MESA INC, PRES14A, 1996-04-29

MESA INC
PRES14A, 1996-04-29
CRUDE PETROLEUM & NATURAL GAS

Previous: VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNI TRUST, N-30D, 1996-04-29

Next: MESA INC, 8-K, 1996-04-29

<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the SEC Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

MESA INC.
(Name of Registrant as Specified In Its Charter)

MESA INC.
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):
[x ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6()(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.

1) Title of each class of securities to which transaction applies:

________________________________________________________________________

2) Aggregate number of securities to which transaction applies:

________________________________________________________________________

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined).

________________________________________________________________________

4) Proposed maximum aggregate value of transaction:

________________________________________________________________________

5) Total fee paid:

________________________________________________________________________

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.

1) Amount Previously Paid:

________________________________________________________________________

2) Form, Schedule or Registration Statement No.:

________________________________________________________________________

3) Filing Party:

________________________________________________________________________

4) Date Filed:

________________________________________________________________________
<PAGE> 2
MESA INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held June ___, 1996
Irving, Texas

To the Stockholders of MESA Inc.:

Notice is hereby given that a Special Meeting of the Stockholders of
MESA Inc. will be held at _______________________________________, Dallas,
Texas, at ____ a.m. on _________, June __, 1996, to consider and act upon three
proposals (the "Proposals"), as more fully described in the accompanying Proxy
Statement:

Proposal One: Approval of the issuance and sale of a minimum of
approximately 58.8 million shares and a maximum of
approximately 117.3 million shares (subject to appropriate
adjustment to reflect the reverse stock split described in
Proposal Three, if approved) of Series B 8% Cumulative
Convertible Preferred Stock, par value $.01 per share, of MESA
Inc. ("Mesa") to DNR-MESA Holdings, L.P., a Texas limited
partnership ("DNR"), the sole general partner of which is
Rainwater, Inc., on the terms and subject to the conditions
set forth in that certain Stock Purchase Agreement, dated
April 26, 1996, between Mesa and DNR.

Proposal Two: Approval of an amendment of Mesa's Amended and Restated
Articles of Incorporation to (i) increase the number of
authorized shares of Common Stock, par value $.01 per share,
of Mesa from 100,000,000 to 600,000,000 (subject to the effect
of the reverse stock split described in Proposal Three, if
approved), (ii) increase the number of authorized shares of
Preferred Stock, par value $.01 per share, of Mesa from
10,000,000 to 500,000,000 (subject to the effect of the
reverse stock split described in Proposal Three, if approved)
and (iii) permit the taking of action by written consent of
the holders of any series of Preferred Stock if and to the
extent provided in the resolution of the Board of Directors
establishing any such series.

Proposal Three: Approval of an amendment of Mesa's Amended and Restated
Articles of Incorporation to effect (i) a one-for-four
reverse stock split of the outstanding shares of Common Stock,
(ii) a reduction of the authorized shares of Common Stock from
600,000,000 to 150,000,000 and (iii) a reduction of the
authorized shares of Preferred Stock from 500,000,000 to
125,000,000.

NONE OF THE PROPOSALS WILL BE IMPLEMENTED UNLESS BOTH PROPOSAL ONE AND
PROPOSAL TWO ARE APPROVED. HOWEVER, THE IMPLEMENTATION OF PROPOSALS ONE AND
TWO IS NOT CONDITIONED UPON THE APPROVAL OF PROPOSAL THREE. ACCORDINGLY, A
VOTE AGAINST PROPOSAL ONE OR PROPOSAL TWO WILL GENERALLY HAVE THE SAME EFFECT
AS A VOTE AGAINST ALL OF THE PROPOSALS, BUT A VOTE AGAINST PROPOSAL THREE WILL
NOT AFFECT THE IMPLEMENTATION OF PROPOSALS ONE AND TWO.

Stockholders of record at the close of business on April 29, 1996,
will be entitled to notice of, and to vote at, the Special Meeting or any
postponements or adjournments thereof. Stockholders are cordially invited to
attend the Special Meeting in person. Whether or not you plan to attend in
person, please sign, date, and promptly mail the enclosed proxy card for which
a self-addressed, U.S. postage-paid, return envelope is provided. Stockholders
are urged to read carefully the attached Proxy Statement for additional
information concerning the matters to be considered at the Special Meeting.

By order of the Board of Directors,

/s/ Stephen K. Gardner

Stephen K. Gardner
Vice President and Chief Financial
Officer
May ___, 1996

<PAGE> 3
PRELIMINARY COPY May ___, 1996

MESA INC.

1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039-3746

--------------------
PROXY STATEMENT
--------------------

SPECIAL MEETING OF STOCKHOLDERS
To Be Held June __, 1996

This Proxy Statement is being furnished to the Stockholders of MESA
Inc. in connection with the solicitation of proxies by the Board of Directors
for use at the Special Meeting of Stockholders to be held at
_____________________________, Dallas, Texas, at ___ a.m. on June __, 1996, and
at any postponements or adjournments thereof (the "Special Meeting"). Unless
the context otherwise requires, references herein to "Mesa" are to MESA Inc.
and its subsidiaries and predecessors viewed as a single entity.

At the Special Meeting, including any adjournment thereof, holders of
shares of Mesa's Common Stock, par value $.01 per share ("Common Stock"), will
be asked to consider and vote upon the following three proposals:

(i) the issuance and sale of a minimum of approximately
58.8 million shares and a maximum of approximately 117.3 million
shares (subject to appropriate adjustment to reflect the reverse stock
split described below, if approved) of Series B 8% Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Series B
Preferred Stock"), of Mesa to DNR-MESA Holdings, L.P., a Texas limited
partnership ("DNR"), the sole general partner of which is Rainwater,
Inc., a Texas corporation owned by Richard E. Rainwater, on the terms
and subject to the conditions set forth in that certain Stock Purchase
Agreement, dated April 26, 1996, between Mesa and DNR (the "Stock
Purchase Agreement");

(ii) an amendment of Mesa's Amended and Restated Articles
of Incorporation to (i) increase the number of authorized shares of
Common Stock of Mesa from 100,000,000 to 600,000,000 (subject to the
effect of the reverse stock split described below, if approved), (ii)
increase the number of authorized shares of Preferred Stock, par value
$.01 per share ("Preferred Stock"), of Mesa from 10,000,000 to
500,000,000 (subject to the effect of the reverse stock split
described below, if approved) and (iii) permit the taking of action by
written consent of the holders of any series of Preferred Stock if and
to the extent provided in the resolution of the Board of Directors
establishing any such series (the "Required Charter Amendments"); and

(iii) an amendment of Mesa's Amended and Restated Articles
of Incorporation to effect (i) a one-for-four reverse stock split (the
"Reverse Stock Split") of the outstanding shares of Common Stock, (ii)
a reduction of the authorized shares of Common Stock from 600,000,000
to 150,000,000 and (iii) a reduction of the authorized shares of
Preferred Stock from 500,000,000 to 125,000,000 (the "Reverse Split
Charter Amendments").

This Proxy Statement and the enclosed form of proxy are first being mailed to
stockholders on or about May __, 1996.

<PAGE> 4
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Recapitalization . . . . . . . . . . . . . . . . . . . . . . . . 11
Terms of the Recapitalization . . . . . . . . . . . . . . . . . 11
Effects of the Recapitalization on Control of Mesa . . . . . . . 12
Sources and Uses of Funds . . . . . . . . . . . . . . . . . . . 13
Background of the Recapitalization . . . . . . . . . . . . . . . 13
Opinion of Independent Financial Advisor . . . . . . . . . . . . 23
Advantages of the Recapitalization . . . . . . . . . . . . . . 26
Disadvantages of the Recapitalization . . . . . . . . . . . . . 27
Consequences if the DNR Purchase is not Approved . . . . . . . . 28
Absence of Appraisal Rights . . . . . . . . . . . . . . . . . . 28
Interests of Certain Persons in the Recapitalization . . . . . . 28
Expenses of the Recapitalization . . . . . . . . . . . . . . . . 28
Board Recommendation . . . . . . . . . . . . . . . . . . . . . . 29
Letters of Dissenting Directors . . . . . . . . . . . . . . . . . 30
Response of the Majority of the Board
to the Letters of Dissenting Directors . . . . . . . . . . . . . 33
Price Range of Common Stock and Dividend Policy . . . . . . . . . . . 35
The Stock Purchase Agreement . . . . . . . . . . . . . . . . . . . . 36
Description of Preferred Stock . . . . . . . . . . . . . . . . . . . 43
The Rights Offering . . . . . . . . . . . . . . . . . . . . . . . . . 47
Description of New Debt . . . . . . . . . . . . . . . . . . . . . . . 48
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
The Required Charter Amendments . . . . . . . . . . . . . . . . . . . 51
The Reverse Split Charter Amendments . . . . . . . . . . . . . . . . 52
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 59
Certain Relationships and Related Transactions . . . . . . . . . . . 64
Security Ownership of Certain Beneficial Owners and Management . . . 66
Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . 69
Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Incorporation of Certain Documents by Reference . . . . . . . . . . . 70
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Annex A -- Opinion of Lehman Brothers Inc. . . . . . . . . . . . . . A-1
Annex B -- Stock Purchase Agreement . . . . . . . . . . . . . . . . . B-1
Annex C -- Statement of Resolution . . . . . . . . . . . . . . . . . C-1
</TABLE>

FORWARD LOOKING STATEMENTS

This Proxy Statement includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of
historical facts included in this Proxy Statement, including without
limitation, the statements under "Summary" and "The Recapitalization," are
forward-looking statements. Although Mesa believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from Mesa's
expectations ("Cautionary Statements") are disclosed in this Proxy Statement,
including without limitation in conjunction with the forward-looking statements
included in this Proxy Statement. All subsequent written and oral
forward-looking statements attributable to Mesa or persons acting on its behalf
are expressly qualified in their entirety by the Cautionary Statements.

<PAGE> 5

SUMMARY

The following summary is not intended to be complete and is qualified in
its entirety by the more detailed information appearing elsewhere in this Proxy
Statement and the Annexes hereto. Stockholders are urged to read the entire
Proxy Statement.

OVERVIEW

This Proxy Statement relates to a proposal for a series of transactions
that are intended to deleverage and recapitalize Mesa through the issuance of
$265 million in new equity and the repayment and/or refinancing of Mesa's
existing $1.2 billion in debt (the "Recapitalization," as more specifically
defined below). For the past several years, Mesa has operated under
significant financial constraints as a result of the devotion of substantially
all of its operating cash flow to debt service. Mesa's high degree of
leverage, combined with the impact of low and volatile prices for natural gas
and liquids, have resulted in a lack of liquidity and access to capital markets
which threaten Mesa's financial viability.

In an effort to address this situation, Mesa's Board of Directors (the
"Board") embarked on a process to evaluate its strategic alternatives in late
1994, and expanded the process in mid-1995. Through its independent financial
advisor, the Board solicited proposals for a sale of Mesa, a stock-for-stock
merger, joint ventures, asset sales, equity infusions, and refinancing
transactions (the "Proposal Solicitation Process"). A majority of the Board
has determined that the Recapitalization is the most advantageous alternative
available to Mesa and believes that Rainwater will be an important strategic
partner in the future financial success of Mesa. Two of Mesa's eight directors
dissented from the Board's determination. The Recapitalization is also
intended to enhance Mesa's ability to compete within the oil and gas industry
by substantially increasing cash flow available for reinvestment. Concurrently
with the closing of the Recapitalization, DNR will obtain the right to elect a
majority of the Board.

MESA

Mesa is one of the largest independent oil and gas companies in the
United States and considers itself one of the most efficient operators of
domestic natural gas producing properties and natural gas processing
facilities. Mesa has been publicly held since 1964 and is primarily in the
business of exploring for, developing, producing, processing and selling
natural gas and oil in the United States. As of December 31, 1995, Mesa owned
approximately 1.9 trillion cubic feet of equivalent proved natural gas
reserves.

DNR AND RAINWATER, INC.

DNR is a Texas limited partnership formed to invest in Mesa. Rainwater,
Inc. ("Rainwater") is the sole general partner of DNR and Richard E. Rainwater
personally owns a majority of the limited partnership interests in DNR.
Rainwater, Inc. is a Texas corporation owned by Mr. Rainwater. Mr. Rainwater
was the chief investment advisor to the Bass family of Fort Worth, Texas from
1970 to 1986. During that time he was principally responsible for numerous
major corporate acquisitions and dispositions. In 1986, he founded what is now
ENSCO International, Inc., an international offshore drilling company.
Additionally, in 1987 he co-founded Columbia Hospital Corporation and in 1989
participated in a management-led buyout of HCA-Hospital Corporation of America.
In 1994, these two companies merged to create Columbia/HCA Healthcare
Corporation, the nation's largest publicly traded hospital chain. In 1992, Mr.
Rainwater was one of the founders of Mid Ocean Limited, a provider of casualty
re-insurance. In 1994, he founded Crescent Real Estate Equities, Inc., one of
the nation's largest real estate investment trusts, for which he currently
serves as chairman of the board.

-1-
<PAGE> 6

SUMMARY OF THE PROPOSED RECAPITALIZATION

The Recapitalization is proposed to be effected as follows:

o Sale to DNR. Mesa will sell approximately 58.8 million shares of Series
B Preferred Stock to DNR at a price of $2.26 per share (an aggregate of
$133 million). This sale will occur at a closing (the "First Closing")
shortly after approval of the necessary elements of the Recapitalization
at the Special Meeting, subject to concurrent completion of the Debt
Refinancing described below.

o Refinancing of Existing Debt. Mesa will repay and/or refinance all of
its outstanding indebtedness (approximately $1.2 billion at December 31,
1995) with funds from the following sources: (i) a new $500 million
revolving credit facility (the "New Credit Facility") for which Mesa has
received a commitment letter from The Chase Manhattan Bank, N.A., and
Bankers Trust Company, (ii) the sale of up to $525 million of senior
subordinated notes (the "New Notes") in an underwritten public offering,
as to which Mesa received a "highly confident" letter from an investment
bank, (iii) the $133 million in proceeds from the sale of shares to DNR
at the First Closing and (iv) cash on hand. The New Credit Facility,
the sale of the New Notes and the application of the net proceeds
therefrom are referred to herein as the "Debt Refinancing." The Debt
Refinancing is subject to the concurrent completion of DNR's purchase of
Series B Preferred Stock at the First Closing.

o Rights Offering. After the First Closing, Mesa will conduct a rights
offering (the "Rights Offering") whereby it will distribute to the
holders of Common Stock transferable rights (the "Rights") to purchase a
pro rata portion of an aggregate of approximately 58.4 million shares of
Series A 8% Cumulative Convertible Preferred Stock of Mesa, par value
$.01 per share ("Series A Preferred Stock") (subject to appropriate
adjustment if the Reverse Stock Split is approved), for the same
purchase price of $2.26 per share to be paid by DNR (an aggregate of
$132 million). DNR will provide a standby commitment (the "Standby
Commitment") pursuant to which it will purchase additional shares of
Series B Preferred Stock equal to the number of shares of Series A
Preferred Stock, if any, not purchased in the Rights Offering. The
Rights Offering and any sale of shares to DNR pursuant to the Standby
Commitment will close concurrently (the "Second Closing"). Funds
received at the Second Closing will be used to reduce borrowings under
the New Credit Facility.

As used herein, the term "Recapitalization" refers to the purchase by DNR of
shares of Series B Preferred Stock at the First Closing and pursuant to the
Standby Commitment (together, the "DNR Purchase"), the Debt Refinancing and the
Rights Offering.

CONTROL OF MESA

As the sole holder of the Series B Preferred Stock, DNR will have the
right to nominate and elect a majority of Mesa's Board of Directors so long as
DNR and its affiliates meet certain minimum stock ownership requirements. Upon
completion of the Second Closing, DNR will own between 32% and 65% of the
outstanding Common Stock on a fully diluted basis, depending on the extent to
which the Rights Offering is subscribed.

TERMS OF THE PREFERRED STOCK

Except for voting rights to elect directors, the rights and privileges
of the Series A Preferred Stock and the Series B Preferred Stock will be
substantially identical. Each share of Series A and Series B Preferred Stock
will be convertible into one share of Common Stock (subject to customary
antidilution adjustments) at the holder's option. Dividends on the Series A
and Series B Preferred Stock will be paid in additional shares of Preferred
Stock until the fourth anniversary of the date of issuance, after which Mesa
will have the option to pay dividends in cash if certain financial tests are
satisfied, subject to any limitations in Mesa's debt agreements. Shares of
Series B Preferred Stock that are transferred or sold by DNR to an unaffiliated
third party will automatically convert into shares of Series A Preferred Stock.

-2-
<PAGE> 7

The Series A Preferred Stock is expected to be listed for trading on the
New York Stock Exchange.

OPINION OF INDEPENDENT FINANCIAL ADVISOR

Mesa has received an opinion from Lehman Brothers Inc. ("Lehman
Brothers"), its independent financial advisor, that, as of the date of such
opinion, and subject to the assumptions, factors and limitations set forth in
such opinion, the consideration to be received by Mesa for the Series A
Preferred Stock to be issued in the Rights Offering and the Series B Preferred
Stock to be issued to DNR is fair, from a financial point of view to Mesa and,
accordingly, to its shareholders.

ADVANTAGES OF THE RECAPITALIZATION

The principal advantages of the Recapitalization considered by the Board
include, among other things, that (i) the Recapitalization will improve Mesa's
financial condition by significantly reducing its costs of debt service, (ii)
the Recapitalization will eliminate Mesa's near term liquidity issues and
enhance Mesa's ability to compete in the oil and gas industry by substantially
increasing cash flow available for investment and enhancing its ability to
attract capital, and (iii) Mesa's current stockholders will have the right to
participate in the Recapitalization by purchasing shares of Series A Preferred
Stock through the Rights Offering, or by selling their Rights in the market, in
either case mitigating the dilution of their investment in the
Recapitalization. In addition, Mesa expects to benefit from the ability of
DNR's Board representatives, who have participated in a number of significant
transactions and enjoy an excellent reputation in the financial community, to
attract capital.

DISADVANTAGES OF THE RECAPITALIZATION

The principal disadvantages of the Recapitalization considered by the
Board are (i) the transfer of control to DNR at a discount to market prices,
(ii) dilution of the investment of existing stockholders and (iii) a limitation
on the potential use of certain net operating loss carryforwards for tax
purposes.

RECOMMENDATION OF THE BOARD OF DIRECTORS OF MESA

In arriving at a recommendation, the Board considered the advantages and
disadvantages of the Recapitalization, the results of the extensive review of
Mesa's strategic alternatives, the opinion of Lehman Brothers, Mesa's financial
condition, and other factors, all as more fully discussed herein. A majority
of the Board has concluded that the Recapitalization is in the best interests
of Mesa and its stockholders and recommends that the holders of Common Stock
vote to approve the DNR Purchase.

The Required Charter Amendments are necessary in order to implement the
DNR Purchase and the Rights Offering, and the Board believes they are otherwise
advantageous to Mesa. Accordingly, a majority of the Board recommends that
such amendments be approved.

A majority of the Board believes that the Reverse Stock Split will be
advantageous to Mesa and its stockholders as a means of enhancing the liquidity
and marketability of the Common Stock, and accordingly a majority of the Board
recommends that the Reverse Split Charter Amendments be approved.

Two of the eight members of the Board of Directors, Dorn Parkinson and
Joel Reed, dissented in writing from the Board's conclusions and
recommendations. Letters from Mr. Parkinson and Mr. Reed stating their reasons
for dissenting are set forth herein under "The Recapitalization--Letters of
Dissenting Directors."

-3-
<PAGE> 8

CONDITIONS TO THE RECAPITALIZATION

Consummation of the Recapitalization is conditioned upon (i) the receipt
of all requisite stockholder approvals of the transactions contemplated by the
Recapitalization, (ii) the closing of the Debt Refinancing concurrently with
the initial sale of Series B Preferred Stock to DNR at the First Closing and
(iii) other customary conditions.

RIGHTS OFFERING

The Rights Offering will commence promptly after the First Closing under
the Stock Purchase Agreement, and will expire not more than 21 days thereafter,
subject to extension by Mesa.

Mesa will send written notice to its stockholders at least ten days in
advance of the proposed record date for determining the eligibility of
stockholders to receive Rights.

One Right will entitle the holder thereof to receive, upon payment of
the $2.26 per share subscription price, one share of Series A Preferred Stock
(the "Basic Subscription Privilege"). In addition, each holder of Rights who
exercises in full such holder's Basic Subscription Privilege may also subscribe
at the same subscription price for additional shares of Series A Preferred
Stock available as a result of unexercised Rights, if any (the
"Oversubscription Privilege"). If an insufficient number of shares of Series A
Preferred Stock is available to satisfy fully all exercises of the
Oversubscription Privilege, the available shares will be prorated among holders
who exercise their Oversubscription Privilege.

PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES OF THE RIGHTS OFFERING

It is expected that holders of Common Stock will not be taxed upon the
receipt or exercise of the Rights issued in the Rights Offering. However, it
is expected that upon a sale of the Rights, a stockholder will be taxed on any
capital gain realized through such sale (gain or loss is determined by the
difference in any amount received in the sale of the Rights and the
stockholder's tax basis in the Rights).

REQUIRED CHARTER AMENDMENTS

In connection with the Recapitalization, Mesa proposes to amend its
Amended and Restated Articles of Incorporation (the "Articles of
Incorporation") so that: (i) the number of authorized shares of Common Stock
would be increased from 100 million to 600 million, (ii) the number of
authorized shares of Preferred Stock would be increased from 10 million to 500
million and (iii) the taking of action by written consent of the holders any
series of preferred stock would be permitted if and to the extent provided in
the resolution of the Board of Directors establishing any such series.
Approval of these Required Charter Amendments is a necessary condition to
implementation of the Recapitalization.

REVERSE STOCK SPLIT

Mesa proposes certain additional amendments to its Articles of
Incorporation to effect a one-for-four Reverse Stock Split pursuant to which
each holder of Common Stock will receive one share of Common Stock for every
four shares of Common Stock held prior to the Reverse Stock Split. Except for
minor changes resulting from the treatment of fractional shares, the Reverse
Stock Split will not affect any stockholder's percentage ownership interest in
Mesa or of the outstanding Common Stock. Following the Reverse Stock Split,
the total number of shares of Common Stock outstanding would be reduced from
64,050,009 to approximately 16,012,502, the total number of shares of
authorized Common Stock would be reduced to 150 million and the total number of
shares of authorized Preferred Stock would be reduced to 125 million. The
numbers of shares of Series A and Series B Preferred Stock to be issued in the
Recapitalization would be similarly adjusted, and the purchase price for such
shares would be increased from $2.26 to $9.04 per share.

-4-
<PAGE> 9

It is impossible to predict the market's reaction to any reverse stock
split or, in this case, to separate such reaction from the market's reaction to
the proposed Recapitalization as a whole. However, Mesa would expect that
immediately after the Reverse Stock Split, each share of Common Stock would be
valued at a price approximately four times greater than without the split. The
consummation of the Recapitalization is not conditioned upon the Reverse Stock
Split being approved by the stockholders or effected by Mesa.

Except as otherwise indicated, all share and per share information in
this Proxy Statement is presented without giving effect to the Reverse Stock
Split.

SPECIAL MEETING

Date; Location . . . The Special Meeting will be held on June ____, 1996
at ___________a.m., Dallas time, at
_____________________________, Dallas, Texas.

Voting . . . . . . Each share of Common Stock entitles the holder
thereof on the record date to one vote on each matter
submitted for a vote of the stockholders at the
Special Meeting. The Board of Directors has set
April 29, 1996 as the record date (the "Record Date")
for determination of stockholders entitled to receive
notice of and vote at the Special Meeting.

Shares Outstanding . There were 64,050,009 shares of Common Stock issued
and outstanding as of the Record Date.

Vote Required . . . . The affirmative vote of a majority of the shares of
Common Stock represented in person or by proxy and
entitled to vote at the Special Meeting will be
required to approve the DNR Purchase. The
affirmative vote of a majority of the shares of
Common Stock outstanding as of the Record Date will
be required to approve the Required Charter
Amendments and the Reverse Split Charter Amendments.

MARKET PRICE OF THE COMMON STOCK

The closing sale price of the Common Stock as reported by the New York
Stock Exchange on February 28, 1996 (the last trading day prior to the
announcement of the letter of intent between Mesa and Rainwater, Inc.) was $3
per share. The closing sale price on April 2, 1996 (the last trading day prior
to the announcement that Rainwater, Inc. had favorably concluded its initial
review period under the letter of intent and that commitments and a "highly
confident" letter regarding the Debt Refinancing had been obtained) was $2 7/8
per share. On April 26, 1996 (the last trading day before the announcement
that Mesa and DNR had entered into the Stock Purchase Agreement) the closing
sale price was $3 7/8 per share. On May ___, 1996 (the last trading day before
the date of this Proxy Statement), the closing sale price was $______ per
share.

INTENTION OF OFFICERS AND DIRECTORS

Each of the officers and directors who owns Common Stock has indicated
that he intends to vote in favor of approval of all Proposals. These officers
and directors own, in the aggregate, 5,435,485 shares of the outstanding shares
of Common Stock (representing 8.5% of the outstanding shares).

Two directors, Dorn Parkinson and Joel Reed, oppose the Proposals but
do not own shares of Common Stock and will therefore be unable to vote on the
Proposals at the Special Meeting.

-5-
<PAGE> 10

SELECTED FINANCIAL INFORMATION
(in thousands, except per share information)

The following table sets forth selected historical financial
information of Mesa as of the dates and for the periods indicated and should be
read in conjunction with the consolidated financial statements of Mesa which
are incorporated by reference herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . . . . . . . . . $249,546 $237,112 $222,204 $228,737 $234,959
Costs and expenses . . . . . . . . . . . . . . . 215,418 210,891 200,192 200,054 186,994
---------- ---------- ---------- ---------- ----------
Operating Income . . . . . . . . . . . . . . . . 34,128 26,221 22,012 28,683 47,965
---------- ---------- ---------- ---------- ----------

Interest Income . . . . . . . . . . . . . . . . . 16,512 13,504 10,704 13,457 15,922
Interest Expense . . . . . . . . . . . . . . . . (150,770) (143,392) (142,002) (144,757) (148,630)
Other Income . . . . . . . . . . . . . . . . . . 20,967 14,435 6,838 19,264 27,175
---------- ---------- ---------- ---------- ----------
Net Loss . . . . . . . . . . . . . . . . . . . . $(79,163) $(89,232) $(102,448) $(83,353) $(57,568)
---------- ---------- ---------- ---------- ----------
Net Loss Per Common Share . . . . . . . . . . . . $ (2.05) $ (2.31) $ (2.61) $ (1.42) $ (0.90)
========== ========== ========== ========== ==========

BALANCE SHEET DATA (END OF PERIOD):
Cash and investments . . . . . . . . . . . . . . $ 260,338 $ 169,115 $ 150,028 $ 162,534 $ 187,423
Total assets . . . . . . . . . . . . . . . . . . 1,832,816 1,676,523 1,533,382 1,483,959 1,464,696

Long-term debt, including current maturities . . 1,310,705 1,286,155 1,241,294 1,223,293 1,236,743
Total stockholders' equity . . . . . . . . . . . 273,584 184,352 112,129 124,572 67,004
</TABLE>

FIRST QUARTER 1996 RESULTS

On April 22, 1996, Mesa reported net income of $1.1 million, or $.02
per share, for the first quarter of 1996 compared with a net loss of $7.9
million, or ($.12) per share, for the first quarter of 1995. Mesa reported
first quarter revenues of $80.6 million and operating income of $25.3 million
in 1996 compared with revenues of $62.2 million and operating income of $16.0
million in 1995. Mesa's first quarter 1996 results reflect higher natural gas
and natural gas liquids production and significantly higher natural gas and
natural gas liquids prices. Mesa also reported gains of $8.8 million from its
investments in energy futures and securities in the first quarter of 1996
compared to $4.6 million for the same period in 1995. The 1996 results include
a non-cash impairment totaling $6.8 million associated with the adoption of
Statement of Financial Accounting Standards No. 121 relating to impairment of
long-lived assets.

-6-
<PAGE> 11

CAPITALIZATION

The following table sets forth the historical consolidated
capitalization of Mesa as of December 31, 1995, and as adjusted to give effect
to (i) the Recapitalization and the application of the proceeds thereof
(assuming net proceeds of $1.1 billion and assuming that all Rights are
exercised in full) as described under "Recapitalization--Use of Proceeds" and
(ii) the Required Charter Amendments, as if the Recapitalization and the
Required Charter Amendments had been consummated or adopted on December 31,
1995.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
----------------------------------
HISTORICAL AS ADJUSTED
------------ ------------
(in thousands)
<S> <C> <C>
Current maturities of long-term debt . . . . . . . . . . . . . 101,413 --
------------

Long-term debt:
Existing Credit Facility . . . . . . . . . . . . . . . . . . 38,631 --
HCLP Secured Notes . . . . . . . . . . . . . . . . . . . . . 470,791 --
Secured Discount Notes . . . . . . . . . . . . . . . . . . . 618,518 --
Other Debt . . . . . . . . . . . . . . . . . . . . . . . . . 7,390 --
New Credit Facility . . . . . . . . . . . . . . . . . . . . . -- 312,200
New Notes . . . . . . . . . . . . . . . . . . . . . . . . . . -- 500,000
------------ ------------
Total long-term debt . . . . . . . . . . . . . . . . 1,135,330 812,200
------------ ------------

preference of $132,000,000) . . . . . . . . . . . . . -- 584
Series B Preferred Stock, 140,000,000
shares authorized, 58,849,557 shares issued
and outstanding, as adjusted (aggregate liquidation
preference of $133,000,000) . . . . . . . . . . . . . -- 588
Series A Junior Participating Preferred Stock,
1,000,000 shares authorized, no shares issued
and outstanding, actual and as adjusted . . . . . . . -- --
Common stock, $.01 par value, 100,000,000
shares authorized, 64,050,009 shares issued and
outstanding, actual and as adjusted; 600,000,000
shares authorized, as adjusted . . . . . . . . . . . . . 640 640
Additional paid-in capital . . . . . . . . . . . . . . . . 398,965 647,793
Accumulated deficit . . . . . . . . . . . . . . . . . . . (332,601) (345,023)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 67,004 304,582
------------ ------------
$ 1,303,747 $ 1,116,782
============ ============
</TABLE>

-7-
<PAGE> 12
THE SPECIAL MEETING

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING

At the Special Meeting, including any adjournment thereof, holders of
shares of Mesa's Common Stock will be asked to consider and vote upon the
following three proposals (the "Proposals"):

(i) the issuance and sale of a minimum of approximately
58.8 million shares and a maximum of approximately 117.3 million
(subject to appropriate adjustment to reflect the Reverse Stock Split,
if approved) shares of Series B Preferred Stock to DNR on the terms
and subject to the conditions set forth in the Stock Purchase
Agreement ("Proposal One");

(ii) an amendment of Mesa's Articles of Incorporation to
(i) increase the number of authorized shares of Common Stock of Mesa
from 100,000,000 to 600,000,000 (subject to the effect of the Reverse
Stock Split, if approved), (ii) increase the number of authorized
shares of Preferred Stock from 10,000,000 to 500,000,000 (subject to
the effect of the Reverse Stock Split, if approved) and (iii) permit
the taking of action by written consent of the holders of any series
of Preferred Stock if and to the extent provided in the resolution of
the Board of Directors establishing any such series ("Proposal Two");
and

(iii) an amendment of Mesa's Articles of Incorporation to
effect (i) a one-for-four reverse stock split of the outstanding
shares of Common Stock, (ii) a reduction of the authorized shares of
Common Stock from 600,000,000 to 150,000,000 and (iii) a reduction of
the authorized shares of Preferred Stock from 500,000,000 to
125,000,000 ("Proposal Three").

As more fully described herein, the DNR Purchase and the Required
Charter Amendments are part of the Recapitalization in which Mesa intends to
repay and/or refinance all of its existing debt. Mesa also proposes to effect
the Reverse Stock Split, though the approval of Proposal Three is not a
condition to implementation of the Recapitalization.

A MAJORITY OF THE MESA INC. BOARD OF DIRECTORS HAS APPROVED THE
PROPOSALS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF EACH OF
THE PROPOSALS. TWO OF MESA'S EIGHT DIRECTORS DISSENTED FROM THE BOARD'S
DETERMINATION.

RECORD DATE

At the close of business on April 29, 1996, the Record Date for the
determination of stockholders entitled to notice of, and to vote at, the
Special Meeting, there were 64,050,009 shares of Common Stock outstanding.
Each share of Common Stock is entitled to one vote with respect to each of the
Proposals to be acted upon at the Special Meeting.

PROXIES

Each proxy will be voted in accordance with the specifications marked
thereon. If no voting specification is made, shares represented by proxies
will be voted FOR the adoption of each of the Proposals. A stockholder may
revoke his or her proxy by written notice of revocation received by The
Corporation Trust Company, the independent collection agent for the Special
Meeting, at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801, any time before it is voted, by executing and delivering a later-dated
proxy for the Special Meeting to the independent collection agent, or by
attending the Special Meeting and voting in person.

Mesa has retained Morrow & Co., Inc., to solicit proxies in the
enclosed form and will pay such firm a fee of approximately [$_______] plus
reasonable expenses for so acting. In addition, certain officers,
representatives, and regular employees of Mesa may also contact stockholders by
telephone, telegram, or personal interview. Mesa will reimburse brokers and
other custodians or nominees for their reasonable expenses incurred in
forwarding the solicitation material to beneficial owners of Common Stock. The
entire cost of this solicitation will be borne by Mesa.

-8-
<PAGE> 13
CONFIDENTIAL VOTING

Mesa's Bylaws require the Board to designate an independent third
party not affiliated with Mesa or with any other third party soliciting proxies
to collect, count, and hold all proxies and ballots that identify stockholders.
Pursuant to this provision, the Board has designated The Corporation Trust
Company as the independent collection agent for the Special Meeting. The Board
believes that the Bylaw provision requiring independent and confidential
collection and counting of proxies helps assure the integrity of the voting
process and is in the best interests of the stockholders and Mesa.

QUORUM

Under Mesa's Articles of Incorporation and Bylaws, as well as the
Texas Business Corporation Act (the "TBCA"), the holders of a majority of
shares of Common Stock entitled to vote on a matter, represented in person or
by proxy, shall constitute a quorum as to that matter at the Special Meeting.
In addition, if a quorum is present at the Special Meeting, the stockholders
represented in person or by proxy at the Special Meeting may conduct such
business as may be properly brought before the Special Meeting, including
consideration of the Proposals, until it is adjourned; and the subsequent
withdrawal from the Special Meeting of any stockholder or the refusal of any
stockholder represented in person or by proxy to vote shall not affect the
presence of a quorum at the Special Meeting. Any proxy cards that reflect
abstentions or "broker non-votes" (i.e., shares held by a broker or nominee
that are represented at the meeting, but with respect to which such broker or
nominee is not empowered to vote on a particular matter) will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum at the Special Meeting.

VOTE REQUIRED

Stockholders of Mesa are entitled to cast one vote with respect to
each Proposal to be acted upon at the Special Meeting for each share of Common
Stock held of record by them on the Record Date. The affirmative vote of the
holders of a majority of the shares of Common Stock that are represented in
person or by proxy and entitled to vote at the Special Meeting will be required
to approve the DNR Purchase. The affirmative vote of the holders of a majority
of the shares of Common Stock outstanding as of the Record Date will be
required to approve the Required Charter Amendments and the Reverse Split
Charter Amendments. Abstentions as to a particular proposal will have the same
effect as votes against a proposal. Broker non-votes, however, will be treated
as not having been voted for purposes of determining approval of such proposal
and will not be counted as votes for or against such proposal.

Management does not intend to bring any matters before the Special
Meeting other than those set forth in the Notice of Special Meeting of
Stockholders and does not know of any other matters to be brought before the
Special Meeting by others. The Bylaws of Mesa require advance notice to Mesa
of proposals by stockholders for action to be taken at the Special Meeting. If
any other matter should properly come before the Special Meeting, it is the
intention of the persons named in the accompanying proxy to vote proxies in
accordance with their judgment on such matters. The proxy card, when properly
executed, will be voted as specified therein by the stockholder. If no
specification is made, the proxy will be voted for each of the proposals.

INTENTION OF OFFICERS AND DIRECTORS

-9-
<PAGE> 14
Two directors, Dorn Parkinson and Joel Reed, oppose the Proposals but
do not own shares of Common Stock and will therefore be unable to vote on the
Proposals at the Special Meeting.

-10-
<PAGE> 15
THE RECAPITALIZATION

References to share numbers and per share prices in the following
discussion do not give effect to the Reverse Split Charter Amendments.

TERMS OF THE RECAPITALIZATION

The Recapitalization contemplates that Mesa will issue an aggregate of
$265 million of 8% cumulative convertible preferred stock in transactions in
which DNR will acquire at least 50.2% of the preferred shares. To effect the
transaction, Mesa will sell approximately 58.8 million shares of Series B
Preferred Stock to DNR at the First Closing at a price of $2.26 per share (an
aggregate of $133 million). Immediately following the First Closing, Mesa will
commence the Rights Offering whereby it will distribute to holders of Common
Stock, as of a record date following the date of the First Closing,
transferable rights to purchase a pro rata portion of an aggregate of
approximately 58.4 million shares of Series A Preferred Stock for the same
purchase price of $2.26 per share (an aggregate of $132 million). Each share
of existing Common Stock will entitle the holder to receive approximately .912
Rights. DNR will further commit to purchase at the Second Closing (which will
occur upon conclusion of the Rights Offering) an additional amount of the
Series B Preferred Stock equal to the unsubscribed portion of the Rights
Offering. Each share of Series A Preferred Stock and each share of Series B
Preferred Stock will be convertible in one share of Common Stock.

Assuming that the Rights Offering is fully subscribed and DNR
purchases the minimum of 58.8 million shares of Series B Preferred Stock, the
Series B Preferred Stock will be convertible initially into approximately 32%
of Mesa's fully diluted outstanding shares of Common Stock. To the extent the
Rights Offering is not fully subscribed, the additional Series B Preferred
Stock to be purchased by DNR pursuant to the Standby Commitment could be
convertible into up to another approximately 32% of the fully diluted Common
Stock. Therefore, depending on the number of Rights exercised by existing
stockholders in the Rights Offering, DNR will own between 32% and 65% of the
fully diluted outstanding shares of Common Stock. Following the mandatory
four-year period of pay-in-kind dividends on the Series A and Series B
Preferred Stock, such percentages would be approximately 36% and 72%, assuming
no additional issuances of stock after the Recapitalization.

DNR, as owner of the Series B Preferred Stock, will have the right to
nominate and elect a majority of the Board as long as DNR meets certain minimum
stock ownership requirements. Except for DNR's right to control the Board as
holder of the Series B Preferred Stock and the right of the holders of Series A
Preferred Stock to elect directors upon certain dividend defaults, the rights
and preferences of the Series A Preferred Stock and the Series B Preferred
Stock will be substantially identical. Furthermore, by their terms, any shares
of Series B Preferred Stock that are transferred or sold by DNR to an
unaffiliated party will be automatically converted into shares of Series A
Preferred Stock.

As part of the Recapitalization, Mesa will repay and/or refinance all
of its outstanding indebtedness (approximately $1.2 billion at December 31,
1995). In this regard, on April 1, 1996, Mesa, with DNR's assistance, obtained
a commitment for a revolving credit facility for an aggregate of $500 million
from The Chase Manhattan Bank, N.A., and Bankers Trust Company. Mesa also
received a "highly confident" letter regarding the sale of up to $525 million
of subordinated notes from an investment bank. It is expected that the New
Notes will be sold in an underwritten public offering. Proceeds from the bank
financing and the New Notes, when added to the $265 million equity investment
described above and cash on hand, will provide Mesa with the funds necessary to
repay and/or refinance all of its existing debt obligations. Rainwater's
involvement in the Recapitalization was instrumental to obtaining the
commitments for the New Credit Facility and the "highly confident" letter with
respect to the issuance of new subordinated notes.

The terms and conditions of the DNR Purchase are set forth in a Stock
Purchase Agreement between Mesa and DNR dated April 26, 1996 (the "Stock
Purchase Agreement"). For a more detailed description of the Stock Purchase
Agreement and the Series B Preferred Stock, see "The Stock Purchase Agreement"
and "Description of Preferred Stock", as well as the complete text of such
documents at Annex B and Annex C hereto.

-11-
<PAGE> 16
EFFECTS OF THE RECAPITALIZATION ON CONTROL OF MESA

As holder of the Series B Preferred Stock, DNR will have the right to
elect four of the seven directors on Mesa's Board so long as it meets the
Minimum Ownership Condition (as defined below). The Board is empowered by the
TBCA to direct the management of the business of Mesa and to make numerous
major decisions without stockholder approval. The four directors elected by
DNR, if they vote together, will have the ability to control the outcome of all
votes taken by the Board, subject to limited exceptions. Under applicable law,
such directors, like all directors, will have fiduciary obligations to all of
Mesa's stockholders, not just to DNR. However, DNR's right to control the
Board could have the effect of delaying, deterring or preventing tender offers
or takeover attempts that some or a majority of Mesa's stockholders might
consider to be in their best interests, including offers or attempts that might
result in the payment of a premium over the market price for the Common Stock
and the Series A Preferred Stock. The Minimum Ownership Condition will be met
so long as (i) DNR and its affiliates continue to own at least 34,132,743
shares of Series B Preferred Stock (58% of the shares DNR will purchase at the
First Closing) or at least 15% of the total number of shares of Common Stock
outstanding (including shares issuable upon conversion of outstanding Series A
and Series B Preferred Stock) and (ii) at least half of such shares are owned
by, and the majority of the voting power thereof is exercised by, Richard E.
Rainwater and his affiliates. See "Description of Preferred Stock -- Voting
Rights."

In the event that all of the Rights distributed in the Rights Offering
are not exercised, DNR has agreed to buy from Mesa, and Mesa has agreed to sell
to DNR, a number of additional shares of Series B Preferred Stock equal to the
number of shares of Series A Preferred Stock offered in the Rights Offering
that are not purchased pursuant to the exercise of Rights. Accordingly, if a
sufficient number of shares of Series A Preferred Stock are not purchased
pursuant to the exercise of Rights, DNR could also obtain ownership of shares
of Mesa having, in addition to the right to elect a majority of the Board, a
majority of the voting power on matters other than the election of directors.
Even if all of the Rights are exercised, DNR will own approximately 32% of the
voting shares of Mesa and therefore will be in a position to significantly
influence actions that require the approval of Mesa's stockholders.

Holders of Series A Preferred Stock, Series B Preferred Stock and
Common Stock will vote together as a single class on all matters other than (i)
the election of directors, (ii) certain matters that affect one class or series
differently from others, (iii) the creation or issuance of preferred stock
ranking senior to or on a parity with the Series A and Series B Preferred
Stock, (iv) any amendment of Mesa's charter to eliminate cumulative voting in
the election of directors, and (v) any amendment of Mesa's charter or bylaws
that would limit the authority of the Board to amend or repeal any provision of
Mesa's Bylaws. Matters referred to in clauses (iii) and (iv) above would
require the approval of the holders of Series A and Series B Preferred Stock
voting together as a single class. Matters referred to in clause (v) above
would require the approval of the Series B Preferred Stock voting as a separate
class. Under applicable Texas law, Mesa's charter and applicable New York
Stock Exchange ("NYSE") rules, matters submitted to stockholders generally
require approval of the holders of a majority of the outstanding shares (or in
certain cases, a plurality or majority of those voting). Article XII of Mesa's
charter provides that certain fundamental transactions between Mesa and a 20%
stockholder (such as DNR) require approval of the holders of shares having 80%
of the total voting power, unless (i) certain "fair price" provisions are
satisfied or (ii) the transaction is approved by a majority of the "Continuing
Directors," which would exclude directors affiliated with or nominated by the
20% stockholder.

-12-
<PAGE> 17
SOURCES AND USES OF FUNDS

The following table sets forth the proposed sources and uses of the
proceeds of the Recapitalization, assuming the Recapitalization had been
completed as of December 31, 1995.

<TABLE>
<CAPTION>
($ IN MILLIONS)
<S> <C>
SOURCES
-------
New Credit Facility(1)(3) $ 312.2
New Notes 500.0
Series A and B Preferred Stock 265.0
Cash, Investments, Restricted Cash(2) 254.1
--------
Total $1,331.3
========

USES
----
HCLP Secured Notes(3) $ 504.7
Existing Credit Facility(1) 61.1
12 3/4% Secured Discount Notes due June 30, 617.4
1998
12 3/4% Discount Notes due June 30, 1996 39.7
Other Debt 12.9
HCLP Secured Note Prepayment Premium(3) --
Transaction Expenses 35.0
Accrued Interest
--------
60.5
--------
Total $1,331.3
========
</TABLE>

- ---------------
(1) Does not include $11.7 million in letters of credit to be outstanding.
(2) Includes approximately $187.4 million in cash and cash investments,
$57.7 million in restricted cash of one of Mesa's subsidiaries, and $9
million of refundable prepaid interest, as shown on Mesa's
consolidated balance sheet as of December 31, 1995. This represents
all of Mesa's cash, investments and restricted cash balances at
December 31, 1995. To the extent that Mesa retains cash balances upon
consummation of the Recapitalization, borrowings under the New Credit
Facility would be increased by the amount of such additional cash
balances.
(3) Does not include any prepayment premium upon early retirement of the
HCLP Secured Notes. To the extent that Mesa is required to pay a
prepayment premium, borrowings under the New Credit Facility would be
increased by the amount of such premium.

BACKGROUND OF THE RECAPITALIZATION

Mesa has historically maintained a high degree of leverage and over
the last five years has completed a number of transactions designed to either
repay, refinance or restructure its debt. Despite these efforts, Mesa's
current financial forecasts indicate that available cash and cash flow from
operating activities will not be sufficient to meet its debt service
obligations at the end of 1996. The high degree of leverage limits Mesa's
financial flexibility, its ability to reinvest in order to increase reserves
and production, its ability to access capital markets in order to decrease
leverage, and its ability to capitalize on and increase future asset values.
Mesa believes such flexibility and abilities will be improved significantly if
the Recapitalization is completed. The Recapitalization is the result of an
extensive review of strategic alternatives conducted by the Board and its
independent financial advisor, Lehman Brothers, as more fully described below.

Original Mesa and the Partnership

In 1964, Boone Pickens founded Mesa Petroleum Co. ("Original Mesa") to
conduct exploration and drilling activities in the United States and Canada.
Mesa Limited Partnership (the "Partnership") was formed in December 1985 as the
successor to Original Mesa. The Partnership reduced capital expenditures and
distributed substantially all of its available cash flow to its owners from
1986 through the first quarter of 1990. From 1986 to 1988, the Partnership
made

-13-
<PAGE> 18
two major acquisitions which increased its proved reserves substantially. In
conjunction with these acquisitions, the Partnership issued $400 million of
preference units, incurred $700 million of bank debt and issued $600 million of
subordinated notes.

During 1990, the Partnership began considering various alternatives to
reduce debt and to extend the maturities of its debt. In 1991 the Partnership
sold properties and created a subsidiary, Hugoton Capital Limited Partnership
("HCLP"), to own its Hugoton field oil and gas properties and to issue the HCLP
Secured Notes, using the proceeds to repay outstanding bank debt and to
increase cash. Since such property sales, Mesa's two major assets have been
its Hugoton field natural gas properties, with 65% of its proved reserves, and
its West Panhandle field natural gas properties, with 31% of its proved
reserves. In December 1991, the Partnership effected a conversion to corporate
form.

Debt Exchange Offer and Equity Offering

During the third quarter of 1993, Mesa completed a debt exchange offer
for substantially all of Mesa's $600 million of previously outstanding
subordinated notes (the "Debt Exchange"). The Debt Exchange resulted in the
deferral of cash interest requirements of approximately $75 million annually
from mid-1993 through mid-1995. Under the terms of the Debt Exchange, holders
of the subordinated notes received a package of Secured Discount Notes,
Unsecured Discount Notes and approximately 7.5 million shares of Common Stock.

In the spring of 1994, Mesa sold 16 million shares of Common Stock in
a public offering for net proceeds of $93 million, which were used to retire a
portion of the Unsecured Discount Notes. Following that offering, Mesa amended
its bank credit facility to extend the maturity to 1997.

Reassessment of Financial Strategy

In the summer of 1994, natural gas prices experienced a sharp decline.
At that time, management reassessed and lowered its expectation of
near-to-intermediate term prices. Upon concluding that natural gas prices were
unlikely to rebound strongly enough to provide for a successful refinancing of
Mesa's debt due in 1996 and 1998, management began reviewing options to
markedly reduce leverage and position Mesa for reinvestment and growth in a
more moderate pricing environment.

Management explored the financial strategy of conveying a net profits
interest in its Hugoton properties to a royalty trust and then selling units in
the royalty trust publicly or privately. Mesa provided financial information
to two investment banking firms, both of which concluded that a royalty trust
offering of the nature and size being explored by Mesa was not likely to be
successful. A plan to refinance debt was also discussed. In the fall of 1994,
Mesa continued to study other potential financial alternatives. This process
included an analysis of a volumetric production payment based on Mesa's Hugoton
properties in response to an informal proposal from a large natural gas concern
("Company A"). In mid-November 1994, members of management informed Company A
that the production payment did not offer a comprehensive solution to Mesa's
financial concerns. The results of this analysis were presented to Mesa's
Board on November 29, 1994.

Following the November 29 Board meeting, Mesa was approached by an oil
and gas company ("Company B") regarding a sale of all or a substantial portion
of the Hugoton properties. After a series of due diligence meetings, Company
B indicated a preliminary valuation for the Hugoton properties of $900 million.
Following these meetings, on December 19, 1994, Mesa's Board met to discuss
strategy and the results of the non-binding indication of interest by Company
B. The Board concluded that the Company B indication was not firm enough or at
a high enough value to be considered a preemptive offer and that the Hugoton
properties should be marketed to a broader group of potential buyers. Shortly
thereafter, Mesa announced its intentions to market the Hugoton properties as a
whole.

Dennis Washington Makes Hart-Scott-Rodino Filing, Nominates Director Candidates

On December 5, 1994, David H. Batchelder, a former employee of Mesa's
predecessor, met at his request with Mr. Pickens. Mr. Batchelder informed Mr.
Pickens that he was the financial advisor to Dennis R. Washington and that Mr.
Washington had acquired shares of Mesa Common Stock having a value of just
under $15 million and constituting less than 5% of the outstanding shares. Mr.
Batchelder said that Mr. Washington would soon make a filing regarding

-14-
<PAGE> 19
Mesa shares under the Hart-Scott-Rodino Antitrust Improvements Act of 1974 (the
"HSR Act"). On December 6, 1994, Mr. Washington made such a filing, notifying
Mesa and federal antitrust authorities that he had a present good faith
intention to acquire more than $15 million of the outstanding Common Stock and,
depending on market conditions, might acquire more of such shares. His
notification designated the 25% threshold, which had the effect of permitting
him to acquire up to 49.9% of the outstanding shares without further
notification under the HSR Act.

By letter dated February 17, 1995, pursuant to a provision of Mesa's
bylaws, Mr. Washington notified Mesa of his wish to nominate three candidates
for election as directors at Mesa's May 1995 annual meeting of stockholders and
of his intent to cumulate votes in the election. Mr. Washington's letter
stated that he beneficially owned at that time 2,854,900 shares of Common
Stock, which constituted approximately 4.5% of the outstanding shares. On
April 1, 1995, Mesa and Mr. Washington entered into an agreement pursuant to
which, among other things, the parties agreed that the slate of nominees to be
proposed by the Board for election at the annual meeting would consist of the
eight then-incumbent directors and two designees of Mr. Washington (Mr.
Batchelder and Dorn Parkinson, the president of a company owned by Mr.
Washington).

Hugoton Auction

In January 1995, management initiated an auction process intended to
result in the sale of all of Mesa's Hugoton properties. First, a select group
of oil and gas companies with the potential interest and the financial
resources to complete an all-cash purchase of all of Mesa's interests in the
Hugoton field would be invited to review information supplied by Mesa and
submit preliminary non-binding indications of interest. Next, Mesa would
invite the companies that indicated the highest levels of interest to review
detailed information in Hugoton property data rooms, solicit binding offers
from each of them and then select a winning bidder.

