Document:

Reimbursement Agreement

    
      
        

      

      REIMBURSEMENT
        AGREEMENT

       

      THIS
        REIMBURSEMENT AGREEMENT dated as of April 19, 2006 (the “Agreement”),
        is
        entered by and between SUNRISE COAL, LLC, a Indiana limited liability company
        (“Sunrise
        Coal”),
        and
        HALLADOR PETROLEUM COMPANY, a Colorado corporation (“Hallador
        Petroleum”).

       

      RECITALS

       

      A. Sunrise
        Coal, as borrower, and OLD NATIONAL BANK, as lender (“Bank”),
        have
        entered into a Credit Agreement, dated as of the date hereof (the “Credit
        Agreement”),
        which
        provides for, among other things, certain loans (“Loans”) to be made by Bank to
        Sunrise Coal. To induce Bank to enter into the Credit Agreement and provide
        the
        Loans to Sunrise Coal, Hallador Petroleum has agreed to provide a Continuing
        Guaranty in favor of Bank in the form of Exhibit “A” attached hereto (the
“Guaranty”).

       

      B. To
        induce
        Hallador Petroleum to execute and deliver the Guaranty to Bank, Sunrise Coal
        has
        agreed to reimburse Hallador Petroleum for any amounts paid, or damages or
        losses incurred, by Hallador Petroleum under or in connection with the Guaranty,
        pursuant to the terms and conditions set forth in this Agreement.

       

      NOW,
        THEREFORE, to induce Hallador Petroleum to execute and deliver the Guaranty
        to
        Bank and in consideration of the foregoing recitals which by this reference
        are
        incorporated herein and the mutual covenants contained herein, the parties
        hereto, each intending to be legally bound hereby, covenant and agree as
        follows:

       

      	Section
              1.  	
              CERTAIN
                DEFINITIONS.

            

       

      As
        used
        herein, the following respective terms shall have the following respective
        meanings (terms defined in the plural to include the singular and vice versa):

       

      “Applicable
        Law”
means
        any law, provision of statute, rule, regulation, or order of a Governmental
        Authority applicable to a Person, and all orders and decrees of all courts
        and
        arbitrators in proceedings or actions in which the Person in question is
        a
        party.

       

      “Authorized
        Officer”
means,
        with respect to any Person, its chief executive officer, chief financial
        officer, chief accounting officer, any vice president, or
        treasurer.

       

      “Base
        Rate”
means,
        as determined by Hallador Petroleum on a daily basis, the variable rate of
        interest per annum most recently announced by Wells Fargo Bank, as its “Prime
        Rate” or “Reference Rate,” as the case may be, whether or not such announced
        rate is the best rate available from such financial institution.

       

      “Business
        Day”
means
        any day on which commercial banks are not authorized or required to close
        in
        Denver, Colorado.

       

      “Default”
means
        an Event of Default or any other event which with the giving of notice or
        lapse
        of time, or both, would become an Event of Default.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      “Event
        of Default”
shall
        have the meaning assigned to such term in Section 7
        hereof.

       

      “GAAP”
means
        United States generally accepted accounting principles consistently applied
        (except for accounting changes in response to FASB releases, or other
        authoritative pronouncements).

       

      “Governmental
        Authority”
means
        any federal, state, municipal or other governmental department, commission,
        board, bureau, agency or instrumentality, or any court, or any arbitrator
        or
        arbitration board whose rulings are judicially recognized as lawful and binding,
        in each case whether of the United States or foreign.

       

      “hereunder”,
        “herein”,
        “hereof”
and
        the
        like mean and refer to this Agreement as a whole and not merely to the specific
        section, paragraph or clause in which the respective word appears.

       

      “Loan
        Documents”
means
        the Credit Agreement and all promissory notes, security agreements, mortgages,
        pledge agreements, indemnities, and other agreements, instruments, and documents
        executed and/or delivered by Sunrise Coal or any other Person with respect
        to,
        or in connection with, the Loans.

       

      “Lien”
means
        any mortgage, pledge, security interest, encumbrance, lien or charge of any
        kind
        whatsoever (including any conditional sale or other title retention agreement,
        any lease in the nature thereof, and the filing of or the agreement to give
        any
        financing statement under the Uniform Commercial Code of any
        jurisdiction).

       

      “Obligations”
means
        the reimbursement obligations of Sunrise Coal under Section 3.A
        hereof
        and all other monetary obligations of Sunrise Coal to Hallador Petroleum
        hereunder, including, without limitation, Sunrise Coal’s obligations set forth
        in Section 8.D
        hereof.

       

      “person”
or
        “Person”
means
        any natural person, corporation, division of a corporation, partnership,
        trust,
        joint venture, association, company, limited liability company, estate,
        unincorporated organization or government or any agency or political subdivision
        thereof.

       

      “Principal
        Office”
means
        the principal office of Hallador Petroleum presently located at 1660 Lincoln
        Street, Suite 2700, Denver, Colorado 80264.

       

      	Section
              2.  	
              GUARANTY.

            

       

      Hallador
        Petroleum agrees, on the terms and subject to the conditions set forth in
        this
        Agreement, to execute and deliver to Bank the Guaranty.

       

      	Section
              3.  	
              REIMBURSEMENT;
                FEES; ETC.

            

       

      A.  Obligation.
        Sunrise
        Coal is obligated, and hereby unconditionally agrees, to reimburse Hallador
        Petroleum on demand for any amounts paid, and all damages, expenses, and
        losses
        incurred, by Hallador Petroleum (or its successors and assigns) under or
        in
        connection with the Guaranty. The payment obligations of Sunrise Coal hereunder
        shall be unconditional and irrevocable, and shall be paid strictly in accordance
        with the terms hereof under all circumstances, including, without limitation,
        the following circumstances:

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (i)  any
        lack
        of validity or enforceability of the Loan Documents or the Guaranty or any
        other
        agreement or instrument relating to the Guaranty (collectively, the
“Related
        Documents”);

       

      (ii)  any
        amendment or waiver of, or any consent to departure from, all or any of the
        Related Documents;

       

      (iii)  the
        existence of any claim, set-off, defense or other right which Sunrise Coal
        may
        have at any time against Bank or any transferee or assignee of the Loans
        or the
        Loan Documents (or any persons or entities for whom Bank or any such transferee
        or assignee may be acting), Hallador Petroleum, or any other person or entity,
        whether in connection herewith, the transactions contemplated herein or in
        the
        Related Documents, or any unrelated transaction; or

       

      (iv)  any
        other
        circumstance or happening whatsoever whether or not similar to any of the
        foregoing, except as a result of Hallador Petroleum’s own gross negligence or
        willful misconduct.

       

      B.  Interest.
        Sunrise
        Coal hereby agrees to pay interest (computed on the basis of a year of 360
        days
        and actual days elapsed) on the amount of any Obligation arising as the result
        of any payment under or in connection with the Guaranty, in respect of each
        day
        during the period from the date of such payment by Hallador Petroleum until
        the
        date the same shall be reimbursed in full to Hallador Petroleum, at a rate
        per
        annum for each day during such period equal to the Base Rate plus 2% for
        such
        day, such interest to be payable on demand. None of the terms and provisions
        contained in this Agreement, or in other documents or instruments related
        hereto, shall ever be construed to create a contract for the use, forbearance
        or
        detention of money requiring payment of interest at a rate in excess of the
        maximum interest permitted to be charged by applicable laws or regulation
        governing the Obligations (“Usury
        Laws”).
        Borrower shall never be required to pay interest under this Agreement in
        excess
        of the maximum interest that may be lawfully charged under such Usury Laws,
        as
        made applicable by the final judgment of a court of competent jurisdiction,
        and
        the provisions of this Section shall control over all other provisions hereof
        and of any other instrument executed in connection herewith or executed to
        secure the indebtedness evidenced hereby, which may be in apparent conflict
        with
        this Section. If Hallador Petroleum collects monies which are deemed to
        constitute interest which would otherwise increase the effective interest
        rate
        on this Agreement to a rate in excess of that permitted to be charged by
        such
        Usury Laws, all such sums deemed to constitute interest in excess of the
        maximum
        rate shall, at the option of Hallador Petroleum, either be credited to the
        payment of principal or returned to Sunrise Coal.

       

      C.  Payments.
        All
        payments by Sunrise Coal to Hallador Petroleum under this Agreement shall
        be
        made to Hallador Petroleum at the Principal Office in immediately available
        funds on or prior to 12:00 noon Mountain time on the due date thereof (any
        payment made after such time being deemed made on the next succeeding Business
        Day).

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      D.  Commercial
        Practices.
        Sunrise
        Coal agrees that neither Hallador Petroleum nor any of its officers, directors,
        employees, agents, or attorneys shall be liable or responsible for, and the
        obligations of Sunrise Coal to Hallador Petroleum hereunder shall not in
        any
        manner be affected by: (i) the use which may be made of the Guaranty or the
        respective proceeds thereof by Bank or any other Person; or (ii) any other
        circumstances whatsoever in making or failing to make payment under the
        Guaranty. In furtherance and not in limitation of the foregoing, Hallador
        Petroleum may accept documents or notices in connection with requested payments
        under the Guaranty that appear on their face to be in order without
        responsibility for further investigation.

       

      	Section
              4.  	
              REPRESENTATIONS
                AND WARRANTIES.

            

       

      Sunrise
        Coal represents and warrants to Hallador Petroleum that:

       

      A.  Existence
        and Power.
        Sunrise
        Coal has been duly organized and is validly existing under the laws of Indiana
        and is in good standing as a foreign corporation in all jurisdictions where
        the
        nature of its properties or business so requires it. Sunrise Coal has the
        limited liability company power to own its properties and carry on its business
        as now being conducted, to execute, deliver and perform its obligations under
        this Agreement and other documents contemplated hereby to which it is a
        party.

       

      B.  Authority
        and No Violation.
        The
        execution, delivery and performance of this Agreement (a) have been duly
        authorized by all necessary limited liability company action on the part
        of
        Sunrise Coal, (b) will not violate any provision of any Applicable Law, any
        order of any court or other Governmental Authority applicable to Sunrise
        Coal or
        any of its properties or assets, (c) will not violate any provision of the
        Articles of Organization or Operating Agreement of Sunrise Coal or, of any
        indenture, any agreement for borrowed money, any bond, note or other similar
        instrument or any other agreement to which Sunrise Coal is a party or by
        which
        Sunrise Coal or any of its properties or assets are bound, and (d) will not
        result in the creation or imposition of any Lien, charge or encumbrance of
        any
        nature whatsoever upon any property or assets of Sunrise Coal other than
        pursuant to this Agreement.

       

      C.  Governmental
        Approval.
        

       

      (a)  No
        action, consent or approval of, or registration or filing with, or any other
        action by, any Governmental Authority is required in connection with the
        execution, delivery and performance by Sunrise Coal of this Agreement except
        for
        consents, approvals, filings and registrations which have been obtained or
        made
        and remain in full force and effect, or which are not yet required to be
        obtained or made but which will be obtained or made and will be in full force
        and effect when and to the extent required.

       

      (b)  All
        necessary consents and approvals by Governmental Authorities and other Persons
        in connection with the transactions contemplated under this Agreement, or
        otherwise referred to herein, have been obtained and remain and will remain
        in
        effect.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      D.  Financial
        Statements.
        The
        unaudited financial statements of Sunrise Coal at December 31, 2005, each
        in the
        form previously delivered to Hallador Petroleum, fairly present in all material
        respects the financial condition and the results of operations of Sunrise
        Coal
        at the date or for the period indicated. 

       

      E.  No
        Material Adverse Change.
        Except
        as previously disclosed in writing to Hallador Petroleum, since December
        31,
        2005, there has been no material adverse change in the business, assets,
        property, condition (financial or otherwise), or results of operations of
        Sunrise Coal.

       

      F.  Litigation;
        Compliance with Laws.

       

      (a)  Except
        as
        previously disclosed in writing to Hallador Petroleum, there are no actions,
        lawsuits or other proceedings pending (including, but not limited to, matters
        relating to environmental liability), or, to the knowledge of Sunrise Coal,
        threatened, against or affecting Sunrise Coal or any of its properties, by
        or
        before any Governmental Authority, arbitration panel, or arbitrator, which
        could
        reasonably be expected to have a material adverse effect on the business,
        assets, property, condition (financial or otherwise), prospects or results
        of
        operations of Sunrise Coal or which seeks to restrain, prevent, impose
        materially adverse conditions upon, hinder or delay any of the transactions
        contemplated hereby.

       

      (b)  The
        transactions contemplated hereby will not violate any Applicable
        Law.

       

      G.  Federal
        Reserve Regulations.
        No part
        of the proceeds of any extension of credit under this Agreement will be used,
        directly or indirectly, and whether immediately, incidentally or ultimately
        for
        any purpose violative of or inconsistent with any of the provisions of any
        regulations of the Board of Governors of the Federal Reserve System, including,
        without limitation, Regulations T, U and X thereto.

       

      H.  Investment
        Company Act.
        Sunrise
        Coal is not, and will not during the term of this Agreement be, (x) an
“investment company,” within the meaning of the Investment Company Act of 1940,
        as amended or (y) subject to regulation under the Public Utility Holding
        Company Act of 2005, the Federal Power Act or any foreign, federal or local
        statute or regulation limiting its ability to incur indebtedness for money
        borrowed as contemplated hereby.

       

      I.  Enforceability.
        This
        Agreement constitutes the legal, valid and enforceable obligation of Sunrise
        Coal (subject, as to enforcement, to applicable bankruptcy, insolvency,
        reorganization, moratorium or other similar laws affecting the enforcement
        of
        creditors’ rights generally and to general principles of equity).

       

      	Section
              5.  	
              CONDITIONS
                PRECEDENT.

            

       

      The
        obligation of Hallador Petroleum to execute and deliver the Guaranty to Bank
        is
        subject to the following conditions precedent:

       

      A.  Sunrise
        Coal shall have executed and delivered to Hallador Petroleum this Agreement
        and
        any other agreement, document, or instrument requested by Hallador
        Petroleum.

       

      B.  The
        representations and warranties set forth in Section 4
        hereof
        shall be true and correct in all material respects.

       

      C.  No
        Default or Event of Default shall have occurred and be continuing or will
        result
        from the execution and delivery of the Guaranty.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      	Section
              6.  	
              COVENANTS
                OF SUNRISE COAL.

            

       

      From
        the
        date hereof and so long as the Guaranty shall be outstanding and until the
        payment in full of all of the Obligations, Sunrise Coal hereby agrees as
        follows:

       

      A.  Financial
        Statements and Reports.
        

       

      (a)  As
        soon
        as is practicable, but in any event within 90 days after the end of each
        fiscal
        year, Sunrise Coal will furnish or cause to be furnished to Hallador Petroleum
        the audited balance sheet of Sunrise Coal as at the end of, and the related
        statements of income, shareholders’ equity and cash flow for, such year, and the
        corresponding figures as at the end of, and for, the preceding fiscal year,
        accompanied by an opinion of Clifton Gunderson LLP or EKS & H, which report
        and opinion shall be prepared in accordance with generally accepted auditing
        standards relating to reporting and which report and opinion shall (i) be
        unqualified as to going concern and scope of audit and shall state that such
        financial statements fairly present the financial condition of Sunrise Coal
        as
        at the dates indicated and the results of operations and cash flows for the
        periods indicated, and (ii) contain no material exceptions or
        qualifications except for qualifications relating to accounting changes (with
        which such independent public accountants concur) in response to FASB releases
        or other authoritative pronouncements;

       

      (b)  As
        soon
        as is practicable, but in any event within 30 days after the end of each
        of the
        first three fiscal quarters of each of its fiscal years, Sunrise Coal will
        furnish or cause to be furnished to Hallador Petroleum the unaudited balance
        sheet of Sunrise Coal as at the end of, and the related unaudited statements
        of
        income, shareholders’ equity and cash flow for, such quarter, and for the period
        from the beginning of the then current fiscal year to the end of such fiscal
        quarter and, the corresponding figures as at the end of, and for, the
        corresponding period in the preceding fiscal year, together with a certificate
        signed by an Authorized Officer of Sunrise Coal, on behalf of Sunrise Coal,
        to
        the effect that such financial statements, while not examined by independent
        public accountants, reflect, in his or her opinion and in the opinion of
        Sunrise
        Coal, all adjustments necessary to present fairly in all material respects
        the
        financial position of Sunrise Coal as at the end of the fiscal quarter and
        the
        results of its operations for the quarter then ended in conformity with GAAP
        consistently applied, subject only to year-end adjustments and to the absence
        of
        footnote disclosure; and

       

      (c)  From
        time
        to time, Sunrise Coal will furnish or cause to be furnished to Hallador
        Petroleum such additional information regarding the financial condition or
        business of Sunrise Coal as Hallador Petroleum may reasonably
        request.

       

      B.  Existence,
        Properties, etc.
        Sunrise
        Coal will do or cause to be done all things necessary to preserve, renew
        and
        keep in full force and effect its limited liability company existence, rights,
        licenses, permits and franchises, and comply with all applicable statutes,
        regulations and orders of, and all applicable restrictions imposed by, any
        Governmental Authority.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      C.  Books
        and Records.
        Sunrise
        Coal will maintain or cause to be maintained at all times books and records
        of
        its financial operations which are true and correct in all material respects
        and
        provide Hallador Petroleum and its representatives reasonable access to such
        books and records during regular business hours in order that Hallador Petroleum
        may make such audits and examinations and make abstracts from such books,
        accounts, records and other papers and may discuss the affairs, finances
        and
        accounts with, and be advised as to the same by, officers and independent
        accountants, all as Hallador Petroleum may deem appropriate for the purpose
        of
        verifying the accuracy of the various reports delivered by Sunrise Coal to
        Hallador Petroleum pursuant to this Agreement or for otherwise ascertaining
        compliance with this Agreement.

       

      	Section
              7.  	
              EVENTS
                OF DEFAULT.

            

       

      In
        case
        of the happening and during the continuance of any of the following events
        (herein called “Events of Default”):

       

      A.  Sunrise
        Coal shall fail to pay when due any Obligation or any other amount payable
        to
        Hallador Petroleum under this Agreement;

       

      B.  Sunrise
        Coal shall fail to observe or perform any other covenant, condition or agreement
        to be observed or performed pursuant to the terms of this Agreement, and
        such
        default shall continue unremedied for ten (10) consecutive days after Sunrise
        Coal receives written notice of such occurrence from Hallador
        Petroleum;

       

      C.  Sunrise
        Coal shall generally not pay its debts as they become due or shall admit
        in
        writing its inability to pay its debts, or shall make a general assignment
        for
        the benefit of creditors; or Sunrise Coal shall commence any case, proceeding
        or
        other action seeking to have an order for relief entered on its behalf as
        debtor
        or to adjudicate it a bankrupt or insolvent, or seeking reorganization,
        arrangement, adjustment, liquidation, dissolution or composition of it or
        its
        debts under any law relating to bankruptcy, insolvency, reorganization or
        relief
        of debtors or seeking appointment of a receiver, trustee, custodian or other
        similar official for it or for all or any substantial part of its property
        or
        shall file an answer or other pleading in any such case, proceeding or other
        action admitting the material allegations of any petition, complaint or similar
        pleading filed against it or consenting to the relief sought therein; or
        Sunrise
        Coal shall take any action to authorize any of the foregoing; or

       

      D.  Without
        the application or consent of Sunrise Coal, any involuntary case, proceeding
        or
        other action against Sunrise Coal shall be commenced seeking to have an order
        for relief entered against it as debtor or to adjudicate it a bankrupt or
        insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
        dissolution or composition of it or its debts under any law relating to
        bankruptcy, insolvency, reorganization or relief of debtors, or seeking
        appointment of a receiver, trustee, custodian or other similar official for
        it
        or for all or any substantial part of its property, and such case, proceeding
        or
        other action (i) results in the entry of any order for relief against it or
        (ii) shall remain undismissed for a period of thirty (30)
        days;

       

      then,
        in
        every such event and at any time thereafter during the continuance of such
        event, Hallador Petroleum may, by notice to Sunrise Coal, declare an Event
        of
        Default (except with respect to the occurrence of an Event of Default under
        Section 7.C
        or
Section 7.D
        hereof,
        as to which no notice or declaration need be given) and (a) terminate the
        obligation of Hallador Petroleum to execute and deliver the Guaranty to Bank
        (if
        the same has not yet been executed and delivered) or (b) declare all
        amounts owing hereunder to be due and payable, or both, whereupon such
        obligation shall terminate, or all such amounts shall become due and payable,
        or
        both; provided,
        however,
        that
        upon the occurrence of an Event of Default specified in Section 7.C
        or
Section 7.D,
        such
        obligation shall terminate and all such amounts shall become immediately
        due and
        owing in each case automatically, without any action on the part of Hallador
        Petroleum and without any notice, protest, presentment or demand, all of
        which
        are hereby expressly waived by Sunrise Coal.

       

      	Section
              8.  	
              MISCELLANEOUS.

            

       

      A.  Notices.
        Except
        when otherwise required by law, any notice which a party is required or may
        desire to give the other under or in connection with this Agreement shall
        be in
        writing and may be sent by personal delivery or by mail (either (i) by United
        States registered or certified mail, return receipt requested, postage prepaid,
        or (ii) by Federal Express or similar generally recognized overnight carrier
        regularly providing proof of delivery), addressed as provided below in this
        Section
        8.A.
        Any
        notice so given by mail shall be deemed to have been given as of the date
        of
        delivery (whether accepted or refused) established by U.S. Post Office return
        receipt or the overnight carrier’s proof of delivery, as the case may be. Any
        such notice not so given shall be deemed given upon receipt of the same by
        the
        party to whom the same is to be given.

