to Certain Definitions. Effective as of date
hereof, the definition of each of the following terms contained in Section 1.1
of the Agreement is amended to read in its respective entirety as follows:

                   "Commitment" means the obligation of Lender to make Advances
          and issue Letters of Credit hereunder in an aggregate principal amount
          at any time outstanding up to but not exceeding $3,250,000.00.

<PAGE>   2

          Section 2.2. Amendment to Exhibits. Effective as of the date hereof,
(a) Exhibit "A" (Note) to the Agreement is amended to conform in its entirety to
Annex "A" to this Amendment, (b) Exhibit "C" (Guaranty) to the Agreement is
amended to conform in its entirety to Annex "C" to this Amendment, (c) Exhibit
"E" (Borrowing Base Certificate) to the Agreement is amended to conform in its
entirety to Annex "D" to this Amendment and (d) Exhibit "G" (Arbitration
Agreement) to the Agreement is amended to conform in its entirety to Annex "E"
to this Amendment.

                                  ARTICLE III.

                              Conditions Precedent

          Section 3.1. Conditions. The effectiveness of this Amendment is
subject to the receipt by Lender of the following in form and substance
satisfactory to Lender:

                   (a) Resolutions-Borrower. Resolutions of the Board of
          Directors of Borrower certified by its Secretary or an Assistant
          Secretary which authorize the execution, delivery and performance by
          Borrower of this Amendment and the other Loan Documents to which
          Borrower is or is to be a party hereunder.

                   (b) Incumbency Certificate-Borrower. A certificate of
          incumbency certified by the Secretary or an Assistant Secretary of
          Borrower certifying the names and signatures of the officers of
          Borrower authorized to sign this Amendment and each of the other Loan
          Documents to which Borrower is or is to be a party hereunder.

                   (c) Resolutions-Guarantor. Resolutions of the Board of
          Directors of Guarantor certified by its Secretary or an Assistant
          Secretary which authorize the execution, delivery and performance by
          Guarantor of the Guaranty and the other Loan Documents to which
          Guarantor is or is to be a party hereunder.

                   (d) Incumbency Certificate-Guarantor. A certificate of
          incumbency certified by the Secretary or an Assistant Secretary of
          Guarantor certifying the names and signatures of the officers of
          Guarantor authorized to sign the Guaranty and each of the other Loan
          Documents to which Guarantor is or is to be a party hereunder.

                   (e) Certificates of Existence and Good Standing. Certificates
          of the appropriate governmental officials regarding the existence and
          good standing (i) of Borrower in the state of Texas, and (ii) of
          Guarantor in the state of Texas.

                   (f) Note. The Note executed by Borrower.

                                       -2-

<PAGE>   3

                   (g) Amendment to Security Agreement. A First Amendment to
          Security Agreement executed by Borrower substantially in the form of
          Annex "B" hereto.

                   (h) Guaranty. The Guaranty executed by Guarantor.

                   (i) Additional Information. Such additional documents,
          instruments and information as Lender may request.

          Section 3.2. Additional Conditions. The effectiveness of this
Amendment is also subject to the satisfaction of the additional conditions
precedent that (a) the representations and warranties contained herein and in
all other Loan Documents, as amended hereby, shall be true and correct as of the
date hereof as if made on the date hereof, (b) all proceedings, corporate or
otherwise, taken in connection with the transactions contemplated by this
Amendment and all documents, instruments and other legal matters incident
thereto shall be satisfactory to Lender, and (c) no Event of Default shall have
occurred and be continuing and no event or condition shall have occurred that
with the giving of notice or lapse of time or both would be an Event of Default.

                                   ARTICLE IV.

                 Ratifications, Representations, and Warranties

          Section 4.1. Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement are ratified and confirmed
and shall continue in full force and effect. Borrower and Lender agree that the
Agreement as amended hereby shall continue to be the legal, valid and binding
obligation of such Persons enforceable against such Persons in accordance with
its terms.

          Section 4.2. Representations, Warranties and Agreements. Borrower
hereby represents and warrants to Lender that (a) the execution, delivery, and
performance of this Amendment and any and all other Loan Documents executed or
delivered in connection herewith have been authorized by all requisite action
on the part of Borrower and will not violate the articles of incorporation or
bylaws of Borrower, (b) the representations and warranties contained in the
Agreement as amended hereby, and all other Loan Documents are true and correct
on and as of the date hereof as though made on and as of the date hereof, (c) no
Event of Default has occurred and is continuing and no event or condition has
occurred that with the giving of notice or lapse of time or both would be an
Event of Default, (d) Borrower is in full compliance with all covenants and
agreements contained in the Agreement as amended hereby, (e) Borrower is
indebted to Lender pursuant to the terms of the Note, as the same may have been
renewed, modified, extended and rearranged, including, without

                                      -3-
<PAGE>   4

limitation, renewals, modifications and extensions made pursuant to this
Amendment, (f) the liens, security interests, encumbrances and assignments
created and evidenced by the Loan Documents are, respectively, valid and
subsisting liens, security interests, encumbrances and assignments and secure
the Note as the same may have been renewed, modified or rearranged, including,
without limitation, renewals, modifications and extensions made pursuant to this
Amendment, and (g) Borrower has no claims, credits, offsets, defenses or
counterclaims arising from the Loan Documents or Lender's performance under the
Loan Documents.

                                   ARTICLE V.

                                  Miscellaneous

          Section 5.1. Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan
Documents including any Loan Document furnished in connection with this
Amendment shall fully survive the execution and delivery of this Amendment and
the other Loan Documents, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely on
them.

          Section 5.2. Reference to Agreement. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Agreement, as amended hereby, are hereby amended
so that any reference in such Loan Documents to the Agreement shall mean a
reference to the Agreement, as amended hereby.

          Section 5.3. Expenses of Lender. As provided in the Agreement,
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation and execution of this Amendment and
the other documents and instruments executed pursuant hereto and any and all
amendments, modifications and supplements thereto, including, without
limitation, the costs and fees of Lender's legal counsel, and all costs and
expenses incurred by Lender in connection with the enforcement or preservation
of any rights under the Agreement, as amended hereby, or any other Loan
Document, including, without limitation, the costs and fees of Lender's legal
counsel.

          Section 5.4. Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.

          SECTION 5.5. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN
DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE

                                       -4-

<PAGE>   5

AND TO BE PERFORMABLE IN HOUSTON, HARRIS COUNTY, TEXAS AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

          Section 5.6. Successors and Assigns. This Amendment is binding upon
and shall inure to the benefit of Lender and Borrower and their respective
successors and assigns, except Borrower may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of Lender.

          Section 5.7. Counterparts. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the same
instrument.

          Section 5.8. Effect of Waiver. No consent or waiver, express or
implied, by Lender to or for any breach of or deviation from any covenant,
condition or duty by Borrower shall be deemed a consent or waiver to or of any
other breach of the same or any other covenant, condition or duty.

          Section 5.9. Headings. The headings, captions, and arrangements used
in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.

          Section 5.10. ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THIS AMENDMENT AND THE OTHER INSTRUMENTS, DOCUMENTS AND
AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT, AND MAY NOT
BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.

                                      -5-

<PAGE>   6

        Executed as of the date first written above.

                                    BORROWER:

                                    SOUTH HAMPTON REFINING CO.

                                    By:   /s/ NICK CARTER
                                       -----------------------------------------
                                           Nick Carter
                                           President

                                    LENDER:

                                    SOUTHWEST BANK OF TEXAS, N.A.

                                    By:   /s/ A. STEPHEN KENNEDY
                                       -----------------------------------------
                                           A. Stephen Kennedy
                                           Senior Vice President

                                      -6-

<PAGE>   7

                                 LIST OF ANNEXES

<TABLE>
<CAPTION>
 Annex                                  Document
 -----                                  --------

<S>                                     <C>
   A                                    Note

   B                                    First Amendment to Security Agreement

   C                                    Guaranty

   D                                    Borrowing Base Certificate

   E                                    Arbitration Agreement
</TABLE>

                                       -7-

<PAGE>   8

                                   ANNEX "A"

                                      Note

<PAGE>   9

                                 PROMISSORY NOTE

$3,250,000.00                     Houston, Texas                  June 20, 2000

          FOR VALUE RECEIVED, the undersigned, SOUTH HAMPTON REFINING CO., a
Texas corporation ("Maker"), hereby promises to pay to the order of SOUTHWEST
BANK OF TEXAS, N.A., a national banking association ("Payee"), at its offices at
Five Post Oak Park, 4400 Post Oak Parkway, Houston, Harris County, Texas, or
such other address as may be designated by Payee, in lawful money of the United
States of America, the principal sum of THREE MILLION TWO HUNDRED FIFTY THOUSAND
AND NO/100 DOLLARS ($3,250,000.00), or so much thereof as may be advanced and
outstanding hereunder, together with interest on the outstanding principal
balance from day to day remaining, at a varying rate per annum which shall from
day to day be equal to the lesser of (a) the Maximum Rate (hereinafter defined)
or (b) the Prime Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (.5O%), and each change in the rate of interest
charged hereunder shall become effective, without notice to Maker, on the
effective date of each change in the Prime Rate or the Maximum Rate, as the case
may be; provided, however, if at any time the rate of interest specified in
clause (b) preceding shall exceed the Maximum Rate, thereby causing the interest
rate hereon to be limited to the Maximum Rate, then any subsequent reduction in
the Prime Rate shall not reduce the rate of interest hereon below the Maximum
Rate until the total amount of interest accrued hereon equals the amount of
interest which would have accrued hereon if the rate specified in clause (b)
preceding had at all times been in effect.

          Principal of and interest on this Note shall be due and payable as
follows:

                   (a) Accrued and unpaid interest on this Note shall be payable
          monthly, on the first (1st) day of each month commencing on July 1,
          2000 and upon the maturity of this Note, however such maturity may be
          brought about; and

                   (b) All outstanding principal of this Note and all accrued
          interest thereon shall be due and payable on May 31, 2001.

          Principal of this Note shall be subject to mandatory prepayment at the
times described in the Agreement (hereinafter defined). If an Event of Default
(hereinafter defined) has occurred and is existing, the principal hereof and any
past due interest hereon shall bear interest at the Default Rate (hereinafter
defined).

          Interest on the indebtedness evidenced by this Note shall be computed
on the basis of a year of 360 days and the actual number of days elapsed
(including the first day but excluding the last day) unless such calculation
would result in a usurious rate in which case interest shall be calculated on
the basis of a year of 365 or 366 days, as the case may be.

<PAGE>   10

          As used in this Note, the following terms shall have the respective
meanings indicated below:

                   "Agreement" means that certain Loan Agreement dated as of
          September 30, 1999 between Maker and Payee, as amended by First
          Amendment to Loan Agreement dated as of June 20, 2000, and as the same
          may be further amended or modified from time to time.

                   "Default Rate" means the lesser of (a) the sum of the Prime
          Rate plus five percent (5.O%), or (b) the Maximum Rate.

                   "Event of Default" shall have the meaning given to such term
          in the Agreement.

                   "Maximum Rate" means the maximum rate of nonusurious interest
          permitted from day to day by applicable law, including Chapter 303 of
          the Texas Finance Code (the "Code") (and as the same may be
          incorporated by reference in other Texas statutes). To the extent that
          Chapter 303 of the Code is relevant to any holder of this Note for the
          purposes of determining the Maximum Rate, each such holder elects to
          determine such applicable legal rate pursuant to the "weekly ceiling,"
          from time to time in effect, as referred to and defined in Chapter 303
          of the Code; subject, however, to the limitations on such applicable
          ceiling referred to and defined in the Code, and further subject to
          any right such holder may have subsequently, under applicable law, to
          change the method of determining the Maximum Rate.

                   "Prime Rate" shall mean that variable rate of interest per
          annum established by Payee from time to time as its prime rate which
          shall vary from time to time. Such rate is set by Payee as a general
          reference rate of interest, taking into account such factors as Payee
          may deem appropriate, it being understood that many of Payee's
          commercial or other loans are priced in relation to such rate, that it
          is not necessarily the lowest or best rate charged to any customer and
          that Payee may make various commercial or other loans at rates of
          interest having no relationship to such rate.

          This Note (a) is the Note provided for in the Agreement and (b) is
secured as provided in the Agreement. Maker may prepay the principal of this
Note upon the terms and conditions specified in the Agreement. Maker may borrow,
repay, and reborrow hereunder upon the terms and conditions specified in the
Agreement.

          Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this Note or otherwise in connection with this loan transaction, the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest,

                                       -2-

<PAGE>   11

or any other excess sum paid for the use, forbearance or detention of sums
loaned pursuant hereto. If for any reason interest in excess of the Maximum Rate
shall be deemed charged, required or permitted by any court of competent
jurisdiction, any such excess shall be applied as a payment and reduction of the
principal of indebtedness evidenced by this Note; and, if the principal amount
hereof has been paid in full, any remaining excess shall forthwith be paid to
Maker. In determining whether or not the interest paid or payable exceeds the
Maximum Rate, Maker and Payee shall, to the extent permitted by applicable law,
(a) characterize any non-principal payment as an expense, fee, or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) amortize, prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of the indebtedness
evidenced by this Note so that the interest for the entire term does not exceed
the Maximum Rate.

          If default occurs in the payment of principal or interest under this
Note, or upon the occurrence of any other Event of Default, as such term is
defined in the Agreement, the holder hereof may, at its option, (a) declare the
entire unpaid principal of and accrued interest on this Note immediately due and
payable without notice, demand or presentment, all of which are hereby waived,
and upon such declaration, the same shall become and shall be immediately due
and payable, (b) foreclose or otherwise enforce all liens or security interests
securing payment hereof, or any part hereof, (c) offset against this Note any
sum or sums owed by the holder hereof to Maker and (d) take any and all other
actions available to Payee under this Note, the Agreement, the Loan Documents
(as such term is defined in the Agreement) at law, in equity or otherwise.
Failure of the holder hereof to exercise any of the foregoing options shall not
constitute a waiver of the right to exercise the same upon the occurrence of a
subsequent Event of Default.

          If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all costs,
expenses, and fees incurred by the holder, including all reasonable attorneys'
fees.

          THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. THIS NOTE IS PERFORMABLE IN HARRIS COUNTY, TEXAS.

          Maker and each surety, guarantor, endorser, and other party ever
liable for payment of any sums of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace, and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before or after maturity,
and any impairment of any collateral securing this Note, all without prejudice
to the holder. The holder shall similarly have the right to deal in any way, at
anytime, with one or more of the foregoing parties without notice to any other
party, and to grant any such party any extensions of time

                                      -3-

<PAGE>   12

for payment of any of said indebtedness, or to release or substitute part or all
of the collateral securing this Note, or to grant any other indulgences or
forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any party hereunder.

          This Note is in renewal and increase of, but not in discharge or
novation of, that certain promissory note in the original principal amount of
$2,250,000.00, dated September 30, 1999, executed by Maker and payable to the
order of Payee.

                                      SOUTH HAMPTON REFINING CO.

                                      By:
                                          --------------------------------------
                                             Nick Carter
                                             President

                                      -4-

<PAGE>   13

                                    ANNEX "B"

                     First Amendment to Security Agreement

<PAGE>   14

                      FIRST AMENDMENT TO SECURITY AGREEMENT

          This FIRST AMENDMENT TO SECURITY AGREEMENT ("Amendment"), dated as of
June 20, 2000, is between SOUTH HAMPTON REFINING CO., a Texas corporation
("Debtor") and SOUTHWEST BANK OF TEXAS, N.A., a national banking association
("Secured Party").

                                    RECITALS:

          WHEREAS, Debtor and Secured Party have entered into that certain Loan
Agreement dated as of September 30, 1999, as amended by First Amendment to Loan
Agreement dated as of June 20, 2000 (such Loan Agreement, as amended and as the
same may be further amended from time to time is referred to as the "Loan
Agreement").

          WHEREAS, pursuant to the Loan Agreement Debtor executed that certain
Security Agreement, dated as of September 30, 1999 (the "Security Agreement").

          WHEREAS, the execution of this Amendment is a condition to Secured
Party entering into the First Amendment to Loan Agreement referred to above.

          NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are acknowledged and agreed, Debtor and Secured Party
hereby agree as follows:

                                   ARTICLE I.

                                   Amendments

          1. Amendment to Section 1.02(a). Effective as of the date hereof,
Section 1.02(a) of the Security Agreement is amended to read in its entirety as
follows:

                   (a) the obligations and indebtedness of Debtor to Secured
          Party evidenced by that certain promissory note in the original
          principal amount of $3,250,000.00 dated June 20, 2000, executed by
          Debtor and payable to the order of Secured Party, which was executed
          in renewal and increase of that certain promissory note in the
          original principal amount of $2,250,000.00 dated September 30, 1999,
          executed by Debtor and payable to the order of Secured Party;

<PAGE>   15

                                   ARTICLE II.

                              Additional Provisions

          1. Acknowledgment by Debtor. Except as otherwise specified herein, the
terms and provisions hereof shall in no manner impair, limit, restrict or
otherwise affect the obligations of Debtor or any third party to Secured Party
under any Loan Document (as defined in the Loan Agreement).

          2. Additional Documentation. From time to time, Debtor shall execute
or procure and deliver to Secured Party such other and further documents and
instruments evidencing, securing or pertaining to the Security Agreement or the
other Loan Documents as shall be reasonably requested by Secured Party so as to
evidence or effect the terms and provisions hereof.

          3. Continued Effectiveness. Except as expressly modified by the terms
and provisions hereof, each of the terms and provisions of the Security
Agreement and the other Loan Documents are hereby ratified and confirmed, and
shall remain in full force and effect. The liens and security interests
created by the Security Agreement remain in full force and effect.

          4. Governing Law. THE TERMS AND PROVISIONS HEREOF SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

          5. Binding Agreement. This Amendment shall be binding upon the heirs,
executors, administrators, personal representatives, successors and assigns of
the parties hereto.

          6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be construed as one and the same instrument.

          7. No Oral Agreements. This Amendment, the Loan Agreement and the
other Loan Documents embody the final, entire agreement among the parties
hereto. There are no oral agreements among the parties hereto.

                                      -2-

<PAGE>   16

          EXECUTED as of the date first above written.

                                 DEBTOR:

                                 SOUTH HAMPTON REFINING CO.

                                 By:
                                    --------------------------------------------
                                        Nick Carter
                                        President

                                 SECURED PARTY:

                                 SOUTHWEST BANK OF TEXAS, NA.

                                 By:
                                    --------------------------------------------
                                        A. Stephen Kennedy
                                        Vice President

                                      -3-

<PAGE>   17

                                   ANNEX "C"

                                    Guaranty

<PAGE>   18

                               GUARANTY AGREEMENT

          WHEREAS, the execution of this Guaranty Agreement is a condition to
SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Lender") making
certain loans to SOUTH HAMPTON REFINING CO., a Texas corporation ("Borrower"),
pursuant to that certain Loan Agreement dated as of September 30, 1999, between
Borrower and Lender, as amended by First Amendment to Loan Agreement dated as of
June 20, 2000 (such Loan Agreement, as amended and as it may hereafter be
further amended or modified from time to time, is hereinafter referred to as the
"Loan Agreement");

          NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the undersigned, TEXAS OIL & CHEMICAL CO. II,
INC., a Texas corporation (the "Guarantor"), hereby irrevocably and
unconditionally guarantees to Lender the full and prompt payment and performance
of the Guaranteed Indebtedness (hereinafter defined). This Guaranty Agreement
shall be upon the following terms:

          1. The term "Guaranteed Indebtedness", as used herein means all of the
"Obligations", as defined in the Loan Agreement. The term "Guaranteed
Indebtedness" shall include any and all post-petition interest and expenses
(including attorneys' fees) whether or not allowed under any bankruptcy,
insolvency, or other similar law. As of the date of this Guaranty Agreement, the
Obligations include, but are not limited to, that certain promissory note in the
original principal amount of $3,250,000.00, dated as of July 20, 2000, executed
by Borrower and payable to the order of Lender, and all renewals, extensions and
modifications thereof.

          2. This instrument shall be an absolute, continuing, irrevocable, and
unconditional guaranty of payment and performance, and not a guaranty of
collection, and Guarantor shall remain liable on its obligations hereunder until
the payment and performance in full of the Guaranteed Indebtedness. No set-off,
counterclaim, recoupment, reduction, or diminution of any obligation, or any
defense of any kind or nature which Borrower may have against Lender or any
other party, or which Guarantor may have against Borrower, Lender, or any other
party, shall be available to, or shall be asserted by, Guarantor against Lender
or any subsequent holder of the Guaranteed Indebtedness or any part thereof or
against payment of the Guaranteed Indebtedness or any part thereof.

          3. If Guarantor becomes liable for any indebtedness owing by Borrower
to Lender by endorsement or otherwise, other than under this Guaranty Agreement,
such liability shall not be in any manner impaired or affected hereby, and the
rights of Lender hereunder shall be cumulative of any and all other rights that
Lender may ever have against Guarantor. The exercise by Lender of any right or
remedy hereunder or under any other instrument, or at law or in equity, shall
not preclude the concurrent or subsequent exercise of any other right or remedy.

<PAGE>   19

          4. In the event of default by Borrower in payment or performance of
the Guaranteed Indebtedness, or any part thereof, when such Guaranteed
Indebtedness becomes due, whether by its terms, by acceleration, or otherwise,
Guarantor shall promptly pay the amount due thereon to Lender without notice or
demand in lawful currency of the United States of America and it shall not be
necessary for Lender, in order to enforce such payment by Guarantor, first to
institute suit or exhaust its remedies against Borrower or others liable on such
Guaranteed Indebtedness, or to enforce any rights against any collateral which
shall ever have been given to secure such Guaranteed Indebtedness. Until the
Guaranteed Indebtedness is paid in full and a period of ninety (90) days has
passed following such payment, Guarantor waives any and all rights it may now or
hereafter have under any agreement or at law or in equity (including, without
limitation, any law subrogating the Guarantor to the rights of Lender) to assert
any claim against or seek contribution, indemnification or any other form of
reimbursement from Borrower or any other party liable for payment of any or all
of the Guaranteed Indebtedness for any payment made by Guarantor under or in
connection with this Guaranty Agreement or otherwise.

          5. If acceleration of the time for payment of any amount payable by
Borrower under the Guaranteed Indebtedness is stayed upon the insolvency,
bankruptcy, or reorganization of Borrower, all such amounts otherwise subject to
acceleration under the terms of the Guaranteed Indebtedness shall nonetheless be
payable by Guarantor hereunder forthwith on demand by Lender.

          6. Guarantor hereby agrees that its obligations under this Guaranty
Agreement shall not be released, discharged, diminished, impaired, reduced, or
affected for any reason or by the occurrence of any event, including, without
limitation, one or more of the following events, whether or not with notice to
or the consent of Guarantor: (a) the taking or accepting of collateral as
security for any or all of the Guaranteed Indebtedness or the release,
surrender, exchange, or subordination of any collateral now or hereafter
securing any or all of the Guaranteed Indebtedness; (b) any partial release of
the liability of Guarantor hereunder, or the full or partial release of any
other guarantor from liability for any or all of the Guaranteed Indebtedness;
(c) any disability of Borrower, or the dissolution, insolvency, or bankruptcy of
Borrower, Guarantor, or any other party at any time liable for the payment of
any or all of the Guaranteed Indebtedness; (d) any renewal, extension,
modification, waiver, amendment, or rearrangement of any or all of the
Guaranteed Indebtedness or any instrument, document, or agreement evidencing,
securing, or otherwise relating to any or all of the Guaranteed Indebtedness;
(e) any adjustment, indulgence, forbearance, waiver, or compromise that may be
granted or given by Lender to Borrower, Guarantor, or any other party ever
liable for any or all of the Guaranteed Indebtedness; (f) any neglect, delay,
omission, failure, or refusal of Lender to take or prosecute any action for the
collection of any of the Guaranteed Indebtedness or to foreclose or take or
prosecute any action in connection with any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Indebtedness; (g) the unenforceability or invalidity of any or all of the
Guaranteed Indebtedness or of any instrument, document, or agreement evidencing,
securing,

                                       -2-

<PAGE>   20

or otherwise relating to any or all of the Guaranteed Indebtedness; (h) any
payment by Borrower or any other party to Lender is held to constitute a
preference under applicable bankruptcy or insolvency law or if for any other
reason Lender is required to refund any payment or pay the amount thereof to
someone else (i) the settlement or compromise of any of the Guaranteed
Indebtedness; (j) the non-perfection of any security interest or lien securing
any or all of the Guaranteed Indebtedness; (k) any impairment of any collateral
securing any or all of the Guaranteed Indebtedness; (1) the failure of Lender to
sell any collateral securing any or all of the Guaranteed Indebtedness in a
commercially reasonable manner or as otherwise required by law; (m) any change
in the corporate existence, structure, or ownership of Borrower; or (n) any
other circumstance which might otherwise constitute a defense available to, or
discharge of, Borrower or Guarantor.

          7. Guarantor represents and warrants to Lender as follows:

                   (a) Guarantor is a corporation duly organized, validly
          existing and in good standing under the laws of the state of its
          incorporation, is qualified to do business in all jurisdictions in
          which the nature of the business conducted by it makes such
          qualification necessary and where failure to so qualify would have a
          material adverse effect on its business, financial condition, or
          operations.

                   (b) Guarantor has the corporate power, authority and legal
          right to execute, deliver, and perform its obligations under this
          Guaranty Agreement and this Guaranty Agreement constitutes the legal,
          valid, and binding obligation of Guarantor, enforceable against
          Guarantor in accordance with its respective terms, except as limited
          by bankruptcy, insolvency, or other laws of general application
          relating to the enforcement of creditor's rights.

                   (c) The execution, delivery, and performance by Guarantor of
          this Guaranty Agreement have been duly authorized by all requisite
          action on the part of Guarantor and do not and will not violate or
          conflict with the articles of incorporation or bylaws of Guarantor or
          any law, rule, or regulation or any order, writ, injunction or decree
          of any court, governmental authority or agency, or arbitrator and do
          not and will not conflict with, result in a breach of, or constitute a
          default under, or result in the imposition of any lien upon any
          assets of Guarantor pursuant to the provisions of any indenture,
          mortgage, deed of trust, security agreement, franchise, permit,
          license, or other instrument or agreement to which Guarantor or its
          properties is bound.

                   (d) No authorization, approval, or consent of, and no filing
          or registration with, any court, governmental authority, or third
          party is necessary for the execution, delivery or performance by
          Guarantor of this Guaranty Agreement or the validity or enforceability
          thereof.

                                      -3-
<PAGE>   21
                  (e) The value of the consideration received and to be received
         by Guarantor as a result of Borrower and Lender entering into the Loan
         Agreement and Guarantor executing and delivering this Guaranty
         Agreement is reasonably worth at least as much as the liability and
         obligation of Guarantor hereunder, and such liability and obligation
         and the Loan Agreement have benefitted and may reasonably be expected
         to benefit Guarantor directly or indirectly.

         8. Guarantor covenants and agrees that, as long as the Guaranteed
Indebtedness or any part thereof is outstanding or Lender has any commitment
under the Loan Agreement:

                  (a) Guarantor will deliver to Lender the financial statements
         of Guarantor described in the Loan Agreement at the times required by
         the Loan Agreement.

                  (b) Guarantor will furnish promptly to Lender written notice
         of the occurrence of any default under this Guaranty Agreement or an
         Event of Default under the Loan Agreement of which Guarantor has
         knowledge.

                  (c) Guarantor will furnish promptly to Lender such additional
         information concerning Guarantor as Lender may request.

                  (d) Guarantor will maintain the covenants contained in Article
         IX of the Loan Agreement.

         9. Upon the occurrence of an Event of Default (as defined in the Loan
Agreement) Lender shall have the right to set off and apply against this
Guaranty Agreement or the Guaranteed Indebtedness or both, at any time and
without notice to Guarantor, any and all deposits (general or special, time or
demand, provisional or final) or other sums at any time credited by or owing
from Lender to Guarantor whether or not the Guaranteed Indebtedness is then due
and irrespective of whether or not Lender shall have made any demand under this
Guaranty Agreement. In addition to Lender's right of setoff and as further
security for this Guaranty Agreement and the Guaranteed Indebtedness, Guarantor
hereby grants Lender a security interest in all deposits (general or special,
time or demand, provisional or final) and all other accounts of Guarantor now or
hereafter on deposit with or held by Lender and all other sums at any time
credited by or owing from Lender to Guarantor. The rights and remedies of Lender
hereunder are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which Lender may have.

         10. No amendment or waiver of any provision of this Guaranty Agreement
or consent to any departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by Lender. No failure
on the part of Lender to exercise, and no delay in exercising, any right, power,
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power, or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power, or

                                       -4-
<PAGE>   22

privilege. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

         11. This Guaranty Agreement is for the benefit of Lender and its
successors and assigns, and in the event of an assignment of the Guaranteed
Indebtedness, or any part thereof, the rights and benefits hereunder, to the
extent applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty Agreement is binding not only on Guarantor, but on
Guarantor's successors and assigns.

         12. Guarantor recognizes that Lender is relying upon this Guaranty
Agreement and the undertakings of Guarantor hereunder in making extensions of
credit to Borrower under the Loan Agreement and further recognizes that the
execution and delivery of this Guaranty Agreement is a material inducement to
Lender in entering into the Loan Agreement. Guarantor hereby acknowledges that
there are no conditions to the full effectiveness of this Guaranty Agreement.

         13. This Guaranty Agreement is executed and delivered as an incident to
a lending transaction negotiated, consummated, and performable in Harris County,
Texas, and shall be governed by and construed in accordance with the laws of the
State of Texas. Except as provided in the Arbitration Agreement among Borrower,
Guarantor, Lender and others (the "Arbitration Agreement"), any action or
proceeding against Guarantor under or in connection with this Guaranty Agreement
may be brought in any state or federal court in Harris County, Texas, and
Guarantor hereby irrevocably submits to the nonexclusive jurisdiction of such
courts, and waives any objection it may now or hereafter have as to the venue of
any such action or proceeding brought in such court. Guarantor agrees that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its address specified in the Loan Agreement. Except as
provided in the Arbitration Agreement, nothing herein shall affect the right of
Lender to serve process in any other matter permitted by law or shall limit the
right of Lender to bring any action or proceeding against Guarantor or with
respect to any of Guarantor's property in courts in other jurisdictions. Except
as provided in the Arbitration Agreement, any action or proceeding by Guarantor
against Lender shall be brought only in a court located in Harris County, Texas.

         14. Guarantor shall pay on demand all attorneys' fees and all other
costs and expenses incurred by Lender in connection with the preparation,
administration, enforcement, or collection of this Guaranty Agreement.

         15. Guarantor hereby waives promptness, diligence, notice of any
default under the Guaranteed Indebtedness, demand of payment, notice of
acceptance of this Guaranty Agreement, presentment, notice of protest, notice of
dishonor, notice of the incurring by Borrower of additional indebtedness, and
all other notices and demands with respect to the Guaranteed Indebtedness and
this Guaranty Agreement.

                                       -5-
<PAGE>   23

         16. The Loan Agreement, and all of the terms thereof, are incorporated
herein by reference, the same as if stated verbatim herein, and Guarantor
agrees that Lender may exercise any and all rights granted to it under the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement)
without affecting the validity or enforceability of this Guaranty Agreement. Any
notices given hereunder shall be given in the manner provided by and to the
addresses set forth in the Loan Agreement.

         17. Guarantor hereby represents and warrants to Lender that Guarantor
has adequate means to obtain from Borrower on a continuing basis information
concerning the financial condition and assets of Borrower and that Guarantor is
not relying upon Lender to provide (and Lender shall have no duty to provide)
any such information to Guarantor either now or in the future.

         18. THIS GUARANTY AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT OF
GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
INDEBTEDNESS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER
EXTRINSIC EVIDENCE OF ANY NATURE. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR
AND LENDER. THIS GUARANTY AGREEMENT MAY NOT BE AMENDED EXCEPT IN WRITING BY
GUARANTOR AND LENDER.

         DATED AND EXECUTED as of July 20, 2000.

                                   GUARANTOR:

                                   TEXAS OIL & CHEMICAL CO. II, INC.

                                   By:
                                      ------------------------------
                                      Nick Carter
                                      President

                                       -6-
<PAGE>   24

                                   ANNEX "D"

                           Borrowing Base Certificate

<PAGE>   25
                           BORROWING BASE CERTIFICATE

TO:       Southwest Bank of Texas, N.A.
          Five Post Oak Park
          4400 Post Oak Parkway
          Houston, Texas 77027
          Attention:  A. Stephen Kennedy

Ladies and Gentlemen:

         The undersigned is an authorized representative of SOUTH HAMPTON
REFINING CO. (the "Borrower"), and is authorized to make and deliver this
certificate pursuant to that certain Loan Agreement dated as of September 30,
1999 between the Borrower and Southwest Bank of Texas, N.A. (the "Lender"), as
amended by First Amendment to Loan Agreement dated as of June 20, 2000. (Such
Loan Agreement, as amended and as it may be further amended is referred to as
the "Loan Agreement"). All terms defined in the Loan Agreement shall have the
same meaning herein.

         Pursuant to the terms and provisions of the Loan Agreement, the
undersigned hereby certifies that the following statements and information are
true, complete and correct:

                  (a) The representations and warranties contained in Article VI
         of the Loan Agreement and in each of the other Loan Documents are true
         and correct on and as of the date hereof with the same force and effect
         as if made on and as of such date.

                  (b) No Event of Default has occurred and is continuing, and no
         event has occurred and is continuing that, with the giving of notice or
         lapse of time or both, would be an Event of Default. Borrower
         acknowledges that if an Event of Default exists Lender is not obligated
         to fund any request for an Advance.

                  (c) Since the date of the financial statements of Borrower
         most recently delivered to Lender pursuant to the Loan Agreement, there
         has been no Material Adverse Effect.

                  (d) The amount of the outstanding Advances does not exceed the
         lesser of (i) the Borrowing Base minus the outstanding Letter of Credit
         Liabilities or (ii) the Commitment minus the outstanding Letter of
         Credit Liabilities.

                  (e) The total Eligible Accounts and Eligible Inventory
         referred to below represent the Eligible Accounts and Eligible
         Inventory that qualifies for purposes of determining the Borrowing Base
         under the Loan Agreement. Borrower represents and

<PAGE>   26

         warrants that the information and calculations set forth below
         regarding the Eligible Accounts and Eligible Inventory and the
         Borrowing Base are true and correct in all material respects.

