DEFA14A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): February 15, 2005

Input/Output, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation)

1-12961	22-2286646
(Commission File Number)	(IRS Employer Identification No.)

12300 Parc Crest Drive, Stafford, Texas	77477
(Address of Principal Executive Offices)	(Zip Code)

281-933-3339 (Registrant’s Telephone Number, Including Area Code)
 
 

(Former Name or Former Address, if Changed Since Last Report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

     o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

     þ  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

     o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

     o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 1.01  Entry into a Material Definitive Agreement.
	Item 2.02.  Results of Operations and Financial Condition
	Item 3.02  Unregistered Sales of Equity Securities.
	Item 3.03  Material Modification to Rights of Securities Holders.
	Item 5.03  Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
	Item 9.01  Financial Statements and Exhibits.
SIGNATURES
Certificate of Rights & Designations
2nd Amendment to Rights Agreement
Agreement - Fletcher International, Ltd.
Press Release

Item 1.01  Entry into a Material Definitive Agreement.

Input/Output, Inc. (I/O) announced on February 16, 2005, that it had issued and sold to Fletcher International, Ltd., an affiliate of Fletcher Asset Management, Inc. (“Fletcher”), 30,000 shares of a newly designated Series D-1 Cumulative Convertible Preferred Stock (“Series D-1 Preferred Stock”) in a privately-negotiated transaction exempt from registration under the Securities Act of 1933, as amended. The total purchase price for the Series D-1 Preferred Stock was $30 million. I/O intends to use the proceeds from the issuance of the Series D-1 Preferred Stock for general corporate purposes, including working capital and potential business opportunities. I/O has no present commitment or ongoing negotiations with respect to any potential acquisition.

The Series D-1 Preferred Stock may be converted at the preferred holder’s election into up to 3,812,428 shares of I/O common stock (“Common Stock”), subject to adjustment, at an initial conversion price of $7.869 per share, also subject to adjustment in certain events.

I/O also granted Fletcher the right, commencing August 16, 2005 and expiring on February 16, 2008, subject to extension, to purchase up to an additional 40,000 shares of one or more additional series of Series D Preferred Stock, having similar terms and conditions as the Series D-1 Preferred Stock, and having a conversion price of 122% of the prevailing market price of I/O Common Stock at the time of issuance, but not less than $6.31 per share (subject to adjustment in certain events).

Under I/O’s purchase agreement with Fletcher dated February 15, 2005, a copy of which is attached hereto as Exhibit 10.1 (the “Agreement”), I/O agreed to file a registration statement with the Securities and Exchange Commission (SEC) to register for resale the shares of Common Stock issuable under the Series D Preferred Stock. If I/O is unable to register such shares of Common Stock by the times and on the conditions set forth in the Agreement, it will be liable to Fletcher for additional sums until the registration requirements have been met.

Commencing on February 16, 2007 (or earlier upon the occurrence of certain events), the holders of the Series D-1 Preferred Stock have the right to cause I/O to redeem all or a portion of their shares of Series D-1 Preferred Stock for shares of registered Common Stock or, at I/O’s election, for cash. The number of shares of Common Stock to be issued by I/O upon redemption will be determined by dividing the stated value of the shares of Series D-1 Preferred Stock being redeemed by the prevailing market price at the time of such redemption. If I/O elects to redeem the shares of Series D-1 Preferred Stock for cash, it will pay the holders a redemption cash amount also based on the market price of the shares of Common Stock otherwise issuable.

The Series D-1 Preferred Stock will accrue cumulative dividends at a minimum rate of 5% per annum, payable quarterly. These dividends may be paid, at I/O’s election, in cash or shares of registered Common Stock. So long as the Series D-1 Preferred Stock is outstanding, I/O may not pay any dividends in cash or property to holders of junior securities (including holders of Common Stock), and may not purchase or redeem for cash or property any junior securities (including Common Stock), unless there are no arrearages in dividends declared and paid on the Series D-1 Preferred Stock and sufficient cash has been set aside to pay dividends on the Series D-1 Preferred Stock for the next four quarterly dividend periods. The Series D-1 Preferred Stock

will not be entitled to vote on any matters other than with respect to specified corporate acts that would adversely affect the Series D-1 Preferred Stock, and with respect to certain other actions as required under the Delaware General Corporation Law.

If, at any time after July 15, 2005, the 20-Day Average Price (as defined in the Certificate of Rights and Preferences of Series D-1 Cumulative Convertible Preferred Stock, a copy of which is attached hereto as Exhibit 3.1 (the “Certificate”)) per share of I/O common stock is less than $4.4517 (subject to adjustment as provided in the Agreement), then (i) all dividends on the Series D-1 Preferred Stock must thereafter be paid in cash and (ii) either the conversion price will be reduced to $4.4517 per share (subject to adjustment as provided in the Agreement) or I/O will settle all of its future redemption obligations in cash, or cash and common stock. If a restatement of I/O’s financial statements is required due to any material change in the financial statements during specified periods, the conversion price may, at the holder’s election, also be adjusted. The maximum number of shares of I/O Common Stock issuable under the Series D-1 Preferred Stock and any and all subsequent series of Series D Preferred Stock shall initially be 7,669,434 shares. The Agreement provides that under no event will the total number of shares of common stock issuable under the Series D Preferred Stock exceed 15,724,306 shares.

During the term of the Agreement, neither Fletcher, nor any of its affiliates, shall engage in “short sales” of I/O common stock. However, Fletcher and its affiliates are not prohibited from engaging in any transaction in any stock index, portfolio or derivative of which I/O common stock is a component.

Shares of Series D Preferred Stock may not be converted into Common Stock until I/O obtains approval from its stockholders of an amendment to its certificate of incorporation to increase its number of authorized shares of Common Stock. I/O has agreed to propose an amendment to its certificate of incorporation to increase its authorized shares of common stock from 100,000,000 to at least 200,000,000 shares at its next annual meeting of stockholders, to be held not later than May 5, 2005. If stockholder approval is not obtained by August 5, 2005, then all redemptions and conversions of Series D-1 Preferred Stock must be satisfied only in cash and not in shares of Common Stock and the dividend rate on the Series D-1 Preferred Stock will increase.

I/O has agreed to indemnify Fletcher and its affiliates for liabilities, losses, damages, costs and expenses which may be incurred by Fletcher or its affiliates as a result of any claims made against Fletcher or such affiliates based upon (i) any breach by I/O of its representations, warranties or covenants contained in the Agreement or the Certificate, or (ii) untrue statements of material facts or omissions to state material facts in any filing by I/O with the SEC. Fletcher has similarly agreed to indemnify I/O and its affiliates for claims based upon breaches by it and untrue statements and omissions made by Fletcher with its written consent expressly for inclusion in any of I/O’s SEC filings. Additionally, I/O has agreed to indemnify Fletcher and its affiliates against liabilities they may incur based upon Fletcher’s or any such affiliate’s inability to perform any contract to sell I/O common stock issuable under the Series D-1 Preferred Stock as a result of I/O requiring Fletcher to suspend resales of common stock under any registration statement.

The foregoing description of this transaction is only a summary and is qualified in its entirety by reference to the documents filed as Exhibits under Item 9.01 of this Current Report on Form 8-K.

Input/Output, Inc. will file with the SEC a proxy statement concerning the proposed amendment to its certificate of incorporation as described above. Investors are urged to read the proxy statement filed with the SEC when it becomes available because it will contain important information. You will be able to obtain the proxy statement, and any other relevant documents free of charge at the website maintained by the SEC at www.sec.gov. In addition, you may obtain documents filed with the SEC by I/O free of charge by requesting them in writing from I/O or by telephone at (281) 933-3339. I/O and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of I/O in connection with the proposal to amend the certificate of incorporation. Investors may obtain additional information regarding interests of such participants by reading the proxy statement when it becomes available.

Item 2.02.  Results of Operations and Financial Condition

On February 16, 2005, I/O issued a press release regarding its results of operations for the year ended December 31, 2004, a copy of which is furnished as Exhibit 99.1 hereto.

The information contained in this Item 2.02 and Exhibit 99.1 (i) is not to be considered “filed” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (ii) shall not be incorporated by reference into any previous or future filings made by or to be made by I/O with the SEC under the Securities Act or the Exchange Act.

The information contained in this Current Report on Form 8-K and such exhibit contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include statements concerning estimated future revenues, gross margin, EBITDA, net income per share and earnings per share. Actual results may vary materially from those described in these forward-looking statements. All forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties. These risks and uncertainties include the market acceptance of I/O’s revised product and service offerings; risks from the integration of our acquisitions in recent periods; the variability of our net sales and gross margins depending on the nature of customer purchases for the particular quarter; risks associated with competitors’ products and services and pricing pressures resulting therefrom; the long sales cycle of I/O’s products and the timing and development of its products and services; I/O’s ability to produce products to preserve and increase market share; risks associated with I/O’s restructuring and corporate repositioning program; risks of significant payment defaults under extended financing arrangements with customers; risks of losing significant customers; and risks of technological and marketplace changes affecting I/O’s product line and service offerings. Additional risk factors, which could affect actual results, are disclosed by I/O from time to time in its filings with the SEC.

Item 3.02  Unregistered Sales of Equity Securities.

The sale of the Series D-1 Preferred Stock was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. The sale was made without any general solicitation or advertising and the purchaser represented to I/O that it is an accredited investor and that the securities were being acquired by it for investment purposes only and without a view to the distribution thereof.

Item 3.03  Material Modification to Rights of Securities Holders.

As described in Item 1.01 of this Current Report on Form 8-K, on February 16, 2005, I/O issued shares of Series D-1 Preferred Stock, which shares affect the rights of holders of I/O’s common stock. The general effect of the issuance of the Series D-1 Preferred Stock upon the rights of the holders of common stock is more fully described in Item 1.01 above, which description is incorporated herein by reference. This description is qualified in its entirety by reference to the copy of the Certificate filed as Exhibit 3.1 to this Form 8-K.

In connection with the transaction described in Item 1.01 of this Current Report on Form 8-K, I/O entered into a Second Amendment to Rights Agreement dated February 16, 2005, amending the terms of the Rights Agreement between I/O and Computershare Investor Services, LLC (successor to Harris Trust and Savings Bank), as Rights Agent, dated as of January 17, 1997, as previously amended by the First Amendment to Rights Agreement dated effective as of April 21, 1999. The Second Amendment to Rights Agreement filed as Exhibit 3.2 to this Form 8-K.

Item 5.03  Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

In connection with the transaction described in Item 1.01 of this Current Report on Form 8-K, on February 16, 2005, I/O filed the Certificate with the Secretary of State of the State of Delaware. The Certificate establishes the rights, preferences, restrictions and other matters relating to the Series D-1 Preferred Stock. The terms of the Certificate are more fully described in Item 1.01 above, which descriptions are incorporated herein by reference. This description is qualified in its entirety by reference to the copy of the Certificate filed as Exhibit 3.1 to this Form 8-K.

Item 9.01  Financial Statements and Exhibits.

(a)   Financial statements of businesses acquired.

Not applicable.

(b)   Pro forma financial information.

Not applicable.

(c)   Exhibits.

      3.1      Certificate of Rights and Designations of Series D-1 Cumulative Convertible Preferred Stock of Input/Output, Inc. as filed with Secretary of State of the State of Delaware.

      3.2      Second Amendment to Rights Agreement dated February 16, 2005, amending the terms of the Rights Agreement between I/O and Computershare Investor Services, LLC (successor to Harris Trust and Savings Bank), as Rights Agent, dated as of January 17, 1997.

      10.1    Agreement dated as of February 15, 2005 between Input/Output, Inc. and Fletcher International, Ltd.

      99.1    Press Release of Input/Output, Inc. dated February 16, 2005.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: February 17, 2005

INPUT/OUTPUT, INC.
By:	/s/ J. MICHAEL KIRKSEY
	Name:	J. Michael Kirksey
	Title:	Executive Vice President and CFO

EX-3.1

Exhibit 3.1

CERTIFICATE OF RIGHTS AND PREFERENCES
OF
SERIES D-1 CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
INPUT/OUTPUT, INC.

FEBRUARY 16, 2005

     Pursuant to Section 151 of the Delaware General Corporation Law and Article V, Fourth, Section 2 of the Restated Certificate of Incorporation, as amended, of Input/Output, Inc., INPUT/OUTPUT, INC., a corporation organized and existing under the laws of the State of Delaware, hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company effective as of February 15, 2005 pursuant to authority conferred upon the Board of Directors by the Restated Certificate of Incorporation, as amended, of the Company, which authorizes the issuance of up to Five Million (5,000,000) shares of preferred stock, par value $0.01 per share.

     RESOLVED, that pursuant to authority expressly granted to and vested in the Board of Directors of the Company and pursuant to the provisions of the Amended and Restated Certificate of Incorporation, the Board of Directors hereby creates a series of preferred stock, herein designated and authorized as the Series D-1 Cumulative Convertible Preferred Stock, par value $0.01 per share, which shall consist of Thirty Thousand (30,000) of the Five Million (5,000,000) shares of preferred stock which the Company now has authority to issue, and the Board of Directors hereby fixes the powers, designations and preferences and the relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof as follows:

     1.       Number. The number of shares constituting the Series D-1 Cumulative Convertible Preferred Stock shall be Thirty Thousand (30,000).

     2.       Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meaning indicated.

     “20-Day Average Price” means, with respect to any certain date, the average of the Daily Market Prices of the Common Stock for the twenty (20) Business Days ending on and including such reference date.

     “Acquiring Person” has the meaning set forth in the Main Agreement.

     “Acquisition Price” means (i) the Daily Market Price of the Common Stock on the date immediately preceding the date on which a Change of Control is consummated, or (ii) if a purchase, tender or exchange offer is made by the Acquiring Person (or by any of its affiliates) to the holders of the Common Stock and such offer is accepted by the holders of more than fifty percent (50%) of the outstanding shares of Common Stock, the greater of (x) the price determined in accordance with the provisions of the foregoing clause (i) of this sentence and (y) the Daily Market Price on the date immediately preceding (A) in the case of a purchase, the date of acceptance of such offer by the holders of more than fifty percent (50%) of the outstanding

shares of Common Stock and (B) in the case of a tender or exchange offer, the date on which more than fifty percent (50%) of the outstanding shares of Common Stock shall have been accepted for payment pursuant to the terms of such tender or exchange offer.

     “Board” means the Board of Directors of the Company.

     “Business Day” means any day on which the Common Stock may be traded on the NYSE, or if not admitted for trading on the NYSE, on any day other than a Saturday, Sunday or holiday on which banks in New York City are required or permitted to be closed.

     “Capital Stock” means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated) of capital or capital stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership, limited partnership, limited liability company or other equity interests of such Person.

     “Certificate of Incorporation” means the Amended and Restated Certificate of Incorporation of the Company, as amended.

     “Certificate of Rights and Preferences” means this Certificate of Rights and Preferences of the Series D-1 Preferred Stock.

     “Change of Control” shall have the meaning set forth in the Main Agreement.

     “Common Stock” means the Company’s common stock, par value $0.01 per share (together with the associated preferred stock purchase rights under the Rights Agreement, dated as of January 17, 1997, by and between the Company and Harris Trust and Savings Bank, as Rights Agent), and any Capital Stock for or into which such Common Stock hereafter is exchanged, converted, reclassified or recapitalized by the Company or pursuant to a Change of Control to which the Company is a party (or, at the election of the Holder, the capital stock of any Acquiring Person from and after the consummation of a Change of Control).

     “Common Stock Equivalents” means (without duplication with any other Common Stock or common stock, as the case may be, or Common Stock Equivalents) rights, warrants, options, convertible securities or exchangeable securities, exercisable for or convertible or exchangeable into, directly or indirectly, Common Stock, or common stock, as the case may be, whether at the time of issuance or upon the passage of time or the occurrence of some future event.

     “Company” means Input/Output, Inc., a Delaware corporation (or any Acquiring Person from and after the consummation of a Change of Control).

     “Conversion Closing Date” is defined in Section 6(A)(i).

     “Conversion Notice” is defined in Section 6(A)(i).

     “Conversion Price” means seven dollars and eighty-six and nine-tenths cents ($7.869), subject to adjustment for (i) stock splits, recombinations, stock dividends and the like, (ii) pursuant to Section 7, in the case of any Restatement, and (iii) as a result of delivery of a Price

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Adjustment Notice (as defined in the Main Agreement) as set forth in the Main Agreement; provided, that, on or after the consummation of any Change of Control, the Conversion Price shall equal the product of (x) the Conversion Price in effect immediately before such Change of Control multiplied by (y) the quotient of (A) the Prevailing Market Price of the Acquiring Person as of the date of such consummation divided by (B) the Acquisition Price.

     “Conversion Stock Amount” is defined in Section 6(A)(ii).

     “Daily Market Price” means, on any date, the amount per share of the Common Stock (or, for purposes of determining the Daily Market Price of the common stock of an Acquiring Person under Section 6(F), the common stock of such Acquiring Person), equal to (i) the daily volume-weighted average price on the NYSE or, if no sale takes place on such date, the average of the closing bid and asked prices on the NYSE thereof on such date, in each case as reported by Bloomberg, L.P. (or by such other Person as the Holder and the Company may agree), or (ii) if such Common Stock or common stock of an Acquiring Person or its Parent is not then listed or admitted to trading on the NYSE, the higher of (x) the book value per share thereof as determined by any firm of independent public accountants of recognized standing selected by the Board as of the last calendar day of the most recent month ending before the date as of which the determination is to be made or (y) the fair value per share thereof determined in good faith by an independent, nationally recognized appraisal firm selected by a Majority of the Series D-1 Preferred Stock and reasonably acceptable to the Company (whose fees and expenses shall be borne by Company), subject to adjustment for stock splits, recombinations, stock dividends and the like.

     “Dividend Payment Date” is defined in Section 3(A).