       

      (a)  If
        to
        Hallador Petroleum, at:

       

      1660
        Lincoln Street, Suite 2700

      Denver,
        Colorado 80264

      Attn:
        Victor Stabio

       

      (b)  If
        to
        Sunrise Coal, at:

       

      6641
        S.
        State Road 46

      Terre
        Haute, Indiana 47802

      Attention:
        Brent Bilsland

       

      B.  Survival
        of Covenants.
        All
        covenants, agreements, representations and warranties made herein and in
        the
        certificates delivered pursuant hereto shall survive the execution and delivery
        of the Guaranty by Hallador Petroleum and shall continue in full force and
        effect so long as the Guaranty is outstanding and until the Obligations and
        all
        other obligations of Sunrise Coal hereunder shall have been paid and performed
        in full. Whenever in this Agreement any of the parties hereto is referred
        to,
        such reference shall, subject to the last sentence of this Section 8.B,
        be
        deemed to include the successors and assigns of such party, and all covenants,
        promises and agreements by or on behalf of Sunrise Coal which are contained
        in
        this Agreement shall inure to the benefit of the successors and assigns of
        Hallador Petroleum. Sunrise Coal may not transfer its rights or obligations
        under this Agreement without the prior written consent of Hallador
        Petroleum.

       

      C.  Expenses.
        Each
        party agrees to pay its own expenses incurred in connection with the preparation
        and administration of this Agreement (whether or not the transactions hereby
        contemplated shall be consummated). Sunrise Coal agrees to pay all out-of-pocket
        expenses incurred by Hallador Petroleum in connection with enforcement of
        the
        rights of Hallador Petroleum in connection with this Agreement, including,
        but
        not limited to, the fees and disbursements of counsel to Hallador
        Petroleum.

       

      D.  Indemnification.
        Sunrise
        Coal hereby indemnifies and holds harmless Hallador Petroleum from and against
        any and all claims and damages, losses, liabilities, costs and expenses which
        Hallador Petroleum may incur (or which may be claimed against Hallador Petroleum
        by any Person whatsoever) by reason of or in connection with the execution
        and
        delivery or transfer of, or payment or failure to pay under, the Guaranty;
        provided that Sunrise Coal shall not be required to indemnify Hallador Petroleum
        for any claims, damages, losses, liabilities, costs or expenses to the extent,
        but only to the extent, caused by the willful misconduct or gross negligence
        of
        Hallador Petroleum as determined by a final order issued by a court of competent
        jurisdiction.

       

      E.  No
        Waiver.
        Neither
        any failure nor any delay on the part of Hallador Petroleum in exercising
        any
        right, power or privilege hereunder, nor any course of dealing with respect
        to
        any of the same, shall operate as a waiver thereof, nor shall a single or
        partial exercise thereof preclude any other or further exercise or the exercise
        of any other right, power or privilege. The remedies herein provided are
        cumulative, and not exclusive of any remedies provided by Applicable
        Law.

       

      F.  Modification,
        Amendment, Waiver, etc.
        No
        modification, amendment or waiver of any provision of this Agreement, and
        no
        consent to any departure by Sunrise Coal herefrom, shall be effective unless
        the
        same shall be in writing and signed by Hallador Petroleum and then such waiver
        or consent shall be effective only in the specific instance and for the purpose
        for which given. No notice to or demand on Sunrise Coal shall entitle Sunrise
        Coal to any other or further notice or demand in the same, similar or other
        circumstances.

       

      G.  Counterparts.
        This
        Agreement may be executed in two or more counterparts, each of which shall
        constitute an original, but when taken together shall constitute but one
        agreement and any of the parties hereto may execute this Agreement by signing
        any such counterpart.

       

      H.  Accounting
        Terms and Principles.
        Except
        as otherwise expressly stated or defined herein, all computations required
        hereunder shall be made by the application of, and each accounting term used
        herein shall have the meaning given to it under, United States generally
        accepted accounting principles applied on a basis consistent with that used
        in
        the preparation of the audited financial statements referred to in Section 4.D
        hereof.

       

      I.  Headings.
        The
        table of contents and the section and subsection headings used herein have
        been
        inserted for convenience of reference only and do not constitute matters
        to be
        considered in interpreting this Agreement.

       

      J.  Governing
        Law; Jurisdiction; Waiver of Jury Trial, Etc.

       

      (a)  This
        Agreement shall be governed by, and construed in accordance with, the laws
        of
        the State of Colorado.

       

      (b)  Sunrise
        Coal hereby irrevocably and unconditionally submits, for itself and its
        property, to the nonexclusive jurisdiction of any Colorado State court or
        federal court of the United States of America sitting in Denver, Colorado, and
        any appellate court from any thereof, in any action or proceeding arising
        out of
        or relating to this Agreement, or for recognition or enforcement of any
        judgment, and Sunrise Coal hereby irrevocably and unconditionally agrees
        that
        all claims in respect of any such action or proceeding may be heard and
        determined in any such Colorado State or, to the extent permitted by law,
        in
        such federal court. Sunrise Coal 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 any party may otherwise have to bring
        any
        action or proceeding relating to this Agreement in the courts of any
        jurisdiction.

       

      (c)  Sunrise
        Coal irrevocably and unconditionally waives, to the fullest extent it may
        legally and effectively do so, any objection that 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 Colorado State or federal court. Sunrise
        Coal
        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)  WAIVER
        OF RIGHT TO JURY TRIAL.
        SUNRISE COAL HEREBY WAIVES TRIAL BY JURY, AND SUNRISE COAL HEREBY WAIVES
        RIGHTS
        OF SETOFF AND THE RIGHT TO IMPOSE COUNTERCLAIMS, IN ANY LITIGATION IN ANY
        COURT
        WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE
        TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF HALLADOR PETROLEUM IN
        THE
        NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF, OR ANY OTHER
        CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN HALLADOR PETROLEUM AND SUNRISE
        COAL,
        AND SUNRISE COAL CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND IT
        HAS
        RECEIVED THE ADVICE OF COUNSEL WITH REGARD TO THE FOREGOING
        WAIVERS.

       

      [Signatures
        on next page]

       

      

       

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

       

      IN
        WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
        of the
        date first above written.

       

                                                                                
        SUNRISE COAL, LLC,

       

                                                                               
        an Indiana limited liability company

       

                                                                               By: 
        /s/ BRENT BILSLAND

       
        Print Name: Brent Bilsland

                                                                               
        Title:  Member

       

                                                                               
        HALLADOR PETROLEUM COMPANY,

       

                                                                               
        a Colorado corporation

       

                                                                               
        By:  /S/VICTOR
        P. STABIO

      Print
        Name:  Victor P. Stabio

      Title:
        President, CEO and CFO

       

       

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      EXHIBIT
        “A”

       

      

       

      FORM
        OF
        GUARANTY

       

      (see
        attached copy)Exhibit 10.1

    Credit
      Agreement

    

    Dated
      as of

    April
      19, 2006

    

    among

    

    McMoRan
      Oil & Gas LLC,

    as
      Borrower,

    

    JPMorgan
      Chase Bank, N.A.,

    as
      Administrative Agent,

    

    Toronto-Dominion
      (Texas) LLC,

    as
      Syndication Agent,

    

    and

    

    The
      Lenders Party Hereto

    

     

    

     

    Sole
      Lead Arranger and Sole Bookrunner

     

    J.P.
      Morgan Securities Inc.

      
        
          
          

        

        
          
          

          
            

          

        

         

      

    

     

    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

              	
                 19

              
	
                Section
                  1.04

              	
                Terms
                  Generally; Rules of Construction

              	
                 19

              
	
                Section
                  1.05

              	
                Accounting
                  Terms and Determinations; GAAP

              	
                 20

              

      

    

     

    ARTICLE
      II

    THE
      CREDITS

     

    
      
        	
                Section
                  2.01

              	
                Commitments

              	
                 20

              
	
                Section
                  2.02

              	
                Loans
                  and Borrowings

              	
                 20

              
	
                Section
                  2.03

              	
                Requests
                  for Borrowings

              	
                 21

              
	
                Section
                  2.04

              	
                Interest
                  Elections

              	
                 22

              
	
                Section
                  2.05

              	
                Funding
                  of Borrowings

              	
                 23

              
	
                Section
                  2.06

              	
                Termination,
                  Reduction and Increase of Aggregate Maximum 

              	 
	 	
                Credit
                  Amounts

              	
                 24

              
	
                Section
                  2.07

              	
                Borrowing
                  Base

              	
                 26

              
	
                Section
                  2.08

              	
                Letters
                  of Credit

              	
                 28

              

      

    

     

    ARTICLE
      III

    PAYMENTS
      OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

     

    
      
        	
                Section
                  3.01

              	
                Repayment
                  of Loans

              	
                 33

              
	
                Section
                  3.02

              	
                Interest

              	
                 33

              
	
                Section
                  3.03

              	
                Alternate
                  Rate of Interest

              	
                 34

              
	
                Section
                  3.04

              	
                Prepayments

              	
                 35

              
	
                Section
                  3.05

              	
                Fees

              	
                 36

              

      

    

     

    ARTICLE
      IV

    PAYMENTS;
      PRO RATA TREATMENT; SHARING OF SET-OFFS

    

      
        	
                Section
                  4.01

              	
                Payments
                  Generally; Pro Rata Treatment; Sharing of Set-offs

              	
                37

              
	
                Section
                  4.02

              	
                Presumption
                  of Payment by the Borrower

              	
                 38

              
	
                Section
                  4.03

              	
                Certain
                  Deductions by the Administrative Agent

              	
                 39

              
	
                Section
                  4.04

              	
                Disposition
                  of Proceeds

              	
                 39

              

      

    

     

    ARTICLE
      V

    INCREASED
      COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

    

      
        	
                Section
                  5.01

              	
                Increased
                  Costs

              	
                 39

              
	
                Section
                  5.02

              	
                Break
                  Funding Payments

              	
                 40

              
	
                Section
                  5.03

              	
                Taxes.

              	
                 41

              
	
                Section
                  5.04

              	
                Mitigation
                  Obligations

              	
                 42

              
	
                Section
                  5.05

              	
                Illegality

              	
                 42

              

      

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      VI

    CONDITIONS
      PRECEDENT

     

    
      
        	
                Section
                  6.01

              	
                Effective
                  Date

              	
                 42

              
	
                Section
                  6.02

              	
                Each
                  Credit Event

              	
                 45

              

      

    

     

    ARTICLE
      VII

    REPRESENTATIONS
      AND WARRANTIES

    

      
        	
                Section
                  7.01

              	
                Organization;
                  Powers

              	
                 46

              
	
                Section
                  7.02

              	
                Authority;
                  Enforceability

              	
                 46

              
	
                Section
                  7.03

              	
                Approvals;
                  No Conflicts

              	
                 46

              
	
                Section
                  7.04

              	
                Financial
                  Condition; No Material Adverse Change

              	
                 46

              
	
                Section
                  7.05

              	
                Litigation

              	
                 47

              
	
                Section
                  7.06

              	
                Environmental
                  Matters

              	
                 47

              
	
                Section
                  7.07

              	
                Compliance
                  with the Laws and Agreements; No Defaults

              	
                 48

              
	
                Section
                  7.08

              	
                Investment
                  Company Act

              	
                 49

              
	
                Section
                  7.09

              	
                Taxes

              	
                 49

              
	
                Section
                  7.10

              	
                ERISA

              	
                 49

              
	
                Section
                  7.11

              	
                Disclosure;
                  No Material Misstatements

              	
                 50

              
	
                Section
                  7.12

              	
                Insurance

              	
                 50

              
	
                Section
                  7.13

              	
                Restriction
                  on Liens

              	
                 51

              
	
                Section
                  7.14

              	
                Subsidiaries

              	
                 51

              
	
                Section
                  7.15

              	
                Location
                  of Business and Offices

              	
                 51

              
	
                Section
                  7.16

              	
                Properties;
                  Titles, Etc

              	
                 51

              
	
                Section
                  7.17

              	
                Maintenance
                  of Properties

              	
                 52

              
	
                Section
                  7.18

              	
                Gas
                  Imbalances, Prepayments

              	
                 53

              
	
                Section
                  7.19

              	
                Marketing
                  of Production

              	
                 53

              
	
                Section
                  7.20

              	
                Swap
                  Agreements

              	
                 53

              
	
                Section
                  7.21

              	
                Use
                  of Loans and Letters of Credit

              	
                 53

              
	
                Section
                  7.22

              	
                Solvency

              	
                 53

              

      

    

     

    ARTICLE
      VIII

    AFFIRMATIVE
      COVENANTS

    

      
        	
                Section
                  8.01

              	
                Financial
                  Statements; Other Information

              	54 
	
                Section
                  8.02

              	
                Notices
                  of Material Events

              	56 
	
                Section
                  8.03

              	
                Existence;
                  Conduct of Business

              	57 
	
                Section
                  8.04

              	
                Payment
                  of Obligations

              	57 
	
                Section
                  8.05

              	
                Performance
                  of Obligations under Loan Documents

              	57 
	
                Section
                  8.06

              	
                Operation
                  and Maintenance of Properties

              	57 
	
                Section
                  8.07

              	
                Insurance

              	58 
	
                Section
                  8.08

              	
                Books
                  and Records; Inspection Rights

              	58 
	
                Section
                  8.09

              	
                Compliance
                  with Laws

              	59 
	
                Section
                  8.10

              	
                Environmental
                  Matters

              	59 
	
                Section
                  8.11

              	
                Further
                  Assurances

              	60 
	
                Section
                  8.12

              	
                Reserve
                  Reports

              	60 
	
                Section
                  8.13

              	
                Title
                  Information

              	61 
	
                Section
                  8.14

              	
                Additional
                  Collateral; Additional Guarantors

              	62 

      

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    

      
        	
                Section
                  8.15

              	
                ERISA
                  Compliance

              	63 
	
                Section
                  8.16

              	
                Marketing
                  Activities

              	63 

      

    

     

    ARTICLE
      IX

    NEGATIVE
      COVENANTS

    

      
        	
                Section
                  9.01

              	
                Financial
                  Covenants

              	64 
	
                Section
                  9.02

              	
                Debt

              	64 
	
                Section
                  9.03

              	
                Liens

              	65 
	
                Section
                  9.04

              	
                Dividends,
                  Distributions and Redemptions

              	66 
	
                Section
                  9.05

              	
                Investments,
                  Loans and Advances

              	66 
	
                Section
                  9.06

              	
                Nature
                  of Business; International Operations

              	67 
	
                Section
                  9.07

              	
                Proceeds
                  of Notes

              	68 
	
                Section
                  9.08

              	
                ERISA
                  Compliance

              	68 
	
                Section
                  9.09

              	
                Sale
                  or Discount of Receivables

              	69 
	
                Section
                  9.10

              	
                Mergers,
                  Etc

              	69 
	
                Section
                  9.11

              	
                Sale
                  of Properties

              	69 
	
                Section
                  9.12

              	
                Environmental
                  Matters

              	70 
	
                Section
                  9.13

              	
                Transactions
                  with Affiliates

              	70 
	
                Section
                  9.14

              	
                Subsidiaries

              	70 
	
                Section
                  9.15

              	
                Negative
                  Pledge Agreements; Dividend Restrictions

              	70 
	
                Section
                  9.16

              	
                Gas
                  Imbalances, Take-or-Pay or Other Prepayments

              	70 
	
                Section
                  9.17

              	
                Swap
                  Agreements

              	71 

      

    

     

    ARTICLE
      X

    EVENTS
      OF DEFAULT; REMEDIES

    

      
        	
                Section
                  10.01

              	
                Events
                  of Default

              	71 
	
                Section
                  10.02

              	
                Remedies

              	73 

      

    

     

    ARTICLE
      XI

    THE
      ADMINISTRATIVE AGENT

    

      
        	
                Section
                  11.02

              	
                Duties
                  and Obligations of Administrative Agent

              	74 
	
                Section
                  11.03

              	
                Action
                  by Administrative Agent

              	75 
	
                Section
                  11.04

              	
                Reliance
                  by Administrative Agent

              	76 
	
                Section
                  11.05

              	
                Subagents

              	76 
	
                Section
                  11.06

              	
                Resignation
                  or Removal of Administrative Agent

              	76 
	
                Section
                  11.07

              	
                Agents
                  as Lenders

              	77 
	
                Section
                  11.08

              	
                No
                  Reliance

              	77 
	
                Section
                  11.09

              	
                Administrative
                  Agent May File Proofs of Claim

              	78 
	
                Section
                  11.10

              	
                Authority
                  of Administrative Agent to Release Collateral 

              	 
	 	
                and
                  Liens

              	78 
	
                Section
                  11.11

              	
                The
                  Arranger and the Syndication Agent

              	78 

      

    

     

    ARTICLE
      XII

    MISCELLANEOUS

    

      
        	
                Section
                  12.01

              	
                Notices

              	79 
	
                Section
                  12.02

              	
                Waivers;
                  Amendments

              	79 
	
                Section
                  12.03

              	
                Expenses,
                  Indemnity; Damage Waiver.

              	81 

      

    

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    

      
        	
                Section
                  12.04

              	
                Successors
                  and Assigns

              	
                 83

              
	
                Section
                  12.05

              	
                Survival;
                  Revival; Reinstatement

              	
                 86

              
	
                Section
                  12.06

              	
                Counterparts;
                  Integration; Effectiveness

              	
                 87

              
	
                Section
                  12.07

              	
                Severability 

              	
                 87

              
	
                Section
                  12.08

              	
                Right
                  of Setoff

              	
                 87

              
	
                Section
                  12.09

              	
                Governing
                  Law; Jurisdiction; Consent to Service of Process

              	
                 88

              
	
                Section
                  12.10

              	
                Headings

              	
                 89

              
	
                Section
                  12.11

              	
                Confidentiality

              	
                 89

              
	
                Section
                  12.12

              	
                Interest
                  Rate Limitation

              	
                 89

              
	
                Section
                  12.13

              	
                Exculpation
                  Provisions

              	
                 90

              
	
                Section
                  12.14

              	
                Collateral
                  Matters; Swap Agreements

              	
                 91

              
	
                Section
                  12.15

              	
                No
                  Third Party Beneficiaries

              	
                 91

              
	
                Section
                  12.16

              	
                USA
                  Patriot Act Notice

              	
                 91

              

      

    

    
      

        
          
             

            iv

          

          
            
            

            
              

            

          

           

        

      

    

     

    ANNEXES,
      EXHIBITS AND SCHEDULES

     

    
      
        	
                Annex
                  I  

              	
                List
                  of Maximum Credit Amounts

              
	 	 
	
                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

              
	
                Exhibit
                  H-1  

              	
                Form
                  of Maximum Credit Amount Increase Certificate  

              
	
                Exhibit
                  H-2

              	
                Form
                  of Additional Lender Certificate

              
	 	 
	
                Schedule
                  1.02  

              	
                Approved
                  Counterparties  

              
	
                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
                  8.14 

              	
                Mortgaged
                  Properties with Pending Assignments

              
	
                Schedule
                  9.05  

              	
                Investments

              

      

      
        
          
          

        

        
          v

          
            

          

        

         

      

    

     

    THIS
      CREDIT AGREEMENT
      dated as
      of April
      19,
      2006,
      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
      Toronto-Dominion (Texas) LLC, as syndication agent for the Lenders (in such
      capacity, together with its successors in such capacity, the “Syndication
      Agent”).

     

    R
      E C I T A L S

    A. The
      Borrower has requested that the Lenders provide certain loans to and extensions
      of credit on behalf of the Borrower.

     

    B. The
      Lenders have agreed to make such loans and extensions of credit subject to
      the
      terms and conditions of this Agreement.

     

    C. In
      consideration of the mutual covenants and agreements herein contained and of
      the
      loans, extensions of credit and commitments hereinafter referred to, 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.

     

    “Additional
      Lender”
has
      the
      meaning assigned to such term in Section 2.06(c)(i).

     

    “Additional
      Lender Certificate”
has
      the
      meaning assigned to such term in Section 2.06(c)(ii)(F).

     

    “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.

     

    “Aggregate
      Maximum Credit Amounts”
at
      any
      time shall equal the sum of the Maximum Credit Amounts, as the same may be
      reduced or terminated pursuant to Section
      2.06.

     

    “Agreement”
means
      this Credit 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 1⁄2 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 rate per annum set forth in the Borrowing Base Utilization Grid below
      based upon the Borrowing Base Utilization Percentage then in
      effect:

    

    
      	
              Borrowing
                Base Utilization Grid

            
	
              Borrowing
                Base 

              Utilization
                Percentage

            	
              <50%

            	
              ≥50%
                <75%

            	
              ≥75%
                <90%

            	
              ≥90%

            
	
              ABR
                Loans

            	
              0.000%

            	
              0.250%

            	
              0.500%

            	
              0.750%

            
	
              Eurodollar
                Loans

            	
              1.500%

            	
              1.750%

            	
              2.000%

            	
              2.250%

            

    

    

    Each
      change in the Applicable Margin shall apply during the period commencing on
      the
      effective date of such change and ending on the date immediately preceding
      the
      effective date of the next such change, provided, however, that if at any time
      the Borrower fails to deliver a Reserve Report pursuant to Section
      8.12(a),
      then
      the “Applicable
      Margin”
means
      the rate per annum set forth on the grid when the Borrowing Base Utilization
      Percentage is at its highest level.

     

    “Applicable
      Percentage”
means,
      with respect to any Lender, the percentage of the Aggregate Maximum Credit
      Amounts represented by such Lender’s Maximum Credit Amount as such percentage is
      set forth on Annex I.

     

    “Approved
      Counterparty”
means
      (a) any Lender or any Affiliate of a Lender, (b) any other Person whose long
      term senior unsecured debt rating is A/A2 by S&P or Moody’s (or their
      equivalent) or higher, or (c) with regard to Swap Agreements in respect of
      commodities, and subject to the conditions set forth therein, any other Person
      listed on Schedule 1.02.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “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.

     

    “Arranger”
means
      J.P.
      Morgan Securities Inc.,
      in its
      capacities as the sole lead arranger and sole bookrunner hereunder.