Of the 21 parties to whom Mesa sent preliminary information, 11
parties timely submitted preliminary indications of interest. Based on the
dollar amounts indicated in the submissions, which ranged from $560 million to
$850 million, Mesa invited four parties to begin additional due diligence.
Three candidates ("Company C," "Company D" and "Company E," respectively)
conducted due diligence at various times from March 22 through April 10, 1995.

Because the preliminary price indications were generally lower than
those Mesa had anticipated in light of prices received by sellers of other
natural gas properties in the then recent past, management engaged Lehman
Brothers as its financial advisor on March 20, 1995, to consider non-asset sale
financial alternatives available to Mesa. On April 6, 1995, Lehman Brothers
presented management with its preliminary evaluations of several strategic
alternatives, including: (i) a sale of the Hugoton properties for $800-$900
million; (ii) a sale of the Hugoton properties for cash combined with loans to
Mesa from the buyer; (iii) a joint venture involving Mesa's equity in HCLP;
(iv) a partial sale of the Hugoton assets; (v) a Mesa equity offering; and (vi)
a merger or sale of Mesa. Lehman Brothers also presented a list of potential
participants in such transactions, an analysis of Mesa's alternatives for
realizing value from its Hugoton assets and an overview of rights offerings to
stockholders. Mesa concluded that continuing the auction for the sale of the
Hugoton properties offered the best prospects for the successful resolution of
its financial issues.

On April 28, 1995, a senior representative of Company C met with
members of Mesa's management and expressed a high level of interest in the
Hugoton properties, stating that Company C might pay as much as $1 billion for
the properties. In subsequent conversations, the Company C representative
proposed to offer a combination of cash and producing properties of Company C.
Representatives of Mesa conducted preliminary due diligence at Company C in
order to evaluate the potential non cash consideration.

On May 17, 1995, at Mesa's annual stockholders' meeting, Mr.
Batchelder and Mr. Parkinson were elected to Mesa's Board. The status of the
Hugoton auction was reviewed with the Board, including the two new members, at
a meeting the same day.

On May 22, 1995, Mesa received final bids from Company C and Company
D. Company C submitted two alternative bids, both involving cash and
properties and both subject to the subsequent approval of Company C's board of
directors. Mesa estimated that one of the Company C bids had a value of
approximately $850 million, and that the other had a somewhat lower value.
Company D submitted an all cash bid of $625 million, which was substantially

-15-
<PAGE> 20
lower than Company D's preliminary indication and regarded by Mesa's management
as not competitive. On May 26, 1995, a representative of Company D informed
management that it might be able to raise its bid by $100 million.

Mesa focused on refining the evaluation of the property components of
Company C's bids. On June 7, 1995, an officer of Company C met with members of
Mesa's management and informed them that the board of directors of Company C
had not approved its bids of May 22, 1995. Instead, Company C was prepared to
offer a smaller package of properties and cash that Mesa estimated had a value
of $750 million. Faced with this change, Mesa's senior management considered
Mesa's options, particularly the possibility of continuing to negotiate with
Company C or developing a new auction process to sell its Hugoton assets in
smaller parcels. On June 9, 1995, Mesa's Board held a call with Lehman
Brothers to consider Mesa's available options, and concluded that none of the
bids received in the auction were acceptable. All directors participating in
the call, including Mr. Batchelder, agreed with that conclusion. Mr. Parkinson
did not participate in the call. The Board members also concluded that the
Company should continue to explore asset sale and refinancing alternatives.
During the discussion, Mr. Batchelder recommended, without asking for a vote,
that a sale or merger of the Company be included among the strategic
alternatives to be explored. Such recommendation was not adopted at that time.
On June 12, the next business day, Mesa announced that no acceptable bids had
been received in the Hugoton field auction, that the auction had terminated,
that it would continue to pursue asset sale and refinancing alternatives and
that it had retained Lehman Brothers as its financial advisor for this purpose.

Hugoton Segment Sales

Following the termination of the auction process in mid-June 1995,
management determined to divide the Hugoton interests into smaller segments for
sale to a broader range of buyers. Management believed that offering smaller
segments could increase the number of bidders that would have the financial
resources to purchase the properties and that, in the aggregate, Mesa could
realize a higher price for its Hugoton interests. This conclusion was
supported by comparison with several smaller publicly announced property sales
for properties similar to Mesa's Hugoton interests but with valuations
significantly higher than those indicated in the auction. Mesa engineering
personnel then divided Mesa's Hugoton interests into eight different segments,
including a segment consisting of the natural gas gathering and processing
assets (the "GG&P Assets").

Dissident Shareholders Announce 13D Group

On June 29, 1995, a Statement of Beneficial Ownership on Schedule 13D
was filed with the Securities and Exchange Commission ("SEC") announcing that
Mr. Washington, Marvin Davis and certain of his affiliates, Mr. Batchelder and
Mr. Parkinson (collectively, the "WDB Group") beneficially owned an aggregate
of 6 million shares of Mesa's Common Stock, or approximately 9.4% of the
outstanding shares. The filing stated that Mr. Washington owned 3.5 million of
these shares and that Mr. Davis and certain affiliates owned 2.5 million
shares. That same day, Mr. Washington and Mr. Davis sent a letter to the
Board asking the Board to promptly form a committee consisting of all
independent directors, with independent legal and financial advisors, to
explore all alternatives to enhance value for Mesa's stockholders. Mr.
Batchelder and Mr. Parkinson sent a similar letter to the other directors
seeking the appointment of an independent committee to explore alternatives,
including business combinations or a sale of Mesa.

On July 3, 1995, after a conference call among the directors other
than Mr. Batchelder and Mr. Parkinson, Mesa filed a lawsuit regarding the
Schedule 13D against the members of the WDB Group and certain other persons
alleging, among other things, that the defendants had violated Section 13(d) of
the Exchange Act, because they had constituted a group owning more than 5% of
Mesa's Common Stock since at least late 1994 but had not filed a Schedule 13D
until June 29, 1995 and because the Schedule 13D failed to disclose the
existence and identity of other members of the group. The lawsuit sought
injunctive relief, including prohibitions against voting Mesa shares and
calling a special stockholders' meeting, rescission of the April 1, 1995
agreement between Mesa and Mr. Washington and an order that Mr. Batchelder and
Mr. Parkinson resign from Mesa's Board.

Hugoton Segment Proposal

In early July 1995, Company B contacted Mesa regarding a bid for all
or a portion of the Hugoton segments, and visited Mesa's data rooms. One week
later, Company B submitted three alternative bids for different working
interest segments. Mesa encouraged Company B to raise its offers for the
working interest segments, but it raised them

-16-
<PAGE> 21
only slightly. On July 20, Mesa's Board determined that Company B's bids were
inadequate. By letter dated August 14, 1995, Company B formally withdrew its
offer.

July 6 Board Meeting

On July 6, 1995, Mesa's Board met to consider expansion of its review
of strategic alternatives and whether to authorize Lehman Brothers to solicit
formal proposals for the sale of Mesa's assets (either as a whole or in
segments), the sale or merger of Mesa and equity infusions. Lehman Brothers
recommended a process (the "Proposal Solicitation Process") in which candidates
would be invited to submit bids by November 20, 1995. The objective of the
process was to allow the Board to be able to review proposals for each of the
various transaction types concurrently, although preemptive proposals or offers
could be evaluated prior to that date. The Board determined that all the
strategic alternatives would be explored under the direction of Mesa's entire
Board and with the advice of Lehman Brothers and company counsel, and not by a
separate committee with separate financial and legal advisors. Mr. Batchelder
and Mr. Parkinson voted against this proposal, stating that their opposition
was based on the fact that the proposal did not contemplate a separate
committee with separate advisors.

At the July 6 meeting, the Board also approved a proposal that Mesa
adopt a limited term shareholder rights plan (the "Shareholder Rights Plan"),
which was designed to ensure that if Mesa received any takeover proposals
during the Proposal Solicitation Process, the Board would have sufficient time
to respond and also to prevent certain takeover abuses. The provisions of the
Shareholder Rights Plan would be triggered if a person or group acquired
beneficial ownership of 10% or more of the Common Stock after July 6, 1995,
except pursuant to a "Permitted Offer" -- a tender or exchange offer that meets
certain criteria, as described under "Shareholder Rights Plan" below. If
triggered, the Shareholder Rights Plan would allow all stockholders, other than
the person or group exceeding the ownership threshold, to purchase Common Stock
at a 50% discount. Mr. Batchelder and Mr. Parkinson voted against the adoption
of the Shareholder Rights Plan.

Also on July 6, 1995, following the special meeting of the Board that
day, the WDB Group announced that in light of the Board's rejection of the WDB
Group's independent committee proposal, the WDB Group would seek to call a
special meeting of Mesa's stockholders "for the purpose of electing a majority
of directors committed to exploring all alternatives for maximizing shareholder
value."

The Proposal Solicitation Process

Lehman Brothers developed a list of 141 candidates consisting of
domestic and foreign integrated oil companies, independent exploration and
production companies and financial buyers. On August 2, 1995, Lehman Brothers
sent preliminary notification letters to each of these companies and later
called top executives at each company by telephone to gauge their interest
levels in the Hugoton segments, Mesa's Hugoton properties as a whole, a merger
or sale of Mesa, an equity infusion or a combination of these transactions.
Lehman Brothers contacted Mr. Batchelder to ask whether Mr. Washington and/or
Mr. Davis had any interest in participating in the Proposal Solicitation
Process or in submitting a proposal, to which Mr. Batchelder replied that they
were not interested.

Ultimately, 49 of the 141 companies indicated an interest in
participating in the process, each in one or more categories of potential
transaction. Each company received either a descriptive memorandum about Mesa,
a descriptive memorandum about Mesa's Hugoton properties or both. The property
memoranda were sent out in mid-August to 46 candidates and the corporate
memoranda two weeks later to 36 candidates.

Following the receipt and review of these memoranda, data room visits
were scheduled with those candidates that wished to pursue the process further.
From September 5, 1995, to October 27, 1995, a total of 26 companies visited
the data rooms, including 12 candidates for the corporate data rooms and 14 for
the property data rooms. In addition, Lehman Brothers and Mesa met with 21
companies during this period to discuss direct equity infusions, asset
purchases and a merger or sale of Mesa. Such companies were generally asked to
submit any other type of proposal they wished Mesa to consider.

Among these meetings was a meeting with representatives of Rainwater
held on October 6, 1995 to discuss a potential equity infusion. Mesa and
Rainwater discussed a number of options, primarily a preferred equity
investment

-17-
<PAGE> 22
of approximately $100 million in HCLP. Based on these discussions, Mesa
determined not to pursue the investment, as it did not consider it to be
preemptive or to offer a comprehensive solution to Mesa's financial concerns.
Rainwater nonetheless indicated an interest in discussing other options with
Mesa in the future, but did not submit a proposal on November 20 and made no
new proposal until February 1996.

Proxy Filing by WDB Group

On August 8, 1995, the WDB Group filed a preliminary proxy statement
with the SEC with respect to its proposal to call a special meeting of Mesa's
stockholders. The preliminary proxy statement, as subsequently revised, stated
that the purpose of the solicitation would be to obtain sufficient written
requests from stockholders to call a special meeting, at which stockholders
would be asked to vote for, among other things, the removal of all directors
serving on the Board at the date of such meeting and the election of the
nominees of the WDB Group to replace all of the directors so removed. In an
amendment to its Schedule 13D filed with the SEC on August 7, 1995, the WDB
Group stated that it would not immediately seek to call a special meeting, but
would communicate with stockholders with respect to certain matters, and that
it would determine in its sole judgment whether and when to seek to call a
special meeting.

Also on August 8, 1995, the WDB Group filed an answer denying the
claims in Mesa's lawsuit and asserting a counterclaim against Mesa and its
directors other than Mr. Batchelder and Mr. Parkinson. The counterclaim, as
amended, alleged, among other things, that such directors constituted a group
owning more than 5% of Mesa's Common Stock and were required to file a
Schedule 13D; that certain of them had engaged in transactions in Mesa
securities that violated federal securities laws; and that the adoption of the
Shareholder Rights Plan was a violation of fiduciary duty by such directors.
The counterclaim sought damages and injunctive relief, including invalidation
of the Shareholder Rights Plan.

Settlement with WDB Group

On September 20, 1995, Mesa and Mr. Pickens entered into an Agreement
of Compromise and Settlement (the "WDB Settlement Agreement") with the WDB
Group and certain related parties in settlement of the litigation between Mesa
and the WDB Group. Pursuant to the Agreement, Mr. Batchelder resigned from the
Board and Joel L. Reed, his business partner, was elected by the Board to
succeed him.

Except as specifically permitted by the WDB Settlement Agreement as
described below, the members of the WDB Group agreed that they will not, prior
to December 31, 1996, solicit or encourage any other person to solicit, or
advise any person with respect to the solicitation of, proxies with respect to
any securities issued by Mesa or any of its subsidiaries, or participate or
engage in any solicitation of proxies (A) with respect to any matter submitted
or to be submitted to the vote of the holders of any such securities at any
annual or special meeting or (B) for the purpose of calling a special meeting
of Mesa's stockholders or the holders of any such securities; or advise or seek
to advise any person with respect to the voting of any Mesa securities; or
submit, or encourage any other person to submit, or advise or assist any person
with respect to the submission of, any nominations or proposals to Mesa or to
the holders of any Mesa securities for consideration by its stockholders or the
holders of any Mesa securities at any annual or special meeting of such
holders; or otherwise take any action to request a special meeting of the
holders of any Mesa securities. The agreement also provided that, other than
in the context of a proxy solicitation as to which members of the WDB Group
have exercised their contractual rights to solicit proxies, none of the parties
to the agreement will publicly make any negative statements regarding any other
party, Mesa's Board, the process by which Mesa is exploring alternatives to
maximize stockholder value, or any proposed, pending or consummated business
combination, asset sale or equity infusion regarding Mesa.

The WDB Settlement Agreement permits the members of the WDB Group to
conduct a proxy solicitation with respect to Mesa's 1996 annual meeting if, at
the time of the solicitation, Mesa has not effected a business combination,
sale of assets or equity or similar transaction that meets certain criteria as
to size and as to which an acceptable investment banker renders a favorable
opinion as to the fairness of the transaction, all as set forth in the WDB
Settlement Agreement (an "Endorsed Major Transaction") or has consummated a
similar transaction that is not an "Endorsed Transaction" under the criteria
set forth in the WDB Settlement Agreement. Upon consummation, the DNR Purchase
together with the Rights Offering will constitute an Endorsed Major
Transaction.

-18-
<PAGE> 23
The WDB Settlement Agreement also provided that on or before February
29, 1996, the Board would set and announce a date for Mesa's 1996 annual
meeting of stockholders, which date would be no later than May 31, 1996. The
agreement further provided that the Board could extend each such date (or,
after February 29, 1996, could extend the May 31, 1996 date) for up to 60 days
if at the time of extension either (i) Mesa had entered into a definitive
agreement, or filed proxy materials, for an Endorsed Major Transaction or (ii)
an acceptable investment banker had informed the Board in writing that
discussions or negotiations were in process with one or more third parties that
appeared reasonably likely to result in such a definitive agreement prior to
the date to which the annual meeting was to be extended. The WDB Settlement
Agreement also provided that the members of the WDB Group could not take any
solicitation action with respect to such meeting until the Board had publicly
announced the date thereof.

Company A Proposals

Mesa received a proposal from Company A in early August 1995 that
entailed (i) a volumetric production payment based on Mesa's Hugoton
properties, (ii) a sale to Company A of the GG&P Assets and (iii) a preferred
stock investment in HCLP. Management and Lehman Brothers met with
representatives of Company A numerous times over the next several months and
continued to negotiate with them over terms and proposals. Mesa's Board
reviewed the proposal in various forms on August 22 and November 8 and
determined that they were not sufficiently attractive to preempt the Proposal
Solicitation Process. Company A ultimately submitted two proposals on November
20, 1995.

November 20, 1995 Proposals

During the week of November 20, 1995, Mesa received fifteen proposals
from interested parties. All of the proposals were for all or parts of Mesa's
Hugoton properties. No proposals for a merger or sale of the entire company or
for an equity infusion into Mesa were received. Lehman Brothers presented the
results of the process to the Board on November 21 and again on November 30.

Company C submitted a cash and property proposal for all the Hugoton
properties that Mesa believed did not provide an adequate cash component, nor
did it provide an acceptable value for the property. Company A submitted a
financing and asset purchase proposal that Mesa believed had an approximate
value of $725 million. Finally, another company submitted a low bid for the
Hugoton interests that Mesa's Board did not consider. Mesa received five bids
for smaller Hugoton segments, none of which represented a substantial dollar
value. The Board received seven proposals for the GG&P Assets, ranging in
value up to $150 million.

In addition, Mesa received a proposal to acquire its West Panhandle
field processing plant and received an indication from two parties that they
were considering a joint proposal to Mesa. This joint proposal was never
submitted.

In presenting the proposals, Lehman Brothers reviewed with the Board a
number of issues cited by various participants in the process who declined to
submit proposals. The primary issues cited were low commodity price
expectations, the belief that Mesa's properties were fully developed and thus
lacked "upside" potential, the overall size of the transaction and Mesa's high
financial leverage. In addition, Lehman Brothers attributed the disappointing
results in part to the notion that Mesa was viewed as a distressed seller.

Subsequent Negotiations

At the request of the Board, Lehman Brothers contacted three of the
companies that had submitted proposals for the GG&P Assets in order to
encourage them to purchase preferred equity in HCLP and to raise their offers
for the GG&P Assets. All declined to pursue the purchase of a preferred equity
interest in HCLP. Lehman Brothers also contacted Company A and inquired as to
its interest in acquiring a preferred equity interest in HCLP, which Company A
also declined. Finally, Lehman Brothers contacted Company C to encourage it to
increase the cash component of its proposal. Company C revised its proposal
but not to a level considered adequate by the Board.

In addition, two participants in the process which had declined to
submit proposals, Company D and a pipeline company, were contacted as to their
interest in purchasing the GG&P Assets and an HCLP preferred equity interest.
Both declined to pursue these transactions, citing value and rate of return
concerns. Two other companies that had

-19-
<PAGE> 24
earlier declined to submit proposals contacted Mesa. One, a financial company,
contacted Mesa in January 1996 to discuss a preferred equity investment in
conjunction with a debt restructuring. Mesa held meetings with senior
representatives of such company, but no proposal was received. Another group
proposed a concept that involved a property swap, issuance of debt and equity
securities and a debt restructuring. This group's concept was considered by
the Board to be insufficiently defined and subject to too many substantial
contingencies.

Mesa conducted substantive negotiations with the two bidders for the
GG&P Assets whose proposals were most attractive, including Company E.
Beginning on January 3, 1996, representatives of Mesa met with representatives
of those two companies to negotiate the purchase and sale agreement and related
gathering and processing arrangements to facilitate the sale. By late
February, the negotiations with Company E had resulted in a proposed definitive
agreement to be presented to the Board. However, management had become
increasingly concerned that, among other things, the sale of the GG&P Assets on
a stand alone basis would not relieve Mesa of its near term liquidity issues.

In early February 1996, representatives of Rainwater and Mesa began
discussions and negotiations relating to a purchase of equity securities of
Mesa. On February 16, 1996, Rainwater's first formal proposal was received,
and a revised proposal was received on February 23, 1996.

February 28 Board Meeting

At a meeting on February 28, 1996, Mesa's Board reviewed Mesa's
financial condition, the Rainwater proposal and the GG&P Asset sale proposal
from Company E. At that meeting, the Board chose to pursue the
Recapitalization substantially as outlined in the Rainwater proposal and
authorized the execution of a letter of intent to that effect. The letter of
intent contemplated that Rainwater, as holder of the Series B Preferred Stock,
would be entitled to elect two of Mesa's seven directors and that those two,
together with Mr. Pickens, would constitute an Executive Committee of the
Board. A majority of the Executive Committee would be required to approve a
substantial list of major matters, whether or not full Board approval was also
required, as well as all matters which by law do not need approval by the full
Board. All directors present voted in favor, except that Mr. Reed and Mr.
Parkinson voted against. At the February 28 meeting, Lehman Brothers delivered
to the Board a letter stating that the discussions or negotiations then in
process with Rainwater appeared reasonably likely to result, prior to July 30,
1996, in a definitive agreement for an Endorsed Major Transaction for purposes
of the WDB Settlement Agreement. Accordingly, the Board extended to April 29,
1996 the date by which it was required by the WDB Settlement Agreement to set
and announce a date for the 1996 annual meeting.

The letter of intent was signed by Mesa on February 28, 1996 and
publicly announced the next morning. The letter of intent provided for a 30
day initial review period for due diligence by Rainwater and for an
investigation regarding the availability of financing.

The letter of intent contained a binding agreement by Mesa that was
substantially the same (including the exceptions thereto) as the Exclusivity
Covenant described under "The Stock Purchase Agreement--Covenants Regarding
Exclusivity." The letter of intent also obligated Mesa to pay Rainwater
termination fees generally the same as those described under "The Stock
Purchase Agreement--Termination Payments" with respect to the Stock Purchase
Agreement in the event of termination of the letter of intent for reasons
equivalent to those stated in such section. Among other things, such
provisions gave Rainwater the right to terminate the letter of intent and to
require Mesa to pay it certain fees in the event Mesa solicited proposals for
alternative transactions.

Financing Commitments

On March 1, 1996, representatives of Rainwater and Mesa began
contacting major commercial and investment banks in order to solicit proposals
for refinancing Mesa's debt. Beginning on March 7, 1996, meetings were held
with three commercial banks, which were asked to submit proposals for a fully
committed senior secured credit facility. "Highly confident" letters for a
subordinated note issuance were also sought. Mesa received a number of
proposals that, on the whole, contained favorable terms that the banks
indicated would not have otherwise been available to Mesa absent the
involvement of Rainwater. By the end of March, the proposal for a new credit
facility offered by The Chase Manhattan Bank, N.A., and Bankers Trust Company
was considered by management to be the most desirable from Mesa's standpoint.
Its terms required, among other things, that Rainwater be entitled to elect a
majority of Mesa's

-20-
<PAGE> 25
directors. A commitment letter was executed by the banks and presented to Mesa
for its consideration and acceptance. Mesa also received a "highly confident"
letter regarding the proposed issuance of subordinated notes.

On April 1, 1996, the Board met to consider the proposed bank
commitment and an amendment to the letter of intent with Rainwater. Like the
proposed bank commitment, the amendment to the letter of intent contemplated
that Rainwater, as holder of the Series B Preferred Stock, voting as a separate
class, would be entitled to elect a majority of Mesa's directors, in lieu of
the governance structure described in the letter of intent. The Board
authorized execution of the amendment to the letter of intent and acceptance of
the commitment letter from the banks named above for the New Credit Facility.
All directors present (including Mr. Parkinson) voted in favor, except that Mr.
Reed abstained regarding the amendment to the letter of intent.

On April 2, Mesa announced that Rainwater had favorably completed its
initial review period and that Mesa had received the bank commitment letter and
the "highly confident" letter.

During April 1996, Mesa and Rainwater negotiated the Stock Purchase
Agreement and related documents and Rainwater completed its due diligence.

April 23 Board Meeting

At a meeting held on April 23, 1996, the Board reviewed the terms of
the DNR Purchase, including the terms of the proposed Stock Purchase Agreement
and the terms of the Series A and Series B Preferred Stock. At that meeting,
Lehman Brothers presented its analysis of the transaction and its potential
effects on Mesa and the trading values of the Common Stock and Series A
Preferred Stock after the transaction, as well as possible trading values of
the Common Stock in the event the transaction was not pursued. Lehman Brothers
also delivered its opinion, described below, to the Board regarding the
fairness of the transaction. At that time, five of the six directors present
indicated that they favored pursuing the Recapitalization, subject to further
exploration of certain issues, including those being discussed with the NYSE
regarding the application of the NYSE's voting rights policy to the special
voting rights of the Series B Preferred Stock. The Board directed management
and counsel to engage in further discussions with Rainwater regarding these
issues and agreed to convene again on April 25 or 26 as discussions with the
NYSE progressed. All directors other than Fayez Sarofim and Dorn Parkinson
attended the meeting. Joel Reed was the sole director opposing the
transaction.

Discussions with WDB Group

At the April 23 meeting, the Board also discussed the provision of the
proposed Stock Purchase Agreement that would entitle DNR to terminate the Stock
Purchase Agreement if the WDB Group were to take certain actions that are
prohibited by the WDB Settlement Agreement or were to initiate prior to the
Special Meeting certain proxy solicitation actions that, in either case, DNR
considered to be materially adverse to DNR or the Recapitalization. See
"--Settlement with WDB Group" and "The Stock Purchase Agreement --
Termination." In the meeting, Mr. Reed, who is a member of the WDB Group, was
asked what the intentions of the group were with respect to the
Recapitalization. After some discussion, Mr. Reed said he would check with
others after the Board meeting and would then discuss the matter with a
representative of Mesa. Mr. Reed also advised the Board that the WDB Group
would shortly file a Schedule 13D amendment disclosing that the group had been
disbanded and that Mr. Davis had sold shares.

Following the Board meeting, a Mesa representative proposed to Mr.
Reed that Mesa and the WDB Group consider amending the WDB Settlement Agreement
and otherwise agree that (i) Mesa would combine the Special Meeting and the
1996 annual meeting for the election of directors into a single meeting, (ii)
Mr. Reed and Mr. Parkinson would be nominated by the Board for election as
directors at that meeting, subject to their agreement to resign from the Board
if the First Closing occurred by a date to be agreed upon, (iii) the WDB Group
would not solicit proxies on any matter at that meeting, and (iv) if the
Recapitalization were not consummated by a date to be agreed upon, the WDB
Group would have the right to require Mesa to hold a special meeting at which
directors would be elected as at an annual meeting, as opposed to having to
obtain the affirmative vote of a majority of the outstanding shares to remove
and replace the Board (as usually required at a special meeting).

-21-
<PAGE> 26
After a break in the discussions for Mr. Reed to use the telephone,
Mr. Reed said that the elements listed above would be acceptable if the
following elements were added: (A) in connection with the Rights Offering, the
WDB Group would be permitted to acquire additional Rights in the marketplace
and to exercise such Rights, (B) the WDB Group's lawyers would have to be
satisfied that the special meeting referred to in clause (iv) above would be
held even if Mesa were to make a Chapter 11 filing, (C) if, after Mr. Reed and
Mr. Parkinson resigned from the Board at the First Closing, the Second Closing
did not occur by a date to be agreed upon, the Board would reelect them to the
Board, (D) the WDB Group would vote its shares of Common Stock proportionately
with the votes cast by other stockholders and (E) Mesa would reimburse the WDB
Group for expenses, to be documented, which Mr. Reed estimated at $3 million.
Later that day, the Mesa representative advised Mr. Reed that, although the
other elements of his proposal sounded workable, the expense reimbursement
would not be acceptable to the Board. Mr. Reed replied that no agreement could
be reached without the expense reimbursement provision.

On April 24, 1996, Mr. Reed called the Mesa representative and said
that Mr. Parkinson wanted to participate in the April 25 or 26 Board meeting,
that Mr. Parkinson, as well as Mr. Reed, planned to dissent with respect to the
Recapitalization and that both would provide written dissents for inclusion in
Mesa's proxy materials. Mr. Reed also said that Mr. Batchelder had spoken with
the parties and that they will nominate candidates for election as directors at
the 1996 annual meeting. Mr. Reed also said that they expect the
Recapitalization proposal to fail.

Also on April 24, 1996, the WDB Group filed an amendment to its
Schedule 13D stating that, on April 22, 1996, Mr. Davis and his affiliates had
notified Mr. Washington in writing that Mr. Davis and his affiliates were
terminating their participation in the WDB Group. The amendment further
disclosed that the Davis parties had sold an aggregate of 937,500 shares of the
2,500,000 shares of Common Stock owned by them at the time the Schedule 13D was
first filed in June 1995.

April 26 Board Meeting

On April 26, 1996, following discussions with the NYSE, Mesa believed
a resolution of the voting rights issue could be achieved. Accordingly, the
Board convened by conference call to again consider the Recapitalization and
the terms thereof. Earlier in the day, counsel to Mesa had received drafts of
letters from Mr. Reed and Mr. Parkinson in which they stated the reasons for
which they would dissent to the DNR Purchase, copies of which were forwarded to
the other directors. At the meeting, Mr. Reed and Mr. Parkinson each discussed
with the Board their concerns regarding the DNR Purchase (which concerns are
set forth in the text of their letters as reproduced under "Letters of
Dissenting Directors" below). The Board also discussed other issues relating
to the Recapitalization, including the NYSE voting rights policy issue.
Thereafter, the Board approved the Recapitalization, including the DNR
Purchase, subject to resolution of the NYSE matter. Five of the seven
directors present (Paul W. Cain, John S. Herrington, Wales H. Madden, Boone
Pickens and Robert L. Stillwell) voted in favor of the Recapitalization, with
Mr. Reed and Mr. Parkinson dissenting. The remaining director, Fayez Sarofim,
did not participate in the meeting, but indicated his support for the
Recapitalization to other directors prior to the meeting.

Subsequent to the Board meeting, and after further discussions between
the NYSE and each of Mesa and Rainwater, DNR agreed to increase the "minimum
ownership amount," below which the special voting rights of the Series B
Preferred Stock would terminate, to that percentage reflected below under
"Description of Preferred Stock--Voting Rights." Thereafter, Mesa and DNR
executed the Stock Purchase Agreement on the evening of April 26, 1996. Mesa
and DNR believe that, as modified, the special voting rights of the Series B
Preferred will be acceptable to the NYSE.

At the April 26 Board meeting, the Board also unanimously approved
July 30, 1996 as the date for Mesa's 1996 Annual Meeting of Stockholders.

On April 29, 1996, Mesa publicly announced the signing of the
definitive agreement and filed preliminary proxy materials for the Special
Meeting with the SEC.

-22-
<PAGE> 27
OPINION OF INDEPENDENT FINANCIAL ADVISOR

The Board engaged Lehman Brothers on July 6, 1995 to act as its
financial advisor with respect to the solicitation and evaluation of proposals
from third parties for (i) an equity infusion into Mesa, (ii) the purchase of
all or a part of Mesa's Hugoton field assets in segments or as a whole, (iii)
the acquisition of Mesa with or without a sale of all or a part of the Hugoton
field assets and (iv) other alternative transactions, and to render to the
Board its opinion as to the fairness, from a financial point of view, to Mesa
or its stockholders of the terms of any transaction that might ultimately be
implemented.

On April 23, 1996, in connection with the consideration of the DNR
Purchase and the Stock Purchase Agreement, Lehman Brothers made a presentation
to the Board with respect to the DNR Purchase and delivered its opinion that,
as of the date of such opinion, and subject to assumptions, factors and
limitations set forth in such opinion as discussed below, the consideration to
be received by Mesa for the Preferred Stock to be issued and sold in the
Recapitalization is fair, from a financial point of view, to Mesa and,
accordingly, to the stockholders of Mesa.

THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS, WHICH SETS
FORTH THE ASSUMPTIONS MADE, FACTORS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS OPINION, IS INCLUDED AS ANNEX A
TO THIS PROXY STATEMENT, AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY
OF THE OPINION OF LEHMAN BROTHERS SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.

No limitations were imposed by Mesa on the scope of the Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion. Lehman Brothers was not requested to and did not make
any recommendation to the Board as to the form or amount of consideration to be
offered to Mesa for the Preferred Stock to be issued and sold in the
Recapitalization, which was determined through arm's-length negotiations
between Mesa and Rainwater and their respective advisors. Lehman Brothers'
opinion is for the use and benefit of the Board and was rendered to the Board
in connection with its consideration of the DNR Purchase. Lehman Brothers'
opinion does not constitute a recommendation to any of Mesa's stockholders as
to how such stockholder should vote with respect to the DNR Purchase or as to
whether such stockholder should subscribe for any shares of Series A Preferred
Stock pursuant to the Rights Offering. Lehman Brothers was not requested to
opine as to, and its opinion does not address, Mesa's underlying business
decision to proceed with or effect the DNR Purchase.

In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i)
the Stock Purchase Agreement and the specific terms of the DNR Purchase,
including the terms of the Preferred Stock to be issued and sold in the
Recapitalization, (ii) such publicly available information concerning Mesa
which Lehman Brothers believed to be relevant to its inquiry, including the
Annual Reports to stockholders and Annual Reports on Form 10-K of Mesa for the
three years ended December 31, 1995 and certain interim reports to stockholders
and Quarterly Reports on Form 10-Q of Mesa, (iii) financial and operating
information with respect to the business, operations and prospects of Mesa
furnished to Lehman Brothers by Mesa, including without limitation certain
projections prepared by Mesa, (iv) a trading history of Mesa's Common Stock for
the two year period ended April 19, 1996 and a comparison of that trading
history with those of other companies that Lehman Brothers deemed relevant, (v)
a comparison of the historical financial results and present financial
condition of Mesa with those of other companies that Lehman Brothers deemed
relevant, (vi) a comparison of the financial terms of the DNR Purchase
including the specific terms of the preferred stock with the financial terms of
certain other transactions that Lehman Brothers deemed relevant, and (vii)
Mesa's current need for additional cash to fund its debt obligations and
capital, operating and growth requirements, its current highly leveraged
capital structure and the alternatives available to Mesa to obtain additional
financing at this time. In connection with its opinion, Lehman Brothers also
reviewed certain information provided by Mesa relating to Mesa's oil and
natural gas reserves, including year-end reserve reports prepared by Mesa's
petroleum engineers and discussed the reserve information with the senior
management of Mesa and its petroleum engineers.

In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information. Lehman Brothers further relied upon the assurances of management
of Mesa that it was not aware of any facts that would make such information
inaccurate or misleading. With respect to the financial projections of Mesa
provided to Lehman Brothers by the management of Mesa, Lehman Brothers assumed
that such projections were

-23-
<PAGE> 28
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Mesa as to the future financial
performance of Mesa and that Mesa will perform substantially in accordance with
such projections. In arriving at its opinion, Lehman Brothers did not conduct
a physical inspection of the properties and facilities of Mesa and did not make
or obtain any independent evaluations or appraisals of the assets or
liabilities of Mesa. The opinion of Lehman Brothers states that it was
necessarily based upon market, economic and other conditions as they existed
on, and could be evaluated as of, the date of the opinion.

In arriving at its opinion, at Mesa's request and as mentioned above,
Lehman Brothers also considered (i) all proposals available to Mesa for
alternative transactions, (ii) all substantive discussions Lehman Brothers had,
and all substantive discussions that to its knowledge Mesa has had, with
qualified parties who have made bona fide offers, proposals or expressions of
interest for alternative transactions, and (iii) the impact, if any, of the
terms of the Recapitalization, after giving effect to the consummation thereof,
on future proposals by third parties for, and the consummation of, any merger,
consolidation, tender offer, share exchange, or exchange offer, involving Mesa.

In connection with its presentation to the Board on April 23, 1996 and
advising the Board of its opinion, Lehman Brothers performed certain financial,
comparative and other analyses as described below. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial and comparative analysis and the application of
those methods to the particular circumstances, and therefore such an opinion is
not readily susceptible to summary description. Furthermore, in arriving at
its fairness opinion, Lehman Brothers did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Lehman Brothers believes that its analyses must be considered as a
whole and that considering any portions of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the opinions. In its
analyses, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of Mesa. Any estimates contained in the
analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than as set forth therein. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.

As mentioned above, in rendering its opinion Lehman Brothers
considered the other proposals and indications of interest received as a result
of the extensive Proposal Solicitation Process discussed above and the implied
value of Mesa's Common Stock based on such proposals as well as Mesa's current
and projected financial condition.

Lehman's assumptions used in the following analyses included two
alternative oil and gas price forecasts. Case 1 consisted of Henry Hub gas
prices of $2.05 in 1996, $2.10 in 1997 and West Texas Intermediate ("WTI") oil
prices of $19.00 in 1996 and $19.50 in 1997. Henry Hub and WTI prices were
thereafter escalated at 4% and capped at $7.00 and $75.00, respectively. Case
2 consisted of Henry Hub Gas Prices of $2.20 in 1996, $2.30 in 1997 and WTI oil
prices of $20.00 in 1996 and $21.00 in 1997. Henry Hub and WTI prices were
thereafter escalated at 5.5% and capped at $7.00 and $75.00, respectively.

Analysis of Selected Publicly Traded Comparable Companies. Using
publicly available information, Lehman Brothers reviewed and compared certain
financial information, ratios, and public market multiples of Mesa with similar
data of selected publicly traded oil and natural gas companies considered by
Lehman Brothers to be comparable to those of Mesa, including Anadarko Petroleum
Corporation, Apache Corporation, Barrett Resources Corporation, Burlington
Resources, Inc., Cabot Oil and Gas Corporation, Cross Timbers Oil Company,
Devon Energy Corporation, Enron Oil & Gas Company, HS Resources, Inc., Louis
Dreyfus Natural Gas Corporation, Louisiana Land and Exploration Company,
Newfield Exploration Company, Noble Affiliates, Inc., Nuevo Energy Company,
Oryx Energy Company, Pogo Producing Company, Santa Fe Energy Resources, Inc.,
Seagull Energy Corporation, Tom Brown, Inc., United Meridian Corporation and
Vastar Resources, Inc. (the "Comparable Universe"). Lehman Brothers
calculated, among other things, the following multiples for each of the
referenced companies based on public market prices as of April 19, 1996: (i)
the market equity value of the relevant company to actual 1995 discretionary
cash flow and to 1996 estimated discretionary cash flow; (ii) the net market
capitalization (i.e. market value of equity plus total debt and preferred stock
less cash) (the "Net Market Capitalization") divided by thousands of cubic feet
of natural gas equivalents of proved reserves ("Mcfe") (at a ratio of six Mcf
per barrel of oil) as of each respective company's 1995 fiscal year end; (iii)
the Net Market Capitalization divided by, respectively, (a) 1995 earnings
before interest, income taxes, depreciation,

-24-
<PAGE> 29
amortization, depletion and exploration expenses ("EBITDE") and (b) 1996
estimated EBITDE; (iv) the Net Market Capitalization divided by the standard
measure of discounted future cash flows ("SEC Value"); and (v) the Net Market
Capitalization divided by pre-tax SEC Value. The results of these calculations
were used to impute a range of values for Mesa's Common Stock by applying the
multiples derived from the calculations to Mesa's current and pro forma
financial data. Based upon this analysis, the range of values for Mesa's
Common Stock was $2.33 to $10.44 per share.

Because of the inherent differences between the capital structure,
financial condition and prospects of Mesa and those of the companies included
in the Comparable Universe, Lehman Brothers believed that it was inappropriate
to, and therefore did not, rely solely on the quantitative results of the
analysis, and accordingly also made qualitative judgments concerning
differences between the financial and operating characteristics of Mesa and the
companies included in the Comparable Universe that would affect the public
trading values of Mesa and such comparable companies.

Analysis of Selected Comparable Transactions. Using publicly available
information, Lehman Brothers compared selected financial data for Mesa with
similar data for selected company and property transactions deemed by Lehman
Brothers to be relevant. Using the same methodology as in the analysis of
comparable companies, the multiples derived from this analysis were used to
impute a range of values for Mesa's Common Stock. Based upon this analysis,
the range of values for Mesa's Common Stock was $0.77 to $6.93 per share.

Because the reasons for and the circumstances surrounding each of the
transactions analyzed were specific to each transaction and because of the
inherent differences between the capital structures, financial condition and
prospects of Mesa and those of the selected acquired companies and properties
analyzed, Lehman Brothers believed that it was inappropriate to, and therefore
did not, rely solely on the quantitative results of the analysis, and
accordingly also made qualitative judgments concerning differences between the
characteristics of these transactions and the DNR Purchase that would affect
the acquisition values of Mesa and such acquired companies.

Discounted Cash Flow Analysis. Under this analysis, Lehman Brothers
calculated estimates of after-tax cash flows from the reserve assets of Mesa
based on the reserve reports and certain projections provided by Mesa. The
projected after-tax cash flows were then discounted to present values using
discount rates which were chosen based on several assumptions regarding the
cost of capital of Mesa's business. Two primary scenarios were evaluated in
which the principal economic variables were the escalation rates applied to
oil, natural gas liquid and natural gas prices and operating and capital costs.
An after-tax discount rate of 10% was used to discount the projected,
unleveraged after-tax cash flows. Other key assumptions related to the
depletion, depreciation, and amortization rates for the existing tax basis of
Mesa's reserve assets and for future capital expenditures, and the utilization
of Mesa's tax net operating losses. The present values were then used to
determine a range of values for Mesa's Common Stock. Based upon this analysis,
the range of values for Mesa's Common Stock was a nominal value to $2.77 per
share.

Going Concern Analysis. Under this analysis, Lehman Brothers
calculated cash and equity balances based on projected cash flows, production
and reserve additions for Mesa without giving effect to the Recapitalization
for the year 1996. Due to projected negative cash balances and events of
default in 1996, Lehman Brothers determined that Mesa's Common Stock market
value would deteriorate as it had prior to the announcement of the DNR Purchase
and would be of nominal value.

Pro Forma Going-Concern Analysis. Under this analysis, Lehman
Brothers calculated a range of values for Mesa's Common Stock based on
projected cash flows, production and reserve additions for Mesa which were
provided by Mesa's management taking into account the proposed terms of the
Recapitalization for the three year period 1996 through 1998 using the same two
oil, natural gas liquid and natural gas price scenarios as in the above
going-concern analysis, and projected equity reference values per share for
Mesa at the end of 1998 using valuation multiples consistent with current
public market trading multiples for comparable independent oil and gas
companies. Additional assumptions included reasonable reductions to G&A
expenses and reinvestment of discretionary cash flows in the Gulf of Mexico at
a finding cost of $0.85 per Mcfe. The projected equity values were then
discounted to present values using a 12% discount rate, which Lehman Brothers
considered appropriate based on certain assumptions regarding the cost of
capital of Mesa's business. The projections and information utilized in the
pro forma going-concern analysis were provided by Mesa's management. Based
upon this analysis, the range of values for Mesa's Common Stock was $2.87 to
$9.92 per share.

-25-
<PAGE> 30
Lehman Brothers. Lehman Brothers is an internationally recognized
investment banking firm engaged in, among other things, the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements, and valuations for corporate and
other purposes. The Board selected Lehman Brothers because of its expertise,
reputation and familiarity with Mesa and because its investment banking
professionals have substantial experience in transactions comparable to the DNR
Purchase and the other types of transactions for which proposals were
solicited.

Lehman Brothers has previously rendered certain financial advisory and
investment banking services to Mesa, for which it has received customary
compensation. Pursuant to the terms of an engagement letter agreement, dated
August 21, 1995, between Lehman Brothers and Mesa, Mesa has paid Lehman
Brothers $400,000 and will pay Lehman Brothers an additional fee of $3.775
million upon the consummation of the DNR Purchase. In addition, Mesa has
agreed to reimburse Lehman Brothers for its reasonable expenses (including,
without limitation, professional and legal fees and disbursements) incurred in
connection with its engagement, and to indemnify Lehman Brothers and certain
related persons against certain liabilities in connection with its engagement,
including certain liabilities that may arise under the federal securities laws.

In the ordinary course of its business, Lehman Brothers actively trades
in the debt and equity securities of Mesa for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.

ADVANTAGES OF THE RECAPITALIZATION

As described above, Mesa has explored various strategic alternatives for
a comprehensive solution to its financial condition for a number of years, with
the primary goal being to reduce leverage by either creating equity value or
raising additional equity. A majority of the Board believes that the
Recapitalization is the most advantageous of the alternatives available to Mesa
resulting from the extended review process, principally because of the
reduction of the amount and cost of Mesa's debt and the associated benefits of
such reductions, as well as the expected benefits to Mesa of the additional
transactional and financial expertise of DNR's Board representatives, as
evidenced by the assistance such persons have rendered to Mesa in obtaining a
commitment for the New Credit Facility.

Resolution of Liquidity Concerns. The potential for insolvency and the
associated cost to shareholder value has been a primary concern of Mesa. In
particular, Mesa's current financial forecasts indicate that, assuming no
changes are made in its capital structure and no significant transactions are
completed, cash generated by operating activities, together with cash and
investments on hand, will not be sufficient to satisfy principal and interest
obligations of $150 and $139 million, respectively, due in 1996. The equity
infusion and the accompanying debt refinancing would resolve Mesa's liquidity
issues and materially improve Mesa's capital structure.

Reduction of Debt. Proceeds of the sale of Series A and Series B
Preferred Stock will be used to reduce Mesa's total debt by about 21%.
Additional debt will be repaid from the application of cash on hand. As part
of the Recapitalization, Mesa will then be able to refinance the remainder of
its debt through the Debt Refinancing on terms that will be substantially more
favorable to Mesa than currently exist as a result of the lower debt to equity
ratios, and higher interest coverage ratios following the DNR Purchase. The
Recapitalization is also expected to extend the timing of principal repayments,
currently expected to be $150 million, $35 million and $654 million in 1996,
1997 and 1998, respectively, until as late as 2003 when the New Credit Facility
is due, absent decreases in borrowing base. The New Credit Facility is
expected to provide for principal reductions driven only by the borrowing base
for seven years, and the New Notes are expected to have a ten year maturity.
This reduction in leverage will result in the availability of substantial cash
for reinvestment over the next several years.

Reduction of Interest Expense. The Recapitalization is expected to
materially lower Mesa's interest expense. For the past seven years, Mesa has
incurred interest expense in excess of $140 million per year. By repaying a
substantial portion of its existing debt and refinancing the remainder using
bank debt and notes with lower coupon rates, Mesa expects to reduce interest
expense by more than 35%, from $140 million to approximately $90 million. This
reduction in debt service requirements will result in the availability of
substantial cash for reinvestment over the next several years.

-26-
<PAGE> 31
Use of Increased Funds for Reinvestment. The increased funds available
for reinvestment as a result of the Recapitalization are expected to position
Mesa to add shareholder value by funding exploration, development and
acquisition expenditures. Mesa's ability to make these types of expenditures
over the past several years has been severely constrained by the high cost of
its debt. The Recapitalization is expected to provide for the funding of
substantial capital expenditures.

Contribution of DNR Board Representatives. Immediately following the
completion of the DNR Purchase, DNR will elect a majority of the members of
Mesa's Board. Mesa expects to benefit from the ability of the DNR Board
representatives, who have participated in a number of significant transactions
and enjoy an excellent reputation in the financial community, to attract
capital.

Ability to Create Going Concern Value. Mesa believes its equity
securities do not properly reflect the underlying value of its high quality
asset base. The Board believes that, as concerns about liquidity and a
shortage of capital for reinvestment are alleviated, the market value of Mesa's
securities will improve.

DISADVANTAGES OF THE RECAPITALIZATION

The principal disadvantages of the Recapitalization considered by the
Board are (i) the transfer of control to DNR at a discount to market prices at
the time the letter of intent for the Rainwater Purchase was announced, (ii)
dilution of the investment of existing stockholders and (iii) limitations on
the potential use of Mesa's net operating losses for tax purposes.

Transfer of Control at a Discount. The DNR Purchase will effectively
transfer control of the Board to DNR at a discount to the price at which the
Common Stock was trading immediately prior to the public announcement of Mesa's
letter of intent with Rainwater. (The discount to market prices is greater at
the date hereof than it was prior to the announcement of the letter of intent,
but a majority of the Board believes the post-announcement increase in the
market price of the Common Stock is attributable in substantial part to the
pendency of the Recapitalization.) On the other hand, the terms of the
Preferred Stock preclude DNR from realizing a control premium relative to the
Series A Preferred Stock in any subsequent sale of Series B Preferred Stock by
DNR or merger or sale of Mesa, because (i) the Series B shares would
automatically become Series A shares upon sale to any person not affiliated
with Rainwater and (ii) the terms of the Preferred Stock will provide that the
Series A and Series B Preferred Stock must receive the same kind and amount of
consideration per share in any merger or similar transaction.

Dilution. The Recapitalization will triple the number of shares of
Common Stock outstanding on a fully diluted basis. The shares being sold to
DNR will be sold at a discount to the prices at which the Common Stock traded
before the Rainwater letter of intent was announced. While the sale of equity
securities at a discount to market is dilutive, the ability of Mesa's existing
stockholders to participate in the Recapitalization via the purchase of Series
A Preferred Stock at the same price as that being paid by DNR (or by selling
their Rights in the market) mitigates such dilution. Additionally. the
pay-in-kind dividend feature of the Series A and Series B Preferred Stock will
require the issuance of additional shares of Preferred Stock for at least four
years following the initial issuance. On the other hand, the terms of the
Preferred Stock will provide that holders of Series A Preferred Stock will
receive pay-in-kind dividends at the same times and to the same extent that
holders of Series B Preferred Stock receive such dividends, and holders of
Common Stock who purchase Series A Preferred Stock through the exercise of
Rights will thus share pro rata with the holders of Series B Preferred Stock in
such pay-in-kind dividends.

Restriction on Use of NOLs. The issuance of Series B Preferred Stock to
DNR pursuant to the Stock Purchase Agreement will cause the net operating loss
("NOL") carryover limitations of Section 382 of the Internal Revenue Code to
apply to Mesa. As a result, Mesa's ability to utilize its existing NOLs to
offset future income and gain (other than unrealized gain inherent in Mesa's
assets at the time of issuance of the Series B Preferred Stock to DNR) will be
limited. At December 31, 1995, Mesa had approximately $470 million of unused
NOLs. Based on current Common Stock values and interest rates, Mesa's ability
to utilize its existing NOLs would be limited to approximately $13 million to
$15 million per year ("Annual Limitation NOLs"). Any unused Annual Limitation
NOLs as well as any tax operating losses which might be generated after the
issuance of the Series B Preferred Stock will carry forward for use in future
years without restrictions.

-27-
<PAGE> 32
CONSEQUENCES IF THE DNR PURCHASE IS NOT APPROVED

If the DNR Purchase is not completed, Mesa will pursue other
alternatives to address its liquidity issues and financial condition, including
the possibility of soliciting other transactions similar to those sought during
the Proposal Solicitation Process, seeking to restructure its balance sheet by
negotiating with its current debt holders or seeking protection from its
creditors under the federal Bankruptcy Code.

ABSENCE OF APPRAISAL RIGHTS

Under Texas law and Mesa's Amended and Restated Articles of
Incorporation, objecting stockholders will have no appraisal, dissenters' or
similar rights (i.e., the right to seek a judicial determination of the "fair
value" of the Common Stock and to compel Mesa to purchase their shares of
Common Stock for cash in that amount) with respect to the matters presented at
the Special Meeting or otherwise with respect to the Recapitalization, nor will
such rights be voluntarily accorded to stockholders by Mesa. Therefore, if the
matters submitted for the approval of the stockholders at the Special Meeting
are approved by the requisite number of shares, such approval will bind all
stockholders and objecting stockholders will have no alternative other than
selling their securities in the market.

INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION

Current Officers and Directors. The Stock Purchase Agreement provides
that the current officers and directors of Mesa will continue to have the
benefit of existing indemnification arrangements under applicable law and
Mesa's charter and bylaws for at least six years following the First Closing
under the Stock Purchase Agreement and, subject to certain limitations, that
Mesa will maintain directors' and officers' liability insurance applicable to
them for at least four years following the First Closing. See "The Stock
Purchase Agreement -- Indemnification of Directors and Officers."

Mesa does not have employment agreements with any of its officers or
directors.

DNR Nominees. Richard E. Rainwater is the sole shareholder and
President, Darla D. Moore is the CEO, and Kenneth A. Hersh is the Chief
Investment Officer, of Rainwater Inc., the sole general partner of DNR, and
will be elected as directors of Mesa by DNR immediately following the First
Closing. Upon consummation of the Recapitalization, DNR will be the sole
holder of Series B Preferred Stock, representing between 32.4% and 64.8% of
Mesa's voting stock (on a fully diluted basis). As such, DNR will have the
right to elect a majority of Mesa's directors and to receive dividends as
described below under "Description of Preferred Stock -- Voting Rights" and "--
Dividends." Mesa has agreed to pay DNR (i) a fee of $4,655,000 (constituting
3.5% of the aggregate amount of Series B Preferred Stock to be purchased at the
First Closing) at the First Closing (or as promptly as practicable thereafter
as funds are available therefor, but no later than the Second Closing) and (ii)
a fee of $4,620,000 (constituting 3.5% of the maximum aggregate amount of
Series B Preferred Stock to be purchased at the Second Closing) at the Second
Closing, less the amount by which DNR's reimbursable expenses as of the Second
Closing are less than the initial $500,000 payment Mesa made at the time it
entered into the February 28 letter of intent. In addition, the Stock Purchase
Agreement provides that DNR will receive a fee of $400,000 per year in
consideration of DNR's obligations under such agreement and to compensate DNR
for the time that DNR has agreed its representatives will devote to Mesa's
affairs, including the provision of certain investment analysis and assistance
to Mesa during the course of DNR's investment, and DNR will be reimbursed by
Mesa for all fees and expenses (up to a maximum of $50,000 per year) reasonably
incurred by it in connection with monitoring its investment in Mesa.

