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EXECUTION VERSION

 
Senior Term Loan Agreement

Dated as of
January 18, 2007

among

McMoRan Oil & Gas LLC,
as Borrower,

JPMorgan Chase Bank, N.A.,
as Administrative Agent,

TD SECURITIES (USA) LLC,
as Syndication Agent,

and

The Lenders Party Hereto

 

 
Co-Lead Arrangers and Joint Bookrunners
 
J.P. Morgan Securities Inc. and TD Securities (USA) LLC

 

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TABLE OF CONTENTS
 
                                                                                                                                                                                                              
Page
 
 
ARTICLE I
Definitions and Accounting Matters
 
Section 1.01  Terms Defined
Above                                                                                                                                                                        1
Section 1.02  Certain Defined
Terms                                                                                                                                                                       
1
Section 1.03  Types of Loans and
Borrowings                                                                                                                                                    18
Section 1.04  Terms Generally; Rules of
Construction                                                                                                                                      
18
Section 1.05  Accounting Terms and Determinations;
GAAP                                                                                                                         
19
Section 1.06  Priority of
Creditors                                                                                                                                                                  
       19
 
ARTICLE II
The Credits
 
Section
2.01  Commitments                                                                                                                                                                                     19
Section 2.02  Loans and
Borrowings                                                                                                                                                                    
19
Section 2.03  Requests for
Borrowings                                                                                                                                                                
20
Section 2.04  Interest
Elections                                                                                                                                                                             
20
Section 2.05  Funding of
Borrowings                                                                                                                                                                   
22
 
ARTICLE III
Payments of Principal and Interest; Prepayments; Fees
 
Section 3.01  Repayment of
Loans                                                                                                                                                                       
22
Section
3.02  Interest                                                                                                                                                                                              
23
Section 3.03  Alternate Rate of
Interest                                                                                                                                                               
23
Section
3.04  Prepayments                                                                                                                                                                                     
24
Section
3.05  Fees                                                                                                                                                                                                    
25
 
ARTICLE IV
Payments; Pro Rata Treatment; Sharing of Set-offs
 
Section 4.01  Payments Generally; Pro Rata Treatment; Sharing of
Payments                                                                                               
26
Section 4.02  Presumption of Payment by the
Borrower                                                                                                                                    
27
Section 4.03  Certain Deductions by the Administrative
Agent                                                                                                                      
 27
Section 4.04  Disposition of
Proceeds                                                                                                                                                                   27
 
ARTICLE V
Increased Costs; Break Funding Payments; Taxes; Illegality
 
Section 5.01  Increased
Costs                                                                                                                                                                                27
Section 5.02  Break Funding
Payments                                                                                                                                                               
28
Section
5.03  Taxes                                                                                                                                                                                                 
29
Section 5.04  Mitigation
Obligations                                                                                                                                                                   
30
Section
5.05  Illegality                                                                                                                                                                                             30
 
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ARTICLE VI
Conditions Precedent
 
Section 6.01  Effective
Date                                                                                                                                                                                 
30
 
ARTICLE VII
Representations and Warranties
 
Section 7.01  Organization;
Powers                                                                                                                                                                    
33
Section 7.02  Authority;
Enforceability                                                                                                                                                             
33
Section 7.03  Approvals; No
Conflicts                                                                                                                                                              
34
Section 7.04  Financial Condition; No Material Adverse
Change                                                                                                                 
34
Section
7.05  Litigation                                                                                                                                                                                          34
Section 7.06  Environmental
Matters                                                                                                                                                                 
35
Section 7.07  Compliance with the Laws and Agreements; No
Defaults                                                                                                     
36
Section 7.08  Investment Company
Act                                                                                                                                                           
 36
Section
7.09  Taxes                                                                                                                                                                                               
36
Section
7.10  ERISA                                                                                                                                                                                              36
Section 7.11  Disclosure; No Material
Misstatements                                                                                                                                   
37
Section
7.12  Insurance                                                                                                                                                                                        38
Section 7.13  Restriction on
Liens                                                                                                                                                                     
38
Section
7.14  Subsidiaries                                                                                                                                                                                    38
Section 7.15  Location of Business and
Offices                                                                                                                                              
38
Section 7.16  Properties; Titles,
Etc                                                                                                                                                                   
39
Section 7.17  Maintenance of
Properties                                                                                                                                                          
40
Section 7.18  Gas Imbalances,
Prepayments                                                                                                                                                     
40
Section 7.19  Marketing of
Production                                                                                                                                                              
40
Section 7.20  Swap
Agreements                                                                                                                                                                          
41
Section 7.21  Use of
Loans                                                                                                                                                                                   
41
Section
7.22  Solvency                                                                                                                                                                                          
41
 
ARTICLE VIII
Affirmative Covenants
 
Section 8.01  Financial Statements; Other
Information                                                                                                                                    
41
Section 8.02  Notices of Material
Events                                                                                                                                                            44
Section 8.03  Existence; Conduct of
Business                                                                                                                                                  
44
Section 8.04  Payment of
Obligations                                                                                                                                                                 
45
Section 8.05  Performance of Obligations under Loan
Documents                                                                                                                
45
Section 8.06  Operation and Maintenance of
Properties                                                                                                                                  
45
Section
8.07  Insurance                                                                                                                                                                                         
 46
Section 8.08  Books and Records; Inspection
Rights                                                                                                                                        46
Section 8.09  Compliance with
Laws                                                                                                                                                                    
46
Section 8.10  Environmental
Matters                                                                                                                                                                   
46
Section 8.11  Further
Assurances                                                                                                                                                                         
47
Section 8.12  Reserve Reports; Calculation of Total Reserve
Values                                                                                                             
48
Section 8.13  Title
Information                                                                                                                                                                               
49
 
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Section 8.14  Additional Collateral; Additional
Guarantors                                                                                                                              50
Section 8.15  ERISA
Compliance                                                                                                                                                                          
50
Section 8.16  Marketing
Activities                                                                                                                                                                       
51
 
ARTICLE IX
Negative Covenants
 
Section 9.01  Financial
Covenants                                                                                                                                                                       
51
Section
9.02  Debt                                                                                                                                                                                                   
52
Section
9.03  Liens                                                                                                                                                                                                  
53
Section 9.04  Dividends, Distributions and
Redemptions                                                                                                                                
54
Section 9.05  Investments, Loans and
Advances                                                                                                                                               54
Section 9.06  Nature of Business; International
Operations                                                                                                                             
55
Section 9.07  Amendments to Organizational
Documents                                                                                                                                
55
Section 9.08  Proceeds of
Notes                                                                                                                                                                             55
Section 9.09  ERISA
Compliance                                                                                                                                                                           
56
Section 9.10  Sale or Discount of
Receivables                                                                                                                                                     57
Section 9.11  Mergers,
Etc                                                                                                                                                                                      
57
Section 9.12  Sale of
Properties                                                                                                                                                                              
57
Section 9.13  Environmental
Matters                                                                                                                                                                    
58
Section 9.14  Transactions with
Affiliates                                                                                                                                                           
58
Section
9.15  Subsidiaries                                                                                                                                                                                       
58
Section 9.16  Negative Pledge Agreements; Dividend
Restrictions                                                                                                                
58
Section 9.17  Gas Imbalances, Take-or-Pay or Other
Prepayments                                                                                                                  
58
Section 9.18  Swap
Agreements                                                                                                                                                                             
58
Section 9.19  Optional Payments and Modifications of Certain Debt
Instruments                                                                                        
59
 
ARTICLE X
Events of Default; Remedies
 
Section 10.01  Events of
Default                                                                                                                                                                             
59
Section
10.02  Remedies                                                                                                                                                                                           
61
 
ARTICLE XI
The Administrative Agent
 
Section 11.02  Duties and Obligations of Administrative
Agent                                                                                                                      
62
Section 11.03  Action by Administrative
Agent                                                                                                                                                  
63
Section 11.04  Reliance by Administrative
Agent                                                                                                                                                64
Section
11.05  Subagents                                                                                                                                                                                         
64
Section 11.06  Resignation or Removal of Administrative
Agent                                                                                                                      64
Section 11.07  Agents as
Lenders                                                                                                                                                                          
65
Section 11.08  No
Reliance                                                                                                                                                                                       65
Section 11.09  Administrative Agent May File Proofs of
Claim                                                                                                                        
65
Section 11.10  Authority of Administrative Agent to Release Collateral and
Liens                                                                                      
66
Section 11.11  The Arrangers and the Syndication
Agent                                                                                                                                
66
 
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ARTICLE XII
Miscellaneous
 
Section
12.01  Notices                                                                                                                                                                                            
66
Section 12.02  Waivers;
Amendments                                                                                                                                                                 
67
Section 12.03  Expenses, Indemnity; Damage
Waiver                                                                                                                                       
69
Section 12.04  Successors and
Assigns                                                                                                                                                               70
Section 12.05  Survival; Revival;
Reinstatement                                                                                                                                                
73
Section 12.06  Counterparts; Integration;
Effectiveness                                                                                                                                  
73
Section
12.07  Severability                                                                                                                                                                                     
74
Section 12.08  Right of
Setoff                                                                                                                                                                                
74
Section 12.09  GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS                                                                    74
Section
12.10  Headings                                                                                                                                                                                         
75
Section
12.11  Confidentiality                                                                                                                                                                                
76
Section 12.12  EXCULPATION
PROVISIONS                                                                                                                                                     76
Section 12.13  No Third Party
Beneficiaries                                                                                                                                                        
77
Section 12.14  USA Patriot Act
Notice                                                                                                                                                                
77

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Exhibits and Schedules

 
Schedule 1 Commitments and Applicable Percentages
Schedule 2 Pricing Schedule

Exhibit A Form of Note
Exhibit B Form of Borrowing Request
Exhibit C Form of Interest Election Request
Exhibit D Form of Compliance Certificate
Exhibit E Form of Legal Opinion of Jones Walker, special counsel to the Borrower
Exhibit F-1 Security Instruments
Exhibit F-2 Form of Guaranty and Collateral Agreement
Exhibit G Form of Assignment and Assumption

Schedule 7.05 Litigation
Schedule 7.10(d) ERISA Plan
Schedule 7.10(f) Under-funded ERISA Plan
Schedule 7.12 Insurance
Schedule 7.14 Subsidiaries
Schedule 7.18 Gas Imbalances
Schedule 7.19 Marketing Contracts
Schedule 7.20 Swap Agreements
Schedule 9.05 Investments

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THIS SENIOR TERM LOAN AGREEMENT dated as of January 18, 2007, is among: McMoRan
Oil & Gas LLC, a Delaware limited liability company (the “Borrower”); each of
the Lenders from time to time party hereto; JPMorgan Chase Bank, N.A. (in its
individual capacity, “JPMorgan”), as administrative agent for the Lenders (in
such capacity, together with its successors in such capacity, the
“Administrative Agent”); and TD Securities (USA) LLC, as syndication agent for
the Lenders (in such capacity, together with its successors in such capacity,
the “Syndication Agent”).
 
The parties hereto agree as follows:
 
ARTICLE I  
Definitions and Accounting Matters
 

Section 1.01    Terms Defined Above. As used in this Agreement, each term
defined above has the meaning indicated above.
 
Section 1.02    Certain Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
 
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.
 
“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
 
“Administrative Questionnaire” means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
 
“Affected Loans” has the meaning assigned such term in Section 5.05  
 
“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
 
“Agents” means, collectively, the Administrative Agent and the Syndication
Agent; and “Agent” shall mean either of the Administrative Agent or the
Syndication Agent, as the context requires.
 
“Agreed Pricing” means:
 
(i) for anticipated sales of Hydrocarbons that are fixed in a firm fixed price
sales contract, the fixed price or prices provided for in such sales contract
during the term thereof; and

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(ii) for anticipated sales of Hydrocarbons that are hedged by a fixed price Swap
Agreement, the fixed price or prices provided for in such Swap Agreement during
the term thereof, as modified by any necessary adjustment for quality and
geographical differentials; and
 
(iii) for anticipated sales of Hydrocarbons that are hedged by a Swap Agreement
which Swap Agreement provides for a range of prices between a floor and a
ceiling, the prices provided for in subsection (iv) below, provided that during
the term of such Swap Agreement such prices shall in no event be less than such
floor or exceed such ceiling, as such floor and ceiling are modified by any
necessary adjustment specified by the Administrative Agent for quality and
geographical differentials; and
 
(iv) for anticipated sales of Hydrocarbons, if such sales are not hedged by a
Swap Agreement or sales contract that is described in paragraphs (i), (ii), or
(iii) above, for the date of calculation (or, if such date is not a Business
Day, for the first Business Day thereafter), and with any necessary adjustment
specified by the Administrative Agent for quality and geographical
differentials, the “strip” price under Henry Hub Natural Gas futures contracts
and Light, Sweet Crude Oil futures contracts for the five year period following
such calculation date, in each case as published by New York Mercantile Exchange
(NYMEX) on its website currently located at www.nymex.com, or any successor
thereto (as such price may be corrected or revised from time to time by the
NYMEX in accordance with its rules and regulations), as of the settlement of the
last trading day for the contract month coincident with the effective date of
the then most recent Reserve Report, and thereafter the price in effect at the
end of such five year period.
 
“Agreement” means this Senior Term Loan Agreement, as the same may from time to
time be amended, modified, supplemented or restated.
 
“Alternate Base Rate” means, for any day, a rate per annum equal to the greater
of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus ½ of 1%. Any change in the Alternate Base Rate
due to a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime Rate
or the Federal Funds Effective Rate, respectively.
 
“Applicable Margin” means, for any day, with respect to any ABR Loan or
Eurodollar Loan, as the case may be, the percentage rate per annum which is
applicable with respect to a Borrowing of such Type as set forth in the Pricing
Schedule.
 
“Applicable Percentage” means, with respect to any Lender at any time, the
percentage of the aggregate Commitment represented by such Lender’s Commitment
at such time or, from and after the Effective Date, of the aggregate Loans
represented by such Lender’s Loans. The initial amount of each Lender’s
Applicable Percentage is as set forth on Schedule 1.
 
“Approved Petroleum Engineers” means (a) Netherland, Sewell & Associates, Inc.,
(b) Ryder Scott Company Petroleum Consultants, L.P. and (c) any other
independent petroleum engineers reasonably acceptable to the Administrative
Agent.
 
“Arrangers” means J.P. Morgan Securities Inc., and TD Securities (USA) LLC in
their capacities as the co-lead arrangers and joint bookrunners hereunder.

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“Asset Sale” means any sale, transfer or disposition of Property or series of
related sales, transfers or other dispositions of Property (excluding any such
sale, transfer or disposition permitted by clause (a), (b) or (c) of Section
9.12) that yields gross proceeds to any Credit Party other than the Parent
(valued at the initial principal amount thereof in the case of non-cash proceeds
consisting of notes or other debt securities and valued at fair market value in
the case of other non-cash proceeds) in excess of $500,000.
 
“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required
by Section 12.04(b)), and accepted by the Administrative Agent, in the form of
Exhibit G or any other form approved by the Administrative Agent.
 
“Board” means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.
 
“Borrowing” means Loans of the same Type, made, converted or continued on the
same date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect.
 
“Borrowing Request” means a request by the Borrower for a Borrowing in
accordance with Section 2.03  .
 
“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
remain closed; and if such day relates to a Borrowing or continuation of, a
payment or prepayment of principal of or interest on, or a conversion of or
into, or the Interest Period for, a Eurodollar Loan or a notice by the Borrower
with respect to any such Borrowing or continuation, payment, prepayment,
conversion or Interest Period, any day which is also a day on which dealings in
dollar deposits are carried out in the London interbank market.
 
“Capital Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital leases
on the balance sheet of the Person liable (whether contingent or otherwise) for
the payment of rent thereunder.
 
“Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by any lender under the Revolving Credit Agreement or by any
commercial bank or trust company organized under the laws of the United States
or any state thereof having combined capital and surplus of not less than
$250,000,000; (c) commercial paper of an issuer rated at least A-1 by S&P or P-1
by Moody’s, or carrying an equivalent rating by a nationally recognized rating
agency, if both of the two named rating agencies cease publishing ratings of
commercial paper issuers generally, and maturing within six months from the date
of acquisition; (d) repurchase obligations of any lender under the Revolving
Credit Agreement or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United

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States government; (e) securities with maturities of one year or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or taxing authority
of any such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody’s; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by any
lender under the Revolving Credit Agreement or any commercial bank satisfying
the requirements of clause (b) of this definition; (g) money market mutual or
similar funds that invest exclusively in assets satisfying the requirements of
clauses (a) through (f) of this definition; or (h) money market funds that (i)
comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company
Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii)
have portfolio assets of at least $5,000,000,000.
 
“Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Borrower or any of its Subsidiaries
having a fair market value in excess of $1,000,000.
 
“Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the SEC
thereunder as in effect on the date hereof), of Equity Interests representing
more than 35% of the aggregate ordinary voting power represented by the issued
and outstanding Equity Interests of the Parent, (b) occupation of a majority of
the seats (other than vacant seats) on the board of directors of the Parent by
Persons who were neither (i) nominated by the board of directors of the Parent
nor (ii) appointed by directors so nominated, (c) the acquisition of direct or
indirect Control of the Parent by any Person or group or (d) the failure of the
Parent to at any time own, directly or indirectly, beneficially or of record,
100% of all of the issued and outstanding Equity Interests of the Borrower.
 
“Change in Law” means (a) the adoption of any law, rule or regulation after the
date of this Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement or (c) compliance by any Lender (or, for purposes of
Section 5.01  (b)), by any lending office of such Lender or by such Lender’s
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time,
and any successor statute.
 
“Commitment” means, as to any Lender, the obligation of such Lender, subject to
the terms and conditions herein, to make a Loan on the Effective Date to the
Borrower in a principal amount not to exceed the amount set forth under the
heading “Commitment” opposite such Lender’s name on Schedule 1. The original
aggregate amount of the Commitments is $100,000,000.

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“Consolidated Net Income” means with respect to the Borrower and the
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and the Consolidated Subsidiaries after allowances for
taxes for such period determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (a) the net income of any Person in
which the Borrower or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of the Borrower and the Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in cash during such period by such other Person to
the Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net
income (but not loss) during such period of any Consolidated Subsidiary to the
extent that the declaration or payment of dividends or similar distributions or
transfers or loans by that Consolidated Subsidiary is not at the time permitted
by operation of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary or is
otherwise restricted or prohibited, in each case determined in accordance with
GAAP; (c) the net income (or loss) of any Person acquired in a
pooling-of-interests transaction for any period prior to the date of such
transaction; (d) any extraordinary non-cash gains or losses during such period
and (e) non-cash gains or losses under FAS 133 resulting from the net change in
Borrower’s mark to market portfolio of commodity price risk management
activities during that period and (f) any gains or losses attributable to
writeups or writedowns of assets, including ceiling test writedowns; provided
that if the Borrower or any Consolidated Subsidiary shall acquire or dispose of
any Property or Person, including without limitation K-Mc Venture I LLC, during
the period of four fiscal quarters ending on the last day of the fiscal quarter
immediately preceding the date of determination for which financial statements
are available and up to and including the date of the consummation of such
acquisition or disposition, then Consolidated Net Income shall be calculated
after giving pro forma effect to such acquisition or disposition, as if such
acquisition or disposition had occurred on the first day of such period.

“Consolidated Subsidiaries” means each Subsidiary of the Borrower (whether now
existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Borrower in accordance with GAAP.
 
“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person. “Controlling” and
“Controlled” have meanings correlative thereto.
 
“Credit Parties” means collectively, the Borrower and each Guarantor and each
individually, a “Credit Party”.
 
“Debt” means, for any Person, the sum of the following (without duplication):
(a) all obligations of such Person for borrowed money or evidenced by bonds,
bankers’ acceptances, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether
3

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contingent or otherwise) in respect of letters of credit, surety or other bonds
and similar instruments; (c) all accounts payable and all accrued expenses,
liabilities or other obligations of such Person to pay the deferred purchase
price of Property or services; (d) all obligations under Capital Leases; (e) all
obligations under Synthetic Leases; (f) all Debt (as defined in the other
clauses of this definition) of others secured by (or for which the holder of
such Debt has an existing right, contingent or otherwise, to be secured by) a
Lien on any Property of such Person, whether or not such Debt is assumed by such
Person; (g) all Debt (as defined in the other clauses of this definition) of
others guaranteed by such Person or in which such Person otherwise assures a
creditor against loss of the Debt (howsoever such assurance shall be made) but
only to the extent of the lesser of the amount of such Debt and the maximum
stated amount of such guarantee or assurance against loss; (h) all obligations
or undertakings of such Person to maintain or cause to be maintained the
financial position or covenants of others or to purchase the Debt or Property of
others; (i) obligations to deliver commodities, goods or services, including,
without limitation, Hydrocarbons, in consideration of one or more advance
payments, other than gas balancing arrangements in the ordinary course of
business; (j) obligations to pay for goods or services even if such goods or
services are not actually received or utilized by such Person; (k) any Debt of a
partnership for which such Person is liable either by agreement, by operation of
law or by a Governmental Requirement but only to the extent of such liability;
(l) Disqualified Capital Stock; and (m) the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment. The Debt of any Person shall
include all obligations of such Person of the character described above to the
extent such Person remains legally liable in respect thereof notwithstanding
that any such obligation is not included as a liability of such Person under
GAAP.
 