     

    “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.

     

    “Availability
      Period”
means
      the period from and including the Effective Date to but excluding the
      Termination Date.

     

    “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
      Base”
means
      at any time an amount equal to the amount determined in accordance with
Section
      2.07,
      as the
      same may be adjusted from time to time pursuant to Section
      8.13(c)
      or
      Section 9.11(d).

     

    “Borrowing
      Base Deficiency”
occurs
      if at any time the total Revolving Credit Exposures exceeds the Borrowing Base
      then in effect.

     

    “Borrowing
      Base Utilization Percentage”
means,
      as of any day, the fraction expressed as a percentage, the numerator of which
      is
      the sum of the Revolving Credit Exposures of the Lenders on such day, and the
      denominator of which is the Borrowing Base in effect on such day.

     

    “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 or Houston, Texas 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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “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 the Issuing Bank
      (or,
      for purposes of Section
      5.01(b)),
      by any
      lending office of such Lender or by such Lender’s or the Issuing Bank’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,
      with respect to each Lender, the commitment of such Lender to make Loans and
      to
      acquire participations in Letters of Credit hereunder, expressed as an amount
      representing the maximum aggregate amount of such Lender’s Revolving Credit
      Exposure hereunder, as such commitment may be (a) modified from time to time
      pursuant to Section
      2.06
      and (b)
      modified from time to time pursuant to assignments by or to such Lender pursuant
      to Section
      12.04(b).
      The
      amount representing each Lender’s Commitment shall at any time be the lesser of
      such Lender’s Maximum Credit Amount and such Lender’s Applicable Percentage of
      the then effective Borrowing Base.

     

    “Commitment
      Fee Rate”
means,
      for any day, the rate per annum set forth below based upon the Borrowing Base
      Utilization Percentage then in effect:

     

    
      	
              Borrowing
                Base 

              Utilization
                Percentage

            	
              <75%

            	
              ≥75%

            
	 	
              0.375%

            	
              0.500%

            

    

     

    “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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    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.

     

    “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 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, 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    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, LC Exposure or other obligations hereunder outstanding
      and
      all of the Commitments are terminated.

     

    “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.

     

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

     

    “Engineering
      Reports”
has
      the
      meaning assigned such term in Section
      2.07(c)(i).

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    “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.

     

    “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.

     

    “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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    “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 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, 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    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 first
      priority 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, the Issuing Bank 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.

     

    “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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    “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, the Issuing Bank
      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(b).

            

    

    

    “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.

     

    “Highest
      Lawful Rate”
means,
      with respect to each Lender, the maximum nonusurious interest rate, if any,
      that
      at any time or from time to time may be contracted for, taken, reserved, charged
      or received on the Notes or on other Indebtedness under laws applicable to
      such
      Lender which are presently in effect or, to the extent allowed by law, under
      such applicable laws which may hereafter be in effect and which allow a higher
      maximum nonusurious interest rate than applicable laws allow as of the date
      hereof.

     

    “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.

     

    
      
        
        

      

      
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    “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, the Issuing Bank or any Lender under
      any Loan Document; (b) to any Lender or any Affiliate of a Lender under any
      Swap
      Agreement between the Borrower or any Subsidiary and such Lender or Affiliate
      of
      a Lender while such Person (or in the case of its Affiliate, the Person
      affiliated therewith) is a Lender hereunder and (c) 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.

     

    “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, 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 

     

    
      
        
        

      

      
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    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.

     

    “Interim
      Redetermination”
has
      the
      meaning assigned such term in Section
      2.07(b).

     

    “Interim
      Redetermination Date”
means
      the date on which a Borrowing Base that has been redetermined pursuant to an
      Interim Redetermination becomes effective as provided in Section
      2.07(d).

     

    “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.

     

    “Issuing
      Bank”
      means JPMorgan,
      in its
      capacity as the issuer of Letters of Credit hereunder, and its successors in
      such capacity as provided in Section
      2.08(i).
      The
      Issuing Bank may, in its discretion, arrange for one or more Letters of Credit
      to be issued by Affiliates of the Issuing Bank, in which case the term
“Issuing
      Bank”
shall
      include any such Affiliate with respect to Letters of Credit issued by such
      Affiliate.

     

    “LC
      Commitment”
at
      any
      time means Twenty-Five Million Dollars ($25,000,000.00). 

     

    “LC
      Disbursement”
means
      a
      payment made by the Issuing Bank pursuant to a Letter of Credit.

     

    “LC
      Exposure”
means,
      at any time, the sum of (a) the aggregate undrawn amount of all outstanding
      Letters of Credit at such time plus (b) the aggregate amount of all LC
      Disbursements that have not yet been reimbursed by or on behalf of the Borrower
      at such time. The LC Exposure of any Lender at any time shall be its Applicable
      Percentage of the total LC Exposure at such time.

     

    “Lenders”
means
      the Persons listed on Annex I 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, and any
      Person that shall have become a party hereto as an Additional Lender pursuant
      to
      Section 2.06(c).

     

    
      
        
        

      

      
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    “Letter
      of Credit”
means
      any letter of credit issued pursuant to this Agreement.

     

    “Letter
      of Credit Agreements”
means
      all letter of credit applications and other agreements (including any
      amendments, modifications or supplements thereto) submitted by the Borrower,
      or
      entered into by the Borrower, with the Issuing Bank relating to any Letter
      of
      Credit.

     

    “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.

     

    “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
      Documents”
means
      this Agreement, the Notes, the Letter of Credit Agreements, the Letters of
      Credit and the Security Instruments.

     

    “Loans”
means
      the loans made by the Lenders to the Borrower pursuant to this
      Agreement.

     

    “Majority
      Lenders”
means,
      at any time while no Loans or LC Exposure is outstanding, Lenders having greater
      than fifty (50%) percent of the Aggregate Maximum Credit Amounts; and at any
      time while any Loans or LC Exposure is outstanding, Lenders holding greater
      than
      fifty percent (50%) of the outstanding aggregate principal amount of the Loans
      or participation interests in Letters of Credit (without regard to any sale
      by a
      Lender of a participation in any Loan under Section
      12.04(c)).

     

    
      
        
        

      

      
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    “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, (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, the Issuing Bank or any Lender under
      any
      Loan Document.

     

    “Material
      Indebtedness”
means
      Debt (other than the Loans and Letters of Credit), or obligations in respect
      of
      one or more Swap Agreements, of any one or more of the Borrower and its
      Subsidiaries in an aggregate principal amount exceeding $1,000,000.
      For
      purposes of determining Material Indebtedness, the “principal amount” of the
      obligations of the Borrower or any Subsidiary in respect of any Swap Agreement
      at any time shall be the Swap Termination Value.

     

    “Maturity
      Date”
means
      April
      19,
      2010.

     

    “Maximum
      Credit Amount”
means,
      as to each Lender, the amount set forth opposite such Lender’s name on Annex I
      under the caption “Maximum Credit Amounts”, as the same may be (a) reduced or
      terminated from time to time in connection with a reduction or termination
      of
      the Aggregate Maximum Credit Amounts pursuant to Section
      2.06(b),
      (b)
      increased from time to time pursuant to Section 2.06(c) or (c) modified from
      time to time pursuant to any assignment permitted by Section
      12.04(b).

     

    “Maximum
      Credit Amount Increase Certificate”
has
      the
      meaning assigned to such term in Section 2.06(c)(ii)(E).

     

    “Moody’s”
means
      Moody’s Investors Service, Inc. and any successor thereto that is a nationally
      recognized rating agency.

     

    “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.

     

    “New
      Borrowing Base Notice”
has
      the
      meaning assigned such term in Section
      2.07(d).

     

    “Notes”
means
      the promissory notes of the Borrower described in Section
      2.02(d)
      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 

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    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 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.

     

    “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.

     

    “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 

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    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 customer and that the Administrative Agent may
      make
      various commercial or other loans at rates of interest having no relationship
      to
      such rate.

     

    “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.

     

    “Proposed
      Borrowing Base”
has
      the
      meaning assigned to such term in Section
      2.07(c)(i).

     

    “Proposed
      Borrowing Base Notice”
has
      the
      meaning assigned to such term in Section
      2.07(c)(ii).

     

    “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.

     

    “Redetermination
      Date”
means,
      with respect to any Scheduled Redetermination or any Interim Redetermination,
      the date that the redetermined Borrowing Base related thereto becomes effective
      pursuant to Section
      2.07(d).

     

    “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.

     

    “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
      a
      report, in form and substance reasonably satisfactory to the Administrative
      Agent, setting forth, as of each January 1st or July 1st (or such other date
      in
      the event of an Interim Redetermination) 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, based upon the economic assumptions consistent with the Administrative
      Agent’s lending requirements at the time.

     

    “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.

     

    
      
        
        

      

      
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    “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 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
      Credit Exposure”
means,
      with respect to any Lender at any time, the sum of the outstanding principal
      amount of such Lender’s Loans and its LC Exposure at such time.

     

    “Scheduled
      Redetermination”
has
      the
      meaning assigned such term in Section
      2.07(b).

     

    “Scheduled
      Redetermination Date”
means
      the date on which a Borrowing Base that has been redetermined pursuant to a
      Scheduled Redetermination becomes effective as provided in Section
      2.07(d).

     

    “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 Swap
      Agreements with the Lenders or any Affiliate of a Lender or 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, this Agreement, or
      reimbursement obligations under the Letters of Credit, as such agreements may
      be
      amended, modified, supplemented or restated from time to time.

     

    “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 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 

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    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. 

     

    “Super-Majority
      Lenders”
means,
      at any time while no Loans or LC Exposure is outstanding, Lenders having at
      least seventy-five percent (75%) of the Aggregate Maximum Credit Amounts; and
      at
      any time while any Loans or LC Exposure is outstanding, Lenders holding at
      least
      seventy-five percent (75%) of the outstanding aggregate principal amount of
      the
      Loans or participation interests in Letters of Credit (without regard to any
      sale by a Lender of a participation in any Loan under Section
      12.04(c)).

     

    “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.

     

    “Termination
      Date”
means
      the earlier of the Maturity Date and the date of termination of the
      Commitments.

     

    
    

    
      
        
        

      

      
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    “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 appropriate action and for which
      adequate reserves have been maintained in accordance with GAAP.

     

    “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 issuance of
      Letters of Credit hereunder, 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 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 

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    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.

     

    ARTICLE
      II 

    The
      Credits

     

    Section
      2.01  Commitments.
      Subject
      to the terms and conditions set forth herein, each Lender agrees to make Loans
      to the Borrower during the Availability Period in an aggregate principal amount
      that will not result in (a) such Lender’s Revolving Credit Exposure exceeding
      such Lender’s Commitment or (b) the total Revolving Credit Exposures exceeding
      the total Commitments. Within the foregoing limits and subject to the terms
      and
      conditions set forth herein, the Borrower may borrow, repay and reborrow the
      Loans.

     

    Section
      2.02  Loans
      and Borrowings

     

    (a)  Borrowings;
      Several Obligations.
      Each
      Loan 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,
      each
      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 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)  Minimum
      Amounts; Limitation on Number of Borrowings.
      At the
      commencement of each Interest Period for any Eurodollar Borrowing, such
      Borrowing shall be 

     

    
      
        
        

      

      
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    in
      an
      aggregate amount that is an integral multiple of $500,000 and not less than
      $1,000,000. At the time that each ABR Borrowing is made, such Borrowing shall
      be
      in an aggregate amount that is an integral multiple of $250,000 and not less
      than $1,000,000; provided that an ABR Borrowing may be in an aggregate amount
      that is equal to the entire unused balance of the total Commitments or that
      is
      required to finance the reimbursement of an LC Disbursement as contemplated
      by
Section
      2.08(e).
      Borrowings 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 ten
      (10)
      Eurodollar Borrowings outstanding. Notwithstanding any other provision of this
      Agreement, the Borrower shall not be entitled to request, or to elect to convert
      or continue, any Borrowing if the Interest Period requested with respect thereto
      would end after the Maturity Date.

     

    (d)  Notes.
      The
      Loans made by each Lender shall be evidenced by a single promissory note of
      the
      Borrower in substantially the form of Exhibit A, dated, in the case of (i)
      any
      Lender party hereto as of the date of this Agreement, as of the date of this
      Agreement, (ii) any Lender that becomes a party hereto pursuant to an Assignment
      and Assumption, as of the effective date of the Assignment and Assumption,
      or
      (iii) any Lender that becomes a party hereto in connection with an increase
      in
      the Aggregate Maximum Credit Amounts pursuant to Section 2.06(c), as of the
      effective date of such increase, payable to the order of such Lender in a
      principal amount equal to its Maximum Credit Amount as in effect on such date,
      and otherwise duly completed. In the event that any Lender’s Maximum Credit
      Amount increases or decreases for any reason (whether pursuant to Section
      2.06,
      Section
      12.04(b)
      or
      otherwise), the Borrower shall deliver or cause to be delivered on the effective
      date of such increase or decrease, a new Note payable to the order of such
      Lender in a principal amount equal to its Maximum Credit Amount after giving
      effect to such increase or decrease, and otherwise duly completed. The date,
      amount, Type, interest rate and, if applicable, Interest Period of each Loan
      made by each Lender, and all payments made on account of the principal thereof,
      shall be recorded by such Lender on its books for its Note, and, prior to any
      transfer, may be endorsed by such Lender on a schedule attached to such Note
      or
      any continuation thereof or on any separate record maintained by such Lender.
      Failure to make any such notation or to attach a schedule shall not affect
      any
      Lender’s or the Borrower’s rights or obligations in respect of such Loans or
      affect the validity of such transfer by any Lender of its Note. 

     

    Section
      2.03  Requests
      for Borrowings

     

    To
      request a Borrowing, the Borrower shall notify the Administrative Agent of
      such
      request by telephone (a) in the case of a Eurodollar Borrowing, not later than
      11:00 a.m., Houston time, three Business Days before the date of the proposed
      Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m.,
      Houston time, on the date of the proposed Borrowing; provided that no such
      notice shall be required for any deemed request of an ABR Borrowing to finance
      the reimbursement of an LC Disbursement as provided in Section
      2.08(e).
      Each
      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. Each such telephonic and written Borrowing Request shall specify
      the
      following information in compliance with Section
      2.02:

     

    (i)  the
      aggregate amount of the requested Borrowing;

     

    (ii)  the
      date
      of such Borrowing, which shall be a Business Day;

     

    
      
        
        

      

      
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    (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”;

     

    (v)  the
      amount of the then effective Borrowing Base, the current total Revolving Credit
      Exposures (without regard to the requested Borrowing) and the pro
      forma
      total
      Revolving Credit Exposures (giving effect to the requested Borrowing);
      and

     

    (vi)  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. Each Borrowing Request
      shall constitute a representation that the amount of the requested Borrowing
      shall not cause the total Revolving Credit Exposures to exceed the total
      Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and the
      then effective Borrowing Base).

     

    Promptly
      following receipt of a Borrowing Request in accordance with this Section
      2.03,
      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.
      Each
      Borrowing initially shall be of the Type specified in the applicable Borrowing
      Request and, in the case of a Eurodollar Borrowing, shall have an initial
      Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
      may elect to convert such Borrowing to a different Type or to continue such
      Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods
      therefor, all as provided in this Section
      2.04.
      The
      Borrower may elect different options with respect to different portions of
      the
      affected Borrowing, in which case each such portion shall be allocated ratably
      among the Lenders holding the Loans comprising such Borrowing, and the Loans
      comprising each such portion shall be considered a separate
      Borrowing.

     

    (b)  Interest
      Election Requests.
      To make
      an election pursuant to this Section
      2.04,
      the
      Borrower shall notify the Administrative Agent of such election by telephone
      by
      the time that a Borrowing Request would be required under Section
      2.03
      if the
      Borrower were requesting a Borrowing of the Type resulting from such election
      to
      be made on the effective date of such 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 and signed by the Borrower.

     

    
      
        
        

      

      
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    (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 each resulting Borrowing.

     

    (e)  Effect
      of Failure to Deliver Timely Interest Election Request and Events of Default
      and
      Borrowing Base Deficiencies 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 or a
      Borrowing Base Deficiency has occurred and is continuing: (i) no outstanding
      Borrowing may 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.

     

    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 date
      thereof by wire transfer of immediately available funds by 1:00 p.m., Houston
      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 

     

    
      
        
        

      

      
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    designated
      by the Borrower in the applicable Borrowing Request; provided that ABR Loans
      made to finance the reimbursement of an LC Disbursement as provided in
Section
      2.08(e)
      shall be
      remitted by the Administrative Agent to the Issuing Bank.
      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 date of any Borrowing that such Lender will not make available to
      the
      Administrative Agent such Lender’s share of such 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
      applicable 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 such
      Borrowing.

     

    Section
      2.06  Termination,
      Reduction and Increase of Aggregate Maximum Credit Amounts.

     

    (a)  Scheduled
      Termination of Commitments.
      Unless
      previously terminated, the Commitments shall terminate on the Maturity Date.
      If
      at any time the Aggregate Maximum Credit Amounts or the Borrowing Base is
      terminated or reduced to zero, then the Commitments shall terminate on the
      effective date of such termination or reduction.

     

    (b)  Optional
      Termination and Reduction of Aggregate Credit Amounts. 

     

    (i)  The
      Borrower may at any time terminate, or from time to time reduce, the Aggregate
      Maximum Credit Amounts; provided that (A)
      each
      reduction of the Aggregate Maximum Credit Amounts shall be in an amount that
      is
      an integral multiple of $1,000,000
      and not
      less than $1,000,000
      and
(B)
      the
      Borrower shall not terminate or reduce the Aggregate Maximum Credit Amounts
      if,
      after giving effect to any concurrent prepayment of the Loans in accordance
      with
Section
      3.04(c),
      the
      total Revolving Credit Exposures would exceed the total
      Commitments.

     

    (ii)  The
      Borrower shall notify the Administrative Agent of any election to terminate
      or
      reduce the Aggregate Maximum Credit Amounts under Section
      2.06(b)(i)
      at least
      three Business Days prior to the effective date of such termination or
      reduction, specifying such election and the effective date thereof. Promptly
      following receipt of any notice, the Administrative Agent shall advise the
      Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
      to this Section
      2.06(b)(ii)
      shall

     

    
      
        
        

      

      
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    be
      irrevocable. Any termination or reduction of the Aggregate Maximum Credit
      Amounts shall be permanent and may not be reinstated except pursuant to Section
      2.06(c). Each reduction of the Aggregate Maximum Credit Amounts shall be made
      ratably among the Lenders in accordance with each Lender’s Applicable
      Percentage.

     

    (c)  Optional
      Increase in Aggregate Maximum Credit Amounts.

     

    (i)  Subject
      to the conditions set forth in Section 2.06(c)(ii), the Borrower may increase
      the Aggregate Maximum Credit Amounts then in effect with the prior written
      consent of the Administrative Agent by increasing the Maximum Credit Amount
      of a
      Lender or by causing a Person that at such time is not a Lender to become a
      Lender (an “Additional
      Lender”).

     

    (ii)  Any
      increase in the Aggregate Maximum Credit Amounts shall be subject to the
      following additional conditions:

     

    (A)  such
      increase shall not be less than $15,000,000 unless the Administrative Agent
      otherwise consents, and no such increase shall be permitted if after giving
      effect thereto the Aggregate Maximum Credit Amounts would exceed
      $150,000,000;

     

    (B)  no
      Default shall have occurred and be continuing at the effective date of such
      increase;

     

    (C)  on
      the
      effective date of such increase, no Eurodollar Borrowings shall be outstanding
      or if any Eurodollar Borrowings are outstanding, then the effective date of
      such
      increase shall be the last day of the Interest Period in respect of such
      Eurodollar Borrowings unless the Borrower pays compensation required by Section
      5.02;

     

    (D)  no
      Lender’s Maximum Credit Amount may be increased without the consent of such
      Lender;

     

    (E)  if
      the
      Borrower elects to increase the Aggregate Maximum Credit Amounts by increasing
      the Maximum Credit Amount of a Lender, the Borrower and such Lender shall
      execute and deliver to the Administrative Agent a certificate substantially
      in
      the form of Exhibit H-1 (a “Maximum
      Credit Amount Increase Certificate”),
      together with a processing and recordation fee of $3,500, and the Borrower
      shall
      deliver a new Note payable to the order of such Lender in a principal amount
      equal to its Maximum Credit Amount after giving effect to such increase, and
      otherwise duly completed; and

     

    (F)  If
      the
      Borrower elects to increase the Aggregate Maximum Credit Amounts by causing
      an
      Additional Lender to become a party to this Agreement, then the Borrower and
      such Additional Lender shall execute and deliver to the Administrative Agent
      a
      certificate substantially in the form of Exhibit H-2 (an “Additional
      Lender Certificate”),
      together with an Administrative Questionnaire and a processing and recordation
      fee of $3,500, and the Borrower shall deliver a Note payable to the order of
      such Additional Lender in a principal amount equal to its Maximum Credit Amount,
      and otherwise duly completed.

     

    
      
        
        

      

      
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    (iii)  Subject
      to acceptance and recording thereof pursuant to Section 2.06(c)(iv), from and
      after the effective date specified in the Maximum Credit Amount Increase
      Certificate or the Additional Lender Certificate (or if any Eurodollar
      Borrowings are outstanding, then the last day of the Interest Period in respect
      of such Eurodollar Borrowings, unless the Borrower has paid compensation
      required by Section 5.02): (A) the amount of the Aggregate Maximum Credit
      Amounts shall be increased as set forth therein, and (B) in the case of an
      Additional Lender Certificate, any Additional Lender party thereto shall be
      a
      party to this Agreement and the other Loan Documents and have the rights and
      obligations of a Lender under this Agreement and the other Loan Documents.
      In
      addition, the Lender or the Additional Lender, as applicable, shall purchase
      a
      pro rata portion of the outstanding Loans (and participation interests in
      Letters of Credit) of each of the other Lenders (and such Lenders hereby agree
      to sell and to take all such further action to effectuate such sale) such that
      each Lender (including any Additional Lender, if applicable) shall hold its
      Applicable Percentage of the outstanding Loans (and participation interests)
      after giving effect to the increase in the Aggregate Maximum Credit
      Amounts.