EXPENSES OF THE RECAPITALIZATION

Mesa expects to incur expenses incident to the Recapitalization of
approximately $35 million, including fees payable to DNR at the First and/or
Second Closings aggregating $9,275,000, fees payable to Lehman Brothers of
$3,775,000, commitment, facility and other fees payable in connection with the
New Credit Facility, underwriting discounts payable with respect to the
issuance of the New Notes, legal expenses and other transaction expenses,
including the expenses of DNR. In addition, Mesa may incur a make whole
premium in connection with the prepayment of the HCLP Secured Notes.

-28-
<PAGE> 33
BOARD RECOMMENDATION

A majority of the Board believes that the DNR Purchase is fair to and in
the best interests of Mesa and its stockholders. A majority of the Board
recommends that the stockholders approve the DNR Purchase. Two directors
dissented from the Board's conclusions and recommendations, as more fully
described below.

The recommendation of the majority of the Board is based on its belief
that the DNR Purchase will result in the benefits to Mesa described above under
"Advantages of the Recapitalization." The Board also considered the potential
disadvantages discussed above under "Disadvantages of the Recapitalization."

In reaching the recommendations and conclusions discussed above, the
Board also considered (i) the condition that the DNR Purchase be approved by
holders of the Common Stock, as described under "The Special Meeting;" (ii)
Mesa's liquidity issues and financial condition, as described herein; (iii) the
results of the Hugoton property auction and the Proposal Solicitation Process
described above under "Background of the Recapitalization;" (iv) the limited
number of viable alternatives Mesa would have to address its liquidity issues
and financial condition in the event that the DNR Purchase were not pursued and
the possible consequences thereof to Mesa and the value of its Common Stock;
(v) the opinion of Lehman Brothers regarding the fairness of the DNR Purchase
to Mesa, as described above under "Opinion of Independent Financial Advisor;"
(vi) the voting power to be held by the holders of the Series B Preferred Stock
in relation to their equity investment in Mesa; (vii) the right of the holders
of Common Stock to purchase shares of Series A Preferred Stock pursuant to the
Rights Offering at the same price that DNR would purchase shares of Series B
Preferred Stock in the DNR Purchase, as described under "The Rights Offering;"
(viii) the terms of the Rights Offering, including the transferability of the
Rights and the oversubscription privileges associated with the Rights, as
described below under "The Rights Offering;" (ix) the relative rights of the
Series A Preferred Stock and the Series B Preferred Stock, as described under
"Description of Preferred Stock;" (x) the Exclusivity Covenant and the
Exclusivity Exception in the Stock Purchase Agreement and the provisions of the
agreement regarding termination and termination payments, as described under
"The Stock Purchase Agreement"; (xi) the other provisions of the Stock Purchase
Agreement, as described under "The Stock Purchase Agreement;" (xii) the
anticipated terms of the Debt Refinancing, as described under "Description of
New Debt;" (xiii) the benefit of Rainwater's involvement in arranging the Debt
Refinancing, as described under "Background of the Recapitalization --
Financing Commitments;" (xiv) Mesa's results of operations for the first
quarter of 1996, as described herein; (xv) the dissenting views expressed by
Mr. Reed and Mr. Parkinson, including their letters set forth below under
"Letters of Dissenting Directors;" (xvi) the expenses of the Recapitalization,
as described above under "Expenses of the Recapitalization;" (xvii) the
interests of certain persons in the Recapitalization, as described above under
"Interests of Certain Persons in the Recapitalization;" (xviii) the business
experience and business reputations of Richard E. Rainwater and the other
nominees for election to the Board; and (xix) the other information about the
Recapitalization and about Mesa included in this Proxy Statement.

All of the factors listed above were considered as a whole by the
majority of the Board in reaching its belief as to the overall fairness of the
DNR Purchase, and it is impracticable to assign relative weights to the factors
considered.

THE MAJORITY OF THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE PROPOSAL TO APPROVE THE DNR PURCHASE.

Five of the seven directors who participated in the Board's April 26
meeting, namely Mr. Cain, Mr. Herrington, Mr. Madden, Mr. Pickens and Mr.
Stillwell, voted in favor of the DNR Purchase and the other elements of the
Recapitalization. Mr. Sarofim did not participate in that meeting, but
indicated his support for the Recapitalization to other directors prior to the
meeting.

Two of the eight members of the Board (Joel L. Reed and Dorn Parkinson)
dissented in writing from the Board's conclusions and recommendations. The
full text of their written dissents are set forth below.

-29-
<PAGE> 34
LETTERS OF DISSENTING DIRECTORS

April 26, 1996

The Board of Directors
c/o Mr. T. Boone Pickens
MESA, Inc.
1400 Williams Square West
5205 N. O'Connor Boulevard
Irving, TX 75039-3746

Gentlemen:

My dissent to the Rainwater group's proposed acquisition of effective
control of MESA (the "Proposed Acquisition") is based on economics. I request
that the entire text of this letter be included in the Company's proxy
statement with respect to the Proposed Transaction.

As a director and a representative of one of the Company's largest
shareholders, I do not believe that the Board is discharging its duties to
MESA's existing shareholders by handing over value which I estimate to
approximate $100 million to induce the Rainwater group to take control of MESA.

I base the preceding statement on my belief that the current market rate
for underwriting approximately $133 million of the proposed Convertible
Preferred Stock and providing other services in effecting the Proposed
Acquisition is substantially less than the "compensation" element that has been
negotiated with the Rainwater group. If one were to add the approximately $50
million that is proposed to be paid to MESA's existing lenders as prepayment
penalties, I believe the total loss in value being suffered by MESA common
shareholders approaches $150 million or $2.34 per common share. The closing
price on April 25, 1996 was only $3.875. The bottom line is that this is much
too high of a price for MESA's existing shareholders to pay for what is
essentially a Preferred Stock Rights Offering. I'm convinced that we as a
Board can do much better for our shareholders.

Looking at the Proposed Acquisition from another economic perspective
confirms the inequity to our existing shareholders. As I have shown on the
accompanying schedule, in order to equate the price of $2.26 that the Rainwater
group proposes to pay for each share of Convertible Preferred Stock, to a share
of existing common stock, one must deduct the present value of future dividends
on the Preferred Stock. This adjustment yields an estimated common stock
"equivalent" price of $1.17 that arguably might be even lower if one values the
liquidation preference that the Preferred enjoys over the common stock. The
Rainwater group is buying control of MESA at an astonishing 70% discount to
current market of $3.875 per share as of April 25, 1996. The discount to
market based on the closing price of MESA's common stock of $3.00 per share on
February 28, 1996 (the day preceding announcement of the Proposed Acquisition)
was 61%.

My concern surrounding this transaction is compounded by the fact that
the Rainwater group is purchasing less than 35% of the economic interest in the
Company but is given absolute control of the Board through the creation of
different classes of Convertible Preferred Stock with different voting
provisions attached to each. I believe this voting mechanism further
disenfranchises our common shareholders.

The Company's financial advisors have indicated that a properly
capitalized MESA can yield significant value to its shareholders. The critical
question is at what cost to the existing common shareholders? I believe the
cost of the Proposed Acquisition is too high and that the Company can develop
an economically preferable transaction to the Proposed Acquisition. Improved
business fundamentals help support this conclusion. The prognosis for natural
gas prices, as demonstrated by the NYMEX one-year gas "strip" price, has
improved considerably during the few months since MESA received most of its
indications of interest concerning a sale or merger of the Company or sale of
its assets. Better commodity prices for natural gas were the principal reason
for the Company's net earnings reported for the first quarter of 1996.

-30-
<PAGE> 35
Our shareholders deserve better than the Proposed Acquisition and I
believe that this Board through a focused effort can present to our
shareholders a timely transaction with superior economics. Accordingly, please
record my dissent to the Board's majority decision to approve the Proposed
Acquisition.

Sincerely,
/s/ Dorn Parkinson

APPENDIX A
Rainwater Group Economics

The economics for the Rainwater group can be summarized as follows:

<TABLE>
<CAPTION>
(in millions
except per
share amounts)
--------------
<S> <C>
Purchase price of Series B Preferred $133.0
Less: Closing Fee (9.3)
Present value of future cash dividends
in years 5 through 10 discounted at 15% (31.1)
------
Adjusted Purchase Price $ 92.6
======

Shares to be received upon conversion of Preferred 58.8
Shares to be received in pay-in-kind dividends in
years 1 through 4 20.7
------

Total shares to be received 79.5
======

Adjusted Purchase Price per Share for the Rainwater Group $ 1.17
======

Closing Price per Share on April 25, 1996 $3.875
======

% Discount 70%
===
</TABLE>

April 26, 1996

The Board of Directors
c/o Mr. T. Boone Pickens
MESA, Inc.
1400 Williams Square West
5205 N. O'Connor Boulevard
Irving, TX 75039-3746

Dear Sirs:

This letter shall serve to record my dissent to the Rainwater group's
proposed transaction whereby it would obtain effective control of the Company
via the purchase of a newly issued Convertible Preferred Stock ("Proposed
Transaction"). I request that the entire text of this letter be included in
the Company's proxy statement with respect to the Proposed Transaction.

-31-
<PAGE> 36
In my view, the Board is allowing control of MESA to be sold
significantly below its value. I base this view on the equity market trading
value of the Company and comparably sized companies in the oil and gas
industry. The Company's recent stock price suggests that a properly
capitalized MESA under the direction of highly regarded leadership, such as the
Rainwater group, will yield substantial value to its stockholders. I believe
that the Board can do more to ensure that a greater proportion of that value is
retained by the existing shareholders rather than transferring it to the
purchaser as contemplated by the Proposed Transaction.

I acknowledge the argument that the Company's long and laborious search
for a transaction might lead one to believe that if a better transaction were
available, it would have surfaced by now. My answer to that argument is that I
believe the process broke down in its later stages approximately two months
ago. At that time, I believe the process was driven by the deadline for a
"major" transaction under the Company's agreement with the Washington-Davis
Group ("WDG") rather than the interests of shareholders. Consequently, our
shareholders now face excessive economic dilution from the Proposed
Transaction.

On February 27, 1996, just two days ahead of the deadline by which the
Company had to produce a "major" transaction or face freeing WDG to nominate an
alternative slate of directors for MESA, management identified and presented
the Proposed Transaction to the full Board for the first time. The very next
day the Board took action on management's recommendation to approve a Letter of
Intent outlining the Proposed Transaction.

As one of the two dissenting votes cast at the February 28, 1996
telephonic board meeting, I stated my concern that many would view skeptically
the motivation behind, and timing of, the Board's action. As a director I was
not aware, and I do not believe that potentially interested third parties were
aware, that the Company would seriously consider selling control at a below
market price. After further analysis, I believe that the effective discount to
the then market value of $3.00 per share (closing price on the day the Board
approved the Letter of Intent) was in excess of 60%. That is, after taking
into account the present value of the yield on the proposed Convertible
Preferred Stock, the "comparable-to-common" Convertible Preferred share
purchase price is approximately $1.17 versus the then market price of $3.00.
Based on yesterday's market price of $3.875 (closing price on April 25, 1996)
the discount to market is 70%.

At the aforementioned telephonic board meeting I stated, and I continue
to believe, that the Board has not adequately investigated all alternatives to
the substantial economic dilution implicit in the Proposed Transaction. If the
Board had not executed the Letter of Intent, WDG could have nominated an
alternative slate of directors and communicated directly with our stockholders
concerning the direction of MESA. This open discourse would have been healthy
for the transaction process and might even have provided leverage for the
Company in its negotiations concerning the Proposed Transaction. These views
were rejected by the Board's majority approval of the Letter of Intent.

Once the Board decided to sell control of the Company in a dilutive
transaction, all efforts should have been made to maximize value to our
existing shareholders. Prior to accepting the Proposed Transaction, the Board
at a minimum should have:

1.) Directed management and its advisors to affirmatively solicit
interest in similarly structured transactions from previously
interested third parties;

2.) Released all parties from any standstills that might prevent
them from making offers; and

3.) Instructed management and its advisors to thoroughly review
and report to the Board on a business plan that would provide
as much time as possible to explore a preferable economic
outcome that might stem from the first two actions.

Unfortunately, these actions were not taken and the Letter of Intent was
approved just hours ahead of the WDG settlement agreement deadline.

These facts lead to my conclusion that the process followed by the MESA
Board during the past two months may not have produced the best transaction for
our shareholders. The substantial "in-the-money" value of the

-32-
<PAGE> 37
Convertible Preferred Stock Purchase Rights being transferred to the Rainwater
group (which I believe to be in excess of $100 million) strongly suggests that
the Company can find a qualified underwriter or purchaser of a substantially
similar Convertible Preferred Stock Offering on more favorable economic terms
for the MESA common shareholders.

Sincerely,
/s/ Joel L. Reed

RESPONSE OF THE MAJORITY OF THE BOARD TO THE LETTERS OF DISSENTING DIRECTORS

The points raised by Mr. Parkinson and Mr. Reed in their letters have
been addressed elsewhere in this Proxy Statement. However, the majority of the
Board believes a specific rebuttal may be useful to stockholders.

Prior to addressing those points, the majority of the Board notes that
the day before Mr. Reed advised Mesa that he and Mr. Parkinson would vote
against the Recapitalization at the April 26 Board meeting and would provide
written dissents for inclusion in this Proxy Statement, Mesa had rejected Mr.
Reed's proposal that Mesa enter into an agreement with the WDB Group in which,
among other things, (i) the WDB Group would agree to vote their shares at the
Special Meeting proportionately with the votes cast by other stockholders and
(ii) Mesa would reimburse the WDB Group for expenses that Mr. Reed estimated at
$3 million. See "The Recapitalization -- Background -- Discussions with WDB
Group."

Endorsement of the Recapitalization

In recommending the Recapitalization to Mesa's stockholders, the Board
carefully considered the advantages and disadvantages of the Recapitalization,
the Board's extensive review of strategic alternatives, the Proposal
Solicitation Process, Mesa's financial condition, the opinion of Lehman
Brothers and the other factors discussed elsewhere in this Proxy Statement.
The majority of the Board believes the advantages of the Recapitalization are
compelling, but they have fully acknowledged and considered the disadvantages
of the Recapitalization.

The majority of the Board believes that the disadvantage of transferring
control of Mesa to DNR at a discount to the market prices of the Common Stock
is offset by, among other things, (i) the opportunity Mesa's stockholders will
have to participate in the transaction either by exercising their Rights to
purchase Preferred Stock at the same $2.26 price being paid by DNR or by
selling their Rights in the market and (ii) the value that may accrue to Mesa
of having Rainwater and his affiliates involved in Mesa's future direction.
The majority of the Board believes the increase in the price of Mesa's Common
Stock from $2 7/8 to current levels since the announcement on April 2 of the
financing commitments for the Recapitalization is attributable in substantial
part to the pendency of the Rainwater transaction. The suggestion expressed by
the dissenting directors that Mesa has transferred $100 million in value to DNR
is unfounded. Any increase in the value of the transaction to Rainwater since
the letter of intent was signed is solely a result of the increase in Mesa's
stock price, and not to any detriment suffered by Mesa or its stockholders, who
have also enjoyed the benefits of this increase in value.

The majority of the Board has further acknowledged and considered the
dilutive effect of the Recapitalization. The majority of the Board believes
the going concern status that will likely be afforded to Mesa's equity,
combined with a significant reduction of financial risk, compensates for the
dilution.

Timing of the Decision

Mesa signed the Rainwater letter of intent in February, and the Stock
Purchase Agreement in April, because the Rainwater proposal was and is the most
attractive proposal for Mesa and its stockholders to result from the Proposal
Solicitation Process, and Mesa needed and needs a solution to its financial
concerns. The February 29 date in the WDB Settlement Agreement was not a
factor in the decision of the majority of the Board regarding whether to
approve the letter of intent. Under the WDB Settlement Agreement, the Board
had the right to defer the date of the annual meeting at that time -- whether
or not Mesa had signed a letter of intent by that time -- because serious
discussions or negotiations were in process regarding a potential major
transaction. In fact, the 60 day deferral would have remained

-33-
<PAGE> 38
effective even if no letter of intent had been signed by February 29 and the
then-pending Rainwater negotiations had been abandoned thereafter.

Recent Increases in Gas Prices

Higher gas prices resulting from the unusually cold 1995-96 winter were
indeed a major reason for Mesa's improved results of operations in the first
quarter of 1996. But no one can predict whether prices will continue to
improve, stabilize or go back down. The Recapitalization permits Mesa's
existing stockholders to retain significant exposure to improving gas prices
while significantly reducing the risk to the equity of a return to lower gas
prices.

HCLP Prepayment Premium

As to the prepayment premium that may be payable on the HCLP Secured
Notes (which would be payable under any refinancing proposal), the majority of
the Board believes the advantages of the much lower interest costs and the
extension of principal maturities to be obtained from replacing those notes
with the New Credit Facility as Mesa's senior secured debt will more than
offset this premium.

Proposal Solicitation Process

The majority of the Board believes that the Proposal Solicitation
Process has been successful in achieving its goals -- to fully evaluate all
strategic alternatives available to Mesa for addressing its financial condition
and to achieve a comprehensive solution to its financial concerns. Lehman
Brothers contacted 141 parties about their potential interest in a transaction,
and numerous alternatives, including equity infusions, were explored with all
of those who were interested. The letters of dissent do not suggest that any
other proposal that resulted from the process was preferable to the
Recapitalization, and the Board has reviewed extensive analyses of the
prospects for Mesa if it implements no transaction.

The suggestion that "another underwriter" could now be found, and that a
transaction more advantageous to Mesa and its stockholders than the
Recapitalization could be achieved, is speculative, and would require Mesa and
its stockholders to take the risk that Rainwater would terminate the Stock
Purchase Agreement. Mesa has not been approached by any other party about a
potential transaction since the letter of intent was announced in February. If
that were to occur hereafter, the Board would determine whether to exercise the
Exclusivity Exception ("fiduciary out") in the Stock Purchase Agreement and to
pursue the alternative transaction, subject to paying DNR a termination
payment. Any decision to exercise that right and pursue any such alternative
would, however, necessarily take into account not only the attractiveness of
the other alternative, but also the risk of jeopardizing the Rainwater
transaction and possibly ending up with no transaction.

-34-
<PAGE> 39
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

TRADING PRICES

The Common Stock currently trades on the New York Stock Exchange under
the symbol MXP. The following table reflects the range of high and low selling
prices of the Common Stock by quarter for 1996, 1995 and 1994.

<TABLE>
<CAPTION>
COMMON STOCK
------------
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter . . . . . . . . . . . . . . . . . $ 4 $2 5/8
Second Quarter (through April 26) . . . . . . . 4 1/2 2 5/8

1995
First Quarter . . . . . . . . . . . . . . . . . 6 1/8 4 5/8
Second Quarter . . . . . . . . . . . . . . . . . 6 1/8 3 1/2
Third Quarter . . . . . . . . . . . . . . . . . 5 1/2 3 7/8
Fourth Quarter . . . . . . . . . . . . . . . . . 4 7/8 3

1994
First Quarter . . . . . . . . . . . . . . . . . 8 1/2 5 5/8
Second Quarter . . . . . . . . . . . . . . . . . 7 5 3/8
Third Quarter . . . . . . . . . . . . . . . . . 5 7/8 5 1/8
Fourth Quarter . . . . . . . . . . . . . . . . . 5 1/2 3 5/8
</TABLE>

At March 31, 1996, there were 64,050,009 shares of Common Stock
outstanding. At such date, there were approximately 18,500 record holders of
Common Stock and approximately 45,000 beneficial holders of Common Stock.

DIVIDEND POLICY

Mesa has not paid any dividends or distributions with respect to its
equity securities, including the Common Stock, since 1990.

Mesa's existing credit facility prohibits Mesa from making any
distributions or paying any dividends to equity holders, other than those paid
in the form of its equity securities. The indentures governing Mesa's existing
Discount Notes also include certain restrictions on the payment of dividends on
the Common Stock. In addition, the Statement of Resolution establishing the
Series A Preferred Stock and the Series B Preferred Stock will prohibit the
payment of dividends with respect to the Common Stock for so long as any shares
of Series A Preferred Stock or Series B Preferred Stock remain outstanding.
The New Credit Facility and the New Note indentures will also contain certain
restrictions on the payment of cash dividends on the Common Stock and Preferred
Stock. See "Description of New Debt."

Moreover, Mesa currently does not expect to pay dividends on the
Common Stock in the future unless and until there is a material and sustained
increase in natural gas prices and adequate provision has been made for further
reduction of debt in addition to that contemplated by the Recapitalization.

-35-
<PAGE> 40
THE STOCK PURCHASE AGREEMENT

The following summary of the material provisions of the Stock Purchase
Agreement does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of such agreement, a copy
of which is attached as Annex B to this Proxy Statement.

PURCHASE AND SALE OF SERIES B PREFERRED STOCK

The Stock Purchase Agreement provides for the issuance and sale by
Mesa to DNR of shares of Series B Preferred Stock as follows:

(a) Mesa will issue and sell to DNR 58,849,557 shares of
Series B Preferred Stock at a purchase price of $2.26 per share
concurrently with the closing and funding of the initial borrowings
under the New Credit Facility and the consummation of the issuance of
the New Notes at the First Closing.

(b) Mesa will issue and sell to DNR an additional number
of shares of Series B Preferred Stock equal to the number of shares of
Series A Preferred Stock not purchased pursuant to the exercise of
Rights, also at a price of $2.26 per share, concurrently with the
completion of the Rights Offering at the Second Closing.

The number of shares of Series B Preferred Stock to be purchased
pursuant to the Stock Purchase Agreement, and the purchase price per share
payable therefor, are subject to appropriate adjustment to reflect the Reverse
Stock Split if effected by Mesa prior to the First Closing. However, the sale
of Series B Preferred Stock is not conditioned on the Reverse Stock Split being
effected.

REPRESENTATIONS AND WARRANTIES

The Stock Purchase Agreement contains various representations and
warranties on the part of Mesa relating to, among other things, (a) the
corporate organization and good standing of Mesa and its subsidiaries, (b) the
capital structure of Mesa and its subsidiaries, (c) the due authorization,
execution, delivery and performance of the Stock Purchase Agreement and its
enforceability, (d) the absence of conflicts with other agreements,
instruments, laws and regulations, (e) required consents, approvals and
filings, (f) the due authorization and issuance of the Series B Preferred Stock
to be purchased pursuant to the Stock Purchase Agreement and the due
authorization and reservation of the shares of Common Stock issuable upon
conversion thereof, (g) employee benefit plans, (h) the reports and other
documents filed by Mesa with the SEC and the accuracy of the information
contained therein, (i) the absence of undisclosed liabilities, (j) the absence
of certain changes or events, (k) compliance with applicable laws and permits,
(l) pending and threatened litigation, (m) certain matters regarding the WDB
Settlement Agreement, including the satisfaction of all applicable requirements
so that the Recapitalization will be classified as an Endorsed Major
Transaction thereunder, (n) taxes, (o) environmental matters, (p) various
matters relating to the oil and gas operations of Mesa and its subsidiaries and
(q) intellectual property.

The Stock Purchase Agreement also includes certain representations and
warranties on behalf of DNR relating to, among other things, (a) the
organization, existence and good standing of DNR, (b) the due authorization,
execution, delivery and performance of the Stock Purchase Agreement and its
enforceability, (c) the absence of conflicts with other agreements,
instruments, laws and regulations, (d) required consents, approvals and
filings, (e) investment intent and accreditation, (f) the adequacy of available
financial resources and (g) the accuracy of the information furnished by DNR
for use in the prospectuses used in the Rights Offering and the offering of the
New Notes.

COVENANTS REGARDING THE RECAPITALIZATION

The Stock Purchase Agreement contains various covenants regarding the
Recapitalization. The Stock Purchase Agreement requires that Mesa take all
action necessary to call and hold the Special Meeting as promptly as
practicable to consider and vote on the adoption and approval of the issuance
and sale of Series B Preferred Stock pursuant to the Stock Purchase Agreement
and other matters incident to the Recapitalization for which stockholder
approval is required. The Stock Purchase Agreement provides that, subject to
its fiduciary duties to Mesa's stockholders under applicable law, the Board
must (i) recommend to the stockholders of Mesa that they vote in favor of the
adoption and approval of

-36-
<PAGE> 41
the Recapitalization, (ii) use its reasonable best efforts to solicit from the
stockholders proxies in favor of such adoption and approval and (iii) take all
other action reasonably necessary to secure a favorable vote of the
stockholders. Mesa must also use its reasonable best efforts to obtain a
statement from its officers and directors who own voting stock of Mesa to the
effect that such persons intend to vote all shares of voting stock owned by
them in favor of the Recapitalization.

Mesa has also agreed, pursuant to the Stock Purchase Agreement, to use
its reasonable best efforts to promptly negotiate and enter into the New Credit
Facility and the New Note indentures, all on terms as previously contemplated
by the parties and otherwise reasonably satisfactory to DNR. Mesa must use its
reasonable best efforts to satisfy all requirements of these documents. If
required, Mesa must promptly prepare and file with the SEC a registration
statement with respect to the issuance and sale of the New Notes and use its
reasonable best efforts to have such registration statement declared effective
as promptly as practicable after the Special Meeting. Concurrently with the
First Closing, Mesa must pay in full (through redemption, repayment, prepayment
or defeasance) the HCLP Secured Notes, the existing Discount Notes and Mesa's
existing credit facility, as well as such other portion of Mesa's existing
indebtedness as Mesa and DNR agree, from cash on hand and funds received at the
First Closing.

In addition, the Stock Purchase Agreement requires Mesa to prepare and
file with the SEC a registration statement with respect to the Rights Offering
and use its reasonable best efforts to have such registration statement
declared effective as promptly as practicable after the Special Meeting. Mesa
must also use its reasonable best efforts to cause the Series A Preferred Stock
and the shares of Common Stock issuable upon conversion thereof to be approved
for listing on the New York Stock Exchange prior to the Second Closing and to
cause the Rights to be approved for trading thereon prior to commencement of
the Rights Offering.

The Stock Purchase Agreement requires DNR to comply, and to cause its
affiliates to comply, with reasonable requests of the lenders under the New
Credit Facility to provide, at the time of the First Closing, a letter of
credit to secure DNR's obligations to purchase shares pursuant to its Standby
Commitment. Any fees and expenses incurred by DNR in connection with such
letter of credit will not be reimbursed by Mesa.

COVENANTS REGARDING THE CONDUCT OF BUSINESS PRIOR TO THE FIRST CLOSING

Under the Stock Purchase Agreement, Mesa has agreed that, at all times
prior to the earlier of (i) the First Closing or (ii) the termination of the
Stock Purchase Agreement in accordance with its terms, Mesa will conduct its
business in the ordinary and usual course. Except as otherwise contemplated by
the Stock Purchase Agreement, neither Mesa nor any subsidiary may, without the
prior consent of DNR, (a) amend its charter or bylaws or make any material
changes in its capital structure; (b) incur any liability or obligation or pay,
discharge or satisfy any claims, liabilities or obligations except in the
ordinary course of business consistent with past practice, or settle or
compromise any litigation or claims involving liability in excess of $500,000;
(c) incur any indebtedness for borrowed money, except under Mesa's existing
credit facility; (d) make any loans or advances to any person, subject to
certain exceptions; (e) declare or pay any dividend or make any other
distribution with respect to its capital stock, other than certain dividends
paid by subsidiaries; (f) issue, sell or deliver or purchase or otherwise
acquire any of its capital stock or other securities other than pursuant to
stock options issued and outstanding on the date of the Stock Purchase
Agreement or purchase or otherwise acquire any of its capital stock, employee
or director stock options or debt securities; (g) encumber any of its assets or
properties, other than by operation of law or in the ordinary and usual course
of business or to secure its existing indebtedness; (h) other than in the
ordinary course of business, dispose of any assets, or waive, release, grant or
transfer any rights of value; (i) acquire any corporation or other business
organization; create or make any investment in any subsidiary; or make any
capital expenditure, other than one included in the capital expenditure budget
for the period from March 31, 1996 through July 31, 1996; (j) enter into, adopt
or amend or terminate any collective bargaining agreement or any employee
benefit plan; approve or implement any employee lay off or other personnel
reorganization plan; approve or implement any employment severance arrangements
(other than payments made under Mesa's severance policy in accordance with past
practice); retain or discharge any officers and executive management personnel;
authorize or enter into any employment, severance, consulting services or other
agreement with any officers and executive management personnel; or change the
compensation or benefits provided to any director, officer or employee as of
February 1, 1996; (k) enter into any material contract, agreement, lease or
other commitment; or amend or modify in any material respect any of the
agreements governing Mesa's existing indebtedness or any other material
contract, agreement, lease or other commitment; (l) enter into any speculative
or commodity swaps, hedges or other

-37-
<PAGE> 42
derivatives transactions or purchase any securities for investment purposes,
except in connection with cash management; (m) authorize, enter into or amend
any contract, agreement or other commitment with a director, officer, employee
or other affiliate pursuant to which any such person will receive compensation,
consideration or benefit of any kind from Mesa or any subsidiary; (n) adopt,
approve or implement any annual general and administrative expense budget for
any period after July 31, 1996 or materially modify any existing general and
administrative expense budget; (o) enter into any contract not cancelable
within 30 days providing for the sale of production from Mesa's oil and gas
properties or obligating Mesa to pay for any services with respect to its oil
and gas properties (except as contemplated in the capital budget for the period
from March 31, 1996 through July 31, 1996); or (p) grant any option or
preferential right to purchase or enter into any other agreements that could
adversely affect the marketability of any material asset of Mesa.

COVENANTS REGARDING EXCLUSIVITY

Under the Stock Purchase Agreement, Mesa and its directors, officers,
affiliates and representatives are prohibited from, directly or indirectly,
soliciting any offer from, initiating or engaging in any discussions or
negotiations with, or providing any information to, any person or group (other
than DNR, its affiliates and representatives and persons effectuating the
Rights Offering and the other Recapitalization transactions) concerning any
possible proposal regarding the sale by Mesa of its equity securities or the
issuance by Mesa of debt and/or equity instruments in connection with
refinancing its existing indebtedness (other than following a default in
payment thereof), or a merger, consolidation, liquidation, business
combination, sale of assets of Mesa or other similar transaction involving Mesa
or a substantial portion of its assets (any of the foregoing being a "Company
Transaction"); provided that Mesa and its directors, officers, affiliates and
representatives may:

(i) respond to any party that initiates discussions
regarding a potential Company Transaction, solely to notify such party
that it is engaged in the Recapitalization and will not engage in any
further communications while pursuing the Recapitalization, except as
permitted by the Stock Purchase Agreement;

(ii) respond to any unsolicited tender offer or exchange
offer made by a third party to the extent required by Rule 14e-2(a)
promulgated under the Exchange Act solely to recommend rejection of
such offer and make such disclosures in connection therewith as are
required by Rule 14d-9 promulgated under the Exchange Act; and

(iii) respond or take any other action with respect to any
unsolicited tender or exchange offer made by a third party, to the
extent required by Rules 14e-2(a) and 14d-9 promulgated under the
Exchange Act, in any manner other than as described in the immediately
preceding clause (ii), or respond to, engage in discussions or
negotiations with, otherwise communicate with and provide information
to a third party that initiates such communication or requests such
information regarding a potential Company Transaction, but only if and
to the extent that the Board has determined in good faith that its
fiduciary duties to Mesa's stockholders require Mesa to respond to,
communicate with or provide information to such third party regarding
a potential Company Transaction.

The covenant described above is referred to herein as the "Exclusivity
Covenant." The exception described in paragraph (iii) above is referred to
herein as the "Exclusivity Exception." Mesa must promptly inform DNR of any
inquiry or proposal by a third party regarding a Company Transaction.

PAYMENT OF EXPENSES AND ADDITIONAL FEES

The Stock Purchase Agreement requires Mesa to pay all expenses
incurred by Mesa in connection with the Recapitalization and to reimburse DNR
for its reasonable out of pocket expenses (other than fees and expenses related
to the letter of credit provided to secure DNR's obligation to purchase shares
pursuant to its Standby Commitment) incurred in connection with the
Recapitalization (including fees and expenses of counsel and all third party
consultants engaged by DNR to assist in the Recapitalization). An initial
payment in the amount of $500,000 previously paid by Mesa to DNR will be
credited against the fees and expenses otherwise subject to reimbursement under
the Stock Purchase Agreement. In addition, Mesa has agreed to pay DNR (i) a
fee of $4,655,000 (constituting 3.5% of the aggregate amount of Series B
Preferred Stock to be purchased at the First Closing) at the First Closing (or
as promptly as practicable thereafter as funds are available therefor, but no
later than the Second Closing) and (ii) a fee of $4,620,000

-38-
<PAGE> 43
(constituting 3.5% of the maximum aggregate amount of Series B Preferred Stock
to be purchased at the Second Closing) at the Second Closing, less the amount
by which DNR's reimbursable expenses as of the Second Closing are less than the
initial $500,000 payment.

The Stock Purchase Agreement also provides that, for so long as the
Minimum Ownership Condition is satisfied, DNR will be entitled to receive a fee
of $400,000 per year (payable quarterly in arrears, beginning September 30,
1996) in exchange for DNR's continuing analysis and assistance to Mesa during
the course of its investment, and in lieu of any transaction or success fees to
which DNR might otherwise typically be entitled for any such services performed
in connection with specific transactions in which Mesa participates in the
future. Under the financial services agreement, Mesa will also be required to
reimburse DNR for all fees and expenses (up to a maximum of $50,000 for any
calendar year) reasonably incurred by it in connection with its investment in
Mesa.

CONDITIONS TO FIRST CLOSING

The obligation of DNR to consummate the transactions contemplated by
the Stock Purchase Agreement to be consummated at the First Closing is subject
to the satisfaction or waiver of the following conditions: (a) the accuracy in
all material respects of the representations and warranties of Mesa contained
in the Stock Purchase Agreement; (b) the performance in all material respects
by Mesa of all covenants and agreements required to be performed by it prior to
the First Closing; (c) DNR's receipt of an opinion of counsel to Mesa as to
certain matters set forth in the Stock Purchase Agreement; (d) the absence of
litigation or governmental action with respect to the Recapitalization or
against Mesa which would in good faith be expected to have a material adverse
effect on Mesa and its subsidiaries; (e) the expiration or termination of the
applicable waiting period under the HSR Act; (f) the receipt of all requisite
stockholder approval of the Recapitalization; (g) the absence of any material
adverse effect on Mesa and its subsidiaries other than as a result of changes
in oil and gas prices, but specifically including any material reduction
(except by production) in the aggregate total of Mesa's proved oil and gas
reserves below those reflected in the reserve report provided to DNR, which in
the good faith judgment of DNR makes it inadvisable to proceed with the
consummation of the Recapitalization; (h) the satisfaction or waiver of all
conditions precedent to the closing of the Debt Refinancing, including the
initial borrowings under the New Credit Facility and the issuance and sale of
the New Notes, such that the closing of such transactions will take place
simultaneously with the First Closing; (i) substantial completion of the Rights
Offering documents and satisfaction of the other conditions precedent to
commencement of the Rights Offering (other than declaration of effectiveness by
the SEC) so that the Rights Offering may be commenced as promptly as
practicable following the First Closing; (j) the approval for listing on the
New York Stock Exchange of the Series A Preferred Stock and the shares of
Common Stock issuable upon conversion thereof, subject to official notice of
issuance, and the approval of the Rights for trading on the New York Stock
Exchange, subject to official notice of issuance; (k) the resignation of all
but three of Mesa's current directors, effective as of the First Closing, and
Board approval of the nomination of the four directors to be elected by the
holders of Series B Preferred Stock (if not Richard Rainwater, Darla Moore,
Kenneth Hersh and Philip Smith); (l) the effectiveness of certain amendments to
Mesa's Articles of Incorporation and Bylaws; (m) coverage under Mesa's director
and officer insurance policies of the directors elected by DNR; (n) the receipt
of a certificate or certificates representing the shares of Series B Preferred
Stock purchased at the First Closing; and (o) the receipt of a certificate of
Mesa's chief executive or chief financial officer as to the satisfaction of the
foregoing conditions.

The obligation of Mesa to consummate the transactions contemplated by
the Stock Purchase Agreement to be consummated at the First Closing is subject
to the satisfaction or waiver of the following conditions: (a) the accuracy in
all material respects of the representations and warranties of DNR contained in
the Stock Purchase Agreement; (b) the performance in all material respects by
DNR of all covenants and agreements required to be performed by it prior to the
First Closing; (c) Mesa's receipt of an opinion of counsel to DNR as to certain
matters set forth in the Stock Purchase Agreement; (d) the absence of
litigation or governmental action with respect to the Recapitalization or
against Mesa which would in good faith be expected to have a material adverse
effect on Mesa and its subsidiaries; (e) the expiration or termination of the
applicable waiting period, if any, under the HSR Act; (f) the receipt of all
requisite stockholder approval of the Recapitalization; (g) the approval for
listing on the New York Stock Exchange of the Series A Preferred Stock and the
shares of Common Stock issuable upon conversion thereof, subject to official
notice of issuance, and the approval of the Rights for trading on the New York
Stock Exchange, subject to official notice of issuance; (h) the satisfaction or
waiver of all conditions precedent to the closing of the Debt Refinancing,
including the initial borrowings under the New Credit Facility and the issuance
and sale of the New Notes, such that the closing of

-39-
<PAGE> 44
such transactions will take place simultaneously with the First Closing; and
(i) the receipt of a certificate of a duly authorized representative of DNR as
to the satisfaction of the foregoing conditions.

CONDITIONS TO SECOND CLOSING

The obligations of DNR and Mesa to consummate the transactions to be
consummated at the Second Closing are subject to the satisfaction or waiver of
the following conditions: (a) the First Closing shall have occurred and (b)
either (i) the Rights Offering shall have commenced and expired and the number
of unexercised Rights shall have been determined or (ii) a period of no more
than 120 days nor less than 60 days shall have elapsed since the First Closing,
the length of such period to be established in accordance with the requirements
of the documents relating to the Debt Refinancing.

TERMINATION

The Stock Purchase Agreement may be terminated at any time prior to
the First Closing as follows:

(a) by mutual written consent of Mesa and DNR;

(b) by Mesa or DNR after November 30, 1996, if the First
Closing has not occurred by the close of business on such date, unless
the failure to close results from a breach of the Stock Purchase
Agreement by the party seeking termination;

(c) by Mesa if (i) any of the representations and
warranties of DNR contained in the Stock Purchase Agreement are not
true and correct in all material respects when made or at any time
prior to the First Closing, except as contemplated by the Stock
Purchase Agreement, or (ii) DNR fails to fulfill in all material
respects any of its obligations under the Stock Purchase Agreement,
and, in each case, such misrepresentation, breach of warranty or
failure to fulfill an obligation (provided it can be cured) has not
been cured within five days of actual knowledge of it by DNR;

(d) by DNR if (i) any of the representations and
warranties of Mesa contained in the Stock Purchase Agreement are not
true and correct in all material respects when made or at any time
prior to the First Closing, except as contemplated by the Stock
Purchase Agreement, or (ii) Mesa fails to fulfill in all material
respects any of its obligations under the Stock Purchase Agreement,
and, in each case, such misrepresentation, breach of warranty or
failure to fulfill an obligation (provided it can be cured) has not
been cured within five days of actual knowledge of it by Mesa;

(e) by DNR at any time following (i) a breach by Mesa of
the Exclusivity Covenant or (ii) the invocation by Mesa's Board of the
Exclusivity Exception;

(f) by DNR at any time (i) following any breach of Mesa's
representations and warranties regarding the WDB Settlement Agreement
or (ii) in the event that any other party to the WDB Settlement
Agreement has (A) initiated, prior to the Special Meeting, a
"Solicitation Action" (as defined in the WDB Settlement Agreement)
(other than the giving of notice to Mesa, pursuant to Mesa's Bylaws,
of an intention to nominate directors at the Annual Meeting) or (B)
breached the WDB Settlement Agreement or taken certain other actions
in the nature of those restricted by the WDB Settlement Agreement,
which Solicitation Action, breach or other action described in clause
(A) or (B) is, in DNR's good faith judgment, materially adverse to DNR
or the Recapitalization (it being acknowledged by DNR that letters to
the Board from Joel L. Reed and Dorn Parkinson, in form and substance
similar to the drafts thereof provided to DNR, and any subsequent
inclusion of such letters in the Proxy Statement will not give rise to
any right to terminate the Stock Purchase Agreement as described in
this paragraph (f));

(g) by Mesa, if at any time the Board determines in good
faith that the Exclusivity Exception should be invoked and that Mesa
should pursue a potential Company Transaction not solicited by Mesa
and Mesa shall have made the termination payment to DNR described
below;

-40-
<PAGE> 45
(h) by Mesa or DNR if the stockholders of Mesa reject at
a meeting the matters contained in the proxy statement with respect to
such meeting that are necessary to approve the Recapitalization;

(i) by Mesa or DNR, upon the occurrence of a certain
events of bankruptcy regarding Mesa; or

(j) by DNR, upon the occurrence of any default by Mesa
under its existing credit facility or the existing Discount Notes if
any holder of such indebtedness, or any trustee or representative
thereof, has taken any steps to accelerate any such indebtedness or
commenced the exercise of any remedies pursuant to the agreements or
instruments creating such indebtedness.

TERMINATION PAYMENTS

Mesa has agreed that, upon termination of the Stock Purchase Agreement
by DNR as described in paragraph (e)(ii) or (f) above, or upon the termination
of the Stock Purchase Agreement by Mesa as described in paragraph (g) above,
(i) Mesa will pay DNR a partial termination fee in the amount of (A) $300,000
in cash in the case of termination as described in paragraph (e)(ii) or (g),
and (B) $500,000 in the case of termination as described in paragraph (f), in
addition to the fees and expenses for which Mesa is obligated to reimburse DNR,
and (ii) if Mesa subsequently participates in any Company Transaction within a
one-year period following termination of the Stock Purchase Agreement, or in
any Company Transaction with a third party with whom Mesa communicated during
the exclusivity period as a result of invoking the Exclusivity Exception
(regardless of the closing date of such transaction), Mesa will pay DNR a fee
in the amount of $2,700,000 upon the closing of such Company Transaction.

In addition, Mesa has agreed that, upon any termination of the Stock
Purchase Agreement as described in paragraph (e)(i) above, (i) Mesa will pay
DNR $500,000 as partial liquidated damages and (ii) if Mesa subsequently
participates in any Company Transaction within a one-year period following
termination of the Stock Purchase Agreement, or in any Company Transaction with
a third party with whom Mesa communicated during the exclusivity period in
breach of the Exclusivity Covenant (regardless of the closing date of such
transaction), Mesa will pay DNR a fee in the amount of $3,500,000 upon the
closing of such Company Transaction.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Pursuant to the Stock Purchase Agreement, for a period of six years
from and after the First Closing, Mesa must indemnify, defend and hold harmless
each person who, at any time prior to the First Closing, is or has been an
officer, director or employee of Mesa or any of its subsidiaries, against all
losses, claims, damages, costs, expenses (including reasonable attorneys'
fees), liabilities or judgments or amounts paid in settlement (with the
approval of Mesa) of or in connection with any claim, action, suit, proceeding
or investigation based in whole or in part on acts or omissions, or alleged
acts or omissions, by such person in his capacity as a director, officer or
employee of Mesa or any of its subsidiaries or as a prospective director to be
elected by the holders of Series B Preferred Stock, whether pertaining to a
matter existing or occurring at or prior to the First Closing and whether
reasserted or claimed prior to, at or after the First Closing, to the same
extent that such person was entitled to be indemnified by Mesa prior to the
First Closing (and, in the case of the directors to be elected by the holders
of Series B Preferred Stock, as if such person had held such office during the
time the covered liability arose). In addition, the Stock Purchase Agreement
requires that Mesa maintain its current directors' and officers' liability
insurance policies with respect to matters occurring prior to the Second
Closing for a period of four years following the First Closing.

INDEMNIFICATION OF DNR AND MESA

The Stock Purchase Agreement contains certain mutual indemnification
agreements between DNR and Mesa for claims and liabilities arising out of the
Stock Purchase Agreement, the Recapitalization and breaches of representations,
warranties, covenants and agreements contained in the Stock Purchase Agreement;
provided that claims for indemnity with respect to the breach of
representations and warranties are not required to be paid by either party
unless each such claim payable by such party equals or exceeds $50,000 and then
only to the extent that the aggregate amount of all such claims exceeds
$500,000.

-41-
<PAGE> 46
INDEPENDENT DETERMINATION

From and after the First Closing, all decisions on behalf of Mesa as
to the payment of indemnification under the Stock Purchase Agreement and
otherwise regarding Mesa's rights and obligations under the Stock Purchase
Agreement are required to be made by a committee of directors consisting of all
directors other than those elected by the holders of Series B Preferred Stock.

REGISTRATION RIGHTS AGREEMENT

At the First Closing, Mesa and DNR will enter into a Registration
Rights Agreement (the "Registration Rights Agreement") covering (i) the shares
of Series A Preferred Stock issuable in exchange for shares of Series B
Preferred Stock to be sold under the Stock Purchase Agreement (the "Registrable
Series A Preferred Stock"), (ii) the shares of Common Stock issuable upon
conversion or redemption of shares of Registrable Series A Preferred Stock and
Series B Preferred Stock and (iii) any securities issued or issuable in respect
of any such shares by way of any stock split or stock dividend (including
dividends paid in kind in accordance with the terms of the Series B Preferred
Stock) or in connection with any combination of shares, recapitalization,
merger, consolidation, reorganization or otherwise (the "Registrable
Securities").

The Registration Rights Agreement provides that the holders of at
least a majority of the Registrable Securities outstanding may at any time
(subject to customary "black-out" periods) require Mesa to effect the
registration under the Securities Act of 1933, as amended, (the "Securities
Act"), of Registrable Securities by means of a "shelf" registration statement
for an offering to be made on a continuous basis under the Securities Act,
subject to certain limitations.

The Registration Rights Agreement also provides certain "piggyback"
registration rights to the holders of Registrable Securities whenever Mesa
proposes to register an offering of any of its capital stock under the
Securities Act (including on behalf of any stockholder of Mesa other than a
holder of Registrable Securities), subject to certain exceptions, including pro
rata reduction if, in the reasonable opinion of the managing underwriter(s) of
the offering, such a reduction is necessary to prevent an adverse effect on the
marketability or offering price of all the securities proposed to be offered in
the offering.

The Registration Rights Agreement contains customary provisions
regarding the payment of expenses by Mesa and regarding mutual indemnification
agreements between Mesa and the holders of Registrable Securities for certain
securities law violations.

The foregoing summary of the material provisions of the Registration
Rights Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of such
agreement, which has been filed as an exhibit to Mesa's Current Report on Form
8-K dated April __, 1996.

-42-
<PAGE> 47
DESCRIPTION OF PREFERRED STOCK

The following summary of the material terms of the Series A Preferred
Stock and the Series B Preferred Stock does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of (including the definitions of certain terms defined in) the
Statement of Resolution establishing the Series A and Series B Preferred Stock,
a copy of which is attached as Annex C hereto.

The terms of the Series A Preferred Stock and Series B Preferred Stock
are identical in all respects, except as described below under "Voting Rights"
and "Transferability; Conversion of Series B to Series A Preferred Stock."

VOTING RIGHTS

Subject to certain special voting rights of the holders of Series B
Preferred Stock (described below), holders of Series A and Series B Preferred
Stock will generally have the right to vote (on an as-converted basis) as a
single class with the holders of Common Stock on all other matters coming
before Mesa's stockholders, except matters for which class voting is required
under Mesa's Articles of Incorporation, including the Statement of Resolution,
or the TBCA.

With respect to any matter for which class voting is required by the
TBCA, except as otherwise described herein or required by law, the holders of
Series A and Series B Preferred Stock will vote together as a single class and
not as separate classes or series apart from each other, including any vote to
approve or adopt (i) any plan of merger, consolidation or share exchange for
which the TBCA requires a stockholder vote; (ii) any disposition of assets for
which the TBCA requires a stockholder vote; and (iii) any dissolution of Mesa
for which the TBCA requires a stockholder vote.

The following matters will require the approval of the holders of at
least a majority of the outstanding Series A and Series B Preferred Stock,
voting together as a single class:

(i) the authorization, creation or issuance, or any
increase in the authorized or issued amount, of any class or series of
stock ranking senior to or in parity with the Series A or Series B
Preferred Stock or any security convertible into or exchangeable for
any such class or series (provided that, if the holders of Series A
and Series B are affected differently, each series will vote as a
separate class); or

(ii) any amendment of Mesa's Articles of Incorporation to
eliminate cumulative voting.

For so long as any shares of Series B Preferred Stock remain
outstanding, the affirmative vote or consent of the holders of at least a
majority of such shares will be required in order to permit, affect or validate
the amendment, alteration or repeal of any provisions of the Articles of
Incorporation (including the Statement of Resolution relating to the Series A
and Series B Preferred Stock) or Bylaws of Mesa that would limit the authority
of the Board to amend or repeal any provision of the company's Bylaws or that
would adversely affect any rights, preferences, privileges or voting power of
the Series B Preferred Stock differently from the rights, preferences,
privileges or voting power of the Series A Preferred Stock (to the extent such
rights, preferences, privileges or voting power of such two series are the same
prior to such amendment).

For so long as the Minimum Ownership Condition (as defined below) is
satisfied, the holders of the Series B Preferred Stock will be entitled, voting
separately as a class, to elect a majority of the members of Mesa's Board
(excluding any Series A Directors, as defined below). The directors elected by
the holders of Series B Preferred Stock (the "Series B Directors") may be
removed with or without cause, and may only be removed by a vote or consent of
the holders of a majority of the outstanding shares of Series B Preferred
Stock, voting separately as a class. Vacancies among the Series B Directors
will be filled by a majority vote of the remaining Series B Directors or by the
holders of Series B Preferred Stock. Upon any termination of the right of the
holders of Series B Preferred Stock to elect Series B Directors, (i) the Series
B Directors then serving may continue to hold office for the remainder of their
term, subject to the right of the majority of the other directors (other than
any Series A Directors) to request their prior resignation, and (ii) upon the
expiration of the term of office or earlier resignation of each Series B
Director, the size of the Board will automatically be reduced accordingly
unless a majority of the non-Series B Directors by resolution determine
otherwise and elect additional directors to fill any resulting vacancies.

-43-
<PAGE> 48
The Minimum Ownership Condition will be deemed satisfied at any time
if (i) the Minimum Ownership Amount is owned in the aggregate by one or more of
DNR and the persons that are partners of DNR as of the original issue date of
the Series B Preferred Stock, and any of their respective affiliates so long as
they remain affiliates of DNR or such persons; (ii) at least one half of the
Minimum Ownership Amount is owned and held in the aggregate by one or more of
Richard E. Rainwater and any of his respective affiliates (together, the
"Rainwater Affiliates"); and (iii) the power to vote at least a majority of the
shares of Series B Preferred Stock outstanding is held by Rainwater Affiliates,
which will be deemed satisfied (A) with respect to any shares of Series B
Preferred Stock owned by DNR if a Rainwater Affiliate at such time is the sole
general partner of DNR, (B) with respect to any shares owned by a Rainwater
Affiliate if at such time the right to vote such shares is not shared with any
person who is not a Rainwater Affiliate and (C) with respect to any shares
owned by a person other than a Rainwater Affiliate, if at such time a Rainwater
Affiliate has the sole right to vote such shares pursuant to a voting
agreement, voting trust, irrevocable proxy or other similar agreement with
terms reasonably satisfactory to Mesa. The "Minimum Ownership Amount" means
(i) shares of Series A and Series B Preferred Stock equal to at least 58% of
the number of shares of Series B Preferred Stock issued to DNR at the First
Closing or (ii) shares of Common Stock (including shares issuable upon
conversion of shares of Series A and Series B Preferred Stock) equal to at
least 15% of the total number of shares of Common Stock outstanding together
with the total number of shares of Common Stock issuable upon conversion of
outstanding Series A and Series B Preferred Stock.