“Default” means any event or condition which constitutes an Event of Default or
which upon notice, lapse of time or both would, unless cured or waived, become
an Event of Default.
 
“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is one year after the earlier
of (a) the Maturity Date and (b) the date on which there are no Loans or other
obligations hereunder outstanding.
 
“dollars” or “$” refers to lawful money of the United States of America.
 
“Domestic Subsidiary” means any Subsidiary of the Borrower that is organized
under the laws of the United States of America or any state thereof or the
District of Columbia.
 
“EBITDAX” means, for any period, the sum of Consolidated Net Income for such
period plus the following expenses or charges to the extent deducted from
Consolidated Net Income in such period: interest, income taxes, depreciation,
depletion, amortization, exploration expenses and other similar noncash charges,
minus all noncash income added to Consolidated Net Income.

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“Effective Date” means the date on which the conditions specified in Section
6.01 are satisfied (or waived in accordance with Section 12.02  ).

“Environmental Laws” means any and all Governmental Requirements pertaining in
any way to health, safety the environment or the preservation or reclamation of
natural resources, in effect in any and all jurisdictions in which the Borrower
or any Subsidiary is conducting or at any time has conducted business, or where
any Property of the Borrower or any Subsidiary is located, including without
limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection Governmental Requirements. The term
“oil” shall have the meaning specified in OPA, the terms “hazardous substance”
and “release” (or “threatened release”) have the meanings specified in CERCLA,
the terms “solid waste” and “disposal” (or “disposed”) have the meanings
specified in RCRA and the term “oil and gas waste” shall have the meaning
specified in Section 91.1011 of the Texas Natural Resources Code (“Section
91.1011”); provided, however, that (a) in the event either OPA, CERCLA, RCRA or
Section 91.1011 is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of
such amendment and (b) to the extent the laws of the state or other jurisdiction
in which any Property of the Borrower or any Subsidiary is located establish a
meaning for “oil,” “hazardous substance,” “release,” “solid waste,” “disposal”
or “oil and gas waste” which is broader than that specified in either OPA,
CERCLA, RCRA or Section 91.1011, such broader meaning shall apply.
 
“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest.
 
“Equity Issuance” means the issuance, sale or other disposition after the
Effective Date by the Borrower (other than to the Parent), any of its
Subsidiaries (other than to the Borrower or any Wholly-Owned Subsidiary of the
Borrower) or any other Credit Party other than the Parent of its Equity
Interests.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute.
 
“ERISA Affiliate” means each trade or business (whether or not incorporated)
which together with the Borrower or a Subsidiary would be deemed to be a “single
employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b),
(c), (m) or (o) of section 414 of the Code.

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“ERISA Event” means (a) a “Reportable Event” described in section 4043 of ERISA
and the regulations issued thereunder, (b) the withdrawal of the Borrower, a
Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was
a “substantial employer” as defined in section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under section 4041 of ERISA, (d) the institution of
proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of
withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or
condition which might constitute grounds under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
 
“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Adjusted LIBO Rate.
 
“Event of Default” has the meaning assigned such term in Section 10.01  .
 
“Excepted Liens” means: (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP; (b) Liens in connection with workers’ compensation,
unemployment insurance or other social security, old age pension or public
liability obligations which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’,
vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’,
workers’, materialmen’s, construction or other like Liens arising by operation
of law in the ordinary course of business or incident to the exploration,
development, operation and maintenance of Oil and Gas Properties each of which
is in respect of obligations that are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (d) contractual Liens which arise
in the ordinary course of business under operating agreements, joint venture
agreements, oil and gas partnership agreements, oil and gas leases, farm-out
agreements, division orders, contracts for the sale, transportation or exchange
of oil and natural gas, unitization and pooling declarations and agreements,
area of mutual interest agreements, overriding royalty agreements, marketing
agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or other geophysical permits or agreements, and other agreements which
are usual and customary in the oil and gas business and are for claims which are
not delinquent or which are being contested in good faith by appropriate action
and for which adequate reserves have been maintained in accordance with GAAP,
provided that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or any Subsidiary or materially impair the
value of such Property subject thereto; (e) Liens arising solely by virtue of
any statutory or common law provision relating to banker’s liens, rights of
set-off or similar rights and remedies and burdening only deposit accounts or
other funds maintained with a creditor depository institution, provided that no
such deposit account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set forth by
regulations promulgated by the Board and no such deposit account is intended by
Borrower or
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any of its Subsidiaries to provide collateral to the depository institution; (f)
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations in any Property of the Borrower or any Subsidiary for the
purpose of roads, pipelines, transmission lines, transportation lines,
distribution lines for the removal of gas, oil, coal or other minerals or
timber, and other like purposes, or for the joint or common use of real estate,
rights of way, facilities and equipment, that do not secure any monetary
obligations and which in the aggregate do not materially impair the use of such
Property for the purposes of which such Property is held by the Borrower or any
or materially impair the value of such Property subject thereto; (g) Liens on
cash or securities pledged to secure performance of tenders, surety and appeal
bonds, government contracts, performance and return of money bonds, bids, trade
contracts, leases, statutory obligations, regulatory obligations and other
obligations of a like nature incurred in the ordinary course of business and (h)
judgment and attachment Liens not giving rise to an Event of Default, provided
that any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the period
within which such proceeding may be initiated shall not have expired and no
action to enforce such Lien has been commenced; provided, further that Liens
described in clauses (a) through (e) shall remain “Excepted Liens” only for so
long as no action to enforce such Lien has been commenced and no intention to
subordinate the priority of the Lien granted in favor of the Administrative
Agent and the Lenders is to be hereby implied or expressed by the permitted
existence of such Excepted Liens.
 
“Excluded Taxes” means, with respect to the Administrative Agent, any Lender or
any other recipient of any payment to be made by or on account of any obligation
of the Borrower or any Guarantor hereunder or under any other Loan Document, (a)
income or franchise taxes imposed on (or measured by) its net income by the
United States of America or such other jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, (b) any
branch profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which the Borrower or any Guarantor is
located and (c) in the case of a Foreign Lender, any withholding tax that is
imposed on amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party to this Agreement (or designates a new lending office) or
is attributable to such Foreign Lender’s failure to comply with Section
5.03  (e), except to the extent that such Foreign Lender (or its assignor, if
any) was entitled, at the time of designation of a new lending office (or
assignment), to receive additional amounts with respect to such withholding tax
pursuant to Section 5.03  (a) or Section 5.03  (c).
 
“Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.

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“Financial Officer” means, for any Person, any vice president, the chief
financial officer, principal accounting officer, treasurer or controller of such
Person. Unless otherwise specified, all references herein to a Financial Officer
means a Financial Officer of the Borrower.
 
“Financial Statements” means the financial statement or statements of the
Borrower and its Consolidated Subsidiaries referred to in Section 7.04  (a),
including all footnotes attached thereto.
 
“Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
 
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
 
“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time subject to the terms and conditions set
forth in Section 1.05  .
 
“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government over the
Borrower, any Subsidiary, any of their Properties, any Agent or any Lender.
 
“Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement,
whether now or hereinafter in effect, including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.
 
“Guarantors” means:
 

 
(a)
the Parent;

 

 
(b)
K-Mc Venture I LLC, a Delaware limited liability company;

 

 
(c)
Freeport Canadian Exploration Company, a Delaware corporation;

 

 
(d)
McMoRan International Inc., a Delaware corporation; and

 

 
(e)
each other Domestic Subsidiary that guarantees the Indebtedness pursuant to
Section 8.14  (a).

“Guaranty Agreement” means an agreement executed by the Guarantors in
substantially the form of Exhibit F-2 unconditionally guarantying on a joint and
several basis, payment of the Indebtedness, as the same may be amended, modified
or supplemented from time to time.

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“Hydrocarbon Interests” means all rights, titles, interests and estates now or
hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or
other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever nature.
 
“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined or separated therefrom.
 
“Indebtedness” means any and all amounts owing or to be owing by the Borrower,
any Subsidiary or any Guarantor (whether direct or indirect (including those
acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising): (a) to the Administrative Agent or any Lender
under any Loan Document and (b) all renewals, extensions and/or rearrangements
of any of the above.
 
“Indemnified Taxes” means Taxes other than Excluded Taxes.
 
“Initial Reserve Report” means the engineering information prepared by the
Borrower and delivered to the Administrative Agent, with respect to the value of
the Oil and Gas Properties of the Borrower and its Subsidiaries as of December
31, 2005.
 
“Intercreditor Agreement” means an Intercreditor Agreement by and among the
Administrative Agent, the Revolving Agent and the Credit Parties, dated the date
hereof and in form and substance satisfactory to the Lenders, as amended,
modified, supplemented or restated from time to time.
 
“Interest Election Request” means a request by the Borrower to convert or
continue a Borrowing in accordance with Section 2.04.
 
“Interest Expense” means, for any period, the sum (determined without
duplication) of the aggregate gross interest expense of the Borrower and the
Consolidated Subsidiaries for such period, including to the extent included in
interest expense under GAAP: (i) amortization of debt discount, (ii) capitalized
interest and (iii) the portion of any payments or accruals under Capital Leases
allocable to interest expense, plus the portion of any payments or accruals
under Synthetic Leases allocable to interest expense whether or not the same
constitutes interest expense under GAAP.
 
“Interest Payment Date” means (a) with respect to any ABR Loan, the last day of
each March, June, September and December and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months’ duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months’ duration after
the first day of such Interest Period.
 
“Interest Period” means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
(or, with the consent of each Lender,
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nine or twelve months) thereafter, as the Borrower may elect; provided, that (a)
if any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day and
(b) any Interest Period pertaining to a Eurodollar Borrowing that commences on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day of the last calendar month of such
Interest Period. For purposes hereof, the date of a Borrowing initially shall be
the date on which such Borrowing is made and thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.
 
“Investment” means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person or any agreement to make any such acquisition (including, without
limitation, any “short sale” or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any advance, loan or capital contribution to, the assumption of Debt
of, the purchase or other acquisition of any other Debt of or equity
participation or interest in, or other extension of credit to, any other Person
(including the purchase of Property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such Property to
such Person for any value other than the then fair market value of such
Property, but excluding any such advance, loan or extension of credit having a
term not exceeding ninety (90) days representing the purchase price of
inventory, material, equipment or supplies sold by such Person in the ordinary
course of business); (c) the purchase or acquisition (in one or a series of
transactions) of Property of another Person that constitutes a business unit or
(d) the entering into of any guarantee of, or other contingent obligation
(including the deposit of any Equity Interests to be sold) with respect to, Debt
or other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person.
 
“Lenders” means the Persons listed on Schedule 1 and any Person that shall have
become a party hereto pursuant to an Assignment and Assumption, other than any
such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
 
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the “LIBO Rate” with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate (rounded
upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.

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“Lien” means any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties. The term “Lien” shall include easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations. For the
purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.
 
“Loan” is defined in Section 2.01.
 
“Loan Documents” means this Agreement, the Notes, the Security Instruments and
the Intercreditor Agreement.
 
“Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
 
“Majority Lenders” means the holders of more than 50% of the aggregate unpaid
principal amount of the Loans then outstanding.
 
“Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property or condition (financial
or otherwise) of the Borrower and the Subsidiaries taken as a whole (excluding
events, developments or circumstances generally affecting the industry in which
the Borrower and its Subsidiaries operate or arising from changes in general
business or economic conditions, so long as the foregoing do not
disproportionately adversely affect the Borrower or its Subsidiaries), (b) the
ability of the Borrower, any Subsidiary or any Guarantor to perform any of its
obligations under any Loan Document to which it is a party, (c) the validity or
enforceability of any Loan Document or (d) the rights and remedies of or
benefits available to the Administrative Agent, any other Agent or any Lender
under any Loan Document.
 
“Material Indebtedness” means Debt (other than the Loans), or obligations in
respect of one or more Swap Agreements, of any one or more of the Borrower and
its Subsidiaries or any Guarantor in an aggregate principal amount exceeding
$10,000,000. For purposes of determining Material Indebtedness, the “principal
amount” of the obligations of the Borrower or any Subsidiary or Guarantor in
respect of any Swap Agreement at any time shall be the Swap Termination Value.
 
“Maturity Date” means the date that is five years after the Effective Date.
 
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that
is a nationally recognized rating agency.

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“Mortgaged Property” means any Property owned by the Borrower or any Guarantor
which is subject to the Liens existing and to exist under the terms of the
Security Instruments.
 
“Multiemployer Plan” means a Plan which is a multiemployer plan as defined in
section 3(37) or 4001 (a)(3) of ERISA.
 
“Net Cash Proceeds” means in connection with (a) any Asset Sale or any Recovery
Event, the proceeds thereof in the form of cash and Cash Equivalents (including
any such proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or purchase price adjustment receivable or
otherwise, but only as and when received), net of attorneys’ fees, accountants’
fees, investment banking fees, amounts required to be applied to the repayment
of Debt secured by a Lien expressly permitted hereunder on any asset that is the
subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a
Security Instrument) and other customary fees and expenses actually incurred in
connection therewith and net of taxes paid or reasonably estimated to be payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and (b) any incurrence of Debt, the
cash proceeds received from such incurrence, net of attorneys’ fees, investment
banking fees, accountants’ fees, underwriting discounts and commissions and
other customary fees and expenses actually incurred in connection therewith.
 
“Net Equity Proceeds” means the aggregate cash proceeds received by the
Borrower, any of its Subsidiaries or any other Credit Party in respect of any
Equity Issuance, net of (without duplication) the direct costs relating to such
Equity Issuance (including without limitation, legal, accounting and investment
banking fees and underwriting discounts and commissions).
 
“Notes” means the promissory notes of the Borrower described in Section
2.02  (c) and being substantially in the form of Exhibit A, together with all
amendments, modifications, replacements, extensions and rearrangements thereof.
 
“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now
or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; (d) all operating
agreements, contracts and other agreements, including production sharing
contracts and agreements, which relate to any of the Hydrocarbon Interests or
the production, sale, purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under
and which may be produced and saved or attributable to the Hydrocarbon
Interests, including all oil in tanks, and all rents, issues, profits, proceeds,
products, revenues and other incomes from or attributable to the Hydrocarbon
Interests; (f) all tenements, hereditaments, appurtenances and Properties in any
manner appertaining, belonging, affixed or incidental to the Hydrocarbon
Interests and (g) all Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment, rental equipment or other personal Property which may be on such
premises for the purpose of drilling a well or for other
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similar temporary uses) and including any and all oil wells, gas wells,
injection wells or other wells, buildings, structures, fuel separators, liquid
extraction plants, plant compressors, pumps, pumping units, field gathering
systems, tanks and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, meters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements and servitudes together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing.
 
“Organizational Documents” means (a) with respect to any corporation, its
certificate or articles of incorporation or organization, as amended, and its
by-laws, as amended, (b) with respect to any limited partnership, its
certificate of limited partnership, as amended, and its partnership agreement,
as amended, (c) with respect to any general partnership, its partnership
agreement, as amended, and (d) with respect to any limited liability company,
its certificate of formation or articles of organization, as amended, and its
limited liability company agreement or operating agreement, as amended.
 
“Other Taxes” means any and all present or future stamp or documentary taxes or
any other excise or Property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement and any other Loan Document.
 
“Parent” means McMoRan Exploration Co., a Delaware corporation.
 
“Parent Loan” means the intercompany loan agreement by and between the Borrower
and the Parent dated as of April 17, 2006.
 
“Participant” has the meaning set forth in Section 12.04  (c)(i).
 
“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.
 
“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
 
“Plan” means any employee pension benefit plan, as defined in section 3(2) of
ERISA, which (a) is currently or hereafter sponsored, maintained or contributed
to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time
during the six calendar years preceding the date hereof, sponsored, maintained
or contributed to by the Borrower or a Subsidiary or an ERISA Affiliate.
 
“Pricing Schedule” means the pricing schedule set forth in Schedule 2.
 
“Prime Rate” means the rate of interest per annum publicly announced from time
to time by JPMorgan as its prime rate in effect at its principal office in New
York City; each change in the Prime Rate shall be effective from and including
the date such change is publicly announced as being effective. Such rate is set
by the Administrative Agent as a general reference rate of interest, taking into
account such factors as the Administrative Agent may deem appropriate; it being
understood that many of the Administrative Agent’s commercial or other loans are
priced in relation to such rate, that it is not necessarily the lowest or best
rate actually charged to any
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customer and that the Administrative Agent may make various commercial or other
loans at rates of interest having no relationship to such rate.
 
“Probable Reserves” means “Probable Reserves” as defined in the Definitions for
Oil and Gas Reserves promulgated by the Society of Petroleum Engineers (or any
generally recognized successor) as in effect at the time in question.
 
“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, including, without limitation,
cash, securities, accounts and contract rights.
 
“Proved Reserves” means “Proved Reserves” determined in accordance with SEC
requirements (with the exception that such reserves shall be calculated using
the Agreed Pricing) in effect at the time in question which are categorized as
“Proved Developed Reserves” and “Proved Undeveloped Reserves”. Proved Developed
Reserves are further subcategorized as “Proved Developed Producing Reserves” and
“Proved Developed Nonproducing Reserves” in the Definitions for Oil and Gas
Reserves promulgated by the Society of Petroleum Engineers (or any generally
recognized successor) as in effect at the time in question.
 
“PV” means the net present value, discounted at 10% per annum, of the future net
revenues expected to accrue to the Borrower’s and its Subsidiaries’ collective
interests in Proved Reserves and Probable Reserves (calculated separately)
expected to be produced from Oil and Gas Properties during the remaining
expected economic lives of such reserves. Each calculation of Total Proved
Reserve Value shall be made in accordance with SEC requirements in effect at the
time in question and each calculation of Total Probable Reserve Value shall be
made in accordance with the then existing standards of the Society of Petroleum
Engineers, provided that in any event (a) appropriate deductions shall be made
for severance and ad valorem taxes, and for operating, gathering, transportation
and marketing costs required for the production and sale of such reserves and
(b) such calculations shall be made using the Agreed Pricing.
 
“Recovery Event” means any settlement of or payment in respect of any property
or casualty insurance claim or any condemnation proceeding relating to any asset
of any Credit Party other than any asset of the Parent other than Equity
Interests in the Borrower.
 
“Redemption” means with respect to any Debt, the repurchase, redemption,
prepayment, repayment, defeasance or any other acquisition or retirement for
value (or the segregation of funds with respect to any of the foregoing) of such
Debt. “Redeem” has the correlative meaning thereto.
 
“Register” has the meaning assigned such term in Section 12.04  (b)(iv).
 
“Regulation D” means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
 
“Reinvestment Deferred Amount” means with respect to any Reinvestment Event, the
aggregate Net Cash Proceeds received by any Credit Party in connection therewith
that are not applied to prepay the Loans or reduce the commitments pursuant to
the Revolving Credit Agreement pursuant to Section 3.04(c)(iii) as a result of
the delivery of a Reinvestment Notice.

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“Reinvestment Event” means any Asset Sale or Recovery Event in respect of which
the Borrower has delivered a Reinvestment Notice.
 
“Reinvestment Notice” means a written notice executed by a Responsible Officer
stating that no Event of Default has occurred and is continuing and that the
Borrower (directly or indirectly through a Subsidiary) intends and expects to
use all or a specified portion of the Net Cash Proceeds of an Asset Sale or
Recovery Event to acquire, maintain, explore for, develop, construct, improve,
upgrade or repair assets useful in its business.
 
“Reinvestment Prepayment Amount” means with respect to any Reinvestment Event,
the Reinvestment Deferred Amount relating thereto less any amount expended prior
to the relevant Reinvestment Prepayment Date to acquire or repair assets useful
in the Borrower’s business.
 
“Reinvestment Prepayment Date” means with respect to any Reinvestment Event, the
earlier of (a) the date occurring twelve months after such Reinvestment Event
and (b) the date on which the Borrower shall have determined not to, or shall
have otherwise ceased to, acquire or repair assets useful in the Borrower’s
business with all or any portion of the relevant Reinvestment Deferred Amount.
 
“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors (including attorneys, accountants and experts) of such Person and such
Person’s Affiliates.
 
“Remedial Work” has the meaning assigned such term in Section 8.10  (a).
 
“Reserve Report” means the Initial Reserve Report and each other report setting
forth, as of each January 1st or July 1st (or any date of redetermination of
Total Proved Reserve Value or Total Probable Reserve Value pursuant to Section
8.12(e), if applicable), the oil and gas reserves attributable to the Oil and
Gas Properties of the Borrower and the Subsidiaries, together with a projection
of the rate of production and future net income, taxes, operating expenses and
capital expenditures with respect thereto as of such date, reflecting (and
conforming to the definition of) PV, provided that each such report hereafter
delivered must (a) separately report on Proved Developed Producing Reserves,
Proved Developed Nonproducing Reserves, Proved Undeveloped Reserves and Probable
Reserves and separately calculate the PV of each such category for the
Borrower’s and the Subsidiaries’ interests, (b) take into account the Borrower’s
actual experiences with leasehold operating expenses and other costs in
determining projected leasehold operating expenses and other costs, (c) identify
and take into account any “over-produced” or “under-produced” status under gas
balancing arrangements, and (d) contain information and analysis comparable in
scope to that contained in the Initial Reserve Report.
 