     

    (iv)  Upon
      its
      receipt of a duly completed Maximum Credit Amount Increase Certificate or an
      Additional Lender Certificate, executed by the Borrower and the Lender or the
      Borrower and the Additional Lender party thereto, as applicable, the processing
      and recording fee referred to in Section 2.06(c)(ii), the Administrative
      Questionnaire referred to in Section 2.06(c)(ii), if applicable, and the written
      consent of the Administrative Agent to such increase required by Section
      2.06(c)(i), the Administrative Agent shall accept such Maximum Credit Amount
      Increase Certificate or Additional Lender Certificate and record the information
      contained therein in the Register required to be maintained by the
      Administrative Agent pursuant to Section 12.04(b)(iv). No increase in the
      Aggregate Maximum Credit Amounts shall be effective for purposes of this
      Agreement unless it has been recorded in the Register as provided in this
      Section 2.06(c)(iv).

     

    Section
      2.07  Borrowing
      Base.

     

    (a)  Initial
      Borrowing Base.
      For the
      period from and including the Effective Date to but excluding the first
      Redetermination Date, the amount of the Borrowing Base shall be $55,000,000.
      Notwithstanding the foregoing, the Borrowing Base may be subject to further
      adjustments from time to time pursuant to Section
      8.13(c)
      or
      Section 9.11(d).

     

    (b)  Scheduled
      and Interim Redeterminations.
      The
      Borrowing Base shall be redetermined semi-annually
      in accordance with this Section
      2.07
      (a
“Scheduled
      Redetermination”),
      and,
      subject to Section
      2.07(d),
      such
      redetermined Borrowing Base shall become effective and applicable to the
      Borrower, the Agents, the Issuing Bank and the Lenders on April 1st and October
      1st of each
      year,
      commencing October
      1,
      2006.
      In
      addition, the Borrower may, by notifying the Administrative Agent thereof,
      and
      the Administrative Agent may, at the direction of the Super-Majority Lenders,
      by
      notifying the Borrower thereof, two times during the 12-month period following
      the Effective Date, and one time during any 12-month period thereafter, each
      elect to cause the Borrowing Base to be redetermined between 

     

    
      
        
        

      

      
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    Scheduled
      Redeterminations (an “Interim
      Redetermination”)
      in
      accordance with this Section
      2.07.

     

    (c)  Scheduled
      and Interim Redetermination Procedure.

     

    (i)  Each
      Scheduled Redetermination and each Interim Redetermination shall be effectuated
      as follows: Upon receipt by the Administrative Agent of (A)
      the
      Reserve Report and the certificate required to be delivered by the Borrower
      to
      the Administrative Agent, in the case of a Scheduled Redetermination, pursuant
      to Section
      8.12(a)
      and
(c),
      and, in
      the case of an Interim Redetermination, pursuant to Section
      8.12(b)
      and
(c),
      and
(B)
      such
      other reports, data and supplemental information, including, without limitation,
      the information provided pursuant to Section
      8.12(c),
      as may,
      from time to time, be reasonably requested by the Majority Lenders (the Reserve
      Report, such certificate and such other reports, data and supplemental
      information being the “Engineering
      Reports”),
      the
      Administrative Agent shall evaluate the information contained in the Engineering
      Reports and shall, in its sole discretion, propose a new Borrowing Base (the
      “Proposed
      Borrowing Base”)
      based
      upon such information and such other information (including, without limitation,
      the status of title information with respect to the Oil and Gas Properties
      as
      described in the Engineering Reports and the existence of any other Debt) as
      the
      Administrative Agent deems appropriate in its sole discretion and consistent
      with its normal oil and gas lending criteria as it exists at the particular
      time.

     

    (ii)  The
      Administrative Agent shall notify the Borrower and the Lenders of the Proposed
      Borrowing Base (the “Proposed
      Borrowing Base Notice”):
      

     

    (A)  in
      the
      case of a Scheduled Redetermination (1)
      if the
      Administrative Agent shall have received the Engineering Reports required to
      be
      delivered by the Borrower pursuant to Section
      8.12(a)
      and
(c)
      in a
      timely and complete manner, then on or before March 15th and September 15th
      of
      such year following the date of delivery or (2)
      if the
      Administrative Agent shall not have received the Engineering Reports required
      to
      be delivered by the Borrower pursuant to Section
      8.12(a)
      and
(c)
      in a
      timely and complete manner, then promptly after the Administrative Agent has
      received complete Engineering Reports from the Borrower and has had a reasonable
      opportunity to determine the Proposed Borrowing Base in accordance with
Section
      2.07(c)(i);
      and

     

    (B)  in
      the
      case of an Interim Redetermination, promptly, and in any event, within fifteen
      (15) days after the Administrative Agent has received the required Engineering
      Reports.

     

    (iii)  Any
      Proposed Borrowing Base that would increase the Borrowing Base then in effect
      must be approved or deemed to have been approved by all of the Lenders as
      provided in this Section
      2.07(c)(iii);
      and any
      Proposed Borrowing Base that would decrease or maintain the Borrowing Base
      then
      in effect must be approved or be deemed to have been approved by the
      Super-Majority Lenders as provided in this Section
      2.07(c)(iii).
      Upon
      receipt of the Proposed Borrowing Base Notice, each Lender shall have fifteen
      (15) days to agree with 

     

    
      
        
        

      

      
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    the
      Proposed Borrowing Base or disagree with the Proposed Borrowing Base by
      proposing an alternate Borrowing Base. If at the end of such fifteen (15) days,
      any Lender has not communicated its approval or disapproval in writing to the
      Administrative Agent, such silence shall be deemed to be an approval of the
      Proposed Borrowing Base. If, at the end of such 15-day period, all of the
      Lenders, in the case of a Proposed Borrowing Base that would increase the
      Borrowing Base then in effect, or the Super-Majority Lenders, in the case of
      a
      Proposed Borrowing Base that would decrease or maintain the Borrowing Base
      then
      in effect, have approved or deemed to have approved, as aforesaid, then the
      Proposed Borrowing Base shall become the new Borrowing Base, effective on the
      date specified in Section
      2.07(d).
      If,
      however, at the end of such 15-day period, all of the Lenders or the
      Super-Majority Lenders, as applicable, have not approved or deemed to have
      approved, as aforesaid, then the Administrative Agent shall poll the Lenders
      to
      ascertain the highest Borrowing Base then acceptable to a number of Lenders
      sufficient to constitute the Super-Majority Lenders and, so long as such amount
      does not increase the Borrowing Base then in effect, such amount shall become
      the new Borrowing Base, effective on the date specified in Section
      2.07(d).

     

    (d)  Effectiveness
      of a Redetermined Borrowing Base.
      After a
      redetermined Borrowing Base is approved or is deemed to have been approved
      by
      all of the Lenders or the Super-Majority Lenders, as applicable, pursuant to
      Section
      2.07(c)(iii),
      the
      Administrative Agent shall notify the Borrower and the Lenders of the amount
      of
      the redetermined Borrowing Base (the “New
      Borrowing Base Notice”),
      and
      such amount shall become the new Borrowing Base, effective and applicable to
      the
      Borrower, the Agents, the Issuing Bank and the Lenders:

     

    (i)  in
      the
      case of a Scheduled Redetermination, (A) if the Administrative Agent shall
      have
      received the Engineering Reports required to be delivered by the Borrower
      pursuant to Section
      8.12(a)
      and
(c)
      in a
      timely and complete manner, then on the April 1st or October 1st, as applicable,
      following such notice, or (B) if the Administrative Agent shall not have
      received the Engineering Reports required to be delivered by the Borrower
      pursuant to Section
      8.12(a)
      and
(c)
      in a
      timely and complete manner, then on the Business Day next succeeding delivery
      of
      such notice; and

     

    (ii)  in
      the
      case of an Interim Redetermination, on the Business Day next succeeding delivery
      of such notice. 

     

    Such
      amount shall then become the Borrowing Base until the next Scheduled
      Redetermination Date, the next Interim Redetermination Date or the next
      adjustment to the Borrowing Base under Section
      8.13(c)
      or
      Section 9.11(d), whichever occurs first. Notwithstanding the foregoing, no
      Scheduled Redetermination or Interim Redetermination shall become effective
      until the New Borrowing Base Notice related thereto is received by the
      Borrower.

     

    Section
      2.08  Letters
      of Credit.

     

    (a)  General.
      Subject
      to the terms and conditions set forth herein, the Borrower may request the
      issuance of dollar denominated Letters of Credit for its own account or for
      the
      account of any of its Subsidiaries, in a form reasonably acceptable to the
      Administrative Agent and the Issuing Bank, at any time and from time to time
      during the 

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    Availability
      Period; provided that the Borrower may not request the issuance, amendment,
      renewal or extension of Letters of Credit hereunder if a Borrowing Base
      Deficiency exists at such time or would exist as a result thereof. In the event
      of any inconsistency between the terms and conditions of this Agreement and
      the
      terms and conditions of any form of letter of credit application or other
      agreement submitted by the Borrower to, or entered into by the Borrower with,
      the Issuing Bank relating to any Letter of Credit, the terms and conditions
      of
      this Agreement shall control.

     

    (b)  Notice
      of Issuance, Amendment, Renewal, Extension; Certain Conditions.
      To
      request the issuance of a Letter of Credit (or the amendment, renewal or
      extension of an outstanding Letter of Credit), the Borrower shall hand deliver
      or telecopy (or transmit by electronic communication, if arrangements for doing
      so have been approved by the Issuing Bank) to the Issuing Bank and the
      Administrative Agent (not less than five (5) Business Days in advance of the
      requested date of issuance, amendment, renewal or extension) a
      notice:

     

    (i)  requesting
      the issuance of a Letter of Credit or identifying the Letter of Credit to be
      amended, renewed or extended;

     

    (ii)  specifying
      the date of issuance, amendment, renewal or extension (which shall be a Business
      Day);

     

    (iii)  specifying
      the date on which such Letter of Credit is to expire (which shall comply with
      Section
      2.08(c));

     

    (iv)  specifying
      the amount of such Letter of Credit;

     

    (v)  specifying
      the name and address of the beneficiary thereof and such other information
      as
      shall be necessary to prepare, amend, renew or extend such Letter of Credit;
      and

     

    (vi)  specifying
      the amount of the then effective Borrowing Base and whether a Borrowing Base
      Deficiency exists at such time, the current total Revolving Credit Exposures
      (without regard to the requested Letter of Credit or the requested amendment,
      renewal or extension of an outstanding Letter of Credit) and the pro
      forma
      total
      Revolving Credit Exposures (giving effect to the requested Letter of Credit
      or
      the requested amendment, renewal or extension of an outstanding Letter of
      Credit).

     

    Each
      notice shall constitute a representation that after giving effect to the
      requested issuance, amendment, renewal or extension, as applicable, (i) the
      LC
      Exposure shall not exceed the LC Commitment and (ii) the total Revolving Credit
      Exposures shall not exceed the total Commitments (i.e. the lesser of the
      Aggregate Maximum Credit Amounts and the then effective Borrowing
      Base).

     

    If
      requested by the Issuing Bank, the Borrower also shall submit a letter of credit
      application on the Issuing Bank’s standard form in connection with any request
      for a Letter of Credit. 

     

    (c)  Expiration
      Date.
      Each
      Letter of Credit shall expire at or prior to the close of business on the
      earlier of (i)
      the date
      one year after the date of the issuance of such Letter of 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    Credit
      (or, in the case of any renewal or extension thereof, one year after such
      renewal or extension) and (ii)
      the date
      that is five Business Days prior to the Maturity Date.

     

    (d)  Participations.
      By the
      issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing
      the amount thereof) and without any further action on the part of the Issuing
      Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each
      Lender hereby acquires from the Issuing Bank, a participation in such Letter
      of
      Credit equal to such Lender’s Applicable Percentage of the aggregate amount
      available to be drawn under such Letter of Credit. In consideration and in
      furtherance of the foregoing, each Lender hereby absolutely and unconditionally
      agrees to pay to the Administrative Agent, for the account of the Issuing Bank,
      such Lender’s Applicable Percentage of each LC Disbursement made by the Issuing
      Bank and not reimbursed by the Borrower on the date due as provided in
Section
      2.08(e),
      or of
      any reimbursement payment required to be refunded to the Borrower for any
      reason. Each Lender acknowledges and agrees that its obligation to acquire
      participations pursuant to this Section
      2.08(d)
      in
      respect of Letters of Credit is absolute and unconditional and shall not be
      affected by any circumstance whatsoever, including any amendment, renewal or
      extension of any Letter of Credit or the occurrence and continuance of a
      Default, the existence of a Borrowing Base Deficiency or reduction or
      termination of the Commitments, and that each such payment shall be made without
      any offset, abatement, withholding or reduction whatsoever.

     

    (e)  Reimbursement.
      If the
      Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit,
      the Borrower shall reimburse such LC Disbursement by paying to the
      Administrative Agent an amount equal to such LC Disbursement not later than
      11:00 a.m., Houston time, on the date that such LC Disbursement is made, if
      the
      Borrower shall have received notice of such LC Disbursement prior to 10:00
      a.m.,
      Houston time, on such date, or, if such notice has not been received by the
      Borrower prior to such time on such date, then not later than 11:00 a.m.,
      Houston time, on (i)
      the
      Business Day that the Borrower receives such notice, if such notice is received
      prior to 9:00 a.m., Houston time, on the day of receipt, or (ii)
      the
      Business Day immediately following the day that the Borrower receives such
      notice, if such notice is not received prior to such time on the day of receipt;
      provided that if such LC Disbursement is not less than $1,000,000, the Borrower
      shall, subject to the conditions to Borrowing set forth herein, be deemed to
      have requested, and the Borrower does hereby request under such circumstances,
      that such payment be financed with an ABR Borrowing in an equivalent amount
      and,
      to the extent so financed, the Borrower’s obligation to make such payment shall
      be discharged and replaced by the resulting ABR Borrowing. If the Borrower
      fails
      to make such payment when due, the Administrative Agent shall notify each Lender
      of the applicable LC Disbursement, the payment then due from the Borrower in
      respect thereof and such Lender’s Applicable Percentage thereof. Promptly
      following receipt of such notice, each Lender shall pay to the Administrative
      Agent its Applicable Percentage of the payment then due from the Borrower,
      in
      the same manner as provided in Section
      2.05
      with
      respect to Loans made by such Lender (and Section
      2.05
      shall
      apply, mutatis
      mutandis,
      to the
      payment obligations of the Lenders), and the Administrative Agent shall promptly
      pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly
      following receipt by the Administrative Agent of any payment from the Borrower
      pursuant to this Section
      2.08(e),
      the
      Administrative Agent shall distribute such payment to the Issuing Bank or,
      to
      the extent that Lenders have made payments pursuant to this Section
      2.08(e)
      to
      reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their
      interests may appear.
      Any
      payment made by a Lender pursuant to this 

     

    
      
        
        

      

      
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    Section
      2.08(e)
      to
      reimburse the Issuing Bank for any LC Disbursement (other than the funding
      of
      ABR Loans as contemplated above) shall not constitute a Loan and shall not
      relieve the Borrower of its obligation to reimburse such LC
      Disbursement.

     

    (f)  Obligations
      Absolute.
      The
      Borrower’s obligation to reimburse LC Disbursements as provided in Section
      2.08(e)
      shall be
      absolute, unconditional and irrevocable, and shall be performed strictly in
      accordance with the terms of this Agreement under any and all circumstances
      whatsoever and irrespective of (i)
      any lack
      of validity or enforceability of any Letter of Credit, any Letter of Credit
      Agreement or this Agreement, or any term or provision therein, (ii)
      any
      draft or other document presented under a Letter of Credit proving to be forged,
      fraudulent or invalid in any respect or any statement therein being untrue
      or
      inaccurate in any respect, (iii)
      payment
      by the Issuing Bank under a Letter of Credit against presentation of a draft
      or
      other document that does not comply with the terms of such Letter of Credit
      or
      any Letter of Credit Agreement, or (iv)
      any
      other event or circumstance whatsoever, whether or not similar to any of the
      foregoing, that might, but for the provisions of this Section
      2.08(f),
      constitute a legal or equitable discharge of, or provide a right of setoff
      against, the Borrower’s obligations hereunder. Neither the Administrative Agent,
      the Lenders nor the Issuing Bank, nor any of their Related Parties shall have
      any liability or responsibility by reason of or in connection with the issuance
      or transfer of any Letter of Credit or any payment or failure to make any
      payment thereunder (irrespective of any of the circumstances referred to in
      the
      preceding sentence), or any error, omission, interruption, loss or delay in
      transmission or delivery of any draft, notice or other communication under
      or
      relating to any Letter of Credit (including any document required to make a
      drawing thereunder), any error in interpretation of technical terms or any
      consequence arising from causes beyond the control of the Issuing Bank; provided
      that the foregoing shall not be construed to excuse the Issuing Bank from
      liability to the Borrower to the extent of any direct damages (as opposed to
      consequential damages, claims in respect of which are hereby waived by the
      Borrower to the extent permitted by applicable law) suffered by the Borrower
      that are caused by the Issuing Bank’s failure to exercise care when determining
      whether drafts and other documents presented under a Letter of Credit comply
      with the terms thereof. The parties hereto expressly agree that, in the absence
      of gross negligence or willful misconduct on the part of the Issuing Bank (as
      finally determined by a court of competent jurisdiction), the Issuing Bank
      shall
      be deemed to have exercised all requisite care in each such determination.
      In
      furtherance of the foregoing and without limiting the generality thereof, the
      parties agree that, with respect to documents presented which appear on their
      face to be in substantial compliance with the terms of a Letter of Credit,
      the
      Issuing Bank may, in its sole discretion, either accept and make payment upon
      such documents without responsibility for further investigation, regardless
      of
      any notice or information to the contrary, or refuse to accept and make payment
      upon such documents if such documents are not in strict compliance with the
      terms of such Letter of Credit.

     

    (g)  Disbursement
      Procedures.
      The
      Issuing Bank shall, promptly following its receipt thereof, examine all
      documents purporting to represent a demand for payment under a Letter of Credit.
      The Issuing Bank shall promptly notify the Administrative Agent and the Borrower
      by telephone (confirmed by telecopy) of such demand for payment and whether
      the
      Issuing Bank has made or will make an LC Disbursement thereunder; provided
      that
      any failure to give or delay in giving such notice shall not relieve the
      Borrower of its obligation to reimburse the Issuing Bank and the Lenders with
      respect to any such LC Disbursement. 

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    (h)  Interim
      Interest.
      If the
      Issuing Bank shall make any LC Disbursement, then, until the Borrower shall
      have
      reimbursed the Issuing Bank for such LC Disbursement (either with its own funds
      or a Borrowing under Section
      2.08(e)),
      the
      unpaid amount thereof shall bear interest, for each day from and including
      the
      date such LC Disbursement is made to but excluding the date that the Borrower
      reimburses such LC Disbursement, at the rate per annum then applicable to ABR
      Loans. Interest accrued pursuant to this Section
      2.08(h)
      shall be
      for the account of the Issuing Bank, except that interest accrued on and after
      the date of payment by any Lender pursuant to Section
      2.08(e)
      to
      reimburse the Issuing Bank shall be for the account of such Lender to the extent
      of such payment.

     

    (i)  Replacement
      of the Issuing Bank.
      The
      Issuing Bank may be replaced at any time by written agreement among the
      Borrower, the Administrative Agent, the replaced Issuing Bank and the successor
      Issuing Bank. The Administrative Agent shall notify the Lenders of any such
      replacement of the Issuing Bank. At the time any such replacement shall become
      effective, the Borrower shall pay all unpaid fees accrued for the account of
      the
      replaced Issuing Bank pursuant to Section
      3.05(b).
      From
      and after the effective date of any such replacement, (i)
      the
      successor Issuing Bank shall have all the rights and obligations of the Issuing
      Bank under this Agreement with respect to Letters of Credit to be issued
      thereafter and (ii)
      references herein to the term “Issuing Bank” shall be deemed to refer to such
      successor or to any previous Issuing Bank, or to such successor and all previous
      Issuing Banks, as the context shall require. After the replacement of the
      Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto
      and shall continue to have all the rights and obligations of the Issuing Bank
      under this Agreement with respect to Letters of Credit issued by it prior to
      such replacement, but shall not be required to issue additional Letters of
      Credit.