     “Dividend Period” is defined in Section 3(A).

     “Dividend Rate” means a rate equal to the Stated Value multiplied by the greater of (i) five percent (5%) per annum and (ii) the sum of the 3-month London Interbank Offer Rate (LIBOR) on February 14, 2005, and from and after April 1, 2005, on the last day of the immediately preceding calendar quarter (or if such day is not a Business Day, then the first Business Day prior to such date), plus two and one-half percent (2 ¹/2%) per annum subject to Sections 3(E) and 3(F); provided, however, that, if the Company Meeting (as defined in the Main Agreement) has not been held, or if the Proposed Share Increase (as defined in the Main Agreement) has not been approved, on or before May 5, 2005, then “Dividend Rate” means a rate equal to the Stated Value multiplied by the sum of the 3-month LIBOR on May 4, 2005 and from and after July 1, 2005, on the last day of the immediately preceding calendar quarter (or if such day is not a Business Day, then the first Business Day prior to such date) plus five percent (5%) per annum, subject to Sections 3(E) and 3(F), until the Proposed Share Increase has been approved.

     “Effective Election Notice” means an Election Notice following the 45^th Business Day after its delivery to a Holder, which shall, after expiration of such forty-five (45) Business Day period, supersede any prior Effective Election Notice.

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     “Election Notice” means the delivery by the Company to a Holder of a notice, substantially in the form attached as Annex H to the Main Agreement, signifying its election to deliver cash or shares of Common Stock in the event of a dividend or redemption, as the case may be.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Fletcher” means Fletcher International, Ltd. a company organized under the laws of Bermuda, together with its successors.

     “Holder” shall mean a holder of Series D-1 Preferred Stock.

     “Issue Date” means with respect to any shares of Series D-1 Preferred Stock the original date of issuance of such shares of Series D-1 Preferred Stock.

     “Junior Securities” means Capital Stock that, with respect to dividends and distributions upon Liquidation, ranks junior to the Series D Preferred Shares (as defined in the Main Agreement), including but not limited to Common Stock and any other class or series of Capital Stock issued by the Company or any Subsidiary of the Company on or after the date of the Main Agreement, but excluding any Parity Securities and Senior Securities issued (i) to Fletcher or its authorized assignees under the Main Agreement, (ii) with the approval of the Holders of a Majority of the Series D-1 Preferred Stock or (iii) upon the conversion, redemption or exercise of securities described in clause (i) or (ii) in accordance with the terms thereof.

     “Liquidation” means the voluntary or involuntary liquidation, dissolution or winding up of the Company; provided, however, that a consolidation, merger or share exchange shall not be deemed a Liquidation, nor shall a sale, assignment, conveyance, transfer, lease or other disposition by the Company of all or substantially all of its assets, which does not involve a distribution by the Company of cash or other property to the holders of Common Stock, be deemed to be a Liquidation.

     “Liquidation Preference” is defined in Section 4.

     “Main Agreement” means the Agreement dated as of February 15, 2005, between the Company and Fletcher pursuant to which thirty thousand (30,000) shares of Series D-1 Preferred Stock are to be issued by the Company, including all schedules and exhibits thereto.

     “Majority of the Series D-1 Preferred Stock” means more than fifty percent (50%) of the then outstanding shares of Series D-1 Preferred Stock.

     “NYSE” shall have the meaning set forth in the Main Agreement.

     “Other Securities” means any stock (other than Common Stock) and other securities of the Company or any other Person which the Holders of the Series D-1 Preferred Stock at any time shall be entitled to receive, or shall have received, upon conversion or redemption of the Series D-1 Preferred Stock in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities.

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     “Parity Securities” means any class or series of Capital Stock that, with respect to dividends or distributions upon Liquidation, is pari passu with the Series D-1 Preferred Stock and shall include, without limitation, all Series D Preferred Shares issued pursuant to the Main Agreement.

     “Person” means an individual or a corporation, partnership, trust, incorporated or unincorporated association, limited liability company, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

     “Preferred Stock” means the Company’s preferred stock authorized pursuant to the provisions of the Certificate of Incorporation.

     “Prevailing Market Price” means, with respect to any reference date, the average of the Daily Market Prices of the Common Stock (or, for purposes of determining the Prevailing Market Price of the common stock of an Acquiring Person under Section 6(F), the common stock of such Acquiring Person) for the forty (40) Business Days ending on and including the third (3^rd) Business Day before such reference date, but not greater than the average of the Daily Market Prices of the Common Stock for the first three (3) or the last three (3) Business Days of such forty (40) Business Day period.

     “Qualified Public Company” means a corporation meeting all of the following criteria: (i) the common stock of the corporation is registered under Section 12 of the Securities Exchange Act of 1934, as amended, (ii) the aggregate market value of the primary publicly traded class of common equity held by non-affiliates of such corporation as reported by Bloomberg L.P. on the reference date exceeds three hundred twenty-eight million, three hundred sixty thousand, five hundred dollars ($328,360,500), (iii) the average weekly reported volume of trading in such common stock on all national securities exchanges and/or reported through the NYSE as reported by Bloomberg L.P. during the four (4) calendar weeks preceding the reference date exceeds three million, nine hundred twenty-seven thousand, three hundred forty-nine dollars ($3,927,349).

     “Redemption Cash Amount” is defined in Section 6(B)(ii).

     “Redemption Closing Date” is defined in Section 6(B)(i).

     “Redemption Notice” is defined in Section 6(B)(i).

     “Redemption Stock Amount” is defined in Section 6(B)(iii).

     “Registered Common Stock” means Common Stock the resale of which has been registered under the Securities Act and is freely tradable upon delivery.

     “Restatement Adjustment Notice” is defined in Section 7.

     “Restatement” means that the Company restates or announces its intention to restate any portion of its financial statements as included (i) in a Form 10-K or Form 10-Q filed with the SEC, (ii) in a Form 8-K or in any other filing made with the SEC, (iii) in a press release or (iv) by any other method, except (A) as is required as a result of a change occurring after the date

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of the Main Agreement in (x) applicable law or (y) generally accepted accounting principles promulgated by the Financial Accounting Standards Board, the Public Company Accounting Oversight Board or the SEC, which change is implemented by the Company in the manner and at the time prescribed by such law or such generally accepted accounting principle, (B) for pro forma financial statements filed with the SEC in connection with an acquisition, which restatement relates primarily to the financial statements of the acquired company for the period prior to the effective date of the such acquisition and (C) for restatements relating to reclassifying operations as discontinued operations.

     “Restatement Date” means, at the option of and pursuant to the determination of a Majority of the Series D-1 Preferred Stock, any date on which a Restatement occurs (including, with respect to any Restatement, the date of an announcement by the Company of its intention to restate any portion of its financial statements or the date on which is filed a Form 10-K, Form 10-Q or Form 8-K or issuance of a press release in respect of the matters described in such announcement or the date on which such Restatement is filed with the SEC).

     “Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

     “Senior Securities” means any class or series of Capital Stock that, with respect to dividends or distributions upon Liquidation, ranks senior to the Series D-1 Preferred Stock.

     “Series D Preferred Shares” has the meaning ascribed to such term in the Main Agreement.

     “Series D-1 Preferred Stock” means the Series D-1 Cumulative Convertible Preferred Stock of the Company or successor as contemplated by Section 6(F).

     “Stated Value” is an amount equal to one thousand dollars ($1,000) per share of Series D-1 Preferred Stock plus (x) any accrued and unpaid dividends (as of the date of determination, which for purposes of Sections 6(A) and 6(B) shall be the Conversion Closing Date and Redemption Closing Date, respectively), whether or not declared and whether or not earnings are available in respect of such dividends and (y) any dividends declared on the Common Stock in an amount equal to the product of (A) the per-share dividend on Common Stock multiplied by (B) the number of shares of Common Stock issuable upon redemption or conversion (whichever is greater) of a share of Series D-1 Preferred Stock on the date such dividend is declared on the Common Stock. In the event the Company shall declare a distribution on the Common Stock payable in securities or property other than cash, the value of such securities or property will be the fair market value. Any securities shall be valued as follows: (i) if traded on a national securities exchange or through the Nasdaq National Market or Nasdaq SmallCap Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) Business Day period ending three (3) calendar days prior to such declaration; (ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) Business Day period ending three (3) calendar days prior to such declaration; and (iii) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board.

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     “Subsidiary” of a Person means (i) a corporation, a majority of whose stock with voting power, under ordinary circumstances, to elect directors is at the time of determination, directly or indirectly, owned by such Person or by one or more Subsidiaries of such Person, or (ii) any other entity (other than a corporation) in which such Person or one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof has a least a majority ownership interest.

     The foregoing definitions will be equally applicable to both the singular and plural forms of the defined terms.

     3.      Dividends and Distributions.

     (A)      Holders shall be entitled to receive out of the assets of the Company legally available for that purpose, dividends at the Dividend Rate to be paid in accordance with the terms of this Section 3. Such dividends shall be fully cumulative from the Issue Date, shall accumulate regardless of whether the Company earns a profit and shall be payable in arrears, when and as declared by the Board (or a duly appointed committee of directors), on March 31, June 30, September 30 and December 31 of each year (each such date being herein referred to as a “Dividend Payment Date”), commencing on March 31, 2005. The period from the Issue Date to March 31, 2005, and each quarterly period between consecutive Dividend Payment Dates shall hereinafter be referred to as a “Dividend Period.” The dividend for any Dividend Period for any share of Series D-1 Preferred Stock that is not outstanding on every calendar day of the Dividend Period shall be prorated based on the number of calendar days such share was outstanding during the period. Each such dividend shall be paid to the Holders of record of the Series D-1 Preferred Stock as their names appear on the share register of the Company on the Dividend Payment Date. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any Dividend Payment Date (including, without limitation, for purposes of computing the Stated Value of any shares of Series D-1 Preferred Stock in connection with the conversion or redemption thereof or any Liquidation of the Company), to Holders of record on a date designated by the Board, not exceeding thirty (30) calendar days preceding the payment date thereof, as may be fixed by the Board. For purposes of determining the amount of dividends accrued as of the first Dividend Payment Date and as of any date that is not a Dividend Payment Date, such amount shall be calculated on the basis of the Dividend Rate for the actual number of calendar days elapsed from and including the Issue Date (in case of the first Dividend Payment Date and any date prior to the first Dividend Payment Date) or the last preceding Dividend Payment Date (in case of any other date) to the date as of which such determination is to be made, based on a three hundred sixty (360) day year.

     (B)       Dividends payable on the Series D-1 Preferred Stock may be paid, at the option of the Company, either in cash or by the issuance of Registered Common Stock, provided, however, that the Company’s right to pay dividends on any Dividend Payment Date by the issuance of Registered Common Stock shall continue only so long as (i) there shall not exist an Issuance Blockage (as defined in the Main Agreement) and the issuance of Common Stock shall not cause the Company to exceed the Maximum Number (as

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defined in the Main Agreement) and (ii) the Company is a Qualified Public Company on the Dividend Payment Date. Subject to the foregoing, payments on any Dividend Payment Date shall be made in Registered Common Stock unless an Effective Election Notice provides that such payments shall be made in cash. Notwithstanding the foregoing, with respect to the first Dividend Payment Date on the Series D-1 Preferred Stock, the Company may notify the Holders in writing of its irrevocable intention to pay cash on or before March 25, 2005. The number of shares of Registered Common Stock to be issued shall be determined by dividing the cash amount of the dividend otherwise payable by the Prevailing Market Price calculated as of such Dividend Payment Date; provided, however, if the Company shall combine, subdivide or reclassify its Common Stock, or shall declare any dividend payable in shares of its Common Stock, or shall take any other action of a similar nature affecting such shares, the number of shares of Registered Common Stock to be issued shall be adjusted to the extent appropriate to reflect such event, including appropriate adjustments to account for any such event that occurs during the period used for calculating such Prevailing Market Price. The number of shares of Registered Common Stock to be issued as a dividend shall be rounded up to the nearest whole share after aggregating all shares of Series D-1 Preferred Stock owned by a Holder.

     (C)       If, on any Dividend Payment Date, the Company fails to pay dividends, then until the dividends that were scheduled to be paid on such date are paid, such dividends shall cumulate and shall accrue additional dividends to and including the date of payment thereof at the Dividend Rate then in effect, compounded quarterly on each subsequent Dividend Payment Date. Unpaid dividends for any period less than a full Dividend Period shall cumulate on a day to day basis and shall be computed on the basis of a three hundred sixty (360) day year.

     (D)       So long as any shares of the Series D-1 Preferred Stock shall be outstanding, (i) the Company shall not and shall not allow its Subsidiaries to declare or pay any dividend whatsoever, whether in cash, property or otherwise, set aside any cash or property for the payment of dividends, or make any other distribution on any Junior Securities, (ii) the Company shall not and shall not allow its Subsidiaries to declare or pay any dividend whatsoever, whether in cash, property or otherwise, set aside any cash or property for the payment of dividends, or make any other distribution on any Parity Securities, except for dividends paid to the Company or any of its wholly-owned Subsidiaries and dividends paid on the Series D Preferred Shares and (iii) the Company shall not and shall not allow its Subsidiaries to repurchase, redeem or otherwise acquire for value or set aside any cash or property for the repurchase or redemption of any Junior Securities or Parity Securities, unless in each such case all dividends to which the Holders of the Series D-1 Preferred Stock shall have been entitled to receive for all previous Dividend Periods shall have been paid and dividends on the Series D-1 Preferred Stock for the subsequent four Dividend Periods shall have been designated and set aside in cash.

     (E)       Whenever, at any time or times, dividends payable on any Series D Preferred Shares (as defined in the Main Agreement) shall be in arrears in an aggregate

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amount greater than two (2) quarterly dividends, the Dividend Rate shall mean a rate equal to the greater of (i) fifteen percent (15%) per annum times the Stated Value and (ii) the Dividend Rate otherwise then in effect until such date that all accrued and unpaid dividends shall have been declared and paid in full.

     (F)       Whenever, at any time or times, the Company shall fail to redeem any Series D Preferred Shares (as defined in the Main Agreement) for cash by the date it is obligated to do so under Section 6(B) hereof or under Section 6(B) of any Subsequent Certificates of Rights and Preferences (as defined in the Main Agreement) and such failure to pay cash is ongoing, then the Dividend Rate shall mean a rate equal to the greater of (i) fifteen percent (15%) per annum times the Stated Value and (ii) the Dividend Rate otherwise then in effect until such date as the circumstances described in this subsection (F) no longer exist.

     (G)       Subject to the immediately following sentence, the Company shall be entitled to deduct and withhold from any dividend on the Series D-1 Preferred Stock such amounts as the Company is required to deduct and withhold with respect to such dividend under the Internal Revenue Code of 1986, as amended, or any other provision of state, local or foreign tax law. In the event the Company elects, pursuant to Section 3(B), to pay a dividend on the Series D-1 Preferred Stock by issuing Registered Common Stock to a Holder, (i) the Company shall deliver the number of shares of Registered Common Stock that would be delivered to a Holder pursuant to Section 3(B) in the absence of any requirement under applicable law to deduct and withhold any amount with respect to such dividend and (ii) on the Business Day following the Dividend Payment Date, Holder shall transfer to the Company by wire transfer of immediately available funds an amount equal to what the Company is required under applicable law to deduct and withhold with respect to such dividend. For purposes of determining the withholding amount, the dividend value shall equal the applicable number of dividend shares multiplied by the Daily Market Price on the Dividend Payment Date.

     4.       Liquidation Preference. In the event of any Liquidation, after payment or provision for payment by the Company of the debts and other liabilities of the Company and the liquidation preference of any Senior Securities that rank senior to the Series D-1 Preferred Stock with respect to distributions upon Liquidation, each Holder shall be entitled to receive an amount in cash for each share of the then outstanding Series D-1 Preferred Stock held by such Holder equal to the greater of (a) the Stated Value per share to and including the date full payment is tendered to the Holders with respect to such Liquidation and (b) the amount the Holders would have received if the Holders had converted all outstanding shares of Series D-1 Preferred Stock into Common Stock in accordance with the provisions of Section 6(A) hereof or redeemed all outstanding shares of Series D-1 Preferred Stock into Common Stock under Section 6(B) hereof (whichever is greater), in each case as of the Business Day immediately preceding the date of such Liquidation (such greater amount being referred to herein as the “Liquidation Preference”), before any distribution shall be made to the holders of any Junior Securities (and any Senior Securities or Parity Securities that, with respect to distributions upon Liquidation, rank junior to the Series D-1 Preferred Stock) upon the Liquidation of the Company. In case the assets of the Company available for payment to the Holders are insufficient to pay the full Liquidation

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Preference on all outstanding shares of the Series D-1 Preferred Stock and all outstanding shares of Parity Securities and Senior Securities that, with respect to distributions upon Liquidation, are pari passu with the Series D-1 Preferred Stock in the amounts to which the holders of such shares are entitled, then the entire assets of the Company available for payment to the Holders and to the holders of such Parity Securities and Senior Securities shall be distributed ratably among the Holders of the Series D-1 Preferred Stock and the holders of such Parity Securities and Senior Securities, based upon the aggregate amount due on such shares upon Liquidation. Written notice of any Liquidation of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by facsimile and overnight delivery not less than ten (10) calendar days prior to the payment date stated therein, to the Holders of record of the Series D-1 Preferred Stock, if any, at their respective addresses as the same shall appear on the books of the Company.

     5.       Voting Rights. The Holders shall have the following voting rights with respect to the Series D-1 Preferred Stock:

     (A)       Each share of Series D-1 Preferred Stock shall entitle the holder thereof to the voting rights specified in Section 5(B) and no other voting rights except as required by law.