<TABLE>
<CAPTION>
                             Calculation of Borrowing Base
<S>                                                                                         <C>
        1.       Total Accounts ........................................................... $
                                                                                            --------------
        2.       Ineligible Accounts
                 (a)      more than 90 days past invoice date ............................. $
                                                                                            --------------
                 (b)      accounts from officers, employees
                          subsidiaries or affiliates .......................................$
                                                                                            --------------
                 (c)      conditional accounts ............................................ $
                                                                                            --------------
                 (d)      foreign accounts ................................................ $
                                                                                            --------------
                 (e)      accounts subject to dispute,
                          counterclaim, setoff or retainage ............................... $
                                                                                            --------------
                 (f)      pre-billings or unearned income ................................. $
                                                                                            --------------
                 (g)      accounts of insolvent or bankrupt
                          account debtors ................................................. $
                                                                                            --------------
                 (h)      accounts of U.S. government ..................................... $
                                                                                            --------------
                 (i)      terms in excess of 30 days past
                          invoice date .................................................... $
                                                                                            --------------
                 (j)      more than 20% over 89 days ...................................... $
                                                                                            --------------
                 (k)      more than 20% concentration ..................................... $
                                                                                            --------------
                 Total .................................................................... $
                                                                                            --------------

        3.       Eligible Accounts
                 [line (1) minus line (2)] .................................................$
                                                                                            --------------

        4.       80% of line (3) .......................................................... $
                                                                                            --------------

        5.       Eligible Inventory ....................................................... $
                                                                                            --------------

        6.       50% of line (5) .......................................................... $
                                                                                            --------------

        7.       Lesser of line (6) or $750,000.00 ........................................ $
                                                                                            --------------

        8.       Borrowing Base [sum of line (4) plus
                 line(7)] ................................................................. $
                                                                                            --------------

        9.       Commitment ............................................................... $3,250,000.00
</TABLE>

                                       -2-
<PAGE>   27

<TABLE>
<S>                                                                                         <C>
       10.       Lesser of line (8) or line (9) ........................................... $
                                                                                            ------------

       11.       Amount of outstanding Advances ........................................... $
                                                                                            ------------

       12.       Letter of Credit Liabilities ............................................. $
                                                                                            ------------

       13.       Sum of line (11) plus line (12) .......................................... $
                                                                                            ------------
       14.       Available Amount [line (10) minus
                 line (13)] ............................................................... $
                                                                                            ------------
</TABLE>

                  (f) Attached hereto as Schedule 1 is a list of Borrower's
         accounts receivable, designating Eligible Accounts, and showing all
         accounts receivable by customer name, the amount owing to Borrower and
         the age of each receivable.

                   (g) Attached hereto as Schedule 2 is a list of Borrower's
          inventory, designating Eligible Inventory and showing all inventory by
          product type, volume and value.

Date:
       -----------------

                                             BORROWER:

                                             SOUTH HAMPTON REFINING CO.

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

                                      -3-
<PAGE>   28

                    Schedule 1 - List of Accounts Receivable

                                       -4-
<PAGE>   29

                     Schedule 2 - List of Eligible Inventory

                                       -5-
<PAGE>   30

                                    ANNEX "E"

                             Arbitration Agreement

<PAGE>   31

                              ARBITRATION AGREEMENT

         Re:      Loan in the principal amount of $3,250,000.00 dated June 20,
                  2000, from SOUTHWEST BANK OF TEXAS, N.A. to SOUTH HAMPTON
                  REFINING CO., and all renewals, increases, extensions,
                  modifications and substitutions thereof.

In consideration of the premises and the mutual agreements herein, the
undersigned agree as follows:

Binding Arbitration. Notwithstanding any provision in any Documents (defined
below) to the contrary, upon the request of any of the undersigned (collectively
called the "parties" and individually called a "party"), whether made before or
after the institution of any legal proceeding, any action, dispute, claim or
controversy of any kind (for example, whether in contract or in tort, under
statutory or common law, or legal or equitable) now existing or hereafter
arising between or among the parties in any way arising out of, pertaining to or
in connection with (1) the referenced Loan, any related agreements, documents,
or instruments (collectively, the "Documents") or any transaction contemplated
thereby, before or after maturity, or (2) any aspect of the past or present
relationships of the parties to the Documents shall be resolved by mandatory and
binding arbitration in accordance with the terms of this Arbitration Agreement.
The occurrence of any of the foregoing matters shall be referred to as a
"Dispute." Any party to this Arbitration Agreement may bring by summary
proceedings (for example, a plea in abatement or motion to stay further
proceedings) an action in court to compel arbitration of any Dispute.

Governing Rules. Notwithstanding any provision in any Documents to the contrary,
all Disputes between the parties shall be resolved by mandatory and binding
arbitration administered by the American Arbitration Association (the "AAA")
pursuant to the Federal Arbitration Act (Title 9 of the United States Code) in
accordance with this Arbitration Agreement and the Commercial Arbitration Rules
of the AAA. If Title 9 of the United States Code is inapplicable to any such
claim or controversy for any reason, such arbitration shall be conducted
pursuant to the Texas General Arbitration Act and in accordance with this
Arbitration Agreement and the Commercial Arbitration Rules of the AAA. To the
extent that any inconsistency exists between this Arbitration Agreement and such
statutes and rules, this Arbitration Agreement shall control. Judgment upon the
award rendered by the arbitrators may be entered in and enforced by any court
having jurisdiction and in accordance with the practice of such court; provided,
however, that nothing contained herein shall be deemed to be a waiver by any
party that is a bank of the protections afforded to it under 12 U.S.C.
Section 91, Texas Banking Code art. 342-609 or 342-705, or any other protection
provided banks by the laws of Texas or the United States.

<PAGE>   32

No Waiver; Preservation of Remedies. No provision of, nor the exercise of any
rights under, this Arbitration Agreement shall limit the right of any party to
employ other remedies, including, without limitation, (1) foreclosing against
any real or personal property collateral or other security by the exercise of a
power of sale under a deed of trust, mortgage, or other security agreement or
instrument, or applicable law, (2) exercising self-help remedies (including
without limitation set-off rights), or (3) obtaining provisional or ancillary
remedies such as, without limitation, injunctive relief, sequestration,
attachment, garnishment, or the appointment of a receiver from a court having
jurisdiction before, during, or after the pendency of any arbitration. The
institution and maintenance of an action for judicial relief, pursuit of
provisional or ancillary remedies, or exercise of self-help remedies shall not
constitute a waiver of the right of any party, including without limitation, the
plaintiff, to submit any Dispute to arbitration nor render inapplicable the
compulsory arbitration provisions hereof.

In Disputes involving indebtedness or other monetary obligations, each party
agrees that the other party may proceed against all liable persons, jointly and
severally, or against one or more of them, being less than all, without
impairing rights against other liable persons. Nor shall a party be required to
join any principal obligor or any other liable persons (including, without
limitation, sureties or guarantors) in any proceeding against a particular
person. A party may release or settle with one or more liable persons as the
party deems fit without releasing or impairing rights to proceed against any
persons not so released.

Arbitration Proceeding. All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceeding. Any attorney-client
privilege and other protection against disclosure of confidential information,
including, without limitation, any protection afforded the work product of any
attorney, that could otherwise be claimed by any party shall be available to and
may be claimed by any such party in any arbitration proceeding. No party waives
any attorney-client privilege or any other protection against disclosure of
confidential information by reason of anything contained in or done pursuant to
or in connection with this Arbitration Agreement. Any arbitration proceeding
shall be conducted in Harris County, Texas by a panel of three arbitrators each
having substantial experience and recognized expertise in the field or fields of
the matter(s) in dispute.

Other Matters. This Arbitration Agreement constitutes the entire agreement of
the parties with respect to its subject matter and supersedes all prior
discussions, arrangements, negotiations, and other communications on dispute
resolution. The provisions of this Arbitration Agreement shall survive any
termination, amendment or expiration of the Documents unless the parties
otherwise expressly agree in writing. This Arbitration Agreement may be amended,
changed or modified only by the express provisions of a writing which
specifically refers to this Arbitration Agreement and which is signed by all
parties. If any provision of this Arbitration Agreement shall be unenforceable,
unlawful or invalid in any respect, then such provision shall be deemed
severable from the remaining provisions and the enforceability, lawfulness and
validity of the remaining provisions will not be affected or impaired. This
Arbitration

                                       -2-
<PAGE>   33
                                 PROMISSORY NOTE

$3,250,000.00                    Houston, Texas                    June 20, 2000

         FOR VALUE RECEIVED, the undersigned, SOUTH HAMPTON REFINING CO., a
Texas corporation ("Maker"), hereby promises to pay to the order of SOUTHWEST
BANK OF TEXAS, N.A., a national banking association ("Payee"), at its offices
at Five Post Oak Park, 4400 Post Oak Parkway, Houston, Harris County, Texas, or
such other address as may be designated by Payee, in lawful money of the United
States of America, the principal sum of THREE MILLION TWO HUNDRED FIFTY THOUSAND
AND NO/100 DOLLARS ($3,250,000.00), or so much thereof as may be advanced and
outstanding hereunder, together with interest on the outstanding principal
balance from day to day remaining, at a varying rate per annum which shall from
day to day be equal to the lesser of (a) the Maximum Rate (hereinafter defined)
or (b) the Prime Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (50%), and each change in the rate of interest
charged hereunder shall become effective, without notice to Maker, on the
effective date of each change in the Prime Rate or the Maximum Rate, as the case
may be; provided, however, if at any time the rate of interest specified in
clause (b) preceding shall exceed the Maximum Rate, thereby causing the interest
rate hereon to be limited to the Maximum Rate, then any subsequent reduction in
the Prime Rate shall not reduce the rate of interest hereon below the Maximum
Rate until the total amount of interest accrued hereon equals the amount of
interest which would have accrued hereon if the rate specified in clause (b)
preceding had at all times been in effect.

         Principal of and interest on this Note shall be due and payable as
follows:

                  (a) Accrued and unpaid interest on this Note shall be payable
         monthly, on the first (1st) day of each month commencing on July 1,
         2000 and upon the maturity of this Note, however such maturity may be
         brought about; and

                  (b) All outstanding principal of this Note and all accrued
         interest thereon shall be due and payable on May 31, 2001.

         Principal of this Note shall be subject to mandatory prepayment at the
times described in the Agreement (hereinafter defined). If an Event of Default
(hereinafter defined) has occurred and is existing, the principal hereof and any
past due interest hereon shall bear interest at the Default Rate (hereinafter
defined).

         Interest on the indebtedness evidenced by this Note shall be computed
on the basis of a year of 360 days and the actual number of days elapsed
(including the first day but excluding the last day) unless such calculation
would result in a usurious rate in which case interest shall be calculated on
the basis of a year of 365 or 366 days, as the case may be.

<PAGE>   34

         As used in this Note, the following terms shall have the respective
meanings indicated below:

                  "Agreement" means that certain Loan Agreement dated as of
         September 30, 1999 between Maker and Payee, as amended by First
         Amendment to Loan Agreement dated as of June 20, 2000, and as the same
         may be further amended or modified from time to time.

                  "Default Rate" means the lesser of (a) the sum of the Prime
         Rate plus five percent (5.0%), or (b) the Maximum Rate.

                  "Event of Default" shall have the meaning given to such term
         in the Agreement.

                  "Maximum Rate" means the maximum rate of nonusurious interest
         permitted from day to day by applicable law, including Chapter 303 of
         the Texas Finance Code (the "Code") (and as the same may be
         incorporated by reference in other Texas statutes). To the extent that
         Chapter 303 of the Code is relevant to any holder of this Note for the
         purposes of determining the Maximum Rate, each such holder elects to
         determine such applicable legal rate pursuant to the "weekly ceiling,"
         from time to time in effect, as referred to and defined in Chapter 303
         of the Code; subject, however, to the limitations on such applicable
         ceiling referred to and defined in the Code, and further subject to any
         right such holder may have subsequently, under applicable law, to
         change the method of determining the Maximum Rate.

                   "Prime Rate" shall mean that variable rate of interest per
          annum established by Payee from time to time as its prime rate which
          shall vary from time to time. Such rate is set by Payee as a general
          reference rate of interest, taking into account such factors as Payee
          may deem appropriate, it being understood that many of Payee's
          commercial or other loans are priced in relation to such rate, that it
          is not necessarily the lowest or best rate charged to any customer and
          that Payee may make various commercial or other loans at rates of
          interest having no relationship to such rate.

          This Note (a) is the Note provided for in the Agreement and (b) is
secured as provided in the Agreement. Maker may prepay the principal of this
Note upon the terms and conditions specified in the Agreement. Maker may borrow,
repay, and reborrow hereunder upon the terms and conditions specified in the
Agreement.

           Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this Note or otherwise in connection with this loan transaction, the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest,

                                       -2-
<PAGE>   35

or any other excess sum paid for the use, forbearance or detention of sums
loaned pursuant hereto. If for any reason interest in excess of the Maximum
Rate shall be deemed charged, required or permitted by any court of competent
jurisdiction, any such excess shall be applied as a payment and reduction of the
principal of indebtedness evidenced by this Note; and, if the principal amount
hereof has been paid in full, any remaining excess shall forthwith be paid to
Maker. In determining whether or not the interest paid or payable exceeds the
Maximum Rate, Maker and Payee shall, to the extent permitted by applicable law,
(a) characterize any non-principal payment as an expense, fee, or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) amortize, prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of the indebtedness
evidenced by this Note so that the interest for the entire term does not exceed
the Maximum Rate.

           If default occurs in the payment of principal or interest under this
Note, or upon the occurrence of any other Event of Default, as such term is
defined in the Agreement, the holder hereof may, at its option, (a) declare the
entire unpaid principal of and accrued interest on this Note immediately due and
payable without notice, demand or presentment, all of which are hereby waived,
and upon such declaration, the same shall become and shall be immediately due
and payable, (b) foreclose or otherwise enforce all liens or security interests
securing payment hereof, or any part hereof, (c) offset against this Note any
sum or sums owed by the holder hereof to Maker and (d) take any and all other
actions available to Payee under this Note, the Agreement, the Loan Documents
(as such term is defined in the Agreement) at law; in equity or otherwise.
Failure of the holder hereof to exercise any of the foregoing options shall not
constitute a waiver of the right to exercise the same upon the occurrence of a
subsequent Event of Default.

           If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all costs,
expenses, and fees incurred by the holder, including all reasonable attorneys
fees.

           THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. THIS NOTE IS PERFORMABLE IN HARRIS COUNTY, TEXAS.

           Maker and each surety, guarantor, endorser, and other party ever
liable for payment of any sums of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace, and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before or after maturity,
and any impairment of any collateral securing this Note, all without prejudice
to the holder. The holder shall similarly have the right to deal in anyway, at
any time, with one or more of the foregoing parties without notice to any other
party, and to grant any such party any extensions of time

                                       -3-
<PAGE>   36

for payment of any of said indebtedness, or to release or substitute part or all
of the collateral securing this Note, or to grant any other indulgences or
forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any party hereunder.

          This Note is in renewal and increase of, but not in discharge or
novation of, that certain promissory note in the original principal amount of
$2,250,000.00, dated September 30, 1999, executed by Maker and payable to the
order of Payee.

                                       SOUTH HAMPTON REFINING CO.

                                       By:  /s/ NICK CARTER
                                            --------------------------
                                            Nick Carter
                                            President

                                       -4-
<PAGE>   37

                      FIRST AMENDMENT TO SECURITY AGREEMENT

          This FIRST AMENDMENT TO SECURITY AGREEMENT ("Amendment"), dated as of
June 20, 2000, is between SOUTH HAMPTON REFINING CO., a Texas corporation
("Debtor") and SOUTHWEST BANK OF TEXAS, N.A., a national banking association
("Secured Party").

                                    RECITALS:

          WHEREAS, Debtor and Secured Party have entered into that certain Loan
Agreement dated as of September 30, 1999, as amended by First Amendment to Loan
Agreement dated as of June 20, 2000 (such Loan Agreement, as amended and as the
same may be further amended from time to time is referred to as the "Loan
Agreement").

          WHEREAS, pursuant to the Loan Agreement Debtor executed that certain
Security Agreement, dated as of September 30, 1999 (the "Security Agreement").

          WHEREAS, the execution of this Amendment is a condition to Secured
Party entering into the First Amendment to Loan Agreement referred to above.

          NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are acknowledged and agreed, Debtor and Secured Party
hereby agree as follows:

                                   ARTICLE I.

                                   Amendments

          1. Amendment to Section 1.02(a). Effective as of the date hereof,
Section 1.02(a) of the Security Agreement is amended to read in its entirety as
follows:

                   (a) the obligations and indebtedness of Debtor to Secured
          Party evidenced by that certain promissory note in the original
          principal amount of $3,250,000.00 dated June 20, 2000, executed by
          Debtor and payable to the order of Secured Party, which was executed
          in renewal and increase of that certain promissory note in the
          original principal amount of $2,250,000.00 dated September 30, 1999,
          executed by Debtor and payable to the order of Secured Party;

<PAGE>   38

                                   ARTICLE II.

                              Additional Provisions

          1. Acknowledgment by Debtor. Except as otherwise specified herein, the
terms and provisions hereof shall in no manner impair, limit, restrict or
otherwise affect the obligations of Debtor or any third party to Secured Party
under any Loan Document (as defined in the Loan Agreement).

          2. Additional Documentation. From time to time, Debtor shall execute
or procure and deliver to Secured Party such other and further documents and
instruments evidencing, securing or pertaining to the Security Agreement or the
other Loan Documents as shall be reasonably requested by Secured Party so as to
evidence or effect the terms and provisions hereof.

          3. Continued Effectiveness. Except as expressly modified by the terms
and provisions hereof, each of the terms and provisions of the Security
Agreement and the other Loan Documents are hereby ratified and confirmed, and
shall remain in full force and effect. The liens and security interests created
by the Security Agreement remain in full force and effect.

          4. Governing Law. THE TERMS AND PROVISIONS HEREOF SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

          5. Binding Agreement. This Amendment shall be binding upon the heirs,
executors, administrators, personal representatives, successors and assigns of
the parties hereto.

          6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be construed as one and the same instrument.

          7. No Oral Agreements. This Amendment, the Loan Agreement and the
other Loan Documents embody the final, entire agreement among the parties
hereto. There are no oral agreements among the parties hereto.

                                      -2-
<PAGE>   39

          EXECUTED as of the date first above written.

                                   DEBTOR:

                                   SOUTH HAMPTON REFINING CO.

                                   By: /s/ NICK CARTER
                                      -----------------------------------------
                                           Nick Carter
                                           President

                                   SECURED PARTY:

                                   SOUTHWEST BANK OF TEXAS, N.A.

                                   By: /s/ A. STEPHEN KENNEDY
                                      -----------------------------------------
                                           A. Stephen Kennedy
                                           Senior Vice President

                                      -3-
<PAGE>   40
                               GUARANTY AGREEMENT

         WHEREAS, the execution of this Guaranty Agreement is a condition to
SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Lender") making
certain loans to SOUTH HAMPTON REFINING CO., a Texas corporation ("Borrower"),
pursuant to that certain Loan Agreement dated as of September 30, 1999, between
Borrower and Lender, as amended by First Amendment to Loan Agreement dated as of
June 20, 2000 (such Loan Agreement, as amended and as it may hereafter be
further amended or modified from time to time, is hereinafter referred to as the
"Loan Agreement");

         NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the undersigned, TEXAS OIL & CHEMICAL CO. II,
INC., a Texas corporation (the "Guarantor"), hereby irrevocably and
unconditionally guarantees to Lender the full and prompt payment and performance
of the Guaranteed Indebtedness (hereinafter defined). This Guaranty Agreement
shall be upon the following terms:

         1. The term "Guaranteed Indebtedness", as used herein means all of the
"Obligations", as defined in the Loan Agreement. The term "Guaranteed
Indebtedness" shall include any and all post-petition interest and expenses
(including attorneys' fees) whether or not allowed under any bankruptcy,
insolvency, or other similar law. As of the date of this Guaranty Agreement, the
Obligations include, but are not limited to that certain promissory note in the
original principal amount of $3,250,000.00, dated as of June 20, 2000, executed
by Borrower and payable to the order of Lender, and all renewals, extensions and
modifications thereof.

         2. This instrument shall be an absolute, continuing, irrevocable, and
unconditional guaranty of payment and performance, and not a guaranty of
collection, and Guarantor shall remain liable on its obligations hereunder until
the payment and performance in full of the Guaranteed Indebtedness. No set-off,
counterclaim, recoupment, reduction, or diminution of any obligation, or any
defense of any kind or nature which Borrower may have against Lender or any
other party, or which Guarantor may have against Borrower, Lender, or any other
party, shall be available to, or shall be asserted by, Guarantor against Lender
or any subsequent holder of the Guaranteed Indebtedness or any part thereof or
against payment of the Guaranteed Indebtedness or any part thereof.

         3. If Guarantor becomes liable for any indebtedness owing by Borrower
to Lender by endorsement or otherwise, other than under this Guaranty Agreement,
such liability shall not be in any manner impaired or affected hereby, and the
rights of Lender hereunder shall be cumulative of any and all other rights that
Lender may ever have against Guarantor. The exercise by Lender of any right or
remedy hereunder or under any other instrument, or at law or in equity, shall
not preclude the concurrent or subsequent exercise of any other right or remedy.

<PAGE>   41

         4. In the event of default by Borrower in payment or performance of the
Guaranteed Indebtedness, or any part thereof, when such Guaranteed Indebtedness
becomes due, whether by its terms, by acceleration, or otherwise, Guarantor
shall promptly pay the amount due thereon to Lender without notice or demand in
lawful currency of the United States of America and it shall not be necessary
for Lender, in order to enforce such payment by Guarantor, first to institute
suit or exhaust its remedies against Borrower or others liable on such
Guaranteed Indebtedness, or to enforce any rights against any collateral which
shall ever have been given to secure such Guaranteed Indebtedness. Until the
Guaranteed Indebtedness is paid in full and a period of ninety (90) days has
passed following such payment, Guarantor waives any and all rights it may now or
hereafter have under any agreement or at law or in equity (including, without
limitation, any law subrogating the Guarantor to the rights of Lender) to assert
any claim against or seek contribution, indemnification or any other form of
reimbursement from Borrower or any other party liable for payment of any or all
of the Guaranteed Indebtedness for any payment made by Guarantor under or in
connection with this Guaranty Agreement or otherwise.

         5. If acceleration of the time for payment of any amount payable by
Borrower under the Guaranteed Indebtedness is stayed upon the insolvency,
bankruptcy, or reorganization of Borrower, all such amounts otherwise subject to
acceleration under the terms of the Guaranteed Indebtedness shall nonetheless be
payable by Guarantor hereunder forthwith on demand by Lender.

         6. Guarantor hereby agrees that its obligations under this Guaranty
Agreement shall not be released, discharged, diminished, impaired, reduced, or
affected for any reason or by the occurrence of any event, including, without
limitation, one or more of the following events, whether or not with notice to
or the consent of Guarantor: (a) the taking or accepting of collateral as
security for any or all of the Guaranteed Indebtedness or the release,
surrender, exchange, or subordination of any collateral now or hereafter
securing any or all of the Guaranteed Indebtedness; (b) any partial release of
the liability of Guarantor hereunder, or the full or partial release of any
other guarantor from liability for any or all of the Guaranteed Indebtedness;
(c) any disability of Borrower, or the dissolution, insolvency, or bankruptcy of
Borrower, Guarantor, or any other party at any time liable for the payment of
any or all of the Guaranteed Indebtedness; (d) any renewal, extension,
modification, waiver, amendment, or rearrangement of any or all of the
Guaranteed Indebtedness or any instrument, document, or agreement evidencing,
securing, or otherwise relating to any or all of the Guaranteed Indebtedness;
(e) any adjustment, indulgence, forbearance, waiver, or compromise that may be
granted or given by Lender to Borrower, Guarantor, or any other party ever
liable for any or all of the Guaranteed Indebtedness; (f) any neglect, delay,
omission, failure, or refusal of Lender to take or prosecute any action for the
collection of any of the Guaranteed Indebtedness or to foreclose or take or
prosecute any action in connection with any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Indebtedness; (g) the unenforceability or invalidity of any or all of the
Guaranteed Indebtedness or of any instrument, document, or agreement evidencing,
securing,

                                      -2-
<PAGE>   42

or otherwise relating to any or all of the Guaranteed Indebtedness; (h) any
payment by Borrower or any other party to Lender is held to constitute a
preference under applicable bankruptcy or insolvency law or if for any other
reason Lender is required to refund any payment or pay the amount thereof to
someone else (i) the settlement or compromise of any of the Guaranteed
Indebtedness; (j) the non-perfection of any security interest or lien securing
any or all of the Guaranteed Indebtedness; (k) any impairment of any collateral
securing any or all of the Guaranteed Indebtedness; (1) the failure of Lender to
sell any collateral securing any or all of the Guaranteed Indebtedness in a
commercially reasonable manner or as otherwise required by law; (m) any change
in the corporate existence, structure, or ownership of Borrower; or (n) any
other circumstance which might otherwise constitute a defense available to, or
discharge of, Borrower or Guarantor.

         7. Guarantor represents and warrants to Lender as follows:

                  (a) Guarantor is a corporation duly organized, validly
         existing and in good standing under the laws of the state of its
         incorporation, is qualified to do business in all jurisdictions in
         which the nature of the business conducted by it makes such
         qualification necessary and where failure to so qualify would have a
         material adverse effect on its business, financial condition, or
         operations.

                  (b) Guarantor has the corporate power, authority and legal
         right to execute, deliver, and perform its obligations under this
         Guaranty Agreement and this Guaranty Agreement constitutes the legal,
         valid, and binding obligation of Guarantor, enforceable against
         Guarantor in accordance with its respective terms, except as limited
         by bankruptcy, insolvency, or other laws of general application
         relating to the enforcement of creditor's rights.

                  (c) The execution, delivery, and performance by Guarantor of
         this Guaranty Agreement have been duly authorized by all requisite
         action on the part of Guarantor and do not and will not violate or
         conflict with the articles of incorporation or bylaws of Guarantor or
         any law, rule, or regulation or any order, writ, injunction or decree
         of any court, governmental authority or agency, or arbitrator and do
         not and will not conflict with, result in a breach of, or constitute a
         default under, or result in the imposition of any lien upon any assets
         of Guarantor pursuant to the provisions of any indenture, mortgage,
         deed of trust, security agreement, franchise, permit, license, or other
         instrument or agreement to which Guarantor or its properties is bound.

                  (d) No authorization, approval, or consent of, and no filing
         or registration with, any court, governmental authority, or third party
         is necessary for the execution, delivery or performance by Guarantor of
         this Guaranty Agreement or the validity or enforceability thereof.

                                      -3-
<PAGE>   43

                  (e) The value of the consideration received and to be received
         by Guarantor as a result of Borrower and Lender entering into the Loan
         Agreement and Guarantor executing and delivering this Guaranty
         Agreement is reasonably worth at least as much as the liability and
         obligation of Guarantor hereunder, and such liability and obligation
         and the Loan Agreement have benefitted and may reasonably be expected
         to benefit Guarantor directly or indirectly.

         8. Guarantor covenants and agrees that, as long as the Guaranteed
Indebtedness or any part thereof is outstanding or Lender has any commitment
under the Loan Agreement:

                  (a) Guarantor will deliver to Lender the financial statements
         of Guarantor described in the Loan Agreement at the times required by
         the Loan Agreement.

                  (b) Guarantor will furnish promptly to Lender written notice
         of the occurrence of any default under this Guaranty Agreement or an
         Event of Default under the Loan Agreement of which Guarantor has
         knowledge.

                  (c) Guarantor will furnish promptly to Lender such additional
         information concerning Guarantor as Lender may request.

                  (d) Guarantor will maintain the covenants contained in Article
         IX of the Loan Agreement.

         9. Upon the occurrence of an Event of Default (as defined in the Loan
Agreement) Lender shall have the right to set off and apply against this
Guaranty Agreement or the Guaranteed Indebtedness or both, at any time and
without notice to Guarantor, any and all deposits (general or special, time or
demand, provisional or final) or other sums at any time credited by or owing
from Lender to Guarantor whether or not the Guaranteed Indebtedness is then due
and irrespective of whether or not Lender shall have made any demand under this
Guaranty Agreement. In addition to Lender's right of setoff and as further
security for this Guaranty Agreement and the Guaranteed Indebtedness, Guarantor
hereby grants Lender a security interest in all deposits (general or special,
time or demand, provisional or final) and all other accounts of Guarantor now or
hereafter on deposit with or held by Lender and all other sums at any time
credited by or owing from Lender to Guarantor. The rights and remedies of Lender
hereunder are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which Lender may have.

         10. No amendment or waiver of any provision of this Guaranty Agreement
or consent to any departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by Lender. No failure
on the part of Lender to exercise, and no delay in exercising, any right, power,
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power, or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power, or

                                      -4-
<PAGE>   44

privilege. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

         11. This Guaranty Agreement is for the benefit of Lender and its
successors and assigns, and in the event of an assignment of the Guaranteed
Indebtedness, or any part thereof, the rights and benefits hereunder, to the
extent applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty Agreement is binding not only on Guarantor, but on
Guarantor's successors and assigns.

         12. Guarantor recognizes that Lender is relying upon this Guaranty
Agreement and the undertakings of Guarantor hereunder in making extensions of
credit to Borrower under the Loan Agreement and further recognizes that the
execution and delivery of this Guaranty Agreement is a material inducement to
Lender in entering into the Loan Agreement. Guarantor hereby acknowledges that
there are no conditions to the full effectiveness of this Guaranty Agreement.

         13. This Guaranty Agreement is executed and delivered as an incident to
a lending transaction negotiated, consummated, and performable in Harris County,
Texas, and shall be governed by and construed in accordance with the laws of the
State of Texas. Except as provided in the Arbitration Agreement among Borrower,
Guarantor, Lender and others (the "Arbitration Agreement"), any action or
proceeding against Guarantor under or in connection with this Guaranty Agreement
may be brought in any state or federal court in Harris County, Texas, and
Guarantor hereby irrevocably submits to the nonexclusive jurisdiction of such
courts, and waives any objection it may now or hereafter have as to the venue of
any such action or proceeding brought in such court. Guarantor agrees that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its address specified in the Loan Agreement. Except as
provided in the Arbitration Agreement, nothing herein shall affect the right of
Lender to serve process in any other matter permitted by law or shall limit the
right of Lender to bring any action or proceeding against Guarantor or with
respect to any of Guarantor's property in courts in other jurisdictions. Except
as provided in the Arbitration Agreement, any action or proceeding by Guarantor
against Lender shall be brought only in a court located in Harris County, Texas.

         14. Guarantor shall pay on demand all attorneys' fees and all other
costs and expenses incurred by Lender in connection with the preparation,
administration, enforcement, or collection of this Guaranty Agreement.

         15. Guarantor hereby waives promptness, diligence, notice of any
default under the Guaranteed Indebtedness, demand of payment, notice of
acceptance of this Guaranty Agreement, presentment, notice of protest, notice of
dishonor, notice of the incurring by Borrower of additional indebtedness, and
all other notices and demands with respect to the Guaranteed Indebtedness and
this Guaranty Agreement.

                                      -5-
<PAGE>   45

         16. The Loan Agreement, and all of the terms thereof, are incorporated
herein by reference, the same as if stated verbatim herein, and Guarantor
agrees that Lender may exercise any and all rights granted to it under the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement)
without affecting the validity or enforceability of this Guaranty Agreement. Any
notices given hereunder shall be given in the manner provided by and to the
addresses set forth in the Loan Agreement.

         17. Guarantor hereby represents and warrants to Lender that Guarantor
has adequate means to obtain from Borrower on a continuing basis information
concerning the financial condition and assets of Borrower and that Guarantor is
not relying upon Lender to provide (and Lender shall have no duty to provide)
any such information to Guarantor either now or in the future.

         18. THIS GUARANTY AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT OF
GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
INDEBTEDNESS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER
EXTRINSIC EVIDENCE OF ANY NATURE. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR
AND LENDER. THIS GUARANTY AGREEMENT MAY NOT BE AMENDED EXCEPT IN WRITING BY
GUARANTOR AND LENDER.

         DATED AND EXECUTED as of June 20, 2000.

                                        GUARANTOR:

                                        TEXAS OIL & CHEMICAL CO. II, INC.

                                        By: /s/ NICK CARTER
                                            -----------------------------
                                                Nick Carter
                                                President

                                      -6-
<PAGE>   46
                              ARBITRATION AGREEMENT

     Re:  Loan in the principal amount of $3,250,000.00 dated June 20, 2000,
          from SOUTHWEST BANK OF TEXAS, N.A. to SOUTH HAMPTON REFINING CO., and
          all renewals, increases, extensions, modifications and substitutions
          thereof.

In consideration of the premises and the mutual agreements herein, the
undersigned agree as follows:

Binding Arbitration. Notwithstanding any provision in any Documents (defined
below) to the contrary, upon the request of any of the undersigned (collectively
called the "parties" and individually called a "party"), whether made before or
after the institution of any legal proceeding, any action, dispute, claim or
controversy of any kind (for example, whether in contract or in tort, under
statutory or common law, or legal or equitable) now existing or hereafter
arising between or among the parties in any way arising out of, pertaining to or
in connection with (1) the referenced Loan, any related agreements, documents,
or instruments (collectively, the "Documents") or any transaction contemplated
thereby, before or after maturity, or (2) any aspect of the past or present
relationships of the parties to the Documents shall be resolved by mandatory and
binding arbitration in accordance with the terms of this Arbitration Agreement.
The occurrence of any of the foregoing matters shall be referred to as a
"Dispute." Any party to this Arbitration Agreement may bring by summary
proceedings (for example, a plea in abatement or motion to stay further
proceedings) an action in court to compel arbitration of any Dispute.

Governing Rules. Notwithstanding any provision in any Documents to the
contrary, all Disputes between the parties shall be resolved by mandatory and
binding arbitration administered by the American Arbitration Association (the
"AAA") pursuant to the Federal Arbitration Act (Title 9 of the United States
Code) in accordance with this Arbitration Agreement and the Commercial
Arbitration Rules of the AAA. If Title 9 of the United States Code is
inapplicable to any such claim or controversy for any reason, such arbitration
shall be conducted pursuant to the Texas General Arbitration Act and in
accordance with this Arbitration Agreement and the Commercial Arbitration Rules
of the AAA. To the extent that any inconsistency exists between this Arbitration
Agreement and such statutes and rules, this Arbitration Agreement shall control.
Judgment upon the award rendered by the arbitrators may be entered in and
enforced by any court having jurisdiction and in accordance with the practice of
such court; provided, however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section 91, Texas Banking Code art. 342-609 or 342-705, or any other
protection provided banks by the laws of Texas or the United States.

<PAGE>   47

No Waiver; Preservation of Remedies. No provision of, nor the exercise of any
rights under, this Arbitration Agreement shall limit the right of any party to
employ other remedies, including, without limitation, (1) foreclosing against
any real or personal property collateral or other security by the exercise of a
power of sale under a deed of trust, mortgage, or other security agreement or
instrument, or applicable law, (2) exercising self-help remedies (including
without limitation set-off rights), or (3) obtaining provisional or ancillary
remedies such as, without limitation, injunctive relief, sequestration,
attachment, garnishment, or the appointment of a receiver from a court having
jurisdiction before, during, or after the pendency of any arbitration. The
institution and maintenance of an action for judicial relief, pursuit of
provisional or ancillary remedies, or exercise of self-help remedies shall not
constitute a waiver of the right of any party, including without limitation, the
plaintiff, to submit any Dispute to arbitration nor render inapplicable the
compulsory arbitration provisions hereof.

In Disputes involving indebtedness or other monetary obligations, each party
agrees that the other party may proceed against all liable persons, jointly and
severally, or against one or more of them, being less than all, without
impairing rights against other liable persons. Nor shall a party be required to
join any principal obligor or any other liable persons (including, without
limitation, sureties or guarantors) in any proceeding against a particular
person. A party may release or settle with one or more liable persons as the
party deems fit without releasing or impairing rights to proceed against any
persons not so released.