     

    (j)  Cash
      Collateralization.
      If
(i)
      any
      Event of Default shall occur and be continuing and the Borrower receives notice
      from the Administrative Agent or the Majority Lenders demanding the deposit
      of
      cash collateral pursuant to this Section
      2.08(j),
      or
(ii)
      the
      Borrower is required to pay to the Administrative Agent the excess attributable
      to an LC Exposure in connection with any prepayment pursuant to Section
      3.04(c),
      then
      the Borrower shall deposit, in an account with the Administrative Agent, in
      the
      name of the Administrative Agent and for the benefit of the Lenders, an amount
      in cash equal to, in the case of an Event of Default, the LC Exposure, and
      in
      the case of a payment required by Section
      3.04(c),
      the
      amount of such excess as provided in Section
      3.04(c),
      as of
      such date plus any accrued and unpaid interest thereon; provided that the
      obligation to deposit such cash collateral shall become effective immediately,
      and such deposit shall become immediately due and payable, without demand or
      other notice of any kind, upon the occurrence of any Event of Default with
      respect to the Borrower or any Subsidiary described in Section
      10.01(h)
      or
Section
      10.01(i).
      The
      Borrower hereby grants to the Administrative Agent, for the benefit of the
      Issuing Bank and the Lenders, an exclusive first priority and continuing
      perfected security interest in and Lien on such account and all cash, checks,
      drafts, certificates and instruments, if any, from time to time deposited or
      held in such account, all deposits or wire transfers made thereto, any and
      all
      investments purchased with funds deposited in such account, all interest,
      dividends, cash, instruments, financial assets and other Property from time
      to
      time received, receivable or otherwise payable in respect of, or in exchange
      for, any or all of the foregoing, and all proceeds, products, accessions, rents,
      profits, income and benefits therefrom, and any substitutions and replacements
      therefor. The Borrower’s obligation to deposit amounts pursuant to this
Section
      2.08(j)
      shall be
      absolute 

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    and
      unconditional, without regard to whether any beneficiary of any such Letter
      of
      Credit has attempted to draw down all or a portion of such amount under the
      terms of a Letter of Credit, and, to the fullest extent permitted by applicable
      law, shall not be subject to any defense or be affected by a right of set-off,
      counterclaim or recoupment which the Borrower or any of its Subsidiaries may
      now
      or hereafter have against any such beneficiary, the Issuing Bank, the
      Administrative Agent, the Lenders or any other Person for any reason whatsoever.
      Such deposit shall be held as collateral securing the payment and performance
      of
      the Borrower’s and the Guarantor’s obligations under this Agreement and the
      other Loan Documents. The Administrative Agent shall have exclusive dominion
      and
      control, including the exclusive right of withdrawal, over such account. Other
      than any interest earned on the investment of such deposits, which investments
      shall be made at the option and sole discretion of the Administrative Agent
      and
      at the Borrower’s risk and expense, such deposits shall not bear interest.
      Interest or profits, if any, on such investments shall accumulate in such
      account. Moneys in such account shall be applied by the Administrative Agent
      to
      reimburse the Issuing Bank for LC Disbursements for which it has not been
      reimbursed and, to the extent not so applied, shall be held for the satisfaction
      of the reimbursement obligations of the Borrower for the LC Exposure at such
      time or, if the maturity of the Loans has been accelerated, be applied to
      satisfy other obligations of the Borrower and the Guarantors under this
      Agreement or the other Loan Documents. If
      the
      Borrower is required to provide an amount of cash collateral hereunder as a
      result of the occurrence of an Event of Default, and the Borrower is not
      otherwise required to pay to the Administrative Agent the excess attributable
      to
      an LC Exposure in connection with any prepayment pursuant to Section
      3.04(c),
      then
      such amount (to the extent not applied as aforesaid) shall be returned to the
      Borrower within three Business Days after all Events of Default have been cured
      or waived. 

     

    ARTICLE
      III  

    Payments
      of Principal and Interest; Prepayments; Fees

     

    Section
      3.01  Repayment
      of Loans

     

    .
      The
      Borrower hereby unconditionally promises to pay to the Administrative Agent
      for
      the account of each Lender the then unpaid principal amount of each Loan on
      the
      Termination Date.

     

    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, but in no event to exceed the Highest Lawful
      Rate.

     

    (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 Borrowing plus the
      Applicable Margin, but in no event to exceed the Highest Lawful
      Rate.

     

    (c)  Post-Default
      Rate and Borrowing Base Deficiency Rate.
      Notwithstanding
      the foregoing, (i) 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, and including any
      payments in respect of a Borrowing Base 

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    Deficiency
      under Section
      3.04(c),
      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),
      but in
      no event to exceed the Highest Lawful Rate, and (ii) 
      during any Borrowing Base Deficiency, all Loans outstanding at such time shall
      bear interest, after as well as before judgment, at the rate then applicable
      to
      such Loans, plus the Applicable Margin, if any, plus an additional two percent
      (2%), but in no event to exceed the Highest Lawful Rate.

     

    (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 Termination 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
      (other than an optional prepayment of an ABR Loan prior to the Termination
      Date), 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, unless
      such computation would exceed the Highest Lawful Rate, in which case interest
      shall be computed on the basis of a year of 365 days (or 366 days in a leap
      year), 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

     

    (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, (i) 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) if any Borrowing Request requests a Eurodollar Borrowing, such
      Borrowing shall be made as an ABR Borrowing.

     

    
      
        
        

      

      
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    Section
      3.04  Prepayments.

     

    (a)  Optional
      Prepayments.
      The
      Borrower shall have the right at any time and from time to time to prepay any
      Borrowing 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 a
      Eurodollar Borrowing, not later than 11:00 a.m., Houston time, three Business
      Days before the date of prepayment, or (ii) in the case of prepayment of an
      ABR
      Borrowing, not later than 11:00 a.m., Houston 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 each Borrowing or portion thereof
      to
      be prepaid. Promptly following receipt of any such notice relating to a
      Borrowing, the Administrative Agent shall advise the Lenders of the contents
      thereof. Each partial prepayment of any Borrowing shall be in an amount that
      would be permitted in the case of an advance of a Borrowing of the same Type
      as
      provided in Section
      2.02.
      Each
      prepayment of a Borrowing shall be applied ratably to the Loans included in
      the
      prepaid Borrowing. Prepayments shall be accompanied by accrued interest to
      the
      extent required by Section
      3.02. 

     

    (c)  Mandatory
      Prepayments.

     

    (i)  If,
      after
      giving effect to any termination or reduction of the Aggregate Maximum Credit
      Amounts pursuant to Section
      2.06(b),
      the
      total Revolving Credit Exposures exceeds the total Commitments, then the
      Borrower shall (A)
      prepay
      the Borrowings on the date of such termination or reduction in an aggregate
      principal amount equal to such excess, and (B)
      if any
      excess remains after prepaying all of the Borrowings as a result of an LC
      Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
      equal to such excess to be held as cash collateral as provided in Section
      2.08(j).

     

    (ii)  Upon
      any
      redetermination of or adjustment to the amount of the Borrowing Base in
      accordance with Section
      2.07
      or
Section
      8.13(c),
      if the
      total Revolving Credit Exposures exceeds the redetermined or adjusted Borrowing
      Base, then the Borrower shall (A)
      prepay
      the Borrowings in an aggregate principal amount equal to such excess, and
(B)
      if any
      excess remains after prepaying all of the Borrowings as a result of an LC
      Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
      equal to such excess to be held as cash collateral as provided in Section
      2.08(j).
      The
      Borrower shall be obligated to make such prepayment and/or deposit of cash
      collateral within forty-five (45) days following its receipt of the New
      Borrowing Base Notice in accordance with Section
      2.07(d)
      or the
      date the adjustment occurs; provided that all payments required to be made
      pursuant to this Section
      3.04(c)(ii)
      must be
      made on or prior to the Termination Date.

     

    (iii)  Upon
      any
      adjustments to the Borrowing Base pursuant to Section 9.11(d), if the total
      Revolving Credit Exposures exceeds the Borrowing Base as adjusted, then the
      Borrower shall (A)
      prepay
      the Borrowings in an aggregate principal amount 

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    equal
      to
      such excess, and (B)
      if any
      excess remains after prepaying all of the Borrowings as a result of an LC
      Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
      equal to such excess to be held as cash collateral as provided in Section
      2.08(j).
      The
      Borrower shall be obligated to make such prepayment and/or deposit of cash
      collateral within two (2) Business Days following the date it or any Subsidiary
      receives cash proceeds as a result of such disposition; provided that all
      payments required to be made pursuant to this Section
      3.04(c)(iii)
      must be
      made on or prior to the Termination Date.

     

    (iv)  Each
      prepayment of Borrowings pursuant to this Section
      3.04(c)
      shall be
      applied, first, ratably to any ABR Borrowings then outstanding, and, second,
      to
      any Eurodollar Borrowings then outstanding, and if more than one Eurodollar
      Borrowing is then outstanding, to each such Eurodollar Borrowing in order of
      priority 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)  No
      Premium or Penalty.
      Prepayments permitted or required under this Section
      3.04
      shall be
      without premium or penalty, except as required under Section
      5.02.
      

     

    Section
      3.05  Fees.

     

    (a)  Commitment
      Fees.
      The
      Borrower agrees to pay to the Administrative Agent for the account of each
      Lender a commitment fee, which shall accrue at the applicable Commitment Fee
      Rate on the average daily amount of the unused amount of the Commitment of
      such
      Lender during the period from and including the date of this Agreement to but
      excluding the Termination Date. Accrued commitment fees shall be payable in
      arrears on the last day of March, June, September and December of each year
      and
      on the Termination Date, commencing on the first such date to occur after the
      date hereof. All commitment fees shall be computed on the basis of a year of
      360
      days, unless such computation would exceed the Highest Lawful Rate, in which
      case interest shall be computed on the basis of a year of 365 days (or 366
      days
      in a leap year), and shall be payable for the actual number of days elapsed
      (including the first day but excluding the last day).

     

    (b)  Letter
      of Credit Fees.
      The
      Borrower agrees to pay (i) to the Administrative Agent for the account of each
      Lender a participation fee with respect to its participations in Letters of
      Credit, which shall accrue at the same Applicable Margin used to determine
      the
      interest rate applicable to Eurodollar Loans on the average daily amount of
      such
      Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed
      LC Disbursements) during the period from and including the date of this
      Agreement to but excluding the later of the date on which such Lender’s
      Commitment terminates and the date on which such Lender ceases to have any
      LC
      Exposure, (ii) to the Issuing Bank a fronting fee, which shall accrue at the
      rate of 0.25% per annum on the average daily amount of the LC Exposure
      (excluding any portion thereof attributable to unreimbursed LC Disbursements)
      during the period 

     

    
      
        
        

      

      
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    from
      and
      including the date of this Agreement to but excluding the later of the date
      of
      termination of the Commitments and the date on which there ceases to be any
      LC
      Exposure, provided that in no event shall such fee be less than $500 during
      any
      quarter, and (iii) to the Issuing Bank, for its own account, its standard fees
      with respect to the issuance, amendment, renewal or extension of any Letter
      of
      Credit or processing of drawings thereunder. Participation fees and fronting
      fees accrued through and including the last day of March, June, September and
      December of each year shall be payable on the third Business Day following
      such
      last day, commencing on the first such date to occur after the date of this
      Agreement; provided that all such fees shall be payable on the Termination
      Date
      and any such fees accruing after the Termination Date shall be payable on
      demand. Any other fees payable to the Issuing Bank pursuant to this Section
      3.05(b)
      shall be
      payable within 10 days after demand. All participation fees and fronting fees
      shall be computed on the basis of a year of 360 days, unless such computation
      would exceed the Highest Lawful Rate, in which case interest shall be computed
      on the basis of a year of 365 days (or 366 days in a leap year), and shall
      be
      payable for the actual number of days elapsed (including the first day but
      excluding the last day).

     

    (c)  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.

     

    (d)  Borrowing
      Base Increase Fees.
      The
      Borrower agrees to pay to the Administrative Agent, for the account of each
      Lender then party to this Agreement, ratably in accordance with its Applicable
      Percentage, a Borrowing Base increase fee in an amount equal to 0.25% on the
      amount of any increase of the Borrowing Base over the highest Borrowing Base
      previously in effect, payable on the effective date of any such increase to
      the
      Borrowing Base. No fee will be payable on such Borrowing Base amounts that
      exceed the Aggregate Maximum Credit Amounts.

     

    ARTICLE
      IV

    Payments;
      Pro Rata Treatment; Sharing of Set-offs

     

    Section
      4.01  Payments
      Generally; Pro Rata Treatment; Sharing of Set-offs.
      

     

    (a)  Payments
      by the Borrower.
      The
      Borrower shall make each payment required to be made by it hereunder (whether
      of
      principal, interest, fees or reimbursement of LC Disbursements, or of amounts
      payable under Section
      5.01,
      Section
      5.02,
      Section
      5.03
      or
      otherwise) prior to 11:00 a.m., Houston 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,
      except
      payments to be made directly to the Issuing Bank 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 

     

    
      
        
        

      

      
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    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, unreimbursed LC Disbursements,
      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 and
      unreimbursed LC Disbursements then due hereunder, ratably among the parties
      entitled thereto in accordance with the amounts of principal and unreimbursed
      LC
      Disbursements then due to such parties.

     

    (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
      or
      participations in LC Disbursements resulting in such Lender receiving payment
      of
      a greater proportion of the aggregate amount of its Loans and participations
      in
      LC Disbursements 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 and participations
      in LC Disbursements 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 and participations in LC Disbursements; 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 or participations in LC Disbursements 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 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 or the Issuing Bank 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 or the Issuing Bank, as the case may be, the amount
      due. In such event, if the Borrower has not in fact made such payment, then
      each
      of the Lenders or the Issuing Bank, as the case may be, severally agrees to
      repay to the Administrative Agent forthwith on demand the amount so distributed
      to such Lender or Issuing Bank 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

     

    
      
        
        

      

      
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    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),
      Section
      2.08(d),
      Section
      2.08(e)
      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:

     

    (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 (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 or the Issuing Bank 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 or 

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

       

    

    the
      Issuing Bank’s capital or on the capital of such Lender’s or the Issuing Bank’s
      holding company, if any, as a consequence of this Agreement or the Loans made
      by, or participations in Letters of Credit held by, such Lender, or the Letters
      of Credit issued by the Issuing Bank, to a level below that which such Lender
      or
      the Issuing Bank or such Lender’s or the Issuing Bank’s holding company could
      have achieved but for such Change in Law (taking into consideration such
      Lender’s or the Issuing Bank’s policies and the policies of such Lender’s or the
      Issuing Bank’s holding company with respect to capital adequacy), then from time
      to time the Borrower will pay to such Lender or the Issuing Bank, as the case
      may be, such additional amount or amounts as will compensate such Lender or
      the
      Issuing Bank or such Lender’s or the Issuing Bank’s holding company for any such
      reduction suffered.

     

    (c)  Certificates.
      A
      certificate of a Lender or the Issuing Bank setting forth the amount or amounts
      necessary to compensate such Lender or the Issuing Bank 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 or the Issuing Bank, 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 or the Issuing Bank to demand compensation
      pursuant to this Section
      5.01
      shall
      not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand
      such compensation; provided that the Borrower shall not be required to
      compensate a Lender or the Issuing Bank pursuant to this Section
      5.01
      for any
      increased costs or reductions incurred more than 365 days prior to the date
      that
      such Lender or the Issuing Bank, as the case may be, notifies the Borrower
      of
      the Change in Law giving rise to such increased costs or reductions and of
      such
      Lender’s or the Issuing Bank’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 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 

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    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, Lender or Issuing Bank (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, each Lender and the Issuing
      Bank, within 10 days after written demand therefor, for the full amount of
      any
      Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender
      or the Issuing Bank, 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, a Lender or the Issuing Bank 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 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.

     

    
      
        
        

      

      
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    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 Loans and of the Issuing Bank to issue
      Letters of Credit 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):

     

    (a)  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. 

     

    (b)  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
      

     

    
      
        
        

      

      
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    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.

     

    (c)  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.

     

    (d)  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.

     

    (e)  The
      Administrative Agent shall have received from each party hereto counterparts
      (in
      such number as may be requested by the Administrative Agent) of this Agreement
      signed on behalf of such party.

     

    (f)  The
      Administrative Agent shall have received duly executed Notes payable to the
      order of each Lender in a principal amount equal to its Maximum Credit Amount
      dated as of the date hereof.

     

    (g)  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:

     

    (i)  be
      reasonably satisfied that the Security Instruments create first priority,
      perfected Liens (subject only to 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 65% of the total value of the Oil and Gas
      Properties evaluated in the Initial Reserve Report; and

     

    (ii)  have
      received 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 each Foreign Subsidiary that is not a
      Guarantor, which is directly owned by either the Borrower or a Domestic
      Subsidiary.

     

    (h)  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.

     

    (i)  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.

     

    
      
        
        

      

      
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    (j)  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 85% of the total value of the Oil and
      Gas
      Properties evaluated in the Initial Reserve Report. 

     

    (k)  The
      Administrative Agent shall be reasonably satisfied with the environmental
      condition of the Oil and Gas Properties of the Borrower and its
      Subsidiaries.

     

    (l)  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.

     

    (m)  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(c).

     

    (n)  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 those being assigned or released on or prior to the Effective Date or
      Liens
      permitted by Section
      9.03.

     

    (o)  The
      Administrative Agent shall have received confirmation of the transfer of 100%
      of
      the issued and outstanding Equity Interests in K-Mc Venture I LLC to the
      Borrower.

     

    (p)  The
      Administrative Agent shall have received from the Borrower a written policy
      regarding its and its Subsidiaries’ marketing activities for Hydrocarbons and
      furnish a copy thereof to the Administrative Agent and the Lenders, such policy
      to be in form and substance reasonably satisfactory to the Majority
      Lenders.

     

    (q)  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.

     

    (r)  The
      Administrative Agent shall have received certified copies of the recorded
      assignments filed in the real estate records or similar records of the proper
      Louisiana parish for those assignments and Mortgaged Properties listed in
      Schedule 8.14.

     

    (s)  The
      Administrative Agent shall have received such other documents as the
      Administrative Agent or special counsel to the Administrative Agent may
      reasonably request.

     

    The
      Administrative Agent shall notify the Borrower and the Lenders of the Effective
      Date, and such notice shall be conclusive and binding. Notwithstanding the
      foregoing, the obligations of the Lenders to make Loans and of the Issuing
      Bank
      to issue Letters of Credit hereunder shall not become effective unless each
      of
      the foregoing conditions is satisfied (or waived pursuant to Section
      12.02)
      at or
      prior to 1:00 p.m., Houston time, on May
      15,
      2006
      (and,

     

    
      
        
        

      

      
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    in
      the
      event such conditions are not so satisfied or waived, the Commitments shall
      terminate at such time).

     

    Section
      6.02  Each
      Credit Event.
      The
      obligation of each Lender to make a Loan on the occasion of any Borrowing
      (including the initial funding), and of the Issuing Bank to issue, amend, renew
      or extend any Letter of Credit, is subject to the satisfaction of the following
      conditions:

     

    (a)  At
      the
      time of and immediately after giving effect to such Borrowing or the issuance,
      amendment, renewal or extension of such Letter of Credit, as applicable, no
      Default shall have occurred and be continuing.

     

    (b)  At
      the
      time of and immediately after giving effect to such Borrowing or the issuance,
      amendment, renewal or extension of such Letter of Credit, as applicable, 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.

     

    (c)  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 or the date of issuance, amendment, renewal
      or
      extension of such Letter of Credit, as applicable, 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 or the date of issuance,
      amendment, renewal or extension of such Letter of Credit, as applicable, such
      representations and warranties shall continue to be true and correct as of
      such
      specified earlier date.

     

    (d)  The
      making of such Loan or the issuance, amendment, renewal or extension of such
      Letter of Credit, as applicable, would not conflict with, or cause any Lender
      or
      the Issuing Bank 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, the issuance,
      amendment, renewal, extension or repayment of any Letter of Credit or any
      participations therein or the consummation of the transactions contemplated
      by
      this Agreement or any other Loan Document.

     

    (e)  The
      receipt by the Administrative Agent of a Borrowing Request in accordance with
      Section
      2.03
      or a
      request for a Letter of Credit in accordance with Section
      2.08(b),
      as
      applicable.

     

    Each
      request for a Borrowing and each request for the issuance, amendment, renewal
      or
      extension of any Letter of Credit shall be deemed to constitute a representation
      and warranty by the Borrower on the date thereof as to the matters specified
      in
Section
      6.02(a)
      through
(e).

     

    
      
        
        

      

      
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    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 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 Lenders its 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 

     

    
      
        
        

      

      
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    accountants.
      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 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 

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

     

    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.

     

    (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.

     

    
      
        
        

      

      
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    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.

     

    (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 

     

    
      
        
        

      

      
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    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 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
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    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 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).
      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.

     

    
      
        
        

      

      
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    (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 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).

     

    
      
        
        

      

      
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    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(c),
      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 100,000 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 and Letters of Credit.
      The
      proceeds of the Loans and the Letters of Credit shall be used to provide working
      capital for exploration and production operations and to provide funding for
      general corporate purposes of the Borrower and its Subsidiaries. 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 or Letter of Credit 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

     

    
      
        
        

      

      
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     (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 and all Letters of Credit shall
      have
      expired or terminated and all LC Disbursements shall have been reimbursed,
      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 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 

     

    
      
        
        

      

      
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    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.

     

    (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.

     

    
      
        
        

      

      
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    (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.

     

    (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 $750,000,
      not fully covered by insurance, subject to normal deductibles;

     

    
      
        
        

      

      
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    (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 $750,000;
      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
      9.10.

     

    Section
      8.04  Payment
      of Obligations.
      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.

     

    
      
        
        

      

      
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    (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 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.

     

    
      
        
        

      

      
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    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 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 $750,000, not fully covered by insurance, subject to
      normal deductibles.

     

    
      
        
        

      

      
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    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. 

     

    Section
      8.12  Reserve
      Reports.

     

    (a)  On
      or
      before March 1st and September 1st of each year, commencing September
      1,
      2006,
      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)  In
      the
      event of an Interim Redetermination, the Borrower shall furnish to the
      Administrative Agent and the Lenders a Reserve Report 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. For
      any
      Interim Redetermination requested by the Administrative Agent or the Borrower
      pursuant to Section
      2.07(b),
      the
      Borrower shall provide such Reserve Report with an “as of” date as required by
      the Administrative Agent as soon as possible, but in any event no later than
      forty-five (45) days following the receipt of such request.

     

    (c)  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 

     

    
      
        
        

      

      
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    Reserve
      Report and such Properties are free of all Liens except for 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)
      none of
      their Oil and Gas Properties have been sold since the date of the last Borrowing
      Base determination except as set forth on an exhibit to the certificate, which
      certificate shall list all of its Oil and Gas Properties sold 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 and demonstrating the percentage of the
      total proved value of such Mortgaged Properties represent in compliance with
      Section
      8.14(a).