     (B)       The consent of the Holders of at least a Majority of the Series D-1 Preferred Stock, voting separately as a single class with one vote per share, in person or by proxy, either in writing without a meeting or at an annual or a special meeting of such Holders called for the purpose, shall be necessary to:

     (i)       amend, alter or repeal, by way of merger or otherwise, any of the provisions of the Certificate of Incorporation, including the Certificate of Rights and Preferences, or Bylaws of the Company so as to:

     A.       change any of the rights, preferences or privileges of Holders. Without limiting the generality of the preceding sentence, such change includes any action that would:

     1.       Reduce the Dividend Rate on the Series D-1 Preferred Stock, or make such dividends non-cumulative, or defer the date from which dividends will accrue, or cancel accrued and unpaid dividends, or change the relative seniority rights of the holders of Series D-1 Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Company;

     2.       Reduce the amount payable to the holders of the Series D-1 Preferred Stock upon the voluntary or involuntary liquidation, dissolution, or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of the Series D-1 Preferred Stock to the rights upon liquidation of the holders of any other capital stock of the Company;

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     3.       Make the Series D-1 Preferred Stock redeemable at the option of the Company.

     B.       authorize, create or issue any shares of Parity Securities or Senior Securities (or amend the provisions of any existing class of Capital Stock to make such class of Capital Stock a class of Parity Securities or Senior Securities).

     (ii)      permit any Subsidiary of the Company to issue or sell, or obligate itself to issue or sell, except to the Company or any wholly owned Subsidiary, any security of such Subsidiaries or all or substantially all of the assets of any Subsidiary other than sales of assets on an arm’s-length, fair market value basis; or

     (iii)       increase or decrease (other than by redemption or conversion) the total number of authorized shares of Preferred Stock or amend any provisions of any Capital Stock so as to make such Capital Stock redeemable by the Company.

     6.       Conversion and Redemption.

     (A)       Procedure for Conversion.

     (i)       General. Shares of Series D-1 Preferred Stock are convertible at the option of the Holder thereof at any time, from time to time, in whole or in part, as follows:

     A.       The conversion of shares of Series D-1 Preferred Stock may be effected by delivering a duly executed written Preferred Stock Conversion Notice, in form and substance as attached to the Main Agreement as Annex D (the “Conversion Notice”), by facsimile, mail or overnight courier delivery, to the Company’s address set forth in Section 19 of the Main Agreement specifying the number of shares of Series D-1 Preferred Stock to be converted.

     B.       The closing of such conversion shall take place (a) on the later of (1) on the second Business Day following and excluding the date the Conversion Notice is delivered and (2) such later date as the conditions set forth in Section 6(A)(ii) have been waived or satisfied or (b) any other date upon which the exercising Holder and the Company mutually agree (the “Conversion Closing Date”).

     (ii)       Conversion for stock. Such shares of stock shall be converted into that number of shares of Registered Common Stock (or at the sole election of the Holder, unregistered Common Stock) equal to (A) the aggregate Stated Value of such shares divided by (B) the Conversion Price (the “Conversion Stock Amount”). On the Conversion Closing Date, the Holder shall surrender the certificate representing the shares of Series D-1 Preferred Stock to be converted to

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the Company at the address set forth for notices to the Company in Section 19 of the Main Agreement, and the Company shall deliver to such Holder at the address specified in the Conversion Notice the Conversion Stock Amount of duly authorized, validly issued, fully paid and nonassessable shares of Registered Common Stock (or Other Securities or, with such Holder’s express written consent, unregistered Common Stock). It shall be a condition of either the Company or the converting Holder’s obligation to close the conversion of the Series D-1 Preferred Stock that any applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or been terminated without litigation having been commenced that is continuing, or threat of litigation having been made that remains unresolved, by the United States Department of Justice or the United States Federal Trade Commission. It shall also be a condition of the converting Holder’s obligation to close the conversion of the Series D-1 Preferred Stock that each of the following is satisfied, unless expressly waived by such Holder in writing:

     A.       (1) the representations and warranties made by the Company in the Main Agreement shall be true and correct as of the Conversion Closing Date, except those representations and warranties that address matters only as of a particular date, which shall be true and correct as of such date; (2) the Company shall have complied fully with all of the covenants and agreements in the Main Agreement; (3) all shares to be issued upon such conversion shall be registered under the Securities Act, shall be freely tradable and shall be duly listed and admitted to trading on the New York Stock Exchange (unless, with respect to clause (3) only, the Holder expressly consents in writing to the issuance of unregistered Common Stock); and such Holder shall have received a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company dated such date and to the effect of clauses (1), (2) and (3).

     B.       On the Conversion Closing Date, the Company shall have delivered to the Holder (x) a Preferred Stock Conversion Delivery Notice, in form and substance as attached to the Main Agreement as Annex E and (y) the legal opinions described in Section 13(b) of the Main Agreement.

     C.       As of the Conversion Closing Date, the Company shall have notified the Holder of all Restatements.

     D.       The issuance of Common Stock shall not cause the Company to exceed the Maximum Number (as defined in the Main Agreement).

     The Company shall use its best efforts to cause each of the foregoing conditions to be satisfied at the earliest practicable date. If such conditions are not satisfied or waived prior to the third Business Day following and excluding the date the Conversion Notice is delivered, then

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the Holder may, at its sole option, and at any time, withdraw the Conversion Notice by written notice to the Company regardless of whether such conditions have been satisfied or waived as of the withdrawal date and, after such withdrawal, shall have no further obligations with respect to such Conversion Notice and may submit a Conversion Notice with respect to the shares referenced in the withdrawn Conversion Notice at any time.

     (iii)       Holder of record. Each conversion of Series D-1 Preferred Stock shall be deemed to have been effected immediately before the close of business on the Business Day on which the Conversion Notice is delivered (except, that, for purposes of calculation of the Stated Value, dividends shall accrue until and including the Conversion Closing Date), and at such time the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock (or Other Securities) shall be issuable upon such conversion as provided in Section 6(A)(ii) shall be deemed to have become the holder or holders of record thereof. The foregoing notwithstanding, such conversion shall not be deemed effective if and as of the date that the Holder delivers written notice of withdrawal to the Company as set forth in Section 6(A)(ii) above.

     (iv)       Partial conversion. If any conversion is for only part of the shares represented by the certificate surrendered, the Company shall send a new Series D-1 Preferred Stock certificate of like tenor via reputable overnight courier to such address specified by the Holder, calling in the aggregate on the face or faces thereof for the number of shares of Series D-1 Preferred Stock which have not been converted.

     (v)       Conversion prior to approval of Proposed Share Increase. Notwithstanding Section 6(A)(ii) above, if the Proposed Share Increase has not been approved on or before August 5, 2005, the Company must satisfy any conversion of shares of Series D-1 Preferred Stock in cash, rather than stock, by delivering on the Conversion Closing Date an amount in cash equal to the product of (A) the quotient of (x) the aggregate Stated Value of such shares, divided by (y) the Conversion Price, multiplied by (B) the Daily Market Price as of the third (3^rd) Business Day prior to and excluding the date of the Conversion Notice.

     (B)       Procedure for Redemption.

     (i)       General. Shares of Series D-1 Preferred Stock are redeemable at the option of the Holder thereof from time to time, in whole or in part at any time (w) on or after the second anniversary of the date of the Main Agreement, (x) if the Company fails to pay dividends on any Dividend Payment Date, on or after such date, (y) on and after the date a public announcement is made of the Company’s or any other Person’s intention or agreement to engage in a transaction or series of transactions that may result in a Change of Control or (z) subject to Section 6(a)(i) of the Main Agreement, if the 20-Day Average Price is less than

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the Minimum Price (as defined in the Main Agreement) on any date after and excluding August 12, 2005, as follows:

     A.       A Holder of Series D-1 Preferred Stock may require the Company to redeem any or all shares of Series D-1 Preferred Stock held by such Holder by delivering an optional redemption notice to the Company substantially in the form attached as Annex F to the Main Agreement (a “Redemption Notice”).

     B.       The closing of such redemption shall take place (a) on the later of (1) on the second Business Day following and excluding the date the Redemption Notice is delivered and (2) such later date as the conditions set forth in Section 6(B)(iii) have been waived or satisfied or (b) any other date upon which the exercising Holder and the Company mutually agree (the “Redemption Closing Date”).

     (ii)       Redemption for cash. If an Effective Election Notice provides that the Company shall redeem such shares for cash, then such shares shall be redeemed for cash in an amount equal to the product of (x) (1) the aggregate Stated Value of such shares divided by (2) the Prevailing Market Price as of the date the Redemption Notice is delivered multiplied by (y) the Daily Market Price of Common Stock on the third Business Day preceding the date the Redemption Notice is delivered (the “Redemption Cash Amount”). If there is no Effective Election Notice that provides that the Company shall redeem such shares for cash, then the redemption shall be for Common Stock, pursuant to Section 6(B)(iii). At such closing, the Holder shall surrender the certificate representing the shares of Series D-1 Preferred Stock to be redeemed to the Company at the address set forth for notices to the Company in Section 19 of the Main Agreement, and the Company shall deliver to the Holder via wire transfer of immediately available U.S. funds cash equal to the aggregate Redemption Cash Amount of such shares. If the Company fails to tender cash as provided in this Section 6(B)(ii) on or before the Redemption Closing Date, then the Holder may, at its sole option (and without limiting any other available remedies, including without limitation under Section 3(F) or at law or in equity) elect to (1) withdraw the Redemption Notice by written notice to the Company and, after such withdrawal, shall have no further obligations with respect to such Redemption Notice and may submit a Redemption Notice with respect to the shares referenced in the withdrawn Redemption Notice at any time or (2) receive shares of Registered Common Stock as set forth in Section 6(B)(iii), in which case the Redemption Closing Date shall be the second Business Day after and excluding the date on which the Holder notifies the Company in writing of such election.

     (iii)       Redemption for stock. If the redemption is not made for cash pursuant to Section 6(B)(ii) hereof, then such shares of stock shall be redeemed into that number of shares of Registered Common Stock (or at the sole election of the Holder, unregistered Common Stock) equal to (A) the aggregate Stated Value of such shares divided by (B) the Prevailing Market Price as of the date the

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Redemption Notice is delivered (the “Redemption Stock Amount”). On the Redemption Closing Date, the Holder shall surrender the certificate representing the shares of Series D-1 Preferred Stock to be redeemed to the Company at the address set forth for notices to the Company in Section 19 of the Main Agreement, and the Company shall deliver to such Holder at the address specified in the Redemption Notice the Redemption Stock Amount of duly authorized, validly issued, fully paid and nonassessable shares of Registered Common Stock (or Other Securities or, with such Holder’s express written consent, unregistered Common Stock). It shall be a condition of either the Company or the redeeming Holder’s obligation to close the redemption of the Series D-1 Preferred Stock that any applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or been terminated without litigation having been commenced that is continuing, or threat of litigation having been made that remains unresolved, by the United States Department of Justice or the United States Federal Trade Commission. It shall also be a condition of the redeeming Holder’s obligation to close the redemption of the Series D-1 Preferred Stock that each of the following is satisfied, unless expressly waived by such Holder in writing:

     A.       (1) the representations and warranties made by the Company in the Main Agreement shall be true and correct as of the Redemption Closing Date, except those representations and warranties that address matters only as of a particular date, which shall be true and correct as of such date; (2) the Company shall have complied fully with all of the covenants and agreements in the Main Agreement; (3) all shares to be issued upon such redemption shall be registered under the Securities Act, shall be freely tradable and shall be duly listed and admitted to trading on the New York Stock Exchange (unless, with respect to clause (3) only, the Holder expressly consents in writing to the issuance of unregistered Common Stock); and such Holder shall have received a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company dated such date and to the effect of clauses (1), (2) and (3).

     B.       On the Redemption Closing Date, the Company shall have delivered to the Holder (x) a Preferred Stock Redemption Delivery Notice, in form and substance as attached to the Main Agreement as Annex G and (y) the legal opinion described in Section 13(b) of the Main Agreement.

     C.       As of the Redemption Closing Date, the Company shall have notified the Holder of all Restatements.

     D.       The issuance of Common Stock shall not cause the Company to exceed the Maximum Number (as defined in the Main Agreement).

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     The Company shall use its best efforts to cause each of the foregoing conditions to be satisfied at the earliest practicable date. If such conditions are not satisfied or waived prior to the third Business Day following and excluding the date the Redemption Notice is delivered, then the Holder may, at its sole option, and at any time, withdraw the Redemption Notice by written notice to the Company regardless of whether such conditions have been satisfied or waived as of the withdrawal date and, after such withdrawal, shall have no further obligations with respect to such Redemption Notice and may submit a Redemption Notice with respect to the shares referenced in the withdrawn Redemption Notice at any time. If the Company is unable to deliver a sufficient number of shares of Registered Common Stock to satisfy its obligations on such Redemption Closing Date, it shall instead deliver cash in an amount and in the manner provided in Section 6(B)(ii).

     (iv)       Holder of record. Each redemption of Series D-1 Preferred Stock shall be deemed to have been effected immediately before the close of business on the Business Day on which the Redemption Notice is delivered (except, that, for the purposes of calculation of the Stated Value, dividends shall accrue until and including the Redemption Closing Date), and at such time the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock (or Other Securities) shall be issuable upon such redemption as provided in Section 6(B)(iii) shall be deemed to have become the holder or holders of record thereof. The foregoing notwithstanding, such redemption shall not be deemed effective if and as of the date that the Holder delivers written notice of withdrawal to the Company as set forth in Section 6(B)(iii) above.

     (v)       Partial redemption. If any redemption is for only part of the shares represented by the certificate surrendered, the Company shall send a new Series D-1 Preferred Stock certificate of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Series D-1 Preferred Stock which have not been redeemed via reputable overnight courier to such address specified by the Holder.

     (vi)       Redemption prior to approval of Proposed Share Increase. Notwithstanding Section 6(B)(ii) or (iii) above, if the Proposed Share Increase has not been approved on or before August 5, 2005, the Company must satisfy any redemption of shares of Series D-1 Preferred Stock in cash, rather than stock, by delivering on the Redemption Closing Date an amount in cash equal to the product of (A) the quotient of (x) the aggregate Stated Value of such shares divided by (y) the Prevailing Market Price as of the date the Redemption Notice is delivered, multiplied by (B) the Daily Market Price as of the third (3^rd) Business Day prior to and excluding the date of the Redemption Notice.

     (C)       The Company shall at all times reserve for issuance such number of its shares of Common Stock as shall be required under the Main Agreement.

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     (D)       The Company will procure, at its sole expense, the listing of the Common Stock issuable upon conversion or redemption of the Series D-1 Preferred Stock and shares issuable as dividends hereunder, subject to issuance or notice of issuance, on all stock exchanges and quotation systems on which the Common Stock is then listed or quoted, no later than the date on which such Series D-1 Preferred Stock is issued to the Holder and thereafter shall use its best efforts to prevent delisting or removal from quotation of such shares. The Company will pay any and all documentary stamp or similar issue or transfer taxes that may be payable in respect of the issuance or delivery of shares of Common Stock on conversion or redemption of shares of the Series D-1 Preferred Stock. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involving the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series D-1 Preferred Stock so converted or redeemed were registered, and no such issue and delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the reasonable satisfaction of the Company, that such tax has been paid.

     (E)       No fractional shares or scrip representing fractional shares shall be issued upon the conversion or redemption of the Series D-1 Preferred Stock. If any such conversion or redemption would otherwise require the issuance of a fractional share of Common Stock, an amount equal to such fraction multiplied by the current Daily Market Price per share of Common Stock on the date of conversion or redemption shall be paid to the Holder in cash by the Company. If more than one share of Series D-1 Preferred Stock shall be surrendered for conversion or redemption at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion or redemption thereof shall be computed on the basis of the aggregate number of shares of Series D-1 Preferred Stock so surrendered.

     (F)       Change of Control. If the Company on or after the Main Agreement Date is party to any Change of Control (as defined in the Main Agreement), proper provision shall be made so that, upon the basis and the terms and in the manner provided herein, the Holder of each unconverted and unredeemed share of Series D-1 Preferred Stock, upon conversion or redemption thereof at any time after the consummation of such Change of Control, shall be entitled to, and appropriate adjustments will be made to ensure that the Holder will, receive equivalent rights as those provided in this Certificate of Rights and Preferences, including, without limitation, the voting, dividend, conversion, redemption and liquidation rights contained herein with respect to the Acquiring Person. The Company shall, prior to the consummation of any Change of Control, provide that each Person (other than the Company) that may be required to deliver any stock, securities, cash or property upon conversion of Series D-1 Preferred Stock as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holders of a Majority of the Series D-1 Preferred Stock, (A) the obligations of the Company under this Certificate of Rights and Preferences (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Certificate of Rights and Preferences) and (B) the obligation to deliver to the Holders of

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Series D-1 Preferred Stock such shares of stock, securities, cash or property as, in accordance with the provisions of this Certificate of Rights and Preferences, such Holders may be entitled to receive, and such Person shall have similarly delivered to such Holders an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to Holders of a Majority of the Series D-1 Preferred Stock, stating that the rights of such Holders under this Certificate of Rights and Preferences shall thereafter continue in full force and effect with respect to such Acquiring Person in accordance with the terms hereof.

     7.       Restatements. The Company shall deliver written notice to each Holder within three (3) Business Days after each Restatement occurs, including the documents in which the Restatement was publicly disclosed. If any Restatement is required due to a material change in the financial statements of the Company on any Closing Date (as defined in the Main Agreement) or during the period ending and including the sixtieth (60^th) Business Day after and excluding any Closing Date, then the Holder shall have the right to deliver a notice of its election to adjust the Conversion Price (a “Restatement Adjustment Notice”) to the Company. A Restatement Adjustment Notice may be delivered on any day on or after the day on which any Restatement occurs and before the sixtieth (60^th) Business Day after and excluding the later of (i) the date the Company notifies the Holder of such Restatement and (ii) the filing by the Company of its restated or corrected financial statements with the SEC. Delivery of a Restatement Adjustment Notice shall cause the Conversion Price to adjust to equal one hundred twenty-two percent (122%) of the Daily Market Price calculated as of the third (3^rd) Business Day preceding such delivery.