If Mesa is in arrears in the payment of dividends (whether payable in
cash or in kind) on the shares of Series A and Series B Preferred Stock for a
total of six quarters, then the size of the Board will automatically be
increased by two additional directors and the holders of Series A Preferred
Stock, voting as a separate class, will have the exclusive right to elect two
directors (the "Series A Directors") immediately and at the next and every
subsequent annual meeting of stockholders called for the election of directors.
The right of the Series A Preferred Stock holders to elect the Series A
Directors will terminate when all dividends accumulated on the Series A
Preferred Stock have been paid in full, subject to revesting at such time as
Mesa is again in arrears in the payment of dividends.

During any period in which the holders of Series A Preferred Stock are
entitled to elect Series A Directors, or the holders of Series B Preferred
Stock are entitled to elect Series B Directors, the holders of Series A and
Series B Preferred Stock will have certain special rights to call a special
meeting of Mesa in lieu of Mesa's annual meeting or for the purpose of electing
Series A or Series B Directors. At a meeting held for the purpose of electing
a Series A or Series B Director, at least one-third of the outstanding shares
of Series A Preferred Stock or Series B Preferred Stock, as applicable, present
in person or by proxy, will be required to constitute a quorum.

During any period in which the holders of Series B Preferred Stock are
entitled to elect Series B Directors, (i) the holders of Series B Preferred
Stock will not be entitled to vote in the election of any directors other than
the Series B Directors, (ii) no Series B Director will have the right to vote
in the election of any person to fill any vacancy on the Board, other than a
vacancy of a Series B Director, and all such rights with respect to non-Series
A and Series B Directors will be exercised for and on behalf of the Board by a
majority of the non-Series A and Series B Directors, and (iii) only the
non-Series A and Series B Directors will have the right to vote in any action
by or on behalf of the Board with respect to nominating persons to serve as
non-Series A and Series B Directors. Nothing in clause (ii) or (iii) above
shall limit or restrict the right of holders of shares of Common Stock and
Series A Preferred Stock to nominate and to elect, subject to and in accordance
with applicable law, the other provisions of the Articles of Incorporation and
the Bylaws, persons to serve as non-Series A and Series B Directors. The
foregoing provision may not be amended without (x) the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock and (y) the
affirmative vote of the holders of a majority of the outstanding shares of
Series A Preferred Stock.

DIVIDENDS

Subject to the satisfaction of certain conditions described below,
holders of Series A and Series B Preferred Stock will be entitled to receive,
as and when declared by Mesa out of funds legally available therefor,
cumulative dividends at the rate of 8.0% per annum, compounded quarterly.
Dividends will be payable quarterly in arrears on the last business day of each
March, June, September and December, beginning September 30, 1996. Prior to
the fourth anniversary of the issuance of the Series B Preferred Stock,
dividends on shares of Series A and Series B Preferred Stock will be payable in
additional shares of Series A and Series B Preferred Stock, respectively, based
upon the stated value (the "Stated Value") of such shares (initially $2.26).
On and after the fourth anniversary of the issue date, Mesa may

-44-
<PAGE> 49
elect to pay dividends in cash rather than shares of Series A and Series B
Preferred Stock for any quarter in which any of the following conditions is
satisfied as of the record date for such dividend:

Fixed Charge Coverage Ratio. Mesa's average Fixed Charge Coverage
Ratio (as defined in the Statement of Resolution) at the end of the
four preceding quarters is in excess of 2.5 to 1.

Gas Price Realization. The Average Gas Equivalent Price (as defined
in the Statement of Resolution) realized by Mesa on an Mcf equivalent
basis (using a 6:1 conversion ratio) during the four preceding
quarters is in excess of $2.95.

Stock Price Threshold. The average closing price of the Common Stock
during any 90 consecutive trading days preceding the tenth day prior
to the record date for any dividend payment date after the fourth
anniversary of the issue date is more than three times the conversion
price then in effect.

If the stock price threshold described above is met, Mesa will thereafter have
the option to pay dividends either in kind or in cash on any subsequent
dividend payment date, regardless of any subsequent changes in the price of the
Common Stock. However, the New Note indentures and the New Credit Facility may
limit Mesa's ability to pay cash dividends even if permitted by the terms of
the Series A and Series B Preferred Stock. To the extent dividends are not
paid in cash or in kind on a scheduled dividend payment date, all accrued but
unpaid dividends will be added to the Stated Value of each share of Series A
and Series B Preferred Stock outstanding and shall remain a part thereof until
paid, and dividends will accrue and be paid thereafter on the basis of the
Stated Value, as adjusted.

CONVERSION

Shares of Series A and Series B Preferred Stock will be convertible
into shares of Common Stock at any time at the option of the holder, at an
initial conversion ratio of one share of Common Stock per share of Series A or
Series B Preferred Stock. The conversion ratio and shares issuable upon
conversion will be subject to customary adjustment in the event of certain
dividends and distributions to holders of Common Stock, stock splits,
combinations, sales of Common Stock at less than market value and mergers and
similar transactions.

REDEMPTION

Subject to any restrictions imposed by the terms of the New Credit
Facility or New Note indentures, Mesa will be entitled, at its option, to
redeem all or part of the outstanding shares of Series A and Series B Preferred
Stock (pro rata or by lot among the outstanding shares of both series) on any
dividend payment date after the thirtieth day following the tenth anniversary
of the original date of issue of the Series B Preferred Stock. All outstanding
shares of Series A and Series B Preferred Stock will be subject to mandatory
redemption on June 30, 2008. The redemption price upon any optional or
mandatory redemption will be equal to the Stated Value per share, plus an
amount equal to the dollar amount of all accrued and unpaid dividends through
the redemption date that have not been added to the Stated Value. The
redemption price may be paid either in cash or in shares of Common Stock, at
the option of Mesa, with the number of shares of Common Stock used to pay the
redemption price to be determined based upon the average trading price during
the 20 day period ending five days before the redemption date.

RANKING AND LIQUIDATION

The Series A Preferred Stock and the Series B Preferred Stock will
rank on a parity with each other as to payment of dividends and distributions
and upon liquidation, dissolution or winding-up of Mesa. Each share of Series A
Preferred Stock and Series B Preferred Stock will rank prior to each share of
Common Stock with respect to the distribution of assets upon a liquidation,
dissolution or winding-up of Mesa. In the event of any such liquidation,
dissolution or winding-up, each holder of a share of Series A Preferred Stock
or Series B Preferred Stock will be entitled to receive, before any
distribution to the holders of Common Stock, a liquidation preference equal to
the Stated Value of such shares, plus all accrued and unpaid dividends thereon.

-45-
<PAGE> 50
MERGERS AND SIMILAR TRANSACTIONS

In the event that Mesa is a party to any merger, consolidation or
share exchange in which the Series A Preferred Stock or Series B Preferred
Stock is converted or exchanged into any other securities, property, cash or
other consideration, the securities, property, cash or other consideration into
which the Series A and Series B Preferred Stock may be converted or exchanged
must be identical in kind and amount per share, and no shares of Series A or
Series B Preferred Stock may be converted or exchanged into any securities,
property, cash or other consideration unless all shares of Series A and Series
B Preferred Stock may be converted or exchanged into the same kind and amount
per share of securities, property, cash or other consideration.

AUTHORIZATION BY NON-SERIES A AND SERIES B DIRECTORS

A majority of Mesa's directors, other than Series A Directors and
Series B Directors, will be required to make the determinations required or
permitted (i) as to whether to make payment of the redemption price of Series A
and Series B Preferred Stock in cash or in kind, (ii) as to whether to exercise
Mesa's option to redeem outstanding shares of Series A or Series B Preferred
Stock and (iii) as to whether to make payment of any dividends declared by the
Board on the Series A and Series B Preferred Stock in cash or in kind (subject
to the requirement that Mesa have sufficient cash legally available to make any
cash dividend payment).

CERTAIN COVENANTS OF MESA

The Statement of Resolution contains customary covenants regarding
reservation of shares for issuance upon conversion, compliance with laws
regarding registration of securities, maintaining eligibility of the Common
Stock for trading, payment of certain taxes and other matters.

TRANSFERABILITY; CONVERSION OF SERIES B TO SERIES A PREFERRED STOCK

The Series A Preferred Stock is expected to be listed for trading on
the New York Stock Exchange.

Upon any transfer of shares of Series B Preferred Stock, or the
beneficial ownership thereof, to any person other than DNR, its partners and
their respective affiliates, such shares will automatically convert to an equal
number of shares of Series A Preferred Stock. In addition, at such time as the
Minimum Ownership Condition is no longer met, all shares of Series B Preferred
Stock then outstanding will automatically convert into an equal number of
shares of Series A Preferred Stock.

-46-
<PAGE> 51
THE RIGHTS OFFERING

RIGHTS

Each holder of Common Stock will receive .912 transferable Rights for
each share of Common Stock held of record by such holder on a record date to be
established after the Special Meeting. No fractional Rights or cash in lieu
thereof will be distributed by Mesa; instead, the number of Rights distributed
by Mesa to each holder of Common Stock will be rounded up to the nearest whole
number. An aggregate of 58,407,080 Rights (subject to rounding upward to avoid
fractions) will be distributed pursuant to the Rights Offering. One Right plus
$2.26 in cash (the "Subscription Price") will entitle the holder to one share
of Series A Preferred Stock. An aggregate of 58,407,080 shares of Series A
Preferred Stock (subject to rounding to avoid fractions) will be sold upon
exercise of the Rights, assuming all Rights are exercised in full.

BASIC AND OVERSUBSCRIPTION PRIVILEGES

One Right will entitle the holder thereof to receive, upon payment of
the Subscription Price, one share of Series A Preferred Stock. In addition,
each holder of Rights who exercises in full such holder's Basic Subscription
Privilege may also subscribe at the Subscription Price for additional shares of
Series A Preferred Stock available as a result of unexercised Rights, if any.
If an insufficient number of shares of Series A Preferred Stock is available to
satisfy fully all exercises of the Oversubscription Privilege, the available
shares will be prorated among holders who exercise their Oversubscription
Privilege.

COMMENCEMENT; EXPIRATION; NO REVOCATION

The Rights Offering will commence promptly after the First Closing
under the Stock Purchase Agreement, and will expire not more than 21 days
thereafter, subject to extension by Mesa (as it may be extended, the
"Expiration Date"). Rights not exercised prior to the Expiration Date will be
void and will no longer be exercisable by any Rights holder. Once a holder of
Rights has exercised the Basic Subscription Privilege or the Oversubscription
Privilege, such exercise may not be revoked.

NOTICE TO STOCKHOLDERS

In accordance with New York Stock Exchange rules, Mesa will send
written notice to its stockholders at least ten days in advance of the proposed
record date for the Rights Offering stating its intention to commence the
Rights Offering, subject to effectiveness of registration under the Securities
Act. Such notice will also state, to the extent finally determined, the
proposed record date for determination of those entitled to receive Rights, the
proposed expiration date of the Rights Offering and the date on which it is
expected that certificates evidencing the Rights will be mailed.

TRANSFERABILITY

The Rights will be transferable, and it is expected that they will
trade on the New York Stock Exchange until the close of business on the last
New York Stock Exchange trading day prior to the Expiration Date.

DETERMINATION OF SUBSCRIPTION PRICE

The Subscription Price was determined by Mesa and its Board as a
result of negotiations with Rainwater, Inc. The Subscription Price is not
intended as an indication of the actual value of Mesa, the Common Stock or the
Series A or Series B Preferred Stock.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

For United States federal income tax purposes, Rights holders
generally will not recognize taxable income in connection with the issuance to
them or exercise by them of Rights. Rights holders may incur gain or loss upon
the sale of the Rights or the shares of Series A Preferred Stock acquired upon
exercise of the Rights.

-47-
<PAGE> 52
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SHARES OF SERIES A PREFERRED STOCK OR ANY OTHER SECURITIES.
OFFERS AND SALES OF SERIES A PREFERRED STOCK WILL ONLY BE MADE BY MEANS OF A
PROSPECTUS MEETING THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS, ON THE TERMS AND SUBJECT TO THE
CONDITIONS SET FORTH IN SUCH PROSPECTUS.

DESCRIPTION OF NEW DEBT

NEW CREDIT FACILITY

Concurrently with the consummation of the First Closing pursuant to
the Stock Purchase Agreement, Mesa will make the initial borrowings under the
New Credit Facility. Mesa has obtained a commitment for the New Credit
Facility from The Chase Manhattan Bank, N.A. ("Chase") and Bankers Trust
Company ("Bankers Trust") that contains the terms described below. The
commitment is subject to certain conditions, including negotiation, execution
and delivery of definitive documentation. Mesa Operating Co., a wholly owned
subsidiary of Mesa, will be the borrower under the New Credit Facility, and all
borrowings will be unconditionally guaranteed by Mesa and each of its direct
and indirect domestic subsidiaries and will be secured by a first priority
security interest in tangible and intangible assets representing at least 85%
of Mesa's total assessed collateral value, which assets will include all of
Mesa's West Panhandle, Hugoton and Gulf Coast properties.

The New Credit Facility will be a seven-year revolving credit facility
for an aggregate of up to $500 million, a portion of which will be available
for the issuance of letters of credit. Chase and Bankers Trust have advised
Mesa that each will provide 50% of the entire amount of the New Credit
Facility, but that they intend to syndicate the facility to a group of
financial institutions to be identified by them in consultation with Mesa.
Mesa expects to borrow the full $500 million available under the New Credit
Facility (including letters of credit) concurrently with the closing of the
issuance and sale of the New Notes and the initial sale of Series B Preferred
Stock to DNR pursuant to the Stock Purchase Agreement, and to repay a portion
of the facility upon consummation of the Rights Offering.

The New Credit Facility will be subject to mandatory prepayment and
reduction of the total commitment by the amount of (i) 75% of the net proceeds
of any sale or issuance of equity by Mesa after the consummation of the
Recapitalization (except, under certain circumstances, for additional equity
issuance the proceeds of which are used to repay the New Notes), (ii) 100% of
the net proceeds of the incurrence of certain indebtedness by Mesa and (iii)
100% of the net proceeds of any sale or other disposition by Mesa of any assets
(subject to certain collateral substitution provisions). Borrowings under the
New Credit Facility will be subject to a borrowing base to be determined
annually by the lenders based on certain proved oil and gas reserves and other
assets of Mesa. Initially, the borrowing base will be $500 million. To the
extent that the borrowing base is less than the aggregate principal amount of
all outstanding loans and letters of credit under the New Credit Facility, 50%
of each deficiency must be cured within 90 days and the balance must be cured
within 180 days.

At Mesa's option, borrowings under the New Credit Facility will bear
interest at either (i) the "Adjusted Base Rate" (i.e., the highest of Chase's
prime commercial lending rate, the secondary market rate for certificates of
deposit plus 1% per annum or the federal funds rate plus 0.5% per annum) plus
0.5% or (ii) the Eurodollar rate plus 1.5%.

The loan documents governing the New Credit Facility will contain
certain customary covenants and restrictions relating to Mesa's operations.

The closing of the New Credit Facility will be conditioned upon, among
other things, the consummation of the First Closing under the Stock Purchase
Agreement, the completion of the Note Offering, the absence of a material
adverse condition or material adverse change in or affecting Mesa's business,
operations, property, condition (financial or otherwise) or prospects, the
satisfaction of certain financial requirements and the lenders' receipt of and
satisfaction with certain reports regarding Mesa's assets and operations.

NEW NOTES

-48-
<PAGE> 53
Concurrently with the consummation of the First Closing under the
Stock Purchase Agreement and the initial borrowings under the New Credit
Facility, Mesa Operating Co. will issue and sell in a registered underwritten
public offering $500 million in aggregate principal amount of new subordinated
notes. The consummation of the sale of the New Notes will be conditioned upon,
among other things, the consummation of the First Closing under the Stock
Purchase Agreement and the initial borrowings under the New Credit Facility.

The New Notes will be unsecured and will have a ten year maturity. It
is expected that a portion of the New Notes will be deferred interest or
discount notes. The New Notes will be subordinate in right of payment to the
New Credit Facility and senior to all other subordinated debt.

-49-
<PAGE> 54
CAPITALIZATION

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
----------------------------------
HISTORICAL AS ADJUSTED
----------- ------------
(in thousands)
<S> <C> <C>
Current maturities of long-term debt . . . . . . . . . . . . . 101,413 --
-----------

Long-term debt:
Existing Credit Facility . . . . . . . . . . . . . . . . . . 38,631 --
HCLP Secured Notes . . . . . . . . . . . . . . . . . . . . . 470,791 --
Secured Discount Notes . . . . . . . . . . . . . . . . . . . 618,518 --
Other Debt . . . . . . . . . . . . . . . . . . . . . . . . . 7,390 --
New Credit Facility . . . . . . . . . . . . . . . . . . . . . -- 312,200
New Notes . . . . . . . . . . . . . . . . . . . . . . . . . . -- 500,000
----------- ------------
Total long-term debt . . . . . . . . . . . . . . . . 1,135,330 812,200
----------- ------------

Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, actual; 500,000,000 shares authorized,
as adjusted
Series A Preferred Stock, 140,000,000 shares
authorized, 58,407,080 shares issued and
outstanding, as adjusted (aggregate liquidation
preference of $132,000,000) . . . . . . . . . . . . . -- 584
Series B Preferred Stock, 140,000,000
shares authorized, 58,849,557 shares issued
and outstanding, as adjusted (aggregate liquidation
preference of $133,000,000) . . . . . . . . . . . . . -- 588
Series A Junior Participating Preferred Stock,
1,000,000 shares authorized, no shares issued
and outstanding, actual and as adjusted . . . . . . . -- --
Common stock, $.01 par value, 100,000,000
shares authorized, 64,050,009 shares issued and
outstanding, actual an as adjusted; 600,000,000
shares authorized, as adjusted . . . . . . . . . . . . . 640 640
Additional paid-in capital . . . . . . . . . . . . . . . . 398,965 647,793
Accumulated deficit . . . . . . . . . . . . . . . . . . . (332,601) (345,023)
----------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 67,004 304,582
----------- ------------
$ 1,303,747 $ 1,116,782
=========== ============
</TABLE>

-50-
<PAGE> 55
THE REQUIRED CHARTER AMENDMENTS

INCREASE IN AUTHORIZED SHARES

Proposal Two is a proposal to amend Mesa's Articles of Incorporation
to increase the number of authorized shares of Common Stock from 100,000,000 to
600,000,000 and increase the number of authorized shares of Preferred Stock
from 10,000,000 to 500,000,000. As of the Record Date, (i) 64,050,009 shares
of Common Stock and options for 2,932,390 shares of Common Stock (of the
4,000,000 shares subject to Mesa's option plan) were outstanding and (ii) no
shares of Preferred Stock were outstanding, though 1,000,000 shares were
reserved for issuance pursuant to the Shareholder Rights Plan. If the DNR
Purchase and the Rights Offering are consummated (without giving effect to the
Reverse Split Charter Amendments), there will be approximately 117,256,637
shares of Preferred Stock outstanding. In addition, Mesa will need to reserve
an aggregate of approximately 178,000,000 shares of Preferred Stock for shares
issuable as dividends on shares of Series A Preferred Stock and Series B
Preferred Stock. Mesa will also need to reserve 117,256,637 shares of Common
Stock issuable upon conversion of the Series A Preferred Stock and Series B
Preferred Stock, and an additional 178,000,000 shares of Common Stock to cover
the conversion of shares of Series A and Series B Preferred Stock issued as
dividends. As a result, Mesa needs to authorize additional Common Stock and
Preferred Stock to issue the appropriate number of shares in the DNR Purchase
and the Rights Offering.

The Board believes that it is in the best interest of Mesa to increase
the authorized number of shares of Common Stock and Preferred Stock to ensure
that sufficient shares are available for the purposes set forth herein and so
that additional authorized shares of such stock will be available for issuance
in the future for such corporate purposes as the Board deems advisable from
time to time, without further action by the stockholders and without the
accompanying delay and expense involved in calling and holding a special
meeting of stockholders unless such action is required by applicable law or
other applicable rules and regulations. Such corporate purposes may include,
among other things, future equity issuances in public or private offerings or
the use by Mesa of its equity securities as currency in any future acquisitions
the Board may decide are in the best interests of the stockholders to pursue.

In the event that the Reverse Stock Split is approved by the
stockholders, a lesser number of shares of Common Stock and Preferred Stock
will be required in order to complete the DNR Purchase and the Rights Offering.
Accordingly, the Reverse Split Charter Amendments, if approved, will effect a
reduction in the authorized shares of Common Stock and Preferred Stock as more
fully described below.

ACTION BY WRITTEN CONSENT

Mesa's Articles of Incorporation currently provide that no action
required or permitted to be taken by stockholders of Mesa may be taken without
a meeting of stockholders. The TBCA provides that the Articles of
Incorporation may provide that any action required or permitted to be taken at
any annual or special meeting of stockholders may be taken without a meeting if
a consent or consents in writing, setting forth the action so taken, is signed
by the holder or holders of shares having not less than the minimum number of
votes that would be necessary to take such action at a meeting at which the
holders of all shares entitled to vote on the action were present and voted.

The Stock Purchase Agreement requires that the holders of Series B
Preferred Stock be entitled to act by written consent in lieu of a meeting with
respect to any action required or permitted to be taken at any annual or
special meeting by the holders of Series B Preferred Stock. Accordingly, Mesa
proposes to amend its Amended and Restated Articles of Incorporation to permit
action by written consent of the holders of any series of preferred stock to
the extent provided in the resolution of the Board authorizing any such series
or as otherwise required by law.

The power to act by written consent will allow the holders of Series B
Preferred Stock to exercise the special voting rights associated with shares of
Series B Preferred Stock, including the right to elect a majority of Mesa's
directors, without the necessity of calling and holding a meeting of Mesa's
stockholders for such purpose. However, except as otherwise required by
applicable law, any action requiring the approval of the holders of Common
Stock, Series A Preferred Stock and/or any other class of Mesa's capital stock
other than or in addition to the Series B Preferred Stock, will continue to
require the holding of an annual or special meeting of stockholders.

-51-
<PAGE> 56
BOARD RECOMMENDATION

The majority of the Board believes that the Required Charter
Amendments are advantageous to Mesa and its stockholders, providing additional
authorized shares of Common Stock and Preferred Stock that could be used from
time to time, without further action or authorization by the stockholders, and
providing the flexibility to allow action by written consent of holders of
Preferred Stock.

THE PROPOSAL WITH RESPECT TO THE REQUIRED CHARTER AMENDMENTS WILL BE
VOTED UPON BY THE STOCKHOLDERS OF MESA SEPARATELY FROM THE OTHER PROPOSALS.
HOWEVER, THE IMPLEMENTATION OF EACH OF THE OTHER PROPOSALS IS CONDITIONED UPON
APPROVAL OF THE REQUIRED CHARTER AMENDMENTS BY THE STOCKHOLDERS OF MESA.
ACCORDINGLY, A VOTE AGAINST THE REQUIRED CHARTER AMENDMENTS WILL GENERALLY HAVE
THE SAME EFFECT AS A VOTE AGAINST ALL OF THE PROPOSALS, INCLUDING THE DNR
PURCHASE.

THE MAJORITY OF THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL WITH RESPECT TO THE REQUIRED
CHARTER AMENDMENTS.

Two directors dissented from the Board's conclusions and
recommendations. See "The Recapitalization -- Letters of Dissenting
Directors."

THE REVERSE SPLIT CHARTER AMENDMENTS

Proposal Three is a proposal to amend Mesa's Articles of Incorporation
to effect a reverse stock split pursuant to which each four shares of Common
Stock will be exchanged for one share of Common Stock. Except for minor
differences resulting from the aggregation and sale of fractional shares, as
described below, the Reverse Stock Split will not affect any stockholder's
percentage ownership interest in Mesa or of the outstanding Common Stock.
Following the Reverse Stock Split, the total number of shares of Common Stock
outstanding would be reduced from 64,050,009 to approximately 16,012,502.

A holder of Common Stock will be entitled to receive a whole number of
shares plus a fraction of a share if the number of shares of Common Stock held
by him prior to the Reverse Stock Split is not evenly divisible by four.
However, no certificates or scrip representing fractional shares of Common
Stock will be issued. In lieu of any fractional shares, American Stock
Transfer & Trust Company, as transfer agent, on behalf of all persons otherwise
entitled to receive fractional shares (including individual beneficial owners
of shares held by a nominee holder) will, promptly following the effective time
of the Reverse Stock Split, aggregate such fractional shares and sell the
resulting whole shares of Common Stock for the accounts of those persons in
open market transactions on the New York Stock Exchange. Those persons will
thereafter be entitled to receive their allocable portion of the net proceeds
of the sale thereof upon surrender of their Common Stock certificates as
described below.

The Reverse Stock Split will not affect the par value of the Common
Stock, which will remain $.01 per share. The difference between the aggregate
par value of the shares of Common Stock outstanding prior to the Reverse Stock
Split and those to be outstanding thereafter will be transferred from Mesa's
stated capital account to Mesa's surplus account.

There were approximately 18,500 holders of record of the Common Stock
as of March 31, 1996. The Reverse Stock Split is not expected to cause a
significant change in the number of record holders of the Common Stock. Mesa
has no plans for the cancellation or purchase of shares of Common Stock from
holders of a nominal number of shares following the Reverse Stock Split, and
has no present intention to take Mesa private through the Reverse Stock Split
or otherwise.

As of April 26, 1996, there were outstanding options to purchase an
aggregate of 2,932,390 shares of Common Stock under Mesa's 1991 Stock Option
Plan. All of such outstanding options include provisions for adjustment in the
number of shares covered thereby and the exercise price therefor in the event
of a reverse stock split. If the Reverse Stock Split is approved and effected,
there would be reserved for issuance upon exercise of all outstanding options a

-52-
<PAGE> 57
total of approximately 733,097 shares of Common Stock. Each of the outstanding
options would thereafter evidence the right to purchase one-fourth of the
number of shares of Common Stock previously covered thereby, and the exercise
price per share would be four times the previous exercise price.

If the Reverse Split Charter Amendments are approved, Mesa will file
the Reverse Split Charter Amendments with the Secretary of State of the State
of Texas. Mesa will notify holders of Common Stock of the effectiveness of the
Reverse Split Charter Amendments and will furnish the holders of record of
shares of Common Stock at the close of business on such effective date with a
letter of transmittal for use in exchanging certificates. The holders of
Common Stock will be required to promptly mail their certificates representing
shares of Common Stock to American Stock Transfer & Trust Company, as transfer
agent, in order that new certificates giving effect to the Reverse Stock Split
may be issued and the proceeds of the sale of any fractional shares may be
distributed. Commencing with the effective date of the Reverse Split Charter
Amendments, previously outstanding certificates representing shares of Common
Stock will be deemed for all purposes to represent one-fourth of the number of
shares previously represented thereby (subject to the treatment of fractional
interests as described above).

Mesa is currently authorized to issue 100,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock. Assuming that the Required
Charter Amendments are approved, Mesa's authorized capital stock will be
increased to 600,000,000 shares of Common Stock and 500,000,000 shares of
Preferred Stock. In connection with the Reverse Stock Split, it is proposed to
amend Mesa's Articles of Incorporation to reduce Mesa's authorized capital
stock to 125,000,000 shares of Common Stock and 100,000,000 shares of Preferred
Stock.

It is impossible to predict the market's reaction to any reverse stock
split or, in this case, to separate that reaction from the market's reaction to
the proposed Recapitalization as a whole. However, Mesa would expect that
immediately after the Reverse Stock Split each share of Common Stock would be
valued at a price approximately four times greater than without the split. On
May ___, 1996 (the day prior to the date of this Proxy Statement), the closing
sale price of the Common Stock was $_______ per share.

The majority of the Board believes that the Reverse Split Charter
Amendments are advantageous to Mesa and its stockholders as a means of
enhancing the liquidity and marketability of the Common Stock. The majority of
the Board believes that the current low per share market price of the Common
Stock impairs the acceptability of Mesa's equity securities by the financial
community and the investing public. Although, theoretically, the number of
shares outstanding should not affect an investor's decision to own shares of
Common Stock as a investment, in practice many investors regard lower-priced
stocks as unduly speculative in nature and may therefore avoid investment in
such stocks. In addition, the majority of the Board believes that the current
low market prices for the Common Stock reduce the effective marketability of
Mesa's equity securities because of the reluctance of many leading brokerage
firms to recommend lower-priced stocks to their clients. Furthermore, certain
brokerage house policies and practices tend to discourage individual brokers
with those firms from dealing in lower-priced stocks, and some brokerage houses
will not permit clients to carry lower-priced stocks on a margin basis.
Finally, the structure of trading commissions also tends to have an adverse
impact on holders of lower-priced stocks because the brokerage commission on a
sale of lower-priced stock generally represents a higher percentage of the
sales price than the commission on a relatively higher-priced issue.

Although there can be no assurance that the market price per share of
Common Stock will increase proportionately to the decrease in the number of
outstanding shares following the Reverse Stock Split, the Reverse Stock Split
is intended to result in a price level for the Common Stock that will increase
investor and broker interest.

THE PROPOSAL WITH RESPECT TO THE REVERSE SPLIT CHARTER AMENDMENTS WILL
BE VOTED UPON BY THE STOCKHOLDERS OF MESA SEPARATELY FROM THE OTHER PROPOSALS.
THE IMPLEMENTATION OF THE OTHER PROPOSALS IS NOT CONDITIONED UPON APPROVAL OF
THE REVERSE SPLIT CHARTER AMENDMENTS BY THE STOCKHOLDERS OF MESA. HOWEVER, THE
IMPLEMENTATION OF THE REVERSE SPLIT CHARTER AMENDMENTS IS CONDITIONED UPON
APPROVAL OF EACH OF THE OTHER PROPOSALS. ACCORDINGLY, A VOTE AGAINST THE
REQUIRED CHARTER AMENDMENTS OR THE DNR PURCHASE WILL GENERALLY HAVE THE SAME
EFFECT AS A VOTE AGAINST THE REVERSE SPLIT CHARTER AMENDMENTS.

-53-
<PAGE> 58
THE MAJORITY OF THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL WITH RESPECT TO THE REVERSE
SPLIT CHARTER AMENDMENTS.

Two directors dissented from the Board's conclusions and
recommendations. See "The Recapitalization -- Letters of Dissenting
Directors."

-54-
<PAGE> 59
MANAGEMENT

DIRECTORS

The following table sets forth each person currently serving on the Board
of Mesa, (i) his name and age, (ii) the period during which he has served as a
director, and (iii) his principal occupation over the last five years
(including other directorships and business experience):

<TABLE>
<CAPTION>
NAME AND AGE BUSINESS EXPERIENCE OVER PAST FIVE YEARS
------------ ----------------------------------------
<S> <C>
Boone Pickens, age 67 . . . . . . January 1992 - Present, Chairman of the
Board and Chief Executive Officer of
Mesa; October 1985 - December 1991,
General Partner of the Partnership and
Chief Executive Officer and Director of
Pickens Operating Co., (the corporate
general partner of the Partnership); 1964
- January 1987, Chairman of the Board,
President, and founder of Original Mesa.

Paul W. Cain, age 57 . . . . . . January 1992-Present, Director, President
and Chief Operating Officer of Mesa;
August 1986 - December 1991, President
and Chief Operating Officer of Pickens
Operating Co.; Director of Bicoastal
Corporation.

John S. Herrington, age 56 . . . January 1992-Present, Director of Mesa;
December 1991 - Present, personal
investments and real estate activities;
May 1990 - November 1991, Chairman of the
Board of Harcourt Brace Jovanovich, Inc.
(publishing); May 1989 - May 1990,
Director of Harcourt Brace Jovanovich,
Inc.; February 1985 - January 1989,
Secretary of the Department of Energy of
the United States.

Wales H. Madden, Jr, age 68 . . . January 1992-Present, Director of Mesa;
December 1985 - December 1991, Member of
the Advisory Committee of the
Partnership; 1964 - January 1987,
Director of Original Mesa; self-employed
attorney and businessman for more than
the last five years; Director of
Boatmen's First National Bank of
Amarillo.

Dorn Parkinson, age 49 . . . . . May 1995-Present, Director of Mesa; April
1986 - Present, President of Washington
Corporations (principal businesses of
Washington Corporations and its
affiliates include rail transport,
mining, ship berthing, environmental
remediation, interstate trucking, and the
repair and sale of machinery and
equipment); January 1995 - Present,
Chairman of the Board of Kasler Holding
Company (heavy construction and contract
mining); July 1993 - October 1994,
President and Chief Operating Officer of
Kasler Holding Company; Director of
Kasler Holding Company.

Joel L. Reed, age 45 . . . . . . September 1995-Present, Director of Mesa;
August 1994 -Present, partner with
Batchelder & Partners, Inc.; October 1984
- July 1994, various capacities including
Chief Financial Officer, President and
Chief Executive Officer of Wagner and
Brown, Ltd. and affiliates (privately
owned company consisting of companies
engaged in energy, real estate,
manufacturing, agribusiness, and
investment services); Director of
Magnetic Delivered Therapeutics.
</TABLE>

-55-
<PAGE> 60

<TABLE>
<S> <C>
Fayez S. Sarofim, age 67 . . . . January 1992-Present, Director of Mesa;
Chairman of the Board and President of
Fayez Sarofim & Co. (investment adviser)
for more than the last five years;
Director of Teledyne, Inc., Unitrin,
Inc., Argonaut Group, Inc., and
Imperial Holly Corporation.

Robert L. Stillwell, age 59 . . . January 1992-Present, Director of Mesa;
December 1985 - December 1991, Member of
the Advisory Committee of the
Partnership; 1969 - January 1987,
Director of Original Mesa; Partner in
the law firm of Baker & Botts, L.L.P.,
for more than the last five years.
</TABLE>

Effective May 31, 1996, Mr. Cain will retire as Mesa's President and Chief
Operating Officer.

Assuming completion of the Recapitalization, the size of the Board will be
reduced from eight members to seven members as provided in the Stock Purchase
Agreement. The Stock Purchase Agreement contemplates that, at such time, all
but three of Mesa's current directors will resign as directors and Richard E.
Rainwater, Darla D. Moore, Kenneth A. Hersh and Philip B. Smith will be
elected by DNR to fill the four seats on the Board to which the holders of the
Series B Preferred Stock will be entitled. See "The Stock Purchase Agreement."
Mr. Rainwater and Ms. Moore are married. The following table sets forth the
name, age and five-year employment history of Mr. Rainwater, Ms. Moore, Mr.
Hersh and Mr. Smith:

<TABLE>
<CAPTION>
NAME AND AGE BUSINESS EXPERIENCE OVER PAST FIVE YEARS
------------ ----------------------------------------
<S> <C>
Richard E. Rainwater, age 51 . . . 1986-Present, independent investor, sole
shareholder and Director of Rainwater,
Inc.; 1970-1986, chief investment
advisor to the Bass family of Texas;
1994-Present, founder and Chairman of
the Board of Crescent Real Estate
Equities, Inc.; 1992, co-founder of Mid
Ocean Limited; 1987, co-founder of
Columbia Hospital Corporation
(predecessor to Columbia/HCA Healthcare
Corporation); 1986, founder of ENSCO
International, Inc.

Darla D. Moore, age 41 . . . . . . 1994-Present, private investment
activities and chief executive officer
and Director of Rainwater, Inc.;
1989-1994, Managing Director of Chemical
Bank, Restructuring and Reorganization
Unit and Retail Industries Group;
Director of Magellan Health Services,
Inc. and Trustee of the George
Washington University.

Kenneth A. Hersh, age 33 . . . . . 1994-Present, chief investment officer
and Director of Rainwater, Inc. and
co-manager of investment activities of
Natural Gas Partners investment funds;
1989-1994, co-manager of investment
activities of Natural Gas Partners L.P.;
1985-1987, Morgan Stanley & Co.
investment banking division, energy
group; Director of Tide West Oil Company
and HS Resources, Inc.

Philip B. Smith, age 44 . . . . . . 1991-Present, Director, President and
Chief Executive Officer of Tide West Oil
Company; 1986-1991, Senior Vice
President of Mega Natural Gas Company;
1980-1986, executive positions with two
small exploration and production
companies; 1976-1980, various positions
with Samson Resources Company;
1974-1976, production engineer with
Texaco, Inc.
</TABLE>

COMMITTEES OF THE BOARD

The Board held ten meetings in 1995. Other than Mr. Herrington, all
directors attended at least 75 percent of the meetings of the Board and
committees of the Board on which he served. The Board has the following
standing

-56-
<PAGE> 61
committees: the Audit Committee, the Compensation Committee and the Stock
Option Committee. It does not have a nominating committee or committee
performing similar functions.

The Audit Committee is composed of Messrs. Herrington, Madden, and
Parkinson. Its primary functions are (i) the recommendation of independent
public accountants; (ii) the review of the independence of the independent
public accountants, audit engagement, and other professional services of the
independent public accountants; and (iii) the provision for the availability to
the independent public accountants of all aspects of the Company's accounting
practices and procedures. The Audit Committee held two meetings in 1995.

The Compensation Committee is composed of Messrs. Sarofim and Reed. The
Compensation Committee held one meeting in 1995. The Stock Option Committee,
which administers the 1991 Stock Option Plan, is also composed of Messrs.
Sarofim and Reed. The Stock Option Committee held one meeting in 1995.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Sarofim, a director and member of the Compensation and Stock Option
Committees, is Chairman of the Board, President and owner of a majority of the
outstanding capital stock of Fayez Sarofim & Co., which acts as an investment
adviser for certain amounts invested in certain funds in Mesa's Retirement
Plans (described below). During the year ended December 31, 1995, Fayez
Sarofim & Co. received fees, paid by the Retirement Plans, of $175,459 for such
services and has been retained to provide such services in 1996.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

Mr. Reed was President, Chief Executive Officer and a director of Insilco
Corporation from April 1989 until April 1993. Insilco filed a petition under
Chapter 11 of the federal Bankruptcy Code on January 13, 1991.

DIRECTOR COMPENSATION

Each director of Mesa serving throughout 1995 who was not also an employee
of Mesa or its subsidiaries received compensation of $20,000 allocated
quarterly in 1995, except for Messrs. Parkinson, David H. Batchelder and Reed
(who succeeded Mr. Batchelder). Mr. Parkinson received $15,000, Mr. Batchelder
received $10,000, and Mr. Reed received $5,000 for serving as directors for
approximately seven months, four months, and three months, respectively.
Directors who are also employees of Mesa receive no remuneration for their
services as directors.

-57-
<PAGE> 62
EXECUTIVE OFFICERS

The following table sets forth the name, age, and five-year employment
history of each current executive officer of Mesa:

<TABLE>
<CAPTION>
NAME AND AGE BUSINESS EXPERIENCE OVER PAST FIVE YEARS
------------ ----------------------------------------
<S> <C>
Boone Pickens, age 67 . . . . . . . January 1992-Present, Chairman of the
Board and Chief Executive Officer of
Mesa; October 1985-December 1991,
General Partner of the Partnership and
Chief Executive Officer and Director of
Pickens Operating Co.; 1964-January
1987, Chairman of the Board, President,
and founder of Original Mesa.

Paul W. Cain, age 57 . . . . . . . January 1992-Present, Director,
President and Chief Operating Officer of
Mesa; August 1986 - December 1991,
President and Chief Operating Officer of
Pickens Operating Co.; Director of
Bicoastal Corporation.

Dennis E. Fagerstone, age 47 . . . January 1992 - Present, Vice
President-Exploration and Production of
Mesa; May 1991 - December 1991, Vice
President - Exploration and Production
of Pickens Operating Co.; June 1988 -
May 1991, Vice President-Operations of
Pickens Operating Co.

Stephen K. Gardner, age 36 . . . . June 1994-Present, Vice President and
Chief Financial Officer of Mesa; January
1992 - May 1994, Vice President of BTC
Partners Inc. (financial consultant to
Mesa); May 1988 - December 1991,
Financial Analyst of BTC Partners, Inc.;
June 1987-April 1988, Financial Analyst
of the Partnership; Director of
Bicoastal Corporation.

Andrew J. Littlefair, age 35 . . . January 1992-Present, Vice
President-Public Affairs of Mesa; August
1987-December 1991, Assistant to the
General Partner of the Partnership;
January 1984 - August 1987, Staff
Assistant to the President of the United
States, Washington, D.C.

William D. Ballew, age 37 . . . . . January 1992-Present, Controller of
Mesa; May 1991 - December 1991,
Controller of the Partnership; January
1991 - May 1991, Manager - Accounting of
Pickens Operating Co.; December 1988 -
December 1990, Assistant to the
Controller of Pickens Operating Co.;
July 1986 - December 1988, Audit Manager
for Price Waterhouse, Dallas, Texas.
</TABLE>

Effective May 31, 1996, Mr. Cain will retire as Mesa's President and Chief
Operating Officer and Mr. Pickens will assume Mr. Cain's duties.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to Mesa during the fiscal year ended December 31, 1995 and Forms 5
and amendments thereto furnished to Mesa with regard to the fiscal year ended
December 31, 1995, Mesa is not aware of any director, officer or beneficial
owner of 10% or more of any class of securities of Mesa that failed to file on
a timely basis, as disclosed on the above Forms, reports required by Section
16(a) of the Exchange Act during the fiscal year ended December 31, 1995 or
prior fiscal years, except that Mr. Littlefair failed to file a Form 4 with
respect to one transaction that occurred in 1994, but which was subsequently
reported on a Form 4 filed in 1996.

-58-
<PAGE> 63
EXECUTIVE COMPENSATION

The table set forth below contains certain information regarding
compensation earned by, awarded to, or paid to the Chief Executive Officer and
the other four most highly compensated executive officers of Mesa for services
rendered to Mesa during the years 1993, 1994 and 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------------------------- ---- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Boone Pickens, . . . . . . . . . . . . . . . 1995 $ 675,000 $ 0 $ --
Chairman of the Board and Chief 1994 675,000 175,000 --
Executive Officer 1993 675,000 0 --

Paul W. Cain, . . . . . . . . . . . . . . . . 1995 400,020 0 --
President and Chief Operating Officer 1994 400,020 150,000 --
1993 400,020 225,000 --

Dennis E. Fagerstone, . . . . . . . . . . . . 1995 199,980 50,000 --
Vice President -- Exploration and Production 1994 199,980 100,000 --
1993 199,980 75,000 --

Stephen K. Gardner, . . . . . . . . . . . . . 1995 175,020 40,000 --
Vice President and Chief Financial Officer 1994(8) 92,095 60,000 --
1993 -- -- --

Andrew J. Littlefair, . . . . . . . . . . . . 1995 139,980 40,000 --
Vice President -- Public Affairs 1994 115,980 100,000 --
1993 115,980 75,000 --
</TABLE>

-59-
<PAGE> 64
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS-NUMBER
OF SHARES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR OPTIONS/SARS COMPENSATION(2)
------------------------------------------- ---- ------------ ------------
<S> <C> <C> <C>
Boone Pickens, . . . . . . . . . . . . . . . 1995 0 $ 35,914(3)
Chairman of the Board and Chief 1994 200,000 1,094,500(4)
Executive Officer 1993 275,000 114,750

Paul W. Cain, . . . . . . . . . . . . . . . . 1995 0 22,165(5)
President and Chief Operating Officer 1994 150,000 93,503
1993 100,000 106,253

Dennis E. Fagerstone, . . . . . . . . . . . . 1995 0 14,663(6)
Vice President -- Exploration and Production 1994 85,000 50,997
1993 10,000 46,747

Stephen K. Gardner, . . . . . . . . . . . . . 1995 0 12,915(7)
Vice President and Chief Financial Officer 1994(8) 135,000 25,856
1993 -- --

Andrew J. Littlefair, . . . . . . . . . . . . 1995 0 11,163(9)
Vice President -- Public Affairs 1994 85,000 36,717
1993 25,000 32,467
</TABLE>
- ---------------
(1) Apart from the compensation set forth in the summary compensation
table and under the plans and pursuant to the transactions described
below, other compensation paid for services during the years ended
December 31, 1995, 1994, and 1993, respectively, to each individual
named in the summary compensation table aggregated less than 10% of
the total salary and bonus reported for such individual in the summary
compensation table, or $50,000, if lower.
(2) Except as reflected in other notes, "All Other Compensation"
consists of the following items. First, Mesa maintains an Employees
Premium Plan and a Profit Sharing Plan, both of which are retirement
plans (the "Retirement Plans"), for all employees (see separate
discussion below). Mesa declared contributions to the Retirement Plans
of 5% of each employee's compensation in 1995 and 17% of each
employee's compensation in 1994 and 1993. However, total employer
contributions to the Retirement Plans for the account of a participant
in any calendar year are limited as specified by the Internal Revenue
Code (the "Code") and the Retirement Plans. See "Limitation on
Contributions to Benefit Plans" below. The maximum annual amount of
employer contributions to a participant's accounts in the Retirement
Plans totaled $7,500 in 1995, $25,500 in 1994, and $30,000 in 1993.
Second, to the extent that 5% of an employee's total compensation
exceeded $7,500 in 1995, that 17% of an employee's total compensation
exceeded $25,500 in 1994 (in both cases, all employees with total
compensation in excess of $150,000), and that 17% of an employee's
total compensation exceeded $30,000 in 1993 (all employees with total
compensation in excess of $176,470), Mesa, as a matter of policy, paid
the excess amount in cash to such employee. Third, in 1995 there was a
reallocation to participant accounts of forfeitures in the Profit
Sharing Plan from unvested balances in the accounts of employees who
terminated during 1994.
(3) Includes the following: a $7,500 Retirement Plans contribution; a
$2,164 reallocation of forfeitures in the Profit Sharing Plan; a
$26,250 payment in lieu of a Retirement Plans contribution in excess
of the contribution limitation as described in Note 2 above.
(4) Includes the following: a $25,500 Retirement Plans contribution; a
$119,000 payment in lieu of a Retirement Plans contribution in excess
of the contribution limitation as described in Note 2 above; a
$950,000 bonus payment that has been deferred until Mr. Pickens'
retirement and that was subject to his continued employment

-60-
<PAGE> 65
(except in certain events) through December 31, 1995, with respect to
Mesa's 1994 commodities and securities investment activities managed
by him.
(5) Includes the following: a $7,500 Retirement Plans contribution; a
$2,164 reallocation of forfeitures in the Profit Sharing Plan; a
$12,501 payment in lieu of a Retirement Plans contribution in excess
of the contribution limitation as described in Note 2 above.
(6) Includes the following: a $7,500 Retirement Plans contribution; a
$2,164 reallocation of forfeitures in the Profit Sharing Plan; a
$4,999 payment in lieu of a Retirement Plans contribution in excess of
the contribution limitation as described in Note 2 above.
(7) Includes the following: a $7,500 Retirement Plans contribution; a
$2,164 reallocation of forfeitures in the Profit Sharing Plan; a
$3,251 payment in lieu of a Retirement Plans contribution in excess of
the contribution limitation as described in Note 2 above.
(8) Mr. Gardner became an officer of Mesa in June 1994.
(9) Includes the following: a $7,500 Retirement Plans contribution; a
$2,164 reallocation of forfeitures in the Profit Sharing Plan; a
$1,499 payment in lieu of a Retirement Plans contribution in excess of
the contribution limitation as described in Note 2 above.

EMPLOYEES PREMIUM AND PROFIT SHARING PLANS

Mesa maintains the Retirement Plans for the benefit of its employees.
Each year, Mesa is required to contribute to the Employees Premium Plan 5% of
the total compensation (as defined in the plan) paid to participants and may
also contribute up to 12% of total compensation (as defined) to the Profit
Sharing Plan. In previous years, Mesa had declared contributions of 17% to the
Retirement Plans. In 1995 Mesa declared contributions of 5% to the Retirement
Plans.

Participants become 30% vested in their account balances in the
Retirement Plans after three years of service and 40% vested after four years
of service. Participants become vested an additional 20% for each additional
year of service through year seven. Effective December 31, 1991, in conjunction
with the conversion of the Partnership to Mesa, all participants were fully
vested in their account balances in the Retirement Plans as of that date as a
result of certain property dispositions consummated in 1990 and 1991.
Participants remain fully vested in their 1991 balances, but contributions in
1992 and later years under the Retirement Plans are subject to the vesting
schedule described above.

Prior years of service with Mesa's predecessors are counted in the
vesting schedule. Amounts accumulated and vested are distributable only under
certain circumstances, including termination of the Retirement Plans.

LIMITATION ON CONTRIBUTIONS TO BENEFIT PLANS

Total employer contributions to the Retirement Plans for the account
of a participant in any calendar year are limited to the lesser of what is
specified by the Code or by the Retirement Plans. The Code provides that annual
additions to a participant's account may not exceed the lesser of $30,000 or
25% of the amount of the participant's annual compensation. The Retirement
Plans provide that aggregate annual additions to a participant's account may
not exceed 17% of eligible compensation as defined by the Retirement Plans. The
eligible compensation per the Code was limited to $150,000 in 1995, $150,000 in
1994, and $228,000 in 1993. Mesa, in its discretion, may determine to make cash
payments of amounts attributable to an employee's participation in the
Retirement Plans to the extent such amounts exceed the Code limitations. As a
matter of general policy for employees of Mesa, Mesa makes annual cash payments
directly to employees to the extent that the annual additions to the account of
each such employee pursuant to the Retirement Plans would exceed the Code
limitations.

1991 STOCK OPTION PLAN

The 1991 Stock Option Plan (the "Option Plan") was approved by
stockholders in 1991 and amended by stockholders in 1994. Its purpose is to
serve as an incentive to, and aid in the retention of, key executives and other
employees whose training, experience, and ability are considered important to
the operations and success of Mesa. The Option Plan is administered by the
Stock Option Committee composed of non-employee directors of Mesa who meet the
requirements of "disinterested person" in Rule 16b-3(c)(2)(i) of the Exchange
Act. Pursuant to the Option Plan, the Stock Option Committee is given the
authority to designate plan participants, to determine the terms and provisions
of options granted thereunder, and to supervise the administration of the plan.
A total of 4,000,000 shares of Common

-61-
<PAGE> 66
Stock are currently subject to the plan, of which options for 3,062,950 shares
have been granted. At December 31, 1995, the following stock options were
outstanding:

<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
---------
<S> <C>
Granted . . . . . . . . . . . . . . . . . . . . . 3,062,950
Exercised . . . . . . . . . . . . . . . . . . . . (62,720)
Forfeited . . . . . . . . . . . . . . . . . . . . (67,840)
---------

Outstanding at December 31, 1995 . . . . . . . . . 2,932,390
=========
</TABLE>

Shares of Common Stock subject to an option are awarded at an exercise
price that is equivalent to at least 100% of the fair market value of the
Common Stock on the date the option is granted. The purchase price of the
shares as to which the option is exercised is payable in full at exercise in
cash or in shares of Common Stock previously held by the optionee for more than
six months, valued at their fair market value on the date of exercise. Subject
to Stock Option Committee approval and to certain legal limitations, an
optionee may pay all or any portion of the purchase price by electing to have
Mesa withhold a number of shares of Common Stock having a fair market value
equal to the purchase price. Options granted under the Option Plan include a
limited right of relinquishment that permits an optionee, in lieu of purchasing
the entire number of shares subject to purchase thereunder and subject to
consent of the Stock Option Committee, to relinquish all or part of the
unexercised portion of an option, to the extent exercisable, for cash and/or
shares of Common Stock in an amount representing the appreciation in market
value of the shares subject to such options over the exercise price thereof. In
its discretion, the Stock Option Committee may provide for the acceleration of
any unvested installments of outstanding options. The Board may amend, alter,
or discontinue the Option Plan, subject in certain cases to stockholder
approval.

The options granted and outstanding at December 31, 1995, have
exercise prices and vesting schedules as set forth in the following table:

<TABLE>
<CAPTION>
EXERCISE VESTING SCHEDULE
NUMBER OF PRICE PER ----------------------------------------------
OPTIONS SHARE 30% 55% 80% 100%
- ---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1,126,000 $ 6.8125 07/10/92 01/10/93 01/10/94 01/10/95
134,500 11.6875 04/02/93 10/02/93 10/02/94 10/02/95
101,890 5.8125 11/18/93 05/18/94 05/18/95 05/18/96
475,000 7.3750 05/10/94 11/10/94 11/10/95 11/10/96
75,000 6.1875 12/06/94 06/06/95 06/06/96 06/06/97
1,000,000 4.2500 06/01/95 12/01/95 12/01/96 12/01/97
20,000 5.6875 11/12/95 05/12/96 05/12/97 05/12/98
</TABLE>

There were no options granted to the Chief Executive Officer or to the
other four most highly compensated executive officers of Mesa during 1995.