“Responsible Officer” means, as to any Person, the Chief Executive Officer, the
President, any Financial Officer or any Vice President of such Person. Unless
otherwise specified, all references to a Responsible Officer herein shall mean a
Responsible Officer of the Borrower.
 
“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the
Borrower or any of its Subsidiaries, or any payment (whether in cash, securities
or other Property), including any
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sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any such Equity
Interests in the Borrower or any of its Subsidiaries or any option, warrant or
other right to acquire any such Equity Interests in the Borrower or any of its
Subsidiaries.
 
“Revolving Agent” means JPMorgan Chase Bank, N.A. in its capacity as contractual
representative of the financial institutions and other Persons from time to time
a party to the Revolving Facility and any successor agent appointed pursuant to
the terms of the Revolving Facility Documents.
 
“Revolving Credit Agreement” means that certain Credit Agreement dated April 19,
2006, by and among the Borrower, each of the lenders from time to time party
thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Toronto
Dominion (Texas) LLC, as Syndication Agent, and any renewal, extension,
refinancing or replacement thereof otherwise complying with the provisions
hereof.
 
“Revolving Facility” means the revolving loan facility evidenced by the
Revolving Facility Documents.
 
“Revolving Facility Documents” means the Revolving Credit Agreement and any
promissory notes executed in connection therewith, security instruments and any
other agreements executed in connection with the Revolving Credit Agreement.
 
“SEC” means the Securities and Exchange Commission or any successor Governmental
Authority.
 
“Security Instruments” means the Guaranty Agreement, mortgages, deeds of trust
and other agreements, instruments or certificates described or referred to in
Exhibit F-1, and any and all other agreements, instruments, consents or
certificates now or hereafter executed and delivered by the Borrower or any
other Person (other than participation or similar agreements between any Lender
and any other lender or creditor with respect to any Indebtedness pursuant to
this Agreement) as security for the payment or performance of the Indebtedness,
the Notes or this Agreement.
 
“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.
 
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject, with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall
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be adjusted automatically on and as of the effective date of any change in any
reserve percentage.
 
“Subsidiary” means: (a) any Person of which at least a majority of the
outstanding Equity Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors, manager or other governing body
of such Person (irrespective of whether or not at the time Equity Interests of
any other class or classes of such Person shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower or one or more of its
Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any
partnership of which the Borrower or any of its Subsidiaries is a general
partner. Unless otherwise indicated herein, each reference to the term
“Subsidiary” shall mean a Subsidiary of the Borrower.
 
“Swap Agreement” means any agreement with respect to any swap, forward, future
or derivative transaction or option or similar agreement, whether exchange
traded, “over-the-counter” or otherwise, involving, or settled by reference to,
one or more interest rates, currencies, commodities, equity or debt instruments
or securities, or economic, financial or pricing indices or measures of
economic, financial or pricing risk or value or any similar transaction or any
combination of these transactions; provided that no phantom stock or similar
plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or the
Subsidiaries shall be a Swap Agreement.
 
“Swap Termination Value” means, in respect of any one or more Swap Agreements,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Agreements, (a) for any date on or after the
date such Swap Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Agreements, as determined by the
counterparties to such Swap Agreements.
 
“Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases
on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.
 
“Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
 
“Total Debt” means, at any date, all Debt of the Borrower and the Consolidated
Subsidiaries on a consolidated basis, excluding (i) non-cash obligations under
FAS 133 and (ii) accounts payable and other accrued liabilities (for the
deferred purchase price of Property or services) from time to time incurred in
the ordinary course of business which are not greater than ninety (90) days past
the date of invoice or which are being contested in good faith by
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appropriate action and for which adequate reserves have been maintained in
accordance with GAAP.
 
“Total Probable Reserve Value” means at any time the PV attributable to Probable
Reserves as most recently determined and certified to the Lenders in accordance
with Section 8.12, as the same may be adjusted from time to time pursuant to
Section 8.13(c) or Section 9.12.
 
“Total Proved Reserve Value” means at any time the PV attributable to Proved
Reserves as most recently determined and certified to the Lenders in accordance
with Section 8.12, as the same may be adjusted from time to time pursuant to
Section 8.13(c) or Section 9.12.
 
“Transactions” means, with respect to (a) the Borrower, the execution, delivery
and performance by the Borrower of this Agreement and each other Loan Document
to which it is a party, the borrowing of Loans, the use of the proceeds thereof,
and the grant of Liens by the Borrower on Mortgaged Properties and other
Properties pursuant to the Security Instruments and (b) each Guarantor, the
execution, delivery and performance by such Guarantor of each Loan Document to
which it is a party, the guaranteeing of the Indebtedness and the other
obligations under the Guaranty Agreement by such Guarantor and such Guarantor’s
grant of the security interests and provision of collateral under the Security
Instruments, and the grant of Liens by such Guarantor on Mortgaged Properties
and other Properties pursuant to the Security Instruments.
 
“Type”, when used in reference to any Loan or Borrowing, refers to whether the
rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.
 
“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding
Equity Interests (other than any directors’ qualifying shares mandated by
applicable law), on a fully-diluted basis, are owned by the Borrower or one or
more of the Wholly-Owned Subsidiaries or are owned by the Borrower and one or
more of the Wholly-Owned Subsidiaries.
 
Section 1.03    Types of Loans and Borrowings
 
. For purposes of this Agreement, Loans and Borrowings, respectively, may be
classified and referred to by Type (e.g., a “Eurodollar Loan” or a “Eurodollar
Borrowing”).
 
Section 1.04    Terms Generally; Rules of Construction. The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation”. The word “will” shall be construed to have the same meaning and
effect as the word “shall”. Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth in the
Loan Documents), (b) any reference herein to any law shall be construed as
referring to such law as amended, modified, codified or reenacted, in whole or
in part, and in effect from time to time, (c) any reference herein to any Person
shall be construed to
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include such Person’s successors and assigns (subject to the restrictions
contained in the Loan Documents), (d) the words “herein”, “hereof” and
“hereunder”, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (e) with
respect to the determination of any time period, the word “from” means “from and
including” and the word “to” means “to and including” and (f) any reference
herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed
to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to,
this Agreement. No provision of this Agreement or any other Loan Document shall
be interpreted or construed against any Person solely because such Person or its
legal representative drafted such provision.
 
Section 1.05    Accounting Terms and Determinations; GAAP. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the Financial Statements except for changes in which Borrower’s independent
certified public accountants concur and which are disclosed to Administrative
Agent on the next date on which financial statements are required to be
delivered to the Lenders pursuant to Section 8.01  (a); provided that, unless
the Borrower and the Majority Lenders shall otherwise agree in writing, no such
change shall modify or affect the manner in which compliance with the covenants
contained herein is computed such that all such computations shall be conducted
utilizing financial information presented consistently with prior periods.
 
Section 1.06    Priority of Creditors.
 
The Administrative Agent and the Lenders are hereby designated “Second Priority
Creditors” for all purposes under and as defined in the Intercreditor Agreement
and the Security Instruments are hereby designated “Second Priority Security
Instruments” for all purposes under and as defined in the Intercreditor
Agreement.
 
ARTICLE II  
The Credits
 
Section 2.01    Commitments. Subject to the terms and conditions set forth
herein, each Lender severally agrees to make a term loan (a “Loan”) to the
Borrower on the Effective Date in an amount not to exceed the amount of the
Commitment of such Lender.
 
Section 2.02    Loans and Borrowings.
 
(a)  Borrowings; Several Obligations. The Loans shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Commitments. The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments are several and no Lender shall be
responsible for any other Lender’s failure to make Loans as required.
 
(b)  Types of Loans. Subject to Section 3.03  the Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in
accordance herewith. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any
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exercise of such option shall not affect the obligation of the Borrower to repay
such Loan in accordance with the terms of this Agreement.
 
(c)  Notes. Any Lender may request that its Loans be evidenced by a Note. Only
upon such request shall the Borrower be required to execute and deliver to such
Lender a Note for such Loans payable to the order of such Lender in the form
attached hereto as Exhibit A. Thereafter, the Loans evidenced by such Note and
interest thereon shall at all times (including after any assignment pursuant to
Section 12.04) be represented by one or more Notes payable to the order of the
payee named therein or any assignee pursuant to Section 12.04.
 
Section 2.03    Requests for Borrowings
 
To request that the Lenders make Loans on the Effective Date, the Borrower shall
notify the Administrative Agent of such request by telephone (a) in the case of
a Eurodollar Borrowing, not later than noon, New York City time, three Business
Days before the date of the proposed Eurodollar Borrowing or (b) in the case of
an ABR Borrowing, not later than noon, New York City time, one Business Day
before the proposed Effective Date. Such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in substantially the form of
Exhibit B and signed by the Borrower. Such telephonic and written Borrowing
Request shall specify the following information:
 
(i)  the aggregate amount of the requested Borrowing;
 
(ii)  the date of the proposed Effective Date, which shall be a Business Day;
 
(iii)  whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
 
(iv)  in the case of a Eurodollar Borrowing, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of
the term “Interest Period”; and
 
(v)  the location and number of the Borrower’s account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.05.
 
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration.
 
Promptly following receipt of the Borrowing Request in accordance with this
Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender’s Loan to be made as part of the
requested Borrowing.
 
Section 2.04    Interest Elections.
 
(a)  Conversion and Continuance. The Loans made on the Effective Date shall be
either ABR Borrowings or Eurodollar Borrowings. Thereafter, the Borrower may
elect to
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convert such Loans to a different Type or to continue such Loans and, in the
case of Eurodollar Loans, may elect Interest Periods therefor, all as provided
in this Section. The Borrower may elect different options with respect to
different portions of the Loans, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans.
 
(b)  Interest Election Requests. To make an election pursuant to this Section,
the Borrower shall notify the Administrative Agent of such election by telephone
(a) in the case of a conversion into or a continuation as a Eurodollar Loan, not
later than noon, New York City time, three Business Days before the date of the
proposed election or (b) in the case of a conversion into or a continuation as
an ABR Loan, not later than noon, New York City time, one Business Day before
the date of the proposed election. Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in
substantially the form of Exhibit C signed by the Borrower.
 
(c)  Information in Interest Election Requests. Each telephonic and written
Interest Election Request shall specify the following information in compliance
with Section 2.02:
 
(i)  the Borrowing to which such Interest Election Request applies and, if
different options are being elected with respect to different portions thereof,
the portions thereof to be allocated to each resulting Borrowing (in which case
the information to be specified pursuant to Section 2.04  (c)(iii) and (iv)
shall be specified for each resulting Borrowing);
 
(ii)  the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;
 
(iii)  whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
 
(iv)  if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period
to be applicable thereto after giving effect to such election, which shall be a
period contemplated by the definition of the term “Interest Period”.
 
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month’s duration.
 
(d)  Notice to Lenders by the Administrative Agent. Promptly following receipt
of an Interest Election Request, the Administrative Agent shall advise each
Lender of the details thereof and of such Lender’s portion of the resulting
Borrowing.
 
(e)  Effect of Failure to Deliver Timely Interest Election Request and Events of
Default on Interest Election. If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if
an Event of Default has occurred and is continuing: (i) no outstanding Borrowing
may
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be converted to or continued as a Eurodollar Borrowing (and any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective)
and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.
 
(f)  All conversions and continuations of Eurodollar Loans shall be in an
aggregate amount that is an integral multiple of $1,000,000 and not less than
$1,000,000. All conversions and continuations of ABR Loans shall be in an
aggregate amount that is an integral multiple of $100,000 and not less than
$100,000. Loans of more than one Type may be outstanding at the same time;
provided that there shall not at any time be more than a total of four (4)
Eurodollar Borrowings outstanding.
 
Section 2.05    Funding of Borrowings.
 
(a)  Funding by Lenders. Each Lender shall make each Loan to be made by it
hereunder on the proposed Effective Date, by wire transfer of immediately
available funds (less original issue discount of 0.50%) by 2:00 p.m., New York
City time, to the account of the Administrative Agent most recently designated
by it for such purpose by notice to the Lenders. The Administrative Agent will
make such Loans available to the Borrower by promptly crediting the amounts so
received, in like funds, to an account of the Borrower maintained with the
Administrative Agent in Houston, Texas and designated by the Borrower in the
applicable Borrowing Request. Nothing herein shall be deemed to obligate any
Lender to obtain the funds for its Loan in any particular place or manner or to
constitute a representation by any Lender that it has obtained or will obtain
the funds for its Loan in any particular place or manner.
 
(b)  Presumption of Funding by the Lenders. Unless the Administrative Agent
shall have received notice from a Lender prior to the proposed Effective Date
that such Lender will not make available to the Administrative Agent such
Lender’s share of the Borrowing, the Administrative Agent may assume that such
Lender has made such share available on such date in accordance with Section
2.05  (a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender’s Loan
included in the Borrowing.
 
ARTICLE III  
Payments of Principal and Interest; Prepayments; Fees
 
Section 3.01    Repayment of Loans. The Borrower hereby unconditionally promises
to repay the Loans in annual installments equal to ten percent (10%) of the
original principal amount of the Loans on the 31st day of each December,
commencing December 31, 2008
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(provided that any Lender may decline to accept any installment by notifying the
Administrative Agent in writing at least two (2) Business Days prior to the
payment date therefor that it elects to refuse to accept such installment and
the portion of such installment that would have been allocated to the repayment
of such Lender’s Loans shall instead be repayable on the Maturity Date); and on
the Maturity Date the Borrower shall pay the outstanding balance of the Loans in
full.
 
Section 3.02    Interest.
 
(a)  ABR Loans. The Loans comprising each ABR Borrowing shall bear interest at
the Alternate Base Rate plus the Applicable Margin.
 
(b)  Eurodollar Loans. The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Loans plus the Applicable Margin.
 
(c)  Post-Default Rate. Notwithstanding the foregoing, if an Event of Default
has occurred and is continuing, or if any principal of or interest on any Loan
or any fee or other amount payable by the Borrower or any Guarantor hereunder or
under any other Loan Document is not paid when due, whether at stated maturity,
upon acceleration or otherwise, then all Loans outstanding, in the case of an
Event of Default, and such overdue amount, in the case of a failure to pay
amounts when due, shall bear interest, after as well as before judgment, at a
rate per annum equal to two percent (2%) plus the rate applicable to ABR Loans
as provided in Section 3.02  (a).
 
(d)  Interest Payment Dates. Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan, and on the Maturity Date;
provided that (i) interest accrued pursuant to Section 3.02  (c) shall be
payable on demand, (ii) in the event of any repayment or prepayment of any Loan,
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment, and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
 
(e)  Interest Rate Computations. All interest hereunder shall be computed on the
basis of a year of 360 days, except that interest computed by reference to the
Alternate Base Rate at times when the Alternate Base Rate is based on the Prime
Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and in each case shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). The applicable Alternate
Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error, and be binding upon the parties hereto.
 
Section 3.03    Alternate Rate of Interest. If prior to the commencement of any
Interest Period for a Eurodollar Borrowing:
 
(a)  the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest
Period; or

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(b)  the Administrative Agent is advised by the Majority Lenders that the
Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period will
not adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest Period;
 
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, any Interest Election
Request that requests the conversion of any Borrowing to, or continuation of any
Borrowing as, a Eurodollar Borrowing shall be ineffective, and such Borrowing
shall be continued as or converted to, as the case may be, an ABR Borrowing.
 
Section 3.04    Prepayments.
 
(a)  Optional Prepayments. The Borrower shall have the right at any time and
from time to time to prepay the Loans in whole or in part, subject to prior
notice in accordance with Section 3.04  (b).
 
(b)  Notice and Terms of Optional Prepayment. The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of Eurodollar Loans, not later than
noon, New York City time, three Business Days before the date of prepayment, or
(ii) in the case of prepayment of an ABR Loan, not later than noon, New York
City time, one Business Day before the date of prepayment. Each such notice
shall be irrevocable and shall specify the prepayment date and the principal
amount of the Loans or portion thereof to be prepaid. Promptly following receipt
of any such notice relating to the Loans, the Administrative Agent shall advise
the Lenders of the contents thereof. Each partial prepayment of the Loans shall
be in an amount that would be permitted in the case of a conversion or
continuance of the same Type as provided in Section 2.02  . Each prepayment of
the Loans shall be applied ratably to the Loans outstanding. Prepayments shall
be accompanied by accrued interest to the extent required by Section 3.02  .
 
(c)  Mandatory Prepayments.
 
(i)  An amount equal to 50% of the Net Equity Proceeds of any Equity Issuance
shall be applied on the date thereof toward the prepayment of the Loans as set
forth in Section 3.04(c)(iv).
 
(ii)  An amount equal to 100% of the Net Cash Proceeds of the incurrence of Debt
after the Effective Date by the Borrower or any of its Subsidiaries (excluding
Debt permitted pursuant to Section 9.02  ) or any other Credit Party (with the
exception of the Parent) shall be applied on the date of such incurrence toward
the prepayment of the Loans as set forth in Section 3.04(c)(iv).
 
(iii)  If on any date any Credit Party shall receive Net Cash Proceeds from any
Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be
delivered in respect thereof or such Net Cash Proceeds are required to be
applied to repay the Revolving Facility, such Net Cash Proceeds shall be applied
on such date toward the prepayment of the Loans as set forth in Section
3.04(c)(iv); provided, that,
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notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset
Sales and Recovery Events that may be excluded from the foregoing requirement
pursuant to a Reinvestment Notice shall not exceed $25,000,000 in any fiscal
year of the Borrower and (ii) on each Reinvestment Prepayment Date, an amount
equal to the Reinvestment Prepayment Amount with respect to the relevant
Reinvestment Event shall be applied toward the prepayment of the Loans as set
forth in Section 3.04(c)(iv).
 
(iv)  Amounts to be applied in connection with prepayments made pursuant to
Section 3.04  (c) shall be applied to the prepayment of the Loans in accordance
with Section 4.01(b). Each prepayment of Borrowings pursuant to this Section
3.04  (c) shall be applied, first, ratably to ABR Loans then outstanding, and,
second, to any Eurodollar Loans then outstanding, and if more than one
Eurodollar Borrowing is then outstanding, to each such Eurodollar Borrowing
beginning with the Eurodollar Borrowing with the least number of days remaining
in the Interest Period applicable thereto and ending with the Eurodollar
Borrowing with the most number of days remaining in the Interest Period
applicable thereto.
 
(v)  Prepayments pursuant to this Section 3.04  (c) shall be accompanied by
accrued interest to the extent required by Section 3.02  .
 
(d)  Notwithstanding the foregoing, each Lender shall have the right to reject
all or any portion of the prepayments made pursuant to Section 3.04(c),
allocable to it, in which case the amounts so rejected shall be offered ratably
to each non-rejecting Lender (and each such Lender shall have the right to
reject such offer in the time and in the manner determined by the Agents). Any
amounts remaining after making the above described offers may be used by the
Borrower for general corporate purposes.
 
(e)  Prepayment Premium. Prepayments permitted or required under this Section
3.04   shall be without premium or penalty, except as required under Section
5.02  , and except that optional prepayments or prepayments from the proceeds of
a refinancing of Loans shall be at par plus a premium. The premium shall be (i)
during the period from the Effective Date to and including the first anniversary
thereof, 3% of the aggregate principal amount prepaid, (ii) during the period
commencing after the first anniversary of the Effective Date to and including
the second anniversary of the Effective Date, 2% of the aggregate principal
amount prepaid, (iii) during the period commencing after the second anniversary
of the Effective Date to and including the third anniversary of the Effective
Date, 1% of the aggregate principal amount prepaid and (iv) after the third
anniversary of the Effective Date, 0%.
 
Section 3.05    Fees.
 
(a)  Administrative Agent Fees. The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times
separately agreed upon between the Borrower and the Administrative Agent.
 
(b)  Payment; Fees Nonrefundable. All fees payable hereunder shall be paid on
the dates due, in immediately available funds, to the Administrative Agent. Fees
paid shall not be refundable under any circumstances.

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ARTICLE IV  
Payments; Pro Rata Treatment; Sharing of Set-offs
 
Section 4.01    Payments Generally; Pro Rata Treatment; Sharing of Payments.
 
(a)  Payments by the Borrower. The Borrower shall make each payment required to
be made by it hereunder (whether of principal, interest or fees, or of amounts
payable under Section 5.01  , Section 5.02  , Section 5.03   or otherwise) prior
to noon, New York City time, on the date when due, in immediately available
funds, without defense, deduction, recoupment, set-off or counterclaim. Fees,
once paid, shall be fully earned and shall not be refundable under any
circumstances. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices specified
in Section 12.01   as expressly provided herein and except that payments
pursuant to Section 5.01  , Section 5.02  , Section 5.03   and Section 12.03  
shall be made directly to the Persons entitled thereto. The Administrative Agent
shall distribute any such payments received by it for the account of any other
Person to the appropriate recipient promptly following receipt thereof. If any
payment hereunder shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments hereunder shall be made in dollars.
 
(b)  Application of Insufficient Payments. If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of principal. 
 