     

    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 Oil and Gas Properties 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 85% of the total value of the Oil and Gas Properties
      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 85% of the value of the Oil and Gas Properties 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 85% of the value of the Oil and Gas Properties 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 

     

    
      
        
        

      

      
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    remedy
      by
      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 85% requirement, and the Administrative
      Agent may send a notice to the Borrower and the Lenders that the then
      outstanding Borrowing Base shall be reduced by an amount as determined by the
      Super-Majority Lenders to cause the Borrower to be in compliance with the
      requirement to provide acceptable title information on 85% of the value of
      the
      Oil and Gas Properties. This new Borrowing Base shall become effective
      immediately after receipt of such notice.

     

    Section
      8.14  Additional
      Collateral; Additional Guarantors.

     

    (a)  In
      connection with each redetermination of the Borrowing Base, the Borrower shall
      review the Reserve Report and the list of current Mortgaged Properties (as
      described in Section
      8.12(c)(vi))
      to
      ascertain whether the Mortgaged Properties represent at least 85% of the total
      value of the Oil and Gas Properties evaluated in the most recently completed
      Reserve Report after giving effect to exploration and production activities,
      acquisitions, dispositions and production. In the event that the Mortgaged
      Properties do not represent at least 85% of such total value, then the Borrower
      shall, and shall cause its Subsidiaries to, grant, within thirty (30) days
      of
      delivery of the certificate required under Section
      8.12(c),
      to the
      Administrative Agent as security for the Indebtedness a first-priority Lien
      interest (provided that Excepted Liens of the type described in clauses (a)
      to
      (d) and (f) of the definition thereof may exist, but subject to the provisos
      at
      the end of such definition) on additional Oil and Gas Properties not already
      subject to a Lien of the Security Instruments such that after giving effect
      thereto, the Mortgaged Properties will represent at least 85% of such total
      value. All such Liens will be created and perfected by and in accordance with
      the provisions of deeds of trust, security agreements and financing statements
      or other Security Instruments, all in form and substance reasonably satisfactory
      to the Administrative Agent and in sufficient executed (and acknowledged where
      necessary or appropriate) counterparts for recording purposes. In order to
      comply with the foregoing, if any Subsidiary places a Lien on its Oil and Gas
      Properties and such Subsidiary is not a Guarantor, then it shall become a
      Guarantor and comply with Section
      8.14(b).

     

    (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) 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 

     

    
      
        
        

      

      
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    Interests
      of such Foreign Subsidiary (including, without limitation, delivery 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.

     

    (d)  The
      Borrower shall receive approval from the Mineral Management Services of the
      United States Department of Interior (the “MMS”)
      within
      90 days of the Effective Date for those assignments listed in Schedule 8.14
      and
      shall provide evidence of such approval to the Administrative Agent, in such
      form and substance acceptable to the Administrative Agent. To the extent that
      the Borrower fails to receive approval from the MMS within this 90-day period
      for any of the Mortgaged Properties listed in Schedule 8.14 and thereafter
      for
      so long as such approval is not forthcoming, then such properties shall be
      excluded from the total value of the Oil and Gas Properties for purposes of
      determining the Borrower's compliance with the requirement in Section 8.14(a)
      that the Mortgaged Properties represent at least 85% of the total value of
      the
      Oil and Gas properties evaluated in the most recently completed Reserve Report.
      To the extent, however, that any assignment listed in Schedule 8.14 is not
      a
      transaction for which the MMS typically issues approval, Borrower shall be
      deemed to have met its obligations hereunder by providing the Administrative
      Agent with certified copies of any such assignment showing recordation in the
      real estate or similar records of the proper Louisiana parish pursuant to
      Section 6.01(r).

     

    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 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 Oil and Gas Properties during the period of such
      contract, (ii)
      contracts for the sale of Hydrocarbons scheduled or reasonably estimated to
      

     

    
      
        
        

      

      
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    be
      produced from proved Oil and Gas Properties 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 and all Letters of Credit have expired or
      terminated and all LC Disbursements shall have been reimbursed, the Borrower
      covenants and agrees with the Lenders that:

     

    Section
      9.01  Financial
      Covenants.
      

     

    (a)  Ratio
      of Total Debt to EBITDAX.
      The
      Borrower will not, at any time, permit its ratio of Total Debt as of such time
      to EBITDAX for the four fiscal quarters ending on the last day of the fiscal
      quarter immediately preceding the date of determination for which financial
      statements are available to be greater than 2.5 to 1.0. For the period ending
      March 31, 2006, the Ratio of Total Debt to EBITDAX shall be calculated after
      giving pro forma effect to the acquisition of K-Mc Venture I LLC.

     

    (b)  Current
      Ratio.
      The
      Borrower will not permit, as of the last day of any fiscal quarter, its ratio
      of
(i)
      consolidated current assets (including the unused amount of the total
      Commitments, but excluding non-cash assets under FAS 133) to (ii)
      consolidated current liabilities (excluding non-cash obligations under FAS
      133
      and current maturities under this Agreement) to be less than 1.0 to 1.0. For
      the
      period ending March 31, 2006, the Current Ratio shall be calculated after giving
      pro forma effect to the acquisition of K-Mc Venture I LLC.

     

    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
      of
      the Borrower and its Subsidiaries existing on the date hereof that is reflected
      in the Financial Statements.

     

    (c)  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 

     

    
      
        
        

      

      
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    or
      which
      are being contested in good faith by appropriate action and for which adequate
      reserves have been maintained in accordance with GAAP.

     

    (d)  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
      Indebtedness permitted by this clause (d) shall not exceed
      $1,000,000.

     

    (e)  Debt
      associated with bonds or surety obligations required by Governmental
      Requirements in connection with the operation of the Oil and Gas
      Properties.

     

    (f)  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 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 April 19, 2011, (4) in the
      case of the Parent Loan, no payments may be made to the extent that prior to
      and
      after giving effect to such payment, the Borrower would have unused Commitments
      of not less than 33% of the then available aggregate Commitments and (5) in
      the
      case of the Parent Loan, the Borrower will not make and the Parent will not
      accept any payments if an Event of Default is occurring and continuing or would
      result. 

     

    (g)  endorsements
      of negotiable instruments for collection in the ordinary course of
      business.

     

    (h)  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.

     

    (i)  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.

     

    (j)  other
      Debt not to exceed $1,000,000
      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.

     

    
      
        
        

      

      
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    (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 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), (b) Subsidiaries
      may
      declare and pay dividends ratably with respect to their Equity Interests and
      (c)
      the Borrower may make Restricted Payments pursuant to and in accordance with
      stock option plans or other benefit plans for management or employees of the
      Borrower and its Subsidiaries.

     

    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.

     

    
      
        
        

      

      
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    (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
      $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
      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 $1,000,000.

     

    (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 $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
      $500,000.

     

    (l)  other
      Investments not to exceed $2,000,000 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 $1,000,000 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.

     

    
      
        
        

      

      
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    Section
      9.07  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 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
      9.08  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

     

    
      
        
        

      

      
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    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.

     

    (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
      9.09  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
      9.10  Mergers,
      Etc.
      Neither
      the Borrower nor any of its Subsidiaries will merge into or with or consolidate
      with any other Person, or 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
      9.11  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 if
      requested by the Administrative Agent, the Borrower shall deliver a certificate
      of a Responsible Officer of the Borrower certifying to that effect),
(iii)
      if such
      sale or other disposition of Oil and Gas Property or Subsidiary owning Oil
      and
      Gas Properties included 

     

    
      
        
        

      

      
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    in
      the
      most recently delivered Reserve Report during any period between two successive
      Scheduled Redetermination Dates has a fair market value in excess of five
      percent (5%) of the Borrowing Base as then in effect (as determined by the
      Administrative Agent), individually or in the aggregate, the Borrowing Base
      shall be reduced, effective immediately upon such sale or disposition, by an
      amount equal to the value, if any, assigned such Property in the most recently
      delivered Reserve Report and (iv)
      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 9.11(a) to (d) having a fair market value not to exceed $1,000,000
      during any 12-month period.

     

    Section
      9.12  Environmental
      Matters.
      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
      9.13  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 Guarantors and Wholly-Owned Subsidiaries of the Borrower and FM
      Services, Inc.) unless such transactions are otherwise permitted under this
      Agreement and are upon fair and reasonable terms no less favorable to it than
      it
      would obtain in a comparable arm’s length transaction with a Person not an
      Affiliate.

     

    Section
      9.14  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(b)
      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 9.11(d).

     

    Section
      9.15  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 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
      9.16  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 Subsidiary that would require the Borrower or such
      Subsidiary to deliver Hydrocarbons at some future time 

     

    
      
        
        

      

      
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    without
      then or thereafter receiving full payment therefor to exceed 100,000 Mcf of
      gas
      (on an Mcf equivalent basis) in the aggregate.

     

    Section
      9.17  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 (i)
      with an
      Approved Counterparty and (ii)
      the
      notional volumes for which (when aggregated with other 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 with an Approved Counterparty 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 or an Affiliate of
      a
      Lender in connection herewith, 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.

     

    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 or any reimbursement
      obligation in respect of any LC Disbursement 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
      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.

     

    
      
        
        

      

      
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    (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.

     

    (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.

     

    (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 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.

     

    
      
        
        

      

      
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    (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
      $1,000,000 (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 $1,000,000
      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: (i) terminate the Commitments, and thereupon the
      Commitments shall terminate immediately, and (ii) 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 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 (including, without limitation, the
      payment of cash collateral to secure the LC Exposure as provided in Section
      2.08(j)),
      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
      Commitments shall automatically terminate and the Notes and the principal of
      the

     

    
      
        
        

      

      
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    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 (including, without limitation, the
      payment of cash collateral to secure the LC Exposure as provided in Section
      2.08(j)),
      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)  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 and Indebtedness referred
      to in Clause (b) of the definition of Indebtedness owing to a Lender or an
      Affiliate of a Lender;

     

    (v)  fifth,
      pro
      rata to any other Indebtedness;

     

    (vi)  sixth,
      to
      serve as cash collateral to be held by the Administrative Agent to secure the
      LC
      Exposure; and 

     

    (vii)  seventh,
      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 and the Issuing Bank 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 Documents. Without limiting the generality
      of
      the foregoing, (a)
      the
      Administrative Agent shall 

     

    
      
        
        

      

      
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    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 the Lenders, as applicable,
      (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 such action. The instructions as aforesaid and any action taken

     

    
      
        
        

      

      
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    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 the 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, the Lenders and the Issuing Bank
      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, the Issuing Bank and
      the
      Borrower, and any 

     

    
      
        
        

      

      
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    Agent
      may
      be removed at any time with or without cause by the Majority Lenders. Upon
      any
      such resignation 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 and the Issuing Bank, 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 Vinson & Elkins L.L.P. 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.

     

    
      
        
        

      

      
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      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 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 and the Issuing Bank 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 and the Issuing Bank 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
      Arranger
      and
      the Syndication Agent.
      The
      Arranger 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.

     

    
      
        
        

      

      
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    ARTICLE
      XII

    Miscellaneous

     

    Section
      12.01  Notices.
      

     

    (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 600 Travis, 20th Floor,
      Houston, Texas 77002, Attention of Lisa Miller (Telecopy No. (713) 750-2666),
      and for all other correspondence other than borrowings, continuation, conversion
      and Letter of Credit requests 600 Travis, 20th Floor, Houston, Texas 77002,
      Attention of Robert C. Mertensotto (Telecopy No. (713) 216-4117);

     

    (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, the Issuing Bank 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, the Issuing Bank and the
      Lenders hereunder and under the other Loan Documents are cumulative and are
      not
      exclusive of 

     

    
      
        
        

      

      
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    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 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 or issuance of a Letter of Credit shall not
      be
      construed as a waiver of any Default, regardless of whether the Administrative
      Agent, any Lender or the Issuing Bank 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)
      increase
      the Maximum Credit Amount of any Lender without the written consent of such
      Lender, (ii)
      increase
      the Borrowing Base without the written consent of each Lenders, decrease or
      maintain the Borrowing Base without the consent of the Super-Majority Lenders,
      or modify Section
      2.07
      in any
      manner without the consent of each Lender, (iii)
      reduce
      the principal amount of any Loan or LC Disbursement 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, (iv)
      postpone
      the scheduled date of payment or prepayment of the principal amount of any
      Loan
      or LC Disbursement, 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 or extend the
      Termination Date without the written consent of each Lender affected thereby,
      (v)
      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, (vi)
      waive or
      amend Section
      3.04(c),
      Section
      6.01,
      Section
      8.14,
      Section
      10.02(c)
      or
Section
      12.14
      or
      change the definition of the terms “Domestic Subsidiary”, “Foreign Subsidiary”,
      or “Subsidiary”, without the written consent of each Lender, (vii)
      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
      8.14(a)
      to less
      than 85%, without the written consent of each Lender, or (viii)
      change
      any of the provisions of this Section
      12.02(b)
      or the
      definitions of “Majority Lenders” or “Super-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; provided further that
      no
      such agreement shall amend, modify or otherwise affect the rights or duties
      of
      the Administrative Agent, any other Agent or the Issuing Bank hereunder or
      under
      any other Loan Document without the prior written consent of the Administrative
      Agent, other such Agent or the Issuing Bank, 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.

     

    
      
        
        

      

      
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    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, without limitation, the reasonable fees, charges and
      disbursements of counsel and other outside consultants for the Administrative
      Agent, the reasonable travel, photocopy, mailing, courier, telephone and other
      similar expenses, and the cost of environmental audits and surveys and
      appraisals, in connection with the syndication of the credit facilities provided
      for herein, the preparation, negotiation, execution, delivery and administration
      (both before and after the execution hereof and including advice of counsel
      to
      the Administrative Agent as to the rights and duties of the Administrative
      Agent
      and the Lenders with respect thereto) of this Agreement and the other Loan
      Documents and any amendments, modifications or waivers of or consents related
      to
      the provisions hereof or thereof (whether or not the transactions contemplated
      hereby or thereby shall be consummated), (ii)
      all
      costs, expenses, Taxes, assessments and other charges incurred by the any Agent
      or any Lender in connection with any filing, registration, recording or
      perfection of any security interest contemplated by this Agreement or any
      Security Instrument or any other document referred to therein, (iii)
      all
      reasonable out-of-pocket expenses incurred by the Issuing Bank in connection
      with the issuance, amendment, renewal or extension of any Letter of Credit
      or
      any demand for payment thereunder, (iv)
      all
      out-of-pocket expenses incurred by any Agent, the Issuing Bank or any Lender,
      including the fees, charges and disbursements of any counsel for any Agent,
      the
      Issuing Bank or any Lender, in connection with the enforcement or protection
      of
      its rights in connection with this Agreement or any other Loan Document,
      including its rights under this Section
      12.03,
      or in
      connection with the Loans made or Letters of Credit issued hereunder, including,
      without limitation, all such out-of-pocket expenses incurred during any workout,
      restructuring or negotiations in respect of such Loans or Letters of
      Credit.

     

    (b)  THE
      BORROWER SHALL INDEMNIFY THE EACH AGENT, THE ARRANGER, THE ISSUING BANK 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 OTHER LOAN DOCUMENT OR ANY
      AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, (ii) THE PERFORMANCE
      BY
      THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE
      OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS
      CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (iii) THE FAILURE OF THE
      BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT,
      INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iv) ANY
      INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT
      OF
      THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
      INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH,
      (v)
      ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, INCLUDING,
      

     

    
      
        
        

      

      
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    WITHOUT
      LIMITATION, (A)
      ANY
      REFUSAL BY THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF
      CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY
      COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (B)
      THE
      PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE
      NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE DOCUMENTS
      PRESENTED IN CONNECTION THEREWITH, (vi) ANY OTHER ASPECT OF THE LOAN DOCUMENTS,
      (vii) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES BY
      THE
      BORROWER AND ITS SUBSIDIARIES, (viii) ANY ASSERTION THAT THE LENDERS WERE NOT
      ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS,
      (ix) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR
      ANY
      OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION,
      STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT
      OF
      DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS
      SUBSTANCES ON ANY OF THEIR PROPERTIES, (x) THE BREACH OR NON-COMPLIANCE BY
      THE
      BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER
      OR ANY SUBSIDIARY, (xi) THE PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY
      OF
      ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH,
      THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
      LIABILITY, (xii) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL,
      GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR
      ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS
      SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER
      OR
      ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS
      MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY
      OF
      ITS SUBSIDIARIES, (xiii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO
      THE
      BORROWER OR ANY OF ITS SUBSIDIARIES, (xiv) ANY OTHER ENVIRONMENTAL, HEALTH
      OR
      SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xv) 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, AND SUCH INDEMNITY
      SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
      NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
      WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL
      TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS
      OF
      ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT
      FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; 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.

     

    (c)  To
      the
      extent that the Borrower fails to pay any amount required to be paid by it
      to
      any Agent, the Arranger or the Issuing Bank under Section
      12.03(a)
      or
(b),
      each
      Lender severally agrees to pay to such Agent, the Arranger or the Issuing Bank,
      as the case may be, such Lender’s Applicable Percentage (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 such Agent, the Arranger or the Issuing Bank in its capacity
      as such.

     

    (d)  To
      the
      extent permitted by applicable law, the Borrower shall not assert, and hereby
      waives, 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, any other Loan Document or any agreement or instrument contemplated
      hereby or thereby, the Transactions, any Loan or Letter of Credit or the use
      of
      the proceeds thereof.

     

    (e)  All
      amounts due under this Section
      12.03
      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
      (including any Affiliate of the Issuing Bank that issues any Letter of Credit),
      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
      12.04.
      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 (including any Affiliate of the Issuing Bank that issues any
      Letter of Credit), 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, the Issuing Bank 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 Section
      12.04(b)(ii),
      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 its Commitment
      and 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 if such
      assignment is to a Lender, an Affiliate of a Lender, or, if an Event of Default
      has occurred and is continuing, is to any other assignee; and 

     

    
      
        
        

      

      
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    (B)  the
      Administrative Agent, provided that no consent of the Administrative Agent
      shall
      be required for an assignment to an assignee that is a Lender immediately prior
      to giving effect to such assignment.

     

    (ii)  Assignments
      shall be subject to the following additional conditions: 

     

    (A)  except
      in
      the case of an assignment to a Lender or an Affiliate of a Lender or an
      assignment of the entire remaining amount of the assigning Lender’s Commitment
      or Loans, the amount of the Commitment or 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 $5,000,000 unless each of the Borrower and the Administrative
      Agent otherwise consent, provided that no such consent of the Borrower shall
      be
      required if an Event of Default has occurred and is continuing;

     

    (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; and

     

    (D)  the
      assignee, if it shall not be a Lender, shall deliver to the Administrative
      Agent
      an Administrative Questionnaire.

     

    (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
      12.04
      shall be
      treated for purposes of this Agreement as a sale 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 Maximum Credit Amount of, and principal amount of the
      Loans
      and LC Disbursements 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, the Issuing Bank and the Lenders may treat each Person
      whose 

     

    
      
        
        

      

      
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    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, the Issuing Bank
      and
      any Lender, at any reasonable time and from time to time upon reasonable prior
      notice.
      In
      connection with any changes to the Register, if necessary, the Administrative
      Agent will reflect the revisions on Annex I and forward a copy of such revised
      Annex I to the Borrower, the Issuing Bank and each Lender.

     

    (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, the Administrative Agent or
      the
      Issuing Bank, 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 its Commitment and 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, the Issuing Bank 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
      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 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 

     

    
      
        
        

      

      
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    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
      12.04,
      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 any Loans and
      issuance of any Letters of Credit, regardless of any investigation made by
      any
      such other party or on its behalf and notwithstanding that the Administrative
      Agent, any other Agent, the Issuing Bank 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 or any
      Letter of Credit is outstanding and so long as the Commitments have not expired
      or terminated. 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, the expiration
      or termination of the Letters of Credit and the Commitments or the termination
      of this Agreement, any other Loan Document or any provision hereof or
      thereof.

     

    (b)  To
      the
      extent that any payments on the Indebtedness or proceeds of any collateral
      are
      subsequently invalidated, declared to be fraudulent or preferential, set aside
      or required to be repaid to a trustee, debtor in possession, receiver or other
      Person under any bankruptcy law, common law or equitable cause, then to such
      extent, the Indebtedness so satisfied shall be revived and continue as if such
      payment or proceeds had not been received and the Administrative Agent’s and the
      Lenders’ Liens, security interests, rights, powers and remedies under this
      Agreement and each Loan Document shall continue in full force and effect. In
      such event, each Loan Document shall be automatically reinstated and the
      Borrower shall take such action as may be reasonably requested by the
      Administrative Agent and the Lenders to effect such reinstatement.

     

    
      
        
        

      

      
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    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 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.

     

    
      
        
        

      

      
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    Section
      12.09  GOVERNING
      LAW; JURISDICTION;
      CONSENT TO SERVICE OF PROCESS.

     

    (a)  THIS
      AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
      THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL
      LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE OR TAKE
      INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS
      LOCATED. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
      REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT
      APPLY
      TO THIS AGREEMENT OR THE NOTES.

     

    (b)  ANY
      LEGAL
      ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN
      THE
      COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
      DISTRICT OF TEXAS (HOUSTON DIVISION), AND, BY EXECUTION AND DELIVERY OF THIS
      AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED
      BY
      LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
      OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
      INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED
      ON
      THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO
      THE
      BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
      THIS
      SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM
      OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING
      JURISDICTION.

     

    (c)  EACH
      PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
      AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
      THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS
      SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO
      SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME
      EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT
      THE
      RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
      PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
      ANOTHER PARTY IN ANY OTHER JURISDICTION.