-62-
<PAGE> 67
Options exercised in 1995, and the number and value of exercisable and
unexercisable options at December 31, 1995, for the Chief Executive Officer and
the other four most highly compensated executive officers of Mesa are as
follows:

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
NUMBER OF SHARES ACQUIRED
NAME ON EXERCISE VALUE REALIZED
- ---- ------------------------- --------------
<S> <C> <C>
Boone Pickens . . . . . . . -- $ --
Paul W. Cain . . . . . . . -- --
Dennis E. Fagerstone . . . -- --
Stephen K. Gardner . . . . -- --
Andrew J. Littlefair . . . -- --
</TABLE>

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SHARES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 29, 1995 DECEMBER 29, 1995
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Boone Pickens . . . . . . . 1,130,000 145,000 $ 0 $ 0
Paul W. Cain . . . . . . . 312,500 87,500 0 0
Dennis E. Fagerstone . . . 104,750 40,250 0 0
Stephen K. Gardner . . . . 74,250 60,750 0 0
Andrew J. Littlefair . . . 96,750 43,250 0 0
</TABLE>

At December 29, 1995, the final trading day of the year, Mesa's Common
Stock closed at $3.75 per share. The exercise price of the four grants of
stock options reflected in the aggregate in the above tables are $6.8125,
$7.375, $6.1875, and $4.25, respectively, per share. Thus, no outstanding
options were in-the-money at such date.

OTHER

There were no awards made under any long-term incentive plans from
January 1, 1995, through December 31, 1995; therefore, no disclosure is
required in the Long-Term Incentive Plan Awards table. From January 1, 1995,
through December 31, 1995, no options or stock appreciation rights were
repriced (as defined in Item 402(i) of Regulation S-K under the Securities
Act). Except as described below under "Employee Retention Provisions," Mesa
does not have any employment contracts or termination or change-in-control
arrangements with respect to a named executive officer of Mesa that would
require disclosure pursuant to Item 402(h) of Regulation S-K.

COMMON STOCK PURCHASE PLAN

Mesa has established a Common Stock purchase program whereby
employees, except officers, can buy Common Stock through after-tax payroll
deductions. All other full-time employees of Mesa and its participating
affiliates are eligible to participate. Mesa pays the brokerage fees for these
open-market transactions.

EMPLOYEE RETENTION PROVISIONS

On August 22, 1995, the Board adopted the MESA Inc. Change in Control
Retention/Severance Plan, as amended, (the "Retention Plan"). Pursuant to the
Retention Plan, all regular employees of Mesa (other than Mr. Pickens) will be
entitled to receive certain benefits upon the occurrence of certain involuntary
termination events (as described below) following a "Change in Control" (as
defined below) of Mesa. The severance benefits consist of 200% of defined pay
for officers (which includes the highest salary and highest bonus during the
then-current and prior three calendar

-63-
<PAGE> 68
years before the Retention Plan was adopted), 150% of defined pay for certain
key employees (which includes salary and bonus amounts) and a formula-based
amount for all other employees, plus, in each case, any other accrued or vested
or earned but deferred compensation, rights, options, or benefits otherwise
owed to such employee upon his termination. In addition, on the same date, the
Stock Option Committee determined that all outstanding but unvested stock
options granted to an employee under Mesa's 1991 Stock Option Plan would
immediately vest and become exercisable upon such a termination event following
a Change in Control.

Mesa developed the Retention Plan in consultation with an independent
compensation consultant. That consulting firm advised the Board that the
Retention Plan is conservatively in line with common practices. The independent
firm noted, among other things, that most such plans it surveyed provide
officers with three times their defined pay, rather than two.

For purposes of the Retention Plan, a "Change in Control" means (i)
any acquisition by an individual, entity or group resulting in such person's
obtaining beneficial ownership of 35% or more of the then outstanding Common
Stock or the combined voting power of the then outstanding voting securities of
Mesa entitled to vote in an election of directors, provided certain
acquisitions, including the following, shall not in and of themselves
constitute a Change in Control hereunder: (a) any acquisition of securities of
Mesa made directly from Mesa and approved by a majority of the directors then
comprising the members of the Board as of May 16, 1995 (the "Incumbent
Board"); or (b) any acquisition of beneficial ownership of a higher percentage
of the Common Stock outstanding of Mesa or the voting securities of Mesa that
results solely from the acquisition, purchase or redemption of securities of
Mesa by Mesa so long as such action by Mesa was approved by a majority of the
directors then comprising the Incumbent Board; (ii) a change in the membership
of the Incumbent Board, together with members elected subsequent to May 16,
1995, whose election or nomination for election was approved by a majority of
the members of the Incumbent Board as then constituted (excluding for this
purpose any individual whose initial assumption of office occurred as a result
of an actual or threatened election contest), cease for any reason to
constitute a majority of the Board; (iii) a reorganization, merger,
consolidation or sale of all or substantially all of the assets of Mesa,
subject to certain exceptions; or (iv) approval by the stockholders of Mesa of
the complete liquidation or dissolution of Mesa.

Following the occurrence of a Change in Control, an eligible employee
would be entitled to receive full severance benefits if, within 24 months of
the occurrence of a Change in Control: (i) the employee was terminated by Mesa
without "Cause" (as defined below); or (ii) the employee's duties,
responsibilities or rate of pay as an employee were materially and adversely
diminished in comparison to the duties, responsibilities and rate of pay
enjoyed by the employee on the effective date of the Retention Plan; or (iii)
the employee was relocated to any location in excess of 35 miles from his
location immediately prior to the Change in Control. All severance benefits
with respect to an eligible employee are payable in a lump sum within ten days
after the termination date of such employee. Under the Retention Plan,
"Cause" means the willful and continued failure of an employee to perform
substantially the employee's duties with Mesa following written demand for
performance or the willful engaging by the employee in illegal conduct or gross
misconduct that is materially and demonstrably injurious to Mesa.

The Recapitalization will not constitute a "Change of Control" for
purposes of the Retention Plan, because the incumbent Board has approved the
issuance of stock to DNR and the nomination of the persons DNR intends to elect
as directors.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Sarofim, a director and member of the Compensation and Stock
Option Committees, is Chairman of the Board, President, and owner of a majority
of the outstanding capital stock of Fayez Sarofim & Co., which acts as an
investment adviser to certain employee benefit plans of Mesa. During the year
ended December 31, 1995, Fayez Sarofim & Co. received fees, paid by the
employee benefit plans, of $175,459 for such services and has been retained to
provide such services in 1996.

Mr. Stillwell, a director, is a partner in the law firm of Baker &
Botts, L.L.P. Mesa retained Baker & Botts, L.L.P., and incurred legal fees for
such services in 1995. Baker & Botts, L.L.P., has been retained to provide
legal services in 1996 and is advising Mesa as to certain legal matters in
connection with the Recapitalization.

-64-
<PAGE> 69
Richard E. Rainwater is the sole shareholder and President, Darla D.
Moore is the CEO, and Kenneth A. Hersh is the Chief Investment Officer, of
Rainwater Inc., the sole general partner of DNR, and will be elected as
directors of Mesa by DNR immediately following the First Closing. Upon
consummation of the Recapitalization, DNR will be the sole holder of Series B
Preferred Stock, representing between 32.4% and 64.8% of Mesa's voting stock
(on a fully diluted basis). As such, DNR will have the right to elect a
majority of Mesa's directors and to receive dividends as described above under
"Description of Preferred Stock -- Voting Rights" and "-- Dividends." Mesa has
agreed to pay DNR (i) a fee of $4,655,000 (constituting 3.5% of the aggregate
amount of Series B Preferred Stock to be purchased at the First Closing) at the
First Closing (or as promptly as practicable thereafter as funds are available
therefor, but no later than the Second Closing) and (ii) a fee of $4,620,000
(constituting 3.5% of the maximum aggregate amount of Series B Preferred Stock
to be purchased at the Second Closing) at the Second Closing, less the amount
by which DNR's reimbursable expenses as of the Second Closing are less than the
initial $500,000 payment Mesa made at the time it entered into the February 28
letter of intent. In addition, the Stock Purchase Agreement provides that DNR
will receive a fee of $400,000 per year in consideration of DNR's obligations
under such agreement and to compensate DNR for the time that DNR has agreed its
representatives will devote to Mesa's affairs, including the provision of
certain investment analysis and assistance to Mesa during the course of DNR's
investment, and DNR will be reimbursed by Mesa for all fees and expenses (up to
a maximum of $50,000 per year) reasonably incurred by it in connection with
monitoring its investment in Mesa.

INDEMNIFICATION ARRANGEMENTS

Mesa's Bylaws provide for the indemnification of its executive
officers and directors, and the advancement to them of expenses in connection
with proceedings and claims, to the fullest extent permitted by the TBCA. Mesa
has also entered into indemnification agreements with its executive officers
and directors that contractually provide for indemnification and expense
advancement and include related provisions meant to facilitate the indemnitees'
receipt of such benefits. In addition, Mesa purchased customary directors' and
officers' liability insurance policies for its directors and officers. The
Bylaws and agreements with directors and officers also provide for
indemnification for amounts (i) in respect of the deductibles for such
insurance policies, (ii) that exceed the liability limits of such insurance
policies, and (iii) that would have been covered by prior insurance policies of
Mesa or its predecessors. Such indemnification may be made even though
directors and officers would not otherwise be entitled to indemnification under
other provisions of the Bylaws or such agreements.

-65-
<PAGE> 70
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF MANAGEMENT

The following table presents certain information as to the beneficial
ownership of Mesa's Common Stock as of April ___, 1996, by the directors,
director nominees, and officers of Mesa, individually and as a group. The
following table also indicates the number of shares of Common Stock to be
beneficially owned by such persons assuming that such persons (i) sell or
otherwise fail to exercise all of the Rights to be distributed to them in the
Rights Offering or (ii) exercise all of the Rights to be distributed to them,
as well as the percentage of the number of fully diluted shares of Common Stock
to be owned by such persons under such circumstances (assuming that there will
be 181,306,646 shares of Common Stock outstanding on a fully diluted basis,
including 117,256,637 shares issuable upon conversion of shares of Series A and
Series B Preferred Stock). Share numbers do not give effect to the Reverse
Stock Split.

<TABLE>
<CAPTION>
SHARES OWNED BEFORE THE
SALE OF SERIES B
PREFERRED STOCK AND THE SHARES OWNED AFTER THE SALE OF SERIES B
RIGHTS OFFERING PREFERRED STOCK AND THE RIGHTS OFFERING(1)
---------------------- ------------------------------------------------
NO RIGHTS EXERCISED ALL RIGHTS EXERCISED
----------------------- --------------------
NUMBER(2) PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
--------- ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT DIRECTORS:
Paul W. Cain . . . . . . . . . . . . . 322,639 * 332,639 * 616,886 *
John S. Herrington . . . . . . . . . . 10,000 * 10,000 * 19,120 *
Wales H. Madden, Jr. . . . . . . . . . 22,200 * 22,200 * 42,447 *
Boone Pickens(3) . . . . . . . . . . . 5,061,626 7.8% 5,061,626 2.8% 9,677,829 5.3%
Fayez S. Sarofim . . . . . . . . . . . 1,400,000 2.2% 1,400,000 * 2,676,800 1.5%
Robert L. Stillwell . . . . . . . . . . 26,500 * 26,500 * 50,668 *
Dorn Parkinson(4) . . . . . . . . . . . -- * -- * -- *
Joel L. Reed . . . . . . . . . . . . . -- * -- * -- *
FUTURE DIRECTORS:
Richard E. Rainwater(5) . . . . . . . . -- * 117,256,637 64.8% 58,849,557 32.4%
Darla D. Moore . . . . . . . . . . . . -- * -- * -- *
Kenneth A. Hersh . . . . . . . . . . . -- * -- * -- *
Philip B. Smith . . . . . . . . . . . . -- * -- * -- *
OFFICERS:
Dennis E. Fagerstone . . . . . . . . . 104,750 * 104,750 * 200,282 *
Stephen K. Gardner . . . . . . . . . . 102,979 * 102,979 * 172,996 *
Andrew J. Littlefair(6) . . . . . . . . 113,438 * 113,438 * 216,894 *
William D. Ballew . . . . . . . . . . . 64,853 * 64,853 * 123,999 *
Directors (Current and Future) and
Officers as a group (16 persons) . . 7,228,985 11.0% 124,485,622 68.7% 72,659,978 40.1%
</TABLE>
- ---------------
* Less than 1.0%

(1) Includes shares of Common Stock issuable upon conversion of Series A
and Series B Preferred Stock.
(2) Includes shares issuable upon the exercise of options that are
exercisable within sixty days of March 6, 1996, as follows: 1,130,000
shares for Mr. Pickens; 312,500 for Mr. Cain; 104,750 for Mr.
Fagerstone; 86,750 for Mr. Gardner; 96,750 for Mr. Littlefair; 62,750
for Mr. Ballew; and 1,793,500 for all current directors and officers
as a group.
(3) The above amount includes 7,545 shares of Common Stock owned by
several trusts for Mr. Pickens' children of which he is a trustee, and
over which shares he has sole voting and investment power, although he
has no

-66-
<PAGE> 71
economic interest therein. The above amounts exclude 2,798 shares of
Common Stock owned by Mrs. Pickens as her separate property, as to
which Mr. Pickens disclaims beneficial ownership and with respect to
which he does not have or share voting or investment power.
(4) Excludes 3,800 shares of Common Stock owned by Mr. Parkinson's son as
his separate property, as to which Mr. Parkinson disclaims beneficial
ownership and with respect to which he does not have or share voting
or investment power. Mr. Parkinson is a member of the WDB Group, which
has filed a Scheduled 13D which, as amended, states that the WDB Group
is the beneficial owner of 3,500,000 shares of Common Stock. See Note
4 to the table under "Certain Beneficial Owners."
(5) Represents shares of Common Stock issuable upon conversion of shares
of Series B Preferred Stock to be held by DNR. Mr. Rainwater is the
sole stockholder and President of Rainwater, Inc., the sole general
partner of DNR, and, as such, may be deemed to beneficially own the
shares of stock to be held by DNR. Mr. Rainwater and Ms. Moore are
married to each other but she disclaims beneficial ownership of shares
to be owned by Mr. Rainwater.
(6) Excludes 1,125 shares of Common Stock owned by Mrs. Littlefair as her
separate property, as to which Mr. Littlefair disclaims beneficial
ownership and with respect to which he does not have or share voting
or investment power.

CERTAIN BENEFICIAL OWNERS

The following table sets forth certain information as of April ___,
1996, regarding each person or "group" (as that term is used in Section
13(d)(3) of the Exchange Act) known by Mesa to own beneficially more than 5% of
the Common Stock. Information is based on the most recent Schedule 13D or 13G
filed by such holder with the SEC, or other information provided by the holder
to Mesa. The following table also indicates the number of shares of Common
Stock to be beneficially owned by such persons assuming that such persons (i)
sell or otherwise fail to exercise all of the Rights to be distributed to them
in the Rights Offering or (ii) exercise all of the Rights to be distributed to
them, as well as the percentage of the number of fully diluted shares of Common
Stock to be owned by such persons under such circumstances (assuming that there
will be 181,306,646 shares of Common Stock outstanding on a fully diluted
basis, including 117,256,637 shares issuable upon conversion of shares of
Series A and Series B Preferred Stock). Share numbers do not give effect to
the Reverse Stock Split.

- ---------------
(1) Includes shares of Common Stock issuable upon conversion of Series A
Preferred Stock.
(2) See notes (2) and (3) to the table under "Security Ownership of
Management."

-67-
<PAGE> 72
(3) The Schedule 13G filed with the SEC on February 14, 1996, by FMR Corp.
states that as of December 31, 1995, Fidelity Management & Research
Company ("Fidelity"), a wholly owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, is the beneficial owner of 5,140,400 shares or
8.0% of Common Stock as a result of acting as investment adviser to
various investment companies registered under Section 8 of the
Investment Company Act of 1940. The ownership of one investment
company, Fidelity Capital Appreciation Fund ("Fund"), amounted to
5,140,400 shares or 8.0% of Common Stock outstanding. Edward C.
Johnson, III, chairman of FMR Corp., FMR Corp., through its control
of Fidelity, and the Fund each has sole power to dispose of the
5,140,400 shares owned by the Fund.
(4) A Schedule 13D filed by the WDB Group, as amended as of April 24,
1996, states that such group at that date beneficially owns 3,500,000
shares of Common Stock, as to which Dennis R. Washington has sole
voting power. The Schedule 13D filed by the WDB Group prior to that
date had included Davis Acquisition, L.P., Davis Companies, the
Marvin Davis and Barbara Davis Revocable Trust, and Marvin Davis,
which collectively owned 2,500,000 shares of Common Stock. On April
24, 1996, the WDB Group filed an amendment to the Schedule 13D stating
that the Davis entities had terminated their participation in the WDB
Group and had sold shares of Common Stock such that, as of April 23,
1996, the Davis entities beneficially owned 1,562,500 shares of Common
Stock.

BENEFICIAL OWNERSHIP OF DNR

The following table sets forth the percentage of the number of fully
diluted shares of Common Stock to be beneficially owned by DNR after the Second
Closing assuming certain percentages of the Rights are exercised in the Rights
Offering, and that DNR acquires the required number of shares of Series B
Preferred Stock at the First Closing.

<TABLE>
<CAPTION>
PERCENTAGE OF RIGHTS EXERCISED
------------------------------------------
0% 25% 50% 75% 100%
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Percentage Ownership of
DNR . . . . . . . . . . . . 64.8% 56.7% 48.6% 40.6% 32.4%
</TABLE>

As used in this Proxy Statement, the number of "fully diluted" shares
of Common Stock includes shares issuable upon conversion of Series A and Series
B Preferred Stock, but excludes shares issuable pursuant to employee stock
options because no such options have an exercise price below current market
prices of the Common Stock.

-68-
<PAGE> 73
SHAREHOLDER RIGHTS PLAN

On July 6, 1995, Mesa's Board declared a dividend of one right (each,
a "Rights Plan Right") to purchase preferred stock for each share of Mesa's
Common Stock outstanding as of the close of business on July 17, 1995. Each
Rights Plan Right entitles the registered holder thereof to purchase from Mesa
a unit consisting of one-hundredth of a share (a "Fractional Share") of Series
A Junior Participating Preferred Stock, par value $.01 per share (the "Junior
Preferred Stock"), at a purchase price of $15 per Fractional Share, subject to
certain adjustments to prevent dilution (including but not limited to
adjustments that will be made if the Reverse Split Charter Amendments are
approved). The description and terms of the Rights Plan Rights are set forth
in a Rights Agreement dated as of July 6, 1995, as from time to time
supplemented or amended, between Mesa and American Stock Transfer and Trust
Company, as Rights Agent.

The Rights Plan Rights are attached to all certificates representing
outstanding shares of Common Stock, and no separate certificates for the Rights
Plan Rights have been distributed. The Rights Plan Rights will separate from
the Common Stock and a "Distribution Date" will occur upon the earlier of (i)
ten days following a public announcement that a person or group of affiliated
or associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 10% or more of the outstanding shares
of Common Stock, or (ii) ten business days following the commencement of a
tender offer or exchange offer that would result in a person's becoming an
Acquiring Person. In certain circumstances, the Distribution Date may be
deferred by the Board. The Shareholder Rights Plan provides certain exceptions
for inadvertent acquisitions and for persons or groups of affiliated or
associated persons that, at the time of the adoption of the Shareholder Rights
Plan, beneficially owned 10% or more of the then outstanding shares of Common
Stock. Neither DNR nor any of its Affiliates or Associates (as such terms are
defined in the Shareholder Rights Plan) will be deemed an Acquiring Person as a
result of the execution, delivery and performance of the Stock Purchase
Agreement and any documents ancillary thereto, and the consummation of any of
the transactions contemplated thereby, unless DNR, together with its Affiliates
and Associates, becomes the beneficial owner of additional shares of Common
Stock, or another person that beneficially owns shares of Common Stock of Mesa
becomes an Affiliate or Associate of DNR.

The Rights Plan Rights are not exercisable until the Distribution Date
and will expire at the close of business on December 31, 1996, unless earlier
terminated or exchanged by Mesa as described below. Until the Distribution
Date, the Rights Plan Rights will be evidenced by the Common Stock certificates
and will be transferred with and only with such Common Stock certificates. As
soon as practicable after the Distribution Date, separate certificates
evidencing the Rights Plan Rights will be mailed to holders of record of Common
Stock as of the close of business on the Distribution Date. Until an Rights
Plan Right is exercised, the holder has no rights as a stockholder of Mesa,
including, without limitation, the right to vote or receive dividends.

In the event (a "Flip-In Event") that a person becomes an Acquiring
Person except pursuant to a "Permitted Offer" (as defined below), each holder
of an Rights Plan Right will thereafter have the right to receive, upon
exercise of the Rights Plan Right, a number of shares of Common Stock (or, in
certain circumstances, cash, property or other securities of Mesa) having a
current market price equal to two times the exercise price of the Rights Plan
Right. However, Rights Plan Rights are not exercisable following a Flip-In
Event until such time as the Rights Plan Rights are no longer redeemable by
Mesa as described below. Following a Flip-In Event, all Rights Plan Rights
beneficially owned by the Acquiring Person will be null and void in certain
circumstances set forth in the Shareholder Rights Plan.

A "Permitted Offer" under the Shareholder Rights Plan means a tender
offer or an exchange offer commenced on or after September 30, 1995 by a bidder
for all outstanding shares of Common Stock, whether or not approved by the
Board, (i) that remains open for at least 50 business days; (ii) pursuant to
which the bidder together with its affiliates and associates becomes the
beneficial owner of 51% of the outstanding shares of Common Stock immediately
upon completion of such offer; (iii) if and to the extent the consideration
offered is cash, states that the bidder has obtained written financing
commitments from recognized financing sources, and/or has on hand cash or cash
equivalents, for the full amount of all financing necessary to purchase all the
shares and pay all related fees and expenses; (iv) if all or part of the
consideration offered is securities, offers a security that is to be issued by
an entity that has a consolidated net worth at least equal to that of Mesa and
its consolidated subsidiaries as of June 30, 1995; and (v) states that as
promptly as practicable following the completion of such offer, the bidder will
propose and seek to consummate a merger of Mesa

-69-
<PAGE> 74
with the bidder (or a subsidiary thereof) in which each share of Common Stock
not then owned by the bidder will be converted into the same form and amount of
consideration per share as that paid in such offer.

In the event (a "Flip-Over Event") that, at any time after the time an
Acquiring Person becomes such, (i) Mesa is acquired in a merger or other
business combination transaction (other than a merger following a Permitted
Offer), or (ii) 50% or more of Mesa's assets or earning power is sold or
transferred, each holder of a Rights Plan Right will thereafter have the right
to receive, upon exercise, a number of shares of common stock of the acquiring
company having a current market price equal to two times the exercise price of
the Rights Plan Right.

At any time until ten days following the first public announcement of
a Flip-In Event, Mesa may redeem the Rights Plan Rights in whole, but not in
part, at a price of $.01 per Rights Plan Right, payable, at Mesa's option, in
cash, shares of Common Stock or such other consideration as the Board may
determine. Under certain circumstances set forth in the Shareholder Rights
Plan, redemption requires the approval of a majority of Mesa's continuing
directors. At any time after the occurrence of a Flip-In Event and prior to a
person's becoming the beneficial owner of more than 50% or more of the then
outstanding shares of Common Stock, Mesa (with the concurrence of a majority of
the continuing directors) may exchange the Rights Plan Rights in whole or in
part at an exchange ratio of one share of Common Stock (or other equity
securities of comparable value) per Rights Plan Right, subject to adjustment.

Other than the redemption price, any of the provisions of the
Shareholder Rights Plan may be amended by the Board of Mesa (in certain
circumstances, with the concurrence of the continuing directors) as long as the
Rights Plan Rights are redeemable.

ANNUAL MEETING

The Annual Meeting of Stockholders of MESA Inc. is expected to be held
on July 30, 1996. See "The Recapitalization Transaction--Background of the
Recapitalization--February 28 Board Meeting."

STOCKHOLDER PROPOSALS

Proposals of stockholders intended to be presented at the 1996 annual
meeting were required to be received by Mesa at its principal executive offices
in Irving, Texas, by approximately February 22, 1996.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Incorporated by reference in this Proxy Statement, and subject in each
case to information contained in this Proxy Statement, are the following
documents filed by Mesa with the SEC pursuant to the Exchange Act: (1) Mesa's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995; (2)
[Mesa's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; and
(3)] Mesa's Current Report on Form 8-K dated March 1, 1996.

Mesa will provide without charge to each person, including any
beneficial owner, to whom this Proxy Statement is delivered, upon the written
or oral request of such person, a copy of any and all of the documents
incorporated by reference herein (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents).
Such request should be directed to Investor Relations, MESA Inc., 1400 Williams
Square West, 5205 North O'Connor Boulevard, Irving, Texas 75039 (telephone:
(214) 444-9001).

OTHER MATTERS

Representatives of Mesa's independent public accountants for the
current and most recently completed fiscal years are expected to be present at
the Special Meeting, will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.

On behalf of the Board of Directors

-70-
<PAGE> 75
/s/ Boone Pickens
-----------------------------------
Irving, Texas Boone Pickens
May [___], 1996 Chairman of the Board and Chief
Executive Officer

-71-
<PAGE> 76
ANNEX A

LEHMAN BROTHERS

April 23, 1996

Board of Directors
MESA Inc.
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039

Members of the Board:

We understand that MESA Inc. ("Mesa" or the "Company") and DNR-MESA
Holdings L.P. ("Rainwater"), a limited partnership of which Rainwater, Inc. is
the sole general partner, have negotiated an agreement pursuant to which (i)
Rainwater will purchase $133 million of Mesa Series B 8% Cumulative Convertible
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), for
a purchase price of $2.26 per share in cash; (ii) Mesa will distribute to its
common shareholders transferable rights to acquire $132 million of Mesa Series
A 8% Cumulative Convertible Preferred Stock, par value $.01 per share, (the
"Series A Preferred Stock" and together with the Series B Preferred Stock, the
"Preferred Stock") with each right entitling the holder to purchase one share
of Series A Preferred Stock for an exercise price of $2.26 in cash (the "Rights
Offering"); (iii) Rainwater will purchase a number of shares of Series B
Preferred Stock equal to the number of shares not subscribed for in the Rights
Offering for $2.26 per share in cash; and (iv) Mesa will use its reasonable
best efforts to refinance substantially all of its existing indebtedness with
net proceeds from a new senior secured revolving credit facility and the sale
of new debt securities. Collectively, such transactions are hereinafter
referred to as the Proposed Transaction. The terms and conditions of the
Proposed Transaction are set forth in more detail in the proposed Stock
Purchase Agreement between Mesa and Rainwater (the "Agreement").

We have been requested by the Board of Directors of the Company to
render our opinion with respect to the fairness, from a financial point of
view, to the Company of the consideration to be received by the Company for the
Preferred Stock. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with or effect the Proposed Transaction.

In arriving at our opinion, we reviewed and analyzed:

(1) the Agreement and the specific terms of the Proposed
Transaction, including the terms of the Preferred Stock;

(2) such publicly available information concerning the Company
that we believe to be relevant to our inquiry, including the
Annual Reports to stockholders and Annual Reports on Form 10-K
of the Company for the three years ended December 31, 1995 and
certain interim reports to stockholders and Quarterly Reports
on Form 10-Q of the Company;

(3) financial and operating information with respect to the
business, operations and prospects of the Company furnished to
us by the Company, including without limitation certain
projections prepared by the Company;

(4) a trading history of the Company's common stock for the two
year period ended April 19, 1996 and a comparison of that
trading history with those of other companies that we deemed
relevant;

(5) a comparison of the historical financial results and present
financial condition of the Company with those of other
companies that we deemed relevant;

<PAGE> 77
(6) a comparison of the financial terms of the Proposed
Transaction (including the specific terms of the Preferred
Stock) with the financial terms of certain other transactions
and securities that we deemed relevant; and

(7) the Company's immediate need for additional cash to fund its
debt obligations, capital, operating and growth requirements,
its currently highly leveraged capital structure and the
alternatives available to the Company to obtain additional
financing at this time.

In connection with our opinion, we also reviewed certain information
provided by the Company relating to its oil and natural gas reserves, including
year-end reserve reports prepared by the Company's petroleum engineers, and
discussed the reserve information with the senior management of the Company and
its petroleum engineers.

In arriving at our opinion, we also have considered the financial
terms of the other proposals and the indications of interest received by Mesa
as a result of the extensive efforts undertaken by the Company and us to
solicit indications of interest and proposals with respect to an equity
infusion into the Company, the purchase of all or a part of Mesa's Hugoton
field in segments or as a whole, or the acquisition of all of the Company with
or without a sale of all or a part of the Hugoton field and other types of
transactions.

In addition, we have had discussions with the management of the
Company concerning its business, operations, assets, liabilities, financial
condition and prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.

In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of management of the
Company that they are not aware of any facts that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company, upon advice of the Company we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and that the Company will perform
substantially in accordance with such projections. In arriving at our opinion,
we have not conducted a physical inspection of the properties and facilities of
the Company and have not made or obtained any independent evaluations or
appraisals of the assets or liabilities of the Company. Our opinion
necessarily is based upon market, economic and other conditions as they exist
on, and can be evaluated as of, the date of this letter.

In arriving at our opinion, at your request and as mentioned above, we
have considered (i) all proposals available to Mesa for alternative
transactions, (ii) all substantive discussions we have had, and all substantive
discussions that to our knowledge Mesa has had, with qualified persons who have
made bona fide offers, proposals or expressions of interest for alternative
transactions, and (iii) the impact, if any, of the terms of the Proposed
Transaction, after giving effect to the consummation thereof, on future
proposals by third parties for, and the consummation of, any merger,
consolidation, tender offer, share exchange, or exchange offer, involving Mesa.

Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that, from a financial point of view, the consideration to be
received by the Company for the Preferred Stock is fair to the Company and,
accordingly, to the stockholders of Mesa.

We have acted as financial advisor to the Company in connection with
the Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities that may arise out
of the rendering of this opinion. We also have previously rendered certain
financial advisory and investment banking services to the Company in the past
and have received customary compensation for such services. In the ordinary
course of our business, we actively trade in the debt and equity securities of
the Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.

This opinion is for the use and benefit of the Board of Directors of
the Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and

<PAGE> 78
does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction or as
to whether any stockholder of the Company should subscribe for any shares of
Series A Preferred Stock pursuant to the Rights Offering.

Very truly yours,

LEHMAN BROTHERS

By:
-----------------------------------
H.E. Lentz
Managing Director

<PAGE> 79
ANNEX B

STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT (this "Agreement"), dated April 26, 1996,
between MESA Inc., a Texas corporation (the "Company" and, together with its
Subsidiaries, the "Companies"), and DNR-MESA Holdings, L.P., a Texas limited
partnership ("Buyer").

WHEREAS, the Company desires to sell to Buyer, and Buyer desires to
purchase from the Company, shares of Series B 8% Cumulative Convertible
Preferred Stock, par value $.01 per share, of the Company (the "Series B
Preferred Stock");

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and Buyer hereby agree as follows:

ARTICLE I

TERMS OF THE TRANSACTION

1.1 Agreement to Sell and to Purchase Series B Preferred Stock.
On the terms and subject to the conditions set forth in this Agreement, the
Company shall sell and deliver to Buyer, and Buyer shall purchase and accept
from the Company at the times indicated below, the number of shares of Series B
Preferred Stock equal to the sum of the following:

(a) At the First Closing, 58,849,557 shares of Series B Preferred
Stock; and

(b) At the Second Closing, a number of shares of Series B
Preferred Stock equal to the number of Unsubscribed Shares, if any, upon
completion of the Rights Offering.

All of the shares of Series B Preferred Stock sold by the Company to
Buyer pursuant to this Section 1.1 are referred to collectively as the
"Shares". All of the Shares of the Series B Preferred Stock shall be issued
pursuant to the Statement of Resolution as set forth as Exhibit A hereto (the
"Statement of Resolution").

1.2 Purchase Price and Payment. The aggregate purchase price for
the Shares at each of the First Closing and the Second Closing shall be equal
to $2.26 per share times the total number of Shares to be purchased at the
First Closing and the Second Closing, respectively, pursuant to Section 1.1
(the "Purchase Price"). The Purchase Price payable by Buyer for the Shares to
be purchased by it shall be paid at the First Closing and the Second Closing,
as applicable, in immediately available funds by confirmed wire transfer to a
bank account to be designated by the Company (such designation to occur no
later than the third Business Day prior to the First Closing Date and the
Second Closing Date, respectively).

1.3 Intent of the Parties.

(a) The Company and Buyer intend that (i) the purchase and sale of
the Shares at the First Closing pursuant to this Agreement shall be made in
conjunction with the closing and funding of the loans to be provided under the
New Senior Credit Agreement and the closing of the issuance of the New Notes,
with the proceeds thereof to be used to pay in full all of the Companies'
indebtedness under the Existing Credit Agreement, the 12 3/4% Notes, the
Hugoton Notes and such other Existing Indebtedness as is mutually agreed upon
by the Company and Buyer (the "Debt

B-1
<PAGE> 80
Refinancing"), and (ii) the purchase and sale of the Shares at the Second
Closing pursuant to this Agreement shall be made in conjunction with the
closing of the Rights Offering. Any of the Shares that are purchased by Buyer
at the Second Closing shall be Series B Preferred Stock rather than Series A
Preferred Stock. The purchase and sale of the Shares, the Debt Refinancing and
the Rights Offering are herein collectively referred to as the "Transaction".
The Reverse Stock Split does not constitute part of the Transaction nor is the
Transaction conditioned in any manner whatsoever on the Reverse Stock Split.

(b) As used herein, the "Rights Offering" shall mean that certain
distribution by the Company to each record holder of Common Stock, as of a
record date after the Special Meeting Date to be set by the Company, of the
transferable right (the "Rights") to purchase, at $2.26 per share, a pro-rata
portion of approximately $132,000,000 (subject to rounding as set forth below)
of Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per
share, of the Company (the "Series A Preferred Stock"). It is currently
anticipated that in the Rights Offering (i) the Company will distribute .912
transferrable Rights with respect to each share of Common Stock outstanding as
of the record date for the Rights Offering, at no cost to the record holders;
(ii) one Right plus $2.26 in cash will entitle the holder to purchase one share
of Series A Preferred Stock; (iii) the Rights will be evidenced by transferable
subscription certificates (provided that such rounding shall not cause the
total purchase price of the Series A Preferred to exceed $132,500,000); (iv) no
fractional Rights or cash in lieu thereof will be issued or paid, and the
number of Rights distributed to each holder of Common Stock will be rounded up
to the nearest whole number of Rights; (v) brokers, dealers and other nominees
holding shares of Common Stock on the record date for more than one beneficial
owner will be entitled to obtain separate subscription certificates for their
beneficial owners so that they may each receive the benefit of rounding; and
(vi) each Right will also carry the right to subscribe at the $2.26
subscription price for additional shares of Series A Preferred Stock for which
the other holders of Rights did not subscribe through the exercise of the basic
subscription privileges (the "Excess Shares"), provided that (a) only Rights
holders who exercise their basic subscription privilege in full will be
entitled to exercise the oversubscription privilege and (b) if the Excess
Shares are not sufficient to satisfy all over-subscriptions, the Excess Shares
will be allocated pro rata (subject to the elimination of fractional shares)
among those Rights holders exercising the oversubscription privilege.

(c) The Company shall also submit to its shareholders a proposal
for the adoption and approval of a reverse stock split with respect to all of
the outstanding capital stock of the Company (the "Reverse Stock Split"). The
shareholder vote required for the adoption and approval of the Reverse Stock
Split shall be the vote required by Applicable Law, the Company's Articles of
Incorporation, and the rules of the New York Stock Exchange. The Transaction
is not conditioned in any manner whatsoever on shareholder approval or
implementation of the Reverse Stock Split; provided, however, that in the event
that the Company shall effectuate the Reverse Stock Split, the number of Shares
sold and purchased hereunder and the purchase price thereof, and the number of
shares of Series A Preferred Stock subject to the Rights and the exercise price
thereof, shall be adjusted accordingly.

B-2
<PAGE> 81
ARTICLE II

FIRST CLOSING, SECOND CLOSING AND CLOSING DATES

The closing of the purchase and sale of the Shares pursuant to Section
1.1(a) and the closing of the Debt Refinancing contemplated hereby (the "First
Closing"), and the closing of the purchase and sale of the Shares pursuant to
Section 1.1(b) and the Rights Offering contemplated hereby (the "Second
Closing") shall take place (i) at the offices of the Company, 1400 Williams
Square West, 5205 North O'Connor Boulevard, Irving, Texas, at 9:00 a.m., local
time, on the third Business Day following the satisfaction or waiver (subject
to Applicable Law) of each of the conditions to the obligations of the parties
set forth in Articles VI and VII hereof to the First Closing and the Second
Closing, respectively, or (ii) at such other times or places or on such other
date or dates as the parties hereto shall agree. The date on which the First
Closing is required to take place is herein referred to as the "First Closing
Date" and the date on which the Second Closing is required to take place is
herein referred to as the "Second Closing Date". All closing transactions at
the First Closing shall be deemed to have occurred simultaneously, and all
closing transactions at the Second Closing shall be deemed to have occurred
simultaneously.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Buyer for itself and on behalf
of the Companies, as of the date hereof, that:

3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Texas and has all requisite corporate power and authority in all material
respects to own, lease, and operate its properties and to carry on its business
as now being conducted. No actions or proceedings to dissolve the Company are
pending or, to the best knowledge of the Company, threatened.

3.2 Qualification. Each of the Companies is duly qualified or
licensed to do business as a foreign corporation or limited partnership and is
in good standing in each jurisdiction in which the property owned, leased, or
operated by it or the conduct of its business requires such qualification or
licensing, except where the failure to do so would not have a Material Adverse
Effect.

3.3 Capitalization of the Company.

(a) The authorized capital stock of the Company (i) as of the date
hereof, consists of 100,000,000 shares of Common Stock, $.01 par value (the
"Common Stock"), and 10,000,000 shares of preferred stock, $.01 par value, and
(ii) immediately before the issuance of the Shares at the First Closing and
before the Reverse Stock Split, shall consist of 600,000,000 shares of the
Common Stock and 500,000,000 shares of preferred stock. As of the date hereof,
(i) 64,050,009 shares of Common Stock (with associated preferred stock purchase
rights issued pursuant to the Company's Rights Agreement dated as of July 6,
1995, as amended (the "Shareholder Rights Plan")) are outstanding and no shares
of preferred stock are outstanding and (ii) 2,932,390 shares of Common Stock
are reserved for issuance upon exercise of outstanding employee stock options
and 1,000,000 shares of preferred stock are reserved for issuance in connection
with the Shareholder Rights Plan. All outstanding shares of capital stock of
the Company have been validly issued and are fully paid

B-3
<PAGE> 82
and nonassessable, and no shares of capital stock of the Company are subject
to, nor have any been issued in violation of, preemptive or similar rights.

(b) Except as set forth above in subparagraph (a) of this Section
3.3 and as contemplated by this Agreement, there are outstanding (i) no shares
of capital stock or other voting securities of the Company; (ii) no securities
of the Company convertible into or exchangeable for shares of capital stock or
other voting securities of the Company; (iii) no options or other rights to
acquire from the Company, and no obligation of the Company to issue or sell,
any shares of capital stock or other voting securities of the Company or any
securities of the Company convertible into or exchangeable for such capital
stock or voting securities; and (iv) other than employee compensation plans
based on the Company's earnings and executive officer employment agreements, no
equity equivalents, interests in the ownership or earnings, or other similar
rights of or with respect to the Company. There are no outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire any
shares of Common Stock or any other securities of the type described in clauses
(i) - (iv) of the preceding sentence.

3.4 Authority Relative to This Agreement. The Company has full
corporate power and authority to execute, deliver, and perform this Agreement
and to execute, deliver, and where applicable, perform the Ancillary Documents
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by the Company of this
Agreement and the execution, delivery, and where applicable, performance by it
of the Ancillary Documents to which it is a party, and the consummation by it
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action of the Company (other than the approval of
the transactions contemplated in this Agreement by the shareholders of the
Company in accordance with Applicable Law and the Company's Articles of
Incorporation and the rules of the New York Stock Exchange). This Agreement
has been duly executed and delivered by the Company and constitutes, and each
Ancillary Document executed or to be executed by the Company has been, or when
executed will be, duly executed and delivered by the Company and constitutes,
or when executed and delivered will constitute, a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting
creditors' rights generally, and (ii) general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).

3.5 Noncontravention. Assuming shareholder approval as
contemplated by Section 3.6, the execution, delivery, and performance by the
Company of this Agreement and the execution, delivery, and where applicable,
the performance by it of Ancillary Documents to which it is a party and the
consummation by it of the Transaction do not and will not (i) conflict with or
result in a violation of any provision of the Company's Amended and Restated
Articles of Incorporation or the Company's Amended and Restated Bylaws, or the
charter, bylaws, partnership agreement or other governing instruments of any
Subsidiary, (ii) conflict with or result in a violation of any provision of, or
constitute (with or without the giving of notice or the passage of time or
both) a default under, or give rise (with or without the giving of notice or
the passage of time or both) to any loss of material benefit, or of any right
of termination, cancellation, or acceleration under, any Material Agreement,
(iii) except as contemplated by the terms of the New Senior Credit Facility,
result in the creation or imposition of any Encumbrance upon the properties of
the Company or any Subsidiary, or (iv) assuming compliance with the matters
referred to in Section 3.6, violate any Applicable Law binding upon the Company
or any Subsidiary, except, in the case of clauses (ii), (iii), and (iv) above,
for any such conflicts, violations, defaults, terminations, cancellations,
accelerations, or

B-4
<PAGE> 83
Encumbrances which would not, individually or in the aggregate, have a Material
Adverse Effect. The execution, delivery, and performance by the Company of
this Agreement and the execution, delivery, and where applicable, the
performance by it of Ancillary Documents to which it is a party and the
consummation by it of the Transaction do not give rise to an event that causes
the rights outstanding pursuant to the Shareholder Rights Plan to be or to
become exercisable.

3.6 Consents and Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by the Company or any
Subsidiary in connection with the execution, delivery, or performance by the
Company of this Agreement and the execution, delivery, and where applicable,
performance of Ancillary Documents to which it is a party or the consummation
of the Transaction, other than (i) the filing of any notification report and
expiration or termination of any applicable waiting period that may be required
under the HSR Act; (ii) the filing of the Statement of Resolution with the
Secretary of State of the State of Texas; (iii) compliance with any applicable
requirements of the Securities Act; (iv) compliance with any applicable
requirements of the Exchange Act; (v) compliance with any applicable state
securities laws; (vi) such filings as may be necessary or appropriate in
connection with perfection of Encumbrances securing indebtedness under the New
Senior Credit Facility; (vii) such filings as may be necessary or appropriate
in connection with mergers of any of the Subsidiaries as contemplated pursuant
to the Debt Refinancing; and (viii) such consents, approvals, orders, or
authorizations which, if not obtained, and such declarations, filings, or
registrations which, if not made, would not, individually or in the aggregate,
have a Material Adverse Effect. Except as set forth in Section 3.6 of the
Disclosure Schedule attached hereto (the "Disclosure Schedule"), no consent or
approval of any person other than the Company, Buyer or any Governmental Entity
is required to be obtained or made by the Company or any Subsidiary in
connection with the execution, delivery, or performance by the Company of this
Agreement and execution, delivery and, where applicable, performance of the
Ancillary Documents to which it is a party or the consummation of the
Transaction, other than (a) New York Stock Exchange approval for the listing of
the Series A Preferred Stock and the Conversion Shares and the trading of the
Rights, (b) such approvals as are required to be received from the shareholders
of the Company, and (c) such consents, approvals, orders, or authorizations
which, if not obtained, and such declarations, filings, or registrations which,
if not made, would not, individually or in the aggregate, have a Material
Adverse Effect.

3.7 Authorization of Issuance; Reservation of Shares. When issued
and delivered pursuant to this Agreement against payment therefor, the Shares
will have been duly authorized, issued and delivered and will be fully paid and
nonassessable. During the period within which the Series B Preferred Stock may
be converted, the Company will at all times have authorized and reserved for
the purpose of issue upon conversion of the Series B Preferred Stock, a
sufficient number of shares of Common Stock to provide for the conversion of
the Series B Preferred Stock. All shares of Common Stock which are issuable
upon conversion of the Shares (the "Conversion Shares") will, when issued, be
validly issued, fully paid and nonassessable. The issuance of the Shares is
not, and upon conversion of the Series B Preferred Stock the issuance of the
Conversion Shares will not be, subject to any preemptive or similar rights.

3.8 Subsidiaries. (a) Except as otherwise set forth in Section
3.8 of the Disclosure Schedule, the Company does not own, directly or
indirectly, more than five percent of the capital stock or other securities of
any corporation or partnership or have any direct or indirect equity or
ownership interest of more than five percent in any other person, other than
the Subsidiaries. Section 3.8 of the Disclosure Schedule lists each Subsidiary
as of the date hereof and the jurisdiction of incorporation or formation of
each Subsidiary. Each corporate Subsidiary is a

B-5
<PAGE> 84
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation, and each partnership Subsidiary
is a partnership duly formed and validly existing under the laws of the
jurisdiction of its formation. Each Subsidiary has all requisite corporate or,
in the case of a partnership Subsidiary, partnership power and corporate or, in
the case of a partnership Subsidiary, partnership authority to own, lease, and
operate its properties and to carry on its business as now being conducted.
Except as otherwise indicated on Section 3.8 of the Disclosure Schedule, no
actions or proceedings to dissolve any Subsidiary are pending.

(b) Except as otherwise indicated on Section 3.8 of the Disclosure
Schedule, all the outstanding capital stock or other equity interests of each
Subsidiary is owned directly or indirectly by the Company, free and clear of
all Encumbrances securing indebtedness for money borrowed and restrictions on
voting, sale, transfer or disposition. All outstanding shares of capital stock
of each corporate Subsidiary have been validly issued and are fully paid and
nonassessable. All partnership interests of each partnership Subsidiary have
been validly issued and are fully paid (to the extent required at such time).
No shares of capital stock or other equity interests of any Subsidiary are
subject to, nor have any been issued in violation of, preemptive or similar
rights.

(c) Except as set forth above in Section 3.8(b), there are
outstanding (i) no shares of capital stock or other voting securities of the
Subsidiaries; (ii) no securities of the Subsidiaries convertible into or
exchangeable for shares of capital stock or other voting securities of any of
the Subsidiaries; (iii) no options or other rights to acquire from any of the
Subsidiaries, and no obligation of any of the Subsidiaries to issue or sell,
any shares of capital stock or other voting securities of any of the
Subsidiaries or any securities of the Subsidiaries convertible into or
exchangeable for such capital stock or voting securities; and (iv) other than
employee compensation plans based on the Subsidiaries' earnings and executive
officer employment agreements, no equity equivalents, interests in the
ownership or earnings, or other similar rights of or with respect to the
Subsidiaries. There are no outstanding contractual obligations of the
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock or any other securities of the type described in clauses (i) -(iv) of the
preceding sentence.

3.9 Employee Benefit Plans and Other Agreements.

(a) Section 3.9 of the Disclosure Schedule lists each "employee
benefit plan", as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to
by the Company or any affiliate of the Company, and (iii) which covers any
employee or former employee of the Company or any affiliate of the Company or
under which the Company or any affiliate of the Company has any liability. The
Company has made available to Buyer accurate and complete copies of such plans
(and, if applicable, the related trust agreements) and all amendments thereto
and written interpretations thereof, together with (i) the most recent annual
reports (Form 5500 including, if applicable, Schedule B thereto) prepared in
connection with any such plan and (ii) the most recent actuarial valuation
report prepared in connection with any such plan. Such plans are referred to
in this Section as the "Employee Plans". For purposes of this Section only, an
"affiliate" of any person means any other person which, together with such
person, would be treated as a single employer under Section 414(b), (c) and (m)
of the Internal Revenue Code of 1986, as amended (the "Code"). The only
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA are identified as
such in Section 3.9 of the Disclosure Schedule.

B-6
<PAGE> 85
(b) Except as otherwise identified on Section 3.9 of the
Disclosure Schedule, (i) no Employee Plan constitutes a "multiemployer plan",
as defined in Section 3(37) of ERISA (for purposes of this Section, a
"Multiemployer Plan"), (ii) no Employee Plan is maintained in connection with
any trust described in Section 501(c)(9) of the Code, (iii) no Employee Plan is
subject to Title IV of ERISA or to the minimum funding standards of ERISA and
the Code, and (iv) during the past five years, neither the Company nor any of
its affiliates have made or been required to make contributions to any
Multiemployer Plan. There are no accumulated funding deficiencies as defined
in Section 412 of the Code (whether or not waived) with respect to any Employee
Plan. Except as has been currently or previously reflected on the financial
statements of the Company, neither the Company nor any affiliate of the Company
has incurred any material liability under Title IV of ERISA arising in
connection with the termination of, or complete or partial withdrawal from, any
plan covered or previously covered by Title IV of ERISA. There is no lien
arising under ERISA against any of the assets of the Company or any Subsidiary.
Neither the Company nor any Subsidiary or any director or officer of the
Company or any Subsidiary is subject to any liability under Title I of ERISA or
liable for any tax pursuant to Section 4975 of the Code that could have a
Material Adverse Effect. There are no threatened or pending claims by or on
behalf of the Employee Plans, or by any participant therein, alleging a breach
or breaches of fiduciary duties or violations of Applicable Laws which could
result in liability on the part of the Company, its officers or directors, or
such Employee Plans, under ERISA or any other Applicable Law, and to the
Company's knowledge, there is no basis for any such claim.

(c) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified since the
date of its adoption, and each trust forming a part thereof is exempt from tax
pursuant to Section 501(a) of the Code. Each Employee Plan has been maintained
in all material respects in compliance with its terms and with the requirements
prescribed by all Applicable Laws, including but not limited to ERISA and the
Code, which are applicable to such Employee Plans.

(d) Except as set forth in Schedule 3.9 to the Disclosure
Schedule, there is no contract, agreement, plan, or arrangement covering any
employee or former employee of the Company or any affiliate of the Company,
that, individually or collectively, could give rise to the payment of any
amount that would be an "excess parachute payment" within the meaning of
Section 280G of the Code.

(e) There are no collective bargaining agreements or other labor
union contracts applicable to any employees to or by which the Company or any
Subsidiary is a party or is bound and no such agreement or contract has been
requested by an employee or group of employees of the Company or any
Subsidiary.

(f) Except as otherwise set forth in Section 3.9 of the Disclosure
Schedule or in the Company's Form 10-K for its fiscal year ended December 31,
1995, other than the payment of wages and salaries in accordance with the
ordinary and usual payroll practices of the Company, there are no agreements,
arrangements or understandings (written or oral, formal or informal) to which
the Company or any Subsidiary is a party with any current or former director,
officer, employee, consultant or advisor or any affiliate of any such person by
which any such person shall receive any compensation, consideration or benefit
of any kind (whether cash or property) from any of the Companies. Except as
otherwise set forth in Section 3.9 of the Disclosure Schedule, no severance
payment or incentive payment, or similar obligation will be owed by the Company
or any Subsidiary to any of its respective directors, officers, or employees as
a direct result of the negotiation and/or the consummation of the Transaction
or any of the transactions constituting the

B-7
<PAGE> 86
Transaction, nor will any such director, officer, or employee be entitled to
severance payments or other similar benefits as a direct result of the
Transaction in the event of the subsequent termination of his or her
employment.

3.10 SEC Filings. The Company has filed with the Securities and
Exchange Commission (the "SEC"), and has made available to Buyer a complete and
correct copy of, all forms, reports, schedules, statements, and other documents
(excluding exhibits and preliminary material) required to be filed by it under
the Securities Act, the Exchange Act, and all other federal securities laws,
during the period from December 31, 1993 to the date of this Agreement. All
forms, reports, schedules, statements, and other documents (including all
amendments thereto) filed by the Company with the SEC, including the Proxy
Statement and the Registration Statements at the time that such documents are
filed in accordance with Section 5.6 and Section 5.9 hereof, respectively, are
herein collectively referred to as the "SEC Filings". The SEC Filings, at the
time filed, complied as to form in all material respects with all applicable
requirements of federal securities laws. None of the SEC Filings, including,
without limitation, any financial statements or schedules included therein, at
the time filed, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under
which they were made, not misleading except as the same was corrected or
superseded in a subsequent document duly filed with the SEC. The audited
consolidated financial statements and unaudited consolidated interim financial
statements of the Company included in the SEC Filings present fairly in all
material respects, in conformity with generally accepted accounting principles
applied on a consistent basis (except as may be indicated in the notes thereto
and, in the case of the unaudited consolidated interim financial statements,
except to the extent that preparation of such financial statements in
accordance with generally accepted accounting principles is not required by
applicable rules of the SEC), the consolidated financial position of the
Company as of the dates thereof and its consolidated results of operations and
cash flows for the periods then ended (subject to normal year-end audit
adjustments in the case of any unaudited interim financial statements). No
representations are made in this Section by the Company with respect to any
information furnished by and relative to Buyer for inclusion in the
Registration Statements or the Proxy Statement.