Arbitration Proceeding. All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceeding. Any attorney-client
privilege and other protection against disclosure of confidential information,
including, without limitation, any protection afforded the work product of any
attorney, that could otherwise be claimed by any party shall be available to and
may be claimed by any such party in any arbitration proceeding. No party waives
any attorney-client privilege or any other protection against disclosure of
confidential information by reason of anything contained in or done pursuant to
or in connection with this Arbitration Agreement. Any arbitration proceeding
shall be conducted in Harris County, Texas by a panel of three arbitrators each
having substantial experience and recognized expertise in the field or fields of
the matter(s) in dispute.

Other Matters. This Arbitration Agreement constitutes the entire agreement of
the parties with respect to its subject matter and supersedes all prior
discussions, arrangements, negotiations, and other communications on dispute
resolution. The provisions of this Arbitration Agreement shall survive any
termination, amendment or expiration of the Documents unless the parties
otherwise expressly agree in writing. This Arbitration Agreement may be amended,
changed or modified only by the express provisions of a writing which
specifically refers to this Arbitration Agreement and which is signed by all
parties. If any provision of this Arbitration Agreement shall be unenforceable,
unlawful or invalid in any respect, then such provision shall be deemed
severable from the remaining provisions and the enforceability, lawfulness and
validity of the remaining provisions will not be affected or impaired. This
Arbitration

                                       -2-

<PAGE>   48

Agreement shall inure to the benefit of and bind the heirs, representatives,
trustees, successors and assigns of the parties. The captions or headings in
this Arbitration Agreement are for convenience only and shall not be dispositive
in interpreting or construing any of this Arbitration Agreement.

          DATED AND EXECUTED as of June 20, 2000.

                                            BORROWER:

                                            SOUTH HAMPTON REFINING CO.

                                            By:  /s/ NICK CARTER
                                               ---------------------------------
                                                    Nick Carter
                                                    President

                                            GUARANTOR

                                            TEXAS OIL & CHEMICAL CO. II, INC.

                                            By:  /s/ NICK CARTER
                                               ---------------------------------
                                                    Nick Carter
                                                    President

                                            LENDER:

                                            SOUTHWEST BANK OF TEXAS, N.A.

                                            By:  /s/ A. STEPHEN KENNEDY
                                               ---------------------------------
                                                    A. Stephen Kennedy
                                                    Senior Vice President

                                       -3-
<PAGE>   49
                           SOUTH HAMPTON REFINING CO.

                              OFFICER'S CERTIFICATE

         I, the undersigned, hereby certify that I am the duly elected,
qualified, and acting Assistant Secretary of SOUTH HAMPTON REFINING CO., a Texas
corporation (the "Corporation"), and that I am authorized to execute and deliver
this certificate, and I do hereby further certify as follows:

         1. Resolutions. The following resolutions have been duly adopted at a
meeting (duly convened where a quorum of directors was present) of, or by the
unanimous written consent of, the Board of Directors of the Corporation, and
such resolutions have not been amended or revoked, and are now in full force and
effect:

                  "WHEREAS, the Corporation and Southwest Bank of Texas, N.A.
         (the "Lender") have entered in that certain Loan Agreement dated
         September 30, 1999, (the "Loan Agreement")."

                  "RESOLVED, that the renewal and increase of the revolving
         credit indebtedness of the Corporation to the Lender created pursuant
         to the Loan Agreement to be evidenced by a promissory note in the
         principal amount of $3,250,000.00 (the "Note") executed by the
         Corporation and payable to the order of the Lender, are hereby
         approved; and further

                  "RESOLVED, that the form and content of that certain First
         Amendment to Loan Agreement (the "Amendment") to be entered into by the
         Corporation and the Lender in the form of drafts exhibited to each
         director, with such changes as are hereinafter authorized, are hereby
         approved; and further

                  "RESOLVED, that the form and content of the Note, the First
         Amendment to Security Agreement and the Arbitration Agreement and all
         other documents to be executed in connection with the Amendment
         (collectively, the "Loan Documents"), as exhibited to each director and
         with such changes as are hereinafter authorized, are hereby approved;
         and further

                  "RESOLVED, that the President or any Vice President of the
         Corporation is hereby authorized, on behalf of the Corporation, to
         execute the Amendment and the Loan Documents and deliver the same to
         Lender in substantially the form approved by these resolutions, with
         such amendments or changes thereto as the officer so acting may
         approve, such approval to be conclusively evidenced by such person's
         execution and delivery of the same; and further

<PAGE>   50

                  "RESOLVED, that the President or any Vice President of the
         Corporation is hereby authorized, on behalf of the Corporation, to
         execute such other instruments and documents, and to take such other
         actions as the officer so acting deems necessary or desirable to
         effectuate the transactions contemplated by these resolutions; and
         further

                  "RESOLVED, that the Secretary or any Assistant Secretary of
         the Corporation is hereby authorized, on behalf of the Corporation, to
         certify and attest any documents which such person may deem necessary
         or appropriate to consummate the transactions contemplated by these
         resolutions; provided that such attestation shall not be required for
         the validity of any such documents; and further

                  "RESOLVED, that any and all actions taken by any of the
         officers or representatives of the Corporation, for and on behalf and
         in the name of the Corporation, with Lender prior to the adoption of
         these resolutions, including, without limitation, the negotiation of
         the Amendment and the Loan Documents, are hereby ratified, confirmed,
         are approved in all respects for all purposes; and further.

                  "RESOLVED, that the powers and authorizations contained herein
         shall continue in full force and effect until written notice of
         revocation has been given to, and received by, the Lender."

         2. Incumbency. The following named persons are duly elected or
appointed, acting, and qualified officers of the Corporation holding at the date
hereof the offices set forth opposite their respective names, and the signatures
appearing opposite their respective names are their genuine signatures:

<TABLE>
<CAPTION>
     NAME                                  TITLE                                SPECIMEN SIGNATURE
     ----                                  -----                                ------------------
<S>                                  <C>                                        <C>
Nick Carter                               President                             /s/ NICK CARTER
                                                                                -------------------
Connie Cook                          Assistant Secretary                        /s/ CONNIE COOK
                                                                                -------------------
</TABLE>

         3. Articles of Incorporation. The Articles of Incorporation of the
Corporation have not been amended (except as reflected in any attachments
hereto) or revoked since September 30, 1999, and remain in full force and
effect in the form delivered to the Lender.

         4. By-Laws. The By-Laws of the Corporation have not been amended
(except as reflected in any attachments hereto) or revoked since September 30,
1999, and remain in full force and effect in the form delivered to the Lender.

                                       -2-
<PAGE>   51

         IN WITNESS WHEREOF, I have duly executed this certificate as of
June 23, 2000.

                                   /s/ CONNIE COOK
                                   --------------------------
                                   Assistant Secretary

         I, Nick Carter, President of the Corporation, do hereby certify that
Connie Cook is the duly elected and qualified Assistant Secretary of the
Corporation and the signature appearing opposite such person's name is such
person's genuine signature.

         DATED: As of June 23, 2000.

                                   /s/ NICK CARTER
                                   --------------------------
                                   President

                                       -3-
<PAGE>   52

                        TEXAS OIL & CHEMICAL CO. II, INC.

                              OFFICER'S CERTIFICATE

         I, the undersigned, hereby certify that I am the duly elected,
qualified, and acting Assistant Secretary of TEXAS OIL & CHEMICAL CO. II, INC.,
a Texas corporation (the "Corporation"), and that I am authorized to execute and
deliver this certificate, and I do hereby further certify as follows:

         1. Resolutions. The following resolutions have been duly adopted at a
meeting (duly convened where a quorum of directors was present) of, or by the
unanimous written consent of, the Board of Directors of the Corporation, and
such resolutions have not been amended or revoked, and are now in full force and
effect:

                   "WHEREAS, SOUTH HAMPTON REFINING CO. (the "Borrower") and
          Southwest Bank of Texas, N.A. (the "Lender") have entered in that
          certain Loan Agreement dated September 30, 1999 (the "Loan
          Agreement"); and"

                   "WHEREAS, it is proposed that the Lender renew and increase
          the revolving credit indebtedness of the Borrower to the Lender
          created pursuant to the Loan Agreement to be evidenced by a promissory
          note in the principal amount of $3,250,000.00 (the "Note") executed by
          the Borrower and payable to the order of the Lender; and further

                   "WHEREAS, the Borrower and the Lender propose to enter into
          that certain First Amendment to Loan Agreement (the "Amendment") to be
          entered into by the Borrower and the Lender; and further

                   "WHEREAS, it is proposed that, as security for full and
          complete performance and payment of the indebtedness of Borrower
          pursuant to the Loan Agreement, the Corporation execute and deliver to
          the Lender the following documents:

                           (a) The Guaranty Agreement (the "Guaranty"), pursuant
                  to which the Corporation will guarantee all obligations of the
                  Borrower to the Lender, now existing or hereafter arising; and

                           (b) The Arbitration Agreement (the "Arbitration
                  Agreement"), pursuant to which the Corporation agrees to
                  arbitrate all disputes between itself and the Lender.

<PAGE>   53

                  "WHEREAS, the proposed Guaranty Agreement and Arbitration
         Agreement (collectively referred to as the "Loan Documents") have been
         submitted to, and reviewed by, each of the directors of the
         Corporation.

                  "NOW, THEREFORE, RESOLVED, that in the judgment of the
         directors of the Corporation (a) the value of the consideration
         received and to be received by the Corporation, as a result of Borrower
         and Lender entering into the Amendment is reasonably worth at least as
         much, as the liability and obligation of the Corporation under the
         Guaranty and (b) such liability and obligation may reasonably be
         expected to benefit, directly or indirectly, the Corporation; and
         further

                  "RESOLVED, that the form and content of the Amendment in
         substantially the form submitted to each director is hereby approved;
         and further

                  "RESOLVED, that the form and content of the Loan Documents as
         exhibited to each director and with such changes as are hereinafter
         authorized, are hereby approved; and further

                  "RESOLVED, that the President or any Vice President of the
         Corporation is hereby authorized, on behalf of the Corporation, to
         execute the Amendment and the Loan Documents and deliver the same to
         Lender in substantially the form approved by these resolutions, with
         such amendments or changes thereto as the officer so acting may
         approve, such approval to be conclusively evidenced by such person's
         execution and delivery of the same; and further

                  "RESOLVED that the President or any Vice President of the
         Corporation is hereby authorized, on behalf of the Corporation, to
         execute and deliver to Lender the Loan Documents in substantially the
         form approved by these resolutions, with such amendments or changes
         thereto as the officer so acting may approve, such approval to be
         conclusively evidenced by such person's execution and delivery of the
         same; and further

                  "RESOLVED, that the President or any Vice President of the
         Corporation is hereby authorized, on behalf of the Corporation, to
         execute such other instruments and documents, and to take such other
         actions as the officer so acting deems necessary or desirable to
         effectuate the transactions contemplated by these resolutions; and
         further

                  "RESOLVED, that the Secretary or any Assistant Secretary of
         the Corporation is hereby authorized, on behalf of the Corporation, to
         certify and attest any documents which such person may deem necessary
         or appropriate to consummate the transactions contemplated by these
         resolutions; provided that such attestation shall not be required for
         the validity of any such documents; and further

                                      -2-

<PAGE>   54

                  "RESOLVED, that any and all actions taken by any of the
         officers or representatives of the Corporation, for and on behalf and
         in the name of the Corporation, with Lender prior to the adoption of
         these resolutions, including, without limitation, the negotiation of
         the Amendment and the Loan Documents, are hereby ratified, confirmed,
         are approved in all respects for all purposes; and further

                  "RESOLVED, that the powers and authorizations contained herein
         shall continue in full force and effect until written notice of
         revocation has been given to, and reviewed by, the Lender."

         2. Incumbency. The following named persons are duly elected or
appointed, acting, and qualified officers of the Corporation holding at the date
hereof the offices set forth opposite their respective names, and the signatures
appearing opposite their respective names are their genuine signatures:

<TABLE>
<CAPTION>
   NAME                            TITLE                           SPECIMEN SIGNATURE
   ----                            -----                           ------------------
<S>                         <C>                                    <C>
Nick Carter                      President                           /s/ NICK CARTER
                                                                   ------------------

Connie Cook                  Assistant Secretary                     /s/ CONNIE COOK
                                                                   ------------------
</TABLE>

         3. Articles of Incorporation. The Articles of Incorporation of the
Corporation have not been amended (except as reflected in any attachments
hereto) or revoked since September 30, 1999, and remain in full force and
effect in the form delivered to the Lender.

         4. By-Laws. The By-Laws of the Corporation have not been amended
(except as reflected in any attachments hereto) or revoked since September 30,
1999, and remain in full force and effect in the form delivered to the Lender.

         IN WITNESS WHEREOF, I have duly executed this certificate as of June
23rd ,2000.

                                                  /s/ CONNIE COOK
                                                  -------------------------
                                                  Assistant Secretary

                                        3

<PAGE>   55

         I, Nick Carter, President of the Corporation, do hereby certify that
Connie Cook is duly elected and qualified Assistant Secretary of the
Corporation and the signature appearing opposite such person's name is such
person's genuine signature.

DATE:     As of June 23rd, 2000.

                                          /s/ NICK CARTER
                                        --------------------------------------
                                        President<PAGE>   1
                                                                   EXHIBIT 4.1

                               THE SHAW GROUP INC.

                     Liquid Yield Option(TM) Notes due 2021

                              (Zero Coupon-Senior)

                                    INDENTURE

                             Dated as of May 1, 2001

                     UNITED STATES TRUST COMPANY OF NEW YORK

                                     TRUSTEE

                   (TM)Trademark of Merrill Lynch & Co., Inc.

<PAGE>   2

                             CROSS REFERENCE TABLE*

<TABLE>
<CAPTION>
TIA Section                                                                                       Indenture Section
<S>      <C>                                                                                     <C>
310(a)(1)...............................................................................                7.10
         (a)(2).........................................................................                7.10
         (a)(3).........................................................................                N.A.
         (a)(4).........................................................................                N.A.
         (b)............................................................................             7.08; 7.10
         (c)............................................................................                N.A.
311(a)..................................................................................                7.11
         (b)............................................................................                7.11
         (c)............................................................................                N.A.
312(a)..................................................................................                2.05
         (b)............................................................................                12.03
         (c)............................................................................                12.03
313(a)..................................................................................                7.06
         (b)(1).........................................................................                N.A.
         (b)(2).........................................................................                7.06
         (c)............................................................................                12.02
         (d)............................................................................                7.06
314(a)..................................................................................             4.03; 12.02
         (b)............................................................................                N.A.
         (c)(1).........................................................................                12.04
         (c)(2).........................................................................                12.04
         (c)(3).........................................................................                N.A.
         (d)............................................................................                N.A.
         (e)............................................................................                12.05
         (f)............................................................................                N.A.
315(a)..................................................................................                7.01
         (b)............................................................................             7.05; 12.02
         (c)............................................................................                7.01
         (d)............................................................................                7.01
         (e)............................................................................                6.11
316(a)(last sentence)...................................................................                2.08
         (a)(1)(A)......................................................................                6.05
         (a)(1)(B)......................................................................                6.04
         (a)(2).........................................................................                N.A.
         (b)............................................................................                6.07
</TABLE>

----------

* Note: This Cross Reference Table shall not, for any purpose deemed to be part
of the Indenture

<PAGE>   3

<TABLE>
<S>      <C>                                                                                   <C>
317(a)(1)...............................................................................                6.08
         (a)(2).........................................................................                6.09
         (b)............................................................................                2.04
318(a)..................................................................................                12.01
</TABLE>

                           N.A. means Not Applicable.

<PAGE>   4

                               TABLE OF CONTENTS*

<TABLE>
<CAPTION>
                                                                                                       Page
<S>     <C>               <C>                                                                          <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.................................................... 1
         SECTION 1.01     Definitions................................................................... 1
         SECTION 1.02     Definitions................................................................... 5
         SECTION 1.03     Incorporation by Reference of Trust Indenture Act............................. 6
         SECTION 1.04     Rules of Construction......................................................... 6
         SECTION 1.05     Acts of Holders............................................................... 7

ARTICLE 2 THE SECURITIES................................................................................ 8
         SECTION 2.01     Form and Dating............................................................... 8
         SECTION 2.02     Execution and Authentication.................................................. 9
         SECTION 2.03     Registrar, Paying Agent and Conversion Agent................................. 10
         SECTION 2.04     Paying Agent to Hold Money and Securities in Trust........................... 10
         SECTION 2.05     Securityholder Lists......................................................... 11
         SECTION 2.06     Transfer and Exchange........................................................ 11
         SECTION 2.07     Replacement Securities....................................................... 12
         SECTION 2.08     Outstanding Securities; Determinations of Holders' Action.................... 13
         SECTION 2.09     Temporary Securities......................................................... 14
         SECTION 2.10     Cancellation................................................................. 14
         SECTION 2.11     Persons Deemed Owners........................................................ 14
         SECTION 2.12     Global Securities............................................................ 15
         SECTION 2.13     CUSIP Numbers................................................................ 19

ARTICLE 3 REDEMPTION AND PURCHASES..................................................................... 19
         SECTION 3.01     Right to Redeem; Notices to Trustee.......................................... 19
         SECTION 3.02     Selection of Securities to Be Redeemed....................................... 20
         SECTION 3.03     Notice of Redemption......................................................... 20
         SECTION 3.04     Effect of Notice of Redemption............................................... 21
         SECTION 3.05     Deposit of Redemption Price.................................................. 21
         SECTION 3.06     Securities Redeemed in Part.................................................. 21
         SECTION 3.07     Securities Purchased in Part................................................. 21
         SECTION 3.08     Purchase of Securities at Option of the Holder............................... 22
         SECTION 3.09     Purchase of Securities at Option of the Holder upon
                          Change in Control............................................................ 28
         SECTION 3.10     Effect of Purchase Notice or Change in Control Purchase Notice............... 31
         SECTION 3.11     Deposit of Purchase Price or Change in Control Purchase Price................ 32
</TABLE>

----------

* Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.

                                       i

<PAGE>   5

<TABLE>
<S>     <C>               <C>                                                                          <C>
         SECTION 3.12     Covenant to Comply With Securities Laws Upon Purchase
                          of Securities................................................................ 33
         SECTION 3.13     Repayment to the Company..................................................... 33

ARTICLE 4 COVENANTS.................................................................................... 33
         SECTION 4.01     Payment of Securities........................................................ 33
         SECTION 4.02     SEC and Other Reports........................................................ 34
         SECTION 4.03     Compliance Certificate....................................................... 34
         SECTION 4.04     Further Instruments and Acts................................................. 34
         SECTION 4.05     Maintenance of Office or Agency.............................................. 34
         SECTION 4.06     Delivery of Certain Information.............................................. 35
         SECTION 4.07     Calculation of Original Issue Discount....................................... 35

ARTICLE 5 SUCCESSOR CORPORATION........................................................................ 35
         SECTION 5.01     When Company May Merge or Transfer Assets.................................... 35

ARTICLE 6 DEFAULTS AND REMEDIES........................................................................ 36
         SECTION 6.01     Events of Default............................................................ 36
         SECTION 6.02     Acceleration................................................................. 38
         SECTION 6.03     Other Remedies............................................................... 38
         SECTION 6.04     Waiver of Past Defaults...................................................... 38
         SECTION 6.05     Control by Majority.......................................................... 39
         SECTION 6.06     Limitation on Suits.......................................................... 39
         SECTION 6.07     Rights of Holders to Receive Payment......................................... 39
         SECTION 6.08     Collection Suit by Trustee................................................... 39
         SECTION 6.09     Trustee May File Proofs of Claim............................................. 40
         SECTION 6.10     Priorities................................................................... 40
         SECTION 6.11     Undertaking for Costs........................................................ 41
         SECTION 6.12     Waiver of Stay, Extension or Usury Laws...................................... 41

ARTICLE 7 TRUSTEE...................................................................................... 41
         SECTION 7.01     Duties of Trustee............................................................ 41
         SECTION 7.02     Rights of Trustee............................................................ 42
         SECTION 7.03     Individual Rights of Trustee................................................. 44
         SECTION 7.04     Trustee's Disclaimer......................................................... 44
         SECTION 7.05     Notice of Defaults........................................................... 44
         SECTION 7.06     Reports by Trustee to Holders................................................ 44
         SECTION 7.07     Compensation and Indemnity................................................... 44
         SECTION 7.08     Replacement of Trustee....................................................... 45
         SECTION 7.09     Successor Trustee by Merger.................................................. 46
         SECTION 7.10     Eligibility; Disqualification................................................ 46
         SECTION 7.11     Preferential Collection of Claims Against Company............................ 46

ARTICLE 8 DISCHARGE OF INDENTURE....................................................................... 47
         SECTION 8.01     Discharge of Liability on Securities......................................... 47
         SECTION 8.02     Repayment to the Company..................................................... 47
</TABLE>

                                       ii
<PAGE>   6

<TABLE>
<S>      <C>              <C>                                                                        <C>
ARTICLE 9 AMENDMENTS................................................................................... 47
         SECTION 9.01     Without Consent of Holders................................................... 47
         SECTION 9.02     With Consent of Holders...................................................... 48
         SECTION 9.03     Compliance with Trust Indenture Act.......................................... 49
         SECTION 9.04     Revocation and Effect of Consents, Waivers and Actions....................... 49
         SECTION 9.05     Notation on or Exchange of Securities........................................ 49
         SECTION 9.06     Trustee to Sign Supplemental Indentures...................................... 49
         SECTION 9.07     Effect of Supplemental Indentures............................................ 49

ARTICLE 10 SPECIAL TAX EVENT CONVERSION................................................................ 49
         SECTION 10.01    Optional Conversion to Semiannual Coupon Note Upon Tax Event................. 49
         SECTION 10.02    Payment of Interest; Interest Rights Preserved............................... 50

ARTICLE 11 CONVERSION.................................................................................. 51
         SECTION 11.01    Conversion Privilege......................................................... 51
         SECTION 11.02    Conversion Procedure......................................................... 53
         SECTION 11.03    Fractional Shares............................................................ 54
         SECTION 11.04    Taxes on Conversion.......................................................... 54
         SECTION 11.05    Company to Provide Stock..................................................... 54
         SECTION 11.06    Adjustment for Change In Capital Stock....................................... 54
         SECTION 11.07    Adjustment for Rights Issue.................................................. 55
         SECTION 11.08    Adjustment for Other Distributions........................................... 56
         SECTION 11.09    When Adjustment May Be Deferred.............................................. 58
         SECTION 11.10    When No Adjustment Required.................................................. 58
         SECTION 11.11    Notice of Adjustment......................................................... 58
         SECTION 11.12    Voluntary Increase........................................................... 58
         SECTION 11.13    Notice of Certain Transactions............................................... 59
         SECTION 11.14    Reorganization of Company; Special Distributions............................. 59
         SECTION 11.15    Company Determination Final.................................................. 60
         SECTION 11.16    Trustee's Adjustment Disclaimer.............................................. 60
         SECTION 11.17    Simultaneous Adjustments..................................................... 60
         SECTION 11.18    Successive Adjustments....................................................... 60
         SECTION 11.19    Rights Issued in Respect of Common Stock Issued Upon Conversion.............. 60

ARTICLE 12 MISCELLANEOUS............................................................................... 61
         SECTION 12.01    Trust Indenture Act Controls................................................. 61
         SECTION 12.02    Notices...................................................................... 61
         SECTION 12.03    Communication by Holders with Other Holders.................................. 62
         SECTION 12.04    Certificate and Opinion as to Conditions Precedent........................... 62
         SECTION 12.05    Statements Required in Certificate or Opinion................................ 62
         SECTION 12.06    Separability Clause.......................................................... 62
         SECTION 12.07    Rules by Trustee, Paying Agent, Conversion Agent and Registrar............... 62
         SECTION 12.08    Legal Holidays............................................................... 62
         SECTION 12.09    GOVERNING LAW................................................................ 63
</TABLE>

                                      iii
<PAGE>   7

<TABLE>
<S>     <C>              <C>                                                                          <C>
         SECTION 12.10    No Recourse Against Others................................................... 63
         SECTION 12.11    Successors................................................................... 63
         SECTION 12.12    Multiple Originals........................................................... 63
</TABLE>

LIST OF EXHIBITS:

Exhibit A-1  -  Form of Global Security

Exhibit A-2  -  Form of Certificated Security

Exhibit B-1  -  Transfer Certificate

Exhibit B-2  -  Form of Letter to be Delivered by Accredited Investors

                                       iv
<PAGE>   8

                  INDENTURE dated as of May 1, 2001 between THE SHAW GROUP INC.,
a Louisiana corporation ("Company"), and UNITED STATES TRUST COMPANY OF NEW
YORK, a bank and trust company organized under New York banking law ("Trustee").

                  Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's
Liquid Yield Option(TM) Notes due 2021 (Zero Coupon - Senior) ("Securities"):

                                   ARTICLE 1

                   DEFINITIONS AND INCORPORATION BY REFERENCE

                  SECTION 1.01. Definitions.

                  "144A Global Security" means a permanent Global Security
substantially in the form of the Security attached hereto as Exhibit A-1, and
that is deposited with and registered in the name of the Depositary,
representing Securities sold in reliance on Rule 144A under the Securities Act.

                  "Affiliate" of any specified person means any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct or cause the direction of the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.

                  "Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, in each case to the
extent applicable to such transaction and as in effect from time to time.

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

                  "Business Day" means each day of the year other than a
Saturday or a Sunday on which banking institutions are not required or
authorized to close in The City of New York or Baton Rouge, Louisiana.

                  "Capital Stock" for any corporation means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) stock issued by that
corporation.

                  "Certificated Securities" means Securities that are
substantially in the form of the Securities attached hereto as Exhibit A-2.

                                       1
<PAGE>   9

                  "Common Stock" shall mean the shares of Common Stock, no par
value, of the Company as it exists on the date of this Indenture or any other
shares of Capital Stock of the Company into which the Common Stock shall be
reclassified or changed.

                  "Company" means the party named as the "Company" in the first
paragraph of this Indenture until a successor replaces it pursuant to the
applicable provisions of this Indenture and, thereafter, shall mean such
successor. The foregoing sentence shall likewise apply to any subsequent such
successor or successors.

                  "Company Request" or "Company Order" means a written request
or order signed in the name of the Company by any two Officers.

                  "Corporate Trust Office" means the principal office of the
Trustee at which at any time its corporate trust business shall be administered,
which office at the date hereof is located at 114 West 47th Street, 25th Floor,
New York, New York 10036-1532, Attention: Corporate Trust Administration, or
such other address as the Trustee may designate from time to time by notice to
the Holders and the Company, or the principal corporate trust office of any
successor Trustee (or such other address as a successor Trustee may designate
from time to time by notice to the Holders and the Company).

                  "Debt" means with respect to the Company at any date, without
duplication, obligations (other than nonrecourse obligations) for borrowed money
or evidenced by bonds, debentures, notes or similar instruments.

                  "Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.

                  "Global Securities" means Securities that are substantially in
the form of the Securities attached hereto as Exhibit A-1, and to the extent
that such Securities are required to bear the Legend required by Section 2.06,
such Securities will be in the form of a 144A Global Security.

                  "Holder" or "Securityholder" means a person in whose name a
Security is registered on the Registrar's books.

                  "Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof, including the provisions
of the TIA that are deemed to be a part hereof.

                  "Institutional Accredited Investor Security" means a Security
substantially in the form of the Security attached hereto as Exhibit A-2,
representing Securities sold to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) and (7) under the Securities Act).

                  "Issue Date" of any Security means the date on which the
Security was originally issued or deemed issued as set forth on the face of the
Security.

                                       2
<PAGE>   10

                  "Issue Price" of any Security means, in connection with the
original issuance of such Security, the initial issue price at which the
Security is sold as set forth on the face of the Security.

                  "Officer" means the Chairman of the Board, the Vice Chairman,
the Chief Executive Officer, the President, any Executive Vice President, any
Senior Vice President, any Vice President, the Treasurer or the Secretary or any
Assistant Treasurer or Assistant Secretary of the Company.

                  "Officers' Certificate" means a written certificate containing
the information specified in Sections 12.04 and 12.05, signed in the name of the
Company by any two Officers, and delivered to the Trustee. An Officers'
Certificate given pursuant to Section 4.03 shall be signed by an authorized
financial or accounting Officer of the Company but need not contain the
information specified in Sections 12.04 and 12.05.

                  "Opinion of Counsel" means a written opinion containing the
information specified in Sections 12.04 and 12.05, from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of, or counsel to, the
Company or the Trustee.

                  "Original Issue Discount" of any Security means the difference
between the Issue Price and the Principal Amount at Maturity of the Security as
set forth on the face of the Security.

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

                  "Principal Amount at Maturity" of a Security means the
Principal Amount at Maturity as set forth on the face of the Security.

                  "Redemption Date" or "redemption date" shall mean the date
specified for redemption of the Securities in accordance with the terms of the
Securities and this Indenture.

                  "Redemption Price" or "redemption price" shall have the
meaning set forth in paragraph 5 of the Securities.

                  "Responsible Officer" shall mean, when used with respect to
the Trustee, any officer within the corporate trust department of the Trustee,
including any vice president, assistant vice president, assistant secretary,
assistant treasurer, trust officer or any other officer of the Trustee who
customarily performs functions similar to those performed by the Persons who at
the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such person's knowledge of and familiarity with
the particular subject and who shall have direct responsibility for the
administration of this Indenture.

                  "Restricted Security" means a Security required to bear the
restrictive legend set forth in the form of Security set forth in Exhibits A-1
and A-2 of this Indenture.

                                       3
<PAGE>   11

                  "Rule 144" means Rule 144 under the Securities Act (or any
successor provision), as it may be amended from time to time.

                  "Rule 144A" means Rule 144A under the Securities Act (or any
successor provision), as it may be amended from time to time.

                  "SEC" means the Securities and Exchange Commission.

                  "Securities" means any of the Company's Liquid Yield Option
Notes due 2021 (Zero Coupon-Senior), as amended or supplemented from time to
time, issued under this Indenture.

                  "Securityholder" or "Holder" means a person in whose name a
Security is registered on the Registrar's books.

                  "Special Record Date" means for the payment of any Defaulted
Interest, the date fixed by the Trustee pursuant to Section 10.02(b).

                  "Stated Maturity", when used with respect to any Security,
means the date specified in such Security as the fixed date on which an amount
equal to the Principal Amount at Maturity of such Security is due and payable.

                  "Subsidiary" means (i) a corporation, a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly owned by the
Company, by one or more subsidiaries of the Company or by the Company and one or
more Subsidiaries of the Company, (ii) a partnership in which the Company or a
Subsidiary of the Company holds a majority interest in the equity capital or
profits of such partnership, or (iii) any other person (other than a corporation
or partnership) in which the Company, a Subsidiary of the Company or the Company
and one or more Subsidiaries of the Company, directly or indirectly, at the date
of determination, have (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.

                  "Tax Event" means that the Company shall have received an
opinion from independent tax counsel experienced in such matters to the effect
that, on or after April 26, 2001, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein or (b) any amendment to, or change in, an
interpretation or application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority, in each case which
amendment or change is enacted, promulgated, issued or announced or which
interpretation is issued or announced or which action is taken, on or after
April 26, 2001, there is more than an insubstantial risk that interest
(including Original Issue Discount) payable on the Securities either (i) would
not be deductible on a current accrual basis or (ii) would not be deductible
under any other method, in either case in whole or in part, by the Company (by
reason of deferral, disallowance, or otherwise) for United States Federal income
tax purposes.

                                       4
<PAGE>   12

                  "TIA" means the Trust Indenture Act of 1939 as in effect on
the date of this Indenture, provided, however, that in the event the TIA is
amended after such date, TIA means, to the extent required by any such
amendment, the TIA as so amended.

                  "trading day" means a day during which trading in securities
generally occurs on the New York Stock Exchange or, if the Common Stock is not
listed on the New York Stock Exchange, on the principal other national or
regional securities exchange on which the Common Stock is then listed or, if the
Common Stock is not listed on a national or regional securities exchange, on the
National Association of Securities Dealers Automated Quotation System or, if the
Common Stock is not quoted on the National Association of Securities Dealers
Automated Quotation System, on the principal other market on which the Common
Stock is then traded.

                  "Trustee" means the party named as the "Trustee" in the first
paragraph of this Indenture until a successor replaces it pursuant to the
applicable provisions of this Indenture and, thereafter, shall mean such
successor. The foregoing sentence shall likewise apply to any subsequent such
successor or successors.

                  SECTION 1.02. Definitions.

<TABLE>
<CAPTION>
                                                                                            Defined in
Term                                                                                         Section
----                                                                                        ----------
<S>                                                                                         <C>
"Act"...........................................................................              1.05(a)
"Agent Members".................................................................              2.12(e)
"Associate".....................................................................              3.09(a)
"Average Quoted Price"..........................................................               11.01
"Bankruptcy Law"................................................................               6.01
"beneficial owner"..............................................................              3.09(a)
"cash"..........................................................................              3.08(b)
"Change in Control".............................................................              3.09(a)
"Change in Control Purchase Date"...............................................              3.09(a)
"Change in Control Purchase Notice".............................................              3.09(c)
"Change in Control Purchase Price"..............................................              3.09(a)
"Company Notice"................................................................              3.08(e)
"Company Notice Date"...........................................................              3.08(c)
"Conversion Agent"..............................................................               2.03
"Conversion Date"...............................................................               11.02
"Conversion Rate"...............................................................               11.01
"Custodian".....................................................................               6.01
"Defaulted Interest"............................................................             10.02(b)
"Depositary"....................................................................              2.01(a)
"DTC"...........................................................................              2.01(a)
"Event of Default"..............................................................               6.01
"Exchange Act"..................................................................              3.08(d)
"Ex-Dividend Time"..............................................................               11.01
"Extraordinary Cash Dividend"...................................................               11.08
"Institutional Accredited Investors"............................................              2.01(b)
</TABLE>

                                       5
<PAGE>   13

<TABLE>
<S>                                                                                            <C>
"Interest Payment Date".........................................................               10.01
"Legal Holiday".................................................................               12.08
"Legend"........................................................................              2.06(f)
"Market Price"..................................................................              3.08(d)
"Measurement Period"............................................................               11.08
"Notice of Default".............................................................               6.01
"Option Exercise Date"..........................................................               10.01
"Paying Agent"..................................................................               2.03
"Purchase Date".................................................................              3.08(a)
"Purchase Notice"...............................................................              3.08(a)
"Purchase Price"................................................................              3.08(a)
"QIB"...........................................................................              2.01(a)
"Quoted Price"..................................................................               11.01
"Registrar".....................................................................               2.03
"Regular Record Date"...........................................................               10.01
"Restated Principal Amount".....................................................               10.01
"Rights"........................................................................               11.19
"Rights Agreement"..............................................................               11.19
"Rule 144A Information".........................................................               4.06
"Sale Price"....................................................................              3.08(d)
"Securities Act"................................................................              3.08(d)
"Tax Event Date"................................................................               10.01
"Time of Determination".........................................................               11.01
</TABLE>

                  SECTION 1.03 Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:

                  "Commission" means the SEC.

                  "indenture securities" means the Securities.

                  "indenture security holder" means a Holder or Securityholder.

                  "indenture to be qualified" means this Indenture.

                  "indenture trustee" or "institutional trustee" means the
Trustee.