(c)  Sharing of Payments by Lenders. If any Lender shall, by exercising any
right of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Loans and accrued
interest thereon than the proportion received by any other Lender, then the
Lender receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01  (c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans to any assignee
or participant, other than to the Borrower or any Subsidiary or Affiliate
thereof (as to which the provisions of this Section 4.01  (c) shall apply). The
Borrower consents to the foregoing and agrees, to the extent
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it may effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
 
Section 4.02    Presumption of Payment by the Borrower. Unless the
Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of
the Lenders hereunder that the Borrower will not make such payment, the
Administrative Agent may assume that the Borrower has made such payment on such
date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders the amount due. In such event, if the Borrower has not
in fact made such payment, then each of the Lenders severally agrees to repay to
the Administrative Agent forthwith on demand the amount so distributed to such
Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation.
 
Section 4.03    Certain Deductions by the Administrative Agent. If any Lender
shall fail to make any payment required to be made by it pursuant to Section
2.05  (b) or Section 4.02  , then the Administrative Agent may, in its
discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by the Administrative Agent for the account of such Lender
to satisfy such Lender’s obligations under such Sections until all such
unsatisfied obligations are fully paid.
 
Section 4.04    Disposition of Proceeds. The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Lenders of all of the Borrower’s or
each Guarantor’s interest in and to production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property. The
Security Instruments further provide in general for the application of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby. Notwithstanding the assignment contained in such
Security Instruments, until the occurrence of an Event of Default, (a) the
Administrative Agent and the Lenders agree that they will neither notify the
purchaser or purchasers of such production nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but the
Lenders will instead permit such proceeds to be paid to the Borrower and its
Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to
take such actions as may be necessary to cause such proceeds to be paid to the
Borrower and/or such Subsidiaries.
 
ARTICLE V  
Increased Costs; Break Funding Payments; Taxes; Illegality
 
Section 5.01    Increased Costs.
 
(a)  Eurodollar Changes in Law. If any Change in Law shall:

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(i)  impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate); or
 
(ii)  impose on any Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender;
 
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender such additional amount or
amounts as will compensate such Lender for such additional costs incurred or
reduction suffered.
 
(b)  Capital Requirements. If any Lender determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender’s capital or on the capital of such Lender’s holding
company, if any, as a consequence of this Agreement or the Loans made by, such
Lender, to a level below that which such Lender or such Lender’s holding company
could have achieved but for such Change in Law (taking into consideration such
Lender’s policies and the policies of such Lender’s holding company with respect
to capital adequacy), then from time to time the Borrower will pay to such
Lender, as the case may be, such additional amount or amounts as will compensate
such Lender or such Lender’s holding company for any such reduction suffered.
 
(c)  Certificates. A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in Section 5.01  (a) or (b) shall be delivered to the Borrower and
shall be conclusive absent manifest error. The Borrower shall pay such Lender,
as the case may be, the amount shown as due on any such certificate within
10 days after receipt thereof.
 
(d)  Effect of Failure or Delay in Requesting Compensation. Failure or delay on
the part of any Lender to demand compensation pursuant to this Section 5.01  
shall not constitute a waiver of such Lender’s right to demand such
compensation; provided that the Borrower shall not be required to compensate a
Lender pursuant to this Section 5.01   for any increased costs or reductions
incurred more than 365 days prior to the date that such Lender, notifies the
Borrower of the Change in Law giving rise to such increased costs or reductions
and of such Lender’s intention to claim compensation therefor; provided further
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 365-day period referred to above shall be extended to
include the period of retroactive effect thereof.
 
Section 5.02    Break Funding Payments. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any Eurodollar Loan into an ABR Loan other than on the last
day of the Interest Period applicable thereto, or (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any
notice delivered pursuant hereto, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, such
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loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market.
 
A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section 5.02   shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
 
Section 5.03    Taxes.
 
(a)  Payments Free of Taxes. Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03  (a)), the Administrative Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower or such Guarantor shall make such
deductions and (iii) the Borrower or such Guarantor shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
 
(b)  Payment of Other Taxes by the Borrower. The Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with applicable law.
 
(c)  Indemnification by the Borrower. The Borrower shall indemnify the
Administrative Agent and each Lender, within 10 days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by
the Administrative Agent or such Lender, as the case may be, on or with respect
to any payment by or on account of any obligation of the Borrower hereunder
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section 5.03  ) and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate of the
Administrative Agent or Lender as to the amount of such payment or liability
under this Section 5.03   shall be delivered to the Borrower and shall be
conclusive absent manifest error.
 
(d)  Evidence of Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a
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receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
 
(e)  Foreign Lenders. Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement or any other Loan Document shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
 
Section 5.04    Mitigation Obligations. If any Lender requests compensation
under Section 5.01  , or if the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 5.03  , then such Lender shall use reasonable efforts to
designate a different lending office for funding or booking its Loans hereunder
or to assign its rights and obligations hereunder to another of its offices,
branches or affiliates, if, in the judgment of such Lender, such designation or
assignment (i) would eliminate or reduce amounts payable pursuant to Section
5.01   or Section 5.03  , as the case may be, in the future and (ii) would not
subject such Lender to any unreimbursed cost or expense and would not otherwise
be disadvantageous to such Lender. The Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.
 
Section 5.05    Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
applicable lending office to honor its obligation to make or maintain Eurodollar
Loans either generally or having a particular Interest Period hereunder, then
(a) such Lender shall promptly notify the Borrower and the Administrative Agent
thereof and such Lender’s obligation to make such Eurodollar Loans shall be
suspended (the “Affected Loans”) until such time as such Lender may again make
and maintain such Eurodollar Loans and (b) all Affected Loans which would
otherwise be made by such Lender shall be made instead as ABR Loans (and, if
such Lender so requests by notice to the Borrower and the Administrative Agent,
all Affected Loans of such Lender then outstanding shall be automatically
converted into ABR Loans on the date specified by such Lender in such notice)
and, to the extent that Affected Loans are so made as (or converted into) ABR
Loans, all payments of principal which would otherwise be applied to such
Lender’s Affected Loans shall be applied instead to its ABR Loans.
 
ARTICLE VI  
Conditions Precedent
 
Section 6.01    Effective Date. The obligations of the Lenders to make the Loans
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 12.02):

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(a)  The Administrative Agent shall have received counterparts of this Agreement
and all other Loan Documents required to be executed and delivered by the
parties thereto in such number as may be requested by the Administrative Agent.
 
(b)  The Administrative Agent, the Arranger and the Lenders shall have received
all fees and other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all out-of-pocket
expenses required to be reimbursed or paid by the Borrower hereunder.
 
(c)  The Administrative Agent shall have received a certificate of the Secretary
or an Assistant Secretary of the Borrower and each Guarantor setting forth (i)
resolutions of its board of directors or other appropriate governing body with
respect to the authorization of the Borrower or such Guarantor to execute and
deliver the Loan Documents to which it is a party and to enter into the
transactions contemplated in those documents, (ii) the officers of the Borrower
or such Guarantor (y) who are authorized to sign the Loan Documents to which the
Borrower or such Guarantor is a party and (z) who will, until replaced by
another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of such authorized officers, and
(iv) the articles or certificate of incorporation and by-laws or other
applicable organizational documents of the Borrower and such Guarantor,
certified as being true and complete. The Administrative Agent and the Lenders
may conclusively rely on such certificate until the Administrative Agent
receives notice in writing from the Borrower to the contrary.
 
(d)  The Administrative Agent shall have received certificates of the
appropriate State agencies with respect to the existence, qualification and good
standing of the Borrower and each Guarantor.
 
(e)  The Administrative Agent shall have received a compliance certificate which
shall be substantially in the form of Exhibit D, duly and properly executed by a
Responsible Officer and dated as of the date of Effective Date.
 
(f)  (i)The Administrative Agent shall have received from each party thereto
duly executed counterparts (in such number as may be requested by the
Administrative Agent) of the Security Instruments, including the Guaranty
Agreement and the other Security Instruments described on Exhibit F-1. In
connection with the execution and delivery of the Security Instruments, the
Administrative Agent shall be reasonably satisfied that the Security Instruments
create first priority, perfected Liens (subject only to Liens created pursuant
to the Revolving Facility Documents and Excepted Liens identified in clauses (a)
to (d) and (f) of the definition thereof, but subject to the provisos at the end
of such definition) on at least 90% of the total value of the Proved Reserves
evaluated in the Initial Reserve Report; and
 
(ii) the Revolving Agent shall hold in pledge as bailee for the benefit of the
Lenders (subject to the Intercreditor Agreement), certificates, together with
undated, blank stock powers for each such certificate, representing all of the
issued and outstanding Equity Interests of the Borrower, each of the Guarantors
and not less than 65% of all of the issued and outstanding capital stock of
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each Foreign Subsidiary that is not a Guarantor, which is directly owned by
either the Borrower or a Domestic Subsidiary.
 
(g)  The Administrative Agent shall have received an opinion of Jones Walker,
special counsel to the Borrower, substantially in a form and of substance
reasonably acceptable to the Administrative Agent.
 
(h)  The Administrative Agent shall have received a certificate of insurance
coverage of the Borrower evidencing that the Borrower is carrying insurance in
accordance with Section 7.12  
 
(i)  The Administrative Agent shall have received title information as the
Administrative Agent may reasonably require satisfactory to the Administrative
Agent setting forth the status of title to at least 90% of the total value of
the Proved Reserves evaluated in the Initial Reserve Report.
 
(j)  The Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Borrower and its
Subsidiaries.
 
(k)  The Administrative Agent shall have received a certificate of a Responsible
Officer of the Borrower certifying that the Borrower has received all consents
and approvals required by Section 7.03  
 
(l)  The Administrative Agent shall have received the financial statements
referred to in Section 7.04  (a) and the Initial Reserve Report accompanied by a
certificate covering the matters described in Section 8.12  (b) and the Lenders
shall have received satisfactory projections through December 31, 2011.
 
(m)  The Administrative Agent shall have received appropriate UCC search
certificates reflecting no prior Liens encumbering the Properties of the
Borrower and the Subsidiaries for each of the following jurisdictions: Delaware,
Louisiana, Texas, Mississippi and any other jurisdiction requested by the
Administrative Agent; other than Liens created pursuant to the Revolving
Facility Documents and those being assigned or released on or prior to the
Effective Date or Liens permitted by Section 9.03  
 
(n)  The Administrative Agent shall have received from the Borrower any and all
documentation relating to the Parent Loan with an accompanying certificate of a
Responsible Officer certifying (i) any amounts currently outstanding under the
Parent Loan and (ii) that all documentation delivered is true and complete.
 
(o)  The Administrative Agent shall have received a solvency certificate from
the chief financial officer of the Borrower.
 
(p)  The Administrative Agent shall have received such other documents as the
Administrative Agent or special counsel to the Administrative Agent may
reasonably request.
 
(q)  At the time of and immediately after giving effect to such Borrowing no
Default shall have occurred and be continuing.

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(r)  At the time of and immediately after giving effect to such Borrowing no
event, development or circumstance has occurred or shall then exist that has
resulted in, or could reasonably be expected to have, a Material Adverse Effect.
 
(s)  The representations and warranties of the Borrower and the Guarantors set
forth in this Agreement and in the other Loan Documents shall be true and
correct on and as of the date of such Borrowing except to the extent any such
representations and warranties are expressly limited to an earlier date, in
which case, on and as of the date of such Borrowing such representations and
warranties shall continue to be true and correct as of such specified earlier
date.
 
(t)  The making of such Loan would not conflict with, or cause any Lender to
violate or exceed, any applicable Governmental Requirement, and no Change in Law
shall have occurred, and no litigation shall be pending or threatened, which
does or, with respect to any threatened litigation, seeks to, enjoin, prohibit
or restrain, the making or repayment of any Loan or the consummation of the
transactions contemplated by this Agreement or any other Loan Document.
 
(u)  The Administrative Agent shall have received a Borrowing Request in
accordance with Section 2.03  
 
The request for a Borrowing shall be deemed to constitute a representation and
warranty by the Borrower on the date thereof as to the matters specified in
Section 6.01  (p) through (u).
 
ARTICLE VII  
Representations and Warranties
 
The Borrower represents and warrants to the Lenders that:
 
Section 7.01    Organization; Powers. Each of the Borrower and the Subsidiaries
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority, and has
all material governmental licenses, authorizations, consents and approvals
necessary, to own its assets and to carry on its business as now conducted, and
is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where failure to have such power,
authority, licenses, authorizations, consents, approvals and qualifications
could not reasonably be expected to have a Material Adverse Effect.
 
Section 7.02    Authority; Enforceability. The Transactions are within the
Borrower’s and each Guarantor’s corporate powers and have been duly authorized
by all necessary corporate and, if required, stockholder action (including,
without limitation, any action required to be taken by any class of directors of
the Borrower or any other Person, whether interested or disinterested, in order
to ensure the due authorization of the Transactions). Each Loan Document to
which the Borrower and each Guarantor is a party has been duly executed and
delivered by the Borrower and such Guarantor and constitutes a legal, valid and
binding obligation of the Borrower and such Guarantor, as applicable,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights
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generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
 
Section 7.03    Approvals; No Conflicts. The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any
Governmental Authority or any other third Person (including shareholders or any
class of directors, whether interested or disinterested, of the Borrower or any
other Person), nor is any such consent, approval, registration, filing or other
action necessary for the validity or enforceability of any Loan Document or the
consummation of the transactions contemplated thereby, except such as have been
obtained or made and are in full force and effect other than the recording and
filing of the Security Instruments as required by this Agreement, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any Subsidiary or any order of any
Governmental Authority, (c) will not violate or result in a default under any
indenture, agreement or other instrument binding upon the Borrower or any
Subsidiary or its Properties, or give rise to a right thereunder to require any
payment to be made by the Borrower or such Subsidiary and (d) will not result in
the creation or imposition of any Lien on any Property of the Borrower or any
Subsidiary (other than the Liens created by the Loan Documents).
 
Section 7.04    Financial Condition; No Material Adverse Change.
 
(a)  The Borrower has heretofore furnished to the Administrative Agent its (i)
consolidated balance sheet and statement of operations, member’s equity and cash
flows as of and for the fiscal year ended December 31, 2005 reported on by Ernst
& Young LLP, independent public accountants, (ii) unaudited consolidated
financial statements for the nine month period ending September 30, 2006 and
(iii) the Initial Reserve Report. Such financial statements present fairly, in
all material respects, the financial position and results of operations and cash
flows of the Borrower and its Consolidated Subsidiaries as of such dates and for
such periods in accordance with GAAP, subject to year-end audit adjustments and
the absence of footnotes in the case of the unaudited quarterly financial
statements.
 
(b)  Since December 31, 2005, (i) there has been no event, development or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Borrower and its Subsidiaries has
been conducted only in the ordinary course consistent with past business
practices.
 
(c)  Neither the Borrower nor any Subsidiary has on the date hereof any material
Debt (including Disqualified Capital Stock) or any contingent liabilities,
off-balance sheet liabilities or partnerships, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
the Financial Statements.
 
Section 7.05    Litigation.
 
(a)  Except as set forth on Schedule 7.05, there are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any
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Subsidiary (i) not fully covered by insurance (except for normal deductibles) as
to which there is a reasonable possibility of an adverse determination that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect or (ii) that involve any Loan
Document or the Transactions.
 
(b)  Since the date of this Agreement, there has been no change in the status of
the matters disclosed in Schedule 7.05 that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
 
Section 7.06    Environmental Matters
 
. Except as could not be reasonably expected to have a Material Adverse Effect
(or with respect to (c), (d) and (e) below, where the failure to take such
actions could not be reasonably expected to have a Material Adverse Effect):
 
(a)  neither any Property of the Borrower or any Subsidiary nor the operations
conducted thereon violate any order or requirement of any court or Governmental
Authority or any Environmental Laws.
 
(b)  no Property of the Borrower or any Subsidiary nor the operations currently
conducted thereon are in violation of or subject to any existing, pending or
threatened action, suit, investigation, inquiry or proceeding by or before any
court or Governmental Authority or to any remedial obligations under
Environmental Laws.
 
(c)  all notices, permits, licenses, exemptions, approvals or similar
authorizations, if any, required to be obtained or filed in connection with the
operation or use of any and all Property of the Borrower and each Subsidiary,
including, without limitation, past or present treatment, storage, disposal or
release of a hazardous substance, oil and gas waste or solid waste into the
environment, have been duly obtained or filed, and the Borrower and each
Subsidiary are in compliance with the terms and conditions of all such notices,
permits, licenses and similar authorizations.
 
(d)  all hazardous substances, solid waste and oil and gas waste, if any,
generated at any and all Property of the Borrower or any Subsidiary have in the
past been transported, treated and disposed of in accordance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to public
health or the environment, and, to the actual knowledge of the Borrower, all
such transport carriers and treatment and disposal facilities have been and are
operating in compliance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or the environment, and
are not the subject of any existing, pending or threatened action, investigation
or inquiry by any Governmental Authority in connection with any Environmental
Laws.
 
(e)  the Borrower has taken all steps reasonably necessary to determine and has
determined that no oil, hazardous substances, solid waste or oil and gas waste,
have been disposed of or otherwise released and there has been no threatened
release of any oil, hazardous substances, solid waste or oil and gas waste on or
to any Property of the Borrower or any Subsidiary except in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment

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(f)  to the extent applicable, all Property of the Borrower and each Subsidiary
currently satisfies all design, operation, and equipment requirements imposed by
the OPA, and the Borrower does not have any reason to believe that such
Property, to the extent subject to the OPA, will not be able to maintain
compliance with the OPA requirements during the term of this Agreement.
 
(g)  neither the Borrower nor any Subsidiary has any known contingent liability
or Remedial Work in connection with any release or threatened release of any
oil, hazardous substance, solid waste or oil and gas waste into the environment.
 
Section 7.07    Compliance with the Laws and Agreements; No Defaults.
 
(a)  Each of the Borrower and each Subsidiary is in compliance with all
Governmental Requirements applicable to it or its Property and all agreements
and other instruments binding upon it or its Property, and possesses all
licenses, permits, franchises, exemptions, approvals and other governmental
authorizations necessary for the ownership of its Property and the conduct of
its business, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
 
(b)  Neither the Borrower nor any Subsidiary is in default nor has any event or
circumstance occurred which, but for the expiration of any applicable grace
period or the giving of notice, or both, would constitute a default or would
require the Borrower or a Subsidiary to Redeem or make any offer to Redeem all
or any portion of any Debt outstanding under any indenture, note, credit
agreement or instrument pursuant to which any Material Indebtedness is
outstanding or by which the Borrower or any Subsidiary or any of their
Properties is bound.
 
(c)  No Default has occurred and is continuing.
 
Section 7.08    Investment Company Act
 
. Neither the Borrower nor any Subsidiary is an “investment company” or a
company “controlled” by an “investment company,” within the meaning of, or
subject to regulation under, the Investment Company Act of 1940, as amended.
 
Section 7.09    Taxes
 
. Each of the Borrower and its Subsidiaries has timely filed or caused to be
filed all Tax returns and reports required to have been filed and has paid or
caused to be paid all Taxes required to have been paid by it, except (a) Taxes
that are being contested in good faith by appropriate proceedings and for which
the Borrower or such Subsidiary, as applicable, has set aside on its books
adequate reserves in accordance with GAAP or (b) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse
Effect. The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of Taxes and other governmental charges are, in the
reasonable opinion of the Borrower, adequate. No Tax Lien has been filed and, to
the knowledge of the Borrower, no claim is being asserted with respect to any
such Tax or other such governmental charge.
 
Section 7.10    ERISA.
 
(a)  The Borrower, the Subsidiaries and each ERISA Affiliate have complied in
all material respects with ERISA and, where applicable, the Code regarding each
Plan.

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(b)  Each Plan is, and has been, maintained in substan-tial compliance with
ERISA and, where applicable, the Code.
 
(c)  No act, omission or transaction has occurred which could result in
imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant to
Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability
damages under section 409 of ERISA.
 
(d)  Except as provided in Schedule 7.10(d), no Plan (other than a defined
contribu-tion plan) or any trust created under any such Plan has been terminated
since September 2, 1974. No liability to the PBGC (other than for the payment of
current premiums which are not past due) by the Borrower, any Subsidiary or any
ERISA Affiliate has been or is expected by the Borrower, any Subsidiary or any
ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with
respect to any Plan has occurred.
 
(e)  Full payment when due has been made of all amounts which the Borrower, the
Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or
applicable law to have paid as contribu-tions to such Plan as of the date
hereof, and no accumulated funding deficiency (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, exists with respect
to any Plan.
 
(f)  Except as provided in Schedule 7.10(f), the actuarial present value of the
benefit liabili-ties under each Plan which is subject to Title IV of ERISA does
not, as of the end of the Borrower’s most recently ended fiscal year, exceed the
current value of the assets (computed on a plan termination basis in accordance
with Title IV of ERISA) of such Plan allocable to such benefit liabilities by an
amount in excess of $500,000. The term “actuarial present value of the benefit
liabilities” shall have the meaning specified in section 4041 of ERISA.
 
(g)  Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors,
maintains, or contributes to an employee welfare benefit plan, as defined in
section 3(1) of ERISA, including, without limitation, any such plan maintained
to provide benefits to former employees of such entities, that may not be
terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole
discretion at any time without any material liability.
 