     8.       Status of Converted and Redeemed Shares; Limitations on Series D-1 Preferred Stock. The Company shall return to the status of unauthorized and undesignated shares of Preferred Stock each share of Series D-1 Preferred Stock which shall be converted, redeemed or for any other reason acquired by the Company, and such shares thereafter may have such characteristics and designations as the Board may determine (subject to Section 5), provided, however, no share of Series D-1 Preferred Stock which shall be converted, redeemed or otherwise acquired by the Company shall thereafter be reissued, sold or transferred by the Company as Series D-1 Preferred Stock. The Company will not issue any further shares of Series D-1 Preferred Stock.

     9.       Miscellaneous. Notwithstanding anything herein to the contrary, all measurements and references related to share prices and share numbers herein shall be, in each instance, appropriately adjusted for stock splits, recombinations, stock dividends and the like.

[The rest of this page is intentionally left blank.]

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IN WITNESS WHEREOF, this Certificate of Rights and Preferences has been signed on behalf of the Company by its Chief Financial Officer and attested to by its Corporate Secretary, all as of the date first set forth above.

INPUT/OUTPUT, INC.
	/s/ J. MICHAEL KIRKSEY
Name:	J. Michael Kirksey
Title:	Executive Vice President and CFO
	/s/ DAVID L. ROLAND
Name:	David L. Roland
Title:	VP, General Counsel and Corporate Secretary

EX-3.2

Exhibit 3.2

SECOND AMENDMENT TO RIGHTS AGREEMENT

     This Second Amendment to Rights Agreement (“Second Amendment”), dated effective as of February 16, 2005, evidences the amendment of that certain Rights Agreement by and between Input/Output, Inc. (the “Company”) and Computershare Investor Services, LLC (successor to Harris Trust and Savings Bank), as Rights Agent, dated as of January 17, 1997, as previously amended by that certain First Amendment to Rights Agreement dated effective as of April 21, 1999 (together referred to as the “Rights Agreement”).

RECITALS

     WHEREAS, Section 27 of the Rights Agreement provides that the Board of Directors of the Company may from time to time supplement or amend the Rights Agreement in such manner as the Board of Directors deems necessary or desirable; and

     WHEREAS, the Company and Fletcher International, Ltd., a company organized under the laws of Bermuda (“Fletcher”), intend to enter into that certain Agreement pursuant to which the Company will, among other things, issue shares of its Series D-1 Cumulative Convertible Preferred Stock, and upon exercise of certain rights granted to Fletcher as provided for therein, shares of subsequent series of Series D Preferred Stock, each of which is convertible into the Company’s Common Stock; and

     WHEREAS, the Board of Directors of the Company has approved this Second Amendment by action taken at a meeting duly held on February 15, 2005;

     NOW, THEREFORE, for and in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree, at the direction of the Company, as follows:

     1.       Section 11(a)(iii) of the Rights Agreement is hereby deleted in its entirety and substituted in lieu thereof is the following:

                    “(iii)    In the event that the number of shares of Common Stock that are authorized by the Company’s Certificate of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the “CURRENT VALUE”) over (2) the Purchase Price (such excess, the “SPREAD”), and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock which the Board has deemed to have the same value as shares of Common Stock (such shares of preferred stock being referred to as “COMMON STOCK EQUIVALENTS”)), (4) debt securities of the Company, (5)

other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board based upon the advice of a recognized investment banking firm selected by them; PROVIDED, HOWEVER, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) calendar days following the later of (x) the first occurrence of a Flip-in Event and (y) the date on which the Company’s right of redemption pursuant to Section 23(a) (REDEMPTION AND TERMINATION — REDEMPTION) expires (the later of (x) and (y) being referred to herein as the “FLIP-IN TRIGGER DATE”), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent not outstanding or reserved for issuance for purposes other than upon exercise of the Rights) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) calendar day period set forth above may be extended to the extent necessary, but not more than ninety (90) calendar days after the Flip-in Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such period, the “SUBSTITUTION PERIOD”). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) (EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS — TERMINATION OF ACQUIRING PERSON’S RIGHTS), that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be the Current Market Price per share of the Common Stock on the Flip-in Trigger Date and the value of any Common Stock Equivalent shall be deemed to have the same value as the Common Stock on such date.”

     2.       This Second Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts to be made and performed entirely within the State of Delaware.

     3.       This Second Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

     4.       Except to the extent expressly amended by this Second Amendment, the terms and conditions of the Rights Agreement shall remain in full force and effect.

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     IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed and attested, all as of the day and year first above written.

INPUT/OUTPUT, INC.
By:	/s/ J. MICHAEL KIRKSEY
Name:	J. Michael Kirksey
Title:	Executive VP & CFO

Attest

/s/ KAROLYN RATAJCZAK

Name:  Karolyn Ratajczak

Title:    Notary

COMPUTERSHARE INVESTOR SERVICES, LLC, as Rights Agent
By:	/s/ CYNTHIA NISLEY
Name:	Cynthia Nisley
Title:

Attest:

/s/ PAMELA M. ENG

Name:  Pamela M. Eng

Title:    Sr. Relationship Manager

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EX-10.1

Exhibit 10.1

AGREEMENT

     This Agreement (this “Agreement”) dated as of February 15, 2005 is entered into by and between Input/Output, Inc., a corporation organized under the laws of Delaware (together with its successors, the “Company”), and Fletcher International, Ltd., a company organized under the laws of Bermuda (together with its successors, “Fletcher”).

     The parties hereto agree as follows:

     1.    Purchase and Sale. In consideration of and upon the basis of the representations, warranties and agreements and subject to the terms and conditions set forth in this Agreement:

     (a)       Fletcher agrees to purchase from the Company, and the Company agrees to sell to Fletcher on the Initial Closing Date (as defined below), in accordance with Section 2 below, thirty thousand (30,000) shares (the “Initial Preferred Shares”) of the Company’s Series D-1 Cumulative Convertible Preferred Stock (the “Series D-1 Preferred Stock”), having the terms and conditions set forth in the Certificate of Rights and Preferences attached hereto as Annex A (the “Certificate of Rights and Preferences”), at a price of one thousand dollars ($1,000) per share for an aggregate purchase price of thirty million dollars ($30,000,000). Fletcher shall have the rights with respect to such Initial Preferred Shares specified in this Agreement and in the Certificate of Rights and Preferences.

     (b)       The closing (the “Initial Closing”) of the sale of the Initial Preferred Shares shall occur on February 16, 2005, or at such other date and time as Fletcher and the Company shall mutually agree (such date, the “Initial Closing Date”).

     (c)       The Company grants Fletcher rights (the “Fletcher Rights”) to require the Company to issue to it from time to time, in whole or in part, up to an aggregate of forty thousand (40,000) shares of additional series of Company preferred stock (e.g., Series D-2 Cumulative Convertible Preferred Stock, Series D-3 Cumulative Convertible Preferred Stock, etc.) having, except as set forth below, the same terms, conditions, rights, preferences and privileges as the Series D-1 Preferred Stock (such shares shall collectively be referred to as the “Additional Preferred Shares” and together with the Initial Preferred Shares, the “Series D Preferred Shares”) at a price of one thousand dollars ($1,000) per share for an aggregate purchase price for all Additional Preferred Shares of forty million dollars ($40,000,000), and together with the Initial Preferred Shares, seventy million dollars ($70,000,000) in the aggregate of Series D Preferred Shares. Fletcher shall have the rights with respect to such Additional Preferred Shares specified in this Agreement and in a certificate of rights and preferences for each such series of Additional Preferred Shares (each, a “Subsequent Certificate of Rights and Preferences” and collectively, the “Subsequent Certificates of Rights and Preferences”). Each Subsequent Certificate of Rights and Preferences shall have the same terms and conditions as the Certificate of Rights and Preferences, except that (A) the Conversion Price (as defined therein) shall equal one hundred twenty-two percent (122%) of the

Prevailing Market Price (as defined therein) calculated as of the Business Day of the corresponding Fletcher Notice (as defined below), but in no case less than six dollars and thirty-one cents ($6.31) (subject to adjustment pursuant to Section 20(o)); and (B) the number of Additional Preferred Shares issued pursuant to each Subsequent Certificate of Rights and Preferences may differ from the number of shares of Series D-1 Preferred Stock. To exercise any Fletcher Rights, Fletcher shall deliver one or more written notices substantially in the form attached hereto as Annex B (a “Fletcher Notice”) to the Company from time to time commencing from August 16, 2005 and ending no later than February 16, 2008, subject to extension (the “Fletcher Rights Period”). Subject to satisfaction or, if applicable, waiver of the relevant conditions set forth in Sections 13 and 14 hereof, the closing of each exercise of Fletcher Rights (each, a “Subsequent Closing”) shall take place on the date that is three (3) Business Days following and excluding the date of delivery of the Fletcher Notice or on such other date as Fletcher and the Company shall mutually agree (such date and time being referred to herein as the “Subsequent Closing Date,” and together with the Initial Closing Date, each a “Closing Date”).

     (d)       As used herein, the term “Common Shares” means the shares of the Company’s common stock, par value $0.01 per share (together with the associated preferred stock purchase rights under the Rights Agreement, dated as of January 17, 1997, as amended (the “Rights Agreement”), by and between the Company and Harris Trust and Savings Bank, as Rights Agent, the “Common Stock”) issuable upon conversion or redemption of or as dividends under the Series D Preferred Shares, and all other Common Stock issuable under the Certificate of Rights and Preferences, Subsequent Certificates of Rights and Preferences or this Agreement; the term “Investment Securities” means the Series D Preferred Shares issued hereunder, the Fletcher Rights and all Common Shares; the term “Business Day” means any day on which the Common Stock may be traded on the NYSE or, if not admitted for trading on the NYSE, on any day other than a Saturday, Sunday or holiday on which banks in New York City are required or permitted to be closed; the term “NYSE” means the New York Stock Exchange, but if the New York Stock Exchange is not then the principal U.S. trading market for the Common Stock, then “NYSE” shall be deemed to mean the principal U.S. national securities exchange (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) on which the Common Stock, or such other applicable common stock, is then traded, or if such Common Stock, or such other applicable common stock, is not then listed or admitted to trading on any national securities exchange, but is designated as a National Association of Securities Dealers, Inc. (“NASD”) Automated Quotation System National Market System Security or SmallCap Market Security, then such market system, or if such Common Stock, or such other applicable common stock, is not listed or quoted on any of the foregoing, then the OTC Bulletin Board.

     2.       Initial Closing. The Initial Closing shall take place initially via facsimile on the Initial Closing Date in the manner set forth below; provided, that, original certificates representing shares of Series D-1 Preferred Stock shall be delivered via Federal Express or another reputable overnight carrier to the address set forth in Annex I.

     At the Initial Closing, the following deliveries shall be made:

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     (a)       Series D-1 Preferred Stock. The Company shall deliver to Fletcher six (6) stock certificates, each representing five thousand (5,000) shares of Series D-1 Preferred Stock, duly executed by the Company in definitive form, and shall register such shares in the stockholder register of the Company in the name of Fletcher or as instructed by Fletcher in writing.

     (b)       Purchase Price. Fletcher shall cause to be wire transferred to the Company, in accordance with the instructions set forth in Section 19, the aggregate purchase price of thirty million dollars ($30,000,000) in immediately available United States funds.

     (c)       Closing Documents. The closing documents required by Sections 13 and 14 shall be delivered to Fletcher and the Company, respectively.

     (d)       Delivery Notice. An executed copy of the delivery notice in the form attached hereto as Annex C shall be delivered to Fletcher.

The deliveries specified in this Section 2 shall be deemed to occur simultaneously as part of a single transaction, and no delivery shall be deemed to have been made until all such deliveries have been made.

     3.       Subsequent Closing. Each Subsequent Closing shall take place initially via facsimile on the Subsequent Closing Date in the manner set forth below; provided, that, original certificates representing Additional Preferred Shares shall be delivered via Federal Express or another reputable overnight carrier to Fletcher as Fletcher instructs in writing. Each Subsequent Closing shall be for an Additional Issuance Price (as hereinafter defined) of not less than five million dollars ($5,000,000), unless the Additional Issuance Price for all then remaining Fletcher Rights is less than five million dollars ($5,000,000), in which instance, such Subsequent Closing shall be for the Additional Issuance Price for all such remaining Additional Preferred Shares. At each Subsequent Closing, the following deliveries shall be made:

     (a)       Additional Preferred Shares. The Company shall issue and deliver to Fletcher stock certificates, each representing five thousand (5,000) Additional Preferred Shares (except that to the extent the number of Additional Preferred Shares to be delivered is not evenly divisible by five thousand (5,000), one (1) stock certificate shall represent the remaining shares), duly executed by the Company, and shall register such shares in the stockholder register of the Company in the name of Fletcher or as instructed by Fletcher in writing.

     (b)       Purchase Price. Fletcher shall cause to be wire transferred to the Company, in accordance with the instructions set forth in Section 19, one thousand dollars ($1,000) per Additional Preferred Share, as specified in the applicable Fletcher Notice (in the aggregate, the “Additional Issuance Price”) payable on such Subsequent Closing Date, in immediately available United States funds.

     (c)       Closing Documents. The closing documents required by Sections 13 and 14 shall be delivered to Fletcher and the Company, respectively.

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     (d)       Delivery Notice. An executed copy of the delivery notice in the form attached hereto as Annex C shall be delivered to Fletcher.

The deliveries specified in this Section 3 shall be deemed to occur simultaneously as part of a single transaction, and no delivery shall be deemed to have been made until all such deliveries have been made.

     4.       Representations and Warranties of the Company. The Company hereby represents and warrants to Fletcher on each Closing Date, as follows:

     (a)       The Company has been duly incorporated and is validly existing in good standing under the laws of Delaware or, after the Initial Closing Date, if another entity has succeeded the Company in accordance with the terms hereof, under the laws of one of the states of the United States or the District of Columbia.

     (b)       Except as otherwise contemplated by this Agreement, the execution, delivery and performance of this Agreement, the Certificate of Rights and Preferences and the Subsequent Certificates of Rights and Preferences (including the authorization, sale, issuance and delivery of the Investment Securities) have been duly authorized by all requisite corporate action and no further consent or authorization of the Company, its Board of Directors or its stockholders is required.

     (c)       This Agreement has been duly executed and delivered by the Company and, when this Agreement is duly authorized, executed and delivered by Fletcher, will be a valid and binding agreement enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally and to general principles of equity. The issuance of the Investment Securities is not and will not be subject to any preemptive right or rights of first refusal that have not been properly waived or complied with.

     (d)       The Company has full corporate power and authority necessary to (i) own and operate its properties and assets, execute and deliver this Agreement, (ii) perform its obligations hereunder and under the Certificate of Rights and Preferences or Subsequent Certificates of Rights and Preferences (including, but not limited to, the issuance of the Investment Securities) and (iii) carry on its business as presently conducted and as presently proposed to be conducted. The Company and its subsidiaries are duly qualified and are authorized to do business and are in good standing as foreign corporations in all jurisdictions in which the nature of their activities and of their properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on (i) the business affairs, assets, results of operations or prospects of the Company or any of its subsidiaries, or (ii) the transactions contemplated by, or the Company’s ability to perform under, this Agreement, the Certificate of Rights and Preferences or any Subsequent Certificate of Rights and Preferences.

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     (e)       No consent, approval, authorization or order of any court, governmental agency or other body is required for execution and delivery by the Company of this Agreement or the performance by the Company of any of its obligations hereunder and under the Certificate of Rights and Preferences or Subsequent Certificates of Rights and Preferences other than the approval of the SEC of the Registration Statement to be filed pursuant to the terms hereof.

     (f)       Neither the execution and delivery by the Company of this Agreement nor the performance by the Company of any of its obligations hereunder and under the Certificate of Rights and Preferences or Subsequent Certificates of Rights and Preferences:

     (i)       violates, conflicts with, results in a breach of, or constitutes a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) or creates any rights in respect of any Person (as defined below) under (A) the certificates of incorporation or by-laws of the Company or any of its subsidiaries, (B) any decree, judgment, order, law, treaty, rule, regulation or determination of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets, (C) the terms of any bond, debenture, indenture, credit agreement, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, lease, mortgage, deed of trust or other instrument to which the Company or any of its subsidiaries is a party, by which the Company or any of its subsidiaries is bound, or to which any of the properties or assets of the Company or any of its subsidiaries is subject, (D) the terms of any “lock-up” or similar provision of any underwriting or similar agreement to which the Company or any of its subsidiaries is a party or (E) any rule or regulation of the NASD or the NYSE or any rule or regulation of the markets where the Company’s securities are publicly traded or quoted applicable to the Company or the transactions contemplated hereby; or

     (ii)       results in the creation or imposition of any lien, charge or encumbrance upon any Investment Securities or upon any of the properties or assets of the Company or any of its subsidiaries.

For the purposes of this Agreement, “Person” means an individual or a corporation, partnership, trust, incorporated or unincorporated association, limited liability company, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

     (g)       When issued to Fletcher against payment therefor, each Investment Security:

     (i)       will have been duly and validly authorized, duly and validly issued, fully paid and non-assessable;

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     (ii)       will be free and clear of any security interests, liens, claims or other encumbrances; and

     (iii)       will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company.

     (h)       The Company satisfies all continued listing criteria of the NYSE. No present set of facts or circumstances will (with the passage of time or the giving of notice or both or neither) cause any of the Common Stock to be delisted from the NYSE. All of the Common Shares will, when issued, be duly listed and admitted for trading on all of the markets where shares of Common Stock are traded, including the NYSE.

     (i)       There is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of its affiliates that would affect the execution by the Company of, or the performance by the Company of its obligations under, this Agreement, the Certificate of Rights and Preferences or Subsequent Certificates of Rights and Preferences.