     

    (d)  EACH
      PARTY HEREBY (i)
      IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
      LAW,
      TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
      OR
      ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii)
      IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
      IT
      MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY,
      PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO,
      ACTUAL DAMAGES; 

     

    
      
        
        

      

      
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    (iii)
      CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR
      ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
      PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
      WAIVERS, AND (iv)
      ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN
      DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER
      THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION
      12.09.

     

    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.

     

    Section
      12.11  Confidentiality.
      Each of
      the Administrative Agent, the Issuing Bank 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, the Issuing Bank 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, the Issuing Bank 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.

     

    Section
      12.12  Interest
      Rate
      Limitation.
      It is
      the intention of the parties hereto that each Lender shall conform strictly
      to
      usury laws applicable to it. Accordingly, if the transactions contemplated
      hereby would be usurious as to any Lender under laws applicable to it (including
      the laws of the United States of America and the State of Texas or any other
      jurisdiction whose laws may be mandatorily applicable to such Lender
      notwithstanding the other provisions of this 

     

    
      
        
        

      

      
        89

        
          

        

      

      
        
        

      

    

     

    Agreement),
      then, in that event, notwithstanding anything to the contrary in any of the
      Loan
      Documents or any agreement entered into in connection with or as security for
      the Notes, it is agreed as follows: (i)
      the
      aggregate of all consideration which constitutes interest under law applicable
      to any Lender that is contracted for, taken, reserved, charged or received
      by
      such Lender under any of the Loan Documents or agreements or otherwise in
      connection with the Notes shall under no circumstances exceed the maximum amount
      allowed by such applicable law, and any excess shall be canceled automatically
      and if theretofore paid shall be credited by such Lender on the principal amount
      of the Indebtedness (or, to the extent that the principal amount of the
      Indebtedness shall have been or would thereby be paid in full, refunded by
      such
      Lender to the Borrower); and (ii)
      in the
      event that the maturity of the Notes is accelerated by reason of an election
      of
      the holder thereof resulting from any Event of Default under this Agreement
      or
      otherwise, or in the event of any required or permitted prepayment, then such
      consideration that constitutes interest under law applicable to any Lender
      may
      never include more than the maximum amount allowed by such applicable law,
      and
      excess interest, if any, provided for in this Agreement or otherwise shall
      be
      canceled automatically by such Lender as of the date of such acceleration or
      prepayment and, if theretofore paid, shall be credited by such Lender on the
      principal amount of the Indebtedness (or, to the extent that the principal
      amount of the Indebtedness shall have been or would thereby be paid in full,
      refunded by such Lender to the Borrower). All sums paid or agreed to be paid
      to
      any Lender for the use, forbearance or detention of sums due hereunder shall,
      to
      the extent permitted by law applicable to such Lender, be amortized, prorated,
      allocated and spread throughout the stated term of the Loans evidenced by the
      Notes until payment in full so that the rate or amount of interest on account
      of
      any Loans hereunder does not exceed the maximum amount allowed by such
      applicable law. If at any time and from time to time (i)
      the
      amount of interest payable to any Lender on any date shall be computed at the
      Highest Lawful Rate applicable to such Lender pursuant to this Section
      12.12
      and
(ii)
      in
      respect of any subsequent interest computation period the amount of interest
      otherwise payable to such Lender would be less than the amount of interest
      payable to such Lender computed at the Highest Lawful Rate applicable to such
      Lender, then the amount of interest payable to such Lender in respect of such
      subsequent interest computation period shall continue to be computed at the
      Highest Lawful Rate applicable to such Lender until the total amount of interest
      payable to such Lender shall equal the total amount of interest which would
      have
      been payable to such Lender if the total amount of interest had been computed
      without giving effect to this Section
      12.12.
      To the
      extent that Chapter 303 of the Texas Finance Code is relevant for the purpose
      of
      determining the Highest Lawful Rate applicable to a Lender, such Lender elects
      to determine the applicable rate ceiling under such Chapter by the weekly
      ceiling from time to time in effect. Chapter 346 of the Texas Finance Code
      does
      not apply to the Borrower’s obligations hereunder.

     

    Section
      12.13  EXCULPATION
      PROVISIONS.
      EACH OF
      THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT
      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 

     

    
      
        
        

      

      
        90

        
          

        

      

      
        
        

      

    

     

    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
      12.14  Collateral
      Matters; Swap Agreements.
      The
      benefit of the Security Instruments and of the provisions of this Agreement
      relating to any collateral securing the Indebtedness shall also extend to and
      be
      available to those Lenders or their Affiliates which are counterparties to
      any
      Swap Agreement with the Borrower or any of its Subsidiaries on a pro
      rata
      basis in
      respect of any obligations of the Borrower or any of its Subsidiaries which
      arise under any such Swap Agreement while such Person or its Affiliate is a
      Lender, but only while such Person or its Affiliate is a Lender, including
      any
      Swap Agreements between such Persons in existence prior to the date hereof.
      No
      Lender or any Affiliate of a Lender shall have any voting rights under any
      Loan
      Document as a result of the existence of obligations owed to it under any such
      Swap Agreements.

     

    Section
      12.15  No
      Third Party Beneficiaries.
      This
      Agreement, the other Loan Documents, and the agreement of the Lenders to make
      Loans and the Issuing Bank to issue, amend, renew or extend Letters of Credit
      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, the Issuing Bank or any
      Lender for any reason whatsoever. There are no third party
      beneficiaries.

     

    Section
      12.16  USA
      Patriot Act Notice.
      Each
      Lender hereby notifies the Borrower 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 the Borrower,
      which information includes the name and address of the Borrower and other
      information that will allow such Lender to identify the Borrower in accordance
      with the Act.

     

    [SIGNATURES
      BEGIN NEXT PAGE]

    

      
        
          
          

        

        
          91

          
            

          

        

         

      

      
         

      

    

    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:

    

    

    
      
        Signature
          Page

        Credit
          Agreement

        1

      

      
        
        

        
          

        

      

       

    

    ADMINISTRATIVE
      AGENT:     JPMORGAN
      CHASE BANK, N.A.,

    as
      Administrative Agent

     

     
      By: ______________________________  

         Name:  

                                   
      Title:
       

    

    
      
        Signature
          Page

        Credit
          Agreement

        2

      

      
        
        

        
          

        

      

       

    

    SYNDICATION
      AGENT:    
 TORONTO-DOMINION
      (TEXAS) LLC,

    as
      Syndication Agent

     

    

    By: ______________________________   

          
 
Name:
       

    Title:
       

    

    
      
        Signature
          Page

        Credit
          Agreement

        3

      

      
        
        

        
          

        

      

       

    

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

    Lender

    

    

    By: ______________________________   

    Name: 

    Title: 

     

    
      
        Signature
          Page

        Credit
          Agreement

        4

      

      
        
        

        
          

        

      

       

    

    LENDER:      
 TORONTO-DOMINION
      (TEXAS) LLC, as

    a
      Lender

    

    

    By: ______________________________    

    Name: 

    Title: 

     

    

    

    

    
      
        
          Signature
            Page

          Credit
            Agreement

        

        5

      

      
        
        

        
          

        

      

       

    

    ANNEX
      I

    LIST
      OF MAXIMUM CREDIT AMOUNTS

     

    Aggregate
      Maximum Credit Amounts

     

    
      	
              Name
                of Lender

            	
              Applicable
                Percentage

            	
              Maximum
                Credit Amount

            
	
              JPMorgan
                Chase Bank, N.A.

            	
              50.00%

            	
              $
                50,000,000.00

            
	
              Toronto-Dominion
                (Texas) LLC

            	
              50.00%

            	
              $
                50,000,000.00

            
	
              TOTAL

            	
              100.00%

            	
              $100,000,000.00

            

    

    

      
        
          
            Annex
              I
              -
              1

          

          
          

        

        
          
          

          
            

          

        

         

      

    

     

    EXHIBIT
      A

    FORM
      OF NOTE

     

    $[
      ],000,000.00  [          ],
      2006

     

    FOR
      VALUE
      RECEIVED, McMoRan
      Oil & Gas LLC,
      a
Delaware
      limited
      liability company (the “Borrower”)
      hereby
      promises to pay to the order of [
      ]
      (the
“Lender”),
      at
      the principal office of JPMorgan
      Chase Bank, N.A., as administrative agent
      (the
“Administrative
      Agent”),
      the
      principal sum of [          ]
      Dollars
      ($[          ])
      (or
      such lesser amount as shall equal the aggregate unpaid principal amount of
      the
      Loans made by the Lender to the Borrower under the Credit Agreement, as
      hereinafter defined), in lawful money of the United States of America and in
      immediately available funds, on the dates and in the principal amounts provided
      in the Credit Agreement, and to pay interest on the unpaid principal amount
      of
      each such Loan, at such office, in like money and funds, for the period
      commencing on the date of such Loan until such Loan shall be paid in full,
      at
      the rates per annum and on the dates provided in the Credit
      Agreement.

     

    The
      date,
      amount, Type, interest rate, Interest Period and maturity of each Loan made
      by
      the Lender to the Borrower, and each payment made on account of the principal
      thereof, shall be recorded by the Lender on its books and, prior to any transfer
      of this Note, may be endorsed by the Lender on the schedules attached hereto
      or
      any continuation thereof or on any separate record maintained by the Lender.
      Failure to make any such notation or to attach a schedule shall not affect
      any
      Lender’s or the Borrower’s rights or obligations in respect of such Loans or
      affect the validity of such transfer by any Lender of this Note.

     

    This
      Note
      is one of the Notes referred to in the Credit Agreement dated as of April
      19,
      2006
      among
      the Borrower, the Administrative Agent, and the other agents and lenders
      signatory thereto (including the Lender), and evidences Loans made by the Lender
      thereunder (such Credit Agreement as the same may be amended, supplemented
      or
      restated from time to time, the “Credit
      Agreement”).
      Capitalized terms used in this Note have the respective meanings assigned to
      them in the Credit Agreement.

     

    This
      Note
      is issued pursuant to, and is subject to the terms and conditions set forth
      in,
      the Credit Agreement and is entitled to the benefits provided for in the Credit
      Agreement and the other Loan Documents. The Credit Agreement provides for the
      acceleration of the maturity of this Note upon the occurrence of certain events,
      for prepayments of Loans upon the terms and conditions specified therein and
      other provisions relevant to this Note.

     

    THIS
      NOTE
      SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
      OF
      TEXAS.

     

    
      
        
          Exhibit
            A
            - 1

          
          

        

        
          
            

          

        

         

      

    

    

    MCMORAN
      OIL & GAS LLC

     

    By:
      ____________________________       

    Name:

    Title:

     

    

    
      
        
          Exhibit
            A
            -2

        

        
        

      

      
        
        

        
          

        

      

       

    

    EXHIBIT
      B

    FORM
      OF BORROWING REQUEST

     

    [                   ],
      2006

     

    McMoRan
      Oil & Gas LLC, a Delaware limited liability company (the “Borrower”),
      pursuant to Section 2.03 of the Credit Agreement dated as of April 19, 2006
      (together with all amendments, restatements, supplements or other modifications
      thereto, the “Credit
      Agreement”)
      among
      the Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and the other
      agents and lenders (the “Lenders”)
      which
      are or become parties thereto (unless otherwise defined herein, each capitalized
      term used herein is defined in the Credit Agreement), hereby requests a
      Borrowing as follows:

     

    (i) Aggregate
      amount of the requested Borrowing is
      $[                   ];

     

    (ii) Date
      of
      such Borrowing is
      [                   ],
      200[   ];

     

    (iii) Requested
      Borrowing is to be [an ABR Borrowing] [a Eurodollar Borrowing];

     

    (iv) In
      the
      case of a Eurodollar Borrowing, the initial Interest Period applicable thereto
      is
      [                   ];

     

    (v) Amount
      of
      Borrowing Base in effect on the date hereof is
      $[                   ];

     

    (vi) Total
      Revolving Credit Exposures on the date hereof (i.e., outstanding principal
      amount of Loans and total LC Exposure) is
      $[                   ];
      and

    

    (vii) Pro
      forma
      total
      Revolving Credit Exposures (giving effect to the requested Borrowing) is
      $[                   ];
      and

    

    (viii) 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 of the Credit Agreement,
      is
      as follows:

    

    [    ]

    [    ]

    [    ]

    [    ]

    [    ]

    
      
        Exhibit
          B
          - 1

        
        

      

      
        
          

        

      

       

    

    The
      undersigned certifies that he/she is the
      [                ]
      of the Borrower, and that as such he/she is authorized to execute this
      certificate on behalf of the Borrower. The undersigned further certifies,
      represents and warrants on behalf of the Borrower that the Borrower is entitled
      to receive the requested Borrowing under the terms and conditions of the Credit
      Agreement.

    

    

    MCMORAN
      OIL & GAS LLC

     

    By:
      _________________________       

    Name:

    Title:

    

    
      
        
          Exhibit
            B
            - 2

        

        
        

      

      
        
        

        
          

        

      

       

    

    EXHIBIT
      C

    FORM
      OF INTEREST ELECTION REQUEST

     

    [             
      ] [ ], 2006

     

    McMoRan
      Oil & Gas LLC, a Delaware limited liability company (the “Borrower”),
      pursuant to Section 2.04 of the Credit Agreement dated as of April 19, 2006
      (together with all amendments, restatements, supplements or other modifications
      thereto, the “Credit
      Agreement”)
      among
      the Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and the other
      agents and lenders (the “Lenders”)
      which
      are or become parties thereto (unless otherwise defined herein, each capitalized
      term used herein is defined in the Credit Agreement), hereby makes an Interest
      Election Request as follows:

     

    (i) The
      Borrowing to which this 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 specified pursuant to (iii) and (iv) below shall be specified for
      each resulting Borrowing) is
      [                ];

     

    (ii) The
      effective date of the election made pursuant to this Interest Election Request
      is
      [                ],
      200[   ];[and]

     

    (iii) The
      resulting Borrowing is to be [an ABR Borrowing] [a Eurodollar Borrowing][;
      and]

     

    [(iv) [If
      the
      resulting Borrowing is a Eurodollar Borrowing] The Interest Period applicable
      to
      the resulting Borrowing after giving effect to such election is
      [                ]].

     

    The
      undersigned certifies that he/she is the
      [                ]
      of the Borrower, and that as such he/she is authorized to execute this
      certificate on behalf of the Borrower. The undersigned further certifies,
      represents and warrants on behalf of the Borrower that the Borrower is entitled
      to receive the requested continuation or conversion under the terms and
      conditions of the Credit Agreement.

     

    MCMORAN
      OIL & GAS LLC

     

    By:
      ________________________       

    Name:

    Title:

    

    
      
        
          Exhibit
            C
            - 1

        

        
        

      

      
        
        

        
          

        

      

       

    

    EXHIBIT
      D

    FORM
      OF

    COMPLIANCE
      CERTIFICATE

     

    The
      undersigned hereby certifies that he/she is the [          ]
      of
McMoRan
      Oil & Gas LLC,
      a
Delaware
      limited
      liability company (the “Borrower”),
      and
      that as such he/she is authorized to execute this certificate on behalf of
      the
      Borrower. With reference to the Credit Agreement dated as of April 19,
2006
      (together with all amendments, restatements, supplements or other modifications
      thereto being the “Agreement”)
      among
      the Borrower, JPMorgan
      Chase Bank, N.A.,
      as
      Administrative Agent, and the other agents and lenders (the “Lenders”)
      which
      are or become a party thereto, and such Lenders, the undersigned represents
      and
      warrants as follows (each capitalized term used herein having the same meaning
      given to it in the Agreement unless otherwise specified):

     

    (a) The
      representations and warranties of the Borrower contained in Article VII of
      the
      Agreement and in the Loan Documents and otherwise made in writing by or on
      behalf of the Borrower pursuant to the Agreement and the Loan Documents were
      true and correct when made, and are repeated at and as of the time of delivery
      hereof and are true and correct in all material respects at and as of the time
      of delivery hereof, except to the extent such representations and warranties
      are
      expressly limited to an earlier date or the Majority Lenders have expressly
      consented in writing to the contrary.

     

    (b) The
      Borrower has performed and complied with all agreements and conditions contained
      in the Agreement and in the Loan Documents required to be performed or complied
      with by it prior to or at the time of delivery hereof [or specify default and
      describe].

     

    (c) Since
      December 31, 2005, no change has occurred, either in any case or in the
      aggregate, in the condition, financial or otherwise, of the Borrower or any
      Subsidiary which could reasonably be expected to have a Material Adverse Effect
      [or specify event].

     

    (d) There
      exists no Default or Event of Default [or specify Default and
      describe].

     

    (e) Attached
      hereto are the detailed computations necessary to determine whether the Borrower
      is in compliance with Section
      9.01
      and
Section
      8.14
      as of
      the end of the [fiscal quarter][fiscal year] ending [          ].

     

    EXECUTED
      AND DELIVERED this [          ]
      day of
[          ].

     

    MCMORAN
      OIL & GAS LLC

     

    By: __________________________      

    Name:

    Title:

    
      
        
          Exhibit
            D
            - 1

        

        
        

      

      
        
        

        
          

        

      

       

    

    EXHIBIT
      E

    FORM
      OF LEGAL OPINION OF JONES WALKER

    
      
        
          Exhibit
            E
            - 1

        

        
        

      

      
        
        

        
          

        

      

       

    

    EXHIBIT
      F-1

    SECURITY
      INSTRUMENTS

     

    1) Guaranty
      and Collateral Agreement dated as of April 19, 2006 by the Borrower, and McMoRan
      Exploration Co., K-Mc Venture I LLC, Freeport Canadian International Company
      and
      McMoRan International Inc., as the Guarantors, in favor of the Administrative
      Agent and the Lenders.

     

    2) Financing
      Statements in respect of item 1.

     

    3) Stock
      Powers delivered in respect of item 1.

     

    a) Freeport
      Canadian International Company, a Delaware corporation

     

    b) McMoRan
      International Inc., a Delaware corporation

     

    4) Mortgage,
      Assignment of As-Extracted Collateral, Security Agreement and Fixture Filing
      dated as of April 19, 2006 by the Borrower, as mortgagor, for the benefit of
      the
      Administrative Agent, the Lenders and others (Louisiana).

     

    5) Financing
      Statement in respect of item 4.

     

    6) Mortgage,
      Assignment of As-Extracted Collateral, Security Agreement and Fixture Filing
      dated as of April 19, 2006 by K-Mc Venture I LLC, as mortgagor, for the benefit
      of the Administrative Agent, the Lenders and others (Louisiana).

     

    7) Financing
      Statement in respect of item 6.

     

    8) Mortgage,
      Line of Credit Mortgage, Deed of Trust, Assignment of As-Extracted Collateral,
      Security Agreement and Financing Statement dated as of April 19, 2006 by K-Mc
      Venture I LLC, as mortgagor, for the benefit of the Administrative Agent, the
      Lenders and others (Mississippi).

     

    9) Financing
      Statement in respect of item 8.

     

     

    
      
        
        

      

      
        Exhibit
          F-1 - 1

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      F-2

    FORM
      OF GUARANTY AND COLLATERAL AGREEMENT

    
      
        
          Exhibit
            F-2 - 1

        

        
        

      

      
        
          

        

      

       

    

    EXHIBIT
      G

    FORM
      OF ASSIGNMENT AND ASSUMPTION

     

    This
      Assignment and Assumption (the “Assignment
      and Assumption”)
      is
      dated as of the Effective Date set forth below and is entered into by and
      between [Insert
      name of Assignor]
      (the
“Assignor”)
      and
      [Insert
      name of Assignee]
      (the
“Assignee”).
      Capitalized terms used but not defined herein shall have the meanings given
      to
      them in the Credit Agreement identified below (as amended, the “Credit
      Agreement”),
      receipt of a copy of which is hereby acknowledged by the Assignee. The Standard
      Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed
      to
      and incorporated herein by reference and made a part of this Assignment and
      Assumption as if set forth herein in full.

    

    For
      an
      agreed consideration, the Assignor hereby irrevocably sells and assigns to
      the
      Assignee, and the Assignee hereby irrevocably purchases and assumes from the
      Assignor, subject to and in accordance with the Standard Terms and Conditions
      and the Credit Agreement, as of the Effective Date inserted by the
      Administrative Agent as contemplated below (i) all of the Assignor’s rights and
      obligations in its capacity as a Lender under the Credit Agreement and any
      other
      documents or instruments delivered pursuant thereto to the extent related to
      the
      amount and percentage interest identified below of all of such outstanding
      rights and obligations of the Assignor under the respective facilities
      identified below (including any letters of credit and guarantees included in
      such facilities) and (ii) to the extent permitted to be assigned under
      applicable law, all claims, suits, causes of action and any other right of
      the
      Assignor (in its capacity as a Lender) against any Person, whether known or
      unknown, arising under or in connection with the Credit Agreement, any other
      documents or instruments delivered pursuant thereto or the loan transactions
      governed thereby or in any way based on or related to any of the foregoing,
      including contract claims, tort claims, malpractice claims, statutory claims
      and
      all other claims at law or in equity related to the rights and obligations
      sold
      and assigned pursuant to clause (i) above (the rights and obligations sold
      and
      assigned pursuant to clauses (i) and (ii) above being referred to herein
      collectively as the “Assigned
      Interest”).
      Such
      sale and assignment is without recourse to the Assignor and, except as expressly
      provided in this Assignment and Assumption, without representation or warranty
      by the Assignor.

    

    1. Assignor:  ______________________________

    

    2. Assignee:  ______________________________

                                       
      [and
      is an
      Affiliate of [identify
      Lender]1 
      Select as applicable.]

    

    3. Borrower:  McMoRan
      Oil & Gas LLC

    

    4. Administrative
      Agent: JPMorgan
      Chase Bank, N.A., as the administrative agent under the Credit
      Agreement

    

    5. Credit
      Agreement: The
      Credit Agreement dated as of April 19, 2006 among McMoran Oil & Gas LLC, the
      Lenders parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent,
      and
      the other agents parties thereto.