(h)  Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors,
maintains or contributes to, or has at any time in the six-year period preceding
the date hereof sponsored, maintained or contributed to, any Multiemployer Plan.
 
(i)  Neither the Borrower, the Subsidiaries nor any ERISA Affiliate is required
to provide security under section 401(a)(29) of the Code due to a Plan amendment
that results in an increase in current liability for the Plan.
 
Section 7.11    Disclosure; No Material Misstatements. The Borrower has
disclosed to the Administrative Agent and the Lenders all material agreements,
instruments and corporate or other restrictions to which it or any of its
Subsidiaries is subject, and all other matters known to it, that, individually
or in the aggregate, could reasonably be expected to result in a Material
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Adverse Effect. None of the other reports, financial statements, certificates or
other information furnished by or on behalf of the Borrower or any Subsidiary to
the Administrative Agent or any Lender or any of their Affiliates in connection
with the negotiation of this Agreement or any other Loan Document or delivered
hereunder or under any other Loan Document (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time. There is no fact peculiar to the Borrower or any
Subsidiary which could reasonably be expected to have a Material Adverse Effect
or in the future is reasonably likely to have a Material Adverse Effect and
which has not been set forth in this Agreement or the Loan Documents or the
other documents, certificates and statements furnished to the Administrative
Agent or the Lenders by or on behalf of the Borrower or any Subsidiary prior to,
or on, the date hereof in connection with the transactions contemplated hereby.
There are no statements or conclusions in any Reserve Report which are based
upon or include misleading information or fail to take into account material
information regarding the matters reported therein.
 
Section 7.12    Insurance. The Borrower has, and has caused all of its
Subsidiaries to have, (a) all insurance policies sufficient for the compliance
by each of them with all material Governmental Requirements and all material
agreements and (b) insurance coverage in at least amounts and against such risk
(including, without limitation, public liability) that are usually insured
against by companies similarly situated and engaged in the same or a similar
business for the assets and operations of the Borrower and its Subsidiaries.
Schedule 7.12, as of the date hereof, sets forth a list of all insurance
maintained by the Borrower and all its Subsidiaries. The Administrative Agent
and the Lenders have been named as additional insureds in respect of such
liability insurance policies and the Administrative Agent has been named as loss
payee with respect to Property loss insurance.
 
Section 7.13    Restriction on Liens. Neither the Borrower nor any of the
Subsidiaries is a party to any material agreement or arrangement (other than
Liens created pursuant to the Revolving Facility Documents, Capital Leases
creating Liens permitted by Section 9.03  (c), but then only on the Property
subject of such Capital Lease), or subject to any order, judgment, writ or
decree, which either restricts or purports to restrict its ability to grant
Liens to the Administrative Agent and the Lenders on or in respect of their
Properties to secure the Indebtedness and the Loan Documents.
 
Section 7.14    Subsidiaries. Except as set forth on Schedule 7.14 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish a
copy to the Lenders), which shall be a supplement to Schedule 7.14, the Borrower
has no Subsidiaries.
 
Section 7.15    Location of Business and Offices. The Borrower’s jurisdiction of
organization is Delaware; the name of the Borrower as listed in the public
records of its jurisdiction of organization is McMoRan Oil & Gas LLC; and the
organizational identification number of the Borrower in its jurisdiction of
organization is 2927213 (or, in each case, as set forth in a notice delivered to
the Administrative Agent pursuant to Section 8.01  (m) in accordance with
Section 12.01).
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The Borrower’s principal place of business and chief executive offices are
located at the address specified in Section 12.01   (or as set forth in a notice
delivered pursuant to Section 8.01 (m) and Section 12.01 (c)). Each Subsidiary’s
jurisdiction of organization, name as listed in the public records of its
jurisdiction of organization, organizational identification number in its
jurisdiction of organization, and the location of its principal place of
business and chief executive office is stated on Schedule 7.15 (or as set forth
in a notice delivered pursuant to Section 8.01  (m)).
 
Section 7.16    Properties; Titles, Etc.
 
(a)  Each of the Borrower and the Subsidiaries has good and defensible title to
the Oil and Gas Properties evaluated in the most recently delivered Reserve
Report and good title to all its personal Properties, in each case, free and
clear of all Liens except Liens permitted by Section 9.03   After giving full
effect to the Excepted Liens, the Borrower or the Subsidiary specified as the
owner owns the net interests in production attributable to the Hydrocarbon
Interests as reflected in the most recently delivered Reserve Report, and the
ownership of such Properties shall not in any material respect obligate the
Borrower or such Subsidiary to bear the costs and expenses relating to the
maintenance, development and operations of each such Property in an amount in
excess of the working interest of each Property set forth in the most recently
delivered Reserve Report that is not offset by a corresponding proportionate
increase in the Borrower’s or such Subsidiary’s net revenue interest in such
Property.
 
(b)  All material leases and agreements necessary for the conduct of the
business of the Borrower and the Subsidiaries are valid and subsisting, in full
force and effect, and there exists no default or event or circumstance which
with the giving of notice or the passage of time or both would give rise to a
default under any such lease or leases, which could reasonably be expected to
have a Material Adverse Effect.
 
(c)  The rights and Properties presently owned, leased or licensed by the
Borrower and the Subsidiaries including, without limitation, all easements and
rights of way, include all rights and Properties necessary to permit the
Borrower and the Subsidiaries to conduct their business in all material respects
in the same manner as its business has been conducted prior to the date hereof.
 
(d)  All of the Properties of the Borrower and the Subsidiaries which are
reasonably necessary for the operation of their businesses are in good working
condition and are maintained in accordance with prudent business standards.
 
(e)  The Borrower and each Subsidiary owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual Property
material to its business, and the use thereof by the Borrower and such
Subsidiary does not infringe upon the rights of any other Person, except for any
such infringements that, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect. The Borrower and its
Subsidiaries either own or have valid licenses or other rights to use all
databases, geological data, geophysical data, engineering data, seismic 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
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production of Hydrocarbons, with such exceptions as could not reasonably be
expected to have a Material Adverse Effect.
 
Section 7.17    Maintenance of Properties. Except for such acts or failures to
act as could not be reasonably expected to have a Material Adverse Effect, the
Oil and Gas Properties (and Properties unitized therewith) of the Borrower and
its Subsidiaries have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all Governmental Requirements and in
conformity with the provisions of all leases, subleases or other contracts
comprising a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of the Oil and Gas Properties of the Borrower and its
Subsidiaries. Specifically in connection with the foregoing, except for those as
could not be reasonably expected to have a Material Adverse Effect, (i) no Oil
and Gas Property of the Borrower or any Subsidiary is subject to having
allowable production reduced below the full and regular allowable (including the
maximum permissible tolerance) because of any overproduction (whether or not the
same was permissible at the time) and (ii) none of the wells comprising a part
of the Oil and Gas Properties (or Properties unitized therewith) of the Borrower
or any Subsidiary is deviated from the vertical more than the maximum permitted
by Governmental Requirements, and such wells are, in fact, bottomed under and
are producing from, and the well bores are wholly within, the Oil and Gas
Properties (or in the case of wells located on Properties unitized therewith,
such unitized Properties) of the Borrower or such Subsidiary. All pipelines,
wells, gas processing plants, platforms and other material improvements,
fixtures and equipment owned in whole or in part by the Borrower or any of its
Subsidiaries 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 Borrower or any of its
Subsidiaries, in a manner consistent with the Borrower’s or its Subsidiaries’
past practices (other than those the failure of which to maintain in accordance
with this Section 7.17 could not reasonably be expected to have a Material
Adverse Effect).
 
Section 7.18    Gas Imbalances, Prepayments. Except as set forth on Schedule
7.18 or on the most recent certificate delivered pursuant to Section 8.12 (b),
on a net basis there are no gas imbalances, take or pay or other prepayments
which would require the Borrower or any of its Subsidiaries to deliver
Hydrocarbons produced from the Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor exceeding 500,000 Mcf
of gas (on an Mcf equivalent basis) in the aggregate.
 
Section 7.19    Marketing of Production. Except for contracts listed and in
effect on the date hereof on Schedule 7.19, and thereafter either disclosed in
writing to the Administrative Agent or included in the most recently delivered
Reserve Report (with respect to all of which contracts the Borrower represents
that it or its Subsidiaries are receiving a price for all production sold
thereunder which is computed substantially in accordance with the terms of the
relevant contract and are not having deliveries curtailed substantially below
the subject Property’s delivery capacity), no material agreements exist which
are not cancelable on 60 days notice or less without penalty or detriment for
the sale of production from the Borrower’s or its Subsidiaries’ Hydrocarbons
(including, without limitation, calls on or other rights to purchase,
production, whether or not the same are currently being exercised) that (a)
pertain to the sale of production at a fixed price and (b) have a maturity or
expiry date of longer than six (6) months from the date hereof.

Section 7.20    Swap Agreements. Schedule 7.20, as of the date hereof, and after
the date hereof, each report required to be delivered by the Borrower pursuant
to Section 8.01  (e), sets forth, a true and complete list of all Swap
Agreements of the Borrower and each Subsidiary, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value thereof, all credit support agreements
relating thereto (including any margin required or supplied) and the
counterparty to each such agreement.
 
Section 7.21    Use of Loans. The proceeds of the Loans shall be used to provide
working capital for exploration and production operations, to provide funding
for general corporate purposes of the Borrower and its Subsidiaries, to provide
funds to refinance existing debt (including intercompany debt) and to pay the
costs and expenses incurred by the Borrower in connection with the negotiation,
documentation and closing of the Loans. The Borrower and its Subsidiaries are
not engaged principally, or as one of its or their important activities, in the
business of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying margin stock (within the meaning of Regulation
T, U or X of the Board). No part of the proceeds of any Loan will be used for
any purpose which violates the provisions of Regulations T, U or X of the Board.
 
Section 7.22    Solvency. After giving effect to the transactions contemplated
hereby, (a) the aggregate assets (after giving effect to amounts that could
reasonably be received by reason of indemnity, offset, insurance or any similar
arrangement), at a fair valuation, of the Borrower and the Guarantors, taken as
a whole, will exceed the aggregate Debt of the Borrower and the Guarantors on a
consolidated basis, as the Debt becomes absolute and matures, (b) each of the
Borrower and the Guarantors will not have incurred or intended to incur, and
will not believe that it will incur, Debt beyond its ability to pay such Debt
(after taking into account the timing and amounts of cash to be received by each
of the Borrower and the Guarantors and the amounts to be payable on or in
respect of its liabilities, and giving effect to amounts that could reasonably
be received by reason of indemnity, offset, insurance or any similar
arrangement) as such Debt becomes absolute and matures and (c) each of the
Borrower and the Guarantors will not have (and will have no reason to believe
that it will have thereafter) unreasonably small capital for the conduct of its
business.
 
ARTICLE VIII  
Affirmative Covenants
 
Until the Commitments have expired or been terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents shall have been paid in full, the Borrower
covenants and agrees with the Lenders that:
 
Section 8.01    Financial Statements; Other Information. The Borrower will
furnish to the Administrative Agent and each Lender:
 
(a)  Annual Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 90 days after the end of
each fiscal year of the Parent and the Borrower, each of their audited
consolidated balance sheets and related statements of operations, stockholders’
equity, as applicable, and cash flows as of the end of and
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for such year, setting forth in each case in comparative form the figures for
the previous fiscal year, all reported on by Ernst & Young LLP or other
independent public accountants of recognized national standing (without a “going
concern” or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the financial
condition and results of operations of the Parent and the Borrower and their
consolidated subsidiaries on a consolidated basis in accordance with GAAP
consistently applied.
 
(b)  Quarterly Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year of the Parent and
the Borrower, each of their consolidated balance sheet and related statements of
operations and cash flows as of the end of and for such fiscal quarter and the
then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all material
respects the financial condition and results of operations of the Parent and the
Borrower and their consolidated subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes.
 
(c)  Certificate of Financial Officer -- Compliance. Concurrently with any
delivery of financial statements under Section 8.01  (a) or Section 8.01  (b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 9.01   and (iii) stating whether any
change in GAAP or in the application thereof has occurred since the date of the
audited financial statements referred to in Section 7.04   and, if any such
change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate.
 
(d)  Certificate of Accounting Firm - Defaults. Concurrently with any delivery
of financial statements under Section 8.01(a), a certificate of the accounting
firm that reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial statements of
any Default (which certificate may be limited to the extent required by
accounting rules or guidelines).
 
(e)  Certificate of Financial Officer - Swap Agreements. Concurrently with any
delivery of financial statements under Section 8.01  (a) and Section 8.01  (b),
a certificate of a Financial Officer, in form and substance satisfactory to the
Administrative Agent, setting forth as of the last Business Day of such fiscal
quarter or fiscal year, a true and complete list of all Swap Agreements of the
Borrower and each Subsidiary, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating
thereto not listed on Schedule 7.20, any margin required or supplied under any
credit support document, and the counterparty to each such agreement.

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(f)  Certificate of Insurer -- Insurance Coverage. Concurrently with any
delivery of financial statements under Section 8.01  (a), a certificate of
insurance coverage from each insurer with respect to the insurance required by
Section 8.07  , in form and substance satisfactory to the Administrative Agent,
and, if requested by the Administrative Agent or any Lender, all copies of the
applicable policies.
 
(g)  Other Accounting Reports. Promptly upon receipt thereof, a copy of each
other report or letter submitted to the Borrower or any of its Subsidiaries by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower or any such Subsidiary, and a copy of
any response by the Borrower or any such Subsidiary, or the board of directors
or other appropriate governing body of the Borrower or any such Subsidiary, to
such letter or report.
 
(h)  SEC and Other Filings; Reports to Shareholders. Promptly after the same
become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Borrower or any Subsidiary with the
SEC, or with any national securities exchange, or distributed by the Borrower to
its shareholders generally, as the case may be.
 
(i)  Notices Under Material Instruments. Promptly after the furnishing thereof,
copies of any financial statement, report or notice furnished to or by any
Person pursuant to the terms of any preferred stock designation, indenture, loan
or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
 
(j)  Lists of Purchasers. Concurrently with the delivery of any Reserve Report
to the Administrative Agent pursuant to Section 8.12, a list of all Persons
purchasing Hydrocarbons from the Borrower or any Subsidiary.
 
(k)  Notice of Sales of Oil and Gas Properties. In the event the Borrower or any
Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil or
Gas Properties or any Equity Interests in any Subsidiary in accordance with
Section 9.11, prior written notice of such disposition, the price thereof and
the anticipated date of closing and any other details thereof requested by the
Administrative Agent or any Lender.
 
(l)  Notice of Casualty Events. Prompt written notice, and in any event within
three Business Days, of the occurrence of any Casualty Event or the commencement
of any action or proceeding that could reasonably be expected to result in a
Casualty Event.
 
(m)  Information Regarding Borrower and Guarantors. Prompt written notice of
(and in any event at least ten (10) Business Days following) any change (i) in
the Borrower or any Guarantor’s corporate name or in any trade name used to
identify such Person in the conduct of its business or in the ownership of its
Properties, (ii) in the location of the Borrower or any Guarantor’s chief
executive office or principal place of business, (iii) in the Borrower or any
Guarantor’s identity or corporate structure or in the jurisdiction in which such
Person is incorporated or formed, (iv) in the Borrower or any Guarantor’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (v) in the Borrower or any
Guarantor’s federal taxpayer identification number.

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(n)  Production Report and Lease Operating Statements. Within 60 days after the
end of each fiscal quarter, a report setting forth, for each calendar month
during the then current fiscal year to date, the volume of production and sales
attributable to production (and the prices at which such sales were made and the
revenues derived from such sales) for each such calendar month from the Oil and
Gas Properties, and setting forth the related ad valorem, severance and
production taxes and lease operating expenses attributable thereto and incurred
for each such calendar month.
 
(o)  Other Requested Information. Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary (including, without limitation, any
Plan or Multiemployer Plan and any reports or other information required to be
filed under ERISA), or compliance with the terms of this Agreement or any other
Loan Document, as the Administrative Agent or any Lender may reasonably request.
 
Section 8.02    Notices of Material Events. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
 
(a)  the occurrence of any Default;
 
(b)  the filing or commencement of, or the threat in writing of, any action,
suit, proceeding, investigation or arbitration by or before any arbitrator or
Governmental Authority against or affecting the Borrower or any Affiliate
thereof not previously disclosed in writing to the Lenders or any material
adverse development in any action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lenders) that, in either
case could reasonably be expected to result in liability in excess of
$10,000,000, not fully covered by insurance, subject to normal deductibles;
 
(c)  the occurrence of any ERISA Event that, alone or together with any other
ERISA Events that have occurred, could reasonably be expected to result in
liability of the Borrower and its Subsidiaries in an aggregate amount exceeding
$10,000,000; and
 
(d)  any other development that results in, or could reasonably be expected to
result in, a Material Adverse Effect.
 
Each notice delivered under this Section 8.02   shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
 
Section 8.03    Existence; Conduct of Business. The Borrower will, and will
cause each Subsidiary to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, privileges and franchises material to the conduct of
its business and maintain, if necessary, its qualification to do business in
each other jurisdiction in which its Oil and Gas Properties is located or the
ownership of its Properties requires such qualification, except where the
failure to so qualify could not reasonably be expected to have a Material
Adverse Effect; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 9.11.

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Section 8.04    Payment of Obligation. The Borrower will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of the Borrower
and all of its Subsidiaries before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect or result in the
seizure or levy of any Property of the Borrower or any Subsidiary.
 
Section 8.05    Performance of Obligations under Loan Documents. The Borrower
will pay the Notes according to the reading, tenor and effect thereof, and the
Borrower will, and will cause each Subsidiary to, do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, including, without limitation, this Agreement, at the time
or times and in the manner specified.
 
Section 8.06    Operation and Maintenance of Properties. The Borrower, at its
own expense, will, and will cause each Subsidiary to:
 
(a)  operate its Oil and Gas Properties and other material Properties or cause
such Oil and Gas Properties and other material Properties to be operated in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
with all Governmental Requirements, including, without limitation, applicable
pro ration requirements and Environmental Laws, and all applicable laws, rules
and regulations of every other Governmental Authority from time to time
constituted to regulate the development and operation of its Oil and Gas
Properties and the production and sale of Hydrocarbons and other minerals
therefrom, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect.
 
(b)  keep and maintain all Property material to the conduct of its business in
good working order and condition, ordinary wear and tear excepted preserve,
maintain and keep in good repair, working order and efficiency (ordinary wear
and tear excepted) all of its material Oil and Gas Properties and other material
Properties, including, without limitation, all equipment, machinery and
facilities.
 
(c)  promptly pay and discharge, or make reasonable and customary efforts to
cause to be paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties and will do all other things necessary
to keep unimpaired their rights with respect thereto and prevent any forfeiture
thereof or default thereunder.
 
(d)  promptly perform or make reasonable and customary efforts to cause to be
performed, in accordance with industry standards, the obligations required by
each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and other
material Properties.
 
(e)  operate its Oil and Gas Properties and other material Properties or cause
or make reasonable and customary efforts to cause such Oil and Gas Properties
and other material
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Properties to be operated in accordance with the practices of the industry and
in material compliance with all applicable contracts and agreements and in
compliance in all material respects with all Governmental Requirements.
 
(f)  to the extent the Borrower is not the operator of any Property, the
Borrower shall use commercially reasonable efforts to cause the operator to
comply with this Section 8.06.
 
Section 8.07    Insurance. The Borrower will, and will cause each Subsidiary to,
maintain, with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations. The loss payable clauses or provisions in said insurance policy or
policies insuring any of the collateral for the Loans shall be endorsed in favor
of and made payable to the Administrative Agent as its interests may appear and
such policies shall name the Administrative Agent and the Lenders as “additional
insureds” and provide that the insurer will endeavor to give at least 30 days
prior notice of any cancellation to the Administrative Agent.
 
Section 8.08    Books and Records; Inspection Rights. The Borrower will, and
will cause each Subsidiary to, keep proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its business and activities. The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or any Lender, upon reasonable prior notice, to visit and inspect its
Properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested.
 
Section 8.09    Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its Property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
 
Section 8.10    Environmental Matters.
 