     (j)       Since January 1, 2002, none of the Company’s filings with the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) or under Section 13(a) or 15(d) of the Exchange Act (each an “SEC Filing”), including the financial statements and schedules of the Company and results of the Company’s operations and cash flow contained therein, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. Since January 1, 2004, there has not been any pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of its subsidiaries that will or is reasonably likely to result in a material adverse change in the condition, financial or otherwise, or in the business affairs, assets, revenues, operations or prospects of the Company and its subsidiaries, whether or not arising in the ordinary course of business, except as disclosed in the Company’s SEC Filings on or before the date immediately prior to and excluding the date hereof. Since the date of the Company’s most recent SEC Filing, there has not been, and the Company is not aware of, any development or condition that is reasonably likely to result in, any material change in the condition, financial or otherwise, or in the business affairs, assets, revenues, operations or prospects of the Company and its subsidiaries, whether or not arising in the ordinary course of business. The Company’s SEC Filings made before and excluding the Closing Date fully disclose all material information concerning the Company and its subsidiaries (other than the existence and terms of this Agreement).

     (k)       The offer and sale of the Investment Securities to Fletcher pursuant to this Agreement will, subject to the accuracy of Fletcher’s representations and warranties contained in Section 7 hereof and compliance by Fletcher with the applicable covenants and agreements contained in Section 11 hereof, be made in accordance with an

6

exemption from the registration requirements of the Securities Act and any applicable state law. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to buy or has offered to sell or will offer to sell all or any part of the Investment Securities or any other securities to any Person or Persons so as to bring the sale of such Investment Securities by the Company within the registration provisions of the Securities Act.

     (l)       Immediately prior to the Initial Closing Date, the authorized capital stock of the Company consists of one hundred million (100,000,000) shares of Common Stock, par value $0.01 per share and five million (5,000,000) shares of preferred stock, par value $0.01 per share. As of February 11, 2005, (A) 78,660,858 shares of Common Stock were issued and outstanding, and 21,146,490 shares of Common Stock are currently reserved and subject to issuance upon the exercise of outstanding stock options, warrants or other convertible rights, (B) 783,127 shares of Common Stock are held in the treasury of the Company (including up to 62,564 shares of Common Stock currently held in the treasury of the Company that may be issued under the Non-Employee Directors’ Retainer Plan), (C) no shares of preferred stock are issued and outstanding (but 100,000 shares of preferred stock are reserved for issuance as Series A Preferred Stock pursuant to the Rights Agreement), (D) options to purchase up to 123,833 additional shares of Common Stock may be issued under the Amended and Restated 1996 Non-Employee Director Stock Option Plan, (E) up to 507,652 additional shares of Common Stock may be issued under the Employee Stock Purchase Plan, (F) up to 11,807 additional shares of restricted Common Stock may be issued under the 1998 Restricted Stock Plan, (G) up to 76,073 additional shares of restricted Common Stock may be issued under the 2000 Restricted Stock Plan, (H) up to 8,750 additional shares of Common Stock may be issued under the 2004 Long-Term Incentive Plan, and (I) options to purchase up to 175,000 additional shares of Common Stock may be issued under the 2003 Stock Option Plan. All of the outstanding shares of Common Stock are, and all shares of capital stock which may be issued pursuant to outstanding stock options, warrants or other convertible rights will be, when issued and paid for in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable, free of any preemptive rights in respect thereof and issued in compliance with all applicable state and federal laws concerning issuance of securities. As of the date hereof, except as set forth above or as disclosed in writing in Schedule 4(l) attached hereto, and except for shares of Common Stock or other securities issued upon conversion, exchange, exercise or purchase associated with the securities, options, warrants, rights and other instruments referenced above, no shares of capital stock or other voting securities of the Company were outstanding, no equity equivalents, interests in the ownership or earnings of the Company or other similar rights were outstanding, and there were no existing options, warrants, calls, subscriptions or other rights or agreements or commitments relating to the capital stock of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, transfer, sell or redeem any shares of capital stock, or other equity interest in, the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement or commitment.

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     (m)       Solvency. The sum of the assets of the Company, both at a fair valuation and at present fair salable value, exceeds its liabilities, including contingent liabilities. The Company has sufficient capital or access to capital with which to conduct its business as presently conducted and as proposed to be conducted. The Company has not incurred debt, and does not intend to incur debt, beyond its ability to pay such debt as it matures. For purposes of this paragraph, “debt” means any liability on a claim, and “claim” means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any such contingent liabilities, such liabilities are computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability.

     (n)       Equivalent Value. As of the Initial Closing Date, the consideration that the Company is receiving from Fletcher is equivalent in value to the consideration Fletcher is receiving from the Company pursuant to this Agreement. As of the Initial Closing Date, under the terms of this Agreement, the Company is receiving fair consideration from Fletcher for the agreements, covenants, representations and warranties made by the Company to Fletcher.

     (o)       No Non-Public Information. Fletcher has not requested from the Company, and the Company has not furnished to Fletcher, any material non-public information concerning the Company or its subsidiaries.

     (p)       Restatement Notices. As of each Subsequent Closing Date, the Company has provided Fletcher with all Restatement Notices (as defined in the Certificate of Rights and Preferences or Subsequent Certificates of Rights and Preferences) required to be delivered following a Restatement (as defined in the Certificate of Rights and Preferences or Subsequent Certificates of Rights and Preferences).

     (q)       Amendment to Rights Agreement. The Company has taken all action necessary to amend the Rights Agreement in the manner set forth in Annex K hereto.

     5.       Registration Provisions; Authorized Share Increase.

     (a)       The Company shall, as soon as practicable and at its own expense, but in no event later than March 31, 2005, file a Registration Statement (as defined below) under the Securities Act covering the resale of all of the Common Shares issuable upon conversion or redemption of or as dividends under the Series D-1 Preferred Shares and under the Certificate of Rights and Preferences and shall use its commercially reasonable efforts to cause such Registration Statement (the “Initial Registration Statement”) to be declared effective on or prior to the earlier of (i) June 15, 2005, or (ii)

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five (5) calendar days following the later of (A) the confirmation from the SEC that the Initial Registration Statement will not be reviewed, and (B) the date of stockholder approval of the Proposed Share Increase (the “Initial Required Registration Date”). Pursuant to the preceding sentence, the Company shall register pursuant to such Initial Registration Statement not less than the number of shares of Common Stock equal to fifteen million, seven hundred twenty-four thousand, three hundred and six (15,724,306) (the “Registrable Number”). Upon the issuance of Additional Preferred Shares, the Company shall, at its own expense and as promptly as practicable after (and in no event later than fifteen (15) Business Days after and excluding) each Subsequent Closing Date, file a registration statement or, if permitted by the rules and regulations of the SEC, file a supplement to the prospectus contained in the Initial Registration Statement (each such registration statement or prospectus supplement, together with all amendments and supplements thereto and any replacement registration statement with respect thereto or with respect to the Common Shares covered thereby, a “Later Issuance Registration Statement”)) covering the resale of the Registrable Number of shares of Common Stock, containing a prospectus that includes shares of Common Stock that may have been previously registered on an earlier Registration Statement pursuant to Rule 429 under the Securities Act; provided, however, that if the Company is unable to file a Later Issuance Registration Statement on or before the fifteenth Business Day after and excluding a Subsequent Closing Date solely due to the Company’s inability to satisfy the conditions set forth in subsection (c)(2) or (c)(3) of Rule 3-01 under Regulation S-X (which inability is not the result of the Company’s failure to timely file when due any document or report with the SEC, including any annual report on Form 10-K or quarterly report on Form 10-Q), then the Company shall be permitted to file such Later Issuance Registration Statement as promptly as practicable after the Company is able to comply with the requirements of Rule 3-01 of Regulation S-X (but in no event later than seventy-five (75) days after the end of the fiscal year of the Company ended most recently before such Subsequent Closing Date). The Company shall use its best efforts to cause each Later Issuance Registration Statement to be declared effective as soon as practicable, but not later than the earlier of (i) seventy (70) calendar days following, and including, the Subsequent Closing Date or (ii) five (5) calendar days following confirmation from the SEC that the Registration Statement will not be reviewed (the “Subsequent Required Registration Date”). Upon effectiveness of such Later Issuance Registration Statement, the Company may withdraw the Initial Registration Statement or an earlier Later Issuance Registration Statement, as applicable. The Company shall provide prompt written notice to Fletcher if the SEC elects to review any Registration Statement. The obligations to have any Registration Statement declared effective and to maintain such effectiveness as provided in this Section 5 are referred to herein as the “Registration Requirement.” The Company shall provide Fletcher with three (3) Business Days to review and comment on any Registration Statement or amendment thereto prior to filing, and the Company shall not file any Registration Statement that Fletcher reasonably objects to.

     (b)       Each Common Share is a “Covered Security” and any registration statement filed or required to be filed under the Securities Act in accordance with Section 5(a) hereof, along with any amendments and additional registration statements, including, without limitation, the Initial Registration Statement and each Later Issuance Registration Statement, is referred to collectively as the “Registration Statement”. The term “Required

9

Registration Date” shall mean the date by which a Registration Statement must be declared effective under this Agreement, including, without limitation, the Initial Required Registration Date (with respect to the Initial Registration Statement) and any Subsequent Required Registration Date (with respect to a Later Issuance Registration Statement). The Company shall file any Registration Statement on Form S-3, if available, otherwise on another available form and in the meantime use its best efforts to file such Registration Statement on Form S-3 as soon as it is available to the Company. The Company shall provide prompt written notice to Fletcher when the Registration Statement has been declared effective by the SEC.

     (c)       The Company will: (A) use its commercially reasonable efforts to keep the Registration Statement effective until the earlier of (x) the later of (i) the second anniversary of the issuance of the last Covered Security that may be issued, or (ii) such time as all of the Covered Securities issued or issuable hereunder can be sold by Fletcher or any of its affiliates immediately without compliance with the registration requirements of the Securities Act pursuant to Rule 144 under the Securities Act (“Rule 144”) and (y) the date all of the Covered Securities issued or issuable shall have been sold by Fletcher and its affiliates (such later period, the “Registration Period”); (B) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement (as so amended and supplemented from time to time, the “Prospectus”) as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Covered Securities by Fletcher or any of its affiliates with the prior written approval of Fletcher and incorporate all such information relating to the plan of distribution as Fletcher may reasonably request, and to use its best efforts to cause such amendment or supplements to the Registration Statement and the prospectus to be declared effective as soon as practicable after filing; (C) furnish such number of Prospectuses and other documents incident thereto, including any amendment of or supplement to the Prospectus, including all exhibits and financial statements, as Fletcher from time to time may reasonably request; (D) cause all Covered Securities to be listed on each securities exchange and quoted on each quotation service on which similar securities issued by the Company are then listed or quoted; (E) provide a transfer agent and registrar for all Covered Securities and a CUSIP number for all Covered Securities; (F) otherwise comply with all applicable rules and regulations of the SEC, the NYSE and any other exchange or quotation service on which the Covered Securities are obligated to be listed or quoted under this Agreement; and (G) file the documents required of the Company and otherwise obtain and maintain requisite blue sky clearance in (x) New York and all other jurisdictions in which any of the shares of Common Stock were originally sold and (y) all other states specified in writing by Fletcher, provided, however, that as to this clause (y), the Company shall not be required to qualify to do business or consent to service of process in any state in which it is not now so qualified or has not so consented. Fletcher shall have the right to approve the description of the selling stockholder, plan of distribution and all other references to Fletcher and its affiliates contained in each Registration Statement and Prospectus.

     (d)       The Company shall furnish to Fletcher upon request a reasonable number of copies of a supplement to or an amendment of any Prospectus as may be

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necessary in order to facilitate the public sale or other disposition of all or any of the Covered Securities by Fletcher or any of its affiliates pursuant to the Registration Statement.

     (e)       With a view to making available to Fletcher and its affiliates the benefits of Rule 144 and Form S-3 under the Securities Act, the Company covenants and agrees to: (A) make and keep available adequate current public information (within the meaning of Rule 144(c)) concerning the Company, until the earlier of (x) the second (2^nd) anniversary of the issuance of the last Covered Security to be issued and (y) such date as all of the Covered Securities shall have been resold by Fletcher or any of its affiliates; and (B) furnish to Fletcher upon request, as long as Fletcher owns any Covered Securities, (x) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act, (y) a copy of the most recent annual or quarterly report of the Company, and (z) such other information as may be reasonably requested in order to avail Fletcher and its affiliates of Rule 144 or Form S-3 with respect to such Covered Securities.

     (f)       Notwithstanding anything else in this Section 5, if, at any time during which a Prospectus is required to be delivered in connection with the sale of any Covered Security, the Company determines in good faith and upon the advice of its outside counsel that a development has occurred or a condition exists as a result of which the Registration Statement or the Prospectus contains a material misstatement or omission, or that a material transaction in which the Company is engaged or proposes to engage would require an immediate amendment to the Registration Statement, a supplement to the Prospectus, or a filing under the Exchange Act or other public disclosure of material information and the disclosure of such transaction would be premature or injurious to the consummation of the transaction, the Company will immediately notify Fletcher thereof by telephone and in writing. Upon receipt of such notification, Fletcher and its affiliates will immediately suspend all offers and sales of any Covered Security pursuant to the Registration Statement. In such event, the Company will amend or supplement the Registration Statement and the Prospectus or make such filings or public disclosures as promptly as practicable and will take such other steps as may be required to permit sales of the Covered Securities thereunder by Fletcher and its affiliates in accordance with applicable federal and state securities laws. The Company will promptly notify Fletcher after it has determined in good faith that such sales have become permissible in such manner and will promptly deliver copies of the Registration Statement and the Prospectus (as so amended or supplemented, if applicable) to Fletcher in accordance with paragraphs (c) and (d) of this Section 5. Notwithstanding the foregoing, (A) under no circumstances shall the Company be entitled to exercise its right to suspend sales of any Covered Securities as provided in this Section 5(f) and pursuant to the Registration Statement more than twice in any twelve (12) month period, (B) the period during which such sales may be suspended (each a “Blackout Period”) at any time shall not exceed thirty (30) calendar days, and (C) no Blackout Period may commence less than thirty (30) calendar days after the end of the preceding Blackout Period.

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     (g)       Upon the commencement of a Blackout Period pursuant to this Section 5, Fletcher will notify the Company of any contract to sell, assign, deliver or otherwise transfer any Covered Security (each a “Sales Contract”) that Fletcher or any of its affiliates has entered into prior to the commencement of such Blackout Period and that would require delivery of such Covered Securities during such Blackout Period, which notice will contain the aggregate sale price and quantity of Covered Securities pursuant to such Sales Contract. Upon receipt of such notice, the Company will immediately notify Fletcher of its election either to (i) terminate the Blackout Period and, as promptly as practicable, amend or supplement the Registration Statement or the Prospectus in order to correct the material misstatement or omission and deliver to Fletcher copies of each amended or supplemented Registration Statement and Prospectus in accordance with paragraphs (c) and (d) of this Section 5, or (ii) continue the Blackout Period in accordance with this paragraph. If the Company elects to continue the Blackout Period (or the Company elects to terminate the Blackout Period, but the Blackout Period is not terminated before the latest date that Fletcher may consummate the transaction contemplated by the Sales Contract), and Fletcher or any of its affiliates are therefore unable to consummate the sale of Covered Securities pursuant to the Sales Contract, the Company will promptly indemnify each Fletcher Indemnified Party (as such term is defined in Section 17(a) below) against any Proceeding (as such term is defined in Section 17(a) below) that each Fletcher Indemnified Party may incur arising out of or in connection with Fletcher’s breach or alleged breach of any such Sales Contract, and the Company shall reimburse each Fletcher Indemnified Party for any reasonable costs or expenses (including legal fees) incurred by such party in investigating or defending any such Proceeding.

     (h)       In addition to any other remedies available to Fletcher under this Agreement or at law or equity, if any Registration Statement has not been declared effective by the Required Registration Date or such Registration Statement is not available with respect to all Covered Securities at any time on or after the Required Registration Date (except during a Blackout Period permitted under Section 5(f)) the Company shall cause to be wire transferred to an account specified by Fletcher on the last Business Day of each month an amount, in immediately available United States funds, equal to:

¹/15% x ND x SV

     Where:

ND =   the number of days in such month that the Registration Statement has not been declared effective by the Required Registration Date or such Registration Statement is not available with respect to shares of Covered Securities that may not otherwise be sold by Fletcher or any of its affiliates immediately pursuant to Rule 144 without compliance with the registration requirements of the Securities Act (“Non-Rule 144 Stock”); and

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SV =    the aggregate Stated Value (as defined in the Certificate of Rights and Preferences and all Subsequent Certificates of Rights and Preferences) of the average number of shares of Non-Rule 144 Stock issued and outstanding on each of the days included in “ND” above.

     (i)       If the Registration Requirement is not satisfied at any point in time during the Registration Period then the Fletcher Rights Period shall be extended by one (1) day for each day (or portion thereof) that the Registration Requirement shall have not been satisfied.

     (j)       The Company shall not grant any right of registration under the Securities Act relating to any of its securities to any Person other than Fletcher if such rights conflict with the rights of Fletcher under this Agreement.