3.11 Absence of Undisclosed Liabilities. Except as set forth in
Section 3.11 of the Disclosure Schedule or to the extent disclosed in the SEC
Filings filed prior to the date hereof, (a) as of December 31, 1995, neither
the Company nor any Subsidiary had any liabilities or obligations (whether
accrued, absolute, contingent, unliquidated, or otherwise) material to the
Company and the Subsidiaries considered as a whole, and (b) since December 31,
1995, neither the Company nor any Subsidiary has incurred any such material
liabilities or obligations, other than those incurred in the ordinary course of
business consistent with past practice or pursuant to or as contemplated by
this Agreement.

3.12 Absence of Certain Changes. Since December 31, 1995, (i)
there has not been any Material Adverse Effect, specifically including, without
limitation, any event causing a material reduction (other than by production of
reserves) in the aggregate total of the proved oil and gas reserves of the
Company and its Subsidiaries, below the aggregate reserve totals reflected in
the most recent reserve report prepared by the Company's engineers estimating
the proved reserves attributable to the Company's oil and gas properties as of
December 31, 1995 and as described in the Company's most recent Form 10-K for
the fiscal year ended December 31, 1995 (the "Reserve Report") (provided that
it is understood and agreed for all purposes of this Agreement that the receipt
by the Company of any reserve report prepared by persons other than the
Company, containing estimates of proved reserves less than the estimate thereof
set forth in the Reserve

B-8
<PAGE> 87
Report, shall not of itself be deemed to constitute such a material reduction,
unless such other reserve report contains a materially lower estimate of proved
reserves due to taking into account (A) a physical event occurring subsequent
to the date of the Reserve Report or (B) additional interpretative data from
that available at the time of the preparation of the Reserve Report that, in
the case of (A) or (B), in the opinion of the Company's petroleum engineers,
exercising their independent professional judgment, would cause such persons to
materially reduce the estimates of proved reserves contained in the Reserve
Report), (ii) neither the Company nor any Subsidiary has incurred any liability
or engaged in any transaction that is material to the Company and its
Subsidiaries taken as a whole, or entered into any Material Agreement, except
in the ordinary course of business consistent with past practice, as
contemplated by this Agreement or as disclosed in Section 3.12 of the
Disclosure Schedule, or (iii) neither the Company nor any Subsidiary is in
default under (and no event has occurred which with the lapse of time or action
by a third party could result in a default under) any Material Agreement,
except for (x) such defaults that have been waived or cured in all respects
prior to the date hereof and (y) defaults as contemplated by the Company's Form
10-K for the fiscal year ended December 31, 1995, that may occur on and after
the date hereof under the Existing Bank Debt or the 12 3/4% Notes.

3.13 Compliance With Laws and Permits. Except as set forth in
Section 3.13 of the Disclosure Schedule or as otherwise specified in Section
3.9 or Section 3.21, since March 31, 1992, (i) the Company and the Subsidiaries
have complied with all Applicable Laws (including without limitation Applicable
Laws relating to securities, properties, production of hydrocarbons, sales of
hydrocarbons, employment practices, terms and conditions of employment, wages
and hours, safety, occupational safety, product safety, and civil rights) other
than violations which in the reasonable judgment of the Company, individually
or in the aggregate, do not and will not have a Material Adverse Effect; (ii)
each of the Companies has obtained and holds all material permits, licenses,
variances, exemptions, orders, franchises, approvals and authorizations of all
Governmental Entities necessary for the lawful conduct of its business or the
lawful ownership, use and operation of its assets; (iii) neither the Company
nor any Subsidiary has received any written notice, which has not been
dismissed or otherwise disposed of, that the Company or any Subsidiary has not
so complied; and (iv) neither the Company nor any Subsidiary is charged or, to
the best knowledge of the Company, threatened with, or, to the best knowledge
of the Company, under investigation with respect to, any violation of any
Applicable Law relating to any aspect of the business of the Company or any
Subsidiary other than violations which in the reasonable judgment of the
Company, individually or in the aggregate, do not and will not have a Material
Adverse Effect.

3.14 Litigation. The Company has delivered to Buyer an accurate
list of all Proceedings pending or, to the best knowledge of the Company,
threatened against or involving the Company or any Subsidiary (or any of their
respective directors or officers in connection with the business or affairs of
the Company or any Subsidiary) or any properties or rights of the Company or
any Subsidiary as of the date hereof. Any and all probable and estimated
liabilities of the Company and the Subsidiaries under such Proceedings are
adequately covered (except for standard deductible amounts) by the existing
insurance maintained by the Company or reserves established in the financial
statements of the Company. The Company has no knowledge of any facts that are
likely to give rise to any additional Proceedings that would reasonably be
expected to have a Material Adverse Effect. As of the date hereof, there are
no Proceedings pending or, to the best knowledge of the Company, threatened
seeking to restrain, prohibit, or obtain damages or other relief in connection
with this Agreement or the Transactions.

3.15 Settlement Agreement. All applicable requirements of that
certain Agreement of Compromise and Settlement dated September 20, 1995, among
the Company, Boone Pickens and

B-9
<PAGE> 88
the parties referred to as the WDB Parties therein (the "Settlement Agreement")
have been satisfied so that the issuance of stock to Buyer and upon the
exercise of Rights in the Rights Offering as contemplated hereby will be
classified as an "Endorsed Major Transaction" thereunder. To the knowledge of
the Company, the Settlement Agreement is in full force and effect as of the
date hereof. The Company has not entered into any amendment of the Settlement
Agreement nor waived any of its rights with respect thereto, and the Company is
not in default thereunder. As of the date hereof, to the knowledge of the
Company, no WDB Party has initiated a "Solicitation Action" (as defined in the
Settlement Agreement) or taken any actions in the nature of those which are
restricted by Sections 4, 6(a), 6(c) or 7 of the Settlement Agreement (except
that no representation or warranty is being made with respect to any letters to
the Board of Directors from Joel L. Reed and Dorn Parkinson, in form and
substance similar to the drafts thereof provided to Buyer on the date hereof).

3.16 True and Complete Disclosure. Taken in the aggregate, all
factual information (excluding estimates), including without limitation factual
information contained in the Reserve Report and any other reserve report
prepared by the Company in connection with the oil and gas properties of the
Companies, heretofore or contemporaneously furnished by the Company to Buyer in
writing for purposes of or in connection with this Agreement or the Transaction
has been true and accurate in all material respects on the date as of which
such information is dated and not incomplete by omitting to state any material
fact necessary to make the statements of fact contained therein, in the light
of the circumstances under which they were made, not misleading at such date.
All financial forecasts prepared and furnished by the Company to Buyer were
prepared in good faith on the basis of assumptions believed to be reasonable
and data, information, tests or conditions believed to be valid or accurate or
to exist at the time such forecasts were prepared.

3.17 Books and Records. All books, records and files of the
Companies (including those pertaining to the Companies' oil and gas properties,
wells and other assets, those pertaining to the production, gathering,
transportation and sale of hydrocarbons, and corporate, accounting, financial
and employee records) (a) have been prepared, assembled and maintained in
accordance with usual and customary policies and procedures and (b) fairly and
accurately reflect in all material respects the ownership, use, enjoyment and
operation by the Companies of their respective assets.

3.18 Governmental Regulation. Neither the Company nor any
Subsidiary is an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended. Neither the Company nor any Subsidiary is a "holding company," or
a "subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended. Neither
the Company nor any Subsidiary has a similar status under any similar state
laws or regulations of the type regulating public utilities.

3.19 Investments and Guarantees. Except as set forth in Section
3.19 of the Disclosure Schedule or in the SEC Filings filed prior to the date
hereof, none of the Companies is a party to (i) any financial arrangement with
respect to or creating any indebtedness to any person (other than indebtedness
incurred in the ordinary course of business); (ii) any Material Agreement
relating to the making of any advance to, or investment in, any person; or
(iii) any Material Agreement providing for a guaranty or other contingent
liability with respect to any indebtedness for money borrowed or similar
obligation of any person.

3.20 Taxes. Except as disclosed in Section 3.20 of the Disclosure
Schedule: (i) the Company and each Subsidiary have duly filed all federal,
state, local, and foreign Tax Returns

B-10
<PAGE> 89
required to be filed by or with respect to them with the Internal Revenue
Service or other applicable taxing authority when due (as extended pursuant to
extensions with respect to such Tax Returns that have been requested or
granted); (ii) the Company and each Subsidiary have paid, or adequately
reserved against in the Company's financial statements, all Taxes due, or
claimed by any taxing authority to be due, from or with respect to them, except
Taxes that are being contested in good faith by appropriate legal proceedings
and for which adequate reserves have been established in such financial
statements; (iii) to the knowledge of the Company, there has been no issue
raised or adjustment proposed (and none is pending) by the Internal Revenue
Service or any other taxing authority in connection with any of the Tax
Returns, except for (a) such adjustments as the Company has settled prior to
the date of this Agreement with the Internal Revenue Service or applicable
taxing authority, or (b) adjustments that are being contested in good faith by
appropriate legal proceedings and for which adequate reserves have been
established in the Company's financial statements (each of which is disclosed
in Section 3.20 of the Disclosure Schedule); (iv) the Company and each
Subsidiary have made all deposits required with respect to Taxes; and (v) no
waiver or extension of any statute of limitations as to any federal Tax matter
has been given by or requested from the Company or any Subsidiary.

3.21 Environmental Matters. Except as set forth in Section 3.21 of
the Disclosure Schedule:

(a) Each of the Companies has conducted its business and operated
its assets, and is conducting its business and operating its assets, in
material compliance with all Applicable Laws pertaining to health, safety, the
environment, Hazardous Material (as such term is defined in CERCLA), or Solid
Wastes (as such term is defined in RCRA) (such Applicable Laws as they now
exist or are hereafter enacted and/or amended are collectively, for purposes of
this Section, called "Environmental Laws"), including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986 (as
amended, for purposes of this Section, called "CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and
Solid Waste Amendments of 1984 (as amended, for purposes of this Section,
called "RCRA");

(b) None of the Companies has been notified by any Governmental
Entity that any of the operations or assets of any of the Companies is the
subject of any investigation or inquiry by any Governmental Entity evaluating
whether any material remedial action is needed to respond to a release of any
Hazardous Material or to the improper storage or disposal (including storage or
disposal at offsite locations) of any Hazardous Material;

(c) None of the Companies and, to the Company's knowledge, no
other person has filed any notice under any federal, state or local law
indicating that (i) any of the Companies is responsible for the improper
release into the environment, or the improper storage or disposal, of any
Hazardous Material, or (ii) any Hazardous Material is improperly stored or
disposed of upon any property of any of the Companies;

(d) To the Company's knowledge, none of the Companies has any
material contingent liability in connection with (i) the release into the
environment at or on any property now or previously owned or leased by any of
the Companies, or (ii) storage or disposal of any Hazardous Material;

B-11
<PAGE> 90
(e) In the last six years, none of the Companies has received any
claim, complaint, notice, inquiry or request for information which remains
unresolved as of the date hereof with respect to any alleged material violation
of any Environmental Law or regarding potential material liability under any
Environmental Law relating to operations or conditions or any facilities or
property owned, leased or operated by any of the Companies;

(f) To the Company's knowledge, no property now or previously
owned, leased or operated by any of the Companies is listed on the National
Priorities List pursuant to CERCLA or on any similar federal or state list as
sites requiring investigation or cleanup;

(g) To the Company's knowledge, none of the Companies is directly
transporting, has directly transported, is directly arranging for the
transportation of, or has directly transported, any Hazardous Material to any
location which is listed on the National Priorities List pursuant to CERCLA or
on any similar federal or state list or which is the subject of federal, state
or local enforcement actions that may lead to material claims against such
company for remedial work, damage to natural resources or personal injury,
including claims under CERCLA;

(h) There are no sites, locations or operations at which any of
the Companies is currently undertaking any remedial or response action relating
to any disposal or release of any Hazardous Material, as required by
Environmental Laws; and

(i) All underground storage tanks and solid waste disposal
facilities owned or operated by the Companies are used and operated in material
compliance with Environmental Laws.

3.22 Insurance. Each of the Companies carry, and will continue to
carry, insurance with reputable insurers (except as to self-insurance) in
respect of such of their respective properties, in such amounts and against
such risks as is customarily maintained by other persons of similar size
engaged in similar businesses (which may include self-insurance in amounts
customarily maintained by companies similarly situated or has been maintained
in the past by the Companies.) None of such insurance was obtained through the
use of materially false or misleading information or the failure to provide the
insurer with all material information requested in order to evaluate the
liabilities and risks insured. The Companies have not received any notice of
cancellation or non-renewal of any insurance policies or binders.

3.23 Oil and Gas Operations. In those instances in which any of
the Companies serves as operator of a well that is currently a producing well
or undergoing drilling operations, it has drilled and completed (if applicable)
such well, and operated and produced such well, in accordance with generally
accepted oil and gas field practices and in compliance in all material respects
with applicable oil and gas leases and all Applicable Laws, except where any
failure or violation could not reasonably be expected to have a Material
Adverse Effect on the Companies. All proceeds from the sale of oil, gas and
other hydrocarbons produced by the Companies are being received by the
Companies in a timely manner and are not being held in suspense for any reason
(except for amounts, individually or in the aggregate, not in excess of
$500,000 and held in suspense in the ordinary course of business).

3.24 Marketing of Production. Except for contracts listed in
Section 3.24 of the Disclosure Schedule (with respect to all of which contracts
the Company represents that it or its Subsidiaries are receiving a price for
all production sold thereunder which is computed in accordance with the terms
of the relevant contract), there exist no Material Agreements for the sale of
production from the leasehold and other interests in oil, gas and other mineral
properties owned,

B-12
<PAGE> 91
or otherwise held in the name of, the Companies (collectively, the "Oil and Gas
Properties") (including without limitation, calls on, or other rights to
purchase, production, whether or not the same are currently being exercised)
other than (i) agreements or arrangements pertaining to the sale of production
at a price equal to or greater than a price that is the market price from time
to time existing in the areas where the Oil and Gas Properties subject to such
agreement or arrangement are located, and (ii) agreements or arrangements that
are cancelable on 60 days notice or less without penalty or detriment.

3.25 Prepayments. Neither the Company nor any Subsidiary is
obligated, by virtue of a prepayment arrangement, make-up right under a
production sales contract containing a "take or pay" or similar provision,
production payment or any other arrangement, to deliver hydrocarbons, or
proceeds from the sale thereof, attributable to any of its properties at some
future time without then or thereafter being entitled to receive payment of the
contract price therefor, except where any such arrangement would not have a
Material Adverse Effect.

3.26 Gas Imbalances. Except as disclosed in the SEC Filings filed
prior to the date hereof, neither the Company nor any Subsidiary had (i) any
obligation to deliver gas from the Oil and Gas Properties (or cash in lieu
thereof) to other owners of interests in those properties as a result of past
production by the Company, any Subsidiary or any of their predecessors in
excess of the share to which they were entitled nor (ii) any right to receive
deliveries of gas from the Oil and Gas Properties (or cash in lieu thereof)
from other owners of interests in those properties as a result of past
production by the Company, any Subsidiary or any of their predecessors of less
than the share to which they were entitled; in either case where any such gas
imbalance would have a Material Adverse Effect.

3.27 Customers and Suppliers. None of the current customers or
suppliers of the Companies has refused, or communicated in writing that it will
or may refuse, to purchase or supply products or services from or to the
Companies or has communicated in writing that it will or may substantially
reduce the amount of production, goods or services that it is willing to
purchase from or supply to the Companies where any such refusal or reduction
would have a Material Adverse Effect.

3.28 Material Personal Property. All pipelines, wells, gas
processing plants, platforms and other material improvements, fixtures and
equipment owned in whole or in part by the Company or any Subsidiary that are
necessary to conduct normal operations are being maintained in a state adequate
to conduct normal operations, and with respect to such of the foregoing which
are operated by the Company or any Subsidiary, in a manner consistent with the
Company's or the Subsidiaries' past practices.

3.29 Reserve Report. The Company acknowledges and agrees that
Buyer has been provided with a copy of the Reserve Report. The Company's and
each Subsidiary's ownership of the Oil and Gas Properties described in the
Reserve Report entitle the respective owner to receive a percentage of the oil,
gas and other hydrocarbons produced from each well or unit equal to not less
than the percentage set forth in the Reserve Report as the "Net Revenue
Interest" for such well or unit and cause the respective owner to be obligated
to bear a percentage of the cost of operation of such well or unit not greater
than the percentage set forth in the Reserve Report as the "Working Interest"
for such well or unit, and to the extent such percentages of production which
the respective owner is entitled to receive, and shares of expenses which the
respective owner is obligated to bear, may change after the date of such
report, such changes were properly reflected (based on reasonable

B-13
<PAGE> 92
assumptions) in preparing such report. The underlying historical information
used for preparation of the Reserve Report was, at the time of delivery, true
and correct in all material respects.

3.30 Nonconsent Operations. Except as set forth in Section 3.30 of
the Disclosure Schedule, there are no operations on the Oil and Gas Properties
in which the Company's or any Subsidiary's commitment would have exceeded
$1,000,000, being conducted as of January 1, 1995, or any time thereafter, in
which the Company or any Subsidiary has elected not to participate.

3.31 Intellectual Property. The Company and its Subsidiaries
either own or have valid licenses or other rights to use all patents,
copyrights, trademarks, software, databases, geological data, geophysical data,
engineering data, maps, interpretations and other technical information used in
their businesses as presently conducted, subject to the limitations contained
in the agreements governing the use of the same, which limitations are
customary for companies engaged in the business of the exploration and
production of oil, gas, condensate and other hydrocarbons, with such exceptions
as would not result in a Material Adverse Effect. There are no limitations
contained in the agreements of the type described in the immediately preceding
sentence which, upon consummation of the Transaction, will alter or impair any
such rights, breach any such agreement with any third party vendor, or require
payments of additional sums thereunder, except any such limitations that would
not have a Material Adverse Effect. The Company and its Subsidiaries are in
compliance in all material respects with such licenses and agreements and there
are no pending or, to the best knowledge of the Company or any Subsidiary,
threatened Proceedings challenging or questioning the validity or effectiveness
of any license or agreement relating to such property or the right of the
Company or any Subsidiary to use, copy, modify or distribute the same.

3.32 Prior Securities Offerings. Since January 1, 1993, the
Company has not sold any securities other than securities registered pursuant
to the Securities Act.

3.33 Private Offering of the Securities. Neither the Company nor
anyone acting on its behalf has offered or will offer the Shares or any part
thereof or any similar securities, other than the Series A Preferred Stock
issuable pursuant to the Rights Offering, for issue or sale to, or has
solicited or will solicit any offer to acquire any of the same from, anyone so
as to bring the issuance and sale of the Shares within the provisions of
Section 5 of the Securities Act.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to the Company that:

4.1 Organization. Buyer is a limited partnership that is duly
formed and validly existing as a limited partnership under the laws of the
State of Texas.

4.2 Authority Relative to This Agreement. Buyer has full power
and authority to execute, deliver, and perform this Agreement and execute,
deliver and, where applicable, perform the Ancillary Documents to which it is a
party and to consummate the transactions contemplated hereby and thereby. The
execution, delivery, and performance by Buyer of this Agreement and execution,
delivery, and, where applicable, performance of the Ancillary Documents to
which it is a party, and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
action of Buyer. This Agreement has been duly executed and

B-14
<PAGE> 93
delivered by Buyer and constitutes, and each Ancillary Document executed or to
be executed by Buyer has been, or when executed will be, duly executed and
delivered by Buyer and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except that such enforceability may
be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting creditors' rights generally and (ii)
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

4.3 Noncontravention. The execution, delivery, and performance by
Buyer of this Agreement and the execution, delivery and, where applicable,
performance of Ancillary Documents to which it is a party and the consummation
by it of the transactions contemplated hereby and thereby do not and will not
(i) conflict with or result in a violation of any provision of the agreement of
limited partnership of Buyer, (ii) conflict with or result in a violation of
any provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, agreement, or other instrument or obligation to which Buyer
is a party or by which Buyer or any of its properties may be bound, (iii)
result in the creation or imposition of any Encumbrance upon the properties of
Buyer, or (iv) violate any Applicable Law binding upon Buyer, except, in the
case of clauses (ii), (iii), and (iv) above, for any such conflicts,
violations, defaults, terminations, cancellations, accelerations, or
Encumbrances which would not, individually or in the aggregate, have a material
adverse effect on the business, assets, results of operations, or financial
condition of Buyer or on the ability of Buyer to consummate the transactions
contemplated hereby.

4.4 Consents and Approvals. Other than (i) any HSR Act filing and
(ii) filings required by the Exchange Act, no consent, approval, order, or
authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by Buyer or any of its
partners in connection with the execution, delivery, or performance by Buyer of
this Agreement. No consent or approval of any person other than any
Governmental Entity is required to be obtained or made by Buyer or any of its
partners in connection with the execution, delivery or performance by Buyer of
this Agreement and the execution, delivery and, where applicable, performance
of the Ancillary Documents to which it is a party.

4.5 Purchase for Investment.

(a) Buyer and each of its partners has been furnished with all
information that it has requested for the purpose of evaluating the proposed
acquisition of the Shares pursuant hereto, and Buyer (and each of its partners)
has had an opportunity to ask questions of and receive answers from the Company
regarding the Company and its business, assets, results of operations,
financial condition and prospects and the terms and conditions of the issuance
of the Shares.

(b) Buyer is acquiring the Series B Preferred Stock solely by and
for its own account, for investment purposes only and not for the purpose of
resale or distribution; and neither Buyer nor any of its partners has any
contract, undertaking, agreement or arrangement with any person or entity to
sell, transfer or pledge to such person or anyone else any Series B Preferred
Stock; and neither Buyer nor any of its partners has any present plans or
intentions to enter into any such contract, undertaking or arrangement.

(c) Buyer and each of its partners acknowledges and understands
that (i) no registration statement relating to the Series B Preferred Stock (or
the Conversion Shares or the shares of Series

B-15
<PAGE> 94
A Preferred Stock into which the Series B Preferred Stock will be convertible)
has been or is to be filed with the SEC under the Securities Act or pursuant to
the securities laws of any state; (ii) the Series B Preferred Stock (and the
Conversion Shares or the shares of Series A Preferred Stock into which the
Series B Preferred Stock will be convertible) cannot be sold or transferred
without compliance with the registration provisions of the Securities Act or
compliance with exemptions, if any, available thereunder; (iii) the
certificates representing the Shares will include a legend thereon that refers
to the foregoing; and (iv) the Company has no obligation or intention to
register the Series B Preferred Stock (or the Conversion Shares or the shares
of Series A Preferred Stock into which the Series B Preferred Stock will be
convertible) under any federal or state securities act or law; except to the
extent in each case that the terms of the Registration Rights Agreement set
forth as Exhibit B hereto shall otherwise provide.

(d) Buyer and each of its partners (i) is an "accredited investor"
as defined in Rule 501 of the rules promulgated pursuant to the Securities Act;
(ii) has such knowledge and experience in financial and business matters in
general that it has the capacity to evaluate the merits and risks of an
investment in the Series B Preferred Stock and to protect its own interest in
connection with an investment in the Series B Preferred Stock; (iii) has such a
financial condition that it has no need for liquidity with respect to its
investment in the Series B Preferred Stock to satisfy any existing or
contemplated undertaking, obligation or indebtedness; and (iv) is able to bear
the economic risk of its investment in the Series B Preferred Stock for an
indefinite period of time.

(e) Buyer and each of its partners has relied upon its own
independent investigations of the business of the Company or upon its own
independent advisers in evaluating its investment in the Series B Preferred
Stock, provided that in conducting such investigations, they and their advisers
have relied upon the information furnished to them by the Company and the
representations and warranties herein contained.

(f) The agreement of limited partnership of Buyer requires that
each Partner make substantially the same representations and warranties as set
forth in this Section 4.5 in order to enable the Company to substantiate that
the sale of the Series B Preferred Stock to Buyer shall be exempt from the
registration provisions of the Securities Act.

(g) The acquisition of the Shares by Buyer at the First Closing
and the Second Closing, as applicable, shall constitute Buyer's confirmation of
the foregoing representations.

4.6 No Other Shares. Except for such rights as may be conferred
on Buyer by this Agreement and the Ancillary Documents, neither Buyer, any of
its partners nor any Affiliate of Buyer beneficially owns, directly or
indirectly, any shares of capital stock or other securities of the Company or
any of its Subsidiaries.

4.7 Financial Resources. The Partnership has the financial
resources available to it as are necessary to perform its obligations to
acquire the Shares pursuant to the terms of this Agreement.

4.8 Disclosure Documents. None of the written information
furnished by Buyer before or after the date hereof pursuant to Section 5.17 for
inclusion in either of the Registration Statements or the Proxy Statement will,
at the time each such Registration Statement becomes effective or the
prospectus included therein is first mailed to the Company's shareholders, or
at the time the Proxy Statement is filed with the SEC or is first mailed to the
Company's shareholders, contain any untrue statement of a material fact or omit
to state any material fact required to be

B-16
<PAGE> 95
stated therein or necessary in order to make the statements contained therein,
in light of the circumstances under which they are made, not misleading. The
representations and warranties contained in this Section 4.8 shall not apply to
statements or omissions in the information furnished pursuant to Section 5.17
to the extent such information is based upon information furnished to Buyer by
the Company.

4.9 Brokerage Fees. Buyer has not retained any financial advisor,
broker, agent, or finder or paid or agreed to pay any financial advisor,
broker, agent, or finder on account of the sale by the Company and the purchase
by Buyer of the Shares pursuant to this Agreement.

4.10 True and Complete Disclosure. Taken in the aggregate, all
factual information (excluding estimates) heretofore or contemporaneously
furnished by Buyer to the Company in writing for purposes of or in connection
with this Agreement or the Transaction has been true and accurate in all
material respects on the date as of which such information is dated and not
incomplete by omitting to state any material fact necessary to make the
statements of fact contained therein, in the light of the circumstances under
which they were made, not misleading at such date.

4.11 Governmental Regulation. Buyer is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.

ARTICLE V

ADDITIONAL AGREEMENTS

5.1 Continuing Operations. From the date of this Agreement to
the earlier of (i) the First Closing Date, or (ii) the termination of this
Agreement in accordance with its terms (the "Interim Period"), the Company and
its Subsidiaries shall conduct their business in the ordinary and usual course,
and neither the Company nor any Subsidiary shall, without the prior consent of
Buyer (which consent may be obtained in writing or by discussions, in person or
by telephone, with an officer of the general partner of Buyer), except as
expressly contemplated hereby:

(a) amend its charter or bylaws; split (including any
reverse split), combine, or reclassify any shares of its capital
stock; adopt resolutions authorizing a liquidation, dissolution,
merger, consolidation, restructuring, recapitalization, or other
reorganization of the Company or any Subsidiary; or make any other
material changes in its capital structure;

(b) except in the ordinary course of business consistent
with past practice, (i) incur any liability or obligation, (ii) become
liable or responsible for the obligations of any other Person (other
than wholly-owned Subsidiaries) or (iii) pay, discharge, or satisfy
any claims, liabilities, or obligations (whether accrued, absolute,
contingent, unliquidated, or otherwise, and whether asserted or
unasserted), other than the payment, discharge, or satisfaction, in
the ordinary course of business consistent with past practice, of
liabilities reflected or reserved against in the financial statements;
provided that, in no event shall any of the Companies enter into any
settlement or compromise of any litigation or claims involving
liability in excess of $500,000, without the prior written approval of
Buyer;

B-17
<PAGE> 96
(c) incur any indebtedness for borrowed money, except for
borrowings under the Existing Credit Agreement;

(d) make any loans or advances to any person, other than
(i) advances to employees in the ordinary and usual course of business
and (ii) transactions among or between the Companies with respect to
cash management conducted in the ordinary and usual course of the
Companies' business;

(e) declare or pay any dividend or make any other
distribution with respect to its capital stock, other than dividends
paid by any Subsidiary to another of the Companies in the ordinary and
usual course of the Companies' business;

(f) issue, sell, or deliver (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights
to purchase, or otherwise) any of its capital stock or other
securities other than as contemplated herein or pursuant to stock
options issued and outstanding as of the date hereof or purchase or
otherwise acquire any of its capital stock, employee or director stock
options or debt securities;

(g) subject to Encumbrance any of its assets or
properties, other than those Encumbrances arising by operation of law
or in the ordinary and usual course of business and those Encumbrances
incurred to secure the Existing Indebtedness;

(h) other than in the ordinary course of business, sell,
lease, transfer, or otherwise dispose of, directly or indirectly, any
assets, or waive, release, grant, or transfer any rights of value;

(i) acquire (by merger, consolidation, acquisition of
stock or assets or otherwise) any corporation, partnership or other
business organization or division thereof; create or make any
investment in any subsidiary; or make any other investment or
expenditure of a capital nature, other than any capital expenditure
already included in the capital expenditure budget for the Companies
for the period from March 31, 1996 through July 31, 1996, as
previously provided to and approved by Buyer; provided that, the
amount and timing of such capital expenditure must not vary in any
material respect from that set forth in the approved budget;

(j) enter into, adopt, or (except as may be required by
law) amend or terminate any collective bargaining agreement or any
Benefit Plan; approve or implement any employee lay off or other
personnel reorganization plans; approve or implement any employment
severance arrangements (other than payments made under the Company's
severance policy in accordance with past practice) or retain or
discharge any officers and executive management personnel; authorize
or enter into any employment, severance, consulting services or other
agreement with any officers and executive management personnel; or
except as set forth in Section 5.1 of the Disclosure Schedule, change
the compensation or benefits provided to any director, officer, or
employee as of February 1, 1996;

(k) enter into any contract, agreement, lease or other
commitment which is material to the business, assets, properties, or
financial position of the Companies; or amend, modify, or change in
any material respect any of the agreements pertaining to the Existing

B-18
<PAGE> 97
Indebtedness or any other existing contract, agreement, lease or other
commitment which is material to the business, assets, properties, or
financial position of the Companies;

(l) enter into any speculative or commodity swaps, hedges
or other derivatives transactions or purchase any securities for
investment purposes, other than in connection with the Companies' cash
management;

(m) authorize, enter into or amend any contract,
agreement or other commitment with any director, officer, employee or
other Affiliate (other than the Companies) pursuant to which any such
person shall receive compensation, consideration or benefit of any
kind (whether cash or property) from any of the Companies;

(n) adopt, approve or implement any annual general and
administrative expense budget for the Companies for any period after
July 31, 1996, or modify any of the Companies' existing general and
administrative expense budgets in any material respect;

(o) enter into any contract not cancelable within 30 days
providing for the sale of production from the Companies' oil and gas
properties or obligating any of the Companies to pay for any services
with respect to the Company's oil and gas properties except as
contemplated by the capital budget for the Companies for the period
from March 31, 1996 through July 31, 1996 described in clause (i)
above; or

(p) grant any option or preferential right to purchase or
enter into any other agreements that could adversely affect the
marketability of any material asset of the Companies.

5.2 Press Releases. Except as may be required by Applicable Law
or by the rules of any national securities exchange, neither Buyer nor the
Company shall issue any press release with respect to this Agreement or the
Transaction without the prior consent of the other party (which consent shall
not be unreasonably withheld under the circumstances). Any such press release
required by Applicable Law or by the rules of any national securities exchange
shall only be made after reasonable notice to the other party.

5.3 Stock Exchange Listing. The Company shall use its reasonable
best efforts to cause the Series A Preferred Stock and the Conversion Shares to
be approved for listing on the New York Stock Exchange, subject to official
notice of issuance (and, in the case of the Series A Preferred Stock,
satisfactory distribution), prior to the Second Closing Date and to cause the
Rights to be approved for trading thereon prior to the commencement of the
Rights Offering.

5.4 Fees and Expenses.

(a) The Company shall be responsible for the payment of all
expenses incurred by the Company in connection with the proposed Transaction,
regardless of whether the Transaction closes, including, without limitation,
all fees and expenses incurred in connection with the Registration Statements
and the Proxy Statement and the fees and expenses of the Company's legal
counsel and all third party consultants engaged by the Company to assist in the
Transaction. Subject to receipt of appropriate documentation, the Company
shall also reimburse Buyer for all out of pocket expenses reasonably incurred
by Buyer in connection with the proposed Transaction (other than fees and
expenses related to the letter of credit to be provided pursuant to Section
5.7), including, without limitation, the fees and expenses of Buyer's legal
counsel and all third party consultants

B-19
<PAGE> 98
engaged by Buyer to assist in the Transaction, subject to the requirement that
any such third party consultants other than accountants, oil and gas or
environmental consultants, shall be subject to the approval of the Company,
which approval will not be unreasonably withheld. Such reimbursements to Buyer
shall be due at the Second Closing, or promptly following any earlier
termination of this Agreement for any reason (including, without limitation,
any termination of this Agreement by election of Buyer). Concurrently with the
execution of that certain letter of intent (and attached term sheet) by and
between the Company and Rainwater, Inc. dated February 28, 1996 (as amended by
letter dated April 1, 1996, the "Letter of Intent"), the Company paid to Buyer
the amount of $500,000 (the "Initial Payment"), which Initial Payment shall be
credited against the fees and expenses otherwise owed to Buyer upon termination
hereof or upon the Second Closing pursuant to this Section 5.4(a). To the
extent that such Initial Payment exceeds the total of all such fees and
expenses owed to Buyer following any termination hereof, such excess will be
refunded to the Company.

(b) The Company shall (i) at the First Closing pay Buyer the
amount of $4,655,000 (provided, however, that if funds are not reasonably
available at such time, then the Company shall pay such fee as promptly as
practicable thereafter, but in no event later than the Second Closing), which
amount constitutes 3.5% of the aggregate amount of Series B Preferred Stock
that Buyer is obligated to purchase at the First Closing pursuant to this
Agreement (i.e., 3.5% times $133,000,000); and (ii) at the Second Closing pay
Buyer the amount of $4,620,000, which amount constitutes 3.5% of the aggregate
amount of Series B Preferred Stock that Buyer could be obligated to purchase at
the Second Closing pursuant to this Agreement (i.e., 3.5% times $132,000,000),
less an amount, if any, by which the actual fees and expenses owed to Buyer by
the Company as of the Second Closing Date pursuant to Section 5.4(a) above are
less than the Initial Payment.

(c) For so long as the Minimum Ownership Condition (as such term
is defined in the Statement of Resolution) is satisfied, the Company shall pay
Buyer $400,000 annually, due quarterly in arrears beginning September 30, 1996
(adjusted pro-rata for any period which is less than a full quarter), and
reimburse Buyer annually (payable quarterly in arrears) for all fees and
expenses reasonably incurred by Buyer in connection with monitoring the
activities and operations of the Company (including, without limitation, those
incurred in connection with the Debt Refinancing), up to a maximum of $50,000
for any calendar year (adjusted pro-rata for any period which is less than a
full year), unless the Company shall have approved a greater amount. Buyer
agrees that its principals and its Affiliates shall provide continuing analysis
and assistance to the Company during the course of Buyer's investment, and it
is acknowledged by the parties that the annual fee payable to Buyer pursuant to
this Section 5.4(c) is in consideration of Buyer's obligations hereunder and
also compensates Buyer for the time that its representatives (including
executive officers of the general partner of Buyer) shall devote to Company
affairs rather than other aspects of the business of Buyer and its general
partner. Such amounts payable to Buyer pursuant to this Section 5.4(c) are in
lieu of any transaction or success fees that might otherwise typically be
charged for any such services performed in connection with specific
transactions in which the Company may participate in the future.

5.5 Brokers, etc. The Company shall be solely responsible for the
payment of any amounts owed to Lehman Brothers Inc. in connection with the sale
and purchase of the Shares as contemplated herein, and the Company shall be
solely responsible for the payment of any commission or other compensation
payable to any financial advisor, broker, agent, finder, or similar
intermediary retained by or acting on behalf of the Company in connection with
the consummation of the Debt Refinancing and the Rights Offering.

B-20
<PAGE> 99
5.6 Special Meeting; Proxy Statement.

(a) The Company shall take all action necessary in accordance with
Applicable Law and the Company's Articles of Incorporation and Bylaws to duly
call, give notice of, convene and hold a special meeting of its shareholders
(the "Special Meeting") as promptly as practicable after the date hereof to
consider and vote upon the adoption and approval of the Transaction (including,
without limitation, amendments to the Articles of Incorporation of the
Company), to the extent such shareholder approval is necessary with respect to
the effectuation of any part of the Transaction. The shareholder vote required
for the adoption and approval of the Transaction shall be the vote required by
Applicable Law, the Company's Articles of Incorporation, and the rules of the
New York Stock Exchange, as represented by the Company in Section 3.4. The
Board of Directors of the Company shall, subject to its fiduciary obligations
to the Company's shareholders under Applicable Law, taking into account the
advice of counsel, (i) recommend to the shareholders of the Company that they
vote in favor of the adoption and approval of all matters necessary to
effectuate the Transaction, (ii) use its reasonable best efforts to solicit
from the shareholders of the Company proxies in favor of such adoption and
approval, and (iii) take all other action reasonably necessary to secure a vote
of the shareholders of the Company in favor of such adoption and approval. The
Company shall also use its reasonable best efforts to obtain a statement from
all of its officers and directors that own voting stock of the Company that
such persons intend to vote all shares of voting stock of the Company owned by
such shareholders in favor of the Transaction at the Special Meeting.

(b) At the Special Meeting, the Board of Directors of the Company
shall submit the Reverse Stock Split for the adoption and approval of the
shareholders, and shall (i) recommend to the shareholders of the Company that
they vote in favor of the adoption and approval of the Reverse Stock Split,
(ii) use its reasonable best efforts to solicit from the shareholders of the
Company proxies in favor of such adoption and approval, and (iii) take all
other action reasonably necessary to secure a vote of the shareholders of the
Company in favor of such adoption and approval. The Company shall also use its
reasonable best efforts to obtain a statement from all of its officers and
directors that own voting stock of the Company that such persons intend to vote
all shares of voting stock of the Company owned by such shareholders in favor
of the Reverse Stock Split at the Special Meeting. The parties hereto
recognize that, although the Reverse Stock Split shall be submitted to a vote
of the shareholders of the Company at the Special Meeting, the Transaction is
not conditioned in any manner whatsoever on shareholder approval of the Reverse
Stock Split. In the event that the shareholders of the Company approve the
Reverse Stock Split, the Company shall take all actions necessary to implement
the Reverse Stock Split prior to the commencement of the Rights Offering.

(c) As promptly as practicable after the date hereof, the Company
shall prepare, shall file with the SEC under the Exchange Act, shall use all
reasonable best efforts to have cleared by the SEC, and promptly thereafter
shall mail to its shareholders, a proxy statement with respect to the Special
Meeting. The term "Proxy Statement", as used herein, means such proxy
statement and all related proxy materials and all amendments and supplements
thereto, if any. Except to the extent otherwise determined in good faith by
the Board of Directors of the Company in the exercise of its fiduciary duties,
taking into account the advice of counsel, the Proxy Statement shall contain
the recommendation of the Board that shareholders of the Company vote in favor
of the adoption and approval of all matters necessary to effectuate the
Transaction and the Reverse Stock Split. The Company shall notify Buyer
promptly of the receipt of any comments on, or any requests for amendments or
supplements to, the Proxy Statement by the SEC, and the Company shall supply
Buyer with copies of all correspondence between it and its representatives, on
the one hand, and the

B-21
<PAGE> 100
SEC or members of its staff, on the other, with respect to the Proxy Statement.
The Company, after consultation with Buyer, shall use its reasonable best
efforts to respond promptly to any comments made by the SEC with respect to the
Proxy Statement. The Company and Buyer shall cooperate with each other in
preparing the Proxy Statement, and the Company and Buyer shall each use its
reasonable best efforts to obtain and furnish the information required to be
included in the Proxy Statement. The Company and Buyer each agrees promptly to
correct any information provided by it for use in the Proxy Statement if and to
the extent that such information shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
cause the Proxy Statement as so corrected to be filed with the SEC and to be
disseminated promptly to holders of shares of the Common Stock, in each case as
and to the extent required by Applicable Law.

5.7 Debt Refinancing. The Company shall use its reasonable best
efforts to promptly negotiate and enter into the New Senior Credit Facility
together with one or more indentures for the New Notes, and such promissory
notes, mortgages, security agreements, underwriting agreements and other
definitive agreements and instruments required in connection with the Debt
Refinancing, all of which shall be in form and substance reasonably
satisfactory to Buyer (the "Debt Refinancing Documents") and to the extent the
terms thereof are reflected in the Registration Statement, the Buyer will
acknowledge that such terms as so reflected are satisfactory, subject to
pricing of the New Notes, prior to the filing of such statement. It is
acknowledged and agreed by the parties that for purposes hereof, the terms of
the New Notes shall not be considered to be satisfactory by Buyer if the per
annum rate of interest rate on the New Notes, on a weighted average basis, and
the material terms of the New Notes are materially less favorable to the
Company than the indicative terms set forth in the Sub-Debt Letter and in the
other materials provided to the Company and Buyer by the underwriters
contemplated to manage the offering of the New Notes during the course of the
Company's review and negotiation of commitments for the Debt Refinancing. The
Company shall use its reasonable best efforts to satisfy all requirements of
the Debt Refinancing Documents; provided, however, that nothing contained in
this Agreement shall be deemed to require any person to waive compliance with
such documents. The obligations contained in this Section are not intended,
nor shall they be construed, to benefit or confer any rights upon any person
other than the parties hereto. Concurrently with the First Closing, the
Company shall pay in full, through redemption, prepayment or defeasance, all
outstanding indebtedness under the Hugoton Notes, the 12 3/4% Notes and the
Existing Credit Agreement and such other portion of the Existing Indebtedness
as is mutually agreed by the Company and Buyer, from cash on hand and funds to
be received at the First Closing of the Transaction. In addition, Buyer agrees
to comply with and to cause its Affiliates to comply with any reasonable
requests of the lenders providing the New Senior Credit Facility with respect
to providing a letter of credit, in favor of the Company, to secure Buyer's
obligation to purchase Shares at the Second Closing.

5.8 Rights Offering. The Company shall promptly prepare and
submit to Buyer for review, a form of subscription agreement, subscription
certificate and all other documents and instruments required in connection with
the Rights Offering, all of which shall be in form and substance reasonably
satisfactory to Buyer (the "Rights Offering Documents"). The Rights Offering
Documents shall provide, among other things, that the Rights Offering shall be
generally conducted in the manner described in Section 1.3(b) of this
Agreement.

5.9 Registration Statements. As promptly as practicable after
the date hereof, the Company shall prepare and file with the SEC registration
statements on Form S-3 for the purpose of registering under the Securities Act
(i) the offering, sale, and delivery of the securities issuable in the Rights
Offering, and (ii) if required, the offering, sale and delivery of securities
issuable in

B-22
<PAGE> 101
connection with the Debt Refinancing, in each case as necessary to effectuate
the Transaction. The term "Registration Statements", as used herein, means
such registration statements and all amendments and supplements thereto, if
any. The Company shall use all reasonable best efforts to have the
Registration Statements declared effective under the Securities Act as promptly
as practicable after the Special Meeting. The Company shall notify Buyer
promptly of the receipt of any comments on, or any requests for amendments or
supplements to, the Registration Statements by the SEC, and the Company shall
supply Buyer with copies of all correspondence between it and its
representatives, on the one hand, and the SEC or members of its staff, on the
other, with respect to the Registration Statements. The Company, after
consultation with Buyer, shall use its reasonable best efforts to respond
promptly to any comments made by the SEC with respect to the Registration
Statements. The Company and Buyer each agrees promptly to correct any
information provided by it for use in the Registration Statement if and to the
extent that such information shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
cause each Registration Statement (or the prospectus contained therein) as so
corrected to be filed with the SEC and to be disseminated to the extent
required by Applicable Law. The Company shall also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified) reasonably required to be taken under any applicable state
securities laws in connection with the issuance of securities pursuant to the
Registration Statements.

5.10 Exclusivity Agreement.

(a) From the date of the Letter of Intent to the earlier of (i)
the First Closing Date, or (ii) the termination of this Agreement in accordance
with its terms (but not including upon or due to a breach of this Agreement by
the Company) (the "Exclusivity Period"), the Company will not, and will use its
reasonable best efforts to insure that its directors, officers, Affiliates and
representatives (collectively with the Company, the "Company Parties") do not,
directly or indirectly, solicit any offer from, initiate or engage in any
discussions or negotiations with, or provide any information to, any person or
group (other than Buyer and its Affiliates and their representatives and those
persons agreed upon by the Company and Buyer to effectuate the Rights Offering
and the Debt Refinancing as contemplated in this Agreement) concerning any
possible proposal regarding a sale by the Company of its equity securities, or
the issuance by the Company of debt and/or equity instruments in connection
with refinancing its existing indebtedness (other than any issuance in
connection with the restructuring of such indebtedness following a default in
payment thereof), or a merger, consolidation, liquidation, business
combination, sale of assets of the Company or other similar transaction
involving the Company or a substantial portion of the assets of the Company
(any of the foregoing is referred to herein as a "Company Transaction");
provided that, the Company Parties may:

(i) respond to any party that initiates discussions
regarding a potential Company Transaction, solely to notify such party
that it is engaged in the Transaction and will not engage in any
further communications while pursuing the Transaction, except as
permitted hereby;

(iii) respond or take any other action with respect to any
unsolicited tender or exchange offer made by a third party, to the
extent required by Rules 14e-2(a) and 14d-9

B-23
<PAGE> 102
promulgated under the Exchange Act, in any manner other than as
permitted by the immediately preceding clause (ii), or respond to,
engage in discussions or negotiations with, otherwise communicate with
and provide information to a third party that initiates such
communication or requests such information regarding a potential
Company Transaction, but only if and to the extent that the Board of
Directors of the Company has determined in good faith, taking into
account the advice of its legal counsel and financial advisors, that
its fiduciary duties to the Company's shareholders require the Company
to respond to, communicate with or provide information to such third
party regarding a potential Company Transaction (collectively, the
"Exclusivity Exception").

(b) The Company shall promptly advise Buyer orally and in writing
of any inquiry or proposal by a third party regarding any Company Transaction.
Any breach by the Company of its agreement contained in this Section 5.10 is
herein referred to as an "Exclusivity Breach".

5.11 Use of Proceeds. The funds received by the Companies at the
First Closing and the closing of the Debt Refinancing, and the funds received
by the Companies at the Second Closing and the closing of the Rights Offering,
shall be applied at the First Closing and the Second Closing, respectively, to
pay in full all of the Existing Indebtedness of the Companies and to pay costs
and expenses of the Transaction, with the remaining funds to be used for
working capital purposes.

5.12 Notification and Amendment of Schedules. Each party hereto
agrees to give prompt notice to the other party of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained herein to be untrue or
inaccurate in any material respect at or prior to the First Closing and/or the
Second Closing, as applicable, and (ii) any material failure to comply with or
satisfy any covenant, condition, or agreement to be complied with or satisfied
by it hereunder. In addition, each party agrees to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered prior to the First Closing Date which, if existing or known at the
date of this Agreement, would have been required to be set forth or described
in the Schedules. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 6.1 and 7.1 have been fulfilled, the Schedules hereto shall be deemed
to include only that information contained therein on the date of this
Agreement and shall be deemed to exclude all information contained in any
supplement or amendment thereto; provided, however, that if the First Closing
and the Second Closing shall occur, then all matters disclosed pursuant to any
such supplement or amendment at or prior to the First Closing and the Second
Closing shall be waived and no party shall be entitled to make a claim thereon
pursuant to the terms of this Agreement.

5.13 Access to Information. During the Interim Period, the Company
(i) shall give Buyer and its authorized representatives reasonable access to
the Company's employees, offices and other facilities, and all books and
records of the Company and the Subsidiaries, (ii) shall permit Buyer and its
authorized representatives to make such inspections as they may reasonably
require to verify the accuracy of any representation or warranty contained in
Article III, and (iii) shall cause the Company's officers to furnish Buyer and
its authorized representatives with such financial and operating data and other
information with respect to the Company and the Subsidiaries as Buyer may from
time to time reasonably request; provided, however, that no investigation
pursuant to this Section shall affect any representation or warranty of the
Company contained in this Agreement or in any agreement, instrument, or
document delivered pursuant hereto or in connection herewith; and provided
further that the Company shall have the right to have a representative present
at all times.

B-24
<PAGE> 103
5.14 HSR Act Notification. To the extent it is determined that the
HSR Act will be applicable to the Transaction, each of the parties hereto shall
(i) file or cause to be filed, as promptly as practicable after the execution
and delivery of this Agreement and in no event later than ten Business Days
after the date of this Agreement, with the Federal Trade Commission and the
United States Department of Justice, all reports and other documents required
to be filed by such party under the HSR Act concerning the transactions
contemplated hereby and (ii) promptly comply with or cause to be complied with
any requests by the Federal Trade Commission or the United States Department of
Justice for additional information concerning the Transaction, in each case so
that the waiting period applicable to this Agreement and the Transaction
contemplated hereby under the HSR Act shall expire as soon as practicable after
the execution and delivery of this Agreement. Each party hereto agrees to
request, and to cooperate with the other party or parties in requesting, early
termination of any applicable waiting period under the HSR Act.

5.15 Indemnification of Directors and Officers; Insurance.

(a) For the period of six years from and after the First Closing
Date, the Company shall indemnify, defend, and hold harmless each person who is
now, or has been at any time prior to the date hereof, or who becomes on or
prior to the First Closing Date, an officer, director, or employee of the
Company or any of the Subsidiaries (the "Covered Parties") against all losses,
claims, damages, costs, expenses (including reasonable attorneys' fees),
liabilities, or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any claim, action, suit, proceeding, or
investigation based in whole or in part on acts or omissions, or alleged acts
or omissions by, such person in his capacity as a director, officer, or
employee of the Company or any of the Subsidiaries or as a prospective Series B
Director (as such term is defined in the Statement of Resolution), whether
pertaining to any matter existing or occurring at or prior to the First Closing
Date and whether reasserted or claimed prior to, or at or after, the First
Closing Date ("Covered Liabilities") and shall advance expenses and provide the
benefit of self insurance by the Company to the Covered Parties in connection
therewith, to the same extent that such Covered Party was entitled to
indemnification, advancement of expenses and the benefit of such self insurance
from the Company pursuant to Applicable Law, the Articles of Incorporation or
Bylaws of the Company or by contract on or prior to the First Closing Date,
provided that any Series B Director who is a Covered Party shall be entitled to
indemnification for Covered Liabilities to the same extent as if such Series B
Director had held office during the time that the Covered Liabilities arose.

(b) In the event that the Company shall amend its Articles of
Incorporation or Bylaws subsequent to the First Closing in any respect that
would limit the availability of indemnification to persons who are officers,
directors, or employees of the Company or any of the Subsidiaries, no such
amendments shall limit or otherwise have any effect on the contractual right of
the Covered Parties to receive indemnification pursuant to this Section 5.15.
In addition, no such amendment to the Articles of Incorporation or Bylaws of
the Company shall be made that would have an adverse effect on the Covered
Parties unless such amendment affects equally the Covered Parties and all
directors, officers and employees of the Company or any of the Subsidiaries who
hold office at the time such amendment is enacted.

(c) The Company shall, from and after the date of this Agreement
and for four years from the First Closing Date, maintain in effect the current
directors' and officers' liability insurance policies maintained by the Company
(provided that the Company may substitute therefor policies no less favorable
in terms and amounts of coverage so long as substitution does not result in
gaps or lapses in coverage) with respect to matters occurring prior to the
Second Closing Date; provided,

B-25
<PAGE> 104
however, that in no event shall the Company be required to expend pursuant to
this Section more than an amount per year equal to 150% of current annual
premiums paid by the Company for such insurance and, in the event the cost of
such coverage shall exceed that amount, the Company shall purchase as much
coverage as possible for such amount, and in any event the Company shall
provide the Covered Parties with the same terms and amounts of coverage as the
Company provides to those persons who are directors and officers of the Company
at the time such policies terminate.