(a)  The Borrower shall at its sole expense: (i) comply, and shall cause its
Properties and operations and each Subsidiary and each Subsidiary’s Properties
and operations to comply, with all applicable Environmental Laws, the breach of
which could be reasonably expected to have a Material Adverse Effect; (ii) not
dispose of or otherwise release, and shall cause each Subsidiary not to dispose
of or otherwise release, any oil, oil and gas waste, hazardous substance, or
solid waste on, under, about or from any of the Borrower’s or its Subsidiaries’
Properties or any other Property to the extent caused by the Borrower’s or any
of its Subsidiaries’ operations except in compliance with applicable
Environmental Laws, the disposal or release of which could reasonably be
expected to have a Material Adverse Effect; (iii) timely obtain or file, and
shall cause each Subsidiary to timely obtain or file, all notices, permits,
licenses, exemptions, approvals, registrations or other authorizations, if any,
required under applicable Environmental Laws to be obtained or filed in
connection with the operation or use of the Borrower’s or its Subsidiaries’
Properties, which failure to obtain or file could
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reasonably be expected to have a Material Adverse Effect; (iv) promptly commence
and diligently prosecute to completion, and shall cause each Subsidiary to
promptly commence and diligently prosecute to completion, any assessment,
evaluation, investigation, monitoring, containment, cleanup, removal, repair,
restoration, remediation or other remedial obligations (collectively, the
“Remedial Work”) in the event any Remedial Work is required or reasonably
necessary under applicable Environmental Laws because of or in connection with
the actual or suspected past, present or future disposal or other release of any
oil, oil and gas waste, hazardous substance or solid waste on, under, about or
from any of the Borrower’s or its Subsidiaries’ Properties, which failure to
commence and diligently prosecute to completion could reasonably be expected to
have a Material Adverse Effect; and (v) establish and implement, and shall cause
each Subsidiary to establish and implement, such policies of environmental audit
and compliance as may be necessary to continuously determine and assure that the
Borrower’s and its Subsidiaries’ obligations under this Section 8.10  (a) are
timely and fully satisfied, which failure to establish and implement could
reasonably be expected to have a Material Adverse Effect.
 
(b)  The Borrower will promptly, but in no event later than five days of the
occurrence of a triggering event, notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by any
Governmental Authority or any threatened demand or lawsuit by any landowner or
other third party against the Borrower or its Subsidiaries or their Properties
of which the Borrower has knowledge in connection with any Environmental Laws
(excluding routine testing and corrective action) if the Borrower reasonably
anticipates that such action will result in liability (whether individually or
in the aggregate) in excess of $10,000,000, not fully covered by insurance,
subject to normal deductibles.
 
Section 8.11    Further Assurances.
 
(a)  The Borrower at its sole expense will, and will cause each Subsidiary to,
promptly execute and deliver to the Administrative Agent all such other
documents, agreements and instruments reasonably requested by the Administrative
Agent to comply with, cure any defects or accomplish the conditions precedent,
covenants and agreements of the Borrower or any Subsidiary, as the case may be,
in the Loan Documents, including the Notes, or to further evidence and more
fully describe the collateral intended as security for the Indebtedness, or to
correct any omissions in this Agreement or the Security Instruments, or to state
more fully the obligations secured therein, or to perfect, protect or preserve
any Liens created pursuant to this Agreement or any of the Security Instruments
or the priority thereof, or to make any recordings, file any notices or obtain
any consents, all as may be reasonably necessary or appropriate, in the sole
discretion of the Administrative Agent, in connection therewith.
 
(b)  The Borrower hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Mortgaged Property without the signature of the Borrower or any
other Guarantor where permitted by law. A carbon, photographic or other
reproduction of the Security Instruments or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.

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Section 8.12    Reserve Reports; Calculation of Total Reserve Values.
 
(a)  On or before March 1st and September 1st of each year, commencing March 1,
2007, the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report evaluating the Oil and Gas Properties of the Borrower and its
Subsidiaries as of the immediately preceding January 1 and July 1. The Reserve
Report as of December 31 of each year shall be prepared by one or more Approved
Petroleum Engineers, and the June 30 Reserve Report of each year shall be
prepared by or under the supervision of the chief engineer of the Borrower who
shall certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately preceding
January 1 Reserve Report.
 
(b)  With the delivery of each Reserve Report, the Borrower shall provide to the
Administrative Agent and the Lenders a certificate from a Responsible Officer
certifying that in all material respects: (i) the information contained in the
Reserve Report and any other information delivered in connection therewith is
true and correct, (ii) the Borrower or its Subsidiaries owns good and defensible
title to the Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except Liens permitted by Section 9.03  , (iii)
except as set forth on an exhibit to the certificate, on a net basis there are
no gas imbalances, take or pay or other prepayments in excess of the volume
specified in Section 7.18   with respect to its Oil and Gas Properties evaluated
in such Reserve Report which would require the Borrower or any Subsidiary to
deliver Hydrocarbons either generally or produced from such Oil and Gas
Properties at some future time without then or thereafter receiving full payment
therefor, (iv) such Reserve Report reflects the latest determination or
redetermination, as the case may be, required to be made pursuant to this
Section, which certificate, if applicable, shall list all of its Oil and Gas
Properties sold subsequent to the later of the date hereof or the most recently
delivered Reserve Report and in such detail as reasonably required by the
Administrative Agent, (v) attached to the certificate is a list of all marketing
agreements entered into subsequent to the later of the date hereof or the most
recently delivered Reserve Report which the Borrower could reasonably be
expected to have been obligated to list on Schedule 7.19 had such agreement been
in effect on the date hereof and (vi) attached thereto is a schedule of the Oil
and Gas Properties evaluated by such Reserve Report that are Mortgaged
Properties
 
(c)  Subject to interim adjustment under Section 8.13(c) and Section 9.12, the
initial Total Proved Reserve Value shall be $387,600,000.
 
(d)  No later than March 1st and September 1st of each year, the Borrower shall
deliver to the Administrative Agent two certificates, each in form reasonably
satisfactory to the Administrative Agent, reflecting the Total Proved Reserve
Value and the Total Probable Reserve Value, respectively, as of the immediately
preceding January 1 and July 1, commencing March 1, 2007.
 
(e)  In addition, the Borrower may, by notifying the Administrative Agent
thereof, elect to require the Total Proved Reserve Value to be determined two
additional times on a specified “as of” date between such regular determinations
(which shall be the first day of a calendar month following the date of such
notice), in which event the Borrower shall deliver to the Administrative Agent a
certificate, in form reasonably satisfactory to the Administrative
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Agent (which may be in the form of an updated Reserve Report), no later than
three months after such specified date reflecting the Total Proved Reserve Value
as of such specified date.
 
(f)  The Borrower shall calculate the Total Proved Reserve Value and the Total
Probable Reserve Value based upon the applicable definitions of this Agreement,
and provide with each such certificate the Reserve Report and other information
used by the Borrower in calculating the Total Proved Reserve Value and Total
Probable Reserve Value.
 
(g)  Upon receipt of each such certificate, the Administrative Agent shall
promptly review such certificate and, within five (5) Business Days, confirm to
the Borrower and the Lenders that (i) the calculations used to determine the
Total Proved Reserve Value were based upon the pricing and other requirements
set forth in the definition of PV and (ii) no mathematical or other errors or
omissions have been made in such calculation. If facts under (i) or (ii) are
ascertained to exist, the Administrative Agent and the Borrower shall cooperate
to promptly calculate the proper amount. Otherwise, upon confirmation of such
amount as the Total Proved Reserve Value, such amount will be the Total Proved
Reserve Value until next adjusted or redetermined in accordance with the terms
of this Agreement.
 
Section 8.13    Title Information.
 
(a)  On or before the delivery to the Administrative Agent and the Lenders of
each Reserve Report required by Section 8.12  (a), the Borrower will deliver
title information in form and substance acceptable to the Administrative Agent
covering enough of the Proved Reserves evaluated by such Reserve Report that
were not included in the immediately preceding Reserve Report, so that the
Administrative Agent shall have received together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 90% of the total value of the Proved Reserves evaluated by such
Reserve Report.
 
(b)  If the Borrower has provided title information for additional Properties
under Section 8.13  (a), the Borrower shall, within 60 days of notice from the
Administrative Agent that title defects or exceptions exist with respect to such
additional Properties, either (i) cure any such title defects or exceptions
(including defects or exceptions as to priority) which are not permitted by
Section 9.03   raised by such information, (ii) substitute acceptable Mortgaged
Properties with no title defects or exceptions except for Excepted Liens (other
than Excepted Liens described in clauses (e), (g) and (h) of such definition)
having an equivalent value or (iii) deliver title information in form and
substance acceptable to the Administrative Agent so that the Administrative
Agent shall have received, together with title information previously delivered
to the Administrative Agent, satisfactory title information on at least 90% of
the value of the Proved Reserves evaluated by such Reserve Report.
 
(c)  If the Borrower is unable to cure any title defect requested by the
Administrative Agent or the Lenders to be cured within the 60-day period or the
Borrower does not comply with the requirements to provide acceptable title
information covering 90% of the value of the Proved Reserves evaluated in the
most recent Reserve Report, such default shall not be a Default, but instead the
Administrative Agent and/or the Majority Lenders shall have the right to
exercise the following remedy in their sole discretion from time to time, and
any failure to so exercise this remedy at any time shall not be a waiver as to
future exercise of the remedy by
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the Administrative Agent or the Lenders. To the extent that the Administrative
Agent or the Majority Lenders are not satisfied with title to any Mortgaged
Property after the 60-day period has elapsed, such unacceptable Mortgaged
Property shall not count towards the 90% requirement, and the Administrative
Agent may send a notice to the Borrower and the Lenders that the then
outstanding PV and Total Proved Reserve Value shall be reduced by an amount as
determined by the Majority Lenders to cause the Borrower to be in compliance
with the requirement to provide acceptable title information on 90% of the value
of the Proved Reserves. The new PV and Total Proved Reserve Value shall become
effective immediately after receipt of such notice.
 
Section 8.14    Additional Collateral; Additional Guarantors.
 
(a)  The Loans shall be, at all times, secured by a second priority Lien on and
security interest in all collateral securing the Revolving Facility (in the case
of any termination thereof, all collateral securing the Revolving Facility
immediately prior to such termination).
 
(b)  The Borrower shall promptly cause each Domestic Subsidiary to guarantee the
Indebtedness pursuant to the Guaranty Agreement. In connection with any such
guaranty, the Borrower shall, or shall cause such Domestic Subsidiary to (A)
execute and deliver a supplement to the Guaranty Agreement executed by such
Subsidiary, (B) pledge all of the Equity Interests of such new Subsidiary
(including, without limitation, delivery (if applicable) to the Revolving Agent
(or to the Administrative Agent, if the Revolving Facility shall have
terminated) of original certificates evidencing the Equity Interests of such
Subsidiary, together with an appropriate undated stock powers for each
certificate duly executed in blank by the registered owner thereof) and (C)
execute and deliver such other additional closing documents, certificates and
legal opinions as shall reasonably be requested by the Administrative Agent.
 
(c)  In the event that the Borrower or any Domestic Subsidiary becomes the owner
of a Foreign Subsidiary, then the Borrower shall promptly cause such Domestic
Subsidiary to guarantee the Indebtedness pursuant to the Guaranty Agreement. In
connection with any such guaranty, the Borrower shall, or shall cause such
Domestic Subsidiary to, (1) execute and deliver a supplement to the Guaranty
Agreement, (2) pledge 65% of all the Equity Interests of such Foreign Subsidiary
(including, without limitation, delivery to the Revolving Agent (or to the
Administrative Agent, if the Revolving Facility shall have terminated) of
original stock certificates evidencing such Equity Interests of such Foreign
Subsidiary, together with appropriate stock powers for each certificate duly
executed in blank by the registered owner thereof) and (3) execute and deliver
such other additional closing documents, certificates and legal opinions as
shall reasonably be requested by the Administrative Agent.
 
Section 8.15    ERISA Compliance. The Borrower will promptly furnish and will
cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the
Administrative Agent (i) immediately upon becoming aware of the occurrence of
any ERISA Event or of any “prohibited transaction,” as described in section 406
of ERISA or in section 4975 of the Code, in connection with any Plan or any
trust created thereunder, a written notice signed by the President or the
principal Financial Officer, the Subsidiary or the ERISA Affiliate, as the case
may be, specifying the nature thereof, what action the Borrower, the Subsidiary
or the ERISA Affiliate is taking or proposes to take with respect thereto, and,
when known, any action taken or proposed by the
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Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto, and (ii) immediately upon receipt thereof, copies of any notice of the
PBGC’s intention to terminate or to have a trustee appointed to administer any
Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower
will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full
and in a timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any lien, all of the contribution
and funding requirements of section 412 of the Code (determined without regard
to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.
 
Section 8.16    Marketing Activities. The Borrower will not, and will not permit
any of its Subsidiaries to, engage in marketing activities for any Hydrocarbons
or enter into any contracts related thereto other than (i) contracts for the
sale of Hydrocarbons scheduled or reasonably estimated to be produced from their
Proved Reserves during the period of such contract, (ii) contracts for the sale
of Hydrocarbons scheduled or reasonably estimated to be produced from Proved
Reserves of third parties during the period of such contract associated with the
Oil and Gas Properties of the Borrower and its Subsidiaries that the Borrower or
one of its Subsidiaries has the right to market pursuant to joint operating
agreements, unitization agreements or other similar contracts that are usual and
customary in the oil and gas business and (iii) other contracts for the purchase
and/or sale of Hydrocarbons of third parties (A) which have generally offsetting
provisions (i.e. corresponding pricing mechanics, delivery dates and points and
volumes) such that no “position” is taken and (B) for which appropriate credit
support has been taken to alleviate the material credit risks of the
counterparty thereto.
 
ARTICLE IX  
Negative Covenants
 
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents have been paid in full, the Borrower covenants
and agrees with the Lenders that:
 
Section 9.01    Financial Covenants.
 
(a)  Ratio of Net Debt to EBITDAX. The Borrower will not permit as of any date
of determination the ratio of (A) (1) Total Debt less (2) the sum as of such
date of (x) unencumbered cash and Cash Equivalents of the Borrower and its
Subsidiaries and (y) Debt permitted pursuant to Section 9.02(g) to (B) EBITDAX
for the four fiscal quarters ending on the last day of the fiscal quarter
immediately preceding such date for which financial statements are available to
be greater than 3.0 to 1.0.
 
(b)  Ratio of Total Proved Reserve Value to Net Debt. The Borrower will not as
of any date of determination permit the ratio of (i) Total Proved Reserve Value
to (ii) (A) Total Debt less (B) the sum as of such date of (1) unencumbered cash
and Cash Equivalents of the Borrower and its Subsidiaries and (2) Debt permitted
pursuant to Section 9.02(g) to be less
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than (x) as of December 31, 2006 through December 30, 2007, 1.5 to 1.0, (y) as
of December 31, 2007 through December 30, 2008, 1.75 to 1.0 and (z) thereafter
2.0 to 1.0.
 
(c)  Interest Coverage Ratio. The Borrower will not permit the ratio, determined
as of the end of any fiscal quarter, of (i) EBITDAX for the trailing four fiscal
quarter period ending on such date, to (ii) Interest Expense for such four
fiscal quarter period to be less than (x) prior to December 31, 2007, 2.75 to
1.00, (y) on and after December 31, 2007 and prior to December 31, 2008, 3.25 to
1.00 and (z) thereafter 3.75 to 1.00.
 
Section 9.02    Debt. The Borrower will not, and will not permit any Subsidiary
to, incur, create, assume or suffer to exist any Debt, except:
 
(a)  the Notes or other Indebtedness arising under the Loan Documents or any
guaranty of or suretyship arrangement for the Notes or other Indebtedness
arising under the Loan Documents.
 
(b)  Debt under the Revolving Facility (and guarantees thereof) in an aggregate
principal amount not exceeding 40% of Total Proved Reserve Value as of the date
such Debt is incurred.
 
(c)  Debt of the Borrower and its Subsidiaries existing on the date hereof that
is reflected in the Financial Statements.
 
(d)  accounts payable and accrued expenses, liabilities or other obligations to
pay the deferred purchase price of Property or services, from time to time
incurred in the ordinary course of business which are not greater than ninety
(90) days past the date of invoice or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP.
 
(e)  Debt of the Borrower or any Subsidiary incurred to finance the acquisition,
construction or improvement of any fixed or capital assets, including
obligations under Capital Leases and any Debt assumed in connection with the
acquisition of any such assets or secured by a Lien on any such asset prior to
the acquisition thereof, and extensions, renewals and replacements of any such
Debt that do not increase the outstanding principal amount thereof; provided
that (i) such Debt is incurred prior to or within 90 days after such acquisition
or the completion of such construction or improvement and (ii) the aggregate
principal amount of Debt permitted by this clause (d) shall not exceed
$3,000,000.
 
(f)  Debt in respect of letters of credit, bank or completion guarantees,
surety, performance, warranty, bid, appeal or other bonds or guarantees and
similar instruments, in each case to the extent (x) required by Governmental
Requirements or any third Person and (y) provided in the ordinary course of
business in connection with the operation of the Oil and Gas Properties.
 
(g)  intercompany Debt between (i) the Borrower and the Parent and (ii) the
Borrower and any Subsidiary or between Subsidiaries to the extent permitted by
Section 9.05(g); provided that (1) such Debt is not held, assigned, transferred,
negotiated or pledged to any Person other than, in the case of the Parent Loan,
the Parent and otherwise, the Borrower or one
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of its Wholly-Owned Subsidiaries, (2) any such Debt owed by either the Borrower
or a Guarantor shall be subordinated to the Indebtedness on terms set forth in
the Guaranty Agreement, (3) any such Debt shall not have any scheduled
amortization prior to January 31, 2012 and (4) in the case of the Parent Loan
(x) no interest shall be payable in cash thereon and (y) no payments may be made
if a Default shall have occurred and be continuing.
 
(h)  endorsements of negotiable instruments for collection in the ordinary
course of business.
 
(i)  Debt (other than for borrowed money) incurred in the ordinary course of
business in connection with Hydrocarbon transportation, Hydrocarbon purchasing
or other similar arrangements, provided that such arrangements are disclosed to
the Administrative Agent.
 
(j)  Debt incurred in connection with vendor financing provided by Midland Pipe
Corporation and its affiliates not to exceed $15,000,000 in the aggregate at any
one time outstanding.
 
(k)  other Debt secured by Liens pari passu with the Liens securing the
Indebtedness hereunder in an aggregate principal amount at any time outstanding
not exceeding $100,000,000, provided such Debt matures no earlier than the
Maturity Date.
 
(l)  other unsecured Debt, provided at the time such Debt is incurred no Default
exists.
 
(m)  other Debt not to exceed $3,000,000 in the aggregate at any one time
outstanding.
 
Section 9.03    Liens. The Borrower will not, and will not permit any Subsidiary
to, create, incur, assume or permit to exist any Lien on any of its Properties
(now owned or hereafter acquired), except:
 
(a)  Liens securing the payment of any Indebtedness and Liens securing the
Revolving Facility and Swap Agreements with lenders under the Revolving Facility
and/or their Affiliates.
 
(b)  Excepted Liens.
 
(c)  Liens on fixed or capital assets acquired, constructed or improved by the
Borrower or any Subsidiary; provided that (i) such Liens secure Indebtedness
permitted by Section 9.02(d), (ii) such Liens and the Debt secured thereby are
incurred prior to or within 90 days after such acquisition or the completion of
such construction or improvement, (iii) the Debt secured thereby does not exceed
100% of the cost of acquiring, constructing or improving such fixed or capital
assets and (iv) such security interests shall not apply to any other property or
assets of the Borrower or any Subsidiary.
 
(d)  Liens on Property not constituting collateral for the Indebtedness and not
otherwise permitted by the foregoing clauses of this Section 9.03  ; provided
that the aggregate
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principal or face amount of all Debt secured under this Section 9.03  (d) shall
not exceed $1,000,000 at any time.
 
Section 9.04    Dividends, Distributions and Redemptions. The Borrower will not,
and will not permit any of its Subsidiaries to, declare or make, or agree to pay
or make, directly or indirectly, any Restricted Payment, return any capital or
make any distribution of its Property to its Equity Interest holders, except (a)
the Borrower may declare and pay dividends with respect to its Equity Interests
payable solely in additional shares of its Equity Interests (other than
Disqualified Capital Stock) and (b) Subsidiaries may declare and pay dividends
ratably with respect to their Equity Interests.
 
Section 9.05    Investments, Loans and Advances. The Borrower will not, and will
not permit any Subsidiary to, make or permit to remain outstanding any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:
 
(a)  Investments reflected in the Financial Statements or which are disclosed to
the Lenders in Schedule 9.05.
 
(b)  accounts receivable arising in the ordinary course of business.
 
(c)  direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of creation thereof.
 
(d)  commercial paper maturing within one year from the date of creation thereof
rated in the highest grade by S&P or Moody’s.
 
(e)  deposits maturing within one year from the date of creation thereof with,
including certificates of deposit issued by, any Lender or any office located in
the United States of any other bank or trust company which is organized under
the laws of the United States or any state thereof, has capital, surplus and
undivided profits aggregating at least $100,000,000 (as of the date of such bank
or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time,
by S&P or Moody’s, respectively.
 
(f)  deposits in money market funds investing exclusively in Investments
described in Section 9.05  (c), Section 9.05  (d) or Section 9.05  (e).
 
(g)  Investments (i) made by the Borrower in or to the Guarantors, (ii) made by
any Domestic Subsidiary in or to the Borrower or any Guarantor, and (iii) made
by the Borrower or any Guarantor in or to Foreign Subsidiaries which are not
Guarantors in an aggregate amount at any one time outstanding not to exceed
$1,500,000.
 
(h)  subject to the limits in Section 9.06, Investments (including, without
limitation, capital contributions) in general or limited partnerships or other
types of entities (each a “venture”) entered into by the Borrower or a
Subsidiary with others in the ordinary course of business; provided that (i) any
such venture is engaged exclusively in oil and gas exploration, development,
production, processing and related activities, including transportation, (ii)
the
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interest in such venture is acquired in the ordinary course of business and on
fair and reasonable terms and (iii) such venture interests acquired and capital
contributions made (valued as of the date such interest was acquired or the
contribution made) do not exceed, in the aggregate at any time outstanding an
amount equal to $2,000,000.
 