     (k)       The Company shall take all action necessary in accordance with applicable law and the Company’s certificate of incorporation and bylaws to duly call and hold a meeting of the Company’s stockholders (the “Company Meeting”) for the purpose of considering and voting upon a proposal to amend the Restated Certificate of Incorporation of the Company to increase the number of shares of Common Stock authorized for issuance by the Company to a number of shares sufficient to satisfy the requirements of the Company, including, without limitation, to satisfy the Company’s obligations to reserve shares of Common Stock under this Agreement, and in no event to less than two hundred million (200,000,000) shares (the “Proposed Share Increase”). The Company shall take all action necessary to hold the Company Meeting on or prior to May 5, 2005, including the filing of a proxy statement with the SEC (which proxy statement shall include the recommendation of the Company’s board of directors that stockholders approve the Proposed Share Increase). The board of directors of the Company will recommend that the Company’s stockholders vote in favor of approval of the Proposed Share Increase (and not withdraw its recommendation) and the Company will use its best efforts to solicit from its stockholders proxies in favor of such approval and take all other action necessary or advisable to secure the vote of the stockholders of the Company required by applicable law, the Company’s Restated Certificate of Incorporation or bylaws or otherwise to effect the Proposed Share Increase. The Company shall not require any vote greater than a majority of the outstanding shares of capital stock of the Company entitled to vote thereon, and a majority of the outstanding stock of each class entitled to vote thereon as a class, for approval of the Proposed Share Increase. Upon approval of the Proposed Share Increase, the Company shall take all action necessary to reserve an aggregate of fifteen million, seven hundred twenty-four thousand, three hundred and six (15,724,306) shares of Common Stock.

     6.       Conversion and Redemption of Preferred Shares.

     (a)       The Initial Preferred Shares and Additional Preferred Shares are convertible into Common Shares and redeemable into Common Shares or cash in accordance with the terms and conditions set forth in Section 6 of the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences. The

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Company grants Fletcher the right to convert all or part of each series of Series D Preferred Shares (including any accrued and unpaid dividends) pursuant to the terms and conditions set forth in the Certificate of Rights and Preferences or Subsequent Certificate of Rights and Preferences of each such series, upon delivery of a “Preferred Stock Conversion Notice” in the form attached hereto as Annex D. As set forth in the Certificate of Rights and Preferences or Subsequent Certificate of Rights and Preferences of each such series, the Company may satisfy its conversion obligations only by delivering shares of Common Stock. The form of the “Preferred Stock Conversion Delivery Notice” to be executed and delivered by the Company to Fletcher, as specified in the Certificate of Rights and Preferences or Subsequent Certificate of Rights or Preferences is attached hereto as Annex E. The Company grants Fletcher the right to redeem all or part of each series of Series D Preferred Shares (including any accrued and unpaid dividends) pursuant to the terms and conditions set forth in the Certificate of Rights and Preferences or Subsequent Certificate of Rights and Preferences of each such series, commencing February 15, 2007 (or sooner under certain circumstances set forth therein), upon delivery of a notice of redemption in the form attached hereto as Annex F (the “Redemption Notice”). As set forth in the Certificate of Rights and Preferences or Subsequent Certificate of Rights or Preferences of each such series, the Company may satisfy its redemption obligations by delivering shares of Common Stock, cash or, subject to Section 6(a)(i), resetting the Conversion Prices of the Series D-1 Preferred Stock and Additional Preferred Shares. The form of the “Preferred Stock Redemption Delivery Notice” to be executed and delivered by the Company to Fletcher, as specified in the Certificate of Rights and Preferences or Subsequent Certificate of Rights and Preferences is attached hereto on Annex G.

     (i)       If the 20-Day Average Price (as defined in the Certificate of Rights and Preferences) is less than the Minimum Price (as defined below) on any date after and excluding August 12, 2005, then (A) the Company shall provide Fletcher within two (2) Business Days with a written notice that either (1)(a) the Company shall satisfy all its future redemption obligations in a combination of Common Stock and cash, or solely in cash, as elected by the Company in such notice, and (b) following such notice, notwithstanding anything herein to the contrary, if a Restatement (as defined in the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences) is required due to a material change in the financial statements of the Company on or after the date hereof, then Fletcher shall have the right to cause the redemption of its Preferred Shares and Additional Preferred Shares, from time to time, in whole or in part, thereafter, or (2) that the Conversion Prices on all Preferred Shares and Additional Preferred Shares shall thereafter be equal to the Minimum Price and all Conversion Prices of future Additional Preferred Shares to be issued shall thereafter be equal to the Minimum Price, and upon delivery of such notice such Conversion Prices shall thereafter be equal to the Minimum Price and Fletcher shall have no further right to cause the redemption of its Preferred Shares or Additional Preferred Shares thereafter, and (B) the Company shall pay all dividends in cash and not by the issuance of Common Stock (an “Issuance Blockage”). If the Company shall fail to deliver the written notice in the manner or by the date provided for in the preceding sentence, or if, in such written notice,

14

the Company shall fail to make the election provided for in subsection (A)(1)(a) of the preceding sentence, then the Company shall satisfy all its future redemption obligations in a combination of Common Stock and cash and shall pay all dividends in cash and not by the issuance of Common Stock. Notwithstanding the foregoing, in no event shall the total number of shares of Common Stock issued or issuable hereunder exceed fifteen million, seven hundred twenty-four thousand, three hundred and six (15,724,306) shares (except that in the event of a Change of Control, the total number of shares of common stock of the Acquiring Person issued or issuable hereunder shall not exceed a number equal to nineteen and ninety-nine one hundredths percent (19.99%) of the outstanding common stock of the Acquiring Person) and if such number of shares has been issued, then the Company or the Acquiring Person, as the case may be, shall satisfy all unsatisfied redemption obligations solely in cash.

     (ii)       The “Minimum Price” shall initially equal $4.4517, provided, that, in the event of a Change of Control, the Minimum Price shall equal an amount equal to seventy million dollars ($70,000,000) divided by nineteen and ninety-nine one hundredths percent (19.99%) of the outstanding common stock of the Acquiring Person. Upon the payment of dividends in, or the conversion or redemption of any Preferred Shares or Additional Preferred Shares for, Common Stock, the Minimum Price shall be reset to equal:

$70,000,000 – FV – XR
OC – DS – CS

     Where:

FV =	the aggregate face value of all Preferred Shares and Additional Preferred Shares that have been converted or redeemed for Common Stock;
XR =	one thousand dollars ($1,000) times the number of Additional Preferred Shares that had been potentially issuable under expired and unexercised Fletcher Rights;
DS =	the aggregate number of shares of Common Stock issued in payment of dividends to and including such date;
CS =	the aggregate number of shares of Common Stock issued upon conversion or redemption of Preferred Shares or Additional Preferred Shares to and including such date; and
OC =	fifteen million, seven hundred twenty-four thousand, three hundred and six (15,724,306), provided that in the event of a Change of Control, OC shall equal nineteen and ninety-nine one hundredths percent (19.99%) of the outstanding common stock of the Acquiring Person as of immediately after the consummation of the Change of Control.

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     (b)       The aggregate number of shares of Common Stock issued, as of a particular date, upon conversion or redemption of, or as dividends paid on the Series D Preferred Shares owned by Fletcher and issuable pursuant to this Agreement shall not exceed the Maximum Number as of that date. The “Maximum Number” shall initially equal seven million, six hundred sixty-nine thousand, four hundred thirty-four (7,669,434), or, in the event of a Change of Control, shall equal nine and three-fourths percent (9.75%) of the outstanding common stock of the Acquiring Person as of immediately after the consummation of the Change of Control, and may be increased upon expiration of a 65-day notice period (the “Notice Period”) after Fletcher delivers a notice (a “65 Day Notice”) to the Company designating a greater Maximum Number. A 65 Day Notice may be given at any time. From time to time following the Notice Period, Common Stock may be issued to Fletcher for any quantity of Common Stock, such that the aggregate number of shares of Common Stock issued hereunder is less than or equal to the Maximum Number.

     7.       Representations and Warranties of Fletcher. Fletcher hereby represents and warrants to the Company on each Closing Date:

     (a)       Fletcher has been duly incorporated and is validly existing under the laws of Bermuda.

     (b)       The execution, delivery and performance of this Agreement by Fletcher have been duly authorized by all requisite corporate action and no further consent or authorization of Fletcher, its Board of Directors or its stockholders is required. This Agreement has been duly executed and delivered by Fletcher and, when duly authorized, executed and delivered by the Company, will be a valid and binding agreement enforceable against Fletcher in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally and to general principles of equity.

     (c)       Fletcher understands that no United States federal or state agency has passed on, reviewed or made any recommendation or endorsement of the Investment Securities.

     (d)       Fletcher is an “accredited investor” as such term is defined in Regulation D promulgated under the Securities Act.

     (e)       Fletcher is purchasing the Investment Securities for its own account for investment only and not with a view to, or for resale in connection with, the public sale or distribution thereof in the United States, except pursuant to sales registered under the Securities Act or an exemption therefrom.

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     (f)       Fletcher understands that the Investment Securities are being or will be offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying on the truth and accuracy of, and Fletcher’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of Fletcher set forth herein in order to determine the availability of such exemptions and the eligibility of Fletcher to acquire the Investment Securities.

     8.       Future Equity Issuances. If, within twenty (20) Business Days following the Initial Closing Date, there is (i) a public disclosure of the Company’s intention or agreement to engage in, or (ii) a consummation of, any sale or issuance to any Person or Persons (other than Fletcher or its affiliates) of any shares of, or securities convertible into, exercisable or exchangeable for, or whose value is derived in whole or in part from, any shares of any class of the Company’s capital stock, then the Company shall promptly notify Fletcher of such disclosure or such consummation, which notice shall include a copy of such disclosure or the terms and date of such consummation (the “Equity Issuance Notice”; provided that the Company shall not be required to deliver an Equity Issuance Notice upon the occurrence of the any of the following (A) a sale or issuance to the sellers of any business or assets of a business being purchased by the Company in a bona fide acquisition whether through purchase, merger, consolidation, exchange offer or otherwise, (B) a bona fide sale or issuance to any strategic or joint venture partner, the primary purpose of which is not the equity financing of the Company, (C) issuances pursuant to any stock split, dividend or distribution payable in additional shares of capital stock to holders of Common Stock, (D) sales or issuances to employees, consultants or directors of the Company directly or pursuant to a stock option plan, employee stock purchase plan or restricted stock plan, or other similar arrangements related to compensation for services in effect on the date of this Agreement, or similar plans, contracts or arrangements approved by the Company’s Board of Directors after the date hereof, in each case in the ordinary course of business consistent with past practices, (E) issuances issued upon the exercise of any options or warrants to purchase capital stock outstanding on the date hereof, in each case in accordance with the terms of such options, warrants or securities in effect on the date hereof, (F) issuances in connection with the exercise of triggering of a “poison pill” or similar anti-takeover mechanism or (G) Common Shares issued or issuable pursuant to this Agreement or upon the exercise of any Fletcher Rights. After the delivery of an Equity Issuance Notice, Fletcher shall have the right, at its sole discretion, to deliver a notice to the Company (a “Price Adjustment Notice”) no later than five (5) Business Days after and excluding the date the Equity Issuance Notice is delivered; provided, however, if the closing of such transaction occurs at a later date, Fletcher shall have the right, at its sole discretion, to deliver a new Price Adjustment Notice or replace an existing Price Adjustment Notice no later than five (5) Business Days after such closing date. If Fletcher delivers a Price Adjustment Notice to the Company, then the Conversion Price (as defined in the Certificate of Rights and Preferences) shall be reset to equal one hundred twenty-two percent (122%) of the Daily Market Price (as defined therein), calculated as of the Business Day immediately preceding the date of delivery of such Price Adjustment Notice.

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     9.       Covenants of the Company. The Company covenants and agrees with Fletcher as follows:

     (a)       For so long as Fletcher owns or has the right to purchase any Investment Securities, and for a period of one (1) year thereafter, the Company will (i) maintain the eligibility of the Common Stock for listing on the New York Stock Exchange; (ii) regain the eligibility of the Common Stock for listing or quotation on all markets and exchanges including the New York Stock Exchange in the event that the Common Stock is delisted by the New York Stock Exchange or any other applicable market or exchange; (iii) obtain a listing on another national securities exchange or Nasdaq’s National Market System if the Common Stock is delisted by the New York Stock Exchange; and (iv) cause the representations and warranties contained in Section 4 to be and remain true and correct, except those representations and warranties which address matters only as of a particular date, which shall be true and correct as of such date.

     (b)       If a Restatement (as defined in the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences) occurs, the Company shall deliver to Fletcher a Restatement Notice (as defined in the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences) within three (3) Business Days of such Restatement.

     (c)       The Company will provide Fletcher with a reasonable opportunity, which shall not be less than two (2) full Business Days, to review and comment on any public disclosure by the Company of information regarding this Agreement and the transactions contemplated hereby, before such public disclosure.

     (d)       The Company will make all filings required by law with respect to the transactions contemplated hereby.

     (e)       The Company will comply with the terms and conditions of the Series D Preferred Shares as set forth in the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences, and will not amend the Certificate of Rights and Preferences or Subsequent Certificates of Rights and Preferences without the required consent of the holders of Series D Preferred Shares.

     (f)       For so long as Fletcher owns any Investment Securities, within five (5) Business Days after the filing of each of its quarterly reports on Form 10-Q with the SEC, the Company shall deliver to Fletcher a certificate of the Chief Executive Officer and Chief Financial Officer of the Company stating that, based on their knowledge, the final consolidated unaudited financial statements including the footnotes thereto contained therein fairly present in all material respects the financial condition in conformity with accounting principles generally accepted in the United States, results of operations and cash flows of the Company as of and for the periods presented therein.

     (g)       The Company shall use its commercially reasonable efforts to cause the Common Shares to be eligible for book-entry transfer through The Depository

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Trust Company (or any successor thereto) as soon as practicable after the date of this Agreement and thereafter to use its commercially reasonable efforts to maintain such eligibility.

     (h)       Subject to the satisfaction of the matters described in Section 5(k) of this Agreement, the Company shall at all times reserve for issuance such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all such Series D Preferred Shares and to satisfy its delivery obligation upon such conversion, to effect the redemption of the Series D Preferred Shares and to satisfy its delivery obligation upon such redemption and to satisfy its delivery obligation with respect to dividends.

     (i)       The Company shall, (i) when the number of shares of Common Stock outstanding is at least two hundred and fifty thousand (250,000) shares greater than the number of shares of Common Stock outstanding as designated in the previous Increase Notice (as hereinafter defined), or (ii) in the event that the Company has not delivered an Increase Notice, when the number of shares of Common Stock outstanding is at least two hundred and fifty thousand (250,000) shares greater than the number of shares of Common Stock specified in Section 4(l), deliver a notice (an “Increase Notice”) stating (x) the increase, if any, in the aggregate number of shares of Common Stock outstanding as of the last day of the preceding month over the number outstanding as of the last day of the month of the preceding Increase Notice, or (y) in the event that the Company has not delivered a prior Increase Notice, the increase, if any, in the aggregate number of shares of Common Stock outstanding as of the last day of the preceding month over number of shares outstanding specified in Section 4(l). Unless expressly waived by Fletcher, the Company shall deliver an Increase Notice to Fletcher on or before the tenth (10^th) day of any calendar month for which an Increase Notice is required to be delivered pursuant to this sub-section.

     (j)       The Company shall, within one (1) Business Day after and excluding each Closing Date, publicly distribute a press release disclosing the material terms of such Initial Closing or Subsequent Closing and shall, within three (3) Business Days after and excluding each Closing Date file a report with the SEC on Form 8-K with respect to the same.

     (k)       As soon as practicable after filing with the SEC, the Company shall furnish to Fletcher (i) a true, correct and complete copy of a report of Pricewaterhouse Coopers LLP together with accompanying consolidated financial statements and schedules of the Company at December 31, 2004 and the results of the Company’s operations and cash flows for the one (1) year period ended December 31, 2004, certified by Pricewaterhouse Coopers LLP, and (ii) the written consent of Pricewaterhouse Coopers LLP to furnishing such report as described in clause (i) above.

     (l)       The Company shall not amend or otherwise modify the Rights Agreement, dated as of January 17, 1997, by and between the Company and Harris Trust and Savings Bank, as Rights Agent or any successor or similar agreement (each, a “Rights Agreement”) in any manner such that Fletcher would become (or after the

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exercise of any or all of Fletcher’s rights hereunder or under the Certificate of Rights and Preferences or any Subsequent Certificate of Rights and Preferences, including exercise of the Fletcher Rights and conversion or redemption of the Series D Preferred Shares, could become) an Acquiring Person (as defined under the Rights Agreement) or that would in any other manner adversely affect Fletcher as compared with all other beneficial owners of the Company’s equity securities.

     10.       Change of Control. If the Company is a party to any transaction which results in a Change of Control, Fletcher and its assigns shall have the rights set forth in the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences regarding Changes of Control in addition to the rights contained in this Agreement. The Company agrees that it will not enter into an agreement with an Acquiring Person resulting in a Change of Control unless such agreement expressly obligates the Acquiring Person to assume all of the Company’s obligations under this Agreement, the Certificate of Rights and Preferences and the Subsequent Certificates of Rights and Preferences including, but not limited to, the dividend, liquidation, conversion, redemption, voting, share registration and other provisions regarding the Series D Preferred Shares, the Fletcher Rights and Common Stock contained herein and therein and thereafter all references to the Company herein shall be deemed to be references to the Acquiring Person. Without limiting the foregoing, the Company shall cause all unexercised and unexpired Fletcher Rights to be converted into, and appropriate adjustments will be made to ensure that the holder of the Fletcher Rights will receive, equivalent rights with respect to the Acquiring Person including, but not limited to, the right to receive the equivalent of the Additional Preferred Shares issuable upon the exercise of such rights, and the right to receive the consideration for such Additional Preferred Shares set forth in Section 6(F) of the Subsequent Certificate of Rights and Preferences governing such series of Additional Preferred Shares.

     (a)       The Fletcher Rights shall become exercisable immediately on and after the date a public announcement is made of the Company’s or any other Person’s intention or agreement to engage in a transaction or series of transactions that may result in a Change of Control.