                  "obligor" on the indenture securities means the Company.

                  All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.

                  SECTION 1.04 Rules of Construction. Unless the context
otherwise requires:

                                       6
<PAGE>   14

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

                  (2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles as in
effect from time to time;

                  (3) "or" is not exclusive;

                  (4) "including" means including, without limitation; and

                  (5) words in the singular include the plural, and words in the
plural include the singular.

                  SECTION 1.05 Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
in person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, where it is hereby
expressly required, to the Company. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company, if made in the manner provided in this Section.

                  (b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to such officer the execution thereof.
Where such execution is by a signer acting in a capacity other than such
signer's individual capacity, such certificate or affidavit shall also
constitute sufficient proof of such signer's authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.

                  (c) The ownership of Securities shall be proved by the
register for the Securities maintained by the Registrar pursuant to Section
2.03.

                  (d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.

                  (e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a resolution of the Board of
Directors, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,

                                       7
<PAGE>   15

consent, waiver or other Act, but the Company shall have no obligation to do so.
If such a record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other Act may be given before or after such record
date, but only the Holders of record at the close of business on such record
date shall be deemed to be Holders for the purposes of determining whether
Holders of the requisite proportion of outstanding Securities have authorized or
agreed or consented to such request, demand, authorization, direction, notice,
consent, waiver or other Act, and for that purpose the outstanding Securities
shall be computed as of such record date; provided that no such authorization,
agreement or consent by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after the record date.

                                   ARTICLE 2

                                 THE SECURITIES

                  SECTION 2.01 Form and Dating. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibits A-1
and A-2, which are a part of this Indenture and incorporated by reference
herein. The Securities may have notations, legends or endorsements required by
law, stock exchange rule or usage (provided that any such notation, legend or
endorsement required by usage is in a form acceptable to the Company). The
Company shall provide any such notations, legends or endorsements to the Trustee
in writing. Each Security shall be dated the date of its authentication.

                  (a) 144A Global Securities. Securities offered and sold within
the United States to qualified institutional buyers as defined in Rule 144A
("QIBs") in reliance on Rule 144A shall be issued, initially in the form of a
144A Global Security, which shall be deposited with the Trustee at its Corporate
Trust Office, as custodian for the Depositary and registered in the name of The
Depository Trust Company ("DTC") or the nominee thereof (such depositary, or any
successor thereto, and any such nominee being hereinafter referred to as the
"Depositary"), duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the 144A Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee and the Depositary as hereinafter provided.

                  (b) Institutional Accredited Investor Securities. Except as
provided in this Section 2.01, 2.06 or 2.12, owners of beneficial interests in
Global Securities will not be entitled to receive physical delivery of
Certificated Securities. Securities offered and sold within the United States to
institutional accredited investors as defined in Rule 501(a)(1), (2) (3) and (7)
under the Securities Act ("Institutional Accredited Investors") shall be issued,
initially in the form of an Institutional Accredited Investor Security, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided.

                  (c) Global Securities in General. Each Global Security shall
represent such of the outstanding Securities as shall be specified therein and
each shall provide that it shall represent the aggregate amount of outstanding
Securities from time to time endorsed thereon and that the aggregate amount of
outstanding Securities represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges, redemptions and conversions.

                                       8
<PAGE>   16

                  Any adjustment of the aggregate principal amount of a Global
Security to reflect the amount of any increase or decrease in the amount of
outstanding Securities represented thereby shall be made by the Trustee in
accordance with instructions given by the Holder thereof as required by Section
2.12 hereof and shall be made on the records of the Trustee and the Depositary.

                  (d) Book-Entry Provisions. This Section 2.01(d) shall apply
only to Global Securities deposited with or on behalf of the Depositary.

                  The Company shall execute and the Trustee shall, in accordance
with this Section 2.01(d), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depositary, (b) shall
be retained by the Trustee as custodian for the Depositary and (c) shall bear
legends substantially to the following effect:

         "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
         OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR
         REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
         ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
         IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
         COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
         ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
         DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
         VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
         OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS
         GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS, IN WHOLE BUT NOT IN
         PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR
         THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
         GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
         THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO
         ON THE REVERSE HEREOF."

                  (e) Certificated Securities. Securities not issued as
interests in the Global Securities will be issued in certificated form
substantially in the form of Exhibit A-2 attached hereto.

                  SECTION 2.02 Execution and Authentication. The Securities
shall be executed on behalf of the Company by any Officer, and its corporate
seal may be reproduced thereon. The signature of the Officer on the Securities
may be manual or facsimile.

                  Securities bearing the manual or facsimile signatures of
individuals who were at the time of the execution of the Securities 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 Securities or did not hold such offices at
the date of authentication of such Securities.

                                       9
<PAGE>   17

                  No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
in the form of the Securities duly executed by the Trustee by manual signature
of an authorized signatory, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder.

                  The Trustee shall authenticate and deliver Securities for
original issue in an aggregate Principal Amount at Maturity of up to
$790,000,000 upon a Company Order without any further action by the Company. The
aggregate Principal Amount at Maturity of Securities outstanding at any time may
not exceed the amount set forth in the foregoing sentence, except as provided in
Section 2.07.

                  The Securities shall be issued only in registered form without
coupons and only in denominations of $1,000 of Principal Amount at Maturity and
any integral multiple thereof.

                  SECTION 2.03 Registrar, Paying Agent and Conversion Agent. The
Company shall maintain an office or agency where Securities may be presented for
registration of transfer or for exchange ("Registrar"), an office or agency
where Securities may be presented for purchase or payment ("Paying Agent") and
an office or agency where Securities may be presented for conversion
("Conversion Agent"). The Registrar shall keep a register of the Securities and
of their transfer and exchange. The Company may have one or more co-registrars,
one or more additional paying agents and one or more additional conversion
agents. The term Paying Agent includes any additional paying agent, including
any named pursuant to Section 4.05. The term Conversion Agent includes any
additional conversion agent, including any named pursuant to Section 4.05.

                  The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent, Conversion Agent or co-registrar (other than
the Trustee). The agreement shall implement the provisions of this Indenture
that relate to such agent. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fails to maintain a Registrar, Paying
Agent or Conversion Agent, the Trustee shall act as such and shall be entitled
to appropriate compensation therefor pursuant to Section 7.07. The Company or
any Subsidiary or an Affiliate of either of them may act as Paying Agent,
Registrar, Conversion Agent or co-registrar.

                  The Company initially appoints the Trustee as Registrar,
Conversion Agent and Paying Agent in connection with the Securities.

                  SECTION 2.04 Paying Agent to Hold Money and Securities in
Trust. Except as otherwise provided herein, on or prior to each due date of
payments in respect of any Security, the Company shall deposit with the Paying
Agent a sum of money (in immediately available funds if deposited on the due
date) or Common Stock sufficient to make such payments when so becoming due. The
Company shall require each Paying Agent (other than the Trustee) to agree in
writing that the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money and Common Stock held by the Paying
Agent for the making of payments in respect of the Securities and shall notify
the Trustee of any default by the Company in making

                                       10
<PAGE>   18

any such payment. At any time during the continuance of any such default, the
Paying Agent shall, upon the written request of the Trustee, forthwith pay to
the Trustee all money and Common Stock so held in trust. If the Company, a
Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall
segregate the money and Common Stock held by it as Paying Agent and hold it as a
separate trust fund. The Company at any time may require a Paying Agent to pay
all money and Common Stock held by it to the Trustee and to account for any
funds and Common Stock disbursed by it. Upon doing so, the Paying Agent shall
have no further liability for the money or Common Stock.

                  SECTION 2.05 Securityholder Lists. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list available
to it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall cause to be furnished to the Trustee at least
semiannually on April 15 and October 15 a listing of Securityholders dated
within 15 days of the date on which the list is furnished and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Securityholders.

                  SECTION 2.06 Transfer and Exchange. (a) Subject to Section
2.12 hereof, upon surrender for registration of transfer of any Security,
together with a written instrument of transfer satisfactory to the Registrar
duly executed by the Securityholder or such Securityholder's attorney duly
authorized in writing, at the office or agency of the Company designated as
Registrar or co-registrar pursuant to Section 2.03, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denomination or denominations, of a like aggregate Principal Amount at Maturity.
The Company shall not charge a service charge for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to pay all
taxes, assessments or other governmental charges that may be imposed in
connection with the transfer or exchange of the Securities from the
Securityholder requesting such transfer or exchange.

                  At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination or denominations, of a like
aggregate Principal Amount at Maturity, upon surrender of the Securities to be
exchanged, together with a written instrument of transfer satisfactory to the
Registrar duly executed by the Securityholder or such Securityholder's attorney
duly authorized in writing, at such office or agency. Whenever any Securities
are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the Securities which the Holder making the
exchange is entitled to receive.

                  The Company shall not be required to make, and the Registrar
need not register, transfers or exchanges of Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed) or any Securities in respect of which a Purchase Notice or
Change in Control Purchase Notice has been given and not withdrawn by the Holder
thereof in accordance with the terms of this Indenture (except, in the case of
Securities to be purchased in part, the portion thereof not to be purchased) or
any Securities for a period of 15 days before the mailing of a notice of
redemption of Securities to be redeemed.

                                       11
<PAGE>   19

                  (b) Notwithstanding any provision to the contrary herein, so
long as a Global Security remains outstanding and is held by or on behalf of the
Depositary, transfers of a Global Security, in whole or in part, shall be made
only in accordance with Section 2.12 and this Section 2.06(b). Transfers of a
Global Security shall be limited to transfers of such Global Security in whole,
or in part, to nominees of the Depositary or to a successor of the Depositary or
such successor's nominee.

                  (c) Successive registrations and registrations of transfers
and exchanges as aforesaid may be made from time to time as desired, and each
such registration shall be noted on the register for the Securities.

                  (d) Any Registrar appointed pursuant to Section 2.03 hereof
shall provide to the Trustee such information as the Trustee may reasonably
require in connection with the delivery by such Registrar of Securities upon
transfer or exchange of Securities.

                  (e) No Registrar shall be required to make registrations of
transfer or exchange of Securities during any periods designated in the text of
the Securities or in this Indenture as periods during which such registration of
transfers and exchanges need not be made.

                  (f) If Securities are issued upon the transfer, exchange or
replacement of Securities subject to restrictions on transfer and bearing the
securities laws legends set forth on the form of Security attached hereto as
Exhibits A-1 and A- 2 setting forth such restrictions (collectively, the
"Legend"), or if a request is made to remove the Legend on a Security, the
Securities so issued shall bear the Legend, or the Legend shall not be removed,
as the case may be, unless there is delivered to the Company and the Registrar
such satisfactory evidence, which shall include an Opinion of Counsel, as may be
reasonably required by the Company and the Registrar, that neither the Legend
nor the restrictions on transfer set forth therein are required to ensure that
transfers thereof comply with the provisions of Rule 144A or Rule 144 under the
Securities Act or that such Securities are not "restricted" within the meaning
of Rule 144 under the Securities Act. Upon (i) provision of such satisfactory
evidence, or (ii) notification by the Company to the Trustee and registrar of
the sale of such Security pursuant to a registration statement that is effective
at the time of such sale, the Trustee, at the written direction of the Company,
shall authenticate and deliver a Security that does not bear the Legend. If the
Legend is removed from the face of a Security and the Security is subsequently
held by an Affiliate of the Company, the Legend shall be reinstated.

                  SECTION 2.07 Replacement Securities. If (a) any mutilated
Security is surrendered to the Trustee, or (b) the Company and the Trustee
receive evidence to their satisfaction of the destruction, loss or theft of any
Security, and there is delivered to the Company and the Trustee such security 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 Trustee that such Security has been
acquired by a bona fide purchaser, the Company shall execute and upon its
written request the Trustee shall authenticate and deliver, in exchange for any
such mutilated Security or in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and Principal Amount at Maturity, bearing
a number not contemporaneously outstanding.

                                       12
<PAGE>   20

                  In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, or is about to be purchased by
the Company pursuant to Article 3 hereof, the Company in its discretion may,
instead of issuing a new Security, pay or purchase such Security, as the case
may be.

                  Upon the issuance of any new Securities 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 Trustee) connected therewith.

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

                  The provisions of this Section 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 Securities.

                  SECTION 2.08 Outstanding Securities; Determinations of
Holders' Action. Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those replaced
pursuant to Section 2.07, those delivered to it for cancellation and those
described in this Section 2.08 as not outstanding. A Security does not cease to
be outstanding because the Company or an Affiliate thereof holds the Security;
provided, however, that in determining whether the Holders of the requisite
Principal Amount at Maturity of Securities have given or concurred in any
request, demand, authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor shall be disregarded and deemed
not to be outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which a Responsible Officer of the
Trustee actually knows to be so owned shall be so disregarded. Subject to the
foregoing, only Securities outstanding at the time of such determination shall
be considered in any such determination (including, without limitation,
determinations pursuant to Articles 6 and 9).

                  If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.

                  If the Paying Agent holds, in accordance with this Indenture,
on a Redemption Date, or on the Business Day following the Purchase Date or a
Change in Control Purchase Date, or on Stated Maturity, money or securities, if
permitted hereunder, sufficient to pay Securities payable on that date, then
immediately after such Redemption Date, Purchase Date, Change in Control
Purchase Date or Stated Maturity, as the case may be, such Securities shall
cease to be outstanding and Original Issue Discount and interest, if any, on
such Securities shall cease to accrue; provided, that if such Securities are to
be redeemed, notice of such redemption has been

                                       13
<PAGE>   21

duly given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made.

                  If a Security is converted in accordance with Article 11, then
from and after the time of conversion on the Conversion Date, such Security
shall cease to be outstanding and Original Issue Discount and interest, if any,
shall cease to accrue on such Security.

                  SECTION 2.09 Temporary Securities. Pending the preparation of
definitive Securities, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as conclusively evidenced by their execution of such Securities.

                  If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 2.03, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
Principal Amount at Maturity of definitive Securities of authorized
denominations. Until so exchanged the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities.

                  SECTION 2.10 Cancellation. All Securities surrendered for
payment, purchase by the Company pursuant to Article 3, conversion, redemption
or registration of transfer or exchange shall, if surrendered to any person
other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly cancelled by the Trustee. The Company may not
issue new Securities to replace Securities it has paid or delivered to the
Trustee for cancellation or that any Holder has converted pursuant to Article
11. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Securities held by the Trustee shall be
disposed of by the Trustee in accordance with the Trustee's customary procedure.

                  SECTION 2.11 Persons Deemed Owners. Prior to due presentment
of a Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name such
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of the Security or the payment of any Redemption
Price, Purchase Price or Change in Control Purchase Price in respect thereof,
and interest thereon, for the purpose of conversion and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.

                                       14
<PAGE>   22

                  SECTION 2.12 Global Securities.

                  (a) Notwithstanding any other provisions of this Indenture or
the Securities, (A) transfers of a Global Security, in whole or in part, shall
be made only in accordance with Section 2.06 and Section 2.12(a)(i), (B)
transfer of a beneficial interest in a Global Security for a Certificated
Security shall comply with Sections 2.06, 2.12(a)(ii) and 2.12(e), and (C)
transfers of a Certificated Security shall comply with Section 2.06 and Section
2.12(a)(iii) and (iv) below.

                  (i) Transfer of Global Security. A Global Security may not be
                  transferred, in whole or in part, to any Person other than the
                  Depositary or a nominee or any successor thereof, and no such
                  transfer to any such other Person may be registered; provided
                  that this clause (i) shall not prohibit any transfer of a
                  Security that is issued in exchange for a Global Security but
                  is not itself a Global Security. No transfer of a Security to
                  any Person shall be effective under this Indenture or the
                  Securities unless and until such Security has been registered
                  in the name of such Person. Nothing in this Section 2.12(a)(i)
                  shall prohibit or render ineffective any transfer of a
                  beneficial interest in a Global Security effected in
                  accordance with the other provisions of this Section 2.12(a).

                  (ii) Restrictions on Transfer of a Beneficial Interest in a
                  Global Security for a Certificated Security. A beneficial
                  interest in a Global Security may not be exchanged for a
                  Certificated Security except in the circumstances specified in
                  Section 2.12(e) and upon satisfaction of the requirements set
                  forth below. Upon receipt by the Trustee of a transfer of a
                  beneficial interest in a Global Security in accordance with
                  Applicable Procedures for a Certificated Security in the form
                  satisfactory to the Trustee, together with:

         (a)      so long as the Securities are Restricted Securities,
                  certification in the form set forth in Exhibit B-1, and, if
                  such beneficial interest in the Global Security is being
                  transferred to an Institutional Accredited Investor in
                  accordance with subparagraphs (a)(1), (2), (3) or (7) of Rule
                  501 under the Securities Act, certification in the form set
                  forth in Exhibit B-2;

         (b)      written instructions to the Trustee to make, or direct the
                  Registrar to make, an adjustment on its books and records with
                  respect to such Global Security to reflect a decrease in the
                  aggregate Principal Amount of the Securities represented by
                  the Global Security, such instructions to contain information
                  regarding the Depositary account to be credited with such
                  decrease; and

         (c)      if the Company or Registrar so requests, an opinion of counsel
                  or other evidence reasonably satisfactory to them as to the
                  compliance with the restrictions set forth in the Legend,

         then the Trustee shall cause, or direct the Registrar to cause, in
         accordance with the standing instructions and procedures existing
         between the Depositary and the Registrar, the aggregate Principal
         Amount at Maturity of Securities represented by the Global Security to
         be decreased by the aggregate Principal Amount at Maturity of the

                                       15
<PAGE>   23

         Certificated Security to be issued, the Company shall issue, and the
         Trustee shall authenticate, such Certificated Security and the Trustee
         shall debit or cause to be debited to the account of the Person
         specified in such instructions a beneficial interest in the Global
         Security equal to the Principal Amount at Maturity of the Certificated
         Security so issued.

                  (iii) Transfer and Exchange of Certificated Securities. When
                  Certificated Securities are presented to the Registrar with a
                  request:

                           (x) to register the transfer of such Certificated
                           Securities; or

                           (y) to exchange such Certificated Securities for an
                           equal Principal Amount at Maturity of Certificated
                           Securities of other authorized denominations,

         the Registrar shall register the transfer or make the exchange as
         requested if its reasonable requirements for such transaction are met;
         provided, however, that the Certificated Securities surrendered for
         transfer or exchange:

                  (a) shall be duly endorsed or accompanied by a written
                  instrument of transfer in form reasonably satisfactory to the
                  Company and the Registrar, duly executed by the Holder thereof
                  or his attorney duly authorized in writing; and

                  (b) so long as such Securities are Restricted Securities, such
                  Securities are being transferred or exchanged pursuant to an
                  effective registration statement under the Securities Act or
                  pursuant to clause (A), (B) or (C) below, and are accompanied
                  by the following additional information and documents, as
                  applicable:

                                    (A) if such Certificated Securities are
                           being delivered to the Registrar by a Holder for
                           registration in the name of such Holder, without
                           transfer, a certification from such Holder to that
                           effect; or

                                    (B) if such Certificated Securities are
                           being transferred to the Company, a certification to
                           that effect; or

                                    (C) if such Certificated Securities are
                           being transferred pursuant to an exemption from
                           registration (i) a certification to that effect (in
                           the form set forth in Exhibit B-1 and B-2, if
                           applicable) and (ii) if the Company or Registrar so
                           requests, an opinion of counsel or other evidence
                           reasonably satisfactory to them as to the compliance
                           with the restrictions set forth in the Legend.

                  (iv) Restrictions on Transfer of a Certificated Security for a
                  Beneficial Interest in a Global Security. A Certificated
                  Security may not be exchanged for a beneficial interest in a
                  Global Security except upon satisfaction of the requirements
                  set forth below.

                                       16
<PAGE>   24

                  Upon receipt by the Trustee of a Certificated Security, duly
                  endorsed or accompanied by appropriate instruments of
                  transfer, in form satisfactory to the Trustee, together with:

                           (a) so long as the Securities are Restricted
                           Securities, certification, in the form set forth in
                           Exhibit B-1, that such Certificated Security is being
                           transferred to a Qualified Institutional Buyer in
                           accordance with Rule 144A; and

                           (b) written instructions directing the Trustee to
                           make, or to direct the Registrar to make, an
                           adjustment on its books and records with respect to
                           such Global Security to reflect an increase in the
                           aggregate Principal Amount at Maturity of the
                           Securities represented by the Global Security, such
                           instructions to contain information regarding the
                           Depositary account to be credited with such increase,

                  then the Trustee shall cancel such Certificated Security and
                  cause, or direct the Registrar to cause, in accordance with
                  the standing instructions and procedures existing between the
                  Depositary and the Registrar, the aggregate Principal Amount
                  at Maturity of Securities represented by the Global Security
                  to be increased by the aggregate Principal Amount at Maturity
                  of the Certificated Security to be exchanged, and shall credit
                  or cause to be credited to the account of the Person specified
                  in such instructions a beneficial interest in the Global
                  Security equal to the Principal Amount at Maturity of the
                  Certificated Security so cancelled. If no Global Securities
                  are then outstanding, the Company shall issue and the Trustee
                  shall authenticate, upon written order of the Company in the
                  form of an Officers' Certificate, a new Global Security in the
                  appropriate Principal Amount at Maturity.

         (b) Subject to the succeeding subsection, every Security shall be
subject to the restrictions on transfer provided in the Legend including the
delivery of an opinion of counsel, if so provided. Whenever any Restricted
Security is presented or surrendered for registration of transfer or for
exchange for a Security registered in a name other than that of the Holder, such
Security must be accompanied by a certificate in substantially the form set
forth in Exhibit B-1, dated the date of such surrender and signed by the Holder
of such Security, as to compliance with such restrictions on transfer. The
Registrar shall not be required to accept for such registration of transfer or
exchange any Security not so accompanied by a properly completed certificate.

         (c) The restrictions imposed by the Legend upon the transferability of
any Security shall cease and terminate when such Security has been sold pursuant
to an effective registration statement under the Securities Act or transferred
in compliance with Rule 144 under the Securities Act (or any successor provision
thereto) or, if earlier, upon the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision). Any Security as to which such restrictions on transfer shall have
expired in accordance with their terms or shall have terminated may, upon a
surrender of such Security for exchange to the Registrar in accordance with the
provisions of this Section 2.12 (accompanied,

                                       17
<PAGE>   25

in the event that such restrictions on transfer have terminated by reason of a
transfer in compliance with Rule 144 or any successor provision, by an opinion
of counsel having substantial experience in practice under the Securities Act
and otherwise reasonably acceptable to the Company, addressed to the Company and
in form acceptable to the Company, to the effect that the transfer of such
Security has been made in compliance with Rule 144 or such successor provision),
be exchanged for a new Security, of like tenor and aggregate Principal Amount at
Maturity, which shall not bear the restrictive Legend. The Company shall inform
the Trustee of the effective date of any registration statement registering the
Securities under the Securities Act. The Trustee shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
aforementioned opinion of counsel or registration statement.

         (d) As used in the preceding two paragraphs of this Section 2.12, the
term "transfer" encompasses any sale, pledge, transfer, hypothecation or other
disposition of any Security.

         (e) The provisions of clauses (1), (2), (3) and (4) below shall apply
only to Global Securities:

                  (1) Notwithstanding any other provisions of this Indenture or
                  the Securities, except as provided in Section 2.06(b), a
                  Global Security shall not be exchanged in whole or in part for
                  a Security registered in the name of any Person other than the
                  Depositary or one or more nominees thereof, provided that a
                  Global Security may be exchanged for Securities registered in
                  the names of any person designated by the Depositary in the
                  event that (i) the Depositary has notified the Company that it
                  is unwilling or unable to continue as Depositary for such
                  Global Security or such Depositary has ceased to be a
                  "clearing agency" registered under the Exchange Act, and a
                  successor Depositary is not appointed by the Company within 90
                  days, (ii) the Company elects to discontinue use of the system
                  of book-entry transfer through the Depositary, or (iii) an
                  Event of Default has occurred and is continuing with respect
                  to the Securities. Any Global Security exchanged pursuant to
                  the preceding sentence may be exchanged in whole or from time
                  to time in part as directed by the Depositary. Any Security
                  issued in exchange for a Global Security or any portion
                  thereof shall be a Global Security; provided that any such
                  Security so issued that is registered in the name of a Person
                  other than the Depositary or a nominee thereof shall not be a
                  Global Security.

                  (2) Securities issued in exchange for a Global Security or any
                  portion thereof shall be issued in the form of Certificated
                  Securities, shall have an aggregate Principal Amount at
                  Maturity equal to that of such Global Security or portion
                  thereof to be so exchanged, shall be registered in such names
                  and be in such authorized denominations as the Depositary
                  shall designate and shall bear the applicable legends provided
                  for herein. Any Global Security to be exchanged in whole shall
                  be surrendered by the Depositary to the Trustee, as Registrar.
                  With regard to any Global Security to be exchanged in part,
                  either such Global Security shall be so surrendered for
                  exchange or, if the Trustee is acting as custodian for the
                  Depositary or its nominee with respect to such Global
                  Security, the Principal Amount at Maturity thereof shall be
                  reduced, by an amount equal to the portion thereof to be so
                  exchanged, by means of an appropriate adjustment made on the

                                       18
<PAGE>   26

                  records of the Trustee. Upon any such surrender or adjustment,
                  the Trustee shall authenticate and deliver the Security
                  issuable on such exchange to or upon the order of the
                  Depositary or an authorized representative thereof.

                  (3) Subject to the provisions of clause (5) below, the Holder
                  may grant proxies and otherwise authorize any Person,
                  including Agent Members (as defined below) and persons that
                  may hold interests through Agent Members, to take any action
                  which a Holder is entitled to take under this Indenture or the
                  Securities.

                  (4) In the event of the occurrence of any of the events
                  specified in clause (1) above, the Company will promptly make
                  available to the Trustee a reasonable supply of Certificated
                  Securities.

                  (5) Neither any members of, or participants in, the Depositary
                  (collectively, the "Agent Members") nor any other Persons on
                  whose behalf Agent Members may act shall have any rights under
                  this Indenture with respect to any Global Security registered
                  in the name of the Depositary or any nominee thereof, or under
                  any such Global Security, and the Depositary or such nominee,
                  as the case may be, may be treated by the Company, the Trustee
                  and any agent of the Company or the Trustee as the absolute
                  owner and holder of such Global Security for all purposes
                  whatsoever. Notwithstanding the foregoing, nothing herein
                  shall prevent the Company, the Trustee or any agent of the
                  Company or the Trustee from giving effect to any written
                  certification, proxy or other authorization furnished by the
                  Depositary or such nominee, as the case may be, or impair, as
                  between the Depositary, its Agent Members and any other person
                  on whose behalf an Agent Member may act, the operation of
                  customary practices of such Persons governing the exercise of
                  the rights of a holder of any Security.

                  SECTION 2.13 CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
The Company will promptly notify the Trustee of any change in the CUSIP numbers.

                                   ARTICLE 3

                            REDEMPTION AND PURCHASES

                  SECTION 3.01 Right to Redeem; Notices to Trustee. The Company,
at its option, may redeem the Securities in accordance with the provisions of
paragraphs 5 and 7 of the Securities. If the Company elects to redeem Securities
pursuant to paragraph 5 of the Securities, it shall notify the Trustee in
writing of the Redemption Date, the Principal Amount at Maturity of Securities
to be redeemed and the Redemption Price.

                                       19
<PAGE>   27

                  The Company shall give the notice to the Trustee provided for
in this Section 3.01 by a Company Order, at least 60 days before the Redemption
Date (unless a shorter notice shall be satisfactory to the Trustee).

                  SECTION 3.02 Selection of Securities to Be Redeemed. If less
than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot or by any other method which the
Trustee considers fair and appropriate (so long as such method is not prohibited
by the rules of any stock exchange on which the Securities are then listed). The
Trustee shall make the selection at least 30 days but not more than 60 days
before the Redemption Date from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the Principal
Amount at Maturity of Securities that have denominations larger than $1,000.

                  Securities and portions of them the Trustee selects shall be
in Principal Amounts at Maturity of $1,000 or an integral multiple of $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall notify
the Company promptly of the Securities or portions of Securities to be redeemed.

                  If any Security selected for partial redemption is converted
in part before termination of the conversion right with respect to the portion
of the Security so selected, the converted portion of such Security shall be
deemed (so far as may be) to be the portion selected for redemption. Securities
which have been converted during a selection of Securities to be redeemed may be
treated by the Trustee as outstanding for the purpose of such selection.

                  SECTION 3.03 Notice of Redemption. At least 30 days but not
more than 60 days before a Redemption Date, the Company shall mail a notice of
redemption by first-class mail, postage prepaid, to each Holder of Securities to
be redeemed.

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

                  (1) the Redemption Date;

                  (2) the Redemption Price;

                  (3) the Conversion Rate;

                  (4) the name and address of the Paying Agent and Conversion
                  Agent;

                  (5) that Securities called for redemption may be converted at
                  any time before the close of business on the Redemption Date;

                  (6) that Holders who want to convert Securities must satisfy
                  the requirements set forth in paragraph 8 of the Securities;

                  (7) that Securities called for redemption must be surrendered
                  to the Paying Agent to collect the Redemption Price;

                                       20
<PAGE>   28

                  (8) if fewer than all the outstanding Securities are to be
                  redeemed, the certificate number and Principal Amounts at
                  Maturity of the particular Securities to be redeemed;

                  (9) that, unless the Company defaults in making payment of
                  such Redemption Price, Original Issue Discount on Securities
                  called for redemption, and interest, if any, will cease to
                  accrue on and after the Redemption Date and the Securities
                  will cease to be convertible; and

                  (10) the CUSIP number of the Securities.

                  At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense, provided that the
Company makes such request at least three Business Days prior to such notice of
redemption.

                  SECTION 3.04 Effect of Notice of Redemption. Once notice of
redemption is given, Securities called for redemption become due and payable on
the Redemption Date and at the Redemption Price stated in the notice except for
Securities which are converted in accordance with the terms of this Indenture.
Upon surrender to the Paying Agent, such Securities shall be paid at the
Redemption Price stated in the notice.

                  SECTION 3.05 Deposit of Redemption Price. Prior to 11:00 a.m.
(New York City Time), on the Redemption Date, the Company shall deposit with the
Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of
them is the Paying Agent, shall segregate and hold in trust) money sufficient to
pay the Redemption Price of all Securities to be redeemed on that date other
than Securities or portions of Securities called for redemption which on or
prior thereto have been delivered by the Company to the Trustee for cancellation
or have been converted. The Paying Agent shall as promptly as practicable return
to the Company any money, not required for that purpose because of conversion of
Securities pursuant to Article 11. If such money is then held by the Company in
trust and is not required for such purpose it shall be discharged from such
trust.

                  SECTION 3.06 Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate and deliver to the Holder a new Security in an authorized
denomination equal in Principal Amount at Maturity to the unredeemed portion of
the Security surrendered.

                  SECTION 3.07 Securities Purchased in Part. Any Security which
is to be purchased only in part shall be surrendered at the office of the Paying
Agent (with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing) and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security, without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder in aggregate Principal Amount at Maturity equal to, and in exchange
for, the portion of the Principal Amount at Maturity of the Security so
surrendered which is not purchased.

                                       21
<PAGE>   29

                  SECTION 3.08 Purchase of Securities at Option of the Holder.

                  (a) General. Securities shall be purchased by the Company
pursuant to paragraph 6 of the Securities as of May 1, 2004, May 1, 2006, May 1,
2011 and May 1, 2016 (each, a "Purchase Date"), at the purchase price of $683.61
per $1,000 of Principal Amount at Maturity as of May 1, 2004; of $714.90 per
$1,000 of Principal Amount at Maturity as of May 1, 2006; of $799.52 per $1,000
of Principal Amount at Maturity as of May 1, 2011; and of $894.16 per $1,000 of
Principal Amount at Maturity as of May 1, 2016 (each, a "Purchase Price", as
applicable), at the option of the Holder thereof, upon:

                  (1) delivery to the Paying Agent, by the Holder of a written
                  notice of purchase (a "Purchase Notice") at any time from the
                  opening of business on the date that is 20 Business Days prior
                  to a Purchase Date until the close of business on the Business
                  Day immediately preceding such Purchase Date stating:

                           (A) the certificate number of the Security which the
                           Holder will deliver to be purchased,

                           (B) the portion of the Principal Amount at Maturity
                           of the Security which the Holder will deliver to be
                           purchased, which portion must be in a Principal
                           Amount at Maturity of $1,000 or an integral multiple
                           thereof,

                           (C) that such Security shall be purchased as of the
                           Purchase Date pursuant to the terms and conditions
                           specified in paragraph 6 of the Securities and in
                           this Indenture, and

                           (D) in the event the Company elects, pursuant to
                           Section 3.08(b), to pay the Purchase Price to be paid
                           as of such Purchase Date, in whole or in part, in
                           shares of Common Stock but such portion of the
                           Purchase Price shall ultimately be payable to such
                           Holder entirely in cash because any of the conditions
                           to payment of the Purchase Price in Common Stock is
                           not satisfied prior to the close of business on such
                           Purchase Date, as set forth in Section 3.08(d),
                           whether such Holder elects (i) to withdraw such
                           Purchase Notice as to some or all of the Securities
                           to which such Purchase Notice relates (stating the
                           Principal Amount at Maturity and certificate numbers
                           of the Securities as to which such withdrawal shall
                           relate), or (ii) to receive cash in respect of the
                           entire Purchase Price for all Securities (or portions
                           thereof) to which such Purchase Notice relates; and

                  (2) delivery of such Security to the Paying Agent prior to, on
                  or after the Purchase Date (together with all necessary
                  endorsements) at the offices of the Paying Agent, such
                  delivery being a condition to receipt by the Holder of the
                  Purchase Price therefor; provided, however, that such Purchase
                  Price shall be so paid pursuant to this Section 3.08 only if
                  the Security so delivered to the Paying Agent shall conform in
                  all respects to the description thereof in the related
                  Purchase Notice, as determined by the Company.

                                       22
<PAGE>   30

                  If a Holder, in such Holder's Purchase Notice and in any
written notice of withdrawal delivered by such Holder pursuant to the terms of
Section 3.10, fails to indicate such Holder's choice with respect to the
election set forth in clause (D) of Section 3.08(a)(1), such Holder shall be
deemed to have elected to receive cash in respect of the Purchase Price for all
Securities subject to such Purchase Notice in the circumstances set forth in
such clause (D).

                  If prior to the Purchase Date the Company has exercised its
option provided for in Section 10.01, the Purchase Price will be equal to the
Restated Principal Amount plus accrued and unpaid interest from the most recent
date to which interest has been paid, or if no interest has been paid, from the
Option Exercise Date to the Purchase Date.

                  The Company shall purchase from the Holder thereof, pursuant
to this Section 3.08, a portion of a Security if the Principal Amount at
Maturity of such portion is $1,000 or an integral multiple of $1,000. Provisions
of this Indenture that apply to the purchase of all of a Security also apply to
the purchase of such portion of such Security.

                  Any purchase by the Company contemplated pursuant to the
provisions of this Section 3.08 shall be consummated by the delivery of the
consideration to be received by the Holder promptly following the later of the
Purchase Date and the time of delivery of the Security.