(d) The Company shall amend its existing insurance coverage under
the Company's current policies of directors' and officers' liability insurance,
or obtain comparable replacement policies on terms no less favorable in terms
of coverage and amounts than those in effect on the date hereof, so that
Buyer's purchase of the Shares pursuant to this Agreement shall not constitute
a "change of control" of the Company or otherwise cause any of the Covered
Parties or any of persons who become officers, directors or employees of the
Company on or after the First Closing Date to be excluded from the coverage
provided by such insurance policies.

(e) In the event the Company or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to any
person, then, and in each such case, proper provision shall be made so that the
successors and assigns of the Company shall assume the obligations set forth in
this Section 5.15. The provisions of this Section are intended to be for the
benefit of, and shall be enforceable by, the parties hereto and each person
entitled to indemnification or insurance coverage pursuant to this Section, his
heirs, and his representatives. The rights provided such persons under this
Section shall be in addition to, and not in lieu of, any rights to indemnity
that such persons may have under the Articles of Incorporation or Bylaws of the
Company or any other provisions herein or in other agreements.

(f) The defense of any claim, action, suit, proceeding, or
investigation forming the basis for the Covered Liabilities shall be conducted
by the Company. If the Company has failed to conduct such defense, the Covered
Parties may retain counsel satisfactory to them and the Company shall pay all
reasonable fees and expenses of such counsel for the Covered Parties promptly
as statements therefor are received. The party not conducting the defense will
use reasonable efforts to assist in the vigorous defense of any such matter,
provided that such party shall not be liable for any settlement of any claim
effected without its written consent, which consent, however, shall not be
unreasonably withheld. Any Covered Party wishing to claim indemnification
under this Section, upon learning of any such claim, action, suit, proceeding,
or investigation, shall notify the Company (but the failure of a party so to
notify the Company shall not relieve the Company from any liability which it
may have under this Section except to the extent such failure materially
prejudices the Company). If the Company is responsible for the attorneys' fees
of the Covered Parties, then the Covered Parties as a group may retain only one
law firm to represent them with respect to each such matter unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Covered Parties.

(g) If any provision or provisions of this Section 5.15 shall be
held to be invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby; and, to the fullest extent possible,
the provisions of this Section 5.15 shall be construed so as to give effect to
the intent manifested by the provisions held invalid, illegal or unenforceable.

5.16 Reasonable Best Efforts. Except as contemplated by Section
5.10(a)(iii) and subject to the fiduciary obligations of the directors of the
Company to the shareholders of the Company

B-26
<PAGE> 105
under Applicable Law, each party hereto agrees that it will not voluntarily
undertake any course of action inconsistent with the provisions or intent of
this Agreement and will use its reasonable best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things reasonably
necessary, proper, or advisable under Applicable Laws to consummate the
Transaction.

5.17 Cooperation and Information. Buyer shall cooperate fully
with the Company in connection with the preparation and filing of the Proxy
Statement and the Registration Statements, and Buyer shall obtain and furnish
to the Company in writing the information regarding Buyer, its Affiliates and
the prospective Series B Directors required to be included (based upon the
advice of its counsel) in the Proxy Statement and each Registration Statement.

5.18 Agreement of Limited Partnership of Buyer. Within five days
from the date hereof, Buyer will furnish to the Company a true and correct
executed copy of the agreement of limited partnership of Buyer, substantially
in the form provided to the Company as of the date hereof, executed by the
partners of Buyer, which agreement shall provide that its partners are required
to collectively make capital contributions in amounts sufficient to satisfy the
obligations of Buyer to purchase the Shares at the First Closing and Second
Closing, subject to no conditions other than the satisfaction of the conditions
to closing set forth in Article VII hereof. After delivery of such agreement
to the Company, Buyer and its partners shall not consent to the admission of
any additional or substituted partners at any time prior to the consummation of
the Second Closing. Buyer shall promptly furnish to the Company any amendment
of such agreement of limited partnership. No such amendment to the agreement
of limited partnership shall have the effect of changing the amount or in any
material respect the timing of the capital contributions that the partners of
Buyer are required to make to Buyer, or of amending or adding to the conditions
to the obligations of the partners to make capital contributions; nor shall the
partners of Buyer agree to any waiver thereunder that would have such an
effect.

5.19 Equity Maintenance of General Partner of Buyer. During the
Interim Period and the period from the First Closing Date to the Second Closing
Date, Buyer and its general partner will enforce that certain Equity
Maintenance Agreement between the general partner and its sole shareholder, a
copy of which has been provided to Buyer, and will not permit the amendment,
waiver or termination of same, to the extent necessary in order to ensure that
the general partner of Buyer shall have sufficient financial resources to the
extent necessary to satisfy the obligations of Buyer to purchase the Shares at
the First Closing and the Second Closing, respectively.

ARTICLE VI

CONDITIONS TO OBLIGATIONS OF THE COMPANY

6.1 Conditions to First Closing. The obligations of the Company
to consummate the transactions contemplated by this Agreement to be consummated
at the First Closing shall be subject to the fulfillment on or prior to the
First Closing Date of each of the following conditions:

(a) Representations and Warranties True. All the representations
and warranties of Buyer contained in this Agreement shall be true and correct
on and as of the First Closing Date (except to the extent otherwise
contemplated by this Agreement or the Ancillary Documents); provided, however,
that (i) to the extent that any such representation or warranty is made as of a
specified date, such representation or warranty shall have been true and
correct as of such specified

B-27
<PAGE> 106
date, and (ii) with respect to each representation and warranty that is not
otherwise qualified by its terms by a materiality standard (such as a
qualification that a future condition have a Material Adverse Effect), this
condition shall be satisfied if such representation or warranty shall be true
and correct in all material respects.

(b) Covenants and Agreements Performed. Buyer shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the First Closing Date.

(c) Opinion of Counsel. The Company shall have received an
opinion of legal counsel to Buyer, dated the First Closing Date, in form
reasonably satisfactory to the Company, covering those matters set forth in
Exhibit 6.1(c) attached hereto, subject to customary assumptions, limitations
and exclusions.

(d) HSR Act. To the extent that the HSR Act is applicable to the
Transaction, all waiting periods (and any extensions thereof) applicable to
this Agreement and the Transaction under the HSR Act shall have expired or been
terminated.

(e) Legal Proceedings. On the First Closing Date, other than
suits to enforce this Agreement, there shall not be (i) any effective
injunction, writ, or temporary restraining order or any other order of any
nature issued by a court or Governmental Entity of competent jurisdiction
directing that any aspect of the Transaction not be consummated, (ii) any
Proceeding pending or threatened in writing in which it is or may be sought to
prohibit, substantially delay, or rescind this Agreement, the Debt Refinancing
Documents, the Rights Offering Documents or any aspect of the Transaction or to
obtain an award of damages in connection with the Transaction and which, in the
good faith judgment of either of the parties, is material, or (iii) any
Proceedings pending against the Companies which, in the good faith judgment of
either of the parties, would be expected to have a Material Adverse Effect.

(f) Shareholder Approvals. The holders of the requisite number of
shares of outstanding capital stock of the Company shall have duly and validly
approved all items necessary to effectuate the Transaction to the extent that
shareholder approval is required.

(g) Stock Exchange Listing. The Series A Preferred Stock and the
Conversion Shares shall have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance (and, in the case of the
Series A Preferred Stock, satisfactory distribution). The Rights shall have
been approved for trading on the New York Stock Exchange, subject to official
notice of issuance.

(h) Completion of Debt Refinancing. All conditions precedent to
the closing of the Debt Refinancing, as outlined in the Senior Debt Commitment,
including the execution and delivery of the Debt Refinancing Documents, the
funding of the loans to be provided under the New Senior Credit Facility and
the issuance of the New Notes, shall have been satisfied or duly waived and
such closing shall occur simultaneously with the First Closing.

(i) Certificate. The Company shall have received a certificate
executed by a duly authorized person on behalf of Buyer dated the First Closing
Date, representing and certifying, in such detail as the Company may reasonably
request, that the conditions set forth in this Section 6.1 have been fulfilled.

B-28
<PAGE> 107
6.2 Conditions to Second Closing. The obligations of the Company
to consummate the transactions contemplated by this Agreement to be consummated
at the Second Closing shall be subject to the fulfillment on or prior to the
Second Closing Date of each of the following conditions:

(a) Consummation of First Closing. The First Closing shall have
occurred prior to the Second Closing Date.

(b) Completion of Rights Offering. Either (i) the Rights Offering
shall have commenced and expired and the number of Unsubscribed Shares shall
have been determined, or (ii) a period of not more than 120 days nor less than
60 days shall have elapsed since the First Closing Date, the length of such
period to be established in accordance with the requirement of the Debt
Refinancing Documents.

ARTICLE VII

CONDITIONS TO OBLIGATIONS OF BUYER

7.1 Conditions to First Closing. The obligations of Buyer to
consummate the transactions contemplated by this Agreement to be consummated at
the First Closing shall be subject to the fulfillment on or prior to the First
Closing Date of each of the following conditions:

(a) Representations and Warranties True. All the representations
and warranties of the Company contained in this Agreement shall be true and
correct on and as of the First Closing Date (except to the extent otherwise
contemplated by this Agreement or the Ancillary Documents); provided, however,
that (i) to the extent that any such representation or warranty is made as of a
specified date, such representation or warranty shall have been true and
correct as of such specified date, and (ii) with respect to each such
representation and warranty that is not otherwise qualified by its terms by a
materiality standard (such as a qualification that a future condition have a
Material Adverse Effect), this condition shall be satisfied if such
representation or warranty shall be true and correct in all material respects.

(b) Covenants and Agreements Performed. The Company shall have
performed and complied with the agreement contained in Section 5.1 at all times
during the Interim Period, and the Company shall have performed and complied in
all material respects with all other covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the First
Closing Date.

(c) Opinion of Counsel. Buyer shall have received an opinion of
legal counsel to the Company, dated the First Closing Date, in form reasonably
satisfactory to Buyer, covering those matters set forth in Exhibit 7.1(c)
attached hereto, subject to customary assumptions, limitations and exclusions.

(d) Legal Proceedings. On the First Closing Date, other than
suits to enforce this Agreement, there shall not be (i) any effective
injunction, writ, or temporary restraining order or any other order of any
nature issued by a court or Governmental Entity of competent jurisdiction
directing that any aspect of the Transaction not be consummated, (ii) any
Proceeding pending or threatened in writing in which it is or may be sought to
prohibit, substantially delay, or rescind this Agreement, the Debt Refinancing
Documents, the Rights Offering Documents or any aspect of the Transaction or to
obtain an award of damages in connection with the Transaction and which, in the

B-29
<PAGE> 108
good faith judgment of either of the parties, is material, or (iii) any
Proceedings pending against the Companies which, in the good faith judgment of
either of the parties, would be expected to have a Material Adverse Effect.

(e) HSR Act. To the extent that the HSR Act is applicable to the
Transaction, all waiting periods (and any extensions thereof) applicable to
this Agreement and the Transaction under the HSR Act shall have expired or been
terminated.

(g) No Adverse Changes. Since the date of this Agreement, there
shall not have been any Material Adverse Effect, other than as a result of
changes in oil and gas prices, but specifically including, without limitation,
any material reduction (other than by production of reserves) in the aggregate
total of the proved oil and gas reserves of the Company, below the aggregate
reserve totals reflected in the Reserve Report which, in the good faith
judgment of Buyer, makes it inadvisable for Buyer to proceed with the
consummation of the Transaction; provided that it is understood and agreed for
all purposes of this Agreement that the receipt by the Company of any reserve
report prepared by persons other than the Company, containing estimates of
proved reserves less than the estimate thereof set forth in the Reserve Report,
shall not of itself be deemed to constitute such a material reduction, unless
such other reserve report contains a materially lower estimate of proved
reserves due to taking into account (A) a physical event occurring subsequent
to the date of the Reserve Report or (B) additional interpretative data from
that available at the time of the preparation of the Reserve Report that, in
the case of (A) or (B), in the opinion of the Company's petroleum engineers,
exercising their independent professional judgment, would cause such persons to
materially reduce the estimates of proved reserves contained in the Reserve
Report.

(h) Completion of Debt Refinancing. All conditions precedent to
the closing of the Debt Refinancing, as outlined in the Senior Debt Commitment,
including the execution and delivery of the Debt Refinancing Documents, the
funding of the loans to be provided under the New Senior Credit Facility and
issuance of the New Notes, shall have been satisfied or duly waived and such
closing shall occur simultaneously with the First Closing.

(i) Commencement of Rights Offering; Stock Exchange Listing. The
Rights Offering Documents shall have been substantially completed (other than
for such amendments to the Rights Offering Documents as are necessary to
reflect the consummation of the transactions contemplated at the First
Closing), and all other conditions precedent to the commencement of the Rights
Offering (other than the declaration by the SEC of effectiveness of the Rights
Offering Registration Statement) shall have been satisfied at the First Closing
so that the Rights Offering may be commenced as promptly as practicable
following the First Closing. The Series A Preferred Stock and the Conversion
Shares shall have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance (and, in the case of the Series A
Preferred Stock, satisfactory distribution). The Rights shall have been
approved for trading on the New York Stock Exchange, subject to official notice
of issuance.

(j) Resignations and Elections of Directors. All but three
members of the Company's current Board of Directors shall have submitted
written resignations to become effective at the First Closing Date so that
immediately upon Buyer's purchase of the Shares, Buyer may, by execution and
delivery of a written consent, elect four members of the Board of Directors
effective as of the

B-30
<PAGE> 109
First Closing Date. In addition, the current Board of Directors shall have
duly approved the nomination of such four persons designated by Buyer but only
to the extent such persons are not Richard Rainwater, Darla Moore, Kenneth
Hersh and Philip Smith.

(k) Amendment of Articles and Bylaws. The Articles of
Incorporation and/or Bylaws of the Company and each of its Subsidiaries will
have been amended on or prior to the First Closing Date in a form acceptable to
the Company and Buyer in order to effectuate the Transaction contemplated
herein, including, without limitation, such amendments to the Bylaws of the
Company as will establish the Board of Directors at seven members. None of the
provisions of the Articles of Incorporation or Bylaws of the Company shall
prohibit or restrict the authority of the Board of Directors, by action of a
majority of its members, from amending the Company's Bylaws, provided that the
Bylaws may provide (and may be amended after the date hereof to provide) that
(i) the number of directors shall not be less than seven (plus any directors
elected by the Series A Preferred Stock pursuant to the rights of the holders
of such stock to elect two directors in the event of certain dividend
arrearages), (ii) each committee of the Board of Directors shall be constituted
so as to provide that at least one member of each committee will be one of the
directors as to which the holders of Common Stock are entitled to vote (and
such directors shall be entitled to determine the identity of their
representative on such committee), (iii) any two directors shall be entitled to
call a special meeting of the Board of Directors and (iv) none of such
provisions shall be amended by action of the Board of Directors without the
unanimous vote or consent of all directors.

(l) Directors and Officers Insurance. Each of the representatives
of Buyer serving on the Board of Directors of the Company shall receive the
same insurance coverage under the Company's director and officer insurance
policies as the Company's directors receive as of the date hereof (including
coverage for liabilities arising before the date of taking office to the extent
arising from such person's status as a prospective director of the Company),
such policies shall be in full force and effect in accordance with their terms
in existence as of the date of this Agreement, except to the extent such
policies are required to be amended pursuant to Section 5.15(d) hereof, and the
Company shall have provided to Buyer a copy of such policies together with the
riders and schedules thereto which evidence compliance with this condition.

(m) Certificates. Buyer shall have received a certificate or
certificates representing the Shares purchased at the First Closing, in
definitive form representing the Shares, registered in the name of Buyer and
duly executed by the Company.

(n) Officer Certificate. Buyer shall have received a certificate
executed on behalf of the Company by the chief executive officer or the chief
financial officer of the Company, dated the First Closing Date, representing
and certifying, in such detail as Buyer may reasonably request, that the
conditions set forth in this Section 7.1 have been fulfilled.

7.2 Conditions to Second Closing. The obligations of Buyer to
consummate the transactions contemplated by this Agreement to be consummated at
the Second Closing shall be subject to the fulfillment on or prior to the
Second Closing Date of each of the following conditions:

(a) Consummation of First Closing. The First Closing shall have
occurred prior to the Second Closing Date.

B-31
<PAGE> 110
length of such period to be established in accordance with the requirements of
the Debt Refinancing Documents.

ARTICLE VIII

TERMINATION, AMENDMENT, AND WAIVER

8.1 Termination Prior to First Closing. This Agreement may be
terminated and the transactions contemplated hereby abandoned at any time prior
to the First Closing in the following manner:

(a) by mutual written consent of the Company and Buyer; or

(b) by the Company or Buyer after November 30, 1996 if the First
Closing shall not have occurred by the close of business on such date, so long
as the failure to consummate the transactions contemplated to be consummated at
the First Closing on or before such date does not result from a breach of this
Agreement by the party seeking termination of this Agreement; or

(c) by the Company, if (i) any of the representations and
warranties of Buyer contained in this Agreement shall not be true and correct
when made or at any time prior to the First Closing as if made at and as of
such time, except (A) as contemplated hereby or (B) with respect to each
representation and warranty that is not otherwise qualified by its terms by a
materiality standard (such as a qualification that a future condition have a
Material Adverse Effect), such representation and warranty shall not be true
and correct in all material respects, or (ii) Buyer shall have failed to
fulfill any of its obligations in this Agreement in all material respects; and,
in the case of each of clauses (i) and (ii), such misrepresentation, breach of
warranty, or failure (provided it can be cured) has not been cured within five
days of actual knowledge thereof by Buyer; or

(d) by Buyer, if (i) any of the representations and warranties of
the Company contained in this Agreement shall not be true and correct when made
or at any time prior to the First Closing as if made at and as of such time,
except (A) as contemplated hereby or (B) with respect to each representation
and warranty that is not otherwise qualified by its terms by a materiality
standard (such as a qualification that a future condition have a Material
Adverse Effect), any such representation and warranty shall not be true and
correct in all material respects, (ii) the Company shall have failed to fulfill
any of its obligations under Section 5.1, or (iii) the Company shall have
failed to fulfill any of its obligations in this Agreement (other than those
obligations set forth in Section 5.1) in all material respects; and, in the
case of each of clauses (i), (ii) and (iii), such misrepresentation, breach of
warranty, or failure (provided it can be cured) has not been cured within five
days of actual knowledge thereof by the Company; or

(e) by Buyer at any time following (i) an Exclusivity Breach, or
(ii) the invoking by the Board of Directors of the Company of the Exclusivity
Exception;

(f) by Buyer at any time (i) following any breach of the
representation and warranty contained in Section 3.15 (regardless of whether
the breach of such representation and warranty is caused by the Company or a
WDB Party), or (ii) in the event that any WDB Party shall have (A) initiated,
prior to the Special Meeting, a "Solicitation Action" (as defined in the
Settlement Agreement) (other than giving notice to the Company pursuant to the
Company's Bylaws of an intention to nominate directors at the Company's 1996
annual meeting of stockholders together with

B-32
<PAGE> 111
any information with respect to such nominees as is required by the Bylaws), or
(B) breached the Settlement Agreement or taken any actions in the nature of
those which are restricted by Sections 4, 6(a), 6(c) or 7 of the Settlement
Agreement, which Solicitation Action, breach or other action described in
clause (A) or (B) is in Buyer's good faith judgment materially adverse to Buyer
or the Transaction (it being acknowledged by Buyer that letters to the Board of
Directors from Joel L. Reed and Dorn Parkinson, in form and substance similar
to the drafts thereof provided to Buyer on the date hereof, and any subsequent
inclusion of such letters in the Proxy Statement shall not give rise to any
right to terminate this Agreement pursuant to this subsection (f)); or

(g) by the Company, if at any time the Board of Directors of the
Company has determined in good faith that the Exclusivity Exception should be
invoked and that the Company should pursue a potential Company Transaction not
solicited by the Company and the Company shall have made the payment to Buyer
required by Section 8.3; or

(h) by the Company or Buyer, if the shareholders of the Company
shall have rejected at a meeting the matters contained in the Proxy Statement
that are necessary in order to adopt and approve the Transaction; or

(i) by Buyer or the Company, upon the occurrence of a Bankruptcy
Event;

(j) by Buyer, upon the occurrence of any default by the Company or
its Subsidiaries under the Existing Bank Debt or the 12 3/4% Notes if any
holder of any indebtedness pursuant to the Existing Bank Debt or the 12 3/4%
Notes, or any trustee or representative thereof, shall have taken any steps to
accelerate any such indebtedness or shall have commenced the exercise of any
remedies permitted pursuant to the agreements or other instruments creating
such indebtedness.

8.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1 by the Company, on the one hand, or
Buyer, on the other, written notice thereof shall forthwith be given to the
other party specifying the provision hereof pursuant to which such termination
is made, and this Agreement shall become void and have no effect, except that
the provisions contained in this Article VIII, Article IX and in Sections 5.4
and 5.5 shall survive the termination hereof. Nothing contained in this
Section shall relieve any party from liability for any breach of this
Agreement.

8.3 Termination Fee; Break-Up Fee.

(a) The Company agrees that on the date of termination of this
Agreement by Buyer pursuant to Section 8.1(e)(ii) or Section 8.1(f) or on the
date of the termination of this Agreement by the Company pursuant to Section
8.1(g), (i) the Company will pay to Buyer a partial termination fee in the
amount of (A) $300,000 in cash, in the case of a termination pursuant to
Section 8.1(e)(ii) or Section 8.1(g), or (B) $500,000 in cash, in the case of a
termination pursuant to Section 8.1(f), which such fee is in addition to the
fees and expenses for which the Company is obligated to reimburse Buyer
pursuant to Section 5.4, and (ii) if the Company subsequently participates in
any Company Transaction within a one year period following the termination of
this Agreement, or in any Company Transaction with a third party with whom the
Company communicated during the Exclusivity Period as a result of invoking the
Exclusivity Exception (regardless of the date of the closing of such
transaction), the Company will pay a fee to Buyers at the time of the closing
of such transaction in the amount of $2,700,000 cash.

B-33
<PAGE> 112
(b) The parties acknowledge that it would be difficult to
establish the amount of actual damages that Buyer would incur as a result of
the occurrence of any Exclusivity Breach. Therefore, in addition to the fees
and expenses for which the Company is obligated to reimburse Buyer pursuant to
Section 5.4, the Company agrees that upon any termination of this Agreement
pursuant to Section 8.1(e)(i) as a result of an Exclusivity Breach (i) the
Company will on the date of such termination, pay as partial liquidated damages
to Buyer, the amount of $500,000 in cash, and (ii) if the Company shall
subsequently participate in any Company Transaction within a one year period
following the termination of this Agreement, or in any Company Transaction with
a third party with whom the Company communicated during the Exclusivity Period
in breach of Section 5.10 (regardless of the date of the closing of such
transaction), the Company will pay liquidated damages to Buyer at the time of
the closing of such transaction in the amount of $3,500,000 cash.

8.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.

8.5 Waiver. No failure or delay by a party hereto in exercising
any right, power, or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
provisions of this Agreement may not be waived except by an instrument in
writing signed by or on behalf of the party against whom such waiver is sought
to be enforced.

ARTICLE IX

SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION

9.1 Survival. The representations and warranties of the parties
hereto contained in Articles III and IV of this Agreement or in any certificate
delivered pursuant to Section 6.1(i) or 7.1(n) hereof shall survive the First
Closing and the Second Closing, respectively, regardless of any investigation
made by or on behalf of any party, until the second anniversary of the First
Closing Date (the "Survival Date".) No action may be brought with respect to a
breach of any representation after the Survival Date unless, prior to such
time, the party seeking to bring such an action has notified the other parties
of such claim, specifying in reasonable detail the nature of the loss suffered.
The provisions of this Section 9.1 shall have no effect upon any of the
covenants of the parties set forth in Article V or any of the other obligations
of the parties hereto under the Agreement, whether to be performed later, at or
after the First Closing or the Second Closing, as applicable.

9.2 Indemnification by Company.

(a) The Company shall indemnify, defend, and hold harmless Buyer,
Richard E. Rainwater, their respective Affiliates and each of their respective
directors, officers, employees and agents (collectively, the "Indemnified
Parties") from and against any and all Indemnified Liabilities, REGARDLESS OF
WHETHER SUCH INDEMNIFIED LIABILITIES ARE CAUSED BY THE NEGLIGENCE OF AN
INDEMNIFIED PARTY; provided however, that the Company shall not be obligated to
indemnify an Indemnified Party with respect to any Indemnified Liabilities to
the extent it is ultimately determined by a final non-appealable judgment of a
court of competent jurisdiction that such Indemnified Liabilities were caused
by the gross negligence, willful misconduct or material breach of this
Agreement of or by such Indemnified Party.

B-34
<PAGE> 113
(b) At the written request of an Indemnified Party, the Expenses
incurred by an Indemnified Party in connection with any Proceeding, other than
as provided in subparagraph (c), shall be paid by the Company as and when
incurred by the Indemnified Party in advance of the final disposition of such
Proceeding upon receipt by the Company of an undertaking by or on behalf of an
Indemnified Party to repay promptly such amount to the extent that it is
ultimately determined that an Indemnified Party is not entitled to be
indemnified by the Company (a "Repayment Undertaking"). The request for
advancement of Expenses by an Indemnified Party and the Repayment Undertaking
need not be secured. Any advancement of Expenses shall be made no later than
20 days after receipt by the Company of the Repayment Undertaking from the
Indemnified Party, and is required to be made notwithstanding any allegation by
the Company or any other person that an Indemnified Party is not entitled to
Indemnification pursuant to the exception set forth in subparagraph (a) hereof.

(c) Notwithstanding any other provisions herein, the Company shall
not be obligated hereunder to indemnify or advance Expenses to an Indemnified
Party with respect to any Proceeding, or any claim therein, brought or made
(i) by an Indemnified Party against the Company, other than a Proceeding, or a
claim therein, made by an Indemnified Party in connection with successfully
establishing or enforcing his right of indemnification or to receive
advancement of Expenses, in whole or in part, hereunder, or (ii) by the Company
against Buyer pursuant to Section 9.3 hereof.

(d) No indemnification shall be required to be made by the Company
pursuant to this Article IX with respect to any Indemnified Liabilities
exclusively arising out of or resulting from claims made by Buyer (and not any
third party claims for which an Indemnified Party seeks indemnity) based upon
the breach of the representations and warranties of the Company contained in
Article III hereof or the certificate delivered pursuant to Section 7.1(n)
hereof, unless each such Indemnified Liability equals or exceeds $50,000 and
except to the extent the aggregate amount of all such Indemnified Liabilities
incurred by the Indemnified Parties arising out of or resulting from such
breaches (whether asserted, resulting, imposed, or incurred before, on, or
after the First Closing Date) exceeds $500,000.

(e) (i) Promptly after receipt by an Indemnified Party of
notice of the commencement of any Proceeding against an Indemnified
Party with respect to which an Indemnified Party demands
indemnification or advancement of Expenses hereunder, such Indemnified
Party shall promptly notify the Company in writing of the commencement
thereof, provided that the failure to so notify the Company shall not
relieve it from any liability that it may have to an Indemnified
Party, except to the extent that such failure has materially
prejudiced the Company's ability to provide a defense in the
Proceeding. The Company shall have the right to assume the defense of
any such Proceeding, but the Indemnified Parties collectively shall
have the right, at the expense of the Company, to retain not more than
one counsel of their choice to represent the Indemnified Parties in
such Proceeding. The counsel for the Indemnified Parties may
participate in, but not control, the defense of such Proceeding.

(ii) The indemnity provided for herein shall cover the
amount of any settlements entered into by an Indemnified Party in
connection with any claim for which an Indemnified Party may be
indemnified hereunder; provided that, no settlement binding on an
Indemnified Party may be made without the consent of an Indemnified
Party and the Company (which consent shall not be reasonably
withheld).

B-35
<PAGE> 114
(iii) Any indemnification hereunder shall be made no later
than 45 days after receipt by the Company of the written request of
the Indemnified Party.

(f) If an Indemnified Party is entitled under any provision hereof
to indemnification or to receive advancement by the Company for some or a
portion of the Expenses, judgments, fines or amounts paid in settlement
actually and reasonably incurred by the Indemnified Party in the investigation,
defense, appeal, settlement or other disposition of any proceeding but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
the Indemnified Party for the portion thereof to which the Indemnified Party is
entitled.

(g) In the event of the Company's payment to an Indemnified Party
hereunder, the Company shall be subrogated to the extent of such payment to all
the rights of recovery of the Indemnified Party, who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including without limitation the execution of such documents as may be
necessary to enable the Company effectively to bring suit to enforce such
rights.

(h) If any provision or provisions of this Section 9.2 shall be
held to be invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby; and, to the fullest extent possible,
the provisions of this Section 9.2 shall be construed so as to give effect to
the intent manifested by the provisions held invalid, illegal or unenforceable.

(i) The rights of indemnification and to receive advancement of
Expenses as provided herein shall not be deemed exclusive of any other rights
to which an Indemnified Party may be entitled under applicable law.

9.3 Indemnification by Buyer.

(a) Buyer shall indemnify, defend, and hold harmless the Company
from and against any and all claims, actions, causes of action, demands,
assessments, losses, damages, liabilities, judgments, settlements, penalties,
costs and Expenses of any nature whatsoever asserted against, resulting to,
imposed upon, or incurred by the Company, directly or indirectly, by reason of
or resulting from any breach by Buyer of any of its representations,
warranties, covenants, or agreements contained in this Agreement or in any
certificate, instrument, or document delivered pursuant hereto.

(b) No indemnification shall be required to be made by Buyer
pursuant to this Article IX with respect to any Indemnified Liabilities
exclusively arising out of or resulting from claims made by the Company (and
not any third party claims for which the Company seeks indemnity) based upon
the breach of the representations and warranties of Buyer contained in Article
IV hereof or the certificate delivered pursuant to Section 6.1(i) hereof,
unless each such Indemnified Liability equals or exceeds $50,000 and except to
the extent the aggregate amount of all such Indemnified Liabilities incurred by
the Company arising out of or resulting from such breaches (whether asserted,
resulting, imposed, or incurred before, on, or after the First Closing Date)
exceeds $500,000.

(c) Promptly after receipt by the Company of notice of the
commencement of any Proceeding against the Company with respect to which the
Company demands indemnification hereunder, the Company shall promptly notify
Buyer in writing of the commencement thereof, provided that the failure to so
notify Buyer shall not relieve it from any liability that it may have to

B-36
<PAGE> 115
the Company, except to the extent that such failure has materially prejudiced
Buyer's ability to provide a defense in the Proceeding. Buyer shall have the
right to assume the defense of any such Proceeding, but the Company shall have
the right, at the expense of Buyer, to retain not more than one counsel of its
choice to represent the Company in such Proceeding. The counsel for the
Company may participate in, but not control, the defense of such Proceeding.
The indemnity provided for herein shall cover the amount of any settlements
entered into by the Company in connection with any claim for which the Company
may be indemnified hereunder; provided that, no settlement binding on the
Company may be made without the consent of the Company and Buyer (which consent
shall not be reasonably withheld). Any indemnification hereunder shall be made
no later than 45 days after receipt by Buyer of the written request of the
Company.

(d) If the Company is entitled under any provision of this Section
9.3 to indemnification by the Buyer for some or a portion of the Expenses,
judgments, fines or amounts paid in settlement actually and reasonably incurred
by the Indemnified Party in the investigation, defense, appeal, settlement or
other disposition of any proceeding but not, however, for the total amount
thereof, the Buyer shall nevertheless indemnify the Company for the portion
thereof to which the Company is entitled.

(e) In the event of Buyer's payment to the Company hereunder,
Buyer shall be subrogated to the extent of such payment to all the rights of
recovery of the Company, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including without
limitation the execution of such documents as may be necessary to enable Buyer
effectively to bring suit to enforce such rights.

(f) If any provision or provisions of this Section 9.3 shall be
held to be invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby; and, to the fullest extent possible,
the provisions of this Section 9.3 shall be construed so as to give effect to
the intent manifested by the provisions held invalid, illegal or unenforceable.

(g) The rights of indemnification as provided herein shall not be
deemed exclusive of any other rights to which the Company may be entitled under
applicable law.

ARTICLE X

MISCELLANEOUS

10.1 Notices. All notices, requests, demands, and other
communications required or permitted to be given or made hereunder by any party
hereto shall be in writing and shall be deemed to have been duly given or made
if delivered personally, or transmitted by first class registered or certified
mail, postage prepaid, return receipt requested, or sent by prepaid overnight
delivery service, or sent by cable, telegram, or telefax, to the parties at the
addresses and telefax numbers set forth opposite their names on the signature
page hereof (or at such other addresses and telefax numbers as shall be
specified by the parties by like notice).

B-37
<PAGE> 116
10.2 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and oral,
between the parties and their Affiliates with respect to the subject matter
hereof, including, but not limited to, the Letter of Intent; provided that,
that certain Confidentiality Agreement between Rainwater, Inc. and the Company
dated February 21, 1996 shall remain in effect pending the First Closing of the
Transaction and shall terminate at the First Closing.

10.3 Binding Effect; Assignment; No Third Party Benefit. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as otherwise
expressly provided in this Agreement, neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other party. Except as
provided in Section 5.15 (which is expressly intended for the benefit of the
"Covered Parties," as defined therein) and Article IX, nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
other than the parties hereto, and their respective heirs, legal
representatives, successors, and permitted assigns, any rights, benefits, or
remedies of any nature whatsoever under or by reason of this Agreement.

10.4 Severability. If any provision of this Agreement is held to
be unenforceable, then this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect
to the maximum extent permitted by Applicable Law; provided, however, that (i)
the provisions of Section 5.15(g) and Section 9.2(h) shall apply with respect
to the severability of the provisions pertaining to the right to
indemnification contained in Section 5.15 or Section 9.2, respectively, and
(ii) if any provision of this Agreement other than Section 9.2 is held
unenforceable, and the unenforceability of such provision would substantially
impair the rights and benefits and/or increase the duties and obligations of
either party contained in this Agreement, then this Agreement shall be
terminated at the election of any party whose rights and benefits are impaired
or duties and obligations increased, subject to the provisions of Article VIII
hereof.

10.5 Injunctive Relief. The parties hereto acknowledge and agree
that irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement, and shall be entitled to enforce specifically the provisions
of this Agreement, in any court of the United States or any state thereof
having jurisdiction, in addition to any other remedy to which the parties may
be entitled under this Agreement or at law or in equity.

10.6 Independent Determination. From and after the First Closing
Date, all decisions on behalf of the Company as to the payment of
indemnification pursuant hereto and otherwise regarding the Company's rights
and obligations pursuant to this Agreement shall be made by a committee of
directors consisting of all directors other than those elected by the holder(s)
of Series B Preferred Stock; provided, however, that nothing contained in this
Section 10.6 shall prevent any Indemnified Party from receiving indemnification
pursuant to some other source (such as, by way of example, the bylaws of the
Company in the event that such Indemnified Party is a director of the Company
and such director seeks indemnification due to circumstances that do not
pertain to an alleged breach of this Agreement), and the determination as to
whether indemnification pursuant to such other source is available shall be
made in accordance with the procedures applicable thereto.

B-38
<PAGE> 117
10.7 Approval of Series B Nominees. The execution and delivery of
this Agreement by the Company shall be deemed to constitute the approval by the
Board of Directors as constituted at the date hereof of Richard Rainwater,
Darla Moore, Kenneth Hersh and Philip Smith as the nominees of Buyer for
election as directors by Buyer as holder of the Series B Preferred Stock on
the First Closing Date.

10.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.

10.9 Counterparts. This Agreement may be executed by the parties
hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.

ARTICLE XI

DEFINITIONS

11.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Article:

"Affiliate" has the meaning specified in Rule 12b-2
promulgated under the Exchange Act.

"Ancillary Documents" means each agreement, instrument, and
document (other than this Agreement) executed or to be executed by the
Company or Buyer in connection with the sale and purchase of the
Shares as contemplated by this Agreement.

"Applicable Law" means any statute, law, rule, or regulation
or any judgment, order, writ, injunction, or decree of any
Governmental Entity to which a specified person or property is
subject.

"Bankruptcy Event" means the occurrence of any of the
following with respect to the Company or any of the Subsidiaries:

(i) making an assignment for the benefit of creditors;

(ii) filing a voluntary petition in bankruptcy;

(iii) being adjudicated a bankrupt or insolvent, or having
entered against it an order for relief in any
bankruptcy or insolvency proceeding;

(iv) filing a petition or answer seeking for itself any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar
relief under any statute, law, or regulation;

B-39
<PAGE> 118
(v) filing an answer or other pleading admitting to or
failing to contest the material allegations of a
petition filed against it in any proceeding of the
nature described in clause (iv) above; or

(vi) seeking, consenting to, or acquiescing in the
appointment of a trustee, receiver, or liquidator of
it or all or any substantial part of its properties.

"Benefit Plan" means any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock purchase,
pension, retirement, deferred compensation, employment, severance, or
other employee benefit agreement, trust, plan, fund, or other
arrangement for the benefit or welfare of any director, officer, or
employee.

"Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in Dallas, Texas are
authorized or obligated by law or executive order to close.

"Encumbrances" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions
(whether on voting, sale, transfer, disposition, or otherwise),
easements, and other encumbrances of every type and description,
whether imposed by law, agreement, understanding, or otherwise.

"Exchange Act" means the Securities Exchange Act of 1934, as
amended.

"Exercise Period" means that period of time during which
holders of Rights may exercise rights to subscribe for Series A
Preferred Stock of the Company.

"Existing Credit Agreement" means that certain Third Amended
and Restated Credit Agreement dated November 29, 1996 among the
Company, MESA Operating Co., Societe Generale and the banks named
therein, as amended prior to the date hereof.

"Existing Indebtedness" means all existing indebtedness of
the Companies in respect of borrowed money, including the outstanding
indebtedness under the Existing Credit Agreement and the Existing
Notes.

"Existing Notes" means the 12 3/4% Notes, the 13 1/2% Notes
and the Hugoton Notes.

"Expenses" shall mean any expenses incurred in connection with
a Proceeding, including, without limitation, all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees and all other
disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or
defend, investigating, or being or preparing to be a witness in a
Proceeding.

"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental, or
regulatory body, agency, department, commission, board, bureau, or
other authority or instrumentality (domestic or foreign).

B-40
<PAGE> 119
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.

"Hugoton Notes" means all outstanding notes issued by Hugoton
Capital Limited Partnership and Hugoton Capital Corporation pursuant
to the Indenture dated as of May 30, 1991 as amended, among the
issuers and Bankers Trust Company, as trustee.

"Indemnified Liabilities" mean any and all claims, actions,
causes of action, demands, losses, liabilities, obligations, losses,
damages, penalties and Expenses of any kind or nature whatsoever with
respect to or arising out of this Agreement, the Transaction
(including the Debt Refinancing and the Rights Offering), the actual
or proposed execution, delivery, enforcement and performance of this
Agreement or the Ancillary Documents, and/or otherwise arising
directly or indirectly, by reason of or resulting from any breach by
the Company prior to the First Closing of any of its representations,
warranties, covenants, or agreements contained in this Agreement or in
any certificate delivered pursuant hereto, regardless of whether
discovered prior to or after the First Closing.

"Material Adverse Effect" means any change, development, or
effect (individually or in the aggregate) which is, or is reasonably
likely to be, materially adverse (i) to the business, assets, results
of operations, condition (financial or otherwise), or prospects of the
Company and the Subsidiaries considered as a whole, other than as a
result of changes in oil and gas prices, or (ii) to the ability of the
Company to perform on a timely basis any material obligation of the
Company under this Agreement or any agreement, instrument, or document
entered into or delivered in connection herewith.

"Material Agreement" means (a) any written or oral agreement,
contract, lease, commitment, understanding, instrument or obligation
to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their respective properties may be
bound involving total value or consideration or liability in excess of
$1,000,000, (b) any loan or credit agreement, bond, debenture, note,
mortgage or indenture by which the Company or any Subsidiary or any of
their respective properties may be bound, or (c) any agreement set
forth as an exhibit to the Company's Form 10-K for the fiscal year
ended December 31, 1995.

"Minimum Ownership Amount" shall have the meaning set forth in
the Statement of Resolution.

"New Notes" means unsecured notes of the Company and/or one
or more of its Subsidiaries, in an aggregate principal amount of at
least $500,000,000, subordinated to the indebtedness under the New
Senior Credit Facility, with terms not inconsistent with those
contained in the Sub-Debt Letter.

"New Senior Credit Facility" means the definitive agreements
providing for the extension of credit to the Companies substantially
in accordance with the terms set forth in the Senior Debt Commitment.

"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.

B-41
<PAGE> 120
"Proceeding" means any action, suit or proceeding, whether
civil, criminal, administrative, arbitrative or investigative, any
appeal in such an action, suit or proceeding, and any inquiry or
investigation that could lead to such an action, suit or proceeding.

"reasonable best efforts" means a party's best efforts in
accordance with reasonable commercial practice and without the
incurrence of unreasonable expense.

"Rights" means the rights to subscribe to purchase Series A
Preferred Stock issued by the Company pursuant to the Rights Offering.

"Securities Act" means the Securities Act of 1933, as amended.

"Senior Debt Commitment" means that certain Senior Secured
Credit Revolving Credit Facility Commitment Letter, dated March 31,
1996, and accompanying term sheet and that Senior Secured Revolving
Credit Facility Fee Letter dated March 31, 1996, each provided to the
Company by The Chase Manhattan Bank, N.A., Bankers Trust Company,
Chase Securities Inc. and BT Securities Corporation.

"Sub-Debt Letter" means that certain letter dated March 31,
1996 addressed to the Company from Chase Securities Inc. regarding the
sale of up to $525,000,000 of unsecured subordinated notes of the
Company and/or one or more of its Subsidiaries.

"Subsidiary" means any corporation, general partnership,
limited partnership, joint venture, or similar entity set forth as a
"Subsidiary" in Section 3.8 of the Disclosure Schedule.

"Taxes" means any income taxes or similar assessments or any
sales, excise, occupation, use, ad valorem, property, production,
severance, transportation, employment, payroll, franchise, or other
tax imposed by any United States federal, state, or local (or any
foreign or provincial) taxing authority, including any interest,
penalties, or additions attributable thereto.

"Tax Return" means any return or report, including any related
or supporting information, with respect to Taxes.

"12 3/4% Notes" means those certain 12 3/4% Secured Discount
Notes due June 30, 1998, and the 12 3/4% Discount Notes due June 30,
1996, issued by the Company, MESA Operating Co., and MESA Capital
Corporation, pursuant to the Indenture dated as of May 1, 1993, as
amended, among the issuers and Harris Trust and Savings Bank, as
trustee, and the Indenture dated as of May 1, 1993, as amended, among
the issuers and American Stock Transfer & Trust Company, as trustee,
respectively.

"13 1/2% Notes" means the 13 1/2% Subordinated Notes due May
1, 1999 issued by the Company, MESA Operating Co., and MESA Capital
Corporation pursuant to the Indenture dated as of May 1, 1989, as
amended, among the issuers and Texas Commerce Bank National
Association, as trustee.

"Unsubscribed Shares" shall mean the number of shares of
Series A Preferred Stock for which the holders of rights shall not
have subscribed during the Exercise Period.

B-42
<PAGE> 121
11.2 Certain Additional Defined Terms. In addition to such terms
as are defined in the opening paragraph of and the recitals to this Agreement
and in Section 11.1, the following terms are used in this Agreement as defined
in the Sections set forth opposite such terms:

<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21(a)
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(a)
Company and Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Company Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10(a)
Company Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10(a)
Conversion Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7
Covered Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.15(a)
Covered Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.15(a)
Debt Refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3
Debt Refinancing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7
Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21(a)
Excess Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(b)
Exclusivity Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10(b)
Exclusivity Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10(a)
Exclusivity Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10(a)
First Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article II
First Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article II
Indemnified Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2(a)
Initial Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4(a)
Interim Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
Letter of Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4(a)
Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(b)
Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.24
Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6(c)
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21(a)
Registration Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9
Repayment Undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2(b)
Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12
Reverse Stock Split . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(c)
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(b)
Rights Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(b)
Rights Offering Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10
SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10
Second Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article II
Second Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article II

</TABLE>

B-43
<PAGE> 122
<TABLE>
<S> <C>
Series B Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statement of Resolution
Series A Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(b)
Series B Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.15
Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(a)
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6(a)
Statement of Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Survival Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1
Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3
WDB Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.15

</TABLE>

B-44
<PAGE> 123
IN WITNESS WHEREOF, the parties have executed this Agreement, or
caused this Agreement to be executed by their duly authorized representatives,
all as of the day and year first above written.

THE COMPANY:

MESA INC.
Address:
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039 By: /s/ STEPHEN K. GARDNER
Attention: Stephen K. Gardner ----------------------------------------
Fax: (214) 402-7028 Stephen K. Gardner, Vice President and
Chief Financial Officer

BUYER:

DNR-MESA HOLDINGS, L.P.

By: Rainwater, Inc., General Partner
777 Main Street
Suite 2700
Fort Worth, Texas 76102
Attention: Kenneth A. Hersh
Fax: (817) 820-6650 By: /s/ KENNETH A. HERSH
----------------------------------------
Kenneth A. Hersh, Vice President

B-45
<PAGE> 124
ANNEX C

[FORM OF]
STATEMENT OF RESOLUTION ESTABLISHING
SERIES OF SHARES

designated

SERIES A 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
and
SERIES B 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK

MESA INC.

To the Secretary of State
of the State of Texas:

Pursuant to the provisions of Article 2.13D of the Texas Business
Corporation Act (the "TBCA"), and pursuant to Article IV of its Amended and
Restated Articles of Incorporation, the undersigned, MESA Inc., a corporation
organized and existing under the TBCA (the "corporation"), hereby submits the
following statement for the purpose of establishing and designating series of
its Preferred Stock, par value $.01, designated "Series A Cumulative
Convertible Preferred Stock" and "Series B Cumulative Convertible Preferred
Stock" and fixing and determining the relative rights and preferences thereof:

I. The name of the corporation is MESA Inc.

II. The following resolution establishing and designating series of
shares and fixing and determining the relative rights and preferences thereof,
was duly adopted by all necessary action on the part of the corporation,
consisting of due adoption by the Board of Directors of the corporation at a
meeting held on _______________________, 1996.

RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation ("Board of Directors") in accordance with
provisions of its Amended and Restated Articles of Incorporation (the
"Articles of Incorporation"), two series of Preferred Stock, par value
$.01 per share, of the corporation are hereby created, and that the
designation and number of shares thereof and the preferences, limitations
and relative rights thereof are as follows:

SECTION 1. DESIGNATION, NUMBER OF SHARES AND STATED VALUE OF SERIES A
PREFERRED STOCK. There is hereby authorized and established a series of
Preferred Stock that shall be designated as "Series A 8% Cumulative Convertible
Preferred Stock" (hereinafter referred to as "Series A Preferred"), and the
number of shares constituting such series shall be _______________, plus, at
any time, such number of shares of Series B Preferred as have been or are at
such time being converted to shares of Series A Preferred pursuant to Section
16 hereof. Such number of shares may be increased, but not decreased,

C-1
<PAGE> 125
by resolution adopted by the majority of the full Board of Directors. The
"Stated Value" per share of the Series A Preferred shall be equal to $[2.26]1.

SECTION 2. DESIGNATION, NUMBER OF SHARES AND STATED VALUE OF SERIES B
PREFERRED STOCK. There is hereby authorized and established a series of
Preferred Stock that shall be designated as "Series B 8% Cumulative Convertible
Preferred Stock" (hereinafter referred to as "Series B Preferred"), and the
number of shares constituting such series shall be _____________________. Such
number of shares may be increased, but not decreased, by resolution adopted by
the majority of the full Board of Directors. The "Stated Value" per share of
the Series B Preferred shall be equal to $[2.26](1).

SECTION 3. DEFINITIONS. In addition to the definitions set forth
elsewhere herein, the following terms shall have the meanings indicated:

"Affiliate" means (i) with respect to any Person, any other Person that
directly or indirectly controls or manages, is controlled or managed by, or is
under common control or management with such Person, whether through the
ownership of equity interests, by contract or otherwise, and (ii) with respect
to any individual, in addition to any Persons specified in clause (i), the
spouse, any parent or any child of such individual and any trust for the
benefit of such individual, spouse, parent or child.

"Average Gas Equivalent Price" shall mean for any Rolling 4 Quarter
Period, the average price received by the corporation during such period from
sales of oil and gas production, expressed on a natural gas equivalent basis
per thousand cubic feet ("Mcf") using a factor of 6 Mcf of natural gas per 1
barrel of liquids, to be calculated as follows:

(i) the aggregate revenues of the corporation and its consolidated
subsidiaries during such Rolling 4 Quarter Period from sales of natural
gas, natural gas liquids and oil and condensate produced (other than that
used for fuel and shrinkage) and sold by the corporation and its
consolidated subsidiaries, as reported in the corporation's consolidated
financial statements, divided by,

(ii) the sum of (A) the total volume, on an Mcf basis, of natural
gas produced (other than that used for fuel and shrinkage) and sold by
the corporation and its consolidated subsidiaries during such Rolling 4
Quarter Period, plus (B) the product of 6 times the total number of
barrels of natural gas liquids, oil and condensate, produced (other than
that used for fuel and shrinkage) and sold by the corporation and its
consolidated subsidiaries during such Rolling 4 Quarter Period, as
derived from the corporation's consolidated financial statements.

"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which banking institutions in Dallas, Texas are authorized or obligated by
law or executive order to close.

"Closing Price" with respect to a particular security on any Trading Day
shall mean the last reported sales price, regular way, for such security on
such Trading Day, or, in case no sale takes place on such day, the average of
the closing bid and ask prices, regular way on such Trading Day, in either case
as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if not listed or admitted to trading

____________________

(1) Subject to appropriate adjustment for any reverse stock split
effectuated before issuance of the Series A and B Preferred Stock.

C-2
<PAGE> 126
on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such security is listed or admitted to
trading or, if such security is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the Nasdaq Stock Market or such other system then in use, or, if on
any such date such security is not quoted by any such organization, the average
of the closing bid and ask prices on such Trading Day as furnished by a
professional market maker making a market in such security selected by the
Board of Directors of the corporation. If on any such date no market maker is
making a market in such security, the fair value of such shares on such date as
determined in good faith by the Board of Directors shall be used.

"Common Stock" shall mean the common stock, par value $0.01 per share, of
the corporation.

"Consolidated EBITDA" for any period, shall mean the consolidated net
income or loss of the corporation for such period determined in accordance with
GAAP, but excluding gains and losses not arising from operations (including,
without limitation, interest income, gains and losses from investments, gains
and losses from dispositions of oil and gas properties or other assets,
collections and settlements of claims and litigation, adjustments of
contingency reserves and other extraordinary and/or non-recurring gains and
losses), plus, to the extent the following have been deducted in determining
such net income or loss, interest expense, income taxes, depreciation,
depletion and amortization expense and impairment expense.

"Conversion Price" shall mean the conversion price per share of Common
Stock into which the Series A Preferred and Series B Preferred is convertible,
as such conversion price may be adjusted pursuant to Section 10 hereof. The
initial Conversion Price will be $[2.26]1.

"full Board of Directors" when used in reference to the corporation's
Board of Directors, means the total number of members of the Board of Directors
as fixed by, or in the manner provided in, the Articles of Incorporation and
Bylaws (without regard to any then existing vacancies), including, any members
elected by the holders of the Series B Preferred pursuant hereto.

"Fixed Charge Coverage Ratio" shall mean as of the end of any Rolling 4
Quarter Period, the ratio of (i) the sum of (A) the Consolidated EBITDA for
such Rolling 4 Quarter Period, plus (B) one-third of gross operating rents paid
before sublease income as defined by Standard & Poors Corporation ("Gross
Rents") , if any, for such period to (ii) the sum for such Rolling 4 Quarter
Period of (A) interest expense, both expensed and capitalized, of the
corporation and its consolidated subsidiaries for such period, plus (B)
one-third of Gross Rents for such period, plus (C) scheduled principal
amortization of indebtedness (including borrowed money and capitalized leases)
of the corporation and its consolidated subsidiaries.

"GAAP" shall mean generally accepted accounting principles in the United
States of America from time to time.

"Initial Partnership Affiliates" shall mean the Partnership, the Persons
that are partners of the Partnership as of the Original Issue Date of the
Series B Preferred and any of their respective Affiliates so long as they
remain Affiliates of the Partnership or such Persons.

C-3
<PAGE> 127
"Junior Securities" means the Common Stock or any other series of stock
issued by the corporation ranking junior as to the Series A Preferred and
Series B Preferred in payment of dividends or distributions or upon
liquidation, dissolution, or winding-up of the corporation.