(i)  Investments in direct ownership interests in additional Oil and Gas
Properties and gas gathering systems related thereto or related to farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar arrangements which are usual and
customary in the oil and gas exploration and production business located within
the geographic boundaries of the United States of America.
 
(j)  loans or advances to employees, officers or directors in the ordinary
course of business of the Borrower or any of its Subsidiaries, in each case only
as permitted by applicable law, including Section 402 of the Sarbanes Oxley Act
of 2002, but in any event not to exceed $1,500,000 in the aggregate at any time.
 
(k)  Investments in stock, obligations or securities received in settlement of
debts arising from Investments permitted under this Section 9.05   owing to the
Borrower or any Subsidiary as a result of a bankruptcy or other insolvency
proceeding of the obligor in respect of such debts or upon the enforcement of
any Lien in favor of the Borrower or any of its Subsidiaries; provided that the
Borrower shall give the Administrative Agent prompt written notice in the event
that the aggregate amount of all Investments held at any one time under this
Section 9.05  (k) exceeds $1,500,000.
 
(l)  other Investments not to exceed $3,000,000 in the aggregate at any time.
 
Section 9.06    Nature of Business; International Operations. The Borrower will
not, and will not permit any Subsidiary to, allow any material change to be made
in the character of its business as an independent oil and gas exploration and
production company. Except as permitted by Section 9.05(g) or otherwise in an
amount not to exceed an amount of $3,000,000 per year, the Borrower and its
Subsidiaries will not acquire or make any other expenditures (whether such
expenditure is capital, operating or otherwise) in or related to, any Oil and
Gas Properties not located within the geographical boundaries of the United
States or Canada.
 
Section 9.07    Amendments to Organizational Documents. The Borrower will not,
nor will it permit any of its Subsidiaries to, enter into or permit any material
modification or amendment of, or waive any material right or obligation of any
Person under its Organizational Documents.
 
Section 9.08    Proceeds of Notes. The Borrower will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by Section 7.21.
Neither the Borrower nor any Person acting on behalf of the Borrower has taken
or will take any action which might cause any of the Loan Documents to violate
Regulations T, U or X or any other regulation of the Board or to violate Section
7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder,
in each case as now in effect or as the same may hereinafter be in effect. If
requested by the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements
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of FR Form U-1 or such other form referred to in Regulation U, Regulation T or
Regulation X of the Board, as the case may be.
 
Section 9.09    ERISA Compliance. The Borrower will not, and will not permit any
Subsidiary to, at any time:
 
(a)  engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which the Borrower, a Subsidiary or any ERISA Affiliate could be
subjected to either a civil penalty assessed pursuant to subsections (c), (i) or
(l) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D of the
Code.
 
(b)  terminate, or permit any ERISA Affiliate to terminate, any Plan in a
manner, or take any other action with respect to any Plan, which could result in
any liability of the Borrower, a Subsidiary or any ERISA Affiliate to the PBGC.
 
(c)  fail to make, or permit any ERISA Affiliate to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA
Affiliate is required to pay as contribu-tions thereto.
 
(d)  permit to exist, or allow any ERISA Affiliate to permit to exist, any
accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan.
 
(e)  permit, or allow any ERISA Affiliate to permit, the actuarial present value
of the benefit liabilities under any Plan maintained by the Borrower, a
Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to
exceed the current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such benefit
liabilities. The term “actuarial present value of the benefit liabilities” shall
have the meaning specified in section 4041 of ERISA.
 
(f)  contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to, any
Multiemployer Plan.
 
(g)  acquire, or permit any ERISA Affiliate to acquire, an interest in any
Person that causes such Person to become an ERISA Affiliate with respect to the
Borrower or a Subsidiary or with respect to any ERISA Affiliate of the Borrower
or a Subsidiary if such Person sponsors, maintains or contributes to, or at any
time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan
that is subject to Title IV of ERISA under which the actuarial present value of
the benefit liabilities under such Plan exceeds the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA) of
such Plan allocable to such benefit liabilities.
 
(h)  incur, or permit any ERISA Affiliate to incur, a liability to or on account
of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA.
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(i)  contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to, any
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities in their
sole discretion at any time without any material liability.
 
(j)  amend, or permit any ERISA Affiliate to amend, a Plan resulting in an
increase in current liability such that the Borrower, a Subsidiary or any ERISA
Affiliate is required to provide security to such Plan under section 401(a)(29)
of the Code.
 
Section 9.10    Sale or Discount of Receivables. Except for receivables obtained
by the Borrower or any Subsidiary out of the ordinary course of business or the
settlement of joint interest billing accounts in the ordinary course of business
or discounts granted to settle collection of accounts receivable or the sale of
defaulted accounts arising in the ordinary course of business in connection with
the compromise or collection thereof and not in connection with any financing
transaction, the Borrower will not, and will not permit any Subsidiary to,
discount or sell (with or without recourse) any of its notes receivable or
accounts receivable.
 
Section 9.11    Mergers, Etc. Neither the Borrower nor any of its Subsidiaries
will merge into or with or consolidate with any other Person, or liquidate,
dissolve, sell, lease or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its Property to any other
Person, except that any Wholly-Owned Subsidiary may merge with any other
Wholly-Owned Subsidiary and that the Borrower may merge with any Wholly-Owned
Subsidiary so long as the Borrower is the survivor.
 
Section 9.12    Sale of Properties. The Borrower will not, and will not permit
any Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any
Property except for (a) the sale of Hydrocarbons in the ordinary course of
business; (b) farmouts in the ordinary course of business of undeveloped acreage
or undrilled depths and assignments in connection with such farmouts; (c) the
sale or transfer of equipment that is no longer necessary for the business of
the Borrower or such Subsidiary or is replaced by equipment of at least
comparable value and use; (d) the sale or other disposition (including Casualty
Events) of any Oil and Gas Property or any interest therein or any Subsidiary
owning Oil and Gas Properties; provided that (i) 100% of the consideration
received in respect of such sale or other disposition shall be cash, (ii) the
consideration received in respect of such sale or other disposition shall be
equal to or greater than the fair market value of the Oil and Gas Property,
interest therein or Subsidiary subject of such sale or other disposition (and if
requested by the Administrative Agent, the Borrower shall deliver a certificate
of a Responsible Officer of the Borrower certifying to that effect), and (iii)
if any such sale or other disposition is of a Subsidiary owning Oil and Gas
Properties, such sale or other disposition shall include all the Equity
Interests of such Subsidiary; and (e) sales and other dispositions of Properties
not regulated by Section 9.12(a) to (d) having a fair market value not to exceed
$2,000,000 during any 12-month period. If the Borrower or any Subsidiary shall
sell or otherwise dispose of any Oil and Gas Property included in the
calculation of PV, then until PV is recalculated in accordance herewith, PV and
Total Proved Reserve Value as then in effect shall be reduced to reflect the PV
of the Oil and Gas Property so sold or disposed of.

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Section 9.13    Environmental Matter. The Borrower will not, and will not permit
any Subsidiary to, cause or permit any of its Property to be in violation of, or
do anything or permit anything to be done which will subject any such Property
to any Remedial Work under any Environmental Laws, assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations could reasonably be expected to have a Material Adverse
Effect.
 
Section 9.14    Transactions with Affiliates. The Borrower will not, and will
not permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Wholly-Owned Subsidiaries of
the Borrower and FM Services, Inc.) unless such transactions are (i) otherwise
permitted under this Agreement, (ii) are upon fair and reasonable terms no less
favorable to the Borrower or its Subsidiaries than it would obtain in a
comparable arm’s length transaction with a Person not an Affiliate and, (iii) in
the case of any such transaction for an aggregate consideration in excess of
$15,000,000 in cash or fair market value, the fairness of such transaction to
the Borrower or such Subsidiary, as the case may be, is confirmed by a reputable
independent bank or other recognized valuation expert; provided that clause
(iii) of this Section 9.14 shall not apply to any exploration, drilling or other
joint venture entered into by the Borrower or any Subsidiary in the ordinary
course of business.
 
Section 9.15    Subsidiaries. The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiaries unless the Borrower
gives written notice to the Administrative Agent of such creation or acquisition
and complies with Section 8.14  (a) and Section 8.14(c). The Borrower shall not,
and shall not permit any Subsidiary to, sell, assign or otherwise dispose of any
Equity Interests in any Subsidiary except in compliance with Section 9.12(d).
 
Section 9.16    Negative Pledge Agreements; Dividend Restrictions. The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or suffer
to exist any contract, agreement or understanding (other than this Agreement,
the Revolving Facility Documents, the Security Instruments or Capital Leases
creating Liens permitted by Section 9.03  (c) and (d)) which in any way
prohibits or restricts the granting, conveying, creation or imposition of any
Lien on any of its Property in favor of the Administrative Agent and the Lenders
or restricts any Subsidiary from paying dividends or making distributions to the
Borrower or any Guarantor, or which requires the consent of or notice to other
Persons in connection therewith.
 
Section 9.17    Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower
will not, and will not permit any Subsidiary to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
the Borrower or any of its Subsidiaries that would require the Borrower or such
Subsidiary to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor to exceed 500,000 Mcf of gas (on an
Mcf equivalent basis) in the aggregate.
 
Section 9.18    Swap Agreements. The Borrower will not, and will not permit any
Subsidiary to, enter into any Swap Agreements with any Person other than (a)
Swap Agreements in respect of commodities the notional volumes for which (when
aggregated with other
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commodity Swap Agreements then in effect other than basis differential swaps on
volumes already hedged pursuant to other Swap Agreements) do not exceed, as of
the date such Swap Agreement is executed, 60% of the reasonably anticipated
projected production from proved, developed, producing Oil and Gas Properties
for each month during the period during which such Swap Agreement is in effect
for each of crude oil and natural gas, calculated separately, and (b) Swap
Agreements in respect of interest rates which effectively convert interest rates
from floating to fixed, the notional amounts of which (when aggregated with all
other Swap Agreements of the Borrower and its Subsidiaries then in effect
effectively converting interest rates from floating to fixed) do not exceed 75%
of the then outstanding principal amount of the Borrower’s Debt for borrowed
money which bears interest at a floating rate. Except for any Swap Agreement
entered into with a lender under the Revolving Credit Agreement or an Affiliate
of such a lender, in no event shall any Swap Agreement contain any requirement,
agreement or covenant for the Borrower or any Subsidiary to post collateral or
margin to secure their obligations under such Swap Agreement or to cover market
exposures.
 
Section 9.19    Optional Payments and Modifications of Certain Debt Instruments.
The Borrower will not (a) make or offer to make any optional or voluntary
payment, prepayment, repurchase or redemption of or otherwise optionally or
voluntarily defease or segregate funds with respect to any Debt of the Credit
Parties (other than in connection with (i) the prepayment of the Revolving
Facility, (ii) prepayment of Indebtedness under this Agreement, (iii) prepayment
of Debt permitted pursuant to Section 9.02(k), provided that simultaneously
therewith the Borrower shall prepay the Loans ratably with such Debt, and (iv)
prepayments of Debt (other than the Parent Loan) in an aggregate amount not to
exceed $10,000,000) or (b) amend, modify, waive or otherwise change, or consent
or agree to any amendment, modification, waiver or other change to, any of the
terms of any Debt (other than the Revolving Facility) of the Credit Parties
(other than any such amendment, modification, waiver or other change that (i)
would extend the maturity or reduce the amount of any payment of principal
thereof or reduce the rate or extend any date for payment of interest thereon
and (ii) does not involve the payment of a consent fee).
 
ARTICLE X  
Events of Default; Remedies
 
Section 10.01    Events of Default. One or more of the following events shall
constitute an “Event of Default”:
 
(a)  the Borrower shall fail to pay any principal of any Loan when and as the
same shall become due and payable, whether at the due date thereof or at a date
fixed for prepayment thereof, by acceleration or otherwise.
 
(b)  the Borrower shall fail to pay any interest on any Loan or any fee or any
other amount (other than an amount referred to in Section 10.01  (a)) payable
under any Loan Document, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of three (3) Business Days.
 
(c)  any representation or warranty made or deemed made by or on behalf of the
Parent, the Borrower or any Subsidiary in or in connection with any Loan
Document or any
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amendment or modification of any Loan Document or waiver under such Loan
Document, or in any report, certificate, financial statement or other document
furnished pursuant to or in connection with any Loan Document or any amendment
or modification thereof or waiver thereunder, shall prove to have been incorrect
when made or deemed made.
 
(d)  the Parent, the Borrower or any Subsidiary shall fail to observe or perform
any covenant, condition or agreement contained in Section 8.01(j), Section
8.01  (m), Section 8.02  , Section 8.03  , Section 8.14 or in ARTICLE IX.
 
(e)  the Parent, the Borrower or any Subsidiary shall fail to observe or perform
any covenant, condition or agreement contained in this Agreement (other than
those specified in Section 10.01  (a), Section 10.01  (b) or Section 10.01  (d))
or any other Loan Document, and such failure shall continue unremedied for a
period of 30 days after the earlier to occur of (A) notice thereof from the
Administrative Agent to the Borrower (which notice will be given at the request
of any Lender) or (B) a Responsible Officer of the Borrower or such Subsidiary
otherwise becoming aware of such default.
 
(f)  the Borrower or any Guarantor shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable, provided that
this clause (f) shall not apply to Indebtedness under the Revolving Facility
unless the holder or holders of any Indebtedness under the Revolving Facility or
any trustee or agent on its or their behalf have caused such Indebtedness to
become due prior to its scheduled maturity.
 
(g)  any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits
(following any applicable grace period and notice) the holder or holders of any
Material Indebtedness or any trustee or agent on its or their behalf to cause
any Material Indebtedness to become due, or to require the Redemption thereof or
any offer to Redeem to be made in respect thereof, prior to its scheduled
maturity or require the Parent, the Borrower or any Subsidiary to make an offer
in respect thereof, provided that this clause (g) does not apply to Indebtedness
under the Revolving Facility unless the holder or holders of any Indebtedness
under the Revolving Facility or any trustee or agent on its or their behalf have
caused such Indebtedness to become due prior to its scheduled maturity.
 
(h)  an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Parent, the Borrower or any Subsidiary or its debts, or of a
substantial part of its assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Parent, the Borrower or any Subsidiary or for a
substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for thirty (30) days or an order or decree
approving or ordering any of the foregoing shall be entered.
 
(i)  the Parent, the Borrower or any Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in
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effect, (ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in Section 10.01  (h),
(iii) apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any Subsidiary
or for a substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors or (vi) take any action
for the purpose of effecting any of the foregoing; or any stockholder of the
Parent shall make any request or take any action for the purpose of calling a
meeting of the stockholders of the Parent to consider a resolution to dissolve
and wind up the Parent’s affairs.
 
(j)  the Parent, the Borrower or any Subsidiary shall become unable, admit in
writing its inability or fail generally to pay its debts as they become due.
 
(k)  (i) one or more judgments for the payment of money in an aggregate amount
in excess of $1,500,000 (to the extent not covered by independent third party
insurance provided by insurers of the highest claims paying rating or financial
strength as to which the insurer does not dispute coverage and is not subject to
an insolvency proceeding) or (ii) any one or more non-monetary judgments that
have, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, shall be rendered against the Parent, the Borrower,
any Subsidiary or any combination thereof and the same shall remain undischarged
for a period of 30 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to attach or levy upon any assets of the Parent, the Borrower or any Subsidiary
to enforce any such judgment.
 
(l)  the Loan Documents after delivery thereof shall for any reason, except to
the extent permitted by the terms thereof, cease to be in full force and effect
and valid, binding and enforceable in accordance with their terms against the
Borrower or a Guarantor party thereto or shall be repudiated by any of them, or
cease to create a valid and perfected Lien of the priority required thereby on
any of the collateral purported to be covered thereby, except to the extent
permitted by the terms of this Agreement, or the Borrower or any Subsidiary or
any of their Affiliates shall so state in writing.
 
(m)  an ERISA Event shall have occurred that, in the opinion of the Majority
Lenders, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in liability of the Borrower and its
Subsidiaries in an aggregate amount exceeding $1,500,000 in any year.
 
(n)  a Change in Control shall occur.
 
Section 10.02    Remedies.
 
(a)  In the case of an Event of Default other than one described in Section
10.01  (h), Section 10.01  (i) or Section 10.01  (j), at any time thereafter
during the continuance of such Event of Default, the Administrative Agent may,
and at the request of the Majority Lenders, shall, by notice to the Borrower,
take either or both of the following actions, at the same or different times:
declare the Notes and the Loans then outstanding to be due and payable in whole
(or in part, in which case any principal not so declared to be due and payable
may
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thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower and the Guarantors
accrued hereunder and under the Notes and the other Loan Documents shall become
due and payable immediately, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other notice of any kind, all of
which are hereby waived by the Borrower and each Guarantor; and in case of an
Event of Default described in Section 10.01  (h), Section 10.01  (i) or Section
10.01  (j), the Notes and the principal of the Loans then outstanding, together
with accrued interest thereon and all fees and the other obligations of the
Borrower and the Guarantors accrued hereunder and under the Notes and the other
Loan Documents, shall automatically become due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower and each Guarantor.
 
(b)  In the case of the occurrence of an Event of Default, the Administrative
Agent and the Lenders will have all other rights and remedies available at law
and equity.
 
(c)  Subject to the provisions of the Intercreditor Agreement, all proceeds
realized from the liquidation or other disposition of collateral or otherwise
received after maturity of the Notes, whether by acceleration or otherwise,
shall be applied:
 
(i)  first, to payment or reimbursement of that portion of the Indebtedness
constituting fees, expenses and indemnities payable to the Administrative Agent
in its capacity as such;
 
(ii)  second, pro rata to payment or reimbursement of that portion of the
Indebtedness constituting fees, expenses and indemnities payable to the Lenders;
 
(iii)  third, pro rata to payment of accrued interest on the Loans;
 
(iv)  fourth, pro rata to payment of principal outstanding on the Loans;
 
(v)  fifth, pro rata to any other Indebtedness; and
 
(vi)  sixth, any excess, after all of the Indebtedness shall have been
indefeasibly paid in full in cash, shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.
 
ARTICLE XI  
The Administrative Agent
 
(a)  Appointment; Powers. Each of the Lenders hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof and the other Loan Documents,
together with such actions and powers as are reasonably incidental thereto.
 
Section 11.02    Duties and Obligations of Administrative Agent. The
Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan
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Documents. Without limiting the generality of the foregoing, (a) the
Administrative Agent shall not be subject to any fiduciary or other implied
duties, regardless of whether a Default has occurred and is continuing (the use
of the term “agent” herein and in the other Loan Documents with reference to the
Administrative Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law;
rather, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties), (b) the Administrative Agent shall have no duty to take
any discretionary action or exercise any discretionary powers, except as
provided in Section 11.03  , and (c) except as expressly set forth herein, the
Administrative Agent shall not have any duty to disclose, and shall not be
liable for the failure to disclose, any information relating to the Borrower or
any of its Subsidiaries that is communicated to or obtained by the bank serving
as Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative Agent by the
Borrower or a Lender, and shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with this Agreement or any other Loan Document, (ii) the
contents of any certificate, report or other document delivered hereunder or
under any other Loan Document or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein or in any other Loan Document, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Loan
Document or any other agreement, instrument or document, (v) the satisfaction of
any condition set forth in ARTICLE VI or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative Agent
or as to those conditions precedent expressly required to be to the
Administrative Agent’s satisfaction, (vi) the existence, value, perfection or
priority of any collateral security or the financial or other condition of the
Borrower and its Subsidiaries or any other obligor or guarantor, or (vii) any
failure by the Borrower or any other Person (other than itself) to perform any
of its obligations hereunder or under any other Loan Document or the performance
or observance of any covenants, agreements or other terms or conditions set
forth herein or therein. For purposes of determining compliance with the
conditions specified in ARTICLE VI, each Lender shall be deemed to have
consented to, approved or accepted or to be satisfied with, each document or
other matter required thereunder to be consented to or approved by or acceptable
or satisfactory to a Lender unless the Administrative Agent shall have received
written notice from such Lender prior to the proposed closing date specifying
its objection thereto.
 
Section 11.03    Action by Administrative Agent. The Administrative Agent shall
have no duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Majority Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02  ) and in all cases the Administrative Agent shall be
fully justified in failing or refusing to act hereunder or under any other Loan
Documents unless it shall (a) receive written instructions from the Majority
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 12.02  ) specifying the action to
be taken and (b) be indemnified to its satisfaction by the Lenders against any
and all liability and expenses which may be incurred by it by reason of taking
or continuing to take any
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such action. The instructions as aforesaid and any action taken or failure to
act pursuant thereto by the Administrative Agent shall be binding on all of the
Lenders. If a Default has occurred and is continuing, then the Administrative
Agent shall take such action with respect to such Default as shall be directed
by the requisite Lenders in the written instructions (with indemnities)
described in this Section 11.03  , provided that, unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders. In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement, the Loan Documents or applicable law. If a Default has occurred and
is continuing, the Syndication Agent shall have no obligation to perform any act
in respect thereof. No Agent shall not be liable for any action taken or not
taken by it with the consent or at the request of the Majority Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02  ), and otherwise no Agent shall be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.
 