     

    ______________________

    1 
      Select
      as
      applicable.

    
      
        Exhibit
          G
          - 1

        
        

      

      
        
          

        

      

       

    

     

    6. 
      Assigned
      Interest:

    

    
      	
              Commitment
                Assigned

            	
              Aggregate
                Amount of Commitment/Loans for 

              all
                Lenders

            	
              Amount
                of 

              Commitment/Loans
                

              Assigned

            	
              Percentage
                Assigned of Commitment/Loans2 

            
	 	
              $

            	
              $

            	
              %

            
	 	
              $

            	
              $

            	
              %

            
	 	
              $

            	
              $

            	
              %

            

    

     

    Effective
      Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND
      WHICH
      SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER
      THEREFOR.]

    

    The
      terms
      set forth in this Assignment and Assumption are hereby agreed to:

    

    ASSIGNOR

    

    
      	 	 	 	 	 	 	
              [NAME
                OF ASSIGNOR]

            

    

    

    

    By:______________________________

    Title:

    

    

    ASSIGNEE

    

    [NAME
      OF
      ASSIGNEE]

    

    

    By:______________________________

    Title:

    

    _________________

    2  Set forth, to at least 9 decimals, as a
      percentage of the Commitment/Loans of all Lenders thereunder.

     

    
      
        Exhibit
          G
          - 2

        
        

      

      
        
          

        

      

       

    

    Consented
      to and Accepted:

    

    JPMORGAN
      CHASE BANK, N.A, as 

     
      Administrative Agent

    

    

    By_________________________________

    Name:

    Title:

    

    

    By_________________________________

    Name:

    Title:

    

    

    Consented
      to:

    

    MCMORAN
      OIL & GAS LLC

    

    

    By________________________________

    Name:

    Title:

    
      
        
          Exhibit
            G
            - 3 

        

        
        

      

      
        
        

        
          

        

      

       

    

    ANNEX
      1

    

    

    STANDARD
      TERMS AND CONDITIONS FOR

    ASSIGNMENT
      AND ASSUMPTION

    

    1.
      Representations
      and Warranties.
      

    

    1.1
      Assignor.
      The
      Assignor (a) represents and warrants that (i) it is the legal and beneficial
      owner of the Assigned Interest, (ii) the Assigned Interest is free and clear
      of
      any lien, encumbrance or other adverse claim and (iii) it has full power and
      authority, and has taken all action necessary, to execute and deliver this
      Assignment and Assumption and to consummate the transactions contemplated
      hereby; and (b) assumes no responsibility with respect to (i) any statements,
      warranties or representations made in or in connection with the Credit Agreement
      or any other Loan Document, (ii) the execution, legality, validity,
      enforceability, genuineness, sufficiency or value of the Loan Documents or
      any
      collateral thereunder, (iii) the financial condition of the Borrower, any of
      its
      Subsidiaries or Affiliates or any other Person obligated in respect of any
      Loan
      Document or (iv) the performance or observance by the Borrower, any of its
      Subsidiaries or Affiliates or any other Person of any of their respective
      obligations under any Loan Document.

    

    1.2.
      Assignee.
      The
      Assignee (a) represents and warrants that (i) it has full power and authority,
      and has taken all action necessary, to execute and deliver this Assignment
      and
      Assumption and to consummate the transactions contemplated hereby and to become
      a Lender under the Credit Agreement, (ii) it satisfies the requirements, if
      any,
      specified in the Credit Agreement that are required to be satisfied by it in
      order to acquire the Assigned Interest and become a Lender, (iii) from and
      after
      the Effective Date, it shall be bound by the provisions of the Credit Agreement
      as a Lender thereunder and, to the extent of the Assigned Interest, shall have
      the obligations of a Lender thereunder, (iv) it has received a copy of the
      Credit Agreement, together with copies of the most recent financial statements
      delivered pursuant to Section
      8.01
      thereof,
      as applicable, and such other documents and information as it has deemed
      appropriate to make its own credit analysis and decision to enter into this
      Assignment and Assumption and to purchase the Assigned Interest on the basis
      of
      which it has made such analysis and decision independently and without reliance
      on the Administrative Agent or any other Lender, and (v) if it is a Foreign
      Lender, attached to the Assignment and Assumption is any documentation required
      to be delivered by it pursuant to the terms of the Credit Agreement, duly
      completed and executed by the Assignee; and (b) agrees that (i) it will,
      independently and without reliance on the Administrative Agent, the Assignor
      or
      any other Lender, and based on such documents and information as it shall deem
      appropriate at the time, continue to make its own credit decisions in taking
      or
      not taking action under the Loan Documents, and (ii) it will perform in
      accordance with their terms all of the obligations which by the terms of the
      Loan Documents are required to be performed by it as a Lender.

    

    2.
      Payments.
      From
      and after the Effective Date, the Administrative Agent shall make all payments
      in respect of the Assigned Interest (including payments of principal, interest,
      fees and other amounts) to the Assignor for amounts which have accrued to but
      excluding the Effective Date and to the Assignee for amounts which have accrued
      from and after the Effective Date.

    

    3.
      General
      Provisions.
      This
      Assignment and Assumption shall be binding upon, and inure to the benefit of,
      the parties hereto and their respective successors and assigns. This Assignment
      and Assumption may be executed in any number of counterparts, which together
      shall constitute one instrument. Delivery
      of an executed counterpart of a signature page of this Assignment
      and
      Assumption
      by
      telecopy shall be effective as delivery of a manually executed counterpart
      of
      this Assignment
      and

     

    
      
        
        

      

      
        Exhibit
          G
          - 4

        
          

        

      

      
        
        

      

    

    Assumption.
      This
      Assignment and Assumption shall be governed by, and construed in accordance
      with, the law of the State of Texas.

    
      
        
          Exhibit
            G
            - 5

        

        
        

      

      
        
          

        

      

       

    

    EXHIBIT
      H-1

    FORM
      OF MAXIMUM CREDIT AMOUNT INCREASE CERTIFICATE

    

    

    

    [          ],
      200[    ]

    

    

    To: JPMorgan
      Chase Bank, N.A.

          
as
      Administrative Agent

    

    The
      Borrower, the Administrative Agent and the other Agents and certain Lenders
      have
      heretofore entered into the Credit Agreement, dated as of April 19, 2006, as
      amended, restated, supplemented or otherwise modified from time to time (the
      “Credit
      Agreement”).
      Capitalized terms not otherwise defined herein shall have the meaning given
      to
      such terms in the Credit Agreement.

    

    This
      Maximum Credit Amount Increase Certificate is being delivered pursuant to
      Section 2.06(c) of the Credit Agreement.

    

    Please
      be
      advised that the undersigned has agreed to (a) increase its Maximum Credit
      Amount under the Credit Agreement effective [          ],
      200[    ]
      from
      $[          ]
      to
      $[          ]
      and (b)
      that it shall continue to be a party in all respect to the Credit Agreement
      and
      the other Loan Documents.

    

    The
      [Borrower/Lender] shall pay the fee payable to the Administrative Agent pursuant
      to Section 2.06(c)(ii) of the Credit Agreement.

    

    Very
      truly yours,

    

    MCMORAN
      OIL & GAS LLC

    

    

    

    By:
      ___________________________      

    Name: 
      ________________________

    Title:
      __________________________  

    

    

      
        
          
            Exhibit
              H-1 - 1

          

          
          

        

        
          
            

          

        

         

      

Accepted
      and Agreed:

    

    JPMORGAN
      CHASE BANK, N.A.

     
as
      Administrative Agent

    

    

    

    By: ________________________     

    Name:
      ______________________ 

    Title:
      _______________________  

    

    

    

    Accepted
      and Agreed:

    

    [    ]

    

    

    

    By:
      ______________________      

    Name:
      ____________________  

    Title:
      _____________________  

     

    
      
        
          Exhibit
            H-1 - 2

        

        
        

      

      
        
          

        

      

       

    

    EXHIBIT
      H-2

    FORM
      OF ADDITIONAL LENDER CERTIFICATE

    

    

    

    [          ],
      200[    ]

    

    

    To: JPMorgan
      Chase Bank, N.A.

          
as
      Administrative Agent

    

    The
      Borrower, the Administrative Agent and the other Agents and certain Lenders
      have
      heretofore entered into the Credit Agreement, dated as of April
      19,
      2006, as amended, restated, supplemented or otherwise modified from time to
      time
      (the “Credit
      Agreement”).
      Capitalized terms not otherwise defined herein shall have the meaning given
      to
      such terms in the Credit Agreement.

    

    This
      Additional Lender Certificate is being delivered pursuant to Section 2.06 of
      the
      Credit Agreement.

    

    Please
      be
      advised that the undersigned has agreed (a) to become a Lender under the Credit
      Agreement effective [          ],
      200[    ]
      with a
      Maximum Credit Amount of $[          ]
      and (b)
      that it shall be a party in all respect to the Credit Agreement and the other
      Loan Documents.

    

    This
      Additional Lender Certificate is being delivered to the Administrative Agent
      together with (i) if the Additional Lender is a Foreign Lender, any
      documentation required to be delivered by such Additional Lender pursuant to
      Section
      5.03(e)
      of the
      Credit Agreement, duly completed and executed by the Additional Lender, and
      (ii)
      an Administrative Questionnaire in the form supplied by the Administrative
      Agent, duly completed by the Additional Lender. The [Borrower/Additional Lender]
      shall pay the fee payable to the Administrative Agent pursuant to Section
      2.06(c)(ii) of the Credit Agreement.

    

    Very
      truly yours,

    

    MCMORAN
      OIL & GAS LLC

    

    

    

    By:
      _________________________     

    Name: _______________________ 

    Title: ________________________  

    

    

      
        
          
            Exhibit
              H-2 - 1

          

          
          

        

        
          
            

          

        

         

      

Accepted
      and Agreed:

    

    JPMORGAN
      CHASE BANK, N.A.

     
as
      Administrative Agent

    

    

    

    By:
      _________________________      

    Name:
      _______________________ 

    Title: ________________________  

    

    

    

    Accepted
      and Agreed:

    

    [     ]

    

    

    

    By: ________________________  

    Name: ______________________ 

    Title: _______________________  

    

    
      
        
          Exhibit
            H-2 - 2

        

        
        

      

      
        
          

        

      

       

    

    SCHEDULE
      1.02

    APPROVED
      COUNTERPARTIES

    

    

    None.

    

    
      
        
          Schedule
            1.02 - 1

        

        
        

      

      
        
          

        

      

       

    

    SCHEDULE
      7.05

    LITIGATION

    

    

    All
      litigation matters disclosed in the annual report of McMoRan Exploration Co.
      (“MMR”) filed with the SEC on March 15, 2006 on Form 10-K for the fiscal year
      ended December 31, 2005.

    

      
        
          
            Schedule
              7.05 - 1 

          

          
          

        

        
          
            

          

        

         

      

    

     

    SCHEDULE
      7.10(d)

    ERISA
      PLAN

    

    

    McMoRan
      Oil & Gas LLC is a participating employer in the MMR Employee Retirement
      Plan.  This plan is a cash balance plan and it terminated in October
      2000.

     

    
      
        
          Schedule
            7.10(d)
            -
            1

        

        
        

      

      
        
          

        

      

       

    

    SCHEDULE
      7.10(f)

    UNDER-FUNDED
      ERISA PLAN

    

    

    As
      of
      December 31, 2005, the actuarial present value of the benefit liabilities of
      the
      MMR Employee Retirement Plan exceed the current value of the assets (computed
      on
      a plan termination basis in accordance with title IV of ERISA) by $ 1,953,317.
      The "actuarial present value of the benefit liabilities" was determined pursuant
      to section 4041 of ERISA.

     

    

      
        
          
            Schedule
              7.10(f)
              -
              1

          

          
          

        

        
          
            

          

        

         

      

    

     

    SCHEDULE
      7.12

    INSURANCE

    

    

    Insurance
      Policies of McMoRan Exploration Co.

    

    
      	
              Policy

            	
              Coverage

            	
              Policy
                Term

            	
              Limits

            	
              Deductible

            
	
              Workers’
                Compensation (WC)/ Employers’ Liability (EL)

            	
              WC
                provides statutory benefits pursuant to the applicable state law.
                EL
                provides legal liability coverage in certain employee incidents that
                fall
                outside workers’ compensation statutes.

            	
              6/30/05-06

            	
              WC
                - Statutory EL $1MM per occurrence

            	
              $250,000
                per loss

            
	 	 	 	 	 
	
              General
                Liability

            	
              Primary
                legal liability coverage including premises/operations, contractual,
                products liability and other coverages

            	
              6/30/05-06

            	
              $2MM
                per occurrence

            	
              $250,000
                per occurrence

            
	 	 	 	 	 
	
              Auto
                Liability

            	
              Legal
                liability coverage for owned, hired, and non-owned units

            	
              6/30/05-06

            	
              $2MM
                per occurrence

            	
              $250,000
                per occurrence

            
	 	 	 	 	 
	
              Excess
                Liability Program

            	
              This
                program provides additional amounts of coverage applying in excess
                of
                certain primary underlying policies such as auto and general
                liability

            	
              6/30/05-06

            	
              $250MM
                in total excess limits; comprised of various policy
                layers.

            	
              Applies
                in excess of underlying policies   

            

    

     

    
      	
              Offshore
                Property

            	
              Coverage
                for physical loss or damage to offshore platforms and pipelines including
                business interruption; Builders’ risk coverage when required at premium
                TBD

            	
              6/30/05-06

            	
              Physical
                damage and business interruption values as scheduled for each property
                subject to a combined single limit for all coverages of $75MM per
                occurrence.

            	
              PD
                - $1MM (100% interest); BI - 60 day waiting period except $1MM (at
                MMR’s
                interest) combined single deductible for PD and OEE and 90 day BI
                waiting
                period for claims resulting from Named
                Windstorms.

            

    

     

    
      
        
        

      

      
        SCHEDULE
          7.12 - 1

        
          

        

      

      
        
        

      

    

     

    
      
        	
                Policy

              	
                Coverage

              	
                Policy
                  Term

              	
                Limits

              	
                Deductible

              
	
                Operator’s
                  Extra Expense

              	
                Coverage
                  for well control expenses, re-drill, and pollution liability associated
                  with a well blowout

              	
                6/30/05-06

              	
                $75MM
                  (100% interest for all wells except $25MM for injection; brine,
                  and
                  pressure control wells at Main Pass 299 and $10MM for sulphur P&A’d
                  wells subject to a combined single limit for all coverages of $75MM
                  per
                  occurrence

              	
                For
                  drilling wells, the deductible ranges from $500K to $2MM depending
                  on the
                  total well depth. $500K deductible for other than drilling. All
                  deductibles are 100% interest except $1MM (at MMR’s interest) combined
                  single deductible for PD and OEE and 90 day BI waiting period for
                  claims
                  resulting from Named Windstorms.

              
	 	 	 	 	 
	
                Excess
                  Energy

              	
                Provides
                  coverage excess the offshore property and operator’s extra expense
                  coverages shown above

              	
                7/27/05-06

              	
                $50MM
                  (100% interest) excess of underlying coverages

              	
                Applies
                  in excess of underlying policy

              
	 	 	 	 	 
	
                OSFR

              	
                Provides
                  financial responsibility to the Minerals Management Service (Dept.
                  of the
                  Interior) via the insurance methods, pursuant to the Oil Spill
                  Financial
                  Responsibility regulations

              	
                6/30/05-06

              	
                $70MM
                  (all others) $105MM (MP Oil)

              	
                $100,000

              
	 	 	 	 	 
	
                Hull,
                  Protection & Indemnity (P&I)

              	
                Provides
                  coverage for physical loss or damage to vessels as well as liability
                  coverage (P&I)

              	
                6/30/05-06

              	
                Hull
                  - per values declared; P&I limit is $1MM per
                  occurrence

              	
                Hull
                  (PD) - $100,000 Tank Barge LLC barges;10,000 other; P&I -
                  $50,000

              
	 	 	 	 	 
	
                Marine
                  Cargo

              	
                Coverage
                  for physical loss or damage to goods in transit 

              	
                6/30/05-06

              	
                $5MM
                  any one conveyance or location

              	
                $25,000
                  per loss 

              
	 	 	 	 	 
	
                Marine
                  Liabilities

              	
                Charterers’
                  liability coverage and Terminal Operators liability 

              	
                6/30/05-06

              	
                $1MM
                  per occurrence

              	
                $50,000
                  per loss 

              

      

      
        
          
            Schedule
              7.12 - 2

          

          
          

        

        
          
            

          

        

         

      

    

     

    SCHEDULE
      7.14

    SUBSIDIARIES

    

    

    
      	
               

              Subsidiaries

            	
              Jurisdiction
                of Organization

            	
              Organizational
                Identification Number

            	
              Principal
                Place of Business

              and
                Chief Executive Office

            
	
              Freeport
                Canadian Exploration Company

            	
              Delaware

            	
              0623119

            	
              Registered
                Office:

               

              The
                Corporation Trust Company

              Corporation
                Trust Center

              1209
                Orange Street

              Wilmington,
                Delaware 19801

               

              Principal
                Place of Business:

               

              1615
                Poydras Street

              New
                Orleans, Louisiana 70112

            
	
              McMoRan
                International Inc.

            	
              Delaware

            	
              2152546

            	
              Registered
                Office:

               

              The
                Corporation Trust Company

              Corporation
                Trust Center

              1209
                Orange Street

              Wilmington,
                Delaware 19801

               

              Principal
                Place of Business:

               

              1615
                Poydras Street

              New
                Orleans, Louisiana 70112

            
	
              K-Mc
                Venture I LLC

            	
              Delaware

            	
              3580330

            	
              Registered
                Office:

               

              The
                Corporation Trust Company

              Corporation
                Trust Center

              1209
                Orange Street

              Wilmington,
                Delaware 19801

               

              Principal
                Place of Business:

               

              1615
                Poydras Street

              New
                Orleans, Louisiana 70112

            

    

    

      
        
          
            Schedule
              7.14 - 1

          

          
          

        

        
          
            

          

        

         

      

    

     

    SCHEDULE
      7.18

    GAS
      IMBALANCES

    

    

    None.

    

    

      
        
          
            Schedule
              7.18 - 1

          

          
          

        

        
          
            

          

        

         

      

    

     

    SCHEDULE
      7.19

    MARKETING
      CONTRACTS

    

    

    None.

    
 

    
      
        
        

      

      
        Schedule
          7.19 - 1

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      7.20

    SWAP
      AGREEMENTS

    

    

    None.

     

    

      
        
          
            Schedule
              7.20 - 1

          

          
          

        

        
          
            

          

        

         

      

    

     

    SCHEDULE
      8.14

    MORTGAGED
      PROPERTIES WITH PENDING ASSIGNMENTS

     

    

    
      	
               

              LEASE

            	
               

              PENDING
                ASSIGMENT(S)

            
	
               

              Eugene
                Island Block 193 OCS 0572

               

            	
               

              Assignment
                of Operating Rights from Chevron U.S.A. Inc. to McMoRan Oil & Gas LLC
                effective July 13, 2004 (43.75% of EI 193 insofar and only insofar
                as to
                the W/2 below 100’ below the base of the Lower Basal Pliocene (Lower Basal
                Pliocene) being defined as the stratigraphic equivalent of the sand
                whose
                base is seen at a measured depth of 16,952’ on the 1” High Resolution
                Induction Log, McMoRan/ADTI C-1 (#3) in Eugene Island Block 193,
                OCS 0572
                down to ninety-nine thousand nine hundred ninety nine feet (99,999’) TVD
                subsea.

               

            
	
               

              West
                Cameron Block 43 OCS-G 16107

               

            	
               

              Assignment(s)
                covering the rights earned pursuant to the Letter Agreement dated
                August
                2, 2005 between Helis Oil & Gas Company, L.L.C., et al and McMoRan Oil
                & Gas LLC regarding the Well No. 4 (Farmout Proposal)

               

              Assignment
                of Operating Rights effective February 1, 2005 between Houston Energy,
                L.P., Helis Oil & Gas Company, L.L.C., Red Willow Offshore, LLC,
                PALACE EXPLORATION COMPANY and McMoRan Oil & Gas LLC (73.125%)
                distributed as follows: Helis (11.25%), RWO (15%), MOXY (23.4375%),
                and
                PALACE (23.4375%) 

              (The
                original of this assignment was lost and needs to be re-executed
                if not
                located.

              Houston
                Energy L.P. has been requested to make a separate assignment to McMoRan
                Oil & Gas LLC of its 23.4375% interest for recording in Cameron
                Parish, Louisiana.)

            

    

     

    
      
        
        

      

      
        Schedule
          8.14 - 1

        
          

        

      

      
        
        

      

    

    
      	
               

              Ship
                Shoal Block 296 OCS-G 15303

               

            	
               

              Assignment
                of Operating Rights from Halliburton Energy Services, Inc. to McMoRan
                Oil
                & Gas LLC effective February 1, 2005 in Operating Rights Tract No.
                2.
                

               

            
	
               

              Vermillion
                Block 196 OCS-G 19760

               

            	
               

              Assignment
                of Operating Rights effective June 1, 2005 from Halliburton Energy
                Services, Inc. to McMoRan Oil & Gas LLC (35.625% from the surface down
                to and including one hundred feet below the stratigraphic equivalent
                of
                the base of the TX-4 Sand seen at 14,360’ measured depth (-14,276’ subsea)
                on the 5” HRI/Density/Neutron/Sonic-Delta-T Log in the McMoRan Oil &
                Gas LLC OCS-G 19760 Well No. 2).

               

            

    

     

    
      
        
          Schedule
            8.14 - 2

        

        
        

      

      
        
          

        

      

       

    

    SCHEDULE
      9.05

    INVESTMENTS

    

    

    None.

     

    
      
        
        

      

      
        
          Schedule
            9.05 - 1

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