     (b)       On or before the date an agreement is entered into with an Acquiring Person resulting in a Change of Control, the Company shall deliver to Fletcher written notice that the Acquirer has assumed such obligations. The Company shall provide Fletcher with written notice of any proposed transaction resulting in a Change of Control as soon as the existence of such proposed transaction is made public by any Person. Thereafter, the Company shall notify Fletcher promptly of any material developments with respect to such transaction, including advance notice at least ten (10) Business Days before the date such transaction is expected to become effective.

     (c)       “Change of Control” means (a) acquisition of the Company by means of merger or other form of corporate reorganization in which outstanding shares of the Company are exchanged for securities or other consideration issued, or caused to be issued, by the Acquiring Person (as hereinafter defined) or its Parent, Subsidiary or affiliate, other than a restructuring by the Company where outstanding shares of the Company are exchanged for shares of the Acquiring Person on a one-for-one basis and,

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immediately following the exchange, former stockholders of the Company own all of the outstanding shares of the Acquiring Person on the same pro rata basis as prior to the exchange, (b) a sale of all or substantially all of the assets of the Company (on a consolidated basis) in a single transaction or series of related transactions, (c) any other transaction or series of related transactions by the Company in which the power to cast the majority of the eligible votes at a meeting of the Company’s stockholders at which directors are elected is transferred to a single entity or group acting in concert, or (d) a capital reorganization or reclassification of the Common Stock or Other Securities (as defined in the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences) (other than a reorganization or reclassification in which the Common Stock or Other Securities are not converted into or exchanged for cash or other property, and, immediately after consummation of such transaction, the stockholders of the Company immediately prior to such transaction own the Common Stock, Other Securities or other voting stock of the Company in substantially the same proportions relative to each other as such stockholders owned immediately prior to such transaction). Notwithstanding anything contained herein to the contrary, the change in the state of incorporation of the Company shall not in and of itself constitute a Change of Control.

     (d)       “Acquiring Person” means, in connection with any Change of Control, (a) the continuing or surviving Person of a consolidation or merger with the Company (if other than the Company), (b) the transferee of all or substantially all of the properties or assets of the Company, (c) the corporation consolidating with or merging into the Company in a consolidation or merger in connection with which the Common Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property, (d) the entity or group acting in concert acquiring or possessing the power to cast the majority of the eligible votes at a meeting of the Company’s stockholders at which directors are elected, or, (e) in the case of a capital reorganization or reclassification, the Company, or (f) at Fletcher’s election, any Person that (i) controls the Acquiring Person directly or indirectly through one or more intermediaries, (ii) is required to include the Acquiring Person in the consolidated financial statements contained in such Parent’s Annual Report on Form 10-K (if such Person is required to file such a report) or would be required to so include the Acquiring Person in such Person’s consolidated financial statements if they were prepared in accordance with U.S. GAAP and (iii) is not itself included in the consolidated financial statements of any other Person (other than its consolidated subsidiaries).

     11.       Covenants of Fletcher. Fletcher hereby covenants and agrees with the Company that:

     (a)       Neither Fletcher, nor any of its affiliates, will at any time offer or sell any Investment Securities other than pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption therefrom.

     (b)       Neither Fletcher, nor any of its affiliates, shall engage in “short sales” (as such term is defined by Exchange Act Rule 3b-3) of Common Stock, it being understood that nothing in this Agreement shall prohibit Fletcher or any of its affiliates from engaging in any transaction in any stock index, portfolio or derivative of which

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Common Stock is a component. This Section 11(b) shall be deemed to extend only to Fletcher, Fletcher’s affiliates or any Person who purchases the Fletcher Rights for value, provided that this Section 11(b) shall not apply to (i) any Person with a class of equity securities registered pursuant to Section 12 of the Exchange Act, (ii) any nonprofit, charitable or educational organization or (iii) any bona fide pledgee or financing counterparty who acquires the Fletcher Rights upon a default, foreclosure or similar event.

     12.       Legend. Subject to Section 5, Fletcher understands that the certificates or other instruments representing the Investment Securities shall bear a restrictive legend composed of exactly the following words (and a stop transfer order may be placed against transfer of such certificates or other instruments):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, OR (2) THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR ANOTHER APPLICABLE EXEMPTION UNDER THE SECURITIES ACT. THE RELATIVE RIGHTS AND PREFERENCES OF THE SERIES D CUMULATIVE PREFERRED STOCK OF THE COMPANY ARE DESCRIBED IN A CERTIFICATE THEREOF FILED WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE, A COPY OF WHICH IS AVAILABLE FROM THE COMPANY BY CONTACTING THE GENERAL COUNSEL OF THE COMPANY.

     The legend set forth above shall be removed and the Company shall issue a certificate without such legend to any holder of Investment Securities if, unless otherwise required by state securities laws, such shares are sold pursuant to an effective Registration Statement under the Securities Act, Rule 144 or another applicable exemption from registration.

     13.       Conditions Precedent to Fletcher’s Obligations. The obligations of Fletcher hereunder are subject to the performance by the Company of its obligations hereunder and to the satisfaction of the following additional conditions precedent, unless expressly waived in writing by Fletcher:

     (a)       On each Closing Date, (i) the representations and warranties made by the Company in this Agreement shall be true and correct, except those representations and warranties which address matters only as of a particular date, which shall be true and correct as of such date; (ii) the Company shall have complied fully with all of the covenants and agreements in this Agreement; and (iii) Fletcher shall have received (A) on the Initial Closing Date a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company dated such date and to such effect and (B) on each Subsequent Closing Date a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company dated such date and to such effect.

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     (b)       On each Closing Date, the Company shall have delivered to Fletcher an opinion of David L. Roland, Vice President-General Counsel and Corporate Secretary of the Company, reasonably satisfactory to Fletcher, dated the date of delivery, confirming in substance the matters covered by paragraphs (a), (b), (c) with respect to matters other than enforceability, (d), (f) (other than with respect to clause (i)(E) thereof), (g) and (l) of Section 4 hereof. On each Closing Date, the Company shall have delivered to Fletcher an opinion of Fulbright & Jaworski L.L.P. reasonably satisfactory to Fletcher, dated the date of delivery, confirming in substance the matters regarding enforceability covered in paragraph (c) and matters covered in paragraph (e), clause (i)(E) of paragraph (f) and the first grammatical sentence of paragraph (k) of Section 4 hereof.

     (c)       On each Subsequent Closing Date, Fletcher shall receive a report of Pricewaterhouse Coopers LLP, or another nationally-recognized accounting firm, together with the accompanying consolidated financial statement and schedules of the Company and results of the Company’s operations and cash flows, as such report appears in the most recent Form 10-K filed by the Company with the SEC.

     (d)       On the Initial Closing Date, the Registrable Number shall be duly listed and admitted for trading on the New York Stock Exchange, subject to notice of issuance.

     (e)       On or before the Initial Closing Date, the Company shall have filed with the Delaware Secretary of State the Certificate of Rights and Preferences. On or before each Subsequent Closing Date, the Company shall have filed with the Delaware Secretary of State a Subsequent Certificate of Rights and Preferences, with terms and conditions of the applicable series of Additional Preferred Shares as required by this Agreement.

     14.       Conditions Precedent to the Company’s Obligations. The obligations of the Company hereunder are subject to the performance by Fletcher of its obligations hereunder and to the satisfaction (unless expressly waived in writing by the Company) of the additional conditions precedent that, on each Closing Date: (i) the representations and warranties made by Fletcher in this Agreement shall be true and correct; (ii) Fletcher shall have complied fully with all the covenants and agreements in this Agreement; and (iii) the Company shall have received on each such date a certificate of an appropriate officer of Fletcher dated such date and to such effect.

     15.       Fees and Expenses. Each of Fletcher and the Company agrees to pay its own expenses incident to the performance of its obligations hereunder, including, but not limited to the fees, expenses and disbursements of such party’s counsel, except as is otherwise expressly provided in this Agreement. Notwithstanding the foregoing, the Company shall pay all fees and expenses associated with the filing of any Registration Statement, including, without limitation, all fees and expenses associated with any NASD filing, if applicable.

     16.       Non-Performance.

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     (a)       If the Company, at any time, shall fail to deliver the Investment Securities to Fletcher required to be delivered pursuant to this Agreement, in accordance with the terms and conditions of this Agreement, the Certificate of Rights and Preferences and the Subsequent Certificates of Rights and Preferences, for any reason other than the failure of any condition precedent to the Company’s obligations hereunder or the failure by Fletcher to comply with its obligations hereunder, then the Company shall (without limitation to Fletcher’s other remedies at law or in equity):

     (i)       indemnify and hold Fletcher harmless against any loss, claim or damage (including without limitation, incidental and consequential damages) arising from or as a result of such failure by the Company; and

     (ii)       reimburse Fletcher for all of its reasonable out-of-pocket expenses, including fees and disbursements of its counsel, incurred by Fletcher in connection with this Agreement and the transactions contemplated herein and therein.

     17.       Indemnification.

     (a)       Indemnification of Fletcher. The Company hereby agrees to indemnify Fletcher and each of its officers, directors, employees, consultants, agents, attorneys, accountants and affiliates and each Person that controls (within the meaning of Section 20 of the Exchange Act) any of the foregoing Persons (each a “Fletcher Indemnified Party”) against any claim, demand, action, liability, damages, loss, cost or expense (including, without limitation, reasonable legal fees and expenses incurred by such Fletcher Indemnified Party in investigating or defending any such proceeding) (all of the foregoing, including associated costs and expenses being referred to herein as a “Proceeding”), that it may incur in connection with any of the transactions contemplated hereby arising out of or based upon:

     (i)       any untrue or alleged untrue statement of a material fact in a SEC Filing by the Company or any of its affiliates or any Person acting on its or their behalf or omission or alleged omission to state therein any material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading by the Company or any of its affiliates or any Person acting on its or their behalf;

     (ii)       any of the representations or warranties made by the Company herein being untrue or incorrect at the time such representation or warranty was made; and

     (iii)       any breach or non-performance by the Company of any of its covenants, agreements or obligations under this Agreement, the Certificate of Rights and Preferences and the Subsequent Certificates of Rights and Preferences;

provided, however, that the foregoing indemnity shall not apply to any Proceeding to the extent that it arises out of, or is based upon, the gross negligence or willful misconduct of Fletcher in connection therewith.

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     (b)       Indemnification of the Company. Fletcher hereby agrees to indemnify the Company and each of its officers, directors, employees, consultants, agents, attorneys, accountants and affiliates and each Person that controls (within the meaning of Section 20 of the Exchange Act) any of the foregoing Persons against any Proceeding, that it may incur in connection with any of the transactions contemplated hereby arising out of or based upon:

     (i)       any untrue or alleged untrue statement of a material fact included in an SEC filing by the Company with the express written consent of Fletcher therefor by Fletcher or any of its affiliates or any Person acting on its or their behalf or omission or alleged omission to state any such material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading by Fletcher or any of its affiliates or any Person acting on its or their behalf;

     (ii)       any of the representations or warranties made by Fletcher herein being untrue or incorrect at the time such representation or warranty was made; and

     (iii)       any breach or non-performance by Fletcher of any of its covenants, agreements or obligations under this Agreement;

provided, however, that the foregoing indemnity shall not apply to any Proceeding to the extent that it arises out of, or is based upon, the gross negligence or willful misconduct of the Company in connection therewith.

     (c)       Conduct of Claims.

     (i)       Whenever a claim for indemnification shall arise under this Section 17, the party seeking indemnification (the “Indemnified Party”), shall notify the party from whom such indemnification is sought (the “Indemnifying Party”) in writing of the Proceeding and the facts constituting the basis for such claim in reasonable detail;

     (ii)       Such Indemnifying Party shall have the right to retain the counsel of its choice in connection with such Proceeding and to participate at its own expense in the defense of any such Proceeding; provided, however, that counsel to the Indemnifying Party shall not (except with the consent of the relevant Indemnified Party) also be counsel to such Indemnified Party. In no event shall the Indemnifying Party be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from its own counsel for all Indemnified Parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances; and

     (iii)       No Indemnifying Party shall, without the prior written consent of the Indemnified Parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with

25

respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification could be sought under this Section 17 unless such settlement, compromise or consent (A) includes an unconditional release of each Indemnified Party from all liability arising out of such litigation, investigation, proceeding or claim and (B) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.

     18.       Survival of the Representations, Warranties, etc. The respective representations, warranties, and agreements made herein by or on behalf of the parties hereto shall remain in full force and effect, regardless of any investigation made by or on behalf of the other party to this Agreement or any officer, director or employee of, or Person controlling or under common control with, such party and will survive delivery of and payment for any Investment Securities issuable hereunder.

     19.       Notices. All communications hereunder shall be in writing and delivered as set forth below.

     (a)       If sent to Fletcher, all communications will be deemed delivered: if delivered by hand, on the day received by Fletcher; if sent by reputable overnight courier, on the next Business Day; and if transmitted by facsimile to Fletcher, on the date transmitted (provided such facsimile is later confirmed), in each case to the following address (unless otherwise notified in writing of a substitute address):

Fletcher International, Ltd.
c/o A. S. & K. Services Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM EX
Bermuda
Attention: Felicity Holmes, Corporate Administrator
Telephone:    441-295-2244
Facsimile:       441-292-8666

with a copy to:

Fletcher Asset Management, Inc.
HSBC Tower, 29th Floor
452 Fifth Avenue
New York, NY 10018
Attention:     Peter Zayfert
Telephone:   (212) 284-4800
Facsimile:      (212) 284-4801

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with a copy to (which copy shall not constitute notice):

Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Stephen W. Hamilton, Esq.
Telephone:   (202) 371-7010
Facsimile:     (202) 393-5760

     (b)       If sent to the Company, all communications will be deemed delivered: if delivered by hand, on the day received by the Company; if sent by reputable overnight courier, on the next Business Day; and if transmitted by facsimile to the Company, on the date transmitted (provided such facsimile is later confirmed), in each case to the following address (unless otherwise notified in writing of a substitute address):

Input/Output, Inc.
12300 Parc Crest Drive
Stafford, Texas 77477
Attention:     J. Michael Kirksey
Telephone:   (281) 933-3339
Facsimile:     (281) 879-3600

with a copy to (which copy shall not constitute notice):

Input/Output, Inc.
12300 Parc Crest Drive
Stafford, Texas 77477
Attention:     General Counsel
Telephone:   (281) 933-3339
Facsimile:     (281) 879-3600

and

Fulbright & Jaworski L.L.P.
1301 McKinney Suite 5100
Houston, Texas 77010
Attention:    Marc H. Folladori
Telephone:   713-651-5151
Facsimile:     713-651-5246

     (c)       To the extent that any funds shall be delivered to the Company by wire transfer, unless otherwise instructed by the Company, such funds should be delivered in accordance with the wire instructions set forth in Annex J.

     (d)       If the Company does not agree and acknowledge or object to the delivery of any Fletcher Notice, Preferred Stock Conversion Notice or Preferred Stock Redemption Notice by 5:00 PM, New York time, on the Business Day following the date of delivery of such notice, such non-response by the Company shall be deemed to be agreement and acknowledgment by the Company with the terms of such notice.

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     20.       Miscellaneous.

     (a)       The parties may execute and deliver this Agreement as a single document or in any number of counterparts, manually, by facsimile or by other electronic means, including contemporaneous xerographic or electronic reproduction by each party’s respective attorneys. Each counterpart shall be an original, but a single document or all counterparts together shall constitute one instrument that shall be the agreement.

     (b)       This Agreement will inure to the benefit of and be binding upon the parties hereto, their respective successors and assigns and, with respect to Section 17 hereof, will inure to the benefit of their respective officers, directors, employees, consultants, agents, attorneys, accountants and affiliates and each Person that controls (within the meaning of Section 20 of the Exchange Act) any of the foregoing Persons, and no other Person will have any right or obligation hereunder. The Company may not assign this Agreement. Notwithstanding anything to the contrary in this Agreement, Fletcher may assign, pledge, hypothecate or transfer any of the rights and associated obligations contemplated by this Agreement (including, but not limited to, the Investment Securities), in whole or in part, at its sole discretion (including, but not limited to, assignments, pledges, hypothecations and transfers in connection with financing, derivative or hedging transactions with respect to this Agreement and the Investment Securities), provided, that, any such assignment, pledge, hypothecation or transfer must comply with applicable federal and state securities laws. No Person acquiring Common Stock from Fletcher pursuant to a public market purchase will thereby obtain any of the rights contained in this Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter of this Agreement. Except as provided in this Section 20(b), this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

     (c)       This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York, and each of the parties hereto hereby submits to the non-exclusive jurisdiction of any state or federal court in the Southern District of New York and any court hearing any appeal therefrom, over any suit, action or proceeding against it arising out of or based upon this Agreement (a “Related Proceeding”). Each of the parties hereto hereby waives any objection to any Related Proceeding in such courts whether on the grounds of venue, residence or domicile or on the ground that the Related Proceeding has been brought in an inconvenient forum.

     (d)       Each party represents and acknowledges that, in the negotiation and drafting of this Agreement and the other instruments and documents required or contemplated hereby, it has been represented by and relied upon the advice of counsel of its choice. Each party hereby affirms that its counsel has had a substantial role in the drafting and negotiation of this Agreement and such other instruments and documents. Therefore, each party agrees that no rule of construction to the effect that any ambiguities are to be resolved against the drafter shall be employed in the interpretation of this Agreement and such other instruments and documents.

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     (e)       Without prejudice to other rights or remedies hereunder (including any specified interest rate), and except as otherwise expressly set forth herein, interest shall be due on any amount that is due pursuant to this Agreement and has not been paid when due, calculated for the period from and including the due date to but excluding the date on which such amount is paid at the prime rate of U.S. money center banks as published in The Wall Street Journal (or if The Wall Street Journal does not exist or publish such information, then the average of the prime rates of three U.S. money center banks agreed to by the parties) plus two percent (2%).