Section 11.04    Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Borrower and the Lenders hereby waives the right to dispute the Administrative
Agent’s record of such statement, except in the case of gross negligence or
willful misconduct by the Administrative Agent. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts. The Administrative Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof unless and until
a written notice of the assignment or transfer thereof permitted hereunder shall
have been filed with the Administrative Agent.
 
Section 11.05    Subagents. The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties. The exculpatory provisions
of the preceding Sections of this ARTICLE XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
 
Section 11.06    Resignation or Removal of Administrative Agent. Subject to the
appointment and acceptance of a successor Agent as provided in this Section
11.06  , any Agent may resign at any time by notifying the Lenders and the
Borrower, and any Agent may be removed at any time with or without cause by the
Majority Lenders. Upon any such resignation
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or removal, the Majority Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring Agent gives notice of its resignation or removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent. Upon the acceptance of its appointment as Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Agent’s resignation hereunder, the provisions of this
ARTICLE XI and Section 12.03  shall continue in effect for the benefit of such
retiring Agent, its sub-agents and their respective Related Parties in respect
of any actions taken or omitted to be taken by any of them while it was acting
as Agent.
 
Section 11.07    Agents as Lenders. Each bank serving as an Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not an Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not an Agent hereunder.
 
Section 11.08    No Reliance. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent, any other
Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement and each other Loan Document to which it is a party. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent, any other Agent or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any other Loan Document, any related agreement or any
document furnished hereunder or thereunder. The Agents shall not be required to
keep themselves informed as to the performance or observance by the Borrower or
any of its Subsidiaries of this Agreement, the Loan Documents or any other
document referred to or provided for herein or to inspect the Properties or
books of the Borrower or its Subsidiaries. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder, no Agent or the Arranger shall have any duty
or responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of such Agent or any of
its Affiliates. In this regard, each Lender acknowledges that Simpson Thacher &
Bartlett LLP is acting in this transaction as special counsel to the
Administrative Agent only, except to the extent otherwise expressly stated in
any legal opinion or any Loan Document. Each other party hereto will consult
with its own legal counsel to the extent that it deems necessary in connection
with the Loan Documents and the matters contemplated therein.
 
Section 11.09    Administrative Agent May File Proofs of Claim.
 
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Borrower or
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any of its Subsidiaries, the Administrative Agent (irrespective of whether the
principal of any Loan shall then be due and payable as herein expressed or by
declaration or otherwise and irrespective of whether the Administrative Agent
shall have made any demand on the Borrower) shall be entitled and empowered, by
intervention in such proceeding or otherwise:
 
(a)  to file and prove a claim for the whole amount of the principal and
interest owing and unpaid in respect of the Loans and all other Indebtedness
that are owing and unpaid and to file such other documents as may be necessary
or advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03  ) allowed in such judicial proceeding;
and
 
(b)  to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;
 
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03  .
 
Nothing contained herein shall be deemed to authorize the Administrative Agent
to authorize or consent to or accept or adopt on behalf of any Lender any plan
of reorganization, arrangement, adjustment or composition affecting the
Indebtedness or the rights of any Lender or to authorize the Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.
 
Section 11.10    Authority of Administrative Agent to Release Collateral and
Liens. Each Lender hereby authorizes the Administrative Agent to release any
collateral that is permitted to be sold or released pursuant to the terms of the
Loan Documents. Each Lender hereby authorizes the Administrative Agent to
execute and deliver to the Borrower, at the Borrower’s sole cost and expense,
any and all releases of Liens, termination statements, assignments or other
documents reasonably requested by the Borrower in connection with any sale or
other disposition of Property to the extent such sale or other disposition is
permitted by the terms of Section 9.10 or is otherwise authorized by the terms
of the Loan Documents.
 
Section 11.11    The Arrangers and the Syndication Agent. The Arrangers and the
Syndication Agent shall have no duties, responsibilities or liabilities under
this Agreement and the other Loan Documents other than their duties,
responsibilities and liabilities in their capacity as Lenders hereunder.
 
ARTICLE XII  
Miscellaneous
 
Section 12.01    Notices.

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(a)  Except in the case of notices and other communications expressly permitted
to be given by telephone (and subject to Section 12.01  (b)), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
 
(i)  if to the Borrower, to it at 1615 Poydras Street, New Orleans, Louisiana
70112, Attention of Kathleen Quirk (Telecopy No. (504) 582-4511);
 
(ii)  if to the Administrative Agent, to it at 10 South Dearborn, Fl 19,
IL1-0010, Chicago, Illinois 60603, Attention of Loan and Agency Services,
Attention of Leonida Mischke (Telecopy No. (312) 385-7096), with a copy to 712
Main Street, 8th Floor South, Houston, Texas 77002, Attention of Lisa Miller
(Telecopy No. (713) 750-2666), and for all other correspondence other than
borrowings, continuation and conversion requests 712 Main Street, 8th Floor
South, Houston, Texas 77002, Attention of Ronald Dierker (Telecopy No. (713)
216-7770), with a copy to 712 Main Street, 12th Floor, Houston, Texas 77002,
Attention of Robert C. Mertensotto (Telecopy No. (713) 216-8870);
 
(iii)  if to any other Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
 
(b)  Notices and other communications to the Lenders hereunder may be delivered
or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices
pursuant to ARTICLE II, ARTICLE III, ARTICLE IV and ARTICLE V unless otherwise
agreed by the Administrative Agent and the applicable Lender. The Administrative
Agent or the Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.
 
(c)  Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
 
Section 12.02    Waivers; Amendments.
 
(a)   No failure on the part of the Administrative Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege, or any abandonment or discontinuance of steps to
enforce such right, power or privilege, under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies of the Administrative Agent and the Lenders hereunder
and under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or any other Loan Document or consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be
permitted by Section 12.02(b), and then such waiver or consent
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shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan
shall not be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
 
(b)  Neither this Agreement nor any provision hereof nor any Security Instrument
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Majority Lenders or by the Borrower and the Administrative Agent with the
consent of the Majority Lenders; provided that no such agreement shall (i)
reduce the principal amount of any Loan or reduce the rate of interest thereon,
or reduce any fees payable hereunder, or reduce any other Indebtedness hereunder
or under any other Loan Document, without the written consent of each Lender
affected thereby, (ii) postpone the scheduled date of payment or prepayment of
the principal amount of any Loan or any interest thereon, or any fees payable
hereunder, or any other Indebtedness hereunder or under any other Loan Document,
or reduce the amount of, waive or excuse any such payment, or postpone the
Maturity Date, without the written consent of each Lender affected thereby,
(iii) change Section 4.01  (b) or Section 4.01  (c) in a manner that would alter
the pro rata sharing of payments required thereby, without the written consent
of each Lender, (iv) waive or amend Section 3.04  (c), Section 6.01  , Section
8.14   or Section 10.02  (c) or change the definition of the terms “Domestic
Subsidiary”, “Foreign Subsidiary”, or “Subsidiary”, without the written consent
of each Lender, (v) release any Guarantor (except as set forth in the Guaranty
Agreement), release any of the collateral (other than as provided in Section
11.10  ), or reduce the percentage set forth in Section 8.13(b) to less than
90%, without the written consent of each Lender, (vi) change any of the
provisions of this Section or the definition of “Majority Lenders” or any other
provision hereof specifying the number or percentage of Lenders required to
waive, amend or modify any rights hereunder or under any other Loan Documents or
make any determination or grant any consent hereunder or any other Loan
Documents, without the written consent of each Lender or (vii) waive any
prepayment penalty, without the written consent of each Lender; provided further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent or any other Agent hereunder or under any
other Loan Document without the prior written consent of the Administrative
Agent or other such Agent, as the case may be. Notwithstanding the foregoing,
any supplement to Schedule 7.14 (Subsidiaries) shall be effective simply by
delivering to the Administrative Agent a supplemental schedule clearly marked as
such and, upon receipt, the Administrative Agent will promptly deliver a copy
thereof to the Lenders.
 
Notwithstanding the foregoing, this Agreement may be amended (or amended and
restated) with the written consent of the Majority Lenders, the Agent and the
Borrower (a) to add one or more additional credit facilities to this Agreement
and to permit the extensions of credit from time to time outstanding thereunder
and the accrued interest and fees in respect thereof to share ratably in the
benefits of this Agreement and the other Loan Documents with the Loans and (b)
to include appropriately the Lenders holding such credit facilities in any
determination of the Majority Lenders.
 
In addition, notwithstanding the foregoing, this Agreement may be amended with
the written consent of the Agent, the Borrower and the Lenders providing the
relevant Replacement Loans (as defined below) to permit the refinancing,
replacement or modification of all
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outstanding Loans (“Replaced Loans”) with a replacement term loan tranche
hereunder (“Replacement Loans”), provided that (a) the aggregate principal
amount of such Replacement Loans shall not exceed the sum of (i) the aggregate
principal amount of such Replaced Loans and (ii) accrued and unpaid fees,
expenses and premiums in respect of such Replaced Loans, (b) the Applicable
Margin for such Replacement Loans shall not be higher than the Applicable Margin
for such Replaced Loans and (c) the weighted average life to maturity of such
Replacement Loans shall not be shorter than the weighted average life to
maturity of such Replaced Loans at the time of such refinancing.
 
Section 12.03    Expenses, Indemnity; Damage Waiver.
 
(a)  The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred
by the Administrative Agent and its Affiliates, including the reasonable fees,
charges and disbursements of counsel for the Administrative Agent, in connection
with the syndication of the credit facilities provided for herein, the
preparation and administration of this Agreement and the other Loan Documents or
any amendments, modifications or waivers of the provisions hereof (whether or
not the transactions contemplated hereby or thereby shall be consummated) and
(ii) all out-of-pocket expenses incurred by the Administrative Agent or any
Lender, including the fees, charges and disbursements of any counsel for the
Administrative Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with the Loan Documents, including its
rights under this Section, or in connection with the Loans made hereunder,
including all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans.
 
(b)  THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH LENDER, AND
EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING
CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND
ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE
FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY
OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A
RESULT OF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY AGREEMENT OR
INSTRUMENT CONTEMPLATED HEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR
RESPECTIVE OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS OR ANY
OTHER TRANSACTIONS CONTEMPLATED HEREBY, (II)  ANY ACTUAL OR ALLEGED PRESENCE OR
RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE
BORROWER OR ANY SUBSIDIARY, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO
THE BORROWER OR ANY SUBSIDIARY, OR (III) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO
ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO
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HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH
INDEMNITEE, ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE DIRECTORS AND
EMPLOYEES.
 
(c)  To the extent that any Credit Party fails to pay any amount required to be
paid by it to the Administrative Agent under paragraph (a) or (b) of this
Section, each Lender severally agrees to pay to the Administrative Agent, such
Lender’s Applicable Percentage (in each case, determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount; provided that the unreimbursed expense or indemnified loss, claim,
damage, liability or related expense, as the case may be, was incurred by or
asserted against the Administrative Agent in its capacity as such.
 
(d)  TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE CREDIT PARTIES SHALL
NOT ASSERT, AND HEREBY WAIVE, ANY CLAIM AGAINST ANY INDEMNITEE, ON ANY THEORY OF
LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED
TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT
OF, THIS AGREEMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY, THE
TRANSACTIONS, ANY LOAN OR THE USE OF THE PROCEEDS THEREOF.
 
(e)  All amounts due under this Section shall be payable not later than 10 days
after written demand therefor.
 
Section 12.04    Successors and Assigns.
 
(a)  The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void) and (ii) no Lender may assign or
otherwise transfer its rights or obligations hereunder except in accordance with
this Section 12.03  (a). Nothing in this Agreement, expressed or implied, shall
be construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby, Participants (to the extent
provided in Section 12.04  (c)) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.
 
(b)  (i) Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of the Loans at the
time owing to it) with the prior written consent (such consent not to be
unreasonably withheld) of:
 
(A)  the Borrower, provided that no consent of the Borrower shall be required
for an assignment to a Lender, an Affiliate of a Lender, a Federal Reserve Bank,
an Approved Fund or, if an Event of Default has occurred and is continuing, any
other assignee; an

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(B)  the Administrative Agent, provided that no consent of the Agent shall be
required for an assignment of all or any portion of a Loan to a Lender, an
affiliate of a Lender or an Approved Fund; and
 
(ii)  Assignments shall be subject to the following additional conditions: 
 
(A)  except in the case of an assignment to a Lender, an affiliate of a Lender
or an Approved Fund or an assignment of the entire remaining amount of the
assigning Lender’s Loans, the amount of the Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Assumption with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $1,000,000 unless each of the Borrower and the
Agent otherwise consent, provided that (1) no such consent of the Borrower shall
be required if an Event of Default has occurred and is continuing and (2) such
amounts shall be aggregated in respect of each Lender and its affiliates or
Approved Funds, if any;
 
(B)  each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender’s rights and obligations under this Agreement;
 
(C)  the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500 (except that no such processing and recordation
fee shall be payable in the case of an assignee which is an Affiliate or an
Approved Fund); and
 
(D)  the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire.
 
For the purposes of this Section 12.04(b), the term “Approved Fund” has the
following meaning:
 
“Approved Fund” means any Person (other than a natural person) that is engaged
in making, purchasing, holding or investing in bank loans and similar extensions
of credit in the ordinary course of its business and that is administered or
managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an
Affiliate of an entity that administers or manages a Lender.
 
(iii)  Subject to Section 12.04  (b)(iv) and the acceptance and recording
thereof, from and after the effective date specified in each Assignment and
Assumption the assignee thereunder shall be a party hereto and, to the extent of
the interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Section
5.01  , Section 5.02  , Section 5.03   and Section 12.03  ). Any assignment or
transfer by a Lender of rights or obligations under this Agreement that does not
comply with this Section 12.03 (a) shall be treated for purposes of this
Agreement as a sale
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by such Lender of a participation in such rights and obligations in accordance
with Section 12.04 (c).
 
(iv)  The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the principal amount of the Loans owing to, each
Lender pursuant to the terms hereof from time to time (the “Register”). The
entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower and any Lender, at
any reasonable time and from time to time upon reasonable prior notice. 
 
(v)  Upon its receipt of a duly completed Assignment and Assumption executed by
an assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire and, if required hereunder, applicable tax forms (unless the
assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in Section 12.04  (b) and any written consent to such assignment
required by Section 12.04  (b), the Administrative Agent shall accept such
Assignment and Assumption and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this Section 12.04  (b).
 
(c)  (i)Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a “Participant”) in all or a portion of such Lender’s rights and obligations
under this Agreement (including all or a portion of the Loans owing to it);
provided that (A) such Lender’s obligations under this Agreement shall remain
unchanged, (B) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (C) the Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the proviso to Section 12.02  (b) that affects such Participant. In
addition such agreement must provide that the Participant be bound by the
provisions of Section 12.03. Subject to Section 12.04 (c)(ii), the Borrower
agrees that each Participant shall be entitled to the benefits of Section
5.01  , Section 5.02   and Section 5.03   to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to Section
12.04  (b). To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 12.08   as though it were a Lender, provided
such Participant agrees to be subject to Section 4.01 (c) as though it were a
Lender.
 
(ii) A Participant shall not be entitled to receive any greater payment under
Section 5.01   or Section 5.03   than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the
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participation to such Participant is made with the Borrower’s prior written
consent. A Participant that would be a Foreign Lender if it were a Lender shall
not be entitled to the benefits of Section 5.03   unless the Borrower is
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 5.03  (e) as
though it were a Lender.
 
(d)  Any Lender may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement to secure obligations of such
Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 12.04  (d) shall not
apply to any such pledge or assignment of a security interest; provided that no
such pledge or assignment of a security interest shall release a Lender from any
of its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.
 
(e)  Notwithstanding any other provisions of this Section 12.03  (a), no
transfer or assignment of the interests or obligations of any Lender or any
grant of participations therein shall be permitted if such transfer, assignment
or grant would require the Borrower and the Guarantors to file a registration
statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any
state.
 
Section 12.05    Survival; Revival; Reinstatement.
 
(a)  All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of the
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent, any other Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid. The provisions of Section 5.01  , Section
5.02  , Section 5.03   and Section 12.03   and ARTICLE XI shall survive and
remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans or the termination
of this Agreement, any other Loan Document or any provision hereof or thereof.
 
Section 12.06    Counterparts; Integration; Effectiveness.
 
(a)  This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.
 
(b)  This Agreement, the other Loan Documents and any separate letter agreements
with respect to fees payable to the Administrative Agent constitute the entire
contract among the parties relating to the subject matter hereof and thereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof and
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thereof. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
 
(c)  Except as provided in Section 6.01, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
 
Section 12.07    Severability. Any provision of this Agreement or any other Loan
Document held to be invalid, illegal or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
 
Section 12.08    Right of Setoff. If an Event of Default shall have occurred and
be continuing, each Lender and each of its Affiliates is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations (of whatsoever
kind, including, without limitations obligations under Swap Agreements) at any
time owing by such Lender or Affiliate to or for the credit or the account of
the Borrower or any Subsidiary against any of and all the obligations of the
Borrower or any Subsidiary owed to such Lender now or hereafter existing under
this Agreement or any other Loan Document, irrespective of whether or not such
Lender shall have made any demand under this Agreement or any other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section 12.08   are in addition to other rights and remedies
(including other rights of setoff) which such Lender or its Affiliates may have.
 
Section 12.09    GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
 
(a)  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
 
(b)  EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR
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RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR,
TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES
HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY
RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST ANY CREDIT PARTY OR
ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
 
(c)  EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN
PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
 
(d)  EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN
THE MANNER PROVIDED FOR NOTICES IN SECTION 12.01. NOTHING IN THIS AGREEMENT WILL
AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.
 
(e)  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
 
Section 12.10    Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.

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Section 12.11    Confidentiality. Each of the Administrative Agent and the
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement or any other Loan Document, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any suit,
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section 12.11  to
(i) any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or (ii)
any actual or prospective counterparty (or its advisors) to any Swap Agreement
relating to the Borrower and its obligations, (g) with the consent of the
Borrower or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section 12.11   or (ii) becomes
available to the Administrative Agent or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section 12.11  ,
“Information” means all information received from the Borrower or any Subsidiary
relating to the Borrower or any Subsidiary and their businesses, other than any
such information that is available to the Administrative Agent or any Lender on
a nonconfidential basis prior to disclosure by the Borrower or a Subsidiary;
provided that, in the case of information received from the Borrower or any
Subsidiary after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section 12.11   shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
 
Each Lender acknowledges that information furnished to it pursuant to this
Agreement or the other Loan Documents may include material non-public
information concerning the Borrower and its Affiliates and their related parties
or their respective securities, and confirms that it has developed compliance
procedures regarding the use of material non-public information and that it will
handle such material non-public information in accordance with those procedures
and applicable law, including Federal and state securities laws.
 
All information, including requests for waivers and amendments, furnished by the
Borrower or the Administrative Agent pursuant to, or in the course of
administering, this Agreement or the other Loan Documents will be
syndicate-level information, which may contain material non-public information
about the Borrower and its Affiliates and their related parties or their
respective securities. Accordingly, each Lender represents to the Borrower and
the Administrative Agent that it has identified in its administrative
questionnaire a credit contact who may receive information that may contain
material non-public information in accordance with its compliance procedures and
applicable law, including Federal and state securities laws.
 
Section 12.12    EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT
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AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND
KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT
HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS
BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF
THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE
BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE
PROVISION IS NOT “CONSPICUOUS.”
 
Section 12.13    No Third Party Beneficiaries. This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans hereunder are solely
for the benefit of the Borrower, and no other Person (including, without
limitation, any Subsidiary of the Borrower, any obligor, contractor,
subcontractor, supplier or materialsman) shall have any rights, claims, remedies
or privileges hereunder or under any other Loan Document against the
Administrative Agent, any other Agent or any Lender for any reason whatsoever.
There are no third party beneficiaries.
 
Section 12.14    USA Patriot Act Notice. Each Lender hereby notifies each Credit
Party that pursuant to the requirements of the USA Patriot Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required
to obtain, verify and record information that identifies each Credit Party which
information includes the name and address of each Credit Party and other
information that will allow such Lender to identify the each Credit Party in
accordance with the Act.
 
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The parties hereto have caused this Agreement to be duly executed as of the day
and year first above written.
 
BORROWER:                                                                                       
MCMORAN OIL & GAS LLC
 
By: _________________________     
Name:
Title:

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ADMINISTRATIVE
AGENT:                                                            JPMORGAN CHASE
BANK, N.A.,
as Administrative Agent
 

By: _____________________________
Name:  
Title:  

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SYNDICATION
AGENT:                                                                   TD
SECURITIES (USA) LLC,
as Syndication Agent
 

By:__________________________
Name:  
Title:  

 

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LENDER:                                                                                              
JPMORGAN CHASE BANK, N.A., as a
Lender

By: ________________________________ 
Name: 
Title:
 

TORONTO DOMINION (TEXAS) LLC
Lender

By: __________________________________    
Name: 
Title:
 

 

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