                  Notwithstanding anything herein to the contrary, any Holder
delivering to the Paying Agent the Purchase Notice contemplated by this Section
3.08(a) shall have the right to withdraw such Purchase Notice at any time prior
to the close of business on the Business Day prior to the Purchase Date by
delivery of a written notice of withdrawal to the Paying Agent in accordance
with Section 3.10.

                  The Paying Agent shall promptly notify the Company of the
receipt by it of any Purchase Notice or written notice of withdrawal thereof.

                  (b) Company's Right to Elect Manner of Payment of Purchase
Price. The Securities to be purchased pursuant to Section 3.08(a) may be paid
for, at the election of the Company, in U.S. legal tender ("cash") or Common
Stock, or in any combination of cash and Common Stock, subject to the conditions
set forth in Sections 3.08(c) and (d). The Company shall designate, in the
Company Notice delivered pursuant to Section 3.08(e), whether the Company will
purchase the Securities for cash or Common Stock, or, if a combination thereof,
the percentages of the Purchase Price of Securities in respect of which it will
pay in cash or Common Stock; provided that the Company will pay cash for
fractional interests in Common Stock. For purposes of determining the existence
of potential fractional interests, all Securities subject to purchase by the
Company held by a Holder shall be considered together (no matter how many
separate certificates are to be presented). Each Holder whose Securities are
purchased pursuant to this Section 3.08 shall receive the same percentage of
cash or Common Stock in payment of the Purchase Price for such Securities,
except (i) as provided in Section 3.08(d) with regard to the payment of cash in
lieu of fractional shares of Common Stock and (ii) in the event that the Company
is unable to purchase the Securities of a Holder or Holders for Common Stock
because any necessary qualifications or registrations of the Common Stock under
applicable state or foreign securities laws cannot be obtained, the Company may
purchase

                                       23
<PAGE>   31

the Securities of such Holder or Holders for cash. The Company may not change
its election with respect to the consideration (or components or percentages of
components thereof) to be paid once the Company has given its Company Notice to
Securityholders except pursuant to this Section 3.08(b) or pursuant to Section
3.08(d) in the event of a failure to satisfy, prior to the close of business on
the Purchase Date, any condition to the payment of the Purchase Price, in whole
or in part, in Common Stock.

                  If the Company elects to pay all or part of the Purchase Price
in Common Stock, that portion of accrued Original Issue Discount (or interest,
if the Company has exercised its option provided for in Section 10.01)
attributable to the period from the Issue Date (or, if the Company has exercised
the option provided for in Section 10.01, the later of (x) the date of such
exercise and (y) the date on which interest was last paid) of the Security
through the Purchase Date with respect to the purchased Security shall not be
cancelled, extinguished or forfeited, but rather shall be deemed to be paid in
full to the Holder thereof through delivery of the Common Stock (together with
the cash payment, if any, in lieu of fractional shares) and cash, if any, in
exchange for the Security being purchased pursuant to the provisions hereof; and
such cash and the fair market value of such shares of Common Stock (together
with any such cash payment in lieu of fractional shares) shall be treated as
delivered, pro rata, to the extent thereof, first in exchange for Original Issue
Discount (or interest, if the Company has exercised its option provided for in
Section 10.01) accrued through the Purchase Date, and the balance, if any, of
such cash and such fair market value of such Common Stock (and any such cash
payment) shall be treated as delivered in exchange for the Issue Price of the
Security being purchased pursuant to the provisions hereof.

                  At least three Business Days before the Company Notice Date,
the Company shall deliver an Officers' Certificate to the Trustee specifying:

                  (i) the manner of payment selected by the Company,

                  (ii) the information required by Section 3.08(e),

                  (iii) if the Company elects to pay the Purchase Price, or a
                  specified percentage thereof, in Common Stock, that the
                  conditions to such manner of payment set forth in Section
                  3.08(d) have been or will be complied with, and

                  (iv) whether the Company desires the Trustee to give the
                  Company Notice required by Section 3.08(e).

                  (c) Purchase with Cash. On each Purchase Date, at the option
of the Company, the Purchase Price of Securities in respect of which a Purchase
Notice pursuant to Section 3.08(a) has been given, or a specified percentage
thereof, may be paid by the Company with cash equal to the aggregate Purchase
Price of such Securities. If the Company elects to purchase Securities with
cash, the Company Notice, as provided in Section 3.08(e), shall be sent to
Holders (and to beneficial owners as required by applicable law) not less than
20 Business Days prior to such Purchase Date (the "Company Notice Date").

                  (d) Payment by Issuance of Common Stock. On each Purchase
Date, at the option of the Company, the Purchase Price of Securities in respect
of which a Purchase Notice

                                       24
<PAGE>   32

pursuant to Section 3.08(a) has been given, or a specified percentage thereof,
may be paid by the Company by the issuance of a number of shares of Common Stock
equal to the quotient obtained by dividing (i) the amount of cash to which the
Securityholders would have been entitled had the Company elected to pay all or
such specified percentage, as the case may be, of the Purchase Price of such
Securities in cash by (ii) the Market Price of a share of Common Stock, subject
to the next succeeding paragraph.

                  The Company will not issue a fractional share of Common Stock
in payment of the Purchase Price. Instead the Company will pay cash for the
current market value of the fractional share. The current market value of a
fraction of a share shall be determined, to the nearest 1/1,000th of a share, by
multiplying the Market Price by such fraction and rounding the product to the
nearest whole cent. It is understood that if a Holder elects to have more than
one Security purchased, the number of shares of Common Stock shall be based on
the aggregate amount of Securities to be purchased.

                  If the Company elects to purchase the Securities by the
issuance of shares of Common Stock, the Company Notice, as provided in Section
3.08(e), shall be sent to the Holders (and to beneficial owners as required by
applicable law) not later than the Company Notice Date.

                  The Company's right to exercise its election to purchase the
Securities pursuant to Section 3.08 through the issuance of shares of Common
Stock shall be conditioned upon:

                  (i) the Company's not having given its Company Notice of an
                  election to pay entirely in cash and its giving of timely
                  Company Notice of election to purchase all or a specified
                  percentage of the Securities with Common Stock as provided
                  herein;

                  (ii) the registration of the shares of Common Stock to be
                  issued in respect of the payment of the Purchase Price under
                  the Securities Act of 1933, as amended (the "Securities Act"),
                  and the Securities Exchange Act of 1934, as amended (the
                  "Exchange Act"), in each case, if required;

                  (iii) any necessary qualification or registration under
                  applicable state securities laws or the availability of an
                  exemption from such qualification and registration; and

                  (iv) listing shares of Common Stock to be issued to purchase
                  Securities on the principal United States securities exchange
                  on which the Common Stock is listed, or causing such shares of
                  Common Stock to be quoted on Nasdaq if not so listed.

                  (v) the receipt by the Trustee of an Officers' Certificate and
                  an Opinion of Counsel each stating that (A) the terms of the
                  issuance of the Common Stock are in conformity with this
                  Indenture and (B) the shares of Common Stock to be issued by
                  the Company in payment of the Purchase Price in respect of
                  Securities have been duly authorized and, when issued and
                  delivered pursuant to the terms of this Indenture in payment
                  of the Purchase Price in respect of the Securities, will be
                  validly issued, fully paid and non-assessable and, to the best
                  of such counsel's knowledge, free from preemptive rights, and,
                  in the case of such Officers'

                                       25
<PAGE>   33

                  Certificate, stating that conditions (i), (ii), (iii) and (iv)
                  above and the condition set forth in the second succeeding
                  sentence have been satisfied and, in the case of such Opinion
                  of Counsel, stating that conditions (ii) and (iii) above have
                  been satisfied.

                  Such Officers' Certificate shall also set forth the number of
shares of Common Stock to be issued for each $1,000 Principal Amount at Maturity
of Securities and the Sale Price of a share of Common Stock on each trading day
during the period commencing on the first trading day of the period during which
the Market Price is calculated and ending on the applicable Purchase Date. The
Company may pay the Purchase Price (or any portion thereof) in Common Stock only
if the information necessary to calculate the Market Price is published in a
daily newspaper of national circulation. If the foregoing conditions are not
satisfied with respect to a Holder or Holders prior to the close of business on
the Purchase Date and the Company has elected to purchase the Securities
pursuant to this Section 3.08 through the issuance of shares of Common Stock,
the Company shall pay the entire Purchase Price of the Securities of such Holder
or Holders in cash.

                  The "Market Price" means an amount equal to the average of the
Sale Prices of the Common Stock for the five trading day period ending on (if
the third Business Day prior to the applicable Purchase Date is a trading day,
or if not, then on the last trading day prior to) the third Business Day prior
to the applicable Purchase Date, appropriately adjusted to take into account the
occurrence, during the period commencing on the first of such trading days
during such five trading day period and ending on such Purchase Date, of any
event described in Section 11.06, 11.07 or 11.08; subject, however, to the
conditions set forth in Sections 11.09 and 11.10.

                  The "Sale Price" of the Common Stock on any date means the
closing per share sale price (or, if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and average ask prices) on such date as reported in
the composite transactions for the principal United States securities exchange
on which the Common Stock is traded or, if the Common Stock is not listed on a
United States national or regional securities exchange, as reported by the
National Association of Securities Dealers Automated Quotation System.

                  (e) Notice of Election. The Company's notice of election to
purchase with cash or Common Stock or any combination thereof shall be sent to
the Holders (and to beneficial owners as required by applicable law) in the
manner provided in Section 12.02 at the time specified in Section 3.08(c) or
(d), as applicable (the "Company Notice"). Such Company Notice shall state the
manner of payment elected and shall contain the following information:

                  In the event the Company has elected to pay the Purchase Price
(or a specified percentage thereof) with Common Stock, the Company Notice shall:

                  (1) state that each Holder will receive Common Stock with a
                  Market Price determined as of a specified date prior to the
                  Purchase Date equal to such specified percentage of the
                  Purchase Price of the Securities held by such Holder (except
                  any cash amount to be paid in lieu of fractional shares);

                                       26
<PAGE>   34

                  (2) set forth the method of calculating the Market Price of
                  the Common Stock; and

                  (3) state that because the Market Price of Common Stock will
                  be determined prior to the Purchase Date, Holders will bear
                  the market risk with respect to the value of the Common Stock
                  to be received from the date such Market Price is determined
                  to the Purchase Date.

                  In any case, each Company Notice shall include a form of
Purchase Notice to be completed by a Securityholder and shall state:

                  (i) the Purchase Price and the Conversion Rate;

                  (ii) the name and address of the Paying Agent and the
                  Conversion Agent;

                  (iii) that Securities as to which a Purchase Notice has been
                  given may be converted pursuant to Article 11 hereof only if
                  the applicable Purchase Notice has been withdrawn in
                  accordance with the terms of this Indenture;

                  (iv) that Securities must be surrendered to the Paying Agent
                  to collect payment;

                  (v) that the Purchase Price for any security as to which a
                  Purchase Notice has been given and not withdrawn will be paid
                  promptly following the later of the Purchase Date and the time
                  of surrender of such Security as described in (iv);

                  (vi) the procedures the Holder must follow to exercise rights
                  under Section 3.08 and a brief description of those rights;

                  (vii) briefly, the conversion rights of the Securities;

                  (viii) the procedures for withdrawing a Purchase Notice
                  (including, without limitation, for a conditional withdrawal
                  pursuant to the terms of Section 3.08(a)(1)(D) or Section
                  3.10);

                  (ix) that, unless the Company defaults in making payment of
                  such Purchase Price, Original Issue Discount on Securities
                  covered by any Purchase Notice, and interest, if any, will
                  cease to accrue on and after the Purchase Date; and

                  (x) the CUSIP number of the Securities.

                  At the Company's request, the Trustee shall give such Company
Notice in the Company's name and at the Company's expense; provided, however,
that, in all cases, the text of such Company Notice shall be prepared by the
Company.

                  Upon determination of the actual number of shares of Common
Stock to be issued for each $1,000 Principal Amount at Maturity of Securities,
the Company will promptly issue a

                                       27
<PAGE>   35

press release and publish such determination on the Company's web site on the
World Wide Web.

                  (f) Covenants of the Company. All shares of Common Stock
delivered upon purchase of the Securities shall be newly issued shares or
treasury shares, shall be duly authorized, validly issued, fully paid and
nonassessable, and shall be free from preemptive rights and free of any lien or
adverse claim.

                  (g) Procedure upon Purchase. The Company shall deposit cash
(in respect of a cash purchase under Section 3.08(c) or for fractional
interests, as applicable) or shares of Common Stock, or a combination thereof,
as applicable, at the time and in the manner as provided in Section 3.11,
sufficient to pay the aggregate Purchase Price of all Securities to be purchased
pursuant to this Section 3.08. As soon as practicable after the Purchase Date,
the Company shall deliver to each Holder entitled to receive Common Stock
through the Paying Agent, a certificate for the number of full shares of Common
Stock issuable in payment of the Purchase Price and cash in lieu of any
fractional interests. The person in whose name the certificate for Common Stock
is registered shall be treated as a holder of record of shares of Common Stock
on the Business Day following the Purchase Date. Subject to Section 3.08(d), no
payment or adjustment will be made for dividends on the Common Stock the record
date for which occurred on or prior to the Purchase Date.

                  (h) Taxes. If a Holder of a Security is paid in Common Stock,
the Company shall pay any documentary, stamp or similar issue or transfer tax
due on such issue of shares of Common Stock. However, the Holder shall pay any
such tax which is due because the Holder requests the shares of Common Stock to
be issued in a name other than the Holder's name. The Paying Agent may refuse to
deliver the certificates representing the Common Stock being issued in a name
other than the Holder's name until the Paying Agent receives a sum sufficient to
pay any tax which will be due because the shares of Common Stock are to be
issued in a name other than the Holder's name. Nothing herein shall preclude any
income tax withholding required by law or regulations.

                  SECTION 3.09 Purchase of Securities at Option of the Holder
upon Change in Control.

                  (a) If on or prior to May 1, 2006 there shall have occurred a
Change in Control, Securities shall be purchased by the Company, at the option
of the Holder thereof, at a purchase price specified in paragraph 6 of the
Securities (the "Change in Control Purchase Price"), as of the date that is 35
Business Days after the occurrence of the Change in Control (the "Change in
Control Purchase Date"), subject to satisfaction by or on behalf of the Holder
of the requirements set forth in Section 3.09(c).

                  If prior to the Change of Control Purchase Date the Company
has exercised its option provided for in Section 10.01, the Change in Control
Purchase Price will be equal to the Restated Principal Amount plus accrued and
unpaid interest from the most recent date to which interest has been paid, or if
no interest has been paid, from the Option Exercise Date to the Change of
Control Purchase Date.

                                       28
<PAGE>   36

                  A "Change in Control" shall be deemed to have occurred at such
time as either of the following events shall occur:

                  (i) There shall be consummated any consolidation or merger of
                  the Company pursuant to which the Common Stock would be
                  converted into cash, securities or other property, in each
                  case other than a consolidation or merger of the Company in
                  which the holders of the Common Stock and other Capital Stock
                  of the Company with equivalent voting rights immediately prior
                  to the consolidation or merger have, directly or indirectly,
                  at least a majority of the total voting power in the aggregate
                  of all classes of Capital Stock of the continuing or surviving
                  corporation immediately after the consolidation or merger; or

                  (ii) There is a report filed on Schedule 13D or TO (or any
                  successor schedule, form or report) pursuant to the Exchange
                  Act, disclosing that any person (for the purposes of this
                  Section 3.09 only, as the term "person" is used in Section
                  13(d)(3) or Section 14(d)(2) of the Exchange Act) has become
                  the beneficial owner (as the term "beneficial owner" is
                  defined under Rule 13d-3 or any successor rule or regulation
                  promulgated under the Exchange Act) of 50% or more of the then
                  outstanding aggregate voting power of the Common Stock and
                  other Capital Stock of the Company with equivalent voting
                  rights or other Capital Stock into which the Common Stock is
                  reclassified or changed; provided, however, that a person
                  shall not be deemed beneficial owner of, or to own
                  beneficially, (A) any securities tendered pursuant to a tender
                  or exchange offer made by or on behalf of such person or any
                  of such person's Affiliates or Associates until such tendered
                  securities are accepted for purchase or exchange thereunder,
                  or (B) any securities if such beneficial ownership (1) arises
                  solely as a result of a revocable proxy delivered in response
                  to a proxy or consent solicitation made pursuant to the
                  applicable rules and regulations under the Exchange Act, and
                  (2) is not also then reportable on Schedule 13D (or any
                  successor schedule) under the Exchange Act.

Notwithstanding the foregoing provisions of this Section 3.09, a Change in
Control shall not be deemed to have occurred by virtue of the Company, any
Subsidiary, any employee stock ownership plan or any other employee benefit plan
of the Company or any Subsidiary, or any person holding Common Stock for or
pursuant to the terms of any such employee benefit plan, filing or becoming
obligated to file a report under or in response to Schedule 13D or Schedule TO
(or any successor schedule, form or report) under the Exchange Act disclosing
beneficial ownership by it of shares of Common Stock, whether in excess of 50%
or otherwise.

                  "Associate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the date hereof.

                  (b) Within 15 days after the occurrence of a Change in
Control, the Company shall mail a written notice of Change in Control by
first-class mail to the Trustee and to each Holder (and to beneficial owners as
required by applicable law). The notice shall include a form of Change in
Control Purchase Notice to be completed by the Securityholder and shall state:

                                       29
<PAGE>   37

                  (1) briefly, the events causing a Change in Control and the
                  date of such Change in Control;

                  (2) the date by which the Change in Control Purchase Notice
                  pursuant to this Section 3.09 must be given;

                  (3) the Change in Control Purchase Date;

                  (4) the Change in Control Purchase Price;

                  (5) the name and address of the Paying Agent and the
                  Conversion Agent;

                  (6) the Conversion Rate and any adjustments thereto resulting
                  from such Change in Control;

                  (7) that Securities as to which a Change in Control Purchase
                  Notice has been given may be converted pursuant to Article 11
                  hereof only if the Change in Control Purchase Notice has been
                  withdrawn in accordance with the terms of this Indenture;

                  (8) that Securities must be surrendered to the Paying Agent to
                  collect payment;

                  (9) that the Change in Control Purchase Price for any Security
                  as to which a Change in Control Purchase Notice has been duly
                  given and not withdrawn will be paid promptly following the
                  later of the Change in Control Purchase Date and the time of
                  surrender of such Security as described in (8);

                  (10) briefly, the procedures the Holder must follow to
                  exercise rights under this Section 3.09;

                  (11) briefly, the conversion rights of the Securities;

                  (12) the procedures for withdrawing a Change in Control
                  Purchase Notice;

                  (13) that, unless the Company defaults in making payment of
                  such Change in Control Price, Original Issue Discount on
                  Securities covered by any Change in Control Purchase Notice,
                  and interest, if any, will cease to accrue on and after the
                  Change in Control Purchase Date; and

                  (14) the CUSIP number of the Securities.

                  (c) A Holder may exercise its rights specified in Section
3.09(a) upon delivery of a written notice of purchase (a "Change in Control
Purchase Notice") to the Paying Agent at any time prior to the close of business
on the Business Day immediately preceding the Change in Control Purchase Date,
stating:

                                       30
<PAGE>   38

                  (1) the certificate number of the Security which the Holder
                  will deliver to be purchased;

                  (2) the portion of the Principal Amount at Maturity of the
                  Security which the Holder will deliver to be purchased, which
                  portion must be $1,000 or an integral multiple thereof; and

                  (3) that such Security shall be purchased pursuant to the
                  terms and conditions specified in paragraph 6 of the
                  Securities.

                  The delivery of such Security to the Paying Agent prior to, on
or after the Change in Control Purchase Date (together with all necessary
endorsements) at the offices of the Paying Agent shall be a condition to the
receipt by the Holder of the Change in Control Purchase Price therefor.

                  The Company shall purchase from the Holder thereof, pursuant
to this Section 3.09, a portion of a Security if the Principal Amount at
Maturity of such portion is $1,000 or an integral multiple of $1,000. Provisions
of this Indenture that apply to the purchase of all of a Security also apply to
the purchase of such portion of such Security.

                  Any purchase by the Company contemplated pursuant to the
provisions of this Section 3.09 shall be consummated by the delivery of the
consideration to be received by the Holder promptly following the later of the
Change in Control Purchase Date and the time of delivery of the Security to the
Paying Agent in accordance with this Section 3.09.

                  Notwithstanding anything herein to the contrary, any Holder
delivering to the Paying Agent the Change in Control Purchase Notice
contemplated by this Section 3.09(c) shall have the right to withdraw such
Change in Control Purchase Notice at any time prior to the close of business on
the Business Day preceding the Change in Control Purchase Date by delivery of a
written notice of withdrawal to the Paying Agent in accordance with Section
3.10.

                  The Paying Agent shall promptly notify the Company of the
receipt by it of any Change in Control Purchase Notice or written withdrawal
thereof.

                  SECTION 3.10 Effect of Purchase Notice or Change in Control
Purchase Notice. Upon receipt by the Paying Agent of the Purchase Notice or
Change in Control Purchase Notice specified in Section 3.08(a) or Section
3.09(c), as applicable, the Holder of the Security in respect of which such
Purchase Notice or Change in Control Purchase Notice, as the case may be, was
given shall (unless such Purchase Notice or Change in Control Purchase Notice is
withdrawn as specified in the following two paragraphs) thereafter be entitled
to receive solely the Purchase Price or Change in Control Purchase Price, as the
case may be, with respect to such Security. Such Purchase Price or Change in
Control Purchase Price shall be paid to such Holder, subject to receipts of
funds and/or securities by the Paying Agent, promptly following the later of (x)
the Purchase Date or the Change in Control Purchase Date, as the

                                       31
<PAGE>   39

case may be, with respect to such Security (provided the conditions in Section
3.08(a) or Section 3.09(c), as applicable, have been satisfied) and (y) the time
of delivery of such Security to the Paying Agent by the Holder thereof in the
manner required by Section 3.08(a) or Section 3.09(c), as applicable. Securities
in respect of which a Purchase Notice or Change in Control Purchase Notice, as
the case may be, has been given by the Holder thereof may not be converted
pursuant to Article 11 hereof on or after the date of the delivery of such
Purchase Notice or Change in Control Purchase Notice, as the case may be, unless
such Purchase Notice or Change in Control Purchase Notice, as the case may be,
has first been validly withdrawn as specified in the following two paragraphs.

                  A Purchase Notice or Change in Control Purchase Notice, as the
case may be, may be withdrawn by means of a written notice of withdrawal
delivered to the office of the Paying Agent in accordance with the Purchase
Notice or Change in Control Purchase Notice, as the case may be, at any time
prior to the close of business on the Purchase Date or the Change in Control
Purchase Date, as the case may be, specifying:

                  (1) the certificate number of the Security in respect of which
                  such notice of withdrawal is being submitted,

                  (2) the Principal Amount at Maturity of the Security with
                  respect to which such notice of withdrawal is being submitted,
                  and

                  (3) the Principal Amount at Maturity, if any, of such Security
                  which remains subject to the original Purchase Notice or
                  Change in Control Purchase Notice, as the case may be, and
                  which has been or will be delivered for purchase by the
                  Company.

                  A written notice of withdrawal of a Purchase Notice may be in
the form set forth in the preceding paragraph or may be in the form of (i) a
conditional withdrawal contained in a Purchase Notice pursuant to the terms of
Section 3.08(a)(1)(D) or (ii) a conditional withdrawal containing the
information set forth in Section 3.08(a)(1)(D) and the preceding paragraph and
contained in a written notice of withdrawal delivered to the Paying Agent as set
forth in the preceding paragraph.

                  There shall be no purchase of any Securities pursuant to
Section 3.08 (other than through the issuance of Common Stock in payment of the
Purchase Price, including cash in lieu of fractional shares) or 3.09 if there
has occurred (prior to, on or after, as the case may be, the giving, by the
Holders of such Securities, of the required Purchase Notice or Change in Control
Purchase Notice, as the case may be) and is continuing an Event of Default
(other than a default in the payment of the Purchase Price or Change in Control
Purchase Price, as the case may be, with respect to such Securities). The Paying
Agent will promptly return to the respective Holders thereof any Securities (x)
with respect to which a Purchase Notice or Change in Control Purchase Notice, as
the case may be, has been withdrawn in compliance with this Indenture, or (y)
held by it during the continuance of an Event of Default (other than a default
in the payment of the Purchase Price or Change in Control Purchase Price, as the
case may be, with respect to such Securities) in which case, upon such return,
the Purchase Notice or Change in Control Purchase Notice with respect thereto
shall be deemed to have been withdrawn.

                  SECTION 3.11 Deposit of Purchase Price or Change in Control
Purchase Price. Prior to 11:00 a.m. (local time in The City of New York) on the
Business Day following the Purchase Date or the Change in Control Purchase Date,
as the case may be, the Company

                                       32
<PAGE>   40

shall deposit with the Trustee or with the Paying Agent (or, if the Company or a
Subsidiary or an Affiliate of either of them is acting as the Paying Agent,
shall segregate and hold in trust as provided in Section 2.04) an amount of cash
(in immediately available funds if deposited on such Business Day) or Common
Stock, if permitted hereunder, sufficient to pay the aggregate Purchase Price or
Change in Control Purchase Price, as the case may be, of all the Securities or
portions thereof which are to be purchased as of the Purchase Date or Change in
Control Purchase Date, as the case may be.

                  SECTION 3.12 Covenant to Comply With Securities Laws Upon
Purchase of Securities. In connection with any offer to purchase or purchase of
Securities under Section 3.08 or 3.09 hereof (provided that such offer or
purchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which
term, as used herein, includes any successor provision thereto) under the
Exchange Act at the time of such offer or purchase), the Company shall (i)
comply with Rule 13e-4 and Rule 14e-1 under the Exchange Act, (ii) file the
related Schedule TO (or any successor schedule, form or report) under the
Exchange Act, and (iii) otherwise comply with all Federal and state securities
laws so as to permit the rights and obligations under Sections 3.08 and 3.09 to
be exercised in the time and in the manner specified in Sections 3.08 and 3.09.

                  SECTION 3.13 Repayment to the Company. The Trustee and the
Paying Agent shall return to the Company any cash or shares of Common Stock that
remain unclaimed as provided in paragraph 13 of the Securities, together with
interest or dividends, if any, thereon (subject to the provisions of Section
7.01(f)), held by them for the payment of the Purchase Price or Change in
Control Purchase Price, as the case may be; provided, however, that to the
extent that the aggregate amount of cash or shares of Common Stock deposited by
the Company pursuant to Section 3.11 exceeds the aggregate Purchase Price or
Change in Control Purchase Price, as the case may be, of the Securities or
portions thereof which the Company is obligated to purchase as of the Purchase
Date or Change in Control Purchase Date, as the case may be, then promptly after
the Business Day following the Purchase Date or Change in Control Purchase Date,
as the case may be, the Trustee shall return any such excess to the Company
together with interest or dividends, if any, thereon (subject to the provisions
of Section 7.01(f)).

                                    ARTICLE 4

                                    COVENANTS

                  SECTION 4.01 Payment of Securities. The Company shall promptly
make all payments in respect of the Securities on the dates and in the manner
provided in the Securities or pursuant to this Indenture. Any amounts to be
given to the Trustee or Paying Agent, shall be deposited with the Trustee or
Paying Agent by 11:00 a.m. New York City time by the Company. Principal Amount
at Maturity, Restated Principal Amount, Issue Price plus accrued Original Issue
Discount, Redemption Price, Purchase Price, Change in Control Purchase Price and
interest, if any, shall be considered paid on the applicable date due if by such
time on such date (or, in the case of a Purchase Price or Change in Control
Purchase Price, on the Business Day following the applicable Purchase Date or
Change in Control Purchase Date, as the case may be) the Trustee or the Paying
Agent holds, in accordance with this Indenture, money or securities, if
permitted hereunder, sufficient to pay all such amounts then due.

                                       33
<PAGE>   41

                  The Company shall, to the extent permitted by law, pay
interest on overdue amounts at the rate per annum set forth in paragraph 1 of
the Securities, compounded semiannually, which interest shall accrue from the
date such overdue amount was originally due to the date payment of such amount,
including interest thereon, has been made or duly provided for. All such
interest shall be payable on demand. The accrual of such interest on overdue
amounts shall be in lieu of, and not in addition to, the continued accrual of
Original Issue Discount.

                  SECTION 4.02 SEC and Other Reports. The Company shall file
with the Trustee, within 15 days after it files such annual and quarterly
reports, information, documents and other reports with the SEC, copies of its
annual report and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act. In the event the Company is at any time
no longer subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, it shall continue to provide the Trustee with reports containing
substantially the same information as would have been required to be filed with
the SEC had the Company continued to have been subject to such reporting
requirements. In such event, such reports shall be provided at the times the
Company would have been required to provide reports had it continued to have
been subject to such reporting requirements. The Company also shall comply with
the other provisions of TIA Section 314(a).

                  SECTION 4.03 Compliance Certificate. The Company shall deliver
to the Trustee within 120 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending on August 31, 2001) an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.

                  SECTION 4.04 Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.

                  SECTION 4.05 Maintenance of Office or Agency. The Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
of the Trustee, Registrar, Paying Agent and Conversion Agent where Securities
may be presented or surrendered for payment, where Securities may be surrendered
for registration of transfer, exchange, purchase, redemption or conversion and
where notices and demands to or upon the Company in respect of the Securities
and this Indenture may be served. The Corporate Trust Office shall initially be
such office or agency for all of the aforesaid purposes. The Company shall give
prompt written notice to the Trustee of the location, and of any change in the
location, of any such office or agency (other than a change in the location of
the office of the Trustee). If at any time the Company shall fail to maintain
any such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the address of the Trustee set forth in Section 12.02.

                                       34
<PAGE>   42

                  The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, for such purposes.

                  SECTION 4.06 Delivery of Certain Information. At any time when
the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the
request of a Holder or any beneficial holder of Securities or shares of Common
Stock issued upon conversion thereof, the Company will promptly furnish or cause
to be furnished Rule 144A Information (as defined below) to such Holder or any
beneficial holder of Securities or holder of shares of Common Stock issued upon
conversion of Securities, or to a prospective purchaser of any such security
designated by any such holder, as the case may be, to the extent required to
permit compliance by such Holder or holder with Rule 144A under the Securities
Act in connection with the resale of any such security. "Rule 144A Information"
shall be such information as is specified pursuant to Rule 144A(d)(4) under the
Securities Act.

                  SECTION 4.07 Calculation of Original Issue Discount. The
Company shall file with the Trustee promptly at the end of each calendar year
(i) a written notice specifying the amount of Original Issue Discount (including
daily rates and accrual periods) accrued on the outstanding Securities as of the
end of such year and (ii) such other specific information relating to such
Original Issue Discount as may then be relevant under the Internal Revenue Code
of 1986, as amended from time to time.

                                   ARTICLE 5

                              SUCCESSOR CORPORATION

                  SECTION 5.01 When Company May Merge or Transfer Assets. The
Company shall not consolidate with or merge with or into any other person or
convey, transfer or lease its properties and assets substantially as an entirety
to any person, unless:

                  (a) either (1) the Company shall be the continuing corporation
         or (2) the person (if other than the Company) formed by such
         consolidation or into which the Company is merged or the person which
         acquires by conveyance, transfer or lease the properties and assets of
         the Company substantially as an entirety (i) shall be a corporation
         organized and validly existing under the laws of the United States or
         any State thereof or the District of Columbia and (ii) shall expressly
         assume, by an indenture supplemental hereto, executed and delivered to
         the Trustee, in form satisfactory to the Trustee, all of the
         obligations of the Company under the Securities and this Indenture;

                  (b) immediately after giving effect to such transaction, no
         Default shall have occurred and be continuing; and

                  (c) the Company shall have delivered to the Trustee an
         Officers' Certificate and an Opinion of Counsel, each stating that such
         consolidation, merger, conveyance, transfer or lease and, if a
         supplemental indenture is required in connection with such

                                       35
<PAGE>   43

         transaction, such supplemental indenture, comply with this Article 5
         and that all conditions precedent herein provided for relating to such
         transaction have been satisfied.

                  For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise) of the properties and assets of one or more
Subsidiaries (other than to the Company or another Subsidiary), which, if such
assets were owned by the Company, would constitute all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.

                  The successor person formed by such consolidation or into
which the Company is merged or the successor person to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor had been named as the Company herein; and
thereafter, except in the case of a lease and obligations which the Company may
have under a supplemental indenture pursuant to Section 11.14, the Company shall
be discharged from all obligations and covenants under this Indenture and the
Securities. Subject to Section 9.06, the Company, the Trustee and the successor
person shall enter into a supplemental indenture to evidence the succession and
substitution of such successor person and such discharge and release of the
Company.

                                   ARTICLE 6

                              DEFAULTS AND REMEDIES

                  SECTION 6.01 Events of Default. An "Event of Default" occurs
if:

                  (1) after exercise of its option pursuant to Section 10.01
                  hereof following a Tax Event, the Company defaults in the
                  payment of interest upon any Security when such interest
                  becomes due and payable, and the continuance of such default
                  for a period of 30 days;

                  (2) the Company defaults in the payment of the Principal
                  Amount at Maturity (or, if the Securities have been converted
                  to semiannual coupon notes following a Tax Event pursuant to
                  Article 10, the Restated Principal Amount), Issue Price plus
                  accrued Original Issue Discount, Redemption Price, Purchase
                  Price or Change in Control Purchase Price on any Security when
                  the same becomes due and payable at its Stated Maturity, upon
                  redemption, upon declaration, when due for purchase by the
                  Company or otherwise;

                  (3) the Company fails to comply with any of its agreements in
                  the Securities or this Indenture (other than those referred to
                  in clauses (1) and (2) above) and such failure continues for
                  60 days after receipt by the Company of a Notice of Default;

                  (4) default in the payment of principal when due or resulting
                  in acceleration of other Debt where the aggregate principal
                  amount with respect to which the default or acceleration has
                  occurred exceeds $10,000,000, and such acceleration has not

                                       36
<PAGE>   44

                  been rescinded or annulled within a period of ten days after
                  receipt by the Company of a Notice of Default; or

                  (5) the Company pursuant to or under or within the meaning of
                  any Bankruptcy Law:

                           (A) commences a voluntary case or proceeding;

                           (B) consents to the entry of an order for relief
                           against it in an involuntary case or proceeding or
                           the commencement of any case against it;

                           (C) consents to the appointment of a Custodian of it
                           or for any substantial part of its property;

                           (D) makes a general assignment for the benefit of its
                           creditors;

                           (E) files a petition in bankruptcy or answer or
                           consent seeking reorganization or relief; or

                           (F) consents to the filing of such petition or the
                           appointment of or taking possession by a Custodian;
                           or

                  (6) a court of competent jurisdiction enters an order or
                  decree under any Bankruptcy Law that:

                           (A) is for relief against the Company in an
                           involuntary case or proceeding, or adjudicates the
                           Company insolvent or bankrupt;

                           (B) appoints a Custodian of the Company or for any
                           substantial part of its property; or

                           (C) orders the winding up or liquidation of the
                           Company;

                  and the order or decree remains unstayed and in effect for 60
                  days.

                  "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors.

                  "Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.