"Market Price" per share of Common Stock as of any date shall mean the
average of the daily Closing Prices for a period of twenty Trading Days ending
on such date.

"Minimum Ownership Amount" shall mean at any time, ownership of (i) at
least [insert number equal to 58% of the shares of Series B Preferred to be
purchased by the Partnership at the first closing] shares of Series B
Preferred or (ii) such number of shares of Common Stock and Underlying Common
Stock which is at least equal to 15 percent of the total number of shares of
Common Stock and Underlying Common Stock outstanding at such time. For
purposes of this definition, ownership of shares of Series B Preferred shall be
considered to be ownership of the corresponding shares of Underlying Common
Stock.

"Minimum Ownership Condition" shall be satisfied at any time if (i) the
Minimum Ownership Amount is owned in the aggregate at such time by one or more
of the Initial Partnership Affiliates, (ii) at least one half of the Minimum
Ownership Amount is owned and held in the aggregate at such time by one or more
of the Rainwater Affiliates, and (iii) the power to vote at least a majority of
the shares of Series B Preferred outstanding at such time is held by Rainwater
Affiliates, which shall be satisfied (A) with respect to any shares of Series B
Preferred owned by the Partnership if a Rainwater Affiliate is at such time the
sole general partner of the Partnership, (B) with respect to any shares owned
by a Rainwater Affiliate if at such time the right to vote such shares is not
shared with any Person who is not a Rainwater Affiliate, and (C) with respect
to any shares owned by a Person other than a Rainwater Affiliate, if at such
time a Rainwater Affiliate shall have the sole right to vote such shares
pursuant to a voting agreement, voting trust, irrevocable proxy or other
similar agreement with terms reasonably satisfactory to the corporation;
provided that, the corporation shall have been presented with appropriate
certifications or other documentation demonstrating that the foregoing
requirements have been met.

"Non-Series A and B Directors" shall mean the members of the Board of
Directors in whose election the holders of Common Stock are entitled to vote
(whether or not holders of shares of any other class or series are also
entitled to vote thereon).

"Original Issue Date" shall mean with respect to the Series A Preferred
or Series B Preferred, as the case may be, the date on which shares of such
series are first issued.

"Parity Security" means any class or series of stock issued by the
corporation ranking on a parity with the Series A Preferred and Series B
Preferred in payment of dividends or distributions or upon liquidation,
dissolution or winding-up of the corporation.

"Partnership" shall mean DNR-Mesa Holdings, L.P., a Texas limited
partnership.

"Partnership Affiliates" shall mean the Partnership, its partners and
their respective Affiliates for so long as they remain Affiliates of the
Partnership or such partners.

"Payable-in-Kind" or "Paid-in-Kind" when used in reference to any
dividend payable on the shares of Series A Preferred or Series B Preferred,
means payment of the dividend by issuance of that number of additional shares
of Series A Preferred or Series B Preferred, as the case may be, that has an
aggregate Stated Value equal to the dollar amount of such dividend then
payable, rounded to the nearest

C-4
<PAGE> 128
whole share (i.e. if less than .5 rounded down, and if .5 or more rounded up).
Shares of Series A Preferred or Series B Preferred issued as dividends
Payable-in-Kind shall be duly authorized, validly issued and nonassessable and,
upon issuance, shall have rights (including without limitation, dividend,
voting, conversion and redemption rights) identical to the outstanding shares
of Series A Preferred and Series B Preferred in respect of which they are
issued.

"Person" means any individual, corporation, association, partnership,
joint venture, limited liability company, trust, estate, or other entity or
organization.

"Rainwater Affiliates" shall mean, at any time, Richard E. Rainwater and
any of his Affiliates at such time. As of the date hereof, the Rainwater
Affiliates include, without limitation, Natural Gas Partners II, L.P. and
Natural Gas Partners III, L.P.

"Rolling 4 Quarter Period" means the most recently ended period of four
consecutive fiscal quarters of the corporation prior to the date of
determination.

"Senior Securities" means any class or series of stock issued by the
corporation ranking senior to the Series A Preferred and Series B Preferred in
payment of dividends or distributions or upon liquidation, dissolution, or
winding-up of the corporation.

"Trading Day" with respect to any security means (i) if such security is
listed or admitted for trading on any national securities exchange, a day on
which such national securities exchange is open for trading, or (ii) if such
security is not listed or admitted to trading on any national securities
exchange, a Business Day.

"Transfer Agent" means American Stock Transfer & Trust Corporation, or
such other agent or agents of the corporation as may be designated by the Board
of Directors as the transfer agent or conversion agent for the Series A
Preferred and Series B Preferred.

"Underlying Common Stock" means at any time, with respect to any share of
Series A Preferred or Series B Preferred, the aggregate number of shares of
Common Stock into which such share is then convertible at such time pursuant to
Section 10 hereof.

SECTION 4. DIVIDENDS AND DISTRIBUTIONS.

(a) The holders of outstanding shares of Series A Preferred and
Series B Preferred shall be entitled to receive, as and when declared by
the corporation, out of funds of the corporation legally available for
the payment of dividends, preferential quarterly dividends at the times
and at the rates provided for in this Section 4. Dividends on shares of
the Series A Preferred and Series B Preferred shall be cumulative and
shall accrue from and including the date of issuance of such shares to
and including the date on which such shares shall have been converted
into Common Stock or redeemed pursuant to Section 7 hereof. Such
dividends shall accrue whether or not there shall be (at the time such
dividend becomes payable or at any other time) profits, surplus or other
funds of the corporation legally available for the payment of dividends.

(b) Dividends shall accrue on each outstanding share of Series A
Preferred and Series B Preferred at the rate of eight percent (8%) per
annum of the Stated Value (the "Dividend Rate") of such share. Dividends
shall be payable quarterly, in arrears, as of the last Business Day of
each

C-5
<PAGE> 129
December, March, June and September, commencing on September 30, 1996
(each, a "Dividend Payment Date").

(c) During the period beginning on the Original Issue Date of the
Series B Preferred and ending on the first Dividend Payment Date on or
following the fourth anniversary thereof (the "Exclusive PIK Period"),
dividends on outstanding shares of Series A Preferred and Series B
Preferred shall be Payable-in-Kind. After the Exclusive PIK Period,
dividends on the shares of Series A Preferred and Series B Preferred
shall be Payable-in-Kind or, at the corporation's option, if the "Stock
Price Threshold" (as defined in subsection (d) below) or the "Coverage
Ratio or Gas Price Threshold" (as defined in subsection (e) below) is
satisfied as of the record date for such dividend, payable in cash.

(d) For purposes hereof, the "Stock Price Threshold" shall be
satisfied as of a record date for a Dividend Payment Date after the
Exclusive PIK Period if the average of the daily Closing Prices for the
Common Stock during a period of ninety (90) consecutive Trading Days
preceding the tenth day prior to such record date, was more than three
times the Conversion Price then in effect. Once the Stock Price
Threshold has been satisfied, it shall be deemed to remain satisfied on
each subsequent quarterly Dividend Payment Date regardless of any
subsequent changes in the price of the Common Stock.

(e) For purposes hereof, the "Coverage Ratio or Gas Price
Threshold" shall be satisfied as of a record date for a Dividend Payment
Date if either (i) the Fixed Charge Coverage Ratio as of the end of the
then most recently ended Rolling 4 Quarter Period is in excess of 2.5; or
(ii) the Average Gas Equivalent Price realized by the corporation during
the then most recently ended Rolling 4 Quarter Period is in excess of
$2.95. As a condition to the payment of cash dividends on any Dividend
Payment Date, the Coverage Ratio or Gas Price Threshold must be satisfied
as of the record date for such quarterly Dividend Payment Date (unless
the Stock Price Threshold has been satisfied, in which case satisfaction
of the Coverage Ratio or Gas Price Threshold shall not be required).

(f) The amount of dividends payable on each Dividend Payment Date
shall be determined by applying the Dividend Rate from but excluding the
immediately preceding Dividend Payment Date (or from but excluding the
date of issuance of shares of Series A Preferred or Series B Preferred,
with respect to the first dividend period) to and including the Dividend
Payment Date.

(g) Notwithstanding the foregoing or anything else herein to the
contrary, however, (i) dividends payable on any Redemption Date (as
defined in Section 7 below), shall be payable in cash or in Common Stock
in accordance with Section 7 hereof, and (ii) dividends payable on any
final distribution date relating to a dissolution, liquidation or winding
up of the corporation, shall be payable in cash only. If the payment
date does not occur on a regular Dividend Payment Date, dividends shall
be calculated on the basis of the actual number of days elapsed from but
excluding the immediately preceding Dividend Payment Date to and
including the Redemption Date or such final distribution date. Dividends
payable on the shares of Series A Preferred and Series B Preferred for
any period of less than a full quarterly dividend period shall be
computed on the basis of a 360-day year comprised of twelve 30-day
months.

(h) To the extent dividends are not paid in cash or Paid-in-Kind
on a Dividend Payment Date, all dividends which shall have accrued on
each share of Series A Preferred and Series B Preferred outstanding as of
such Dividend Payment Date shall be added to the Stated Value of

C-6
<PAGE> 130
such share of Series A Preferred and Series B Preferred and shall remain
a part thereof until paid, and dividends shall accrue at the Dividend
Rate and be paid on such share of Series A Preferred and Series B
Preferred on the basis of the Stated Value, as so adjusted.

(i) Dividends payable on each Dividend Payment Date shall be paid
to record holders of the shares of Series A Preferred and Series B
Preferred as they appear on the books of the corporation at the close of
business on the tenth Business Day immediately preceding the respective
Dividend Payment Date or on such other record date as may be fixed by the
Board of Directors of the corporation in advance of a Dividend Payment
Date, provided that no such record date shall be less than ten nor more
than sixty calendar days preceding such Dividend Payment Date.

(j) So long as any shares of Series A Preferred or Series B
Preferred are outstanding;

(i) No dividend or other distribution shall be declared or
paid, or set apart for payment on or in respect of, any Junior
Securities (other than dividends or distributions payable in shares
of Junior Securities or in rights to purchase Junior Securities),
nor shall any Junior Securities be redeemed, purchased or otherwise
acquired for any consideration (or any money be paid to a sinking
fund or otherwise set apart for the purchase or redemption of any
such Junior Securities).

(ii) No dividend or other distribution, except as described
in the next succeeding sentence, shall be declared or paid, or set
apart for payment on or in respect of, Series A Preferred or Series
B Preferred or any Parity Securities for any period unless full
cumulative dividends on all outstanding shares of Series A
Preferred and Series B Preferred and any Parity Securities have
been or contemporaneously are declared and paid for all dividend
periods terminating on or prior to the date set for payment of such
dividend. When dividends are not paid in full, as aforesaid, on
the shares of Series A Preferred and Series B Preferred and any
Parity Securities, all dividends declared upon such Parity
Securities shall be declared and paid pro rata so that the amounts
of dividends per share declared and paid on the shares of Series A
Preferred and Series B Preferred and such Parity Securities shall
in all cases bear to each other the same ratio that unpaid
dividends per share on the Series A Preferred and Series B
Preferred and on such Parity Securities bear to each other.

(iii) No shares of Series A Preferred or Series B
Preferred or any Parity Securities shall be redeemed, purchased or
otherwise acquired for any consideration (or any money be paid to a
sinking fund or otherwise set apart for the purchase or redemption
of any such Parity Security) by the corporation unless the full
cumulative dividends on all outstanding shares of Series A
Preferred and Series B Preferred shall have been or
contemporaneously are declared and paid for all dividend periods
terminating on or prior to the date on which such redemption,
purchase or other payment is to occur.

SECTION 5. CERTAIN COVENANTS AND RESTRICTIONS. So long as any shares of
Series A Preferred or Series B Preferred are outstanding;

(a) The corporation shall at all times reserve and keep available
for issuance upon the conversion of the shares of Series A Preferred and
Series B Preferred as provided in Section 7 and Section 10, respectively,
such number of its authorized but unissued shares of Common Stock as will
be sufficient to permit the conversion of all outstanding shares of
Series A Preferred and

C-7
<PAGE> 131
Series B Preferred and all other securities and instruments convertible
into shares of Common Stock, and shall take all reasonable action within
its power required to increase the authorized number of shares of Common
Stock necessary to permit the conversion of all outstanding shares of
Series A Preferred and Series B Preferred and all such other securities
and instruments convertible into shares of Common Stock.

(b) The corporation covenants and agrees that all shares of
Common Stock that may be issued as payment of the Redemption Price or
upon exercise of the conversion rights of shares of Series A Preferred
and Series B Preferred will, upon issuance, be fully-paid and
nonassessable.

(c) The corporation will endeavor to make the shares of stock
that may be issued as payment of the Redemption Price or upon exercise of
the conversion rights of shares of Series A Preferred and Series B
Preferred eligible for trading upon any national securities exchange, or
any automated quotation system of a registered securities association,
upon or through which the Common Stock shall then be traded prior to such
delivery.

(d) Prior to the delivery of any securities which the corporation
shall be obligated to deliver upon redemption or conversion of the Series
A Preferred or Series B Preferred, the corporation will endeavor to
comply with all federal and state securities laws and regulations
thereunder requiring the registration of such securities with, or any
approval of or consent to the delivery of such securities by, any
governmental authority.

(e) The corporation shall pay all taxes and other governmental
charges (other than any income or franchise taxes) that may be imposed
with respect to the issue or delivery of shares of Common Stock upon
conversion or redemption of Series A Preferred or Series B Preferred as
provided herein. The corporation shall not be required, however, to pay
any tax or other charge imposed in connection with any transfer involved
in the issue of any certificate for shares of Common Stock in any name
other than that of the registered holder of the shares of the Series A
Preferred or Series B Preferred surrendered in connection with the
conversion or redemption thereof, or involved in the issue of any
certificate for shares of Series A Preferred in exchange for shares of
Series B Preferred, and in such case the corporation shall not be
required to issue or deliver any stock certificate until such tax or
other charge has been paid, or it has been established to the
corporation's satisfaction that no tax or other charge is due.

SECTION 6. LIQUIDATION PREFERENCE.

(a) In the event of any liquidation, dissolution, or winding-up
of the corporation (in connection with the bankruptcy or insolvency of
the corporation or otherwise), whether voluntary or involuntary, before
any payment or distribution of the assets of the corporation (whether
capital or surplus) shall be made to or set apart for the holders of
shares of any Junior Securities, the holders of the shares of Series A
Preferred and Series B Preferred shall be entitled to receive an amount
per share equal to the Stated Value per share held by them, plus an
amount in cash equal to the full cumulative dividends accrued and unpaid
thereon, to the date of such payment, whether or not declared. No
payment on account of any such liquidation, dissolution or winding-up of
the corporation shall be paid to the holders of the shares of Series A
Preferred or Series B Preferred or the holders of any Parity Securities
unless there shall be paid at the same time to the holders of the shares
of Series A Preferred and Series B Preferred and the holders of any
Parity Securities proportionate amounts determined ratably in proportion
to the full amounts to which the holders of all outstanding shares of
Series A Preferred and Series B Preferred and the holders of all such

C-8
<PAGE> 132
outstanding Parity Securities are respectively entitled with respect to
such distribution. For purposes of this Section 6, neither a
consolidation or merger of the corporation with one or more partnerships,
corporations or other entities nor a sale, lease, exchange or transfer of
all or any substantial part of the corporation's assets for cash,
securities or other property shall be deemed to be a liquidation,
dissolution or winding-up of the corporation, whether voluntary or
involuntary.

(b) After payment of the full amount of the liquidation
preference to which the holders of shares of Series A Preferred and
Series B Preferred are entitled, such holders will not be entitled to any
further participation in any distribution of assets of the corporation.

(c) Written notice of any liquidation, dissolution or winding-up
of the corporation, stating the payment date or dates when and the place
or places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less
than 15 days prior to any payment date stated therein, to the holders of
record of the shares of Series A Preferred and Series B Preferred at
their respective addresses as the same shall appear in the records of the
corporation.

SECTION 7. REDEMPTION. The outstanding shares of Series A Preferred and
Series B Preferred are subject to redemption in accordance with the following
provisions:

(a) Subject to the terms hereof, the corporation may at its
option elect to redeem outstanding shares of Series A Preferred and
Series B Preferred, in whole or in part (pro-rata or by lot among the
outstanding shares of both series), on any Dividend Payment Date after
the thirtieth (30th) day following the tenth (10th) anniversary of the
Original Issue Date of the Series B Preferred Stock.

(b) On June 30, 2008, the corporation shall redeem all of the
shares of Series A Preferred and Series B Preferred outstanding on such
date.

(c) The redemption price per share for Series A Preferred and
Series B Preferred redeemed on any optional or mandatory redemption date
(the "Redemption Price") shall be equal to the Stated Value per share of
the shares to be redeemed plus an amount equal to the aggregate dollar
amount of all accrued and unpaid dividends through the redemption date
that have not been added to the Stated Value of such shares. The
Redemption Price shall be paid in cash from any source of funds legally
available therefor, unless the corporation shall publicly announce at
least 30 days prior to the redemption date that it has elected to make
payment of the Redemption Price in Common Stock, in which case the
Redemption Price shall be payable in Common Stock. If the corporation
elects to pay the Redemption Price in shares of Common Stock, the number
(or fraction) of shares to be issued in payment of the Redemption Price
shall be calculated based on the Market Price per share of Common Stock
as of the fifth Trading Day before the redemption date.

(d) Not less than thirty nor more than sixty days prior the
redemption date, a notice specifying the time and place of such
redemption shall be given by first class mail, postage prepaid, to the
holders of record of the shares of Series A Preferred and Series B
Preferred to be redeemed at their respective addresses as the same shall
appear on the books of the corporation (but no failure to mail such
notice or any defect therein shall affect the validity of the proceedings
for redemption except as to the holder to whom the corporation has failed
to mail such notice or except as to the holder whose notice was
defective), calling upon each such holder of record to

C-9
<PAGE> 133
surrender to the corporation on the redemption date at the place
designated in such notice such holder's certificate or certificates
representing the then outstanding shares of Series A Preferred or Series
B Preferred held by such holder. On or after the Redemption Date, each
holder of shares of Series A Preferred and Series B Preferred called for
redemption shall surrender his certificate or certificates for such
shares to the corporation at the place designated in the redemption
notice and shall thereupon be entitled to receive payment of the
Redemption Price in the manner set forth in Section 7(a) above. If the
redemption is delayed for any reason, dividends shall continue to accrue
on the shares of Series A Preferred and Series B Preferred outstanding,
and shall be added to and become a part of the Redemption Price of such
shares, until the Redemption Price, as so adjusted, for such shares is
paid in full.

(e) If a holder of shares of Series A Preferred or Series B
Preferred called for redemption shall have elected, in accordance with
the provisions of Section 10(b), to convert such shares into Common
Stock, such shares of Series A Preferred or Series B Preferred which are
to be converted into Common Stock shall no longer be subject to
redemption, and conversion of same shall occur in accordance with the
terms of Section 10.

SECTION 8. SHARES TO BE RETIRED. All shares of Series A Preferred and
Series B Preferred repurchased, redeemed, converted or otherwise acquired by
the corporation shall be retired and cancelled and shall be restored to the
status of authorized but unissued shares of Preferred Stock, without
designation as to series, and may thereafter be reissued.

SECTION 9. VOTING RIGHTS.

(a) Except as otherwise provided in this Section 9 or required by
law or any provision of the Articles of Incorporation of the corporation,
the holders of the shares of Series A Preferred and Series B Preferred
shall vote together with the shares of Common Stock as a single class at
any annual or special meeting of shareholders of the corporation upon the
following basis: each holder of shares of Series A Preferred and Series B
Preferred shall be entitled to such number of votes for the shares of
Series A Preferred and Series B Preferred held by such holder on the
record date fixed for such meeting as shall be equal to the whole number
of shares of Underlying Common Stock for such shares of Series A
Preferred and Series B Preferred immediately after the close of business
on the record date fixed for such meeting.

(b) With respect to any matter for which the affirmative vote of
the holders of separate classes or series of the corporation's capital
stock is required by the TBCA, the holders of Series A Preferred and
Series B Preferred shall, except as provided in this Section 9 or
required by law, vote together as a single class with respect to such
matter and the holders of the shares of Series A Preferred and Series B
Preferred shall not be entitled to vote as a separate class or series
apart from each other, including, without limitation, any vote on a
proposal to approve or adopt (i) any plan of merger, consolidation or
share exchange for which the TBCA requires a shareholder vote; (ii) any
disposition of assets for which the TBCA requires a shareholder vote; and
(iii) any dissolution of the corporation for which the TBCA requires a
shareholder vote.

(c) For so long as any shares of Series A Preferred or Series B
Preferred remain outstanding, the corporation shall not, without the
affirmative vote or consent of the holders of a majority of the shares of
Series A Preferred and Series B Preferred voting together as a single
class: (i) authorize, create or issue, or increase the authorized or
issued amount of, any class or series of stock of Senior Securities or
Parity Securities, or any security convertible into or

C-10
<PAGE> 134
exchangeable for Senior Securities or Parity Securities or reclassify or
modify any Junior Securities so as to become Parity Securities or Senior
Securities; provided that if the Series A Preferred and Series B
Preferred are affected differently by such action, the holders of each
series will vote as a separate class; or (ii) amend the Articles of
Incorporation to eliminate cumulative voting.

(d) For so long as any shares of Series B Preferred remain
outstanding, the affirmative vote or consent of the holders of at least a
majority of the shares of Series B Preferred outstanding at the time
shall be necessary to permit, affect or validate the amendment,
alteration or repeal by the shareholders of any provisions of the
Articles of Incorporation (including the Statement of Resolution relating
to the Series A Preferred and Series B Preferred) or Bylaws of the
corporation that would limit the authority of the Board of Directors to
amend or repeal any provision of the corporation's Bylaws or that would
adversely affect any rights, preferences, privileges or voting power of
the Series B Preferred differently from the rights, preferences,
privileges or voting power of the Series A Preferred (to the extent such
rights, preferences, privileges or voting power of such two series are
the same prior to such amendment).

(e) For so long as any shares of Series B Preferred remain
outstanding and the Minimum Ownership Condition is met, the holders of
the Series B Preferred shall have, in addition to the other voting rights
required by law or set forth herein or in the corporation's Articles of
Incorporation, the exclusive right, voting separately as a single class,
to elect the minimum number of directors (such directors are referred to
herein as the "Series B Directors") necessary to constitute a majority of
the full Board of Directors of the corporation (excluding in any such
calculation any Series A Directors). As of the Original Issue Date for
the Series B Preferred, the holders of the Series B Preferred shall have
the right to elect four of the seven members of the corporation's Board
of Directors. The right to elect the Series B Directors pursuant hereto
may be exercised by written consent in accordance with subsection (j) of
this Section 9 or by vote at any annual or special meeting of
shareholders held for the purpose of electing directors. At elections
for the Series B Directors, each holder of Series B Preferred shall be
entitled to one vote for each share held.

(f) The Series B Directors elected as provided herein shall serve
until the next annual meeting or until their respective successors shall
be elected and shall qualify. Any Series B Director may be removed with
or without cause by, and shall not be removed other than by, the vote of
the holders of a majority of the outstanding shares of Series B
Preferred, voting separately as a class, at a meeting called for such
purpose or by written consent in accordance with subsection (j) hereof.
If the office of any Series B Director becomes vacant by reason of death,
resignation, retirement, disqualification or removal from office or
otherwise, the remaining Series B Directors, by majority vote, may elect
a successor, or, alternatively, the holders of a majority of the
outstanding shares of Series B Preferred, voting separately as a class,
at a meeting called for such purpose or by written consent in accordance
with subsection (k) hereof may elect a successor. Any such successor
shall hold office for the unexpired term in respect of which such vacancy
occurred. Upon any termination of the right of the holders of Series B
Preferred to vote for and elect Series B Directors as herein provided (i)
the Series B Directors then serving on the Board of Directors may
continue to hold their office for the remainder of their term, subject to
the right of the majority of the Non-Series A and B Directors to request
their prior resignation, in which case the Series B Directors shall
resign upon such request, and (ii) upon the expiration of the term of
office or earlier resignation of each Series B Director pursuant to this
sentence, the number of members constituting the corporation's Board of
Directors shall automatically be

C-11
<PAGE> 135
reduced accordingly unless a majority of the directors other than the
Series B Directors by resolution determine otherwise and elect additional
directors to fill any resulting vacancies.

(g) The following special voting provisions shall be applicable
to the Series A Preferred Stock:

(i) if the corporation shall be in arrears in the payment of
dividends (whether Payable-in-Kind or in cash) on the shares of
Series A Preferred and Series B Preferred for a total of six
quarterly Divided Payment Dates, then the number of members of the
Board of Directors shall automatically be increased by two
additional directors and the holders of the Series A Preferred,
voting as a separate class, shall have the exclusive right to elect
two directors ("Series A Directors") immediately, and at the next
and every subsequent annual meeting of shareholders called for the
election of directors, at which the term of office of the Series A
Directors expire;

(ii) the right of the holders of Series A Preferred to elect
the Series A Directors as aforesaid shall continue until such time
as dividends accumulated on the Series A Preferred shall have been
paid in full, whether Payable-in-Kind or in cash, at which time the
office of the Series A Directors shall be eliminated and the
special right of the holders of Series A Preferred so to vote
separately as a class for the election of the Series A Directors
shall terminate, subject to revesting at such time as the
corporation shall be in arrears in the payment of dividends on the
outstanding shares of Series A Preferred as set forth in clause (i)
above;

(iii) each Series A Director shall agree, prior to his
election to office, to resign immediately upon any termination of
the right of the holders of Series A Preferred to vote as a
separate class for directors as herein provided, and upon any such
termination, each Series A Director shall forthwith resign and the
size of the Board of Directors shall automatically be reduced
accordingly;

(iv) unless otherwise required to resign as aforesaid, the
term of office of each Series A Director shall terminate upon the
election of a successor Series A Director at any meeting of the
shareholders held for the purpose of electing directors; and

(v) in any case in which the holders of Series A Preferred
shall be entitled to vote pursuant to this Section 9(g), each
holder of Series A Preferred shall be entitled to one vote for each
share of Series A Preferred held.

(h) During any period in which the holders of Series A Preferred
shall be entitled to elect directors pursuant to subsection (g) of this
Section 9, or the holders of Series B Preferred shall be entitled to
elect directors pursuant to subsection (e) of this Section 9 the
following shall be applicable:

(i) if the annual meeting of shareholders of the
corporation is not, for any reason, held within the time
fixed in the Bylaws of the corporation, or if a vacancy shall
exist in the office of a Series A Director or a Series B
Director, a proper officer of the corporation, upon the
written request of the holders of record of at least ten
percent (10%) of the shares of the Series A Preferred or
Series B Preferred then outstanding, as applicable, addressed
to the Secretary of the corporation, shall call a

C-12
<PAGE> 136
special meeting in lieu of the annual meeting of
shareholders, or in the event of a vacancy, a special meeting
of the holders of Series A Preferred or Series B Preferred,
as applicable, for the purpose of electing Series A Directors
or Series B Directors, as applicable, and any such meeting
shall be held at the earliest practicable date at such time
and place as shall be determined by the corporation;

(ii) if such meeting shall not be called by the proper
officer of the corporation within twenty (20) days after
personal service of said written request upon the Secretary
of the corporation, or within (20) days after mailing the
same within the United States by certified mail, addressed to
the Secretary of the corporation at its principal executive
offices, then the holders of record of at least ten percent
(10%) of the outstanding shares of the Series A Preferred or
Series B Preferred, as applicable, may designate in writing
one of their number to call such meeting at the expense of
the corporation, and such meeting may be called by the person
so designated upon the notice required for the annual
meetings of shareholders of the corporation and shall be held
at the principal executive offices of the corporation. Any
holder of Series A Preferred or Series B Preferred, as
applicable, so designated shall have access to the lists of
Series A Preferred or Series B Preferred shareholders to be
called pursuant to the provisions hereof; and

(iii) at any meeting held for the purpose of electing
a director at which the holders of Series A Preferred or
Series B Preferred shall have the right, voting as a
separate class, to elect the Series A Director or Series
B Director pursuant to this Section 9, the presence in person
or by proxy of the holders of at least one-third (1/3) of the
outstanding Series A Preferred or Series B Preferred, as
applicable, shall be required to constitute a quorum of such
Series A Preferred or Series B Preferred, as applicable.

(i) During any period in which the holders of Series B Preferred
shall be entitled to elect directors pursuant to subsection (e) of this
Section 9, (i) the holders of Series B Preferred shall not have the right
or otherwise be entitled to vote in the election of any directors other
than the Series B Directors, (ii) no Series B Director shall have the
right to vote in the election of any person to fill any vacancy created
by the death, resignation, retirement, disqualification or removal from
office or otherwise of any director other than a Series B Director and
all such rights with respect to the Non-Series A and B Directors shall be
exercised for and on behalf of the Board of Directors by a majority of
the Non-Series A and B Directors, and (iii) only the Non-Series A and B
Directors shall have right to vote in any action by or on behalf of the
Board of Directors with respect to nominating persons to serve as
Non-Series A and B Directors. Nothing in clause (ii) or (iii) of this
subsection (i) shall limit or restrict the right of holders of shares of
Common Stock and Series A Preferred to nominate and to elect, subject to
and in accordance with applicable law, the other provisions of the
Articles of Incorporation and the bylaws, persons to serve as Non-Series
A and B Directors. This subsection (i) and the defined terms used herein
may not be amended without (x) the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock and (y) the
affirmative vote of the holders of a majority of the outstanding shares
of Series A Preferred Stock.

(j) Pursuant to Article 9.10A of the TBCA, any action of the
holders of the Series B Preferred, voting as a separate class, which is
required by the TBCA to be taken at any annual or special meeting of the
holders of the Series B Preferred, or is otherwise permitted to be taken
by

C-13
<PAGE> 137
the holders of Series B Preferred at any annual or special meeting
pursuant to the TBCA, the Articles of Incorporation (including the
Statement of Resolution relating to the Series A Preferred and Series B
Preferred) or the corporation's bylaws, may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder
or holders of shares of Series B Preferred having not less than the
minimum number of votes that would be necessary to take such action at a
meeting at which the holders of all shares of Series B Preferred were
present and voted.

SECTION 10. CONVERSION RIGHTS. Holders of shares of Series A
Preferred and Series B Preferred shall have the right to convert all or a
portion of such shares into shares of Common Stock, as follows:

(a) Subject to and upon compliance with the provisions of this
Section 10, each share of Series A Preferred and Series B Preferred shall
be convertible at the option of the holder thereof into fully paid, non-
assessable shares of Common Stock. The number (or fraction) of shares of
Common Stock deliverable upon conversion of one share of Series A
Preferred or Series B Preferred shall be determined by dividing the
Stated Value of such share of Series A Preferred or Series B Preferred by
the Conversion Price then in effect. For purpose of such determination,
the Stated Value of each share of Series A Preferred or Series B
Preferred shall be increased by the amount of accrued and unpaid
dividends for all quarterly dividend payment periods ending on or prior
to the date such shares are surrendered to the corporation for conversion
and for the partial dividend period beginning on the date immediately
following the most recent Dividend Payment Date through and including the
date on which such shares are surrendered for conversion.
Notwithstanding the foregoing, holders of shares of Series A Preferred
and Series B Preferred surrendered for conversion shall have the right to
require the corporation to make payment in cash of all such accrued and
unpaid dividends, in lieu of such adjustment to the Stated Value to the
extent funds are legally available therefor.

(b) The conversion of any share of Series A Preferred or Series B
Preferred may be effected by the holder thereof by the surrender of the
certificate for such share to the corporation at the principal office of
the Transfer Agent or to such other agent or agents of the corporation as
may be designated by the Board of Directors. If any shares of Series A
Preferred or Series B Preferred are called for redemption pursuant to
Section 7 hereof, such right of conversion shall cease and terminate as
to the shares called for redemption at the close of business on the
Business Day immediately preceding the redemption date, unless the
corporation shall default in the payment of the Redemption Price, in
which event such conversion right shall remain in effect until full
payment of the Redemption Price has been made.

(c) As promptly as practicable after the surrender of shares of
Series A Preferred and Series B Preferred for conversion, the corporation
shall issue and deliver or cause to be issued and delivered to the holder
of such shares certificates representing the number (or fraction) of
fully paid and non-assessable shares of Common Stock into which such
shares of Series A Preferred and Series B Preferred have been converted
in accordance with the provisions of this Section 10. Subject to the
following provisions of this Section 10, such conversion shall be deemed
to have been made as of the close of business on the date on which the
shares of Series A Preferred and Series B Preferred shall have been
surrendered for conversion in the manner herein provided, so that the
rights of the holder of the shares of Series A Preferred and Series B
Preferred so surrendered shall cease at such time, and the person or
persons entitled to receive the shares of Common Stock upon conversion
thereof shall be treated for all purposes as having become the

C-14
<PAGE> 138
record holder or holders of such shares of Common Stock at such time;
provided, however, that any such surrender on any date when the stock
transfer books of the corporation are closed shall be deemed to have been
made, and shall be effective to terminate the rights of the holder or
holders of the shares of Series A Preferred and Series B Preferred so
surrendered for conversion and to constitute the person or persons
entitled to receive such shares of Common Stock as the record holder or
holders thereof for all purposes, at the opening of business on the next
succeeding day on which such transfer books are open and such conversion
shall be at the Conversion Price in effect at such time.

(d) Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of
Common Stock deliverable upon conversion of the shares of Series A
Preferred and Series B Preferred, the corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order
that the corporation may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Conversion Price.

(e) The Conversion Price shall be subject to adjustment from time
to time as follows:

(i) In case at any time the corporation shall (A) subdivide
the outstanding shares of Common Stock into a greater number of
shares, or (B) combine the outstanding shares of Common Stock into
a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted proportionately so that
the adjusted Conversion Price shall bear the same relation to the
Conversion Price in effect immediately prior to such event as the
total number of shares of Common Stock outstanding immediately
prior to such event shall bear to the total number of shares of
Common Stock outstanding immediately after such event. Such
adjustment shall become effective immediately after the effective
date of a subdivision or combination.

(ii) In case at any time the corporation shall declare,
order, pay or make any dividend or other distribution to holders of
the Common Stock payable in Common Stock, then in each such case,
subject to Section 10(e)(v) hereof, the Conversion Price in effect
immediately prior to the close of business on the record date fixed
for determination of holders of any class of securities entitled to
receive such dividend or distribution shall be reduced to a price
(calculated to the nearest .001 of cent) determined by multiplying
such Conversion Price by a fraction:

(A) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such
dividend or distribution; and

(B) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such
dividend or distribution.

Shares of Common Stock owned by or held for the account of the
corporation shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made on the date such
dividend is paid or such distribution is made and shall become
effective retroactive to the record date for the determination of
shareholders entitled to receive such dividend or distribution.

C-15
<PAGE> 139
(iii) In case at any time the corporation shall declare,
order, pay or make any dividend or other distribution to all
holders of the Common Stock, other than a dividend payable in
shares of Common Stock (including, without limitation, dividends or
distributions payable in cash, evidences of indebtedness, rights,
options or warrants to subscribe or purchase any Common Stock or
other securities, or any other securities or other property, but
excluding any rights to purchase any stock or other securities if
such rights are not separable from the Common Stock except upon the
occurrence of a contingency beyond the control of the corporation),
then, and in each such case, subject to Section 10(e)(v) hereof,
the Conversion Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders
of Common Stock entitled to receive such dividend or distribution
shall be reduced to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Conversion Price by a
fraction:

(A) the numerator of which shall be the Market Price
per share of Common Stock in effect as of such record date
or, if the Common Stock trades on an ex-dividend basis, on
the Trading Day immediately prior to the date of commencement
of ex-dividend trading, less the value of such dividend or
distribution (as determined in good faith by the Board of
Directors of the corporation) applicable to one share of
Common Stock, and

(B) the denominator of which shall be such Market
Price per share of Common Stock as of such record date or, if
the Capital Stock trades on an ex-dividend basis, on the
Trading Day immediately prior to the date of commencement of
ex-dividend trading.

Such adjustment shall be made on the date such dividend is paid or
such distribution is made and shall become effective retroactive to
the record date for the determination of shareholders entitled to
receive such dividend or distribution.

(iv) In case at any time the corporation issues or sells any
shares of Common Stock or any rights, options or warrants to
subscribe for or purchase shares of Common Stock or shares having
the same rights, privileges and preferences as the Common Stock
("equivalent common stock") or securities convertible into Common
Stock or equivalent common stock, at a price per share of Common
Stock or equivalent common stock (or having a conversion price per
share, if a security is convertible into shares of Common Stock or
equivalent common stock) less than the Market Price of the Common
Stock as of the date of such issue or sale, then upon such issue or
sale the Conversion Price shall be reduced to such Conversion Price
determined by multiplying the Conversion Price in effect
immediately prior to such issue or sale by a fraction, (x) the
numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issue or sale
plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock and/or
equivalent common stock so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be
offered) would purchase at such Market Price and (y) the
denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issue or sale
plus the number of additional shares of Common Stock and/or
equivalent common stock to be offered for subscription or purchase
(or into which the convertible securities so to be offered are
initially convertible). In case such subscription price may be
paid in a consideration part of or all of which shall be in a form
other than cash, the value of such

C-16
<PAGE> 140
consideration shall be determined in good faith by the Board of
Directors of the corporation. Shares of Common Stock owned by or
held for the account of the corporation shall not be deemed
outstanding for the purpose of any such computation. Such issue or
sale adjustment shall be made successively upon the issuance or
sale of shares of Common Stock or equivalent common stock or any
rights, options or warrants to subscribe for or purchase Common
Stock or equivalent common stock or securities convertible into
common stock or equivalent common stock. Notwithstanding the
foregoing, no adjustment of the Conversion Price pursuant to this
Section 10(e)(iv) shall be made upon (A) the conversion or
redemption of shares of Series A Preferred or Series B Preferred;
(B) the payment of any stock dividend on the Series A Preferred or
Series B Preferred; (C) the issuance of options to officers,
directors and employees of the corporation and its subsidiaries, to
purchase shares of Common Stock, including any such options as are
issued and outstanding as of the Original Issue of the Series B
Preferred; (D) the issuance and sale of Common Stock upon exercise
of any rights, options or warrants referenced in the immediately
preceding clause (C) or in Section 10(e)(iii); or (E) the issuance
and sale of Common Stock in an underwritten public offering at a
price to the public of not less than 95% of the Closing Price of
the Common Stock on the date of the pricing of such offering.

(v) If the amount of any adjustment of the Conversion Price
required pursuant to this Paragraph 10 would be less than 1% of the
Conversion Price in effect at the time such adjustment is otherwise
so required to be made, such amount shall be carried forward and an
adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate at
least 1% of such Conversion Price. All calculations under this
Section 10 shall be made to the nearest .001 of a cent.

(vi) Except as herein otherwise expressly provided, for all
purposes of this Section 10(e) the term "Common Stock" shall mean
the Common Stock and any shares of stock or other class of capital
stock of the corporation which is not preferred as to dividends or
assets over any other class of capital stock of the corporation and
which is not subject to redemption, or which is issued to the
holders of shares of Common Stock upon any reclassification
thereof.

(f) In case at any time after the Original Issuance Date, the
corporation shall be a party to any transaction (including without
limitation, a merger, consolidation, statutory share exchange, sale of
all or substantially all of the corporation's assets or recapitalization
of the Common Stock), in each case as a result of which shares of Common
Stock (or any other securities of the corporation then issuable upon
conversion of the Series A Preferred or Series B Preferred) shall be
converted to the right to receive stock, securities or other property
(including cash or any combination thereof) (each of the foregoing
transactions being referred to as a "Fundamental Change Transaction"),
then the shares of Series A Preferred and Series B Preferred remaining
outstanding will thereafter no longer be subject to conversion into
Common Stock (or such other securities) pursuant to this Section 10, but
instead each share shall be convertible into the kind and amount of stock
and other securities and property receivable (including cash) upon the
consummation of such Fundamental Change Transaction by a holder of that
number of shares or fraction thereof of Common Stock (or such other
securities) into which one share of Series A Preferred or Series B
Preferred was convertible immediately prior to such Fundamental Change
Transaction assuming such holder of Common Stock failed to exercise any
right of election as to the kind of consideration to be received in such
Fundamental Change Transaction. The

C-17
<PAGE> 141
corporation shall not be a party to any Fundamental Change Transaction
after which shares of the Series A Preferred and Series B Preferred shall
remain outstanding unless the terms of such Fundamental Change
Transaction are consistent with the provisions of this Section 10(f), and
it shall not consent or agree to the occurrence of any such Fundamental
Change Transaction until the corporation has entered into an agreement
with the successor or purchasing entity, as the case may be, for the
benefit of the holders of the shares of Series A Preferred and Series B
Preferred which will contain provisions enabling the holders of shares of
the Series A Preferred and Series B Preferred which remain outstanding
after such Fundamental Change Transaction to convert such shares into the
consideration received by holders of Common Stock (or any other
securities of the corporation then issuable upon conversion of the Series
A Preferred or Series B Preferred) at the Conversion Price immediately
after such Fundamental Change Transaction. In the event that at any
time, as a result of an adjustment made pursuant to this Section 10, the
Series A Preferred and Series B Preferred shall become subject to
conversion into any securities other than shares of Common Stock,
thereafter the number of such other securities so issuable upon
conversion of the shares of Series A Preferred and Series B Preferred
shall be subject to adjustment from time to time in a manner and on terms
nearly equivalent as practicable to the provisions with respect to the
shares of Series A Preferred and Series B Preferred contained in this
Section 10. The provisions of this Section 10(f) shall similarly apply
to successive Fundamental Change Transactions.

(g) Upon the occurrence of any event requiring an adjustment of
the Conversion Price, then and in any such case the corporation shall
promptly deliver to the holders of shares of Series A Preferred and
Series B Preferred, a notice stating the Conversion Price resulting from
such adjustment, the method of calculation thereof, and setting forth a
brief statement of the facts requiring such adjustment and upon which
such adjustment is based.

(h) In case at any time:

(i) the corporation shall declare or pay to all
holders of Common Stock any dividend (whether payable in
Common Stock, cash, securities or other property);

(ii) there shall be any capital reorganization, or
reclassification of the Common Stock of the corporation or
consolidation or merger of the corporation with, or sale of
all or substantially all of its assets to, another
corporation or other entity;

(iii) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the corporation;
or

(iv) there shall be any other Fundamental Change
Transaction;

then, in any one or more of such cases, the corporation shall give to the
holder of shares of Series A Preferred and Series B Preferred (A) at
least 15 days prior to any event referred to in clause (i) above and at
least 30 days prior to any event referred to in clause (ii), (iii) or
(iv) above, written notice of the date on which the books of the
corporation shall close or records shall be taken for such dividend or
distribution or for determining rights to vote in respect of any such
organization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Fundamental Change Transaction and (B) in the
case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding-up, or Fundamental Change
Transaction known to the corporation, at least 30 days prior written
notice of the date, or if not

C-18
<PAGE> 142
then known, a reasonable approximation thereof by the corporation) when
the same shall take place. Such notice in accordance with the foregoing
clause (A) shall also specify, in the case of any such dividend or
distribution, the date on which such holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause
(B) shall also specify the date on which such holders of Common Stock
shall be entitled to exchange their Common Stock securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or
Fundamental Change Transaction, as the case may be.

(i) All shares of Common Stock issuable upon the conversion set
forth in this Section 10 shall be validly issued, fully-paid and
non-assessable.

SECTION 11. RANKING.

(a) The Series A Preferred and the Series B Preferred shall rank
on a parity with each other as to payment of dividends and distributions
and upon liquidation, dissolution or winding-up of the corporation. In
the event the corporation is a party to any merger, consolidation or
share exchange in which the Series A Preferred or Series B Preferred is
converted or exchanged into any other securities, property, cash or other
consideration, the securities, property, cash or other consideration into
which the Series A Preferred and Series B Preferred, respectively, may be
converted or exchanged shall be identical in kind and amount per share as
that into which the Series B Preferred or Series A Preferred, as the case
may be, may be converted or exchanged, and no shares of Series A
Preferred or Series B Preferred shall be converted or exchanged therein
into any securities, property, cash or other consideration unless all
shares of Series A Preferred and Series B Preferred may be converted or
exchanged into the same kind and amount per share of securities,
property, cash or other consideration.

(b) Without limiting the definition of Junior Securities, the
following securities and obligations of the corporation shall rank junior
to the Series A Preferred and Series B Preferred with respect to the
payments required or permitted to be made to the holders thereof pursuant
to their respective governing instruments and payments required to be
made to the holders of the Series A Preferred and Series B Preferred
pursuant hereto: the shares of Common Stock and Series A Junior
Participating Preferred Stock, par value $.01 per share.

SECTION 12. RECORD HOLDERS. The corporation and the Transfer Agent
may deem and treat the record holder of any shares of Series A Preferred and
Series B Preferred as the true and lawful owner thereof for all purposes, and
neither the corporation nor Transfer Agent shall be affected by any notice to
the contrary.

SECTION 13. NOTICE. Except as may otherwise be provided by law or
provided for herein, all notices referred to herein shall be in writing, and
all notices hereunder shall be deemed to have been given upon receipt, in the
case of a notice of conversion given to the corporation as contemplated in
Section 10(b) hereof, or, in all other cases, upon the earlier of receipt of
such notice or three Business Days after the mailing of such notices sent by
Registered Mail (unless first-class mail shall be specifically permitted for
such notice under the terms hereof) with postage prepaid, addressed: If to the
corporation, to its principal executive offices (Attention: Corporate
Secretary) or to any agent of the corporation designated as permitted hereby;
or if to a holder of the Series A Preferred and Series B Preferred, to such
holder at the address of such holder of the Series A Preferred and Series B
Preferred

C-19
<PAGE> 143
as listed in the stock record books of the corporation (which shall include the
records of the Transfer Agent), or to such other address as the corporation or
holder, as the case may be, shall have designated by notice similarly given.

SECTION 14. AUTHORIZATION BY NON-SERIES A AND B DIRECTORS. A
majority of the Non-Series A and B Directors shall make (and no Series B
Director shall be entitled to vote on) any determination required or permitted
to be made by the Board of Directors on behalf of the corporation (i) pursuant
to Section 7(c) hereof, as to whether to make payment of the Redemption Price
of the Series A Preferred and Series B Preferred in cash or in kind, (ii)
pursuant to Section 7(a) hereof, as to whether to exercise the corporation's
option to redeem outstanding shares of Series A Preferred or Series B
Preferred, or (iii) pursuant to Section 4(c) hereof, as to whether to make
payment of any dividends declared by the Board of Directors on the Series A
Preferred and Series B Preferred in cash or in kind; provided that, the Non-
Series A and B Directors shall not be entitled to make any determination to pay
cash dividends unless the corporation shall have sufficient cash legally
available to make such payment in full.

SECTION 15. SUCCESSORS AND TRANSFEREES. The provisions applicable
to shares of Series A Preferred and Series B Preferred shall bind and inure to
the benefit of and be enforceable by the corporation, the respective successors
to the corporation, and by any record holder of shares of Series A Preferred
and Series B Preferred.

SECTION 16. CONVERSION OF SERIES B TO SERIES A SHARES. Upon any
transfer of shares of Series B Preferred (or any transfer of beneficial
ownership of such shares) to any Person other than to any Partnership
Affiliate, such shares shall be automatically converted to shares of Series A
Preferred on a one for one basis, and as a condition to the registration of the
transfer of such shares, the certificate for the shares of Series B Preferred
to be transferred shall be surrendered to the Transfer Agent in exchange for
the issuance of a certificate for the same number of shares of Series A
Preferred registered in the name of the transferee. In addition, at such time
as the Minimum Ownership Condition is no longer met, all shares of Series B
Preferred remaining outstanding shall be automatically converted to shares of
Series A Preferred on a one for one basis and each holder of shares of Series B
Preferred shall surrender to the Transfer Agent the certificates for such
shares in exchange for certificates for the same number of shares of Series A
Preferred registered in the name of such holder.

C-20
<PAGE> 144

RESOLVED FURTHER, that the appropriate officers of the corporation, be,
and they are hereby, authorized and directed from time to time to execute such
certificates, instruments or other documents and do all such things as may be
necessary or advisable in their discretion in order to carry out the terms
hereof, including the filing with the Secretary of State for the State of Texas
of a copy of the foregoing resolution executed by an officer of the
corporation.

Dated: , 1996.
------------------

MESA INC.

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

C-21
<PAGE> 145

[MESA LOGO]

Dear Stockholder:

You are cordially invited to attend the Special Meeting of
Stockholders of MESA Inc. on ____________, June ____, 1996. At this meeting,
stockholders will be asked to approve certain matters relating to the proposed
transaction with Rainwater, Inc. announced February 29, 1996.

The meeting will begin at _____ a.m. at
_______________________________, Dallas, Texas. For your convenience, we are
including with this letter a map that will be useful in planning your
activities should you decide to attend the meeting.

After reviewing the enclosed material, please take a moment to sign,
date and mark your vote on the proxy card below and return it in the enclosed
postage-paid envelope. While management is recommending a vote "FOR" each of
the issues outlined below and would appreciate your support, we urge your
careful review of the enclosed material so that you can make your own
determination on how to vote. We believe all stockholders should have a voice
in the Company's direction, so we ask that you return the proxy card whether or
not you plan to attend the special meeting.

I look forward to seeing you on __________.

Boone Pickens
Chairman of the Board and
Chief Executive Officer

FOLD AND TEAR HERE FOLD AND TEAR HERE FOLD AND TEAR HERE
- --------------------------------------------------------------------------------
PROXY PROXY
MESA INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD JUNE ____, 1996

The undersigned stockholder hereby appoints Stephen K. Gardner and William D.
Ballew, jointly and severally, proxies, with full power of substitution, to
vote, as specified below, all shares of MESA Inc. (the "Company") that the
undersigned is entitled to vote at the Special Meeting of Stockholders of the
Company to be held at ________________________, Dallas, Texas, at _____ a.m. on
____________, June ____, 1996, or any adjournment or postponement thereof (the
"Special Meeting"), and directs said proxies to vote as instructed on the
matters set forth below AND OTHERWISE AT THEIR DISCRETION. Receipt of a copy of
the Notice of said Special Meeting and the accompanying Proxy Statement is
hereby acknowledged. This proxy revokes all prior proxies given by the
undersigned.

Please sign EXACTLY as name(s) appears
hereon, and in signing as Attorney,
Administrator, Guardian, Trustee or
Corporate Officer, please add your title
as such.

Signature
--------------------------------

Title
-------------------------------------

Date 1996
---------------------------------
<PAGE> 146
MEETING LOCATION [REVERSE SIDE]
DALLAS, TEXAS

[Map]

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

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1, PROPOSAL 2 AND
PROPOSAL 3 SET FORTH BELOW.

Proposal 1. Approve the issuance and sale of a minimum of approximately 58.8
million shares and a maximum of approximately 117.3 million shares
of Series B 8% Cumulative Convertible Preferred Stock to DNR-MESA
Holdings, L.P., on the terms and subject to the conditions set
forth in the Stock Purchase Agreement dated April ____, 1996,
between the Company and DNR-MESA Holdings, L.P.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

Proposal 2. Approve an amendment to the Company's Amended and Restated
Articles of Incorporation to (i) increase the authorized shares of
Common Stock to 600 million, (ii) increase the authorized shares
of Preferred Stock to 500 million and (iii) permit the taking of
action by written consent of the holders of any series of
Preferred Stock if and to the extent provided in the resolution of
the Board of Directors establishing any such series.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

Proposal 3. Approve an amendment of the Company's Amended and Restated
Articles of Incorporation to (i) effect a one- for-four reverse
stock split of the outstanding shares of Common Stock, (ii) reduce
the authorized shares of Common Stock to 150 million and (iii)
reduce the authorized shares of Preferred Stock to 125 million.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

NONE OF THE PROPOSALS WILL BE IMPLEMENTED UNLESS BOTH PROPOSAL ONE AND PROPOSAL
TWO ARE APPROVED. HOWEVER, THE IMPLEMENTATION OF PROPOSALS ONE AND TWO IS NOT
CONDITIONED UPON THE APPROVAL OF PROPOSAL THREE. THIS PROXY, WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. WHERE NO VOTE IS
SPECIFIED FOR A PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL. THE
INDIVIDUALS NAMED HEREIN ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY
OTHER MATTERS THAT PROPERLY COME BEFORE THE SPECIAL MEETING.