     (f)       Fletcher and the Company stipulate that the remedies at law of the parties hereto in the event of any default or threatened default by either party in the performance of or compliance with any of the terms of this Agreement, the Certificate of Rights and Preferences and the Subsequent Certificates of Rights and Preferences are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

     (g)       Any and all remedies set forth in this Agreement, the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences: (i) shall be in addition to any and all other remedies Fletcher or the Company may have at law or in equity, (ii) shall be cumulative, and (iii) may be pursued successively or concurrently as each of Fletcher and the Company may elect. The exercise of any remedy by Fletcher or the Company shall not be deemed an election of remedies or preclude Fletcher or the Company, respectively, from exercising any other remedies in the future.

     (h)       The Company agrees that the parties have negotiated in good faith and at arms’ length concerning the transactions contemplated herein, and that Fletcher would not have agreed to the terms of this Agreement without each and every of the terms, conditions, protections and remedies provided herein and the Certificate of Rights and Preferences. Except as specifically provided otherwise in this Agreement, the Certificate of Rights and Preferences and the Subsequent Certificates of Rights and Preferences, the Company’s obligations to indemnify and hold Fletcher harmless in accordance with Section 17 of this Agreement are obligations of the Company that the Company promises to pay to Fletcher when and if they become due. The Company shall record any such obligations on its books and records in accordance with U.S. generally accepted accounting principles.

     (i)       This Agreement may be amended, modified or supplemented in any and all respects, but only by a written instrument signed by Fletcher and the Company expressly stating that such instrument is intended to amend, modify or supplement this Agreement.

     (j)       Each of the parties will cooperate with the others and use its best efforts to prepare all necessary documentation, to effect all necessary filings, and to obtain all necessary permits, consents, approvals and authorizations of all governmental bodies and other third-parties necessary to consummate the transactions contemplated by this Agreement.

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     (k)       For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (i) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender and neuter gender of such term; (ii) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with U.S. generally accepted accounting principles; (iii) references herein to “Articles”, “Sections”, “Subsections”, “Paragraphs” and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement, unless the context shall otherwise require; (iv) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; (v) the words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision; (vi) the term “include” or “including” shall mean without limitation; (vii) the table of contents to this Agreement and all section titles or captions contained in this Agreement or in any Schedule or Annex hereto or referred to herein are for convenience only and shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement; (viii) any agreement, instrument or statute defined or referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statues and references to all attachments thereto and instruments incorporated therein; and (ix) references to a Person are also to its permitted successors and assigns and, in the case of an individual, to his or her heirs and estate, as applicable.

     (l)       If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is invalid, void or unenforceable, the parties agree that the court making such determination shall have the power to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

     (m)       Time shall be of the essence in this Agreement.

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     (n)       All dollar ($) amounts set forth herein, in the Certificate of Rights and Preferences and Subsequent Certificates of Rights and Preferences refer to United States dollars. All payments hereunder and thereunder will be made in lawful currency of the United States of America.

     (o)       Notwithstanding anything herein to the contrary, all measurements and references related to share prices and share numbers herein will be, in each instance, appropriately adjusted for stock splits, recombinations, stock dividends and the like.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement, all as of the date first set forth above.

INPUT/OUTPUT, INC.
By:	/s/ J. MICHAEL KIRKSEY
Name:	J. Michael Kirksey
Title:	Executive Vice President and CFO
FLETCHER INTERNATIONAL, LTD., by its duly authorized investment advisor, FLETCHER ASSET MANAGEMENT, INC.
By:	/s/ DENIS J. KIELY
Name:	Denis J. Kiely
Title:	Director
By:	/s/ PETER ZAYFERT
Name:	Peter Zayfert
Title:	Executive Vice President

Signature Page to Agreement

EX-99.1

Exhibit 99.1

CONTACTS:	J. Michael Kirksey
	Chief Financial Officer
	Input/Output (281) 879-3672
	Jack Lascar, Partner
	Karen Roan, SVP
	DRG&E (713) 529-6600

I/O REPORTS FOURTH QUARTER AND
YEAR-END 2004 RESULTS

· Provides detailed 2005 guidance
· Secures $30 million of additional capital

HOUSTON — February 16, 2005 — Input/Output, Inc. (NYSE: IO) today announced a fourth quarter 2004 net loss of $1.6 million, or $(0.02) per share, on revenues of $67.8 million compared to net earnings of $633 thousand, or $0.01 per share, on revenues of $44.0 million for the same period a year ago. For the year-ended December 31, 2004, I/O reported a net loss of $3.0 million, or $(0.05) per share, on revenues of $247.3 million compared to a net loss of $23.2 million, or $(0.45) per share, on revenues of $150.0 million for the year ended December 31, 2003.

     Included in the 2004 annual results is a $(0.08) per share loss related to a receivable from a subsidiary of Yukos that was recorded during the third quarter.

     Bob Peebler, I/O’s President and Chief Executive Officer, said, “The fourth quarter loss compared to the company’s original guidance can be mainly attributed to two GXT data library sales totaling $10 million that didn’t close, and the slippage of a Land VibroSeis sale to a Chinese contractor of $5 million. There were also softer than expected System Four sales in the fourth quarter. We were not satisfied with the mix of business during the fourth quarter, both at GXT and our Imaging Systems Group (ISG). We clearly want to improve business development results at ISG and we are aggressively addressing that area. We are also working to create better balance of processing, multi-client projects and data library sales at GXT.”

FOURTH QUARTER 2004

     Fourth quarter revenues of $67.8 million increased 54 percent over last year’s fourth quarter due to the acquisitions of Concept Systems and GXT. Land Imaging revenues were $30.4 million compared to $33.8 million a year ago and Marine Imaging revenues rose to $11.0 million compared to $8.6 million a year ago. GXT contributed $21.3 million in revenues in the fourth quarter. However, gross margins in the fourth quarter improved to 30 percent compared to 25 percent for the same period a year ago and 23 percent in the third quarter primarily due to margins improving in the Land Imaging division.

     EBITDA (earnings before net interest expense, taxes, depreciation and amortization) for the fourth quarter was $9.8 million compared to $3.8 million for the fourth quarter of last year. A reconciliation of EBITDA to reported earnings can be found at the end of this press release.

FULL YEAR 2004

     Revenues for 2004 increased 65 percent to $247.3 million compared to $150.0 million in the comparable period of 2003. Excluding Concept Systems and GXT, revenues increased 25 percent.

     Gross margin in 2004 rose to 29 percent compared to 19 percent in 2003, reflecting overall improved margins, especially in our Land Imaging division.

     EBITDA for 2004 was $27.3 million compared to a negative $9.2 million in 2003.

     For 2004, I/O recorded a net loss of $3.0 million, or $(0.05) per share, which included the $(0.08) per share charge for the Russian receivable in the third quarter, compared to a net loss of $23.2 million, or $(0.45) per share in the prior year.

     GXT and Concept Systems added revenues of $59.1 million in 2004 and combined were marginally profitable. Concept Systems had one of its best years in its history.

     Land Imaging revenues were $126.0 million in 2004 compared to $107.7 million in 2003. The Sensor Geophone group had a record year, which further evidences the improving land seismic market. Gross margins in 2004 were 28 percent compared to 13

percent in 2003. Operating expenses were 13 percent of revenues in 2004, down from almost 15 percent in 2003. Income from operations was approximately $17.6 million from this division in 2004.

     Marine Imaging revenues were $54.7 million in 2004, up 53 percent from 2003. Our first shipment of VectorSeis Ocean, along with an improving marine market, accounted for this increase. Gross margins improved 6 percentage points to 36 percent in 2004. Excluding the write-off of the Russian receivable in the third quarter, operating expenses were $10.2 million, down slightly from 2003.

     VectorSeis System sales amounted to $31 million during 2004, a 55 percent increase from last year’s sales of $20 million. The VectorSeis System sales of $31 million fell short of our 2004 goal of $40 million and can be attributed to not closing two systems sales. General and administration as well as marketing and sales expenses increased during 2004 from the prior year due principally to the GXT and Concept Systems acquisitions. In addition, fees associated with Sarbanes-Oxley compliance added over $1 million in cost.

2005 OUTLOOK

     The following statements are based on our current expectations. These statements are forward looking and actual results may differ materially. Factors affecting these forward-looking statements are detailed below.

     On January 4, 2005, I/O announced 2005 earnings guidance in the range of $0.15 to $0.40 per diluted share. The company expects over 60% of 2005 revenues to occur in the third and fourth quarters.

     Mr. Peebler stated, “This guidance is the result of our normal budgeting process. It represents an attempt to provide transparency into the thought process of I/O’s management. Our budget is produced between October and December and thus annual guidance will be issued each year at the beginning of the year with quarterly updates of the annual guidance, if warranted. It is management’s view that quarterly earnings variances are too often a result of timing differences, especially with respect to GXT data sales. Thus, there will be no attempt to provide quarterly guidance going forward.

Quarterly conference calls will focus upon a discussion of key drivers of the business plus any new developments.”

     Key drivers to be addressed during quarterly conference calls may include:

•   Market demand and product group revenues

•   Sales pipeline for land and marine technologies

•   Market adoption of new technologies

•   Data library products and sales

•   Seismic data processing backlog

•   Product group gross margins

•   Operating expense levels

•   EBITDA

•   Collection of receivables

•   Major projects

     Mr. Peebler continued, “Looking at 2004, I/O had many accomplishments as well as some disappointments. We have launched two major next-generation product lines and continue to increase market understanding of our full-wave VectorSeis technology. The additions of GX Technology and Concept Systems have added key pieces we needed to build a seismic solutions company. As a result, 2004 was a major step forward in our plan.

     “For 2005, this management team will devote its energies to improving our operational effectiveness. We have already taken steps to strengthen our sales and business development capabilities. We are more closely aligning sales and product responsibilities as well as focusing resources on E&P companies and contractors who want better seismic results. We are enhancing our presence in the growing markets of Russia, China and the Middle East as well as developing new opportunities in North and South America. We have redirected resources to field support and service to enhance the training and support we give our customers. Overall, 2005 will be a year focused on customers and building improved operational effectiveness on the strategic building blocks we laid in 2004.

     “Based on our view of current opportunities in the pipeline and our judgment on expected orders and shipments, we expect 2005 revenues to range between $320 and $365 million. We expect sales and margins to improve as we move through the year, with full year 2005 gross margins to range between 30 percent and 35 percent. We anticipate operating expenses as a percentage of revenues to range between 23 and 28 percent during the year. As a result, we anticipate 2005 earnings to range between $0.15 and $0.40 per share.”

Issuance of $30 million of Convertible Preferred Stock

     The Company also announced today that it has completed the private placement of $30 million of a newly designated class of preferred stock that is initially convertible into 3,812,429 shares of I/O common stock at $7.869 per share, a 22 percent premium to the average of I/O common stock on February 11, 2005. The preferred stock was issued to Fletcher International, an affiliate of the private investment firm Fletcher Asset Management Inc. The preferred stockholder has the right to purchase as much as $40 million of additional preferred stock for a period of two and one-half years beginning in August 2005. The conversion price of the additional preferred stock will equal 122 percent of the then prevailing price of I/O common stock, subject to a minimum price. The preferred stock will have a minimum annual dividend rate of 5 percent payable in cash or common shares at I/O’s option. I/O has agreed to file a registration statement with the Securities and Exchange Commission to register the common stock issuable under the agreement.

     Bob Peebler stated, “As we finalized our annual planning process in November and December, we evaluated the various scenarios surrounding technology adoption rates, market trends, working capital needs as well as investment opportunities that could present themselves to further enhance our strategy. Our Board of Directors determined that a transaction of this nature and size with an investor who appreciates our long-term strategy gives the company the financial flexibility to execute our business plan with confidence for the foreseeable future. Over the past few months, we have come to know and appreciate the long-term strategic view of the Fletcher team and we believe they will be a valuable stakeholder as we execute our strategy.”

ABOUT FLETCHER INTERNATIONAL

Fletcher International and other affiliates of New York investment firm Fletcher Asset Management, Inc. make supportive investments in a wide range of responsible public companies, emphasizing established and growing enterprises with strong management, significant potential for increased shareholder value, and sustainable business practices. Additional information is available at http://www.fletcher.com.

CONFERENCE CALL

     I/O has scheduled a conference call for Thursday, February 17, 2005, at 9:30 a.m. eastern time. To participate in the conference call, dial 303-262-2142 at least 10 minutes before the call begins and ask for the Input/Output conference call. A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until February 24, 2005. To access the replay, dial 303-590-3000 and use pass code 11022816.

     Investors, analysts and the general public will also have the opportunity to listen to the conference call live over the Internet by visiting www.i-o.com. Also, an archive of the web cast will be available shortly after the call on the company’s website.

I/O is a leading seismic services provider. The company provides cutting-edge seismic acquisition equipment, software, and planning and seismic processing services to the global oil and gas industry. The company’s technologies are applied in both land and marine environments, in traditional 2D and 3D surveys, and in rapidly growing areas like time-lapse (4D) reservoir monitoring and full-wave imaging. I/O has offices in the United States, Canada, Europe, China, Russia and the Middle East. Additional information is available at http://www.i-o.com.

The information included herein contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include statements concerning estimated revenues, earnings and earnings per share for fiscal 2005, and estimated gross margins, adjusted EBITDA and operating expenses as a percentage of revenue for fiscal 2005, future sales and market growth, and other statements that are not of historical fact. Actual results may vary materially from those described in these forward-looking statements. All forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties. These risks and uncertainties include the timing and development of the Company’s products and services and market acceptance of the Company’s new and revised product offerings; risks associated with competitor’s product offerings and pricing pressures resulting therefrom; the relatively small number of customers that the Company currently relies upon; the fact that a significant portion of the Company’s revenues is derived from foreign sales; the Company’s ability to successfully manage the integration of its acquisitions into the Company’s operations; the risks that sources of capital may not prove adequate; the Company’s inability to produce products to preserve and increase market share; collection of receivables; and technological and marketplace changes affecting the Company’s product line. Additional risk factors, which could affect actual results, are disclosed by the Company from time to time in its filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004.

Tables to follow

INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
Net sales	$	67,824		$	43,987		$	247,299		$	150,033
Cost of sales		47,747			32,796			175,705			122,192
Gross profit		20,077			11,191			71,594			27,841
Operating expenses (income):
Research and development		5,731			3,765			19,611			18,696
Marketing and sales		8,102			3,715			23,758			12,566
General and administrative		7,674			2,967			29,748			16,753
Gain on sale of assets		(586	)		(11	)		(3,980	)		(291	)
Impairment of long-lived assets		—			—			—			1,120
Total operating expenses		20,921			10,436			69,137			48,844
Income (loss) from operations		(844	)		755			2,457			(21,003	)
Interest expense		(1,615	)		(945	)		(6,231	)		(4,087	)
Interest income		256			359			1,276			1,903
Fair value adjustment of warrant obligation		—			769			—			1,757
Impairment of investment		—			(23	)		—			(2,059	)
Other income (expense)		27			(92	)		220			685
Income (loss) before income taxes		(2,176	)		823			(2,278	)		(22,804	)
Income tax (benefit) expense		(542	)		190			701			348
Net income (loss)	$	(1,634	)	$	633		$	(2,979	)	$	(23,152	)
Basic net income (loss) per common share	$	(0.02	)	$	0.01		$	(0.05	)	$	(0.45	)
Weighted average number of common shares outstanding		77,990,967			51,288,975			65,960,697			51,236,771
Diluted net income (loss) per common share.	$	(0.02	)	$	0.01		$	(0.05	)	$	(0.45	)
Weighted average number of diluted common shares outstanding		77,990,967			54,604,885			65,960,697			51,236,771

INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

	December 31,			December 31,
	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	14,935		$	59,507
Restricted cash		2,345			1,127
Accounts receivable, net		61,598			34,270
Current portion notes receivable, net		10,784			14,420
Unbilled revenue		7,309			—
Inventories		86,659			53,551
Prepaid expenses and other current assets		7,974			3,703
Total current assets		191,604			166,578
Notes receivable		4,143			6,409
Net assets held for sale		—			3,331
Property, plant and equipment, net		45,239			27,607
Multi-client data library, net		9,572			—
Deferred income taxes		480			1,149
Investment at cost		3,500			—
Goodwill		147,066			35,025
Intangible and other assets, net		77,512			9,105
Total assets	$	479,116		$	249,204
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt and lease obligations	$	6,564		$	2,687
Accounts payable		40,856			12,531
Accrued expenses		26,686			15,833
Deferred revenue		8,423			2,060
Total current liabilities		82,529			33,111
Long-term debt and lease obligations, net of current maturities		79,387			78,516
Other long-term liabilities		2,688			3,813
Stockholders’ equity:
Common stock		795			522
Additional paid-in capital		480,845			296,663
Accumulated deficit		(161,516	)		(158,537	)
Accumulated other comprehensive income		2,449			1,292
Treasury stock		(5,844	)		(5,826	)
Unamortized restricted stock compensation		(2,217	)		(350	)
Total stockholders’ equity		314,512			133,764
Total liabilities and stockholders’ equity	$	479,116		$	249,204

Reconciliation of EBITDA to Net Income
(Non-GAAP Measures)
(In thousands)
(Unaudited)

EBITDA is a non-GAAP measurement that is presented as an additional indicator of operating performance and is not a substitute for net income (loss) or income (loss) per share calculated under generally accepted accounting principles (GAAP). We believe that EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to service our debt. The calculation of EBITDA shown below is based upon amounts derived from the company’s financial statements prepared in conformity with GAAP.

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
Net income (loss)	$	(1,634	)	$	633		$	(2,979	)	$	(23,152	)
Interest expense		1,615			945			6,231			4,087
Interest income		(256	)		(359	)		(1,276	)		(1,903	)
Income tax (benefit) expense.		(542	)		190			701			348
Depreciation and amortization expense		10,654			2,351			24,668			11,444
EBITDA	$	9,837		$	3,760		$	27,345		$	(9,176	)

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