                  A Default under clause (3) or clause (4) above is not an Event
of Default until the Trustee notifies the Company, or the Holders of at least
25% in aggregate Principal Amount at Maturity of the Securities at the time
outstanding notify the Company and the Trustee, of the Default and the Company
does not cure such Default (and such Default is not waived) within the time
specified in clause (3) or clause (4) above after actual receipt of such notice.
Any such

                                       37
<PAGE>   45

notice must specify the Default, demand that it be remedied and state that such
notice is a "Notice of Default".

                  The Company shall deliver to the Trustee, within 30 days after
it becomes aware of the occurrence thereof, written notice of any Default under
clause (3) or clause (4) above, its status and what action the Company is taking
or proposes to take with respect thereto.

                  SECTION 6.02 Acceleration. If an Event of Default (other than
an Event of Default specified in Section 6.01(5) or (6)) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in aggregate Principal Amount at Maturity of the Securities at the time
outstanding by notice to the Company and the Trustee, may declare the Issue
Price plus accrued Original Issue Discount through the date of declaration on
all the Securities to be immediately due and payable. Upon such a declaration,
such Issue Price plus accrued Original Issue Discount shall be due and payable
immediately. If an Event of Default specified in Section 6.01(5) or (6) occurs
and is continuing, the Issue Price plus accrued Original Issue Discount on all
the Securities shall become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholders. The
Holders of a majority in aggregate Principal Amount at Maturity of the
Securities at the time outstanding, by notice to the Trustee (and without notice
to any other Securityholder) may rescind an acceleration and its consequences if
the rescission would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived except nonpayment of the
Issue Price plus accrued Original Issue Discount that have become due solely as
a result of acceleration and if all amounts due to the Trustee under Section
7.07 have been paid. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.

                  SECTION 6.03 Other Remedies. If an Event of Default occurs and
is continuing, the Trustee may pursue any available remedy to collect the
payment of the Issue Price plus accrued Original Issue Discount on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.

                  The Trustee may maintain a proceeding even if the Trustee does
not possess any of the Securities or does not produce any of the Securities in
the proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of, or acquiescence in, the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.

                  SECTION 6.04 Waiver of Past Defaults. The Holders of a
majority in aggregate Principal Amount at Maturity of the Securities at the time
outstanding, by notice to the Trustee (and without notice to any other
Securityholder), may waive an existing Default and its consequences except (1)
an Event of Default described in Section 6.01(1) or (2), (2) a Default in
respect of a provision that under Section 9.02 cannot be amended without the
consent of each Securityholder affected or (3) a Default which constitutes a
failure to convert any Security in accordance with the terms of Article 11. When
a Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or impair any consequent right. This Section 6.04
shall be in lieu of Section 316(a)(1)(B) of the TIA and such Section
316(a)(1)(B) is hereby expressly excluded from this Indenture, as permitted by
the TIA.

                                       38
<PAGE>   46

                  SECTION 6.05 Control by Majority. The Holders of a majority in
aggregate Principal Amount at Maturity of the Securities at the time outstanding
may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or of exercising any trust or power conferred on
the Trustee. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture or, subject to Section 7.01, that the
Trustee determines in good faith is unduly prejudicial to the rights of other
Securityholders or would involve the Trustee in personal liability unless the
Trustee is offered indemnity satisfactory to it. This Section 6.05 shall be in
lieu of Section 316(a)(1)(A) of the TIA and such Section 316(a)(1)(A) is hereby
expressly excluded from this Indenture, as permitted by the TIA.

                  SECTION 6.06 Limitation on Suits. A Securityholder may not
pursue any remedy with respect to this Indenture or the Securities unless:

                  (1) the Holder gives to the Trustee written notice stating
                  that an Event of Default is continuing;

                  (2) the Holders of at least 25% in aggregate Principal Amount
                  at Maturity of the Securities at the time outstanding make a
                  written request to the Trustee to pursue the remedy;

                  (3) such Holder or Holders offer to the Trustee security or
                  indemnity satisfactory to the Trustee against any loss,
                  liability or expense;

                  (4) the Trustee does not comply with the request within 60
                  days after receipt of such notice, request and offer of
                  security or indemnity; and

                  (5) the Holders of a majority in aggregate Principal Amount at
                  Maturity of the Securities at the time outstanding do not give
                  the Trustee a direction inconsistent with the request during
                  such 60-day period.

                  A Securityholder may not use this Indenture to prejudice the
rights of any other Securityholder or to obtain a preference or priority over
any other Securityholder.

                  SECTION 6.07 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of the Principal Amount at Maturity (or if the Securities
have been converted to semiannual coupon notes following a Tax Event pursuant to
Article 10, the Restated Principal Amount), Issue Price plus accrued Original
Issue Discount, Redemption Price, Purchase Price, Change in Control Purchase
Price or interest, if any, in respect of the Securities held by such Holder, on
or after the respective due dates expressed in the Securities or any Redemption
Date, and to convert the Securities in accordance with Article 11, or to bring
suit for the enforcement of any such payment on or after such respective dates
or the right to convert, shall not be impaired or affected adversely without the
consent of such Holder.

                  SECTION 6.08 Collection Suit by Trustee. If an Event of
Default described in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company for the whole amount owing with respect to the Securities
and the amounts provided for in Section 7.07.

                                       39
<PAGE>   47

                  SECTION 6.09 Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or any other obligor upon the Securities or
the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the Principal Amount at Maturity, Issue Price
plus accrued Original Issue Discount, Redemption Price, Purchase Price, Change
in Control Purchase Price or interest, if any, in respect of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of any such amount) shall be entitled and empowered,
by intervention in such proceeding or otherwise,

                  (a) to file and prove a claim for the whole amount of the
                  Principal Amount at Maturity, Issue Price plus accrued
                  Original Issue Discount, Redemption Price, Purchase Price,
                  Change in Control Purchase Price, or interest, if any, and to
                  file such other papers or documents as may be necessary or
                  advisable in order to have the claims of the Trustee
                  (including any claim for the reasonable compensation,
                  expenses, disbursements and advances of the Trustee, its
                  agents and counsel or any other amounts due the Trustee under
                  Section 7.07) and of the Holders allowed in such judicial
                  proceeding, and

                  (b) to collect and receive any moneys or other property
                  payable or deliverable on any such claims and to distribute
                  the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07.

                  Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.

                  SECTION 6.10 Priorities. If the Trustee collects any money
pursuant to this Article 6, it shall pay out the money in the following order:

                  FIRST: to the Trustee for amounts due under Section 7.07;

                  SECOND: to Securityholders for amounts due and unpaid on the
                  Securities for the Principal Amount at Maturity, Issue Price
                  plus accrued Original Issue Discount, Redemption Price,
                  Purchase Price, Change in Control Purchase Price or interest,
                  if any, as the case may be, ratably, without preference or
                  priority of any kind, according to such amounts due and
                  payable on the Securities; and

                  THIRD: the balance, if any, to the Company.

                                       40
<PAGE>   48

                  The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section 6.10. At least 15 days
before such record date, the Trustee shall mail to each Securityholder and the
Company a notice that states the record date, the payment date and the amount to
be paid.

                  SECTION 6.11 Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant (other than the Trustee)
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit, having due regard to the
merits and good faith of the claims or defenses made by the party litigant. This
Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in aggregate
Principal Amount at Maturity of the Securities at the time outstanding. This
Section 6.11 shall be in lieu of Section 315(e) of the TIA and such Section
315(e) is hereby expressly excluded from this Indenture, as permitted by the
TIA.

                  SECTION 6.12 Waiver of Stay, Extension or Usury Laws. The
Company covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury or other law
wherever enacted, now or at any time hereafter in force, which would prohibit or
forgive the Company from paying all or any portion of the Principal Amount at
Maturity, Issue Price plus accrued Original Issue Discount, Redemption Price,
Purchase Price or Change in Control Purchase Price in respect of Securities, or
any interest on such amounts, as contemplated herein, or which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.

                                   ARTICLE 7

                                    TRUSTEE

                  SECTION 7.01 Duties of Trustee.

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

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

                  (1) the Trustee need perform only those duties that are
                  specifically set forth in this Indenture and no others; and

                  (2) in the absence of bad faith on its part, the Trustee may
                  conclusively rely, as to the truth of the statements and the
                  correctness of the opinions expressed

                                       41
<PAGE>   49

                  therein, upon certificates or opinions furnished to the
                  Trustee and conforming to the requirements of this Indenture,
                  but in case of any such certificates or opinions which by any
                  provision hereof are specifically required to be furnished to
                  the Trustee, the Trustee shall examine the certificates and
                  opinions to determine whether or not they conform to the
                  requirements of this Indenture, but need not confirm or
                  investigate the accuracy of mathematical calculations or other
                  facts stated therein.

This Section 7.01(b) shall be in lieu of Section 315(a) of the TIA and such
Section 315(a) is hereby expressly excluded from this Indenture, as permitted by
the TIA.

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

                  (1) this paragraph (c) does not limit the effect of paragraph
                  (b) of this Section 7.01;

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

                  (3) the Trustee shall not be liable with respect to any action
                  it takes or omits to take in good faith in accordance with a
                  direction received by it pursuant to Section 6.05.

Subparagraphs (c)(1), (2) and (3) shall be in lieu of Sections 315(d)(1),
315(d)(2) and 315(d)(3) of the TIA and such Sections 315(d)(1), 315(d)(2) and
315(d)(3) are hereby expressly excluded from this Indenture, as permitted by the
TIA.

                  (d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section
7.01.

                  (e) The Trustee may refuse to perform any duty or exercise any
right or power or extend or risk its own funds or otherwise incur any financial
liability unless it receives indemnity satisfactory to it against any loss,
liability or expense.

                  (f) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
(acting in any capacity hereunder) shall be under no liability for interest on
any money received by it hereunder unless otherwise agreed in writing with the
Company.

                  SECTION 7.02 Rights of Trustee. Subject to its duties and
responsibilities under the TIA,

                  (a) the Trustee may conclusively rely and shall be protected
in acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness

                                       42
<PAGE>   50

or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;

                  (b) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, conclusively rely upon an Officers' Certificate;

                  (c) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder, and no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of its duties hereunder;

                  (d) the Trustee shall not be liable for any action taken,
suffered, or omitted to be taken by it in good faith which it believes to be
authorized or within its rights or powers conferred under this Indenture;

                  (e) the Trustee may consult with counsel selected by it and
any advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it hereunder
in good faith and in accordance with such advice or Opinion of Counsel;

                  (f) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which may be
incurred therein or thereby;

                  (g) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;

                  (h) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by agent
or attorney at the sole cost of the Company and shall incur no liability or
additional liability of any kind by reason of such inquiry or investigation;

                  (i) the Trustee shall not be deemed to have notice of any
Default or Event of Default except Events of Default under Section 6.01(1) or
(2) unless a Responsible Officer of the Trustee has actual knowledge thereof or
unless written notice of any event which is in fact such a

                                       43
<PAGE>   51

default is received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Securities and this Indenture;

                  (j) the rights, privileges, protections, immunities and
benefits given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in each
of its capacities hereunder, and to each agent, custodian and other Person
employed to act hereunder; and

                  (k) the Trustee may request that the Company deliver an
Officers' Certificate setting forth the names of individuals and/or titles of
officers authorized at such time to take specified actions pursuant to this
Indenture, which Officers' Certificate may be signed by any person authorized to
sign an Officers' Certificate, including any person specified as so authorized
in any such certificate previously delivered and not superseded.

                  SECTION 7.03 Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, Conversion
Agent or co-registrar may do the same with like rights. However, the Trustee
must comply with Sections 7.10 and 7.11.

                  SECTION 7.04 Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use or application of
the proceeds from the Securities, it shall not be responsible for any statement
in the offering memorandum for the Securities or in this Indenture or the
Securities (other than its certificate of authentication), or the determination
as to which beneficial owners are entitled to receive any notices hereunder.

                  SECTION 7.05 Notice of Defaults. If a Default occurs and if it
is known to the Trustee, the Trustee shall give to each Securityholder notice of
the Default within 90 days after it occurs unless such Default shall have been
cured or waived before the giving of such notice. Except in the case of a
Default described in Section 6.01(1) or (2), the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Securityholders.
The second sentence of this Section 7.05 shall be in lieu of the proviso to
Section 315(b) of the TIA and such proviso is hereby expressly excluded from
this Indenture, as permitted by the TIA.

                  SECTION 7.06 Reports by Trustee to Holders. Within 60 days
after each May 15 beginning with the May 15 following the date of this
Indenture, the Trustee shall mail to each Securityholder a brief report dated as
of such May 15 that complies with TIA Section 313(a), if required by such
Section 313(a). The Trustee also shall comply with TIA Section 313(b).

                  A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each securities exchange, if
any, on which the Securities are listed. The Company agrees to promptly notify
the Trustee whenever the Securities become listed on any securities exchange and
of any delisting thereof.

                  SECTION 7.07 Compensation and Indemnity. The Company agrees:

                                       44
<PAGE>   52

                  (a) to pay to the Trustee from time to time such compensation
                  as the Company and the Trustee shall from time to time agree
                  in writing for all services rendered by it hereunder (which
                  compensation shall not be limited (to the extent permitted by
                  law) by any provision of law in regard to the compensation of
                  a trustee of an express trust);

                  (b) to reimburse the Trustee upon its request for all
                  reasonable expenses, disbursements and advances incurred or
                  made by the Trustee in accordance with any provision of this
                  Indenture (including the reasonable compensation and the
                  expenses, advances and disbursements of its agents and
                  counsel), except any such expense, disbursement or advance as
                  may be attributable to its negligence or bad faith; and

                  (c) to indemnify the Trustee or any predecessor, Trustee and
                  their agents for, and to hold them harmless against, any loss,
                  damage, claim, liability, cost or expense (including
                  attorney's fees and taxes (other than taxes based upon,
                  measured by or determined by the income of the Trustee))
                  incurred without negligence or bad faith on its part, arising
                  out of or in connection with the acceptance or administration
                  of this trust, including the costs and expenses of defending
                  itself against any claim (whether asserted by the Company or
                  any Holder or any other Person) or liability in connection
                  with the exercise or performance of any of its powers or
                  duties hereunder.

                  To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a lien prior to the Securities on all money or
property held or collected by the Trustee, except that held in trust to pay the
Principal Amount at Maturity, Issue Price plus accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or interest,
if any, as the case may be, on particular Securities.

                  The Company's payment obligations pursuant to this Section
7.07 shall survive the discharge of this Indenture. When the Trustee incurs
expenses after the occurrence of a Default specified in Section 6.01(5) or (6),
the expenses including the reasonable charges and expenses of its counsel, are
intended to constitute expenses of administration under any Bankruptcy Law.

                  SECTION 7.08 Replacement of Trustee. The Trustee may resign by
so notifying the Company; provided, however, no such resignation shall be
effective until a successor Trustee has accepted its appointment pursuant to
this Section 7.08. The Holders of a majority in aggregate Principal Amount at
Maturity of the Securities at the time outstanding may remove the Trustee by so
notifying the Trustee and the Company. The Company shall remove the Trustee if:

                  (1) the Trustee fails to comply with Section 7.10;

                  (2) the Trustee is adjudged bankrupt or insolvent;

                  (3) a receiver or public officer takes charge of the Trustee
                  or its property; or

                                       45

<PAGE>   53

                  (4) the Trustee otherwise becomes incapable of acting.

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

                  A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company satisfactory in form and
substance to the retiring Trustee and the Company. Thereupon the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Securityholders. The retiring Trustee shall promptly transfer all property held
by it as Trustee to the successor Trustee, subject to the lien provided for in
Section 7.07.

                  If a successor Trustee does not take office within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of a majority in aggregate Principal Amount at Maturity
of the Securities at the time outstanding may petition any court of competent
jurisdiction at the expense of the Company for the appointment of a successor
Trustee.

                  If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.

                  SECTION 7.09 Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee. As promptly as practicable thereafter, the Trustee shall
notify the Company of such succession.

                  SECTION 7.10 Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA Sections 310(a)(1). The Trustee (or
its parent holding company) shall have a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of
condition. The Trustee shall comply with TIA Section 310(b); provided, however,
that there shall be excluded from the operation of TIA Section 310(b)(1) any
indenture or indentures under which other securities or certificates of interest
or participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
Nothing herein contained shall prevent the Trustee from filing with the SEC the
application referred to in the penultimate paragraph of TIA Section 310(b).

                  SECTION 7.11 Preferential Collection of Claims Against
Company. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.

                                       46
<PAGE>   54

                                   ARTICLE 8

                             DISCHARGE OF INDENTURE

                  SECTION 8.01 Discharge of Liability on Securities. When (i)
the Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.07) for cancellation or (ii) all
outstanding Securities have become due and payable and the Company deposits with
the Trustee, the Paying Agent or the Conversion Agent, as applicable, cash or,
if expressly permitted by the terms of the Securities, Common Stock sufficient
to pay all amounts due and owing on all outstanding Securities (other than
Securities replaced pursuant to Section 2.07), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Section 7.07, cease to be of further effect. The Trustee shall join
in the execution of a document prepared by the Company acknowledging
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and Opinion of Counsel and at the cost
and expense of the Company.

SECTION 8.02 Repayment to the Company. The Trustee and the Paying Agent shall
return to the Company upon written request any money or securities held by them
for the payment of any amount with respect to the Securities that remains
unclaimed for two years, subject to applicable unclaimed property law. After
return to the Company, Holders entitled to the money or securities must look to
the Company for payment as general creditors unless an applicable abandoned
property law designates another person and the Trustee and the Paying Agent
shall have no further liability to the Securityholders with respect to such
money or securities for that period commencing after the return thereof.

                                   ARTICLE 9

                                   AMENDMENTS

                  SECTION 9.01 Without Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without the consent of any
Securityholder:

                  (1) to cure any ambiguity or inconsistency;

                  (2) to comply with Article 5 or Section 11.14;

                  (3) to add covenants for the benefit of the Holders or to
                  surrender any right or power conferred upon the Company;

                  (4) to secure the Company's obligations in respect of the
                  Securities;

                  (5) to make any change that does not adversely affect the
                  rights of any Securityholder; or

                  (6) to make any change to comply with the TIA, or any
                  amendment thereto, or to comply with any requirement of the
                  SEC in connection with the qualification

                                       47
<PAGE>   55

                  of the Indenture under the TIA or the registration of the
                  Securities under the Securities Act.

                  SECTION 9.02 With Consent of Holders. With the written consent
of the Holders of at least a majority in aggregate Principal Amount at Maturity
of the Securities at the time outstanding, the Company and the Trustee may amend
this Indenture or the Securities. However, without the consent of each
Securityholder affected, an amendment to this Indenture or the Securities may
not:

                  (1) make any change in the manner of calculation or rate of
                  accrual in connection with Original Issue Discount, reduce the
                  rate of interest referred to in paragraph 1 of the Securities,
                  alter the manner of calculation of or reduce the rate of
                  interest referred to in Section 10.01 upon the occurrence of a
                  Tax Event, or change the time for payment of Original Issue
                  Discount or interest, if any, on any Security;

                  (2) reduce the Principal Amount at Maturity, Restated
                  Principal Amount or the Issue Price of or change the Stated
                  Maturity of any Security;

                  (3) reduce the Redemption Price, Purchase Price or Change in
                  Control Purchase Price of any Security;

                  (4) make any Security payable in money or securities other
                  than that stated in the Security;

                  (5) make any change to the Principal Amount at Maturity of
                  Securities whose Holders must consent to an amendment,
                  including changes in Section 6.04, Section 6.07 or this
                  Section 9.02, except to increase any percentage set forth
                  therein;

                  (6) make any change that adversely affects the right to
                  convert any Security;

                  (7) make any change that adversely affects the right to
                  require the Company to purchase the Securities in accordance
                  with the terms thereof and this Indenture; or

                  (8) impair the right to institute suit for the enforcement of
                  any payment with respect to, or conversion of, the Securities.

                  It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent approves the substance thereof.

                  After an amendment under this Section 9.02 becomes effective,
the Company shall mail to each Holder a notice briefly describing the amendment.
Failure to mail the notice or a defect in the notice shall not effect the
validity of the amendment.

                                       48
<PAGE>   56

                  SECTION 9.03 Compliance with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall comply with the
TIA.

                  SECTION 9.04 Revocation and Effect of Consents, Waivers and
Actions. Until an amendment, waiver or other action by Holders becomes
effective, a consent thereto by a Holder of a Security hereunder is a continuing
consent by the Holder and every subsequent Holder of that Security or portion of
the Security that evidences the same obligation as the consenting Holder's
Security, even if notation of the consent, waiver or action is not made on the
Security. However, any such Holder or subsequent Holder may revoke the consent,
waiver or action as to such Holder's Security or portion of the Security if the
Trustee receives the notice of revocation before the date the amendment, waiver
or action becomes effective. After an amendment, waiver or action becomes
effective, it shall bind every Securityholder.

                  SECTION 9.05 Notation on or Exchange of Securities. Securities
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Securities so
modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
outstanding Securities.

                  SECTION 9.06 Trustee to Sign Supplemental Indentures. The
Trustee shall sign any supplemental indenture authorized pursuant to this
Article 9 if the amendment contained therein does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign such supplemental indenture. In signing such
supplemental indenture the Trustee shall receive, and (subject to the provisions
of Section 7.01) shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that such amendment is authorized
or permitted by this Indenture.

                  SECTION 9.07 Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture under this Article, this Indenture shall
be modified in accordance therewith, and such supplemental indenture shall form
a part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.

                                   ARTICLE 10

                          SPECIAL TAX EVENT CONVERSION

                  SECTION 10.01 Optional Conversion to Semiannual Coupon Note
Upon Tax Event. From and after (i) the date (the "Tax Event Date") of the
occurrence of a Tax Event and (ii) the date the Company exercises its option set
forth in this Section 10.01, whichever is later (the "Option Exercise Date"), at
the option of the Company, interest in lieu of future Original Issue Discount
shall accrue at the rate of 2.25% per annum on a restated principal amount per
$1,000 original Principal Amount at Maturity (the "Restated Principal Amount")
equal to the Issue Price plus Original Issue Discount accrued through the Option
Exercise Date and shall be payable semiannually on May 1 and November 1 of each
year (each an "Interest

                                       49
<PAGE>   57

Payment Date") to holders of record at the close of business on April 15 or
October 15 (each a "Regular Record Date") immediately preceding such Interest
Payment Date. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months and will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from the Option
Exercise Date. Within 15 days of the Option Exercise Date, the Company shall
mail a written notice of such Tax Event by facsimile and first-class mail to the
Trustee and by first class mail to the Holders of the Securities. From and after
the Option Exercise Date, (i) the Company shall be obligated to pay at Stated
Maturity, in lieu of the Principal Amount at Maturity of a Security, the
Restated Principal Amount thereof and (ii) "Issue Price and accrued Original
Issue Discount," "Issue Price plus Original Issue Discount" or similar words, as
used herein, shall mean Restated Principal Amount plus accrued and unpaid
interest with respect to any Security. Securities authenticated and delivered
after the Option Exercise Date may, and shall if required by the Trustee, bear a
notation in a form approved by the Trustee as to the conversion of the
Securities to semiannual coupon notes.

                  SECTION 10.02 Payment of Interest; Interest Rights Preserved.
(a) Interest on any Security that is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the person in whose
name that Security is registered at the close of business on the Regular Record
Date for such interest at the office or agency of the Company maintained for
such purpose. Each installment of interest on any Security shall be paid in
same-day funds by transfer to an account maintained by the payee located inside
the United States, provided that, with respect to any Holder, such Holder shall
have furnished to the Paying Agent all required wire instructions no later than
the Regular Record Date, or if no such instructions have been furnished, such
payment shall be made by check payable to such Holder. In the case of a
permanent Global Security, interest payable on any Interest Payment Date will be
paid to the Depositary, with respect to that portion of such permanent Global
Security held for its account by Cede & Co. for the purpose of permitting such
party to credit the interest received by it in respect of such permanent Global
Security to the accounts of the beneficial owners thereof.

                  (b) Except as otherwise specified with respect to the
Securities, any interest on any Security that is payable, but is not punctually
paid or duly provided for, within 30 days following on any Interest Payment Date
(herein called "Defaulted Interest", which term shall include any accrued and
unpaid interest that has accrued on such defaulted amount in accordance with
paragraph 1 of the Securities), shall forthwith cease to be payable to the
registered Holder thereof on the relevant Regular Record Date by virtue of
having been such Holder, and such Defaulted Interest may be paid by the Company,
as its election in each case, as provided in clause (1) or (2) below:

                  (1) The Company may elect to make payment of any Defaulted
                  Interest to the persons in whose names the Securities are
                  registered at the close of business on a Special Record Date
                  for the payment of such Defaulted Interest, which shall be
                  fixed in the following manner. The Company shall notify the
                  Trustee in writing of the amount of Defaulted Interest
                  proposed to be paid on each Security and the date of the
                  proposed payment (which shall not be less than 20 days after
                  such notice is received by the Trustee), and at the same time
                  the Company shall deposit with the Trustee an amount of money
                  equal to the aggregate amount proposed to be paid in respect
                  of such Defaulted Interest or shall make arrangements

                                       50
<PAGE>   58

                  satisfactory to the Trustee for such deposit on or prior to
                  the date of the proposed payment, such money when deposited to
                  be held in trust for the benefit of the persons entitled to
                  such Defaulted Interest as in this clause provided. Thereupon
                  the Trustee shall fix a Special Record Date for the payment of
                  such Defaulted Interest which shall be not more than 15 days
                  and not less than 10 days prior to the date of the proposed
                  payment and not less than 10 days after the receipt by the
                  Trustee of the notice of the proposed payment. The Trustee
                  shall promptly notify the Company of such Special Record Date
                  and, in the name and at the expense of the Company, shall
                  cause notice of the proposed payment of such Defaulted
                  Interest and the Special Record Date therefor to be mailed,
                  first-class postage prepaid, to each Holder of Securities at
                  his address as it appears on the list of Securityholders
                  maintained pursuant to Section 2.05 not less than 10 days
                  prior to such Special Record Date. Notice of the proposed
                  payment of such Defaulted Interest and the Special Record Date
                  therefor having been mailed as aforesaid, such Defaulted
                  Interest shall be paid to the persons in whose names the
                  Securities are registered at the close of business on such
                  Special Record Date and shall no longer be payable pursuant to
                  the following clause (2).

                  (2) The Company may make payment of any Defaulted Interest on
                  the Securities in any other lawful manner not inconsistent
                  with the requirements of any securities exchange on which such
                  Securities may be listed, and upon such notice as may be
                  required by such exchange, if, after notice given by the
                  Company to the Trustee of the proposed payment pursuant to
                  this clause, such manner of payment shall be deemed
                  practicable by the Trustee. Subject to the foregoing
                  provisions of this Section and Section 2.06, each Security
                  delivered under this Indenture upon registration of transfer
                  of or in exchange for or in lieu of any other Security shall
                  carry the rights to interest accrued and unpaid, and to
                  accrue, which were carried by such other Security.

                                   ARTICLE 11

                                   CONVERSION

                  SECTION 11.01 Conversion Privilege. A Holder of a Security may
convert such Security into Common Stock at any time during the period stated in
paragraph 8 of the Securities. The number of shares of Common Stock issuable
upon conversion of a Security per $1,000 of Principal Amount at Maturity thereof
(the "Conversion Rate") shall be that set forth in paragraph 8 in the
Securities, subject to adjustment as herein set forth.

                  A Holder may convert a portion of the Principal Amount at
Maturity of a Security if the portion is $1,000 or an integral multiple of
$1,000. Provisions of this Indenture that apply to conversion of all of a
Security also apply to conversion of a portion of a Security.

                  "Quoted Price" means, for any given day, the last reported per
share sale price (or, if no sale price is reported, the average of the bid and
ask prices or, if more than one in either case, the average of the average bid
and average ask prices) on such day of the Common Stock on the New York Stock
Exchange Composite Tape or, in the event shares of Common Stock are not listed
on the New York Stock Exchange, in the composite transactions for such other
national or regional securities exchange upon which the Common Stock is listed,
or, if the shares of Common Stock are

                                       51
<PAGE>   59

not listed on a national or regional securities exchange, as quoted on the
National Association of Securities Dealers Automated Quotation System or by the
National Quotation Bureau Incorporated. In the absence of such quotations, the
Company shall be entitled to determine the Quoted Price on the basis of such
quotations as it considers appropriate.

                  "Average Quoted Price" means the average of the Quoted Prices
of the Common Stock for the shorter of

                  (i) 30 consecutive trading days ending on the last full
                  trading day prior to the Time of Determination with respect to
                  the rights, warrants or options or distribution in respect of
                  which the Average Quoted Price is being calculated, or

                  (ii) the period (x) commencing on the date next succeeding the
                  first public announcement of (a) the issuance of rights,
                  warrants or options or (b) the distribution, in each case, in
                  respect of which the Average Quoted Price is being calculated
                  and (y) proceeding through the last full trading day prior to
                  the Time of Determination with respect to the rights, warrants
                  or options or distribution in respect of which the Average
                  Quoted Price is being calculated (excluding days within such
                  period, if any, which are not trading days), or

                  (iii) the period, if any, (x) commencing on the date next
                  succeeding the Ex-Dividend Time with respect to the next
                  preceding (a) issuance of rights, warrants or options or (b)
                  distribution, in each case, for which an adjustment is
                  required by the provisions of Section 11.06(4), 11.07 or 11.08
                  and (y) proceeding through the last full trading day prior to
                  the Time of Determination with respect to the rights, warrants
                  or options or distribution in respect of which the Average
                  Quoted Price is being calculated (excluding days within such
                  period, if any, which are not trading days).

                  In the event that the Ex-Dividend Time (or in the case of a
subdivision, combination or reclassification, the effective date with respect
thereto) with respect to a dividend, subdivision, combination or
reclassification to which Section 11.06(1), (2), (3) or (4) applies occurs
during the period applicable for calculating "Average Quoted Price" pursuant to
the definition in the preceding sentence, "Average Quoted Price" shall be
calculated for such period in a manner determined by the Board of Directors to
reflect the impact of such dividend, subdivision, combination or
reclassification on the Quoted Price of the Common Stock during such period.

                  "Time of Determination" means the time and date of the earlier
of (i) the determination of stockholders entitled to receive rights, warrants or
options or a distribution, in each case, to which Section 11.07 or 11.08 applies
and (ii) the time ("Ex-Dividend Time") immediately prior to the commencement of
"ex-dividend trading" for such rights, warrants or options or distribution on
the New York Stock Exchange or such other national or regional exchange or
market on which the Common Stock is then listed or quoted.

                                       52
<PAGE>   60

                  SECTION 11.02 Conversion Procedure. To convert a Security a
Holder must satisfy the requirements in paragraph 8 of the Securities. The date
on which the Holder satisfies all those requirements is the conversion date (the
"Conversion Date"). As soon as practicable after the Conversion Date, the
Company shall deliver to the Holder, through the Conversion Agent, a certificate
for the number of full shares of Common Stock issuable upon the conversion and
cash in lieu of any fractional share determined pursuant to Section 11.03. The
person in whose name the certificate is registered shall be treated as a
stockholder of record on and after the Conversion Date; provided, however, that
no surrender of a Security on any date when the stock transfer books of the
Company shall be closed shall be effective to constitute the person or persons
entitled to receive the shares of Common Stock upon such conversion as the
record holder or holders of such shares of Common Stock on such date, but such
surrender shall be effective to constitute the person or persons entitled to
receive such shares of Common Stock as the record holder or holders thereof for
all purposes at the close of business on the next succeeding day on which such
stock transfer books are open; such conversion shall be at the Conversion Rate
in effect on the date that such Security shall have been surrendered for
conversion, as if the stock transfer books of the Company had not been closed.
Upon conversion of a Security, such person shall no longer be a Holder of such
Security.

                  No payment or adjustment will be made for dividends on, or
other distributions with respect to, any Common Stock except as provided in this
Article 11. On conversion of a Security, that portion of accrued Original Issue
Discount (or interest, if the Company has exercised its option provided for in
Section 10.01) attributable to the period from the Issue Date (or, if the
Company has exercised the option provided for in Section 10.01, the later of (x)
the date of such exercise and (y) the date on which interest was last paid) of
the Security through the Conversion Date with respect to the converted Security
shall not be cancelled, extinguished or forfeited, but rather shall be deemed to
be paid in full to the Holder thereof through delivery of the Common Stock
(together with the cash payment, if any, in lieu of fractional shares) in
exchange for the Security being converted pursuant to the provisions hereof; and
the fair market value of such shares of Common Stock (together with any such
cash payment in lieu of fractional shares) shall be treated as issued, to the
extent thereof, first in exchange for Original Issue Discount (or interest, if
the Company has exercised its option provided for in Section 10.01) accrued
through the Conversion Date, and the balance, if any, of such fair market value
of such Common Stock (and any such cash payment) shall be treated as issued in
exchange for the Issue Price of the Security being converted pursuant to the
provisions hereof.

                  If the Holder converts more than one Security at the same
time, the number of shares of Common Stock issuable upon the conversion shall be
based on the total Principal Amount at Maturity of the Securities converted.

                  If the last day on which a Security may be converted is a
Legal Holiday, the Security may be surrendered on the next succeeding day that
is not a Legal Holiday.

                  Upon surrender of a Security that is converted in part, the
Company shall execute, and the Trustee shall authenticate and deliver to the
Holder, a new Security in an authorized denomination equal in Principal Amount
at Maturity to the unconverted portion of the Security surrendered.

                                       53
<PAGE>   61

                  SECTION 11.03 Fractional Shares. The Company will not issue a
fractional share of Common Stock upon conversion of a Security. Instead, the
Company will deliver cash for the current market value of the fractional share.
The current market value of a fractional share shall be determined, to the
nearest 1/1,000th of a share, by multiplying the Sale Price, on the last trading
day prior to the Conversion Date, of a full share by the fractional amount and
rounding the product to the nearest whole cent.

                  SECTION 11.04 Taxes on Conversion. If a Holder converts a
Security, the Company shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of shares of Common Stock upon the conversion.
However, the Holder shall pay any such tax which is due because the Holder
requests the shares to be issued in a name other than the Holder's name. The
Conversion Agent may refuse to deliver the certificates representing the Common
Stock being issued in a name other than the Holder's name until the Conversion
Agent receives a sum sufficient to pay any tax which will be due because the
shares are to be issued in a name other than the Holder's name. Nothing herein
shall preclude any tax withholding required by law or regulations.

                  SECTION 11.05 Company to Provide Stock. The Company shall,
prior to issuance of any Securities under this Article 11, and from time to time
as may be necessary, reserve out of its authorized but unissued Common Stock a
sufficient number of shares of Common Stock to permit the conversion of the
Securities.

                  All shares of Common Stock delivered upon conversion of the
Securities shall be newly issued shares or treasury shares, shall be duly and
validly issued and fully paid and nonassessable, and shall be free from
preemptive rights and free of any lien or adverse claim.

                  The Company will endeavor promptly to comply with all federal
and state securities laws regulating the offer and delivery of shares of Common
Stock upon conversion of Securities, if any, and will list or cause to have
quoted such shares of Common Stock on each national securities exchange or in
the over-the-counter market or such other market on which the Common Stock is
then listed or quoted.

                  SECTION 11.06 Adjustment for Change In Capital Stock. If,
after the Issue Date of the Securities, the Company:

                  (1) pays a dividend or makes a distribution on its Common
                  Stock in shares of its Common Stock or other Capital Stock of
                  the Company;

                  (2) subdivides its outstanding shares of Common Stock into a
                  greater number of shares;

                  (3) combines its outstanding shares of Common Stock into a
                  smaller number of shares; or

                  (4) issues by reclassification of its Common Stock any shares
                  of its Capital Stock (other than rights, warrants or options
                  for its Capital Stock),

                                       54
<PAGE>   62

then the conversion privilege and the Conversion Rate in effect immediately
prior to such action shall be adjusted so that the Holder of a Security
thereafter converted may receive the number of shares of Capital Stock of the
Company which such Holder would have owned immediately following such action if
such Holder had converted the Security immediately prior to such action.

                  The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.

                  If after an adjustment a Holder of a Security upon conversion
of such Security may receive shares of two or more classes of Capital Stock of
the Company, the Conversion Rate shall thereafter be subject to adjustment upon
the occurrence of an action taken with respect to any such class of Capital
Stock as is contemplated by this Article 11 with respect to the Common Stock, on
terms comparable to those applicable to Common Stock in this Article 11.

                  SECTION 11.07 Adjustment for Rights Issue. If after the Issue
Date of the Securities, the Company distributes any rights, warrants or options
to all holders of its Common Stock entitling them, for a period expiring within
60 days after the record date for such distribution, to purchase shares of
Common Stock at a price per share less than the Quoted Price as of the Time of
Determination, the Conversion Rate shall be adjusted in accordance with the
formula:

                  R'  =  R    x            (O + N)
                                     ------------------
                                      (O + (N x P)/M)

         where:

         R' = the adjusted Conversion Rate.

         R = the current Conversion Rate.

         O = the number of shares of Common Stock outstanding on the record date
for the distribution to which this Section 11.07 is being applied.

         N = the number of additional shares of Common Stock offered pursuant to
the distribution.

         P = the offering price per share of the additional shares.

         M = the Average Quoted Price, minus, in the case of a distribution to
which Section 11.08 applies, for which, in each case, (x) the record date shall
occur on or before the record date for the distribution to which this Section
11.07 applies and (y) the Ex-Dividend Time shall occur on or after the date of
the Time of Determination for the distribution to which this Section 11.07
applies, the fair market value (on the record date for the distribution to which
this Section 11.07 applies) of the assets of the Company or debt securities or
any rights, warrants or options to purchase securities of the Company
distributed in respect of each share of Common Stock in such Section 11.08
distribution.

                                       55
<PAGE>   63

         The Board of Directors shall determine fair market values for the
purposes of this Section 11.07.

                  The adjustment shall become effective immediately after the
record date for the determination of shareholders entitled to receive the
rights, warrants or options to which this Section 11.07 applies. If all of the
shares of Common Stock subject to such rights, warrants or options have not been
issued when such rights, warrants or options expire, then the Conversion Rate
shall promptly be readjusted to the Conversion Rate which would then be in
effect had the adjustment upon the issuance of such rights, warrants or options
been made on the basis of the actual number of shares of Common Stock issued
upon the exercise of such rights, warrants or options.

                  No adjustment shall be made under this Section 11.07 if the
application of the formula stated above in this Section 11.07 would result in a
value of R' that is equal to or less than the value of R.

                  SECTION 11.08 Adjustment for Other Distributions. If, after
the Issue Date of the Securities, the Company distributes to all holders of its
Common Stock any of its assets (including shares of Capital Stock of a
Subsidiary), or debt securities or any rights, warrants or options to purchase
securities of the Company (including securities or cash, but excluding (x)
distributions of Capital Stock referred to in Section 11.06 and distributions of
rights, warrants or options referred to in Section 11.07 and (y) cash dividends
or other cash distributions that are paid out of consolidated current net
earnings or earnings retained in the business as shown on the books of the
Company unless such cash dividends or other cash distributions are Extraordinary
Cash Dividends) the Conversion Rate shall be adjusted, subject to the provisions
of the last paragraph of this Section 11.08, in accordance with the formula:

                  R' =    R x  M
                       ------------
                           M-F

where:

         R' = the adjusted Conversion Rate.

         R = the current Conversion Rate.

         M = the Average Quoted Price, minus, in the case of a distribution to
which Section 11.06(1) applies, for which (i) the record date shall occur on or
before the record date for the distribution to which this Section 11.08 applies
and (ii) the Ex-Dividend Time shall occur on or after the date of the Time of
Determination for the distribution to which this Section 11.08 applies, the fair
market value (on the record date for the distribution to which this Section
11.08 applies) of any Capital Stock of the Company distributed in respect of
each share of Common Stock in such Section 11.06(1) distribution.

         F = the fair market value (on the record date for the distribution to
which this Section 11.08 applies) of the assets, securities, rights, warrants or
options to be distributed in respect of each share of Common Stock in the
distribution to which this Section 11.08 is being applied

                                       56
<PAGE>   64

(including, in the case of cash dividends or other cash distributions giving
rise to an adjustment, all such cash distributed concurrently).

                  In the event that the Company pays a dividend or makes a
distribution on shares of Common Stock consisting of Capital Stock of, or
similar equity interests in, a Subsidiary or other business unit of the Company,
the Conversion Rate will be adjusted based on the market value of the securities
so distributed relative to the market value of the Common Stock, in each case
based on the average closing prices of those securities for the 10 trading days
commencing on and including the fifth trading day after the date on which
"ex-dividend" trading commences for such dividend or distribution on the
principal United States securities exchange or market on which the securities
are then listed or quoted.

                  The Board of Directors shall determine fair market values for
the purposes of this Section 11.08.

                  The adjustment shall become effective immediately after the
record date for the determination of shareholders entitled to receive the
distribution to which this Section 11.08 applies.

                  For purposes of this Section 11.08, the term "Extraordinary
Cash Dividend" shall mean any cash dividend with respect to the Common Stock the
amount of which, together with the aggregate amount of cash dividends on the
Common Stock to be aggregated with such cash dividend in accordance with the
provisions of this paragraph, exceeds the threshold percentage set forth in item
(i) below. For purposes of item (i) below, the "Measurement Period" with respect
to a cash dividend on the Common Stock shall mean the 365 consecutive day period
ending on the date prior to the Ex-Dividend Time with respect to such cash
dividend, and the "Relevant Cash Dividends" with respect to a cash dividend on
the Common Stock shall mean the cash dividends on the Common Stock with
Ex-Dividend Times occurring in the Measurement Period.

                  (i) If, upon the date prior to the Ex-Dividend Time with
                  respect a cash dividend on the Common Stock, the aggregate
                  amount of such cash dividend together with the amounts of all
                  Relevant Cash Dividends exceeds on a per share basis 5% of the
                  Sale Price of the Common Stock on the last trading day
                  preceding the date of declaration by the Board of Directors of
                  the cash dividend with respect to which this provision is
                  being applied, then such cash dividend together with all
                  Relevant Cash Dividends, shall be deemed to be an
                  Extraordinary Cash Dividend and for purposes of applying the
                  formula set forth above in this Section 11.08, the value of
                  "F" shall be equal to (y) the aggregate amount of such cash
                  dividend together with the amount of all Relevant Cash
                  Dividends, minus (z) the aggregate amount of all Relevant Cash
                  Dividends for which a prior adjustment in the Conversion Rate
                  was previously made under this Section 11.08.

                  (ii) In making the determinations required by item (i) above,
                  the amount of cash dividends paid on a per share basis and the
                  amount of any Relevant Cash Dividends specified in item (i)
                  above, shall be appropriately adjusted to reflect the
                  occurrence during such period of any event described in
                  Section 11.06.

                                       57
<PAGE>   65

                  In the event that, with respect to any distribution to which
this Section 11.08 would otherwise apply, the difference "M-F" as defined in the
above formula is less than $1.00 or "F" is equal to or greater than "M", then
the adjustment provided by this Section 11.08 shall not be made and in lieu
thereof the provisions of Section 11.14 shall apply to such distribution.

                  SECTION 11.09 When Adjustment May Be Deferred. No adjustment
in the Conversion Rate need be made unless the adjustment would require an
increase or decrease of at least 1% in the Conversion Rate. Any adjustments that
are not made shall be carried forward and taken into account in any subsequent
adjustment.

                  All calculations under this Article 11 shall be made to the
nearest cent or to the nearest 1/1,000th of a share, as the case may be.

                  SECTION 11.10 When No Adjustment Required. No adjustment need
be made for a transaction referred to in Section 11.06, 11.07, 11.08 or 11.14 if
Securityholders are to participate in the transaction on a basis and with notice
that the Board of Directors determines to be fair and appropriate in light of
the basis and notice on which holders of Common Stock participate in the
transaction. Such participation by Securityholders may include participation
upon conversion provided that an adjustment shall be made at such time as the
Securityholders are no longer entitled to participate.

                  No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest.

                  No adjustment need be made for a change in the par value or no
par value of the Common Stock.

                  To the extent the Securities become convertible pursuant to
this Article 11 into cash, no adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.

                  SECTION 11.11 Notice of Adjustment. Whenever the Conversion
Rate is adjusted, the Company shall promptly mail to Securityholders a notice of
the adjustment. The Company shall file with the Trustee and the Conversion Agent
such notice and a certificate from the Company's independent public accountants
briefly stating the facts requiring the adjustment and the manner of computing
it. The certificate shall be conclusive evidence that the adjustment is correct.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate except to exhibit the same
to any Holder desiring inspection thereof.

                  SECTION 11.12 Voluntary Increase. The Company from time to
time may increase the Conversion Rate by any amount for any period of time.
Whenever the Conversion Rate is increased, the Company shall mail to
Securityholders and file with the Trustee and the Conversion Agent a notice of
the increase. The Company shall mail the notice at least 15 days before the date
the increased Conversion Rate takes effect. The notice shall state the increased
Conversion Rate and the period it will be in effect.

                  A voluntary increase of the Conversion Rate does not change or
adjust the Conversion Rate otherwise in effect for purposes of Section 11.06,
11.07 or 11.08.

                                       58
<PAGE>   66

                  SECTION 11.13 Notice of Certain Transactions. If:

                  (1) the Company takes any action that would require an
                  adjustment in the Conversion Rate pursuant to Section 11.06,
                  11.07 or 11.08 (unless no adjustment is to occur pursuant to
                  Section 11.10); or

                  (2) the Company takes any action that would require a
                  supplemental indenture pursuant to Section 11.14; or

                  (3) there is a liquidation or dissolution of the Company;

then the Company shall mail to Securityholders and file with the Trustee and the
Conversion Agent a notice stating the proposed record date for a dividend or
distribution or the proposed effective date of a subdivision, combination,
reclassification, consolidation, merger, binding share exchange, transfer,
liquidation or dissolution. The Company shall file and mail the notice at least
15 days before such date. Failure to file or mail the notice or any defect in it
shall not affect the validity of the transaction.

                  SECTION 11.14 Reorganization of Company; Special
Distributions. If the Company is a party to a transaction subject to Section
5.01 (other than a sale of the properties and assets of the Company
substantially as an entirety in a transaction in which the holders of Common
Stock immediately prior to such transaction do not receive securities, cash or
other assets of the Company or any other person) or a merger or binding share
exchange which reclassifies or changes its outstanding Common Stock, the person
obligated to deliver securities, cash or other assets upon conversion of
Securities shall enter into a supplemental indenture. If the issuer of
securities deliverable upon conversion of Securities is an Affiliate of the
successor Company, that issuer shall join in the supplemental indenture.

                  The supplemental indenture shall provide that the Holder of a
Security may convert it into the kind and amount of securities, cash or other
assets which such Holder would have received immediately after the
consolidation, merger, binding share exchange or transfer if such Holder had
converted the Security immediately before the effective date of the transaction,
assuming (to the extent applicable) that such Holder (i) was not a constituent
person or an Affiliate of a constituent person to such transaction; (ii) made no
election with respect thereto; and (iii) was treated alike with the plurality of
non-electing Holders. The supplemental indenture shall provide for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in this Article 11. The successor Company shall mail to
Securityholders a notice briefly describing the supplemental indenture.

                  If this Section applies, neither Section 11.06 nor 11.07
applies.

                  If the Company makes a distribution to all holders of its
Common Stock of any of its assets, or debt securities or any rights, warrants or
options to purchase securities of the Company that, but for the provisions of
the last paragraph of Section 11.08, would otherwise result in an adjustment in
the Conversion Rate pursuant to the provisions of Section 11.08, then, from and
after the record date for determining the holders of Common Stock entitled to
receive the distribution, a Holder of a Security that converts such Security in
accordance with the provisions of this Indenture shall upon such conversion be
entitled to receive, in addition to the

                                       59
<PAGE>   67

shares of Common Stock into which the Security is convertible, the kind and
amount of securities, cash or other assets comprising the distribution that such
Holder would have received if such Holder had converted the Security immediately
prior to the record date for determining the holders of Common Stock entitled to
receive the distribution.

                  SECTION 11.15 Company Determination Final. Any determination
that the Company or the Board of Directors must make pursuant to Section 11.03,
11.06, 11.07, 11.08, 11.09, 11.10, 11.14 or 11.17 is conclusive.

                  SECTION 11.16 Trustee's Adjustment Disclaimer. The Trustee has
no duty to determine when an adjustment under this Article 11 should be made,
how it should be made or what it should be. The Trustee has no duty to determine
whether a supplemental indenture under Section 11.14 need be entered into or
whether any provisions of any supplemental indenture are correct. The Trustee
shall not be accountable for and makes no representation as to the validity or
value of any securities or assets issued upon conversion of Securities. The
Trustee shall not be responsible for the Company's failure to comply with this
Article 11. Each Conversion Agent shall have the same protection under this
Section 11.16 as the Trustee.

                  SECTION 11.17 Simultaneous Adjustments. In the event that this
Article 11 requires adjustments to the Conversion Rate under more than one of
Sections 11.07 or 11.08, and the record dates for the distributions giving rise
to such adjustments shall occur on the same date, then such adjustments shall be
made by applying, first, the provisions of Section 11.08 and, second, the
provisions of Section 11.07.

                  SECTION 11.18 Successive Adjustments. After an adjustment to
the Conversion Rate under this Article 11, any subsequent event requiring an
adjustment under this Article 11 shall cause an adjustment to the Conversion
Rate as so adjusted.

                  SECTION 11.19 Rights Issued in Respect of Common Stock Issued
Upon Conversion. Each share of Common Stock issued upon conversion of Securities
pursuant to this Article 11 shall be entitled to receive the appropriate number
of common stock or preferred stock purchase rights, as the case may be (the
"Rights"), if any, and the certificates representing the Common Stock issued
upon such conversion shall bear such legends, if any, in each case as may be
provided by the terms of any shareholder rights agreement adopted by the
Company, as the same may be amended from time to time (in each case, a "Rights
Agreement"). Provided that such Rights Agreement requires that each share of
Common Stock issued upon conversion of Securities at any time prior to the
distribution of separate certificates representing the Rights be entitled to
receive such Rights, then, notwithstanding anything else to the contrary in this
Article 11, there shall not be any adjustment to the conversion privilege or
Conversion Rate as a result of the issuance of Rights, the distribution of
separate certificates representing the Rights, the exercise or redemption of
such Rights in accordance with any such Rights Agreement, or the termination or
invalidation of such Rights.

                                       60
<PAGE>   68

                                   ARTICLE 12

                                  MISCELLANEOUS

                  SECTION 12.01 Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies, or conflicts with another provision which
is required to be included in this Indenture by the TIA, the required provision
shall control.

                  SECTION 12.02 Notices. Any request, demand, authorization,
notice, waiver, consent or communication shall be in writing in the English
language and delivered in person or mailed by first-class mail, postage prepaid,
addressed as follows or transmitted by facsimile transmission (confirmed by
guaranteed overnight courier) to the following facsimile numbers:

         if to the Company:

                  The Shaw Group Inc.
                  8545 United Plaza Boulevard
                  Baton Rouge, Louisiana  70809
                  Telephone No. (225) 932-2500
                  Facsimile No. (225) 932-9146
                  Attention: Chief Financial Officer

         if to the Trustee:

                  United States Trust Company of New York
                  114 West 47th Street, 25th Floor
                  New York, New York 10036-1532
                  Telephone No. (212) 852-1691
                  Facsimile No. (212) 852-1626
                  Attention: Corporate Trust Administration

                  The Company or the Trustee by notice given to the other in the
manner provided above may designate additional or different addresses for
subsequent notices or communications.

                  Any notice or communication given to a Securityholder shall be
mailed to the Securityholder, by first-class mail, postage prepaid, at the
Securityholder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so mailed within the time
prescribed.

                  Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not received by the addressee.

                  If the Company mails a notice or communication to the
Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying
Agent, Conversion Agent or co-registrar.

                                       61
<PAGE>   69

                  SECTION 12.03 Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar, the Paying Agent, the
Conversion Agent and anyone else shall have the protection of TIA Section
312(c).

                  SECTION 12.04 Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

                  (1) an Officers' Certificate stating that, in the opinion of
                  the signers, all conditions precedent, if any, provided for in
                  this Indenture relating to the proposed action have been
                  complied with; and

                  (2) an Opinion of Counsel stating that, in the opinion of such
                  counsel, all such conditions precedent have been complied
                  with.

                  SECTION 12.05 Statements Required in Certificate or Opinion.
Each Officers' Certificate or Opinion of Counsel with respect to compliance with
a covenant or condition provided for in this Indenture shall include:

                  (1) a statement that each person making such Officers'
                  Certificate or Opinion of Counsel has read such covenant or
                  condition;

                  (2) a brief statement as to the nature and scope of the
                  examination or investigation upon which the statements or
                  opinions contained in such Officers' Certificate or Opinion of
                  Counsel are based;

                  (3) a statement that, in the opinion of each such person, he
                  has made such examination or investigation as is necessary to
                  enable such person to express an informed opinion as to
                  whether or not such covenant or condition has been complied
                  with; and

                  (4) a statement that, in the opinion of such person, such
                  covenant or condition has been complied with.

                  SECTION 12.06 Separability Clause. In case any provision in
this Indenture or in the Securities shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.

                  SECTION 12.07 Rules by Trustee, Paying Agent, Conversion Agent
and Registrar. The Trustee may make reasonable rules for action by or a meeting
of Securityholders. The Registrar, Conversion Agent and the Paying Agent may
make reasonable rules for their functions.

                  SECTION 12.08 Legal Holidays. A "Legal Holiday" is any day
other than a Business Day. If any specified date (including a date for giving
notice) is a Legal Holiday, the action shall be taken on the next succeeding day
that is not a Legal Holiday, and, if the action to

                                       62
<PAGE>   70

be taken on such date is a payment in respect of the Securities, no Original
Issue Discount or interest, if any, shall accrue for the intervening period.

                  SECTION 12.09 GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK
SHALL GOVERN AND INTERPRET THIS INDENTURE AND THE SECURITIES. The Company and
the Trustee each agrees to submit to the non-exclusive jurisdiction of the
competent courts of the State of New York and the United States, each sitting in
The City of New York, with respect to any action or proceeding arising out of or
relating to this Indenture or the Securities.

                  SECTION 12.10 No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.

                  SECTION 12.11 Successors. All agreements of the Company in
this Indenture and the Securities shall bind its successor. All agreements of
the Trustee in this Indenture shall bind its successor.

                  SECTION 12.12 Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Indenture.

                                       63
<PAGE>   71

                  IN WITNESS WHEREOF, the undersigned, being duly authorized,
have executed this Indenture on behalf of the respective parties hereto as of
the date first above written.

                                    THE SHAW GROUP INC.

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

                                    TRUSTEE:

                                    UNITED STATES TRUST COMPANY OF NEW YORK

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

                                       64
<PAGE>   72

                                   EXHIBIT A-1

                            [Form of Global Security]

FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE, THE AMOUNT
OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF PRINCIPAL AMOUNT AT
MATURITY OF THIS SECURITY IS $360.77, THE ISSUE DATE IS MAY 1, 2001, THE YIELD
TO MATURITY IS 2.25%.

         UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

         TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY, OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO ON THE
REVERSE HEREOF.

         THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.

         THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER,
SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE"), WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE SHAW GROUP INC. (THE
"COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR
ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL

                                    A-1 - 1

<PAGE>   73

BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C)
OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS, IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,
(D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2),(3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO
THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSE (D) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH
OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.

         [THE FOREGOING LEGEND MAY BE REMOVED FROM THIS SECURITY ON SATISFACTION
OF THE CONDITIONS SPECIFIED IN THE INDENTURE.]

                                    A-1 - 2
<PAGE>   74

                               THE SHAW GROUP INC.
                      Liquid Yield Option(TM) Note due 2021
                              (Zero Coupon-Senior)

No. R-1                                       CUSIP: ____________
Issue Date: May 1, 2001                       Original Issue Discount: $360.77
Issue Price: $639.23                          (for each $1,000 Principal
(for each $1,000 Principal                    Amount at Maturity)
Amount at Maturity)

         THE SHAW GROUP INC., a Louisiana corporation, promises to pay to Cede &
Co. or registered assigns, the Principal Amount at Maturity of ________ HUNDRED
MILLION DOLLARS ($__00,000,000) on May 1, 2021.

         This Security shall not bear interest except as specified on the other
side of this Security. Original Issue Discount will accrue as specified on the
other side of this Security. This Security is convertible as specified on the
other side of this Security.

         Additional provisions of this Security are set forth on the other side
of this Security.

                                       THE SHAW GROUP INC.

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

TRUSTEE'S CERTIFICATE OF
AUTHENTICATION

UNITED STATES TRUST COMPANY OF NEW YORK as Trustee, certifies that this is one
of the Securities referred
to in the within-mentioned Indenture.

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

Dated:
       -------------------------------------

                                    A-1 - 3

<PAGE>   75

                         [FORM OF REVERSE SIDE OF LYON]
                      Liquid Yield Option(TM) Note due 2021
                              (Zero Coupon-Senior)

1.       Interest.

         This Security shall not bear interest, except as specified in this
paragraph or in paragraph 10 hereof. If the Principal Amount at Maturity hereof
or any portion of such Principal Amount at Maturity is not paid when due
(whether upon acceleration pursuant to Section 6.02 of the Indenture, upon the
date set for payment of the Redemption Price pursuant to paragraph 5 hereof,
upon the date set for payment of the Purchase Price or Change in Control
Purchase Price pursuant to paragraph 6 hereof or upon the Stated Maturity of
this Security) or if interest due hereon or any portion of such interest is not
paid when due in accordance with paragraph 10 hereof, then in each such case the
overdue amount shall, to the extent permitted by law, bear interest at the rate
of 2.25% per annum, compounded semiannually, which interest shall accrue from
the date such overdue amount was originally due to the date payment of such
amount, including interest thereon, has been made or duly provided for. All such
interest shall be payable on demand. The accrual of such interest on overdue
amounts shall be in lieu of, and not in addition to, the continued accrual of
Original Issue Discount.

         Original Issue Discount (the difference between the Issue Price and the
Principal Amount at Maturity of the Security), in the period during which a
Security remains outstanding, shall accrue at 2.25% per annum, on a semiannual
bond equivalent basis using a 360-day year composed of twelve 30-day months,
from the Issue Date of this Security, on May 1 and November 1 of each year,
commencing November 1, 2001.

2.       Method of Payment.

         Subject to the terms and conditions of the Indenture, the Company will
make payments in respect of Redemption Prices, Purchase Prices, Change in
Control Purchase Prices and at Stated Maturity to Holders who surrender
Securities to a Paying Agent to collect such payments in respect of the
Securities. The Company will pay cash amounts in money of the United States that
at the time of payment is legal tender for payment of public and private debts.

3.       Paying Agent, Conversion Agent and Registrar.

         Initially, United States Trust Company of New York, a bank and trust
company organized under New York banking law (the "Trustee"), will act as Paying
Agent, Conversion Agent and Registrar. The Company may appoint and change any
Paying Agent, Conversion Agent, Registrar or co-registrar without notice, other
than notice to the Trustee except that the Company will maintain at least one
such agency in the State of New York, City of New York, Borough of Manhattan,
which shall initially be an office or agency of the Trustee. The Company or any
of its Subsidiaries or any of their Affiliates may act as Paying Agent,
Conversion Agent, Registrar or co-registrar.

4.       Indenture.

         The Company issued the Securities under an Indenture dated as of May 1,
2001 (the "Indenture"), between the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those

                                    A-1 - 4
<PAGE>   76

made part of the Indenture by reference to the Trust Indenture Act of 1939, as
in effect from time to time (the "TIA"). Capitalized terms used herein and not
defined herein have the meanings ascribed thereto in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the TIA for a statement of those terms.

         The Securities are general unsecured obligations of the Company limited
to $790,000,000 aggregate Principal Amount at Maturity (subject to Section 2.07
of the Indenture). The Indenture does not limit other indebtedness of the
Company, secured or unsecured.

5.       Redemption at the Option of the Company.

         No sinking fund is provided for the Securities. The Securities are
redeemable as a whole, or from time to time in part, at any time at the option
of the Company at the Redemption Prices set forth below, provided that the
Securities are not redeemable prior to May 1, 2006.

         The table below shows Redemption Prices of a Security per $1,000
Principal Amount at Maturity on the dates shown below and at Stated Maturity,
which prices reflect accrued Original Issue Discount calculated to each such
date. The Redemption Price of a Security redeemed between such dates shall
include an additional amount reflecting the additional Original Issue Discount
accrued since the next preceding date in the table below.

<TABLE>
<CAPTION>
                                                                      (2)
                                                                    Accrued                 (3)
                                                (1)             Original Issue          Redemption
                                               LYON               Discount at              Price
Redemption Date                             Issue Price              2.25%               (1) + (2)
---------------                             -----------         --------------          ----------
<S>                                         <C>                <C>                   <C>
May 1, 2006.........................          $639.23                $75.67               $714.90
May 1, 2007.........................          $639.23                $91.84               $731.07
May 1, 2008.........................          $639.23               $108.38               $747.62
May 1, 2009.........................          $639.23               $125.30               $764.53
May 1, 2010.........................          $639.23               $142.60               $781.83
May 1, 2011.........................          $639.23               $160.29               $799.52
May 1, 2012.........................          $639.23               $178.38               $817.61
May 1, 2013.........................          $639.23               $196.88               $836.11
May 1, 2014.........................          $639.23               $215.80               $855.03
May 1, 2015.........................          $639.23               $235.14               $874.37
May 1, 2016.........................          $639.23               $254.93               $894.16
May 1, 2017.........................          $639.23               $275.16               $914.39
May 1, 2018.........................          $639.23               $295.85               $935.08
May 1, 2019.........................          $639.23               $317.01               $956.24
May 1, 2020.........................          $639.23               $338.64               $977.87
At Stated Maturity..................          $639.23               $360.77             $1,000.00
</TABLE>

         If converted to a semiannual coupon note following the occurrence of a
Tax Event, this Security will be redeemable at the Restated Principal Amount
plus accrued and unpaid interest from the date of such conversion through the
Redemption Date; but in no event will this Security be redeemable before May 1,
2006.

                                    A-1 - 5

<PAGE>   77

6.       Purchase By the Company at the Option of the Holder.

         Subject to the terms and conditions of the Indenture, the Company shall
become obligated to purchase, at the option of the Holder, the Securities held
by such Holder on the following Purchase Dates and at the following Purchase
Prices per $1,000 Principal Amount at Maturity, upon delivery of a Purchase
Notice containing the information set forth in the Indenture, at any time from
the opening of business on the date that is 20 Business Days prior to such
Purchase Date until the close of business on the Business Day immediately
preceding such Purchase Date and upon delivery of the Securities to the Paying
Agent by the Holder as set forth in the Indenture.

<TABLE>
<CAPTION>
                   Purchase Date                      Purchase Price
                   -------------                      --------------
<S>                                                   <C>
                   May 1, 2004                        $683.61

                   May 1, 2006                        $714.90

                   May 1, 2011                        $799.52

                   May 1, 2016                        $894.16
</TABLE>

         The Purchase Price (equal to the Issue Price plus accrued Original
Issue Discount to the Purchase Date) may be paid, at the option of the Company,
in cash or by the issuance and delivery of shares of Common Stock of the
Company, or in any combination thereof.

         If prior to a Purchase Date this Security has been converted to a
semiannual coupon note following the occurrence of a Tax Event, the Purchase
Price will be equal to the Restated Principal Amount plus accrued and unpaid
interest from the date of conversion to the Purchase Date.

         At the option of the Holder and subject to the terms and conditions of
the Indenture, the Company shall become obligated to purchase the Securities
held by such Holder 35 Business Days after the occurrence of a Change in Control
of the Company occurring on or prior to May 1, 2006 for a Change in Control
Purchase Price equal to the Issue Price plus accrued Original Issue Discount to
the Change in Control Purchase Date, which Change in Control Purchase Price
shall be paid in cash. If prior to a Change in Control Purchase Date this
Security has been converted to a semiannual coupon note following the occurrence
of a Tax Event, the Change in Control Purchase Price shall be equal to the
Restated Principal Amount plus accrued and unpaid interest from the date of
conversion to the Change in Control Purchase Date.

         Holders have the right to withdraw any Purchase Notice or Change in
Control Purchase Notice, as the case may be, by delivering to the Paying Agent a
written notice of withdrawal in accordance with the provisions of the Indenture.
If cash (and/or securities if permitted under the Indenture) sufficient to pay
the Purchase Price or Change in Control Purchase Price, as the case may be, of
all Securities or portions thereof to be purchased as of the Purchase Date or
the Change in Control Purchase Date, as the case may be, is deposited with the
Paying Agent on the Business Day following the Purchase Date or the Change in
Control Purchase Date, as the case may be, Original Issue Discount ceases to
accrue on such Securities (or portions thereof) immediately after such Purchase
Date or Change in Control Purchase Date, as the case may be,

                                     A-1 - 6

<PAGE>   78

and the Holder thereof shall have no other rights as such (other than the right
to receive the Purchase Price or Change in Control Purchase Price, as the case
may be, upon surrender of such Security).

7.       Notice of Redemption.

         Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at the Holder's registered address. If money sufficient to pay the Redemption
Price of all Securities (or portions thereof) to be redeemed on the Redemption
Date is deposited with the Paying Agent prior to or on the Redemption Date,
immediately after such Redemption Date Original Issue Discount ceases to accrue
on such Securities or portions thereof. Securities in denominations larger than
$1,000 of Principal Amount at Maturity may be redeemed in part but only in
integral multiples of $1,000 of Principal Amount at Maturity.

8.       Conversion.

         Subject to the next two succeeding sentences, a Holder of a Security
may convert it into Common Stock of the Company at any time before the close of
business on May 1, 2021. If the Security is called for redemption, the Holder
may convert it at any time before the close of business on the Redemption Date.
A Security in respect of which a Holder has delivered a Purchase Notice or
Change in Control Purchase Notice exercising the option of such Holder to
require the Company to purchase such Security may be converted only if such
notice of exercise is withdrawn in accordance with the terms of the Indenture.

         The initial Conversion Rate is 8.2988 shares of Common Stock per $1,000
Principal Amount at Maturity, subject to adjustment in certain events described
in the Indenture. The Company will deliver cash or a check in lieu of any
fractional share of Common Stock.

         In the event the Company exercises its option pursuant to Section 10.01
of the Indenture to have interest in lieu of Original Issue Discount accrue on
the Security following a Tax Event, the Holder will be entitled on conversion to
receive the same number of shares of Common Stock such Holder would have
received if the Company had not exercised such option. If the Company exercises
such option, Securities surrendered for conversion during the period from the
close of business on any Regular Record Date next preceding any Interest Payment
Date to the opening of business of such Interest Payment Date (except Securities
to be redeemed on a date within such period) must be accompanied by payment of
an amount equal to the interest thereon that the registered Holder is to
receive. Except with respect to Securities surrendered for conversion during the
period described above, no interest on converted Securities will be payable by
the Company on any Interest Payment Date subsequent to the date of conversion.

         To convert a Security, a Holder must (1) complete and manually sign the
conversion notice below (or complete and manually sign a facsimile of such
notice) and deliver such notice to the Conversion Agent, (2) surrender the
Security to the Conversion Agent, (3) furnish appropriate endorsements and
transfer documents if required by the Conversion Agent, and (4) pay any transfer
or similar tax, if required.

         A Holder may convert a portion of a Security if the Principal Amount at
Maturity of such portion is $1,000 or an integral multiple of $1,000. No payment
or adjustment will be made for

                                     A-1 - 7

<PAGE>   79

dividends on the Common Stock except as provided in the Indenture. On conversion
of a Security, that portion of accrued Original Issue Discount (or interest if
the Company has exercised its option provided for in paragraph 10 hereof)
attributable to the period from the Issue Date (or, if the Company has exercised
the option referred to in paragraph 10 hereof, the later of (x) the date of such
exercise and (y) the date on which interest was last paid) through the
Conversion Date with respect to the converted Security shall not be cancelled,
extinguished or forfeited, but rather shall be deemed to be paid in full to the
Holder thereof through the delivery of the Common Stock (together with the cash
payment, if any, in lieu of fractional shares) in exchange for the Security
being converted pursuant to the terms hereof; and the fair market value of such
shares of Common Stock (together with any such cash payment in lieu of
fractional shares) shall be treated as issued, to the extent thereof, first in
exchange for Original Issue Discount (or interest, if the Company has exercised
its option provided for in paragraph 10 hereof) accrued through the Conversion
Date, and the balance, if any, of such fair market value of such Common Stock
(and any such cash payment) shall be treated as issued in exchange for the Issue
Price of the Security being converted pursuant to the provisions hereof.

         The Conversion Rate will be adjusted for dividends or distributions on
Common Stock payable in Common Stock or other Capital Stock of the Company;
subdivisions, combinations or certain reclassifications of Common Stock;
distributions to all holders of Common Stock of certain rights to purchase
Common Stock for a period expiring within 60 days at less than the Quoted Price
at the Time of Determination; and distributions to such holders of assets or
debt securities of the Company or certain rights to purchase securities of the
Company (excluding certain cash dividends or other cash distributions from
current or retained earnings unless the annualized amount thereof per share
exceeds 5% of the Sale Price on the day preceding the date of declaration of
such dividend or other distribution). However, no adjustment need be made if
Securityholders may participate in the transaction or in certain other cases.
The Company from time to time may voluntarily increase the Conversion Rate.

         In the event that the Company pays a dividend or makes a distribution
on shares of Common Stock consisting of Capital Stock of, or similar equity
interests in, a Subsidiary or other business unit of the Company, the Conversion
Rate will be adjusted based on the market value of the securities so distributed
relative to the market value of the Common Stock, in each case based on the
average closing prices of those securities for the 10 trading days commencing on
and including the fifth trading day after the date on which "ex-dividend"
trading commences for such dividend or distribution on the principal United
States securities exchange or market on which the securities are then listed or
quoted.

         If the Company is a party to a consolidation, merger or binding share
exchange or a transfer of all or substantially all of its assets, or upon
certain distributions described in the Indenture, the right to convert a
Security into Common Stock may be changed into a right to convert it into
securities, cash or other assets of the Company or another person.

9.       Trustee Dealings with the Company.

         Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may

                                     A-1 - 8

<PAGE>   80

otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.

10.      Tax Event

         (a) From and after (i) the date (the "Tax Event Date") of the
occurrence of a Tax Event and (ii) the date the Company exercises such option,
whichever is later (the "Option Exercise Date"), at the option of the Company,
interest in lieu of future Original Issue Discount shall accrue at the rate of
2.25% per annum on a restated principal amount per Security (the "Restated
Principal Amount") equal to the Issue Price plus Original Issue Discount accrued
through the Option Exercise Date and shall be payable semiannually on May 1 and
November 1 of each year (each an "Interest Payment Date") to holders of record
at the close of business on April 15 or October 15 (each a "Regular Record
Date") immediately preceding such Interest Payment Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months and
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Option Exercise Date.

         (b) Interest on any Security that is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security is registered at the close of business on the Regular
Record Date for such interest at the office or agency of the Company maintained
for such purpose. Each installment of interest on any Security shall be paid in
same-day funds by transfer to an account maintained by the payee located inside
the United States.

         (c) Except as otherwise specified with respect to the Securities, any
Defaulted Interest on any Security shall forthwith cease to be payable to the
registered Holder thereof on the relevant Regular Record Date by virtue of
having been such Holder, and such Defaulted Interest may be paid by the Company
as provided for in Section 10.02(b) of the Indenture.

11.      Denominations; Transfer; Exchange.

         The Securities are in fully registered form, without coupons, in
denominations of $1,000 of Principal Amount at Maturity and integral multiples
of $1,000. A Holder may transfer or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not transfer
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities in respect of which a Purchase Notice or Change in Control
Purchase Notice has been given and not withdrawn (except, in the case of a
Security to be purchased in part, the portion of the Security not to be
purchased) or any Securities for a period of 15 days before the mailing of a
notice of redemption of Securities to be redeemed.

12.      Persons Deemed Owners.

         The registered Holder of this Security may be treated as the owner of
this Security for all purposes.

                                     A-1 - 9

<PAGE>   81

13.      Unclaimed Money or Securities.

         The Trustee and the Paying Agent shall return to the Company upon
written request any money or securities held by them for the payment of any
amount with respect to the Securities that remains unclaimed for two years,
subject to applicable unclaimed property law. After return to the Company,
Holders entitled to the money or securities must look to the Company for payment
as general creditors unless an applicable abandoned property law designates
another person.

14.      Amendment; Waiver.

         Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in aggregate Principal Amount at Maturity of the
Securities at the time outstanding and (ii) certain Defaults may be waived with
the written consent of the Holders of a majority in aggregate Principal Amount
at Maturity of the Securities at the time outstanding. Subject to certain
exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the Indenture or the
Securities in order, among other things, to cure any ambiguity or inconsistency,
or to comply with Article 5 or Section 11.14 of the Indenture, or to make any
change that does not adversely affect the rights of any Securityholder, or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the TIA or the registration of the Securities under the
Securities Act.

15.      Defaults and Remedies.

         Under the Indenture, Events of Default include (i) if the Securities
have been converted to semiannual coupon notes following a Tax Event, default
for 30 days in the payment of interest; (ii) default in payment of the Principal
Amount at Maturity (or, if the Securities have been converted to semiannual
coupon notes following a Tax Event, the Restated Principal Amount), Issue Price
plus accrued Original Issue Discount, Redemption Price, Purchase Price or Change
in Control Purchase Price, as the case may be, in respect of the Securities when
the same becomes due and payable; (iii) failure by the Company to comply with
other agreements in the Indenture or the Securities, subject to notice and lapse
of time; (iv) default in the payment of principal when due or resulting in
acceleration of other Debt where the aggregate principal amount with respect to
such Debt has not been rescinded or annulled within a period of 10 days after
receipt by the Company of a Notice of Default; and (v) certain events of
bankruptcy or insolvency. If an Event of Default occurs and is continuing, the
Trustee, or the Holders of at least 25% in aggregate Principal Amount at
Maturity of the Securities at the time outstanding, may declare all the
Securities to be due and payable immediately. Certain events of bankruptcy or
insolvency are Events of Default which will result in the Securities becoming
due and payable immediately upon the occurrence of such Events of Default.

         Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in aggregate Principal Amount at
Maturity of the Securities at the time outstanding may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing Default (except a Default in payment of amounts
specified in clause (i) or (ii) above) if it determines that withholding notice
is in their interests.

                                    A-1 - 10

<PAGE>   82

16.      No Recourse Against Others.

         A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.

17.      Authentication.

         This Security shall not be valid until an authorize signatory of the
Trustee manually signs the Trustee's Certificate of Authentication on the other
side of this Security.

18.      Abbreviations.

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

19.      GOVERNING LAW.

         THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND INTERPRET THE
INDENTURE AND THIS SECURITY. The Company has agreed in the Indenture to submit
to the non-exclusive jurisdiction of the competent courts of the State of New
York and the United States, each sitting in the City of New York, with respect
to any action or proceeding arising out of or relating to the Indenture or the
Securities.

                                   -----------

         The Company will furnish to any Securityholder upon written request and
without charge a copy of the Indenture. Requests may be made to:

                  The Shaw Group Inc.
                  8545 United Plaza Boulevard
                  Baton Rouge, Louisiana 70809
                  Attention: Chief Financial Officer

                                    A-1 - 11

<PAGE>   83

<TABLE>
<CAPTION>
                      ASSIGNMENT FORM                                           CONVERSION NOTICE
<S>                                                          <C>
To assign this Security, fill in the form below:             To convert this Security into Common Stock of the
                                                             Company, check the box:   [ ]
I or we assign and transfer this Security to
                                                             To convert only part of this Security, state the
                                                             Principal at Maturity to be converted (which
                                                             must be $1,000 or an integral multiple of $1,000):
-----------------------------------------------------

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

-----------------------------------------------------        If you want the stock certificate made out in another
(Insert assignee's soc. sec. or tax ID no.)                  person's name, fill in the form below:

-----------------------------------------------------
and Irrevocably appoint or                                   -----------------------------------------------------
                                                             (Insert other person's soc. sec. Tax ID no.)
                                             agent to
--------------------------------------------
transfer this Security on the books of the Company.          -----------------------------------------------------
The Agent may substitute another to act for him.             (Print or type other person's name, address and zip
                                                             code)
-----------------------------------------------------

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

Date:                                                Your Signature:
      ------------------------------                                 ---------------------------------------------

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

                     Sign exactly as your name appears on the other side of this Security)

Signature Guarantee:
                      -------------------------------------------------

</TABLE>

(Signature must be guaranteed by a participant in a recognized Signature
Guarantee Medallion Program or other signature guarantor program reasonably
acceptable to the Trustee.)

                                    A-1 - 12
<PAGE>   84

                                   EXHIBIT A-2

                         [Form of Certificated Security]

FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE, THE AMOUNT
OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF PRINCIPAL AMOUNT AT
MATURITY OF THIS SECURITY IS $360.77, THE ISSUE DATE IS JUNE 12, 2000, THE YIELD
TO MATURITY IS 2.25%.

         [INCLUDE IF SECURITY IS A CERTIFICATED SECURITY TO BE HELD BY AN
INSTITUTIONAL ACCREDITED INVESTOR: IN CONNECTION WITH ANY TRANSFER, THE HOLDER
WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER
INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE
TRANSFER COMPLIES WITH THE FOLLOWING RESTRICTIONS.]

         THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.

         THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER,
SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE"), WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE SHAW GROUP INC. (THE
"COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR
ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C)
OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,
(D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2),(3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT,

                                    A-2 - 1
<PAGE>   85

(E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE
(D) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE
FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.

         [THE FOREGOING LEGEND MAY BE REMOVED FROM THIS SECURITY ON SATISFACTION
OF THE CONDITIONS SPECIFIED IN THE INDENTURE.]

                                    A-2 - 2

<PAGE>   86

                               THE SHAW GROUP INC.
                      Liquid Yield Option(TM) Note due 2021
                              (Zero Coupon-Senior)

No. R-                                        CUSIP: [________]
Issue Date: May 1, 2001                       Original Issue Discount: $360.77
Issue Price: $639.23                          (for each $1,000 Principal
(for each $1,000 Principal                    Amount at Maturity)
Amount at Maturity)

         THE SHAW GROUP INC., a Louisiana corporation, promises to pay to
________ or registered assigns, the Principal Amount at Maturity of
_______________ DOLLARS ($____________) on May 1, 2021.

         This Security shall not bear interest except as specified on the other
side of this Security. Original Issue Discount will accrue as specified on the
other side of this Security. This Security is convertible as specified on the
other side of this Security.

         Additional provisions of this Security are set forth on the other side
of this Security.

                                           THE SHAW GROUP INC.

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

TRUSTEE'S CERTIFICATE OF
AUTHENTICATION

UNITED STATES TRUST COMPANY
OF NEW YORK
as Trustee, certifies that this
is one of the Securities referred
to in the within-mentioned Indenture.

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

Dated:
      ------------------------------

                                    A-2 - 3
<PAGE>   87

                         [FORM OF REVERSE SIDE OF LYON]
                      Liquid Yield Option(TM) Note due 2021
                              (Zero Coupon-Senior)

1.       Interest.

         This Security shall not bear interest, except as specified in this
paragraph or in paragraph 10 hereof. If the Principal Amount at Maturity hereof
or any portion of such Principal Amount at Maturity is not paid when due
(whether upon acceleration pursuant to Section 6.02 of the Indenture, upon the
date set for payment of the Redemption Price pursuant to paragraph 5 hereof,
upon the date set for payment of the Purchase Price or Change in Control
Purchase Price pursuant to paragraph 6 hereof or upon the Stated Maturity of
this Security) or if interest due hereon or any portion of such interest is not
paid when due in accordance with paragraph 10 hereof, then in each such case the
overdue amount shall, to the extent permitted by law, bear interest at the rate
of 2.25% per annum, compounded semiannually, which interest shall accrue from
the date such overdue amount was originally due to the date payment of such
amount, including interest thereon, has been made or duly provided for. All such
interest shall be payable on demand. The accrual of such interest on overdue
amounts shall be in lieu of, and not in addition to, the continued accrual of
Original Issue Discount.

         Original Issue Discount (the difference between the Issue Price and the
Principal Amount at Maturity of the Security), in the period during which a
Security remains outstanding, shall accrue at 2.25% per annum, on a semiannual
bond equivalent basis using a 360-day year composed of twelve 30-day months,
from the Issue Date of this Security, on May 1 and November 1 of each year,
commencing November 1, 2001.

2.       Method of Payment.

         Subject to the terms and conditions of the Indenture, the Company will
make payments in respect of Redemption Prices, Purchase Prices, Change in
Control Purchase Prices and at Stated Maturity to Holders who surrender
Securities to a Paying Agent to collect such payments in respect of the
Securities. The Company will pay cash amounts in money of the United States that
at the time of payment is legal tender for payment of public and private debts.
However, the Company may make such cash payments by check payable in such money.

3.       Paying Agent, Conversion Agent and Registrar.

         Initially, United States Trust Company of New York, a bank and trust
company organized under New York banking law (the "Trustee"), will act as Paying
Agent, Conversion Agent and Registrar. The Company may appoint and change any
Paying Agent, Conversion Agent, Registrar or co-registrar without notice, other
than notice to the Trustee except that the Company will maintain at least one
such agency in the State of New York, City of New York, Borough of Manhattan,
which shall initially be an office or agency of the Trustee. The Company or any
of its Subsidiaries or any of their Affiliates may act as Paying Agent,
Conversion Agent, Registrar or co-registrar.

                                    A-2 - 4

<PAGE>   88

4.       Indenture.

         The Company issued the Securities under an Indenture dated as of May 1,
2001 (the "Indenture"), between the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as in effect from
time to time (the "TIA"). Capitalized terms used herein and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are subject
to all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of those terms.

         The Securities are general unsecured obligations of the Company limited
to $790,000,000 aggregate Principal Amount at Maturity (subject to Section 2.07
of the Indenture). The Indenture does not limit other indebtedness of the
Company, secured or unsecured.

5.       Redemption at the Option of the Company.

         No sinking fund is provided for the Securities. The Securities are
redeemable as a whole, or from time to time in part, at any time at the option
of the Company at the Redemption Prices set forth below, provided that the
Securities are not redeemable prior to May 1, 2006.

         The table below shows Redemption Prices of a Security per $1,000
Principal Amount at Maturity on the dates shown below and at Stated Maturity,
which prices reflect accrued Original Issue Discount calculated to each such
date. The Redemption Price of a Security redeemed between such dates shall
include an additional amount reflecting the additional Original Issue Discount
accrued since the next preceding date in the table below.

<TABLE>
<CAPTION>
                                                                      (2)
                                                                    Accrued                 (3)
                                                (1)             Original Issue          Redemption
                                               LYON               Discount at              Price
Redemption Date                             Issue Price              2.25%               (1) + (2)
---------------                             -----------         --------------          ----------
<S>                                         <C>                  <C>                 <C>
May 1, 2006.........................          $639.23               $ 75.67             $  714.90
May 1, 2007.........................          $639.23               $ 91.84             $  731.07
May 1, 2008.........................          $639.23               $108.38             $  747.62
May 1, 2009.........................          $639.23               $125.30             $  764.53
May 1, 2010.........................          $639.23               $142.60             $  781.83
May 1, 2011.........................          $639.23               $160.29             $  799.52
May 1, 2012.........................          $639.23               $178.38             $  817.61
May 1, 2013.........................          $639.23               $196.88             $  836.11
May 1, 2014.........................          $639.23               $215.80             $  855.03
May 1, 2015.........................          $639.23               $235.14             $  874.37
May 1, 2016.........................          $639.23               $254.93             $  894.16
May 1, 2017.........................          $639.23               $275.16             $  914.39
May 1, 2018.........................          $639.23               $295.85             $  935.08
May 1, 2019.........................          $639.23               $317.01             $  956.24
May 1, 2020.........................          $639.23               $338.64             $  977.87
At Stated Maturity..................          $639.23               $360.77             $1,000.00
</TABLE>

                                    A-2 - 5

<PAGE>   89

         If converted to a semiannual coupon note following the occurrence of a
Tax Event, this Security will be redeemable at the Restated Principal Amount
plus accrued and unpaid interest from the date of such conversion through the
Redemption Date; but in no event will this Security be redeemable before May 1,
2006.

6.       Purchase By the Company at the Option of the Holder.

         Subject to the terms and conditions of the Indenture, the Company shall
become obligated to purchase, at the option of the Holder, the Securities held
by such Holder on the following Purchase Dates and at the following Purchase
Prices per $1,000 Principal Amount at Maturity, upon delivery of a Purchase
Notice containing the information set forth in the Indenture, at any time from
the opening of business on the date that is 20 Business Days prior to such
Purchase Date until the close of business on the Business Day immediately
preceding such Purchase Date and upon delivery of the Securities to the Paying
Agent by the Holder as set forth in the Indenture.

<TABLE>
<CAPTION>
                    Purchase Date                      Purchase Price
                    -------------                      --------------
<S>                                                    <C>
                    May 1, 2004                        $683.61

                    May 1, 2006                        $714.90

                    May 1, 2011                        $799.52

                    May 1, 2016                        $894.16
</TABLE>

         The Purchase Price (equal to the Issue Price plus accrued Original
Issue Discount to the Purchase Date) may be paid, at the option of the Company,
in cash or by the issuance and delivery of shares of Common Stock of the
Company, or in any combination thereof.

         If prior to a Purchase Date this Security has been converted to a
semiannual coupon note following the occurrence of a Tax Event, the Purchase
Price will be equal to the Restated Principal Amount plus accrued and unpaid
interest from the date of conversion to the Purchase Date.

         At the option of the Holder and subject to the terms and conditions of
the Indenture, the Company shall become obligated to purchase the Securities
held by such Holder 35 Business Days after the occurrence of a Change in Control
of the Company occurring on or prior to May 1, 2006 for a Change in Control
Purchase Price equal to the Issue Price plus accrued Original Issue Discount to
the Change in Control Purchase Date, which Change in Control Purchase Price
shall be paid in cash. If prior to a Change in Control Purchase Date this
Security has been converted to a semiannual coupon note following the occurrence
of a Tax Event, the Change in Control Purchase Price shall be equal to the
Restated Principal Amount plus accrued and unpaid interest from the date of
conversion to the Change in Control Purchase Date.

         Holders have the right to withdraw any Purchase Notice or Change in
Control Purchase Notice, as the case may be, by delivering to the Paying Agent a
written notice of withdrawal in accordance with the provisions of the Indenture.
If cash (and/or securities if permitted under the

                                     A-2 - 6

<PAGE>   90

Indenture) sufficient to pay the Purchase Price or Change in Control Purchase
Price, as the case may be, of all Securities or portions thereof to be purchased
as of the Purchase Date or the Change in Control Purchase Date, as the case may
be, is deposited with the Paying Agent on the Business Day following the
Purchase Date or the Change in Control Purchase Date, as the case may be,
Original Issue Discount ceases to accrue on such Securities (or portions
thereof) immediately after such Purchase Date or Change in Control Purchase
Date, as the case may be, and the Holder thereof shall have no other rights as
such (other than the right to receive the Purchase Price or Change in Control
Purchase Price, as the case may be, upon surrender of such Security).

7.       Notice of Redemption.

         Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at the Holder's registered address. If money sufficient to pay the Redemption
Price of all Securities (or portions thereof) to be redeemed on the Redemption
Date is deposited with the Paying Agent prior to or on the Redemption Date,
immediately after such Redemption Date Original Issue Discount ceases to accrue
on such Securities or portions thereof. Securities in denominations larger than
$1,000 of Principal Amount at Maturity may be redeemed in part but only in
integral multiples of $1,000 of Principal Amount at Maturity.

8.       Conversion.

         Subject to the next two succeeding sentences, a Holder of a Security
may convert it into Common Stock of the Company at any time before the close of
business on May 1, 2021. If the Security is called for redemption, the Holder
may convert it at any time before the close of business on the Redemption Date.
A Security in respect of which a Holder has delivered a Purchase Notice or
Change in Control Purchase Notice exercising the option of such Holder to
require the Company to purchase such Security may be converted only if such
notice of exercise is withdrawn in accordance with the terms of the Indenture.

         The initial Conversion Rate is 8.2988 shares of Common Stock per $1,000
Principal Amount at Maturity, subject to adjustment in certain events described
in the Indenture. The Company will deliver cash or a check in lieu of any
fractional share of Common Stock.

         In the event the Company exercises its option pursuant to Section 10.01
of the Indenture to have interest in lieu of Original Issue Discount accrue on
the Security following a Tax Event, the Holder will be entitled on conversion to
receive the same number of shares of Common Stock such Holder would have
received if the Company had not exercised such option. If the Company exercises
such option, Securities surrendered for conversion during the period from the
close of business on any Regular Record Date next preceding any Interest Payment
Date to the opening of business of such Interest Payment Date (except Securities
to be redeemed on a date within such period) must be accompanied by payment of
an amount equal to the interest thereon that the registered Holder is to
receive. Except with respect to Securities surrendered for conversion during the
period described above, no interest on converted Securities will be payable by
the Company on any Interest Payment Date subsequent to the date of conversion.

                                     A-2 - 7

<PAGE>   91

         To convert a Security, a Holder must (1) complete and manually sign the
conversion notice below (or complete and manually sign a facsimile of such
notice) and deliver such notice to the Conversion Agent, (2) surrender the
Security to the Conversion Agent, (3) furnish appropriate endorsements and
transfer documents if required by the Conversion Agent, and (4) pay any transfer
or similar tax, if required.

         A Holder may convert a portion of a Security if the Principal Amount at
Maturity of such portion is $1,000 or an integral multiple of $1,000. No payment
or adjustment will be made for dividends on the Common Stock except as provided
in the Indenture. On conversion of a Security, that portion of accrued Original
Issue Discount (or interest if the Company has exercised its option provided for
in paragraph 10 hereof) attributable to the period from the Issue Date (or, if
the Company has exercised the option referred to in paragraph 10 hereof, the
later of (x) the date of such exercise and (y) the date on which interest was
last paid) through the Conversion Date with respect to the converted Security
shall not be cancelled, extinguished or forfeited, but rather shall be deemed to
be paid in full to the Holder thereof through the delivery of the Common Stock
(together with the cash payment, if any, in lieu of fractional shares) in
exchange for the Security being converted pursuant to the terms hereof; and the
fair market value of such shares of Common Stock (together with any such cash
payment in lieu of fractional shares) shall be treated as issued, to the extent
thereof, first in exchange for Original Issue Discount (or interest, if the
Company has exercised its option provided for in paragraph 10 hereof) accrued
through the Conversion Date, and the balance, if any, of such fair market value
of such Common Stock (and any such cash payment) shall be treated as issued in
exchange for the Issue Price of the Security being converted pursuant to the
provisions hereof.

         The Conversion Rate will be adjusted for dividends or distributions on
Common Stock payable in Common Stock or other Capital Stock of the Company;
subdivisions, combinations or certain reclassifications of Common Stock;
distributions to all holders of Common Stock of certain rights to purchase
Common Stock for a period expiring within 60 days at less than the Quoted Price
at the Time of Determination; and distributions to such holders of assets or
debt securities of the Company or certain rights to purchase securities of the
Company (excluding certain cash dividends or other cash distributions from
current or retained earnings unless the annualized amount thereof per share
exceeds 5% of the Sale Price on the day preceding the date of declaration of
such dividend or other distribution). However, no adjustment need be made if
Securityholders may participate in the transaction or in certain other cases.
The Company from time to time may voluntarily increase the Conversion Rate.

         In the event that the Company pays a dividend or makes a distribution
on shares of Common Stock consisting of Capital Stock of, or similar equity
interests in, a Subsidiary or other business unit of the Company, the Conversion
Rate will be adjusted based on the market value of the securities so distributed
relative to the market value of the Common Stock, in each case based on the
average closing prices of those securities for the 10 trading days commencing on
and including the fifth trading day after the date on which "ex-dividend"
trading commences for such dividend or distribution on the principal United
States securities exchange or market on which the securities are then listed or
quoted.

         If the Company is a party to a consolidation, merger or binding share
exchange or a transfer of all or substantially all of its assets, or upon
certain distributions described in the

                                     A-2 - 8

<PAGE>   92

Indenture, the right to convert a Security into Common Stock may be changed into
a right to convert it into securities, cash or other assets of the Company or
another person.

9.       Trustee Dealings with the Company.

         Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.

10.      Tax Event

         (a) From and after (i) the date (the "Tax Event Date") of the
occurrence of a Tax Event and (ii) the date the Company exercises such option,
whichever is later (the "Option Exercise Date"), at the option of the Company,
interest in lieu of future Original Issue Discount shall accrue at the rate of
2.25% per annum on a restated principal amount per Security (the "Restated
Principal Amount") equal to the Issue Price plus Original Issue Discount accrued
through the Option Exercise Date and shall be payable semiannually on May 1 and
November 1 of each year (each an "Interest Payment Date") to holders of record
at the close of business on April 15 or October 15 (each a "Regular Record
Date") immediately preceding such Interest Payment Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months and
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Option Exercise Date.

         (b) Interest on any Security that is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security is registered at the close of business on the Regular
Record Date for such interest at the office or agency of the Company maintained
for such purpose. Each installment of interest on any Security shall be paid in
same-day funds by transfer to an account maintained by the payee located inside
the United States, provided that, with respect to any Holder, such Holder shall
have furnished to the Paying Agent all required wire instructions no later than
the Regular Record Date, or if no such instructions have been furnished, such
interest shall be paid by check payable to such Holder.

         (c) Except as otherwise specified with respect to the Securities, any
Defaulted Interest on any Security shall forthwith cease to be payable to the
registered Holder thereof on the relevant Regular Record Date by virtue of
having been such Holder, and such Defaulted Interest may be paid by the Company
as provided for in Section 10.02(b) of the Indenture.

11.      Denominations; Transfer; Exchange.

         The Securities are in fully registered form, without coupons, in
denominations of $1,000 of Principal Amount at Maturity and integral multiples
of $1,000. A Holder may transfer or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not transfer
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed

                                     A-2 - 9

<PAGE>   93

in part, the portion of the Security not to be redeemed) or any Securities in
respect of which a Purchase Notice or Change in Control Purchase Notice has been
given and not withdrawn (except, in the case of a Security to be purchased in
part, the portion of the Security not to be purchased) or any Securities for a
period of 15 days before the mailing of a notice of redemption of Securities to
be redeemed.

12.      Persons Deemed Owners.

         The registered Holder of this Security may be treated as the owner of
this Security for all purposes.

13.      Unclaimed Money or Securities.

         The Trustee and the Paying Agent shall return to the Company upon
written request any money or securities held by them for the payment of any
amount with respect to the Securities that remains unclaimed for two years,
subject to applicable unclaimed property law. After return to the Company,
Holders entitled to the money or securities must look to the Company for payment
as general creditors unless an applicable abandoned property law designates
another person.

14.      Amendment; Waiver.

         Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in aggregate Principal Amount at Maturity of the
Securities at the time outstanding and (ii) certain Defaults may be waived with
the written consent of the Holders of a majority in aggregate Principal Amount
at Maturity of the Securities at the time outstanding. Subject to certain
exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the Indenture or the
Securities in order, among other things, to cure any ambiguity or inconsistency,
or to comply with Article 5 or Section 11.14 of the Indenture, or to make any
change that does not adversely affect the rights of any Securityholder, or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the TIA or the registration of the Securities under the
Securities Act.

15.      Defaults and Remedies.

         Under the Indenture, Events of Default include (i) if the Securities
have been converted to semiannual coupon notes following a Tax Event, default
for 30 days in the payment of interest; (ii) default in payment of the Principal
Amount at Maturity (or, if the Securities have been converted to semiannual
coupon notes following a Tax Event, the Restated Principal Amount), Issue Price
plus accrued Original Issue Discount, Redemption Price, Purchase Price or Change
in Control Purchase Price, as the case may be, in respect of the Securities when
the same becomes due and payable; (iii) failure by the Company to comply with
other agreements in the Indenture or the Securities, subject to notice and lapse
of time; (iv) default in the payment of principal when due or resulting in
acceleration of other Debt where the aggregate principal amount with respect to
such Debt has not been rescinded or annulled within a period of 10 days after
receipt by the Company of a Notice of Default; and (v) certain events of
bankruptcy or insolvency. If an Event of Default occurs and is continuing, the
Trustee, or the Holders of at

                                    A-2 - 10

<PAGE>   94

least 25% in aggregate Principal Amount at Maturity of the Securities at the
time outstanding, may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities becoming due and payable immediately upon
the occurrence of such Events of Default.

         Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in aggregate Principal Amount at
Maturity of the Securities at the time outstanding may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing Default (except a Default in payment of amounts
specified in clause (i) or (ii) above) if it determines that withholding notice
is in their interests.

16.      No Recourse Against Others.

         A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.

17.      Authentication.

         This Security shall not be valid until an authorize signatory of the
Trustee manually signs the Trustee's Certificate of Authentication on the other
side of this Security.

18.      Abbreviations.

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

19.      GOVERNING LAW.

         THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND INTERPRET THE
INDENTURE AND THIS SECURITY. The Company has agreed in the Indenture to submit
to the non-exclusive jurisdiction of the competent courts of the State of New
York and the United States, each sitting in the City of New York, with respect
to any action or proceeding arising out of or relating to the Indenture or the
Securities.

                                   -----------

         The Company will furnish to any Securityholder upon written request and
without charge a copy of the Indenture. Requests may be made to:

                  The Shaw Group Inc.
                  8545 United Plaza Boulevard
                  Baton Rouge, Louisiana 70809
                  Attention: Chief Financial Officer

                                    A-2 - 11

<PAGE>   95

<TABLE>
<CAPTION>
                      ASSIGNMENT FORM                                           CONVERSION NOTICE
<S>                                                         <C>
To assign this Security, fill in the form below:             To convert this Security into Common Stock of the
                                                             Company, check the box:   [ ]
I or we assign and transfer this Security to
                                                             To convert only part of this Security, state the
                                                             Principal at Maturity to be converted (which
                                                             must be $1,000 or an integral multiple of $1,000):
-----------------------------------------------------

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

-----------------------------------------------------        If you want the stock certificate made out in another
(Insert assignee's soc. sec. or tax ID no.)                  person's name, fill in the form below:

-----------------------------------------------------        -----------------------------------------------------
and Irrevocably appoint or
                                                             (Insert other person's soc. sec. Tax ID no.)
                                             agent to
--------------------------------------------
transfer this Security on the books of the Company.          -----------------------------------------------------
The Agent may substitute another to act for him.
                                                             (Print or type other person's name, address and
                                                             zip code)

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

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

Date:                                                Your Signature:
      ------------------------------                                 -------------------------------------

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

                     Sign exactly as your name appears on the other side of this Security)

Signature Guarantee:
                      -------------------------------------------------
</TABLE>

(Signature must be guaranteed by a participant in a recognized Signature
Guarantee Medallion Program or other signature guarantor program reasonably
acceptable to the Trustee.)

                                    A-2 - 12

<PAGE>   96

                                  EXHIBIT B-1

                              Transfer Certificate

         In connection with any transfer of any of the Securities within the
period prior to the expiration of the holding period applicable to the sales
thereof under Rule 144(k) under the Securities Act of 1933, as amended (the
"Securities Act") (or any successor provision), the undersigned registered owner
of this Security hereby certifies with respect to $____________ Principal Amount
at Maturity of the above-captioned securities presented or surrendered on the
date hereof (the "Surrendered Securities") for registration of transfer, or for
exchange or conversion where the securities issuable upon such exchange or
conversion are to be registered in a name other than that of the undersigned
registered owner (each such transaction being a "transfer"), that such transfer
complies with the restrictive legend set forth on the face of the Surrendered
Securities for the reason checked below:

         [ ]      A transfer of the Surrendered Securities is made to the
                  Company or any subsidiaries; or

         [ ]      The transfer of the Surrendered Securities complies with Rule
                  144A under the U.S. Securities Act of 1933, as amended (the
                  "Securities Act"); or

         [ ]      The transfer of the Surrendered Securities is to an
                  institutional accredited investor, as described in Rule
                  501(a)(1), (2), (3) or (7) of Regulation D under the
                  Securities Act; or

         [ ]      The transfer of the Surrendered Securities is pursuant to an
                  effective registration statement under the Securities Act, or

         [ ]      The transfer of the Surrendered Securities is pursuant to an
                  offshore transaction in accordance with Rule 903 or Rule 904
                  of Regulation S under the Securities Act; or

         [ ]      The transfer of the Surrendered Securities is pursuant to
                  another available exemption from the registration requirement
                  of the Securities Act.

         and unless the box below is checked, the undersigned confirms that, to
the undersigned's knowledge, such Securities are not being transferred to an
"affiliate" of the Company as defined in Rule 144 under the Securities Act (an
"Affiliate").

         [_]      The transferee is an Affiliate of the Company.

DATE:
     --------------------             ---------------------------------------
                                                  Signature(s)

            (If the registered owner is a corporation, partnership or
             fiduciary, the title of the Person signing on behalf of
                     such registered owner must be stated.)

Signature Guarantee:
                      -------------------------------------------------

(Signature must be guaranteed by a participant in a recognized Signature
Guarantee Medallion Program or other signature guarantor program reasonably
acceptable to the Trustee.)

                                    B-1 - 1
<PAGE>   97

                                   EXHIBIT B-2

             Form of Letter to be Delivered by Accredited Investors

The Shaw Group Inc.
8545 United Plaza Boulevard
Baton Rouge, Louisiana 70809

Attention: Chief Financial Officer

United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036-1532

Attention: Corporate Trust Administration

Dear Sirs:

         We are delivering this letter in connection with the proposed transfer
of $_____________ Principal Amount at Maturity of the Liquid Yield Option Notes
due 2021 ("LYONs") of The Shaw Group Inc. (the "Company"), which are convertible
into shares of the Company's Common Stock, no par value per share (the "Common
Stock").

         We hereby confirm that:

                  (i) we are an "accredited investor" within the meaning of Rule
         501(a)(1), (2) or (3) under the Securities Act of 1933, as amended (the
         "Securities Act"), or an entity in which all of the equity owners are
         accredited investors within the meaning of Rule 501(a)(1), (2) or (3)
         under the Securities Act (an "Institutional Accredited Investor");

                  (ii) the purchase of LYONs by us is for our own account or for
         the account of one or more other Institutional Accredited Investors or
         as fiduciary for the account of one or more trusts, each of which is an
         "accredited investor" within the meaning of Rule 501(a)(7) under the
         Securities Act and for each of which we exercise sole investment
         discretion or (B) we are a "bank," within the meaning of Section
         3(a)(2) of the Securities Act, or a "savings and loan association" or
         other institution described in Section 3(a)(5)(A) of the Securities Act
         that is acquiring LYONs as fiduciary for the account of one or more
         institutions for which we exercise sole investment discretion;

                  (iii) we will acquire LYONs having a minimum principal amount
         at maturity of not less than $250,000 for our own account or for any
         separate account for which we are acting;

                  (iv) we have such knowledge and experience in financial and
         business matters that we are capable of evaluating the merits and risks
         of purchasing LYONs; and

                  (v) we are not acquiring LYONs with a view to distribution
         thereof or with any present intention of offering or selling LYONs or
         the Common Stock issuable upon

                                     B-2 - 1

<PAGE>   98

         conversion thereof, except as permitted below; provided that the
         disposition of our property and property of any accounts for which we
         are acting as fiduciary shall remain at all times within our control.

         We understand that the LYONs were originally offered and sold in a
transaction not involving any public offering within the United States within
the meaning of the Securities Act and that the LYONs and the shares of Common
Stock (the "Securities") issuable upon conversion thereof have not been
registered under the Securities Act, and we agree, on our own behalf and on
behalf of each account for which we acquire any LYONs, that if in the future we
decide to resell or otherwise transfer such Securities prior to the date (the
"Resale Restriction Termination Date") which is two years after the later of the
original issuance of the LYONs and the last date on which the Company or an
affiliate of the Company was the owner of the Security, such Securities may be
resold or otherwise transferred only (i) to the Company or any subsidiary
thereof, or (ii) for as long as the LYONs are eligible for resale pursuant to
Rule 144A, to a person it reasonably believes is a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) that purchases for its
own account or for the account of a qualified institutional buyer to which
notice is given that the transfer is being made in reliance on Rule 144A, or
(iii) to an Institutional Accredited Investor that is acquiring the Security for
its own account, or for the account of such Institutional Accredited Investor
for investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities Act, or (iv)
pursuant to another available exemption from registration under the Securities
Act (if applicable), or (v) pursuant to a registration statement which has been
declared effective under the Securities Act and, in each case, in accordance
with any applicable securities laws of any State of the United States or any
other applicable jurisdiction and in accordance with the legends set forth on
the Securities. We further agree to provide any person purchasing any of the
Securities other than pursuant to clause (v) above from us a notice advising
such purchaser that resales of such securities are restricted as stated herein.
We understand that the trustee or the transfer agent, as the case may be, for
the Securities will not be required to accept for registration of transfer any
Securities pursuant to (iii) or (iv) above except upon presentation of evidence
satisfactory to the Company that the foregoing restrictions on transfer have
been complied with. We further understand that any Securities will be in the
form of definitive physical certificates (or beneficial interests therein) and
that such certificates will bear a legend reflecting the substance of this
paragraph other than certificates representing Securities transferred pursuant
to clause (v) above.

         We acknowledge that the Company, others and you will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.

                                     B-2 - 2

<PAGE>   99

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

                                         --------------------------------------
                                         (Name of Purchaser)

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

                                     B-2 - 3

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